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

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 2019. Enjoy the show. So, how are you doing as the CEO of the company? I had not good. I mean, my team was very, very patient with me. There was a lot to learn. It's a very subtle job. You know, one of the things about computers is when you tell them what to do, they'll keep doing it and they'll be sure to have until you stop. Right. Humans are different. Yes. So, there was a very subtle, 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 Raaz and on the show today, how a young programmers 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 2015, 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 Ludcombe. Toby is a low-key guy, the kind of guy who literally rode his bike to VC pitch meetings. But 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-laws house to save money. But before all of that, Toby grew up in Koblen's 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 darkness for all sorts of learning disabilities and it was very hard for me to perform well in the tests and so on. And I don't think I ended up getting a full diagnosis of it, but now it was a pretty clear cut way of ADHD. I grew up dyslexic, so just reading was hard. And it was always a big question about what exactly was going on, but basically I was bored. Back then, the way the curriculum in Germany was taught, it was really basically, here's all these solutions you might find useful later in life, with very, very little time spent talking about particular problems that was 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 learn a solution to a problem. And so that was just particularly didn't work well for me. So after he finished the 10th 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 which just seemed really fun. We were sort of in the basement. It was run by this wonderful guy. His name is Jürgen Saar, he was a fantastic engineer programmer. And he would always come on his BMW motorbike to work and he would have long hair and he was not wearing a suit like you were supposed to. And so it's like a total rabble, but so good that no one could complain. And I just really gravitated to him and his little group of rabbles. Maybe I've worked on really interesting things. They've often prototyping new things for customers and so on. And so I wanted to be part of a group. And so starting with 16 or rather 17 and year two of my apprenticeship, I started getting paid to program all day. And it was all I did. I loved it. And I still love it. It's computer programmers. You can forget all time around you. You just can, 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. Snowboarding, right? You are a snowboarder. Did you grow up snowboarding? Did you just come to it on your own? No, my parents had a place in the Alps speed, often drove to where I was a five hour drive and these skied. Yeah. Fast forward a little bit. Took some friends. We took this vacation. Initially, tried to go to the United States, but then the Canadian dollar was so low that we decided to go to Canada. To Canada, to Canada, to Whistler. It was like 2000. This is around 2000. Yeah. Yeah. And so this was the first time I said, okay, I'm just going to snowboard. I'm not going to take skis. Like this is, like this is spent all our time there. Yeah. And that's really when I fell in love with snowboarding. And also on that same trip met my now wife. Yeah. How did you, this is Fiona, you're welcome. How did you meet her? Just there at the mountain? That's it, right? 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 afterwards and she just said, you know what, 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 going to go and move to Germany. I'm perpetually impressed by her parents too. They are the most wonderful people. So she comes to Germany. You are working programming for who with them? Yeah, before, that was a little start up in Germany. And what did she do during that year? She ended up getting a job, editing, academic, writing. Yeah, we left together for 10 months and she said, okay, well, I need to go back and start my master's program in Ottawa. And she asked me if I want to come. Because you could take what you know and do it anywhere. Yeah, well, 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 always sort of figured that's where I want to end up. I would like to move. And then, you know, your eye fair and you figure out, oh, you know what Canada is, America for Europeans. And this is great. So 2002, you moved to Canada, you're 22. You're like, whatever, let me try this. What was the job that you did there? So I was working still with people from the start up remotely. That was doomed to failure because the tools were in there. There was no slack. There was no, you know, email content. It was an attempt at writing a different browser. But it sort of basically ran out of a clock. Everyone, we knew it wasn't going to do anything. People were starting to leave. We were talking like after the dot-con crash. Well, that's not wondering. I mean, you're 22, 23 at this point. Was it 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 going to do with my life. Like, were you feeling any anxiety that just like get something stable? Hi, hi, boss. I would be lying for say I wasn't. I knew I had very valuable skills. I could always do more of a thing I was doing recently or was doing for Siemens. I was just hoping I kind of didn't have to in some way. To work for a big company. Yeah. Why? Like, the Siemens has been probably one of the most important things I've ever done in my life because it kind of taught me what I don't want. 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 so much of that, which just felt wrong. 