Shopify: Tobias Lütke

Really quick before we start the show, I want to let you know that there are just a few tickets left for the How I Built This Summit supported by American Express. It's happening October 22nd and 23rd at the Yerba Buena Center in San Francisco. It is going to be an incredible event. You'll be able to hear from and probably even meet founders from companies like Away, Slack, Instagram, Spanks, JetBlue, Cliff Bar, Jenny's Splendid Ice Cream, and many, many more. You can get your tickets and learn more about the summit, including how it can help you. Grow your business or build your big ideas. At summit. I also want to let you know about a few how I built this live shows we've got coming up on the East Coast this fall.

Also supported by American Express, we'll be heading to New York on September 10th, where I'll be talking with Christina Tosi of Milk Bar. And then we'll be in Washington, DC on september twelfth with Tristan Walker of Walker Company. You can get tickets and find out more about our East Coast tour at nprpresents.org. So How are you doing as the CEO of the company?

Yeah. Uh n I not good. Uh I mean my team was very, very patient with me. There was a lot to learn. It's a tough it's a it's a very subtle job. You know, wonderful things about computers is when you tell them what to do, they'll keep doing it and they'll do it forever until you stop. Like turns out humans are not like humans are different. Yes. So it was a very large learning curve.

From NPR, it's how I built this. A show about innovators, entrepreneurs, idealists, and the stories behind the movements. They don't. Guy Raz and on the show today, how a young programmer's ambition to sell some snowboards on the internet grew into Shopify. platform that now powers billions of dollars of e commerce.

Every month. So back in August of twenty eighteen, and you might remember this. Kylie Jenner made the cover of Forbes, the issue was dedicated to female billionaires. And Kylie Jenner made her fortune from a cosmetics empire called Kylie Cosmetics. Now when I started to read the article, I was struck by a few things in particular.

Things that just weren't possible even five years ago. For starters, Kylie's billion dollar company? employs just seven full time people. All of the products are manufactured and packaged by a private label cosmetics producer in Oxnard, California. Kylie's PR and marketing team is her iPhone from which she can reach 140 million of her Instagram followers.

And This is the thing that really blew me away. All the sales and fulfillment This is handled entirely by a software platform. called Shopify. Shopify does all the stuff behind the scenes to make e-commerce work.

When you click add to cart or buy It makes sure the transaction will happen seamlessly. If you've bought something online outside of Amazon or eBay, There's a pretty good chance you bought it from a store powered by Shopify. It is now used by more than eight hundred thousand e-commerce companies around the world.

Now within two years Online sales will account for 13% of all retail transactions in the US. So You can imagine this is a big business. Last year alone Shopify processed more than$40 billion in sales for its customers.

The company went public in 2015, and Shopify's market cap is now just below General Motors and Ford. And yet Unless you're in tech or have an online shop. There's a chance you have never heard of Shopify. Which in a way

fits the personality of the company's co-founder and CEO, Toby Lutka. Toby's a low-key guy. He's the kind of guy who literally rode his used bike to VC pitch meetings. And even as recently as five years ago? At a time, Shopify had already raised well over a hundred million dollars in venture capital funding. Toby was still living in a spare room at his in law's house.

to save money. But before all that, Toby grew up in Koblenz in Germany, And as a kid, it was pretty clear to his parents that Toby was bright, but He also struggled with learning. I mean, I got diagnosed with all sorts of learning disabilities and uh it i it was very hard for me to um

Perform well in the tests and so on. And um I don't think I ended up getting a full diagnosis of it, but no, it was pretty clear cut way of ADHD. A D H D I I I grew up with uh dyslexic, um, so uh you know, just reading was hard. Yeah. And it was um It was always a big question about what exactly was going on, but basically I was bored. Back then, um The way the curriculum in Germany was taught, it was really

Basically. He has All these solutions you might find useful later in life. with very, very little time spent talking about the particular problems that those solutions would help you with. And if I don't understand the problem I'm trying to solve.

It's very hard for me to s to learn a solution to a problem. And so that but that just particularly didn't work well for me. So after he finished the tenth grade. Toby realized that school Wasn't the right fit. So he left.

and joined a German apprenticeship program to learn how to become a software engineer. and he ended up starting as an apprentice on a small team at a subsidiary of the German manufacturing giant, Siemens. I found this one team that just seemed really fun. We were sort of in the basement. Um it was run by this wonderful guy. Um his name's Jürgen Star, who's um like fantastic engineer programmer. Um and he would always come on his like BMW motorcycle to work and he would have long hair and he was not wearing a suit like you were supposed to.

And uh so like total rabble. But so good that no one could complain, you know, and I just I imm immediately gravitated to him and his little group of uh rebels. They were working on really interesting things. They were often prototyping new things for customers and so on. And so I wanted to be part of their group. And so Starting with sixteen or rather seventeen in year two of my apprenticeship, I started getting paid to program all day and that's all I did. And you loved it?

I loved it. And I I still love it. It's computer programming is You can you can forget all time around you. Like I can turn everything off if I'm working on an interesting problem. And there's another part of your life which I'm curious how you got into it, which is snowboarding. Right? You were a snowboarder. Did you grow up snowboarding? Did you just

No, my my I mean, my parents had a place in the Alps we often drove to, where it was a five hour drive, and we skied. Yeah. Fast forward a little bit. Um took some friends. We took this um Vacation. Like the Canadian dollar was so low that we decided to go to

To cat, uh to Whistler. This is like two thousand. This is around two thousand. Yeah. Yeah. And um

So this was the first time I said okay. I'm just gonna snowboard, I'm not gonna take skis. Like this is like this has spent all our time there. And That's really when I fell in love with with snowboarding and also On that same trip met my wife. Yeah, how did you this is Fiona, your wife how did you meet her? Just there at the mountain? I mean you meet her on the ski trip and what you say

I'm going back to Germany, but I think Like I think there's something here. Yeah, exactly. I mean we stayed in contact um afterwards and She has said, You know what, I'm I'm done with my bachelor's degree. Why don't I just come to Germany? Her parents must have thought she was nuts. You meet this guy skiing and you're gonna go move to Germany? I I'm I'm I'm perpetually impressed by her parents too. They are the most wonderful people. So she comes to Germany.

