Lenny's Podcast: Product | Career | Growth - Tobi Lütke’s leadership playbook: Playing infinite games, operating from first principles, and maximizing human potential (founder and CEO of Shopify)

Starting point is 00:00:00 Your podcast is a podcast by a builder for other builders. Here's the most interesting question I think people can ask builders. What is your energy source? My energy source is dissatisfaction with status quo. Like, so many books are about this technology leading to dystopia. Like, no one who really thinks about this would want to be born into the world 20 years before today. I think today is the dystopia of the future. It behooves us to try to build the kinds of progress that lead towards progress.

Starting point is 00:00:28 There's a couple of quotes along these lines I've seen. that describe the way you think about this stuff. If most people are doing it a certain way, I by default don't want to do it that way. There's an aesthetic in the world that exists, which is that business people dress in suit and tie. They are speaking much more sophisticated than I do, usually without an accent. They usually have a stick and show dramatically at the chart that is behind them. How much is that aesthetic overlap with outperformance?

Starting point is 00:00:53 Passimism sounds extremely sophisticated. Optimism always sounds dumb, or at least naive. The most powerful, unquantifiable things in the world of business are fun and delight. I don't know of any other company that operates where the founder has this 100-year vision of where the product needs to go and working backwards from that. I talk about look in the future and think backwards a lot. It's like what would we want to have done 20 years ago on this? We have very long-term plans.

Starting point is 00:01:21 At 100 years, you can't talk about this software product, but you can't talk about the mission itself. whatever things that will survive for 80 years that are left on this particular time frame. Like, entrepreneurship is just precious. Shopify exists, basically, you make entrepreneurship more common. Is there anything you want to leave listeners with? I really, really, really think that there is not a single person on this planet who is even close to being at their maximum potential. Reminding people of their own potential constantly is actually a wonderful thing to do. Today, my guest is Toby Lutka.

Starting point is 00:01:56 Toby is a man who needs no introduction. going to keep this very short and get you right to this jam-packed conversation. If you enjoy this podcast, don't forget to subscribe and follow it in your favorite podcasting app or YouTube. It's the best way to avoid missing future episodes, and it helps the podcast tremendously. With that, I bring you Toby Letka. This episode is brought to you by Cynch, the customer communications cloud. Here's the thing about digital customer communications. Whether you're sending marketing campaigns, verification codes, or account alerts, you need them to reach users reliably. That's where Cynch comes in. Over 150,000 businesses, including eight of the

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Starting point is 00:04:03 to drive engagement and growth in their products. Join them today and give your users an experience that turns them into daily active users. Sign up for a free account today at LiveBlocks.io slash Lenny. Toby, thank you so much for being here. Welcome to the podcast. I'm glad to be here. I'm excited for our conversation. I've listened to so many of your other interviews. I've talked to a bunch of people that work for you.

Starting point is 00:04:30 I want to try to do something a little different. There's a couple of themes. There's basically two themes that emerged over and over and over as I've listened to you, share advice and interview and in talking to people that work for you. One is thinking from first principles. The other is maximizing human potential. I'm just going to plant these seeds for now. I'm going to not ask about these directly.

Starting point is 00:04:51 I'm going to come at these from the side with the many questions that I have for you. And the first question I have is something that I've heard people describe at Shopify called the Toby Tornado. Oh, wow. Okay. That's a start. I like it. What is the Toby Tornado? Toby Tornado, I would say, is like a whole lot of change management or a conversation or conflict or real talk compressed into a very short time frame.

Starting point is 00:05:20 I see something. It doesn't sound like it's not good. I have a conversation. If that isn't steel mad, and it's like I either learn something very quickly about, hey, I need to update my priors, or cool, let's do it differently. At which point, a project might be stopped. And we get back together in a room,

Starting point is 00:05:38 and then we start a new version of a product, and everyone who's currently on the team is no longer, of that particular project, is no longer on the project, but they have the founders of the next version, which is built differently. And that might be a bit whiplishy for people, But it's also something that like, I mean, I mean, I certainly hope that's true.

Starting point is 00:06:00 It's certainly what people tell me is also what they appreciate about a company, right? Like it's kind of like, what is best ends up mattering a lot. And so, yeah. Basically, it's you going into chat room being like, hey, we're going to end this project. Let's try it something else because you've discovered, I realize this is a bad idea. What I see when I see this is some people complain about this practice of like, oh, Toby Kill kills a project we've been working on. my lens is you realize we're just wasting time on this thing that is not going to work

Starting point is 00:06:28 and we shouldn't do it. Is there anything there along those lines? No, this is everything. It's like, look, people, again, once I imagine something might be not the right thing to work on, I'm either incorrect at which point this is super important that I understand why, or I'm correct at which point it's super unfair for letting people look on something that isn't going to make it. There's a third way, which is like I could also ignore it, But that's like an abjectation of my CEO and founder responsibility that I'm like absolutely not willing to make.

Starting point is 00:06:58 So that's not a, that's not a path forward that I see valid. I understand that's what a lot of people choose to do. So, yeah, like compressing time is important. And, you know, like I think we have fairly limited time in our careers, right? And our careers are not that long. Like, it's, you know, if you're lucky, you have 40 years in industry. most people spend more time in school and then like maybe leave later if they if they're so lucky that I can so it's not even bad I think you want to do the maximum

Starting point is 00:07:35 amount of things you can be proud of at the end of your career when you look back you want to be saying like hey holy shit we shipped this thing which was absolutely like an incredible contribution to a mission I cared about at a company that was full of other people who cared as much as I did and probably now at my vintage sitting and looking back and also are very proud of looking and maybe even thinking of working with me and being really, really glad that we spend time on projects together. And so it's like, yeah, none of this happens if like everyone's sort of optimizing a thing that probably shouldn't be there.

Starting point is 00:08:10 And so, and, you know, therefore I think it's a better thing to do. There's another example along these lines. By the way, I love this way of describing it of compressing time to just make a decision and not focus on making it come across the most kind, nice, this kind of sweetest way. Something else I heard along these lines is just when you give feedback to people, when something is not the way that you think it could be or as good as it could be. It's often very direct and often hard to hear. And again, to me, this comes across as you're trying to maximize their potential.

Starting point is 00:08:43 You're trying to push them to do something better. Is there anything there that you think is a way of approaching feedback? I really, really, really think that there is not a single person on this planet who is even close to being at their maximum potential. Like I just think everyone is like way, way, way, way, way better than they think. And the reason why we're not performing at this level is a series of ideas, maybe certain approaches for cultivating our skills and our crafts that have not yet been discovered and therefore we could not take advantage of them. very often it's honestly just like it's an environment that just narrows the focus on fairly unambitious things, at which point you get stuck competing with literally everyone else in the world because everyone's unambitious. And so I have found that reminding people of their own potential constantly is actually a wonderful thing to do.

Starting point is 00:09:40 And I have a history of being right about people's potential more than they are themselves. Now, in a way, this dooms me fairly often to be disappointed, you know, in myself. By the way, I'm talking about myself, you too. I think I have way more potential than what I bring to bear, and I hate that. So, like, I'm trying to cultivate the skills that I need for tomorrow and constantly challenge myself. But I'm harder on myself than on anyone else, and then I'm by some discount rate act equally to the people around me, especially the ones who just so obviously are brilliant. And so spending time and longer time in careers with people and then holding them to a high

Starting point is 00:10:28 standard means that they accomplish very often things that just they didn't imagine they could. And to me, this is the most wonderful thing to see. And frankly, this is like a through line for all of my career because my product is that. I want my product to cause people to be more successful than they thought they could and in fact become more ambitious about what they are building with their online stores and their businesses when they actually initially set out to do. Because something like this happened to me, right? Like I started a snowboard store at some point that I didn't set out to build Shopify.

Starting point is 00:11:01 I built Shopify because if you are committed to following your curiosity as to the next step and optimize for maximum amount of learning when you choose these steps, it takes you from one place to another and we actually realize the world's full of lies about human potential and progress and maybe they're not maybe people are not malicious about it

Starting point is 00:11:26 but they're definitely confused about it like school teaches you that you have to learn this particular piece of math in this 12th month period and it doesn't matter how much you understand it it's like the outcome can be variable and will grade you on a variable outcome for a fixed amount of time, which has nothing to do with anything I've ever seen or learned or see a like witness about how to actually learn things.

Starting point is 00:11:52 You follow that thread and you just find that there is no speed limit for personal growth. And just I find that like in a way Shopify has been an wonderful experimental lab for this sort of conviction. and I've just seen this to come to be true. And of course, hearing from someone that you respect that, hey, I think you had it in you to do this thing like significantly better because I think you probably saw fairly early in the project this sort of path A, path B. and you chose path B potentially out of convenience, even though you knew that wasn't the right thing.

Starting point is 00:12:44 And like, I actually expected better of you, and like I expected, like, I think the next time this happens in your career, you should go path like A, because based on your conviction. And therefore, that's hard to hear, right, because it's right. And but it's also extremely valuable, right? And so what I love is an environment of people who are holding each other accountable to the actual potential rather than sort of their current level plus some some, I don't know, a little bit extra. There's so many threads I want to follow here. The example of the school is such a partner one to me right now where you're looking at preschools for our son and they're describing their education philosophy.