20-year-old Toby would not have a career there. And so over time, I was, it's up in Canada. We had an auto, a very cold place in the winter. Nine months out of the year, you basically ate lunch at the year. That's just course. It might feel like that. Okay. But you can't run a strategy of waiting for summer. You really have to do something with a winter. And for me, that was go to hills and snowboard. And I got increasingly into that. And as I do, I researched everything with what's about snowboarding. I wanted to know every option that existed and build these big spreadsheets of every technology that you can use to build a snowboard. And at some point, it clicked and said, maybe using my technical skills to start an internet business selling snowboard. What's the way to do it? An internet business selling snowboards. Yes. Like I did get a job offer from a fun, small local company that I was actually really interested in working for. But then I went to the, basically, to sign the papers. And one of the topics that I can add was the topic of a work permit, which I found out at this point that I needed a work permit. to do it. You were not legal. Well, I was allowed to be there because I was under the process of getting a permanent residency. I wasn't illegal in the country, but my status didn't give me work permit. And I talked with a friend of family in employment lawyer and he said, "Let's go take your while, basically, until you get the permanent residency to until you get this." But just so you know, you can start a business. So you could not go work for this company. You could essentially, it was your only option. But that basically was my only option. Like I could try to work remotely again for Jim Company or something like this, oddly enough, that's okay. But I couldn't work for a local company. And so what I ended up doing is I used my technical skills. I was thinking of setting up some online store software because I figured that would exist and then use that as a way to sell snowboards. That's snowboards make money while snowboarding hopefully and have a good life. All right, so there's a guy that you met around this time named Scott Lake who would go on to become your co-founder, Pajamitam. So Scott worked for that company, almost got hired for and so we kept talking and he was a friend of a family and he was a friend of Fiona's family. Exactly, exactly. We were all too living with at that time. You were living with where? With Fiona's parents. Oh, you were living with her parents in Ottawa. In Ottawa, exactly. Was that uncomfortable? I mean, I mean, you're like this German kid dating their daughter, you're living in their house. It's been a little weird. Amazingly supportive. And honestly, here's reality. I don't think I could live with anyone's parents, but I can live with the Dale and Bruce. They made it incredibly easy. They are just the most kind, genuine and played massive roles. Like Dale, she was diplomat for the Canadian government. This is your mother. This is exactly my mother and she ended up being our after we had an office, which is a bit later, she did over payroll and accounting and everything and Bruce ended up saving the company later. So it's entrepreneurship is messy, right? And it's a journey that you, like even if you make the choice yourself to embark on entrepreneurship, kind of everyone around you is coming onto the trip. There's a lot of people who end up mattering a lot. 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 it worked out. All right. So you are, you're living with your parents. Yeah. You've got this snowboard idea. You meet this guy Scott who's working at this other company. What does he come to you and say, Hey Toby, I think I want to work with you. Yeah. It's snowboarding together. So he became like a person I was saying, Hey, here's what I'm thinking and he loved the idea. I was super supportive and it was really Scott who ended up developing with the relationships with the vendors and doing a lot of the business setup and all these kind of things. I mean, this is a classical co-founder situation. I was looking after the technology and start up a business side. And I guess your startup costs were not incredibly insanely high because you were doing all the code programming and you had to obviously invest money and snowboards. You had to keep some inventory or would you was the idea to wait until orders came in. No, we had the inventory, very ran by pretty old school in that way. We really wanted to build a brand. We wanted to build something something which we hope would become big. What did you call it by the way? It was called snow devil. Snow devil. Okay. How were you going to get this out into the world to make sure people were aware of it? So I mean step number one was let's go find technology. This was ended up being a really important moment. I didn't anticipate it because technology to put it up on the internet. To start it. And so we were saying start online first partly because 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. Okay. And I budgeted maybe a week to get the online store online. This was my expectation. You would do it in a week. Yeah. And I first started with Open Source software and again this is 2004 we're talking about. So I looked at some commercial software but mostly we couldn't afford it. And I just got really confused because I in 2004 was sitting in front of my computer absolutely stunned realizing that we haven't figured out how to build online stores. I'm trying to go back to 2004. I mean I would order books from Amazon. And so you needed a way to get photos of the snowboards up on the site. You needed a way for people to search what snowboards were available. You needed a way for people to pay for the snowboards and then get a message to you somehow that an order came through that you could fulfill. Exactly. And that wasn't easy to find off the shelf. There's no software that would make this easy and especially the credit card part. We also had