Walking around the streets of San Francisco – Square’s hometown – it’s odd to see the absence of the eponymous logo in full service restaurants.
Small cafes, sure, but larger, sit down establishments?
Zilch.
Those belong to the Toasts, Spotons, some Clovers, and thin but long tail of alternative POS systems.
What happened?
How could Square, who was so well positioned to win that market, cede it to Toast, and in so doing leave billions in net revenue for someone else to grab?
A little background.
Founded in 2009, Square was the first to notice that many small merchants wanted to accept cards but couldn’t find a reasonable way to do so. These merchants (let’s call them a farmer’s market bread seller) weren’t going to buy a clunky and expensive terminal, find power and internet, and set up shop.
So Square built a dongle that would plug into a smartphone and take cards over Wifi or cellular networks.
A million copy cats came pouring in afterwards, but Square had built a great brand funded by venture capital dollars and became synonymous with SMB processing, much to the displeasure of legacy processors who had been ripping a few hundred basis points on small merchants without consequence.
Square wasn’t one to rest on its laurels so it aggressively invested into business operating systems (i.e. point of sale) so that they might grow with their merchants.
Farmer’s market bread seller wants to open a store?
Fantastic: here’s a POS and a bunch of ancillary software to support your business pursuits: inventory management, payroll and accounting, reporting, marketing, loyalty, brand management, lending, etc..
But in the cracks of obscurity, after learning that merchants would never pay for value and legacy POS companies were not inclined to do anything in the best interests of their customers, an upstart named Toast discovered payments and gobbled endless amounts of free capital to out-execute Square and virtually everybody else that was hanging on in the space.
Now Toast boasts ~125,000 doors, with larger and more financially stable merchants than Square could ever dream of supporting.
Toast, and to an extent Spoton, earned their spot in the market by being the antithesis to Square.
What do we mean?
Smaller merchants seem more inclined to self-discover. It could be because these are professionals who have a side hobby or passion, and they’re generally employable outside of selling loaves of bread at a farmer’s market.
Larger retailers – especially restaurants – do NOT self-discover, are NOT otherwise employable, and already know the answers to everything.
Accordingly, they require active and very expensive sales motions.
Sales people need to be aggressive and incredibly patient to deal with these personas… imagine trying to tell someone who already knows everything that they could use something they’re not already using.
It’s insanely challenging.
This is where Square missed the boat: believing that a product was so good it would sell itself.
Turns out it doesn’t work in retail, and probably doesn’t work in a few other verticals either.
Square is making slow progress towards legitimately competing upmarket, though seems keen to let Toast and Spoton keep taking share.
Like our stroll in San Francisco showed, Square is just nowhere to be found.
Which just strikes us as odd, as Square clearly wants to move further upmarket into larger and more stable accounts. And we’ve heard that Square is *trying* to build a direct sales force and are reinvesting in the product to be feature compatible upmarket.
Frankly, the latter is easy: that’s just a function of engineering spend.
A sales culture is very hard to change, especially when Square has been anti-sales from day one. It is deep to the core, and it feels as though Square is so far behind that they would need to acquire something to catch up in a reasonable amount of time.
Square may be entirely misguided here, and could throw good money after bad.
“Oh, we’ll just mature features and build a salesforce.”
We think it’s time Square face the music: a go-to-market muscle is literally the most important part of selling to brick and mortar.
It’s as if Square is casually dismissing this, likely because they had it so easy in acquiring SMBs. It would be like telling Google or Facebook that it was hard selling B2B.
These companies just don’t know because they stumbled into a once-in-a-century flywheel by virtue of nothing more than being in the right place at the right time. People heap praise on Sheryl Sandberg as if she did something special, but even a restaurant owner would have turned Facebook into a deca-billion dollar company as a COO.
Just no way to counteract the consumer inertia at that magnitude.
Being a public company means Square can’t wait 20 years (like Olo) for some global pandemic to come along and change merchant behavior.
Square is going to have to get off their asses and sell.
How they decided not to raise a few billion dollars at peak software valuations in 2021 to advance their upmarket POS efforts is truly mind blowing.
Somebody f*cked up big time.
Maybe it’s why Alyssa is no longer there.
We get that you can’t do everything, but Square is going to need more market share to keep growing. As is becoming clear to Toast, expanding ARPU is elusive as merchants won’t pay for anything, ROI be damned.
Can only make more money by stealing it out of the payment stream, which merchants cannot and will not audit.
Square’s reputation is sterling, and we do not see them stooping to Toast’s level in making their numbers unless they are in dire straits.
Which means Square will need to find other ways to grab share.
It’s like we said a year ago: Square needs to acquire go-to-market muscle.
They can’t afford to get it wrong.
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