Shift4: Delete The Part
How the payments company uses a SpaceX operating philosophy to fuel growth through M&A
At first glance, Jared Isaacman—the founder and CEO of payments company Shift4—might seem like an odd choice for NASA administrator1, but how many CEOs do you know who have spent over a week in space?
I don’t feel confident saying what makes one qualified or unqualified to run NASA but, in addition to running a successful publicly-traded company ($FOUR), Isaacman’s space bonafides seem legit to me:
Aeronautics degree from Embry-Riddle University
Co-founded a defense contractor that trains NATO-affiliated air force pilots
Flies fighter jets for fun (and philanthropy)
Currently holds the world record for circumnavigation of the globe via light jet
I feel a lot more confident suggesting what makes for a good payments company. And after speaking with Isaacman via Zoom last November, I believe his experience as a private astronaut helps explain why Shift4 has been so much more successful than legacy payments processors like Fiserv and Worldpay in growing its business—especially via M&A.
Shift4 is a Rocketship
Shift4 mainly offers an integrated suite of point-of-sale (POS) hardware, software, and payments processing to merchants in three verticals: restaurants, hospitality, and sports & entertainment. Over the past four years, it has grown its primary revenue metric, “gross revenue less network fees,” at a 43% CAGR with end-to-end payments volume growing at a 57% CAGR. For comparison, Fiserv’s merchant solutions division grew its “adjusted revenue,” by 9% YoY in Q3 2024. Clover, the software-based point-of-sale solution Fiserv bought in 2013 (a bright spot among its M&A history), which competes with Shift4 in the restaurant space grew revenue by 28% in Q3. That growth rate is gangbusters for Fiserv but would be a terrible quarter for Isaacman’s company.
Shift4’s growth is even outpacing digitally native vertical processors (DNVPs) like Adyen and Stripe. Stripe’s 2023 TPV growth rate was 25%. We don’t have data for Stripe’s 2024 performance yet but Adyen grew total payments volume (TPV) by 33% in H2 2024. Shift4 is growing faster than both and has no plans of slowing down. In the same Q3 report, the company raised its net revenue and EBITDA guidance for Q4. Shift4 is flying!
But these comparisons aren’t quite fair. Adyen, Fiserv, and Stripe are all much bigger than Shift4, which is currently at a $175B TPV annual run-rate. Adyen and Stripe are both processing over $1T, and Fiserv Merchant Solutions’ annual net revenue is over 6x what Shift4 does each year. One would expect a company growing from a smaller base to have higher growth rates, so let’s compare Shift4 to a comparably sized Adyen (the best run payments company in the world) from several years ago. Adyen, circa 2018, processed €159B, growing at 47% YoY with EBITDA margins of 52%. Shift4 grew its TPV 56% YoY in Q3 2024 with 51% EBITDA margins. Fiserv Merchant Solutions has historically had EBITDA margins in the mid-30s.
There are important differences between each of these business but Shift4 looks much more likely to be the next Adyen2 than the next Fiserv.
The key difference between Shift4 and Adyen is that, while Adyen is philosophically opposed to M&A, Shift4 has been on something of an acquisition streak lately, having purchased nine companies since 2020. And, based on the numbers above, its approach appears to be working.
The Shift4 Playbook
After Shift4’s most recent acquisition in December 2024, RBC Capital Markets’ Dan Perlin told his clients “this is another acquisition that will run the Shift4 playbook.” Until a few months ago, this is how I understood the the Shift4 Playbook:
Buy companies in its core categories
Cross-sell Shift4’s payment services to the acquired company’s merchants
…
Profit
While I'm not categorically opposed to M&A, I believe it usually doesn’t work in the payments industry (also see my comments on Worldpay’s trench coat theory of M&A). But Shift4 claims it has a “tried and true” acquisition playbook; I just didn’t buy it.
So, when Jared Isaacman engaged with one of my tweets, I shot my shot and ended up talking with him via Zoom for about 30 minutes last November. My conversation with Jared provided me with a much more nuanced understanding of the Shift4 M&A playbook. Here are some things I missed:
1 - Find companies overlooking the embedded payments opportunity
Jared told me that he’s understood for well over a decade that Shift4 “had to have payments alongside software.” This is essentially the embedded payments opportunity of the past 10-15 years. When looking for acquisition targets, Jared said that Shift4 prioritizes software companies that have been overlooking the payments opportunity. For example, Revel Systems, which Shift4 bought for $250M last summer, was a software company where “payments was somewhat of an afterthought until the last couple of years,” Jared explained on an analyst call last year.
2 - Buy overlooked companies
Last fall, rumors were flying that Shift4 might acquire Canadian POS company Lightspeed. Jared didn’t comment on these rumors specifically but he did tell me “if you’ve heard of the company we’re buying, we’re doing something wrong.” Shift4’s M&A track record backs this up. I know about more payments companies than the average person but I had certainly never heard of Eigen Payments until Shift4 quietly acquired the company last December.
By focusing on overlooked acquisition targets, Shift4 has used M&A as an incredibly cost effective customer acquisition tool. It’s acquired nine companies (that we know of) since 2020—gaining access to tens of thousands of merchant locations and hundreds of billions of dollars of payments volume across North America and Europe—for less than $2B. Lightspeed’s current market cap is $1.5B.
3 - Cross-sell customers
Jared knows Shift4’s product is most competitive in the restaurant, hospitality, and sports & entertainment categories. As a result, the company’s M&A activity almost entirely falls within these areas. But the company has different strategies to win with each type of merchant.
