#41 Tobi Lütke: The Trust Battery | The Knowledge Project

Things going wrong is not actually this rare thing, but it's actually something too...

it's not an ordinary thing that just does not cure every day.

Hello and welcome. I'm Shane Parrish, and this is The Knowledge Project, a podcast exploring the ideas, methods, and mental models that help you learn from the best of what other people have already figured out.

To learn more about the show, access show notes, or see previous guests go to fs .blog slash podcast.

My guest today is Toby Lutke, co -founder and CEO of Shopify, the marquee shopping cart system of the e -commerce industry.

Like me, Toby's based in Ottawa, Canada, and while we had a lot of mutual friends we had never met in person before recording this interview.

As you'll soon discover, Toby is incredibly well thought out on a wide range of subjects.

This in -depth conversation covers a lot of ground, everything from growing and scaling Shopify, to the trust battery, and other useful mental models.

Heck, we even talked about playing video games and how that helped prepare him to run one of the largest technology companies in the world.

I hope you enjoy this conversation as much as I did.

I thought we'd start with video games.

I've been reading your Twitter feed and it seems like you have some strong opinions on video games, not only from why it's unfair to see them as a waste of time, but right up to how they helped you run and scale an organization like Shopify.

Let's unpack this. Can you expand on these thoughts?

Yeah. That's so funny because I'm pretty open about just playing video games a lot.

I play video games with my kids.

A lot of people know my opinion, but their role in people's lives is misunderstood.

I get in these conversations, their parents ask me, like, hey, my son's playing this video game the entire time and how should I put constraints on this and all these kind of things.

Everyone always ends up coming into these conversations.

They are apologetically almost like, hey, I as a parent lost control and now I need to course correct.

I'm always frustrated with this because obviously you can have too much of a good thing.

There's a weird way that people perceive video games in society, which is not true about so many other things.

For instance, if the same parents come to me and say, hey, my son is playing chess all day.

It would never happen.

It's like chess, everyone understands, hey, you learn chess, but obviously it is not terribly relevant.

The skill of chess outside of wanting to have a good time playing board games with friends, but people understand that there's always other benefits that come from developing this kind of skill.

I was frustrated. I put on Twitter, like, hey, I think I actually learned most about building businesses from playing StarCraft and then that somehow became one of my most popular tweets.

It was sort of interesting.

Well, it's so unconventional in terms of most people wouldn't think that playing a video game would help them run a company.

Are there specific ways that it's helped you in terms of resource management or organization or failure?

What I had in mind when I said this, and I didn't actually expect this to be terribly insightful or even controversial and clearly it was.

I spent my, I'm born in 1980.

I grew up so I'm child of the 90s.

Good video games sort of started coming out when I was 15 essentially.

I played a lot of StarCraft when it came out.

And now it's easy to look back and sort of when you connect the dots, do you realize just certain things you did during your formative years were important and certain things were just not important.

And to me, it's just sort of blindingly obvious that playing StarCraft was one of those more important points.

I've read a fascinating book at some point where it was about the topic of soccer.

You know, like Brazilian soccer is sort of very, the Brazilians were always playing better soccer than everyone else.

And at some point, rightfully, everyone said, well, what is that?

Nurture nature, genetics, and something else.

And so somewhere in the 80s, people started flying to Brazil to actually look at what's this environment and there's probably multiple factors that I play.

But what people realized is that Brazilians play a lot of soccer, first of all, that's just a lot of deliberate practice.

And then partly due to the circumstance of them just not having as many soccer fields and not the space in certain places, people play sort of a derivative of soccer.

Then, you know, like a game, I think it was it's called like, I can't say it, it's like, it's something like foosball, but it's a little bit different.

So that game is played with six players on the field, much smaller pitch, and just faster game.

And what happens is everyone plays first.

And therefore, in a core game, everyone touches the ball probably five, 10 times as much as in a normal game of soccer.

So what this says is what they found is there's this other thing they can do, which is sort of like the thing that they really care about.

