Transcript
0:00 gonna join us from Shopify Toby come on out what's up we open source it to the fans and they've just gone crazy okay everybody so this is a real honor so this is an incredible
0:32 founder success story just your average everyday CEO founder of an 82 billion dollar public company sitting here so Toby and I met a few years ago his the origin story of Shopify is pretty legendary which is that he was in Whistler snowboarding he met his future wife there Canadian they moved to Germany Toby started a a store to sell the snowboards then moved
1:03 to Ottawa my hometown that's fun I think you're one of the first developers of Ruby actually that really commercialized and and Toby built a website to sell snowboards but then abstracted that started to sell the software that sold the snowboards and fast forward that is what Shopify has become and it's been quite an incredible success story a because you were able to raise a lot of money building a business in Ottawa B because then you took it public
1:34 on the NASDAQ see you got a lot of covet Tailwinds D you had to deal with covet headwinds but then along the way you've really been very transparent and honest about the culture of building companies and some of the mistakes you've made you put out there we're going to talk about those those in a second great but I want to start with more macro because we just had Ray on stage you run a big e-commerce business you
2:01 see consumer spending we know that the consumer is the largest part of GDP so we must have a sense of whether the consumer is turning over we're seeing all the headlines is there a recession is there not hard Landing soft Landing where is the economy from your advantage point yeah so I mean if you have a amazing perspective but I don't think it's a it's a it's a credible witness to an entire economy it's about half a trillion dollar has been
2:28 transacted through Shopify in its lifetime and it is really really fun to do the analysis on on it but like fundamentally the product sold on Shopify are not I've approached people want not for products people need and and I think this is specifically shifts the landscape a little bit what we and also other fun things it's really good for fortifying bad media narratives because hey you know as always it's like
2:58 everyone puts up a chart and says this is the answer and then we get to dig in one level deeper and actually see what other constituent Parts underneath the chart and everything change the story changes so we definitely see people react like we know a recession is going on or at least it changes Behavior but the particular way in which it changes behavior is probably not a fully explored story or outside of python notebooks and companies like Shopify because
3:27 fundamentally what people do is they in most categories they shift one quality level downwards so if you ended up like shopping at like medium spend level you might look for fast fashion afterwards in some cases in our case this means people might drop out of the Shopify ecosystem and go to you know purchase maybe clothing at Walmart or something in some cases at the top of a market like we don't have every lvmh brand on
4:00 Shopify so like people might have purchases there and actually arrive at like a challenger brand and that is on a platform so honestly the numbers actually have are unchanging the Dynamics that make up the numbers are changing from our perspective that's fascinating have you when you think about building the business I think Stripes missions is something like to maximize the GDP of the internet is that roughly your mission as well and I think second to order yes
4:27 but like honestly Shopify prays at the altar of Entrepreneurship of people reaching for Independence and it's it's really like causing entrepreneurship to be a more casual thing rather than this huge like all like decision like but being able to be an entrepreneur in your lunch break so that you can maybe Escape like a career which you chose for the wrong reasons and and your book kind of people like you discover like myself you're the kind of person who really
4:57 can't work for other people and retail and building shops and businesses has been around for a long time thousands of years it's something it is one of the most accessible mechanisms of Independence and as the Internet is just a huge part of the economy now like the ease by which you could start a stand in the bazaar needs to somehow be translated to the digital world and I I mean we talk you guys talk on a plot a lot about
5:28 policy and incentive systems and also important I do think the thing that's missing and sometimes in these conversations is friction like honestly friction shapes the world so much more than like what what law is that or what policy is anyone going to pass to cause more entrepreneurship but if you make it harder you're gonna get less of it and frankly most people in the world work for small businesses it's like depending on where you look 60
5:55 to 80 percent so that seems like an incredibly aligning Mission we're going to maximize entrepreneurship give people Independence a path to escape the drudgery of whatever they may be doing be there be in control of their own lives that's very empowering but some are along the way you had to write this memo incredible I mean incredible memo we are a team and not a family because somewhere along the way your team got distracted from that mission can you talk about what happened
