Consumers gone? Gravity Payments works harder

When consumers use credit or debit cards to pay for meals at neighborhood bistros or shoes at boutique retailers, middlemen make sure the dollars represented by the plastic get from the banks to the business owners.

Dan Price is one of those middlemen. His team at Gravity Payments processes transactions involving credit, debit and gift cards for hundreds of small-business owners in the Puget Sound area and takes a cut of the overall customer bill for its services.

What happens to a payment-processing company that relies on consumer spending when customers slam on the brakes? In Gravity’s case, the answer was: grow by nearly 62 percent.

To be sure, Price said, the company did hit a rough patch in the fall of 2008.  

Gravity’s customer base is composed of one-quarter retailers, one-quarter restaurants, and slightly less than a quarter each from online businesses and service providers. The rest comes from miscellaneous industries.

While some major retailers saw sales dip or flatten out, the small, independent businesses that are Gravity’s customers felt the brunt of the recession. Price said local independent retailers experienced — on average — a 20 percent decline in customer spending, and “some of our customers went down by as much as 60 percent, so our revenue went down.”

The Seattle payment processor floats millions of dollars each month to its small-business customers while it awaits payment of its own fees.

“We didn’t have a profit margin to absorb such a drop at that point,” Price recalls. “We had to add a lot of customers to make up for the fact that our customers were unintentionally doing less business with us.”

Price said Gravity had been growing organically, by word of mouth from satisfied customers. By the fall of 2008, however, Gravity had to aggressively drum up new business. Everyone went out and started knocking on doors, Price said.

He recalls regularly putting in 12- and 13-hour days that included cold calling restaurants between 6 p.m. and 10 p.m. He also took an 80 percent pay cut to avoid layoffs and pay cuts for his staff.

The results: Gravity increased its customer base by 55 percent and increased its revenue.

“Six months later, and we’re profitable again and we’re adding new employees,” Price said. “We didn’t need to panic. We just had to work really, really hard.”

Price is no stranger to hard work. He laid the groundwork for Gravity Payments while he was a junior in high school. He played in a rock band that toured the region. After the band broke up, Price looked for a way to stay connected to the owners of the record stores, bars and coffee shops with ties to the music industry. In chatting with these small-business owners, he learned of the challenges of doing business, among them the high cost of credit card processing, and that small businesses often paid more for credit card processing than larger companies.

“That inspired me,” Price said. He researched the issues and began consulting, billing and renegotiating contracts with billing companies on behalf of small businesses. Soon, he said, he was earning between $8,000 and $10,000 a month while still in high school.

During his freshman year at Seattle Pacific University, Price and his older brother Lucas started their own company doing the same things that Dan Price had been doing as a consultant. They launched Gravity Payments in 2004.

In 2009, Gravity finished the year with 48 employees and revenue of more than $3.6 million.

Price said Gravity is able to sustain its growth because he and his team stick to the principles of helping the small-business owners who inspired him in high school, and believing that everything they do must center on the customer.

The 26-year-old entrepreneur grapples with preserving those values as the number of customers and employees grows.

“The bigger the numbers get, the harder it is to keep the customer at the center,” Price admits, noting his firm now employs more than 50 people. “Once you get over the 50-employee mark, the biggest shift is the need for more and more internal leadership. I can’t be the sole leader of the company any more. But that’s a shift I’m proud to say has already started.”

Price says he’ll emphasize to new managers that profitability and good people are needed to sustain the business. But he also will preach that customer service, and providing that service at a reasonable cost, are the path to long-term success.

“I think the No. 1 way to sustain growth is to keep doing what got you there,” he said. “For some, it could be easy to turn your back on that and think that making money is the most important thing in business. We completely reject that model.”