Optimal minimal. At this altitude, I can run flat out for a half mile before my hands start shaking. Can I ask you a personal question? Now, what is an appropriate time? What if I... I'm a cybernetic organism living over a metal endoskeleton.
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Hello boys and girls, ladies and germs. This is Tim Ferriss and welcome to another episode of the Tim Ferriss Show where it is my job each and every episode to deconstruct a world-class performer from any number of different domains, business, sports, entertainment, military and so on. And today's guest who will perhaps debate that he himself is world class but I will not allow it is Tobi Lütke who is the founder and chief executive officer of Shopify, CEO that is, of Shopify. In 2004, Tobi began building software to launch an online snowboard store called Snowdevil. It quickly became obvious that the software was more valuable than the snowboards. So Tobi and his founding team launched the Shopify platform in 2006. He has served as CEO since 2008 at the company headquarters in the metropolitan epicenter of tech, Ottawa, Canada. It's a fantastic place. I have, I've spent time there. BeaverTails also incredible. Tobi is an active advocate for computer literacy and education and serves as a board member of Canada Learning Code, all caps CLC, Canada Learning Code, an organization working to give all Canadians access to digital skills. In 2014, Tobi was named the Globe and Mail's CEO of the year. He served as chair of the Digital Industries Table, an advisory board commissioned by the federal government to provide recommendations on how to turn Canada into a digital leader. And that report was published, that is, of the table, in September 2018. Tobi, welcome to the show.
Thanks so much for having me.
And I feel like this is a long time coming. We go, we go way, way back and we'll get to that. But I thought we could start with your penchant related to optimization. So I want to do a quick fact check here. So this is something I came across in the New York Times. It doesn't surprise me. Uh, but here's how it goes. I also have a weird obsession with optimizing things. This is supposedly a quote of yours. Even when I was walking to elementary school, I counted the number of steps on different routes so I could figure out which one was shortest. Uh, and I'll just, I'll just finish this up. So, dot dot dot. I'll just connect some things. If I had to do something once, that's fine. If I had to do it twice, I'm kind of annoyed. And if I had to do it three times, I'm going to try to automate it. Did you count steps?
It sounds ridiculous, doesn't it? It's one of those situations, you know, like where I think I was together with my mom, my sister, and my sister was complaining about me trying to optimize something. I think we were talking about going for a walk and I'm like, well, you know, if a place we're starting from is the same as the destination, why don't we just not go? You know, like... And my mom immediately said, you realize you did this from when you were like four. I was, and told me this story and it kind of sort of unfortunately probably tells people way too much about me so I don't know why this made it into the New York Times. I'm actually kind of unhappy about this right now, but here we are.
And here we are. And the optimization or the looking for efficiency, is that something that either of your parents has or did that seem to kind of come out of left field?
I think I don't know. It's probably one of those unexplained kind of quirks which after probably many, many years where it's annoying everyone around me suddenly starts becoming useful, right? Like after, you know, because you know, especially as a programmer, it's been wonderful, right? It's, you know, I love these old machines where you know, can understand every chip that's in the machine, you can kind of figure out what's what. Trying to, you know, make a video game in the '90s was really, really hard and so those are kind of things which really, really attracted me.
And so just to give people a snapshot of where things are now and we're going to certainly continue with this retrospective rewinding the clock, but how big is Shopify at the moment? What are some of the numbers?
So, yeah, as you said, Shopify started in 2004 and it became sort of, we released in 2006, which again, that's almost like a hundred internet years ago, right? It's been a long time. And the company now is a public company. It's about four and a half thousand people work at Shopify. We have offices largely across Canada but also in, you know, Berlin and Australia and so on and all sorts of other places. We have about, I don't know what the newest official number is. I think it's more than 700,000 customers and all around the world, 175 countries and so on, so on, so on. So it's become this by almost any metric fantastic success. Uh, I was mentioning when we were having lunch before this that I was unpacking some boxes that I'd not yet unpacked from my move from San Francisco to Austin and I found the coin from the initial public offering. And it really made me smile because I remember when we first met, Shopify had what would you say?
And that was, was that 2008 or 200...
2008. And could you tell what you remember of that first meeting? Where did we first meet?
We met at a conference called RubyConf, right? Or might have been RailsConf. Yeah, RailsConf. That sounds right. Ruby and Rails being the technology Shopify has been programmed in and you were invited as a keynote speaker. I think you did an interview with David.
That's right. David Heinemeier Hansson.
Exactly. So I think we talked in the green room. It's like, hey, I love everything about your book. But the worst part about it is, you keep talking about using Yahoo Stores for your supplement business, and you really should have used Shopify. And, you know, what can I do to convince you of... I wasn't that direct. I was probably really shy.
But the timing was perfect also because I was in the process of doing the final editing for the revised edition of the 4-Hour Workweek. And I had been polling my readers through social media and the blog and so on which had at that time, you know, the blog already at that point had millions of readers and asking for suggestions for updates for the tools and resources and Shopify was the most consistent recommendation for e-commerce platform and then I go to this conference, we meet in the speakers room effectively, you have let's say 15 or so employees and that was the beginning of our exchanges and then collaboration which we'll get into. But it on one hand seems like a previous lifetime and on another hand just does not seem that long ago.
And I have to say for people who perhaps wonder this, you know, does money change people? I have to say it's been so... I didn't expect you to change and you didn't. And it's really refreshing and I don't know if I've said this publicly, but Shopify is one of those companies where everyone I've ever been involved with has been just such a genuinely good person. It's an example of when the good guys have won in a way. And it just makes me so happy that you guys have had the outcomes that you've had. So, thank you so much for that time. Yeah, I just want to start there. It's really just, it gives me so much joy to think about and let's get back to your odd behavior as a kid. So, this is from a separate piece and this isn't going to be all quotes, but some of these are just so fantastic I can't not mention. This is from Globe and Mail and this I think speaks to a superpower of yours that may have caused problems in the beginning and I recall reading a quote and I'm going to butcher it but Francis Ford Coppola, the director, incredible legendary filmmaker had said, you know, you receive lifetime achievement awards for the things that would have gotten you fired in the beginning. Yeah. So here's the quote and this is the writer. From an early age, Lütke had what he calls authority problems in schools in Koblenz, Germany. He preferred to deconstruct the questions teachers gave him rather than deliver the expected answers. And I was like, yep, that sounds right. He took shortcuts determining the minimum number of hours he needed to spend in a particular class and still pass so that he could spend most of his time with his computer. One of the patterns that I have observed with you over the years that I think is so, so valuable and so simultaneously important but undervalued or under-discussed is not just asking the question in front of you but dissecting it to determine if it's the right question. So could you elaborate a bit on that or think of any examples that could serve as a launching off point or even maybe start with why you do this?
