Triangl.com is the brainchild of Australian couple Craig Ellis and Erin Deering, who launched the line of neoprene bikinis in 2012 after Deering couldn’t find affordable swimwear she liked. The next year, Ellis and Deering, who had some previous experience working in e-commerce and design, sold all their belongings and moved to Hong Kong to grow their online-only swimwear label. With a social boost from celebrities like Kendall Jenner and Miley Cyrus sporting the company’s swimwear, Triangl quickly grew to $60 million in revenue within a few years of its online launch.1 Beyoncé even wore one of its tops in a video. Celebrity endorsement and beautiful models make the brand worthy of an Instagram follow, but from a business perspective the web engine that powers Triangl’s online store is way sexier. Shopify, founded by CEO Tobias Lütke in Ottawa, Canada, in 2006, powers Triangl as well as about 800,000 other merchants, including brands like Red Bull, Tesla Motors, General Electric, Penguin Books, and Nestlé.
Merchants who use Shopify to run their online store can design, set up, and manage their entire e-commerce business across multiple sales channels, including web, mobile, social media, and even brick-and-mortar locations. Its affordable SaaS model means a tiny start-up in rural Rhode Island can begin selling custom apparel online in twenty-four hours, and trust that the engine behind the website and its transactions is not only reliable but affordable. In simple terms, Shopify is to an e-commerce business what electricity and plumbing are to a house—it provides every essential service, tucked out of sight behind the walls.
Notwithstanding its robust offering, Shopify knows switching platforms is complicated and costly. And so each merchant represents a predictable client with a relatively high lifetime value. Shopify’s focus on growing its recurring revenue through subscription services, and its broader strategy to attract more enterprise-level clients, adds to the long-tail customer base Shopify has historically served.
Shopify Plus—its enterprise-level service—continues to gain traction, and now powers over 2,500 large businesses. As more big corporations seek to upgrade legacy infrastructure typically built on platforms like Magento or BigCommerce, Shopify Plus is increasingly seen as a viable alternative despite packages starting at around $2,000/month. With names like Tesla and Red Bull using Plus, Shopify has officially shed its old reputation as simply a platform for start-ups.
Enterprise-level technology and robust reliability are two key factors that make this subscription/SaaS company, which began as an online snowboard equipment store in 2004, a giant in the technology space. At 4,000 employees and climbing, Shopify supports approximately 800,000 merchants across 175 countries, who in 2018 collectively processed over $43 billion in transactions on the platform (Shopify reports in U.S. dollars). Subscription revenues grew 50 percent in 2018 over the previous year, to $465 million. That represents nearly half of Shopify’s $1.073 billion in revenue for 2018. In Lütke’s words, “No other SaaS company has crossed the $1 billion-dollar revenue mark at a faster growth rate.”2
As the cloud-based, multi-channel SaaS e-commerce platform has grown into one of the largest companies of its kind, Lütke and his leadership team have had to make some decisions about how to expand globally. While there was early pressure from institutional investors to relocate its head office from Ottawa, Canada’s capital, to glittery tech epicentre Palo Alto, Lütke instead chose to double-down on the company’s Canadian footprint, hiring more local employees and expanding its already impressive headquarters at 150 Elgin Street to a total of 170,000 square feet. Shopify has added an additional 325,000 square feet nearby, in a former Export Development Canada building, and increased its presence in Toronto. It plans to double its workforce in Canada’s biggest city to 1,500 by 2022.
The company’s chosen headquarters is both purposeful and advantageous. “Ottawa may be one of the best places in the world right now to build a multibillion-dollar business,” said Harley Finkelstein, Shopify’s chief operating officer. “In fact, we consider Ottawa to be one of Shopify’s competitive advantages.”3
In a city where Prime Minister Justin Trudeau is a pretty big deal, “Tobi” Lütke isn’t far behind on the status ladder. But, for a tech titan whose net worth is nearly $3 billion, and whose company is one of the biggest Canadian-based success stories of the post-internet era, he’s done a good job of keeping a low profile. Unless you’ve made a career in Canadian tech, you’re not likely to know who “Tobi” is. Shopify’s Ottawa-based footprint allows the company to fly under the radar, and the German-born Lütke wouldn’t have it any other way.
