What are SaaS business models and why are they important for investors?

Software-as-a-Service (SaaS) is a cloud-based subscription model where companies provide software applications over the internet instead of requiring customers to install and maintain them locally. For investors, SaaS businesses are attractive because they typically generate predictable, recurring revenue streams through subscriptions rather than one-time purchases. This provides more stable cash flows and often leads to higher customer retention rates. Many of the companies in this "Small Business Champions" group use this model to serve small and medium-sized businesses with essential digital tools.

What is digital transformation and how does it relate to small businesses?

Digital transformation refers to the adoption of digital technologies to fundamentally change how businesses operate and deliver value to customers. For small businesses, this means moving from traditional, often manual processes to digital tools that improve efficiency, enhance customer experiences, and enable growth. This shift includes implementing e-commerce platforms, digital payment systems, automated accounting, cloud-based operations, and other technologies. The companies in this group provide these essential digital tools that help small businesses compete more effectively in today's increasingly digital economy.

Why focus on companies serving small and medium-sized businesses (SMBs)?

Small and medium-sized businesses represent a massive market - there are millions of them worldwide, comprising over 90% of all businesses in most economies. This creates a huge customer base for the companies that serve them. Additionally, many SMBs are still early in their digital journey, creating substantial growth opportunities for service providers. As these businesses grow, they often increase their spending on the digital tools they've come to rely on, creating a growth multiplier effect for the companies in this investment group.

What does "point-of-sale systems" refer to in this investment theme?

Point-of-sale (POS) systems are the hardware and software that businesses use to process customer payments and complete sales transactions. Modern POS systems do much more than just process payments - they can track inventory, manage customer relationships, analyze sales data, and integrate with other business tools like accounting software. For small businesses, having an efficient and feature-rich POS system is increasingly essential for providing a smooth customer experience and managing operations effectively. Several companies in this group, like LSPD (Lightspeed) and GPN (Global Payments), specialize in providing these systems to small and medium-sized businesses.

How do payment processing companies make money?

Payment processing companies (like PayPal, Global Payments, and others in this group) typically make money through several revenue streams. They charge merchants transaction fees (usually a small percentage plus a fixed amount) on each payment they process. Many also collect subscription fees for access to their platforms and additional services. Some earn interest on funds held in customer accounts or charge for premium features, international transactions, and currency conversions. As small businesses process more payments and add more services, these companies can grow their revenue substantially, which is why they're included in this investment theme.

15 handpicked stocks

Small Business Champions

Looking to invest in the companies that power today's entrepreneurs? This curated collection features the digital service providers helping small businesses thrive in the modern economy. These stocks represent the backbone of entrepreneurial success stories across the globe.

Han Tan | Market Analyst

Updated 2 days ago | Published at जून 17