Starting point is 00:13:29 I'm like, I don't know why I should believe this is the right approach. makes me just want to spend all this time researching what education approach works. I know it's just preschool and maybe not as critical yet. Do you have a bet yet? Because, like, I mean, obviously I have free kids too. And this is sort of a kind of decision that faces every parent faces, right? Like, the interesting business analogy here is so many of your listeners are probably product managers of machine learning projects that maybe this resonates.

Starting point is 00:14:01 But like, so there's a funny thing about machine learning. learning, which you're just like, you train on a lot of data and, you know, hopefully you get something that predicts the thing you want to predict correctly out of it. The biggest problem of this is overfitting, right? So you end up defining a, you know, what does good look like, a loss function? And which is a heuristic because it's not the actual task that the thing will do in the future. It's something that proxies to the task that you want the thing to do in the future, predict fraud, predict the next word, whatever.

Starting point is 00:14:33 So overfitting is basically model learning how to cheat on the benchmark, or like on the fitness function. So there's a business analogy of this, which is that, or not actually an analogy, it's called Goodhart's Law. It's literally the same thing as overfitting, just for businesses.

Starting point is 00:14:48 Goodhart's Law just says any metric that becomes a goal ceases to be a good metric. And same exact thing. Like the universal truths are things that any almost any competitive field will invent for itself by different terminology often. And I think this is also by way by so interesting to focus on personal growth and learning a lot about a lot because you end up finding these sort of hidden harmonies behind things, the things that are clearly enduring correct insights.

Starting point is 00:15:21 So overfitting Gotthard's law, the same thing. like school optimizes for what um marks supposedly right like um in fact overfitting in school is literally the kids cheating to get marks right like so um so there's you get another analogy what is however the right uh loss function for children i i do you have you made a decision yet no i have not. We just started doing this path. It's the kind of thing where to send them. You need, like, you have to actually go fairly deep in philosophy to figure this out. And then again, afterwards, you can build, like, you can find the schools that you like.

Starting point is 00:16:05 For, I mean, just like supplying this for us. For us, it was just maintaining curiosity. I, like, this is a completely different goal from being good at Marx. But, like, I just think, like, everyone's born extremely curious. And school has a habit of, um, uh, uh, getting it out of kids. Literally, there's a foundation model of a child, and you fine-tune it on school,

Starting point is 00:16:30 and it just loses the neurons of curiosity because it's actually discouraged to meander into other topics and explore them just because they're interesting. I don't know. This is sort of not the beat of the podcast, but I just think about this a lot. It's funny how these kind of things just recur constantly.

Starting point is 00:16:47 So when Archie was on the podcast, he's the head of growth at Shopify. I don't know if this official role basically drives a lot of, the growth. He talked about how the core product team, outside of the growth team, operates without KPIs, without specific goals, and decisions are driven by taste and intuition, primarily you and Glenn and some other leaders. And a lot of people heard that and they're like, first, I don't believe that. Second of all, how does one operate that way when there's no data

Starting point is 00:17:13 to tell us exactly what is right and good? So the question I have is just how does one operate in that way successfully? Like, what does it take for a company to work that way? Because a lot of People will try it and fail. This is very close to what I just talked about before overfitting. But a good heart's law is real. The moment you create, like, as a moment a metric becomes a goal, it's no longer a useful metric, right?

Starting point is 00:17:35 That's, I think, more or less a precise wording. Why? Because no metric by itself is a complete heuristic for a complex business. Because business is a complex. There's a million of different tensions in the company, and you can't all keep them in harmony by optimizing for one thing. So it's true that we don't have KPIs, and we don't have at least OKRs in the sort of Silicon Valley sense, but we are extremely data-informed.

Starting point is 00:18:09 We have invested enormous amounts of money and money and time into systems that give us basically everything on our fingertips. I've some of those demo this to our founders and they're kind of completely bowed over by the way we can dig into basically every every constituent atomic bit part that makes up the cohort that just

Starting point is 00:18:32 got formed 15 minutes ago by at the end of a at the end of a quarter or month or week. And so it's actually that what Shopify attempts to do

Starting point is 00:18:46 is to and in a lot of different places, this is one of them, but also in its products, it's just not overfitting for the quantifiable because I think there is, like, again, this is one of those things.

Starting point is 00:18:59 Everyone competes for everything that's highly quantifiable, because it's like, it really, it's kind of fun. It's like, it's like a game. It's like a,

Starting point is 00:19:08 you tweak a number and like point one more is like better than point one less. And so, like, that's an immediate gratification thing. But, like, I just think the overlap of most valuable things you can do with a product and the things that happen to be fully quantifiable is like maybe 20%, which leaves 80% of the value space unaddressable by the people who only look at quantifiable things.

Starting point is 00:19:32 So what actually happens is Shopify is comfortable with the unquantifiable things such as tastes, quality, passion, love, hate. It's like the strong emotions that people have. The sort of deep satisfaction that a craftsperson feels than they've done a job well is actually better proxy if you allow it to be than do the unit test pass. The unit tests might not pass

Starting point is 00:20:06 and the unit tests will pass 15 minutes later because we fix them or adjust the one or two things so they support us. the growth numbers we're looking for, we have systems that tell us exactly if something goes the wrong way. There's an extremely sophisticated rollouts system in Shopify that forever holds,

Starting point is 00:20:25 holdouts and correlates everything with everything for in every experiment and so on, so on. But we think about it as a cockpit for a pilot. And the decisions are still made by pilots, and we think this leads to better results. It's just like the same with our product. We also ask people to just like not, like there's plenty of AB testing tools and all these kind of things for commerce.

Starting point is 00:20:51 And it's, of course, like, really important to figure out what your conversion rates are. But how you representing your brand is a unquantifiable question. Are you proud of a thing that you have built? Are you, do you feel it's your own, right? And so I think there needs to be more acceptance in businesses of the unquantifiable things. one of the most powerful thing, the most powerful, are unquantifiable things

Starting point is 00:21:15 in the world of business are fun and delight. If people have fun when they're doing something, that is just upstream from so, sorry, downstream from so many other things. Like, I think that if all the metrics are pointing down, but everyone says,

Starting point is 00:21:36 my God, I'm having so much more fun. I think that the very, next thing that will happen with some time delay is all metrics will start going up. And so I think that is, and if that doesn't happen, then we adjust course. And then the reason that we specifically don't have OKRs and these kind of things is because if you want to hold the unquantifiable as things that are stable and exist, like, that people actually do really defer to them and really actually learn to be okay with someone just saying, hey, this is actually just like really great and we're shipping this.

Starting point is 00:22:10 And you need to make certain edits to the business that don't remind everyone too much of, you know, the companies they might have come from, which, you know, the only way to get promoted is by driving the metric up. So it's a bit of a more and once conversation, I suppose, maybe slightly less, like, good on the fortune cookies, saying, like, Shopefy doesn't do OKR, so it doesn't do metrics and, and so on. But it's actually just because the metrics take a support function where we often defer to just more, you know, sometimes a little bit emotional, but like generally less quantifiable things. I imagine if someone were to hear you describe this of like focus on joy and fun and love and delight.

Starting point is 00:22:55 Maybe like it's easy to dismiss that. Like this sounds completely idiotic, right? Like so this is a funny thing. It's like it's like again, there's an aesthetic in the world that exists, which is that business people dress in suit and tie. they are speaking much more sophisticated than I do, usually with an accent. I have a full ahead of here.

Starting point is 00:23:16 They talk about metrics. They are in front of PowerPoint presentations. They usually have a stick and show dramatically at the pie chart that is behind them. And highly charismatic, highly, like everyone likes. So that's our aesthetic. How much is that aesthetic overlap with our performance? I don't know.

Starting point is 00:23:39 some of them, some people put it off who are like this, but like, I just like, I think the world is sort of stacked to lead us astray based on our stories about what optimal looks like are just so incorrect in so many ways. Optimism always sounds dumb, or at least naive. Passimism sounds extremely sophisticated. You know, metrics driven sounds extremely sophisticated. Talking about fun sounds like. naive. It's just like I've at this point like kind of learned to, well, first of all, I've always kind of ignored, you know, what people think generally. That came pretty natively to me somehow, which I'm very lucky about. But I've now actually learned that almost all the alpha in the world is now in the exactly the things that are unobvious but true. And the things that people dismiss as an eve or so. You know, I mean, just. the most successful business person on Earth is Elon, and he conforms to no idea of what the most sophisticated business person ought to be like

Starting point is 00:24:49 in any which way you can imagine. So I think we live in a world where the counterfactuals are winning because our, like, because aesthetics are just leading us astray. This is an awesome segue to the other theme that I wanted to spend some time on, which is thinking from first principles, Elon is the classic example, that honestly I think you're the other most classic example of that these days. And we'll keep talking about all the ways you operate very differently from other companies, which are examples of this.

Starting point is 00:25:18 But I want to read a quote from Glenn Coates. He shared with me of how he sees you that gives an interesting lens into your first principles thinking. So here's what he said about you. Toby is at his heart a true futurist. He's obsessed with the way things should be in the future. Being data driven is innately being anchored in the way users and technology are behaving today. He's never really said this to me explicitly, but knowing him, I think any design that

Starting point is 00:25:42 is drawn primarily from the way things are or were is one that he sees as inferior to one that is skating to the puck of the way things could or should be. Does that resonate? Yeah, I mean, I think that's correct. That's actually really interesting. I, like, I, your podcast is a podcast by a builder for other builders. Here's the most, interesting question, I think people can ask builders. It's like, what is your energy source? Where, like, what are you, where are you getting energy from? I think fundamentally the world exists at room temperature.