But it's sort of a concentrated version of it, which just lends itself to just deliberate practice better, where people practice accidentally.

So that's the kind of thing I think that people have in mind when they say, you know, chess is the kind of game that is good to play, because it's a distilled version of like making decisions, you need to you have you need tactics, you need strategy.

And then that happens every single time you play this game.

And so this is the way I see video games, right?

So Starcraft itself is, and I don't necessarily put Starcraft above any other game, it just happened to be the one I learned a lot from.

And everyone sort of references a different one who sort of thinks about this kind of topic.

Starcraft is both players it's it's heads up.

One person against one person, and it starts the same, no one has an advantage is completely symmetrical map.

And it's a game of imperfect information.

So you you end up only learning the things that you actively get.

So you have to scout what the opponent is doing, you have to react.

It's a little bit like chess.

But it's, it's more real time, you have to make decisions fast.

And a game is about 15 to 20.

When longer games can last 30 minutes, you do it again, and again, and again, very quickly, you figure out that the most important resource is not the minerals that you mine and all these kind of things.

It's actually your attention, right?

Like, what are you spending time on?

Do you are you going to have your troops directly and get an advantage for that?

Or are you going to build buildings that get you not wanted later in the game?

So you have to make a lot of these kind of choices constantly real time with pressure.

Um, about, you know, how to invest in your game plan, what strategy should you play, and so on, and so on.

And so you do this.

And then again, you do it again.

And in an evening, you do it 45678, probably more like 20 times.

Next day, you do it again.

And you do that for years.

And then you realize, hey, in the entirety of building a company, these are exactly the kind of questions you ask yourself all the time.

Should I do something that's a bit short term, but can help?

Should I actually do something that is only going to be useful later in the lifecycle of this company?

Should I refactor this code or should I just get something hacky done?

Do we need to expand later in life?

Where do our resources come from?

Should I go fundraising?

Should I raise prices?

All of this happens in high stress environments.

And you're kind of making these kind of same decisions over and over again.

But in the entire course of building a company that happens many times you play this game, it happens every single time you play the game.

And so I think this is sort of a better way of thinking about video games to me.

They are often very distilled environments in which you can learn things.

Do you still play video games now?

And if so, what are you playing now?

Fortnite? Yeah, I think the entire world is playing Fortnite right now.

There's a game I really, really love called Factorio.

Have you ever played that?

No. Yeah. So Factorio is like if you want to learn operational excellence, Factorio is like a game which will teach it to you by accident.

I'll have to check that out.

Let's talk a little bit about Shopify.

I know what the company does, but can you explain it for listeners?

Yeah, Shopify is most people come to us because they want an online store.

More broadly, what Shopify does is it's a missing software that didn't exist when I started my own retail business about 14 years ago.

Me and my friend got together.

We had a lot of snowboards which we wanted to sell.

We wanted to start a physical store and an online store.

This was again 2004.

And those are the symbolikeness of the snowboards in your office here.

Exactly. In fact, we're sitting here in my office, we are both Audible -based, so this is nice for an economist episode, we can do it in person.

And along one wall in my office, there's snowboards.

And those are exactly the snowboards I sold back then.

So I kept some, and I actually bought some back from very confused customers who got an email from me saying, hey, I just bought you bought 10 years ago.

Do you still have it?

And would you sell it back to me for the price you paid?

So I got some back and that's now part of the decoration of this room, yes.

That's awesome. And so we had snowboards to sell.

I did build the software to run the online store and I learned so much about the process.

And there's some attention on us when we're doing this.

This was probably the best known Ruby on Rails software that was in Basecamp back in those days for more technical.

You were part of the core Ruby team, right?

Exactly. Well, yeah, core Ruby on Rails team.

I used the software, loved it.

It's wonderful story there too.

So people were looking at this online store and it provided some legitimacy that Ruby on Rails was real technology can use for real world, real life look.

And asked, came to me and asked, Hey, can I license this software?

Can I use this? And so based on this, what we did, we sat down and turned this online store into what is now Shopify and people come to us and you know, you sign up, you tell us about your products, you get an amazing looking website, online stuff, it just works really well.

