Shopify just keeps going and going . . . .
Like the Energizer Bunny
Larry MacDonald is a regular contributor to The Globe & Mail and author of The Shopify Story: How a Startup Rocketed to E-commerce Giant
Trouncing Black Friday Cyber Monday (BFCM)
The busiest period of the year for Shopify is the Black Friday Cyber Monday (BFCM) weekend at the end of November, when merchants put their wares on sale. Once again, Shopify’s merchants trounced the event, generating a record US$14.6-billion in revenue, up 27% from last year.
Also on sale was Shopify’s stock, down -6.3% on Cyber Monday as a result of an outage at the Shopify platform. But dig past the headlines and it was plain that the disruption was not that serious. And as expected (see post on Cyber Monday), the stock did recover: three days later, all of the loss had been recouped.
Fixing the incentive problem for sales staff
Remember a few weeks ago when Shopify had some problems with how their sales teams were compensated, and some senior executives departed the company? Here is the fix:
“Most sales compensation models are misaligned,” announced COO Jess Hertz. “They reward the signature, not what comes after. So we rebuilt it. Starting in 2026, Shopify’s sales compensation will be tied to one thing: long-term merchant success . . . .This is a model for people who want to act like owners, not just hit quarterly targets.”
Showing existing customers solutions that maximize their business keeps them happy and opens up another revenue stream for Shopify in addition to signing up new clients. It’s good to see Shopify is still chasing “unobvious” solutions. They are not interested in “best practices” because they would make Shopify only one of the best companies, not the best.
Chief storyteller Harley Finkelstein interviewed on The Hard Part podcast
Harley Finkelstein appeared on The Hard Part podcast with Evan McCann some time ago. He expressed some ideas for succeeding as an entrepreneur and boosting economic growth in Canada.
What can the government do to create more Shopifys? “I don’t think we need anything from the government,” Harley asserts. “We simply need to have an environment that just doesn’t make it any harder.” For example, higher capital-gains taxes make it difficult for start-ups to succeed because they rely on issuing stock options to attract talent (they usually can’t afford to pay high salaries). Another problem is trade barriers on interprovincial trade, which can confine the size of a company’s market to one region of Canada.
Why do Canadians “go for bronze”? Americans are inspired to become entrepreneurs and build companies by the success of companies like Apple, Meta and Nvidia. But Canada currently has few such “role models.” If it could get more unicorn companies up and running, it could make more Canadians want to “go for gold.” “Success begets more success,” Harley believes.
Why did Shopify go in 2015 for an early IPO? First, the product line-up and the team were firing on all cylinders, generating great growth; second, employees would be incentivized by the liquidity of stock options; third, it would be easier for the company to raise money and fourth, Shopify could win more customers as it would be more recognizable and seen as more likely to be around for the long haul.
How does Shopify’s goal to be a 100-year-old company affect its decision-making? As a founder-led company aiming to be around for a long time, Shopify is not concerned so much about pumping out great financial results each quarter. It takes a longer-term perspective on growth and profitability. For example, the move after 2015 to sign up large companies as subscribers occurred in stages to ascertain the likelihood of success at each new step along the way, rather than in one great leap. Rivals like Volusion (now out of business) and BigCommerce (no longer big) tried to copy the move and go up-market but it did not go well because they were in a hurry.
Shopify’s start-up years compared to PayPal’s start-up years
I just read Jimmy Soni’s book, The Founders: The Story of Paypal and the Entrepreneurs that Shaped Silicon Valley, which is a great account of the start-up years of PayPal from 1998 to 2002. The similarities to Shopify’s start-up years are illuminating. There were some dissimilarities but summarizing them makes this long post even longer, so will be left for some other time..
Paypal was formed by the merger in 2000 of Peter Thiel’s Confinity with Elon Musk’s firm X.com. The merger occurred because the two companies were in an intense rivalry over the same market opportunity, which was rapidly draining their cash.
1) Thiel emphasizes the “prehistory” of start-ups as a success factor. That is, the pioneering teams were basically a bunch of friends from the same university or office, “We also hired our friends’ friends and so on, moving out in concentric circles,” added Thiel. They trusted each other, felt free to communicate frankly and didn’t need rules or supervision because everyone pitched in to help however they could. Shopify was similar: from 2006 to 2010: the prehistory consisted of friends/relatives: Tobi Lütke, Scott Lake, Daniel Weinand, Lütke’s parents-in-law. Joining Shopify soon after launch was Cody Fauser, who shared a German heritage with Lütke and Weinand. On top of this, a very high proportion of the founding members behind PayPal and Shopify were immigrants from other countries.
2) At some point, the start-ups begin hiring outsiders to acquire missing skill sets and different perspectives. A seasoned CEO, Bill Harris, was hired by PayPal in 2000 and in 2010 Shopify brought in new people to handle business development, marketing and the books
3) But over time, disagreements arise and some team members leave. Both Harris and his replacement, Musk, were ousted from the CEO role at PayPal shortly after the merger (Musk maintained his investment stake and made $100 million when PayPal IPOed and was bought by eBay in 2002). As for Shopify, Lake left after about two years. Both companies carried on under initially reluctant and novice CEOs: financial backer Thiel and programmer Lütke, respectively.
4) Both PayPal and Shopify started out pursuing goals they subsequently abandoned. Confinity was originally going to make security software for PalmPilots, then it was going to transmit money between PalmPilots via an infrared beam (would be handy for friends splitting the bill at restaurants); Musk’s original vision for X.com was as a one-stop digital financial center to replace bricks-and-mortar banks, brokers, insurers and so on. Shopify was going to run an online website selling snowboards.
5) Both PayPal and Shopify abandoned their original missions in order to pivot to where the market was unexpectedly signaling acceptance. At Confinity before the merger, Reid Hoffman (later founder of LinkedIn.com) asked what if users forgot their PalmPilot? To address this concern, lead programmer Max Levchin enabled a workaround backup on the company’s website to send money via a user’s email address. About the same time, Musk’s X.com was on to the same thing and both later discovered that sending money by email was taking off on eBay. The rivalry over this market between the two companies led to their merger, after which the visions for the PalmPilot and one-stop financial center were dropped to focus on payments by PayPal. As for Shopify, it received many expressions of interest in the software that it had developed for the online snowboard store, so the company switched its focus to licensing and upgrading the software for would-be online merchants.
6) Adoption of PayPal in the beginning was spurred by offering users money not just for signing up but additional money for getting their friends to sign up (financed by the millions of dollars that Thiel and Musk had accumulated with their earlier ventures plus money raised from outside investors). The goal of this viral kind of marketing was to quickly create “network effects” whereby the value of the network increases every time a new account joins, eventually leading to a digital payments network with quasi-monopolistic features. Shopify shared its revenues with third-party developers to incentivize them to build apps for the Shopify platform and increase the range of tools for merchants to use, thus raising the value of its offering. To make sure the value of its platform grew faster than competing platforms, Shopify was considerably more generous in sharing revenues with the developers.
7) Both PayPal and Shopify founding staff say they had a “tremendous amount of luck.” PayPal secured a huge 9-figure funding in the spring of 2000, just before the dot-com bust came along. Shopify was on the verge of bankruptcy in 2007 when an angel investor showed up out of the blue to provide financing. They were also fortunate in their product timing: for PayPal, email was just going mainstream on the Internet and for Shopify, SaaS platforms were just emerging as a way to host websites.
Image credit: Wikimedia Commons