Um you are working programming for who at that point? Yeah, before that was a little startup and And what did she do during that year? She ended up getting a job, um editing Academic

Writing. Um yeah, we we lived together for ten months and she said, Okay, well, I need to go back and start my master's program in Ottawa And um she asked me if I wanna come and I said yes. Because you could take what you know and do it anywhere. The reason why I went is because I grew up on

American media. Like everything cool in the world came from the United States. I I always sort of figured I'm go that's where I want to end up. I would like to move. And then you know, you arrive there and you figure out, Oh, you know what, Canada is America for Europeans and uh this this this this is great. So so two thousand two You move to Canada, you're twenty two you're like Whatever, let me try this. What was the job that you

So I I I was working still with uh um people from the startup, like remotely, but that was doomed to failure because it the tools weren't there. There was no slack, I was no, you know Just email contact, right, yeah. What was the startup? It was an attempt at writing an a different browser. Okay. But it's sort of I basically ran out of the clock. It was everyone we we knew it wasn't gonna do anything. It uh people were starting to leave. We're talking, like after the dot com crash. Well that's I'm wondering. I mean, you're twenty two, twenty three at this point.

Was any part of you nervous like I'm in Canada, I'm living with this woman, like I don't really, you know, know what I'm I'm gonna do with my life. Like were you feeling any anxiety to just like get something stable? I hi it was. I would be lying if I say I wasn't. Um I I knew I had

Very valuable skills. I could always do more of a thing I I was doing recently or was doing four semen. I was just hoping I kind of didn't have to in in in in some way. To work for a big company. Yeah. Why? Like working for Siemens has been Probably

One of the most important things I've ever done in my life because it kind of taught me what I sh don't want. Um In so many ways. a strange company culture in the way that It felt exceptionally mistrusting of everyone, right? Like even you know, fairly strict dress codes, which is basically

A company saying hey, we don't trust. You guys to dress yourself. And it was there was so much of that, which just felt wrong. Um Twenty year old Toby would not Have a career there. Mm-hmm.

And so um Over time I was It's up in Canada, we are in Ottawa, very cold place in the winter. Nine months out of the year you basically eight months out of the year. It's six months. Six months. It might feel like nine months. Okay But You can't run a strategy of waiting for summer, you really have to do something with the winter. Um

And uh For me, there was go to hills and snowboard, and I got increasingly into that. And as I do, I researched everything there was about snowboarding. I I wanted to know every option that existed and build these big spreadsheet of every technology that you can use to build a snowboard. And um At some point it it clicked and um That maybe using

My technical skills. To start an Internet business selling snowboards would be a way to do it. Like I I did fun small local company that I I was

actually really interested in working for but then I went to the basically to sign the papers and and one of the topics that came up was the topic of a work permit. Which I like found out at this point that I needed a work permit to to to to you were not legal. I well I was allowed to be there because I was under in the process of getting a permanent residency. Okay. I wasn't illegal in the country, but my status didn't give me work permit. Right. And um I I talked with a a friend of family an employment lawyer and he said That's gonna take you a while, basically until you get the appointment residency too. Until you get this. But just so you know, you can start a business. So you could not go work for this company, but you are were

You could st essentially that was your only option. But basically was my only option. Like I I could try to work remotely again for a German company or something like this, oddly enough, that's okay. But um I couldn't work for a local company and so what I ended up doing is uh I use my technical. I was thinking of setting up some online store software because I figured we that would exist and then uh use that as a way to sell snowboards. Sell snowboards, make money while snowboarding, hopefully and uh Have a good life. Alright, so there's a guy that you met around this time named Scott Lake, who would go on to become your co founder. How'd you meet him? So Scott worked for that uh company I almost got hired for and and so we kept talking and he was a friend of her family and um he was a friend of Fiona's family. Exactly, exactly. Um who we were living with at that time. You were living with where? The the Fiona's parents in Ottawa, exactly was that uncomfortable?

I mean I mean you're like this German kid dating their daughter, you're living in their house. Supportive. And Honestly Here's the reality. I don't think it could live if

Anyone's parents. But I can live with With Dale and Bruce, they made it incredibly uh easy. They they are just the most kind General. And played massive roles. Like they'll

She was diplomat, um, for the Canadian government. This is your now mother. This is exactly my mother in law. And she ended up being our Like uh after we had an office, which is a bit later, she did all the payroll and accounting and everything and um Both ended up saving a company later. So it's it's entrepreneurship is messy, right? And it's a journey that you Like even if you make the choice yourself to to embark in entrepreneurship.

Kind of everyone around you is coming onto the trip. There's a lot of people who end up mattering a lot. And um I clearly was naive about it. I probably would never have committed my surrounding towards the craziness that ended up the journey of Shopify, but um It worked out.

You're living with her parents. Yeah. You you've got this snowboard idea. You meet this guy, Scott, who's working at this other company, and what does he come to you and say, Hey Toby, I think I think I want to work with you. So so he became like the person I I you know, I was saying, Hey, you know, he has the What I'm thinking and He loved the idea and was super supportive and uh

It was really Scott who ended up developing with the relationships with the vendors and Doing a lot of a business setup and all these kind of things. Classical. Co founder situation. I was looking after the technology and um.

And I guess your startup costs were not incredibly insanely high because you were doing all the code programming and And you had to obviously invest m money in in snowboards. You had to keep some inventory, or would you was the idea to wait until orders came in. No. No, they had the in the inv inventory. We ran was pretty old school in in that way. We really wanted to build a brand, right? We wanted to build something something which we hope would become big. What did you call, by the way? It was called Snow Devil. Snow Devil, okay. Like how are you going to get this out into the world to like make sure people

We're aware of it. So I I mean Step number one was let's go find technology. This was ended up being a really, really important moment and I didn't anticipate it because technology to to like put it up on the internet. And and so we were saying start online first, partly because it it's cheaper. We didn't have the capital for signing a long term lease.

