Scaling Shopify: Tobias Lütke and Ben Horowitz on Building a Global Giant

0:01When Shopify was founded in 2006, it was just a year prior to the launch of the iPhone. Needless to say, smartphones were a far cry from the ubiquitous accessory that now billions carry around. And fast forward to today, nearly 20 years later, where Shopify merchants can accept cryptocurrency, create immersive shopping experiences with augmented reality, and even use AI to generate product descriptions. So how does a nearly $100 billion company stay out of these struts and what will shopping look like in the generations to come? Plus, why would A16Z never have invested in Shopify in its early day and why has the CEO of this company chosen to continue writing code?

0:42These are just some of the questions covered in today's episode, the conversation with Shopify co -founder and CEO to bias lookie and A16Z co -founder Ben Horowitz. Zepisode was also originally published on our sister podcast Web3 with A16Z. So if you are excited about the next generation of the internet, find Web3 with A16Z wherever you get your podcasts. Alright, let's get started.

1:11Welcome to Web3 with A16Z, a show about building the next generation of the internet from the team at A16Z crypto. Today's episode features Tobias Lutka, CEO and co -founder of the E -commerce platform Shopify, speaking with A16Z co -founder Ben Horowitz at our second annual founder summit in November. They discuss what it takes to build a breakout startup in a crowded category, the changing face of retail, how to affect change in the workplace, and how to handle individual emotions and corporate culture, including dealing with calls for activism, as well as the value of embracing negativity. They also touch on the moral imperative behind creating quality software, the symbiosis between AI and crypto, and more.

1:58As a reminder, none of the following should be taken as business, legal, tax, or investment advice. Please see a16z .com slash disclosures for more important information, including a link to a list of our investments.

2:15All right, so for those of you who don't know Toby, which you probably should know Toby, you can lick him up as well, but he started a snowboarding company in 2004 called Snow Devil. And he parlayed that into Shopify, which now serves millions of merchants in 175 countries around the world. How many countries are there, like in total? I think that's most of them. There's 200. Yeah, I do. Yeah, but it changes around the margins. So it's more sensitive. You'll get them all at some point. And then he was also interesting for this crowd. He was one of the first adopters of Coinbase commerce. So Toby's been kind of big on crypto for a while now.

3:03But let's get started. So you started as a stop -boarding company. And I always find that funny because of all the CEOs that I know you're probably the least snowboard kickback life. Let's hit the powder, dude. So how did that happen? Like, why did you start out that way?

3:26You know, when you talk to governments, they always, you know, Shopify is doing a lot about entrepreneurship. But I was, you know, a lot of entrepreneurship and it's a such a brilliant institution. I know everyone here is a card -carrying member of entrepreneurship is good club, but politicians usually, they're sort of vague on it, but they say like they want to pass government programs and policies to cause more entrepreneurship, which I always think is, they're going way around. There's actually, so the funny story is that, so I was in Canada at this point, I came from Germany, living Canada, 2004, 2004.

4:07And I found out I cannot actually get a job. I was trying to be hired as a computer programmer, but I found out I did not have a work permit. I didn't know what a work permit was. So turns out that you are in Canada allowed to start a company even without a work permit. So there's one government program it actually has let the company's being created. Well, that's like the best government program ever. Just like the pay off on Shopify paid for itself a million times. And it turns out Canada's very cold. So I was doing snowboarding, so I knew something about it. And I started on that store for snowboarding.

4:39So that's kind of a pretty simple story like this. That's amazing. So basically the key to your whole career was not being able to work. Yes. In fact, you know, what wasn't my mind, too, is like I was at the solution with programming. And this time it was like sort of a Java word, it was kind of a bit oppressive. And I wanted to reclaim it as a hobby. So I was like, cool, if I sell snowboards online, I can make money while snowboarding and I get to do more fun stuff. And it's been extremely unsuccessful, as I started. I basically never had time to snowboard again after I started. So the end of the year, a snowboarding career was the start of your snowboarding business.