6:24 in that moment and why you had to do it and what what it's like afterwards you're really kind of about that I I so it was internally memo that I wrote that leaked and and apparently struck a chord with a lot of people I think was actually leaked in a con in in package as a cancellation attempt on me which I think backfired was really gratifying and I we've got a number of cancel CEOs speaking yeah yeah yeah next two days
6:55 Brian Armstrong Elon yes well and I mean I think this is a good the good news is like on the other side you come out stronger I think but you know this is a very confused time for 2020 2021 energy period and I I mean everyone want to do something and some if everyone wants to do something people that do something and that something might be a really really really un cool thing which is with lots of
7:22 divisiveness and as we all saw clad in terms that ought to be agreeable like it's it sounded pretty good and frankly I I mean I mean this is maybe not even the topic you're bargaining for but like it's not even I found myself in this weird situation where I'm you know generally agreeing with people's diagnosis of all the things that are wrong around me and definitely disagreeing with literally every proposed way to go about it and
7:52 solving it and so you know like there was a whole lot of distraction and Shopify has always seen itself as a it's not that's also canceled term common carrier right like we had like Elizabeth Warren selling marks selling saying billionaires tears on them and Trump on Baba's side selling you know whatever Trump was saying and I like about that's a big tent company that's exactly what you want right because that's sort of it's a weird idea
8:22 to segment the internet into these various components and so then there was another thing that happened another thing and we had all these slack channels go way past self-healing and like it ended up becoming this incredible complexity at which point I'm like I wanted to remind everyone just like hey we'd be trying to cause a particular thing for people to you know reach for Independence it's really not for us to pre-select here like let people as long as they do
8:51 something legal we support them and in fact we are just pushing them from behind me a tool like your screwdriver is not going to tell you that you can't screw in something into a wall because you're a republican voter so like it's just like simplified as what goddamn thing and just say like hey we are showing up to make this to build cool we filling all parts of giving us but like it's part of that principle you mentioned ldmh before I
9:16 actually if I look and compare your business to lvmh which I've done I actually think it's quite similar because if you talk to Bernard or no and you see the infrastructure of what they've built in the abstractions you've done that it's just you're 40 years separated and you're technological and they're much more procedural but they do the same things which they plug in these great businesses they Empower them to run Etc have you ever been tempted to
9:37 more vertically integrate and like you see categories and you think to yourself wow maybe we could do more we could enable this or we could lower costs even further or we could you know if we own this kind of a business we could build logistics for everybody I mean you kind of tried to do it a little bit explain that Journey the the decision is obvious like can we make it easier for other people to look amazing
9:59 that's like it's not our job to be the front we I mean if it's the quip of my investors who are almost all Americans was always like only Canadians can build this company because you try to be nowhere and you're doing two exactly the opposite make other people look good and so that's pretty deeply ingrained business yeah yeah so so yeah so now I mean I don't want to do
10:30 Shopify Basics or something like this that would be totally a side quest for us and I'm big on main quest so I I want to keep things you you bought deliver but a week ago when flexport fired their CEO you sold delivered to flexport and then the day same day which is boss you signed a deal with Amazon although that was although that's how it was portrayed was like a very can you describe what happens conspiracy theory
10:59 tweet that went Final on this that it was all a plan of Bezos that he fired put the guy in to run flexport to get this deal done and then get us it out and then totally crippled I give him my highest recommendation he's a wonderful man you should have him be your CEO it's amazing yeah yeah like I mean I think I think people conspiracy theory talk is really really fun but I think people massively
11:24 underestimate how Hardware to execute right like this is this sounds very very HKC the the no like the again it here's what my friends who built a lot of free companies on Shopify say they say it's like most fun like they treat it as a video game like many are like do it over and over and over again and I want them to keep building these businesses and they turn but they flip them or they stop at certain point why
11:52 it's always the same at some point they are getting to the point where like okay the next two years of my life I'm going to build warehouses and deal with operational excellence and I'm I'm a I make online stores I make products I make this is what I want to do so I'm like okay cool like Shopify is Big I'm gonna put a complexity of figuring out logistics into Shopify because then I can amortize it over the total
12:13 millions of stores that exist that was a plan we bootstrapped it but like we can't run it in the end so this is like event to flag sport because that's their main quest and I think that's all totally okay I'm super pro Founders running their companies I think that's so this is why I'm celebrating celebrating with Ryan is coming back and also Ryan is totally awesome so why did you do the deal with Amazon do you have Amazon is mostly about
