FULL INTERVIEW: Shopify's Harley Finkelstein on its 100B Quarter

I mentioned also earlier today on the earnings call, Grunes. It's like a three-year-old company started on Shopify. They're now doing nine figures in three years and last week they got acquired by Unilever for a billion dollars.

Yes. Eric, great to be here. Love your show. Really glad we're talking.

I think what you guys are doing is amazing. I think you are taking complicated concepts and making it very easy for people to follow. And I think you are inviting more people to participate in capitalism, which I think is...

Oh this, I mean this is my 43rd quarter. We took the company public 11 years ago. And what I have, I've been helping to lead Shopify for almost two decades. I've been an entrepreneur since I was 13 years old. What I have learned to be true is the most important thing is to build the best company, the best products, great business model, bring on the best team, and everything kind of works itself out. We went public at a billion dollar valuation. It was our market was about a billion dollars 11 years ago, and today it's like $150 billion. We are, I think, the second largest company in Canada, which is where I am right now, one of the largest companies in the world. So, I don't really worry too much about the day-to-day stock swings. What matters more is over time do people really understand the value of Shopify? You know, you mentioned GMV was $101 billion this quarter. That's actually the second consecutive quarter that it's up over 100 billion. Remember GMV is the amount of sales by the merchants on the platform and we're growing that like 35% year-on-year. On the revenue side, we did about $3.2 billion of revenue for the quarter. It's up 34% year-on-year. And we had free cash flow. Shopify is this incredibly profitable company. We made about $476 million which is a 15% free cash flow margin. So that is four straight quarters of 30% or more both revenue and GMV and mid to high teens free cash flow margin. So why am I saying this? Because I think the earnings, the quarterly earnings call for me have just become a way for, it's a storytelling opportunity. It's an opportunity for me to tell our investors, our merchants, people that are following Shopify about all the great things we've done. And I think we're operating right now at this incredible pace. And if you think about, you know, we have millions of stores that use Shopify, but if you were to aggregate those stores just in the US alone, we would be the second largest online retailer in North America. 14% of US e-commerce goes through Shopify. So it's really exciting time for us. It's, you know, we've been doing this now for over 20 years, 11 years since the IPO. And I think this is the best version of Shopify.

Yeah. So first let me kind of say the thing that I think most people are missing here. I think that no group benefits more from AI than entrepreneurs. I think that AI is making entrepreneurship dramatically more accessible and I think it actually is creating this massive accelerant of it and I think we're going to see more entrepreneurs which is good for the world also very good thing for Shopify. Let's start with AI powered shopping. So what we've been doing over the last two years, we've been building the infrastructure that powers AI-driven shopping so that any single merchant that's on Shopify. Think of your favorite brands, whether it's, you know, some of my favorite brands, you're in LA, so Skims is there, Fashion Nova is there, Alo Yoga is there, Baby List is there, Figs is there. But if you think about your favorite brands, generally your favorite brands are powered by Shopify. Whether they're large brands like On Running or Mattel or Birkenstocks or Canada Goose or it's more of these up-and-coming brands, you know, Salish Matters brand, Sincerely Yours, or Good Girl, or Figlia, or Stacked, or 35 Millimeter, some of these more young founders that have built these, have taken their incredible social media platforms and have built huge companies around it. We have millions of stores built on Shopify. In fact, every 26 seconds a brand new entrepreneur gets their first sale on Shopify. So, we've been thinking a lot about where's AI? What are the opportunities with AI? So, first is on the shopping side. We think that AI, whether it's ChatGPT or it's Copilot or it's Gemini, whatever your favorite AI application might be, that it's going to create these incredible personal shoppers. But most personal shoppers, if you go into a fancy boutique near wherever you guys live, they're all sort of commission based. They all kind of want to sell you the thing that they're getting paid for. The best part about the idea of an agentic shopping experience is that the personal shopper, it's merit-based. It doesn't care about, you know, there's no commission structure. It is based on everything you've told me in all of our conversations over the last year or so, however long you've been using these chat applications. If you're, let's say you're planning to go on a camping trip, it's going to show you brands that it thinks merits discovery rather than the brands that, you know, it's not going to show you the big box stores. It's going to show you the things that it knows you're going to like because it has a full context of exactly who you are and what you're into. And so we set up this infrastructure so that, and right now Shopify is the only platform that is powering selling inside of ChatGPT, Copilot and Google. And it's becoming this incredible discovery engine. In fact, orders to Shopify stores from AI searches are up nearly 13x year-over-year. And if you look at new buyers on AI, it's actually occurring twice at the rate than organic search. So it is happening, it's happening much faster than anyone expected. And I think ultimately it's going to mean that smaller businesses are going to get discovered. When you look at the other side of it, which are these merchant tools, these tools to make entrepreneurs on Shopify more successful, we've trained these tools on 20 years of commerce context and data. We have millions of stores on Shopify, hundreds of millions of buyers, billions of products. And so, we've created Sidekick. And Sidekick lives right in Shopify's admin. And when you sign up for Shopify, it becomes effectively your co-founder. But it's a co-founder that is trained on our entire knowledge base on the industry on your business. And it allows, it's paired with really personalized intelligence that allows you to make better decisions. In fact, merchants are totally loving it. Users are up like 4x year-over-year. And I told the story on the earnings call today about an accessory brand that was inside of Shopify Admin doing their work, shipping products and Sidekick noticed that it was getting a lot of attention from a set of influencers on Instagram and it suggested that it set up a social proof page on their online store, basically like a quotes and feedback page. And so the merchant said, 'Yeah, that sounds good,' and then like a minute later it automatically created a social proof page. So that's kind of why I think AI is going to be such a huge advantage for entrepreneurs because it's like all of us have this army of incredible people working for us but we don't have to pay them. They're not on our payroll. And I think that's going to cause a lot more. There's a company I mentioned also earlier today on the earnings call named Grunes, if you know, they're like a supplement company. Anyways it's like a three-year-old company started on Shopify. They're now doing nine figures in three years. And last week they got acquired by Unilever for a billion dollars.

