When Heartland bought a slew of restaurant POS systems in 2015, the market went into a panic. We saw the classic knee jerk reactions predicting the end of the hospitality POS market as we know it.
“Heartland will own everything!”
“There’s no room left to play!”
“How will I survive?!”
But inside Heartland, leadership knew it wouldn’t be that easy.
In buying these POS systems, Heartland had to sidestep some legitimate pitfalls. First, there’s the nasty truth that most M&A fails to meet expectations. Next, Heartland had to cautiously cut unproductive redundancies which had them trimming close to 60% of their resellers. Lastly, Heartland realized there needed to be a cohesive product strategy.
While Heartland would continue to let their legacy POS assets operate independently, none of them were particularly well-suited for the future. Many were written on old technology stacks. Not one was mobile/cloud-first. Integrations with third parties were less than seamless and the customers, growing ever more comfortable with technology, would eventually demand more.
Heartland swallowed hard and appropriated a good chunk of money to build Xenial, a POS system built on the know how of Heartland’s POS acquisitions with a mobile/cloud-first DNA. None of the existing POS systems were to be abandoned, but Heartland had to prepare for the future too. Think about this logically.
Heartland acquired four legacy hospitality POS systems (we’re not counting Leaf or LiquorPOS):
- Digital Dining
- Dinerware
- PCAmerica
- Xpient
This means Heartland has at least four different teams supporting products that aren’t getting any younger. These are teams with their own siloed employees working on sales, product, marketing, and channel relationships. It seems like a large cost in a thin margin industry where the market is migrating to an entirely new technology stack in cloud POS. Put another way, if you were Henry Ford how much money would you continue investing in your horse-and-buggy business while your Model T kept selling out?
Lighthouse (now called Shift4) might very well need to follow Heartland’s learnings around product after the creation of Lighthouse Network, a parent company holding Harbortouch and their POS acquisitions. Like Heartland, Lighthouse finds itself owning a number of legacy POS systems:
- Future POS
- POSitouch
- Restaurant Manager
This is in addition to Echo and Elite, Lighthouse’s homegrown cloud POS products built between Allentown, PA and Lithuania. Echo and Elite have two distinct codebases and target markets, so it means Lighthouse is also paying for at least four different teams with the majority of those supporting aging POS products that carry a lot of cultural baggage. As proof, POSitouch didn’t even bother with cloud development and instead turned to a third party to figure it out, increasing costs for their merchants.
Yet Lighthouse is taking a different product approach than Heartland. While Heartland feels that the market will inevitably demand cloud POS functionality over time, Lighthouse believes there might be a grey area.
“Some of the POS brands we acquired have more ‘mature’ software than others,” says Jared Isaacman, CEO of Shift4. “It doesn’t make sense to ditch these systems and replace them with something new.”
Instead, Jared thinks Shift4 should fill gaps in their existing POS systems to make them more complete. “We definitely intend to have a degree of commonality across the POS brands. That could be in the form of common back-end technology, a common cloud, common third-party integration points, common pay-at-table solution, and others. That doesn’t mean we are going to replace the core front-end software that has defined our POS brands and made them successful.”
In this way Shift4 will continue supporting and modernizing (i.e investing in) each of its POS assets. But boy does is sound expensive – just ask Heartland. It appears that Shift4, at least to us, has a backup plan in the event the market doesn’t see things Jared’s way.
Harbortouch Bar and Restaurant (HBR) is a cloud-based POS system for the hospitality industry that’s been in development for over two years. Jared shares that it’s been in beta for several months already, and will go into full deployment in the first part of 2018. “HBR has more mature features than current Elite Hospitality and Echo products,” shares Jared. “HBR is also suitable for multi-locations across full service and quick service environments.”
“But just because we have HBR doesn’t mean we aren’t committed to supporting all of our other POS software.” Jared is emphatic that Shift4 will continue to marry payments with their existing POS portfolio in ways the industry has not yet considered. We don’t doubt it, as Shift4 has always struck us as very innovative, especially when juxtaposed with their industry peers. Though we always like to think big picture when possible.
Processing businesses get a low revenue multiple relative to software businesses, which get a 5x multiple. This alone should provide sufficient motivation for Shift4 – or any processor, really – to strongly invest in recurring revenue software solutions. Accomplishing this under Jared’s perspective seems to entail building APIs that enable additional software to be sold on top of their existing POS systems. In Heartland’s view this might be best accomplished with the transition to a new POS system.
Only time will tell which approach is best. What we do know is this: doing less often results in more.
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