Yeah, I... wow, this is already going in interesting places, isn't it? Like, okay, we're talking about my authority problem and my obsession with optimization. So where do we go from here? Here's one thing which is, here's what the authority problem thing has morphed into and I think this is exactly the sort of pivot point from which it went from problematic to very useful. And that is, I have a serious problem just of accepting autodoxy, like the 'here's how things are done' just kind of... it doesn't, that doesn't grab me in any particular way. And so what I've sort of determined for myself is, I really want to understand the situation and the various pressures acting on the situation that I might get myself into. So you were taking us back with your little coin that you found which is one of those artifacts the New York Stock Exchange gives you when you take a company public and so we got to do this together. Before that date when you actually ring the bell, you, at least traditionally, like companies like Spotify and Slack are now doing the direct listing which I think is really, really healthy for that particular industry but before that, you went, you worked with bankers, you built this prospectus and then you go on a road show and all these kind of things. It's a grueling, like, talk about I don't want to do a thing two times, like three times, I had to give the same presentation 103 times in eight days. It's absolutely, it was a complete hazard of hell. It was my version of hell, which is funny because like my business partner Harley is like the opposite of me and loved it, right? Like so it's good to have these people around who can remember. Side note, so Harley, probably the person I've heard most described as a force of nature, that phrase applied to Harley. Exactly. Which I'm decidedly not. So Harley loved it. I wanted to automate it all the way through. But just, I'm taking us back there because I think that's a good example of this kind of thinking. One thing I did very early in the process of actually taking the company public was to not just understand like how could Shopify become like a good public company, but there was this sort of obvious agency problem that exists on the investment banker side, right? And so I spent a good couple months talking to people, figuring out what kind of things happen in the performance review of investment bankers, like how do they make their money, how do they make their bonuses, how do they, you know, how do they string together a career? What's good, what's bad, you know, if they get a lot of these kind of fees, is that good for them or is that neutral? Because this is, I would like to come to a conclusion, and often this is the same conclusion that autodoxy would have just sent me to myself because I want to say, okay, I'm going to do these following things because from first principle I argued that this is the right thing to do and I think this more often than not actually leads to very interesting insights where you can say, okay, because I understand what's at play here, I can disagree with someone's suggestion and I can maybe improve something slightly. And I think in an interesting way, Shopify is a very long exercise in doing this over and over and over again rather than saying, okay, well, the internet needs online stores. They are super important. Entrepreneurship is one of the biggest economic opportunity. Online retail is one of the biggest entrepreneurial opportunities of our lifetime. It's like a 1.9 trillion industry now. It's going to be 4 trillion soon. Online stores need to be something that people can create. Okay, cool. But do people really care about online stores? They care about selling, right? They care about becoming successful entrepreneurs. They care about reaching for independence and the success of that. So which pretty quickly sent us into a direction saying, okay, well, we do the online store thing but let's actually build the software that actually supports people in the activity of reaching for independence and because of this it became something else and then success came through that.
Well, this also in a way connects some dots from earlier today when we were chatting about a mutual friend, Seth Godin. And Seth and I not too long ago had this conversation where he gave the example of, which was borrowed from an example he had read, but he elaborated on it, which was, you know, no one wants a quarter-inch drill bit. They want a quarter-inch hole. And it's like, no, but they don't really want a quarter-inch hole. They want a shelf. They don't really want a shelf. They want a place to put their books and so on and so forth. Uh, so that you don't sort of mistake the current characteristics of a temporary solution as the ultimate objective.
Because the world has sort of sorted itself into solutions based on a world that's long gone in a way. Like why, I mean just looking back at my industry, like why was there an online store industry and a point of sale system industry and all these eBay power seller tools? Like each of those instances someone has a product wants to sell it through whatever channel, like do you want to go to like three, four, five different vendors to get software to participate in all these channels? No, you would just want to do it, right? And so I think it's really worth going through life and just saying, well, hold on a second. Like what are people actually trying to accomplish? What is the actual problem here? I think the most impressive story along those lines that I've ever sort of come across is the, are you familiar with Malcolm McLean's story around the invention of the shipping container?
I'm not, but I've had a book about shipping containers recommended to me multiple times. The Box. Yeah. What was the name, the person's name you said?
His name was Malcolm McLean. He's one of those entrepreneurs who would absolutely be on your podcast if he would be alive right now. Because he spent the first money out of college on buying a truck, started a trucking company and tried to get things shipped across the country or even to Europe and realized like we can make the most efficient trucking system or the train guys have the most efficient trains and the boat guys have ships all over the world, but getting something through multiple stations is impossible. Like you have to unload everything, load index. So he ended up just buying a bunch of tankers from the US Navy which had surplus tankers at the end of World War II and just came up with this idea of putting a shipping container together which you can put things in a factory in Maine and then ship them all the way to Berlin. And the moment he did that the cost of sending like a unit of good went from I think $6 to 16 cents. We all live in Malcolm's world because the shipping container has been hugely influential in history. It's like a lot of people talk about free trade agreements and globalization, in reality, globalization happens the moment a shipping container opens in a country and it's a fascinating, rather underexposed story but what's so cool about this is the reason why he pulled this off is because again, the vendor builds and the train guys really loved the trains and the boat guys loved boats and he was the only person who just cared about moving things. He wanted to solve a problem of moving things in the world and then you come to better solutions and we need more of that kind of thing.