12:43 Prime well look so so this is you know a lot of us made out of a Shopify challenging Amazon story and you know like it's a good story but like maybe this is a bit about me I'm a product I'm not a product of business school right like I'm an engineer I Apprentice I'm a blue collar engineer I Apprentice as a programmer in Germany I had a Meister I could have gone for tournament trip to town to town kind of
13:12 doing this European thing than to decide against it I grew up for open source it's it's positive sum like it's not it's not fighting for percentage points we're like we can build so much more if you look together and specifically around Bible Prime like Prime is a credible brand it's probably a better brand than Amazon in some cases there is a plausible future in which
13:42 like the purchasers are bias as we call now balancer like just want to buy everything through Prime for because that's the trusted brand I think it would be very bad for my company and I think a lot of my customers if they would have to fire Shopify just because their their customers ask them to provide Amazon by the prime services and I just like so so it's much better to work with them I mean that way you look at Amazon Prime
14:10 as like Visa or something it's just a technology it's a club of it's a group of users why keep them Shopify supports 86 different payment address I wrote 42 of Integrations myself so I'm curious how you do look at Amazon as a competitor and your advice to these this entrepreneurial class of how they knowing what you know should engage with Amazon there has been a lot of handwringing and we see it with the FTC
14:40 and Lena Khan's obsession with I think Amazon and third-party fulfillment and Amazon house Brands you referenced Amazon Basics you just said Basics but obviously that's what you're referring to what is your analysis of is it in the best interest of a shop to put their inventory on Amazon knowing that Amazon you know is kind of like the Borg they will study your product they will grind you down they will lower the price and then the corollary to that in part two
15:11 what's what are you seeing in consumer thinking because as we watched every single product get copied so quickly fast between whether it's fast fashion or fast gadgets everything gets copied but what I find myself and a lot of other people doing now is retreating to Brands and you mentioned trust and so is there now the pendulum swinging to you know I'm not trying to find the lowest price and the cheapest product I actually want a brand that I can trust
15:40 you know some people are wearing a certain brand of shoes here that they really like so maybe you could talk about those Steve's name Jason Laura Piana and I I have a pair now and they are buttery they are it's the I literally put them on and I was like I don't know if I deserve these I had to get myself back up for wearing 1200 slippers but apparently these guys don't care they're gonna mix it up with a PF
16:05 Adams so I highly yeah no I know you're the richest guy on the stage and you're wearing 16 shoes are wearing 1200 shoes I think that's why you're the richest guy on the stage but anyway let's talk about let's talk about Amazon so Amazon First Look Amazon like everyone should study of a company they are like look absolutely incredible I again do not think about like I do not like thinking about who gets Which percentage I think it really
16:32 messes with people's like actual analysis of what they ought to be doing especially entrepreneurs if a building in space Amazon is a rival and Rivals are there to inspire you to be better if you treat your any one of your competitors in a different way I think you're doing you're causing a category mistake I I maybe in the More Physical World absolutely there's like yeah where it's really a clear finite pie maybe you need to bring a different mindset but like
17:00 if you're anywhere close to software it's positive so I mean everything's growing so I think that's I would say about Amazon I said but now the brand part though you said that you have how many payment providers it's 80 86 86 okay so breakdown stripe and IGN for a second stripe idea yes why do 86 payment operators even exist yeah that's that's an excellent question and has to do with goes
17:31 back to your friction Point yeah yeah Byzantine world of entertainment I mean look some of these payment gateways I mean I really hope my team disabled them I when I implemented around 2004 here's what you had to do is you had to take the credit card put it into an Excel spreadsheet and upload it to an FTP site yeah unbelievable so that's exactly as secure as you get error prawn as you can imagine so but that's about
18:00 the state of art at a certain point of time as such as it is I I have very low maybe this is where my extraordinarily low opinion about the Orthodoxy and the status quo comes from but it's you know stripe and Aryan and maybe to a sometimes Braintree are like much more competent implementations of this fundamental idea and there's massively complex like again we are interchangeable because at the end of the day you can do a lot of what you need to do with free
18:31 API codes it's basically authorized capture and purchase directly and so they look interchangeable but like what's happening behind I mean they're great businesses you know all these things eventually are the things that these guys interact with right they're not going to know what's behind the scenes they know that it's shop pay is one click it's elegant it's amazing I used it this weekend buy with prime same kind of concept so what is it
