S1 E11: Shopify Part 1: Harley Finkelstein Answers Your Shopify Questions

I mean actually it's amazing. You are a power user. The reason I'm sitting here is because you use Shopify. The stress, the pressure, the requirements you put on Shopify is amazing because it makes us better. It makes us think about what are we missing. Sometimes we, you know, we're in our minds building this great software trying to figure out how to make it easy, how to make it extensible. But it's actually like that is one of the best parts of founder companies at scale.

Yeah. This particular mentor who was a career lawyer really took me under his wing particularly when my father wasn't around anymore and he just had this belief that law school could be like finishing school for entrepreneurship that the skills that I could acquire there would be incredibly valuable for building a business. And he happened he decided at that point he would teach law at the University of Ottawa for one year take a year off from working and teach because something he always wanted to do. And so I applied to one law school, University of Ottawa and somehow got in because I spent most of my undergrad, you know, selling t-shirts, not studying, getting good grades. But I ended up applying to the University of Ottawa and getting in. In 2005, September, I moved from Montreal to Ottawa to start law school. And again, this whole thing was all about entrepreneurship. And it was all about becoming a better entrepreneur. And so, a lot of the anxiety that I think most people have when they're starting a new curriculum or a new program or a new experience, you know, I need to get good grades, I need to make sure I'm in the right classes. I didn't have any of that because the law school for me was incredibly transactional. I was giving the law school money by way of tuition and in return my expectation was that they were going to give me skills and the onus was on me to pick up those skills but you know I was looking for a good return on my investment. And so even from day one there was a certain ease or certain laid-back is the wrong term but I approached law school and the curriculum as what can I take from every class what can I take from every interaction and in that way it was really valuable and in fact you know he was right I mean the law school Just to fast forward for a second, law school was incredibly valuable for me. I went to like one of the best public high schools in South Florida. I went to

I went to Spanish River High School in Boca Raton.

Yeah. Where did you grow up?

Okay. Well, nice. So, West Coast.

Okay. So, I was sort of, you know, not too far. It was north of Miami, north of Fort Lauderdale was Boca. So, I went to a great public high school, but didn't learn how to write well. Went to McGill, you know, one of the best universities in Canada, one of the best universities in the world. Didn't learn how to write well. So law school fundamentally one of the biggest takeaways was you end up you write a lot as you know I mean you went to Harvard law that's a whole different level of law school. But you learn how to write a lot. You also learn something that I think is really valuable which is to read thousands and thousands of pages and pick out the one or two things that really matter most. And in law school they call it the ratio decidendi, right? Like the one lesson from that particular case. And that ability to sift through a ton of data and pick out the one thing that's going to have the biggest impact or value. I mean, we all use that every single day now.

And probably the third thing that I thought was really valuable was this idea of like really good debate that you have an idea, you have a concept or a belief and you have two sides to debate the belief, one for one and against. And in undergrad, you know, there was debating debate club. In law school there was moot court, which you probably did a bunch of, too. So in actuality, law school was incredibly valuable to me from sort of a finishing school perspective. But I moved to Ottawa. I'd never been there, had no friends, had no family there whatsoever. And one of the things that I learned about myself early on in undergrad was that my tribe were entrepreneurs. I mean, the reason I'm sitting here is because, you know, like Nick, you reached out, you're like, 'Hey, I got this podcast.' And we started talking like we've never met in person, I think, until now, right?

And you've been super helpful. Oh, thank you for saying that. Well, I just because I connect with entrepreneurs. I understand entrepreneurs where no matter where you're from, no matter what industry you're in, I have always found that that's kind of those are my people. And so I began to ask in Ottawa where the entrepreneurs hang out. And I was directed to a local coffee shop in Ottawa. It's called Bridgehead. Still there today. And I walk in and there were a group of entrepreneurs that effectively were showing up every Friday night. We called ourselves the young entrepreneurs club which was a totally lame

