The Numbers You’re Not Seeing

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This guest post comes from John Giles, founder of Future POS. John makes an emphatic point that we will strive to hammer home in a series of later posts: POS dealers need to become business advisors in the changing market. They need to put the Value back in Value Added Reseller and learn to sell on ROI. Those that don’t will have a difficult time proving relevance.

I regularly read lots of articles by various point of sale and payments experts because I love to get alternative viewpoints. It helps me to stay well rounded and I very much enjoy the well-articulated, thought provoking articles by guys like Gideon Samid. It’s also fun to see your competition get poked in the eye from time to time.

One of my takeaways from 20+ years in the point-of-sale industry is how much everyone loves a good knee jerk reaction.  It’s like the dot com bubble, but much more frequent and far less catastrophic.  Every ISV can relate to this situation:  “We’ve GOT to have that feature. Product X has it, and Product Y is probably working on it. If we don’t have it by next year we’ll all go out of business.” Remember the release of ApplePay in 2014? My resellers were sure that we would all perish if we didn’t find a way to include ApplePay into our software immediately. Two and a half years later I still can’t use ApplePay or SamsungPay in most of the places I go. When a store says it is supported, I only half believe it because a large percentage of the time it doesn’t work and you feel stupid for holding up the line with your science experiment.

It’s a common industry practice to look at the hospitality market as layers of a pyramid.  The Chili’s of the world are at the top, and the one-unit hipster coffee shop is at the bottom.  The pyramid is pointy for a reason: for every Chili’s there are approximately 380 independent restaurant owners. Future POS has always done very well in the independent market, as well as small to mid-sized chains, and we continue to climb the pyramid rapidly.  Why? Because the bottom of the pyramid has become polluted with tablet POS and will take a few more years to re-consolidate. It used to be that we ran into cash registers in that segment of the market, and that was any easy comparison that everyone understood. With the tablet POS, it looks enough like a legit POS system to “fool” most consumers, when in fact if you sat 99% of them next to a Sam4 Cash Register, the Sam4 would have far more functionality, be far more reliable, and save you a ton of money in the long run. Hell, with all the hidden fees, most tablet POS systems cost more than a stable and mature Windows POS in a 3 year period.

So I see statistics being quoted like “26% of merchants are buying their POS directly” and the natural VAR reaction is probably to assume the sky is falling.  And some of them should be very worried. For many years during the golden age of point-of-sale, resellers sold on price. It was easy; Micros and Aloha were always more expensive, and the fact that we could effectively do everything those big guys do for less money helped us do extremely well in the independent market.

But times have changed. You can’t sell a Windows terminal today against the price of an iPad and make money, or even stay in business. These aren’t really apples-to-apples comparisons, but many VARs have gotten fat and lazy by dropping their price 5% and automatically winning for well over a decade.  These VARs need to rethink their strategy or go the way of the dinosaur.  They need to become the customer’s “trusted advisor” and guide them through the pros/cons of the various systems out there, and let them choose what fits their business. They need to know their product, and be able to demonstrate several reasons why it’s better and will save or make the customer money. Selling on ROI would be a good place to start; it worked for Xerox for decades.

So let me get to the point of the article: the numbers you aren’t seeing. A quick Google search revealed that 59% of startup restaurants go under in 3 years. Every VAR is familiar with this common startup story:  “We had some cost overruns on construction, unexpected costs, (fill in the blank), and we don’t have money left for the point of sale system we know we need.”  So the POS VAR goes away empty handed and the startup restaurant buys some internet tablet POS. Back in the day, that same startup would have gone to Staples and bought a Royal Cash Register. Today, it’s a sexy tablet POS that lacks meaningful features and reliability.

But how the story ends is still the same. How many Chili’s do you hear about going under in the first 3 years?  For that matter, how many 50+ unit chains, or 20+ unit chains, or even 3 unit chains fall into that 59% failure rate? I would bet damn few. So let me leave you with some food for thought. What percentage of that 26% of “self-installers” will fall into the 59% of failed businesses in 3 years?  My guess is that the percentage of self-installers who fail is far higher than 59%.

I would love to see a follow-up survey by Bob Frazier in three years.

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  • Bob Frazier

    I’m happy to do the follow-up survey!

    • Jordan Thaeler

      Ping John when you do!

  • Jerry D Wilson

    We have to wait 3 years to learn the end to this story? I don’t think so. The consumers have already begun to make their decisions and they will dictate the outcome. Chains will continue down their own path with traditional POS while the new buyer will go with a mixture of traditional and tablet POS. The smart dealers are proposing both and are moving their dealerships toward a monthly recurring income model. Those that don’t are going to suffer the fate of the cash register dealers of the 80’s and 90’s.

    • Jordan Thaeler

      The “traditional” ISVs are going to cloud: Micros is focusing 100% on Simphony and NCR is rolling out a cloud version of Aloha next year. Those legacy (more accurate description, I believe) ISVs that don’t build replication or “cloud” are going to be dead. Chains are turning to cloud solutions, though they rightly want local redundancy in a hybrid model.

      Yes, dealers are learning to sell on recurring revenue, but cloud is still much cheaper than their legacy counterparts. Unless dealers have a footprint of 1000+ merchants, this business model change is difficult to swallow. Dealers will need to learn how to recommend third party product or, frankly, become business advisors and consult. Not every merchant can afford this, but not every merchant needs a dealer as POS systems become easier to install and support.

      • Jerry D Wilson

        I hope you are not looking for an argument from me because you won’t get one. Unfortunately for the traditional dealer Cloud POS comes in a recurring revenue model that is hard for some dealers to transition to. This is a struggle that some may not overcome. I am openly concerned about dealers who are struggling with the transition to cloud POS.

        ISV’s will decide their own fate with their decision to offer Cloud POS or not.

        • Jordan Thaeler

          I’m not looking for an argument, but nobody could keep a straight face while providing a reason for not going to cloud or building replication. It costs $20K and gives customers 10x the value of a legacy system by itself. Avarice is the only argument against the investment and merchants will learn soon enough who those players are.