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Table of Contents

Lead Story

Payments' place in the retail playbook - Part 2

Dale S. Laszig

News

Industry Update

Retailers challenge PCI, seek federal intervention

Data breaches, EMV advance new fraud trends

CFPB to processors: Don't turn blind eye to fraudsters

CFPB seeks public comment on 'payday' loan guidance

Features

U.S. credit card users like installments. A lot

Open-loop prepaid will play a role in next loyalty move by Starbucks

Aaron Mercurio and John Grund

Be vigilant about data vulnerability

MCX pulls plug on CurrentC

Views

The misguided 'kill the check' chorus

Brandes Elitch
CrossCheck Inc.

Guide your startup so it won't implode

Ken Musante
Eureka Payments LLC

Education

Street SmartsSM:
The alternative financing rebrand wrap up

John Tucker
1st Capital Loans LLC

Think PII, not just PCI

Fran Sachs and Ross Federgreen
CSR Professional Services Inc.

Paper reports, online portals can coexist

Steven Feldshuh
Merchants' Choice Payment Solutions East

Consolidation in acquiring

Adam Atlas
Attorney at Law

How integrated, complementary technologies lift valuations

Adam Hark
MerchantPortfolios.com

Company Profile

Upserve

New Products

Brandable, EMV-certified mobile payments

AprivaPay Plus
Apriva LLC

Biometrics for enhanced, selfie authentication

Eyeprint ID
EyeVerify Inc.

Inspiration

The pursuit of large merchant accounts

Departments

Letter from the editors

Readers Speak

Resource Guide

Datebook

Skyscraper Ad

The Green Sheet Online Edition

June 27, 2016  •  Issue 16:06:02

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Guide your startup so it won't implode

By Ken Musante

I have made enough mistakes in my career to last five careers. Many of my mistakes were obvious in retrospect. Many more were just poor decisions. Yet in the yin and yang of life, painful experiences lead to wisdom. I have been in this industry since 1989 and have a Ph.D. in painful experiences from my poor decisions, and with that, I have acquired some wisdom. I've begun this article pointing out my ever growing list of failures because the only reason no one has written articles on them is because my failures were of minimal consequence beyond my immediate sphere.

With that said, I was stunned when I read of the amount of money U.K.-based Powa Technologies lost in a phenomenally short amount of time. In his April 18, 2016, article in Business Insider, Oscar Williams-Grut itemizes some of the numbers behind the insolvency report on Powa, which was prepared by Deloitte Touche Tohmatsu Ltd.

After having raised $203.7 million in debt and equity funding since 2013, the company reportedly had only $383,800 in the bank when administrators took over following its February 2016 bankruptcy. Powa was once valued on paper at $2.7 billion. (Williams-Grut's complete article can be found at www.businessinsider.com/summary-of-deloittes-insolvency-report-on-powa-technologies-2016-4?r=UK&IR=T&utm_source=The+Strawhecker+Group&utm_campaign=33ddd377e6-TSG_NF_5024_22_2016&utm_medium=email&utm_term=0_0d302686b7-33ddd377e6-200778393.)

Don't spend like Powa

Powa had three distinct businesses. They are described in the insolvency report accordingly:

  1. PowaTag – the main division. Focused on making it easier for consumers to purchase goods and services from a mobile device. This was sought to be achieved through a mobile application (app), which was intended to turn every consumer point of contact (whether via billboard, print, online or audio advertisements or other content) into a point of sale.
  2. PowaPOS – selling both POS hardware and software to suppliers of goods and services. This was intended to redesign and improve traditional tills and card readers.
  3. PowaWeb – designed, managed and operated the e-commerce web platform for a number of customers. Providing innovative, fast-to-market and software ecommerce solutions for its customers.

Although this article is not about the viability, uniqueness or timing of Powa's technology, nothing about these business lines stands out as exceedingly different from other companies in our space. What is unique is the amount of money lost. You could argue that the $203 million Powa raised and lost from 2013 to 2016 is a small bet if a company could revolutionize payments. The rewards to any company that disintermediates the existing players are staggering, and that may justify the bet. Even so, why would a company spend it in the way Powa did?

Examining the business lines more closely, none of them was that far afield from its competitors. The first, PowaTag was the most revolutionary, as you could buy things with smartphones via quick response code detection, audio recognition or beacon technology. Unfortunately, this service was so far ahead of its time it was "pre-revenue."

The second PowaPOS was like Square Inc.'s product. The third, PowaWeb, was the most profitable. PowaWeb built online and ecommerce pages for retailers, and that entity was purchased by Greenlight Digital in March.

Get off to the right start

Though the lavish expenditures attributed to Powa were extraordinary, Powa is not the first startup to run through a ton of money in an effort to take the payments industry by storm, and it won't be the last. Overcoming existing technology and, more importantly, interchange is a lucrative proposition, and the eventual winners will be well compensated.

If you're considering making this attempt, I have some tips for you. First, don't try to leave orbit on your first launch. If you have a solution that is far better than anything available, go to a closed, homogeneous market and try it. There are plenty of land-locked areas with diverse and educated residents. Select a vacation town or a college town, and figure out if your solution will work in a controlled environment. If it doesn't succeed there, with a micromanaged release, it won't succeed on a large scale.

Moreover, after a test launch, you will have relevant data for your actual launch. Any failures can be attributed to the trial run. Launching in this manner will take additional time and delay your national rollout, but it will save many millions and improve your eventual rollout.

Second, "cool" won't trump capabilities. It's cool to use your watch to make a purchase ‒ once. But when you are in a hurry and you can't figure out whether the near field communication device is enabled, and the cashier has not been trained properly, you'd best pull out your plastic. And if you are not trained by Yoda, do not refer to yourself or any of your staff as a Jedi.

As a corollary, make sure your solution is far more functional than the one you want to supplant. Peter Drucker postulated that a new solution must be 10 times better than the existing one to overcome the inertia and investment needed to adopt the new solution.

Uber and Lyft, for example, provide tremendous value and capabilities. Once while taking an Uber ride, I was shocked when the driver complained about how Uber had disintermediated his taxi business, and he asked me to use Lyft the next time. He even gave me a code so I could get a discount on future Lyft rides (while I was riding in his Uber). Amazing. Yet I was very willing to do this because the functionality outweighed the work of learning the new app.

Uber and Lyft have succeeded, in part, because they have gained favor with both the merchants (drivers) and the customers. (This is a tremendous feat, and Uber and Lyft may well become their own payment vehicles, but that is a different article.)

Finally, place a few calls to industry folk. A handful of individuals in our business have made significant money and understand our industry well enough to opine on the eventual marketability of a product. It won't add significant cost to your diligence and, although it may take a few calls and favors to get through, it will pay off.

Call someone who has made and managed the amount of money you are considering investing. It might be humbling to ask for advice, but it will be well worth it, and I guarantee you will be smarter after your call.

Ken Musante is President of Eureka Payments LLC. Contact him by phone at 707-476-0573 or by email at kenm@eurekapayments.com. For more information, visit www.eurekapayments.com.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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