As a number of our readers have observed, RSPA’s RetailNow show was a relative graveyard this year. For those that did exhibit, many had few prospective resellers come by their booths, making the show an economic loser. “I’ll give RSPA one more year, then I’m probably done exhibiting,” shares one ISV.
The channel is under pressure on all sides. We’ve written about this for years. Here’s a bulleted summary to get caught up:
- Smaller merchants are choosing their software online, directly from the ISV, or hearing about it from a payments rep. Square is a testament to the benefits of SEO and branding
- Larger chain merchants are working with the ISV directly since many of the support issues can be handled remotely with cloud software
- Hardware prices have come down and been made transparent by the internet, leaving little mark up opportunities for a reseller
- With merchants preferring SaaS pricing a dealer can’t make any money unless they have > 500 locations. $20 per month per store is not enough to cashflow a new dealership
- Payments processing is being bundled with the software, leaving less for resellers
None of these are helpful trends for resellers. Yet there exist channel intermediaries (or resellers, as you might say) who are doing quite well. How is this possible?
The answer is simple.
They don’t run lifestyle businesses.
Over the past few decades resellers became lazy. They wanted their 8 weeks of vacation. They wanted to spend the month of December in Europe. They’d live on the lake in the summer and “work remotely”.
This might have worked before SaaS, but investors are giving recurring software businesses massive multiples relative to hardware and perpetual software businesses. That means capital is aggressively chasing these software growth opportunities. Can you blame Toast for raising $500M? The restaurant market is massive, and converting those merchants to a SaaS POS could bring great returns to investors. And to chase that opportunity people at Toast are working 60, 70, or more hours per week.
Are you willing to work that hard?
You can’t run a lifestyle business in software unless you’re in an uninteresting, small market. Otherwise you’re going to be competing with intelligent people managing billions of dollars who are eyeing every possible way to generate outsized returns. And globalization has only made things more competitive.
Dealers thought they were in a hardware business. The market has shown them differently.
Don’t bring a knife to a gun fight.
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