You don’t need to be an avid news reader to know that the world has thrown up some pretty big challenges of late. A global pandemic, rising interest rates, and tough market conditions in areas like tech, to name just a few. As an entrepreneur, it’s easy to feel discouraged and start to believe the naysayers. In times like these it is important to have a lot of support from your closest family, friends, and team members so that you can find the energy to pull through.
At the heart of any company there should be a clear why, and I use that reason many times when I get asked what Bricknode is. If the why is strong enough it will give you the energy you need to continue that journey to make change in the world.
We have been building Bricknode for 13 years now and I have been an entrepreneur for 25 years since I started my first company within FinTech at age 20. In all my endeavors, if the why had not been strong enough I would not have had the stamina to stay the course.
Early in my career I was driven by the quest for money but this quickly changed into a deeper drive to make a change. I wanted to be able to help as many people as possible to get closer, or all the way, to financial freedom and a more rewarding financial life.
I have always liked building, finding, and using new financial services where I could take care of my finances in better ways. The path for taking new services to market was way too long and was blocked by bureaucracy and challenges.
At that rate I calculated that during my lifetime I would only be able to launch a small number of financial services and that impact would not be big enough to make a real difference.
By creating a B2B company that could provide a plug and play back-end solution for FinTech entrepreneurs, I saw that we would be able to impact many more lives than if we focused on a direct-to-consumer business model.
Trying to make a dynamic and efficient back-end solution forces you to make some tough decisions along the way. You cannot think short term and you cannot build a lot of specialized customization directly in the core because then you quickly bump into a wall.
Customization is definitely possible, but it should be separated from the core as stand-alone applications or through easy configurations.
This is a worthy cause to make a long-term impact on the lives of many and it deserves huge amounts of resources and investments. Basing our headquarters in a small town in Sweden has been both good and bad. The bad part is that it is hard to gain the type of exposure or trust that a company based in a larger city would get. Who would have thought that a tight team of FinTech experts in Skövde could persevere into running a company listed on the Nasdaq stock exchange! 😀
The good part is the loyalty and commitment that you build in your team.
We are still too small to make everything perfect, but we make up for that by showing heart in everything that we do. Helping entrepreneurs bring their products to market in a highly regulated industry with a lot of monopolies around is what keeps us working way too many hours per day.
Over these 13 years we have invented a very impressive and granular core investment system based on transactions and accounts that goes deeper than any other system that I have seen. Thanks to all the engineering skills that has gone into this and all the early adopters that stuck with us, we now have an enormous base where we can handle most types of financial activities.
As we announced in May, we are now going full force into setting up our own regulated brokerage firm. This is the missing piece for us to truly become a real plug and play provider to FinTechs, financial advisors and asset managers. We will not have a consumer facing brand of our own but strictly focus on being a great B2B broker with awesome technology.
We want to be seen as a partner to our customers and an enabler for them. We have invested everything that we’ve managed to raise ourselves, including customer revenue and external investment in order to build the company and the products that we have today. We want nothing more than to be able to continue to invest in our solution and our relationships. We want to participate in the risk of our customers and share in the upside of their successes.
To do this though, we need to get the word out about Bricknode and to gain a lot more users of our systems globally. Only then can we make meaningful change around the world and impact lives for the better. We need evangelists, both in the shape of customers, investors and team members who believe in this same cause.
The market is now ready for us and Bricknode is ready to really go global. I will personally make myself available to help and advice entrepreneurs within finance that put the needs of consumers first.
To pull my straw to the stack, I have just launched a new website called Put the fun in finance together with a public code repository in GitHub where I will share code examples to help users along the way.
Only one thing is for certain, we are going to have ups and downs, but I can promise that every Bricknoder will always do their best and invest as much effort as possible into promoting positive change. No matter how great your product is the world is full of challenges and there is no certainty that your product will break through the noise.
The more you practice the luckier you get, and we have certainly practiced a lot!
Revenues are not created equal.
In the world of SaaS (Software as a Service) and financial operations services there is a big difference between the quality of income. In this article we will take a look at how the revenues of Bricknode are composed using the numbers from our latest financial reports.
