Founder Interview: The founder who beat the banks at their own game (Part 2)

Lawrence Lam

Lumenary Investment Management

In Part 2 of my interview, Barry shares his approach to scaling, how he differentiated Count Financial from the plethora of financial services companies, and what he defines as good management.

For readers interested in finding the next Barry Lambert, you must first understand how long-term founders think, as their philosophies are reflected in business strategy, and ultimately flows through to financial performance. In other words, financial performance is only the outcome. To catch founders early, readers need to recognise the hidden engine of the philosophy, strategy and thinking that fuels it all.

Let’s take Count Financial as an example. If my readers were presented with the opportunity to invest in a boutique accounting firm that specialised in tax returns, many would baulk. On the surface, there’s nothing sexy about tax return service providers. But that’s the superficial view. Those readers may not have considered the philosophy and strategy underpinning the business, they may not have looked under the hood to uncover the real source of growth - the engine that allowed Count Financial to morph and evolve their business over a very long period of time. If readers want to find great founder-led investment opportunities, they must first understand how a founder builds a business from the ground up. Results are only the output. The entire picture consists of philosophy, strategy, execution, which leads to results.

Barry Lambert saw it differently than most. Through his business strategies, the initial $90k of capital he invested in the beginning eventually became $373m decades later (a 4000x return). Investors who recognised the nuances of how he ran the business were able to ride his coat tails and participate in the rewards.

The theory of multipliers

In Part 1 we saw how Barry transformed Count from an accounting network into a financial advisory network. Accountants had long-term relationships with their clients, understood their financial goals and had the technical background to provide advice. But back then most accountants weren’t interested in offering investment advice; opening a new business line brought more licencing and compliance obligations – something they didn’t have appetite for as owners of single accounting firms. But therein lay the opportunity for someone like Count Financial. They had a network business that had scale.

As Barry recalls, he saw the opportunity to transition into an investments business and could execute the strategy ahead of others because he was the founder and didn’t have the multiple layers of bureaucracy that prevented many others from pursuing bold untested business models (I've written previously about the merits of less bureaucratic companies).

The idea was to obtain investment licencing and offer training to his accounting network, provide all the know-how and investment knowledge to help facilitate them providing investment advice to their clients. In return, Count would take a percentage of all the investment revenues generated by his network. As Barry highlights to me during our interview, he had no interest in servicing individual clients but saw a greater opportunity to instead target accountants and to ‘leverage their client base’, as he says. Count generated revenues as a percentage of total Funds Under Advice across the network, so its growth was scaled across multiple dimensions. First by the number of accounting firms in the network, then by the number of clients within each accounting firm, and each client would have a growing investment portfolio which would also contribute to Count’s bottom line. The model was exponential, not linear.

When I quiz Barry now about how this model was so successful, he attributes it to the ‘multiplier effect’ - the ability for the business to scale revenues by more than one factor, and being the first mover with the truly differentiated service.

Elevation through differentiation

One advantage companies that are still run by their founders have over other companies is that founders have the confidence to be unconventional. Employees worry they'll get in trouble if they do things differently. Founders don't. - Paul Graham (Founder of Y Combinator)

As I chat to Barry, he describes a made-up word to me: ‘Surpetition’ he says, in a tone that implies it’s a word I should know. He tells me it’s the name of a book written by Edward De Bono and its concepts stuck with him for decades, and a key ingredient of how he differentiated Count from its competitors.

For Barry to compete with the incumbents on their arena would be like driving into a traffic jam. As he says to me during the interview, ‘the concept of surpetition is you have to elevate yourself to another level so your competitors don’t come looking for you – you’re operating on a different plane altogether’.

Barry aimed to add a new service each year. Starting with his network of accountants, he soon offered investment licensing and training, then progressively expanding into superannuation, savings, leasing and asset finance. He launched software to aid in the efficiency of his network of accountants. At one point Count had the goal of moving into mortgage broking.

The pace at which new services were being launched was fast. The quicker Count could help its network of accountants entangle their customers, the more entrenched they could become in their financial lives. That was how Count differentiated itself from the competition.

A recipe for longevity

The pursuit of growth for any business requires capital expenditure, funded either with internal cashflows or externally through the use of debt or additional equity. Under Barry’s leadership, Count always chose internal cashflows, never debt. Barry recalls in the late 1980’s when he took out a $200,000 working capital facility and discovered the interest rate was 20.5% (in those days interest rates weren’t shown on statements so he had to call up to discover that surprise). Barry paid off the loan and decided from then on he would never take out another loan for the business ever again.

And Count never had to. It was profitable and able to use internal cashflows to fund its growth strategies (I've discussed this compounding mindset previously). Unlike his competitors, Barry had a conservative approach to expenses. Competitors would come and go, often bursting onto the scene with big marketing budgets that eventually fizzled out. Barry tells me there was one competitor backed by a large corporate who muscled in with a $2 million marketing budget over 1-2 years. They didn’t last in the end.

A debt-free capital structure makes sense in some environments, but not necessarily in others. Count could use its strong financial foundation as a weapon to outlast its competitors. The strategy proved effective in the financial services environment where market saturation takes time.

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The material in this article is general information only and does not consider any individual’s investment objectives. All stocks mentioned have been used for illustrative purposes only and do not represent any buy or sell recommendations.

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Lawrence Lam
Managing Director & Founder
Lumenary Investment Management

Lawrence Lam is Managing Director & Founder of Lumenary Investment Management, a firm that specialises in founder-led companies globally. We search for unique, overlooked companies in markets and industries with a long runway for growth. We are a...

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