#261 Tobi Lütke - CEO of Shopify: How Shopify Became a Cheat Code for Entrepreneurs

I'm so excited to be here.

Because what you've done with Shopify has brought success to my business and so many others. I started a tactical training company in December 2015 after leaving CIA contracting. I had no money. A website cost $20,000 to $25,000. I got a shitty website from a developer. Then I saw a Shopify ad, tried the free trial, and built an entire website in 4 hours.

Such a good product. But it just unleashed a cheat code. Web developers held us hostage. Entrepreneurship is incredible and important. It's a form of self-expression and a positive-sum game. I started early with small businesses. I love that we get to create a product that helps others share their products. There are millions of businesses. I want to thank you for building something.

I can't stress it enough. It's not like I took that $25,000 and spent it on [ __ ]. As an entrepreneur, it's a huge lift.

It's a huge lift.

Mhm.

I don't know exactly what number that is, but we are working closely with Amazon. It's big. Millions of small businesses. Many little lights make a sun. It's about 10-15% of all online commerce in the US. Over a trillion dollars has been transacted through the platform. I remember when $100 million was a huge number. Now it's a couple seconds. I'm fortunate that this project worked. I want more people to experience that moment. Do you remember your first sale?

I do. I remember putting courses up online. I couldn't get anybody to buy. Then a guy told me to remarket. I did, and the next time I sold out.

Yeah. Do you remember what course it was? What did you think when that happened?

It was incredibly meaningful. It was the first real transaction, not pity. Someone who never met me believed in what I was selling. People don't like to part with their money. A transaction is an honest vote for the product. Every purchase is a vote for the future. I remember everything about the day I had my first sale for my snowboard business. A gentleman from Pennsylvania bought a snowboard. He was interacting with software I wrote. I sat at a coffee shop staring at an email. I had written that email template months before, hoping it would be used. I had a profound moment: I went from being a builder to an entrepreneur. I wanted to share that moment, but people couldn't understand. Snow Devil grew, and people asked to license the software. I spent another year and a half, and in 2006 launched Shopify. It's the software I wish I had found. Every time we make it simpler, more people succeed.

Networking events.

I try to make my own book, but I can't. That's a flippant answer. Let me share something actionable. Advice is overrated. Gut instinct is underrated. Too many companies build derivative versions. I'd like tech to be more weird, eccentric, and self-confident. Leaning into uniqueness rather than derivativeness.

The best reason: a wonderful Canadian woman. My wife is Canadian. We were living in Germany, she went back to do her master's in Ottawa, and I moved with her. I grew up in Germany as a computer guy. I spent my teenage years in dark rooms exploring computers. I knew of Silicon Valley. Canada was closer. I fell in love with the place.

Ever since.

Yeah. Funny story. I left school early, apprenticed as a computer programmer. Coming to Canada, my education wasn't acknowledged, so I couldn't get a work permit. I was on a visitor visa. A lawyer said I could start a company without a permit. So I started an internet business. Canada is cold, so I took up snowboarding. I combined my knowledge of snowboards and technology to create an online store. I built the software myself because nothing existed. I launched in August 2004. That first sale was life-changing. Snow Devil worked, but then people stopped buying snowboards. The big discovery was helping other people do the same thing. That's why Shopify exists.

The initial version took two months. Turning it into something others could use took a year and a half.

Yeah. So the idea was almost immediate.

I got one cooking right now that I can feel. I know it's going to go.

With I mean, just the fact that Shopify was legitimately boring because you couldn't get a worker's visa. The only way to make a living was to start a business. That's a hell of a story.

No, to be fair, a year and a half later, Shopify launched. It was pretty good if you wanted to start a snowboard store. It took a lot of additional work to make it work for most products. There's a riff on the JFK quote: we do this not because it is easy, but because we thought it would be easy.

I'm sorry, I didn't quite catch.

Of thankless work before any recognition.

That's right.

And it's yours. It's something you built. It's situated in the center of the community you built. That's a completely different approach. Interesting things come from doing differently. So many people externalize judgment. They think there's a game with rules. They extract rules from successful podcasts and adhere to them, hoping for the same results. Are you familiar with cargo cults?

It's one of my favorite World War II stories. In the Pacific campaign, planes needed airfields close to Japan. Some islands had indigenous people. When American bases were built, it was the first contact for some. They saw cargo being delivered. They called it cargo. They observed the Americans and tried to mimic the rituals to get the cargo. That's a cargo cult. It's like people mimicking successful businesses without understanding the underlying principles.