Lütke prefers Zuckerberg work attire to a three-piece suit. The only thing flashy about him is the Tesla he owns, which he often leaves at home in favor of his bicycle. People who know him say he enjoys the limelight about as much as a raccoon likes a flashlight in its eyes. Instead, Harley Finkelstein, the company’s COO and a more naturally animated personality, welcomes the role of media bobblehead as part of his job description. That has proven to be a killer combination since the two met in 2009.
In many ways, Lütke’s approach as CEO is the opposite of a typical tech company executive. In an age where big personalities like Bezos, Branson, and Musk rule the front pages of Forbes, Lütke makes a concerted effort to avoid any kind of media and fame, focusing instead on what the company has done successfully, and how it will manage its next phase of growth.
To make sense of Shopify, one must understand Lütke’s influence as well as his personality type, both of which are woven into the firm’s fabric. The result is a unique culture and company stemming from not only the German native’s leadership style and perspective, but his childhood, his connection to Canada, and all the lessons he’s learned along the way.
From the beginning, Lütke didn’t fit the mold of a typical German schoolkid. As a child growing up in Koblenz, Germany, he took academic shortcuts where possible so he could spend more time working on computer programs. Teachers didn’t appreciate his extracurricular efforts: “They diagnosed me with all sorts of learning disabilities and started to medicate me,” he recalls on his blog. “I wanted to leave it all behind.”4 Despite being concerned about their son’s desire to retreat to screens, Lütke’s parents gave him a computer, the equivalent of a Commodore 64, at the age of six. By the time he was twelve, he was rewriting Commodore code to build new games for the system.5
Like Bill Gates and Mark Zuckerberg, Lütke made an ostensibly bold decision to drop out of school to pursue his passion for computers. “School was not for me,” he says in that same 2013 blog post. “To me, computers were so much more interesting. Right or wrong, I felt like I wasted my time there and my real education was starting when I came home.” Lütke quit traditional education at the age of sixteen and decided to follow the apprenticeship path to become a Fachinformatiker, or computer programmer. “This might sound like a stupid decision to people in North America, who often go to College or University to get a degree in something like computer science,” he explains, “but in Germany leaving high-school for an apprenticeship is not out of the ordinary. It is called the dual education system, and it is likely one of the main reasons for Germany’s success.”6
Germany’s apprenticeship system is based on the idea that many professions are best entered through experience rather than theoretical understanding. Apprentices can develop their craft primarily through on-the-job training and spend as little as one day a week in vocational school, with a choice of roughly 350 different occupations, ranging from business to trades—everything from bankers, hairdressers, and oven builders to software developers and computer programmers. It’s this German system that gave Lütke a viable alternative to classic curriculum-based learning.
Lütke completed an apprenticeship at BOG Koblenz, a subsidiary of Siemens, under the watchful eye of a mentor named Jürgen. “Jürgen was a long-haired, fifty-something, grizzled rocker who would have been right at home in any Hell’s Angels gang,” Lütke recalls. He was a rebel when it came to things like company attire and formal language, but what Lütke gravitated toward was his commitment to nurturing the next generation of workers. “Jürgen was a master teacher. He created an environment in which it was not only possible but easy to move through 10 years of career development every year. It is a method and an environment which I am fiercely trying to replicate at Shopify.”7
Jürgen’s influence, and Lütke’s desire to reproduce it, is evident in Shopify’s work culture, which fiercely pushes its people to learn and grow through experience. If you visit one of its offices, it’s clear the company embraces a diversity of opinion and background through a mosaic of personality types and ethnicities. Employees wear what they want, share ideas openly, and are encouraged to express themselves authentically under a culture rooted in both personal and professional growth.
