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The hockey stick

Today we announced 6000 customers.  Doubling our customer base in the last 3 months.

Xero operating update – 31 March 2009 (pdf)

Many have asked us to share our customer growth chart, which we’re happy to do because we believe as an industry we’re still coming to terms with how to build and fund a SaaS business.

xerohockeystick

I think the key learning to date is that no one thing will accelerate the curve. It’s a bunch of factors which include

  • People have heard about your solution from enough people they will now trust you.  Especially so in the accounting space as it is a referral sell and very sticky.
  • The feature set steadily becomes more compelling, as you rapidly build out the product.
  • The ecosystem starts to kick in, initially as a validator but eventually your natural channel will begin to work.
  • Your true scale model starts function.  Over half our customers in March came through accountants, an obvious early scale channel for our particular business

I personally believe that SaaS is about having the capital to give you the time to do things properly ahead of the curve.  SaaS business are complete businesses and require you to form a multi-disciplined team that can execute on all facets of the business.  Software development, platform development, testing, customer care, marketing, business development, sales, finance and operations.

 

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37 comments

Ivan
31 March 2009 #

Congratulations on your impressive achievement!!!

James Riddell
31 March 2009 #

Great news. Thanks for the transparency – from a very happy customer and shareholder.

John-Daniel Trask
31 March 2009 #

Great work guys – congratulations :-)

[...] Drury, Xero’s CEO pinged me on this post that shows how the company has hockey sticked on take up this last year. The illustration says it all. What is staggering is the number of [...]

[...] have just announced their customer numbers as of 31 March 2009. They now have 6000 paying customers. They had 4000 [...]

Jim Donovan
31 March 2009 #

Given the big lift March seemed to bring last year and this, this is probably due to customers (especially CA clients) joining for the start of a new financial year, which means you have a key promotional window some time before to make sure that happens. But of course you know that.

(Window is different in some other countries).

Paul Lattimore
31 March 2009 #

Any doubters left? Didn’t think so. Well done to all involved.

Duane Jackson
31 March 2009 #

Great stuff guys – you continue to worry me!

Miki Szikszai
31 March 2009 #

Great stuff – a real tiger by the tail!

I like your SaaS belief on capital – which is the same as any infrastructure play. There are a lot of people out there claiming ‘SaaS’ status who really don’t get the fact that you can’t bootstrap your way into this stuff.

[...] [Update: Xero have blown out my 4,000 figure announcing over 6,000 paying customers at 31 March 2009] [...]

[...] any startup would kill for a sales graph like this during the recession. Oh look, here’s a SaaS (Software-As-A-Service) providers sales revenues with major growth in the current [...]

ClearBooks
3 April 2009 #

It will be interesting to see if the trend is replicated from 2008 with a significant drop off after March and then new monthly records being set in Jan 2010; or whether things continue to motor :-)

Mark
6 April 2009 #

Looks great. How sticky are your customers i.e how many customers subscribe initially but then fall off after a few months?

Rod Drury
7 April 2009 #

Hi Mark. All our customer numbers are net of churn.

We’ll provide some more analysis in our full year report during May but our churn rate seems very low so far.

I think this is because:

1. Accounting is a sticky application
2. We take a conservative approach to counting customers and we have a no obligation trial so once customers are in they seem to stay
3. We haven’t seen as much business failure amongst our customer as the media would have you expect. That may mean that people interested in Xero are more likely to be interested in managing their numbers so are less likely to fail.

Churn rates would be a useful thing for us to benchmark with other SaaS providers so freely share that information once we have done some more analysis.

Small Business SaaS churn rates do seem to be well below consumer SaaS churn rates.

Thanks for the great question,

Rod

[...] weeks after publishing the hockey stick that shows online accounting software Xero hitting the 6000 customer mark to close out the [...]

Andrew Schofield
8 April 2009 #

Well done guys – a very impressive result!

Mark
8 April 2009 #

Rod
A couple of questions if I may:
1. How are your competitors responding to your success? Are they launching competing SaaS products?
2. If I recall correctly, the Prospectus indicated breakeven at 8000 customers paying $79pm. How does your lower pricing model impact on this?

Many thx

Ben Kepes
9 April 2009 #

@Mark – your question was directed at Rod (who I’m sure will answer) but I thought I’d give you my (independent) take on this.

I spend an inordinate amount of time talking about SaaS accounting (see cloudave.com/tag/accy for lots of reviews and analysis) – the fact is there are literally dozens of SaaS accounting products out there. Many existed before Xero came on track and many more have launched since Xero’s release – Rod would be the last person to suggest that Xero “invented” SaaS accounting – and to be honest this isn’t a zero-sum game – there’s room out there for many players.