Doing these things and planes come and what they bring more and more cargo, which of course means was a very, very rich individuals. I don't know if they thought about the people they observed as demigods, but they might as well. So now World War II is over and no one's going back to these islands for a while until people do. And what they find is that they're still running the airports. There's like the shamans are wearing like coconut shells, like headphones in straw towers, making sometimes noises that sound vaguely English. There's straw airplanes on the runway and people are doing this because they want the cargo to come back.

And it just tells you something really, really important. Think about the human condition. We copy behaviors to try to create the same outcomes and we do it all the time. So much of the business world, if you look at it, is just people cargo culting. It's like putting flame stickers on the side of a car to make it go faster, really. It's not principled thinking. And so other people live in everyone else's mind. And I think disconnecting from this as much as possible is important. And I think when you talk with the greats in some categories like artists, they just need to paint. They have so much painting in them, they need to get it out and they just don't care if there's a market for it.

I completely agree. The difference when you look at a competitor depends on what you do with the information. Is it envy? Or are you looking to copy or again cargo cult the things? No. What you're describing is a rivalry, and that's a totally different thing from competition. Galvanizing a rivalry is good for both sides. That makes everyone better. I think this is an important thing. I don't think Shopify and Amazon have ever really been competitors. We have been rivals at times, and I think we inspire each other, but we do it in a completely different way. So I think that's a really, really healthy thing. I think what I don't like is when people skip the step of having their own aesthetic, wanting to build their own picture, and then use everything else as additional inspirations to do a better job creating the unique thing that they want to do. I think it's probably not a super simple thing that I'm describing, and maybe the difference isn't as important as I'm making it out to be, but somehow to me it is. I really value rivalries, and I find that obsession with competition is often... Let's put it another way. I'm a motorsport enthusiast. I love motorsport racing. I grew up with Formula 1. I get to know race cars myself.

I was not there yesterday.

Yeah. Growing up in Germany, coming to Canada, suddenly no one gave a fuck about Formula 1 and it was a hard adjustment for me. And thank you Netflix, I suppose. Now everyone is into Formula 1. And I'm so happy that this happened. This massively increased my quality of at least my Monday morning discussions at work. So anyway, then I'm on track for position. Maybe newer tires than the people in front of me, so I'm gaining a little bit. But when I come around the corner and I see that there are two cars for position and they are fighting, I know I'm going to overtake them both very easily. You lose a lot of time when you're fighting with someone directly.

Um, I don't think we truly had competition anymore for exact business. In the enterprise business there are some players, but there was no one going for the small and medium business market. In fact, even along the way, everyone deemed it as a terrible market to go after, and that was sort of a surprising thing. It never seemed like this to me. But I'll tell you, in 2008 I needed to hire some people. I had some support at Shopify, but I needed to not just make it to me. I needed to hire some people. There were like eight or something in 2008. Eight people. We made some money and I still had some savings from Snow Devil, but I wasn't taking a salary. We were just living with my in-laws in their house, me and Fiona. So we kept costs down, but it's hard to meet payroll. I went to Silicon Valley finally and started fundraising. I had learned how to do all this. I had a pitch deck and so on. Automatically people passed for one reason or another on the company. A very important big venture capital firm that everyone would recognize passed on the Shopify deal. Years later, I met with the partners again. A partner asked, 'Hey, Toby, what did we miss?' So I reminded them that they passed because they decided for themselves that there was a global market for 40,000 stores, right? At the time, in 2008, there were 40,000 online stores. If Shopify is successful, it might get 50% of a market that's still not enough to justify the valuation, which would have been very low. So what did they miss? Here's what they missed: Shopify itself was the solution to the very problem that they stated. It was only 40,000 online stores because no one made it easy to start them. The only online stores that existed were already rich businesses that had $25,000 or $250,000 to make a web presence and build an online store. They were all attached to existing businesses that were already rich. No one built for the new entrepreneurs. And so Shopify grew its market instead of competing for a percentage in a market. And I think that is a very, very different thing.

