Australia’s Phocas Software recently sold a majority stake to Accel-KKR, a US private enquiry firm, and while the terms of the deal were not disclosed, the AFR reported a sale price of more than $500 million.
Co-founder and chief executive Myles Glashier told techpartner.news that after more than two decades of growth, the founding team was ready to move on and began the search for the right investor.
Ultimately, he said the team chose Accel-KKR because of its experience and approach to management of its portfolio companies.
“All they do is invest in B2B software companies, so they really get this area,” he said.
“Having met probably all of the biggest global PE firms over the last two years, there's a real spectrum of differences between them. There's very passive ones on one side, others are very prescriptive ones that have their playbooks and tell you what to do.
“Either of those extremes didn't really attract me. I wanted somewhere around the middle, some of the expertise to help, but ultimately supporting me and my exec team to run the business, and that's what I've got with Accel-KKR.”
Phocas sells software for business insights (BI) and financial planning and analytics (FP&A) that integrates with enterprise resource and planning (ERP) products.
Selling through partners wasn’t part of the original plan, Glashier said, but when they came knocking, the executive team immediately understood the value.
As the company began to establish a presence in certain markets, such as plumbing or electrical distribution, they found many of the companies would be using the same ERP system.
“As we got a bunch of customers with a certain ERP, either a reseller of that ERP or the publisher would actually come to us and say, ‘Hey, you're clearly filling a gap in our product space that’s helping our customers, why don't we set up a partnership?’,” he explained.
“It was great because those partnerships are great for the ERP provider, because it helps them retain customers and helps them sell a new ERP, but then also great for us because we've got a greater force of them referring us and approving us as their default provider for BI and FP&A software.”
He said the company’s reseller partners are “experts” in the delivery of one or more of the over 200 ERP products that Phocas integrates with, particularly consultants that offer a suite of services to clients.
From bootstrapped to $10m in five years
The company first started operations in the UK in 2001 following a stint selling ERP software to distribution and manufacturing companies in London, before moving into Australia in 2003 and then the US in 2006.
“Selling to those customers, I realised that they were struggling to maximise revenue from their own customers because they didn't have good access to data,” he said.
He described huge reports that his customers were trying to analyse and realised it was a space ripe for a good digital solution.
He roped in his brother and the pair built an analytics tool for sales in manufacturing and distribution but soon had other people across the organisations clamouring for a similar tool for their own business data.
“So, we expanded from sales analytics through to enterprise-wide business intelligence, serving up insights for the end users but still focused very much on those manufacturing and distribution mid-market companies,” Glashier said.
Glashier outlined three points about the early days that led to the company being able to “hit the ground running”.
“We found it really easy to sell from day one [because] we have those great integrations (with ERP tools) and we designed it to be stupidly easy for the end user,” he said.
“Then we decided to sell on a subscription basis, which obviously is not unique at all now, but back in 2001 no one was doing it."
By the time the company was expanding into the US in 2006, Phocas was realising under $10 million in annual recurring revenue – and the entire time, the company was bootstrapped.
Growth in the time of Microsoft
Glashier said Phocas’ growth has been consistent over its 24-year history, with 20% year on year growth over the last five years and now boasting nearly 3,000 customers across the globe – despite competing with a software giant by the name of Microsoft during that time.
Microsoft launched Power BI in 2015, but even before that, Microsoft Excel was allowing anyone to create graphs and charts directly from that data.
How has Phocas managed to maintain its success against that?
“I've been asking myself that question for 25 years now,” Glashier quipped.
“It's ultimately about really focusing on the market and the niches that we serve; solving their problems is the biggest difference. Whether it be with Microsoft or even with the latest generic AI models coming out of there, they're all very horizontal solutions that you can do anything with, but you typically need large teams of people to build out that solution.”
The secret to Phocas’ success is, appropriately, focus.
“We only sell to manufacturing, distribution, retail companies," Glashier explained.
'We understand the data sources; they use particular ERP systems, we have great integrations. They can trust the data.
“We can easily solve the obvious problems they have because we know the use cases and the problems they have as well. That's a big differentiator, so you don't need huge teams to run it.”
Continuing to expand
With Accel-KKR at its back, Phocas is looking to continue to build and expand – first, in the markets they are already operating in and then looking at new regions.
“50% of our revenue is already from the US, about 30% form the UK and the rest over here in Australia and New Zealand,” he told techpartner.news.
“The shorter-term play is to continue accelerating the growth in the international markets we're in, particularly in the US where we can accelerate that.
“Other geographies will be at a slightly longer-term play, whether that be Europe or South America or Asia. There's so much opportunity still in the geographical market we’re in.”
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