Shopify CEO Tobi Lütke Shares His Secrets to Entrepreneurial Success

0:00The best thing we can do for the growth of Shopify is to make our customers more successful. So I want Shopify to cause there to be more entrepreneurship.

0:10Hey, what's going on? I'm Benjamin Gottlieb back with Shopify Masters. It's your companion for starting and building a business. If you're a fan of this program, you know we've been at it for a while, almost a decade now, interviewing entrepreneurs and aspiring entrepreneurs just like you. So if Shopify Masters has been your guide at all during this time, think of Toby Lutke as your shepherd. Our customers are themselves deeply inspiring. That is a privilege that is so rare. Toby needs little introduction here, but for those who might be new to the channel, he is the co-founder and CEO of Shopify, which he's been working on now for two decades.

0:46He's with me here today to reflect on 20 years of shipping and also what keeps him so inspired as the entrepreneurial ecosystem changes. Toby, welcome to the show. I'm glad to be here. Thanks for having me. I was looking forward to this. 20 years. What keeps you coming back to work every day? It sounds like such a long time when you put it like this. It's been such an incredible arc of the internet's history. Like 20 years ago, we were basically just figuring out how to use these wonderful gifts that we've gotten, the web browser, the internet. You know, what did it mean to connect everyone? or will we even accomplish a computer desktop on every desk?

1:30You know, in those days, it was just so much fun to build and it's so much fun to be part of this new opportunity space that was opening up. And, you know, I was, you know, kind of right in there. Like I was a computer programmer. I always loved retail and, you know, putting these things together was natural. And here we are 20 years later. And then I'm still doing literally the same thing I did in those early days, which is like I was really, really, really disappointed in the software that I found to start my online store, Selling Snowboards. This was Snow Devil. This was Snow Devil in 2004.

2:11You know, I think the act of creating is sort of a conversion of energy. It's like some energy source, like passion for a field or like a type of eureka like insight in some product that needs to exist. Or also just like the love of a craft or the satisfaction that comes from the craftsmanship. Or emotions such as anger or dissatisfaction. Like you take those and you channel them and you channel them into making something. And because otherwise you have nothing to sustain yourself. Sometimes people say people go into entrepreneurship because it's a good way to make money. Well, statistically, it's not.

2:50Statistically, it's a very bad way to make money. In fact, you might actually lose money very, very easily. It also, it's quite a public thing, right? Like you do it, at least your friends know that you're trying something. And there's always a fear of failure involved. So you need something to sustain yourself. And I just was this sort of dissatisfaction with the software I found was just like gnawing on me. And eventually I decided like, hey, this Snowdell thing, like the software I built for myself is good. Maybe other people want it too. I'm going to start seeing if I can turn this into a business.

3:29And I'm still dissatisfied with the quality of software in our space. Like I think Shopify could be so much better. And although it's much better than anything I could have imagined when I set out, but there's still so much left in the tank. So I would not do it for 20 years. There's an easy another 80, 100 years of work in this thing from where I'm sitting. That's what it looks like to me. You almost speak about your job, this company, in a romantic way. Like it's a love affair. just the way that it's, you're always striving to improve, to make something better. I'm struck by that. What is it that you love so much about dabbling and experimenting and being in this space?

4:13So I have a genuine love for tinkering with technology. I just find getting to play with the greatest things that anyone on planet earth could possibly imagine and somehow caused to exist. I get really excited by advances in database technology. I really find what the people who write the Linux kernel are discussing amongst themselves to be fascinating and so on and so on. So I'm a technologist. So I generally love these kind of things, but it's really channeling deep dissatisfaction into building versus actually sustaining me. So it's both sides. I think I'm equal opportunity for emotions on the positive and the negative side.

