Reflecting on Luck and Future Goals

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And that's when you see it button that has all of your information saved, making checking out as simple as a tap of your screen buyer and a merchant, Shopify can accelerate your efficiency Whether you're uploading new products or trying to improve existing ones, Shopify is packed with helpful AI tools that write product descriptions, page headlines, and even enhance your product photography And if you ever get stuck, Shopify is always around to share advice with their award winning twenty fourty seven customer support. see less carts go abandoned and more sales go. with Shopify and their shhop pay button Sign up for your one dollar per month trial today at shopify d. com slash built Just go to shhopify d. com slash built Shopify d. com slash built Hey everyone. So this week we're revisiting one of our absolute favorite episodes in the archive. It's my conversation with Toby Ludke, co founder and CEO of the e commerce brand Shopify Since launching twenty years ago, sales on Shopify have topped over one trillion dollars. But as you'll hear, it all started back when Toby decided to move to Canada from Germany and start a snowboarding business. Here's my conversation with Toby from August twenty nineteen Enjoy the show So How are you doing as the CEO of the company and not good. I mean, my team was very, very patient with me. There was a lot to learn. It's a very subtle job You know, wonderful things about computers is when you tell them what to do, they'll keep doing it and they'll wait forever until you stop. T turns out humans are not like Humans are different.. there was a very large learning ce Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. He Guy Ros and on the show today how a young programmer's ambition to sell some snowboards on the internet grew into Shopify. platform that now powers billions of dollars of e commerce every month Shopify is an e commerce software platform that works behind the scenes so that when you click addd to cart or buy in an online store, That transaction is seamless from payment to fulfillment. And in twenty fifteen, when Shopify went public, many people outside of tech had never heard of it Even so, lots of those people had already used it to buy something online, even if they didn't know it which in a way fitss the personality of the company's co founder and CEO, Toby Ludkin Hoby's a low key guy, the kind of guy who literally rode his bike to VC pitch meetings At a time when Shopify had already raised well over a hundred million dollars in funding, Toby was still living in a spare room at his in law's house to save money But before all of that, Toby grew up in Koblenz, Germany And as a kid It's pretty clear to his parents that Toby was bright, but he also struggled with learning I mean, I got diagnosed with all sorts of learning disabilities and it was very hard for me to perform well in the tests and so on And I don't think I ended up getting a full diagnosis of it, but now it was pretty clear cut way of ADHD ADHD. I grew up with dyslexic. so you know just reading was hard. Yeah. it was It was always a big question about what exactly was going on, but basically I was bored pect then the way the curriculum in Germany was taught it was really Basically Here's all the solutions you might find useful later in life, with very, very little time spent talking about particular problems that those solutions would help you with. If I don't understand the problem I'm trying to solve It's very hard for me to learn a solution to a problem. And so that just particularly didn't work well for me. So after he finished the tenth grade, Toby realized that school wasn't the right fit So he left and joined a German apprenticeship program to learn how to become a software engineer. And he ended up starting as an apprentice on a small team at a subsidiary of the German manufacturing giant, Siemens. I found this one team that just seemed really fun. We were sort of in the basement. and I was run by this wonderful guy. His name is Junguna, who's like fantastic engineer programmer And he would always come on his like BMW motorcycle to work and he would have long hair and he was not wearing a suit like you were supposed to And so it like total rabble. So good that no one could complain, you know, And I just immediately gravitated to him and his little group of rebels They were working on really interesting things. They were often prototyping new things for customers and so on. And so I wanted to be part of their group And so Starting with sixteen r seventeen and year two of my apprenticeship, I started getting paid to program all day. and that' all I did. And you loved it I loved it and I still love it. It's computer programmes you can forget all time around you. You just can Like I can turn everything off if I'm working on an interesting problem And there's another part of your life which I'm curious how you got into it, which is snowboarding, right? You were a snowboarder Did you grow up snowboarding? Did you just come to it on your own? No, I mean, my parents had a place in where Alps we often drove to It was a five hour drive and we skied. Yeah. You know fast forward a little bit, took some friends, we took this vacation initially tried to go to the United States, but then like theanadian dollar was so low that we decided to go to to cat to whistler This is like two thousand. This is around two thousand yeah And So this was the first time I said, Okaykay I'm just going to snowboard. I'm not going to take skis. like this is like this just spend all of our time there That's really when I fell in love with snowboarding and also on that same trip met my now wife. Yeah, how did you this is Fiona, your wife? How did you meet her just there at the mountain. That's it, right? I mean, you meet her on the ski trip and what you say I'm going back to Germany, but I think Like I think there's something here. Yeah, exactly. I mean, we stay in contact afterwards and Sheida said, You know what? I'm done with my bachelor's degree Why don't I just come to Germany? Her parents must have thought she was nut. You meet this guy skiing and you're gonna go move to Germany. I'm perpetually impressed by her parents too. They are the most wonderful people. So she comes to Germany. you are working programming for who at then? Yeah, before that was a little startup And what did