The Shopify IPO - Acquired  ## Metadata - Author: **Acquired** - Full Title: The Shopify IPO - Category: #podcasts - URL: https://share.snipd.com/episode/8ac122c6-e8eb-4a0d-9c2a-cc22e1919518 ## Highlights - Toby's Engineering Obsession Key takeaways: • Toby is highly intelligent. • He loves computers and video games. • His parents were worried about his behavi. • He is just normal. Transcript: Speaker 1 Totally, totally. Well, we workan have to do a my craft episode at some point here. He was so into it that his parents, you know, who were not tekes, they, they were like, this is weird. Theyactually took him to a psychologist to like, have his behavior analized. Like, is this normal? Editors ou, no, he just, like, he's tolly normal. Speaker 2 He just really loves computers and video games. This is like a dilbert comici. He's exhibiting signs of engineer. Should we be concerned? Exactly. Speaker 1 And nobody is more engineer than toby, as we shall see, at least at this stage of his life. And ben as ulidse still talks to day about how edo gaming is great training for ontnership. You have to do resource management, you know, you're playing against opponents. You're in this dynamic world that's evolving, aspecially multi player on line gamesreal time decisions, yes. And, you know, he has this great line in there. And a one thing that becomes immediately evident about toby when you start studying him, is he's highly intelligent. He has this great line in, i think it's on the knowledge project podcass for he says, you know, people get upset. They got upset about that tweed, about starcraft. People get upset. Parents get upset if their kids are playing too many video games. Think about it this way, would you be upset if your kid were playing chess all the time? Like, would you be if i had tweeded about that? Would you be, like, vilifying me? And really, what's the ence here? ([Time 0:06:18](https://share.snipd.com/snip/7212e560-c97d-4e70-b894-ec9e37b195ee)) - Toby and Scott: A Tale of Two Programmers Key takeaways: • Toby moved to Canada to be with his soonto-be wife, but was out of a job and had to find other ways to make money. • He met Scott Lake, who was not a programmer, and they teamed up to start a programming business. • The business was successful, and they were able to snowboard a lot. Transcript: Speaker 1 Well, it turns out that toby's not quite ready to be c o yet though, because i he he might have won the short game, but lost the long game here, because she says, ok, i haven't a move over. She moves over for a year, and then she persuades him to move back to her of ottawa, canada. Ottawa, of course, in the province of ontario, is the capital of canada, beautiful capital of canada. So toby moves with viona to ottawa. And he's still working for a smaller german company at this point, which does something really exciting. They make back and accounting software for companies. But toby kan he's a great programmer, they let him work remotely. Shortly after he moves though, in two thousand four this company goes bankrupt. And so toby is now moved across the world to be with his soon to be wife, and finds himself out of a job in ottawa, canada. So what does he do? He says, well, you know, that's all right. I didn't really like programming financial accounting software in java. Maybe i cank find some other way to support y elf and and fiona, make a, make some money here. And, you know, maybe i can use programming, do it on the side. But lake, really, i just want a kind o, like, make enough money that i can go snow boarding a lot. So he's kicking around ideas, and he teams up with, he meets, through fiona, a family friend of theirs named scott lake. Now, scott is very different from toby. He is not a programmer. He was a jack in high school. ([Time 0:11:00](https://share.snipd.com/snip/a7398176-7984-4ce4-9341-849106bb6fc0)) - The History of Jaho Stores Key takeaways: • One day, David Hanson found out about a new web development framework called Ruby on Rails, and he recommended it to Toby. • Toby started using Ruby on Rails and it was really cool, so he started to think about how he could use it to create a company. • Ruby on Rails is a really obscure programming language, but it has a framework that makes it easy to use for the web. • If Toby had started using Ruby on Rails earlier, he might have been able to create a successful company without being acquired by Jaho Stores. Transcript: Speaker 2 One day. And real quick, before we we dive into this chapter. Do you know the history of yahu stores? David, no, i don't. So who made an acquisition of a company in 19 98 for forty nine million dollars that became jaho stores. Do you know what that company waswas that t gs company? Speaker 1 It was vo we va web ovy gad. Well, of course, paul graham, ofa, who would go on tofound by ccommodator man. I didn't realize via web became jaho stores. Speaker 2 Yet, like many acquired episodes, the in and out was a very small place when all this was getting going. Speaker 1 Oh, my goodness. It's just crazy. It's just crazy. Well, so get this, toby gets a getson im from a friend