4:57Again, I always feel the question is, what do you make with it? What do you make out of it? You just mentioned a few moments ago that statistically entrepreneurship isn't necessarily the best way or a surefire way to make money. And so I want to pick your brain a little bit more on this concept of love for what you do. Is that integral to entrepreneurship? Is that love something that you need to recognize if you're trying to start a business to decide if you should keep going or not? That's a great question. And it's hard to pin down causality there. Like, I do think people also end up loving the things they are kind of destined for.

5:34There's a calling, I think. But the best trick to pull off in life is to find your calling early and hone it into a craft and then somehow share it in some way. Like if carpentry is your calling, then becoming very good at it is the name of a game for a while and just honing the craft and then going to, you know, after you've developed it. It's a tool in this tool belt that you have. And at some point, like, you would be surprised how quickly this happens. There's, like, entrepreneurial opportunities all around us, right? Like, there's just, like, at some point in life, you've realized that everything around us is made by people who are no smarter than us or not more talented than us, You can just do and make things and just decide to, especially if you've managed to hone some kind of skill.

6:30Not to work class. It doesn't need to be there. You need to be really good at it. That's the level you need to achieve. That's not like being world's best. It's only one person who do this. Being really good at it is equal opportunity. This is just applying yourself. And so you then have, you recognize entrepreneurial opportunities around you. You decide one of them captures your imagination and you start tinkering with combining this sort of newfound opportunity with the skills you have and you start putting those things together. And then the magic can truly happen then, you know, then there's something there.

7:11And often you don't know. And this is what is so important to me about Shopify, like with this company and what the mission is really about is I believe that this situation that I just described, that people kind of line up some opportunity and a skill and the courage to go for it. But then it get mired in complexities that are like completely adjacent to what they actually want to do. It's like, how do you start a registered business? How do you get a website? This kind of stuff. All the kinds of things. And I attempt to have Shopify be like sort of there and talk to people at that level and like say, okay, well, if there's a business in this idea of yours, again, we can't make unviable businesses work.

8:01And I think there's actually importance in making that not a thing, right? Like it's actually the rapid discovery that there's no product market. that is actually good because then you can move on to the next thing. But Shopify can give all the tools that you need. If you know this thing needs to exist, if other people agree, man, we can do a lot there to just help. Almost like a litmus test is what you're describing. It's like a rapid discovery of information, of product market fit. I think software can, and software will play an even bigger role in the future than it does today. I think software can inspire itself.

8:34I think great software can already do this where it just says like, You know, you come for the utility of, you come for a website, but you stay because it actually talks you through what the next step is. What are the good ideas for building a business? What are insights that you might not have? Maybe your audience is in a different country. Maybe you are literally big in Japan. And like, how do you go about actually making something of that insight? You know, one of the most unobvious and wonderful things about Shopify, I always point this out. our customers are themselves deeply inspiring. That is a privilege that is so rare.

9:16I think a lot of businesses think of their customers a lot more like farmers think about crops than actually people that they are on a common mission with. But we are. Shopify is very, the best thing we can do to grow Shopify is to make our customers more successful. So we do. One of my favorite things I've got to do here is put a large company together that conspires to make the small people early in the process of entrepreneurship successful. That's not a common situation, right? Like that's not actually the way it usually goes. And so that's really meaningful to me and I hope it's felt on the other side.

9:55But I want Shopify to cause there to be more entrepreneurship globally. I think that's a true calling of this company. and so we can have, we have about four and a half thousand people in the R &D team, I believe. And we can do this because we've been around and we have gotten to a certain size and all of them are building software that is actually, tries to make it easier to get started, make it easier to find product market fit, make it easier to, you know, just like explore the space and see if there's a business there. I want to get back to something you just mentioned, this idea that Shopify is here to help folks on their own journey, starting their own business.