Look, I can't speak for every company, but I can speak for Shopify that the way that we look at our spend on AI is in a way that allows us to keep growing but stay profitable. I think there's no appetite right now in the world for non-profitable big companies. Like those days are long gone. I think today what the market requires is that you grow your top line and you also grow your bottom line. And I think if you're doing both, the market understands and they'll be okay with you spending on these new applications, on tokens, on this new AI spend. That's first. The second thing though is like, look, I'm the child of immigrants. My dad immigrated from Eastern Europe when he was really young. My grandfather spent his entire life selling eggs at a local farmers market to put food on the table. When I asked, my grandfather's no longer around, when I would used to ask him about his business, he would say that he chose entrepreneurship because he had no choice. No one would give him a job. He didn't have education. He had no money. So he kind of had no choice but to do this thing we now call entrepreneurship. He didn't call it entrepreneurship. He called it just running a... selling eggs, surviving, putting food on the table. So but he told me that the barrier to entry into entrepreneurship forever since the beginning of entrepreneurship, since the beginning of commerce and capitalism and the beginning of humanity effectively and whenever trade started there was this barrier which was you had to have money to start a business. When I was 17, I was going to a university called McGill University in Montreal in Canada. My parents had no money. McGill was cheap. That's why I went there. And I started selling t-shirts. And I remember those early days of selling t-shirts. There was a really high risk that it didn't work out. I was in trouble because I was borrowing money for inventory and I was borrowing money for marketing and advertising and I had to rent space in an office. Even for me. My grandfather started in 1956 and I started in the early 2000s. And in both cases, it was difficult to start a business without a lot of money. That's gone. Now, the businesses that are on Shopify that I'm seeing even the ones that are doing billions of dollars in many cases, they started their mom's kitchen table. You look at Ben Francis. You guys know Gymshark? So, Ben Francis, really good friend, great business. I think he's now the youngest billionaire in UK history. Starts in his dorm room on Shopify, sets up a store, it doesn't initially work, sets up another store, doesn't work, sets up a third store, then eventually gets traction with Gymshark, ends up building a billion dollar empire entirely on Shopify. It wasn't only till much later on that he went ahead and raised money. Before that, it was totally bootstrapped. So this ability to start and then scale without any money, that's the flip side of your coin, Eric, that you were talking about in terms of why we think this is such a positive thing for humanity. Now if you're listening to this and you're worried about losing your job, I think you have to think about what can I do to ensure that I am as valuable as possible. Like I don't think AI should, some jobs I think it probably does optimize for and some jobs may become not as necessary but think about you as an individual with an exoskeleton called AI and think of how much more productive you guys are. I'm not going to make an assumption that you guys did a lot of research for this call using AI but you probably used AI somewhat.

But like what I was saying, the fact that you guys can prepare for interviews more effectively because you're using AI. That's the key. That's the whole thing here. And then let me also make one more comment which is that this show that you have built here 10 years ago would have been impossible to build because there were gatekeepers. You would have to go convince Netflix or some television network or XM satellite radio to let you have your own show. You didn't do that. You just started your own show. So, when you combine all these things, I think it's very difficult not to be optimistic about where AI is going.