Shopify is not a unique idea at all. In fact, it's one of the most... I mean, there are hundreds of companies that have and do essentially the same thing. The technology industry is never about who does something first. It's always about who does something right, which is what makes it so interesting. All the commerce companies of that time, even if they started wanting to service new entrepreneurs, always fled upmarket because their people had a lot of money. They serviced existing business and could make way more money. It was expensive to deal with small businesses. The general advice that I got when I asked around was just use eBay. Start your business on eBay. If it works, then talk to a company called... the one I got recommended was Miva Merchant, which would then take a lot of money to build an online store because now I have enough money to give it to them. And then you would replatform again afterwards. It was specifically for the new entrants. I'm not aware of anyone making that specific goal. That doesn't mean it didn't exist. There was one, the closest analogy was a thing called Yahoo Stores, which actually Paul Graham started. He was an interesting character in his own right. He started Y Combinator later, which of course became the origin source for so many of the tech industry's greatest companies now. But his original project was a thing that got purchased by Yahoo and then turned into Yahoo Stores. I tried to use that and could not make it work.

Exactly. And again, to go back to my analogy of a tree, the podcast and the community built from it is the trunk, and you can now fill out the tree with more branches that are part of it. So you end up creating something that has no direct analog, no others doing the same thing. It becomes unique, like an oak. I think it's better to build something that's a unique construct that sort of happens one step at a time and didn't come from some crazy business plan ahead of time. In fact, I think the best businesses tend to be the kinds that would lose at every business plan competition, funnily enough. My company itself started like this: snowboard store to e-commerce software to what is Shopify, a retail operating system I suppose now, but it's so many things. The comment on the we didn't have competition, I feel like I should put some meat on that bone. It's obviously not true that there aren't other e-commerce companies, but what happened is we learned what we could learn from them. I do think it's very valuable to talk about competition, but always from a perspective of what can we learn from them, what have they figured out, how do they uniquely handle their particular challenges. Because they're looking at the same problem space and find different solutions, so they can act to fill in the blanks of the paths you didn't travel. At some point in the 10 years after we launched, mobile phones became more important than the desktop browser, but the entire internet was built for the desktop browser. Suddenly all the sales were mobile. Every company in the space had to react. Some didn't. That told you a lot. Some said, okay, we'll give a completely different interface to all mobile phones as a sort of companion system. You have your own brand on your own website, but if someone uses a mobile phone, they see the thing that our team created. To me, that seemed incredibly wrong because the beautiful thing about Shopify is that almost everyone who's on the podcast has used Shopify probably recently. Especially your direct customers, you just don't know it. If you bought something online and it didn't come from Amazon and you liked the experience, it was probably Shopify. We are not the brand. We are pushing from behind, pushing other people's brands from behind. So therefore, this is an article of sovereignty. What is ownable on the internet? There are two things you can own: your domain and what's behind it, and your email list. Everything else is rented, leased from others. Your Facebook page depends on Facebook how much reach it has. That's not a bad thing, it just is. If you're selling through Etsy, that is also very good, but it's Etsy's listing and Etsy will determine if your products show up for search queries. But on your own website, that is your space. You're gaining sovereignty there. You can take that entire design and take it with you wherever you go. You can get all the data from Shopify. This is super important to us. So when the mobile phone comes out, it's your job. We have to figure out how to make it so that your brand looks just as amazing on mobile phones as it does on desktop. That's what we helped everyone with, and that ended up being the right decision as an example. So again, looking at competition from a perspective of what can we learn from it and can we have a friendly rivalry with them has always worked really well eventually. And here's the reason why: it makes everything else easier to have an enemy. That is true. It's much, much easier to say, 'Hey, this other company wants us dead. Therefore, we need to work really hard,' because everything else sounds hollow. It's like, 'Hey, everyone, let's work really hard because reasons.'