But we wanted to also have a physical store later on. And um I budgeted maybe a week to get the online store online. Um this was my expectation. You would do it in a week. Yeah. And I uh first I started with open source software and again this is two thousand four we're talking about. So I looked at some commercial software but mostly we couldn't afford it. Um and I just got really confused because

I uh in two thousand four, was sitting in front of my computer, absolutely stunned, realizing But we haven't. figured out how to build online store software yet. I'm trying to go back to two thousand four. I mean I would order th books from Amazon and so you needed a way to get photos of the snowboards up on the site. You needed a way for people to search what Snowboards were available. You needed a way for people to pay for the

snowboards and then get a message to you somehow that an order came through that you could fulfill. Exactly. And that wasn't easy to find off the shelf. There's no software that would make this easy, and especially the credit card part. We also had I think novel or at least modern ideas about what how we wanted the website to look. Like we wanted to tell stories, like we every snowboard that we sold we actually took on a mountain. And we would chronicle the way we spent the day. You know, this is also the a time of emergence of blocking. So i vis what we had in mind was something that wrapped Good storytelling around products that people are uh excited about. Like trying to break away from the CS catalogue metaphor. Right.

But it is Much too early. I'm curious when When you and and Scott sort of sat down and said, Yeah, let's do this snowboard company. Let's let's launch Snow Devil.

Like did you need b both of you need to put in money to start this? And how do you remember how much money you needed? Yeah. Um we both put money into the company. I think we both Took twenty thousand Canadian dollars uh and put that' that that's the capital we had. Which was your savings from programming and All I had. Yeah. And um one thing we did is uh We kept our costs really down, right? Like no Rent, no uh.

Uh various coffee shops. Right. I try to explore My new city of Ottawa by just uh Taking rand buses and walking until I found a coffee shop and working from there. And you were living rent free, basically. Yeah.

Alright, so you and Scott are working out of cafes, you both put in about twenty thousand bucks. You start sourcing the snowboards But there's no off the shelf software to actually about the company. So so you decide I'm gonna write this thing. I'm gonna do it.

So exactly. I I was like there's only two ways forward. Like I compromise my idea and do something that's very undifferentiated except for snowboards. Okay. Or I'm gonna fall back on my programming skills. And I would build something that uh

hopefully would be able to power this business. So what what did you f how did you start to build it? I mean I guess there was a I I read about this this sort of language that you found called Ruby on Rails. What was that and why was that so significant? So I had this realization That I probably gonna be the only program we'll ever work on this. So I don't actually have to choose something that lots of people know. I can actually choose

just the best tool for the job. And so I've always there's been this programming language called Ruby, which I just absolutely loved. It was Yeah. People don't usually talk about programming languages like this, but um I find Like I I I really, really love the the process of constructing something in your brain, having this idea. It's it's a little bit also like painting. You have an idea for for something and then The programming language ends up being the mechanism for translating this

perfect picture you have in your head onto a canvas. Right. And so you know if you have like a an amazing landscape and and they give you crayons. It's possible to make a masterpiece of crayons, but it will be it will always be a crayons painting. So so this is sort of in a way Java and others They just didn't match the way my brain ended up constructing the relationships about makeup software. And so um Ruby was this thing I I sometimes played with and in open source Japanese. There's only Japanese uh um documentation around this time for it. Um I learned the language by looking at the source code. And um But the source code is in Lat Latin characters. Latin characters at least, right. But the the instruction manual was in Japanese. But exactly. So uh and all the forms were in Japanese and all these kind of things. And um like I remembered that hey, I have the power to choose the tool. And so why don't I go and

Coding language. this programming language to build the infrastructure that would allow you how long did it take you to actually build the shopfront. I yeah, we launched Not about two and a half months later. So fast.

It was really good technology. And and I mean I also admit I probably spend six hours a day doing that. So um a lot of Coca-Cola and pizza and very unhealthy life style. Uh but I it didn't feel like I was doing crazy hours or anything like this, and I would never recommend anyone to do this. But like There was literally nothing more interesting in the world for to at this time.

So was it pretty quick From the time you launched the website to the time you got your first orders. It took Um Let me let me just double click on this because it's not a good thing.

You know, I was working from coffee shops at this time. I I um I had my first order. I actually remember almost e like everything about that day. This is actually ended up being a really profound experience. Because um I wrote the software. At some point during writing the software, I actually had to type the email that The software would send to me.

You know, I I went to a coffee shop, I opened my laptop. And um It was a real order? from uh a gentleman in Pennsylvania. No one I ever met. And it really felt like

I think that's What makes you an entrepreneur? Like for first time. You sell something or first time someone hires you for when the phone rings or something like this. Because until then you just

Someone who built something, which is already great. It's that moment. And it it's something that's a When I meet uh Shopify customers, I often ask them, like, hey where where were you when you got that first order? And everyone can remember it. And you see your first order and you're thinking, Oh my god, some guy in Pennsylvania is ordering from me. Yeah, yeah. I actually had to walk home to call Scott because I didn't have a cell phone to that we had an order. Uh and um

Yeah, it's a cool day. And and how were people finding out about Snow Devil? I mean we tried to do basic promotions, we did tried flyers and stuff like this. But um Mate of 2004 was so different, right? Like there was Google AdWords was a new product. Right. Those days um it turns out that the minimum bid for an ad for click is 20 cents, and we paid minimum bid for almost every search, which ended up converting on a 500 So you cut you could get the word out through Google ad ads and there were not that many online snowboard shops, presumably. So how did

I it did really well. Snowbots have really good or had really good profit margins on them. Um and our biggest problem was keeping inventory um and and and getting inventory back and we were just basically out of stock the entire time. But the um we had an excellent season. I mean you guys recouped your investment pretty quickly. Very quickly. And then we had some a good amount of savings from from that for um the next phase. And it was just you and Scott, or did you quickly have to grow and bring in other people to help you with inventory and shipping and fulfillment? No, it was just the two of us and we we did um everything. Mostly Scott and brought snowboards to the post office. He was literally driving them to the post office. Yeah, yeah, or biking them. We've figured out a way to I'm imagining like a uh a brown paper wrapped snowboard on his shoulder. Yeah, yeah, exactly. That's exactly the picture. It was fun. It was really fun. Okay, so you're running uh the snowboard business, uh, with Scott, and it sounds like it's going Pr pretty well. You guys are making money and I mean w w what happened next?

