5MR#45 - Startup Growth Engines : Square

Lets take a deep dive for what was different for Jack Dorsey’s growth start up – Square

By combining an elegant integrated payments system with a distinctive conversation-triggering piece of hardware, Square has disrupted the credit card payments establishment while making credit card processing more accessible to small businesses everywhere.

In only a few short years (they were founded in 2009), Square has skyrocketed to a rumored valuation north of $3.25 billion dollars and 600 employees.

The Need for Square

As with most fast growth products, the Square story starts with addressing a widespread need with an effective solution that completely reimagines small business payments. Before Square, it was illegal for nonegistered merchants to accept credit card payments. Registering was a costly and difficult process that most small business owners couldn’t afford.

?These business owners struggled with the reality that while most people carried plastic instead of cash, the costs and complexity of credit card processing made it impractical to accept credit cards.

Early Traction

There is not much public information available on the early traction of Square, but Jack Dorsey’s own personal profile (as Twitter cofounder) cannot be understated when it came to attracting early customers and investors. Dorsey created a list titled, “140 Reasons Why Square Will Fail”, which he distributed to potential investors of Square.

The list included counterpoints to each objection, which informed investors that he was prepared for any possible obstacle the new startup may face. “140 Reasons Why Square Will Fail” also served as a clever strategy to acquire new interest.

While Dorsey’s celebrity helped gain early tech press and investor notice, Square was designed to unlock credit card payments for the average small business–not the avid TechCrunch reader. To that end, Jack Dorsey’s celebrity is less important to lasting growth, compared to the obvious early benefits.

Dorsey also promoted his product through demonstrations held with potential vendors and investors of the company showing just how easy it was to use the product. By following the Apple iTunes/iPod model of developing an integrated hardware and software solution, Square was able to create a system that was easy to use, elegant in its design and completely new and remarkable from the other solutions on the market.

By reimagining what it meant to take credit card payments, Square was able to catalyze word of mouth while unlocking untapped markets for new customers.

Despite early challenges, including questions about security, Square began to build credibility and momentum through partnerships with industry leaders and glowing reviews from users and reviewers alike. With high profile partnerships from Apple—where the company stocked and sold its reader for $10 in every store—to a strategic investment from Visa, Square showed their audience and the market that they were a serious new entrant with a product that brands they already trusted believed in. This gave Square the bonafides needed to make the leap from techset darling to a must-have for small businesses hungry for a solution to a long-unmet need.

?Looking back at early traction it’s clear that there were 4 factors that drove growth:

1.?????An elegant hardware/software solution that reimagined the payment processing space, similar to Apple’s iTunes/iPod approach to digital music.

2.?????A business model that made payments accessible to small businesses who were previously shut out due to price and application process.

3.?????Early tech excitement based on Dorsey’s public profile to drive initial awareness.

4.?????Strategic partnerships that drove distribution and credibility fueling growth among their target customers.

Breaking Down Today’s Growth Engine

Square’s growth engine can be summarized at a high level by the following four components:

1.?????Compelling value proposition and low friction drives trials

Square solves a real problem that relates to the number one priority of their target customers – making more money. And they make it very easy and low risk to get started. Once a user activates an account on squareup.com, the company automatically ships out a free card reader to them within 7-10 business days. Signing up is hassle free and quick with very little friction, which complements the company’s goal to gain as many new users as possible.

An account with Square requires no contract, no monthly service fee, and doesn’t require a merchant service fee. As an added bonus, the credit card reader comes with a redemption code that allows new users to redeem $10, which is deposited into their bank account after registering the device. Compare this to the traditional payment processor model which required a detailed application, a phone call audit, and an expensive equipment purchase and/or lease.

The Square phone app can be downloaded for free, turning any phone into a reader. The app is practical and easy-to-navigate. Even for non-tech savvy small business owners, Square is a breeze to use. Square customers who have a hard time using their iPhone have no problem taking a payment.

?2.?????Wow customers with elegant integrated system

Square delivers on the initial promise of solving small business credit card challenges and then goes on to wow customers with an integrated solution that includes beautiful reporting; much of the system solves needs the customer didn’t even know they had (after nailing the obvious problem).

Square’s applications for small businesses make it easy to setup and configure point of sale systems on an iPad, can provide rich insights to help business owners make the most of business opportunities, and help build loyalty through two-way communication between the business app and consumers using Square.

This integrated approach to payments goes far beyond just taking payments.

Customer loyalty is another facet of the system. Square’s Wallet allows users to buy from merchants who accept Square without having to physically take anything out of their pockets to pay (the app has all of the customer’s credit card information saved). A customer can simply walk into the store, say his or her name, and the merchant can pull up his or her account profile and picture through geo-fencing technology.

?This technology detects when a customer is nearby a merchant-enabled store. The app also features the ability to find location nearby that accepts Square and provides customers with information such as contact info, menus, coupons, photos, and reviews of said merchants. All innovations around payments to remove friction and delight their customers—business owners and shoppers.

3.?????Beautiful highly visible hardware sparks questions

Square spent the time and resources to make the hardware component of their solution interesting and even beautiful to the eye. Compared to other credit card terminals, it’s a work of art.

This visible unique differentiator sparks conversations with customers. People naturally ask “Wow, what is that thing attached to our iPhone?” The experience of signing with your fingers and having the receipt mailed to you is convenient and amazing in itself. It’s completely unlike any other way to pay.

The company keeps pushing forward with new technology such as the Square Register application which turns an iPad into a powerful, point-of-sale system. The app supports a traditional cash drawer and has the ability to print physical receipts with a compatible receipt printer—a smart evolution that acknowledges that cash still is an important part of small business commerce.

While efficient, it also creates a novel moment of surprise and delight as something completely unexpected from traditional purchase transactions. This delight creates goodwill, word of mouth, and customer satisfaction both for the store’s customer and Square’s.

4.?????Raving fans advocate benefits of solution

Business owners that are asked about Square are happy to rave about the product. It makes them look smart and hip to their customers and their peers. Square’s hardware design elevates the small business brand and provides delightful elements to their own customers’ experiences.

This positive word of mouth creates a flywheel of momentum for the business.

As more people get added to the ecosystem their momentum gets stronger. New partnerships with companies like Starbucks will put Square in front of millions of new users, driving that flywheel ever faster.

When compared to Intuit or PayPal, both who recently released credit card adapters for iPhones, the positive word of mouth and delightful experiences that generate it are powerful barriers for competition to overcome.

Thanks for your time and encouragement. Make it a great day ahead !?