How I Built This with Guy Raz - Shopify: Tobias Lütke

Episode Date: August 5, 2019

In 2004, German programmer Tobias Lütke was living in Ottawa with his girlfriend. An avid snowboarder, he wanted to launch an online snowboard shop, but found the e-commerce software available at the time to be clunky and expensive. So he decided to write his own e-commerce software. After he launched his online snowboard business, called Snowdevil, other online merchants were so impressed with what he built that they started asking to license Tobi's software to run their own stores. Tobi and his co-founder realized that software had more potential than snowboards, so they launched the e-commerce platform Shopify in 2006. Since then, it has grown into a publicly-traded company with over 4,000 employees and $1 billion in revenue. PLUS in our postscript "How You Built That," after Barb Heilman invented a device that easily releases child car seat buckles, she started a business with her daughter Becca Davison called Unbuckle Me. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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at nprpresents.org. So how are you doing as the CEO of the company? I did not good. I mean, my team was very, very patient with me. a lot to learn. It's a very subtle job. 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. Turns out humans are not like that.

Humans are different. Yes. So there's a very large learning curve. From NPR, it's how I built this. A show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. Guy Raz, and on the show today, how a young programmer's ambition to sell some snowboards on the internet. grew into Shopify, a platform that now powers billions of dollars of e-commerce every month.

So back in August of 2018, and you might remember this, Kylie Jenner made the cover of Forbes. The issue was dedicated to female billionaires. And Kylie Jenner made her fortune from a cosmetics empire called Kylie Cosmetics. Now, when I started to read the article, I was struck by a few things in particular. things that just weren't possible even five years ago. For starters, Kylie's billion-dollar company employs just seven full-time people. All of the products are manufactured and packaged by a private label cosmetics producer in Oxnard, California. Kylie's PR and marketing team is her iPhone from which she can reach 140 million of her Instagram followers.

And this is the thing that really blew me away. all the sales and fulfillment, this is handled entirely by a software platform called Shopify. Shopify does all the stuff behind the scenes to make e-commerce work. When you click Add to Cart or Buy, it makes sure the transaction will happen seamlessly. If you've bought something online outside of Amazon or eBay, there's a pretty good chance you bought it from a store powered by Shopify. It is now used by more than 800,000 e-commerce companies. around the world. Now, within two years, online sales will account for 13% of all retail transactions in the U.S. So you can imagine this is a big business. Last year alone, Shopify processed more than $40 billion in sales for its customers.

The company went public in 2015, and Shopify's market cap is now just below General Motors and Ford. And yet, unless you're in tech or have an online shop, there's a chance you have never heard of Shopify, which in a way fits the personality of the company's co-founder and CEO Toby Lutka. Toby's a low-key guy. He's the kind of guy who literally rode his used bike to VC pitch meetings. And even as recently as five years ago, at a time Shopify had already raised well over $100 million in venture capital funding. Toby was still living in a spare room at his in-law's house to save money. But before all that, Toby grew up in Koblenz in Germany. And as a kid, it was pretty clear to his parents that Toby was bright, but he also struggled with learning.

I mean, I got diagnosed with all sorts of learning disabilities, and 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 with dyslexic, so, you know, just reading was hard. Yeah. 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 the particular problems that those solutions would help you with.

And if I don't understand the problem I'm trying to solve, it's very hard for me to learn a solution to a problem. And so that but it 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 that just seemed really fun. We were sort of in the basement. I was run by this wonderful guy. His name is Juergen Tsar, who's like fantastic engineer programmer. And he would always come on his like BMW motor cycle 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 immediately gravitated to him. in his little group of rebels. They were working on really interesting things. They were often prototyping new things for customers and so on. And so I wanted to be part of their group. And so starting with 16 or rather 17 and year two of my apprenticeship, I started getting paid to program all day.

And that's all I did. And you loved it? I loved it. And I still love it. It's computer programming is you can forget all time around you. You just can, like, I can turn everything off if I'm working on. an interesting problem. Huh.

And there's another part of your life which, I'm curious how you got into, which is snowboarding, right? You were a snowboarder. Did you grow up snowboarding? Did you just come to it on your own? No, I mean, my parents had a place in the Alps. We often drove to. There was a five-hour drive. And we skied.