Here's what happened. Sales load obviously in spring. And we we we sort of had began the conversations around You know, to make this a really sustainable year around business we need to you know, either skateboards, surfboards, kiteboards or um Do something else. So you were considering hey, it's a spring, maybe we should do kiteboards and skateboards and other things. Yeah. I mean that would have been

The natural thing to do. Again, we Scott and I said we wanted to start a uh location in town. But I really um Doing the development of it. I was now spending

All this time. Like I was tweaking the software. I did not stop programming. I was just Okay, now let me try things, let me make it faster, let me use different approaches. And so

Increasing I got people sending me emails and asking me if I would license Snow Devil to them because they wanted to start something similar. People were saying, Hey, can you just license you you built this this can we use it for our e commerce shop. Right, and exactly because it was it was just different. It wasn't it wasn't a normal grid. It was it told stories, it was clearly modern, it it was sort of web two OE. And um So people were saying I would love to just build my business based on that foundation. I mean amazing. It's it reminds me so much of the story of Squarespace. And Squarespace was essentially started because the founder he couldn't

find a good way to do a blog and a website all in one. And so he basically created his own way to build a website, right? He did it himself. It's similar story here. Yeah. But what I needed was something that helps me In the journey of entrepreneurship from the s from scratch. And I'm not

that different from other people. Like if I needed this at some point. There's gonna be At least Right. So i if this was like spring two thousand five, at some point Scott and I just said okay, skateboards or soft bear.

It was pretty obvious that we should go with software. So eventually I guess you bring in this guy, Daniel Wynand. Um who is he and and why did you bring him aboard? Yeah, so um we decided it's gonna be software. And I called Daniel, who's uh Really good friend, my best friend really, from J who was in Germany and said, Hey Here's what I would like to do and I think I need another half year to build this. Do you wanna spend a summer in Canada and we do this together and like we could work together and that would be fun. So you you and Daniel spend that summer, I guess summer of two thousand five. Okay. Exactly. At what point do you stop selling snowboards? Around that time. We just didn't reopen.

How did you come up with the name Shopify for this software? Uh I was Scott's idea. It was um we we talked about what what we wanted it and um putting sharp and simplify together was pretty straightforward and And we've been I think I'm

Code and fetishisab.com there you go. That take people back and saying, oh yeah, I was times were different. Alright, so you've got Shopify, you're building this thing. And really, it sounds like from that moment from the beginning. You're thinking. This is gonna be our business. We're gonna build the software that will enable people to open e-commerce sites easily and simply. Exactly. It's you know, all there's so much to building business. There's so much complexity in Like if you get an order, how how does the money make it to you? How do you get um where do you get shipping labels from? How do you make a truck show up to actually uh send it anywhere? Like Shopify just does all these things for you. That was the goal. Because um

You know that moment. W when I describe Um I got my first sale. We got our first sale. From that point on I can never get that again.

But that was such a profound moment. Like what I wanna spend my time on is like I Can't I just help other people have that experience? That became sort of a guiding principle of how we build the company. And um I have to imagine that you gotta

at some point raise some money to pay for server space, pay for You know, the kind of the the costs associated with building this technology and then Marketing it.

When did you first get Start to think about So around that time the um Ask friends and family for money. So it's like two thousand six, two thousand six. Around five and we did around like Fiona's parents, anyone you knew with any cats. Exactly. Uh people from my family. I mean um you know, amazing that

People trusted us so much. Um, how much money did you think you needed at that time? Um it was two hundred thousand dollars. Which is a lot of money. Toby, what do you need two hundred thousand dollars for? What would you say? Here's the experience up to this point. This is

Valuable. I know it's valuable because I would have needed it and there are more people like me. asking you for this and what were you saying to them? Were you saying, Hang on, we're working on something, just hold tight, we'll get it to you? Yeah, I I kept a weblog where I sort of talked about my experience building it. I also had a landing page.

Collecting emails, which is now of course, I think.com or And here's like a demo which we pointed people to Snow Devil to explained why we were doing this and um By the time we launched in two thousand six, I think we had four or five thousand emails. So it's not but that seemed like a lot. Um Yeah. Alright, you've got the seed money.

You've got A small office. We ended up taking a very small office space. We actually moved above the coffee shop I got that first sale. We never got internet line, we always used their Wi Fi. Build some desks and uh that's from where we worked.

And it's time to launch. You've got four thousand emails or so from the landing page. And did you just send like a blast of email saying, Okay, we're live, we're here, we're ready to go. Is that how you launch it? Um so just a blast email? And what was the response? So people signed up to just try it out, which was really, really exciting. And frankly there are still business running um on Shopify. But that actually started on that day, which is w remarkable. But it wasn't it wasn't a lot. I mean You know, think about what an online store is. It's to most of our customers. This is their livelihood. Right. If that thing is not there suddenly, um or something goes wrong, the business is defunct.

Which is a huge responsibility and people that are trusting free guys in Canada. And was it free initially? It started out free. The first year We decided against the multiple tier um Because we figured that this It's gonna be so hard to get people to trust us that um making it cheaper would be more likely for people to give it a try. And w the model was I think we

charge like three and a half or three point seven five percent per per sale. It was a complete failure of a business model because what basically everyone who didn't expect to have sales thought it was amazing and people who expected to sell a lot would That was way too much money. We ended up. Switching it a year after launch, actually the night before my wedding for a reason I will never figure out why I did that. Yeah, and uh We grandfathered everyone, but suddenly everyone called us and said, Hey, I promised my so and so that they can use this for free and suddenly it costs money and so I got all these phone calls like during my wedding. So a bit stressful. So you uh so you changed the model in two thousand seven. Still living with your in laws. Now but now married with your in laws.

