Paycom Software (NYSE: PAYC), which sells cloud-based workforce management and payroll software, is in the midst of an impressive growth streak, having increased its annual revenue by more than 40% for each of the past four years. But the market is a forward-looking animal, and discussions about whether that kind of growth is sustainable invariably turn to Paycom's moat -- or, rather, its lack of one. How is this tiny company continuing to gain market share at the expense of deep-pocketed industry giants like ADP and Paychex?

The short answer is that I don't think there's any single thing Paycom offers that its customers can't get from another company. Paycom simply offers the smaller-sized businesses it targets (between 50 and 2,000 employees, generally) a very attractive combination of product, service, and pricing. That said, several quotes from the company's most recent earnings call illustrate a few things that are helping Paycom win clients and keep its competitors at bay.

Paycom Software's headquarters

Image source: Paycom Software.

One database to rule (and manage) them all

Paycom's software solution is one integrated application that runs on a single cloud-based database. This eliminates the headaches created by using different software for diverse functions including payroll, time entry and tracking, recruiting, performance reviews, and compliance with government regulations.

Chad Richison, Paycom CEO, provided these examples on the company's first-quarter conference call:

Our sales representatives are finding that our single database application, which spans both payroll and human capital management, or HCM [human capital management], continues to resonate with prospective clients. Companies are attracted to the significant ROI they can achieve by deploying our solution. With our intuitive user interface that can be easily navigated by every employee type, our comprehensive suite that covers employees from hire to retire, Paycom presents a compelling alternative for mid-market companies looking to replace disparate point solution providers.

[...] we signed a workforce solution company with over 6,500 employees. This client had been using another provider for payroll, several other HCM vendors and even paper-based processes in certain areas. With Paycom, they were able to eliminate all of these systems and create a single workflow for their employees.

A service model that includes on-site training

Richison also noted that clients are drawn to Paycom's level of customer service, which includes having reps on site to help with employee training:

[...] we brought on a hospitality company with over 6,700 employees. They decided to shift away from their former HCM provider and were evaluating several companies, including Paycom. [...] Our one-to-one customer service model, as well as our commitment to a rapid implementation with a strong on-site presence, were also important to this client.

[...] in Paycom's implementation process, not only our sales people, are held responsible by being out on-site at the client. We also have a very strong transition rep group, which does go out and not only help clients on-board on to our system, but it's also there to help train the clients as well as foster the usage at the employee level, the client-employee level. And so I would imagine all of that would have been good reason for this client to choose us, or one of them, one of the reasons for this client to choose us.

Continued heavy investments in R&D fuel the top line

Paycom's not resting on its laurels, with Richison noting in a recent investor presentation that the company has increased its R&D budget 100% year over year for each of the past three years. And on the conference call, Richison stated:

...if you're one of our clients, you're definitely going to see more product coming out. I mean, we do continue to go deep into the current products as well as expand them. We do publish the software updates monthly. As far as what we're specifically working on, I mean, like in the past, we operate in a very competitive environment and we don't want to provide a road map to our competitors as far as what we're focusing on. But we also believe their R&D efforts drive our top line results, and we feel like this quarter was a good example of that.

A different breed of salesforce

Interestingly, Paycom has a strategy of not hiring its salespeople from within the industry, which so far has been very effective. If I had to guess why, perhaps Paycom's smaller clients just feel more comfortable talking to these "outsider" types than industry sales vets. Richison noted:

Well, as a reminder, we look for people that don't necessarily have a sales experience and we do not hire people that have sales experience from within our industry. So we are still a hire and development group from a sales organization. That being the case, oftentimes, this is somebody's first sales job when they come to Paycom. 

Can Paycom keep winning?

Moat or no moat, Paycom looks poised to gain an even stronger foothold with small- and medium-sized businesses, recently affirming its annual top-line growth goal of 30%. Despite all of its success, the company says it hasn't seen the competitive environment change a whole lot. This would seem to indicate that -- at least for the moment -- Paycom's smaller company niche still offers a lot of upside from here.

Responding to whether the company is seeing its peers compete more aggressively for Paycom's target customers, Richison stated:

Yes, we don't talk about win rates. But what I will say is that the competitive landscape as we see it has remained substantially the same for a long period of time for us in the mid-market as far as the players that we see.

Andy Gould owns shares of Paycom Software. Andy Gould has the following options: short May 2017 $50 puts on Paycom Software. The Motley Fool owns shares of and recommends Paycom Software. The Motley Fool recommends Automatic Data Processing. The Motley Fool has a disclosure policy.