Oh no, just the opposite. I mean, agents don't bypass Shopify, they route right into Shopify. So you may have seen some recent headlines, for example, that where ChatGPT has now moved to an in-app browser for their checkout. So when you buy something on ChatGPT on OpenAI, it's actually the Shopify checkout that pops up there. And so not at all. I actually think just the opposite. I think it makes Shopify more complicated. Think about this. Like go back to early days of Shopify. Use the Gymshark example. Again, you started by building an online store and you ran your online store as a single channel and then eventually now if you're Ben, you now have a second store. You have a physical store in London on Regent Street. Beautiful store. Now you have two channels, but also now you want to cross-sell on like Instagram. Now you have three channels. Okay, now you're like, you know what? I actually also want to have a wholesale business. I want to sell into some big sport retailers like Dick's Sporting Goods. Now you have four channels. Now you have an agentic, five channels. The more of these channels that pop up that exist, the more complexity, the more overhead you have to think about as an entrepreneur over time, I think the value of Shopify goes up, not down. And what we're seeing with agentic is yes, agentic on its own is neat, but as a merchant, as an entrepreneur, you want to make sure your loyalty program is there, your subscription. I love AG1. I drink AG1 every morning. Great Shopify store. Kat Cole is an amazing CEO. Well, Kat's business is predicated on subscriptions. That's a big part of that business model is subscriptions. You need to have all the primitives of commerce and retail embedded inside of all these chat applications. And that's what Shopify does.

I wear a black t-shirt every day.

This is from a brand called Son of a Tailor who I think is built on Shopify.

Son of a Tailor.

It happens because when you give entrepreneurs superpowers and great technology, these amazing things happen. And I don't know if this is true or not, but I suspect at some point inside of a board meeting at Nike, someone raised On Running or Gymshark or True Classic or one of these, you know, Alo Yoga as a competitive threat. That never used to happen. It used to be that it took you decades to compete with the behemoths and now it's happening so rapidly so quickly. Again it's difficult not to be anything but optimistic right now.

Yeah. Okay. This is, let me give you the cheat code. If you're listening and you want to really build a real business, you want like let's say you're an aspiring entrepreneur, you really want to be one. I think the opportunity is, it's not easy, but it's accessible to anyone. So, yes, everyone wants to be like, everyone's seen Jimmy build Fastables, did the whole thing on Shopify. Super proud of that story. Or Emma Chamberlain create Chamberlain Coffee. Or Emma Greed creates Skims with Kim Kardashian, which is huge. Or Hailey Bieber build Rhode Beauty. Or Kylie with Kylie Cosmetics. Everyone wants those stories. Those are like the big massive blowout stories, billion-dollar brands, all that. What you don't see is that there are tens of thousands or maybe even hundreds of thousands of stores on Shopify that are not doing billions, but have changed the lives of the people that started them. And the way that I would do it is as follows. First of all, find your community. Like Eric, Ian, you found your community with this show. You know who your audience is, what they like. You also probably know what they're wearing. You probably know where they're located. Probably know more about them than most content creators know because you talk to them. You're on social. You're DMing them. I don't know if you guys do meetups but like...

So, you have this advantage which is that you have organic empathy for the people that like your show. What that means is you have an opportunity to effectively mine them and figure out like what do they need that they're not getting elsewhere? What can I create for them of value? And you know the reason I think that Kylie Cosmetics took off or Chamberlain Coffee took off or frankly like Salish has taken off with her new brand which is Sincerely Yours is because I mean I have two daughters they both are obsessed with Salish. They watched Salish go from YouTuber who used to go into cosmetic stores, review cosmetics to then creating her own cosmetic company because she understood that every time she posted a video about someone else's cosmetics, she got feedback that was like, 'Hey, I don't like this.' And she kept taking notes and eventually she architected her own product. That is unbelievable. And now she's selling it direct to consumer. So a couple things happened there. One is she listened to what her audience. So, first of all, first she created content that was of value. Second, she listened to that audience and figured out what they can do. And third, she created something and then distributed directly to that audience. She didn't go to Sephora. She didn't go to some big box store. She just set up a store on Shopify and started selling directly to them. And more importantly, every time she puts out a new line, she gets feedback and the next line gets better and better. And that's the secret. That's the way to do it. It's not to create promotional products just to slap a t-shirt that says Eric and Ian. It's to actually understand what these people who trust you are looking for. And if you do so in a very careful way, I think there's going to be more billion, like call me back in five years from now and quote and hold me to this. There's gonna be more billion-dollar brands built in the next five to ten years from scratch than in the last hundred years. And I think that's going to happen faster than anybody thinks. And everyone's going to watch it and they're going to be blown away by how did this happen? And it's going to be because they just had a closer feedback loop to the end consumer. It's the same thing with like the Rhode Beauty iPhone case.

