In 2021, Parker Conrad, the CEO of Rippling, coined the phrase “compound startup.” This idea is defined as a company that “addresses a range of point solution systems all at once to build a broad portfolio of interoperable products.” Some of the characteristics of a compound startup include: (1) longer / deeper R&D investment phase followed by better R&D efficiency, (2) larger overall TAM, and (3) better CAC payback and S&M efficiency. In effect, the idea is that if you invest deeply in building a product you will continue to expand your TAM. And as you penetrate that TAM, you’ll have better unit economics because each incremental product is easier to sell.
This week another company continued to demonstrate its compound startup characteristics when it launched its further expansion into yet another product category: Ramp*. The corporate card company has expanded dramatically since it launched in 2019. Imagined first as a corporate card focused on helping companies spend less, the product has since expanded into expense management software, bill pay, procurement, contract parsing, pricing intelligence, and vendor management.
Ramp had previously also enabled users to set limitations for travel spending. But recently, Ramp announced Ramp Travel, which allows users to book corporate travel right in the Ramp platform without having to go anywhere else. This expansion takes Ramp into yet another competitive landscape against tools like AmEx Global Business Travel, TravelPerk, and Navan.
Returning to the compound startup question, its clear that Ramp fits that same bill. The intense R&D investment has allowed the company to expand broadly to compete in several disparate categories. In not only addressing corporate cards, but a broad set of other functional areas, it expands Ramp’s TAM. The key remaining question is does this improve Ramp’s unit economics? According to a piece by Packy McCormick, it has.
From March 2022 to May 2024, total payment volume (TPV) has increased to $35 billion. Off of that payment volume, Ramp has grown the percentage of contribution it is able to capture. As Packy explains, “contribution profit represents interchange on card transactions minus the costs it incurs to process that volume, plus Bill Pay fees and Ramp Plus ARR (minus their costs, too).”
So Ramp has been able to invest heavily in R&D and expand its TAM, all while actually making more money on each transaction. The more products Ramp is able to sell, the higher the total profit margin becomes. And it is, in line with a compound startup, easier to sell each of those modules. Ramp is already installed as the corporate card for its customers; convincing a customer to expand what they can do with Ramp’s product isn’t nearly as expensive as initially landing the customer.
Going forward, more and more companies will vie to be the operational center of gravity for their customers finances and operations. Rippling has expanded to compete with Brex and Ramp. Ramp has expanded to compete with Navan and TravelPerk. Deel, Remote, Gusto—every company wants to own more of their customer’s universe. The question will just be who can most effectively compound to success?
*Contrary is an investor in Ramp through one or more affiliates
