Letter #242: Jared Isaacman (2020)
Founder of Shift4 and Draken International | S-1/A Founder Letter
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Jared Isaacman is the Founder and CEO of Shift4, which he started when he was just 16. He started his first business, Decho Systems, which designed websites for local businesses, when he was just 15. One of his earliest clients was Merchant Services, who ended up hiring him as an in-house consultant, which turned into a full-time job offer. He dropped out of high school and got his GED to join--only to leave after 6 months to start United Bank Card (which would later be renamed HarbourTouch and then Shift4) in his parents’ basement (he also hired his dad as employee #1). He bootstrapped the business for 15 years until selling a majority stake (53.5%) in equity and debt ($279mn) to raise the funds required ($250mn) to acquire his old client and employer, Merchant Services. Half a decade later (2020), Shift4 went public at a $2.8bn valuation. Today, its market cap sits around ~$10bn.
When Jared was 28, while still leading Shift4, he founded Draken International, a contractor that trains pilots for the military and defense industries that ultimately assembled the world’s largest private fleet of military aircraft. It took Draken four years to get its first contract, but once they did, they won every “red air” contract offered by the USAF for three years. Shortly after, just eight years after it was founded, Blackstone acquired a majority stake in the business for nine figures.
Apart from his careers in payments and private military, Jared has personally pursued endeavors in aerospace--both aeronautics and astronautics. Five years after staring Shift4 (when he was just 21), he started taking flying lessons at a local airport. He and a copilot went on to set the record for flying around the globe in a light jet, before cofounding the The Black Diamond Jet Team, a civilian air squadron that would perform aerial acrobatics at shows across the US (i.e., NFL Games, Indy 500, etc.). Shortly after taking Shift4 public, Jared became the first person to lead an all-civilian mission to orbit as the commander of the Inspiration4 crew. Three years after that, he became the first private astronaut to ever perform a spacewalk during the Polaris Dawn Mission.
Today’s letter is the letter Jared penned for Shift4’s S-1/A filing to go public (the S-1 had a few figures redacted). In this letter, he shares Shift4’s founding story, their differentiation and pioneering strategies, beginnings with an in-house platform, the moat it provides them, how they leverage that moat to further differentiate and fortify that moat, the importance of reflecting on history to find opportunities for improvement, navigating through economic events such as the dotcom bubble bursting, 9/11, the Great Recession, and most notably, Covid. He then discusses thoughts on the future, and distills into a list his learnings from decades of operating and investing in companies, and ends by reiterating his excitement for the future of the company.
I hope you enjoy this letter as much as I did!
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Letter
Shift4 Payments is an incredible story of vision, innovation and disciplined execution. As the founder and CEO, I want to share some of our history and why this is such a special business.
I founded what was to become Shift4 Payments when I was 16 years old, in my parents’ basement. I was drawn to what was, at the time, an emerging sector filled with odd and unnecessary inefficiencies and therefore opportunities. There were a lot of fundamental problems with how the merchant services industry was operating. The challenges I observed included mismanaged and misaligned distribution, cumbersome onboarding and a slew of operational inefficiencies. I believed there was a better way.
Our organizational determination to differentiate and grow through problem solving did not stop in the basement. We have built a successful company by pivoting in advance of industry trends, innovating technology solutions and empowering our distribution partners with a compelling value proposition. In fact, one of the few things that has changed over the years is the scale of the problems we solve… and the size of the merchants we solve them for.
Shift4 has pioneered several distinct and successful integrated payment strategies, long before competitors, analysts and even investors were talking about integrated payments. For decades now, we have monetized payments through software we have built, software assets we have acquired and through hundreds of software companies we have partnered with.
Our seat at the table begins with an in-house platform delivering proprietary technical capabilities. These capabilities give us a privileged position within the payments value chain. In fact, many of the largest payments processors in the country rely on Shift4 to handle their hospitality customers.
Leveraging the moat our platform affords, we further differentiate by obsessively solving merchant and partner pain points with innovative proprietary solutions like our Point-of-Sale software, business intelligence cloud, mobile pay-at-table (Skytab) products and a laser focus on operational capabilities that most competitors prefer to outsource. This allows us to deliver a single vendor solution to complex merchant environments. Eliminating multiple vendors and outsourced providers in turn eliminates cost and complexity and increases merchant satisfaction. This is why 7,000+ software partners and 200,000+ merchants have adopted the Shift4 model.