she do during that year She ended up getting a job editing Academic wrriting ye, we lived together for ten months and she said, Okaykay, well, I need to go back and start my master's program in Ottawa. She asked me if I want to come and I said, Yes Because you could take what you know and do it anywhere. Yeah. The reason why I went is because I grew up on American media. like everything cool in the world came from the United States. I always sort of figured that's where I want to end up. I would like to move. And then you know you are IFA and you figure out, oh, you know what? Canada is America for Europeans. And this is great. So So two thousand two You mo to Canada, You're twenty two. You're like Whatever, let me try this What was the job that you did there? So I was working still with people from the startup like remotely. that was doomed to failure because the tools weren't f there. There was no slag, there was no, you know It's just email, contact right yeah What was the startup It was an attempt at writing a different browser any But it's sort of I basically ran out of the clock. It was everyone we knew wasn't going to do anything. People were starting to leave. We were talking like after the dot com crash. Well that's I'm wondering. I mean, you're twenty two, twenty three at this point. Was any part of you nervous like I'm in Canada. I'm living with this woman, like I don't really, you know know what I'm gonna do with my life. L were you feeling any anxiety to just like get something stable it was. I would be lying I say I wasn't. I knew I had very valuable skills. I could always do more of a thing I was doing recently or was doing for seemens I was just hoping I kind of didn't have to in some way To work for a big company. Yeah. Wh Like work for Siemens has been One of the most important things I've ever done in my life because it kind of taught me what I don't want U, it was in so many ways toange company culture in the way that it felt exceptionally mistrusting of everyone, right? Like even, you know, fairly strict dress codes, which is basically for companies saying hey you don't trust you guys to dress yourself. And there was so much of that, which just felt wrong Um twentyw year old Toby would not have a career there And so Over time, I was It's up in Canada. We are in Ottawa very cold place in a winter. Nine months out of the year, basically eight months out It's cold. It's six months. sixix months sorry, it might feel like my month. o. But you can't run a strategy of waiting for summer. You really have to do something with a winter. For me I was go to Hills and snowboard and I got increasingly into that. and as I do, I researched everything there was about snowboarding. I wanted to know every option that existed and build these big spreadsheets hey technology, but you can use to build a snowboard And u At some point it clicked and said maybe using My technical skills to start an internet business selling snowboards It would be a way to do it. An internet business selling snowboard. Yes. Like I did get a job offer from a fun small local company that I was actually really interested in working for, but then I went to the basically to sign the papers and One of the topics that came up was the topic of a b permit which I like found out at this point that I needed a work permit to You were not legal. Well I was allowed to be there because I was in the process of getting a permanent residency. okay? I wasn't illegal in the country. My status didn't give me work permit And I talked with a friend of family an employment lawyer and he said That's going take a while basically until you get your permanent residency to. until you get this, But just so you know, you can start a business. You could not go work for this company. you could essentially that was your only option. make any was my only option. Like I could try to work remotely again for a German companany or something like this. Oddly enough, that's okay. But I couldn't work for a local company. And so what I ended up doing is I use my technical skills. I was thinking of setting up some online store software because I figured That would exist and then use that as a way to sell snowboards. Sell snowboards make money while snowboarding, hopefully. Have a good life All right, so there's a guy that you met around this time named Scott Lake, who would go on to become your co founder How'd you meet him? So Scott worked for that company I almost got hired for And so we kept talking and he was a friend of her family. and he was a friend of Fiona's family. Exactly, exactly Wh you were also living with at that time. You were living with where the Fion's parents? Oh, you were living with her parents in Ottwa. Ota E exactly. Was that uncomfortable I mean, I mean, you're like this German kid dating their daughter, you're living in their house. It's been a little weird. They have amazingly supportive and Honestly, here's reality. I don't think I could live if anyone's parents, but I can live with Dale and Bruce they made it incredibly easy. They are just the most kind genuine and played massive roles. like Dale She was a diplomat for a Canadian government. This is your now mother inw This is exactly, my mother in law and she ended up being over Like after we had an office, which is a bit later she did all payroll and accounting and everything and Bruce ended up saving the company later. So it's entrepreneurship is messy, right? Yeah And it's a journey that you Like even if you make the choice yourself to embark in entrepreneurship, Kind of everyone around you is coming onto the trip. There's a lot of people who end up mattering a lot. clearly was naive about it. I probably would never have committed my surrounding towards the craziness that ended up the journey of Shopify, but it worked out All right, so you are You're living with a parents. Yeah. You've got this snowboard idea. You meet this guy Scott, who's working at this other company. what does he come to you and say, Hey, Toby, I think I think I want to work with you. Yeah We and snboing together. So he became like the person I, you know, I was saying, Hey, you know, here's the I'm thinking and He loved the idea and was super supportive and It was really Scott who ended up developing the relationships with the vendors and doing a lot of a business setup and all these kind of things Like, I mean, this is a classical co founder situation. I was looking