Extending Cloud-Born Advantage With Class

Australian company Class had a technology advantage over its competitors until it didn’t.

So, what did it do next? It built a new technology stack, entered into adjacent domestic markets, made some acquisitions, and then started to look at how its technology might find opportunities offshore.

The story of how Class grew from a startup founded in Sydney in 2009 to a publicly listed company with a market capitalization of AUD 200 million is a case study with some resonating themes on the growth of other technology companies.

From one to many

Andrew Russell, Class’s managing director and the chief executive officer, says that when the journey started in 2009, Class was the only company providing a cloud-based administration product for self-managed pension funds. In Australia, these funds are called self-managed superannuation funds (SMSFs).

“When Class started, there was a competitor with a desktop product, so we were the only ones in the cloud,” he says. “The cloud-enabled us to scale, and we now have more market share by revenue in the SMSF space than any competitor.”

Class provides administration and compliance software on a subscription basis for SMSFs, which sits in the back office of Australian accountants and wealth managers.

It is a big market, with 1.1 million Australian members of SMSFs, which have assets of around AUD675 billion, and the administration and compliance piece is critical to their existence.

It is also the “pain” point for accountants, so the Class product rapidly found traction as a critical tool for accountants and wealth managers to assist in servicing their clients.

So far, so good, and Class has grown its client base and now accounts for around 30% of SMSFs by value.

But the next step proved to be more difficult. “The business was focused on a specific and narrow technical area of the marketplace,” says Russell.

“That was the challenge. There was no road map for the company after SMSFs. Anyone could see that the growth in that marketplace was going to come to an end at some point, so the growth opportunities needed to be outside of that.”

Betting on the tech stack

The dilemma was to choose between technology and financial services. Should Class look at moving into “financial services mode” and develop into a broader platform for services, or was it a technology business?

The decision was made that Class should focus on technology. From this decision, the company looked to bring more products into the accounting space based on what it saw as its area of expertise: providing administrative solutions based on complex rules-based coding.

The decision was made to use the technology expertise to do for investment trusts what Class provided in the SMSF market. Still, at that point, the company realized that its technology needed a refresh.

Unsurprisingly, the competition had discovered the cloud, and an original differentiator had vanished. In the meantime, Class had enjoyed its revenue stream, understandable in a new publicly listed company, but had “sweated its equity” through not refreshing its product.

“So, we are re-investing back into the technology to create a next-generation platform with strong automated features to push us forward,” says Russell. “Also, we realized that if we wanted to be a technology business, we needed to bring products and features to markets quicker and in an agile way.”

“That is why we launched Class Trust in October last year. The trust market is a similar size to the SMSF space, and we are providing a product which does similar administrative duties.”

Class also made some acquisitions, notably buying legal documentation company NowInfinity, which created the opportunity to extend the technology into legal compliance and take more of the administrative pain away for its clients.

“We have products which allow our customers to establish wealth vehicles and manage and administer them,” says Russell.

“Automation sits across all of our products, from collecting financial information in a consolidated area, doing reconciliations of corporate actions, putting all that into a set of accounts, and providing a tax statement for regulators.”

Reimagining the future

A third part of the strategy, called ‘reimagination,’ was to look for overseas markets with a similar regulatory environment and competitive opportunities.

That step is yet to be taken, but next year is the third and last year of ‘reimagination,’ and it’s a move on the agenda for 2022.

Beyond that, says Russell, are opportunities in monetizing data.

“We have a massive data block coming through now given the size of our platform, and we are setting up a data warehouse and a data pool to allow more efficient transactional use of that data,” he says.

It’s all part of a case study that shows how one can leverage an initial competitive advantage to “create a moat,” not just to protect the business but to drive its growth.

Lachlan Colquhoun is the Australia and New Zealand correspondent for CDOTrends and DigitalWorkforceTrends, and the editor of NextGen Connectivity. His fascination is with how businesses are reinventing themselves through digital technology and collaborate with others to become completely new organizations. You can reach him at [email protected].

Image credit: iStockphoto/Dilok Klaisataporn