Lighthouse Saves Restaurant Manager from Itself, Produces Massive Value for Its Legacy POS Co’s

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Started in 1987, Restaurant Manager is a restaurant POS system that could be the poster child for legacy POS. Nearly unchanged for 30 years, Restaurant Manager’s leadership refused to make upgrades until it was too late. Their cloud product, Duet, officially launched in mid-2016. Here’s a beta site from March of 2016.

You read that correctly: Restaurant Manager didn’t have a cloud product ready until mid-2016. Square was founded in 2009 and had a $10B public market cap by the time Restaurant Manager announced any cloud investment. Before you think Square was a roaring first adopter, here’s how much money other cloud POS companies had raised by March of 2016.

So yes, cloud was a well-establish, inevitable future by the time Restaurant Manager had gotten around to it.

And you know what’s worse? The cost to build cloud functionality on top of an existing POS system is cheap! We’d argue the harder – or at least more time-consuming – part of point of sale is acquiring features: building features to be relevant for different types of merchants takes a considerable about of time. Softtouch, a legacy POS, built cloud functionality (data replication) for around $20,000. We’ve done you the favor of calculating this cost from the bottom-up if you want to audit our work.

Not only is the $20,000 a trivial amount of money, it’s an investment in the future of your POS product that delivers massive ROI. Don’t believe us? Okay, here’s a proven example from the same article:

As soon as an ISV has the transaction data, they can begin incrementing their own revenue substantially. By passing the data to merchant prescriptive analytics products (which are sold preemptively on ROI), ISVs can now increment revenue per account.

We find the merchant attach rate for prescriptive analytics to be between 30% and 50%. This large discrepancy is based on segmentation: a small merchant who runs a lemonade stand is not going to pay for much besides POS and payments, whereas larger merchants – over $750K per year in revenue – find greater ROI in data solutions.

Let’s make the math easy and say the price for the prescriptive analytics tool is $100/mo. Since legacy ISVs have proven incapable of even building decent database structures, they’re going to need to find a white label partner for the prescriptive analytics. Like Apple’s app store model, let’s assume the developer takes 70% of the revenue and the ISV the remaining 30%.

We also know from experience the sales cycle for conversion is < 90 days. Let’s assume it takes the full 90 days just to be conservative on our math. So between 30% and 50% of an ISV’s customers are paying $30/mo for 9 months in the first year. Want to know what that amount to?

9 months x $30/mo * 30% (being conservative!) of 5,000 merchants = …

$405,000 a year for a measly $20,000 investment!!! That’s an ROI of 2,000%. And it’s not even including additional product or services revenue (which we’ve proven to be at LEAST as much).

Oh, and by the way, this is the financial benefit in only the first 12 months: never mind that this is an ongoing revenue stream. And really, since there are no other costs associated with this revenue, it’s actually pure profit.

Why didn’t Restaurant Manager’s leadership make these obvious updates? You’d need to ask Alex yourself. But we could have predicted this would be the outcome. How? A time-tested methodology that can be applied anywhere. Ready?

Does a person respond to emails and phone calls?

Not even, “Does a person respond to communication in a professionally courteous manner?” but does the person respond at all? For Restaurant Manager, the answer was unequivocally no.

An unwillingness to respond means you cannot learn. If you don’t learn you cannot improve. This is the same behavior that can be blamed for brick and mortar’s troubles, and it’s the same behavior Sam Walton tried to avoid at Walmart.

Luckily for Restaurant Manager, Lighthouse Network, the new parent company of Harbortouch, has purchased Restaurant Manager, and will upgrade its company culture and put the company on the right trajectory. This will not only be good for Restaurant Manager as an organization, but for its channel and customers as well.

Brendan Lauber, Lighthouse Network’s CTO and founding member of Harbortouch, told us that Lighthouse was established to acquire and support POS companies with all the things Harbortouch has learned. “The first asset we put under the Lighthouse umbrella was Harbortouch,” Brendan said. “Then we noticed that there were a number of other POS ecosystems – meaning the POS ISV, channel, and customer base – that could benefit from the vision we had with Lighthouse.”

So Lighthouse acquired a number of what would traditionally be described as “legacy” POS companies: Restaurant Manager, FuturePOS, and POSitouch. “We didn’t want to pay the premium for cloud POS… that’s not to say other cloud POS companies aren’t good, but we thought we could provide more immediate value to POS companies that were a little further behind.”

We asked Brendan more about what help Lighthouse would provide its new POS assets. “First, and let me be clear about this: we are not going to disrupt the channel of any of our new POS companies,” Brendan emphasized. “But we’ve noticed that there is an undeniable collision course between payments and POS. Many POS systems and their channels don’t have the ability to combat the Silicon Valley model of zero upfront cost. If you’re a reseller of XYZ POS today, you’re losing merchants to companies that come in with a ‘zero dollars down’ type plan. Lighthouse wants to arm its new dealers with the same weaponry of a zero upfront cost POS system… because the truth is that merchants are going to buy a POS system, and if it’s not from you you’re losing money.”

Of course our natural reaction was that Lighthouse Network, who pioneered the free POS model, would somehow mandate that its new POS companies and their dealers use their credit card processing.

“That couldn’t be further from the truth,” Brendan responded. “We want dealers to continue selling the way they did. But we want to give them more tools to be more successful if they so desire. These dealers now have access to the Harbortouch POS products and free POS model to remain competitive. There are no protected territories for Harbortouch POS, and we will help dealers with remote support after our learnings across tens of thousands of sites. Dealers can still handle onsite support, and dealers will not be allowed to sell other POS products in the portfolio without special consideration.”

When we asked Brendan to clarify, he explained that a dealer of POS A will not be able to sell POS B unless there are special circumstances. All dealers will be given access to the Harbortouch POS lines, but a Restaurant Manager dealer will not be given the rights to sell POSitouch.

But the biggest dose of assistance comes from what Lighthouse is doing on the technology side.

It’s no secret that Moore’s Law is putting pressure on hardware and software. In order to remain competitive, POS systems need to be able to connect seamlessly with third party systems that can earn new revenue streams for the channel and make the customer more successful. In this vein, Lighthouse is building a universal API, termed Lighthouse 5, across their POS systems.

“Lighthouse 5 will allow Lighthouse to find best-of-breed partners and enable their products and services across our entire portfolio. This greatly increases the likelihood of using one of our POS systems while simultaneously producing more value for everyone from the customer through the channel,” Brendan stated. “I’d like to get the API done quickly, but realistically the API will be ready sometime in the middle of 2018.”

We can’t emphasize how massive this is. Lighthouse is revitalizing legacy POS companies that couldn’t get their feet under them, as clearly demonstrated with Restaurant Manager. Lighthouse will be able to provide a data connector that, not only reduces end-customer costs associated with the API marketplace approach taken by companies like POSitouch, but enables Lighthouse’s entire ecosystem to realize more value in choosing a Lighthouse Network POS system.

We suspect Lighthouse leadership took a look at the math we laid out and objectively rationalized the value in the investment. How other, legacy POS companies refused to acknowledge such an opportunity should strike all of us as nothing short of appalling. Luckily, Lighthouse won’t make the market suffer under such myopic leadership going forward.

RIP shitty business decisions.

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