Starting point is 00:26:25 Almost all companies are sort of running at bad, sort of humming along, doesn't do anything. There are certain individuals who can inject heat into businesses. Founders do this very well. All the startups anyone's ever heard of have people who are injecting heat, because if no one would inject heat into the business, at room temperature, you cannot outperform anyone else. You can't be hotter than everyone else if no one's injecting heat into concern. So fundamentally, there is a injection of energy into companies

Starting point is 00:27:01 that comes from founders and the best leaders, like all the people you've had on a podcast from Shopify, by the perfect set of cast of characters of people who are just like exothermic. They are just like wellsprings of energy that leads to all the amazing results that we get to enjoy. So the question is where does the energy comes from? And that's another one of those discussions which very quickly goes into the emotions. Actually, there's a really, so I watched the last dance, like the Netflix special of Michael Jordan, a while ago, of course.

Starting point is 00:27:38 But there was one scene where he just like, I'm sure this is a super famous story, and he just sort of made up an insult that someone told him so that he would then go and just want to destroy them afterwards, which he then, of course, proceeded to do because it's hard to imagine anyone more ex-firmic than him. So we know what his energy source is, right? It's like rivalry.

Starting point is 00:28:01 It's potentially its insult or it's anger, something like this. my I am not like my energy source is dissatisfaction with status quo my fundamental belief is all this talk about technology there are like so many books are about this technology leading to dystopia you know what dystopia is today like compared to what it will be in 20 years ago or any like and you can play this for any part of human history I'm not making a future statement I'm making a almost totalical statement about for experience and of.

Starting point is 00:28:34 Like, no one really thinks about this would want to be born into the world 20 years before today, rather than today. And so I think today is the dystopia of the future. And I think it behooves us to try to, you know, build the kinds of progress that lead towards progress in a small way or a big way. But yes, I think if someone comes to me and says, hey, let's go do this thing. And, you know, we've looked around and here's how people solve this problem. Let's make a good version of that.

Starting point is 00:29:10 I'm like, that was not the job. Because everything that you encounter, that like every solution, every product, everything that exists is path dependent. Highly, highly, highly path dependent. And often path dependent based on having to make compromises, based on things that were true at the time when decision was made. but are no longer true, right? You know, like the entire field of, why was it? Like, I forgot the name of a field.

Starting point is 00:29:44 Kromski's field, the linguistic research field. It's like, cool. We now have auto-rogressive models that are just like, we don't actually need to set up a complete, like we don't need to research the structure of grammar to be able to make machines also, like, engage in a spoken word. We actually can just, like, train on the internet, it turns out. So that was not possible back then because you didn't have a right architecture for this, but now it is.

Starting point is 00:30:08 So I think what you have to do is to actually have, when you come up with a new product or you discuss a new product, you have to derive it from first principles. You have to say, how would we solve this problem, given every fundamental like building block that we have available right now? For that to do that, you actually have to understand the power and the composability of all the building blocks that exist right now, which is a tall order. And no one is perfect at this. But so this way, you go ahead and say, okay, cool. So this is how we are implementing this thing. This is how it would be implemented today.

Starting point is 00:30:42 And now we can talk ourselves in taking shortcuts. Maybe we should actually start doing it the way everyone else does. Maybe we derived exactly what everyone else does as the correct thing to do. Sometimes there was a lot more wisdom encoded in the status quo than you expect, which is I think is super delightful then you figure that out. And so when you act on it, but what isn't okay is skipping the exercise

Starting point is 00:31:10 and doing the same thing everyone else does because that is again a abdication of product leadership. And so yeah, I would say I would, like I become extremely suspicious if I get a pitch to do a good version of the same thing everyone else does. Because I just find that in our space specifically very rarely to be the best solution. There's a couple of quotes along these lines I've seen that describe the way you think about this stuff.

Starting point is 00:31:36 If most people are doing it a certain way, I by default don't want to do it that way. And if you want to do something world-class, you can't do it like everyone else. Yeah. Yeah. Like, I mean, it's sort of, I mean, this is, I don't even think that's an opinion that I hold.

Starting point is 00:31:52 I think that's actually, like, we're basically in axiom territory here. Like, if you want to do something better than what exists, you have to do it differently. That does not make a statement about if it will be better in the end after you do it. It could also be worse. But you can't get something better done if you do the same thing. It's like axiomatically not possible to do.

Starting point is 00:32:15 It's like fails Archimedean logic. Yet it's something, you would be amazed how many business plans are actually failing Archimedean logic in this way. Like let's do a good version of this thing that we've already been doing. and we will capture 1% of a market, and you just like this kind of stuff. It's like, I trust me. I find kind of cute. Is there an example that you can share you approaching the problem this way?

Starting point is 00:32:40 I imagine it's constantly happening. You also mentioned, like, you're born this way. So I think it's hard for someone to just, like, sit down, learn, think the way Toby thinks. But I'd love to help people start to approach problems this way. So maybe an example might help. So I think this is entirely learnable, I think. and so I encourage people to just have a practice of things step by step essentially and just do it.

Starting point is 00:33:04 It'll become a habit pretty quickly because it's also just outperforms. Examples. I mean, the very first example is like Shopify itself. It's like cool. So there was lots of e-commerce software and it all puffed. It was all the way it was because of path dependence. Because everyone who wanted in 2004, 2005, e-commerce was an existing retailer and therefore they had complex businesses that needed to be ported

Starting point is 00:33:31 online including all of their somewhat Byzantine business logic. I wanted to make e-commerce software that would do very well on the internet of the future and I believe that we can make it easier to start new businesses online than it is in the physical world because the physical world has incumbent by a lot of regulations and also upfront costs and for for leases and so on. So that's optimized for that case and build something that is so intuitive to use that frustrated people in dead-end careers can spend their lunch breaks making progress towards building their own business, which then eventually allows them to, you know, do it on their own way. And so

Starting point is 00:34:25 being fortunate was fires, eventually turns out to be a much better prep for also solving all the enterprise cases because no one had to, like, enterprise software is overfit to the sales process, which is that it

Starting point is 00:34:41 wins the RFPs because it has every feature ever, or at least a way of putting a checkbox next to every RFP line ever. But they don't, they're not good. But like it's a great, an RFP is a great example of overfitting in the world of procurement because it tells you nothing

Starting point is 00:34:58 what the quality of software behind us. But honestly, this happens, like, all the time. Like, it's just like, we're setting the stage for much higher quality retrieval for, like, the products on Shopify and across Shopify. Like, I think we've been in a local maxima on search, and we think that, especially with

Starting point is 00:35:22 the advances of, you know, the new models, certain things are now possible to do that could not have been done yet because, again, of this sort of layers and layers of path dependence and no one coming and saying, is that the best way to do? And maybe we should rebuild this component periodically. We can now do a better job with a search that will lead to much more delightful experiences. And so this is like a fun project that is happening right now. in. I think this is really interesting because what I'm looking for is kind of like the Toby algorithm of first principles thinking. Elon's kind of got these famous ways of thinking he shared one is like, start with like the cost of metal to help you understand how much a rocket should cost.

Starting point is 00:36:05 And then he's got this like five step, like first decide, do we need this thing, then figure out how to optimize it, then automate it. What I'm hearing so far, and I'm curious if you've thought about this and if not, and if not, this feels like a really good blog post in your future is the Toby first principles algorithm. But I'll share a couple things I've heard so far as you've described it. One is analyze kind of the path that existing solutions have relied on, almost like the assumptions that were true for it to be built back and it was built. And the other is this overfit. Like what is it overfit for? What is it oversolving that maybe isn't necessary? Is there anything along those lines of just like how you approach problems? This is probably too

Starting point is 00:36:44 nerdy technical. Like you're right that I should figure myself out a little bit. My, my my brain runs on like a meta language that isn't like directly something I can translate into words. I suppose. I think more about things like this in terms of programming constructs, pure functions overstate. And I think in any moment the best decision to do is like I think the perfect product lead is almost like a thermostat for high quality product. It's like you're setting, saying, I would like to build something really, really great. And I'm going to go through a series,

Starting point is 00:37:25 which is much, much more complex than what a thermostat does, which basically checks the temperature and then makes a decision of, like, you know, aircon or heating. You make, you re-derive literally every decision that is valuable. Every foundational assumption, every foundational ABC direction, and you want to see the observation you've made in the meantime since you last arrived the next step, rerunning the entire function over the state that is now updated with higher fidelity information,

Starting point is 00:38:06 would you come to the very same thing? Sometimes fairly early in the construct, in the tree of foundational assumptions, like a change is made. an example we all had was, you know, beginning of COVID when we suddenly had shelter in place. Like, so Shopify is like that incredibly good office spaces and we were a very in-person company. And we've open-sourced our floor plans because I think we really added something to the, to the understanding of how to put great, like, I got a lot of founder energy for my co-founder, Daniel, to build great collaborative spaces for creative work with lots of happy access. people running into each other and so on. Anyway,

Starting point is 00:38:47 like we were very, very, very, very, very determined on doing that. But somewhere in this construct of nesting functions, you have to rerun and foundational assumptions, it's in the stack is the fairly basic bullion of, are people allowed to leave the house? Which was yes. Like, the moment that flips, it's not that just like, okay, over here,

Starting point is 00:39:12 let's do the best what we can do. It's actually that the entire tree now moves into a different place. And it can be a very far place difference that you land. Because you will make the same quality of decision on every step, but you need to rerun something that takes you to a completely different landing zone. And so then this is also easy for us to say, cool, we are going to be remote only forever. Let's go. Because we realized that the temporal shelter in place would cause a series of events

Starting point is 00:39:42 that would make that the optimal, like, best set of traders for the company. And so I think this is, like, can I put this into a piffy five-step? I would have them, no. But maybe it resonates as someone who can help me, like, figure out the, like, coded English language for this, because, like, it's been nerdy the way I explained it even to me. This remote work example is something I definitely wanted to touch on, which is I'm glad you got there. So in this decision, is there anything more you could share about how you got it? to that place of like, oh, this Boolean changed.

