Lightspeed POS Files for IPO But Has Not Learned Industry Lessons about Focus

Those who cannot remember the past are condemned to repeat it.

So said George Santayana, a Spanish essayist in the early 1900’s. George’s comments are undoubtedly overlooked throughout the annals of history but we can’t be too hard on past transgressors: information was hardly well documented until the 18th century, and the original learning opportunity often fall many generations in the past.

Which is what makes Lightspeed POS’s impending blunder inexcusable.

Lightspeed originally followed industry best practice when it came to augmenting their POS with non-core offerings: they partnered with a third party and white labeled the result. But somewhere between then and now Lightspeed has veered from this path, and it has dangerous consequences.

First Lightspeed purchased Crank Logic, the business intelligence tool it was white labeling for retail analytics. Then Lightspeed purchased Reup, a Canadian loyalty provider.

This in itself is not surprising considering Lightspeed acquired its way to both cloud retail and restaurant POS platforms (crazy but true: Lightspeed started with – and still has – a legacy retail POS solution). But it’s worrying when they’re buying non-core assets.

Of course there are a few ways to view this.

One perspective sees these actions as aligned with brick and mortar’s dangerous rising bar of table stakes. During a sales process the POS company just needs to check a box to remain in the hunt. So a potential customer might ask if there’s an included “________” (insert whatever feature you want). The POS company might decide it’s preferable to check that box by buying something rather than building it internally. The POS company then acquires a solution but agrees to put few resources into further maturing the feature since it’s nothing more than a literal check-the-box.

The other perspective flies damn close to hubris: the POS company believes it can build the POS plus everything else that touches the POS. And not just build, but have legitimate, competitive solutions in non-core areas. We’ve beaten this horse to death but apparently not enough to get through to everyone. So once again, these are the problems with trying to monopolize the entire ecosystem of bolt-ons:

1. A Lack of focus on core POS ultimately means you’ll lose market share. Sound counterintuitive since your customers are “demanding” non-core features? Well, all the resources you’ll splash on activities not named POS are dollars you’re not putting into your core POS while your competitors are. Eventually you’ll miss the next quantum leap in innovation (from ECR to DOS, from local server to cloud, or the pending physical input to NLP/neural sensor). Go look at NCR if you don’t believe us: behold a company that doesn’t have a cloud replacement for their Aloha POS despite 9 years of market evidence on the growing trend in cloud. NCR was so busy reinforcing their walled gardens and building shoddy bolt-ons that they missed the boat. Entirely.
2. Your continued demonstration of nepotism will scare away the third parties that make your POS a platform. Why would a third party risk material resources in committing to your customers if they thought you would just build a competitive product as soon as you could? Oh, and because you’re a cloud POS you can turn off that data feed at any time to snuff out a third party; that ain’t lost on potential partners either. If you want your POS to be a platform, you have to treat it as a platform.
3. Despite the spreadsheets that make it seem like building your own bolt-ons is an astute financial maneuver, they never account for market reality. That is, the market doesn’t stand still. Silicon Valley has suffered through an unbundling phenomenon over the past several years and the rest of the world isn’t exactly immune to market trends. In acquiring a bolt-on you’re agreeing to take on a number of intangibles that inconveniently come with that shiny Excel revenue number:
   • Slower sales cycles as you retrain sales employees across a burgeoning number of products. Can these sales people know the ins-and-out of your POS and all these other bolt-ons well enough to not over-promise?
   • Higher support costs: now your customers will call you for an increasing number of issues. Will your support team be appropriately trained on the complexities of your POS in addition to all the bolt-ons you’ve cobbled?
   • Innovation against a growing list of competitors. You’re no longer just competing on POS but also on all of the bolt-ons you’ve decided to take on. You’re telling us you’re going to have the same level of innovation for each of those bolt-ons as a stand-alone company that focuses on that one bolt-on all day, every day? Riiiight.
   • These cost inefficiencies aggregate geometrically with every bolt-on you take on. But not to you of course, because…
4. The customer gets stuck with the costs of of your inefficiencies. Ever wonder why Micros and NCR Aloha tendered such high prices? To feed their fat, complacent pigs of an organization. The net result was that customers were paying far more for inferior products.

Cloud POS, which rightly sought to disrupt these legacy models and democratize data access/innovation, is falling into the same trap as their legacy counterparts. At this rate it won’t be long before it becomes impossible to tell these atrocious business models apart.

So the long and short of it is this: Lightspeed is inviting a plethora of challenges with these bolt-on acquisitions if they believe they’re going to be anything more than a check-the-box.

Why bring this pain upon yourself?

Because you must be desperate.

Lightspeed has already announced its intention to IPO. After nearly $300M in venture capital, Lightspeed must generate a liquidity event for its investors. And at their current rate of growth our guess is that Lightspeed is searching for a way to increment its revenue to 9 figures of recurring – the implicit floor needed to go public at a billion-dollar valuation. Without the expanded revenue these bolt-ons would seem to bring on paper, Lightspeed is finding itself short of the revenue figure.

We asked Lightspeed to answer some clarifying questions but they danced around the subject. It’s likely too late for Lightspeed to make the needed changes, but we’re optimistic other POS companies can learn from this exercise before they turn into the legacy POS companies they’ve tried so dearly to differentiate from.

When you try to build everything you build a lot of things poorly.