who's also a programmer, right around this time in two thousand four and says like, a hay man, i found out about this new web development Framework. You should really check it out. It's called ruby on rail. Get's just getting started. There's this guy, david hinemier hanson. He works at this place caled 37 signals. They make this thing called base camp. It's like pretty cool software. And a, they make it in this this really obscure programming language called ruby that, but they've built this framework for using it for the web that's called ruby on rails. Speaker 2 You check it out. These gyes are like, what? Speaker 1 Too good for ph p ye t then if only you had started coating in rails, then maybe there would be no acquired. You too could b coof a 35 billion dollar public company right now. ([Time 0:15:41](https://share.snipd.com/snip/da44e8e2-5a77-4be8-9e92-1580a18dceaf)) - Toby's Success Story Key takeaways: • Toby found out about a new web development framework called Ruby on Rails and decided to start a side project to learn more about it. • Ruby on Rails became well known because Toby built an open source blogging content management system called Typo. • Typo became popular because it was easy to use and it allowed people to blog easily. Transcript: Speaker 1 Oh, my goodness. It's just crazy. It's just crazy. Well, so get this, toby gets a getson im from a friend who's also a programmer, right around this time in two thousand four and says like, a hay man, i found out about this new web development Framework. You should really check it out. It's called ruby on rail. Get's just getting started. There's this guy, david hinemier hanson. He works at this place caled 37 signals. They make this thing called base camp. It's like pretty cool software. And a, they make it in this this really obscure programming language called ruby that, but they've built this framework for using it for the web that's called ruby on rails. Speaker 2 You check it out. These gyes are like, what? Speaker 1 Too good for ph p ye t then if only you had started coating in rails, then maybe there would be no acquired. You too could b coof a 35 billion dollar public company right now. So toby says like, oga, cool. Like, i'mbng to sheck it out. So he starts a side project just hack ing on rails. And he does what many, you know, hackers were doing in these days, he decides he's going to build a blogging system. So he builds an open source blogging content management system for the web. He calls it typo. And it ly, kind of blows up. It gets over ten thousand installs of people running their blogs, hoasting their blogs using typo. And toby becomes pretty well known. He gets in touch. He meets the 37 signal skies. ([Time 0:16:18](https://share.snipd.com/snip/a50b7ebe-5b94-4460-be96-b469e0887590)) - The Birth of Sophor Key takeaways: • Toby and Fiona spent a year and a half working on software that would eventually become the IsoPify product. • This product was designed by Toby and Daniel Winand, and they had a lot of input into the final product. • The IsoPify product was initially sold in Canada, and then later in the US. Transcript: Speaker 1 So they spend a year and a half working on the soft ware. Toby is a perfectionist. Wants to make sure it's right. And of course, a big part of that is actually commercializing this. You know, it's one thing to build your own software for your sight. It's another thing to make it plug and play for commercial availability. And they have some money saved up from their sales at snow devil. Toby and fiona move in with her parents. They raise about 200 thousand dollars, mostly from from fiona's dad and from toby's uncle, who himself was an otchpner who had emigrated to canada. They use that money and they bring on a programmer that toby knew named daniel winand. And he joins the team, and he's considered a third co founder of the company now. And he ends up taking over design. He's a programmer, but he's really interested in design, and he helps design this product and make it really easy to use and install. And has a huge, huge contribution to this first fersion of the product, a and i believe, still to this day, i believe, in interview, toby said he has veto power on any shipping, any feature Of that is the i sopify. That's power. Speaker 2 By the way, they're, they're doing all this. So in two thousand an four, they had created a canadian entity to sell their snowboards. They're doing all this new sophor business, still in the same canadian entity as the the snowboard business. They talk about a wild like actual pivot, not like, shut that down tough. This other thing, like it's in the same entity. ([Time 0:19:23](https://share.snipd.com/snip/696aa781-e67d-477f-a989-943be8f3fd07)) - The Rise and Fall of Jaded Pixle Key takeaways: (* Toby went to Daddy's domain name generator to come up with a name for the new snowboard company, and came up with Jaded Pixle Dot Com., * Brilly Shirly Rolloff the Tongue was also a good name for the company.) Transcript: Speaker 2 By the way, they're, they're doing all this. So in two thousand an four, they had created