Archive | October, 2016

Another Nail in the POS Dealer Coffin

13 Oct

We’ve talked before about cloud POS and its disruption to the conventional POS sales channel. In fact, we argued that if cloud POS wanted resellers it would need to change it’s model to accommodate such relationships.

I’ve heard mixed results from dealers reselling cloud POS today. Some have said they need cloud in their portfolio to remain relevant, though more admit they aren’t making much on each sale. The model for cloud is still early, which leads me to believe the tale has not yet been told.

Last week Revel, a cloud POS company, announced something that many cloud POS providers have been working on for some time. And it’s critical to understanding the future of the POS dealer.

Let’s first re-hash discussion from an earlier post.

A reseller has four revenue streams.

1) Hardware. In the old days this was thousands of dollars in revenue share on $10,000+ hardware.

2) Software. In addition to that pricey chunk of hardware, the reseller would make a revenue share on that pricey software. This could be a few thousand as well.

3) Services. This included initial setup (i.e. menu/inventory programming), training, break/fix repair, software updates, added features and possibly consulting.

4) Credit card residualsMercury upended the model when they started sharing 50% of the processing “profits” with the POS reseller. Since then the payments market has continued to beat itself down on pricing.

We’ve talked how cloud POS – really the Internet - has materially disrupted each one of these revenue streams.

Cloud has virtually eliminated hardware margins. Commoditized hardware can now be searched for and purchased online, driving down prices. On average, a new hardware setup costs $1,300. Of that, maybe $300 is margin. Split between the reseller and ISV (independent software vendor), that’s slim pickings.

Cloud has dropped software prices steeply. The Internet has enabled collaboration and sharing to make software faster and cheaper to develop. At $50/mo, or $600/year, cloud POS software is far less than the $3,000-$5,000 sticker price of legacy software. Additionally, cloud software is providing features for free that legacy software put an additional price on: reporting, marketing, etc.

Cloud is slashing service revenues. While services were 2/3rds of POS revenues in the past, cloud is making conventional service revenues obsolete. Here’s how.

POS installation has become trivial. When was the last time you paid someone $200/hour to setup your iPod or laptop? Cloud POS is leveraging advances in technology to make setup frictionless, with clear diagrams and instructions even the most naive can follow. Let’s be honest: many legacy POS providers even drop shipped POS and let the merchant set it up themselves; it’s not that complicated anymore.

The initial menu/inventory programming is typically free, viewed as a cost of doing business. Training is handled remotely and comes with a library of tutorial videos merchants can peruse at their own convenience, so missing a tip from a training representative can be relearned later. Better interface design has also cut down on the need for prolonged training periods, and software updates are free for life.

And per Revel’s announcement of RevelGuard, if the POS system needs support, it can be remotely diagnosed and repaired with the Internet, often before the merchant ever knows it needs attention.

Remote support tools like RevelGuard are automatically configured on setup. The ISV has secure access to configure interfaces on printers, routers and more, all from the convenience of their home office with the speed the Internet delivers.

No more travel or in-person maintenance is required, cutting support costs by an estimated 75%.

Harbortouch, a cloud payments and POS provider, has had similar remote support systems in place for a long time and they’re constantly being upgraded. Brendan Lauber, Heartland’s co-founder and CTO, tells us that Harbortouch first launched their Heartbeat feature which allows Harbortouch to monitor POS up-time, automatically alerting the company’s technical support department if a POS experiences any issues in the field. “This feature enables the company to proactively resolve issues, in some cases before the merchant is even aware of the problem to determine if the POS was online.”

As remote support has evolved, Brendan says they’re testing 4G failover, a service that automatically connects support to 4G networks in the event the Internet goes down. “The 4G failover sits between the POS and merchant’s router to detect if the Internet Service Provider (ISP) is working,” Brendan says. “If the merchant’s Internet is dead, the 4G failover kicks in within 10 seconds and provides monitoring reports at the software level. In some cases we’ve seen the 4G failover switched on 15 times a day: a true indication that the merchant should really change ISPs and not blame hardware or software providers for their troubles.”

