Shopify: From an Online Snowboard Shop to a Billion-Dollar Worldwide E-Commerce Platform
Today, Shopify is a concept that's a necessity for more than 600,000 businesses.
But what was the motivation behind it?
It begins with the founder's problem and their personal needs, and evolves with their solution proving useful: from food and groceries, to jewelry and cosmetics, Shopify provides abundance for every customer' need.
But what did it take to get from a personal problem, to having users in more than 175 countries?
A full year of development - and three individuals with a strong vision!
Read the full story:
Shopify is a Canadian online e-commerce platform that offers payments, shipping, marketing, and customer engagement tools to more than 500,000 registered businesses.
The concept is very familiar - a virtual shopping mall where small merchants can set up their online stores. Available products range from food and groceries to jewelry and cosmetics and everything in between - the only limit is creativity!
But what exactly was the motivation behind creating Shopify? Well, much like other startups built and launched in 2004, it all began when the founders solved a problem for their own needs, which turned out to be a useful solution for other people too.
Since then, Shopify's become the #1 online e-commerce platform. This is their story.
In 2004, Tobias Lutke and Scott Lake had one amazing business opportunity: selling an elite line of snowboards online.
However, they didn't have many options for setting up an online store at the time. Tobias, a programmer by vocation, tried using different platforms such as Yahoo Stores, Miva, and OsCommerce. These turned out to be really bad, as he couldn't even upload a custom design for his online store - Yahoo store simply wouldn't make his idea work. The best Tobias could do with the design was to change frame and background colors.
In today's world, this is inconceivable, not to mention extremely annoying, right?
This brings us to what was to become Sho pify's first challenge: creating their web store from scratch.
Luckily, Tobias was competent and eager enough to create his perfect store. In 2004, he left his job as a software engineer as he was exhausted from it. He just wanted to sell snowboards with Scott, and to make that happen, he decided to build an online store infrastructure from scratch. He was lucky, as the Rails programming framework was just released, and its simplicity was perfect for building a user-friendly platform like this one. In a couple of weeks, the Snowdevil online snowboard store was up and running!
Although they sold a lot of snowboards that year, people seemed to be more interested in the platform and how they built it. So, right before Christmas in 2004, the guys realized it was time to shelve Snowdevil and shift towards helping merchants build their online web stores.
It just seemed to be a better, more profitable idea - and it was!
Diversifying the Team and Launching Shopify
In 2005, Tobias invited his friend Daniel Weinand to join the team. Daniel was a programmer with a strong sense of design - exactly the person they needed to create an amazing and appealing product.
Finishing and launching Shopify took a full year. They spent all of 2005 working on the minimum viable product, and by 2006, they had the prototype up and running. It had customizable store templates, order tracking in RSS feeds, image upload options, automated inventory organization, item grouping, tagging, and payment processors - all the e-commerce 101 tools you need to launch a store without writing a single line of code!
It cannot be emphasized enough: Launching Shopify in 2006 was a major game-changer for e-commerce.
Before Shopify, you needed to be extremely tech-savvy to figure out how to sell stuff online. With this platform, people without any sales, marketing or programming experience had all the essential tools to set up their online shops and start selling immediately.
It was revolutionary - and people loved it from the get-go!
First Challenge: Slow Growth
Shopify's first paying users were Rails community members and some of Weinand's friends. With them on board, the company was making some $8,000 per month. Slugging through 2007, this same line-up persisted in their idea despite the low profits, but they still wanted to grow.
This brings us to their second major challenge: growth.
They began analyzing the problem: why was their reach so limited? How could they accelerate their expansion?
Was there something repulsive about the platform?
They cracked the case quickly: the problem was their charging system. They had charged a sales percentage, which was very discouraging for merchants who were making more money through Shopify, as they had to leave a huge amount of profit to the company.
To fix this, the guys switched to subscription-based plans that included a very small transaction fee. They created several bundles, ranging from $25 to $75, depending on the number of features. The higher the plan, the lower the transaction fee. This way, Shopify was still generating revenue from sales, but it also encouraged users to sell through the platform, as they weren't losing much revenue on fees anymore.
This allowed them to focus on product development. For example, their integrated analytics tool made it easier for their users to get sales, and merchants loved even more as it helped them track their sales and inventory.
Customer success and business model aligned? Time for success!
2007 was a golden year for Shopify.
They had nailed the business model and started growing like crazy, but they also received their first investment: an angel investor from Toronto, John Philips, gave $250,000 to Shopify, valuing them at $3 million.
This was a major boost for the company, and by 2008 their monthly revenue reached $60,000, growing eightfold in one year!