So, I ran out of credible things to point out at some point. And so this is why I talk about intrinsic motivation a lot, because I had to think about it a lot. How do you create an intrinsically motivated company where everyone works really, really hard when they technically probably don't have to right now? You can talk about a future competitor that might come out of the woodwork that does everything better. Companies constantly get disrupted because they become lazy and fat. But the only way I found is for people to fall in love with a mission. The mission is to make more entrepreneurship happen, make entrepreneurship more tractable, make our customers more successful, and know that if we fail to make Shopify the best possible e-commerce software at this moment, more people will fail. We see this over and over in the data. Every time there's an area that makes people give up in their entrepreneurial journey, if we find a way to significantly make this easier, it's the people who otherwise would have given up that make it. Entrepreneurship stops via hurdles. People at some point in some emotional state are too encumbered by self-doubt or the stresses of building a company, and they encounter something that stumps them. If they're in a wrong mindset, they might call quits. You know what it's like to be an entrepreneur. It's a roller coaster, ups and downs, valleys and peaks over and over again. Sometimes in the valleys it gets pretty close. There are pretty dark days in anyone's entrepreneurial journey. So I think falling in love with a mission, or at least falling in love with being on a mission with people you really care about, doing difficult things for worthy people, is an incredibly fun thing to do. In fact, I think it's a kind of optimal way to spend your life. And I think we've succeeded significantly today. We have plenty of competition. I'm not going to say we have no competition left. It all came back, and it's much easier to study what other people are doing. AI is changing everything, and there's not a company that's safe in the world, and I love it. It's so much easier, better, more fun, more creative, more driven. I saw many transitions in my career in the technology world. I saw the internet arrive basically. I saw the web, whatever that is. I saw the mobile phone coming. And now what's happening with AI is just another platform. Usually people should be enormously lucky to see one transition of a platform in their careers. I've seen four now. It's unbelievable how exciting this is to have to invent everything.

Well, it's easy. You talk to them a lot. I mean, it's Monday now, right? Sunday evening I watch videos of people using Shopify, interviews of people and recordings of new entrepreneurs using Shopify that our teams create. It's lovely. I have like 150 of my customers in WhatsApp right now who will tell me that Shopify is collaboratively created with our customers. Because again, if I want to grow my business, what I need to do is make my customers more successful. It's very rare to have a company that's so aligned with its actual customers. And also one of the funniest advantages this company has is that there are very few companies on planet Earth who have such inspiring customers. I mean, you go into customer, you're a pretty inspiring guy.

Yeah.

Yeah. I mean, I don't do it every Sunday, but as many Sundays as I can. My team makes supercuts of the interviews we do and sends them to me so I can see how people get stuck and so on. I use Shopify myself. I always have shops going, I sign up for new shops, go through onboarding, talk to customer support from pseudonyms. I'm red-teaming my own company all the time. I'm a pain in the ass to work for because of that, but that's what you need to do as a CEO and founder. It's dangerous to get disconnected from the product. People get really good at telling you a combination of words that makes you look elsewhere. I've had plenty of such experiences in my career. So being in all the details is important. I review every single project that's going on in the company every six weeks. It takes 12 days, usually 3 days. We go through every single project. We have an entire system, a piece of software that we built where everyone registers everything that's going on. That was largely inspired by the military, actually. A book called 'Team of Teams' by General McChrystal. Excellent read. So we built an internal system that's an asynchronous distributed information system about what our teams are working on, project progress updates, who's on them. This bubbles up into a six-week review, and we go into a room and quickly talk about how things are going, what's stuck, and then we move to build everything in such a way that it works well with everything else. I don't think this is the only way to build software at this scale, but it's the only one I have discovered that allows us to build software like Shopify at this scale. Because what you're trying to accomplish is you want people to use it. I believe that every user of every piece of software can intuitively tell if the team that created it gave a fuck about the product. I think everyone can tell. So if you want to build a product where people would answer that question in the affirmative, you have to give a lot of fucks. There's a lot of fucks that have to be given about the tiniest of details, minute architecture, the chunkiness of the buttons, design systems, stuff like that. It's ridiculous, but unfortunately this is what it takes. So we go through everything and we talk to customers. Why? Because I don't want to criticize you.

Yeah, it's um, well, I was a customer support initially. I did it because I had to, and then I could hire people for doing it. At some point along the line, I started making choices that weren't right because my inner model of what an entrepreneur goes through when using myself was starting to be dated. I had to figure out a way to be more connected. Until a few years ago, I did an afternoon in customer support maybe once a quarter or once a half year. It was always very good for me, a very humbling experience to actually help people at their vulnerable time when they're confused. They call because something important is happening and they need help. You need empathy for the people using the software. I just came back to doing it this way. Here's my strongest belief. I always cringe a little bit when people say 'I don't know computers' or 'not technical'. No one is supposed to be technical. The whole thing that people have to be technical to use technology is because of skills issues of people like me. It's completely unfair. You don't have to be technical to use a television. You turn it on and go to the channel. That's the engineers and product designers doing a good job with the medium.