Yeah. The versatility. I don't want to get too taken off track, but the shipping container, when I was, the brilliance of the modular design and the ability to take a single container and move it across different means of transport is an endlessly fascinating topic. And a lot of folks also don't realize the sort of genius of the design of shipping containers and the considerations of the dimensions and the ability to cool or control temperature. And then the entire aftermarket use of shipping containers also which is how I came into it. I kind of backed into it looking at different types of design and construction. That book was called The Box. So since we're talking about it, might as well just hit on something I was going to ask about anyway, which is books. So you're a, I would say a voracious but very selective consumer of information and there's a lot of garbage out there. You mentioned The Box. There's another book and I think it might have been in Harley's office where I first saw it at Shopify, but High Output Management. That's probably one of the best books ever. One of the best books ever. So I want to... And then another one that I've listed here is Drive by Daniel Pink. I'm not sure if you want to comment on that, but could you mention a few books that you have found particularly helpful and maybe start with High Output Management and why that is a good book.
So I'll take you back sort of to early days. So I started at Shopify as, you know, hey, I only want to do the technology, I'm a programmer by trade, right? So this is my world and I wanted to treat business as a black box for the first couple years and then for various reasons I was sort of thrust into also having to take over the business side of Shopify around that time actually we met and I did a poll with people I knew for two books to read because business folks. Exactly. So because up until this point I was knee-deep in Martin Fowler and Kent Beck and all these kind of, you know, luminaries of the programming world but I had no idea about business. And so the two books I read, which is funny because it tells you how good that selection process was because I still think they would rank in the top five books I've ever read. And I had a completely wrong view about how good business books were afterwards. Were High Output Management by Andy Grove and Influenced by Robert Cialdini. Exactly. So that was a very fortuitous two first books to read. Yeah, he got off to a good start. Yeah. So Andy's book is unapologetically almost a how-to manual that kind of deconstructs the world of business into its first principles. It's like here's what matters. Here's how to think about it. No one needs a degree. There's a little bit of circumstantial contextual understanding that you just have to have but basically, at the end of the day, making a business is an engineering exercise and which is brilliant for me because that actually connected, that made the whole thing about becoming a CEO significantly less scary to me because, you know, engineering I understand. And then Influence was just the most mind-bending book you can imagine because it essentially told you all the ways humans are flawed and influenceable and how, yes, computers are predictable and you can deal with it but then once you make things for people you need to go into storytelling and framing matters which were also news to me frankly. I spent my teens with computers not with people. So I came as a, like my wife would, you know, would dine out on this topic and just probably make fun of me for hours, but like she always says I'm an immigrant to the human condition. So those two sent me off to a good start. I just want to say though, various reader, voracious, that's how you say that. Like I'm dyslexic. I actually read very slowly. I sort of overcome dyslexia, but like I read books very slowly. I think it's actually an advantage, frankly. I have very high recollection, but because of this, I have to be very selective on the books I read. So, I'm not one of those 100 books a year kind of people.
Yeah. How do you choose books now? Or maybe, as an example, like The Box, why did that come on your radar? How did that make the cut?
The Box came because I usually have a topic and then just dive, right? Like I dive into it. In this case I was like, hey, I'm running Shopify, Shopify causes, you know, billions, like tens of billions of dollars of commerce activity and most of this is going to go through a logistics network that I don't understand and I feel my job as a CEO is to have the most full-stack understanding of every component that's at all related, which is frankly given that we're working here in world trade, almost the entire human condition. So it's an endless source of interesting deep dives into topics. But in this case, I was more about the logistics world. It's a fascinating world because it's been built for millennia and, you know, like the Silk Road has still impact on the way the world economy works today and stitching these things together is absolutely fascinating. But just even in the sort of first, okay, let me start digging, it became pretty clear that there was a history before the shipping container and a history after the shipping container and if in these situations when there's a specific date where everything changes like the industrial revolution or something being another example of that, what I tend to like doing is I like to find the players, like the people who had a lot of input on this kind of thing or at least who had the front row seat and then read their biographies because they don't tend to try to sell you anything other than that this person played an important role but they tend to be the most credible witnesses to the actual outside events without so much bias towards convincing you that it was good or bad. And so in this particular case it was very easy. There was actually a perfectly good book about exactly the guy who came up with it and so it was an obvious choice.
What other... actually before we get to subjects and more books because this may bridge over to something that I did not know. I feel like I should have known this and it makes perfect sense but I did not know this. So this is I suppose one of your problem domains. We can discuss what that means. When you became CEO and I have a question about that also but this is a quote from a media piece and I could try to paraphrase it but it'll take a lot longer. So you as part of, here's the piece, as part of his self-directed crash course he decided to fly to Silicon Valley. Now, I'm going to pause here for a second because people listening might think, of course, you go to Silicon Valley to learn from fantastic entrepreneurs and so on, but it takes a different turn here, which I think is really indicative of how you're thinking, how you apply very structured thinking to things. Back to the piece. He set up meetings with venture capitalists and listened to their questions about Shopify's attrition rates and conversion rates and funnel in parenthesis the various means by which a company attracts the attention and secures the commitment of new customers. It's a long way to say that. He had no idea what they were talking about, but he wrote down the terms. Then he went back to the hostel he was staying in and looked, that also tells you something, hostel he was staying in and looked up everything on Wikipedia. He would then read up on how to calculate contribution margin ratio and the amount by which sales exceed variable production cost. Then go to Shopify's database and get the numbers. Oh, he'd think that's an interesting way to look at the business. Then at the next meeting, he was able to answer one more question. This is a really clever way to go about. I mean, you're learning by observing the questions and then defining the terms.
See, this is why I love podcasts. My favorite thing in the world is like books are definitely rank up there but there's one thing which is better which is being a fly on a wall when two experts talk amongst each other, right? Which is one of those situations that was almost impossible to line up as an outsider and now suddenly is completely democratized for the wonderful invention of podcasting. But back then and before that I sometimes managed to do it via finding a chat room or forum where experts talked amongst each other. It's something I was always seeking. In this case, so when I was trying to learn about some technology, like some esoteric 3D rendering algorithms that I found interesting, I used to try to find like where people talk about optimizing these things and then I just don't understand anything that they're talking about but then I chip away at it and I would come into the knowledge and so I tried to replicate this and talking to venture capitalists ended up being sort of the way I figured out how to potentially do it because again, I had no background in business. I had no idea how this all worked. And I had to do it fast because 2008 wasn't doing well, right? Like it was very, very tough to keep the company alive.