Contrast this with what a POS dealer must charge to stay in business. Dealers need an office, full time employees, equipment, and other necessities. This means those costs are passed through to the customer. If we assume that 75% of support can be handled remotely by the ISV, there’s not much left for the local dealer.

In the most extreme cases sure, on-site support is needed. But that comes at a premium. And it’s still cheaper to contract a local expert on-demand than it is to employ them full time. Companies like Boomtown have created such support platforms so local experts can be contracted on-demand, amortizing their costs across numerous merchants.

We no longer scribble letters as our main method of communication, and we don’t need to be in the same location to provide feedback on business diagrams. There will be countless dealers who hem and haw about remote support, but we will one day look back and question why merchants spent tens of thousands on support that could be handled remotely with great diagnostic capabilities.

The Internet: how amazing.

When Resellers are Building Features to Keep Their POS Relevant, There’s A Big F*cking Problem

11 Oct

Distribution channels are many companies’ solution to expediently moving product. Not everyone is fortunate enough to have mountains of investor cash for a 100% direct sales operation on day one. The tradeoff is a slower growth trajectory and revenue share in place of the overhead for direct sales employees. Pre-venture capital this was the only way to do it.

Many POS companies were started pre-venture. That, or they didn’t have a model that satiated venture: rapidly growing markets with tens of billions in potential opportunity. Brick and mortar, as you should know if you follow our posts, is the least capital efficient market to apply your craft.

The implicit arrangement in manufacturer-dealer agreements is that the product manufacturer focuses on making a good product, and the reseller does what’s needed to sell it. It’s very much a symbiotic relationship: the manufacturer relies on resellers for customer feedback and ideas for product enhancements, and the resellers rely on the manufacturer to continue delivering a product worthy of their portfolio.

But we’ve seen this model breaking down repeatedly in POS over the past few years.

Most legacy POS companies are fat, happy or indifferent. All this in the face of the largest change to hit the industry since the cash register went digital. Legacy POS companies are poster children for the innovator’s dilemma. That’s why their resellers have started doing things that would make any sane analyst worried about the viability of legacy POS as a whole.

Look at POS Partners. They’ve sold Future POS, a legacy POS product, but Future has not made investments to offer customers the flexibility of data portability on their software. So POS Partners, as a Future reseller with a duty to stay relevant to customers, built their own backend and APIs.

Similarly CBS undertook the same efforts on top of POSitouch. POSitouch, a legacy POS, lacked an above store reporting suite that met CBS’ needs. CBS went ahead and built a solution in the absence of movement from POSitouch. When their customers started asking for cloud and POSitouch couldn’t deliver, CBS even started work on theirown cloud POS.

And it’s happened in retail too. RITENew West, and Systems Solutions are all resellers of Microsoft RMS software. However, RMS did not offer the needed features to keep its resellers actively producing new accounts. So the resellers took it upon themselves to make the software more relevant for the market.

Juxtapose this with mobile devices. When I go to an AT&T store to buy an iPhone, do I expect AT&T to have written their own modifications to Apple’s iOS software so it can support third party applications? When I go to Best Buy to purchase a Chromebook, do I want a tech in khaki pants and a blue polo to put his touches on Google’s Android software?

That’s entirely farcical. One is that Apple and Google are not so shortsighted, but two is that most distribution channels are NOT inherently software companies. Finagling the software can, and should be, a very dangerous proposition.

But POS resellers have been put between a rock and a hard place. They’ve invested years – sometimes decades – into a POS software product. Before 2010 that relationship served them well. Now that the POS market is being disrupted resellers are losing support from what was their closest ally: the POS manufacturer.