Lütke’s admiration for this kind of experiential learning over academic study could be considered the hidden DNA of his success, and that of Shopify’s. As he explains it, “My apprenticeship and the dual education system in general taught me [that] experiencing and learning things quickly is the ultimate life skill. If you can do that, you can conjure up impossible situations for yourself over and over again and succeed.”8
The success of this apprenticeship-based system in a field as influential as tech should prompt reflection in any organization attempting to change its internal culture—but it also poses a broader set of questions about North America’s educational ideals.With a long history propped up by alumni, endowments, and a closed-minded narrative, the current North American college/university system doesn’t just discourage students from pursuing experiential learning—it scoffs at those who drop out, often labeling those who take an alternate path as failures without a future.
We can make sense of this traditional viewpoint from an ROI (return on investment) perspective: after all, academic institutions need a steady flow of students paying high tuition fees if they’re to survive. And so, to lure applicants, schools tout program rankings, a vast alumni network, and high expected average salaries out of school. Celebrating the “dropouts” like Lütke, who achieve tremendous success by forgoing that path, erodes the value proposition.
But, what if we were to ask ourselves the question, What is the purpose of a formal educational institution? If the answer is a variation on something like “to develop students’ capacity to learn a set of skills in order to bring value to society and be happy doing it,” we are then left with an even more important question: Is the current North American educational framework the most effective at fulfilling that purpose?
Germany isn’t the only country that has built a successful education system that bucks North American expectations. In his book Antifragile, Nassim Nicholas Taleb describes how Switzerland, “perhaps the most successful country in history,” has “traditionally had a very low level of university education compared to the rest of the rich nations. Its system, even in banking... was based on apprenticeship models, nearly vocational rather than the theoretical ones. In other words, on techne (crafts and know how), not episteme (book knowledge, know what).”9
If kinesthetic learners like Lütke, Jobs, Zuckerberg, Gates, Ellison, Mackey, and Dorsey, who thrive on “know how,” not “know what,” had been compelled to follow the so-called normal path, it would likely mean a world without Shopify, Apple, Facebook, Microsoft, Oracle, Whole Foods, or Twitter, respectively.
As more graduates enter the workforce with degrees in the liberal arts, and an average of $37,172 in student debt (a $20,000 increase from 10+ years ago), apprenticeship-based learning seems not only practical, but inevitable—and this predictable shift is certain to affect both educational institutions and corporations competing for talent.10
Canadian entrepreneur Carl Rodrigues, founder of SOTI, one of Canada’s largest mobile solutions and IoT providers, has a similar perspective. He believes the education system must change, especially for software programming and related tech. “We have to change how we’re teaching technology. Technology is constantly changing and moving—there’s new stuff going on every day. People are teaching this stuff who aren’t as passionate as those working in the field. So, there has to be more direct involvement from the private sector, so we’re teaching what’s relevant.”11
In the face of a rapidly expanding “gig economy,” companies with deep visionary-founder roots, like Shopify, are at a distinct advantage. What Lütke and leaders like him bring is a unique openness to challenging the status quo. This kind of long-term thinking on an evolving economy certain to be ruled by data science, artificial intelligence, quantum computing, and autonomous transport shapes a company’s mission and “raison d’être” in a way that traditional firms seem to miss.
Is there a place tomorrow for today’s traditional school curriculum and post-secondary system? Maybe, but the argument for its relevance is waning. One thing is for certain: North America should soon feel a little more like Germany if it wants to compete and evolve.
By the time he completed his apprenticeship, in addition to his passion for programming in various languages like Rosie, SQL, and Delphi and hacking languages like Java, Lütke had another significant interest: snowboarding. His winter hobby would prove to be an important piece in the puzzle—both personally and professionally.
This book isn’t a romance novel, so I’ll keep this part short. While on a snowboarding trip to Whistler, B.C., Lütke met Fiona McKean, an Ottawa native who, as the daughter of diplomats, had grown up travelling the world. After pursuing a bachelor’s degree, she joined Lütke in Germany for a while before they decided to move to Canada to build a future together.
