Good old days with Xero (My worst mistake), Returning to QuickBooks

Filed in Intuit QuickBooks, QuickBooks Online, Xero by on January 3, 2018

After years as a QuickBooks insider, with many emails to and from two Intuit CEOs (see best QuickBooks CPA), I became unhappy with the few QuickBooks updates (after QuickBooks last beat Microsoft).

I was soon #3 in U.S. Xero clients and spoke at two Xero Roadshows. Its CEO wrote about wanting a free exchange of ideas (it later turned out to be untrue) and often linked to my QuickBooks-Blog. He even posted this Tweet:

Stoked to finally meet our angriest fan @MikeBlockCPA who often SENDS ME EMAILS IN CAPS. Hi Mike.
— Rod Drury (@roddrury) September 4, 2013 

Funny, I use CAPS much less now than when trying to help Rod. This may be because QuickBooks Online soon copied most of what was good in Xero and passed it in many areas. About 5 years ago, Intuit (QuickBooks) CEO Brad Smith told me he once put 75% – 80% of Intuit development money into Desktop products, but was now putting 75% – 80% of into online products.

As a result, QuickBooks Online has since gotten much better and subscriber very quickly (more than 55% a year for the last two years), to 2.6 million. That led to $2.6 billion in annual small business sales, with a combined $1.4 billion profit.

During about the same time, except for a few months in fiscal year difference, Xero grew to little more than a million subscribers, with $213 million in sales (NZ $295 million) and a deficit of $50 million (NZ $69 million). Most important, I never heard a CPA or investment analyst mention these critically important Intuit (QuickBooks Online) vs Xero differences:

  • Intuit now gets around $631,341 in annual sales per employee vs. around $126,959 for Xero (NZ $175,622) (a disaster for Xero)..
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  • Xero raised $378 million in capital (stockholder equity, NZ $522 million) and lost all but $162 million of it (NZ $298 million). This is before $91 million of net intangible costs (NZ $126 million), up from $70 million last year (NZ $98 million). These are mainly software development costs. Without this, net Xero stockholder equity is only $71 million (NZ $98 million).
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  • If Xero keeps losing $48 million a year (NZ $68 million) it must raise more capital in 17 months or face bankruptcy (except for intangibles, which may then be worth very little). Xero only raised $14 million of capital last year (NZ $19 million). This made its auditor say, “In preparing the consolidated financial statements, the directors are responsible for assessing on behalf of the entity the group’s ability to continue as a going concern…” (meaning, not go bankrupt).

Xero’s early fast growth got Intuit to rush new QuickBooks features, so I do not want it to fail. However, I am glad QuickBooks Online vs. Xero no longer affects my clients or my investments. What about you? Please comment below, if you agree or disagree.

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