And it's self maintenance and so on.

You get everything you need.

So I had to make a copy of my passport and fax it to American Fork Uter to get a merchant account.

That process took two and a half months.

Of course, after you sign up in Shopify, you just have a merchant account and therefore you can take credit cards and these kind of things.

So it's very easy to use.

It's what a lot of people use to get into entrepreneurship, to start their own businesses.

And that's what we do.

Would you say you're lowering the friction of starting an online business and giving people the tools that they can use to compete against bigger, more well -funded infrastructures like Walmart or Amazon or...

Yeah, exactly. I mean, look, again, I grew up in the 90s, right?

So my view of what the internet should be is very much inspired by what happened when the internet sort of first came around.

I remember when the internet came to my city, which sounds hilarious now.

The amazing thing about that was, before that point, if I wanted to somehow talk to many people at the same time, I had to either be a ham radio operator, or I had to call into some radio show or game show or something like this.

And that would be the only way how you could really communicate unless you knew someone's phone number of people who aren't right next to you.

And so then the internet came to town.

Suddenly, everyone couldn't participate.

You could put your own thing there.

I made my own website and I probably talked about video games.

That just felt super liberating to me and to me, that's what the internet does.

Now, this sort of gets into the problem of the internet right now.

What happens and what always happened, if you're a small village somewhere or medium -sized city, and you have this thriving community of different stores, merchants, people, like everyone, like this collision of ideas which cities are, and a Walmart starts in your city.

A couple of people still go to the mom and pop stores and the smaller stores because they just like them and for various reasons, but over time, the convenience factor and so on happens.

And then at some point, they're all dead.

And then you have Walmart, only.

And so the internet is a very big town, largest city ever.

They're all next to each other and the internet has its Walmart.

And so I think that it is really, really important that there's a counterbalance to this.

It's a counterbalance to everyone just buying everything from the same place, because the problem is the merchants matter.

The merchants come up with new ideas.

I have incredible stories of amazing stores that were created in the most random Atlantic islands because they created products and then they sold them around the world.

They can preserve something of the heritage of places.

And so Shopify is kind of the counterforce to this centralization, at least in the word of commerce.

We want to make it so simple to partake in entrepreneurship, to add your own voice to sort of what's going on in the world.

And so we want to lower the bar, lower the learning curve, make it just something that almost everyone can do.

Because I know lots of your listeners are from a everyone sort of things.

Entrepreneurship is in really good shape because we all know two guys with a laptop can do whatever.

That's true, but they live their life in a very certain way.

They are computer programmers.

All sorts of things are true here.

Most people aren't like that.

Most people do not have a chance to just sit down and start a tech startup.

In fact, while it is cheaper to make tech startups, now the minimum difficulty and requirements that you just have to bring to start a company have actually increased.

And we can see this in the numbers.

Entrepreneurship is actually tanking across North America.

Can you expand on that?

Why is the barrier to entry increasing?

Is it because of the data that the company has accumulated?

It's not even that.

It's just like what kind of co -founder?

What kind of things do you have to put on your application to Y Combinator to be even considered?

You essentially have to spend your life in almost a perfect linear arrow towards this goal.

You have to have the right skills.

Ideally, you have to have all sorts of extracurricular kind of things, which are, as we all know, associated with middle or upper middle class upbringings because that's where people have time for this extracurricular things that give you an advantage.

You have to be without lots of dependents because you're going to go into a hole for a decade to build a company.

I certainly had to do that.

That was good then.

But could I do it again now?

Probably not. I forget.

There's a lot of requirements that exist.

It became actually cheaper to start companies for a ever decreasing circle of people, the more and more fortunate.

What I love and what gets me out of bed every day to do Shopify and work on it is that it's a counterforce to this.

What Shopify allows people to do is have the $29 a month, get something that gets them pretty close to having all the things that Jeff had to build for himself when he started Amazon.

Leveling playing field is important.

If you look at the word of the tech discourse, now we're talking a lot about privacy, but really, we're talking about that.