So let's maybe a good opportunity to explain to people why you took over as CEO, just the circumstances.
The circumstance was simple and probably fairly common. I had a co-founder for Snowdevil, which was the snowboard store and we did the, like I did the technology, he ran the store and did a million other things like find us an office at some point and so on. But as the company pivoted much more to being a software company and started growing and requiring more and more people at some point, like it was just a different situation. And so he sort of came to me and said decided that he wanted to transition out and that really, you know, I mean that was very surprising because again I really wanted to treat business as a black box. I fought business just, I mean, as a programmer we don't like business. Yeah. Yeah. Like I mean I just didn't want to like become the pointy-haired boss in the Dilbert comic, right? So this is the situation. It just arose and I actually looked for a CEO for a long time. I met with a lot of people who came recommended as potential CEO replacements and it was one of my early investors, the only investor frankly, who at some point took me aside and said, 'Toby, you will never find anyone who will care about Shopify as much as you do and so you should just give this a go.' And that was pretty scary advice. But I like the challenge. I mean why do we entrepreneurs do this thing? It's like why do we even build companies? It's such a silly idea, right? Like think about how irrational this is. This is not my quote, but like someone said like you spend 100 hours a week avoiding working 40 hours a week for someone else, right? It kind of makes no sense, right? And with a very, especially tech, like such a minor chance of actually getting any kind of returns on it and so you don't do this for, at least certainly, well, I can only speak for myself, I certainly did not do this for monetary reasons. The reason why I did it is because I thought it sounded amazing not having to answer to anyone, back to our authority problems, and I wanted to make my own sort of technology decisions and these kind of things and I want to see what I can do. I wanted to challenge myself and I said, like this is the right time in my life. I was 24 when I started. This is the right time of my life to give this a go. I will learn a ton. Like there's no way this could be a failure on a personal level other than in the way that, you know, maybe people lose money. I mean that real failure is a very real thing but I knew I would learn a lot and so I reconnected with that and said okay there's another challenge to become the business side of a business as well and I'm going to learn a lot again and so I traveled to Silicon Valley. It's funny because I found this hostel close to Sand Hill Road where all the VCs were back then and I bought a bike on Craigslist and just biked to all these things and they must, you know, when they even see, like if you look at Sand Hill Road, it's not made for bikes. It's not made for bikes. And biking into these like gleaming palaces of capitalism. I just have to imagine they're like, 'Yeah, some guy's coming in from Ottawa, Canada.' Ottawa, Canada. They're like, 'Wait, is that him on the bike?' This is exactly the situation. You're just adding to the picture. That's perfectly accurate. And yeah, so I talked with them. I learned a lot. I thought they found this somehow I was endearing in some way because I actually did keep contact with a lot of them. They didn't actually run me out of their offices, which also speaks to Silicon Valley, you know. It's an amazing place where you can take meetings with people who will give you their time and advice and I puzzled it out, right? Like I figured it out. It turns out I needed to learn a lot about certain terms and so on. But yeah, figured it out.
And I'd love to talk for, well first an observation which is how much fun it was for me and also instructive to meet you when I met you. Right. That's a really, that is quite a transitionary period in which to meet Toby. So it's been really, really fantastic to watch as things have evolved over time. That now that said part of what makes it interesting is the good decisions but also the challenges and maybe some of the bad decisions. Can you talk to in any order you like some of the good decisions that you made and some of the bad decisions that you made when after taking on the role of CEO?
Yeah, it would be good to have some sort of obvious examples here, but I mean it's almost every good decision starts somehow bad first, right? There have been, like we've made almost every mistake in the book but we are also the kind of company that wants to, in a way, you know, like it's been so important to me to build a company that is kind, that is unafraid of experimentation and where failure, like within Shopify we don't even, we sort of, I think we succeeded in this, we eliminated the talk of the term failure. Like we call it the successful discovery of something that did not work because I think it really changes people's disposition to it. So, what did we do wrong? Like, we did...
Well, I was just going to say, I mean, I don't want to interrupt your answer, but if I think that what you just said could also take us in a pretty interesting direction if you want to buy some time to think about the failures, not failures, failures in quotation marks. So there are a number of things that seem paradoxical that I don't think are paradoxical in practice. Maybe they are, but I want you to comment on them and I just have to find the right quote here. Well, I'll give you the first part. So the first part is a quote of yours. I believe your work here needs to make an impact like a crater. Right? And so it's not just good work. It's not excellent. It's massive cosmic impact. It needs to be visible from outer space. And so people are encouraged to take risks. Yes. Now at the same time another quote here. Okay. Toby Shannon, right? All right. So this is on, you know what's coming. This is on receiving feedback from Toby. 'Be prepared to be crushed,' says Shopify's vice president of revenue, Toby Shannon. 'If you can't be crushed, you don't make it on the executive team. You need thick skin.' It's not that Toby shouts or treats people meanly. He's simply direct, unfiltered. When he looks at the fruits of someone's labor, he says what he thinks, even if what he thinks is this is [__]. Okay. So, how do you combine these two things successfully? One of the things I love about you is that you don't get the sugarcoated kid glove version of Toby's thought. You get Toby's thought. So how do you encourage risks when the feedback you receive at the end might be that was total [__], you can do better?