10:41You've been doing that for a while, as I mentioned earlier. And I just want to ask, looking today, how do you think the landscape has changed for entrepreneurs? Let's take just locally here in Canada or maybe in North America, compared to when you started the company a couple decades ago. yeah i i think i mean everything changed i think um i don't think like i i think that makes entrepreneurship also so fun because um like if you try it and you didn't like it you can try it two years later again it's because everything's different about it so like maybe you like it this time you know what's hard and what's expensive it like can completely invert um over time like for instance it was um it was very hard uh to get a website when i started it was very hard to get an online store get the software run it get a checkout done get a checkout secure it be able to even accept credit cards to to accept credit cards on shopify actually on snow level before i had to fax and it had to be fax um uh copies of my notarized uh they had to be notarized like I had to make copies of my passport, get them notarized, which I didn't even knew was a thing.

11:57And then I had to fax them to American Fork, Utah for a consideration. And then after two months from whatever is the Utah local equivalent of Mount Olympus, they ordained that I am worthy of getting API keys and then I could accept credit cards. And yeah. Oh, and fax your passport notarized to Utah. Yeah. So, you know, just obviously that's the way it works, right? Like anyone can tell you that. It's just like this sort of Kafka-esque friction really shapes the world. That was hard. However, what wasn't hard was getting, like once the website was there, getting customers. Like no one was advertising on Google.

12:39Like it turns out there's a minimum cost for a Google bid, which is 20 cents. and I was the only person advertising on the keywords for the ski resorts with Snow Devil. And therefore I was having no time, no problems with sales. There's just no competition back then. Today, when you take your keyboard and you roll your face over it and you try to advertise on that keyboard, someone else is bidding against you, right? Like it's very, very competitive. Now it's a different world. It's upside down compared to what it was back then. Now you can sign up for Shopify, but like you will have you need a good go-to-market strategy right and you will have to learn um you know how to do facebook advertising and how to you know use your google ad managers and you'll have to look for alpha now radio is coming back and frankly i think the funniest thing um from sort of um industry perspective is that um actual retail space like point of sale locations uh is actually now not the business anymore.

13:42It's actually a channel, a sales channel. Your lease is your marketing budget. You're paying for the foot traffic in front of your store. And seeing it like this, it's like that would be heresy if you would bring that up to anyone. Well, that's certainly very different. But what hasn't changed, I would imagine at least from your perspective, is the role that the entrepreneur plays in society. You often speak about this on podcasts like this and others as well. You call entrepreneurship load-bearing for society. It's such a thought-provoking phrase. But for our audience, what do you mean by that?

14:23Look, every single company that existed had founders at some point. Like, there is no company that has not, like, that isn't the result of some kind of move of entrepreneurship. There was always a moment of courage. there was always a seemingly insurmountable wall of doubt and doubters and naysayers and people who want to talk you out of it because it's uncomfortable, like even to the onlookers.

14:51And especially sort of this rapid entrepreneurship that we see here. About like, depending on the country, something like 60 to 80 % of people work for small businesses. It's like, we always talk about the big businesses, you know, Exxon Mobiles or the Googles. Like all together, they just don't employ that many people, right? And so, you know, these are the jobs. This is where the livelihood comes from. This is where the discretionary money comes from that then gets cycled again into the other small businesses. every dollar that's made and that's brought into you know a city cycles between five to eight times depending it's like it goes to you know the local coffee shop on a way to work and then that pays the salary of a barista which then pays for groceries and so on so on so on so net influx of money into a local environment is extraordinarily important.

15:58And when you see towns that have fallen on hard times, sometimes it's of no fault of their own. The town might have been internally vibrant, but had no form of bringing money into the local economy to get the benefit of this cycling. In other words, they lose the safety net of their local businesses. Is that what you're saying? The local businesses cannot sustain themselves. Every dollar cycles, let's say, seven times, but not more. At some point, due to taxes and other things, it will exfiltrate again. It evaporates from the economy, from a local economy. So without an influx, at some point it's over.

16:43At some point, once money stops moving, that means value can't be transferred, and that means stasis happens. and that's bad for the local economies. And we're talking about small cities here, but this works in countries as well. You see economic success stories and economic losers in the world. And entrepreneurship is so pure. People don't want to share their money. Money has unbelievable utility. You can literally buy anything. It's a gift certificate for everything humanity has ever made. So you don't want to part with it. Parting with it for a product is an unbelievable vote for that product.