Although Shopify primarily focused on first-time sellers and small merchants, their platform also received traction from some major companies such as Tesla Motors. These companies faced the same problem as Tobias and Scott - Yahoo Stores or Microsoft Commerce simply didn't work as needed. This was an opportunity for Shopify to prove they could cater to both large and small businesses' needs - and they did.
Building a Toolkit for Online Sales
With two developers in the team, the founders knew they could push their idea even further. By building an API and app store, they were ready to transition from having a tool to having a platform. This was a chance for other developers to sell their apps, while merchants would get many more options for customization. That means they could install only those features their online store needed and offer a unique buying experience tweaked for their business model.
By 2009, the API and the app store were ready. This made them more eligible to stick with their initial premise: make e-commerce easy and available for everyone.
In 2010, they made another game-changing move, releasing a free mobile sales management app. At the time ‘m-commerce' was on the rise, as more and more people were buying smartphones. Shopify was part of the vanguard of companies that served as a driving force of change in e-commerce, and they didn't want to miss out on the trend.
They launched the ‘Build a Business' contest to promote e-commerce, where store owners had 8 months to open an online store and be judged on their results. The most successful merchant would receive $100,000 and mentorship from a superstar entrepreneur like Eric Ries or Richard Branson. This brought over 1000 new stores, which made more than $3 million in revenue for the company.
At the same time, Shopify was declared Ottawa's fastest-growing company!
Over the next couple of years, the number of users and customers on the platform saw nothing but exponential growth. In 2013, they redesigned their platform and added 60 new features, including refund management tools, search functionalities, admin features, a live theme editor etc.
Shopify literally set the example of how e-commerce works - the same example we're all following today!
Further Growth and Investments
After the $250K, they waited until 2010 to receive their series A funding - a VC investment of $7 million. A year later, they were ready for Series B round, raising $15 million. Finally, in 2013 they got another $100,000 in Series C.
At that moment, Shopify was no longer just a tool or a platform - it was an app ecosystem and a community that was gaining significant authority in the field.
Next, they started paying attention to the methods utilized by their users to conduct offline sales. To find out more about this, they launched the Shopify POS system to sync online and offline inventories and payments.
In 2014, they grew to 120,000 online retailers and crossed $100 million in yearly revenue. They also released 'Shopify Plus' - an enterprise solution for huge e-commerce businesses. A year later, Shopify became a public company, listed on the NY and Toronto Stock Exchanges under ‘SH' and ‘SHOP' symbols respectively.
Over the next couple of years, they made some giant steps towards expanding the company:
- Partnering up with Paystack to allow Nigerian online retailers to do business over Shopify;
- Launching Frenzy - a mobile app for flash sales;
- The Tiny Hearts acquisition. They soon became Shopify's research and development center.
- Integrating with Amazon in 2017 allowed merchants to sell on Amazon from their Shopify shops;
- Acquiring Oberlo in 2017 eased connecting merchants with dropshipping suppliers;
- Opening their first physical space in 2018 in LA, fully equipped to hold classes and workshops, as well as having its own 'genius bar';
- Expanding to a field of the market that was until recently, illegal: hosting online cannabis sales in Ontario when the plant was legalized;
- Integrating Handshake into Shopify Plus in 2019, to provide a wholesale, B2B e-commerce platform;
- Launching the Shopify Chat so merchants could talk to buyers in real-time;
- Adjusting to fully-remote business in 2020 due to the COVID-19 pandemic in several ways: adding various features for Android and iOS to improve customer experience, as well as adding a new form of the business bank into the platform - Shopify Balance.
As we all know, great company stories are often followed by some controversies and criticism. Shopify wasn't spared either, but the way they handled it is worth mentioning.
In 2017, there was a #DeleteShopify hashtag campaign, calling people to boycott Shopify for letting Breitbart News set up a shop on their platform. Tobias had a simple response: refusing to do business with the site would constitute a violation of free speech, demonstrating their amazing ability to handle and democratize their e-commerce business.
Today, Shopify hosts more than 600,000 businesses in more than 175 countries. After 16 years on the market, they still have a nice upward growth, and their revenue now exceeds $1.5 billion.
So, how did they get here?
First, by aligning their company goals with their business model to ensure customer success through their platform. Second - by relentlessly prioritizing the product, and third, by having only long-term plans. They're also one of the rare companies that hasn't been significantly struck by the pandemic. Again, how?
Simple: by demonstrating they're ready to embrace the future, with both its opportunities and caveats, just because they realized one unchangeable fact:
E-commerce will keep booming - no matter what!