Starting point is 00:40:15 So we should rethink this. Because I know what you probably, I don't know, were you in the shower and just like, oh, wow, we should really go remote because of this. How did that actually come about? Yeah, like pretty much, actually. Yes. Because, again, I rerun over all the inputs and like figure out what happens. And here's a couple of other things that we're starting to fray on the decision to be in person as well.

Starting point is 00:40:41 We did just we started in Ottawa Canada, which is a city of a million people, and it has some tech heritage and good universities. But at a million people, you're not, it's just not population dense enough and has a, you know, depth of talent pool that it can support a company that is going to 10,000 people. So anyone who runs this optimization function I'm talking about, here about location strategy for a new startup will come to the conclusion if they do it right that everyone should be sitting around the same table only if you can't do that do you say okay let's be all in the same couple of rooms only if that doesn't work anymore you say okay let's be spread over

Starting point is 00:41:29 one floor if that doesn't work in the same building if that doesn't work in the same city if that doesn't work at least stay in the same time zones right like or make sure that there's good hub connections between. Like, this is how it works. It's just like some assumption somewhere along the line is invalidated. You end up in a different side of a decision tree. But what was happening to us was we already were in like four or five cities. We were adhering to the same time zone point at this point. But my experience was I went through sometimes at the Ottawa office,

Starting point is 00:42:01 through an entire day we had like 10 hours of meetings, which is, you know, kind of fairly normal. but like I do every single, I don't think I had a single other person sometimes with me because every one of them was with people in another office, some people are dying in remote and so on. So there was like an awkward hybridness which we ended up in making only good decisions along the way.

Starting point is 00:42:28 This is actually the most dangerous thing. Like most of the time you end up in a bad part of a tree, in a local maxima of a path-dependent environment by only making good choices. People think that making a good choice inoculates you from making mistakes or that the presence of a kind of downside of an idea ends up disqualifying the idea.

Starting point is 00:42:51 Both of those things are incorrect. So what you need to do then is, so that was an overlay to the decision. The moment COVID started then, we also had this thing of shopperors exploding because we built actually like an asset to people during COVID, e-commerce for the local businesses. And we took that very, very seriously trying to make more businesses survive COVID.

Starting point is 00:43:14 Small businesses survive this particular calamity than otherwise for it, which is important because small businesses tend to be wiped out first anytime the times turn fragile. And so we needed to staff up. And so there's a very real question about way to staff up. So clearly the better input there would be if you could hire people everywhere. And so, like, once that decision flipped, you can see how this is actually now super easy to say we are going to be remote, right? Because there is no turning back. There is no, like, even with this decision, it's a better set of tradeoffs for the future is to accept the vast additional difficulty of building a remote company.

Starting point is 00:44:02 way harder. It's like it's like it's not something you should recommend to anyone to do this because you it's it's the same as trying to run a world record marathon run at uh in in aspen Colorado. It's like there's not enough oxygen up there like to do that like it's but if if you but if you end up putting it off your real chat right like so like that's pretty cool. So I find difficulty itself interesting and again I spent enough of my teenage years. on the internet to know that there's amazing cultures that can be put together purely remote, like, I don't know, Wikipedia, Word of Warcraft, raiding guilds, can at least have excellent cultures? And so we're like, okay, cool, let's re-derive all, like, let's come to a new stable part.

Starting point is 00:44:52 That stable part was don't port the office online. Let's port the internet into a company. And then we're like, let's go. This episode is brought to you by Loom. Loom lets you record your screen, your camera, and your voice to share video messages easily. Record a loom and send it out with just a link to gather feedback at context or share an update. So now you can delete that novel length email that you were writing. Instead, you can record your screen and share your message faster.

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Starting point is 00:45:54 That's L-O-O-O-M.com slash Lenny. I want to talk about this talent stack concept that you've touched on a couple of times that I think but before we get there, I want to kind of go in a different direction, which I think is an interesting foundational element to your ability to be successful in your first principles thinking, which is you getting kind of to the metal, to the core of the problems you're solving, by actually spending a lot of time coding. And I actually heard a story about how you all had this huge, All-Hands summit, you flew everyone in, you were all together.

Starting point is 00:46:27 There was a three-day hackathon. And the way I was described as you're just, you were sitting at a table with headphones in, coding, just like any IC engineer, no one would have known. You're the CEO of this company, the founder of this company. Why is coding and working in the code to you still so important? That's so funny, but that's the way the story goes. It's like, I mean, it's right, but like, I don't know why that is surprising. like, I mean, my happy place. Like, like being able to like clear out, uh, three days of my calendar

Starting point is 00:47:00 and, you know, being there till midnight with all these remarkable people who join us on journey, just like, like building stuff. It's like, I mean, I do my job so that that is the jobs that exist for other people. That's the job I actually want. That's the phone I couldn't find because no one built kind of company for me that at least back in most days I think still not really and so I mean I just I just love coding

Starting point is 00:47:30 it's one of greatest things it's one of the greatest sort of I don't know hobbies and pursuits I've done it for very long time I came across it very very early it fits my brain like a glove I I appreciate so much of

Starting point is 00:47:48 the craft behind coding. I am a trained apprentice. I'm apprenticed as a programmer in Germany, which has a dual education system that you can do such things. So I've been professionally in companies spending all day,

Starting point is 00:48:06 and I really mean that. Programming ever since I just turned 16. I think the first day was just like just before I turned 16 when I start my apprenticeship. And so I love it. I have like, I mean, I have a view on my screen, left of you is a cursor right now, which is opened to a Juniper notebook where I'm working on some projection stuff that I'm playing with.

Starting point is 00:48:37 It's like I try to sanity check as much as I can of what I get. I try to find, it's a game for me to find, it's a game for me to find, new insights in data and I just like, I don't know. It was cool. There is, maybe this is the picture you talk about. There is a picture that someone captured which is really fun where like, I'm on my laptop with a bunch of engineers and then Harley, so president is on stage DJing.

Starting point is 00:49:08 Like this was like taking at like 1 a.m. or something like this. And it's like, it's a picture which actually really precious to the two of us because it actually perfectly summarizes like our relationship in a way, which is like these happy accents are wonderful in these long journeys. I've been doing shop before 20 years now. It's like, so I appreciate these artifacts.

Starting point is 00:49:30 But yeah, so. To be clear, the reason this is unusual is why someone told me the story is most CEOs do not do this. Don't just sit there and code along with the team. And the reason I thought the story was important is and the reason I think, your first principle approach works is you're you're actually in the engineering

Starting point is 00:49:51 details similar to Elon if you think about it of just like in the weeds doing the thing understanding how the thing works not just coming up with ideas out of you know pontifications and so I guess is there anything there of just like how important it is if you want to approach thinking from first principles it is to be really close to the metal to the bare metal yeah like I mean first principle thinking starts from you know, I think Elon puts it as physics which I think

Starting point is 00:50:18 is like is a little bit atoms coded. I think just like from the atomic building blocks really is a right starting point. The like atomic building blocks are the computers we are using. Like computers

Starting point is 00:50:34 are our instruments, right? Like we play we use them to create the music that people appreciate to receive in a form of software. So you've got to understand how they work, at least to work the way I do. Now, is the way I work optimal? Of course not. This is my point about the aesthetics of how to behave, how to work.

Starting point is 00:50:57 I probably don't conform to the sort of traditional view of what the use of public companies should be like or even should spend their time. But I think I'm successful because I don't try to conform to either. anything other than what I've learned works. And so what I learned works is be in as many details as you can, like really, really, really just understand the stuff that we are making decisions about. And, you know, be willing to, you know, like don't put too much stake into the sunk cost fallacy, like try to inoculate your business or your parts of a company from a sunk cost fallacy as much as possible because that allows you to just see better solutions and so on.

Starting point is 00:51:44 And, you know, I think what we were doing, if I remember right, is like at hackdays, is we were working through pros of cons of just like merging all of Shopify into one huge monorepo and we are sketching out like directory structures and like tooling that we would need. And, you know, that's one of those. Again, like monorepo now is like for companies, it's like a very much one of those door A, door beef kind of things. It's a very consequential choice that is incorrect to go say yes to at a certain size. And then it becomes very correct in my mind to say yes to.

