Newsmaker of the decade — Shopify: ‘This is kind of blowing my mind’

Shopify’s co-founder and chief executive Tobi Lütke fully expected his firm would not only grow at a torrid pace, but would do so in a manner that was sustainable.

JAMES BAGNALL Ottawa Citizen – Updated: December 24, 2019

Tobi Lütke, founder and CEO of Shopify. JULIE OLIVER / POSTMEDIA

Note: Over the past 10 years we’ve watched Ottawa transform, from billions of dollars invested in infrastructure to our ever-expanding suburbs. Our city’s transformation hasn’t just been physical. We’ve been changed by tragedy, too. We’ve faced floods and tornadoes, we’ve faced terror and fear, and we’ve witnessed nightmares on our roads. But most importantly, perhaps, this decade has also given us heroes — people who inspired us with their brilliance and courage. These stories helped shape the Ottawa we live in today and here, in our annual newsmakers series, we return to examine the biggest stories of the decade. Today, Shopify.

“The spark for a high-tech recovery in Ottawa-Gatineau could well be struck by a software company you’ve never heard of, in a place you wouldn’t expect.”

I wrote these words about Shopify and its ByWard market location in mid-November, 2011, when the capital region’s tech sector was still reeling from the collapse of Nortel Networks and the aftermath of the 2008-09 financial crisis.

Journalists should know better than to try predicting seminal shifts, but if you’re ever right in this business, you should let people know. And this time we were right. At least in terms of business, this past decade was very much the story of the e-commerce technology firm that transformed from a startup into one of the country’s most valuable firms.

Consider the size and speed of Shopify’s advance from 2009 to December 2019:

  • Employment surged from 15 to more than 4,000.
  • Revenues rocketed from a few million dollars to an estimated US$1.6 billion.
  • The company’s market value exploded from less than US$20 million to US$45 billion.
  • The number of online storefronts built with Shopify software multiplied from fewer than 10,000 to one million.

The remarkable bit: Shopify’s co-founder and chief executive Tobi Lütke fully expected his firm would not only grow at a torrid pace, but would do so in a manner that was sustainable.

“I want to build one of Canada’s greatest success stories,” the 31-year-old entrepreneur said in an interview with this newspaper late in 2011. “That’s been my goal for a very long time.”

Tobi Lutke in 2011. JPG

Most are by now familiar with the story of how Lütke and fellow co-founders Daniel Weinand and Scott Lake grew so frustrated with trying to sell snowboards online they created their own enabling software. In 2006, they launched Shopify, which would provide all of the software tools entrepreneurs required to sell their products online.

“Existing software was not designed with the new entrepreneur in mind, so we rejected the existing models and created our own,” Lütke explains in his blog.

(L-R) Co-founder of Shopify, Daniel Weinand and chief platform officer, Harley Finkelstein are photographed in their office in Ottawa on Monday, Dec. 16, 2013. JAMES PARK / OTTAWA CITIZEN

In retrospect, it all seemed so easy. In some ways, it was. The founders saw a need and moved to fill it without overthinking it. “I never focused on the high failure rate of startups, especially ones where the founders have little to no startup experience,” Weinand told Entrepreneur magazine in 2016. “In a way, being oblivious to this reality allowed us to keep focused.”

The founders, unusually, had the advantage of time. They had a few years to fully develop their core software platform before potential competitors could really see what they were doing. And by then, it was too late.

Shopify’s financial performance has been remarkably steady compared with previous generations of tech stars from Ottawa. Telecom rockets such as Mitel (1970s), Newbridge (1980s and 1990s) and JDSU (1990s) were forever faced with shipping more hardware every quarter to keep investors happy. One late delivery by a significant customer would make a mess of revenue projections and sabotage the company’s share price.

In sharp contrast, Shopify generates its revenues in a manner that makes unpleasant surprises less likely.

Merchants pay Shopify a monthly fee for the software platform that operates their storefront. They also shell out for add-on services ranging from shipping to processing payments. While Shopify’s technology lacks the flexibility of custom-built online storefronts, it offers setup speed and ease of use — qualities much appreciated by entrepreneurs.

Shopify’s Ottawa offices on Elgin Street. The waterfall on the 13th floor. ASHLEY FRASER / POSTMEDIA

The monthly subscriptions provide built-in stability for Shopify’s revenues because merchants tend to stick with Shopify once they’ve signed on, and the payments are automatic. Not only that, the software applications are riding a generational shift from bricks and mortar to online shopping.

Through word-of-mouth, judicious advertising and now, sheer momentum, Shopify has been adding merchants with metronome-like regularity. Once in a while, even Lütke expresses some surprise at where this has taken the firm.

“More than a million merchants are now building their businesses on Shopify,” he said following the publication of the firm’s most recent quarter. “This is kind of blowing my mind right now,” he added.

This is not to say Shopify is immune from setbacks. More than half of its revenues depend on how well its customers are doing — so a recession would severely crimp sales.

Such a reversal would also do serious damage to Shopify’s extravagant market value. With a share price tracking towards US$400 last week on the New York Stock Exchange and topping $500 on the TSX, Shopify is trading well in excess of where its sales and growth suggest they should be.

Yet for all of the company’s stunning trajectory, the direct impact on the Ottawa area has been surprisingly modest.  Consider that just one-quarter of the firm’s more than 4,000 employees are based here at the global headquarters on Elgin Street. The company’s Toronto-area workforce next year will likely exceed that of Ottawa.

Inside look at the Shopify headquarters on Elgin St in Ottawa, May 30, 2018. JPG

It is also an unusual facet of Shopify that 25 per cent of its workforce operates out of home offices around the globe.

With plans in place to add ever more languages to its online platform and related services, Shopify’s spread worldwide will see its Ottawa operations continue shrinking as a percentage of its total workforce. That’s just how it goes with successful multinationals. At the peak of the telecom boom, fewer than 20 per cent of Nortel’s workforce was based in the Ottawa area — the home for the firm’s global R&D effort.

What really matters for Ottawa is the example set by Shopify — not to mention the hundreds of millions of dollars its executives and employees have pulled out of the firm thanks to the stunning rise in its share price.

Lütke and his colleagues have brought back to life the idea that you can build a global enterprise from a base in Ottawa. Just a few months before I interviewed Lütke on that day in 2011, Nortel sold off the last of its intellectual property — the product of more than a century of astonishing corporate history.

With any luck, Shopify will carry the torch for decades more to come.

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