a canadian entity to sell their snowboards. They're doing all this new sophor business, still in the same canadian entity as the the snowboard business. They talk about a wild like actual pivot, not like, shut that down tough. This other thing, like it's in the same entity. Speaker 1 Ye, its in the same esity. So when they're finally ready to release the the the sophowere in two thousand six, they need a name for it. So they do the natural thing at the time. Toby heads on over to go daddy's domain name generator, plugs in, i need a name, and comes up with jaded pixle dot com. Brilly shirly rolls off the tongue. Really catchy. And if you go to jaded pixle dot com to day willing to oten the show notes, it re directs to toby's linked in profile. Yes. ([Time 0:20:31](https://share.snipd.com/snip/12494c25-289a-4e68-8bd9-66edfce31d4e)) - Shopfy: A Simple and Easy to Use eCommerce Platform Key takeaways: (* Shopfy is a customizable ecommerce platform that is inspired by the Rails design philosophy., * The platform is easy to use and install, and has features such as automated inventory organization and payment processing.) Transcript: Speaker 2 It's amazing this didn't become shopper, or like, something with no vowel somewhere. Speaker 1 And amazingly, the domain was available a toby talks about the stages, they just registerd on go daddy, the n oage to buy it from anybody. It was just there. Ah, man. Times have changed. So the initial feature said that the sip with is pretty basic. And they're inspired by, you know, kind of the the whole rails kind of design philosophy of like, minimalist, functional, ah, but have everything happen on the web in the browser. And so with the first version of shopfy, you can have a fully customizable store template. You have a shopping cart, you can track orders, you can get orders delivered to you as a merchant vr s s peed. You have automated inventory organization. And you also have the ability to plug in payment processing. So they're not doing payment processing, natively at this point, but of course, taking payments is superimportant, and they make it really easy to just plug in papa or any other third party credit card processor that you'd like, right there on your web site. Pretty cool. And yap, pretty cool. And a a far far cry in terms of ease of use and ability to install and get set up than working with all of the huge, big software packages that toby had to do when he was first setting up a snow devil. ([Time 0:22:10](https://share.snipd.com/snip/4f2e2a72-5761-4240-ba43-0fcf328b6b29)) - The Rise and Fall of Shapfi Key takeaways: • Ottawa has a history of being a hub for technology companies. • Ottawa has a strong engineering community. • Ottawa has a strong startup community. Transcript: Speaker 1 Yes, totally. An people are moving from germany, from other places around the world to ottawa to come and work at this company. But the other interesting thing is lik, ok, so we take a step back, and we now have like, a fairly young co who was an engineer, has no management experience, in charge of a high tex offware Company in ottawa, canada. Really, this doesn't seem like a recipe for success, but ottawa actually has some interesting features. So there were plenty of old school technology companies that were in ottawa, and ottawas not far from toronto. And toronto, of course, has great engineering universitiesand technology companies. Nortel was in ottawa. There were a few chip companies in ottawa, but there was, there was nothing interesting happening on the technology front there, until shapfi came along. And so all of a sudden, now here's this like es aly te ininsofwar yesn on the sofe technology front. Then i think nortel had fallen on hard times by this point. ([Time 0:28:50](https://share.snipd.com/snip/9ba0fd5c-138e-4231-b480-ced6c3562cec)) - The Importance of Shopify's API Key takeaways: • Tim Ferris is pretty good at growth market y es. They launched a contest together and got over a thousand new merchants signing up to the platform just through this contest. • Idra checks all day, totally. And then uno wood probably becomes the most important thing that they do during this time. In June, two thousand nine, they ship the shopfy platform. They build an api to allow third party developers to plug in their existing tools, and this really takes everything to the next level. Transcript: Speaker 2 Facti hear tim ferris is pretty good at growth market ye. Speaker 1 They launch this contest together, and they get over a thousand new merchants signing up to the platform just through this contest, and generate over three million in revenue across Those new stores. Pretty pretty good r o i for that hundred thousand dollarse earth investment. Idra checks all day, totally. And then uno wood probably becomes the most important thing that they do during this time. In june, two thousand nine, they ship the shopfy platform. They build an api to allow third party developers to plug in their existing tools, are right tools, right in to sopify merchant pages and accounts. And this really takes everything to the next level. Because get