Starting point is 00:52:24 But at that point, it's an enormous amount of effort. So it's a kind of thing that actually is like something I'm uniquely positioned to be involved with because it's actually a business strategy thing as well. It's like, that's an investment, a very real investment to say, hey, let's change our, like, the way via building system. Let's figure out what the best way is. There's going to be change management. Some people are, like, there's going to be, some people that have very strong opinions on yes or no. And frankly, Toby said so helps.

Starting point is 00:52:57 Like, it just simply also compresses a lot of time, right? Like, because everyone knows the way I work. I, I, I, I, um, everyone can come to me. with better ideas about anything. And if you're right, I will change my mind. But I will hold my opinions very, very strongly until the point of being convinced that they're not the correct ideas. Which, again, is maybe that's another aspect of this to be tonight.

Starting point is 00:53:24 If you talked about earlier, like, people do find, like, I mean, there's, again, the aesthetics of our times put a lot of stake into consistency, right? I remember various politicians losing campaigns because they were called flip-floppers at times, which I, like, although, you know, I, I'm more of a Mena Keynes school of, you know, when the facts change, I changed my opinion. What do you do, sir? It's like, sounds like a better OS to go by.

Starting point is 00:53:51 It's awesome because I'm extracting more of your algorithm of how you think about stuff. And so a few things you just shared are, one, you need to be in the details. So this is, I'm thinking about to be successful as a first principal's thinker is you need to be in the details. In your case, code. In Elon's case, it's like build the thing. and be at the factory sleeping on the floor. As you said, he's very atoms-based. You're more digitally native.

Starting point is 00:54:16 And then also don't be so reliant on sunk costs. Like you said in this Toby or a NATO case, just like, I know you've been working on this project. We're going to kill it because it's not going to work. Better we do that now versus us just keep going because we've been going. And then coming back to the stuff you've shared previously is analyze kind of the path that you've been on, that the previous products and solutions have assumed the path dependence of them.

Starting point is 00:54:38 and then don't look at what they've overfit potentially that isn't correct. Love it. Okay. This actually is a good sideway to something else that someone that you work with suggested ask you, Farhan, your head of engineering, asked them, what's the best way to kind of get a glimpse into Toby's mind? And it's actually along the lines of what you just described, which is the question is what's the best way to disagree with you?

Starting point is 00:55:02 I think just disagree with me. I immediately love it. Like, honestly, I actually. I really crave it. It's very funny because that really, I know how this really surprises people

Starting point is 00:55:15 and I actually appreciate it even more because it requires courage and frankly I actually do find that but it also makes me immediately trust the person more partly because I first of all think they will do

Starting point is 00:55:28 what they think is right rather than what is convenient agreeing with sort of the group tends to be much more convenient. But more than that, actually that they're courageous enough to do it in right then, right then, right? Because, like, I mean, I do find that, I think courage is really, really rare.

Starting point is 00:55:48 Like, it's, I found, I found more, I found a lot more high IQ in industry than courage. I found a lot more maybe even genius than courage. So, so, so I like that. I wish it wouldn't require that. This is why I try to be very inviting of it. So when someone disagrees with me, I tend to immediately stop and say, cool, this is like let's figure out why there's disagreement. And it's almost never I find in the sort of, I just feel like we should do this differently.

Starting point is 00:56:26 What I'm looking for is like of an unstated foundational assumptions, what is our divergence point? because you might be right. In fact, people often are when it gets to this point, I found. You know, sometimes it's an unstated foundational assumption that I hold that is like incorrect. And then people tell me, and then I'm so glad we talked about it because I will stop forever nagging on this thing because now I know we can't do it because of, I mean, Sabin-Soxley or something like this. It's just like, cool. So I just, my, my mental model of something's actually, which is like regulation for public companies, is not perfect. And like I have not in depth studied all the details for it.

Starting point is 00:57:12 So I will not consult this in my mind when I am saying, hey, we should, we should solve the task at hand in a certain way. So this is very good. So, yeah, like how to disagree. I, you know, I really like, I really like debate. I will play DeV's advocate actively. If everyone agrees on something, and again, especially if a proposal is something that feels like I could have predicted would be a proposal before I got into the meeting and there was nothing surprising in it, I will make myself sort of an end boss of a level and just say,

Starting point is 00:57:50 okay, well, I'm going to say this is like just not that good. I think we could do way better. and I want people to then argue more in depth for the veracity of the decisions, and that leads to a form of disagreement. I think all these things end up building trust. I like that that touches also on this idea of, again, maximizing potential, the potential of the teams, the potential of the employees. Because, of course, like, the really important decisions we don't talk about,

Starting point is 00:58:17 because this is the most important thing, right? Like Shopify probably makes, what, millions of decisions every day? Like, write this code this way? like, yes, I'm going to add this unit test. Maybe I'm skipping the unit test. Might be the difference between a future production audit, right? And millions and millions and tiny decisions. So you're not hiring engineers primarily or like accountants.

Starting point is 00:58:44 You're hiring people will make accent decisions given their sort of specialization and areas overseeing. And given that, decision making as a concept is actually like really understudied, I find. And so I think these instances where we can just learn to make decision-making together. Because I think while a lot of decisions are made independently, we are a product company. We are on a mission and we want our product to feel like something that a single person made. like in the same way how any author tries to write a book that clearly reads as that it came from one mind because people can see and spot this if this doesn't happen it's like it's so you end up with something

Starting point is 00:59:34 that looks like a television remote where like there's like the Netflix button over here it's just like it's like you can sort of reverse walk chart from from the remote control and so it's you like that's important and so using these moments and also bringing decision-making inward to go and say, like, hey, let's have very efficient opportunities for as many people that can possibly get together, make decisions together, not as a democracy, but with clear who needs to convince who, but like that because otherwise this ends up being like just like taking way too long. But give opportunity for everyone to change, you know, my mind or glen's mind and so on. It's like, it's an excellent practice I find. I think this is a more optimal way of going about it. Speaking of disagreeing, it reminded me of a story I heard about the Toby tornado, actually, the way you operate that.

Starting point is 01:00:27 And I love it, like, ends up being this interesting microcosm of your first principles way of thinking. So the story is, I think you've said at one point that the best way to get people to give you insights is to say something they disagree with on the internet. And that's often the way you approach this as you post in a Slack group, hey, I don't think this product is going to work. And here's why. and that ends up creating the most information for you. Is there anything along those lines that might be helpful to share? I mean, I don't think that's one of my better ways of doing that. It is extremely, I have to be somewhat careful.

Starting point is 01:01:01 Like, the people I work with a lot, I will do this just because it's funny. But, like, I mean, even I can see that that would seriously stress out the interns. You guys have a lot of interns. I think you have a thousand interns in this coming years, foot for Han shared. Yeah, we just started. I was in an office yesterday and it's like absolutely full of interns. It's great. Oh man. Love interns. So much energy. This idea that you shared about building one product, building towards one vision. This actually reminds me of something that came up, basically every time I had someone from Shopify on, which is this idea of a hundred year vision

Starting point is 01:01:37 that you keep. I don't know of any other company that operates in this way where the founder has this hundred year vision of where the product needs to go and working backwards from that. Can you just speak to that of that way of operating, why you find that helpful, how that actually works? I use it as a way of, I talk about look in the future and think backwards a lot, right? Like it's like, what would we want to have done 20 years ago on this? You know, like 10 or 5 years ago. What's the decision our future selves would want us to make, right? Like as useful.

Starting point is 01:02:11 I find sort of future casting to be generally extremely valuable. I also think that, like, I definitely did not build Shopify to flip. I had lots of opportunities to sell Shopify to various people. And I just like, it's just not even, I just don't, I didn't consider it because it's just too interesting of a journey. And I think there's too, like, if an endpoint for almost all companies is the convergence on a set of four or five people who can afford them, it's like, that just creates too much of a mono culture, I think, in thinking.

Starting point is 01:02:42 and I just like, I like that shopper is different, right? Like, I think this is good. I think it's a terrible place to work for many, many, many people. It's like the best place in the world to work for some people. And I think that's actually the good, like, that's so good. Like, that's what we want, I think. We want more of this. We want people to be able to window shop for a place where they can be enormously successful

Starting point is 01:03:07 because it just the place's set up leaves just fits you like a glove. And so 100 years, we have very long-term plans. Like at 100 years, you can't talk about the software product, but your R can talk about the mission itself, right? Whatever things that will survive for the 80 years that I left on this particular time frame. Like entrepreneurship is just precious, right? like Shopify exists basically you make entrepreneurship more common.

Starting point is 01:03:44 That is the thing we want to cause in the world. We have had, I think, success doing this already. But again, there's no speed limit and no stopping point for this. And as I keep saying, the world is unbelievably path dependent. And therefore, if we are part of a path, we can cause it to be more in adherence

Starting point is 01:04:06 to the things that we value and would like to see. And this is a wonderful thing about company building. They can have lasting impact. And so we are making decisions based on the things that we, of all the things that we can do, whatever things that will be most long-term valuable for the long-term pursuits we are on. And how can we make, you know, normalize entrepreneurship and, like, it's a thing that's really important to me just because there's like people.