after the technology and always deal with the business side. Yeah. And I guess your startup costs were not incredibly insanely high because you were doing all the code programming and And you had to obviously invest money in snowboards. You had to keep some inventory or would you wasas the idea to wait until orders came in? No. No we had the inventory, very Ran was pretty old school in that way We really wanted to build a brand, right? We wanted to build something which we hope would become big What did you call it by the way It was called Snowdevil. Snow Devil, okay Like how were you going to get this out into the world to like make sure people ' aware of it So I mean, Step number one was let's go find technology. This was ended up being a really, really important moment. I didn't anticipate it. because technology to put it up on the internet to start it. And so we were saying start online first, partly because it's cheaper. We didn't have the capital for signing a long term lease But we wanted to also have a physical store later event Yeah And I budgeted maybe a week to get the online store online. This was my expectation. you would do it in a week? Yeah. And I first started with open source software. and again, this is two thousand four we're talking about I looked at some commercial software, but mostly we couldn't afford it. And I just got really confused because I in two thousand four was sitting in front of my computer, absolutely stunned, realizing that we haven't figred out how to build online store softare yet. I'm trying to go back to two thousand four. I mean, I would order books from Amazon. And so you needed a way to get photos of the snowboards up on the site. You needed a way for people to search snowboards were available. You needed a way for people to pay for the snowboards and then get a message to you somehow that an order came through that you could fulfill. Exactly. And that wasn't easy to find off the shelf. There's no software that would make this easy and especially with the credit card part He also had I think novel or at least modern ideas about how we wanted the website to look. L we wanted to tell stories. like every snowboard that we sold, we actually took on a mountain And we would chronicle the way we spent the day You know, this is also the time of emergence or blogging. So what we had in mind was something that wrapped good storytelling around products that people are excited about, like trying to break away from the CS catalogue metaphor, right? much too early curious when When you and and Scott sort of sat down and said, yeah, let's do this snowboard company. Let's launchnowev Did you need both of you need to put in money to start this? and do you remember how much money you needed? Yeah. we both put money into the company. I think we both twenty thousand Canadian dollars put That's the capital we had. Which was your savings from programming That wasn't all I had. That was all your money. Yeah And one thing we did is kept our costs really down, right? Like no Rnt no Like where was your office? Various coffee shops. right I tried to explore my new city of Ottawa by just taking random buses and walking onto the fun a coffee shop and voking from there. And you were living rent free, basically. Yeah. All right, so you and Scott are working at of cafes. you both put in about twenty thousand bucks. you start sourcing these snowboards There's no off the shelf software to actually wr about the company. So so you decide I'm going to write this thing. I'm going to do it So exactly, I was like there's only two ways forward. L I compromise my idea and do something that's very undifferentiated except the snowbos. Okay. four I'm going to fall back on my programming skills and I would build something that hopefully would be able to power this business. So what did you how did you start to build it? I mean, I guess it was a I read about this sort of language that you found called Ruby on Rils. What was that and why was that so significant? So I had this realization I' probably going to be the only program that will ever work on this. I don't actually have to choose something that lots of people know. I can actually choose just the best tool for the job And so I've always there's been this programing language called Ruby, which I just absolutely loved. It was you know, peopleople don't usually talk about programming languages like this, but I find Like I really, really love the process of constructing something in your brain, having this idea. It's a little bit also like painting. You have an idea for something. And then The programming language ends up being the mechanism for translating this perfect picture you have in your head onto a canvas, right? And so you know if you have like an amazing landscape and they give you crayons It's possible to make a masterpiece of crayons, but it will always be a crayons painting. So this is sort in the way Java and others they just didn't match the way my brain ended up constructing the relationships that make up software And so Ruby was this thing I sometimes played with open source And in open source Japanese, there's only Japanese documentation around this time for it. I learn the language by looking at the source code And But the source code is in Latin characters. Latin characters at least,ight. But the instruction manual was in Japanese. But exactly. So in all the forms we were in Japanese and all these kind of things. Like I remembered that, hey, I have the power to choose the tool. And so why don't I go and U Ruby because that would be way more fun using this coding language programming language to build the infrastructure that would allow you. How long did it take you to actually build the shopfront Yeah, we launched Snv about two and a half months later. So it was fast. It was really good technology. and I mean, I also admit I probably spent sixty hours a day doing that. So a lot of Coca Cola and pizza and very unhealthy lifestyle. But it didn't feel like I was doing crazy hours or anything like this and I would never recommend anyone to do this. but like There was literally nothing more interesting in the world toout this time So was it pretty quick from the time you launched the website to the time you got your first orders? let me let me just dou a click on this because You know, I was working from coffee shops at the time. I I had my first order, and I actually remember almost like