Shortly after moving to Ottawa with Fiona (Tobi and Fiona are now married), Lütke met Scott Lake, an Ottawa local with a solid academic pedigree. Lake, a natural relationship builder with a PhD in political science and a master’s in international relations, had a valuable network in Canada’s capital. Conversations between him and Lütke quickly turned into a business idea built on a mutual passion for hitting the slopes. In 2004, Lake and Lütke launched their new online business, selling—you guessed it—snowboards.
They called it Snowdevil. There was no grand vision for the start-up, and no real long-term plan. More than anything, the business was simply a cool project that tapped into both their personal interests. They each had defined roles and responsibilities, with Lake taking the business reins, and Lütke handling all the technology.
Coding up the first iteration, Lütke developed the snowboard store in an application framework called Ruby, then switched to a newer framework called “Ruby on Rails,” devised by Danish programmer David Heinemeier Hansson, to improve the website’s efficiency. On online forums, Lütke shared his hacks and certain software components he was creating for the store, and quickly became part of a core group of up-and-coming Rails developers.
As the snowboard business trucked along, Lütke and Lake both realized that the e-commerce software Lütke had customized for the store could potentially be its own stand-alone product that other merchants could use to sell stuff online. There wasn’t much in the way of competition. Lütke had tried all the other software solutions and found them lacking, in quality if not in quantity of options. “I sometimes liken the landscape to what MP3 players were like before the iPod,” he wrote on Quora. “They had tons of ‘advanced features’... but they just sucked.”12
Excited by the prospect of a new business pivot, Lake and Lütke persuaded a group of ten friends and family members (McKean’s father and Lütke’s uncle among them) to help fund the new vision—which they called Jaded Pixel. Before long, Lake changed the name to a Sean Parker–style moniker: Shopify.
In 2006, its first year of operations, Shopify reported revenues of $96,000. Revenue increased the next year, but not before Shopify quickly developed cash flow problems. On January 1, 2007, Toronto-based Klister Credit, an early-stage angel investment firm under the stewardship of John Phillips, wrote Shopify a check for $250,000—the company’s seed round, valuing Shopify at $3 million.13 While the cash provided a little breathing room, it wasn’t enough.
Lake knew Shopify needed more funding if it was to survive. He was adamant about pushing for a proper injection of venture capital. But Lütke was conflicted: raising venture money meant a totally different path for Shopify, one that didn’t necessarily resonate with Lütke’s personality and aspirations as a product developer. He questioned whether it made sense to turn Shopify into a growth company (inherent with any VC investment), or keep it more of a “lifestyle” play, small and dividend-rich. “I think Scott was frustrated with me, based on me changing my position on this so often,” said Lütke.14
Things came to a head in 2008. Lake left Shopify, leaving Lütke to play the role of company frontman. Picking up the reins of CEO meant a crash course in various aspects of business operations Lütke knew nothing about—like what to do about the company’s dire need for cash and how to keep its operations afloat.
Lütke’s first instinct following Lake’s departure was to book a trip to San Francisco to earn a so-called real-world MBA, by picking the brains of every venture capitalist who would take a meeting. While the prospect of learning some business chops was top of mind, the urgency to find funding, and replace himself as CEO, were also key priorities for Lütke. While he did learn about customer lifetime value, conversion funnels, and churn rate, his mission to find cash and a CEO was an utter failure. Silicon Valley was still licking its wounds from the dot-com crash, and no one was ready to take a leap back into e-commerce just yet. As for leadership, the overarching feedback from the VC panel was that Shopify was Lütke’s offspring, a project that only he could oversee—sobering news for a founder who wanted someone else to take over.
Lütke turned to Fiona’s father for help. Luckily for him, Bruce McKean not only lent an ear, but covered Shopify’s payroll while Lütke agreed to bridge any financial gap with his personal savings. It was a desperate time.