Even though resellers are providing market feedback to the mothership, the mothership ain’t listening. Those at the helm are not taking hits to their paycheck to reinvest in their product. In fact they’re doing the opposite: completely ignoring the customer and hoping the problem goes away. I’m going to go out on a limb and say that’s not a great customer support strategy…

For all the wrong legacy POS companies are doing, there’s little alternative for resellers. Sure, cloud POS companies are building “future-proof” and market-relevant software, but they haven’t shown a way for dealers to make money carrying their product: 20% of $49/month is barely enough to feed a dog. Unless the reseller has thousands of installs or has figured out a consulting business, moving to cloud isn’t solving a reseller’s woes either.

Between building legacy POS features to satisfy today’s clients and staring down the inevitable low-cost cloud replacement, it’s a tough time to be a POS dealer.

Crap in, Crap out: The Importance of Clean Data and Why Legacy POS Has None

4 Oct

“You can’t manage what you can’t measure” is an old business adage. I’ve seen some attribution to the late Peter Drucker, who said, “If you can’t measure it, you can’t manage it.” Drucker’s comment is intended to mean that absent an objective view of truth, it’s hard to determine what actions will change an outcome. And since business is about changing outcomes – higher revenues, higher profits, lower costs, etc. – it can be a company’s death knell.

In the world of legacy point of sale (POS), this neglect for accurate measurement comes in more than one flavor.

The first is the absence of any data. POS systems capture sales, discounts, promotions, voids, labor expenses: most everything juicy. Sadly, the overwhelming majority of legacy systems have no way to communicate this information outside of the local environment without an extra chunk of cash coming from the hapless owner’s pocket. A restaurant owner must go on-site and spend hours pulling this data into reports, putting it into a consolidated view, and taking a stab at corrective actions. Staggeringly there are well-known POS systems that even dump information. What if I told you that you could spend $20K on a Micros 3700 only to have your data wiped every 14 days. Does that sound like it’s going to help with objective business measurements?

The second is convoluted data that may even crease worse outcomes. The problem is that many merchants will use fields in the POS database and assume the fields are accurate. In reality there are all sorts of adjustments and modifications being made to the data (with no published explanation) by the legacy POS software, leading the poor business owner into a false sense of assurance. Imagine the frustrations shared by accounting firms trying to reconcile business sales when the “sales” field in a POS database doesn’t match the tender, credit card and check payments.

There’s a very easy explanation for all of this: legacy POS software is hardly ever developed by software engineers or data scientists. Here’s the honest, typical progression of a POS company that nobody talks about.

A person owns a restaurant. The restaurant fails. Then they work as a POS reseller. They perform poorly. But they get the idea that the POS company is making all the money. And the POS sucks: that’s why their performance stalled. So they build a POS. New cycle begins.

Let’s take a view at NCR’s Aloha POS to prove this point. Aloha is rivaled only by Micros in hospitality market share. Here’s a page from their “documentation” about the data Aloha captures.

Visiting any number of the DBF files will make it instantly clear that the Aloha software is capturing the same data in a number of disparate formats and timestamps. This adds confusion and duplication for no justifiable reason.

Worse, the introductory paragraph misleads the reader into thinking that the publication of a grind DBF file is final, and “third party program can safely assume that the data is ready and represents the complete day.”

Wrong.

You can edit data in the grind files retroactively. Further, if Aloha updates its version and if a file folder needs to accessed for audit or reprinting, the DBF files will be overwritten from the Trans.log. In other words, any changes made would be replaced with the original information!

Legacy POS companies make it hard on themselves by refusing to publish documentation that helps their customers, or third parties service said customers. We conjecture the reason is two-fold.

First, legacy POS companies love their walled gardens. Sharing any information makes it “easier” for third parties to build solutions the POS company would rather screw up themselves. It’s no secret that companies maniacally focused on one thing do it better than companies with multiple distractions. POS is no different.

Second, many legacy POS companies are not technical in nature; don’t let the fact that they build software confuse you. They wrongfully believe that documentation is “secret sauce” and creates competitive disadvantages. If legacy POS companies weren’t so insecure about their technical abilities this wouldn’t happen.