Um How many um uh people uh do you remember like in those early days, like the first year or so actually signed up? For the service.

I mean it's And I would say like Maybe a hundred active. Uh. And uh

And in the year two. You had a Interesting event. I I mean this is I think the Indianapolis team won the Superbowl around that time and they actually had a Um or or a local newspaper actually had a uh Shopify store.

created, which they started like two days before the Super Bowl and it just was selling T shirts with the front page saying we won the Super Bowl. Like a front like a picture of what the newspaper would look like if I actually happened to win. And then we ended up winning. And they sold uh tens of thousands, I think hundreds of thousands of And that was

Like a stunning experience for us because that was That was so Like someone just had a really good idea in an office and turned it into like a a real economic Yeah. Event.

You know, these events started accumulating, people were kind of Experimenting more with online retail v the the new businesses were starting, instead of people coming to us saying, hey, we want to reduce costs and switch to you? It sounds like it was a slow burn, though. It wasn't like an overwhelming rush. It was like incremental. um uh you know two thousand six, two thousand seven. But you're still At this point you're still operating off of the seed money you raised and any revenue you were generating? Yep. How was the money situation? Were you were was it just self generating? Were you

Um no I no. Um it was We had c paying customers. But We were going trending towards zero fast. Yeah. Um like we eventually were if we I mean we did

Basically run out of money around this time. Um the Luckily met an angel investor who ended up putting I I think four hundred thousand dollars around two thousand seven and that saved us. Um as an individual by the name of John Phillips. I think part of the reason why I invest it is because

His parents were in Ottawa and uh I think he wanted something else to do in town rather than just uh Uh visit his parents, but he also really liked the business. So um he ended up becoming uh our investor and and and basically mentor to the company. It was a very prescient investment'cause I think at that time the company was valued at three million dollars. Around this time, two thousand eight, Scott Lee.

He decides. I wanna move on. Um, what do you what do you remember about that decision? I mean it was Um

He he had the the job of CEO. I think he just f realised at some point that Where the software industry was going is most of the people who Uh where CEOs were actually highly technical. Um Parts of the founding teams.

I think he also realized that I will end up being the person who will care most about this company in the long run and so You know, that was okay. We decided to part ways had to be. I was hugely bored about it because Like I I was I was not in convinced that I should have a CEO job.

But Someone gave me a Taught me that if a great VC invests in your company They would have a network to find CEO. Yeah. And so

Um I was like okay, well maybe I really should talk to venture capitalists and there was a time I I I traveled to Silicon Valley uh to talk of VCs. So just to be clear, this is two thousand eight. You decide I better go to Silicon Valley, find a venture investor, who then can help me find a CEO.

So you fly out there. Uh two thousand eight. Yeah. With a couple appointments. Yeah, a couple of appointments and and and just Drings for f friends and people I knew and circumval came to Circle Valley. Did you have a deck?

Absolutely not my intention was. To build a Um twenty people company. That's what I wanted to do. A twenty person company, super efficient, providing the software to people. Not A massive company.

You just want a sustainable, nice life. Yeah. I I didn't need the money because I didn't think this was a venture I was building. And so I went um not Really? being too worried about the results, I was more worried about the amount of money it would cost for me to fly to back and accommodations and so on.

Where did you stay? Say a little hostile. Yeah, yeah, yeah. Like in a bunk bedroom? Yeah, I had a r had a roommate. Like incidentally who was also a computer programmer, so it was actually great. Um I actually bought uh a bicycle on on Craigslist. And and did you go for a week or two weeks or I was scheduled to be there for a week. I ended up staying I think two or four Two and a half, maybe, um because

What happened pretty quickly is uh you know, I would have my first meeting and again, this is me biking. From the youth house. And uh showing up and they probably already thought who is this? And so I um I would have my f the first meeting and I had my notepad and they would ask me it started out, I I was sort of explaining the business and But then they would ask me some questions about um you know usage and

market size means kind of things. And some of those I could answer and and they would would get really interested. Um But the problem was that very quickly they asked me questions I couldn't answer. Like there were questions around CAC ratios and and and lifetime value and all these kind of things. I would write down the terms. I would then look up Yeah. Usually I would get an equation uh back because if it's some equation that you're supposed to apply to a business. I would then go to our database and get all the relevant data, plug them in the equation, I would get the numbers.

So I had one more question I could answer the next meeting. And and so basically this is how I went through these meetings. Uh I I I I remember that um I mean I ended up getting What kinds of term sheets people actually frankly dream about it, which again I was mostly like I got I got benchmark offers and from that from that visit. Yeah probably from meeting free by the time I I I kinda figured out so people actually really were it. There were some people who were interested. Some people were interested um but all the offers were always conditional.

on moving a company to Silicon Valley. They said we'll we'll support you, you gotta move it here. So I got to office. Yeah.

referred me to potentially CEOs. I had a bunch of late night meetings with people who could take over as CEO of the company. Because I wanted to play with technology. That was what I was good at. That was my identity. So I said okay. Clearly. If you want to be do this now and if I get good numbers, you're gonna give me this later. Let's slow this down. I go back, I talk with My team, I I think about this. And how many people are on your team at this point? I I had someone for customer support. I was doing all customer support initially and then eventually the rest of my team told me my English wasn't good enough. So

By the way, how are you paying people? Uh this was now after we got uh angel investment. I was still wasn't taking salary. Um But your runway was not very long. No. But there was income now. Because there was c income coming in from subscribers. So I go back and then We're talking two thousand eight. So

Lehmann bravas at some point. The vote was falling apart. Rejected. And now you're about to face a global financial crisis. So basically I got this um around this time. Notice that

term cheese will no longer be honored because everyone needs tighten bells and so on. Basically Initially I thought we were toast. When we come back after the break. how the global recession actually turned out to be a huge opportunity for Shopify.

and how Toby Ludka learned to do the job of CEO, a job he never wanted in the first place. Stay with us, I'm Guy Roz, and you're listening to How I Built This from NPR. Welcome back to how I built this from NPR. I'm Guy Raz. So it's two thousand eight. And the global financial crisis hits. At this point, Toby Ludke is the CEO of Shopify.