17:24It's a vote for everything behind the product, for the entire process that created the product, for the particular, again, for the particular approach to craftsmanship that created the product. You buy a beautiful resin embedded table with Star Wars figurines embedded in the resin, whatever it is. Sure, send those online, absolutely. Literally last thing I saw on Instagram go by. And like that means you purchase this. The world just changed like because there is another order, which means there is another influx of money for the supply for that. This type of vote is now slightly more valuable.

18:08Like there's another vote for it. This type of process is another vote for it. Like this space has gotten another vote. People might figure out, is there similar products, similar types? What else could we do? Is this an aesthetic maybe? Maybe an entire field around this sort of resin embedding can boot up. And it's not just tables. Because while the space is not fully explored, it's a fantastic idea. I wish I would know who had it first. And it's booted up excitement. And now it's going to boot up maybe like a mini economy that, again, And it can be participated in, that people can participate in this space from anywhere.

18:47This is something anyone on planet Earth can produce this and can add their own ideas to this and so on, so on. And like, again, all this is value. All this is new money that exists. When you see that GDP increases, that means human ingenuity increased. Or the products we create, we've perfected. And so this is the common mission of, I think, every country and humanity in general. We are product creators. We create solutions for problems. We create products and then have an economic system that allows us to vote for the kinds of products that we want to see more of. Entrepreneurship is the process by which the new ideas come online, literally and figuratively.

19:39and by which then people can engage in voting with their wallet. And voting with their wallet is the mechanism by which the entire world rearranges itself around the best ideas. But that begs the question, if entrepreneurship is so foundational to society, are we, and when I say we proverbially, are we doing enough to support entrepreneurship? Well, so that's a fascinating question. And again, it's hard to also have a very, very brief answer to. Like, look, we can do more. I wish every time, like politicians talk a lot about small business and entrepreneurship. And mostly I find past laws that are contrary to those interests.

20:29Like usually things become harder, right? Like cookie banners are the best example of this. Like cookie banners are extremely aggressive to entrepreneurship because every independent website has to ask for being, to be allowed to place cookies, at least in the European Union, where, you know, big retailers only have to do it once because everyone else has an account. Like that's immediately regressive and probably wasn't the intention, but certainly like it doesn't matter what intention is, that's the outcome, right? So more often this is seen like licensing, like often, or just making it harder for business creation.

21:06So there's a lot of countries that cost significant amount of money to be able to even incorporate a business. And that just means now entrepreneurship is an already rich people's game. Like why is that good for society? It isn't. So we should do more there. And this is something you talk about a lot online when you're interviewed, this idea that governments, individuals need to do more to inspire innovation. I think you were quoted recently on a recent podcast. This is something that's important to you. Why innovation, though, in the context of supporting entrepreneurship? People take this sort of very Hollywood view of this, which is like people in lab courts saying Eureka suddenly.

21:54and then innovation has happened. Innovation is actually much more, again, I think blue collar. It's much more vocational. It's the frequent incremental improvement of the things that we care about, right? Like it's making better shoes. It's like better shoes that are just like last longer. It's making the tables that you need anyway beautiful. It's like, I don't know, like I like playing poker and I'm right now fascinated by this store that sells Caribbean pirate gold-themed poker sets. Like, nothing about my life changed because of this, but it's delightful. It's, like, so wonderful. My day, every day I'm going to use this is going to be 5 % better, right?

22:41And it's, like, it's so worth it, right? So, you know, that's all innovation. It's all adding something new. And, like, I'm excited about this, and you are going to be excited about something completely different. And that's the wonderful thing. It's like innovation is in the frame of reference of individuals that get to partake in, again, this wonderful economy that now exists. Well, I'm certainly waiting for that invitation to the poker game. Yeah, let's go. Look out for that. Let's go. It's good. You'll have to play with my kids. They are brutal. I'm sure they would take all of my money on my chips for sure.