Contrast this with cloud POS companies that openly publish documentation and make integration easier for third parties. Cloud companies know that third party integrations only make their product stronger, and stickier. And by spending a little time publishing APIs and documentation you have no justifiable reason to ask third parties to pay $50,000. Further, if integration becomes easy, the cost of supporting “hacked” integrations goes away – an oft-cited reason for legacy POS integrations being closed.

Here’s the developer page for Revel.

One for Kounta.

Another for Square.

And for Vivonet.

Nearly every cloud POS company has such a page.

Perhaps the real boon in the API is that operators are able to get an updated version of the truth: a constant measurement that can then be managed. If a field is updated or changed, it’s reflected in the API. Armed with the API documentation, anyone who accesses the API will know what each field means, how it’s being calculated and why it’s being changed.

Without such published documentation it’s as if you’re given a map, see a big red X, and drive eagerly towards it… except X marks a land mine, not buried treasure. That’s the importance of context, consistency and clean data: it gives you measurements you can manage.

Yet for some reason legacy POS companies are in no hurry to give their operators more of it. Maybe they don’t want their customers managing their businesses better; maybe the customer might discover why their legacy POS provider was keeping them in the dark all along…

97% of People are Useless. Here’s How Not to be One of Them

4 Oct

This is an epically clickbait title, but it underscores something that is not talked about enough: professional courtesy. I thought this would be perfect for a Friday read and weekend rumination.

At our company, professional courtesy is the most important attribute we look for in candidates. You can do everything right but if you’re a jerk the rest is useless. As Warren Buffet is credited with noting, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” Yet some people haven’t figured this out.

I often hear that the reason most people treat others so poorly is that they’re busy. I’m not exactly sure what they’re busy doing. I can count the number of people I know who work consistent 80-hour weeks (sorry finance friends).

If anything life is less busy than it’s ever been. Technology has made it so we no longer spend every waking minute worrying about what we’ll eat, or if that ominous thundering means we’ll be shivering in a cave all night. We don’t have to worry about dying from a scraped knee, nor run and hide from creatures with sharp teeth. Getting around doesn’t require weeks of planning, packing and preparation either.

Technology has given us more time than ever.

But that’s not what the average person would lead you to believe. You’ll have unreturned calls and emails. You’ll have people tell you they’ll do something and months later never see any progress. You’ll have people who schedule meetings and don’t bother showing up. All the while these people are finding time to post pictures of their lunch on social media…

It’s unfortunate that there’s not an objective system to tell you who’s unprofessional. Internally, you obviously can have much more control over the characteristics you value. At our company we’ve implemented a system that creates fake inbounds across all departments and all levels – sales, data and engineering. We email solicitations from random accounts and monitor open and response rates. Around here, everyone must explain why something is or isn’t a fit, or pass it along to the person who can.

Big brother? Not hardly.

The goal of a company is to produce value for shareholders. These are your investors, your employees and your customers. If employees are unable to determine how value is created, they should not be employees at all. It does lead one to wonder what kind of company hires people that don’t return phone calls.

Every touch is an opportunity to make a positive impression; you never know where an interaction might lead. Malcolm Forbes once said, “You can easily judge the character of a man by how he treats those who can do nothing for him.” I’d likewise say you can judge a lot from how people handle inbound email from strangers.

Employees who are prioritizing pancake pictures to professional courtesy are casting a bat signal that they don’t give a rip about the company. Worse, outsiders take notice: is this a company I would want to work for? Perhaps unsurprisingly these traits manifest themselves in certain industries more than others.

We’ve always had a good system to track emails. So if you’re someone who doesn’t reply to emails you had better believe any decent company can all see when you’re opening them. Over the course of several years (and 10,000 emails) we curated some interesting results. Ready?

Mailchimp publishes benchmarks for email open and click through rates. To find email reply rates, I really like the information published by Yesware, who give awesome tips for improving email efficacy. I’m juxtaposing these published averages with figures for the finance and restaurant industries we’ve curated. The wide range for average open rate exists because small businesses manage their email more poorly than larger enterprises, who see email as a powerful tool.

