It’s hard to imagine a CEO more willing to entertain an abstract idea than Tobias Lütke. The software-as-a-service industry probably lends itself to this quality more than most, given the intangible nature of the product. Even so, the German-born Lütke has a unique ability to carve through the clutter of business concerns to articulate problems and solutions at their essence. This, along with a demeanor that grows more quiet and contained with each passing year in the spotlight, makes it seem at times as if the mind behind Shopify Inc. would prefer to exist purely in the realm of the conceptual. But the company Lütke and his team have built—now with more than 4,000 employees—is a very real and growing force not only in the world of e-commerce, but in the Canadian economy. And as a facilitator and champion of entrepreneurial success, providing the tools to sell products online, it has the potential to make a material difference in the lives of hundreds of thousands of small-business entrepreneurs around the world. All of that makes it fascinating to sit down with Lütke whenever possible, and on this occasion, we spoke in his large and moody office in Shopify’s Ottawa headquarters.
As I recall, after your IPO, you were worried about your employees keeping their minds off of Shopify’s stock price. Since then, the price has gone up over 1,000%. So, how’s that going?
So-so. Periodically I have to remind everyone that we are all here to work on something called the fair market value of a company, which is unknowable. Then there’s also this Wall Street construct called the current stock price, which is trying to guess at the fair market value but is completely unrelated. There’s a rule around the office that if you are caught checking the stock price during work hours, you have to buy Timbits for your team the next day, and I periodically see boxes of Timbits. I actually recently had to buy one. But it’s not that common.
With all its growth, Shopify hasn’t yet posted an annual net profit. (1) I know you don’t care about traditional financial ratios or goals but at what point does showing a profit become important?
I mean, it’s hugely important, because that’s what companies are basically for, at some point. I didn’t expect Shopify to be doing this so successfully for so long. (2) In fact, I think as we passed $1 billion in revenue, we did so with the highest growth rate of any software-as-a-service company ever. We’ve built a trust relationship with the investor base that they agree we can use the money we have in the bank to invest in growth. And I think we’ve been doing this fairly prudently. Shopify happens to be one of those kinds of companies which—we have a gas pedal. It’s a real gas pedal. We can go off it and we’d be wildly profitable. But I think the right mode for the company, and I think the investor community agrees, is to invest in the growth.
You mentioned building trust, and you’ve done that by topping market expectations 16 quarters in a row. What happens the first time you don’t?
[Chuckles] Well, a friend of mine once told me that you’re not really a public company until you miss a quarter. So I guess we really go public then. I’ve managed to avoid this for 16 quarters in a row. Is it only 16? Sorry for a flippant answer. But I mean, this is bound to happen. And we’ll find out. It’s basically a stroke of good luck that it hasn’t happened.
Let’s talk about competition. Shopify mushroomed in a vacant space, to some degree, and now it feels like the space is filling up with competitors. How challenging is the landscape becoming for you?
You’re absolutely right that there was a lack of competition for Shopify. Now, we’re competing with Adobe, Salesforce, SAP—more entrenched, mature companies, especially around our Shopify Plus product. It’s actually harder to build a company with a lack of competition than when one has significant competition. It’s the same as the difference between intrinsic and extrinsic motivation. It’s much harder to be intrinsically motivated to work on your own betterment. Wanting to relentlessly create a better product every day is much easier when you are under threat by some competitor.
So your life is getting easier.
In a way. I can now point and say, “Hey, those guys want us dead, and we clearly don't agree. How do we compete with those guys?” And I don't have to go around making up arbitrary deadlines for things. Increasingly more companies understand what this space is, how to be of value, and how to build good software within it. And either we will be the best ones to do this or we will not. If we are, then we will win the market. And if not, then we won't. I tend to be fairly fatalistic about this. The only thing we can control is the quality of the software. And I think customers are going to get to choose.
You have an interesting dance going on with Amazon. Your software is used in their Marketplace. But your COO, Harley Finkelstein, recently spoke about the danger of allowing a few monolithic players to control commerce, which was obviously a reference to Amazon. Are they a competitor or are they a partner?
