When we think of large companies struggling with innovation, we often ask ourselves how it happens. They have so much money, so many resources, a dominant market position, and yet they lose the war to a startup nobody even took seriously. WTF?
In defense of large industry incumbents that serve brick and mortar, I have a theory for why it doesn’t just happen, but rather why it’s commonplace.
Brick and mortar is a special market segment. Sales cycles are forever long. Contract values are tiny. And because there’s no market leader or 80/20 anywhere, it takes massive scale to make a dent in the market.
The solution for payments companies (merchant acquirers) and POS companies alike has been to create reseller networks. The reseller operates somewhat under the corporate banner but is ultimately its own entity. Translation: pushing initiatives through a channel can be like pushing a string and hoping it miraculously finds its way through the eye of a needle.
Further, merchant churn is crazy high in brick and mortar. Reported failure for restaurants is as high as 60% in the first year, with a full 80% dissolving after five. Statistic Brain says that only 47% of retail establishments make it to the five year mark. And these are businesses that will be lost even if they like your product – we haven’t yet considered the number of businesses that will boot you out in favor of a competitor! In aggregate it’s very high churn indeed…
The understanding becomes profound when you combine the above two brick and mortar phenomena with the desire to meet quarterly goals. Think about the number of merchants dumping your service and how hard it is to find a channel partner that can reclaim business someplace else. It’s more than a full time job just trying to keep the boat afloat, never mind beating quarterly expectations.
While Google is working on self-driving cars, POS and payments companies are just trying to acquire enough merchants before the end of the month. These companies are not money-printing enterprises; there isn’t a gluttonous amount of money for R&D like there is over at Facebook. So initiatives inherently take more time in brick and mortar.
Though none of this should be an excuse for not doing the right thing, or sprinting when it’s opportune. If you spend your life torpidly scouring the pavement for pennies, you’ll miss the benefactor across the street handing out dollars. It does pay to know when to look up and run.
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