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Ben Kepes just posted his thoughts on the XERO end of year results on his Diversity blog. Go have a read as it’s an interesting business venture that many are following with interest:

http://diversity.net.nz/xero-year-end-results/2008/05/14/

Here’s my comment on the blog post.

What it amounts to I believe is that XERO is like no other business in the sense that, remarkable product or otherwise, to build a sustainable SaaS business just takes time and hard work (and watching the balance sheet).

SaaS businesses in the early years always looks ‘on the surface’ like they’re finding sales hard as the revenue always appears less than people expect. This is because the very nature of SaaS is many, small payments, monthly. It takes time to build the revenue, and for quite a while it seems like not a lot is happening – but then the revenue picks up. And SaaS revenue is like gold!

When you have thousands of committed customers paying monthly, it takes a major event to dent the revenue stream. SaaS becomes a solid revenue model, compared to traditional software service companies that may have only a few high paying customers. ie: When they lose a customer – there goes 250k and some jobs.

I do wish XERO all the best, and New Zealand’s tech community is watching with great interest, but what we all want to see is XERO get to the positive cash flow – covering overheads, before the cash in bank runs out. A XERO success is good for everyone…

So yes, looks like they need to ramp up fast, and they’ll know that and be working towards it… But my comment for the day (We’re in SaaS too) is don’t judge a SaaS businesses potential by it’s first years results. it’s the nature of this type of revenue stream to be low initially, then (if they have a winner product/model) it grow exponentially.

What we don’t want to see is linear growth. These business models should grow exponentially.

As a side note. It takes some balls to run a company with public financials. I wonder what comments we’d all make if we could publicly scrutinize each others business accounts?

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About the author:
Julian Stone, CEO – Project Management Software visionary for: ProActiveSoftware.com, ProWorkflow.com & Julian101.com
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About The Author:
Julian Stone begin_of_the_skype_highlighting     end_of_the_skype_highlighting is the CEO of ProActive Software, developers and creators of the leading web based project management software http://www.proworkflow.com.