NetSuite's Nelson Prepares For IPO

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Since Zach Nelson took the reins as NetSuite's CEO in 2002, the company reported tenfold revenue growth to an estimated $70 million in 2006; a quintupled workforce of 550 employees, which is expected to increase by 15 percent this year; and expansion to nine offices across the globe. It has long been clear that the eight-year-old provider of Web-based accounting, CRM, and e-commerce applications has considered going public. Now, NetSuite hopes to file for its initial public offering in the first half of this year.

Published reports indicate that executives met with potential investment bankers at the end of 2006 and selected Credit Suisse First Boston.

Though Nelson's lips were sealed on the topic of Credit Suisse, he answered questions regarding how going public might affect NetSuite and the competition.

Partner Insights

What made you decide that now is the right time? Are there certain milestones you hit?

The revenue has grown to the size where it makes sense. True GAAP revenue for 2006 is around $70 million (an 80 percent increase over 2005). We hope to grow in excess of 40 percent year over year.

To what do you attribute your growth?

The product itself-the functionality is very deep, so we can address the needs of both small and larger companies. The market has changed from wondering what software as a service is to actually demanding software as a service, where they can consider outsourcing and running their core operational systems on demand.

There are pluses and minuses to being private versus public. What challenges do you anticipate?

The biggest change for me will be where my time is spent. Presuming we do go public, we'll have a much larger shareholder base, so a lot of my time will be taken communicating with investors, rather than customers. As a company, I don't think it will really change the way we manage the business.

How do you see it affecting the way customers view the company?

IPOs tend to make customers feel more secure in their choice. They see the company has gotten enough momentum, enough success to be a listed organization.

At your October channel conference, anxious resellers were asking whether they could get involved early. Is there any chance?

We're considering doing an auction in a very similar way to what Google did (setting the IPO based on bids by potential buyers). We're an on-demand software company, so why not do an on-demand IPO?

What changes might resellers see?

It's just another milestone for customers to look at and say, 'This is the future of software.' That will simply increase customer demand for software as a service. I think our resellers are in the right place at the right time.

Which competitors should be keeping and eye on this?

QuickBooks and Intuit are in significant trouble (over the next three to five years), not just based on our IPO, but on our progress in the marketplace. To be locked to this one desktop running QuickBooks is not the way companies want to run their businesses. They want to find out what's going on with their business in real time, no matter where they are in the world.

Sage has always based its model on buying dying products and then milking the maintenance stream. They'll always be a laggard in terms of market growth. They're definitely the past. QuickBooks is the present. Then the question is, 'What's the future?' and I think it's something like NetSuite.

What percentage of your new businesses is converts?

Easily more than half of our customers are companies that have outgrown the limitations of QuickBooks. The Sage products we replace tend to be the mid-market products, particularly the MAS family (because of lack of integration and expensive maintenance). Between that and (Microsoft's) Great Plains, that's another 30 percent of our business. Twenty percent are new startups.

What are you the most excited about?

It's kind of the end of the beginning. It's the first stage of NetSuite as a company. NetSuite really does have the opportunity to be the SAP of the mid-market.

Alexandra DeFelice is Associate Editor of Accounting Technology and can be reached at alexandra.defelice@sourcemedia.com.

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