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Tobi Lutke, Founder &CEO of Shopify | Core Summit 2019

Tobi Lutke, Founder &CEO of Shopify | Core Summit 2019


My distinct honor to introduce
our next fireside chat. We’d underscore have been
investors in commerce for a long time. And so it’s a real
privilege to have one of the best entrepreneurs
and thought leaders in the commerce
space with us today. Toby Luka and he will be
joined by his own board member and a very well
known business builder and entrepreneur here in Boston. Gail Goodman Gail is
the bragged that you a little bit longer sorry. Gail is the co-founder
and Chief Product officer of pepper lane, which is a
community and a platform that helps enable a new form of
entrepreneurship for moms. She spent 16 years as
CEO of constant contact. And she’s also been one of
the very original members of the community She
is a tech visionary. She’s a great operator,
and it is no surprise that she is sought
out as a board member. And so she serves on
the board of Shopify but also low income
entrepreneurship for all as well as mass challenge. Toby co-founder
and CEO of Shopify a multi-channel international
e-commerce platform. I think Shopify doesn’t
need too much introduction. I would. I would bet that
everyone in this room has either purchased or at least
touched the Shopify software is now being used by over
800,000 businesses across 175 countries. But I think what’s
most interesting to me is that Toby’s it is
a developer in his core. He was part of the core
team that worked on the Ruby on Rails framework and
he’s that continues to contribute to open source
libraries along the way. Yeah, from what I’ve
heard, he even sort of was building the initial
code for Shopify sitting in coffee shops in
Ottawa because he wanted to sell snowboards
online and at one point you face an important
decision, should I sell snowboards or software. And the entire
e-commerce industry is very excited that you
decided to sell software. So please join me in welcoming
Gail and Toby to the stage. Hello, everyone. Woo hoo. Well, just to get us started. We’ll throw a bunch
of questions your way. But Toby legend has
it that you were a little bit of a
reluctant CO, which is not that common, actually. So what made you decide
to take on the role. So initially, I didn’t. Well, I was a CTO on
snowboard business. So I got roped into
this whole thing. And I the my co-founder
focused on what business as after it benefits. What’s not quite a
pivot at some point decided that this wasn’t the
right thing for him itself anymore. And I tried to say. So I inherited this
seat the CEO mantle, which had been really tried to
get rid of by finding someone to who would actually want to
do this because I just really liked technology. So I’ve actually
been probably trying to become CTO of
Shopify for the last 10 years unsuccessfully and
maybe output of at some point. But it was not if the
board has any that. So I think, well, this is
a very healthy mindset. Like I would love to
find someone who cares as much about Shopify as I do. I would love to
find someone who has a clear commitment to figuring
out what the future of commerce could hold for industry. And this excited about steering
the company to QuickBooks software for it at some point. But it’s going to be someone who
is more qualified for the job, and I’m going to be perfectly
happy to head that over at this point. And I’m sure the board. Tell me that the time comes. So I heard one of
your staff tell me that your superpower is
knowing when and how to stretch your leaders. So they grow. So what. What is that superpower. What are you looking for. How do you know it’s the right
moment to grow your team. I think that staff members
are incredibly kind. I think I don’t think
there’s any superpower. I just apply it
like I got I mean. All of us here like
and venomous why are we doing this thing
because it’s exciting right. It’s exciting to go on a
journey that’s exciting. The best thing and
a good honestly is go on a journey surrounded
by friends ideally accomplishing difficult things right. I actually think once you
realize that a really good life lived revolves around being
ideally for the entire time on some kind of journey
surrounded by friends doing difficult things. That’s when you back
into entrepreneurship. Being a really good idea. So then when I was thinking
about this initial business setting it, especially around
the time that we’ve thought about should be do
not ever actually know what’s going to Shopify
that the chance of success was super low. Right but that kind of
didn’t matter because and I remember seeing this back
when we said it’s probably not going to work. But we will learn a
lot, right because it’s going to be difficult. It’s like
sort of in a video game way. This is like an end boss,
which see if you do it. If not try it again. Do something else. You know the central approach. And so I am on this journey. And it’s gone so much
further than I ever could have imagined. And the reason why I’m
so excited about it. Why it’s so much fun is because
I constantly learn new things. And I hold everyone
else to this as well. Like around me
because I think people have so many misconceptions
around how far you can get in your career. People think that speed limits
to how quickly you can advance which you know it comes from. I think education system there. And say, OK, this
year you learn that and everyone learns at the same
pace and you know in reality, it’s incredible what
you can accomplish if everyone just
sort of holds itself to this idea of let’s become
the best version of ourselves. And so when I watch what I do do
do as I see and people sort of start becoming really
comfortable around where they are and maybe it sort
of feels like they veered beyond this past moving train