5:24That's pretty remarkable. Maybe I would project more back at this point of things, what if going into Conta, in a Conta, in a factual way. Now, the only thing that really strikes me about Shopify is that, you know, and I hate to say this as a venture capitalist who some people think is a smart person, but we probably would have never invested in Shopify when you started it because it was probably the most over -competed category in the world. Like everybody had some kind of e -commerce platform. I mean, there was just so many of them, in the gentle, this, that, the other. So, did you go, oh no, no, no, no, no, like I'm gonna build this thing, it's gonna dominate everything, that I'm gonna have a network effect, and I'm gonna build, you know, like one of the biggest things that anybody's ever seen, like how did you, like get all the way to where you are?

6:19Like what was that path? Yeah, no, there's no plan like this just like I think For every entrepreneur is a useful thing to think about what is your energy source? Right like what is actually driving you? And sometimes it's greed and we you know like right like the sort of negative emotions channeled into building actually the most powerful energy sources. Yeah, I had this You're right like I mean that's gave idea of it You have to explain every platform in terms of an old platform. And online hosted CS catalog with buy buttons was kind of a way you marked the described even what they had what they used for.

7:03So e -commerce was right there from the beginning. I thought there would be lots of software that I could use. And I didn't find anything. I was actually really upset with the quality of the software. And so I channeled that into building something. And that was my energy source. And I just love the building. That's actually, by the way, one of the best entrepreneurial ideas there is, which is, this stuff sucks so bad. Yeah, I'm so mad about having to use it that I'm going to build my own. Totally. I honestly, it fuels me to do this day. I still think it's ridiculous. What people are subjected to in terms of quality of software.

7:38It's a weird, I probably did some neurological rearrangement there, but to me, this is almost a moral issue of when people confused with software and they think about themselves as being inadequate. How dare software make humans feel that way? It's just not okay. You want to make it a more approachable. I think the thing that people might have missed in e -commerce, it's not that I had a great insight. I just organically got there. Yes, there was a lot of e -commerce software, but it was all built for already rich retailers who needed to move online. That was a phrase people used. And there was no one started software for starting about a panel process online.

8:20Like actually the digital native, what we call it now was so like if you like that term, because there's a totally different set of requirements for people who are just starting out. And so that's what we did. So this is the thing, right? Like it's like when you talk, that's like, I don't know, 60 words per minute or something and you type fast, it's like twice that. But if you can do customer consultation in your own brain, the brain runs at like terabytes per second, but bandwidth. So if you know the use case, if you're building for yourself, or your past experience, or some kind of, if you have a really good model of your customers or use cases in your mind, you can do customer development at high bandwidth, low latency, and you can just build something that you know is a needster exist.

9:08Yeah, that's incredible. So one of the things, you know, you're also kind of been a kind of a special kind of, for a different kind of CEO than, you know, some of the ones, you know, that people read about us such in a dollar or a barbiger and that you have a reputation for being extremely hands -on, including writing code. You still have the fury that started the company. How do you think about that in terms of, you know, you're not kind of paying attention to all parts of the company equally, you're clearly doing certain things and not others. How do you think about that as an effective kind of management style?

9:51Yeah. I mean, I imagine the people in my company would disagree with your assessment about an effective management style. So, well, it's worked pretty well. It's working, but that's like, it certainly doesn't proxy to what people sort of, like it's not a CEO, job out of central casting, but I'm trying to perform, right? I tried that on and it didn't work for me at all. I actually find, like I value being in all the details and I ask it from all the people who are around me and report to me, like almost everyone, especially after COVID, but I turned over like everyone, but one of my executives doing was first 10 months of COVID.

10:34And now almost everyone reports to me, it's actually a ex -founder, maybe someone be acquired or someone who started a company for coming to Shopify. So because that's like this, I just want, I find it actually really inefficient, not understanding the details of what we're doing, Because then, well then you're guessing, then you're guessing, right? And you're like, well, when something goes wrong, now you not only need to fix it, you actually have to first cram for, you have to learn, like three months before you can actually do a fix. If you are there and you're going on or what ought to be existing, it's much faster.