I think novel or at least modern ideas about what have we wanted the website to look. Like we wanted to tell stories like every snowboard that we saw it 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 it was what we had in mind was something that wrapped good storytelling around products that people are excited about like trying to break away from the CS catalog metaphor. Right. But they were just much too early. I'm curious when when you and Scott sort of sat down and said yeah let's do this snowboard company. Let's launch snow devil. Like did you need book both of you need to put in money to start this? And do you remember how much money you needed? Yeah. We both put money into the company. I think we both took 20,000 Canadian dollars and put that's the capital we had. Which was your savings from programming? It was all I had. There's all your money. Yeah. And one thing we did is we kept our costs really down. Right? Like no rent, no. Like where was your office? Various coffee shops. I tried to explore my new city of Ottawa by just taking random buses and walking onto the final coffee shop and walking from there. And you were living rent free basically. Yeah. All right. So you and Scott are working at a cafe. You both put in about 20,000 bucks. You start sourcing these snowboards. But there's no off-the-shelf software to actually mount the company. So you decide I'm going to write this thing. I'm going to do it. So exactly. I was like there's only two ways forward. Like I compromise my idea and do something that's very undifferentiated except for snowboards. Okay. Or I'm going to fall back on my programming skills. And I would build something that hopefully would be able to power this business. So what did you. How did you start to build it? I mean, I guess there was a. I read about this sort of language that you found called Ruby on Rails. What was that and why was it so significant? So I had this realization that I probably going to be the only program I'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 been this program language called Ruby, which I just absolutely loved. People don't usually talk about programming languages like this. But I find like I really, really love the process of constructing something in your brain having this idea. It's a little bit also like painting. You have an idea for something. And then the program 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 an amazing landscape and they give you crayons, it's possible to make a masterpiece of crayons, but it will always be your crayons painting. So this is sort of in the way Java and others, they just didn't match the way my brain ended up constructing the relationships that make up software. And so Ruby was this thing I sometimes played with. Open source. And it opens source Japanese. There's only Japanese documentation around for this time for it. I learned the language by looking at the source code. But the source code is in Latin characters. Yeah. Latin characters at least. But the instruction manual was in Japanese. But exactly. So in all the forms were in Japanese and all these kind of things. And 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 way more fun using this coding language, this programming language to build the infrastructure that would allow you how long to take you to actually build the shop front. I, yeah, we launched. It's not about two and a half months later. So it was really good technology. And I mean, I also admit I probably spent six hours a day doing that. So a lot of Coca-Cola and Peter and they unhealthy lifestyle. But 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 this time. So was it pretty quick from the time you launched the website to the time you got your first orders? It took, let me just double click on this because you know, I was working from coffee shops at this time. I had my first order. I actually remember almost everything about that day. This is actually ended up being a really profound experience because I wrote the software. At some point doing writing the software, I actually had to type the email that the software would send to me. Yeah. And so, you know, I went to a coffee shop. I opened my laptop and it was a real order from a gentleman in Pennsylvania. No one I ever met. And it really felt like I think that's what makes you an entrepreneur. Like the first time you sell something or the first time someone hires you for an inform ring or something like this. Because until then you're just someone who builds something which is already great. But like it's that moment and it's something when I meet Shopify customers I often ask them like, "Hey, where were you when you got that first order and everyone can remember it?" And you see your first order and you're thinking, "Oh my God, some guy in Pennsylvania is ordering from me." Yeah, yeah. I actually had to walk home to call Scott because I didn't have a cell phone. I told him that we had an order and that was a cool day. And how were people finding out about the best node level? I mean, we tried to do basic promotion. We tried flyers and stuff like this. But the entire of 2004 was so different, right? Like Google Adverts was a new product. Right. Both days, it turns out that the minimum bit for an ad for click is 20 cents and we paid minimum bit for almost every search which ended up converting on a 500 dollar snowboard. So you could get the word out through Google Ad ads and there were not that many online snowboard shops, presumably. So how did snow devil do as a business? It did really well. Snowboards have really good or hat, really good profit margins on them. And the biggest problem was keeping inventory and getting inventory back and we were just basically out of stock the entire time. But we had an excellent season. I mean, you guys recouped your investment pretty quickly. Very quickly. And then we had some