and they’re somehow looking to get out of the next station. And then I just
want to let them. Because even though
that seems appealing they don’t want to be like
the people who actually got off the platforms and left
they regretted after a while. And so I think that
it’s perfectly OK to take a breather. It’s perfectly OK to slow
down for a little bit. It’s you have to on
these journeys sometimes they turn around
and extend a hand to the people who
might not match it over the particular, the
toll the rest of the team has cleared. But over time just remind them
why this journey is so exciting and have them
invest and to fail. And so let’s talk about your
own journey for a moment. What do you do to develop
your craft as a CEO. We’ll talk about your code in
a minute and how has your like has that changed over time. Do you do different things now
than you did at the beginning when you were first as CEO. Oh, yeah Yeah. I feel like I have a
completely new job every year. And I always look in horror
at what kinds of things I did a year ago because
so how did it develop. I mean, I mean
sort of practically after I got this
royal I got to say I mean, I just realized I have
no idea how to be a CEO or how to. Business was a black box to me. It’s like this was I was 24
and actually more like 26 and then specialized
tech and like I I was I dedicated my
life to this point to become as good at
programming as I possibly could. And I still technology. But it’s literally anything. I was had any business doing. And so I was like, OK about
to figure this out like, what do I do. And I ended up reading
some books, which I chanced on really good
books as a first books to read that had and
just took it from there. I mean, eventually
the good news for me most that I think people
generally underestimate how much the role of a CEO is
actually an engineering challenge because it’s in
so many of the problems are going to be solved
by building systems, and often changing
an environment in such a way that
people frankly, do both kinds of things
that they ought to be doing. And so systems design
architecture a large system understanding they
all kind of part of building a good
technology system as well. And so there was I
found some angle, which I found some
familiarity in the new job. And then from there,
I kind of built it up probably
very much resonates with a lot of the folks
here who are engineers who are now sort of just
starting to found companies and become CEOs. Tina my question nicely,
which is, you know, I think, I’m sure there’s
microdisk decisions every day. But can you tell
us about one or two of some of the most
important decisions that changed the
course of the company and what were some
of your guideposts or how you make those decisions. And perhaps it
comes back to some of your engineering background. Yeah, I mean, sure there were
some key decisions like it like also wrong decisions. So I really think after I
sort of took it this over and my building company. My my goal was to build the
best 20 people the company, I could possibly build right. I just had this idea that
that’s sort of a size, which just might be manageable. If my fake business goes. And so it took me way
too long to understand that giving bishop if I was
And so this was not 2010. So at some point prove recession
sort of a Lehman Brothers recession kind of thing. B actually became
profitable because at this point was quite good. People in some cases replaced
more expensive software the Shopify and some
people lost their jobs and attempted entrepreneurship
using Shopify. And then it took me a
long time to understand that this was actually a venture
that can be really accelerated. I wasn’t so sure until this
point in the specific way how I found out is I saved
some money and used it, it put it in $4, which we
all kind of grand growth experiments with. And I said that if any
of them would work, then I’d really go to
venture capitalists and get money so that
we can do more of that. And then all four books. And then it was pretty obvious. So it wasn’t I didn’t have
to be a genius to make a broad choice at this point. So in general, I
think that’s I mean, how do you make good choices. It’s like it’s such a big topic. How to compress I mean
good choices are made. So all hard choices are made
in the face of some ambiguity. Right which really leads but
by way, that same herself like. But here’s why. You become good at
writing software. It’s actually not
about programming. It’s about understanding
the problem correctly. You spend about 90% of your time
researching like understanding. Like talking to
four people you’re trying to create a solution
for you biochemically change your brain to appreciate
the entirety of the domain in such a way that even
the people who are then going to use the thing have
no idea about like that’s good stuff engineering. And then you spend
10% of writing code creating user interfaces. And so on and solve the problem. I would say the
ratios are different. I don’t think that’s
the right degree. But once you understand
a problem to like 70% I think it’s time to make
a choice on something. So if you go into a space
you build the context then you use a context
at Iran and you’ve sort of 70% sure you
understand it to make it short like you’re already doing so
much better than most people because almost everyone. It’s seemingly. And unfortunately, I
wish it wasn’t true. But from my observation it
seems to be true makes a choice. First and then gets the
context to confirm the choice. And then make such
official choice. So if you can avoid
that you’re out ahead. What do you wish someone had
told you in the early days. So my standard answer versus
buy Apple stock by Shopify. I don’t. So yes, I and people
at home told me at exactly the right things
that very exact times and in many cases, there
