The Knowledge Project #41 The Trust Battery: My Interview with Shopify Founder Tobi Lütke

I learned about building businesses from playing StarcraftIn Starcraft everyone starts at the same place. It’s a game of imperfect information. You end up only learning the things that you actively go after. You have to make decisions fast. And then you do it again. And again. Very quickly you learn that the most important resource is your attention. What are you spending time on? (6:58) 

You realize in the building of a company these are the exactly type of questions you ask yourself all the time: Should I do something that is a bit short term but can help? Should I do something that is only going to be useful later in the lifecycle of this company? Do we need to expand? Where do our resources come from? Should I raise prices? You are making these kind of decisions over and over again. That is a better way to think of video games: they are often very distilled environments in which you can learn things. (8:20) 

Tobi started selling snowboards online 14 years ago. Shopify is the set of tools that didn’t exist when he started his own retail store. (9:31) 

Tobi thinks of the internet as the largest city ever. The internet has its own version of Wal Mart (large centralized businesses). He thinks it is really important that there is a counterbalance to everyone just buying things from the same place. He says small merchants matter because they come up with new ideas. Shopify is the counterforce to this centralization. We make participating in entrepreneurship simple. (14:04)

People think entrepreneurship is healthy but you can see from the numbers that it is tanking all over North America. (15:57) 

Building a company in Ottawa has advantages. If I hire someone in Ottawa- the chance I will still work with this person in 10 years is much higher than in a market like San Francisco. It doesn’t sound like a big change but it changes absolutely everything for a company. It means it is a much better idea to hire for future potential than current skills. Every dollar you spend on training pays way more dividends because the people stay longer. (21:34) 

You said earlier that you studied how great companies are made. How did you do that? My favorite was of doing it is by looking at history. I was fascinated by the industrial revolution and the creation of the railroads. I’d read the autobiographies of all the major players. (23:39) 

McDonald’s is a wonderful example of Henry Ford’s ideas applied to food production. (27:40) 

In a world of complexity cause and effect isn’t clear. (28:17) 

I remember the day I got my first sale. Someone from Pennsylvania bought a snowboard. Someone I never met deemed the thing I built worthy. That’s when you become an entrepreneur. (37:22) 

The problems with companies that have a monoculture: I don’t want to be like everyone else around me. I’m super happy being different. I’m super happy about everyone being different. I want everyone to show up as their authentic self at work. Not some sanitized conclusion of what people should be like. (44:03) 

I’ve seen companies where they all dress like the people who get promoted. Optimizing to be seen similar to people who get promoted. Very quickly you will lose what makes a company special. (45:00) 

Antifragility: I firmly believe if you want an organization to last you need to be okay with bad things happening. I don’t think the quality of an organization depends on preventing bad things from happening but how quickly it does react to bad things happening. (55:35)

An example of this: Tobi would log into his server farm and turn random servers off. Internally it’s called the Tobi test. It creates a culture where everyone says hey things going wrong is ordinary. [Getting used to problems via inoculation] (56:19) 

Do you actually want your entire company to have a dependency on one team? Clearly you don’t because you want to go as fast as possible. But that’s what exactly how large companies slow down. In the name of efficiency, they create a massive dependency graph that slows everything down. (1:04:43) 

The Tobi Blueprint is an internal wiki post for new employees to understand how to work with Tobi. Examples: Don’t prepare a PowerPoint. Conversations > presentations. No large meetings. (1:03:50) 

I’m a challenger. What that means is when someone comes up with an idea I will take the opposite side even if I agree with the idea. This is exactly what I do with my own ideas. It’s my internal process. (1:04:58) 

Books are the closest you will ever come to finding cheat codes for real life. You can access the entire learnings of someone else’s career in a few hours. (1:13:17)

One book I find stunningly insightful is called Mindset. It really puts its finger on the thing I need to change most for people who start at Shopify. Adjusting employees from a fixed mindset to a growth mindset. (1:13:38)

Book recommendations: The Design of Everyday ThingsNassim Taleb’s booksTeam of Teams: New Rules of Engagement in a Complex World (1:15:37)

The most important decision that I took too long to make: Should I transition Shopify from a lifestyle business to growth business. I was the bottleneck for Shopify on this for a year and a half. I’m traumatized from that. I don’t want to be the bottleneck ever again. I need to look after my own personal growth. I need to be ahead of where the company needs me to be. (1:20:17) 

I spent a year and a half being out of money, asking my father in law (who we were living with) to borrow money to meet payroll. (1:29:40) 

Tobi says Shopify is like a big room. He has a spotlight and looks for things that can be improved and then digs in. (1:32:49)

A persuasive framing of his company: We think of Shopify as the fire flower in Mario brothers. You find one and you can throw fireballs. You just got a superpower. We want to be a superpower that people discover and have skills they never thought they would have. Changing your whole identity. Your grandchildren will refer to you as an entrepreneur because you signed up for Shopify and somehow made it work. It’s giving people opportunities for self-actualization. (1:42:31)

Full podcast here.