Yeah. No, I want to register that that quote came up in 2015 and you know since then I have learned that I might, that I should translate something like 'this is [__]' into 'is this really the best way we can do this?' But it's, I mean it's the same thing in a different form really. Here's something I've always liked, Wikipedia, right? Like there's a, I hope I get the name right. There's a specific editor from the early days of Wikipedia who I think was called, he had a handle called Cunctator and he declared something called Cunctator's Rules which said that he wanted everyone to edit his pages just to make them better. And he didn't want people to apologize for it or try to politically, like give him credit or something. He said, 'I'm going to take 100% responsibility for my own mental state.' Like you cannot make me unhappy by just giving me feedback in some way. So just give me the raw feedback without all the [__] sandwich around. And I love that. I would like to run my team on Cunctator's Rules because I think there's so much time spent like first you have to talk about the weather and then, you know, like a really nice sweater. Exactly. So, you have to find something and then ideally address some very productive character traits, then talk about the thing you want to talk about and then figure out some way of afterwards talking about something highly positive again. So, you know, that's a sort of standard formula and I can do it, but I don't think the highest performing teams in the world should spend time doing this to each other. I think there's a level of progression that comes if you're part of one of the teams and again, like we're one of the bigger technology companies in the world, certainly I think the fastest growing SaaS company on the market. And so, you know, it's not like I don't want to compare too much to sports because sports is sports but this is like the big game, right? We need to be very good at what we're doing otherwise we cannot build Shopify. And so I think these things are in the way. So yes, I want people to be impactful. Like again, if a hard object collides with a soft object then suddenly there's no crater to prove it, right? And so I want people to take their sort of mental state in their own hands and just say, 'Okay, I'm going to learn how to, you know, be intrinsically reminded that I'm good at what I'm doing and not have to rely on other people constantly telling me.'
You could go out and you could hire Jocko Willink, right? To run your HR department. And you would give them all a copy of Extreme Ownership and be like, 'All right, here we go.' But then there are people who come in who might be exceptional performers but very sensitive in some way. I've run into that quite a bit.
What do you do in a situation like that, or what are the things that you do or that Shopify does to help people take that ownership of their internal state? Because this is hugely important.
Yeah, it's hugely important. So the one thing that's so neat about Shopify is, again, let's get a little bit back to this Ottawa, Canada thing, right? Clearly, as you said, this is off the beaten track of the startup world, ended up being a phenomenally good place to build a world-class company, but for reasons that were also not clear to me when I started there. A couple of things that happen when you're not in Silicon Valley, right? Or like in a not, let's call it a primary like company creation city. Tenure gets longer. Like if I hire someone through this very intricate hiring process that we have, there's sort of an understanding that the chance of us still working together in 10 years is actually really high, right? I mean, it's a commitment from both sides, and the company needs to be worth working for for 10 years. That's what I work on day in, day out. But because of that, we can have a very different relationship than in a place where the expected tenure is 18 months. In an 18-months place, I really have to kind of access every good idea and the productive power of, let's say, an engineer or so immediately. They need to be productive.
And they need to be really pampered in some cases to even keep them for the 18 months because if you have Facebook, Google, and then name five other companies who are all pitching the same employees at those five companies.
Yeah. And so in a place like this, it ends up, for better or for worse, in a world where people don't actually go having careers at companies anymore because the way to have a career is actually jumping between companies. So your new position is always like slightly higher. And so, well, our cities aren't like that. We assume that we have these long tenure relationships and therefore Shopify can invest in the people who are part of Shopify in a completely different way. So we have a big amount of... we probably hired all business coaches in Canada and beyond at this point to be full-time employees of Shopify because we're investing so much in the people. We hire people on future high potential and then try to get them there as fast as possible because that actually works for us and for people and works for Shopify fantastically well. And so we have a lot of these opportunities because of that to make some slight edits to the normal psyche, right? Like so 'feedback is a gift' is such a simple sentence but really is not the way most people think about feedback, right? And...
Feedback is a gift because it clearly is. It's not meant to hurt. It's meant to move things forward, right? Like to demystify something for you. I want frank feedback from everyone and I get it, although funny enough, I don't know if you know, like you might have a thought about this. I tend to get it from the Germans at Shopify more frequently than anyone else. So there might be a cultural component in here too. So, but yeah, so this like... did he call it crusher of egos or get your ego crushed? That sounds so dramatic.
Yes. Be prepared to be crushed. If you can't be crushed, you don't make it on the executive team.
Yeah. I would say that might be a little well...
Or learn how not to feel crushed.
Yes. So I mean, this is the executive team, which is directly my team of the people who I have the highest requirements of and we have worked together for the longest. So I think I don't think it's like this everywhere in Shopify.
How so? Are there particular books, particular types of training exercises that are used within Shopify to help people take ownership of their internal state or to view feedback as a gift that people listening might be able to use or explore or think about in some way?
The company is... we very... like different companies have different sort of personality trait testing kind of things that they like. Shopify is very partial to a system called Enneagram.
Enneagram. I just had my first Enneagram typing last week.
I appear to be a loyal skeptic. Six.
Yeah, we could get into it.
This is all new to me. This is all new to me. But Enneagram, it has worked very, very well for us. Like in our internal system, you can actually see the Enneagram of everyone else and then it tells you like what nuances that means for how to work together, for instance. So that's one. But the other thing I think why personality tests are interesting is it doesn't matter which one it is. After you kind of do one, it already kind of teaches you like, hey, wait, wait, wait a second, the way I'm wired is different from the people around me. And I think this is so fruitful of a discovery, especially early in your career, right? Because again, a lot of the people we hire, like average age of Shopify is 30 or 29, I think. So we get to people very early in their career and because the thing that we want to accomplish, and this is really the goal of all of internal programs, is we want to take people from a... find out what parts of... what kind of areas they have a fixed mindset on and try to get people to acquire a growth mindset. Right? Just think of their intelligence as something that can be trained. Think of their skill as a programmer, not as something static and then someone comes and tells you that there's something you could have done better. That's not someone finding out that you're not as good as you thought. That's actually a teacher appearing, right? And once people acquire this growth mindset on at least a number of different traits, usually they arrive to... like they make it very, very far and they can have these like 10 years of a career in one year on the wall clock and it's a wonderful kind of thing when it happens.
How would you suggest that people acquire a growth mindset, right? Because there are books, I don't know if Grit, I haven't read Angela Duckworth's book Grit, it's been recommended a number of times, but there are a number of books that talk about the importance of fostering growth versus fixed mindset in child rearing. And you shouldn't say you're so smart, you should say you worked really hard and did a good job and so forth because inevitably if they have what's perceived to be a failure or make mistakes, it's then not indicative of them being stupid, but rather something related to effort and/or chance that they can play a part in resolving or improving, right? But if we're talking about, let's just say there are any number of people certainly listening to the podcast and they're like, you know what, I'm sure I have a fixed mindset somewhere, but I don't know if it's a blind spot. I don't know where, how I would spot it and then how do I fix it? What would your thoughts be?
