Fifth Anniversary of the Shopify IPO

Bram Sugarman (r) and I at the NYSE, May 21, 2015 for the Shopify IPO. Bram joined Shopify later that year.

Five years ago today I was at the New York Stock Exchange to witness the Initial Public Offering and first day of trading of Shopify. For about 18 months prior to the IPO, I was fortunate enough to have been involved with the company as the OMERS Ventures board observer. It was an amazing experience to be involved with the management team and the other investors at that stage in the company’s life.

One of the best things about the experience has been understanding and appreciating the many things that make Shopify a unique business through its people and leadership. Fortunately for us all, Shopify’s management team does interviews explaining their culture, decision making and other unique aspects; this tweet thread has a great summary of some Lütke Learnings (Tobi Lütke is Shopify’s Founder and CEO).

As a VC building up Wittington Ventures, I often find myself sharing examples with other founders and startups in the hope that they too can benefit from them. If I had to pick four stories, they would be the following:

I recall vividly the first due diligence meeting that I attended with Shopify — it was mid-2013. As Tobi was firing up his laptop he said “We don’t focus on making nice presentations, we build great software…” and then immediately finishing the sentence was Harley “…that our customers love.” I remember wondering if that was orchestrated, but as I got to know them both over time, I realized that was an entirely sincere and natural flow of how they and Shopify worked together.

Interestingly enough, as we were evaluating the investment opportunity, a key decision driver would be evaluating just that fact— could Shopify continue to win customers? At the time, Shopify (blue line in the chart below) was clearly beginning to gain market attention, but some of its competitors were better known and/or better funded. Harley explains what many VCs thought of the sector at the time in a Chase Jarvis interview.

Google Trends 2011 to September 2013. Shopify, Yahoo Stores, Volusion, BigCommerce, Magento (eBay)

Fortunately Shopify’s net promoter score (NPS) indicated that the company does indeed have great software that its customers love. Tobi and Harley weren’t exaggerating when they made that statement in the meeting. Additionally, despite the competition at the time being better known and better funded, their NPS scores were negative — and many merchants were in fact switching to Shopify.

Fast-forward to today, and we see the result of the Shopify’s long-term focus on customers:

Google Trends 2011 to May 2020. Shopify, Yahoo Stores, Volusion, BigCommerce, Magento (eBay)

This is a simple one, but has a big impact. Most startups create slide decks that management teams present at board meetings. Board members flip through the presentations in advance, but have a mindset that the slides will be presented at the meeting so might not pay much attention ahead of time.

In his Farnham Street interview, Tobi refers to “board pre-reads” (ie a document, not slides) that are provided in advance of board meetings. I found that a pre-read document makes board meetings significantly more effective and regularly recommend this approach to other CEOs. Board members read the material in advance (because they know nobody is going to read it to them at the board meeting), and come significantly better prepared to contribute to a conversation around key issues and decisions.

In many interviews (eg Tobi+Guy Raz/NPR interview and Harley+Marco Montemagno), Tobi and Harley describe that Shopify was originally a profitable snowboard company that happened to be built on their own software. They decided to try five small growth marketing experiments to help them determine whether there was a bigger business to be built around the software. So in essence, the main question management asked themselves was: should Shopify (known as Snowdevil at the time) remain as a lifestyle business selling snowboards (that could be profitable, grow steadily and do well for the founder owners) or transition to being a growth software business (that would take outside capital to build product and market share beyond that which self-financing could allow)? All five experiments succeeded, so the management team decided to move forward with raising venture capital.

The reason I often find myself mentioning this story is that entrepreneurs want to build great companies, and conventional wisdom says that they should raise venture capital to do so. However, many companies don’t need to and in fact shouldn’t raise venture capital. For example, consulting companies and vertically-focused software companies can build product using customer contracts. And many direct-to-consumer companies (ie merchants that use Shopify software), the Snowdevils of the world if you will, can build very nice businesses on their own. Only raise venture capital if you want to scale exponentially and are willing to accommodate the nuances of taking that approach.

Tobi describes building Shopify to be able to thrive in chaos. To respond well to change because that’s the constant. He randomly turns off servers to ensure that Shopify’s redundancy systems work. He describes pushing the company to be antifragile.

One of my favourite examples that I witnessed was the company’s work-from-home “plan B” that Tobi describes in the Farnham Street interview. The company was moving offices and the availability of the new building might not match when they needed to vacate the current office. Although the timing issue got resolved, everyone in the company nevertheless simply worked from home for a month before moving into the new building. No instructions beyond that, groups just self-organized and figured out what to do. Six years later, although no one could predict the COVID lockdown that we are all currently experiencing, it is no surprise that Shopify was one of the leading companies to embrace a work-from-home policy, providing a $1000 stipend to employees to upgrade their home offices and have now announced that work-from-home can continue indefinitely.

The four examples above represent only a small piece of what I learned during the short time that I was connected to Shopify as a venture-backed startup. And I am finding that it’s even more exciting now to observe them as a hugely successful publicly listed company that is completely focused on helping entrepreneurs succeed, and even more so during the pandemic.