everything about that day. This actually ended up being a really profound experience because u I wrote the software A some point during writing the software, I actually had to type the email that the software would send to me. And so You know, I've went to a coffee shop, I'll open my laptop And it was a real order from a gentleman in Pennsylvania. No one I ever met And it really felt like I think that's what makes you an entrepreneur Like the first time you sell something or first time someone hires you for when the phone rings or something like this. becausecause until then you dis someone who but something, which is already great. But like it's that moment and it's something When I meet Shopify customers, I often ask them like, hey, where were you when you got that first order and everyone can remember it. And you see your first order and you're thinking, Ohh my God, some guy in Pennsylvania is ordering from me. Yeah I actually had to walk home to call Scott because I didn't have a cell phone. told about that we had an order. and That's quidy And how were people finding out about Snow Devil I mean, we tried to do basic promotions, we tried flyers and stuff like this. But The betayheat of two thousand four was so different, right? Like there was Google adverts was a new product. R. In those days. It turns out that a minimum bid for an ad for click is twenty cents and we paid minimum bid for almost every search which ended up converting on a five and a dollar snowboard. So you could get the word out Yeah throughrough Google ad ads. and there were not that many online snowboard shops, presumably. So how did Snow Devil do as a business? It did really well. Snowboards have really good or had really good profit margins on them. O biggest problem was keeping inventory and getting inventory back and We were just basically out of stock the entire time. But we had an excellent season. I mean, you guys recourouped your investment pretty quickly. veryery quickly. and then We had a good amount of savings from that for the next phase. And it was just you and Scott, or did you quickly have to grow and bring in other people to help you with inventory and shipping and fulfillment? No it was just the two of us and we did everything. Mostly Scott b brought snowboards to the post office and he was literally driving them to the post office. Yeah or biking them. We figured out a way to. I'm imagining like a brown paper wrapped snowboard on his shoulder. Yeah ye exactly. That's exactly the picture It was fun. It was really fun Okay, so you're running this snowboare business with Scott. and it sounds like it's going pretty well Kid are making money? And I mean, what happened next Here's what happened. We sales load obviously in spring. And we sort of had began the conversations around You know, to make this a really sustainable year aroundound business, you need to, know either sell skateboards, surfbards, kiteboards or do something else. So you were considering, hey, it's a spring, maybe we should do kiteboards and skateboards, other things. Yeah. I mean, that would have been a natural thing to do to go year round. Again, we Scott N I said, we wanted to start a a location in town. but I really Doing the development of it I was now spending all this time like I was tweaking the software. I did not stop programming. I was just Okay, now let me try things, let me make it faster, let me use different approaches And so increasingly, I got people sending me emails and asking me if I would license Snow Devil to them because they wanted to start something similar. People were saying, hey, can you just license you built this? Can we use it for our e commerce shop? Right. And exactly, because it was just different. It wasn't a normal grid. was it told stories, it was clearly modern, it was sort of web too OE and So people were saying, I would love to just build my business based on that foundation. I mean, amazing, it reminds me so much of the story of Squarespace. And Squarespace was essentially started because the founder, he couldn't find a good way to do a blog and a website all in one. And so he basically created his own way to build a website, right? He did it himself It's a similar story here. similar story. Yeah. But what I needed was something that helps me in the journey of entrepreneurship from scratch. I'm not that different from other people. Like if I needed this at some point This gonna be at least A couple of thousand people were also needlight. So this was like spring two thousand five, at some point Scott and I just said, okay, skateboards or software It was pretty obvious that you should go with software In just a moment, Shopify starts to gain traction, but still needs money. So Toby heads to the Bay Area, buys a used bicycle on Craigslist, and pedals over to Sandhill Road Stay with us, I'm Guy Ros and you're listening to how I built this When it comes to your health and well beinging, the right care can change everything That's why Cleveland Clinic has been elevating world class patient care for over a century From the most specialized heart, neurology, and cancer treatments to the latest surgical innovations and beyond Cleveland Clinic is here for every care in the world Whether you're exploring advanced care or just looking after your health All the info you need is waiting for you at clelevelandclinic. orgot Work can be a little weird. I've had plenty of those moments early in my career and honestly even later. I remember stretches where I wasn't totally sure what the next step was supposed to be. 