good amount of savings from that for 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? It was just for two of us and we did everything. Mostly Scott bent, brought snowboards to the post office and he was literally driving them to the post office. Yeah, or biking them. We figured out a way to put them there. I'm imagining like a brown paper wrapped snowboard in a shoulder. Yeah, exactly. That's exactly a picture. It was fun. It was really fun. Okay, so you're running the snowboard business with Scott and it sounds like it's going pretty well because we're making money and I mean, what happened next? Here's what happened. The sales load obviously in spring. And we sort of began the conversations around, you know, to make this a really sustainable year on business, we need to, you know, either set skateboards, surfboards, kiteboards or do something else. You were considering, hey, it's a spring, maybe we should do kiteboards and skateboards, other things. Yeah, I mean, that would have been the natural thing to do to go year round. Again, Scott and I said we wanted to start a location in town, but I really, doing the development of it, I was now spending all this time, 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 built this? Can we use it for our e-commerce shop? Right. And exactly because it was just different. It wasn't, it wasn't a normal grid. It was, it told stories. It was clearly modern. It was sort of web too, oh, and so people were saying, I would love to just build my business based on that foundation. I mean, amazing. 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 of them 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 scratch. And I'm not that different from other people. Like if I needed this at some point, there's going to be at least a couple thousand people who also need this. Right. So if this was like Spring 2005, at some point, Swatna, I just said, okay, skateboards or software. It was pretty obvious that we should go with software. What we come back in just a moment, Shopify starts to gain traction but still needs money. So Toby heads to the Bay Area by the used bicycle on Craigslist and pedals over to Sandhill Road. Stay with us. I'm Guy Ross and you're listening to How I Built This. Hey, welcome back to How I Built This I'm Guy Ross. 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 we decided it's going to be software and I called Daniel, who's a really good friend, my best friend, really, from Germany and said, hey, here's what I would like to do and I think I need another half year to build this. You want to spend a summer in Canada and we do this together and we could work together and we'll be fun. So you and Daniel spend that summer, I guess summer 2005. That summer became like a year and a half, but yes, a year and a half 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 a name Shopify for this software? I was a God's idea. We talked about what we wanted it and putting shop and simplify together was pretty straightforward and then we went, I think, on codeady and register with dot com. There you go. We'll take people back and saying, oh yeah, it was times more different. All right. So you've got Shopify, you're building this thing and really it sounds like from that moment from the beginning, you're thinking, this is going to be our business. We're going to build the software that will enable people to open e-commerce sites easily and simply. Exactly. There's so much to building business. There's so much complexity. If you get an order, how does this money make it to you? Where do you get shipping labels from? How do you make a truck show up to actually send it anywhere? Shopify just does all these things for you. That was a goal because you know that moment that I described there, I got my first sale. You got our first sale. From that point on, I can never get that again, but that was such a profound moment. What I want to spend my time on is I can't just have other people have that experience. That became sort of a guiding principle of how we build a company. And I have to imagine that you got to, at some point, raise some money to pay for server space, pay for the kind of the costs associated with building this technology and then marketing it. When did you first start to think about bringing in some money? So around that time, the asked friends and family for money. This was like 2006, 2007. Yeah, 2005. We did around. Like Fiona's parents. Anyone who was in any cash. Exactly. How much money did you think you needed at that time? It was $200,000. Which is a lot of money. And when people said, Toby, what do you need $200,000 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 where more people like me. But meantime, all these sort of 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 kept a web log where I sort of talked about my experience building it. I also had a landing page collecting emails, which is now of course part of it. And the landing page was Shopify.com. And here's like a demo which we pointed people to snow devil to explain why we were doing this. By the time we launched in 2006, I think we had four or five thousand emails. So it's not that seems like a lot. Wow. Yeah. All right, 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. Okay. We actually we never got internet live. We always use their wifi. Right. We bought some desks and 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? Exactly what we did. 