wasn’t anything right. Because I think if I had some
if some problems would have been like if I would have
avoided some pitfalls then I wouldn’t also not have
gotten the lessons out of them. So I just think
that’s way too much. I actually bought it for
a lot of modern companies. But there’s a little
bit too much snow blowing going on like we have
noticed much more sophisticated accelerator programs. It’s like people are handed
here’s a plausible way to do this thing. But you will soon
have to do, which we didn’t have like it
maybe it around somewhere. But certainly not in Ottawa. And so I think that helped
us arguing for the things that we have to do
from first principles and then just sort of not
automatically adopting anyone else’s
solution to a problem, but rather come up with
an actual hypothesis based on the context test it. And just from there. And I think that’s part of
a reason why Shopify booked. So well, because we had
ourselves to this and BBB OK. Sometimes slowing down. Thanks to do that, I’m going to
hop on this, and then we’ll go. And then we’ll go
to the commerce. So we were talking
earlier today. And you were talking about
bringing onboard folks who grew up outside of Shopify. And the challenge of
transitioning them into your unconventional
way of doing things can you. And you know maybe
this was confidential. So we’ll see whether you
talked about writing a letter to help them kind of understand
the unconventional nature. Can you talk a little bit
about what’s in that letter. It’s so what I
explain is yes, it’s something I’ve seen too
many times happen now. But we bring in people
who are very accomplished and have a lot of
expertise in a certain area and they think that we hired
them because of the things they know. And then they want to
become very effective as soon as possible. So they will do
exactly the thing they know and they
will encounter significant
antibodies in Shopify. So this just it’s not a
winning strategy in most cases. And the reason is that,
especially accomplished people have from one company
to another and have been multiple times
successful slightly modified similar
strategies encounter really good luck with this. My particular company
and the reason for this is because, again
Shopify companies are much more belt way, almost
like living things may be about the species
evolution is actually one thing which I
really encourage people to study like as
wonderful books by Dawkins about how evolution actually
works and other people. And once you do
understand how it works. You will understand
that sort of emergence is actually something that
you can use in your companies. But I digress. Companies have a family
tree very much, especially in technology. In fact, it’s really a
monoculture that exists. That was basically
Fairchild semiconductors at some point and
second valley, which is a typical technology company
that was run in a certain way. And every company, you can
name at least on the west coast is really a branch or a leaf
of this particular family tree of companies. It’s like
semiconductors to Intel and then there’s a Google
branch and Facebook branch. And so on all these
companies, you can move between because
they have the same DNA they are recognizable. And the reason why
they’re recognizable is because the same
people that gets into those literally founded
by the treacherous aid from Ted Todd and so because of
that David Cross pollinated their ideas and you do. OK us over here,
you can probably do them in another place. If evolution is a thing and
it’s location bound Ottawa it’s like the Galapagos
Islands of this particular there’s no cross pollination. We had to be on seedling right. We had to just start
something new and to be fair. You have ideas which
we brought over, but we had to filter out to
us the ideas from the existing tech industry. Never came in the
form of hiring someone who just brought the
entire package with them. They almost came and
business or something you only learned much
later, the information came by us visiting Silicon
Valley or Boston or New York City or anyplace places. And then sitting down
and talking with people. And the thing that
we didn’t realize is that the information you
about getting from there was not actually an accurate
representation of what other companies felt like. What we got was a
highlight reel big. They told us how they
would like to be. And then we took that
back and compared that against our
average Fitch then be hopes to how to the same
standards and by doing so, we actually had a process,
which allowed us to make choices and say, is this
something we want. The way they describe
it is there’s something we can import
what do we need to do in on the fly modifications. And so all of this
process over these years, we’ve built something that
just it is a tech company. But it just it
doesn’t have a lot of the same kind of core
beliefs that are kind of better are undocumented
in these places. And that just sort of
the grammar of the place. So to speak. And so this letter
says this letter says this displays this
different and here’s why. And here’s how it happened. It’s usually takes people
about a year sometimes a year and a half to figure out that
Shopify is actually successful because of its
differences, not to spite of the differences and just
hoping people skip over this and it goes for a
couple of examples. And if it thinks we
value, but it ends on. I think the most
important sentence that people need to understand
once they come to us, which is that no, we did not hire
you because of the things you know did we hire you
because of our confidence that when something
gets difficult. You can figure out what to do. And that’s incredibly
liberating because once people realize this and
internalize this and understand what we mean about
this sort of humility. But also belief that things can
