At a reunion show in Baltimore in 2010, I was buying punk band CDs and shirts from the owner of a small record label out of the back of a van. When I went to pay, he pulled an iPhone from his back pocket with a white block attached to it and asked me for a credit card.
That was the first time I saw a Square reader.
It was a strange feeling, this cash-only business of touring band merchandise now accepted credit cards.
That's how Square got its start, but now it's spreading widely across the US as small businesses flock to Square for an easier way to take credit card payments. Even some medium and large businesses are ditching their legacy point-of-sale (POS) systems and replacing them with a combination of Square software and hardware because Square and its products provide a simple system at a lower price and access to valuable data on the transactions that their business is based on.
So, how did this company that was founded in 2009 and got its start providing food trucks a credit card reader end up with a $5 billion valuation at the start of 2014? According to Square spokesperson Faryl Ury, it was because Square follows a simple model when it comes to their customers.
Ury said, "If they grow, we grow."
Riding the first wave
Square started its journey when Jim McKelvey was unable to sell a glass faucet he crafted because he didn't have a way to accept credit card payments. He shared his frustration with Twitter co-founder Jack Dorsey, and the idea for Square was formed.
The first iteration of Square was a product that could deal with the issue that initially plagued McKelvey: give people an easy way to accept credit card payments. Folks such as food truck operators, local artists and artisans, and farmers at farmer's markets were the initial target audience. For the early customers, it was a no brainer. They had no way to accept credit cards without onerous monthly fees and a high percentage per transaction. Square gave them a way around that. The company gave away the reader for free, there was no contract or monthly fee, and there was a low, flat rate for processing
In the early days, Square's office looked down on a Blue Bottle Coffee location across the street and Dorsey often talked out loud about his desire for Square to someday handle the transactions for the popular San Francisco coffee chain. In February 2013, Blue Bottle announced that it was adopting Square as its point-of-sale system. This shows how far Square has come in just a few short years.
Part of the reason why Square has scaled so quickly is the fact that its goal was always to disrupt commerce as a whole, and not just empower a certain type of business.
"We've always talked about how we want to make commerce easy for everyone," Ury said. "And, when we say everyone, we mean everyone. We believe if we build products that are simple, affordable, and smart, then businesses of all sizes will want to use them."
Square's second wave was capturing brick-and-mortar small businesses. Small business communities tend to be tight-knit, so it makes sense thats some of the Square adoption happened organically as business owners shared their experiences with each other.
Going beyond the credit card reader
Almost all of the features that Square rolls out are based on merchant feedback. So, after Square made its way into local coffee shops and small businesses, the feedback became much more focused on the business needs faced by these type of merchants. Steven Cook, co-founder of Federal Donuts, has been using Square in his stores since 2012 and has seen some of the changes take place.
"They recognized a need and the products have addressed that. Being able to print kitchen tickets, for example, was kind of a big one," Cook said.
While Cook didn't personally request the feature, he said that it was a definite pain point in his industry. Cook referred to such a kitchen ticket system as "POS 101." The fact that Square built that feature shows it is serious about upending more than just credit card processing; because the ticket system won't directly translate into more revenue for Square, but it will improve the experience that merchants have with Square's product.
Square is also seeking to address issues faced by larger businesses. In 2013, Square unveiled the Square Stand, the Square Market online storefront, and the Square Cash email money transfer service. For Molly Moon Neitzel, owner of Molly Moon's Homemade Ice Cream, Square Market was the most surprising feature.
"It's amazing how easy it is to create a beautiful online store with Square Market," Neitzel said. "We're shooting all of our Summer 2014 merchandise in the next few weeks, and switching to Square Market from Shopify, and I'm pretty excited about it from an admin standpoint, and from a customer interface perspective."
All of this plays to the idea of going beyond just commerce. According to Ury, the company is trying to add features that eliminate frustrations for the merchants and give them tools that are complementary to their business. For example, Square recently added the ability to for patrons to leave feedback on their receipt for the business owner.
"We recently released inventory management, and that was huge for a lot of larger businesses. They wanted to stick to Square, but they needed that. And so, by releasing that feature, we've unlocked a whole new segment of merchants," Ury said.
They have also upped some of the account management features and added more customer service phone support to help companies if they run into problems with a Square product. What other companies can learn from this model is that, if your business is built around a single idea or goal, you have to be flexible enough to address the variety of needs brought on by different use cases.
Aligning with the success of your customers
Square is, no doubt, a startup success story. What's more interesting is the fact that they are one of the few companies that exemplify the oft-misused term "disruption." They have created a set of products that have the potential to truly supplant an existing legacy system and change the way consumers look at its industry.
"It's certainly a bellwether into how the industry is changing and becoming less dependant on 'systems,'" Cook said. "Eventually, everybody that's got an iPhone in their pocket, whether it's my customer, or my employee, is going to be able to put an order in or take an order. That doesn't work in the closed, hardware-based, old line systems."
Square is still growing like wildfire. The company recently announced a new partnership with Whole Foods to bring Square products to parts of their stores. They also opened a new East Coast headquarters in New York and a second Bay Area office in Silicon Valley. Additionally, Square hired Alyssa Henry of Amazon AWS as its new engineering lead.
Square's story is one that many startups can learn from. When asked what advice she had for startup founders, Ury kept it simple.
"Keep in mind who you're building for," she said. "That's something that we always do."
Square has come a long way in a short amount of time because they built a business based on transparency, simplicity, and tying its success to its customers' success.
- Square launches Feedback to make receipts interactive (ZDNet)
- Square reaffirms open source commitment with latest release (ZDNet)
- Photos: 6 of San Francisco's swankiest startup spaces
- How Aaron Levie and his childhood friends built Box into a $2 billion business, without stabbing each other in the back
Conner Forrest has nothing to disclose. He doesn't hold investments in the technology companies he covers.
Conner Forrest is a Senior Editor for TechRepublic. He covers enterprise technology and is interested in the convergence of tech and culture.