In its latest State of SMB Software report, our friends at SurePath Captial made a compelling prediction.

We dug into this idea a bit with SurePath founder Mark MacLeod on a recent Above the Cloud podcast. As SurePath notes in the bullet point above, one of the beauties of small-business software is that there are so many SMBs that there are plenty of customers to go around. A player doesn’t have to own a category to be successful.
Even in a vertical category like restaurants, the numbers are vast. According to the National Restaurant Association, there were more than 1 million restaurant locations in the U.S. in 2018. To give a sense of how wide open the category remains, OpenTable has about 48,000 restaurants on its platform.
Mark argues however that restaurants may be uniquely suited to consolidation. He points out that that the investors are plowing funds into the category hoping to find the company that can essentially become the operating system of record for restaurants.
There are several contenders for the crown. Leading candidates include Square (a horizontal play, but dining is a key category), Toast, UpServe, and others. Each comes at the vertical from a different angle, but each is focused on being the software that runs the entire restaurant operation. Mark believes one will eventually emerger as a leader and consolidate the category. Its a process he believes will take at least a few years.
“You need one base product with enough scale so you can build or buy other products to cross-sell to those merchants,” Mark said. “This drives how much revenue you get from them, and you plow that increase back into acquiring more customers. So it becomes like a flywheel. That is the path to owning a market.”
For many players, like Square and Toast, the base product is a point-of-sale terminal or app. For others, like 7Shifts and UpServe, it begins with staff scheduling software with other products layered on top of the base solution until something like a full business management suite emerges.
The companies with the best shot are focusing on managing all of the endless details of running a restaurant.
“Operations is where there is the most opportunity for value creation for restaurant owners,” Mark said.
According to Wave III of the LSA’s Tech Adoption Index small business survey, there is still plenty of upside for tech adoption in the dining and entertainment space. Only 29% of dining/entertainment respondents are using a cloud-based POS system. And 22% have not adopted any new, cloud-based tools for any component of the SMB operating system, compared with 19% for the full (unweighted) sample. We define the components of the SMB operating system as marketing, CRM, payroll, accounting, supply chain, point of sale and communications.
Here’s the video of our conversation with Mark on why he thinks one SMB software player may eventually own the restaurants vertical.

And you can catch the full podcast here, where the conversation is broader than just restaurants.
Here is some background on the key players mentioned in our restaurant vertical discussion with Mark.
Toast. Boston-based Toast offers a cloud-based restaurant management system, with point-of-sale as its base product. It also offers inventory management, analytics, loyalty programs, and integrates with other players in the restaurant space, from OpenTable, GrubHub, 7Shitfts, and others. As Mark noted on the podcast, Toast has been a prolific fundraiser. According to Pitchbook, Toast has raised $247.25 million to date in four rounds, the latest being a $115 million D round in October 2018. The company has a post-money valuation of $1.4 billion.
UpServe. Providence-based UpServe is a true OS for restaurant owners. Founded in 2009 by Angus Davis to offer a staff scheduling solution, UpServe now offers a complete suite for restaurateurs to run their business through the cloud, including POS, marketing and CRM, guest book, server performance management, sales reporting, menu management, reputation management, and more. UpServe has also been a monster at fundraising. While Pitchbook puts it total raised to date at $65 million, a strategic investment from Vista Equity Partners in July 2017 reportedly topped $100 million. However, the amount was not officially disclosed.
TouchBistro. Toronto-based TouchBistro is an iPad based restaurant POS system. The company was founded in 2010 by Alex Barotti. According to Pitchbook, TouchBistro has raised $90.74 million to date. It’s most recent deal was a $54.93 million D round closed in June 2018. Like most SMB software companies TouchBistro has expanded its suite beyond its base product to become a cloud OS for restaurants. the company also offers staff scheduling, CRM, inventory management, floor plan and table management, and analytics.
7Shifts. Saskatoon-based 7Shifts offers cloud-based software for restaurant staff scheduling. The company’s services extend into workforce management (scheduling optimization), team communications, employee engagement, time clock and leave management. 7Shifts was founded in 2013 and has raised $14.7 million to date, according to Pitchbook. It closed a $10 million Series A round on January 24.