Things began to change in early 2009, with the release of Shopify’s new API platform and app store. In a press release, Lütke said, “E-commerce is a highly individualized business. Every store wants to offer a unique buying experience but providing too many features makes the software cumbersome and difficult to use. The Shopify API solves this by allowing merchants to install exactly the features they need to get the most out of their store.”15 By offering an app store, essentially a marketplace for third-party developers to sell their apps to Shopify merchants, Shopify now offered a new, widespread set of tools the company could not otherwise create at scale, thereby bolstering the entire value proposition of the platform. It was a key turning point.
In 2010, Bessemer Venture Partners caught wind of Shopify’s momentum. Bessemer, one of Silicon Valley’s largest venture capital firms, was surprised that Shopify was able to grow so quickly out of a city as un-Silicon-Valley-like as Ottawa. In fact, it’s not clear whether the firm’s partners could even point to the city on a map at the time.
VCs unfamiliar with Canada’s tech sector didn’t know it, but the 2008 financial crisis and subsequent recession, which had hurt most of the American tech sector, had benefitted Shopify in a couple of unique ways. First, individuals who had recently lost their corporate jobs were becoming more entrepreneurial, launching online stores to sell home-grown products like cookies and biscuits, wine, surfboards, apparel, accessories, artwork and graphic novels, and more. And many of them flocked to Shopify.16 Second, the collapse of Canadian corporate telecom giant Nortel, and, similarly, layoffs at IBM’s office in Ottawa, had spilled a pool of talent into the region, which became filled with thousands of capable and unemployed software engineers just as Shopify was scaling. Lütke’s team took advantage.
Bessemer was convinced that Lütke and his Ottawa-based company had something compelling. In December of 2010, it organized a Series A funding round of $7 million, purchasing 20 percent of the company and two board seats. Series B quickly followed for another $15 million in 2011, followed by a Series C in 2013, led by OMERS Ventures and Insight Venture Partners, bringing in an additional $100 million.17 Cash positions had turned a corner; revenue as well as employee count was climbing.
Merchants, however, were having a hard time navigating Shopify’s complex payments setup. The platform made it easy to set up an online store, but its third-party payment integration requirements were a total mess by comparison. At the time, the general payments ecosystem was (and still is, to some extent) a notoriously complex web, with each company playing a nuanced role in the payments value chain. Companies like Visa, Mastercard, or American Express worked with banks to issue credit cards, keep an eye on card activity, and approve transactions. Acquirers for these companies, such as Chase and Bank of America, provided merchant accounts and lines of credit, sometimes directly, but often through ISOs or other third parties. Point-of-sale (POS) technology companies such as Ingenico were busy selling hardware to retailers, while companies like Square were introducing modernized POS equipment and software for mobile computing devices like smartphones and tablets (among other things). Online sellers, who simply wanted to accept credit cards on their website, needed merchant accounts that they had to source themselves—a process that could take up to four weeks.
For Shopify’s clients, the payment side of things was, to put it politely, a total shitshow. There were alternatives—mainly through closed loops like PayPal or Bitcoin, which independently manage all steps of the transaction process between consumer and merchant—but these options weren’t, and still aren’t, considered “mainstream” when it comes to accepting online payments. PayPal-only merchants would quickly get pushed out of the credibility ring.
Given all the complexities, Shopify set out to find a solution through a strategic partnership with the most innovative disruptor in the payments space to date: Stripe. To make things easy for merchants, the Irish company was busy removing all the inefficiencies of acquirers, card-issuing banks, and credit card brands. As a result, it played two primary roles in the payments ecosystem: “payment processor” and “e-commerce payment provider.” Stripe was a one-stop shop for merchants just wanting to accept a Visa or Mastercard.
Shopify noted that Stripe could remove the headaches associated with accepting payments, and provide its merchants with faster onboarding in the process. Shopify also smelled plenty of business upside through a new potential revenue stream stemming from funds that traditionally went to other payment acquirers. By inking a deal with Stripe, the two companies could bypass the “middlemen,” and capitalize on a portion of these interchange fees and related charges.