The most valuable type of income is what is called recurring income where those revenues can be counted on to renew automatically month by month and year by year without any new efforts being made or hours being sold. If income is associated with hours of labour being produced the income is worth a lot less because they will not scale and allow larger margins as the business grows.
Think about it, would you rather own a business where you know that the income will continue to flow in even if you spend some time with near and dear or where you have to get up and put in hours of work to receive that income?
This is the reason why income generated from software subscriptions are valued a lot higher than revenues from consultancy work or support hours.
At Bricknode we are incredibly proud to be able to say that over the past year (Q2 2021 – Q1 2022) 94.33 % of our revenues came from recurring revenues!
Looking even deeper we can see that almost 75 % of those revenues came from our main software product called Bricknode Broker while more than 20 % came from Bricknode Lending which is the second software vertical that we have launched to complement our mainstay product suite.
The remaining 4.72 % came from what we classify as “Support” but even in this category there is long term value to be found. Let’s be clear about one thing, Bricknode is not a consultancy firm. We only focus on building long term value through recurring revenues within areas where we see a need for better financial services and tools.
From time to time we get the opportunity to expand our systems coverage in alignment with immediate needs from our customers. When this happens we can rearrange the priorities within our roadmap and receive additional income for building out our platform in this certain area. This is what makes up a big part of the “Support” income together with general tasks that we might conduct to help our customers to succeed.
As SaaS providers within an enterprise segment we have all been there, trying to generate income while building out a platform. A lot of companies never make it past the “consultancy-phase” and cannot build enough value through software engineering that customers are prepared to pay thousands of euros per month to use. At Bricknode it took many years to make the shift from having to conduct loads of labour and configurations for our customers on a daily basis into being operators of a real SaaS platform within wealth management, financial securities administration and lending.
Depending on the verticals and the price level of each product the length of the sales cycles differ. Bricknode Broker is a huge enterprise offering but with a very scalable pricing model that fits both small and large financial institutions, our job now is to really get the market to understand this and how easy and low risk it actually is to sign up for a service like Bricknode Broker. With Bricknode Broker we build extremely long relationships with our customers and that is why the revenues generated from this area is worth the most in the industry.
On the other end of the spectrum we have our brand new product called Bricknode Investment Manager which is a very “light” product compared to Bricknode Broker but fits nicely into our total product portfolio. The income per unit sold of Bricknode Investment Manager brings in a lot less money than Bricknode Broker but in contrast it caters to a market which is a lot broader with many more potential customers.
At Bricknode we are building a real powerhouse of great valuable services and tools based on generating recurring revenues valued at the top of the industry. We are incredibly inspired by the fact that we have almost reached 95 % perfect recurrence this early in our journey. With more add-ons and integrations constantly being added to our marketplace and with two brand new verticals (Bricknode Deposits & Savings and Bricknode Investment Manager) just being launched Bricknode will continue its long term journey to focus on extreme quality of income where margins can expand exponentially as we grow.
When I went from managing money professionally in my own hedge fund to managing my own capital in my private company I was surprised by how difficult the administration was and how few tools were available. First, I wanted to be able to visualize and analyse all my holdings in one single place and keep track of my various investment themes no matter which brokers/custodians I was using. Second, I wanted all the tax reporting taken care of for me so that I did not have to keep track of my acquisition values and profit/loss reporting manually.
If you are a private investor and only use one online broker, generally there is enough functionality to take care of your tax reporting but if you are acting through a company then you are on your own.
When analysing my holdings I have always been frustrated with the fact that the online brokers that I have been using do not display my returns for positions including paid out dividends. I like to invest in dividend generating instruments like preference shares but each time I get my dividend the performance of the position drops and I need to keep track of the paid out dividends in relationship to my investment and my acquisition values myself.
Another source of frustration has been currency exchange rates, with the tools that I have been using I have always had to update and manage exchange rates myself.
A lot of tools also lack the required transactional granularity, many work with just balance based accounts where you simply can see your current holdings. This might be fine if you have very low requirements but it does not work for companies since you need the transactional granularity to be able to configure your accounting rules that will take care of the automated accounting exports for you.
Ever since we created the fantastic enterprise wealth management core system that Bricknode is I have been dreaming of the day when we could take all this power and package it as a new application that could be used by corporate investors to manage their assets and liabilities together with the automated accounting.