For example, in hospitality, Jared told me that the “number of combinations of software is immensely complicated.” Shift4 integrates with hundreds of third-party software systems that a hotel might need. He told me Shift4 has embraced this combinatorial complexity to make sure they have every combination of golf course booking software, parking management software, online reservation management, etc software they might need to win a hotel’s business.
In the table service restaurant space, Jared seems to think technology is much less differentiated than in the hospitality industry and that Shift4’s M&A playbook will help it overtake competitors like Toast. “We believe we install the second most table-service restaurant systems in the U.S…and our roadmap and playbook give us a real chance at becoming number one” he wrote in Shift4’s Q3 2024 letter to shareholders. Indeed, many of the company’s recent acquisitions are in the restaurant space. More flippantly, Jared told me that “the POS system doesn’t make the food taste better; it’s not putting more butts in seats.” Here, Shift4 is focused less on the complexity of third-party software integrations and more on converting acquired merchants over to its product—namely its SkyTap POS system. The company claims it has over $350B payment volume cross-sell opportunities just from the Vectron and Revel acquisitions.
Shift4 has clients in other areas as well. Notably Starlink, Elon Musk’s satellite communication company is a customer. While not a huge driver of TPV today, Jared shared that Starlink has been an important customer for pushing Shift4’s online and international payments capabilities. As Jared put it, Shift4 has been “following Starlink around the world.”
4- Delete the part
In 2021, Jared served as commander of Inspiration4, the world’s first all-civilian spaceflight, and, in 2024, Jared commanded Polaris Dawn, a record-setting private spaceflight that saw all four astronauts perform extravehicular activities. Both missions were operated by SpaceX. I asked Jared if he’s learned anything from working with the government or going to space that might have helped him in running Shift4. He told me there were “no lessons from working with the government,” but he shared that he’s learned a great deal “being a fly on the wall at SpaceX,” specifically the idea of “deleting parts.”
In 2021, Elon Musk did an interview with Tim Dodd, aka the Everyday Astronaut where he outlined the five-step process SpaceX uses to design rockets. Step 2 is “Delete the Part or Process.”
“Possibly the most common error of a smart engineer is to optimize a thing that should not exist,” Musk explained to Dodd. Jared has taken this lesson to heart, and I think Shift4’s bias to “delete the part” largely explains its success in M&A when others have struggled. When Shift4 buys a company, the goal is to convert acquired merchants to Shift4’s platform and fully deprecate the acquired platform. “You don’t need two restaurant products,” Jared explained after buying the POS system, Revel, last summer. Jared further explained that Shift4 would “take the best capabilities out of Revel” and add them into its SkyTab system.
In other cases, Shift4 isn’t interested in any of the acquired company’s product capabilities and the acquisition is purely about gaining access to more cross-sell opportunities. Last year, Jared told me, Shift4 bought SpotOn’s sports and entertainment division, Appetize, and Shift4 “didn’t take any developers.” They simply told customers they had two years to switch to Shift4’s product line.
This approach to growth is not without its issues. Customers using the POS systems Shift4 has acquired have taken to Reddit, among other places, to complain about their experiences transitioning to Shift4, but even they see the strategic vision. “I’d bet Shift4 shuts down most of these POS spinoffs and forces everyone to move to a single product. Will be much easier for them to manage,” shared one member of the r/POS subreddit.
Despite its best efforts, Jared believes Shift4 still has too many parts. From his Q3 2024 letter to shareholders:
“Over the last 25 years, we've accumulated some baggage–some going back to the internal software systems we built in our basement days and some through M&A. We have tens of thousands of legacy POS systems that we will eventually move to Skytab, many gateway connections to sunset and other inefficiencies to address. The "Shift4way" includes staying flat, being procedurally driven, embracing radical ownership and passionately deleting ‘parts’. We are still in the early days of this transformation, there are lots of ‘parts’ still to remove, internal systems to replace with Project Phoenix, operations to improve with Mission Control and automation to achieve with AI, but as we progress, you should expect us to become more efficient, improve the service quality, expand margins and become significantly more profitable.”
Reaching For The Stars
In 2024, Isaacman led Shift4 through a strategic review, inviting bids to acquire the company. It seems Isaacman didn’t like the offers that came in and publicly committed to running Shift4 for the foreseeable future. From a May 2024 letter to shareholders: “I own way too much of the company to ever sit on the sidelines, so I intend to see this story through as CEO.” Then, last December, Isaacman received an offer he couldn’t refuse from then-President-elect Trump. He was nominated for NASA administrator, “a role that reflects [his] passion for advancing humankind’s reach among the stars, unlocking the secrets of the universe, and improving life on Earth along the way,” Isaacman shared in another letter to shareholders after his nomination.
Isaacman intends to remain Shift4 CEO until confirmed by the Senate and it's unclear how the company will fare after he’s gone. On one hand, the path to continued success seems very clear and the company has other capable executives—like Taylor Lauber, Shift4’s president for the past seven years—who can take over in Isaacman’s absence. On the other hand, so much of the Shift4 playbook seems to come from Isaacman’s personal experience as a private astronaut and aeronautics obsessive. Will others really be able to continue that culture? In his letter after the nomination, Isaacman left the door open to return to Shift4 and I wouldn’t be surprised if he does.
Further Reading
Jev Kazanins wrote a great profile of Shift4 a few years back and a compared Shift4 to Toast last year on his wonderful blog, Popular Fintech.
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In December 2024, Isaacman was nominated by then-President-elect Trump to lead NASA.
Adyen and Shift4 may be on a collision course as the former company has added notable customers in restaurants (McDonalds), hospitality (Hakkasan Group), and sports (FC Bayern Munich) in recent years.