Shopify: Tobias Lütke. How a snowboarder built a $150 billion business (2019)

Transcript from https://podmenti.com/t/f0da5892d232a350

Hey everyone, so this week we're revisiting one of our absolute favorite episodes from the archive. It's my conversation with Toby Lutke, co-founder and CEO of the e-commerce brand Shopify. Since launching 20 years ago, sales on Shopify have topped over$1 trillion.
But as you'll hear, it all started back when Toby decided to move to Canada from Germany.
and start a snowboarding business.
Here's my conversation with Toby from August twenty nineteen.
Enjoy the show.

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 if 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 st large learning curve.

Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements.
They built.
I'm Guy Roz and on the show today, how a young programmer's ambition to sell some snowboards on the internet grew into Shopify.
A platform that now powers billions of dollars of e commerce.
Every month.
Shopify is an e-commerce software platform that works behind the scenes so that when you click add to cart or buy in an online store,
That transaction is seamless from payment to fulfillment.
And in twenty fifteen, when Shopify went public, many people outside of tech had never heard of it.
But even so, lots of those people had already used it to buy something online.
Even if they didn't know it.
Which in a way
fits the personality of the company's co founder and CEO, Toby Ludkum.
Toby's a low-key guy, the kind of guy who literally rode his bike to VC pitch meetings.
And at a time when Shopify had already raised well over a hundred million dollars in funding,
Toby was still living in a spare room at his in law's house.
to save money.
But before all of that, Toby grew up in Koblenz, 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 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 A D H 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 the 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 was 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 by this wonderful guy, um, he his name's Jürgen Sarr, who's um like fantastic engineer programmer.
Um
And he would have long hair and he was not wearing a suit like you were supposed to.
And uh so like total rabble.
So good that no one could complain, you know, and I just I 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.
That's really when I fell in love with with snowboarding and also
On that same trip met my no 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
programing for who at that point? Yeah, before that was a little startup in in Dortmund, yeah. 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 if I want to 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 moved 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 start up, like remotely. But that was doomed to failure because it the tools weren't there. There was no Slack, there's no, you know
Just email.
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. 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 Cements.
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 kinda taught me what I
Don't want to be a little bit more.
Um it was
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. Yeah.
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.

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 that was about snowboarding. I 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
Maybe using
My technical skills.
To start an Internet business selling snowboards would be no 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 but I needed a work permit 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 and he said
That's gonna take you a while, basically until you get to your permanent 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. 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 skills. 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 also living with at that time. You were living with where? The the Fiona's parents Oh you were living with her parents in Ottawa. In Ottawa, exactly was that uncomfortable?
But this German kid dating their daughter, you're living in their house.
Supportive.
And
Honestly.
Here's the reality. I don't think I 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 in the U.S.
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
He was still the business side.
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 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 inventory, we ran was pretty old school in in that way. We really wanted to build a brand, right? We wanted to build something uh something which we hope would become big.
What did you call it, 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 a 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 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.
You 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 time of emergence of blocking. So i with 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 catalog metaphor. Right.
But if 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.
I try to explore
My new city of Ottawa by just uh
Taking random buses and walking onto the phone and 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.
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. Trevor Burrus 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
But I probably gotta 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 there's been this program 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. Yeah. 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 uh and other s
They just didn't match the way my brain ended up constructing the relationships that make up software. And so um Ruby was this thing I I sometimes played with. Open source. And it 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 use Ruby? Because that would be

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 Snowdab about two and a half months later.
So fast.
It was really good technology. And and I mean
I also admit I probably spend sixteen 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.
When I meet uh Shopify customers, I often ask them like Hey w 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 cellphone told that we had an order. Uh and um
Yeah, it's a cool day.
And and how are people finding out about about Snow Devil?
I mean we tried to do basic promotions, we do tried flyers and stuff like this. But um
The internet of 2004 was so different, right? Like there was Google Adverts 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. And our biggest problem was keeping inventory um and and and and getting inventory back and we were just basically out of stock the entire time. But we um we had an excellent season. I mean you guys recouped your investment pretty quickly.
Very quickly.
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.
Mm-hmm. 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 uh 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 set 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 Nice had we wanted to start a
Uh a 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
Increasingly 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. Similar story. 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
couple of thousand people who also need this. Right. So if this was like spring two thousand five, at some point Scott and I just said, Okay, skateboards or software?
It was pretty obvious that we should go with software.
While we come back in just a moment, Shopify starts to gain traction, but still needs money. So Toby heads to the Bay Area, buys a used bicycle on Craigslist, and pedals over to Sand Hill Road. Stay with us, I'm Guy Roz, and you're listening to how I built this.
Hey, welcome back to how I built this, I'm Guy Raz. So it's 2005, and Toby and his co-founder Scott just made a huge decision to pivot their snowboarding company.
to a software company. And to help them do it, Toby calls up his friend, Daniel.
Yeah, so um
We decided it's gonna be software.
And I called Daniel, who's a 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. Trying to build this software together. Exactly. At what point do you stop selling snowboards? Around that time. It was basically the summer and we didn't reopen afterwards. You 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 we wanted it.
Putting sharp and simplify together.
Pretty straightforward and
And we went
I think on
And there you go. That take people back and saying, Oh yeah, times were different. You're building this thing.
And really it sounds like from that