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It's a unified suite that brings your financials, inventory, commerce, HR, and CRM into a single source of truth Connected data is what makes your AI smarter doesn't just guess, it knows how to automate routine tasks, deliver actionable insights, and help you cut costs From software and IT services to healthcare, equipment manufacturing, financial services and many other great American industries NetSuite delivers a customized solution for your business If your revenues are at least in the seven figures, get their free business guide deemystifying AI at netsuite d. com slash built The guide is free to you at netsuite dot com slash built, netssuite d. com slash built Hey, welcome back to How I Built this. I'm Guy Rz. So it's two thousand five and Toby and his co founder Scott just made a huge decision to pivot their snowboarding company to a software company. And to help them do it, Toby calls up his friend, Daniel Yeah, so, um If you decided it's going to be software and I called Daniel who was really good friend, my best friend really from who was in Germany and said, Hey Here's what I would like to do and I think I need another here to build this? Do you want to spend a summer in Canada and we do this together? and together and that will be fun. So you and Daniel spend that summer, I guess summer twenty fifteen. That summer became like a year and a half, but yes. a year and a half trying to build this software together. Exactly. At what point do you stop selling snowboards? Around that time. It was basically the summer and we didn't reopen afterwards. It just didn't reopen How did you come up with a name Shopify for this software It was Scott's idea. It was we talked about what we wanted it and Putting shop and S simplify together was re prettyty straightforward and and we went I think on daddy and register the. com there you go. take people back and say, Ohh yeah, it was times were different. All right, so you've got Shopify, you're building this thing And really it sounds like from that moment from the beginning, you're thinking This is going to be our business. We're going to build the software that will enable people to open e commerce sites easily and simply. Exactly. you know there's so much to building business. There's so much complexity Like if you get an order, how does this money make it to you? How do you get where do you get shipping labels from? How do you make a truck show up to actually send it anywhere? Like Shopify just does all these things for But that was a goal because You know that moment that I described there. I got my first sale, we got our first sale From that point on, I can never get that again was such a profound moment. L what I want to spend my time on is like, Can't I just help other people have that experience? That became sort of a guiding principle of how we build a company And u imagine that you got to at some point raise some money to pay for server space, pay for you know, the kind of the costs associated with building this technology and then eting it, when did you first start to think about bringing in some money. So around that time we Asked friends and family for money. This like two thousand six, two thousand. Yeah, two thousand. Around five we did around like Fiona's parents, anyyone you knew with any cats. Exactly. People from my family. mean you know, amazing that People trusted us so much. And how much money did you think you needed at that time it was two hundred thousand dollars, which is a lot of money. And when people said Toby, what do you need two hundred thousand dollars for? What would you say Here's the experience up to this point This is valuable. I know it's valuable because I would have needed it and there were more people like me. But meantime, all these sort of like peopleople were still asking you for this and what were you saying to them? Were you saying, hang on, we're working on something, just hold tight. We'll get it to you. Yeah. kept a web blog where I sort of talked about my experience building it. I also had a landing page collecting emails, which is now of course the landing p page was shhopify d. com or And here's like a demo which we pointed people to Snowdevil to explain why we were doing this. and The Bible T launched in two thousand six. I think we had four or five thousand emails. so it's not that seems like a lot. W All right, you've got the seed money God a small office. We ended up taking a very small office space. We actually moved above the coffee shop I got that first sale. o. We actually. We never got internet li. We always used their Wiifi. Right We buil on some desks and that's from where we worked. And it's time to launch. You've got four thousand emails or so from the landing page. And did you just send like a blast of an email saying, oK, we're live, We're here. We're ready to go. Is that you? Eactly what we did. So just a blast email. And what was the response So people signed up to just try it out, which was really, really exciting. And frankly, they are still business running Um on Shopify But that actually started on that day, which is remarkable But it wasn't it was a lot. I mean You know think about what an online storeory is. it's to most of our customers, this is their livelihood. Right? If that thing is not there suddenly or something goes wrong This is defunct whichich is a huge responsibility and people that trusting free guys in Cana And was it free initially? It started out free. The first year We decided against the multiple tier m option, right?? Because we figured that It's going to be so hard to get people to trust us that making it cheaper would be more likely for people to give it a try. the model was, I think charged like three and a half or three point seven five percent per sale. It was a complete fail of a business model because basically everyone who didn't expect to have sales thought it was amazing and people who expected to sell a lot for That was way too much money. So We ended up swwitching it a year after launch, actually, even night before my wedding for a reason I will never figure out why I did that. And night before your wedding, you switched to a subscription model? Yeah. and we grandfathered everyone, but suddenly everyone called us and said, Hey, I promised my so and so that I can use this for free and suddenly it costs money. And so I got all these phone calls like during my wedding isort a bit stressful. So you so you changed the model in two thousand seven. still living with your in laws now married with your in laws. Yeah ye How many Do you remember in those early days, like the first year or so actually signed up for the service? I mean, if A couple of thousand acc accounts, and I would say like maybe a hundred active And in year two, we had a interesting event. I mean this is I think the Indianapolis team won the Super Bowl around that time and they actually had a or a local newspaper actually had a Shopify store reat which they started like two days before Super Bowl And it just was selling t shirts with the front page saying we won the Super Bowl. a like a picture on what the newspaper would look like if I actually happened to win. Yeah. And then I ended up winning And they sold tens of thousands, I think hundreds of thousands of dollars