If you were better, no one would ever feel like they can't figure out something. Computers don't get to make people feel dumb. That is not their role. They are tools. Hammers don't make people feel dumb. Screwdrivers don't make people feel dumb. We are the only field of tooling support and infrastructure that somehow is allowed to make humans feel not good about themselves. We've normalized it. What we actually should do is give people superpowers, because that's what it does to us engineers. Computers, the way I talk about them, will sound very different from how most people talk about them. Why? Because I love them for what they can do. They are incredible. But to get this power that I can extract out of a computer, I had to sacrifice my youth. It's path dependent for people who for unexplained reasons wanted to cultivate rare but valuable skills around computer programming and understand them at an intrinsic level. Those people can experience them as the most powerful tools humans have ever invented. But everyone else should do that too. Luckily, with AI, we're getting there. This is the best thing about AI: we kind of get a do-over. But there are too many stories of people feeling inadequate, not being able to accomplish their tasks because we cannot make software that meets people where they are. No matter how hard I work and my teams work, it's never going to be enough to really get all the way there because there are limits. But every single time someone doesn't give up on an entrepreneurial journey, that means there's one more business that will supply employment. Someone else becomes an entrepreneur in the eyes of their own children, grandchildren, family. It's an identity-changing event, and it's important. It feels really meaningful to be able to work on something like this.

I think so.

It does. It really is. I know this is going to sound crazy and scary and probably will be quoted back at me at various times when people are somewhat down on AI, but I just think AI is actually underhyped right now. That seems almost hard to believe, I know.

I think it's underhyped.

It's just our ability to project intelligence at problems without having to allocate some of our rarest and most specialized people to everyday problems is huge. I'm getting so many stories from family members and friends who are solving really tough medical problems that they couldn't solve. They've done all the right things, every test, second opinions, came prepared to every doctor meeting. But then they start one of these projects on ChatGPT or whatever, put all of this in there, let it go into deep research. It figures out what's actually going on in a way that you can show up to the next doctor and finally get the thing you were looking for. Why does this work? It's not because it's smarter than the doctors. The doctors are way smarter, way better. But a doctor only has 15 minutes to sit down with you. They have 15 minutes, maybe 20, to look at the charts, talk to you, get information. Twenty minutes of a doctor's time is probably worth hours of an AI doing something right now, but the AI can put thousands of hours in. Some tasks just benefit from intelligence being projected into this directory over a long period of time and can be solved. I think that's a lot of things, but it's usually tasks.

This is it. It's a thing that humans could do, but we just don't have enough people. That alone changes the world. Jobs will change. AI automates tasks and allows more people to work like executives. Speed matters. I'm most excited about integrating AI into Shopify. It's called Sidekick. It's infinitely patient, knowledgeable, non-judgmental. It's game-changing for entrepreneurs. Big businesses ask it to run reports, new entrepreneurs ask where to register their business.

It already is. Hundreds of thousands of people use it daily. You can ask it to do jobs for you, like create products from a PDF. It will show a review screen. It's increasingly able to join your team as a team member, especially for solo entrepreneurs.

Yep. We have an assistant.

You should check it out. It's fun to have conversations with. I'm super biased, but I'm a big fan. Most of the intelligence comes from advances by labs like OpenAI and Anthropic. Shopify is a bridge company between commerce and technology. Our job is to make the best technology available for people trying to self-actualize. It's remarkable, and I say it's still underutilized.

Who doesn't? This is a growing pain I'm trying to figure out. I thought I wanted to bring everything in house, but now I'm not sure. I like to keep my internal team extremely small and lean, and outsource to companies rather than individuals. I want your thoughts on that.

At the end of the day, everything is about the team. A company is a collection of individuals. The beautiful thing is aligning incentives. The solution is either consensus or leadership. I'm a fan of small teams. The best size is one person, then five, with an editor. You need a clear person who knows what needs to be produced and can make decisions. There are many myths about management. Micromanagement is good if you know what you're doing. I got into trouble by getting out of the details. I want people with strong specialization who can switch roles. I require my team to go to conferences and talk about how they do things differently. Trust is like a battery that you charge over time. I'm very direct, which can be unapproachable, but it's precise. High expectations are the reason for success. You have to make it clear what you expect. It's an unkind lie to obscure expectations. People should work where they can be top performers. Truth doesn't care about feelings.