We're talking about the divide.

We're talking about things like inequality and so on.

The role tech plays in this.

I think we need companies that are not technology companies, but actually are companies that use technology to give non -technical people superpowers.

That's what Shopify does.

We're technology isn't necessarily changing the business, but it's rather enabling the business.

Yeah, exactly. As you mentioned earlier, we're sitting in Ottawa.

One of the questions I've always had for you is kind of like, how is it that one of the top tech companies in the world is headquartered in Ottawa, Canada of all places?

What makes Ottawa right for Shopify?

I started this Nobel business here because my wife was studying in Ottawa during the time.

Every time I needed to find people, I found fantastic people.

I think this goes back into, I think there's a dangerously narrow narrative for how companies in general are created.

When I sat down at some point, and by the way, I had lots of opportunities to move Shopify.

I had term sheets by all the dream venture capitalists that sort of however stipulated that I would have to relocate the company to a certain value place like this, which I then walked away from.

The reason why I walked away from is because I looked at the history of how great companies were made.

What I found is while it's true that there's a greater concentration in a place like Second Valley, usually what happens for making a world -class company happen is that there's one company really anywhere that creates sort of a broader geographical consensus that this is the company that all the best people

should go look for.

I knew how I could become by far the best employer in Ottawa.

I knew how I could like there's Montreal and Toronto and Waterloo like almost right next to us, and so at least the North American measure of distance.

That seemed like the right way to do it.

We always found right people.

There have been many great technology companies that came out of Ottawa, and everyone sort of forgot about that.

We feel like we discovered why, because people they have great universities.

We find extremely smart people who are loyal and work hard, and this is how these companies are made.

Now I think there's one interesting thing in this.

I do think that there is an almost complete difference between how you build a company in a primary market of a primary talent market and sort of secondary talent markets, which primarily talent market really is the Bay Area for technology company or LA for film, right?

So almost all books that you can read about business are written by people who build businesses in primary markets.

Teal, Horowitz, and so on, and the Grove.

All these companies got built in primary markets.

So the problem I think what makes it rarer that companies create copies are created outside of them is partly because then secondary market people read the books from primary market people.

They get the wrong lessons.

So for instance, one of the secondary places is if I hire someone, the chance that we're going to still work together in a decade from now is super high.

It's just different in this way.

That doesn't sound like a big change, but it changes absolutely everything for the company.

It means that it's a much better idea to hire for future potential rather than for current skill.

Once you do that, what you realize is a dollar invested into helping to train people or even subtle things like making sure that next to any junior programmer, like for every five junior programmer in a team, you have one person who can become their mentor.

These basic ideas all start having way more dividends because the people after you make them better, they stay a few longer, you get to benefit where in Silicon Valley where some companies are pushing in their R &D teams, 12 months average tenure for staff, that is a silly investment to make.

It becomes almost win -win instead of transactional, which is like, I'm here as a stepping into something else.

It becomes like, we're going to help you, you're going to help us, and we can have this long -term runway.

Do you think that culture is more to do with the geographic location or more to do with the organization that you're -?

I think you have to build a company that people don't want to leave, but you also should invest in your people so that they could.

If you combine those two things and do it well, you can do it.

Shopify is a destination company at this point.

The people who come to Shopify from all over the world and work here, usually they don't move to Ottawa, they move to Shopify.

You have to make your company worthy of that kind of thing, and then it will happen.

That's true anywhere, but doubly true again in what we call secondary places to build our companies.

I want to come back to something you said earlier in that answer, which was you studied how great companies are made.

Give us some of the lessons, you got to expand on that.

What happens? This is a big topic.

Usually, it's actually tricky to get these pieces of information.

My best, my absolutely favorite way of doing it is I tend to go backwards in history and then try to build my own picture from multiple viewpoints.

I got fascinated with, for instance, the industrial revolution at the time of the railroad.

You start reading the various autobiographies by the major players.

Even though those tend to be very sanitized, they usually are very accurate explaining the situation that existed in which they were solving problems.