be figured out you can show up. They really you don’t need
to have all the answers. Like I don’t know is actually
one with the most value tendencies in our company
maybe hold ourselves to being much more
like an idea factory. We have good ideas. And so overall adjusting
to that is tricky. But it’s also completely
intoxicating for people who manage to make the
transition because it’s a wonderful way to the
other just to build on that. I think that’s fascinating. And I think we think a lot about
how hiring reflects sort of how you build this type of culture. How do you screen for that
specific quality in an. The half hour
interview process is built around sporting
future potential much more than existing skills. And the core part of our
hiring is built around like the recruiter would
sit down to the candidate and they would go for
the life story myths. That’s a big part of it. And people find
that pretty weird. But the trick of
the recruiter to do and they are all trained
in the School of thinking. And that’s a lot of
process like a visit. This is a big part of
success of a company. I think is that as you’re
going through your life story you’re looking for
a specific things. And especially once you find
the right kind of anecdote if you will really, really
dig and finger licking for is something that is wrong. And then b dig into exactly what
did you do like not just you, but part of what team
like it’s what you move. Slate we go. Sometimes down to a
second like like what was how long did it take until
you took and actually be done. It’s not maybe what are
you about the speed. We just want on a standard
to this microscopic level because again, we’re looking for
people who are resourceful who are honest who can think. I had my first
executive assistant and there were 300 people
I tried to hold out as long as possible. And the person I hired
the reason why I hired him because he had a story
about his life story he told me about at some point
he vented Europe only once and that was OK. Why did he go. Like Yeah, I was
a friend of mine. It wasn’t a band
and I helped him organize like the band trip. It’s like, oh, OK. Why did you do that. Just I like doing
this kind of thing. Cool that’s useful. So How’d it go. I was terrible. The bassist didn’t come. So I had been a flight. They had to teach
me the bass lines because I think it’s cool. You’re hired. It’s amazing what you’ll
find like in life stories. But it’s a kind
of a way you just end if the way you do
some things the way you do everything. And so it ends up
being very relevant. I might switch gears a
little, but that’s OK. You know a lot of
us in the room are very interested in the
future of commerce. And we meet a lot of early
stage startups and founders who are interested in the space. But as you look at
the industry and you see many multi-billion dollar
players like Shopify and Amazon out there people wonder sort
of is there is there room. You know what’s going to be. Is there room for
the next big tech software that can disrupt it. So I’m curious you know are
there still opportunities for early stage
startups and where do you see some of
the white space. Oh, yeah. I mean, it’s like we does not
like some kind of industry. It’s kind of entire
economy like it’s a maze. It’s amazing how consistently,
people underestimate you if you just look at it. I mean, we are doing
internet stuff. You read look at the
breakdown of retail sales to e-commerce sales in China. But just for one
market, which didn’t have it, which just
broke differently because of a lack of
initial infrastructure and just like how some
developing countries have much more cell phone
penetration because they didn’t have landlines. Right China is
indicative country of what e-commerce is
at its full maturity. And right now of
Western economies. I think it’s like 16 17%
e-commerce a bit of a lot go up a lot. And this is not was
I’m not small numbers. So tons of opportunity. In fact, probably taking
part in the expansion of the online expansion
of global commerce is probably the biggest
opportunity on this planet. So it’s a fantastic
space to go into. There’s a need a lot
more infrastructure you need a lot more
technology, the way people think about how
big of a situation already exists about
people buying things and how few companies have
access to good logistics. Amazon had to build it for
themselves because but u.p.s. and other car
companies and FedEx is just kind of didn’t build
the thing that e-commerce needs even phobia going
into a but everyone buys most things for a click. And so there’s a massive,
massive misjudgment I think by the industry
observers across what e-commerce will be eventually. And so yes, I think
there’s lots of space. More importantly, I think,
for much more action be it. There’s a lot of
companies like retailers. It’s just even on Shopify
loans $100 billion of sales. So far, and every
single one of us merchants paste pays monthly
for their software off us and every one of them. If you have anything that you
can give them that costs $1 and makes $1 10 at some
reasonable time frame they’ll buy it. It’s as simple as that. It’s so wonderfully
simple in that way. It’s not kind of you don’t
have to convince anyone to change their entire
business around yourself. You don’t have to change. You don’t like yourself that
can make it sale the math. That’s a very compelling
way to sell software. So Shopify is in the process of
acquiring 6 River Systems here in Boston. Just one of the co-founders as
what opportunities does this unleash for Shopify. Why was this an
important strategic move. Kind of where is all that going. So I think the thing
that’s fun about Shopify is beer the institutionally
in extremely dissatisfied the experience that
people have to go through in the process of
