From PC Retailer to ERP: The Compounder Everyone Missed

"The best investments tend to be simple, easily understood, and overlooked by others." — Seth Klarman

System of record (SOR) has created some of the most dominant and durable franchises in tech. Think Salesforce, SAP, Epic. But one of the most compelling SOR opportunities today isn’t in Silicon Valley — it’s in Osaka.

Ok, That’s Great… What is an SOR Again?

A system of record is an authoritative source of data that captures business-critical information, such as customer relations (CRM), enterprise resources (ERP), and laboratory notebook (LIM). These systems are often deeply embedded in workflows and exceptionally sticky. Why? Three forces drive their defensibility: 

• Data lock-in: Once business data resides in an SOR, switching becomes expensive and disruptive. 

• Internal network effects: As more employees engage with the system, its utility and switching cost grow. 

• Product adjacency: SOR vendors can layer on adjacent modules, expanding use cases and deepening entrenchment. 

When these forces meet, they create powerful feedback loops for profitable growth. Most importantly, this helps build an almost insurmountable moat against challengers in this space.

SOR is no stranger to the tech world. Most of Wall Street is familiar with this model as well. In fact, most equity analysts can list numerous SOR examples on the spot.

In the last decade, it has evolved from a novelty to a buzzword in the venture capital world. Countless start-ups claim to be the "Salesforce for X", but few deliver.

What if I told you that there is a rapidly growing, GAAP profitable SOR hidden in plain sight?

Unlike Salesforce, which has nearly saturated its domestic market, this hidden SOR is a micro-cap with significant runway for growth. Look no further than Osaka, Japan. Although Japan's third-largest city often flies under the radar for most Western investors, it remains a welcoming and accessible destination for foreign capital.

From Hardware to ERP: a Three-Decade Detour

In 1991, Tetsuo Iwamoto founded I’LL Inc., a small business selling PCs. During its first decade in existence, Iwamoto experimented with several businesses, including computer maintenance and IT consulting. During the Dot Com frenzy of the late 90s, the company entered into several online businesses — a job matching platform and an online healthcare business. None of these businesses reached any meaningful scale. 

After several false starts, I'LL launched Aladdin Office, an enterprise resource planning (ERP) software. This ERP helps small and medium size businesses (SMBs) manage their customer relations, purchasing, inventory, and production. In the next decade, I’LL incrementally built out its SOR ecosystem with Aladdin Office ERP as the platform to expand into B2B e-commerce, DTC e-commerce, plus brick-and-mortar retail management.

Economics of a Quiet Compounder

Fast forward to 2025, I’LL is operating a SOR platform with GAAP profitability and grew consistently at 10-15% over the last 20 years. Most notably, the company is now operating an exceptionally high ROIC with a clean balance sheet. Furthermore, as I’LL scales, margins continue to improve on multiple levels — both COGS and SG&A are stable or decreasing relative to sales. All of this indicates that I’LL’s model is sustainable at scale. For the Excel junkies, here’s some fast facts to illustrate how strong the fundamentals are:

• 20-40% ROIC: management doesn’t hoard cash either with a ~30% payout ratio 

• Gross margin up from 45% to 56% in the last 5 years 

• Operating margins up from 13% to 24% in the last 4 years 

• All of this achieved with nearly no debt with 7% debt to equity ratio 

It shouldn’t come as a surprise that an SOR business delivered these impressive results, especially when the founder (Iwamoto) still holds ~40% of the company to this day.

This time, I made sure to check the management compensation structure — Mr. Iwamoto was paid $400K in 2024 (not $14M!) — the coast is clear.

Giants Don’t Compete Here

Why don't—or can’t multinational ERP players just eat I’LL’s lunch? After all, larger providers such as Oracle NetSuite and Salesforce typically go after larger enterprises in all geographies. 

The reason is simple — it’s more cost-effective to convert large accounts with the same amount of effort (i.e., higher LTV to CAC ratio). I’LL, on the other hand, goes after the much more difficult segment of SMBs. These smaller companies typically have less standardized workflows, requiring more customization. Winning each contract is also less rewarding per dollar spent on sales & marketing. While the high-flyers rapidly captured the lucrative accounts, I’LL slowly chewed through the [more] difficult customers. 

The result? I’LL has thrived with limited competition. I’LL’s customization is also paying off. While offering more customization in the form of longer implementation time would compress margin in the short run, this also builds a powerful moat against smaller entrants that typically attempt to disrupt from the low-end with cheaper alternatives. 

Most of these cheaper, smaller SaaS competitors are also built much more rigid, designed with boilerplate features to maximize scalability. I’LL’s customer would need to suffer the painful switching-related disruptions AND a reduction in ERP quality. Switching is simply unthinkable for small-to-medium enterprises; this is the power of data lock-in. 

Even if the larger players enter I’LL’s market, they’d have a hard time dislocating I’LL because Aladdin Office has had more than a decade to entrench in many of these accounts. In other words, it’s simply not worth Oracle and Salesforce’s time to compete here. Notably, we see signs of I’LL’s moat in its financials too:

• Customer retention rate is 98% 

• Referral-led sales is 45% of new bookings. In short, this means customers almost never switch and they tell their friends about it!

Moving Up

Why does any of this matter? Given that I’LL’s formula has proven to work at scale, I think this company has potential to be a long-term compounder. It has an excellent track record, a powerful SOR-based moat, and a niche with weak competitors. 

I’LL also has plenty of room to grow given its status as a micro-cap company: 

In 2024, Aladdin Office generated ~$107M in revenue from 5,150 customers. There are approximately 3.4 Million Japanese SMBs in the same year. Even if only 10% of all Japanese SMBs would consider installing an ERP, this suggests that Aladdin Office would have only penetrated 1% of the market. Directionally, I’LL can go much higher.

Bottom Line

I’LL isn’t flashy — but it’s profitable, defensible, and still early in its market penetration. For patient investors, it might just be the rare snowball worth rolling.

Source:

• https://www.ill.co.jp/ir/material/Company_Information_Material_FY7_2023.pdf

• https://www.ill.co.jp/ir/fisco_report/20250512.pdf

• https://www.ill.co.jp/ir/financial_results/for_the_Nine_Months_Ended_April30_2025.pdf

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The information provided in this content is for informational and educational purposes only and should not be construed as financial or investment advice. The opinions expressed are those of the author and do not constitute a recommendation to buy or sell any securities or financial instruments. While efforts are made to ensure accuracy, the information may become outdated or incomplete over time. Investing involves risk, including the potential loss of principal. Always conduct your own research or consult with a licensed financial advisor before making any investment decisions. The author may hold positions in the securities discussed.