Sustainability or growth?

The sustainability/growth argument is particularly true in the software market. The ‘software as service’ business model where you rent your product on a monthly basis, most probably by downloading applications to your desktop from a remote server, is now a reality. For example, the phenomenal success of Salesforce.com in the sales force automation market, shows there is a real market for renting rather than buying software. This business model also allows people to get up and running very quickly and without the long term commitment when you buy a software product outright.
Here you could argue that we have an example of high growth and sustainability, although the excitement of this has to be tempered by the fact that Salesforce.com raised some $200 million in equity to increase sales. And rather ironically, Salesforce.com has had problems with high churn rates. So, like Charles Dunstone’s offering, I believe the Jury is still out!

Software riddles
Now to one of my software companies, Mediasurface. It provides web content management software for big companies – its average order size is over £100,000 and it often receives orders of £500,000. Now we have got critical mass it’s properly profitable, but here’s the rub – it’s still 50 per cent dependent on new licence sales. If there are no new sales to new customers, the company’s value plummets. It’s reached a degree of sustainability by dint of its existing reference base – but this is not as rock solid or dependable as we would like.

Recently, Mediasurface launched a new low-end rental product. This will bring sustainable income if we reach critical mass (which we believe we will!) but once again we’ll have the problem that it will adversely affect our P&L in the next year as we spend to build. As an AIM company, we are at the mercy of a fickle City, broker’s forecasts and shareholders. What do we do? Well, there’s no easy answer, so I’ll keep you posted.

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