The VCs, who had been interested in investing, weren't quite so interested anymore. and Shopify didn't have that much runway. The money was running out. But then something surprising happened. It turned out that lots of people who were newly laid off

had lots of ideas about starting their own online stores. People who lost their jobs could Reach for their own independence. And engage in entrepreneurship using Shopify.

And they said Why don't I give this a go? Like I'm gonna try this thing I always wanted to try, right? I'm I'm going like I mean did you see start to see users and and subscribers start to tick up? Yes. You saw you saw a measurable change in two thousand eight, two thousand nine. So you had you you just anticipated a completely different outcome. Yes.

How to Tell people that I can't meet payroll at some point and uh in instead. Basically in two thousand nine. The company now hit first time sort of cash flow neutral. Like we can write out whatever downturn this is. And Start thinking about long term

investment, like infrastructure projects and so on again. Okay, mean time You are the CEO. How are you doing as the CEO of the company? Mm.

Uh I not good. Uh I mean my team was very, very patient with me. There was a lot to learn. It's a tough it's a it's a very subtle job. Uh and You know, wonderful things about computers is if when you tell them what to do, they'll keep doing it and they'll do it forever until you stop. Like it turns out humans are not like humans are different. Yes. So so it was a very st large learning curve. And uh I would say two thousand nine to two thousand ten, I truly held the company back from what I could have And should have probably become.

You held it back. Yeah. What do you mean? Like if if you come from engineering, you know something's always a bottleneck and and the moment you remove that, something else becomes a bottleneck. And it's Same goes for companies. At this point I intentionally slow down the growth of a company a little bit, just Because I needed it to be manageable for me. Um

And I was wavering on the most important decision, which was Is this a lifestyle business? Or is Is this actually a venture? And by this point your revenue is over a million dollars a year. Right. But which sounds like a lot, but uh obviously you've got huge expenses, you've got a growing staff. Yeah. Did you ever get the feeling like, Oh my God, all these

programmers and people are now like working for me and they're depending on this thing and I I don't know if this is gonna work. Guy, it's cr it's crushing. It's a crushing responsibility, right? Like it's um You're responsible for everyone who is there, right? And people have families? People had families, people had kids.

Um my family, like it's not a wealthy family. Like it's it's I mean, people gave me money they didn't really have. Like up till this point it was really just No money from John Phillips. For my family and then

For the last year. For my father in law who gave me money for for to meet payroll. So he's giving you money to meet payroll. And we were living together and had dinner together. I it's it's amazing that this worked. I I mean I I just couldn't believe he was doing that. Because he's like like he was a bureaucrat. This was his savings. Um basically He was putting his Life savings.

into this. Money bonfire. Um Everyone was just unbelievably supportive because they somehow believed in this idea. Did you have trouble sleeping at night?

Uh pretty often, yeah. You know, like So one thing I found about the entrepreneur journey, uh or at least mine It's um You basically exist in two different states.

Where's the state of Things are coming together and I think If we do this, we're unbeatable. And the state of Complete dread and we're dead. We're dead. We're dead tonight.

And um I don't think that actually ever went away. I still to this day have it. The thing that changed is it used to be like A month in one state and a month another. And then eventually it became a week and now a day and now it this can happen. Like I can switch three times before breakfast. But at the bottoms, like the the bottoms are deep. And the implications of what failure means is It just means so much. It changes everyone's life story to a significant degree, right? How did you manage that? Did you go for long runs? Did you take

Prozac, did you what did you do? I um No, I basically just programmed. Which actually often wasn't the best use of my time. Did you talk would you talk to Fiona about it? Your own believable s part of So uh I mean around this two thousand nine periods.

you're like really wavering on this decision, right? Which is like do you build a a nice, stable lifestyle business with Shopify. Or do you try again for for big money, for V C money and make this thing huge. So

What happened? Um So I would look at my bank account uh multiple times a month and just compare, you know, what it was last time. And uh I If it was going up, basically we said okay. Should we invest this in another team member or should we attempt a marketing?

So I finally said okay, I'm gonna save And try five different ideas for marketing programs. We said if any of those meaningfully accelerate our growth. Then I have to go fundraising again and actually go on the clock towards an IPO or to eventual exit.

Held back by not engaging in marketing. And you went to your team and you said. You guys come up with something like that. We need we need ideas. We voted on ideas. We um came up with things and we tried them. Um and what worked. Oh. They all work. Every single one of them. What were the ideas? We did Adverts.

The uh this took a little bit longer, but we we released a book on um uh the concept. Um We just tried to like we sponsored um Actually a podcast. You know, like every one of us. We tracked and it's like these uh

directly mathematically trackable. Like we make the money back in like five, six months of these investments. And then we're like, okay. Now we're not talking about fundraising anymore based on Isn't it cool that we're going after this market? Now we're talking about I have a formula. and I need to plug bigger numbers into the formula. And so then picked up a phone. called uh venture capitalists which really impressed me and

said okay. You were right, this is a venture. I have Data. So you You go back out to Silicon Valley. You convince

A few VC firms. to invest you raised I think seven million dollars. Yeah, so fairly modest I mean it's this this sound like massive numbers to most to the most it was insane. And and do you remember what the valuation was? Like twenty five? Twenty five million dollars. Yeah at this point, once you t you're bringing seven million dollars Those venture capitalists are also buying. A seat on the board. You gotta develop a board you're now Right, and they're you gotta um have regular calls with them. If they email you, they're expecting you to get back to them.

Was that Stressful or overwhelming, or was it helpful? I thought it was very helpful. I've always had a fantastic relationship with all the people who invested in the company, partly because I told them straight off about like saying like I'm not gonna pretend I know things I don't know No and I

I really hope you're gonna help me in this journey. Um I think Our relationship has always been we were all on the same side of a table trying to build this thing and I hope at any ways that I'm fairly quick study, right? And so um

While running Shopify It provided all the kind of situations I needed to to learn the skills I needed. Did you have to I mean was it still five or ten people? Was it still Abo twenty people. Okay. And so all of you guys are really doubling down on marketing, getting the word out.