And everyone's like, 'Oh my god, it's so brilliant.' It's brilliant and it's obvious, but why did Rhode do it? Why did Hailey do it? Because she listened. Because she wasn't trying to do what everyone else is doing. She found a problem within her own audience and community. And she solved that problem. And I think those are always the stories that are the most inspiring to everyone. And it's possible. Like you don't have to have a famous last name or have a lot of money or have some, you don't have to go to business school. You just have to have like some grit because not every day is going to be easy and you're going to have to learn as you go and make mistakes. But if you just stick to it like you end up winning.

Look, I came out of school, I'm a little bit older than you guys. I came out of school in 2008.

That's a great financial crisis. Okay. That's like coming out of school in like 1929, the Great Depression.

And so I came out of school there and a lot of my classmates that I finished college with, they had that sort of doomer kind of vibe to them. They felt like the world was against them. And I never really had that. And I think the reason I never had that was I always cultivated a community, a group of people, a small tribe of other entrepreneurs around me. And when my classmates and the media painted this picture of doom and gloom, I would go and hang out with this group of entrepreneurs. We called ourselves the Young Entrepreneurs Club. True story. It's kind of a lame name, I get it. And we eventually rebranded to Fresh Founders, but we created a group of people that would help each other, would pull each other up when we're having a bad day and remind each other that the world got through 1929 and the world will get through and the world got through 2001, the tech bubble, and we'll get through the great financial crisis and whatever is going on right now, we're going to get through this also. But the people that, you have to build your own personal board of directors and it doesn't have to be like, in 2008 I was graduating law school. It doesn't, the people that I was hanging out with were not other law students or young lawyers. It was like someone who was an entrepreneur in the tech space and someone who was starting a snowboard company and it was someone who was building something in the music space and I just created my own kind of tribe of people that we commiserated together and we helped each other and I would say that is one thing to do. This other thing to do is like okay this isn't a pitch for Shopify but like it is a pitch for entrepreneurship. If you have an idea in the shower and you've had the same idea in the shower for three or four days in a row I want to build this thing. I had this cool concept, something you come out of the shower and then you forget about it. Stop it. The next time you have that idea, go to your kitchen table or go to a coffee shop or go to a park bench and open your laptop and either vibe code it or if you want to build an online store, come to Shopify. Just start and just start building and getting traction and sending the link to a cool product to some of your friends and your family. I promise you the second you get 10 sales, that's all you need, 10 sales from 10 people who you don't know. So, it's not your mom or your aunt or your cousin, but like 10 strangers, you are now an entrepreneur for the rest of your life. And I believe the trajectory of your life will be better and different.

No, no, no. I'm a short guy like I... give you two things that I really love. I ride a motorized skateboard. It's called Boosted Board. I don't even know the name anymore. I think it's like one of the best pieces of technology that I've ever purchased. I live in a city with hills. It's super fun and so I'm excited to see like hardware get much better. Like I don't know if you ever use one of these electric bikes or electric scooters, electric scooter, they're so heavy. And it's hard to carry them around. I'm really excited that hardware is about to, you know, we've innovated on software. We've innovated on AI and LLMs and all this really interesting non-physical stuff. I'm really excited to see more cool physical startups happen where someone has an idea for, you know, the coolest like I don't know, this is such a lame thing, but like I drink my coffee in an Ember mug. The idea that up until my Ember mug, my coffee would get cold and now my coffee stays perfect temperature the entire time because Ember is awesome. It's such a simple thing. But this has made my life better because my coffee or my tea is always at the perfect temperature. So there's some hardware stuff I'm really excited for. But I think as a dad of two daughters, watching my kids toil on an idea, whether they, my kids are very entrepreneurial and so watching how like rather than my youngest daughter is seven like instead of going outside just to do a lemonade stand she'll go outside do a lemonade stand and then five minutes later come inside and say hey dad no one has cash like how do I accept payment I'm going to set up a quick Shopify for you.

I never had that. I was never 7 years old and like in a matter of seconds I was able to accept credit cards. Like this is unbelievable. So the thing I'm most excited about is like imagine anyone and everyone who wanted to or had an appetite to start a business was able to do so. Think of how many of your family members are amazing at like they make something like my grandmother makes amazing beautiful blankets. She made it for all the grandkids. My uncle builds these beautiful wood toys like these children's toys that he does at his workshop. Imagine that people began to think about how to commercialize their hobby. So instead of taking a job you don't like, what if you actually were able to make a living doing the thing you do on nights and weekends? I think it was Bill Gates someone said that like life's work is about finding a way to make money from the things you did between the ages of 13 and 16. But doing that as a living, I think that is about to become a lot more likely to happen.

Yeah. So, look, I love what you guys are doing. I love entrepreneurship. You guys are two incredible entrepreneurs and thank you for having me on.