Today I am so incredibly proud that we can open the doors for early sign up to Bricknode Investment Manager, the tool that will be the home for everyone who conducts investing through a company structure.
We have accomplished something incredible at Bricknode, let us just look at a few points that come to mind.
The problem with this though is that it creates a burden to explain in a short format and it might be difficult to grasp the extent of the opportunity that our wide product suite permits us to act upon.
It might be difficult to take in that a small company based in Skövde, Sweden has been able to build a product that can be used to rival or complement products built by multiple billion-dollar firms. One of the best confirmations of what we have created is real, is when new staff members join Bricknode from large tech companies and after a few months tells us how incredible it is that we have been able to create such a system on such a small team.
By using new tech and thinking in new ways I view what Bricknode has accomplished in the financial industry in the same way as what SpaceX is doing in the space industry. No one thought it was possible until it was!
Getting this message relayed to the world is the real challenge. Most of our efforts over the years has been spent on building extremely smart and generic solutions in the back end which could support any type of financial operation and customer segment that we would choose to target in the future.
In our interim report for Q1-2022 we talked about our revenue model and how we are working to make the growth less “bursty” by adding more product segments, like Bricknode Investment Manager, Bricknode Deposits, Brokerage as a Service using our own brokerage license, etc.
The current focus is, and has been, on the product segment called Bricknode Broker where the ticket sizes are large, but sales cycles are long (5 – 6 months). This is where the sales team that we assembled 5 months ago started to work.
The main limiting factor on growth rate right now is what capital is available for starting organized and sustainable efforts on selling and marketing various verticals.
In addition to the Bricknode Broker segment the sales team started to work on Bricknode Lending during 2022 and now we are getting ready to start working on Bricknode Investment Manager and Bricknode Deposits. As soon as we can conduct regulatory business using a brokerage license we will be working on Brokerage as a Service too.
All these product possibilities have been sitting within our product core but we have not had the resources to expose them by associating each one with marketing, sales, and customer success efforts but that is where we are now.
This short video illustrates what we have been doing at Bricknode.
So, where do we see our competition? We have a hard time finding someone that can perform as wide an aspect of services like we can but within the different segments we have competition. The main difference with Bricknode compared to other suppliers is the fact that we have been, and are, operators of our own software which we use ourselves. We build stuff that we have a need for and thus we do not work in just theory when developing products which is a huge advantage.
Developing product is no longer an issue for us but getting the word out to explain who we are and what we can do to everyone from potential customers to other stakeholders is an issue. This is a challenge that we humbly take on and increasing our transparency and communication to all stakeholders is one step on the way to understanding and recognition!
Today, we formally announced that Bricknode has started the application process for a brokerage/securities license in Sweden. Ever since Bricknode started in 2010, we have had the ambition to add a subsidiary to the company group where we can be the primary broker and custodian for our software users. This will boost our own scalability and help deliver a complete service to many customers.
In order to understand the benefits that acquiring a brokerage license will bring our different customer groups, it is helpful to know how we work with them today.
Within the brokerage product division today, we see two groups of customers. The first group are customers who have their own full regulatory permissions to carry customer accounts. These companies can be rather complex and relative to our other customer groups, there are fewer of these around.
In terms of Bricknode solutions, these companies consume pure software, and they can also outsource their back-office operations to Bricknode if they do not want to manage this themselves.
Today, these companies must also establish their own relationships with banks, brokers, exchanges, fund companies etc. to access financial instruments that they would like to distribute.
This means that each customer needs to have their own relationships which can be less cost effective and take a lot of time to cut through red tape. This is bad from a few standpoints.
First, even if Bricknode delivers the software solution on the same day that it is ordered by the customer, it could still take months before the customer gets approval by institutional brokers and fund networks that it might need to access. In addition, it can take years before relationships are set up to manage international tax withholding and other administrative things that should just simply work.
Second, time to market for new valuable products is greatly increased and companies can go out of business even before getting to first base.
The second customer group is characterized by firms that lack full regulatory permissions for carrying or operating their client accounts in their own firm. Some are simply not interested in having the administrative overhead that is required for those accounts like tax reporting, corporate actions, MiFID II reporting and so on. These can be financial advisors or various types of FinTech companies.