Yeah. You know, fast forward a little bit. Took some friends. We took this vacation. Initially tried to go to the United States, but then, like, the Canadian dollar was so low that we decided to go to Canada. To Wistler. This is like 2000.

This is around 2000. 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 spent all our time there. 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, your wife? 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 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 at that point? Yeah, that was a little startup in Dortmund, yeah.

And what did she do during that year? She ended up getting a job, editing, academic, writing. Yeah, we lived 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, and I said, yes. 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 arrive there 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 startup, like, remotely. that was doomed to failure because the tools weren't there. There was no slack. There was no, you know. It's just email, contact, right, yeah. What was the startup?

It was an attempt at writing a different browser. Okay. But it sort of basically ran out the clock. It was everyone, we knew it wasn't going to do anything. People were starting to leave. We were talking like after the dot-com crash. Well, that's what I'm 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 to just, like, get something stable? Hey, I was. 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 four seamans. I was just hoping I kind of didn't have to in some way. To work for a big company. Yeah. Why? Like, working for Siemens has been probably one of the most important things I've ever done in my life because it 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.

Like even, you know, fairly strict dress courts, which is basically the company saying, hey, we don't trust you guys to dress yourself. And it was so much of that which just felt wrong. Yeah. 20-year-old Toby would not have a career there. And so over time, I was, it's up in Canada, we are in Ottawa, a very cold place in the winter. Nine months out of the year, basically, eight months out of year, yeah. It's six months.

Six months, all right. It might feel like nine months ago. Okay. But you can't run a strategy of waiting for summer. You really have to do something with a winter. Yeah. And for me, there was go-to-hills and snowboard, and I got increasingly into that. As I do, I researched everything that was 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 snowboards would be a 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 came up was the topic of a work permit, which I like found out at this point that I needed a work permit to, to, you were not legal.

Well, I was allowed to be there because I was in 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 a family and employment lawyer and he said, that's got to take you a while, basically, until you get the apartment residency to, until you get this. But just so you know, you can't start a business. So you could not go work for this company, but you were, you could, essentially that was your only option. But that basically was my only option. Like I could try to work remotely again for a German 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. Sell 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. How'd you meet him? So Scott worked for that company I almost got hired for. And so we kept talking and he was a friend of a family.

He was a friend of Fiona's family. Exactly, exactly. Who we were also living with at that time. You were living with where? With the funeral's parents. Oh, you were living with her parents in Ottawa? In Ottawa, exactly. Was that uncomfortable?

I mean, you're like this German kid dating their daughter, you're living in their house. It's been a little weird. They were amazingly supportive. And honestly, here's the reality. I don't think I could live with anyone's parents. But I can live with Dale and Bruce. They made it incredibly easy.

They are just her most kind, genuine, and played massive roles. Like, Dale, she was a diplomat for a Canadian government. This is your now mother-in-law. This is exactly, my mother-in-law. And she ended up being our, like, after we had an office, which is a bit later, she did all the 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 in entrepreneurship. kind of everyone around you is coming onto the trip. There's a lot of people who end up mattering a lot. And 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 her 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. We went snowboarding together.

So he became like the person I was saying, hey, here's what I'm thinking. And he loved the idea and 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. Like, I mean, this is a classical co-founder situation. I was looking after the technology. He was still on the business side. Yeah.

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 in snowboards. You had to keep some inventory or would you – was the idea to wait until orders came in. No. No, we had the inventory. We ran this pretty old school in that way. We really wanted to build a brand, right? We wanted to build something which we hope would become big. What did you call it, by the way?

It was called Snow Devil. Snow Devil. Okay. Like, how were you going to get this out into the world to, like, 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, really important moment and I didn't anticipate it. Technology to, like, 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 on. Eventually, okay. And I budgeted maybe a week to get the online store online. This was my expectation. That you would do 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 store software. 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. 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 how we wanted the website to look. Like, we wanted to tell stories. Like, every snowboard that we sold, we actually took on a mountain. And we would chronicle the way we spent the day. You know, this is also the time of emergence or blogging.

So 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 you and Scott sort of sat down and said, yeah, let's do this snowboard company. Let's launch Snowdevil. Like, did you need 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. It was 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 coffee shop and working from there. And you were living rent-free, basically. Yeah. All right, so you and Scott are working out of cafes.