And what kind of businesses were being launched on on Shopify? I mean the the Internet Direct businesses, new businesses like You know, sunglass business, watch business. New ideas, boosted boards, like uh you know, uh orbits. Um, launchers, yeah, right. Um great examples of a kind of business that that are coming out. And um

Ten months. After the series A. Jeremy and Trevor from Bessema. You are still massively constrained by money.

How about Instead of you spending a bunch of months on fundraising We'll just for Drupal the valuation of a company and put m much more money because you can grow this way faster. They they basically said, um they basically saved me from uh from doing a fundraising round. They said we see the potential here. We're gonna give you fifteen million dollars more.

Yeah, yeah, exactly. It was just so obvious. And this is why I said earlier that I I had the company back because I knew this would happen. You knew it would happen, but you said you had all this anxiety about all these people. So if you knew it What explains the

Freaking out. H. Everything Like all the decisions. And I thought if I also would be sitting on a perpetually exploding rocket ship right now, on top of all that that's happening, I could not deal with it. I needed to take another year of a breever.

Before I could actually Do you have the four things simultaneously? Two thousand twelve I think you finally move out from Fiona's Mm-hmm. Today you've got three.

I I wanna say uh it must have been two thousand fourteen that we actually moved out. Um So it was uh we we were living I think for thirteen years, actually now to think of it. You had raised a hundred million dollars in two thousand thirteen, you're still nervous about Well I I was making basically minimum wage, so Um if if I if Chopiv would have given me more money, I would have probably given it back because I figured Shopify could use it better than I did. So uh yeah, and and feel net income. So that that happened. And presumably your lifestyle wasn't didn't require a whole lot of money. As long as I had my laptop, I was good. Alright, so you guys are

Or balancing. Like raising kids. And this company is really starting to take off. Like end of twenty thirteen, you've got Eighty thousand customers, but

But but in a lot of ways, I mean you're still under the radar, like Like no one knew who you were. Yeah. Like that was by design. So like here my board members always said Shopify was turned out to be a company only Canadians could have built because we said our job is to make our merchants look good. Like this is why we exist.

So we wouldn't put Shopify on the merchant stores. Like at this point These investors we would meet would ask me. You know, like I I'm looking at these numbers. This is a significant company. How come I've never heard of you? And I said, You bought something from Shopify over the last half year. Because basically everyone did. So if you bought something online and uh it wasn't on Amazon and you like the experience, it was Shopify. So It it just doesn't say Shopify. You don't go to Shopify.com. It's it's it's other people's like it's where other people build their home on the internet. And so um we are happy with that. We didn't even put Shopify in our buildings. Um

You didn't put the name Shopify in the building? No. You were in two thousand fourteen, uh you were named the CEO of the year by by the Globe and Mail, which is uh one of the biggest papers in Canada. So that was really one of the first times people e uh even heard of of Tobias Lutka. Uh was that weird for you to'cause like now you're recognized and people like, Oh my god, who's this guy? And You just moved out of your in law's house.

It was pretty surreal. Um It's not something I I was seeking um. Especially because you thought you were a crappy CEO. They're naming you the CEO of the year. Four years before that, you're still struggling to like figure this out. Yeah, I I mean that's exactly you you perfectly summarized my experience. Honestly, it's like it was it was I I we didn't quite know what they were writing, so it w it was a little bit of a surprise to me um what came out of it.

But I love And this is something I and Daniel talked about and Scott, we all talked about this in the early Days of going for beer after a week of programming. What would

happen if it's t just doesn't work. MS was before investments and so on, so we felt it felt a little bit easier to You can you can think and conceptualize these kind of issues. That would be okay. Because you know what?

No matter what, we're gonna learn a lot. This is gonna be part of all of our life journeys and all of our stories. And um We will be able for the rest of our lives to do things we couldn't do if we wouldn't embark on this journey, because there's no way that the residue learning office is not going to be significant for all of us. Um You guys go public in twenty fifteen.

Um You went public because presumably Your investors wanted you wanted to kind of give them return. People had had waited a long time. This is twenty fifteen. People had started giving you money and Two thousand four. Was that the reason why you in public?

I it probably would have become the reason eventually, but not at this point of time because um The investments only happened five years before that. I took the investments knowing that I'm going to

To either go public or s get sold. Um that was the duality of of outcome. And by the way, this is true for every person who sells shares in a company. Just most people don't realize that that's what what's happening. But I I went in into the venture world pretty clear eyed about what it means. And so I really wanted to set up a company to become an independent public company because My private investors have all seen Shopify perform under promise over deliver month after month and board meeting after board meeting. All of them fully trusted the company and and further good performance was not really

Buying us anything new. Today I think there's more than eight hundred thousand Shopify merchants, so there's a good chance that anyone listening We'll have Purchased something on a site that's powered by Shopify. There's a very good shape. Exactly. And um like since we've talked about stats. Um

Here's the most gratifying of all the numbers related to Shopify, and it's actually the North Star of a company. Every fifty two seconds. Someone has that experience of getting a first sale. Wow. The one which I described. And in so many cases, someone

to now being an entrepreneur. You know it's like There's so few things that you can do that actually change your identity to a meaningful degree, right? And um

This company's heart is really, really with entrepreneurial process and trying to Um make this simpler. What's been so fascinating is that this initial idea behind Snow Devil, the the idea that Being able to write

Computer software is like a specialized tool on a on a climbing trip. If I wouldn't have had specialized tour with me, I would have had to turn around because some walls I just couldn't have overcome. And then What Shopify really is. It's a software we I wish they would have found, right? Like it takes all these Vertical walls and turns them into the

Inclines. Like they're not it's not flat. It's like still hard to build a business. But at no point do you need it's not a technical climate. Exactly. And so because of that significantly more people succeed in building businesses because they are just not these Discouraging experiences which make you give up even though you shouldn't have. And so

What we have found is the best thing we can do for the business of Shopify is find Another one of those things which is an incline and just flatten it as much as we can and every single time we do it. More people succeed and more businesses get created. Toby in two thousand four

You did not even have a work permit in Canada. five years ago you you had moved out of your in laws place Um today I I have to imagine that Shopify is easily the biggest employer in Ottawa, aside from the federal government, the Canadian government. Exactly. wealthier than you could probably have ever imagined, and might be weird to be a

I mean it's Totally crazy. Is there any part of you that could have imagined this? No. Honestly, even now that you talk about this, this sounds crazy to me, right? Uh I probably Try to just not think too much about it. Um

It's Hugely gratifying, but it's also I think the important thing is just that I I I I remind myself how much of this was luck. Um the most amazing workcoming

Wonderful family. Here in Canada. Um to support us along the way. The incredible timing. Of when we started.