And one of those entrepreneurs I can tell you the rest of the group the group was it was Sam Zade who was running Getaround in San Francisco it was Aiden Mahi who had Fluid who now has Fellow app it was Luke Lec from TravelPod who's now chief growth officer at Shopify he sold TravelPod to TripAdvisor ran TripAdvisor for a while and it was Toby and so this small group

But it's reverse, right? Like at that point, like nobody like we were all kind of just building our stuff together and we all started hanging out and I met Toby and Toby, this is around 2005 or so. So, he was just transitioning from selling snowboards. He started the snowboard shop. This very famous story now. Wrote the codebase for what is now Shopify, started selling snowboards, and then people started asking him to use the software. Here's the cool part. So my t-shirt business worked really well in undergrad because in undergrad you don't have to go to class.

That was part of the like the overall grading schema was also based on attendance. And also they did sort of the Socratic method thing where they'd call out a random name and if you weren't in class and you didn't answer the question, not a good thing.

I didn't because I was too like again I was trying to derive as much value from law school as possible. So showing up to class was kind of like a thing to do. It wasn't just about getting good grades to get a good job. I wanted to actually, you know, learn get knowledge from it. And so I had to go to class. And so I actually sort of recognized very early on in law school that the wholesale promotional product business that I had in undergrad was not going to work well in law school that I needed to kind of shift towards a more digital version and do retail that ran concurrently while sitting in class. And because of my relationships in Montreal and the sort of the schmatza business, I had some connections to people that had big licenses. So licenses to Batman or Spider-Man or Superman, bunch of other things. Paul Frank was one of them. Remember Paul Frank. And so I was like, you know, I'm going to set up an online store. It'll be direct to consumer. It's going to be a virtual store. And this way I can actually go to class and make money, you know, while I was learning. Ended up becoming, I think it was store 137.

Plus or minus like two on Shopify.

It was called Smoofer.

I do. I'm not gonna tell you what it is. But it's although smoofer.com is not it doesn't exist at all. I checked it a couple months ago. It's some random site. But it was a really fun experience for me. And I spent all of the rest of law school, you know, taking as much value from the law school curriculum, but also building Smoofer. And I did a joint law MBA. So I finished law school, finished business school, went to Toronto to practice law for 10 months. And I absolutely hated it. I thought it was the antithesis of entrepreneurship. Entrepreneurship is meritocratic. It's about, you know, how much value you add. No one cares about your last name or how long you've been there. They care about how much value you add. And the law firm environment was just the opposite of that. It was almost unbearable. So, I made it 10 months and towards the end of that 10 months, I called Toby and I said, I would really really love to come help you and a handful of others, mostly engineers that at that point, build Shopify. And that was about 13 years ago.

At that point when I first spoke to him, there was under maybe six or eight. And by the time I joined, I think there were maybe it was closer to 16 something like

We were, you know, at that point Toby had moved out of a coffee shop to a much smaller office. And then when I joined, we were on top of this restaurant, a buffet restaurant in Ottawa. It's called Tucker's Marketplace. And then I joined in early 2010.

It was amazing. It was incredible. I mean you both remember the early days of starting. You are driven by sheer force of will, ambition, just the excitement of the group. The unknown of what is possible. There is no room for pessimism or skepticism. You're there's so much interesting opportunity and when you're in a room like that with a bunch of other people who you deeply respect and you all have one clear mission there's nothing like it. And I think my first year or so I felt that my job was simply to be a Swiss Army knife to add as much value as I could. I was sort of technically the we didn't have a CFO we didn't have a CMO we didn't have like we had nothing we like I was fresh out of getting my law degree and being called to the bar. Although I was a terrible lawyer, but if anything, you know, anything needs to get done on the business side or operational side or legal side or financial side, we kind of just all figured it out together. I think Shopify's finance department at that point was literally ran by a Ruby script that Toby had written.

To do reconciliation and make sure we were able to have some semblance of integrity with our finances. We had not raised any money at that point. And so, we had one or two angel investors, one of which was Toby's father-in-law, but that was it. And, yeah, those guys did very well. But it was some of the most fun, interesting, and difficult, challenging times of my life. And I wouldn't have traded for anything.