19:03 that you guys you as a business your shareholders will say Toby get as much margin as possible and obviously you're going to look at that and say well hold on if I'm running a trillion dollars over my network 50 basis points all of a sudden adds up to a lot of net income for me so you're going to go and do it that's like a no-brainer what happens to those companies what do they do where you would actually go back
19:26 to your shareholders and say no I'm going to pay more to these guys tomorrow than I do today because it's critical and I can't do it yeah yeah basically a lot more with me so I like honestly we have VC companies go from one payment gateway to another and everything about their business changes and they kind of don't know why it's there's the card acceptance rate are really really different between them there's a huge amount of machine
19:51 learning goes into like what at which point you want to accept which card performance is a huge one like this is sort of a really invisible one because like latency to compute or inverted computation Computing it's sort of like pollution in the real world it's like a negative externality sort of bestowed upon the next layer and other people but like in e-commerce you can just really see it right like it's your your sales are going going up going down and it's
20:18 usually credit card gateways that have the largest issue with performance and these kind of things that have to use basis points games to to attract customers so we've actually seen sets going down in the this way both stripe and alien are excellent that's also I mean if you if you're asking about what makes these businesses and do they have are they fungible I mean building trust relationships to
20:51 the brand question really with the CFO office right like it's in in business software just like consumer software you know attention matters or engagement as it's called usually and you wanna like if you have a trust relationship with a CFO of a company if you are going to be hired for more and more services and there's a lot of services related to the flow of funds I think there's lots of lots of opportunities just bringing it back because you're
21:22 trying to make me commit about making a value start statement that's kind of a zero-sum statement about you know two or three companies here you have a large opportunity in in this space it's like there's a lot of fantastic new rails that are being built in the crypto World we're not so cool on this right now but soon we are going to be cool again because this is the way Humanity works and then we get to build
21:42 and there's some really really good technology Underneath It All which is quite ready there's also I mean I don't know when the last time was the credit card network was created by certainly a long time ago and there's a good deal of business bringsmanship that's going to go that's that's going on from that side and I think there's some opportunities to work together tell us about what you're doing in AI you launched a co-pilot it's it's literally like anybody
22:04 could become their own business person it's really incredible do you want to talk about that for a little bit every time but this is my favorite thing about Shopify other than the fact that we sort of we as a business sit on the same side of a table as like the merchants the partners the best thing we can do for Shopify to for our business model is actually make our customers more successful which is just like it's an incredible
22:27 simplifier and it's incredible how many businesses are actually really doing sort of a fakery cosplay on top of a principal agent problem really so we we have it's much more simple for us the other thing the thing that I'm so excited about because I didn't I only had that as a hope when I started but then it's proven out it's that this thing I said about the friction in the process every single
22:58 time we ship something that reduced the friction by a meaningful amount we actually had more successful business being built so we really really proof that out in the numbers a great example is a payment Gateway again initially you had to make a choice when I had to get my payment Gateway for my snowboard store I had to have a two hour interview with someone in American Fork Utah and then mail my passport to them right like
23:26 but not a copy and so that's kind of the friction that existed for just from formation and like now it's like instant underwriting and everyone everyone just like the first time someone buys something we tell you hey where is the money supposed to go right so the amazing thing about AI is there's some problems we can't address with friction removal which is actually like the experience in life kind of thing my my grandmother has had a printing press a
23:57 place copy shop with like big letter presses and these kind of things I was like as a kid like doing the lead kerning like type setting the actual old stuff was hugely impressive she started this business so I had like in my firmware the concept of starting your business is a plausible solution to problems you might encounter in your life and that's probably true for most of the people we talk about in the entrepreneurial realm but like where
24:26 they have this experience and that's just like I mean this is where it's so good but you know your podcast and and just Society talks more about this being a possibility but like still people can't see themselves in it if they do often they do it in a sort of reach via desperation you know Plan B for so many people on planet Earth is better than plan a it's it's the one it's because they have learned to downgrade they've