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. 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 will ever work on this. So I don't actually have to choose something that lots of people know. I can actually choose just the best tool for the job. And so I've always, there's been this program language called Ruby, which I just absolutely loved. It was, you know, 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 programming language ends up being the mechanism for translating this perfect picture you have in your head onto a canvas.

Right. And so, you know, if you have like an amazing landscape and they give you crayons, it's possible to make a masterpiece of crayons, but it will be, it will always be a crayons painting. So 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 open source Japanese. There's only Japanese documentation around this time for it. I learned the language by looking at the source code.

But the source code is in Latin characters. Latin characters at least, right. But the instruction manual was in Japanese. Exactly. And 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 did it take you to actually build the shopfront? Yeah, we launched now about two and a half months later. This is fast. It was really good technology. And I mean, I also admit I probably spent 60 hours a day doing that. So a lot of Coca-Cola and pizza and very 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. 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 like everything about that day. This 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. And so, you know, I went to a coffee shop. I'll open 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 first time someone hires you for when the phone rings 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 about Snow Devil? I mean, we tried to do basic promotions. We tried flyers and stuff like this. But the entire of 2004 was so different, right? Like there was Google AdWords, was a new product. Right.

In those days, it turns out that a 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 ads, and there were not that many online snowboard shops, presumably. So how did Snow Devil do as a business? It did really well. Snobots have really good or had.

really good profit margins on them. And our biggest problem was keeping inventory and getting inventory back. And we were just basically out of stock the entire time. Wow. But we had an excellent season. I mean, you guys recouped your investment pretty quickly. Very quickly. And then we had a 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. He was literally driving them to the post office. Yeah, or biking, man. We figured out a way to put a... I'm imagining like a brown paper-wrapped snowboard on his shoulder. Yeah, exactly.

That's exactly the 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. You guys are making money? And, I mean, what happened next? Here's what happened.

The sales slowed, obviously, in spring. And we sort of began the conversations around, you know, to make this a really sustainable year around business, we need to either sell skateboards, surfboards, or do something else. So you were considering, hey, it's a spring. Maybe we should do kiteboards and skateboards and other things. Yeah, I mean, that would have been the natural thing to do,

to go year round. 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, like I was tweaking the software. I did not stop programming. I was just, okay, now let me try things. Let me make it faster. Let me use different approaches. And so increasingly, I got people sending me emails and asking me if I would license Snowdevil to them because they wanted to start something similar. People were saying, hey, can you just like that? You built this. Can we use it for our e-commerce shop?

Right. And exactly, because it was just different. It wasn't a normal grid. It told stories. It was clearly modern. It was sort of Web 2-OE. 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 in one. And so he basically created his own way to build a website, right? He did it himself.

It's similar story here. Similar story. Yeah. 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 couple thousand people who also need this. Right. So this was like spring 2005. At some point, Scott and I just said, okay, skateboards or software? It was pretty obvious that we should go with software.

So eventually, I guess you bring in this guy, Daniel Weinand. Who is he and why did you bring him aboard? Yeah, so we decided it's going to be software. And I called Daniel, who's a really good friend, my best friend, really, who was in Germany and said, hey, here's what I would like to do. And I think I need another half year to build this. Do you want to spend a summer in Canada and we do this together? and we could work together and that would be fun.

So you and Daniel spend that summer, I guess summer of 2005. That summer became like a year and a half, but yes. Okay, a year and a half, trying to build this software together. Exactly. At what point do you stop selling snowboards? Around that time. Kind of shunner. 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 have a Scott's idea. It was, we talked about what we wanted it, And putting shop and simplified together was pretty straightforward. And when we went, I think, on Goddady and registered with dot com. And there you go. They take people back and saying, oh, yeah, those times were 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. It's, you know, there's so much to building business. There's so much complexity.

Like, if you get an order, how does this money make it to you? How do you get shipping labels from? How do you make a truck show up to actually send it anywhere? Like Shopify, it 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, we got our first sale. From that point on, I can never get that again. But that was such a profound moment.

moment, like, what I want to spend my time on is, like, can't I just have other people have that experience? Huh. That became sort of a guiding principle of how we build a company. And I have to imagine that you've got to, at some point, raise some money to pay for server space, pay for, you know, 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, we asked friends and family for money. This was like 2006, 2007. Yeah, 2000, around five. Okay. Like Fiona's parents, anyone you knew with any cash. Exactly. People from my family. I mean, you know, amazing that people trusted us so much.