I think that's a really, really good question. I wish I had a better answer. I do find that Carol Dweck's original book called Mindset is probably still the best source.
Carol Dweck. Yeah, that was also... we were talking about Josh Waitzkin during lunch. Also a book that he's quite a fan of.
Yeah, I'm a big fan of the book. It at least talks you through the theory. And what I've observed is even with very, very high, super successful executives who come to Shopify and or have worked at Shopify for a very long time and they end up reading the book and they said, you know what, I was actually fixed mindset on all these three things and it really irks me now. It's just really funny the way how it just sort of wakes you up to this reality that we kind of all have it. It's not something you can completely overcome. But it's something that just having the awareness is really powerful. And also if you have direct reports in a company, even if that book does nothing for you, it will allow you to be a much better lead to those people because it's like just priming you to detect fixed mindset talk in other people and pointing it out is hugely beneficial. So I want to note an observation that may or may not be true but it seems to me that the discussion of fixed and growth mindset goes, it pairs quite well with Enneagram also.
Enneagram, by the way, I was introduced to by Drew of Dropbox.
And I was always skeptical and I still am somewhat skeptical of certain aspects of Enneagram, which I think actually means nine-pointed. So there are nine different types. Then there's a lot of discussion through different books and experts about Enneagram. But like you said in your commentary about Enneagram, it's not necessarily the specifics of the sort of business-acceptable horoscope that you get. It's the fact that you begin to look at relating to other people and your weaknesses and or fixed mindsets differently, right? And so I found it very useful. I had my... I'm going to have... well, my girlfriend did her typing and I'm going to have all of my employees do their typing also just so they think with an awareness about interactions through that lens.
Even if the exact content may be, you know, 50% kind of hand-wavy if that makes sense.
Yeah. Because here's why these things matter. I once read that... I in particular believe in hell, but I like this definition of it. Hell is meeting the best version that you could have become at the end of your life.
Yeah. And so, I think that one of the really, really fun things about, you know, an experience like an entrepreneurial journey, like with the company, the careers we have, the books we read, like if they end up being pointed in sort of a direction that allows us to minimize the difference between that person we will meet and the person we are at that point of time, I think that's time well spent. And there's some key, I think, events in one's life that have to go through. Like at some point hopefully you realize that the people around you are very different, that you have some unexplained traits in you which some of them becoming big strengths and some of them are weaknesses. And you double down on your strengths and you try to work around your weaknesses. And by the way, later in life it might actually flip which ones is which, which gets really weird. But that's another one of those kind of things. This sort of awakening to a growth mindset is another one of those life events, I think. And so these events matter because what you're building eventually is like some kind of path that allows you to wake up smarter every day. Then if you get there, really, really powerful things happen. Suddenly, you know, jumping into like a completely new job that you have no qualification for suddenly doesn't sound scary anymore. I mean, it probably still does a little bit, but the challenge and the thrill of it, of like this sounds real, I could fail, I now have to grow to make this work, actually become hugely motivating. And I think that one of the most amazing things that anyone can do in their lives is a variation on the theme of like going on a journey doing hard things surrounded by friends, right? Company building is one of those things. Often travel is another one. Sports are really good at these kind of things. I would love Jocko's opinion on if war is like that.
Oh, I think he would definitely say that.
So, you know, variations on this theme is what you want to prepare for. I want to come back to something you mentioned earlier that I think is very, very relevant here. So you talked about... I'm going to try to tie a few different things together. You talked about taking risks and looking for opportunities for massive impact. You also talked about how you have looked at certain opportunities or transitions as opportunities for learning and that you've made a lot of mistakes, but it seems to me that you've even in some ways optimized for learning. And I just want to highlight for folks listening and also just to remind myself that this is something that comes up quite frequently with people who seem to just step up to bat and hit home run after home run. If you really dig under the hood, that's not necessarily the case. But for instance, people who are in any number of different fields, whether it's Scott Adams and Dilbert, or some of the investors I deeply respect like Marc Andreessen who's been on the podcast, they talk about combining rather than trying to be say the top 1% in the NBA, which is very hard to do and very attribute dependent, you could be say top 10% or even top 25% in things that are rarely combined, right? It could be computer science and law. It could be Warren Buffett, right, in value investing and public speaking. He says the best investment he ever made was in a Dale Carnegie public speaking course because it magnifies everything else that you do. And so there's the combining of skill sets that are rarely combined. And as Scott has also written about quite extensively and I agree with that, if... and I'm paraphrasing here so I might be mixing and matching a little, but if you optimize for learning new skills and developing new relationships that transcend any one given project, it's really difficult to fail completely, right? And so you end up accumulating these skills and relationships that then help for you to combine these different disciplines in unique ways. So that... I just want to mention because it's tempting and debilitating to think that you have to be the absolute best top 1% in X and when you really look at people whether it's all the various billionaires and magazine covers or what have you, that's not necessarily the case.
No. Yeah, I could not agree more with you. And it's interesting because I almost have two phases to my life in this regard, right? Because I really was trying to become... I don't know if I was trying to become the best programmer in the world, but I certainly was making a bid for it, you know, like my life was completely revolved around writing code, understanding more of it and just being very, very good at... I was going for mastery anyways. And then this situation that happened where again I had to like pause that boat and have to go into business and I ended up really, really liking so many aspects of it. I really pivoted to... from someone who was going to try to get... I would like to understand 100% of a field to I want to as quickly as possible understand 80% of every field. Right? And that's... I like it way better on this side and I'm internally thankful for having realized this at some point because it actually doesn't take that long to... I mean, you wrote an entire book on this. I'm obviously not trying to convince you on this, but it doesn't take long to understand the first 80% of any number of fields, right? But of course you can't understand 80% of every field. There's too many. So you'll follow your interest pretty automatically and then you find out exactly this, what you just said, and this is something, you know, it's worth looking into the Shopify universe. The people who are really successful are the people who usually have some multiple skill sets and combine them into some kind of new product. It's like sort of an obvious example is like Boosted Boards, right? Like hey, here's like electrical engineers who also like skateboarding. Let's combine those two things by putting a battery into the skateboards. And so it's really, really, really hard to be the best in the world at a single discipline. But as soon as you start overlaying like three different interests, you make Pokemon-inspired jewelry or something, you can make the best Pokemon-inspired jewelry in the world pretty quickly, right? And so...