Starting point is 01:04:39 don't spend enough time on it. It's like all economics, like our son of living entirely depends on, you know, businesses. And we are all part intact of an environment that is extremely entrepreneurial and actually celebrates entrepreneurship as a courageous act and a glorious act even. But that's not true in most of the world.

Starting point is 01:05:04 In fact, most people never encounter anyone who engages in doing that, right? like it's not something people like see as one of their options. And so I just, I want us to make these choices. And I think the long-term focus matters. It's also really powerful for decision-making. And I know this is like potentially intuitive to most,

Starting point is 01:05:28 but like also rarely practiced. You know, just like it comes up with, you've had a lot of people from Stripe on here. And, you know, Stripe and Shopify have, had like a very long-term partnership, right? And like Stripe and Shopify had potentially the most valuable partnership in or at least one of the top ones in history of technology, because we were both very small companies and we decided, hey, let's work on an assumption that both of us are going to win our markets

Starting point is 01:05:58 and work together. And so Stripe's firing for payments and be a lot part of Stripe and so on. you know, at a million points along the way, in a partnership like this, you play basically the iterated prisoner's dilemma, but every instance, every turn, you can make a choice, coordinate or defect. Defecting, if other person collaborates, collaborator effect.

Starting point is 01:06:23 It's like if both collaborate, everyone gets a point, if one defects and the other one collaborates, you get a lot of points, all at one moment. So being a good partner in business is like this sort of corporate marshmallow test that everyone, like companies tend to fail in a very funny way. Like if you see the videos of the kids doing the actual marshmallow test, like the smart ones actually like turn the chair around, look away from the marshmallow and sit on their hands and just to go like vibrating because they know it's the right thing to wait for getting two marshmallows in the future. But like man, like if you just look at a marshmallow, they'll just eat it. So most CEOs, most companies can't even successfully do that and just engage in like this sort of pulling future profits forward at a discount

Starting point is 01:07:12 or even defecting on a partnership that would be much more long-term valuable. If you're talking about long time frames, like 100 years, it's like, look, there is no question. Clearly the correct way to play the interpersonal system is coordinate for both sides. It's like way more value that could be created doing that over long periods of time than any more material defection could possibly be convenient at a moment. And it's a huge amount of product decisions when we are deciding roadmap end up being

Starting point is 01:07:45 very influenced by this. Because I get pitches for things we should do and like, why don't we do this kind of change to the system and there's so much money in it and all these kind of things? I'm like, cool, but like almost always they come in a form of like putting future profits forward at a discount. And but we have a long time horizon. Let's not take the discount. Also, you often compromise entire business after a while because you end up like just like, yeah, like you, you, you, you, your customers notice if you're going into value extraction.

Starting point is 01:08:23 If you like the best companies, I believe are sort of virtually resembling, like I mean, at least from a, at least from a. perspective of the leader resembled some kind of cockpit or maybe like a room full of dials, right, like full of dials or levers for, you know, monetization.

Starting point is 01:08:38 Like it's like, my job is like adding as many of these levels as possible to the room and then not pulling any of them. Because I think we do best if you're on the same side of the table of our customers

Starting point is 01:08:51 and we had them become entrepreneurs, which is mission, and we want to support them to be more successful, which is the business model. We are in. We get a way, way small stake.

Starting point is 01:08:59 of the sales in our monetization system. And therefore, we are incentivized to make everyone as successful as possible. And, yeah, now, again, when I get a PowerPoint from investment bankers, so it's like, they tell me I have enormous pricing power and I could, like, massively change your prices. I'm like, yeah, but like, I'd leave Shopify if that happens to me. So, like, how is that good for it? It's just, like, why?

Starting point is 01:09:27 Like, so it just goes like that. There's a quote that you wrote somewhere that to me identifies this point so succinctly. On a long enough timeline, playing positive some games with your customers is the ultimate growth hack. Yeah. Beautiful. It's like, it's, I think that's pretty piffy and it's also just like try to argue with it. Positive some games have an incredible returns, especially in the worlds of software, right? where you can experience exponentials very easily.

Starting point is 01:10:03 So, yeah, like, there's a lot of, look, I see company building as, I wish I would be better analogy than chess, because chess is a game of perfect information, which is totally incorrect. But one thing which I like about chess as an analogy for business is that it basically is two games that you have to be good at both. There's a positional game that you learn, like develop your pieces, gain influence by your pieces over the board.

Starting point is 01:10:35 That's really, really important. And then there's tactics, which you learn tactic training. You go get a puzzle trainer and you drill tactics and you sort of learn the intuition to sports tactics, sense them. Both of them are actually super independent of each other. The business world only talks about tactics. It only talks about the conversion of like, like, let's be, did this thing. We did an AB test and we changed the color of blue and conversion

Starting point is 01:11:04 red went up. We lionize the easy hack. I don't think that's important. Like I honestly, the tactics, I mean, like you need to be good enough tactics to not go out of business. You can't get margin called. Sure. But the sum total of all the value of the potential tactics that you could employ stays with you if you're actually doing the positional game. The positional game is like what is the territory on the map that you are taking? What role do you play? How much trust do you have the merchants want more from you or less? Like the kind of thing they are trying to optimize out of their software spend or the one

Starting point is 01:11:53 that they ask to subsume all other software spend, right? do they rely on you? Are you part of a team or are you used as a sort of tool in the toolbox sort of usually forgotten sometimes coming out when certain tasks is being done? What is what does your product cover? What industries are you addressing and so on, so on, so on. This is a positional game. How well do the pieces fit together?

Starting point is 01:12:19 Do people like relying even deeper on you? And so if you do that well, the tactics are you, use. And you can hire a lot of people who are extraordinarily good as sporting tactics and using them. But if you do too much, you end up like extracting through the tactics the entirety of the value that you have created and that is yours to take through the positional game. And if you do that, you have nothing left in the tank. And that's the companies that we all see that just sort of got to a point and then just like fade. Right. Like that. That, both of the companies that got tacticked out of their position.

Starting point is 01:13:01 And the skill, obviously, is finding the balance between these two things of short-term, not get margin call this you described, but also think ahead. Is there any kind of heuristic for founders listening to this? Or like, oh, cool, how do I do this? How much should I be thinking about the future versus now, I guess? How do you try to create this pie chart of driving goals immediately and show investors were killing it while also thinking ahead? Is that good heuristic?

Starting point is 01:13:23 I mean, okay, objective number one is don't die, right? like so that's again in the end for companies that become bestoyed companies are the ones which did not die like it's kind of also sounds very basic but like actually is kind of it's more actionable than it might seem past that point I would argue just focus on the positional game right and and I think this is a bit of a discrepancy of the founder and like the rest of a company sometimes like lies. Like, I think the founders create finite winnable games for people that are very much serving the infinite game of developing, like, that the mission implies, that that increase the position on the, like, the quality of position on the board. By the way, it's an infinite board. It's like, just picture the chess board as sort of the initial terrain, but there's, like,

Starting point is 01:14:20 sort of, I don't know, fog on the board, and, like, it's like a terrain that's much larger that you will explore over time. I think that's sort of the most prettiest way of mentally thinking about the experience of building a company. It's an exploration and a collaborative inquiry into a question that is implied by the mission and you will get to explore

Starting point is 01:14:44 how correct your mission is and how good your decision making is along the way and you get to learn a lot and this is why it's, I think, it's a valuable thing to do. but like very often the founders are in and the mission of a company are in in alignment but they are again non-quantifiable things they are as a pursuits and maybe at time horizons that go past all of our time horizon for our careers therefore that makes it hard for people to you know care deeply at but they do care about the instances the games along the way the you know sorties that have

Starting point is 01:15:24 have to be done to explore a part of a map, the tactics that have to be executed. I'm not going to take us here, but I know you're a big fan of this book, Finanit in Infinite Games. I actually had ones at a book club, and it blew my mind open. I'm going to link to it. People should check it out. You've talked about this on another podcast. Yeah, it's a lovely book.

Starting point is 01:15:41 James Carr's did an incredible, like, underprecha. He wrote accident, I think they accidentally wrote one of the best business books. They are, there is trying to write a hard philosophy book. So maybe, I don't know. it works for its intended purpose, but it's, I think there's more value in what he actually accomplished. Like, maybe sadly, it may be that he didn't know before he died, which just would be very sad. And it's a little hard to read some for people, so just stick with it and just like try to

Starting point is 01:16:11 wrap your head around what he's trying to say is my advice. I think reading, I don't know how many it is, but the first couple of chapters really helps you get your arms around the story, like his inside. and the rest of the book are examples of his ideas applied. My takeaway from reading his examples is that he did not fully appreciate the insight of his own idea. I think it just ends up being very locally limited and very narrow focused. And I think it's a much grand idea. then I think he realized.

Starting point is 01:16:55 This is why I say I don't think he fully appreciated quality of his own idea. I think we need a Toby version of his book with the forward. I heard Simon Simock wrote a book of a similar title. I've actually never gotten around to read it, but I think he would be very good at interpreting this if that's what he did. That's what it sounds like. I feel like his book is that book written in a different way. I want to come back to something you talked about,

Starting point is 01:17:16 which is focusing on entrepreneurship and the merchants that you all work with. And to me, this is another example of maximizing human potential. And the way I think about this, people always talk about Icombinator and Stanford and all these places that create all these companies and founders. If you think about it, Shopify does this like orders of magnitude beyond. And I don't think you guys get enough credit for that, the amount of businesses you create, the amount of lives you change. That's because we don't want the credit.