And 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 there are more people like me.

But meantime, all these sort of like people were still asking you for this. And what were you saying to them? Were you saying, hang on, we're working on something. Just hold tight. We'll get it to you. Yeah, I kept a weblock 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 the... And the landing page was Shopify.com or...

Yeah. And here's like a demo. which we pointed people to Snow Devil, so I explained why we were doing this. And by the time we launched in 2006, I think we had 4,000 or 5,000 emails. So it's not, that seemed 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 never got internet.

Like, we always used their Wi-Fi. Right. Build some desks, and that's from where we worked. And it's time to launch. You've got 4,000 emails or so from the landing page. And did you just send like a blast of an email saying, OK, we're live, we're here, we're ready to go? Is that how you launched it?

That's 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 a lot. I mean, you know, think about what an online story is.

It's to most of our customers. This is their livelihood. Right. If that thing is not there suddenly or something goes wrong, the business is defunct, which is a huge responsibility. And people were trusting three guys in Canada. And was it free initially? It started out free.

The first year, we decided against the multiple tier monthly cost. Because we figured that it's going to be so hard to get people to trust. us that making it 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 or three point seven five percent per sale. It was a complete failure of a business model because basically everyone who didn't expect to have sales thought it was amazing. And people who expect to sell a lot, that was way 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 grandfathered everyone, but suddenly everyone called us and said, hey, I promised my son-and-so that they can use this for free, and suddenly it cost 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, now married with your in-laws. Yeah, 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, there was a couple of thousand accounts, and I would say like maybe 100 active. Huh. And in the year two, we had an interesting event. I mean, this is, I think the Indianapolis team won the Super Bowl around that time,

and they actually had a, or local newspaper, actually had a Shopify store created, which they started like two days before the Super Bowl. And it just was selling t-shirts with the front page saying, we won the Super Bowl. Oh, wow. Like a picture of what the newspaper would look like if they actually happened to win. And then they 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 real economic. 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? No. No. It was, we had paying customers, but we were going, trending towards zero fast. Yeah. Like, we eventually, I mean, 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 as an individual. name of John Phillips. I think part of the reason why invested is because his parents were in Ottawa 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 because I think at that time the company was valued at $3 million. Around this time, 2008, Scott Leaves, he decides, I want to 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

where the software industry was going is most of the people who, their CEOs, were 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. And so, you know, that was okay. We decided to part ways at this point. Were you worried about it? Because 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, told me that if a great VC invests in your company, they would have a network to find the right kind of CEO. Yeah.

And so I was like, okay, well, maybe I really should talk to venture capitalist. And that was the time I traveled to 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 in 2008 with a couple of appointments? Yeah, a couple of appointments and just drinks with friends and people I knew in Silicon Valley. This is the first time I 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. A 20-person company. super efficient, providing the software to people, not a massive company. Because you wanted to have,

you just want 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 went 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.

Where did you stay? Stay a little hostile. At a youth hostel? Yeah, yeah, yeah. Like in a bunk bedroom? Yeah, I had a roommate. Incidentally, it 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. From the youth hostel to down center the road.

and showing up, and they probably already thought, who is this? And so I would have the first meeting, and I had my notepad, and they would ask me, it started out, I was sort of explaining the business, but then they would ask me some questions about, you know, usage and market size, these kind of things, and some of those I could answer,

and they would get really interested. But the problem was that very quickly, they asked me questions I couldn't answer. Like there was questions around CAQ ratios and lifetime value and all these kind of things. I would write down the terms.

I would then look up 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 in 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 again, I was mostly, like I got benchmark office and Sequoia. From that meeting, from that visit. Yeah, probably from meeting free by the time I kind of figured out. So people actually really weren't.

There were some people who were interested. Some people were interested, but all the offers were always conditional on moving a company to Silicon Valley. They all said, we'll support you. You've got to move it here. Yes. So I got the offers, I got term sheets, and some of them referred me to potential CEOs. I had a bunch of late-night meetings with people who could take over as CEO of the company. Because you did not want to be CEO.