To specifically answer your question – the traditional accouting software players are vaguely trying to go SaaS but a number of technical and business issues mean that they’re unlikely to do so successfully. A number of new businesses are also doing SaaS accounting to greater or lesser success. Bottom line is that if the Xero feature set and pricing fits within your use case – it’s the pick of the bunch – as always it’s important to assess your requirements to ensure that any solution will fulfil your requirements.

And now over to Rod for question two :-) (although I’d have to say that yes, a lower average revenue per user does mean that the number of users needed to break even is higher – that said lower ARPU should result in higher customer levels anyway)

Ben Kepes
9 April 2009 #

Oooops – that link should have been cloudave.com/tag/accy2 – sorry

Rod Drury
9 April 2009 #

@Mark – there are lots of little guys. Hence the race to funding to be able to not just do dev, but build a complete business. I think the space will fragment out in 2010 as everyone gets their engines complete and really start to innovate. Noticeable in the industry is lack of credible response from the 3 largest desktop incumbents. We bet on this to some degree and so far seem to have picked that correctly. We’ll see acquisitions by the big guys next year (not of us – we’re having too much fun and have sufficient resources to go on our own) but we haven’t seen anyone developed enough yet to think who might pair up.

On ARPU – we’ll cover that in detail at annual report time (in a month or so) when we can take the time to discuss that properly. But yes we would need more customers at our current ARPU level, but our growth rates and resources give us some more flexibility there to take a mid term view.

What is worth noticing is that this sector has high monetization rates compared to consumer offerings, and has a myriad of ways to generate revenue, while still being great value to customers. So we are very comfortable with our approach to build the foundations, then customers (with good monetization) then build revenue.

Mark
31 May 2009 #

Hi guys. Any chance of seeing an updated hockey stick?

Rod Drury
1 June 2009 #

Mark, we’ll update it periodically. As we’ve just put out our annual numbers and updated our count a couple of weeks ago it won’t be for a while. Growth remains strong.

We’re building a long term business with lots of big things to do this year so it’s better to have regular periodic updates.

Rod

nathan
3 June 2009 #

i think xero may do very well in the coming years…

they have the potential to kill off quite a few small accounting houses around town which i see no reason for them to exist…[only to over charge customer]

hey rod ,i think borrowing some of peter jones business builder’s approach may help.

This kind of system is relatively simply to create and manage as well as a promotional tool for helping people to get into business…or hook up with xero.

https://www.peterjones.tv/bb/

everything peter does is almost win-win.
I wonder why NZer’s don’t seems to like TV appearances…largely due to the culture

I’m planning to start similar site in asia, there may be where it could take off.

Plenty of small online businesses there…

Audit Software
2 July 2009 #

Very impressive.

[...] UX and abundance of conveniences, Xero might just get away with their premium pricing. Well, they haven’t gone backwards, that’s for sure. QB & MYOB will rob you of at least $250 / year for a version “that [...]

[...] It’s that a consulting model is very difficult to get exponential growth. You know that hockey stick growth curve, well it’s actually an S-curve but early it looks like a hockey stick, that is [...]

[...] It’s that a consulting model is very difficult to get exponential growth. You know that hockey stick growth curve, well it’s actually an S-curve but early it looks like a hockey stick, that is [...]

[...] model. It’s that a consulting model is very difficult to get exponential growth. You know that hockey stick growth curve, well it’s actually an S-curve but early it looks like a hockey stick, that is so [...]

Paula
10 June 2010 #

Wow looks impressive

kiwiana t shirts
16 October 2010 #

This is simply testament to what great solutions you supply to small businesses everywhere. I have heard lots of positive reviews regarding your accounting software and will be giving it a go in the near future.

H Tiether
18 October 2010 #

Is this still occuring? or has growth plataued or even dropped away?

Rod Drury
18 October 2010 #

@H Tiether that’s a surprising comment. I think the entire online industry is growing strongly. Online accounting is definitely strong as the incumbents enter the space further validating the wave to online. Monitoring twitter or blog comments you’ll see that the awareness of online software is growing. You can also see in our growing partner directory how the accountants themselves are committing more online. The market is still in the early stages so expect strong growth for many years yet.

H Tiether
18 October 2010 #

Sorry, I was refering to the growth of the growth as shown by the hockey stick. It is clearly obvious that the online account market has been and will continue to grow, but Is that rate still climbing in an exponential manner is a slightly different question…

Rod Drury
18 October 2010 #

Our half year results will be out in November

Andrew Gordon
11 March 2011 #

So maybe I’ve got it wrong, but numbers added for the last quarter were less than the same for the previous quarters?

Is that it? have you finally picked all the low hanging fruit?

Rod Drury
12 March 2011 #

That’s not correct.

We provided a positive update to the market last week announcing we have in excess of 30,000 paying customers of our business product. We will provide full numbers in May.

We’re making great progress in NZ, Australia and the UK in our short time but still at a modest market share and haven’t even scratched the surface of the small business demand globally.

Small Business Accounts
14 September 2011 #

That’s quite a growth curve

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