worth of these t shirts on that day. And that was like a stunning experience for us because that was ever so It's like someone just had a really good idea in an office and turned it into a real economic event You know, these events started accumulating, peopleople were kind of experimenting more with online retail, the new businesses were starting instead of people coming to us saying, Hey, we want to reduce costs and switch it to you. It sounds like it was a slow burn though. It wasn't like an overwhelming rush. It was like incremental. Um, you know, two thousand six, two thousand seven But you're still at this point, you're still operating off of the seed money you raised and any revenue you were generating. How was the money situation? Were you wasas it just self generating? Were you U no, no. it was We had paying customers. We were going tnding towards zero fast. like we eventually were if I mean, we did basically run out of money around this time, the And luckily met an angel investor who ended up putting I think four hundred thousand dollars around two thousand seven and that saved us as an individual by the name of John Phillips. I think part of the reason why I invested is because His parents were in Ottua and I think he wanted something else to do in town rather than Eter visit his parents, but he also really liked the business. so he ended up becoming our investor and basically mentor of the company. It was a very precient investment because I think at that time the company was valued at three million dollars Around this time, two thousand eight, Scott leaves. he decides I want to move on Um, what do you what do you remember about that decision I mean, it was Um He had the job of CEO. I think he just realized at some point that Where the software industry was going is most of the people who where CEOs were actually Highly technical parts of the phoning teams I think he also realized that I will end up being the person who will care most about this company in the long run. and so You know, that was okay. We decided to part Won. Weere worried about it because he was a CEO I was hugely worried about it because Like I was not convinced that I should have a CEO job someone give me toald me that if a great VC invests in your company, They would have the network to find C the right kind of CEO And so I was like, okay, well, maybe I really should talk to Venture capitalists and that was the time where I I traveled to Siron Valley to top of BCs. So just to be clear, this is two thousand eight. you decide I better go to Silicon Valley, find a venture investor who then can help me find a CEO. Yeah So you fly out there two thousand eight Yeah. withith a couple of appointments? Yeah, a couple of appointments and just drinks with friends and people I knew in Ciron Valle, the first time I was came to Sirkon Valley. Did you have a deck Absolutely not. My intention was Bilt twenty people company. That's what I wanted to do. A twenty person company, super efficient providing the software to people not a massive company. Be you wanted to have You just want a sustainable nice life. Yeah I didn't need the money because I didn't think this was a venture I was building. And so I went not beinging too worried about the results, I was more worried about the amount of money it would cost for me to fly toay area and accommodations and so on Where did you stay I say a little hostel at a hge hostel. Yeah, yeah here. Like in a bunk bedroom. Yeah, I had a roommate. Like incidentally it was also a computer programer, so it was actually great I actually bought a bicycle on Craigslist. And did you go for a week or two weeks s? I was scheduled to be there for a week. I ended up staying, I think two and a half maybe because What happened pretty quickly is you know, I would have my first meeting. and again, this is me biking From the youth houserth house down center the road And showing up and they probably already thought, who is this And so I I would have the first meeting and I heard my notepad and they would ask me, it started out. I was sort of explaining the business. But then they would ask me some questions about, you know, usage and market sizees kind of things. and some of us I could answer, and they would get really interested The problem was that very quickly they asked me questions I couldn't answer. there was questions around ratios and lifetime value and all these kind of things. I would write down the terms. I would then look up what it meant Yeah Usually I would get an equation back because if it's some equation that you're supposed to apply to a business. I would then go to our database and get all the relevant data, plug them in equation, I would get the numbers So I had one more question I could answer the next meeting. And so basically this is how I went through these meetings. I remember that I mean, I ended up getting But kinds of term sheets, people actually frankly dream about it, which I was mostly like I a benchmark office Fom that from that visit. Yeah meeting free by the time I kind of figured out. So people actually really weren't. There were some people who were interested. Some people were interested, but all the offers were always conditional on moving a company to second body They all said, we'll support you. You got to move it here. Yes So I got to office O term sheets and some of them referred me to potential CEO's. had bunch of late night meetings of people who could take over as CEO. you did not want to be CEO. Because I wanted to play with technology. That was what I was good at. That was my identity So I said, okay Clearly If you want to do this now and if I get good numbers, you're going to give me this laterentally. So you don't like Let's slow this down. I go back, I talk with my team, I think about this. And how many people are on your team at this point? There's about just five people. I had someone for customer support. I was doing all the customer support initially, and then eventually the rest of my team told me my English wasn't good enough By the way, how are you paying people? This was now after we got Angel investment. I still wasn't taking salary But your runway was not very long. But there was income now. we was still burning, but it got slower and slower because there was income coming in from subscribers. Exactly. So I go back and then We are talking to F eight. So Lehan Brothers at some point now The vd was falling apart. Lehan