Because I wanted to play with technology. That was what I was good at. That was my identity. So I said, okay, clearly, if you want to do this now and if I get good numbers, you're going to give me this later. Eventually. So you figured, I don't need to slow this 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 the customer support initially, and then eventually the rest of my team told me my English wasn't good enough. By the way, how are you paying people? This was now after we got angel investment.

I still wasn't taking salary. But your runway was not very long. No, but there was income now. We were still burning, but it got slower and slower. Because there was income coming in from subscribers. Exactly. So I go back and then we're talking 2008. So Lehman Brothers at some point.

Now the world was falling apart. Lehman Brothers collapsed, markets collapsed, 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 Ludke learned to do the job of CEO, a job he never wanted in the first place. Stay with us. I'm Guy Raz. And you're listening to How I Built This from NPR. Hey, welcome back to How I Built This from NPR. I'm Guy Raz. So it's 2008 in the global financial crisis hits. At this point, Toby Ludke 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 going to try this thing I always wanted to try, right? Wow. Did you see, start to see users and subscribers start to tick up? Yes. 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 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'm not good. I mean, my team was very, very patient with me. There was a lot to learn. It's a very subtle job. 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.

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 held the company back from what I could have and should have probably become. You held it back.

What do you mean? 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 slowed down the growth of a company a little bit just because I needed it to be manageable for me. And I was wavering 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? Which sounds like a lot, but obviously you've got huge expenses, you've got a growing staff.

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 going to work. Guy, it's crushing. It's a crushing responsibility, right? Like, it's you're responsible for everyone who is there, right? Do people have families? People have families. kids. My family, like, it's not a wealthy family. Like, it's, I mean, people gave me money that

didn't really have. Like, up till this point, it was really just your money from John Phillips, for my family, and then for the last year, for my father-in-law, who gave me money for, 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. 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. So one thing I found about the entrepreneurial journey, or at least mine, is you basically exist in two different states. there's the state of things are coming together and I think if we do this, we're unbeatable and the state of complete dread and we're 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 and a month another and then eventually became a week and now a day and now this can happen. Hour by hour. I can switch three times before breakfast. But at the bottoms,

The bottoms are deep, and the implications of what failure means is it just means so much. It changes everyone's life story to a significant degree, right? How did you manage that? Did you go for long runs? Did you take Prozac? What did you do? No, I basically just programmed, which actually often wasn't the best use of my time. Would you talk to Fiona about it?

Yeah. Yeah, she was unbelievable, 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 and just compare, you know, what it was last time.

Yeah. And if it was going up, basically we said, okay. should we invest this in another team member or should we attempt marketing? So I finally said, okay, I'm going to 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. Because the money really you needed for marketing at this point. At this point, we were held back by not engaging in marketing.

You got five projects, and you went to your team and you said, you guys come up with something? We need ideas. We voted on the 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 adverts. This took a little bit longer, but we released a book on the concept. We just tried to, like, we sponsored actually a podcast. You know, like every one of those. we tracked and it's like these were directly mathematically trackable like we made the money back in like five

six months of these investments and then we're like okay now we're not talking about fundraising anymore based on isn't it cool that we're going after this market now we're talking about I have a formula and I need to plug bigger numbers into the formula and so

then picked up a phone called the venture capitalists which really impressed me and said okay you were right this is a venture I have of 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 the years of those times. It was insane. And do you remember what the valuation was? Like $25 million. At this point, once you're bringing in $7 million, those venture capitalists are also buying a seat on the board. You've got to develop a board. You're now, right? And you've got to 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 a company, partly because I told them straight off a bat, 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 were all on the same side of the table trying to build this thing. And I hope at any ways that I'm a 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 ten people? Was it still at that? I think at this point it was about 20. About 20 people, okay. And so all of you guys are really doubling down on marketing, getting the word out.

and what kind of businesses were being launched on 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. Yeah, Albers launches, yeah, right. Great examples of the kind of business that were coming out. And 10 months after the series A, Jeremy and Trevor from Bessemer 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 of a company and put much more money into this thing because you can grow this way faster. They basically saved me from doing a fundraising round. They said, we see the potential here. We're going to give you $15 million more. Yeah, yeah, exactly.

It was just so obvious. And this is why I said earlier that I had the company back because I knew this would happen. You knew it would happen, but you said you had all this anxiety about all these people. So if you knew it, what explains the freaking out?

