Last month, AffiniPay, parent of the popular legal payments platform LawPay, named Dru Armstrong as its new CEO. With degrees in both law and business from the University of Chicago, Armstrong was previously CEO of Grace Hill, a company that provides software for owners and operators of real estate properties.
Prior to joining Grace Hill as chief product officer, Armstrong was a VP of operations at The Gores Group and a project leader at The Boston Consulting Group in the consumer and technology practice areas. She also co-founded and was CEO of Lily Pod, a smart baby monitor company.
AffiniPay was founded in 2005 by Amy Porter, who remained its CEO until last year, when she became executive chairman and Tom West took over as CEO. West left last May. In February 2020, private equity firm TA Associates acquired AffiniPay in an auction.
Last week, Armstrong joined me on a Zoom call to discuss her new role and her plans for the company. What follows is a transcript of our conversation, which I have edited for clarity, concision and continuity.
AMBROGI: I would love to hear, to begin with, what it was that attracted you to this position — why you wanted to join the company.
ARMSTRONG: What was most intriguing to me about it is it felt a little bit like a return to home. I had begun my career in the legal space. My dad had a small law firm. He had started his career as a litigator. He was on the Attica commission. He was a professor at UCLA law school, which is how I came to be raised in California. He ended up going into private practice.
So I had grown up in the household of an attorney and I had gone off to undergrad pretty certain I was going to follow in his footsteps to be a federal prosecutor. When I was in undergrad, I had worked as a paralegal for the district attorney’s office, on the Dennis Kozlowski prosecution and also then as a legal assistant for a mob defense attorney in Brooklyn.
Then I went off to the University of Chicago law school. I pretty quickly realized that the University of Chicago is a very serious law school, and that the world was a big place, and before I committed to being a prosecutor or a litigator, I wanted to get more experience. I worked at Dewey Ballantine, then I worked at O’Melveny & Myers, and then I also worked at BCG (the Boston Consulting Group), and ended up falling in love with a different kind of client service, in management consulting. But I had grown up in awe of attorneys who were so capable of solving very real-world issues for their clients.
When Amy and I talked about AffiniPay, what really resonated for me was, I’m a big believer that innovation happens when we can solve real-world problems for real people. The idea of providing such powerful technology, that’s really simple and easy to use, that helps them manage the financial side of their firm, to give them hours back in the day to take care of their clients. I saw my dad struggle in a really meaningful way with the business side of running a law firm. I was rereading the Thomson Reuters 2020 State of the Small Law Firm report. It felt in some ways like not a lot had changed, though obviously technology has gotten better.
I always think that as CEO, you need to be kind of chief enthusiasm officer, right, and you’ve got to be the one who is most excited about understanding our clients and the problems that we’re solving. And I just felt like what an amazing 15-year history this company has in solving a core challenge of how attorneys get paid and thought about what else could we do for those same law firms. So it felt, on one hand, like it was similar in terms of the technology side and having worked in technology my whole career, but then on the flip side, also like a problem set for a group of folks that really resonated with me.
AMBROGI: Other than your experience in and familiarity with the legal world, how does your career background prepare you for this position? What strengths do you bring to this position based on the work you’ve done in your career?
ARMSTRONG: The last company that I ran was similar in that they had invented the category in the real estate technology space and they had really understood the multifamily client. What I was able to do with the team and with our financial partners was say, “How can that translate into us having permission to solve another set of challenges?” In five years, we went from being a pure single-product company into a full platform business, that was really built around understanding our customers, understanding their needs and understanding what we had permission to solve as one of their longstanding partners.
I know there’s a lot of discussion about disruption from technology and outsiders coming in. I’m pretty passionate about companies like Grace Hill or AffiniPay that have earned the right to serve a market and a customer base, and then get to say, “OK, now that we’ve grown with you for 10 or 15 years, what else can we do?” So at Grace Hill, we went from having one core product to a full six products, but that were all around not just solving the training need, but solving a full team performance need. That was a big struggle for our industry.
I think here a lot of that applies. I think we know that, when you look at the data from small firms, they very much struggle with gaining new customers and then with managing their firm and getting more hours in their day back to serve their clients. Usually if you become an attorney, it’s because you have a calling to serve your clients and help solve their problems, not because you have a desire to be a firm administrator per se. Given the amazing brand that Amy and team have built, given the high growth that they’ve been able to earn, the high net promoter scores, I feel like there’s a lot more that we could do. When you look at the core problem set, I think we’ve earned the right to continue to explore what other products or services we could bring in to help give hours back in the day to our clients to serve their clients.