23:19I've started losing it. That's concerning. Very irritating. Honestly. I'd be remiss if we didn't talk a little bit more about artificial intelligence. I know that, and please correct me if I'm wrong, but you've been such an early adopter of AI and experimenter with AI. Societally, we're awash, it seems, with new AI tools today. What new advancements, I'll call them, are you excited about in the space of AI in the near term? What's the best thing about it is that we have room to explore. We don't know yet. Again, we have to interview. Every time a new model is trained, it will be able to do things that the previous models couldn't.

24:01And we can find out. There's so much room for innovation. And here's the greatest thing about it. It's not locked away behind needing to be a programmer. Because so much of the best, like what the last 20 years had to offer on this planet, was only accessible to people who could write code. you program an AI with English words which you already speak, right? It actually, or any language, that's even the craziest thing. You don't even need to speak English. You just tell it. Like you tell it what you want done and it will do its best to autocomplete the thought. And it can reason based on having read the entire internet.

24:43And even reasoning is getting better and better and better. Like the Industrial Revolution was a huge event. in human history because for the first time, did we have artificial muscle power? Until this point, the only time more muscle power, net more muscle power entered planet Earth was when some new entity got born, either human or an oxen or a horse or something. That's the only way more muscle power could be brought. The moment the steam engine was there, the moment the revolution happened, we could bring as much muscle power, kinetic power online as we wanted. Like we just used the coal, the oil and so on.

25:27I think this is now happening to intelligence. I think it is going to be a fascinating world in which having a team of experts on any topic can be conjured up by just explaining to a couple of browser windows about what kind of role you need someone to play and going to spitball hundreds of ideas. This will make it so much easier to engage in entrepreneurship. This will get it so much easier to figure out what the next step might be in whatever you're trying to accomplish. This is going to be making it so much easier to learn things. And I think it will be incredible for creating new products.

26:07And I think we will be able to remove so much friction from all these things that are currently, like so many things that are currently almost impossible, impossibly hard can be made significantly simpler. I think this is like, this is the most exciting technology shift in my career. And I was right there when we started, when the internet came to town. when people still went online. Like this is ancient history right now. It sounds ridiculous. But like it was magical that happened because there was a before and after. And I think this is the same thing again. Anyway, I could not be more excited about it.

26:54I'd like to take the interview in somewhat of a little bit of a different direction and talk about tools. Throughout this interview, I honestly have been struck. I'm sure the audience as well. I've been struck by how poetic you have been talking about this company, about what you do. And it's the same thing when you talk about an entrepreneur's tools. I think you talk about tools differently than I do. I mean, when I think of tools in the physical world, let's take my garage. There are things I can't find. There are things I don't want my daughter to get into. Those are my tools. But you're inspired by your tools and you think others should be too, especially insofar as those tools can help facilitate personal growth or growth of one's company.

27:32What do you mean by that, being inspired by your tools? Tools are the things that change the equation on friction. Friction changes the world. Therefore, tools change the world. That's how I see it. I think we talked about this. This is the reoccurring theme, right? Like, again, the world's changed by friction and based on what's available. You mentioned sending your passport to Utah, probably an example of friction, right? It's friction that is worthy of at some point just saying, I'll have that. I'm going to go work for IBM. Why bother? So look, we are genetically the same humans for the last, let's play it safe and say 50 ,000 years.

28:18We are now having low latency internet on airplanes because we shot up 10 ,000 satellites in the last three years to make that. So because we chose, we wanted that to pick a random example of something that just happened. But genetically, we are exactly the same as our brethren and ancestors who drew on caves. The difference is tools. and some of those tools are mental tools. Some of those tools are pieces of information. But we have domesticated plants to do our bidding. We have figured out how to fix fertilizer and that we need to, you know, just like we can get about 500 times the calories out of a square foot as our ancestors called through tools, through approaches, through ideas.