Do You Have a Quiet H.E.R.O. In Your Portfolio Protecting & Fighting For You? [Finland’s #1 Market Leader in ERP SaaS for Construction, Building Services Engineering, and Manufacturing Companies]
"I have no special talents. I am only passionately curious." - Albert Einstein
Curiosity is a quiet kind of superpower that is key to a life of meaning and purpose. This illuminating insight by Oscar-winning producer Brian Grazer in his book A Curious Mind: The Secret to a Bigger Life is distilled from his "curiosity conversations" with some of the world's most interesting people from polio vaccine hero Jonas Salk to Wal-Mart's indomitable founder Sam Walton as he seeks to understand their "emotional curiosity" and mindset that led to the discovery of vaccine to the building of multi-billion business dynasties, conversations that inspired him to create some of the world’s most iconic movies and television shows.
Curiosity comes in different shades and different intensities for different purposes. The technique is the same -asking questions - but the mission and the motivation vary, which make all the difference. It was curiosity and a desire to help people that led Jonas Salk to medicine. It was curiosity that led Salk to investigate the link between the influenza and polio viruses. “The Salk Institute is a curious place, not easily understood, and the reason for it is that this is a place in the process of creation," said Jonas Salk. "We cannot be certain what will happen here, but we can be certain it will contribute to the welfare and understanding of man.”
Grazer's A Curious Mind offers a blueprint for how we can awaken our own curiosity and use it as a superpower in our lives and embraced our curiosity to become better leaders, better creators, better managers, even better romantic partners. The power of a Curious Mind has also forged the enduring and exponential growth trajectory of our quiet H.E.R.O. innovators.
Case Story: Finland's #1 Market Leader in Specialized Cloud-Based ERP & Accounting Software Solutions for Construction, Building Services Engineering, and Manufacturing Companies
[Week 28 Sep-2 Oct: +14.3%]
Another uplifting story in our portfolio companies in the Fund is Finland's #1 market leader in specialized cloud-based ERP and accounting software solutions for construction, building services engineering and manufacturing SME companies, which is up 14.8% since the inception of the Fund on 28 August 2020, versus MSCI ACWI World index/NASDAQ -3.6%/-5.3% over the same period. The rising dividend-yielding company has also compounded 754% in capital gains in the recent 3 years vs MSCI ACWI World index +13.1%. Notably, after it reported on Friday a set of resilient third quarter results and revised upwards its previously announced EBITDA target of 35–45% to 40%-47% for the current year with net sales growth for 2020 to be at least +37%, the highly-profitable and cashflow-generative SaaS innovator, with 90% of its revenue recurring, jumped 17.2% in its share price, even as markets choked on Trump’s COVID news.
The Purpose Quotient (PQ) and Curious Mind story started with founder Mr. H. After completing middle school, Mr. H worked for his father's electrical contracting company before starting his studies as an electrical engineer. Curiosity led Mr. H to the first contact in the software industry in 1979 at an electrical contracting company he founded, and went on to develop its own ERP system. The company was also the pioneer on the SaaS model, where the company faced limited competition in its target SME customer segments. The company has many partial competitors but it remains the only one to provide extensive industry-specific SaaS ERP solution in its target groups. As a pure SaaS innovator, the company does not suffer from the burden of licence based legacy software technology or business model, which is an important asset. The transition to the SaaS model is often painful and long to a software company due to requiring changes in the company’s operating culture, customer and software provider processes, technology, product development and cash flows, among other things.
The company’s R&D phase took as long as 6 years with a team of approximately 10 people. The company did not rush to set off to commercialise the product, but first developed it patiently with a few customer accounts to a sufficiently mature phase that facilitates strong scalability. In 2010, the company’s focus shifted from development to commercialisation, starting with a solution aimed at the special needs of building services SMEs, where the company quickly began to take over the market from previous generation software and solutions comprised of miscellaneous software products. Initially, the software was offered only to companies specialising in building technology, and it expanded to construction companies from 2013 onwards, and into industrial solutions in 2017. (Revenue: Construction 44%, Building Services Engineering 35%, Manufacturing 17%). The company's estimated market share is approximately 20% in building services engineering, 8% in construction and approximately 1% in manufacturing.
The company has over 20,000 active users of its cloud software with its unique project revenue recognition logic to boost operational efficiency by automating manual processes and complex integrations to produce real-time information and the right metrics for business management. The company provides an overall solution with very comprehensive features that provides the customer with all of the applications required for ERP without needing to integrate several systems or migrating data between systems. It can substitute up to dozens of customers’ standalone systems. The system is also based on fully paperless administration, accounting and reporting. These factors provide the operations of an SME with significant efficiency, which can actually completely eliminate the need for an office employees running administration, and the administrative workload of the management is significantly reduced. The system also extensively automates reporting to third parties, such as the reporting to the tax authority pursuant to the construction industry obligation to provide information.
Bringing in a new software product that meets the industries’ needs and is equally comprehensive would require long development work, which raises the bar of entering the segment. The bar is also set high for new foreign competitors, as in addition to a strong product, the Finnish industry specific ERP market requires a lot of localization and the market is relatively small on the global scale. In the SaaS based business model, individual markets are often “winner takes it all” markets, as the customers are continuously covered by up to date software and the threshold of replacing a continuously evolving software integrated into their own processes is high. competitors. Once the market is sufficiently strongly established, it is no longer interesting for an international competitor or developer of universal software to start investing in a product customised for an individual segment in the Finnish market.
In March 2020, the company had acquired 100% of a strategic local construction software company who is a pioneer in the development of cost accounting, scheduling, BIM and cost tracking solutions for more than 4,000 construction professionals in mostly mid- to large construction companies, thus complementing and expanding the company's market position and leadership. Functionalities included in the cloud ERP include quote calculation, production control, project management, access control, reporting, product data management, accounting, invoicing, project calculation, document management, and payroll administration. The software also features standard integrations into banking connections, reports to the authorities, e-invoicing operator, and construction supply price data interfaces. Following the acquisition, the solution also expanded into the areas of cost calculation, information modelling and scheduling.
The company is known for publishing its financial results as early as week 2 or even the first week of the period close. No Finnish listed company had previously reported its financial statements so early. The company justified the announcement on the basis that, since it offers its customers real-time financial guidance, it must be able to set an example in this regard. Hence, the company has been able to announce the third-quarter and nine-month (Jan-Sep 2020) results on 2 Oct. The company considers the long-term commitment of the owners and the entrepreneurial motivation of the employees to be a secret to its success. Approximately 40% of the employees are shareholders in the company.
CEO Mr. S shared: "In cloud ERP, we are the market leader in the SME field of building technology, construction and manufacturing companies. Our cloud-based system, designed for industry needs, automates financial management routines and industry specificities more widely than everyone else. During the past year, we developed more new industry-specific features, increased financial management automation, and launched development work related to artificial intelligence (AI), which we hope will secure our long-term pioneering spirit. Our journey as a pioneer in ERM in the SME sector is at a good stage, but we feel that the journey is still ongoing and that financial automation has many steps to take."
"Our net sales grew by 41% during the period of Jan-Sep 2020. So far, our revenue has not been significantly affected by the coronavirus, as approximately 90% of it is recurring. Our ERP SaaS competitiveness in the market has not deteriorated [due to the coronavirus epidemic]; rather, the opposite has happened, which is strengthening as a cloud-based product. The company expects net sales growth for 2020 to be at least +37%. The previously announced EBITDA target of 35–45% is revised upwards to be between 40%-47% in the current year.”