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 chip 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 with those things 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 want to say it must have been 2014 that we actually moved out. So it was, we were living, I think, for 13 years, actually, no to think of it. You had raised $100 million in 2013.

You're still nervous about... Well, I was making. basically minimum wage. So if Shobbibb would have given me more money, I would have probably given it back because I figured Shobbif I could use it better than I did. So, yeah, and Fiona had income. So that had to be. And presumably your lifestyle wasn't, didn't require a whole lot of money.

No. As long as I had my laptop, I was good. All right. So you guys are balancing, like raising kids, and this company is really starting to take off. Like end of 2013, you've got 80,000 customers, about like 300 employees. But in a lot of ways, I mean, you're still under the radar. Like, no one knew who you were. Yeah.

Well, like, that was by design. So, like, here, my board members always said, Shopify was turned out to be a company only Canadians could have built because we said our job is to make our merchants look good. Like, this is why we exist. So we wouldn't put Shopify on the merchant stores. Like, at this point, these investors we would meet would ask me, you know, like, I'm looking at these numbers.

this is a significant company. How come I've never heard of you? And I said, you bought something from Shopify over the last half year. Amazing. Because basically everyone did. If you bought something online and it wasn't on Amazon

and you liked the experience, it was Shopify. So it just doesn't say Shopify. You don't go to Shopify or come. It's other people, like, it's there are other people but their home on the internet. And so we are happy with that.

We didn't even put Shopify on our buildings. You didn't put the name Shopify in the buildings? 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 Ludke. Was that weird for you to, because like now you're recognized and people are like, oh my God, who's this guy?

And you just moved out of your in-laws house. Yeah, yeah, exactly. It was pretty surreal. It's not something I was seeking. Especially because you thought you were a. crappy CEO. If they're naming you the CEO of the year, four years before that, you're still struggling to, like, figure this out.

Yeah, I mean, that's exactly, you perfectly summarize the experience, honestly. It's like, it was we didn't quite know what they were writing, so it was a little bit of a surprise to me, 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 earliest days of going for beer after a week of programming. he said, what would happen if it just doesn't work? And this was before investments and so on. So we felt a little bit easier to even think and conceptualized these kind of issues.

And we said, that would be okay. Because you know what? No matter what, we're going to learn a lot. This is going to be part of all of our life's journeys and all of our stories. And we will be able for the rest of our lives to do things we couldn't do if we wouldn't embark on this journey

because there's no way that the residue learning of this 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 had waited a long time. This is 2015. People had 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 raising the clock to either go public or get sold. That was the duality of outcome. And by 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-eyed about what it means. And so I really wanted to set up a company to become an independent public company because my private investors have all seen Shopify perform under promise, over-deliver, month after month, and board meeting after board meeting, all of them fully trusted the company and further good performance was not really buying us anything new. Today, I think there's more than 800,000 Shopify merchants. So there's a good chance that anyone listening will have purchased something on a site that's powered by Shopify.

There's a very good chance. Exactly. And since we've talked about stats, here's the most gratifying of all the numbers related to Shopify and it's actually the north star of a company. Every 52 seconds, someone has that experience of getting a first sale. Wow. The one that I 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, really, the 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 computer software is like a specialized tool on a climbing trip. If I wouldn't have that specialized tool with me, I would have had to turn around because some walls I just couldn't have or 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, it's not flat. It's like still hard to build a business. But at no point do you need... It's not a technical client.

Exactly. And so because of that, significantly more people succeed in building businesses. Right. Because they are just not these discouraging experiences which make you give up even though you shouldn't have. And so what we have found is the best thing we can do for the business of Shopify is find another one of those things,

which is an incline, and just flatten it as to be. 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. Five years ago, you had moved out of your in-law's place. Today, I have to imagine that Shopify is easily the biggest employer in Ottawa, aside from the federal government, the Canadian government. Exactly. 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 this, this sounds crazy to me, right? 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, welcoming, 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 right. It needed to be started right then and it needed to be ready

and good by the time the opportunity around the financial crisis came around all these things when we went

public and luck is such a major component of the entire journey so like why am I the person

who ended up you know, winning the lottery five times in a row. I don't know. You 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 is 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. I would say it's 90%. Luck.

