Exceptional, July - December 2014

Shopify

Against the grain

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Tobias Lütke says the internet is the great equalizer, giving small producers and retail giants the same opportunities to connect with consumers. So why is Shopify’s CEO taking this energetic e-commerce company into the world of bricks and mortar?

It may be Canada’s first internet company since the dot-com crash to reach a billion-dollar valuation, but e-commerce platform Shopify still has the atmosphere of a fresh and dynamic start-up. That’s exactly how co-founder and CEO Tobias Lütke likes it.

“We’ve kept all the things that make start-ups great,” he says. “We’re trying to build the largest start-up ever without becoming a big company. … Being a start-up has nothing to do with the numbers; it’s that everyone who works there has the chance to do everything and have an impact.”

Running counter to the typical corporate mold, or even a typical career path, is true to form for Lütke. He began programming in his native Germany at 13 and dropped out of school at 17 to take advantage of an apprenticeship training model with local software companies.

His passion for snowboarding propelled him to vacation in British Columbia, where he met his future wife. He moved to Canada to be with her and continued to work remotely for his German employer.

When that company went under a year later, Lütke felt burned out and in need of a change. He parlayed his passion for snowboarding into an online retail store called Snowdevil, which he co-founded with friend Scott Lake in 2004.

But, frustrated and dissatisfied with the e-commerce platforms available at the time, Lütke fell back on his programming skills. He took advantage of what was then a new and little-known open-source web application framework — Ruby on Rails — to build a custom e-commerce platform for Snowdevil.

Two years later, it was obvious to Lütke and Lake that this platform had the potential to become a business all its own. Lütke continued to tinker with it and brought in fellow German Daniel Weinand to serve as Creative Director, while Lake handled the operational side as the first CEO. Shopify was born.

Shopify’s user-friendly platform allows retailers of all sizes to create and operate customized e-commerce sites easily and affordably, complete with secure shopping carts that process credit card payments from around the world.

“When Shopify came on the market, I think it was the first time that someone who actually ran an online store was involved in the creation of software to run online stores,” says Lütke. “We had this real focus on simplifying [e-commerce] to make this software accessible to a range of people.”

Eye-catching proposition

Shopify’s winning formula hasn’t gone unnoticed. In the past four years, the company has raised US$122m in venture capital, and in April 2014, it reached a major milestone: 100,000 retailers around the world now use its platform.

The internet, Lütke says, has become the great equalizer, freeing small or new businesses from the heavy overheads typical of traditional brick-and-mortar storefronts.

“Welcome to the rest of human history,” he says. “Everything that can be started on the internet will be started there and go from there…Today, a business that’s barely six months old may have six different sales channels.”

It’s been a heady ride since 2006, with Shopify weathering the growing pains that come with rapid success. Making e-commerce easy and accessible to everyone became Lütke’s passion, but Lake had more diverse interests and stepped away from the business to pursue other opportunities in 2008.

That’s when the role of CEO came to rest on Lütke’s shoulders. It’s been a profound learning experience for this soft-spoken and self-confessed introvert whose passion for building began with his childhood Lego sets.

“From the moment I wrote my first line of code at 13, that became the most phenomenal outlet for building things,” he says. “Now I get to build people, I get to build a company — it’s all the same skill.”

But he still keeps a hand in Shopify’s technological development. “If you run a modern business that’s defined by what it creates, you have to have an understanding of how [that product] is created,” he says. “It would be very hard to run a tech company without those skills.”

Shopify may have been built to take advantage of the rise of e-commerce, but Lütke doesn’t believe this spells the end of traditional retail — quite the opposite. Having mastered the e-commerce domain, the Ottawa-based company is taking a step in a new direction that, on the surface, could be considered a step backward.

The company is using its most recent round of venture funding to move from being just an e-commerce company to one that helps retailers in every aspect of commerce, whether that’s online, in store or on-the-go.

