{"id":11676,"date":"2022-07-12T06:58:20","date_gmt":"2022-07-12T11:58:20","guid":{"rendered":"https:\/\/reformingretail.com\/?p=11676"},"modified":"2022-07-12T13:48:40","modified_gmt":"2022-07-12T18:48:40","slug":"the-no-mans-land-of-retail-how-merchants-with-5-50-units-are-trapped","status":"publish","type":"post","link":"https:\/\/reformingretail.com\/index.php\/2022\/07\/12\/the-no-mans-land-of-retail-how-merchants-with-5-50-units-are-trapped\/","title":{"rendered":"The No Man’s Land of Retail: How Merchants with 5 – 50 Units Are Trapped"},"content":{"rendered":"\n

Investors don’t like companies that sell to retailers.<\/p>\n\n\n\n

Period.<\/p>\n\n\n\n

Long sales cycles, unsophisticated buyers (which cause the long sales cycles), and low margins are a death trap.<\/p>\n\n\n\n

In fact Toast couldn’t raise any institutional money until they discovered payments processing<\/a> (ie restaurants have no idea what payments should cost and Toast could gouge ’em<\/a>).<\/p>\n\n\n\n

Once again synthesizing a conclusion from what we’ve observed, the only companies that have made money focusing on retailers have been those that take advantage of the retailer, often by making money in invisible ways or leveraging the retailer’s own customers against them (payments companies, Groupon, Opentable, third party delivery).<\/p>\n\n\n\n

Turns out you can’t actually build a large company in a reasonable amount of time ($100M ARR < 5 years) if you’re helping retailers.<\/strong><\/p>\n\n\n\n

Prove us wrong.<\/p>\n\n\n\n

While you ponder that, there’s something else we want to bring to your attention.<\/p>\n\n\n\n

Retailers in the 5-50 location range are in no man’s land.<\/p>\n\n\n\n

Let us explain.<\/p>\n\n\n\n

At 5-50 locations the retailer has achieved enough scale that they should<\/em> be hiring people from outside their family.<\/p>\n\n\n\n

These are professionals with roles in finance, marketing, IT, etc.<\/p>\n\n\n\n

Eschewing nepotism should bring in an outside view, and the outside view is usually one that realizes the retailer needs modern systems to compete and grow.<\/p>\n\n\n\n

The problem?<\/p>\n\n\n\n

Retailers with 5-50 locations will often move as slowly as retailers with 20x as many locations yet won’t pay what a large retailer might pay.<\/p>\n\n\n\n

In essence, the 5-50 unit retailer is smart enough to know they need help but can’t afford (or is unwilling to pay for) the help they want. <\/p>\n\n\n\n

Here’s a summary of sales cycles <\/a>by ACV (annual contract value):<\/p>\n\n\n\n

  1. Deals < $2,000 in ACV should close on average within 14 days.<\/li>
  2. Deals < $5,000 in ACV should close on average within 30 days.<\/li>
  3. Deals < $25,000 in ACV should close on average within 90 days.<\/li>
  4. Deals < $100,000 in ACV should close on average within 90\u2013180 days depending on the number of stakeholders and gates.<\/li>
  5. Deals > $100,000 in ACV will take on average 3\u20139 months to close.<\/li><\/ol>\n\n\n\n

    How can a vendor hire a sales person, put them on quota, and hope that they’ll earn enough money to stay in the role if the customer paying $25,000 in ACV is going to take 9+ months<\/strong> to make a buying decision?<\/p>\n\n\n\n

    You can’t.<\/p>\n\n\n\n

    Which is why companies selling to retailers aren’t generally investible unless they tap the secrets of payments processing or use a consumer lever to extract their needed financial returns at the expense of the retailer’s financial solvency.<\/p>\n\n\n\n

    And unlike traditional white collar industries, retailers don’t really self-discover.<\/p>\n\n\n\n

    So there is little if any reprieve on that sales cycle, unfortunately. <\/p>\n\n\n\n

    Retailers do<\/em> act like lemmings, however, which can certainly be used to a vendor’s advantage, but it takes a long, long time before you can benefit from such buying behavior.<\/p>\n\n\n\n

    All of these problems are only exacerbated when you’re talking about systems integration work that might be required for a given solution.<\/p>\n\n\n\n

    Take a 20-unit retailer that uses online ordering, POS, loyalty, and kiosk.<\/p>\n\n\n\n

    Each one of these systems would need to be integrated for a solution like CDP.<\/p>\n\n\n\n

    And each integration takes tens of hours (we don’t care what “APIs” might exist because there are always issues, and chasing third parties for API credentials is inherently unscalable).<\/p>\n\n\n\n

    At a reasonable $100\/hr services fee (ie not subsidized by investor dollars), that 20-unit retailer in this scenario is going to pay $10,000+ just to get a solution up and running, which is often just as much as the end solution they want to buy.<\/p>\n\n\n\n

    In other words, the cost to pave the road is often more than the cost to buy and drive the car if you’re a smaller retailer.<\/strong><\/p>\n\n\n\n

    Now, that $10,000 setup fee is relatively trivial if you’re a retailer earning $500M in revenue, but it’s different story if you’re that 20-unit retailer earning $15M in revenue.<\/p>\n\n\n\n

    What’s a 5-50 unit retailer to do?<\/p>\n\n\n\n

    They’re going to have to buy faster.<\/strong><\/p>\n\n\n\n

    And if they can’t do that then they should expect to keep being taken advantage of by any vendor that raises institutional capital. <\/p>\n\n\n\n

    The costs for that vendor solution might look good upfront, but that TCO is going to be through the roof once you figure out how the vendor is actually<\/em> charging you.<\/p>\n\n\n\n

    Or retailers can choose to be lapsed by retailers that can afford to make sales cycles work for vendors.<\/p>\n\n\n\n

    Because math is math, and if you want to compete you have to make smart investments in a reasonable amount of time.<\/p>\n