11:10And you want to train people on the company mission, because there's a thing what you want to exist, like even if you know exactly what it is, like you know which direction you want people to go, right? But getting everyone aligned to go in this direction is only possible if you can paint picture of how does this area actually sum together all the way to helping the mission overall. And so, and this is sort of a sort of unique thing about our times right now. It's like the infrastructure keeps changing. Like, here's crypto, here's AI, here's, I mean, I started again almost like next year's 20 years ago, right?

11:48So there was no mobile phone, like that of a quality that we have now. Right. That's right. You started before the mobile phone. Right. So it's like that was one of the things that just sort of happened. And you know, Sass of reading was was new at this time. So you know, the platforms capabilities change and you want to adopt them to like your mission to what is now possible. And so you have to be able to understand, well, but in a kind of like ideally in your head, In the world where I take a very long -term view and my biggest fear that I have is that Shopify winds up being a fantastic solution to a problem that people no longer have.

12:29Right? Or no longer solve this way. Right. So I'm trying to like need to keep it current and being able to run the contextual about this is not possible. This is what we are trying to accomplish. But if this would have been possible from the beginning, we would have bought, built this entirely different thing. So now, our job's to get from here to there because again, we want to keep a current and an idea. Right. You know, that's such a great insight because they think that, you know, when I work with CEOs and you think about the job, so much of the job is making high quality decisions and setting the direction of the company.

13:00And in some respects, neither feels like work. You know, because you're working on something else like how does AI work? what's possible in order to make decisions in the direction, but what you're doing seems actually removed from anything that the company needs to do right now. And I think so many people are kind of neglect that kind of thing for that reason. Do anything that that I always find is at any given point in time, some things in the company are very important and very high leverage and some things are just not important for you to put your time into. and people often get lost in that.

13:39Maybe they think, oh, I've got to talk to this person, and then that person, and the other person and so forth. And it's like, no, no, you don't. You've got to make good decisions. You have to set the direction. And if you don't do that, nobody's doing that. And then the company's going to fail. So that's such an amazing way that you've gone about that. If you're in a smart team for a new thing that your company needs to do, and you're in a smart team of people were like, you know, like no, or like figure out the shape of it early. If it's actually as important, it will itself have a gravity to change the way your company thinks about quality of software shipping, the way the architect thinks.

14:16And it's also after this comes up, as a new thing, you then have a ability to like a type of legitimacy. As a, as a family, you have a huge amount of legitimacy in a company already. But like if you also are there with the new project that's important that needs to be researched and say, this is what we'll do. You don't have to have all these conversations. People love clarity of like, this is what we do. Like it has a gravity all to itself. That's unlike anything you can accomplish by one -on -one consultation, trying to talk everyone through the entire decision of metrics. And so, what is Toby doing over there?

14:56Oh, that must be important. That's Exactly right. We're doing like in Trump's side, like now. And like, then I don't have to figure out like yesterday it's like 15 teams that are already doing AI stuff and they ought to be in some kind of constellation. But now this AI assistant thing is gonna run through and the company everyone wants to be a part of it. And it's just like all these problems kind of disappear. It's like it's maybe not the most, it's like a magic trick. Yeah, yeah, yeah. Yeah, actually, I think I'm by way, like everyone in this, like everyone here has clearly read your books. and if you haven't done do that, I think the best books on leadership, honestly, thank you so much for sharing all this.

15:38I think in some of you described that there's only very few ways to do change management. One way of doing it is to something super, super, super surprising and then explain everyone why you did it. It's the fastest way to get a large company. The workshop provides about 10 ,000 people, much, much, much faster way to do change management than hand -to -hand combat. It's like shock therapy. It's like, what the, what's that? Oh, well, this was up. That was, okay, got it. It's very, very, very high retention on that. So let's talk about, you know, one of the things that has come up, you know, a lot over the years that you had probably, you know, maybe the best statement on I thought is politics, you know, politics, activism, how that's kind of come into companies has taken over a lot of the activity of companies and how do you think about that?