Then you can rebuild this saying, okay, why did that work?

How did it happen that only Rockefeller saw that the money in oil was in the refineries, not in the wells?

That seems obvious, but it was only one person who figured it out during this time.

You're trying to reconstruct these situations, and then look at them from multiple angles, and you realize, okay, here was the science.

That's a lesson and that's something to take.

Next time you analyze the situation that you come across yourself, this is something, a new model you can compare this situation to.

I find history is absolutely underrated.

I get most of my lessons from there, that's usually how I explain things that are at hand.

It's like I say, hey, I've seen this problem before described in here and let's go double -click on how this was solved back then.

Sometimes you also want to do a spreadsheet.

Not so hard to figure out.

Now, billion -dollar companies are dime a dozen, but that's not true 10 years ago when I was doing my spreadsheets.

There was not that many.

If you put them on a map, there's concentration, sure.

It seems like Silicon Valley can support two to potentially three breakout companies at a time, which is not true about any other place, but that's the difference.

It's not that you want to build a certain company, you have to go there.

There's a deeper talent pool, and if you can become one of the best free employers there, then you have a shot at it.

Is there one lesson from history that stands out when you think of how to go about making a great company that you think may be underappreciated?

Yeah, for sure. To me, this is such a big topic.

Almost all companies have been created in a word that can be described as complicated problem solving.

You look at Henry Ford's factories or something like Bethlehem Steel or whatever, and essentially, you have this incredibly long chains of cause and effect where at one point you put iron ore in and sheep, or at least sheep wool, and then on the other side, a Model T comes out.

And every single step in this process was, like this got popular, a guy called Frederick Taylor under the name of scientific management, I think.

So break this incredibly complicated task down into single tasks which can be individually taught and can be done by absolutely anyone and then you do this.

This really is the story of industrial revolution.

It's kind of like the difference between being a chef and creating something starting to finish or working at McDonald's, where it's like the fries go down for 90 seconds.

Exactly. So like a chef would look at the holistic total of it where McDonald's broke it down into these steps.

McDonald's is a wonderful example of Henry Ford's idea to apply it to food production.

So this cause and effect thinking is embedded everywhere, like an MBA program really drills this kind of thing.

Now, I happen to believe that this is not so relevant anymore.

Because I think the world we are actually spending our time in, like we've almost built throughout the last 100 years, every company that serves a complicated problem.

And so the only kinds of problems that are now left are what's usually referred to as complex problems.

Now, in a world of complexity, cause and effect isn't so clear.

In fact, what happens is secondary and tertiary effects often become actually more important.

And so what I actually learned from history and what I sort of reconstructed is the world in which people like Frederick Taylor were actually trying to solve the problems and what they were solving for and why this worked.

That allows you to at some point walk away from this and saying, hey, the situation is too different than in which we are building companies.

And so I found it's interesting.

I found there's a lot of great companies that suddenly became not great because through, especially when they found a lead, they were comfortable in a world of complexity where things aren't so measurable and so clear.

But where you optimize for the holistic total and saying, hey, the product needs to be perfect.

And it doesn't really, it shouldn't reflect the organization that built it and all these kinds of things.

And then at some point, the company slowly fell in love with, hey, let's measure every single step.

Let's optimize for various things that are measurable.

And this ended up really sort of eroding the company.

So this is, I think, one of those ingredients that really helps building a company that's larger, but still feels like what makes working in a startup so much fun.

I think that we were talking about this right before the interview, but we have a lot of Shopify kind of readers and listeners to the podcast.

And one of the things that was sent in was you wanted to run the largest small company in the world.

Is that what you mean by that?

That's what I mean.

Yeah. Because I just find people are very quickly mis -correlating things.

A lot of people say, hey, it's really fun to work for a startup.

And it's super no fun to work for a large company like IBM or whatever.

And they really go and say, small company fun, large company, no fun.

But clearly, it's more complicated than that.

Clearly, there's things that make one fun and things that make other not fun.

And you can decompose that.