Basically all I can do is a job. it and be honest about what happened here. And it's definitely the best idea I've 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 Litka, co-founder and CEO of Shopify. Since its launch, the Shopify platform has been used for over $100 billion of e-commerce sales worldwide.

And by the way, Toby has his own little side hustle on Shopify. Do you have like a secret Shopify store like J.K. Rowling has like, you know, pseudonyms? Do you have your own, like, secret shop? Yes, of course. You do? Yeah. What do you sell? Sox mainly. It's my best seller. Yeah. What's the store called? I'm not telling you. Hey, thanks for sticking around because it's time now for how you built that. And today's story starts about four years ago in Houston, Texas, when Barb Heilman was babysitting her granddaughter Eve and was quickly running out of things. to do with her. I mean, I wanted to take her to Jimberie and I wanted to take her to the park. But then I said, but wait, I can't really put her in the car seat. And the reason Barb couldn't

put Eve in the car seat is because she has arthritis in her thumb. And pushing that big red button to release the seat buckle, it's hard. Yes, it's very hard. I mean, it's just, I mean, even people that can do it sort of hate it because they have to struggle and it hurts. For safety reasons, it actually takes about nine pounds of pressure to release that red button. So how do you do that if you don't have enough strength in your hand? Well, fortunately for Barb, it turns out she had the perfect set of skills to solve this problem. I'm an occupational therapist. Which means her job is to help people with disabilities accomplish daily tasks. So using some pliable plastic that she had lying around the house, Barb made a tool that could

help her release the buckle on Eve's car seat. It's kind of a C-shaped device and the operative arm has a peg in the center. So, okay, you take this clamp-like thing, you slide it under the car seat buckle, you place the peg over the red button, and then you push and you kind of pinch, and that will release the buckle. So a super simple idea that actually worked the first time Barb tried it. I was pretty excited and honestly just started using it, and it was really Rebecca that said, Mom, there's probably other people that would like this. Enter Barb's daughter, Rebecca. Hi. Rebecca is Baby Eve's mom and she also happens to have a background in business. I think I said to her, I said, Mom, you know, what if we made this and sold it? What if this was a business? And, you know,

I've always had kind of entrepreneurship in the back of my mind. But neither Rebecca nor Barb knew if they were really onto something. So while Barb kept working on different prototypes to get the clamp exactly right, Rebecca started to poke around a little to do some research. So I actually I just remember learning about the ABC Kids Expo, one of the largest juvenile product trade shows in the country. And we ended up going. It was kind of a last-minute decision. So they traveled to Las Vegas to go to this big convention. Oh, my gosh, it was amazing.

It was one of the most energizing experiences I can remember. People just saw it and thought, yes, that is a need, and that is solving a problem that's in the market. Next came all the traditional milestones, a Kickstarter. campaign, finding a manufacturer, and delivering the first orders. But then, a not-so-happy sign of success. Other vendors were starting to copy their device. You know, it's kind of a gut punch when you see it. We just both went, oh, it just makes you feel just so defeated because, you know, you know, you know, they haven't gone through the sweat and the, you know, iterations and the bucket full of prototypes. Rebecca and Barb did manage to get two patents for their product, and they've been

able to shut down some of the knock-offs. And meanwhile, Rebecca says that by going into business with her mom, she has seen an entirely new side of her. When it comes to this business, I think my mom, you know, is such a go-getter, and she's, you know, gets on the phone and she'll call up retailers, and, you know, she's got the hustle, and it's really been kind of a cool experience. Rebecca Davidson and Barb Heilman's product is called Unbuckle Me. They're now selling it online and at some major chains like Bye Bye Baby.

And since they launched the business two years ago, they've made about $350,000. If you want to find out more about their business or hear previous episodes, head to our podcast page, how I Built This.npr.org. And of course, if you want to tell us your story, go to build.npr.org. We love hearing what you're building. And thanks so much for listening to the show this week. You can subscribe at Apple Podcasts or wherever you get your podcasts. And while you're there, please do give us a review. You can also write to us at HibT at npr.org.

And if you want to send a tweet, it's at How I Built This. I'm at Guy Raz. Our show is produced this week by Casey Herman with music composed by Rumtin Arablui. Thanks also to Julia Carney, Neva Grant, Sanaz-Meshkampur, and Jeff Rogers. Our intern is David Jock. I'm Guy Raz, and you've been listening to How I Built This.