A lot of it was organic. A lot of it was I mean you know one of the cool parts about the Shopify early days story was that Toby was writing this code in Ruby on Rails and there were really only three or four companies at the time that were really building anything of meaningful scale using Ruby on Rails. It was 37signals guys David Heinemeier Hansson, Jason Fried, it was Twitter I believe I think that was it. I think Shopify was sort of the third. So one of the things that was really cool was people that were deeply involved in the Ruby on Rails community and Toby was a core contributor of that community. They were following along. So that was sort of one aspect of it. Another aspect that I recognized fairly early on was that I think just before we started rolling we talked about Pointer and your work with Chris and you know Chris was a local Ottawa partner and I'm not sure he was around then but there were a couple agencies and freelancers that just very serendipitously found Shopify and began to do a couple builds for their merchants and brands which was really really cool but at that point it was mostly word of mouth. The one thing that happened early on which was really cool, you guys may remember this, people listening may remember this too. We created the build a business competition in 2010. You guys remember that? Yeah. And that was really neat. It was sort of an idea that we, you know, dreamt up with Tim Ferriss. Tim had learned about Shopify and you know, thought Shopify is really cool, but his sort of his one issue with Shopify back in 2010 was okay, you guys are making entrepreneurship seem really easy and very affordable, but for most people it's not either of those things. It is complicated and expensive. And so the intention with the build a business competition in the early days was really to get to a point whereby we would almost we would give people a proverbial kick in the butt to get started now. And the way we did it was we said hey sign up for a new store on Shopify after 6 months we will review everyone in that cohort and the store with the highest GMV would win $100,000. And at the time I don't even think we had $100,000 in our bank account. So, we were hoping that by the time the competition was over that we would eventually have the type of money to pay it out. And I'm going to get this number wrong, but it was in the vicinity of like I think it was like 1,200 stores that signed up in that period of time. And the winner was a company called Dodo Case out of San Francisco who they had recognized that in downtown San Francisco there was a tradition of old school bookbinding and these bookbinders were not actually, you know, that business that industry was not going very well. And so they went and found these great book binders and instead of creating books from their book binding techniques, they created iPad cases. And I think Obama, I think it was Obama had one and it was in a famous photograph of his and after that that business did really well and Dodo Case ended up winning the build a business competition. And so a lot of it was and they're still on Shopify.

And I think it was interesting because while they were building Dodo Case, you know, in a very scrappy, non-scalable way, we were kind of doing the same with Shopify. We were doing things different scale. We were creating competitions. We were, you know, trying to get word of mouth spinning. And it wasn't until a year or two after that where we raised venture capital, we brought in a CFO, we brought in our first chief marketing officer that, you know, we really created a scalable way to grow the business. But those early days were unbelievable.

The reason that I wanted to join Shopify the reason that I called Toby was partially because I knew that I wasn't going to be a lawyer long term. Partially because I love the idea of entrepreneurship, but I would say the majority of the reason that I called him was I had that experience for myself. The fact that I was able to launch a beautiful, scalable, unique online business sitting in tax law class. That and effectively within with that one click of that launch button was able to sell to a massive audience. That was fairly profound. That experience of starting a business that otherwise would not have happened if it wasn't for this incredible piece of software and technology. It was that it was I wanted to join Shopify because I knew the potential of Shopify and ultimately what it came down to was this was the first time I really saw what the potential of truly democratizing the entrepreneurial journey because prior to that and if you go back like 20 years, 200 years, 2,000 years, starting a business, the main ingredient had always historically been capital.

That was it. You needed money. It's the reason why so many people were there was this tension or this apprehension to start a business. It wasn't because you didn't have people that were ambitious or people wanted to be entrepreneurs. It was because they were nervous and scared that if it didn't work out, the cost of failure would be so high that it would change. You know, they may lose their house or they may lose their they wouldn't be able to put food in their table. And for the first time ever, entrepreneurship was more accessible. The cost of failure was as close as zero as ever before. And it was all possible because of this piece of software that Toby had written. That's when I knew it'd be a bigger deal. Now, whether it would take 5 years, 10 years, or 50 years to realize that vision, I didn't know enough about it because I was a merchant on the platform, but I knew this was profound.