AMBROGI: On that point of the growth that Amy and the team have built, I think the press release announcing your hire said that the company is on track to process more than $13 billion in payments in 2021. I read that the company’s revenue grew 75% from 2017 to 2019, and that it finished 2020 with about $80.5 million in revenue on pace. Are those numbers all right? Is that an accurate statement of the revenue and the growth and the payments you’re processing right now?
ARMSTRONG: Yes, it is. I would say 2021 has been an exceptional year for us. Part of that is being driven by our customers recognizing that technology can really benefit their businesses. I love seeing the adoption of digital payment solutions in our market. I think it’s a front runner to law firms embracing more technology down the road.
AMBROGI: I understand that you just came into this job, but how much of that growth do you think was driven by the circumstances of the last 16 or 18 months – the pandemic and everything else we’ve been through?
ARMSTRONG: The company has grown organically north of 30% consistently year over year. While there was some acceleration due to the pandemic, and there were some folks that were probably fence-sitters that moved over to the technology side of the fence, which we love, it’s more about the fundamentals, having the right payments platform where you have the trust of your clients, you’re able to solve the core IOLTA challenge in the business, and it’s very easy to use, both for our clients as well as their clients. I think it’s not just because we had a COVID bump, but it’s very much the fact that over 15 years, we built the right technology and earned the trust of the industry. So we were well-positioned to gain some customers during the pandemic, but I think it speaks more to the really good fundamentals of the business.
AMBROGI: The press release quoted Amy saying that the company is poised for its next chapter of growth and expansion, and you just alluded to the potential for new products and services. Do you have any thoughts on how the company could expand, what that next chapter looks like?
ARMSTRONG: We are very focused on helping our customers drive financial wellbeing and manage risk in their business. We have a payment solution that is IOLTA compliant and that is very easy to use and administer. We’re looking at everything that could wrap around that, that could help our clients further have that financial stability and manage risk into their business. We’re open to a number of different avenues. The other thing that we think a lot about is that at our heart, we’re serving small law firms. We want to make sure that we’re not giving them too much technology or technology that’s too complex. The last thing that we’d want to do is burden them, right, with too many wizzy woos and buttons and all of that. So I think the nice thing is that we are very cognizant of who our customer is and what their need set is. That’s going to be our north star as we think about what the next chapter looks like.
AMBROGI: Does that mean, even as you grow, you stay focused on the core product, or do you expand that core product into more of a platform as you’ve talked about before?
ARMSTRONG: We’re going to look at expanding out of just payments. But I think we’re also going to think about — in the last company I ran, when we announced an acquisition or a new product, I would hate for our customers to be confused. If the customer says, which sometimes happens, “Wow. I wouldn’t have thought about that, but that really makes sense,” it’s not that it has to be completely obvious. Hopefully we have some ability to see ahead and read some tea leaves. But on the flip side, I do like to have the gut check. AffiniPay is their core installed payments platform. We work with the rest of their tech stack. We work with no tech stack. So as we think about expanding, I’d always want to, at the end of the day, make sense to our customers, because, at the end of the day, it should work better together with any new products or services that we add.
AMBROGI: LawPay is one part of AffiniPay, which is in a number of verticals. Do you see expanding into additional verticals as part of the company’s growth plan?
ARMSTRONG: Yes. We have been very successful in identifying other professional services markets where there’s a lot of similarities. We’ve had really great success launching our CPACharge brand and the growth trajectory for that brand is outpacing LawPay in its early days. We also came out of the association space — that’s where the name AffiniPay came. Obviously, we’re committed to those markets, and I think we’re open to others.
I would say my first priority, though, is really understanding, in the markets that we’re in and the customers that we serve, how do we continue to be the best in breed, and then how do we expand and add additional products or services that, frankly, make our payments platform even better. I would say the first order of business for us is more expansion into the markets that we’re already in, though obviously were keeping our eyes peeled on other complementary markets, and would move in where it made sense and where it felt highly complementary.
AMBROGI: In legal, does that include expanding up market into larger firms? I know the company acquired ClientPay last year. Is that part of how you grow within the legal vertical?
ARMSTRONG: We’ve had tremendous success – and I think it really speaks to the strength of the platform – since we’ve done that acquisition in winning new large firm accounts. One of the nice things about having a payments platform is that, from the beginning, we designed it to play well with others. We are not looking to build a walled garden. We are much more about playing well within the ecosystem. So, I would imagine even if we add products, there may be partners that have more robust, more built-out products that our clients will graduate to, or certain segments will say we actually need all of the software because our business is that complex, that large. So, our view is, we absolutely want to continue the ClientPay history of serving the enterprise segment. It’s an area where we’ve continued to invest and will continue to invest. The nice thing that we’ve found is that our platform, given how legal focused it is, it fits very well for those clients, especially given the investments we’ve made in integrations to able to fit with the rest of their technology stack.
