Transformation Of A Traditional POS VAR

By Tom Kottmeier, CEO, POS Systems of Santa Barbara

For the first 25 years of  my career I sold POS systems for someone else, starting with mechanical cash registers, moving through all the evolutions of systems to the sophisticated PC-based systems we now see in most restaurants.

Every time there was a major change I had to adapt and relearn, finding that my clients were ready to embrace the new technologies because those systems were so much better than what they had.

All along, the job was basically the same: how to provide a system that helps the owner of a restaurant manage the business effectively.

In 2002, I transformed myself from a salesman working for someone else to a VAR with my own company. I started POS Systems of Santa Barbara, finding a ready market for our systems where many restaurants still had cash registers!

With one technician, we did 15 to 20 installations a year, with from two to five stations, and made a good living from sales of $350,000 to $400,000 a year. 

The business model worked very well: sell, install, support, have service contracts, and provide supplies.

That worked well until the world changed again, and we found the business model no longer worked so well: the major competitors started a price war, margins shrank, and it became difficult to sell a system for more than $10,000. 

Technology had changed, and we found tablets popping up everywhere, replacing our now ”legacy” systems with convenient, portable solutions that restaurant owners readily accepted.

Since my business model no longer worked I faced a dilemma: do I find a new way of working or do I simply let my company fade into the dark night?

The choices didn’t seem very appealing: I looked at the tablet-based systems, talked with their developers, and was disappointed that I could not find a way to make a decent income with them: their business model was ”bring us a lead and we’ll pay you a referral fee.” No way a VAR could make a living that way.

Then one day in March of 2014, I demostrated our full-fledged legacy system to a large bistro, finding a very good fit for what we had to offer, with six terminals, printers, and even handheld units to take orders at the table. Our quote was more than $21,000.

The owner said he had found a very interesting new cloud-based system that used Android tablets, and that it had everything he was looking for:

• mobility, with servers carrying tablets ─ he wanted to cut back on the amount of walking his servers did so they could be more productive
• social media and loyalty: the only way to build a business is to have a customer database the owner could interact with and reward them for being loyal customers
• a kitchen display system that ran the ordering process efficiently, without printers if possible

I thought my legacy system could do most of what he wanted, but the owner told me the tablet was priced at less than 1/3 of what I offered.

That, for me, was proof positive that my ”legacy” business model simply was finished: I could not compete with what was available in the market.

My mind said: Android?  Is there a way to make a living with that hardware?  And what about the developer of this new system: would they want to work with a traditional VAR?

So I went to work and called the company: SHOCK!  They were willing to work with VARs, and give us a decent share of the monthly revenue! 

Then I looked at the hardware and found that indeed there could be reasonable margins.

My business model then became one of:

• systems with no up-front software cost
  • SaaS (Software-as-a-Service) meant the customer rents the software and gets upgrades and support included
  • We get a generous share of the revenues from the rental and credit card processing
  • We would build long-term revenue, something that I had read so many articles about in the past few years
• android hardware with decent markup
• installation/training/support packages that were comparable to what we had charged before and gave us enough to pay for our support staff and add a goodly amount to the overall margin of the entire package

You mean it’s actually possible to build a company that sells POS systems with these newfangled tablets?

Absolutely!

I set up a spreadsheet that showed how much my company could earn per installation, and how much monthly revenue we would earn from the revenue stream we shared with the software developer and the picture became quite clear:  if we could install six systems a month with we could  build a long-term revenue stream that was quite significant, certainly enough to make a decent living.

Was it possible to transform my company from a ”legacy” end-of-the-line VAR to one that embraced new technologies and new ways of doing things and grow again?

YES!

I decided to test the waters and see what our existing clients had to say about it: I immediately got confirmation that they were indeed VERY interested in what we had to offer now:

• the price point was right
• they love the technology
• it does improve their businesses

So I have embraced the new business model and the future, and I am now seeing the results:

• 10 orders within the past two  months
  • Real, solid installations in good-sized restaurants, not just one tablet in a coffee shop
  • full-fledged multi-station systems with two to three fixed stations and up to 10 portable tablets
  • kitchen display systems that replace printers

We have moved to bigger, better offices, have hired two new support technicians who have found they love to work with the systems and are becoming proficient at setting them up, installing, training, and supporting our clients.

Will the new business model work?  I have no doubt!

Will this business model work for other VARs?  Absolutely!  If it works in our small market, population 100,000, it will without a doubt work in any market.

VARs have a huge opportunity: they have a built-in captive audience of clients that have legacy systems that need major and expensive upgrades.  Those clients know and trust the VARs and look to them to provide solutions that will help them manage their businesses effectively in the new world of mobile technology.

Now that I am fully converted to the world of tablets I have no doubt that my business will flourish once again.