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, they are still business running on Shopify. That actually started on that day, which is remarkable. But it wasn't. It was a lot. I mean, think about what an online story is. To most of our customers, this is very livelihood. Right. If that thing is not there suddenly or something goes wrong, the business is defund. Which is huge responsibility. And people were trusting free guys in Canada. And was it free initially? It started out free. The first year, we decided against the multiple tier, um, the cost. The cost, right? Okay. Because we figured that it's going to be so hard to get people to trust us that, um, [BLANK_AUDIO] cheaper would be more likely for people to give it a try. And the model was, I think, we charged like three and a half of 3.75% per sale. It was a complete failure of a business model because for basically everyone who didn't expect to have sales, thought it was amazing. And people who expected to sell a lot would never sway too much money. So we ended up switching it a year after launch, actually the night before my wedding for a reason I will never figure out why I did that. - The night before your wedding, you switched to a subscription model. - Yeah, and we were grandfathered everyone, but suddenly everyone called us and said, "Hey, I promised my son so that they can use this for free and suddenly it costs money." And so I got all these phone calls like doing my wedding. So it's sort of a bit stressful. - So you changed the model in 2007. - Still living with your in-laws? - Yes. - Now, but now married with your in-laws. - Yeah. - How many people do you remember, like in those early days, like the first year or so, actually signed up for the service? - I mean, a couple of thousand accounts, and I would say like maybe a hundred active. - Huh. - And in the year two, we had an interesting event. I mean, this is, I think we're in the Annapolis team won the Super Bowl around that time. And they actually had a, or a local newspaper, actually had a Shopify store created, which they started like two days before Super Bowl. And it just was selling t-shirts with the front page saying, we won the Super Bowl, like a picture of the newspaper, would look like if it actually happened to win. And then we ended up winning. And they sold tens of thousands, I think hundreds of thousands of dollars worth of these t-shirts on that day. And that was like a stunning experience for us because that was so, like someone just had a really good idea in an office and turned it into like a really phenomenal event. You know, these events started accumulating. People were kind of experimenting more with online retail. The new businesses were starting. Instead of people coming to us saying, hey, we want to reduce costs and switch to you. - It sounds like it was a slow burn though. It wasn't like an overwhelming rush. It was like incremental, you know, 2006, 2007. But you're still, at this point, you're still operating off of the seed money you raised and any revenue you were generating. - Yeah. - How was the money situation? Was it just self-generating? Were you? - No, no. It was, we had paying customers, but we were going training towards zero fast. - Yeah. - Like we eventually, we did basically run out of money around this time. We luckily met an angel investor who ended up putting I think $400,000 around 2007 and that saved us. It was an individual by the name of John Phillips. I think part of the reason why invested is because his parents were an auto-ver and I think he wanted something else to do in town rather than just visit his parents. But he also really liked the business. So he ended up becoming our investor and basically mentor to the company. - It was a very prescient investment 'cause I think at that time, the company was valued at $3 million. Around this time, 2008, Scott Leaves, he decides, I wanna move on. What do you remember about that decision? - I mean, it was, he had the job of CEO. I think he just realized at some point that wherever the software industry was going, it's most of the people who are CEOs who are actually highly technical parts of the founding teams. I think he also realized that I will end up being the person who will care most about this company in the long run. So that was okay, we decided to partwise. - Were you worried about it 'cause he was a CEO? - I was hugely worried about it because I was not convinced that I should have a CEO job. But someone gave me, taught me that if a great VC invests in your company, they would have a network to find the right kind of CEO. - Yep. - And so I was like, okay, well, maybe I really should talk to venture capitalists. That was a time I traveled to a Silicon Valley to talk with VCs. - So just to be clear, this is 2008, you decide. I better go to Silicon Valley, find a venture investor who then can help me find a CEO. - Yeah. - So you fly out there, 2008, with a couple of appointments? - Yeah, a couple of appointments and just drinks with friends and people I knew in second most of the first time I was, came to Silicon Valley. - Did you have a deck? - Absolutely not. - My intention was to build 20 people company. That's what I wanted to do. - The 20 person company, super efficient, providing the software to people, not a massive company. You could be as you wanted to have, you just wanted a sustainable, nice life. - Yeah, I didn't need the money because I didn't think this was a venture I was building. And so I then, not really being too worried about the results, I was more worried about the amount of money it would cost for me to fly to the Bay Area and accommodations and so on. - What did you stay? - I stayed a little hostile. - At a youth hostel? - Yeah, yeah, yeah. - Like in a bunk bedroom? - Yeah, I had a roommate. Like, incidentally, we was also a computer programmer, so it was actually great. I actually bought a bicycle on Craigslist. - And did you go for a week or two weeks? - I was scheduled to be there for a week. I ended up staying, I think, two and a half maybe because what happened pretty quickly is I would have my first meeting and again, this is me biking. - From the youth hostel? - From the youth hostel to the downtown of the road. And show it up and they probably already thought who is this. And so I