Brothers collapse, markarkets collapse, two thousand eight, you've got terms sheets that you've kind of rejected And now you're about to face a global financial crisis. So basically, I got this around this time notice that Term sheets will no longer be honored because everyone needs to tighten bells and so on Basically, initially I thought we were toast When we come back after the break, how the global recession actually turned out to be a huge opportunity for Shopify, and how Toby Litka learned to do the job of CEO, a job he never wanted in the first place. Stay with us, I'm Guy Ross, and you're listening to how I built this When I meet a founder or someone pitches me an idea, one of the very first things I do is pull up their website A great website is essential for any modern business. I'm not telling you anything you don't already know because it builds trust, it builds credibility, and it generates leads And unlike social media, A website provides complete ownership. 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With cash app, you can actually do that. Send Bitcoin instantly, pay at local square businesses that accept it, or move it to your own wallet whenever you want It works like real money and less like something locked in an account For a limited time, new customers can get ten dollars ten added to their balance. Just use code cash app ten when you sign up. And don't forget this part, send at least five dollars to a friend in the first two weeks. Terms apply CashApp is a financial services platform, not a bank, banking services provided by CashApp's bank partners, Bitcoin services provided by Block Inc Brand. For additional information, see the Bitcoin disclosures at cash. app slash legal slash podcast Welcome back to how I built this. I'm Guy Rz So it's two thousand eight and the global financial crisis hits. At this point, Toby Ludka is the CEO of Shopify the VCs who had been interested in investing weren't quite so interested anymore And Shopify didn't have that much runway The money was running out. thenen something surprising happened It turned out that lots of people who were newly laid off had lots of ideas about starting their own online stores People who lost their jobs could reach for their own independence, and engage in entrepreneurship using Shopify And they said, why don't I give this a go? Like I'm gonna try this thing I always wanted to try, right? And I'm going did you see start to see users and subscribers start to tick up? Yes sa you saw a measurable change in two thousand eight, two thousand nine. We thought the numbers would fall off a cliff. and what they actually did is they started climbing and accelerating. you just anticipated completely different outcome. Yes, I was ready to think about how to Sock tells people that I can't meet Payroll at some point. and instead, Basically in two thousand nine. The company now hit first time sort of cash flow neutral. L we can write out whatever downturn this is. thinking about long term investment, like infrastructure projects and so on again Okay meantime You are the CEO How are you doing as the CEO of the company that and notot good. I mean, my team was very, very patient with me. There was a lot to learn. It's a very subtle job. You know, wonderful things about computers is when you tell them what to do, they'll keep doing it and they'll take it forever until you stop. T turns out humans are not like Humans are different. Yeah. So it was a very large learning curve And u I would say two thousand nine to twenty ten, I truly held the company back from what it could have and should have probably become you held it back. Yeah. What do you mean? Like if you come from engineering, you know something is always a bottleneck and the moment you remove that, something else becomes a bottleneck and it's Same goes for companies. att this point I intentionally slowed down the growth of a company a little bit just because I needed it to be manageable for me Um And I was wavering on the most important decision, which was Is this a lifestyle business or is Is this actually a venture? And by this point, your revenue is over a million dollars a year. right Which sounds like a lot, but obviously you've got huge expenses, you've got a growing staff. Did you ever get the feeling like, oh my God, all these programmers and people are now like working for me and they're depending on this thing and I don't know if this is going to work guy it's crushing It's a crushing responsibility, right? Like it's u You're responsible for everyone who is fair, right? And peopleople have families black families, people black kids. My family like It's not a wealthy family. Like's I mean, people gave me money they didn't really have. L upntil this point, it was really just yourour money from John Phillips for my family and then the last year for my father in law who gave me money to meet payroll. He was giving you money to meet payroll. And we were living together and had dinner together. It's amazing that this worked. I mean, I just couldn't believe he was doing that because he's like he was a burk rot. This was his savings. Bically He was putting his life savings into this Money bunfire Everyone was just unbelievably supportive because they somehow believed in this idea Did you have trouble sleeping at night pretty often You know, like so one thing I've found about the entrepreneur journey or at least mine is, um You basically exist in two different states. There's the state of Things are coming together, and I think If we do this we unbeatable. and the state of complete dread and we're dead. We're de we're dead tonight And I don't think that actually ever went away. I still to this day have this. The thing that changed is it used to be like a month in one state and a month another. and then eventually became a weeak and now day and now this can happen. I can switch three times before breakfast, know But at the bottoms, the bottoms are deep. The implications of what failure means is It just means so much, it changes everyone's life story to a significant degree, right? How did you manage that? Did you go for long runs? D you take Ps acted you What did you do I u Now I basically just programmed, which actually often wasn't the best use of my time. Did would you talk to Fiona about it? Y your? Yeah, she was unbelievably so supportive. Yeah I mean around this two thousand nine period you're like really wavering