Starting point is 01:17:45 That's the point. We don't want the credit point. I mean, maybe if you wanted it, we could also not get it. but that's kind of like, we don't need to explore that because we actually really don't want to credit. It's like, like,

Starting point is 01:17:56 Shopify has a company that is like, pushes from behind. We don't want to be written into the story. We want to just kind of help you do your thing. I think that's like, there's just too much grander in like wanting to front it all. Like this is also what, like,

Starting point is 01:18:12 caused us to go and help people build their own things rather than like start with a marketplace that like everyone gets. gets to lease a little component at prices that correspond to magically exactly your margin. So as this usually goes in marketplaces. And so, yeah, I kind of think we don't want it. I'm proud of it, but that's like intrinsic. I don't need an extrinsic appreciation for it, I suppose.

Starting point is 01:18:44 There's minutes, minutes of people that use short. Shopify daily and that represents the business and you know it causes a major amount of employment in you know around the world actually definitely in like in North America specifically and Europe and so I think that's really gratifying I'm sure there's a way of saying that many of those businesses might actually have existed without Shopify I also think you can make a case that a good number exists because of Shopify. Because what we've observed is that this is actually my favorite thing

Starting point is 01:19:27 the entire Shopify journey that he's sort of rigorously determined. Because I'm, you know, I really, really, really prioritize good UX, legible interfaces. You can tame enormous complexity with create UX in a way that like is,

Starting point is 01:19:49 make sense to people. I think this is actually almost a moral obligation to do for software because when software goes bad, it makes people feel dumb, and machines do not get

Starting point is 01:20:03 to negatively inference people in my mind. That is an inversion of the propriety of the hierarchy of how machines are tools wielded by people to be more powerful

Starting point is 01:20:16 at the things that they are already great at than they might imagine. And that's when this all needs to fit together. But beyond the moral point, which is 10 years, and you could definitely take the other side of, what we have determined is that every single time we make a complex thing simpler. It is actually that more businesses will exist on a platform. So I think this is intuitive or at least directional.

Starting point is 01:20:43 But like sometimes people are not like, well, you know, don't you just need to have all these features? This is the RFP view of the world of software, right? Don't you need to just have all the features and then people can sort of implement their plan? Well, no. It's like, think about the mental state in entrepreneurship, entrepreneurs that. They are, I mean, especially if they're first-term entrepreneurs,

Starting point is 01:21:02 they're unsophisticated. They don't know what to do. They're kind of scared. By a way, engaging in building something, again, is an act of pure courage and usually someone which is very hard to hide from others. Like, the people around you will know that you're doing, this thing. Ask any entrepreneur. The amount of people would tell you to not do this is actually

Starting point is 01:21:23 stunning. People do not want people to just step out of a box that exists, that they sort of explain to themselves around them and have a chance of reaching higher because that would sort of invalidate their own life story in some meaningful ways. So like there's actually a whole lot of naysaying that discourages people already, which is not super helpful. So now you have a situation where people are telling you to quit, potentially. You are like, you don't have a lot of money, presumably. You don't have, you're asking yourself, are you even doing the right thing? Hopefully there's some elements of encouragement,

Starting point is 01:22:05 hopefully there's a passion, hopefully you're trying to create a thing, then comes to a situation that just like stuns you in some way. Like somewhere where like suddenly the software starts talking about APIs where this is something you've never encountered in your life before. Or that like it just like the option that you think it should have on the text configuration screen, like it doesn't make sense given what we know about local taxes and so on. Here's the thing that happens.

Starting point is 01:22:40 So like, you know, the beautiful thing, Shopify is there is basically no text configuration screen. It's just correct. Like the amazing thing about software is we connect. actually just like overtake this piece of complexity. We know what the taxes are everywhere and we are just like

Starting point is 01:22:56 doing it for you. You don't have to think about taxes. In this case, if someone encountered something that they, that stunned them, that stopped them in their tracks, you know, on the wrong day,

Starting point is 01:23:10 what that means is like, they are going to close a browser and they say, you know what? Fuck it. This is just like, I'm not cut out for this or this piece of software I use socks and it's too dumb for understanding the thing I'm having my head

Starting point is 01:23:28 or something else. Like everyone has a different rendering of the same thing which is like, progress stops. It's not just the businesses that shouldn't exist anyway that stop in this way. In fact, it's actually,

Starting point is 01:23:43 and this is again what the data says, so many businesses get very close to this point many, many time. I can tell you Shopify did many times. And I have more tools on an entrepreneur journey than most. I'm a computer programmer and I love those things. You tell me I can spend 14 hours programming for the next couple of years. I'm like, holy shit, let's go.

Starting point is 01:24:01 Most people aren't like that. So I've had unfair advantages that allowed me to overcome their technical climbs on this learning curve. But I know that's like most people can't have these advantages. and therefore they'll churn out of the test. And so in other words, lowering complexity, making good UX, creating software by just autopilots, taxes, or payments, or any of these kind of things, fraud,

Starting point is 01:24:30 like actually causes more entrepreneurship. That is the best thing that I, like, the best answer to the most important question of my life that I've encountered, because it's like up to this point it was an intuition that doing the Shopify thing would be valuable in an absolute sense in a sense that in a hundred years sense.

Starting point is 01:24:54 Afterwards I knew. And so that also just means now seeing things that are overly complex or shouldn't even be there. It's just physically painful because I know like it's like all these business that are like that trying to get some

Starting point is 01:25:12 somewhere and could exist and could now employ people and delight customers, just died along the way because of something we did wrong or poorly and so on. And so, so like this is a great source of energy for me to keep going. I feel that. I feel that pain of the idea of like any time a button's broken or it's not as the buttons of the wrong color and more people would be converting means that you're not creating as many businesses, as many entrepreneurs.

Starting point is 01:25:39 The feeling you described of being scared to launch something, I exactly felt that when I started the newsletter. And my solution to that as I launched it is, I'm just launching this as an experiment. We'll see where it goes. Just don't worry about it. I might blog once in a while. And that really helped just lowering the stakes.

Starting point is 01:25:55 And I could see how just things like that and advice like that can help someone get over that home. Yes. And I think this is an under-explored thing in the world of U.X. Random example, I was absolutely delighted by. Maybe TikTok has the same thing. I don't know, but like, I was posting a video to Instagram, and it allowed me to run a trial run off of the wheel.

Starting point is 01:26:22 Like, it just sort of seems like a new feature. And just sort of saying, like, it shows it to like a couple hundred people out of network, and if they like it, then it's going to post it my profile. I'm like, I don't need that. But I thought that was like one of the more, like, I honestly just like closed Instagram and was like, holy shit, this is probably one of the most profound, insightful pieces of software I've encountered. As a connoisseur of good ideas,

Starting point is 01:26:46 I've never had this as a valuable thing. It feels like a step function upgrade to the traditional AB test as a concept because it's like so understandable. And I'm like, what else in the world should have try runs that run out of network? Basically everything. Isn't it? Like, it's an amazing thing.

Starting point is 01:27:04 Like I said, the rarest thing in the world is not even creative, creativity or genius. It's courage. So let's lower the net amount of courage needed. Honestly, that's one of those things you can probably run like an entire career on or like reinvent an industry on. These things unfold into incredible amounts of value if you really pursue them and come at them from first principles rather than how can I do with things I want to do anyway

Starting point is 01:27:34 slightly better because of the insight. That's good and people should always do it. But not usually where most of the value ends up becoming like many. fasts than a new idea comes around. So I talk like where to clear about an Instagram feature. That's a weird thing to do. But like it's, I was actually just like really delighted because it's again, you know, just came up a few days ago.

Starting point is 01:27:54 I love this threat of courage. The example he gave reminds me also of a, I feel like going on a dating app at a different city for the first time is another example of this where it's like dry run. Nobody knows you. But like even then it's like, isn't it like shouldn't there be like, hey, post my profile to a different city for telling me if it's any good. Like, it's just, I mean, I've never dated, basically. So, like, I mean, at least not in the last 25 years.

Starting point is 01:28:19 So I'm pre-swip left and right dating. So my conception is very low of this. Maybe I should look more at a dating apps. I'm pretty sure there's some amazing U-X in those things. I imagine. I feel like dating is going offline more and more. I'm feeling like, that's what people are trying to do. They're tired of the swipe.

Starting point is 01:28:39 But anyway, I'm not going to go in that direction. Maybe a couple more questions while I have you here. One is this idea of the talent stack. You've mentioned this concept before, and this is the term that I've seen you describe it as, of this idea of the power of focusing on your unique talents and curiosity and that leading you to the biggest opportunities, especially early in your career.

