POS Pitfalls Every VAR Should Avoid
With the economy fighting itself off the ropes, VARs must be more diligent than ever if they want to live to sell another day. A tested survivor shares lessons learned from mistakes made.
Nat Wigginton has toughed out a few storms in his day. When you've been a POS (point of sale) technology reseller as long as he has, you learn to take your lumps. But more importantly, if you're wise, you learn from your mistakes. In the midst of an unstable economic environment, common business mistakes can lead to the death of a company. Technology resellers, especially in the fragile retail space, must be acutely aware of their business processes and careful not to let minor oversights turn into major headaches. Wigginton know this, but his wisdom hasn't come cheaply or easily. Perhaps in considering the challenges he faced, and how he overcame them, your company too can tough out a storm or two and live to tell about it.
Keep A Firm Grip On Your Receivables
Going into 1993, Wigginton's Multi-Link Solutions (Virginia Beach, VA) was a $5 million retail and restaurant POS reseller with two sales offices. But while it enjoyed financial success, factors were silently contributing to the fallout that would come later that year. The company had too many of its proverbial "eggs in one basket." "We had a couple of restaurant chains and outlet retailers as clients, but one customer in particular was our bread and butter," says Wigginton. "We relied heavily on them, and when we began having trouble collecting on things like our maintenance contract, it really hit home that it wasn't a good thing for our business to be so dependent on them." As Multi-Link scrambled to expand its customer base, this large customer collapsed and declared bankruptcy, sticking the VAR with somewhere in the neighborhood of $1 million in outstanding receivables. "One of my then-partners just wasn't watching the accounts receivable line and wasn't following through hard enough on invoicing. When this customer went bankrupt, we downshifted big time," Wigginton recalls.
To ensure history doesn't repeat itself, Wigginton followed though very hard on shifting the company's focus to the hot Virginia Beach restaurant market and securing a solid base of customers. He reorganized his personnel and revamped his vertical approach. "When we got hurt in '93, we were almost all retail," explains Wigginton. But in 1994, Multi-Link's POS software vendor (Omron, Schaumburg, IL) introduced its Right Touch TRT product, which was geared toward restaurants. The product opened the door for Multi-Link to vigorously pursue the some 2,000 restaurants in the Virginia Beach area. "With such a pool of opportunity here, it was relatively easy to make inroads in the market, and we're now about 80% restaurants," says Wigginton.
As far as billing is concerned, no VAR can afford to let receivables slide in this economy. Wigginton simplified his payment terms to address this issue. "I now have a very simple billing program," he explains. "I get 50% when the order is placed. If it's a lease deal, I get a purchase order from the leasing company. The leasing company pre-funds the order, and when I put it in, I collect the balance. It makes my receivables very easy to manage." This approach is wise for a VAR with limited collection expertise, because if the end user is delinquent in paying, it becomes the leasing company's problem, not the VAR's. "I get my money," says Wigginton. "I normally put the equipment in and turn it on in order to prove to a customer that it works, but we don't go any further than that without an invoice."
Exercise Caution Investing In POS Initiatives
Well down the road to recovery in 1995, a former customer of Wigginton's approached him with a potentially huge contract. The customer had accepted a new position with Rich Food, a 3,000-store grocery chain, and asked Multi-Link to help him put together a new POS system for the entire chain. "It was shaping up to be a $50 million deal over five years, so I bit on it," admits Wigginton. "I won the right to sell the hardware, and I ramped up hard for the project. I spent and invested a lot of money," he laments. Unfortunately, the InfoSystems (Charlotte, NC) software the store decided on never got off the ground. "The stores had successful DOS products running on proprietary hardware, but they wanted to transition to Windows. They had several engineering problems. For instance, they couldn't sync up the file server with the registers efficiently. It was taking 12 hours. They didn't have the horsepower to run Windows products. The initial hardware requirements they specified weren't even close to what they needed." Wigginton was forced to change the hardware configuration on the fly. Instead of putting it in 60 grocery stores the first year as he had prepared to do, Multi-Link only installed 12. "To put it plainly, I lost my tail and they canned the project," admits Wigginton. "You have to be careful about going out on a limb when you make business decisions with these kinds of consequences."
Stick With The Combination That Works
In the restaurant market, Multi-Link resold the Omron Right Touch Product, which Omron purchased from Secret POS (Austin, TX). When Omron bailed on its POS initiative, the VAR gambled on its hardware/software solutions and tried selling something new. "In pursuit of the restaurant market, we purchased some new restaurant software [Wigginton refuses to name names] that ended up having terrible bugs in it. We had tons of lockups, and it was an absolute disaster, and it cost us big time. We literally had people servicing them every day." Not only was Multi-Link losing money on support costs, the company was losing its reputation. Word of mouth can do you in when you sell a bad product, and it had a profound effect on Multi-Link. "The year before, I put in 32 restaurant installations. We switched software, and our volume dropped to 20 restaurants the following year." To save itself, Multi-Link went back to the company that wrote the software it had been selling for years, the Focus product from Secret POS. "Now we're back where we should be - we're like Maytag repairman," Wigginton chides. The VAR has also become an Aloha POS software dealer, which Wigginton feels gives him a new edge in the Virginia Beach market. "We want to use Aloha to go after multi-store fast food franchises and larger table service and fine dining chains. This is an enterprise solution, which is more encompassing for a large customer. We finally got the right combination of software products to serve our market," he claims.
What Does The Future Hold For A Tested POS VAR?
With exciting technologies come plenty of potential pitfalls for POS VARs. Jumping into a deal or deciding to resell an unproven or unmarketable technology will set your progress back considerably. "You have to keep your ear to the ground and try to anticipate or stay close to the things the marketplace wants. I have a very close relationship with my restaurant software vendor, and we discuss these things on a regular basis," Wigginton says.
But instead of new technologies, gizmos, and widgets, Wigginton is concentrating on service as his revenue center of the future. "Service during normal business hours on new equipment warrants a figure of 10% of a customer's hardware and software charges per year. If the customer wants extended hours, depending on where they are, it can be in the 15 to 20% ballpark. Maintenance generally makes you money, if you're careful about how you do your installs," claims Wigginton. The best way to profit from a service contract, he says, is to make certain an installation's power supply is appropriate for the equipment. "We make sure the power supply is certified, isolated, dedicated, and grounded. It prevents service calls. It prevents lockups and all kinds of degradation to the equipment. So we do not put in a system until the customer's electrician goes to the circuit box, unscrews the ground, and allows us to test it and ensure that it is isolated and truly grounded." While it may sound trivial, Wigginton assures the necessity of the certification. "We would have customers that had freezers and steamers, for example, on the same circuit as their POS equipment. We would specify in the contract that POS was to have a dedicated power source, but they'd ignore it. You can't take a customer's word for it," he says.
And what about the new technology initiatives in POS? "You can see what people are looking for. They're looking for handheld terminals for speed and mobility, and they're requesting gift cards for better control and management of gift certificates. But there are so many devices out there, we have to prioritize that new technology adoption," Wigginton claims. Among others, his customers inquire about signature capture, check readers, liquor inventory systems, debit acceptance, and surveillance. "You get people wanting you to take on this or that, and it becomes difficult to be experts at everything. Medium-sized guys like us just have to be careful about what we do and what we take on." That's sound advice from someone who's learned from his mistakes.