Totally. Because again, it wasn't just about the cost or the effort. It was the fact that even if you'd never started a business before, you were able to build something that looked incredible, professional. It made it feel like, you know, your total addressable market was not just your little city or town you were in. I was in Ottawa, Canada, sitting in tax law class, and my total addressable market was Canada.

There's a couple assumptions in that question that I want to unpack first. First of all, I don't think entrepreneurship is one specific GMV band. I know people that started their businesses three months ago that are entrepreneurs. And I can tell you, you know, if you look at Ben at Gymshark or Ronnie at Kith or Kylie at Kylie Cosmetics or Rich at Fashion Nova or Dave at Bombas or, you know, Tim and Joey at Allbirds, these are all companies that are, in my opinion, and I think a lot of people, most people would agree with this, are vertical leaders in their particular category. In some cases, they're multi-billion dollar public traded companies. They are unequivocally, they unequivocally self-identify as entrepreneurs. So I don't actually think there's like this ban where you're entrepreneur here, you're a small business here. But the key to Shopify, just to answer your question directly, is that we want to have the widest top of funnel possible. We want to make it so that anyone that has an idea in the shower in the morning. So I'm talking about aspirational entrepreneurship. We recognize not all of them will succeed. However, the ones that do from a business perspective will offset the cost of the ones that don't. And more importantly, over time, as their needs grow, as the complexity of their business increases, the value of Shopify reveals itself or unveils itself to them as they need it. And so, initially, if we just sort of look at Shopify Plus, for example, Plus was started as a graduation for the most successful merchants on Shopify. As they got bigger and bigger, they needed new things, whether it was new functionality, new features, new APIs. They wanted larger API call limits they wanted more stuff from us and so this idea of this graduation that's what it was for it was for homegrown success stories and that's all the stores I just mentioned are homegrown success stories Figs for example like these types of brands that start with us that go really large never leave the platform but something quite remarkable happened in the last five or so years and much more so in the last two to three years which is that a lot of larger existing companies whether it's Mattel or it's Crayola or it's Procter and Gamble or it's Staples or Spanx companies that already had existing large businesses migrated to Shopify Plus. And so that's not to say I don't know maybe J Crew will come to Shopify at some point. I don't know why they wouldn't. I don't understand all the puts and takes of the Nordstrom business model but my hope is that at some point all those brands if you are running a modern brand and you are multi-channel and you want to future-proof your business operations my hope is that one day it is a bad idea to not use Shopify. A few weeks ago I got a call from the chairman of Tom Ford and he was basically saying that their UK store needed some assistance and he was like you know can you put together a quick presentation come to our office and present it. And so I did that. I get there and I'm like, your first mistake is you're not on Shopify Plus. You're on Salesforce and you can't use a Salesforce store without three clicks to checkout. You're probably losing millions of dollars just with that one issue there.