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.
And that was a goal.
You know that moment.
W what I described there
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 want to spend my time on is like I
Can't I just have other people have that experience?
That became sort of a guiding principle of how we build a 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. This was like two thousand six, two thousand six. Yeah, two thousand.
Around five feet can 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. But meantime, all these sort of like
People were still
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 have
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, and I'm not going to be able to do it.
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 seems 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.
Well, 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 an email saying, Okay, we're live, we're here, we're ready to go, is that how you launched 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 it wasn't it was a lot. I mean,
You know, think about what an online store is. It's to m 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 monster cost. 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 a reason I will never figure out why I did that. Yeah, and uh we 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 doing my burning. So sort of 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, I

Maybe a hundred active.
Uh.
And uh
In the year two.
Yeah.
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 a local newspaper actually had a uh Shopify store.
created, which we 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 dollars worth of these T shirts on on that day.
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 for 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 cap paying customers.
But
We were going trending towards zero fast. Yeah.
Um like we eventually w 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 realized at some point that
Where the software industry was going is most of the people who
Uh where CEOs were actually
highly technical. Um
Yeah.
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
Yeah, but he was a CEO.
Huh, I was hugely worried about it because
Like I I was I was not in convinced that I should have a CEO job.
But
Someone gave me a
Told me that if a great VC invests in your company.
They would have a network to find the right kind of CEO.
Um I was like okay, well
maybe I really should talk to venture capitalist. And that was a time I I
I traveled to Silicon Valley uh to talk with PCs.
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
Drinks for f
friends and people I knew in Circle is the first time I watched uh came to Circle Valley. Did you have a deck?
Absolutely not. My intention was
To build
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 у бізів to have
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

being too worried about the results. I was more worried about the amount of money it would cost for me to fly to and back area and accommodations and so on.
Where did you stay?
Say a little hostel. Uh hostel. Yeah, yeah, yeah. Like in a bunk bedroom? Yeah, I had a w I had a roommate. Like incidentally, who was also a computer programmer, so it's 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 meets kind of things. And some of us I could answer and and then would would get really interested.
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
What I meant. Yeah.
Usually I would get an equation uh back because 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.

So I had one more.
question I could answer the next meeting. Uh 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 a
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 partially from meeting free by the time I I I kind of 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.
I got term sheets.
And some of them.
Referred me to potential CEOs. I had a bunch of late night meetings of 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 Brothers at some point.
Um now
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 Raz, and you're listening to how I built this.
Welcome back to how I built this, I'm Guy Roz.
So it's two thousand eight.
and the global financial crisis hits.
At this point, Toby Ludka 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 independent.
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 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.
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?

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 turns out humans are not like humans are different. Yes. 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 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 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
Your 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

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

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 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 so part of
Yeah.
So uh I'm around this two thousand nine period.
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. 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 were the ideas. We did advertise.
The uh this took a little bit longer, but we we released a book on um uh
the concept. Um
We just tried different like we sponsored um
Actually a podcast.
You know, like every one of us.
We tracked and it's like uh
directly mathematically trackable. Like we make the money back in like five, six months of 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. Yeah. And so
Then picked up her 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 both to the US of us tests. It was insane. And and do you remember what the valuation was?
Twenty five? Twenty five million dollars. Yeah. At this point, once you t you're bringing in 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 the bat, 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
Bit by bit.
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
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 or birds. 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
quadruple the valuation of a company and put
m much more money into this thing because you can grow this way faster. They they basically said, um they basically saved me from uh from doing a fundraising around. 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. R problems.
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. If you raised a hundred million dollars in two thousand thirteen, you're still nervous about Well I I I was making basically minimum wage, so
Um if if if Shube would have given me more money, I would have probably given it back because I figured Trupefi could use it better than I did. So uh yeah, and feeling at income. So that that happens. 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 are 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
Like three hundred employees.
But but in a lot of ways, I mean you're still under the radar, like
Like no one knew who you were.
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? Yeah. And I said, you bought something from Shopify over the last half year. Amazing. 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 just doesn't say Shopify. You don't go to Shopify.com. It's it's it's other people's like it's 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 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 the 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
happen if it just doesn't work. And this was before investments and so on. So we felt it felt a little bit easier to
You can even 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?
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
Be erasing the clock.
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 their 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 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. And um like since we talk 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
Is going from being a builder.
to now being an entrepreneur.
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

Computer software is like a specialized tool on a on a climbing trip.
If I wouldn't have had specialtize 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 vi I wish they would have found, right? Like it takes all these
Vertical walls and turns them into
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 client. 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 us 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.
Um today you are
wealthier than you could probably have ever imagined, and it might be weird to be a
billionaire.
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.
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 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
And what percentage do you think is your
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 I 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.
That's Toby Lutka, co-founder and CEO of Shopify.
And by the way, back when we did this interview in 2019, Toby revealed that he had his own secret side hustle on Shopify.
Uh do you have 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?
Yeah. What do you sell?
Socks, many as my best seller. Yeah.
What's the store called?
I'm not telling you.
Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show.
And if you're interested in insights, ideas, and lessons from some of the world's greatest entrepreneurs, please sign up for my newsletter at guyroz.com or on Substack.
This episode was produced by Casey Herman with music composed by Ramteen Arabli. It was edited by Neva Grant.
This archived episode was produced by Catherine Seifer. Our production staff also include Sam Paulsen, Chris Massini, John Isabella, Alex Chung, Carrie Thompson, Carla Estevez, and Elaine Coates.
I'm Guy Raz and you've been listening to how I built this.