The speed with which you came up with that makes me think that that's a store on Shopify somewhere.
Because you're in a... I mean, you're in a great position to see, I mean, hundreds of thousands of these examples.
We see millions of success stories and attempts at success stories, right? This is honestly the most interesting part of Shopify is really... like we see this, right? Like let's actually zoom out for a second here on the entrepreneurship topic because it's really dear to me but it's also at a state that a lot of people don't really quite appreciate. Entrepreneurship is in big crisis right now. It's a complete counternarrative to what most people think, but right now new company formation is at the lowest point it's ever been. Gen X started a lot fewer companies than its parents and millennials are lower yet. So it's the least entrepreneurial generation so far. And the numbers are going like... companies that are... you know, like all numbers are downward sloped.
Is that measured by LLC formation, entity formation?
Just general companies of all classes in the United States over time. Once you look at the graphs, they all just... they're looking like they're tanking. It's especially since 2005, sort of 2006, the very beginning of the financial crisis, suddenly fell off a cliff. So why is that, right?
Right. Well, I wish I knew. It's like I know some contributing factors. Like one thing is we just don't need too many copies of everything anymore. Like back in the day, you probably lived in a smaller community, you visited a big one, you saw, hey, here's like a certain kind of hardware store, you know, some kind of business you've never seen before. You say, hey, I might be able to do that back home. And that's a new company. Right now everything's franchised and centralized and it's a lot harder to do these kind of businesses. But the same thing is going on on the internet as well, right? The internet is, as much as it can be a democratizing force, it really benefits centralization. You know, we have one social network, it's one search engine and so on. So it's just harder to start businesses, right? And like you kind of have to clock in in the top percentile of a field or at least an intersection of multiple fields to even partake in entrepreneurship. And that's... I think that's not good. I mean, if you would give me like, hey, here's two versions of a world, choose one. One in which entrepreneurship is common and easy and straightforward and one where it isn't, like, I mean, who takes the one where it isn't easy, right? How would you make it easier, whether in the US or maybe not Canada specific, could be, but is there anything that you would do to increase the number of entrepreneurs and why is that important? Is it important?
Yeah, I mean, that's a good question which I think should be studied. I mean, like one thing, if you look at this completely from an economics perspective, like if you think that we need to provide employment to people, you should want... like a couple mega companies are not going to employ everyone, right? I think everyone understands this. We need millions of 10, 20 people companies, SMBs, that's almost everyone is employed by small businesses. If you look at the actual numbers, so with small business going away, that's definitely a force into the opposite direction. So how would you do it? I mean, one thing is... this is actually a real problem in the United States, but it's actually a problem everywhere, is licensing. Like it's a crazy situation that I can get a laptop and start a $15 billion Shopify and not need to ask no one, but if I want to become a hairdresser, I need to get a license for it, right? And I need to go for like... and there's quotas in many places and you can't because for all these reasons. So that's kind of one of those things which probably people have to have a look at. But the other one is just friction. Like how difficult is it? Like how many things do you have to understand to start an online business? Like you built like a supplement business back in the day. What are all the things you had to learn?
Well, I remember, I mean, this was even before that, when I was taking a stab at a few businesses, all of which self-immolated. But just setting up a merchant account, I remember back in the day was a huge... it was a complex and hugely involved task.
I had to post a $30,000 bond to get a merchant account when I started Snow Devil.
Yeah. That was all the capital I had. Yeah. So, it's wild. So, but those kind of points of friction are everywhere. Like, I mean, this is... I don't want to make this an ad, but like Shopify is not the solution to this problem because it's a much more global and bigger problem, but the retail world is one of the most accessible parts of entrepreneurship. And that's really all Shopify is, like try to take the learning curve of partaking in entrepreneurship, building online businesses and make it as flat as possible so as many people can succeed. Right. That's what we've been working on for the last, what is it, 14 years now.
I think this might be a good place to chat about the Build a Business competition.
Oh yes, the Build a Business competition.
We've been talking about just smoothing the path or removing impediments to entrepreneurship, but you also have incentives. Incentives are also important. What is the Build a Business competition?
Let's go back to where it's come from because this is, I mean, so relevant to I think two of us. Well, certainly to me. I don't know if it's relevant to you, but you were involved. So this was 2009. So at this point, Shopify was completely running on fumes. It's like my... we were completely... it just all sorts of things didn't work. Like you asked me earlier like things that didn't work, like the company kind of didn't work, right? It wasn't like I had the numbers and people were selling things and it was valuable to them, but there was no real business being built around it and it kind of all just didn't function. My father-in-law was gracious enough to give me a check every week for running payroll. So at that stage, and he said he would do that for a certain time and by the end of it we kind of have to figure out what the heck to do. At this point we were talking and the reason why, again, we see the world in a similar way, you wrote The 4-Hour Workweek. But what attracted me in this book is like what you were talking about, you know, just building a business and then actually doing other things while... like I was seeing people doing this on Shopify but was like this is an underexplored form of, you know, what you can do online. Like people should know about this, that this is what some people do and we should obviously tell people that that's what people do on Shopify and Shopify is good for this kind of thing. So we had this conversation. I was at my cottage. I was actually on a boat when we had this conversation. And we're like, you know, how can we overcome this built-in fear of failure that everyone's running around with? Everyone, like so many people come to me, come to you and say, one day I'm going to start my own business. It's like, okay, what about today? You know, like what's wrong with today? And there's always all these kind of reasons and I think our working theory was we just should... we need to test this by really incentivizing people. And to which I said we should, like, I don't know, we should give away like a MacBook Pro or something. And then you did what you always did in our phone calls is like, Toby, first of all, that's way too nerdy and only you care about MacBook Pros, and then second, if you want anyone to notice, you need to go like 100x in terms of prizes or something like this, which is probably easier to say on your side than mine.
I also remember exactly where I was, by the way. I was in Glen Park walking down, I think it's Diamond Street, past OSHA. I remember the exact block I was having this conversation. Yeah.