As a further caveat, the emails we send are not spam in a giant mail merge from a CRM. Because we are very surgical with our approaches, we have a finite list of outbounds. For restaurants, these were all emails to chain operators.

Perhaps those employed in finance are relatively more successful because they are receptive to information and ideas. Instead of ignoring things they inquisitively listen. What a novel idea…

Restauranteurs and retailers, who run far more customer-oriented businesses than those in finance, should be aware that every inbound email is a direct reflection of their brand. If someone has a bad experience in the initial stages of communication, they’re going to associate that feeling with your whole organization. And it’s not as if there are a limited number of choices when choosing where to spend dollars either.

Maybe you’ve had horrible bosses that never created aspirational corporate culture, or you’re so early in your career you’ve missed training on professional courtesy. Or maybe worse, your parents didn’t teach you the basics of good manners.

Whatever the reason, here are some simple things we should all be doing.

Respond to every email within two days. Two days is generally accepted as the professional business norm: it takes into account travel and meetings. Obviously responding as soon as possible is preferred, and senders will wonder why you opened their email three minutes after receiving it but haven’t replied. Something as simple as acknowledging the email and processing next steps is fine.

For instance, if someone seeks the person handling X, write them a quick note saying who might handle X, and tell them you’ll confirm it. Let the sender know it’s okay to ping you in a week if you’ve forgotten. Maybe this person has something revolutionary for your company; would you want to be responsible for passing that up?

Sam Walton thought two days was too long and instituted the sundown rule. Why put off to tomorrow what can be done today? Sam wanted his culture to be responsive to everyone. After all, everyone could be a Walmart customer – why give them a reason to shop somewhere else?

Honor your commitments. This includes agreeing to getting things done by a certain date, or showing up to a meeting. I’ll share a brief story.

A mutual friend set up a meeting with one of his colleagues at his offices – three hours from ours. I confirmed the meeting with the colleague, received a calendar placeholder, and arrived on-time the day-of. 30-minutes into waiting, the other party had still not appeared. It took my friend calling his colleague’s secretary to find out his colleague decided not to show up. I never received an apology or further outreach.

If you can’t make a meeting, let the person know ahead of time and suggest another time that works. We understand flights get delayed, or other things pop up. These are not excuses to treat others poorly.

Learn to say no. If something is not reasonable, nor a fit, say no. The worst offenders are investors, who never provide a definitive answer because they want to preserve their optionality. What if you’re suddenly offered a billion-dollar buyout? You can be sure the investor will want to know about that, and by telling you no you wouldn’t have shared that opportunity.

Avoiding definitive conclusions does two things. First, it clogs up your email and voicemail with someone thinking they have a chance. Second, it wastes the other party’s time. Do you feel that much better than someone that you will let them spend hours dwelling on you?

Here’s how we handle inbounds that are not a fit. Feel free to copy-paste as needed.

Hi John (using their name shows you read the email),

Thanks for reaching out (acknowledges you understand the difficulty in outbound sales). From the sound of it, it doesn’t seem like there’s a fit here; we don’t outsource development (gives sender confidence that you understand their value proposition and have related it to your business). Let me know if I missed something (in the event you misinterpreted something, or they didn’t do a good job explaining the opportunity clearly). Best of luck!

Why do so many people lack these basic skills?

In a word: self-preservation. Most people are not wanting to inject any risk into their everyday lives. The risk that the company looks at an opportunity and it doesn’t pan out. The risk that the opportunity works and puts them out of a job. The risk that replying to people means less time for flapjack-Friday photoshoots.

The same people, however, will complain they didn’t get a raise, and chastise people for being more successful. “It’s nothing they did” they’ll grumble over their dripping pancake stacks.

If you ask me, it’s the rise of machines that’s looking pretty appetizing now.