There are many of these companies around but today they need to find an external party that holds the required licenses and that has relationships with various trading venues. This third party might already have a different software provider to Bricknode, so the deals are ultimately lost if the third party does not want to go through the process of switching core systems.
The problem is that Bricknode cannot supply the full plug and play brokerage solution for this group of customers, since we must go through a third party which can introduce more costs for the potential customer and make the whole setup less attractive.
By setting up a subsidiary of Bricknode with a brokerage license we can merge our administrative services into the brokerage division, and we become a one-stop-shop for customers that do not have their own regulatory permissions.
Bricknode is then the only party that must set up and maintain the relationships with trading venues and issuers of financial products and we can obtain economy of scale.
When it comes to the other customer group that has full permissions, we can now present them with a choice where they could either maintain their own external relationships or switch to Bricknode as their primary brokerage firm. The latter would enable them to participate in the cost savings that this would generate both from shrinking the administrative overhead and from lower trading fees.
From a revenue perspective, obtaining a license would greatly increase the market opportunity for Bricknode in the short and long term. It will help create higher margins and shorten sales cycles in general.
As the provider of accounts, Bricknode would have a direct legal relationship to each account holder. This would enable us to apply all our internal tools and knowledge to optimize processes and the end customer experience.
Not that long ago, big UK-based fintech Revolut decided against setting up their own regulated securities firm when they launched equities investments on their app. Instead they made a partnership with another company that is providing and carrying those accounts and making the trading facilities available. It makes a lot more sense for our prospective customers to let Bricknode take care of everything under the hood too, so they can just focus on the end customer.
There are still very few alternatives today for this sort of service and no one is in control of the full back-office software like Bricknode is with Bricknode Broker. By controlling all technology, Bricknode can be agile and quick in ways that other companies who rent their back-office systems for this purpose can only dream about.
Bricknode will provide these accounts and facilities as a pure back-end service and will not have its own B2C offering that could compete with the services of our customers. During the years Bricknode has established technology and the required facilities to provide a wide array of financial instruments like global equities, funds, bonds and more. We see no technical limitations with regards to the products that we can provide, and we think that this complete service bundle will be revolutionary.
Together with front-end partners like Additiv we will be able to provide financial advisors with stellar tools to manage their customers and a full suite of financial products to distribute. This is all the while making sure that the financial advisor builds their own brand and customer loyalty. This is something that is not being done today when financial advisors are forced to place their customer accounts with standard retail brokers that compete for the same customers.
Why now, you might ask. Simple, it’s because we have not been ready for this in the organization. Thanks to the IPO we have been able to onboard the right team members for this and we now have the necessary resources to do this with great quality. We have also been able to conduct the full administration for current software customers which has enabled us to build up the required internal routines and learn everything first-hand.
Getting a license to perform regulated activities will not do any harm to the current pure Software-as-a-Service offering where business is expanding aggressively over multiple product lines based on Bricknode Core. It will, however, add a whole new dimension to Bricknode and unleash us from many limitations impacting customer acquisition today.
We did it! We just reached the most important metric in the history of Bricknode. As Jim Collins puts it in his great books, this metric is “the percentage of key seats on the bus that are filled with the right people for those seats”. We just reached 100 %!
I see articles each day where companies are saying that the most challenging thing for them is to recruit the right people.
It is difficult for a company to grow faster than its ability to get enough of the right people but now we are there. One of the core values that we believe in is endurance and long-term thinking. A lot of things in life comes down to pure luck but by having endurance we expose ourselves to luck over a longer period and increase our odds for reaching our vision to be the BEST Platform on Earth for Financial Products!
We have managed to embrace working globally and we are completely flexible with when and from where our team members are working. We are in multiple countries, and we are having a blast each day, who would have thought that we would reach this level of team and product while being completely independent and coming from an unknown small town in Sweden! I would say that Bricknode completely embodies what ROWE means.
Our purpose is to make sure that great consumer friendly financial products and services reach the market and never die from the lack of available tools or from having to fight the giants of the financial industry.
I remember myself the day that we got our first API launched at Bricknode and how the possibilities of building anything for finance just opened up in front of me.
Now we have reached the first big goal and now just watch us as we motor on to the next one!
Please take a few minutes and listen to my reasoning around this blog post.