Um like this is not a kind of company that could have been started even two years later, right? It needed to be started right then and it need to be ready and good by the time of opportunity around the financial crisis came around. All these things. When we when we went public Um and

Luck is such a major component of the entire journey. So Like why am I the person who ended up You know, winning the lottery five times in a row, I don't know. You um like equations and numbers, so You sort of half answered my last question.

But quantify it for me, what what percentage do you think incredible skill as a programmer and your talent. I think it's uh I don't know. You know what, I can't quantify it. It's it's a huge component. It might uh it uh I would say it's ninety percent.

Luck. Basically all I can do is enjoy it and and Be honest about what happened here and then It's definitely the best idea I've ever had. And I I I hope that I can run this to the end of my career because I think that would be amazing.

It's Toby Ludka. co-founder and CEO of Shopify. Since its launch, the Shopify platform has been used for over a hundred billion dollars in e-commerce sales worldwide. And by the way, Toby has his own little side hustle.

on Shopify. Uh, do you like a secret Shopify store like JK Rowling has like, you know, pseudonyms. Do you have your own like secret shop? Yes, of course. You do? Yep. What do you sell? Socks, mainly is my best seller. Yeah.

What's the store called? Nah I'm not telling you. Thanks around because it's time now for how you built that. And today's story starts about four years ago in Houston, Texas. When Barb Heilman was babysitting her granddaughter Eve,

and was quickly running out of things to do with her. I mean I wanted to take her to Jamboree and I wanted to take her to the park but then I said but wait, I can't really put her in the car seat. And the reason Barb couldn't put Eve in the car seat is because she has arthritis in her thumb. And pushing that big red button to release the seat buckle? It's hard. Yes, it's very hard. I mean it's just I mean, even people that can do it sort of hate it because they have to struggle and it hurts. For safety reasons, it actually takes about nine pounds of pressure to release that red button. So how do you do that if you don't have enough strength in your hand? Well fortunately for Barb, it turns out she had the perfect set of skills to solve this problem. I'm an occupational therapist. Which means her job is to help people with disabilities accomplish daily tasks. So using some pliable plastic that she had lying around the house, Barb made a tool that could help her release the buckle on Eve's car seat. It's kind of a uh a C shaped device. And the upper arm has a peg in the center. So okay, you take this clamp like thing, you slide it under the car seat buckle, you place the peg over the red button, and then you push and you kinda pinch, and that will release the buckle. So a super simple idea that actually worked the first time Barb tried it.

I was pretty excited and honestly just started using it and it was really Rebecca that said, Mom There's probably other people that would like this. Enter Barb's daughter, Rebecca. Hi. Rebecca is baby Eve's mom, and she also happens to have a background in business. I think I said to her, I said Mom. You know, what if we what if we made this and sold it? What if this was a business? And you know, I've always had kinda entrepreneurship in the back of my mind. But neither Rebecca nor Barb knew if they were really onto something. So while Barb kept working on different prototypes to get the clamp exactly right, Rebecca started to poke around a little to do some research. So I actually remember learning about the ABC Kids Expo, one of the largest juvenile product trade shows in the country. And we ended up going

Um it was kind of a last minute decision. So they traveled to Las Vegas to go to this big convention. Oh my gosh, it was it was amazing. It was one of the most, you know, energizing experiences I can remember. People just saw it and thought, yes, that is a need, and that is solving a problem that's in the market. Next came all the traditional milestones, like Kickstarter campaign, finding a manufacturer, and delivering the first orders, but then a not so happy sign of success. Other vendors were starting to copy their device. You know, it's it's kind of a gut punch when you see it. We just both went, Oh, it just It makes you feel just so defeated'cause

You know, you know that they haven't gone through the sweat and the you know iterations and the bucket full of prototypes. Rebecca and Barb did manage to get two patents for their product, and they've been able to shut down some of the knockoffs. And meanwhile, Rebecca says that by going into business with her mom, She has seen an entirely new side of her. Um when it comes to this business, I think my mom you know, is is such a go getter and she's, you know, gets on the phone and she'll call up retailers and you know, she's got the hustle and It's really been a kind of a cool experience.

Rebecca Davidson and Barb Heilman's product is called Unbuckle Me. They're now selling it online and at some major chains like Bye Bye Baby. And since they launched the business two years ago, they've made about$350,000. If you want to find out more about their business or hear previous episodes, head to our podcast page, howibuilthis.nbr.org. And of course, if you want to tell us your story, go to build.npr.org. We love hearing what you're building. And thanks so much for listening to the show this week. You can subscribe at Apple Podcasts or wherever you get your podcasts and while you're there, please do give us a review. You can also write to us at hibt at npr.org. And if you want to send a tweet, it's at How I Built This, I'm at Guy Roz. Our show is produced this week by Casey Herman, with music composed by Ramteen Arablui.

Thanks also to Julia Carney, Diva Grant, Sanaz Meshkinfur, and Jeff Rogers. Our intern is David Job. I'm Guy Raz, and you've been listening to how I built this.

What you see above is a preview of the first minutes. One unlock costs 3 credits and covers this episode forever: full segment and word-level timestamps on this page, plus .txt, .srt, .vtt and word-level JSON downloads, as many times as you like.