Midway through 2013, Shopify announced the new partnership: Shopify Payments, “powered by Stripe.” Merchants could set up and accept credit card payments within minutes, instead of weeks—right on Shopify. It was a seamless addition to the platform. Shopify tied in all kinds of cool payment features such as real-time payment tracking, inventory tie-in, chargeback recovery, and more. Pricing too was easy to understand, with a simple discount rate of 2.9 percent plus $0.30 applied to each transaction. Incumbent pricing models were significantly more complicated, with additional fees tied to processing American Express or international credit cards, and for PCI (payment card industry) compliance.18 With Shopify’s new offering, none of this applied.
The partnership with Stripe helped boost Shopify’s total value proposition, which then saw the company capitalize on the momentum with an IPO in the spring of 2015. The company’s public offering raised more than $131 million.19 In 2018, Shopify’s share price on the NYSE rose by 66 percent, joining Twitter, Intuit, Salesforce, and Amazon as an overall top stock market performer for the calendar year.20 By September 2019, the share price had broken the $300 threshold.
Critics like Andrew Left, an analyst with Citron Research and a famous Shopify short-seller, is not only skeptical of Shopify’s lofty valuation and business model, but says the company’s ethics are questionable. He points to the hundreds of thousands of customers the company claims it has, and says that many of them are smaller online players marketing shady products and business opportunity scams. He also disparages the company’s use of third-party marketers (known as affiliates), which it compensates through its partnership program, who often use banner advertisements with nebulous terms like “become a millionaire” to lure traffic and, ultimately, sign-ups to Shopify’s platform. Left says these types of advertisements violate U.S. Federal Trade Commission marketing standards, making Shopify complicit in its participation in such tactics.21
Based on traditional valuation ratios, Left might be right to suggest that Shopify’s stock is overvalued. The company’s price-to-sales ratio, for example, hovered around 30x in mid-2019—while leading tech giants like Adobe and Salesforce run at about 14x and 9x respectively.22
If you’re a profit-first pundit, there’s an easy bear case here. Shopify’s relentless focus on growth at the expense of its bottom line has meant the company has never actually turned a full year of profit, and it looks like it won’t for a few more years to come.23 Moreover, competition has heated up, with more new entrants as well as mainstream acquisitions, such as Adobe’s purchase of rival Magento, which counts Coca-Cola Co., Intelligentsia Coffee, Canon Inc., and Burger King among its customers. Wordpress is also a threat, given that the open-sourced platform can be totally customized in the hands of the right developer. In fact, its e-commerce plug-in, WooCommerce, was the market leader as recently as 2018, ahead of both Magento and Shopify, with a 21 percent global market share.24 Automattic, its parent company, just raised $300 million in Series D funding from Salesforce Ventures to boot.
Left’s short-selling position could come to fruition over the long term if competition starts to chip away at Shopify and investors refocus on industry multiples to fairly valuate the stock price. Yet his claims lambasting the company for ethics violations go too far. Shopify, like any company with an affiliate program, faces the near-impossible task of policing all of its publishers. Certainly Shopify could improve its ability to clean up its marketing and communication strategy by circulating preapproved banner ad messaging and associated creative, while keeping a watchful eye on offenders—but claiming the company can sterilize its partner program to remove all such harm isn’t realistic; there will always be bad apples. Judging by the company’s stock performance in 2019, investors tend to agree.
Shopify has played the long game since it pivoted away from snowboards, building a business off servicing the long tail first. With a goal of allowing anyone, anywhere, to set up a digital store without technical expertise, the company has made good on its vision to make online commerce accessible to any entrepreneur. As of late 2019, it was the most-used e-commerce technology across the global internet.
As of September 2019, Shopify was used on over 1 million websites—nearly a quarter of all websites that used e-commerce technologies.
Source: “eCommerce Usage Distribution on the Entire Internet,” BuiltWith, accessed September 24, 2019 https://trends.builtwith.com/shop/traffic/Entire-Internet.