would have my first meeting and I had my notepad and they would ask me, it started out, I was sort of explaining the business. And but then they would ask me some questions about usage and market size and these kind of things. And some of us I could answer and they would get really interested. But the problem was that very quickly, they asked me questions I could not answer. Like there was questions around, cac ratios and lifetime value and all these kind of things. I would write down the terms. I would then look up what we meant. - What they meant? - Usually I would get an equation 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, plug them into the equation, I would get the numbers. So I had one more question I could answer the next meeting. And so basically this is how I went through these meetings. I remember that, I mean I ended up getting the kinds of term sheets people actually frankly dream about which I was mostly like I got benchmarked off as before. - From that meeting? - From that visit. - Yeah, probably from meeting free by the time I kind of figured out. - So people actually really worried of some people were interested. - Some people were interested. But all the offers were always conditional on moving a company to second value. - They all said, we'll support you. You got to move it here. - Yes. - So I got the offers, I got term sheets. And some of them referred me to potentially CEO. So I had a bunch of late night meetings so people could take over as CEO. - Because you did not want to be CEO. - Because I wanted to play with technology. That was whatever's good at. That was my identity. So I said, okay, clearly if you want to do this now and if I get good numbers, you're gonna give me this later. - But eventually, so you say that you're not like this? - The slow is down. I go back, I talk with my team, I think about this. - And how many people are on your team at this point? - There's about just five people. 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? - This was now after we got angel investment. I was still wasn't taking salary. - Which your runway was not very long. - No, it's, but there was income now. It was, it was still burning, but it was, it got slower and slower. - Because it was income coming in from subscribers. - Exactly. - So I go back and then we're talking to POSNate. So, Lehman Brothers at some point. Now the word was falling apart. - Lehman Brothers collapse, markets collapse. 2008, you've got term sheets that you've kind of rejected. And now you're about to face a global financial crisis. - So basically I got this around this time. Notice that term sheets will no longer be honored because everyone needs to 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 Litka learned to do the job of CEO. A job never wanted in the first place. Stay with us, I'm Guy Roz, and you're listening to How I Built This. (soft music) Welcome back to How I Built This, I'm Guy Roz. So it's 2008 in the global financial crisis hits. At this point, Toby Litka is the CEO of Shopify. The VCs who had been interested in investing weren't quite so interested anymore. And Shopify didn't have that much runway. The money was running out. But then something surprising happened. It turned out that lots of people who were newly laid off had lots of ideas about starting their own online stores. - People who lost their jobs could reach for their own independence and engage in entrepreneurship. using Shopify and they said, why don't I give this a go? Like I'm gonna try this thing I always wanted to try, right? I'm going like, - Did you see, start to see users and subscribers start to tick up? - Yes. - You saw, you saw a measurable change in 2008, 2009? - We thought the numbers would fall off a cliff and what they actually did is they started climbing and accelerating. - So you had, you just anticipated a completely different outcome. - Yes, I was ready to think about how to tell people that I can't meet payroll at some point and instead, basically in 2009, 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, meantime, you are the CEO. How are you doing as the CEO of the company? - I don't. I had not good. And you know, wonderful things about computers is when you tell them what to do, they'll keep doing it and they'll do it forever until you stop. Like turns out humans are not like that. - Humans are different. - Yes. So there was a very large learning curve. And I would say 2009 to 2010, I truly had the company back from what I could have and should have probably become. You held it back. What do you mean? - Like if you come from engineering, you know, something is always a bottleneck 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. And I was waving on the most important decision, which was is this a lifestyle business or 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 don't know if this is gonna work. - Guys, it's crushing. It's a crushing responsibility, right? Like it's, you're responsible for everyone who is there, right? - People have families? People have families, people have kids. My family, it's not a wealthy family. Like people gave me money that didn't really have. Up till this point, it was really just your money from John Phillips, from my family, and then for the last year, from my father-in-law, who gave me money to meet payroll. - He was giving you money to meet payroll. - And we were living together and had dinner together. It's amazing that this worked. I mean, I just couldn't believe. He was doing that because he was a bureaucrat. This was his savings. Basically, he was putting his life savings into this money bonfire. Everyone was just unbelievably supportive because they somehow believed in this idea. - Did you have trouble sleeping at night? - Pretty often, yeah. You know, like, so one thing I found about the entrepreneur journey or at least mine is, you basically exist in