24:56 they've made the switch at some point exactly yeah people's default setting and it worked for surviving on the planet but maybe it doesn't work for the modern era yeah and taking risk is more bold but so what does the co-pilot do it's like it's well hopefully it helps you with Kurt it maintains your courage because you courageously reach for like I'm gonna try this thing in my lunch break
25:27 but here's someone you can like we be survey people like with successful stores tend to out like I think with 85 answer that you had someone who would you turn a text in 24 hours with a question about starting a business it's massive predictor of success so I think what chatbots are already good at is like being patient and competent and answering your questions there's a lot of questions they can't answer because there's
25:57 you know just not the training set isn't ideal for Niche Pursuits such as e-commerce entrepreneurship but that's something we can fix through you know wonders of fine tuning and these kind of things and so what does it do we want it to be like just like someone who sits next to you basically it's like a chat you like can ask questions about business but like if you say hey I need my store to like look more like summer
26:20 rather than fall or whatever now it will be able to help you with that it will ask you questions and it if you ask it to like what should I do in terms of product Discovery or how can I increase sales I saw on the demo it would say hey you should put these things on the front page and you may want to do this type of sale yes yeah it's pretty amazing it's pretty amazing it's honestly it's I mean
26:42 sometimes it's unbelievable that's depend on all Shopify data not just that user right so there's a clear aggregation effect this flywheel effect yes you did I'm always interested in the really outlier Founders because they they do business differently they learn different tasks you and different ways of managing people and we didn't get into it with Rey but man Bridgewater has a whole operating system of how they record people it's very impressive it's very intense you have a very interesting
27:13 one where You released and it went viral a counter so when you make a meeting it tells you how much that meeting cost and then you demanded everybody justify the costs of the meetings I don't know if you're making them account for it on their budgets or not yet but this resonated in hit Accord looking at the success of the company what are the two or three operating principles like the I would say a no meeting culture or a you know meeting if
27:42 it's really essential culture but what are the other two or three things that now when you look forward running this company and getting it to the next level which is going to be harder and harder this is how we operate at Toby's Shopify yeah look I I I take the founder role very seriously I again it's it's not it's not about me but it's like I think companies that have like there's a Founder slot which might be filtered or
28:06 not in every company because every company got founded if the founder slot is filled you have incredible ability to change your car the company partly because the way I always loved Social Capital as a concept and I I think a lot about it it's to me this is like a bank account right like it's it's it's it's a balance that's deposited and the way any kind of value is deposited into it comes from storytelling and the founding story
28:32 is ever present in a company therefore there is daily settlements into the countdown or accruing to a founder and if a Founder is not there anymore it's sort of like someone deleted a private key and you can't spend it anymore so what am I spending it on I want Shopify to be a company that is well first of all it's really really really good great for Crafters I I again I apprenticed it's blue collar and approach engineering
29:00 this should be a crafter's paradise and we just really really make sure we have great teams and great environments for Crafters to do their craft and that's usually very small teams and so on there's huge amount of anti status for buyers like it is just like man like the world's not that great all companies are terrible the only thing any of us gets to hope for is that an AdvoCare our careers we're going to look at the companies we
29:28 built in 2020 and Beyond or before and say my company was slightly less terrible than other companies right so that's that's the best anyone can do to me that's actually super hopeful message because that reduces the complexity of a task you know that's that's something I can do just being slightly less terrible suck less but like the key thing is subtraction and this is where the founders Lots energy comes from it seems to me that it's only Founders who
29:56 subtract in companies this is the meeting thing in a nutshell everyone adds recurring meetings and gums of the system I'm super pro great meetings but like once every couple a year and a half or so we randomly delete all recurring meetings we're actually gonna do random deletion of slack channels and all these kind of things just because they will come back if they are useful so I think that gives you a sense like I don't think you have time for
30:26 dissertation but like again it's super fun building companies it's it's a really really fun thing to do and taking it seriously is you know best I'll find it ladies and gentlemen I want to say thank you Toby thank you
30:57 quinoa besties it's like this like sexual tension that they just need to release
31:34 we need to get Mercies