Starting point is 01:29:00 So you just talk about your insight there. Again, I only lived one life, so I have no, I can't Monte Carlo all the decisions I make. can just figure out which ones ended up being load-bearing, right? Like, so I'm at this point pretty amused by the following thing, which keeps happening, but, like, I'm getting curious about some absolutely random thing. And it really is, like, fairly far-flung stuff. And, like magic, it becomes the way that ends up allowing me to make a very important

Starting point is 01:29:32 choice, like, a year later. It's like, ends up being a better analogy that I've learned, or a, um, different way to see something or another like idea that I found being represented in this area of expertise that is actually just again another repackaging of another foundational idea which allows me to go and like look for more examples and like it's just funny this way so even early in career just like I followed my curiosity I love programming and I love computers and I loved the internet when it came along and I just like cool I'm going to find a task that I find valuable, which I have sort of like always engaged in retail. And I can, I have a lot to say about

Starting point is 01:30:16 how retail should be brought to like buy the internet to people. Like that's, that just, that this is like a beautiful intersection of all the things that I find interesting. And then like on top of it, I found Ruby, which I loved as a technology. And then, you know, just now I had like, I was highly motivated to tinker, uh, explorer space that was, clearly emergent, that just felt very obviously of value in the future. But, like, I didn't do it because I was falling money. I did because

Starting point is 01:30:47 I was like, I like learning by doing stuff and I'm like tinkering for things. And so this was a way of financing my tinkering by selling snowboards and then it led to other things. And just, I've kind of been doing that thing all along. It's like,

Starting point is 01:31:06 it's great fun. Great fun for me. I don't know how much the advice that is, but maybe a proof point that that can work really well. I sometimes worry, though, that things like this end up being a little bit like, you know, all you need to do is buy lottery tickets, set for a lottery ticket winner, right? So it's, who knows? It does resonate. It reminds me something Brighton Armstrong once shared, which is, like, the reason that he...

Starting point is 01:31:36 He's also, by way, like, you have to add him to the set of first principal thinkers. if you're starting to cultivate one. And I think there's plenty of, like, plenty of startup success, like successful founder CEOs, especially for public companies, are surprisingly alike in this projecting slightly different, maybe coming from different backgrounds. But like, yeah, Brian is extraordinarily strong. Okay.

Starting point is 01:32:06 Here's the next nominated for the podcast, Brian. We'll get on it. But interestingly, he had basically exact same advice for what allowed him to create Coinbase. His background was economics, coding, and like cryptography or something along those lines. And this like the Venn diagram is like this is the thing I'm uniquely strong at and have an opportunity to win at. Yeah. Yeah. So this is what we very actively tell our customers, right?

Starting point is 01:32:32 Like there's a 2005 essay by Kevin Kelly saying, like, in a future on the internet, you just need a thousand true fans. It's like that is what the internet and I think what Shopify celebrates, that instead of trying to create toothpaste, which is of course a huge term, but hard to differentiate, it's much better to figure out a triplicate intersection of three different things and like nail it. We took a winter vacation with my boys and my family

Starting point is 01:33:10 in the Caribbean and I like playing poker with them I just like it's I mean I like playing poker and it's like it's great limited information game and I think this is super valuable for kids and so I found this like

Starting point is 01:33:26 I might have mentioned this some in some other places but I found this like pirate gold I think it's gold it's like just like amazing like poker set poker chips that I look like so they come right out of

Starting point is 01:33:37 the treasure or in Pirates of Caribbean. Like, think about just the intersection. So it's like, this is online, Texas Hold'am, like, quality poker set instead of, because you can play with like just like anything, right? Like, I don't need, people were in the market for spending money on something like this. And pirate themed. Like, you're like, you're like, but I'm such a big fan.

Starting point is 01:34:02 I'm telling you about it. And people might actually purchase it because I'm enthusiastic about it. And because enthusiasm is actually the best marketing. And they have at least a thousand true fans. And it's just better to make amazing things for some people than make something that everyone wants maybe or would tolerate. And I think that's really, really good. So I think that works for your career too, because by way, we are all entrepreneurs.

Starting point is 01:34:34 So a way to think about any career, if you're actually asking for career advice, is we are products. We are engaged in entrepreneurship. We are basically software as a service, or talent as a service. We are selling a subscription in a form of our, you know, employment, we call it. But like it's actually just like rebranded subscription because, frankly, because it comes to some extra protection,

Starting point is 01:34:58 which is very good. But it's still the same thing. It's a double opt-in company. You say, I can do these things. And I will be of significantly more value to the company than you will have to spend on me. There's like very positive ROI ideally for a company. And a company ever says, I agree or I don't agree with you. And that's actually what employment is.

Starting point is 01:35:23 So I think people should think about themselves as a like product. Your career is not based on mentors you find or getting the promotion or not. It's about what are you like, what are you? like, what are you too good to ignore in? Like, what are you like, how good can you be? Can you be absolutely work? Can you be excellent? I mean, you don't have to be work class and stuff,

Starting point is 01:35:45 but you have to, ideally, you find a thing where, like, you are just like in this sort of tiny space of five intersections or so versus like, you just know more than everyone else. And then everyone calls you. Like we, like I said, we use Ruby. Ruby was not that fast. Shopify would rather have it very fast. We found the people who got PhDs in dynamic language,

Starting point is 01:36:14 garbage just in time compilation, and to make Ruby fast. And they're having delightful time at Shopify. And like Shopify is now very fast. It's very good. And everyone gets to profit from us needing this because we merge it back into Ruby core and now everyone can have a Jit compiler. So it's great. I feel like every story is a fractal into hours of other podcast conversation we can have.

Starting point is 01:36:45 I don't have to go run this 9,000-10,000-person company and do real work. So I'm going to end it there. We got through almost everything I was hoping to get through, but there's infinitely more questions I still have. Just to maybe end it. Is there anything you want to leave listeners with any last nugget that maybe you didn't mention? If I get to talk to, like, again, people who look at people who look at. product in product management, here's my thing that I think maybe only implicitly came through in all this.

Starting point is 01:37:15 Every product in the world, the quality at the end of the day is simply a reflection of how much the people who created it gave a shit about product. And it is not possible to make great products if the people will work on it do not give a shit about the product. And I actually think this is a very important role for a product. leaders to make sure that the team gives a shit. And I think this is something that can be done with building empathy for people using it, but also it can be done in factuously by the product leader.

Starting point is 01:37:50 The product leader has to give a shit. Do not engage in product work on product that you don't care about because you cannot produce the thing that the person who will give you a task is looking for. And I think that this is like, this is just kind of, again, it so much goes into this unquantifiable conversation, which we already had. But boy, is that important because it just isn't about the brief document. Like, it isn't about the aligning stakeholders. It isn't sometimes in some places, some of those things are aspects of it. And I think they correlate sometimes with people.

Starting point is 01:38:27 But I think the higher order bit is if you own product, you have basically free roles. you have to have the team sits look around corners that they don't see. You just have to understand this thing that's being done better than everyone else because that's a role.

Starting point is 01:38:49 No, you don't have to do this by yourself. Everyone is on the team is a resource to you and you can query them and therefore determine what is around the corners and so on, but like in engineering, in U.S. and so on. But that's

Starting point is 01:39:03 that's really important. The second is, like, it's, you've got to be exothermically infectious with, like, actually caring about this thing because just that one thing alone will make a 10 times better part. It's crazy. How much of a, like, of a change this makes.

Starting point is 01:39:24 I feel like, honestly, what you're describing here is, like, founder mode, what it actually, what the outputs are, giving a shit, being exothermic excited, and looking around corners, I feel like this is its own conversation here. Yeah, I agree. I don't think Founder Mode.

Starting point is 01:39:38 So, I mean, I think, yeah, Founder Mode is a super valuable term, but I actually do think that it's, like, I answer the question about what I think about Founder Mode in the discussion about pumping heat into systems. Like, this is my, like, that's what I do. It's just that Founder Mode, like, the Founder Run company, I think this has an easier time existing. because people dislike the people who are pumping heat into a thing.

Starting point is 01:40:08 You know, people fight them, people project them out. And if the boss is like this, boss can protect the other people like this. And therefore, I think founder-run companies can be innovative longer because there's a substrate by which this can stay a thing for a long time. So anyway, that's my TDR on the founder mode discussion, which I think is like a really fascinating discussion. I find it's very valuable. I'm sure it's misunderstood in all sorts of ways.

Starting point is 01:40:36 But I think it's more actionable than people think. Toby, I appreciate you continuing to drop nuggets, even though I know you have to go. By the way, your video looks incredible right now. You look like this is amazing editing we're doing. Like a rainbow streaming across your body. Yeah, we really hit the rainbows here. Like, well, no gold at hand. I hope.

Starting point is 01:40:57 I hope you got to gold, but you were hoping. And I was so much gold. Sufficient leprechaunish. here to deliver. What a metaphor. Okay, Toby, thank you so much for doing this. This was incredible. I feel like this is going to help so many people build great companies. And thank you for first principles. Okay, I got to run. Bye-bye. Okay. Thank you so much for listening. If you found this valuable, you can subscribe to the show on Apple

Starting point is 01:41:22 Podcasts, Spotify, or your favorite podcast app. Also, please consider giving us a rating or leaving a review, as that really helps other listeners find the podcast. You can find all episodes or learn more about the show at lenniespodcast.com. See you in the next episode.

Lenny's Podcast: Product | Career | Growth - Tobi Lütke’s leadership playbook: Playing infinite games, operating from first principles, and maximizing human potential (founder and CEO of Shopify)

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