This article is graciously reposted with permission from the Lehigh Valley Business Journal. The original article appears here.
by Wendy Solomon
Terry McKim was working in marketing at Lords & Ladies Salon in Sinking Spring when he learned how tipping was handled in the beauty industry.
If a customer paid the tip by credit card, salon owners paid a transaction fee and taxes on the tip.
Salons that required cash-only tips had another set of problems. Stylists sometimes didn’t get a tip because customers didn’t always have enough cash on hand and they didn’t want to pay a fee to use ATMs on site at some salons.
“As I started to dig into this and reach out to the Professional Beauty Association, I realized tipping was a big issue in the industry,” McKim said. “I came to the conclusion there has to be a better way to tip.”
That’s when McKim came up with the idea for Tippy, an app that enables customers to use a credit card to tip their stylists. The money is deposited directly into the stylist’s bank account, which is available the next day, and the stylist pays the credit card fees.
Salons pay a $25 monthly fee for Tippy, which is installed on an iPad that is free for the life of the service. Clients tip their stylists by selecting a screen that shows a picture of the stylist with three suggested amounts, or they can enter an amount of their own choosing. The client selects the amount and swipes a credit or debit card.
Stylists can download a free app on their cell phones that notifies them with a ding when a client leaves a tip. They can manage their tips and even split a portion of it with an assistant. The salon owners, meanwhile, have a Tippy dashboard from which they can pull reports, such as on what products, services and stylists clients are using and on how much they’re tipping.
McKim said the company expects to be in 100 salons by the end of the year.
BACKED BY INVESTORS
Tippy was launched nationally in August after McKim and his brother-in-law David Tashjian, a venture capitalist, developed the idea and tested it at seven Lords & Ladies salons in Pennsylvania. Tashjian founded DirectTips with Tippy as a division. He and McKim, chief innovation officer of Tippy, raised $1.5 million in an initial round of funding in 2017.
The same investors will soon close on a second round of funding of $1.65 million, McKim said.
The company plans to soon partner with L’Oreal and its Saloncentric division, said Tashjian, president and CEO of DirectTips, which is based in Fort Lauderdale and has an office in Wyomissing.
“It’s not been formally announced yet,” Tashjian said.
The investors include one of the biggest names in the beauty industry, Doug Von Allmen, founder of Beauty Alliance, the largest privately owned professional beauty products distributor in the country, which he sold to L’Oreal.
The others are Michael J. Caron, a Sinking Spring resident and former owner of GTS-Welco, a compressed industrial gas company based in South Whitehall Township, and the Lehigh Valley Angel Investors.
Tippy’s board is comprised of Caron, Allmen and other heavy hitters in the beauty industry, including Pat Parenty, a former L’Oreal executive; Michael Sampson, CEO of Kate Somerville Skincare; Terry Derr, owner of Lords & Ladies Salons; and Josh Hafetz, founder and president of Art of Business, the former Raylon Corp., a Reading-based beauty product distribution company. The Hafetz family sold Raylon’s assets to L’Oreal in 2016.
McKim reached out to Caron, a member of Lehigh Valley Angel Investors, when they were ready to scale up the product. Caron said he was familiar with Tippy because his wife told him about it after she used it at Lords & Ladies.
About a year ago, he invited McKim and Tashjian to make a presentation about it at the investors’ group meeting at Ben Franklin TechVentures at Lehigh University.
“I saw them as a fantastic opportunity. There was definitely a need for the service,” Caron said.
“I invited them to the group, they presented and we were off and running from there. The reason we liked Tippy so much is that it solved three different problems at the same time,” he said.
Salons could transfer the credit card fees and tax reporting on tips to the stylists, he said.
Stylists were getting higher tips, as much as 40 percent more, and the money was directly deposited into their accounts.
“Most stylists are paid in cash and it’s gone quickly. They don’t save,” Caron said.
And clients could still use their credit cards and know that their stylists were getting their tips, he said.
A LONG-RANGE RETURN
Caron said the investors don’t expect to see a return on their investment for another three to five years. The hope is a larger company will buy the Tippy app, he said.
“What you’re looking for from our point of view is a great idea that turns into a usable product and then someone comes along and says, ‘I want to buy that,’” he said.
The larger company will have the depth, scale and sales force to move the product along.
“They don’t have to reinvent the wheel,” he said.
If a company such as L’Oreal or Square, a point-of-sale app that’s already on the market, bought Tippy, it would have access to data about consumers, stylists and products the app acquired.