Leaf Looks to Kill the Cash Register, Own “Entire Merchant Experience”

7/31/13Follow @gthuang

Point of sale is moving to the cloud.

In other words, the Internet revolution, which has disrupted massive industries such as advertising, retail, and entertainment, is finally coming to your corner store.

You’ve seen inklings of it already. From daily deals to mobile check-ins and payments, companies of all sizes have been vying for a piece of the brick-and-mortar retail pie. They’ve been struggling to get local merchants in shops and restaurants to adopt technologies that will help them with marketing, bookkeeping, customer relationships, and payment processing.

But the bottom line is, will it increase sales?

The jury is still out. What is clear is that a land grab is underway to own the next-generation point-of-sale systems that will be in millions of stores. Will it connect to your smartphone? Will it be a store-owned tablet or add-on device or app? Whatever it is, Google doesn’t own it. Amazon doesn’t own it. PayPal or eBay doesn’t own it. Not yet, anyway.

One of the early companies fighting for a piece of the action is Leaf. The Boston-area startup makes a tablet and software platform that handles payments, orders, and analytics for small and medium-sized businesses. The company got started in early 2011 and has grown to 30 people on a few million dollars in super-angel funding.

What’s interesting about Leaf is that it’s using new hardware and software to try to build an ecosystem of apps and services around the merchant’s point of sale. If it’s successful—a big if for a startup in this cutthroat sector—Leaf will be in position to own a nice chunk of the overall merchant experience.

But first it has to get effective distribution. And then things have to break its way as the sector shakes out over the next few years.

I recently caught up with Leaf’s co-founder and CEO, Aron Schwarzkopf (pictured at top), over e-mail to talk about his team’s strategy and long-term view. Here’s a lightly edited transcript of our exchange:

Xconomy: Could you give us an update on your growth, in terms of customers, employees, and so forth?

Aron Schwarzkopf: Leaf has hundreds of customers in 69 cities (23 states) across the U.S. We are currently processing $55 million on an annualized basis and expect to be at $500 million by the end of the year. We’re growing rapidly and now have 30 employees. As we continue to grow, we’ve made hiring the right people a priority, and are actively recruiting to help us scale our operations. It’s definitely an exciting time to be at Leaf, and we expect that to continue over the coming weeks and months.

X: The SMB (small and medium-sized business) market is challenging, especially in this crowded sector. How do you get distribution?

AS: Leaf has three main channels for distribution. The first is strategic partnerships with large merchant acquirers where we enable their salesmen to bundle Leaf’s services with their traditional offerings. We’ve found that these merchant acquirers have a lot of success positioning our services as a cash register killer and a platform for innovation.

The second is our membership program where smaller independent sales organizations pay a yearly fee and in return receive demo accounts, a dedicated support team, and the ability to sell Leaf’s platform in addition to their payment processing. Lastly, we drive a significant volume through an online self-service channel. Over the past few months, we’ve seen significant growth across all three distribution channels.

X: Why did you decide to go the hardware route (as well as software), and how are you handling the manufacturing challenges as you scale up?

AS: From the beginning, we knew we wanted to build custom hardware; the built-for-business device is an integral part of our long-term platform vision. While the platform will eventually manifest itself in many ways, a crucial aspect is ownership of the entire merchant experience from beginning to end. The LeafPresenter enables us to do just this.

Out of the box, a merchant receives the core Leaf offering, and from there can upgrade and utilize other apps and services all from a single device. Building an offering on top of someone else’s platform is a quick way to bring a product out of the gate, but could really limit features and functionality in the future.

We have a pretty exciting vision for local brick-and-mortar merchants, and building from the ground up is definitely the best way to deliver it. We’d rather do that than rely on someone else’s product, and we are handling the manufacturing challenges in stride. Our network of advisors is strong in manufacturing and supply chain, so we are leveraging their expertise as we grow.

X: How do you see the point-of-sale sector playing out in the next few years? Where will you fit vs. other companies like Square, PayPal, LevelUp, and Swipely?

AS: This is a legacy industry that is in the early days of being reshaped by the introduction of the cloud and mobile technology. As of today, it is extremely hard to understand where all the players fit given that many of them have not fully matured their strategy in the space. This is a space that saw almost no innovation for several decades leading up to the past few years, in which several innovative players have thrown their hats in the ring.

Leaf’s path as an open platform provider is to embrace a very crowded space of service providers that can leverage our agnostic technology and create applications on top of it. Many of the companies you just mentioned are already apps within the Leaf platform.

X: What’s your advice for first-time tech entrepreneurs? What do you wish you knew when you started?

AS: It’s all about hiring, culture, and focus. As I mentioned earlier, we’re on the lookout for bright minds to join our team, and even though we could use the bandwidth yesterday, we’re seriously committed to hiring the right people. I’d add that, for startups, the old real estate axiom matters—location, location, location. We’re thrilled to have set up in the Cambridge/Boston area, because we believe strongly that this is where the best people are.

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com. Follow @gthuang

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