Yeah, I'm glad you said that. Because I've got a few like, you know, there are brands that have gotten to a certain size and then switched away from Shopify. Like Away Travel and Ritual Vitamins. Why do you think those brands switch away from Shopify instead of staying within the ecosystem? You've proven that publicly traded companies can sit on the Shopify platform. You've named two brands that those are very very rare cases. It happens from time to time and those two brands in particular, I suspect at some point will come back to Shopify. In fact, I'm certain of it and I hope they're listening because I would love to remigrate them over if I can. But that almost to be totally this isn't a flex of Shopify but that almost never happens. In the case where it does I mean you like Tommy John someone convinced Tom that he should leave Shopify and go to what I guess this person thought was a good idea go to BigCommerce. So he left in February and as of last week he remigrated back to Shopify. So, we do see sometimes where someone gets hired in a company and they want to sort of substantiate or demonstrate their value and so especially if they're like running e-commerce, they're like, 'We need to do something big and let's get them off Shopify onto something else.' More times than not, they come back to the platform. Kylie went to Magento and didn't work. She couldn't do the flashes on Magento and came to Shopify. So we see this fairly often, but I would say the reason that people don't is one, they don't have a full understanding of what the actual platform can do or the capabilities. And by the way, that's not their fault. That's our fault. We have to do a better job of articulating why there are companies building multi-billion dollar long-term businesses entirely in the Shopify stack. First thing, the second thing is there was a period of time, I believe it's over, both of you would be more familiar with this concept than I would, where private equity was getting deeply involved in e-commerce and buying these direct to consumer brands. And part of that pitch was like we should think about more enterprise-grade solutions. That's over now. And because Shopify is enterprise-grade and if you I spoke to Andy Dunn about this recently. Andy built two companies, Bonobos obviously and then AYR. When Bonobos was built, it was pre-Shopify Plus. And so he built that whole stack himself. When AYR was built, Shopify Plus existed and he built the entire thing on Shopify Plus. And so some of it was we talked so much about entrepreneurship. We talked so much about small businesses. We are the entrepreneurship company to many people that I think some of these big companies assume like your point Nick around Tom Ford that we are only for entrepreneurs and smaller entrepreneurs and that's just not the case. Your favorite brands. For anyone who buys products online, your favorite brands, if it's a great experience and it's not a marketplace, there's a very very high likelihood it's on Shopify. And we've earned the right and we will continue to earn the right to get those brands because we keep finding ways to add more value. And it's the reason why Shopify is like if I was on your show eight years ago, you said, 'What does Shopify do?' I'd be like, 'Well, e-commerce.' And then seven years ago, I would say, 'Well, we're e-commerce, but we're not just for small business. We're also for larger companies. And six years ago, I would have said, well, we're also for physical retail. And four years ago, I would have said, well, we're also doing this thing called merchant solutions where we'll do payments and capital. And then, you know, two years ago, I'd say, well, we're also doing other stuff. We're doing some fulfillment and shipping as well, and we're also allowing it to cross-sell across a whole bunch of different new channels. And so, over time, if you zoom out, in my view, I think it's simple. Well, Shopify is building a retail operating system, but the role that we play in the lives of every different merchant on platform is unique, which makes it more challenging to explain it in a fortune cookie type explanation. And I think that creates some confusion in the market. So people think, well, Shopify is only for small businesses. Well, anyone that says it's only for small businesses, like you should look at our top 100 merchants, they are doing they are, I think, some of the most important brands.

Yeah I can tell you the two companies that I mentioned Away and Ritual I'm very familiar with them and for you know I remember when Ritual left it was several years ago and it generally was around product and I'm glad we're going to talk about product I think what you said was a great segue into product and as a Shopify user And you know, Nick is a Shopify user. I think we've both felt frustration. Well, let me start by saying first that neither Nick nor I would be where we are today without Shopify. And so when we say this, when I say this, I come from a place of love and care and support.

But before you do, I mean, the one thing that I think is important is that it is easier to build software that does everything for everyone. It is far more difficult to create software that is opinionated to the point where getting started, it's easy, it's simple, it's almost a delight to start a business on Shopify. But that same codebase as you scale and you're doing billions of dollars of sales and you need things like cross-border tax compliance or some sort of crazy subscription model it also works as well. And so part of the challenge that we have and it's the challenge that drives us more than pretty much everything else is how do we make software that is so good for that person that has the idea in the shower but also good enough that American Girl can use or Spanx can use or any of these Rebecca Minkoff can use as well and that's where it becomes quite challenging and in certain times you know we've been pulled into directions whereby merchants want us to do something and it is not what most merchants need most of the time and so we'll say look we may create some APIs and let third parties build on top of it but if you're a merchant who expects or is used to being delivered something on a silver platter as opposed to reading some API documentation it could be frustrating and I totally recognize that.

And we partner with Avalara for a long time too.