im you think back to like building in rails. It's very, like minimalist, functional design oriented frameworks. And that's what shopify ad always been. You know, they, toby talks about how the ethos at the company is, think about features that most of our customers use most of the time and build those. And features that some of our customers use some of the time, or most of our customers use some of the time, we don't build those. But now the third partico system builds those and plugs in. ([Time 0:33:53](https://share.snipd.com/snip/ecce9801-7e6c-4991-acf7-a238b2038155)) - How Shopify Became the Dominant E-Commerce Platform Key takeaways: (* Shopify is a leading ecommerce platform, with a large user base and growing revenue., * The platform's growth is attributed to its referral engine and word of mouth marketing.) Transcript: Speaker 1 Buta, but yet, like they could be two years further ahead of where they are now if he hadn't done thathe, he freely admits that, which is very rare that you get that level of humility from a public tect company c o these days. So the question at this point becomes like, ok, clearly this is a market, ind a wave, that is huge and growing, and shopify is writing it better than anyone else. How big can it be? So right after they raised that series a in december of 20 ten, they only had about 20 employees of the company at that point. By the end of the next year, in 20 11, they had over a hundred employees. They had passed ten thousand merchants on the platform. That year, they did 275 million in merchant sales. The following year, they go from ten thousand merchants on the platform to forty thousand and three quarters of a billion dollars of g m v. They make 24 million in net revenue from that, which obviously is a lot less. This is the first year from their, from their sone that we have their net revenue. But that continues to just grow and grow. The next year, they have 80 thousand stores. One point six billion dollars in g m v, 50 million in avenue. Speaker 2 David, do've a sense of what was powering growth for them at this point? Like, is it still this sort of referale engine through deave shops, or, you knows, it word of mouth? Like, what is leading to just the flocks and flocks of merchants running to shopify. ([Time 0:38:47](https://share.snipd.com/snip/50586a10-5986-4960-b16f-06f83d9e651a)) - The Structural Problem with Amazon Key takeaways: • The market for selling things directly on the internet or off the internet has exploded in the years after Amazon's IPO. • This is because Amazon does not excel at creating strong brands for its products, which makes it easier for buyers to find and buy from third party sellers. Transcript: Speaker 2 And i think the way that i think about this is sort of timing, that this company the the market for people selling things directly on the inter net, or let's expand and say, selling things Directly both on and off the inter net, actually expanded dramatically in the years after their ipo. Like atis, this era where, you know, people want to sell things in a bunch of different ways and subscription methods, using a strong story telling component, using a strong brand ponent, All these things that amazon is is not good at, not so it makes sense. And and i don't mean not good at in a tactical way. It's not like o dar nd, they just couldn't hire the people to figure the danged thing out. It's a structural problem. Speaker 1 Like, ya, no, amazon dot com subordinates the brands of the products exactly. You don't wentinen when you're buying from a third party seller. Speaker 2 Like, david, can you name one third party seller that you've bught from an amazon in the last yearhomanan am. Speaker 1 They all have a lot of l l csand ym, ([Time 0:54:04](https://share.snipd.com/snip/87cd8993-295c-41c1-8171-c1343bdbcc15)) - The Unaddressable Opportunity by the Aggregator in the Market Key takeaways: • Aggregators, such as Amazon, are vulnerable to competition from smaller, more specialized businesses. • There is an opportunity for aggregators to become even larger, if they can find a way to address the market's unaddressed needs. Transcript: Speaker 1 This is the first kind of example, i think we've seen, of a, if you believe ben's aggregation theory, and that that has led to the fangs are really amazon and facebook and google apples, Probably in a different category, this is the first chink in that armor, right? Like, where the actual business model of a aggregator being amazon could be, maybe not the seeds of its own undoing, but leg shopf is able to successfully compete, precisely because It has a different bito product and business model, yes. Speaker 2 But i think where i would really go with this is, the big opportunity is the it the aggregator, one like amazon, is a a billion dollar marke cap company, and shopfi is richly valued at a, You know, supposedly rich 30. So really wht we're saying is there there is an unaddressable opportunity by the aggregator in this market. That also happens to be very, very large. ([Time 1:03:45](https://share.snipd.com/snip/b0027039-4268-417e-8e6f-ace3dbd0be0e))