I recently talked with a POS channel veteran about several issues including the future roadmap for POS resellers. Here’s the current state for many of them: They’re fighting for business against tablet-based providers and losing on price. They can’t stop merchant attrition to tablets. They can’t win enough new deals to cover the losses. And they can’t add margin-enhancing service bundles because their unsophisticated micro-merchant clients (small, one-location retailers and restaurants) don’t see the need or have the budget.
We concluded there are essentially two paths forward – and only two paths – for POS VARs for 2019 and beyond:
- Stop selling to micro-merchants and focus on SMB or large/chain merchants. I know that’s easier said than done it’s difficult to displace an existing provider unless you offer significant cost-savings or extraordinary value.
- Run very lean internally (maximize automation minimize staff size) and sell only to a niche vertical. Obtain leads through trade shows in that market and by word-of-mouth, and sell them a bundle of industry-tailored services. Some micro-merchants in that niche might not want/need everything in the bundle, but they’re more likely to pay for it if you’re also bringing exclusive industry expertise to them.
Right now, I don’t see any other viable alternatives for POS resellers. The days of cold-calling any old merchant and selling POS to them are over. It’s an unprofitable proposition.
I tested this hypothesis on LinkedIn, and some channel executives weren’t buying it. One said, “VARs need to learn how to ride every new technology wave, not retreat, as you’re suggesting.” By no means am I suggesting a reseller retreat from technology advancements. In fact I’ve been preaching for years that VARs can’t sell the same tech to the same people the same way year after year.
Those of us who grew up in the retail IT channel need to be honest with ourselves that plug-and-play POS systems are improving in terms of functionality and reliability, so they’re serving many small merchants just fine. If those merchants grow and become more sophisticated, they will need a more specialized offering from a VAR. But potential sales aren’t going to cover your current expenses. VARs who focus on small, one-location retailers and restaurants today can’t generate sustainable margins. They’re experiencing customer churn that will eventually put them out of business.
Let’s say you disagree with my premise and feel a super-industrious reseller can eke out a living offering products and service a step above tablets and two steps above cash registers. If they work long hours, including many evenings and weekends, and provide impeccable customer service, the reseller can keep their head above water. But is that how you want to spend the rest of your working days – scrambling from month-to-month for take-home pay and benefits that don’t measure up to that of most kids who graduated from college in 2014?
The sticky spot these resellers are in reminds me of a post-Great Recession steering committee meeting during my days as the president of Jameson Publishing. It was late Q4, and senior managers and one of the owners were reviewing our income statement. After a punishing financial stretch, we were relieved to be in the black (barely) for the year. But the owner gave us a reality check. He said something to the effect of, “So, we’ve traded the last 10 months of our lives for what? We spent all our time and all our energy for basically … nothing.” Our management team realized we didn’t want to live like this in perpetuity, so we committed to make changes – in our markets, our product offerings, our staff, our processes, and our partnerships – so we would never experience that empty feeling again.
Back to 2018. A second LinkedIn commenter scoffed at my hypothesis as well. “It’s all about diversifying your portfolio and putting more SaaS in your toolbox,” he wrote. “People who can actually add value, the ‘VA’ part when too many focus on the ‘R,’ should be doing just fine.” I agree they should be doing fine — but only if they choose to sell into a market that values their value. Many small merchants aren’t willing to pay for the products and services offered by a generalist VAR. VARs should focus on larger merchants or a specialty market because that’s where the value-add opportunities exist.
Another POS executive on LinkedIn said, “The industry is leading to tablet-based ‘free’ POS that is made up by the high credit card processing rates to offset these ‘free’ tablets. Educating customers above all of such practices will generate POS channel sales for resellers.” I have a couple thoughts on this. First, many POS VARs I talk with are frustrated (but not surprised) that their attempts to educate merchants are being drowned out by the tablet companies’ millions of dollars in marketing. Why should the merchant believe you when everything they’re being fed says to go with what’s a few clicks away? Resellers will win some of these small deals today, but the effort expended now is multiples of what was required historically.
Second, let’s say you do win over some of these micro-merchant customers and talk them out of buying a tablet system from the big guys. You’ll make a few dollars on the initial installation and then on recurring credit card residuals. But if you had to scrape, scrap, and scramble just to get that small slice of the pie, how receptive will that merchant be to your pitch about a monthly service contract? Or a fee for monitoring their system and keeping them secure?
What that POS executive wrote to me is true — selling a tablet solution will generate sales for resellers if they can convince merchants to buy local. But VARs are telling me those sales are low margin because they can’t sell much (if anything) beyond the POS besides payment processing to those merchants. The number of those merchants they would need to amass to have a thriving business is incredibly high ... and those merchants have a high churn rate because the VAR doesn’t have a deep enough product/service relationship with them.
Can some resellers will their way out of that doom loop and survive? I’m sure a few can, yes. But isn’t it more profitable (and more sustainable long-term) to instead serve sophisticated, medium-sized or large merchants or specialize in a vertical? There was a day POS resellers could build a healthy business on only hardware sales and payments residuals. I’m just saying that day isn’t anywhere on the 2019 calendar or beyond.
I’m all for the independence of resellers and I support their freedom to select the path that best suits them. But I strongly encourage them to ride the wave of a more profitable market. Don’t choose to serve only micro-merchants who will generate pennies for your dollars of effort. As I wrote recently, like the starting gate at the Kentucky Derby, there are only so many stalls available for solution providers who want to serve regional/national multi-location merchants, and those who are first to the gate get to run in the race. Those who wait aren’t going anywhere.