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ShopKeep CEO Norm Merritt sees all the fuss over the Square IPO and wants nothing to do with it.
“We’re the anti-Square,” he said in a recent interview.
Like Square, ShopKeep makes checkout software for small businesses that use its service as digital cash registers and to manage retail operations. But unlike Square, ShopKeep charges a monthly fee for its core product, which makes Merritt confident his business will be way more profitable than Square will ever be.
That model, coupled with ShopKeep’s revenue growth, has Merritt thinking an IPO is a real possibility a few years out. And he’s now hired a C-level team he thinks can get him there.
This week, Michael DeSimone joined ShopKeep as its chief operating officer. DeSimone was most recently CEO of Borderfree, which he took public last year and sold to Pitney-Bowes. ShopKeep also recently hired a CFO — John Baule, who has taken two companies public, including e-commerce software company ChannelAdvisor.
ShopKeep was founded in 2008 by Jason Richelson, a shop owner who thought new technology should make it possible for small businesses to use modern software to run their stores for a fraction of the cost of legacy systems. Richelson is still with the company as chief strategy officer. The company has raised nearly $100 million in venture capital from investors such as Canaan Partners and Activant Capital. Its last round valued the company at around $200 million on a pre-money basis, according to a person familiar with the deal.
The ShopKeep software package includes a digital cash register and other tools that help with things like inventory and staff management. Businesses pay $49 a month per “register.” Merritt says it takes less than a year for the company to break even on a customer after accounting for what it spends on sales and marketing to acquire one. That means within a year, a new customer becomes very profitable. ShopKeep generates the majority of its revenue from these software subscriptions.
But charging for that product means it faces a higher hurdle to acquiring a new merchant than Square does. And its customer and revenue metrics show it. The company has 20,000 business customers and is projecting $30 million to $40 million in 2015 revenue. Square, on the other hand, says it has more than two million active merchants and did $560 million in sales in the first six months of 2015 alone.
Merritt says ShopKeep’s 2015 revenue will end up more than double last year’s total and is projecting at least doubling revenue again in 2016. The company is not profitable today because it is investing in new business lines and other initiatives it thinks can help it become a massive company, Merritt said. The company’s return on marketing spending makes him confident that investing in growth is the right move now.
In the last year, ShopKeep has also acquired a payment processor, so it now generates revenue from transaction fees, too. This business will help it grow its revenue faster than it could have otherwise, but it comes with much lower profit margins than its software business.
Square has built its business the opposite way. Its initial revenue stream, which still makes up the majority of its business, comes from payment processing fees that carry lower margins than subscription software businesses. In the last two years, though, it has been trying to build a new higher-margin software and data business, which accounts for a small fraction of revenue today, to complement the processing business. Its customers are typically smaller businesses than ShopKeep’s.
Two different approaches for two companies attacking a similar opportunity. Both still have a lot to prove.
This article originally appeared on Recode.net.