two different states. There's a state of things are coming together and I think if we do this, we are unbeatable. And this state of complete dread and we are dead. We're dead tonight. And I don't think that actually ever went away. I still to this day have this. The thing that changed is it used to be like a month in one state, in one month and another. And then eventually became a week and now a day and now this can happen. - Out of hell. - I can store three times before breakfast. But at the bottoms, like the bottoms are deep and the implications of what fair your 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 do what did you do? - I, now I basically just programmed, which actually often wasn't the best use of my time. - Did you talk to Fiona about it? - Yeah, she was unbelievably supportive. - Yeah. - So around this 2009 period, you're like really wavering on this decision, right? Which is like, do you build a nice, stable lifestyle business with Shopify? Or do you try again for big money for VC money and make this thing huge? So what happened? - So I would look at my bank account, multiple times a month, I'd just compare what it was last time. - Yeah. - And 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. - 'Cause the money really you needed for marketing at this point? - At this point, it would be a helpback by not engaging in marketing. We got five projects, and you went to your team and you said, you guys come up with something? - We need ideas, we voted on our ideas, we came up with things and we tried them. - And what worked? - All of them. - They all worked. - Every single one of them. - What were the ideas? - We did AdVIRLs, the VistVist took a little bit longer, but we released a book on the concept. We just tried to, like we sponsored actually a podcast. And every one of us, we tracked, and it's like, these were directly mathematically trackable. We made the money back in like five, six months of our business investments. And when we were 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 a formula. And so then picked up a phone, called the ventricables which really impressed me and said, okay, you will write. This is a venture. I have data. - So you go back out to Silicon Valley. You convince a few VC firms to invest. You raise I think $7 million. - Yeah, so fairly modest. I mean, this sounds like massive numbers to go as to the years of us times. - I'm saying it was insane. And do you remember what the valuation was? - Like 25. - 25 million dollars. At this point, once you're bringing in $7 million, those venture capitalists are also buying a seat on the board. You can develop a board, you're now, right? And there you gotta 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 up about like saying, like, I'm not going to pretend I know things I don't know. And I really hope you're going to help me in this journey. And so I think our relationship has always been, we've all on the same side of a table trying to build this thing. And I hope, anyways, that I'm fairly quick study, right? And so bit by bit, while running Shopify, it provided all the kinds of situations I needed to learn the skills I needed. - Did you have to, I mean, was it still five or 10 people? Was it still at that, which came with that $7 million? - I think it was about 20. About 20 people, okay. And so all of you guys are really doubling down on marketing, getting a word out. And what kind of businesses were being launched on Shopify? - I mean, the internet direct businesses, new businesses like, you know, Sunclass Business, Watch Business, you know, just new ideas, boosted boards, like, you know, all birds, you know, great exchanges. - Yeah, all birds launches, yeah, right. - Great examples of a kind of business that they're coming out. And 10 months after the series A, Jeremy and Trevor from Bessima came to me and said, 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 for company and put much more money into this thing, because you can grow this way faster. They basically said, they basically saved me from doing a fundraising round. - They said, we see the potential here. - We're gonna give you $15 million more. - Yeah, yeah, exactly. It was just so obvious. And this is why I said earlier that I helped 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? - I think I was looking at what I had to do, like the HR problems, the systems I had to build, the 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 breather before I could actually deal the first thing simultaneously. - 2012, I think you finally move out from Fiona's parents place. You have a kid at this point. Today you've got three. - Yeah, I think I wanna say, it must have been 2014 that we actually moved out. - So we were living I think for 13 years, actually, now, no, too big of a-- - You had raised $100 million in 2013. You're still nervous about-- - Well, I was making basically minimum wage. So if Shopify would have given me more money, I would have probably given it back because I figured Shopify could use it better than I did. So yeah, and Fiona had income. So that-- - And presumably your lifestyle wasn't in require a whole lot of money. - No. As long as I had my laptop, - The top of that was good. - All right, so you guys are balancing raising kids and this company is really starting to take off. And of 2013, you've got 80,000 customers, but 300 employees, but in a lot of ways, when you're still under the radar, like no one knew who you were. - Yeah, well, that was by design. So my board members obviously, Chubbyfur was turned out to be a company on a Canadian's 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 Chubbyfur on the merchant's stores. Like, at this point, these investors we would meet would ask me, you know, like I'm looking at these numbers, this is a significant company. How come I've never heard of you? And I said, you bought