Working in brick and mortar can get depressing. Like seriously depressing. Customers are really unsophisticated and so are most of the vendors (and channels) in the space. Meanwhile you watch startups in other industries racking up billions in valuations even if they’ve only been at it for a year.
What gives?
The culprits always seem to be the same.
First, the lack of sophistication drives down the perceived value of a solution while driving up the sales cycle needed to place it. Think of a more tangible example: how long would it take you to sell proven chemotherapy drugs to an ape dying of cancer? The ape would beat you with his fists and cover you in feces long before he both realized he had cancer and accepted your solution as workable. (You shouldn’t laugh: merchants use third party ordering and delivery without knowing how detrimental the services are to their survival, and they’re possibly giving away most if not all of their profits to credit card processors in a locked-in POS model.)
Second, Dunning Krueger rears its ugly head in the absence of good solutions (the good solutions are pushed aside as early investors don’t want promising ideas spending time in brick and mortar industries). This means the remaining entities in brick and mortar think they’ll be able do everything themselves and verticalize the stack. “The pitfalls that befell NCR and Micros? Ha, that won’t happen to me!”
Sure thing, brah.
We wanted to turn to two objective pieces of data to discuss a bit of this.
First is a company called Zapier. Zapier is basically an API layer. Odds are that you use a number of different software services for your daily job. Wouldn’t it be great if those softwares could talk to each other? Well, you could get your technical team to write an integration, but that might take months.
Enter Zapier.
From its humble beginnings in 2011 to a small (and only) round of seed financing of $1.2M, Zapier now does $50M of annual revenues and boasts over 1,300 integrations.
Awesome, right?
Let’s compare that to Omnivore, which has sort of become the main “API layer” for restaurant POS systems. Founded in 2013, Omnivore has raised over $10M publicly, though we’ve heard it’s $15-20M more from Outback Steakhouse founder Chris Sullivan and others while earning roughly $300K of MRR as of mid-2019 (Omnivore wouldn’t comment on the matter).
By our latest count as posted on their website, Omnivore has 63 app integrations and 11 POS integrations.
The foodservice industries do nearly $1T in total revenue, so it’s not exactly a small market. There are likely over 250 US restaurant POS companies alone. So why is Omnivore so small when compared with Zapier?
Try not to act surprised, but foodservice is amazingly unsophisticated. This is no knock on Omnivore. Omnivore has gritted its teeth and stuck it out to force the market to yield to its demands. While we don’t think an API layer is long-term practical business model when POS companies have their own APIs, at least Omnivore has hung in the game while countless others failed at the same task.
A big reason for Omnivore’s slow growth are the POS companies themselves. Touching on our second point in this article, POS companies operate little fiefdoms. They rush to monopolize the stack where they can, and they’re often slow to do any integrations that don’t fit their myopic (and suffocating) world view. It’s why NCR’s largest table service customer (or maybe their second largest table service customer, at least until they switch POS systems) has told us they use Omnivore: because NCR can’t get a workable API. Yet anyone close to the NCR-Omnivore relationship knows how hard and long Omnivore had to push that ball up the hill before NCR took them seriously.
Now we’ll turn to our next example.
Andreessen Horowitz is one of the most successful venture capitalists around. On September 11 of 2019, Jeff Jordan (who was at one time the CEO of OpenTable and now-partner at Andreessen Horowitz) and D’Arcy Coolican authored a piece about the unbundling of horizontalized businesses.
The gist of their article was that companies trying to do everything too broadly end up being cannibalized by companies that do single things very well. The armchair critics will howl, “They’re talking about horitzonalization, not verticalization! Ha, I’m too smart for Dunning Kreuger.”
Oh really?
So pizza is the same as QSR and fast casual, and table service and bars are the same buffets? Merchants love their POS so much that they never complain about their provider and there’s therefore nothing the POS company could ever do to improve their core offering? And there are so few features to build in POS that one can not only do POS but also payroll, and analytics, and labor, and marketing, and online ordering, and, and, and…
Not even close.
Oh brick and mortar: still a shit show no matter how much logic is dropped upon thee.
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