That's funny. Yeah, like sometimes these things are just branded in your mind because we, I think, we both realized like we were egging each other on to make something big. And what we ended up doing is said, 'Okay, you're going to take the last $100,000 in the bank and just put it up as a competition and say whoever is going to build the biggest business, like from starting now in the next six months, is going to just get the check.' Which is at this point I said this is either going to work and then we'll make the money doing competition to then give to people, or the company's bankrupt anyways, in which case, you know, I'll deal with that in some other way. But we did and I think through some contact of you, I think you introduced me to Laura at the New York Times, ended up talking about it because it was like surprising, it's like tiny startup in Canada putting up something that's beyond like every business plan competition in terms of prize money, right? It is a pretty stunning amount.
It was a huge success. Exactly. You were like super confident that it would be a big success from the beginning. I thank you for this because I wasn't. I was like, 'Oh my god.'
And it's been really awesome to watch also year after year as it has grown and evolved. So, I mean, you could give some examples, but from the beginnings, right, which we're not entirely sure... I mean, on some level we know where this $100,000 is going to come from, but this is sort of an existential bet in a way. But like you said, there are other kind of inherent issues that if we don't do it, it's not clear what the picture's going to look like. And then you flash forward and you're doing these Build a Business competitions and it's like a high-end reality show in the sense that you have, you know, the mansion from The Great Gatsby with DiCaprio and people are flying all over the world and you have, you know, Tony Robbins coming in to mentor the finalists and so on.
We took everyone to Fiji to his place in Fiji, right? It's been so much fun to watch and you guys have done a fantastic job of executing and it's ended up coming full circle also as I'm, you know, considering with the audience that I have what could I do potentially competition-wise, you guys have taken the ball, run with it and have done this so many years now, I'm like, hey, which lawyers do you guys use?
Turns out, by the way, anyone who's thinking about doing something like this, I mean, you have the prize money, but then you have the putting together of a competition of this complexity, which is no joke.
No joke. Every state, even every province in Canada has completely different laws for this. Everyone will come and ask, 'Hey, is this a game of chance here or is this a game of skill?' Because... and which is actually an interesting question for entrepreneurs. The honest answer is like chance. I mean, I try to never get confused about this, like Shopify is enormously, enormously successful, but it's like 99% chance, right? Like you can't predict all the kind of things which happened to transpire which led to success. So, but of course when you're talking to the lawyers, you have to say this is a game of skill, absolutely 100% skill involved. And yeah. So we launched this in 2010 and we had an amazing winner event with DODOcase, right? It was so cool.
Can you tell people a little more?
Yeah. Patrick and Craig, two brilliant entrepreneurs from San Francisco who then... what they did, I think this was around the launch of iPad. And so they realized these iPads need cases just like the phones. And so they got together with some traditional bookbinders and made some beautiful, like it was really just wood and whatever, moleskin-looking cases for iPads. And I think they gave sort of flyers to everyone waiting in line around the Apple store before iPad got launched. So people wrote about it and they were one of the competitors in the competition. And they won it and fantastic story. There's a later picture of President Obama with his DODOcase, which of course they used successfully in every one of their marketing campaigns. And just I think actually, which goes back to sort of the thing that really excites me about the effects that come from all these kind of things. Not just was this an entrepreneur success story for them and they got a $100,000 check in the end, they also quadrupled or even beyond the amount of professional bookbinders in the San Francisco Bay region. Again, like this was an area which had a lot of bookbinding talent and then that was an industry and that's not an industry anymore because it's just not done manually anymore, but they got people out of retirement to come back making these iPad cases and just a little industry exists there too. And I think these are just the stories which I find so, so great.
So let's talk about... we don't have to get into all the specifics of a ton of them, but I was very curious from the first competition to see like what can people do, like what can people actually do in six months, right? Months. It's nothing. I mean, but some of these people are creating multi-million dollar businesses.
From ground zero. And so, it's been really inspiring to watch. And inspiring not just because of the size but also the variety. That having been said, one of the things I look forward to every year when you guys are running the Build a Business competitions is what patterns will emerge because you begin to spot, and this is much like I feel like with my audience from say The 4-Hour Workweek or the podcast, but just the millions of entrepreneurs who allow me to pattern recognize because I just have the 30,000-foot view on my audience, show me things that are coming, right? It's like, was it William Gibson in Neuromancer said the future is already here. It's just not evenly distributed. So, you see these patterns that are sort of this like smoke signal in the distance and then five years later it's everywhere. And with Shopify for instance, I remember the first year that a number of the category winners, because there are different categories, right? So it's not all or nothing at this point in the competition. And there are different, what would you call it? Industries or product categories, which gives more people a chance to win. And it's like wow. Okay. So I'm making this number up but it's like three out of the six used Kickstarter.
Mhm. And looking at the different tools and different approaches, different tactics and strategies that seem to be used with great efficacy each year is also something that I have really looked forward to. And this goes beyond the tools into the approach, I think, and this is actually where I feel like I learned the most from the entrepreneurs because these are really the best who are coming... like I mean, we had first-time entrepreneurs win categories, but they always had some kind of fantastic insight that they're adding to this exploration about how to build companies in this digital age. So even the Kickstarter folks, one thing, the question I always had is like was Kickstarter itself valuable or was it that they had to put a certain video on their website where the founders of a company had to explain why this product needed to exist, right? It seems like such a... like why does not every product in the world have the inventor declare why they felt this thing needed to be created? Like why can I only get that from the people who happen to go on Kickstarter, right? And most of them ended up figuring out approaches which are really about storytelling. Like what's the story? Like your DODOcase story is a story of revitalization of a craft, right? Which people connected with. The beautiful object that came out of it was completely imbued by this story. And if when I was walking around with my DODOcase, like someone would talk about it, I would talk about how this was handmade by real bookbinders because I owned part of that story. And that's really the great thing, the really great thing is that things that are powerful and work have actually not changed in the internet age. Like we all kind of... I mean, our ancestors are ones who were the storytellers or at least the people who listened the most to the stories. This is how language developed, you know, like we're storytelling creatures and it's just rediscovering this medium after medium is something that is really, really fascinating.