No. Well, hopefully you're not on your own for anything, but I think sales tax in particular is challenging for a couple reasons. One, in 2022, pretty much every entrepreneur's ambition is to be default global, which means that it's for every merchant on the platform, their version of sales tax compliance or their version of sales tax remittance is very, very different. But, you know, I read your 10K, 55% of your stores are US-based.

Okay. So now that means that the other 45% are not and need a bunch of other things as well. I think on the tax thing we can do better there. There's no question about it. In fact, one of the reasons I want to come on the show is to actually hear from you and I know we user generated a bunch of you know like a lot of these questions came from Twitter and stuff. I want to know what people feel are deeply missing. And I also want to feel like there's not going to be an easy solution. Yeah, we're gonna just get a build that's gonna be really really simple. But partially like what I want to come back with to the team and say, 'Hey, look, the community of people that really use Shopify that are sort of power users, and I don't mean GMV. I just mean the people that spend most of their time in the admin, in the APIs, in the SDKs, like building stuff on top of Shopify, this is what they want to hear.' So sales tax is one that I think is really difficult because depending on the jurisdiction you're in, it's completely different. Sales tax remittance in a place like Germany is very, very complicated. It's a lot simpler in a place like Canada or even the US. Could we do a better job there? Probably. In that case, there are also if you go to the Shopify App Store and you type in taxes, you will see a variety of apps that do a bunch of different things.

Yeah. So, you're suggesting that actually this is sort of where the playing field is not level because bigger companies have an unfair advantage by virtue of the fact that they're part of a large organization. They can afford accountants. That is exactly where we want to go. Now what I'm not sure about and I need to do some work on this is figure out like why are the things available right now not good enough because there is not just a few apps there's a lot of apps and a lot of third parties that do this exact thing including TaxJar and Avalara so what is missing that is not available through those particular products.

So you're talking about a trigger that says hey you are you're above a threshold.

So there are certain things also that eventually I think just like should get easier. Selling cross-border should get easier. We talk about that a little bit. I think tax the sort of the tax concept should get easier. Remember also why it's even more important for us is that a lot of our merchants are first-time entrepreneurs. And I think for a first-time entrepreneur, it's even more difficult to understand this.

Tell me about that. So Moyes, do you want to define what you think repeat?

And then I dig into the numbers and I'm like, "No, no. 45% of your revenue from last month was returning customer revenue. Not 45% of your customers come back and repeat." There's no cohort analysis. And what I love about all the solutions we're trying to provide, Nick and I are trying to provide, are software solutions. You guys are a software business and I hope there's a ton of engineers. Toby wrote this on Rails and you're talking about how important this is. This is a software of like here's a cohort analysis of when do your customers come back.

I'm suggesting this is really cool. This is sort of like getting feedback, this is like a public forum for feedback. This is amazing.

I'm not suggesting that. I'm just saying what you're defining as returning customers isn't as relevant as the way we're defining it. I'm not saying you're...

I think that's the case, but I think that's the tip of the iceberg. Like, have you seen the new apps that have come out for Shopify analytics? Triple Whale and Northbeam. Have you looked at...

They did an amazing job. I think Triple is really cool. We've experimented with it for Firebelly, which is my little side hustle that I use myself. By the way, one of the reasons that I started Firebelly T was for this exact reason that it's one thing for me to actually be in the company, present the company, talk to the world about the company, but actually using it as a user. So, we are now... we'll get to fulfillment and logistics later on, I'm sure, but one of the reasons that I wanted to do this was I wanted to dog food everything myself. So actually I'm now watching from literally from factory to the end consumer the entire stack of shipping and fulfillment on Firebelly. The only way for me to tell people hey that Shopify logistics can be world class, can help you not have to think about it anymore is for me to actually experience it myself. So the analytics side of things I have not experienced that. I actually find that our analytics gives me way more information than I think I actually need. But what you're suggesting is for some businesses they actually need a different definition of what it is. And so if we're determining, hey, this is what returning customer looks like and they're thinking it's a different definition, that doesn't make it helpful. That's a good piece of feedback.

Yes, I did.