By servicing previously neglected merchants with enterprise-grade infrastructure, Shopify has developed a substantial customer base that includes both small merchants (that long tail) and, more recently, enterprise-level clients, who represent a growing slice of the pie. Boasting clients like Google, GE, and Tesla, the company is sure to add more to its bottom-line enterprise profit margin through pricier subscription tiers.
Shopify’s business seems more robust than ever before, stemming from the simplicity and reliability of its platform, its accessible subscription model, and its ability to create and foster a great company culture. More important, though, is Shopify’s ability to retain customers. Client retention is rooted in a kind of business philosophy, often called the “lock-in effect,” where a company (like Shopify) makes it hard for customers to leave once they’ve signed on. Banks, for example, are notorious for making it difficult to move to another bank. The same is true for cell-phone providers, who tie up customers through incentives like a $0 smartphone, in exchange for contractual obligations. Customers who want to leave for another provider before the end of a contract’s term are penalized financially.
In the B2B (business-to-business) world, companies like Salesforce and Shopify, which maintain several enterprise clients, are masters of the lock-in. Once Salesforce deploys its software and trains employees on using it, clients like Adidas, for example, aren’t going anywhere. The operational costs of searching for alternatives, committing to a new provider, moving legacy data, and retraining everyone on using a new system, makes it nearly impossible for an executive to justify such a move.
Similarly, switching costs and operational disruption make it difficult to move from Shopify to one of its competitors, like Magento. Let’s keep on this point about switching costs for a moment, using Netflix as an example—this time, from the perspective of a B2C (business-to-customer) company. If, as a Netflix customer, I want to cancel my subscription and sign up for Hulu instead, it doesn’t take much effort. So a B2C player like Netflix doesn’t garner the same lock-in advantage as a B2B company like Shopify or Salesforce. As a result, Netflix must devote an extraordinary amount of effort to keeping content relevant and engaging, ensuring it is boosting its value proposition over time. In highlighting this stand-alone example, we can say that as a general rule, switching costs for businesses are much higher than they are for consumers, and B2B companies who understand this phenomenon, and subsequently nail their value proposition, are rewarded by retaining most of their client base.
Shopify’s lock-in is a key factor contributing to a rosy forecast. But given our earlier mentions of the competition, there’s an urgency to innovate that Lütke cannot ignore—and isn’t. Not only is Shopify investing in improving its existing technology, it’s also creating new channels to reach customers, like physical stores. Shopify opened its first brick-and-mortar location in Los Angeles in a bid to attract—and keep—more retailers on the platform. The first store provides Shopify product training and education, guidance for growing one’s business, and community events designed to bring business owners and entrepreneurs together.25 The Shopify store announcement came just after the company announced its new “dynamic checkout,” a point-of-sale product that allows brick-and-mortar merchants to offer contactless payment systems like Apple Pay, and will soon include features like tipping, in-store pickup, and “multi-channel return and exchange options.”26 Technology innovation is also underway to better serve the cashless payment space overseas for merchants running operations in other languages, such as French, Spanish, Italian, German, Japanese, and Portuguese.
Perhaps most exciting, though, is Shopify’s horizontal expansion strategy to align itself with the Canadian cannabis industry, a crafty move since the Government of Canada legalized marijuana on October 17, 2018. Shopify signed an agreement with the Government of Ontario to power the province’s online sales of recreational weed in partnership with the newly created Ontario Cannabis Retail Corporation.27 Shopify later signed on with British Columbia in a similar arrangement.28
The opportunity extends beyond government contracts to local cannabis dispensaries in the private sector as well. As the industry takes shape in Canada, plenty of emerging cannabis distributors will demand robust point-of-sale and inventory tracking systems. Licenced producers will soon need robust systems to run direct-to-consumer sales channels. Shopify is sure to be the de facto option, having already teamed up with licenced tier-1 producers such as Canopy Growth Corp. and The Hydropothecary Corp.
Shopify has made itself the Canadian technology pioneer in the emerging cannabis economy, with no “bud” left unturned, as they say. Lütke continues to make good on his ties to innovation, with Canadian culture courtesy of cannabis now front and center in Shopify’s home-grown growth story.