What Makes Shopify Special
Shopify has been one of the breakout success stories of the year. Back in 2018, when Shopify was still a $15B company, their CEO Tobi Lütke shared this quip on Twitter:
I'm sure he was mostly joking but in 2020, it is becoming increasingly clear that Shopify could be the most serious threat to Amazon's eCommerce dominance in a long time. Ben Evans and Scott Kupor (of a16z) explain why Lütke isn't just delusional:
There have already been quite a few well-done analysis pieces over the past year explaining why Shopify is poised for a decade of fast growth (I'll link them all below). One aspect of the company that has not been covered as much is the quality of the team. From my research, I think they could be building one of the best in a generation. These things are hard to assess - especially as an outsider to the company (which I am). But I'll share some of the signals I look for from great teams and what I've learned about Shopify.
⛵️ Fast, flexible, sustainable execution
Speed is one of the few advantages startups have over bigger incumbents. They're blessed with a blank slate - no legacy businesses, no legacy products, no technical debt, no big org politics. As they grow, despite adding more people, they slow down because they start to accumulate complexity. The best companies manage to maintain healthy speed. The worst stop shipping altogether. Ultimately, shipping is the lifeblood of growth because this is how companies create value for their customers. Not everything you ship will be a hit but speed generates more shots on goal. It also increases the pace of learning and iteration so that you can deliver the right product to your customers.
There are many approaches to maintaining speed (agile planning, autonomous teams, micro-services, reusable code, etc) but keep in mind that these are all just tools. They're a means to an outcome and the only objective way to measure the outcome is how often the company actually ships to customers. Shopify publishes a changelog showing everything of significance they've done. This alone is a positive signal because you can see they ship every week, usually multiple times a week.
A few important caveats...
1) Fast isn't frantic. The VP & GM of Shopify Financial Services describes this well:
"Shopify feels like a fast sailboat. When you are on a fast and smooth sailboat, it can almost feel like you aren’t moving at all. But if you throw something overboard you see it disappear super quickly behind you. That’s what Shopify at its best feels like." - Kaz Nejatian
I'm skeptical of companies that generate speed through bursts of heroic efforts or working 80 hours a week because it isn't sustainable. Pursuing an ambitious vision can take decades. Lütke himself goes on the record to explain why he believes working all the time isn't necessary.
2) Fast means giving up some predictability. Stripe product lead Shreyas Doshi explored this concept with a thought-provoking question:
If your company ships on schedule 100% of the time, does this mean you're fast? Well, no - it just means you've optimized for predictability. And counterintuitively, predictability requires being conservative. Of course, when certain business segments become large enough, some predictability is essential - and this comes at the cost of speed. It is a good signal when the leaders of the business know which mode of operation is appropriate.
🎯 Focus honed by customer insight and clear strategy
Equally important to generating more shots on goal is to have high quality shots on goal. I think there are two ways to increase shot quality:
First, know your customers and engage with them every chance you get. Seeing product teams engage with customers is a huge positive signal for me. This exchange with Shopify's CTO is a great example:
Lemieux shows genuine curiosity about what the customer's pain point is. Later in the thread, he accepts some of the product's shortcomings and talks about what they're working on. That's how you build the right stuff.
Another example is Shopify's choice to embed members of the product team with support during onboarding. Their technical onboarding lead writes:
"Next, new hires in RnD embed on the support team for a full week. They learn the Shopify product deeply and support merchants in the process (with lots of help from our incredible @ShopifySupport team!). Merchant obsession is built into our RND DNA right from the start." - Jerie Shaw
Working on customer support is far from glamorous. But what better way to build customer empathy?
Second, make sure the whole company understands the strategy inside and out. Fast execution can still struggle to find success if it is unfocused or, worse, focused on the wrong plan. Listening to customers forms the basis of any good strategy. But from there, the strategy should also be informed by the macro trends, the competitive landscape, the company’s strengths, etc. It is the job of the leadership team to explain how all these factors culminate into how the company should think about its investments. And that explanation must reach every employee at the company. Shopify does this with an internal podcast called “Context.” Even the name suggests something very positive to me - that Shopify’s executives aren’t there to tell the team what to work on but to give the team all the necessary context to make their own decisions that align with the company’s strategy. Again, that’s how you build the right stuff and do so without introducing the bottlenecks of top-down decision-making.
🌟 Employees that self-select into this culture
A curious thing about high performing companies is that not everyone wants to work there. I think the simplest explanation is that these companies don’t put employees first. Remember, customers first - now and always. That doesn’t mean they treat employees badly but decisions are hardly ever driven by “team morale” reasons. Deep in the culture is the idea that morale comes from winning. And winning comes from delighting customers.
This is easier said than done. The competition for top tech talent has always been fierce. This has placed tremendous pressure on companies to outdo each other in terms of employee friendliness (high compensation, all the perks, low accountability, etc). It takes a lot of discipline to consciously accept losing highly coveted employees.
An employee who joined Shopify earlier this year wrote this about his new job:
"So what am I going to be doing at Shopify? In the short term, whatever it takes. We're in battle mode right now; that means whatever it takes to get merchants through this crisis and out the other side in even better shape than they were before. And to be honest, that could change week by week as the situation on the ground evolves." - Alex Danco
This is what it sounds like to put customers first. Sometimes the parameters of the job don’t matter. Just do what needs to be done.
🛍 The Shopify Bet
Combine all these pieces and you have a team that will create a tremendous amount of value for its customers. It'll earn you praise like this from David Marcus, Head of Facebook Financial (and a quasi-competitor to Shopify!)
As with most of the companies I've written about, Shopify is trading at an expensive valuation by any metric. To bet on them today is to bet that they'll be one of the biggest players in eCommerce 5-10 years from now. No doubt that involves some risk and a lot of volatility but you'd be investing your money with a special team.
📚 Further Reading
If you want to learn about Shopify's products, market, or strategy I recommend the following essays.
Shopify: A Sustained Success Story by Albert Wang
Shopify and the Power of Platforms by Ben Thompson
Faster Than Fast: SMB Retailers Move to Shopify by Chris Zeoli
Shopify's Ambition by Heller House
Next Thesis is long Shopify with an average cost basis of $985 as of publishing. Assume the usual disclaimers. This is not investment advice. Do your own research before investing.