I think they are a massive factor in the world of commerce. We are actually partnering across a lot of things with them. Lots of people fulfill their products with Amazon. Lots of people use Amazon’s payment system, and that works really well on Shopify. Lots of our customers sell through Amazon Marketplace. But marketplaces are different from online stores in very meaningful ways. You own your online store. This is your home. On a sale, you make full margin. What you are attempting to do is create new relationships with customers. When you’re selling on a marketplace, you’re not actually acquiring a customer; you are making a transaction. You will not get the customer information. You have no way of contacting the person. You will never hear if people liked your product, if people saw it immediately, how people inspected it. All these things are opaque to you on any marketplace. A lot of people aren’t aware of that.
If Amazon ceased operations, would that help or hurt you?
[Long pause] That’s an excellent question. I think it would actually hurt us. The important thing for the small businesses we represent is that they rely on online shopping becoming a larger part of the total retail experience. Amazon provides convenience especially across all the products that people need—toilet paper, laundry detergent and all these kinds of products. For that, Amazon is unbeatable, and without that I think consumer behaviour would change. The world of buying products you want, from small business boutiques, is on the coattails of purchasing the necessities.
You once said that you’re not motivated by money, you’re motivated by solving problems. One problem is Canada. And—
Why is that a problem? That sounds like an opportunity to me.
Okay. As Shopify expands around the world, what are you learning about where Canada’s opportunities lie, or where our issues lie?
There’s no silver bullet, as you can imagine. Partly it’s cultural. It’s just an unfortunate truth that Canada is, at best, a “go-for-bronze” society. Just in terms of its ambitiousness. This is why these amazing companies are being created and then sell way too early, usually to American investors. I want to find the best Canadians I can and tell everyone, “We are allowed to go for gold. Try to build a world-beating company. If you try, it tends to work.” This is what Canada learned, at least when it comes to sports, with the Own the Podium program. We need an Own the Podium program for the business world. (3)
If somebody wanted to start that program, would you be involved?
Absolutely. I think that would be fantastic.
Something else that’s happened since we spoke last is that you’ve become a multibillionaire. (4) How has your life changed?
Um, not that much. I had a lot of energy in the form of time and attention before, and now I have a third form of energy, although much less potent than people might imagine, which is money. I have to get used to that. I’m somewhat uneasy with money. I never really set out to make a lot of money, and I’m reluctant to think a lot about it.
One thing society expects its billionaires to do is to give some of their money away to causes. Have you thought about what you will do philanthropically?
There’s a couple of causes I’m really interested in, like mental health and computer literacy. But there is a general pattern that I find is unfortunate. There’s sort of the Rockefeller progression: Build an evil empire, a monopoly, take no prisoners along the way, and then rewrite your own story by being exceptionally beneficial to the world. Carnegie did the same. I hope it’s possible to not need to do the two-phase approach. You can build companies that are simply good for society, without the pollution or the negative externalities of monopolistic activities. I’m a systems thinker. I try to think about Shopify inclusive of all its externalities, positive and negative. And I try to design the company in such a way that I simply don’t need, afterwards, to go on a multi-decades philanthropic journey to make up for the damage I might have caused.
Does that mean not giving any money away?
No. I will absolutely give most of the money away. I mean, there's too much to spend. Like I said, it's a form of energy. I will use all sources of energy I have available to help however I can help.
I’d like to tap into the knowledge you’ve gained about entrepreneurship in general. What’s most important to an entrepreneur’s success—is it the idea, money, confidence?
Coachability. Basically the question is, why are you going into this? Do you have a goal? Do you want to make a certain amount of money? Do you want to get a certain status? Or is there something you want to get done? Are you interested in the learning that comes from a journey like this? Are you willing to listen to advisers, suppliers, customers? If you’re coachable, and you have that open mind and you’re going into it to learn, that is by far the biggest predictor of success that I’ve ever encountered. If I could ever find out how to take someone who goes into this with a money objective and convert their mindset into a personal growth objective, I think that would crack the code of entrepreneurship to a very meaningful degree.
1. Last year, it posted a net loss of $64.6 million on revenue of $1.1 billion.
2. Shopify’s software allows retailers to create online stores under unique brands. The platform now has more than 800,000 stores.
3. At the 2006 Winter Olympics—a year after Own the Podium launched—Canada won 24 medals, up from 17 in 2002. At Vancouver 2010, Canada won 26 medals, including 14 golds—more golds than any other country.
4. Lütke holds 55% of Shopify’s Class B shares, and has a net worth of roughly $3.5 billion.
Trevor Cole is the award-winning author of five books, including The Whisky King, a non-fiction account of Canada’s most infamous mobster bootlegger.