16:29And then why did you say what you said? And then how is that going? And then how are you able to sustain it particularly as things get even hotter now with what's going on in the Middle East and so forth? It's gotten even more intense than it was amazingly in 2020. That's a good, it's a complex topic. I mean, there's a lot of conflicting ideas about what people want companies to be. And I think, especially in 2010, and maybe now again, a lot of people would like companies to play the role of some kind of phantom limb of what I think the whole left over by the stories that people are surrounded with, like maybe with governments or like that.

17:16And so on, I suddenly people want, like I have gotten tons and tons of petitions for Shopify to take stances on issues and I think everyone's feeling the same thing. This was weird to me, but like initially, but like I, I found myself generally agreeing with what people identify as for problems, then that happens. But I found myself very, really, if ever, really agreeing with proposed solutions to those problems. And I think it's kind of important to say, like, hey, unless we are all aligned on this, we're probably not doing this because at the end of the day companies ought to be thought of as a bit of a simpler thing.

17:54We love entrepreneurship. Entrepreneurship is liberal values, kind of institution of reaching for independence, reaching for the better yourself, building something, like in the ideas of enlightened self -interest, there is a bit of a political coding in this, people at least and things So, and someone else might take a total different opinion about all these kind of things. So that's cool. The cool thing is companies are themselves explorations into a set of ideas. Sometimes encoded innovation sums by the founders. And if we make every company the same, then we lose that. That's actually a weird form of diversity itself if you think about it.

18:32So for any way, I went ahead and just like said, look, we cause more entrepreneurship to exist. And sometimes they are social causes that are aligned with us. And then maybe we become active because of our mission. But outside of that, you know, everyone makes money. And you can do whatever you want in your after hours. And that's just a simpler way of thinking about the business. Of course, that's not universally loved. But like after being baby, clear voted and explaining it, And I explain, you know, we give everyone, when we hire people, a letter of like, here the reason, like before you sign, here's the reason why you might not want to work for Shopify, because like here's a set of ideas, it's agree with.

19:19And again, that clarity is wonderful. We keep everything so napluous. I think the word of marketing and PR has just done a number of on our, on our side to be so non -committer to everything. Yeah. And the problem is if you're non -commeter, you leave a lot of vacuum. And that vacuum is going to be filled by someone. And it's usually the people who want to fill a bad faith takes who fill it. So if you just clear about it, it works. Sometimes, like, this is something I'm like getting to hot water. But sometimes it's actually good to hide in the misalignment for people that you don't think should be working in a company.

20:00like, hey, VivoC hearts and it's kind of an, we have, we have poor work life balance. Yeah, yeah. Sorry. That's a good, you are free to work elsewhere. If it drew, put it up, like, like, light it up on a sign because every other voice, you're going to end up with a weirdest divisiveness in the company because, like, because, basically, false advertising. So I think it's better to just be clear. So, um, um, I mean, what is it like? There's a lot goes into this. Like again, culture is unstable. We know from the internet that every community about anyone likes Reddit, like heck, I'm used if anyone actually likes this page.

20:42You know, like it's a product of unbelievably dedicated moderators, we're keeping this the discourse well. I think that's an idea that I think companies have started adopting too. Like once you're a couple of thousand people, your Slack channel is the internet, basically, and you need to apply similar rules. You need to be able to take people to a sign saying, hey, here's the thing you're causing, when you're sending a message to a channel with 3 ,000 people in it, that is basically the same as you spending a day typing individual text message to the channel. And would you do that if no, probably don't put it in, but you know, this kind of stuff.