something of Chubbyfur the last half a year. - Amazing. - Because basically everyone did. It's if you bought something online and it wasn't on Amazon and you liked the experience, it was Chubbyfur. So it just doesn't say Chubbyfur. You don't go to Chubbyfur.com. It's other people's, like it's where other people build their home on the internet. And so we're happy with that. We didn't even put Chubbyfur on our buildings. - You didn't put the name, Shopify, the buildings. - Yeah, yeah. - You were in 2014, you were named the CEO of the year by the Globe and Mail, which is one of the biggest papers in Canada. So that was really one of the first times people even heard of Tobias Ludger. Weird for you, because now you're recognized and people are like, oh my God, who's this guy? You just moved out of your in-laws out. - Yeah, exactly. It was pretty surreal. It's not something I was seeking. - But you think 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 figure this out. - Yeah, that's exactly, you perfectly summarized my experience. Honestly, it was, it was, I, we didn't quite know what they were writing. So it was a little bit of a surprise to me. - Yeah. - 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. He said, what would happen if this just doesn't work? Invis was before investments and so on. So we felt a little bit easier to even think and conceptualize these kind of issues. And we said, 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 lives journeys and all of our stories. And we will be able for 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 we're residue learning office is not going to be significant for all of us. - You guys go public in 2015. You went public because presumably your investors wanted, you wanted to kind of give them return. People that waited a long time, this is 2015. People started giving you money in 2004. Was that the reason why you went public? - It probably would have become the reason eventually but not at this point of time because the investments only happened five years before that. And I took the investments knowing that I'm going to be racing the clock to either go public or get sold. That was the duality 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's happening. But I went into the venture world pretty clear 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 bought me after board meeting. All of them fully trusted the company and further good performance was not really buying us anything new. - Today I think there's a good chance that anyone listening will have purchased something on a site that's powered by Shopify. This is a very good chance. - Exactly. And like since we talk about stats, here's the most gratifying of other numbers related to Shopify. And it's actually the North Star company. Every 52 seconds, someone has that experience of getting their first sale. - Wow. - The one that chair described. And in so many cases, someone is going from being a builder to now being an entrepreneur. You know, it's like there's so few things that you can do that actually change your identity to a meaningful degree, right? And this company's heart is really, really the thought of a entrepreneurial process and trying to make this simpler. What's been so fascinating is that this initial idea behind Snow Devil, the idea that being able to write a computer software is like a specialized tool on a climbing trip. If I wouldn't have a specialized tool 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 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. 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 more 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 our 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 2004, you did not even have a work permit in Canada. Today, you are wealthier than you could probably have ever imagined and 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 it, it sounds crazy to me. I probably try to just not think too much about it. It's hugely gratifying, but it's also, I think the important thing is just that I remind myself how much of this was luck. The most amazing, work-coming, wonderful family here in Canada to support us along the way. The incredible timing of when we started. Like this is not a kind of company that could have been started even two years later. It needed to be started right then and it needed to be ready and good by the time for a particular year around the financial crisis came around. All these things, when we went public and luck is such a major component of entire journey. So why am I the person who ended up winning with lottery five times in a row? I don't know. - You like equations and numbers, so you sort of half answered my last question, but quantify it for me. What percentage do you think of this journey as luck and what percentage do you think is your incredible skill as a programmer and your talent? - I think it's, I don't know, you know what, I can't quantify it. It's a huge component. It might, I would say it's 90%. - Luck. - Basically all I can do is enjoy it and be honest about what happened here and then it's definitely the best that you have ever had. And 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. - Do you have a secret Shopify store like JK Rowling has like, you know, pseudonym? Do you have your own like secret shop? - Yes, of course. - You do? - What do you sell? - Socks, mainly. It's my best seller. - Really? - 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 gyros.com or on Substack. This episode was produced by Casey Herman with music composed by Rump Teen Arabele. It was edited by Niva Grant. This archive episode was produced by Catherine Cipher. Our production staff also includes Sam Paulson, Chris Macini, John Isabella, Alex Chung, Carrie Thompson, Carla Estevez, and Elaine Coates. I'm Gyros and you've been listening to How I Built This. (upbeat music)