building online businesses and this is not
this doesn’t limit. It’s have to just what
we are currently doing. We think the lines that
existed in this industry. But arbitrary based
on engineering comfort almost with
someone decided the best e-commerce offer was
a industry and point of sets up there was a industry. And then logistics like it was
a industry and kind of separated us all into swim
lanes and we’re just playing saying people want to be
entrepreneurs on the internet. And then take these
companies and turn them into $100 billion companies
you know like that. That’s basically
what’s going on. So why happy these
swim lanes and then beats market sized segments
that just bit soft, and it solves the problem. All right, Todd we have
1,000 something engineers in the company. It’s like this is my
15th year in the company. It’s going to take a lot
more to do to get there, but that’s like our
comfort zone is not a good reason for why is it
my web merchants and customers have to re platform and
make it to us same size or have to go and talk
like that entire business by signing up once
on the software. And then at the moment
they get to a scale that they have 10 or
20 or 30 orders a day. Now they have to fly around
the continent and finding warehouses, which are
impossible to locate and then and have contracts, which
are all different now. We want them to at
some point to say, OK, I’m ready for a
truck to show up. You give us products
and distribute them because we have a lead. We can use the data from
across the entire continent. We can forecast demand. And we can make sure that these
products get to your customers in the shortest possible
period of time for good prices. And that is, I think
that is a lot of value. Now, can we do this. Let’s see suddenly
need a lot of help. So thank you very much. 6 river systems for joining us. And that’s something we’re
going to do over the next years because I mean, I might know,
but still was quite successful. And I started it, but
I had to shut it down while building snow. I bought the building
Shopify partly because logistics, which just
took too much time I couldn’t figure out a way to outsource
and use the Free People that can both states. And so in a way, which
I’m for attempts to do is to be tried to build
the perfect software that could fix this. And that can take
in both states. And I started Messing
up what’s doing. So this is part of it. I think we could stay
up here for an hour. But unfortunately,
we’re the final thing between this and cocktails. So Gail, do you to. Sure last question. So you talk about
building 100 year company. What does that mean to you. Why does it matter. And how does it shape how
you operate every day. I think there’s many reasons
for building component companies like, for instance. I mean, just it’s perfectly
good to start a company just to have a like reach
for independence right. And create a better
life job for you. That’s like exactly like
you you’re facilitating and then and helping
lots of people. Some people get
companies to flip right. They have built sort of custom. I’ve heard once about
the company that was built to sell itself
to become Google Slides, you know like perfect. Like here’s the
thing exactly Groupon needed to round
out because you’d have a few of those in
your partner ecosystem, and they exist for sure. And that’s but there’s
nothing bad about it. But I think if you’re not one
of any of those you really have to say. So because everything
changes in decision making. And so I think
business one way I’ll be just making it
super clear internally that under no circumstances do
we want people to go and pull significant future
profits forward at a discount, which
is really the thing that we caught short termism. Right like short termism
doesn’t make sense if you want to make your
decisions in such a way that you happiest the few
decisions looking backwards for a decade or two. And that’s what it means to me
if it looks well and continues doing what it’s doing it would
be an institution that exists to make internal
entrepreneurship available to the broadest
amount of people. And this is important
because a lot of the forces of internet
costs centralization. Right like I mean, we see this
like that’s one social network. One search engine. And so on. And that’s like
to the people who have been around in the 90s
when the internet came to town. That’s really sad. And we actually
thought it was going to be an incredible
mechanism of democratization and participation. And you could do
it put something on the internet
everyone would see it. And in a way like
Shopify is a little bit idealistic about
this kind of thing. Deep want there to
be like millions of businesses Tens
of minutes businesses all across the planet. We want to integrate
every crazy tiny island in the middle of Atlantic
back into a good economy in some meaningful way. And so that takes time. And for that, you have
to be independent, because that is not up to it. That is a mission. But it’s not exactly the
perfect way to make money. You need to figure out
how to build a business model to support that vision
and then negotiate better with all the stakeholders. And I think so far we’ve
done a good job doing this. And hopefully that’s going to
continue for at least two us. 85 Yes. But you’re left and
it is not a countdown. It’s just a milestone. And hopefully when
you get until it gets there will do a
little party and then get right back to being
two and doing 110 flooding out the next 100 years. Hopefully There you go. Well wonderful. Well, great. Thank you both so much. Thank you very
much for having me. We had a special thank
you from Gail for being part of a wonderful journey. So great and happy I am.

3 thoughts on “Tobi Lutke, Founder &CEO of Shopify | Core Summit 2019”

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