on this decision, right? which is like do you build a Nice stable lifestyle business with Shopify Or do you try again for for big money for VC money and make this thing huge? So What happened? U So I would look at my bank account multiple times a month and just compare, you what it was last time. And if it was going up, basically, we said, okay Should we invest this in another team member or should we attempt marketing? So I finally said, okay, I'm going to save and try five different ideas for marketing programs. We said, if any of those meaningfully accelerate our growth then I have to go fundraising again and actually go on the clock towards an IPO or to eventual exit. Because the money really you needed for marketing at this point. At this point by not engaging in marketing. You got five projects And you went to your team and you said, you guys come up with something? We need ideas. We voted on ideas. We came up with things We tried them And what worked They all work Every single one of What were the ideas? We did advers. this just took a little bit longer, but we released a book on concept we just tried to like we sponsored actually a podcast, you know, like every one of those we track and it's like these were directly mathematically trackable. like we made the money back in like five, six months oface investments And m we are like, okay, Now we're not talking about fundraising anymore based on Isn't it cool that he going after his market? now we're talking about I have a formula and I need to plug bigger numbers into a formula. Yeah. And so Ven picked up a phone, called the venture capabalist, which really impressed me and said, okay, you were right. this is a venture. I have data. So you go back out to Silicon Valley, you convince a few VC firms to invest, you raise, I think, seven million dollars. Yeah. So fairly modest. I mean, this sound like massive numbers to to the of those It was insane. And do you remember what the valuation was? . twentyenty five million dollars. Yeah. At this point, once you're bring in seven million dollars, those venture capitalists are also buying. a seat on the board. You can develop a board here now Right? And there you got to have regular calls with them. If they email you, they're expecting you to get back to them W stressful or overwhelming? or was it helpful I thought it was very helpful. I've always had a fantastic relationship with all the people who invested in the company, partly because I told them straight off the bed like saying I'm not going to pretend I know things I don't know. I really hope you're going help me in this journey. And so I think Our relationship has always been we were all on the same side of a table trying to build this thing. I hope at anyway, that I'm fairly quick study, right And so by bed While running Shopify, it provided all the kind of situations I needed to learn the skills I needed Did you have to? I mean, was it still five or ten people? W it still it with about twenty about twenty people. Okay. And so all of you guys are really doubling down on marketing, getting the word out And what kind of businesses were being launched on Shopify I mean, the internet direct businesses, new businesses like sun class business, watch business right, you know, just just new ideas, boosted boards, like, you know all birds All birds launchers. yeah, right. Great examples of the kind of business that were coming out And ten months after the series A Jeremy and Trevor from Bessemo came to me and said You are still massively constrained by money How about instead of you spending a bunch of months on fundraising you just Duple the valuation of a company and put much more money into this thing because you can grow this way faster. They basically said they basically saved me from from doing a fundraising round. They said we see the potential here. We're going to give you fifteen million dollars more. Exactly It was just so obvious. And this is why I said earlier that I had the company back because I knew this would happen. You knew it would happen, but you said you had all this anxiety about all these people. So if you knew it What explains that Freaking out. I think I was looking at what I had to do like the HR problems, but the systems I had to build. everything like all the decisions and I thought if I also would be sitting on a peretually exploding rocket ship right now on top of all that that's happening, I could not deal with it. I needed to take another year of a briver before I could actually Do have the force think simultaneously twenty twelve, I think you finally move out from Fiona's parents' place. You have a kid at this point Today you've got three. Yeah. I think I want to say it must have been twenty fourteen that we actually moved out So it was we were living, I think for thirteen years, actually now. you had raised one hundred million dollars in twenty thirteen, you're still nervous about. Well I was making basically minimum wage, so Ifop would have given me more money, I would have probably given it back because I figured Topp I could use it better than I did. ye and few on net income. So. And presumably your lifestyle wasn't didn't require a whole lot of money As as long as I my lapop, was good All right, so you guys are balancing like raising kids And this company is really starting to take off. like end of twenty thirteen, you've got eighty thousand customers, but three hundred employees But in a lot of ways, I mean you're still under the radar, like no one knew who you were. Yeah. Like that was by design. So like my board members always said Shopifer was turned out to be a company only Canadians could have built because He said, our job is to make our merchants look good. likeike this is why we exist So we wouldn't put Shopify on the merchant stores. Like at this point ese investors we would meet would ask me You know, like I'm looking at these numbers, this is a significant company. How come I've never heard of you of you? Yeah I said you bought something from Shopify the last half year. Amazing. Because basically everyone did. if you bought something online and it wasn't on Amazon and you lik the experience. it was Shopify. So it just doesn't say Shopify. You don't go to shhopify d comot It's other people it's where other people buildt their home internet And so we are happy with that. We didn't even put shopping in our buildings You didn't put the name of shopify the building No