AMBROGI: You talk about wanting to best in breed. One thing that has happened since the founding of LawPay is that the market has become much more competitive for electronic payment solutions in the legal area. For a long time, LawPay almost had the market to itself. Now, over the last few years, we’ve seen a number of other companies spring up. How does that change the equation for LawPay? How do you respond to that greater competitiveness in the market?
ARMSTRONG: It’s interesting. I went through this at my last company, and one of the things we used to say is that people wanting to come into your space and go after your opportunity is usually a validation that you’re playing in the right part of the market. If you’re the only one, you’re like, Where’s the party? Look, we have 98% gross retention, we have an NPS (net promoter score) of 72 with our customers. Payments is, on one hand, software, but on the other hand, is a very different type of software product. I’ll admit I’m learning it, but the great thing is we have so many payments experts here at AffiniPay.
So, while we’ve seen the rise in competition, usually we see it more in the form of folks who want to add it to complement their software versus really wanting to build a fulsome payments offering. That’s allowed us to continue to differentiate and really be the market leader. I think ClientPay was our only kind-of point solution direct competitor. So far, it’s been great, right, we’ve really not had many challenges. If anything, it’s opened our eyes to the appetite that the market has for us to potentially bring in some software into our offering. We’re still figuring out what that is, but we’re going to use our clients’ pain points and needs as our north star.
I’m usually not concerned about what competition is doing and very concerned about us having a unique mission in the market that really is around serving our clients.
AMBROGI: You talked earlier about walled gardens and a lot of those others on the market are set up that way. They’re meant to work with, as you said, a specific product, not to be product neutral.
ARMSTRONG: One of the things that makes our payments platform really unique is that about half our clients integrate it with another software stack and half of them don’t integrate it with anything and they use it fully standalone. Even for those that do integrate it, they’re still running, on average, 40 to sometimes 50% of their payments on our standalone payments platform. That’s because they’re embedding it in places like their website. So, what I’ve seen in this market so far – and Amy and the team here have done an amazing job educating me – is a lot of our attorneys are looking for technology that directly solves their problems, but they’re still running a small business, so they may not need a very large, multi-application platform. When you have something like LawPay, where it perfectly fits in where you want it to be, standalone or with other technology, you build a really nice loyalty, in terms of our platform.
AMBROGI: How much of the company’s overall business is the legal portion?
ARMSTRONG: It’s like 85%. We’re still very focused on the legal market. I would say we think about it every day, all day long. It’s very critical for us to make sure that we don’t lose sight of what our attorneys want from us.
AMBROGI: I know that Amy stepped into a higher role a couple of years ago. Will her role change now that you’ve come aboard, or does she stay as executive chairman?
ARMSTRONG: Look, I am so blessed to have Amy as such an active founder and executive chairman of the board. The plan is for her to absolutely continue in that role. We work incredibly closely together and she’s very much the heart and soul of AffiniPay. You’ve got to give her so much credit for having such a clear vision and building this business over the past 15 years. Myself and the entire team here feel very honored that she chose to trust us with her baby and to invite us to dream bigger and put together a plan for a new and bigger chapter.
I’m very fortunate that she’s still so generous with her time and that she’s still so involved. On the flip side, I think she’s excited for myself and Christian and Meg and the rest of the executive team here, along with our new board members, to all collectively define what this new chapter is going to look like, because I think the sky’s the limit for this business.
AMBROGI: Are you going to be looking for any outside investment going forward?
ARMSTRONG: You don’t get a better software investor than TA. The great thing about TA is they are incredibly supportive. We are a very strong platform investment for them out of their payments practice. So, at this point, there’s no plan to raise outside funds. If anything, they’re very happy to give the team time to stay the course and invest more in the business, which I think is great news for our team, it’s great news for our clients. We’re in a really sweet spot in terms of having really nice runway in front of us in terms of being able to not only dream about the next chapter, but go execute on it.
AMBROGI: In the few minutes we have left, anything else you wanted to say?
ARMSTRONG: I’m just very excited to be joining. I think, there’s so much opportunity for this business and I’m going to be very focused on putting the right team together and making sure that we don’t lose sight of our customers that we’re serving. Hopefully, a year from now, you’ll be even more impressed by what were able to do.
AMBROGI: Sounds good. I’ll check back with you then.