The first step is to further develop its point-of-sale (POS) system, launched in August 2013, for brick-and-mortar retailers, as well as its mobile card reader, launched in January 2014, for people selling at places like craft fairs and tradeshows.

“If there is a consensus on how to do something, it’s probably wrong.” Tobias Lütke, Shopify

Why? Many retailers that operate both a traditional storefront and an e-commerce site lack integration between the two systems. Lütke says they are eager for a common web platform that can manage both sides of their businesses, while streamlining operations, driving cost efficiencies and taking advantage of the cloud for offsite data backup and recovery.

“I’ve talked with merchants with very expensive POS products who then lost their entire database because it was just on this one system and the backup didn’t work,” Lütke says. “These stories don’t really make sense to people who have grown up on the internet.”

Beyond commerce

While the melding of Shopify’s e-commerce and POS offerings is the current focus, the company has plenty of other strings to its bow. It also develops HR, talent management and recruitment software, as well as a platform called Unicorn that serves as an internal social media channel where staff can recognize, praise and reward each other’s achievements.

Given the company’s skills in software development, its people often prefer to design their own applications for use within the business instead of purchasing solutions from third-party software vendors. “That’s why there is a real culture here, because we’ve picked our very own way of doing things,” Lütke says.

Shopify’s culture is best described as a start-up that refuses to grow up. Even now, with a team of 400, the company’s emphasis is on maintaining a transparent workplace.

Every employee has insight into operations and board meetings and has the opportunity to be heard through regular town halls. The workspace is open and informal.

Toys, collectibles and visual pop-culture references are everywhere. Video-game tournaments are common (Lütke is big into strategy games like Starcraft). When visitors step off the elevator, they are greeted by a poster featuring a sexy sci-fi comic book heroine, who welcomes them to the “Shopify mothership.”

The company emphasizes hiring talented individuals with potential, rather than focusing on experience and formal credentials, and allowing them to grow into their roles. This is supported where needed with professional and management coaching.

It’s an approach favored by the management team because most of them were themselves first-time executives. “In every case, a great story of personal growth,” Lütke says.

He prefers to “paint people a broad picture of where things need to go,” then step back and allow his team to figure out how to reach their destination.

“Trust people and give them autonomy to build things, and check in once in a while to make sure everyone is going in the same direction,” he says. “But after a while, once that engine gets running, you no longer need to do that.”

While this approach has worked so far, success is never an excuse to grow complacent: Shopify still faces competition from rivals such as Volusion. But it isn’t established competitors that concern Lütke as much as new upstarts.

His team is always vigilant to the arrival of “fast followers.” This is common in the internet software business: start-ups that take the best of what the incumbents in their market space have to offer and package it into a new offering with a fresh twist.

Lütke’s strategy for staying ahead of the imitators and maintaining momentum is to keep abreast of how commerce is evolving in response to drivers like social media.

“Commerce is fundamentally a manifestation of the zeitgeist — what else is going on in society,” he says. “The company that would do well in our space is, above everything else, able to react quickly to these new realities. Change has to be fundamental to a company’s culture, or there is no way it can survive.”

Social animals

For example, Lütke says social media has led to “the erosion of the middlemen” — namely, traditional big-name retailers. Producers of goods can now interact and transact directly with their customers. “Apple is a great example of a company that was able to wipe out the middleman and build that relationship direct with its end users,” he says.

Most of the retailers using Shopify’s platform lack that kind of scale and brand recognition, but they have, thanks to the internet and social media, the same opportunity to reach their customers.

For Lütke, social media is all about telling a story, and a great story is as vital to successful online retailing as an easy-to-use commerce platform. And with Shopify’s customers ranging from a temporary-tattoo retailer to luxury electric-vehicle maker Tesla, there are plenty of interesting stories to tell.

“We want to empower even the smallest start-up that just got its funding off of Kickstarter and is now going to build its electric skateboards in China,” Lütke says. “We need to tell its story to people. … It’s the story that makes retail work, not shelves full of product that people have no relationship with.”


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