I constantly reflect on our history, not just because it’s a cool story, but also because I obsess over past decisions looking for opportunities to improve. It is amazing to look back at the types of customers we served in our earliest days — they were all small businesses and many are still loyal customers nearly two decades later. Today, we have hundreds of thousands of merchants that depend on our technology, which span from those same small businesses to some of the most recognizable brands like Mandarin Oriental, Caesars, Pebble Beach and many more. We didn’t win these great customer relationships by accident or by fighting over the last fraction of a penny. Shift4 wins because our “true north” is to seek out complexity and simplify it.
As I write this letter, I would be remiss if I didn’t reflect a bit on the extraordinary circumstances facing the world as the COVID-19 crisis paralyzes so many aspects of our society. I have navigated Shift4 through various economic climates after the “dot com” bubble, the tragedy of 9/11 and the Great Recession, but nothing before has had such a profound impact on commerce like the crisis we have all been enduring. It is during chaotic times like this that I am most proud of our company.
We have used the past two months to focus our resources around a number of initiatives to ensure employee safety, financial stability, industry stewardship and product innovation. You can find a detailed list of these on page 7 of this prospectus. These actions, while necessary in a time of crisis, also instill lasting values on our culture and strengthen our relationships with our customers.
Despite the heartache this pandemic has caused across the world, we have plenty of reasons to be optimistic. Our transaction data suggests the worst financial impact to our customers appears to have passed in late March 2020. As of the week beginning May 24, 2020 we have seen payment volumes rebound more than 116% from their March lows, and we believe those trends will continue to improve.
The world will emerge from this crisis and, while many of us are excited to return to our social routines, some things will undoubtedly be different. As always, Shift4 Payments will be there to help solve those new and complex problems. That may include new methods for takeout and tableside ordering, as well as innovations with contactless payments. What I know won’t change is the American consumer’s desire to go out to dinner and socialize with friends and family, to enjoy a drink after work at the local pub and to travel and discover new experiences.
I have had the privilege throughout my career of observing many great companies through both the lens of an operator and investor. In that time, I have tried to distill all of the details into a simple list of what really drives success – and I use these criteria before making any investment decision.
Here is what you can expect from Shift4:
Our Strategy: We have a winning strategy and intend to keep the company focused on leveraging our distinct advantages and executing for the benefit of our customers, partners, employees and stockholders. If, for whatever reason, the puck changes direction, there is a good chance Shift4 will already be there and waiting for it.
Our Discipline: Shift4 will be disciplined and efficient allocators of capital. We have a track record of generating strong unit economics, investing in growth-accelerating innovation and acquiring and unlocking value in high-potential assets.
Our Focus: Shift4 will have my complete attention. Over the years, I have built and sold several successful businesses while still serving as CEO of Shift4 Payments. Despite those outside interests, I have overseen consistent year-over-year revenue growth. In consideration of this IPO and the road ahead, I have reduced my equity interest and resigned my officer responsibilities in all outside ventures so that I can devote substantially all of my time, focus and energy to Shift4.
Our Team: I am fortunate to have an extraordinary leadership team. I honestly can’t brag about them enough and I am passionate about ensuring that management is completely aligned with stockholders. It is my goal that, through reasonable and properly aligned compensation, every layer of management comes to work each day thinking and making decisions like an owner.
Our Alignment: I intend to ensure that all aspects of governance are informed by a thorough diversity of views and our independent directors. This includes my own compensation. My base salary going forward will be consistent with a typical entry-level manager and other compensation will be entirely at the discretion of our board’s compensation committee, of which I will not be a member. In this regard, it is my expectation that the financial successes from operating Shift4 as a public company will come to me much in the same way as they always have over the past 20 years: as a stockholder in the business.
I have spent more than half of my life building Shift4 Payments. I have always felt fortunate to be in a position to run the company through some of the most amazing and, as of late, some of the most unexpected and demanding times. Honestly, there is never a bad day coming to work as CEO of such an amazing company and our brightest days are clearly ahead. I can state wholeheartedly there is no shortage of opportunity as commerce-enabling software and payments continue their journey of convergence, and there is no better organization to accelerate that trend than Shift4 Payments.
We are honored to welcome you to our family.
Jared Isaacman
Founder and Chief Executive Officer
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