21:18Yeah, that's really, yeah, it's such a great insight that you have that, hey, actually, kind of agree with the intentions that people have on most of this, just not with the ideas on how to achieve those attentions because that's where politics gets really dangerous in a company and have a funny story about this. So my great uncle Harold, my grandmother, didn't speak for 20 years, brother and sister. And I asked my father a few years ago, I said to like, what happened there? Why didn't they speak? He's like, oh, because your great uncle Harold was a trotskiest. And I was like, well, what was grandma?

21:53She was a Stalinist. There are two slightly different kinds of connoisseurs. I made it and speak for 20 years. And that's kind of what happens inside a company. It's not like you're a good person, you're a bad person. This is a moral issue. It's like, well, yeah, we all want way fewer people to get killed in this current conflict, but how you achieve that, that gets very complicated very fast. And so if you let people attack each other, shut down conversations, intimidate each other inside your company around that, you know, it's just all bad. Yeah, but fighting gets the fiercest when the stakes are lowest.

22:29Yeah, you know, like when people almost agree, then then then they become mortal enemies. If right, yeah, it's a very funny effect. I mean, you can write away the closer they are, the closer they are, the more they get. Yeah, yeah, yeah, exactly. It's not the way you would think. I think at the end of the day, by basically what you have to avoid is divisiveness. Yes, we have a no -assort rural company, like most companies I think, have many companies to choose. I think it's actually a valid opinion to choose for opposite and say we are perfectly fine with brilliant jerks. That's actually a stable equilibrium you can choose as well, but you have to be all in on that.

23:10And I think it's actually useful to reframe active divisiveness as like hovering a part of the same company as an actor of NARSO. And I think that actually kind of transcends a lot of these conversations because it gets away from the issue. It's never about the issue. It's actually about the behavior by people around the issue. That is the problem in the company, right? So just say, if you manage to make it a norm to say, this is just simply not what happens on company funded internet services. Yeah. Take that outside. Outside the virtual. Maybe at one last point. One book that really helped me figuring out this out was Thomas Soel's Conflict of Vision, which is an underappreciated book.

24:00I feel it is a normal book. They're very good. Even if you read the first three chapters, suddenly you realize why everyone is actually kind of right, except comes from a different sort of philosophical of tria. Yeah, yeah, no question. Actually, so let's, you know, you you're in to crypto very, very early on. And why? And then, you know, how do you think, you know, given kind of how things have unfolded, how the technology is developed, how the kind of regulatory uncertainty has played, like how are you thinking about it now, kind of in the context of Shopify in the world. Yeah, a couple of angles to that.

24:42First of all, I make a habit. So growing up in a very small town in Germany, I didn't know anyone was into computers away. I was like, until later my teens and I moved away, basically. I think I built some skills around outside observation,

25:06I tried to figure out everything that's going on in the Silicon Valley when I figured out what that was. But I downloaded Linux kernel source code and mailing this back and forth they used net. So I could study it all. So it's weird because I'm clearly an insider now, but I've sort of lived and built skills around outside of observation. So I make it a habit to like find the areas where there's the most passion and most Yeah, highest stakes and the most talent and like where people are just having a brainstorm about what the future's like I find that there's this is me like watching television It's so great like so crypto is such a wellspring of brilliant inside into You like like just like you know amazing technologies and so on there so because of that I studied I find like consumer internet like mobile apps in China around 2010, 2015, so times like this pocket.

26:06So that was sort of my angle. I did make a Ruby implementation in 2012 of a blockchain paper of Satoshi's paper. So like it's been on my mind. And just because I also love decentralization of, I mean, just like giving people power on relationships, Shopify is just like giving people It's actually the true power of the people is essential. Exactly. And the false one is communism. So there's hundreds of different ways have that drawn me into this, which are my personal ones. What I was hoping for is somewhat more practical. Because my favorite thing is if people that I think that I find super interesting end up coming in the vicinity of commerce, at which point I get to play with, like, I can do it for a birthday rather than in the evening.