In the world of next-gen point-of-sale (POS) systems, Square might have the brand name and billionaire founder, but ShopKeep is making moves of its own. And the company’s chief executive, Jason Richelson, says that while Square dominates the dongle-touting mobile food truck crowd, there are as many, or more, small, brick-and-mortar businesses using the Shopkeep’s tablet point-of-sale system than its widely known competitor’s.

Shopkeep grew out of Richelson’s need as a small business owner. Five years ago, he owned a high-end grocery store, and an accompanying wine shop in Brooklyn, serving the borough’s growing professional class. The store was a success, but the back office was a mess, he says, and he wanted to create a better way. So, in 2009, Richelson hired a developer and began to build his own POS system. Two years and an iPad later, the app started selling in Apple’s AppStore.

Street Fight recently caught up with Richelson to discuss the impact of the cloud behind the counter, how the existing model is inefficient by design, and the challenge Square might have in moving upstream.

When cloud computing enters a market, it often has a disastrous impact on the incumbent players. Are there aspects of the POS market that will make it exceptionally difficult for a legacy companies to adapt?
Micros, which dominates the market today, has come out with [a cloud computing product] recently but they’re not cloud. They still think cloud is putting a server in a data center, but it’s not the same. Cloud is running everyone in on the same servers and the same platform.

But the big problem is the sales structure. They rely on this value-added reseller network of people who are used to selling a whole bunch of equipment, and then they make all the money from the installation.  That’s part of the reason I assume they haven’t gone to the cloud. The cloud has destroyed so many different industries, which were out there selling equipment — sales force is a primary disruptor — mainly because there’s so much less equipment to install so it’s much cheaper.

So traditionally there was an incentive for the POS companies to create products which were inefficient by design?
Yes. The legacy companies had to build the software in such a way so that the independent consultants, who set up the software, could make enough extra money charging to install the systems. They had to build these inefficiencies so that these small guys made just enough money to survive but then they can’t afford to support their customers and their customers don’t want to pay a monthly service fee to have support.

So, we’re saving the retailer on the installation cost, configuration and all that stuff. And then if you go straight to the cloud model they don’t have to buy a server. They don’t have to have a database. They don’t have to have a system. They don’t have to have tech people really at all. So we’re removing all of that. However, that said, we still work through the channel — but the channel is changing and will need to change .

Okay, so if a big part of the model is eliminating the installation costs and you still plan to sell through channels, how do you make it valuable for the resellers?
The reality is that a value-added reseller is not going to make enough money on ShopKeep, so we’re trying to educate them to think of all the other products they can sell on top of it. You’re not going to be able to make all your money selling ShopKeep, so you need to bundle it with all these other products that you could offer the small retailer — loyalty, payments, etc. Essentially, we want [the sales organization] to become value-added reseller of cloud products across the board. You make enough money off of all of them, but alone on ShopKeep you’re not going to make the money because of our software.

More and more local companies are bagging their push for small businesses and heading to wealthier pastures upstream. When you think about the cloud POS business, how easy of a step is it from small to medium to large businesses.
There are two million small brick-and-mortar retailers out there, and we’re firmly focused on those with our current product. As we build our platform though and give people access through an API, we’re going to have to expand from just single locations. A lot of our customers are growing, and they want to see sales across all three locations and that’s where we’re going to be able to start giving them that ability, whether it’s through us or through a third party who wants to roll up your sales.

That’s how I see us moving into middle-market retailers. We won’t be in Walmarts or any large, large retailers — but I definitely see us moving more into enterprise over the next year with a platform. But currently right now the actual product here is with the registers. It’s for small retailers and eventually restaurants and eventually deeper into retail — clothing stores, shoe stores and specialty retailers.

During the summer, Square moved into the brick-and-mortar market with the launch of Square Register. Where does Shopkeep stand in relation to them today?
We obviously haven’t raised the kind of money which Square and others have put together — but I’ll bet we have more brick-and-mortar installs than Square. It’s hard to say, but I don’t think they have as many actual stores. Now granted, they have millions of mobile people using the dongle, but businesses actually open seven days a week with employees and overhead, I would bet that we have at least the same if not more customers.

We’ve been out there longer and that’s all we focus on. We don’t do mobile. We don’t do flea markets. We don’t do anything like that. But it’s also because we’re 100% merchant-focused and we’re just trying to help merchants. We’re not trying to do anything else like come out with wallets or do anything like that.

ShopKeep CEO: I’ll Bet We Have More Brick-and-Mortar Installs Than Square

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