You can say, hey, one thing that's fun about being small companies is the amount of impact you can have on what's going on.

It's the amount of autonomy you get to solve problems.

It's the amount, you know, is the sort of tight fast -paced relationship you have with the people around you.

It's like you're going through an epic journey surrounded by friends, which is what clearly everyone wants to be doing.

And so none of those things are beyond the realm of what in a large company you can experience.

In fact, if you just put your mind to it, it's something you can absolutely deconstruct and restore and actually keep.

But what is true is that there are invisible forces acting on every company in the world that get rid of these things.

So the question is, which are what are, how does this happen?

How can we build scaffolding for the things that we really like about this?

How can we keep the risk, the autonomy, the being surrounded by people you really want to spend time with and so on and so on?

So I think company building in general is a fascinating topic.

I operate under the assumption that, you know, I and many of my peers who are running companies right now, at some point, 30 years from now or something, we might get back together, we might have retired at this point, we look back at these times right now, and we will all be horribly embarrassed by the companies

we ran in 2018. We are going to say, like, how did we get anything done?

How did we do anything that's like, how did we build our product?

How did we do everything before we figured out this thing or that thing and all these things that we have?

I don't know what those are right now because we haven't invented them yet.

But I think we are going to be terribly embarrassed in the same way how, when you watch a old movie now and there's people in a car and they're smoking with children in the back, that seems really embarrassing, but seems okay back then, right?

So I think the best company ever made, whoever that is, I don't know.

And I don't even have one adventure, I guess, is going to be like a six out of 10 on the scale towards a perfect company.

And my goal in life, at least something that's very important to me, is I want to be slightly less embarrassed than all the other guys and girls in 30 years.

I want to figure out how to get to be a six out of 10, maybe start going to a seven out of 10.

And so for that, I think a lot has to be reinvented.

There's a lot of stuff that companies do that have no positive impact on anything that the companies do.

It's interesting because it sounds like you're looking at that on an absolute basis in terms of what is possible versus a relative basis, which might be like, what is possible right now given the information and where we are as a company and what's possible today versus what's possible based on the laws

of physics or nature?

Because you have to, because one thing that happened with Shopify which made making Shopify actually really hard is that we did not really have competent competitors.

It's really really hard to build a company if you don't have an obvious enemy.

Nothing unifies you towards...

Exactly. There wasn't a fight.

Yahoo stores was absolutely horrible when we started.

I tried to use it for a snow devil, I couldn't.

The best thing it allowed you in terms of customization of your own store was changing the background colors of your different frame sets.

Most people don't even know what a frame set is.

This was really really outdated even back then.

There wasn't an obvious company we thought.

I think the only thing we learned is we always have to look at the absolute.

We have to say, what is the perfect e -commerce software?

It's something you put your name in, a product in, and then sales just appear and it teleports every product directly to the destination within seconds.

That would be ideal.

Now, we can't get that physics in the way.

What's the next best thing we can settle?

Then after that, what's the most realistic thing for us to build right now?

Then how do we always keep going further into this reaction?

We grew up throughout our formative years at Shopify just having to compete against ourselves and our own high standards for the thing that pushed us along.

I want to talk a little bit about scaling the company.

You're 4 ,000, 5 ,000 employees now.

So you've gone from 2 ,000 to 4 ,000.

What kind of lessons have you learned from growing the company?

How did you scale it?

It's interesting. Shopify is now a larger company than the city I grew up in.

It's the largest and incredible journey.

I think this is the one time these hyper -policistic words actually are appropriate.

But from my perspective, it didn't feel that different all along in the different steps.

A company that grows really fast feels entirely different every year.

So I just got really comfortable having essentially a new job every year.

And to me, the most important thing was to make sure that every new version of Shopify was slightly better than the one before.

And so ideally across all the kind of things, like better at the things that we were good at and fewer of our weaknesses we had before.

There's great purpose that comes from just having a mission that is kind of good.

This might get into...

It's an interesting topic, but one thing that really helps about building Shopify is if Shopify succeeds, no one loses.

It's like there's zero...

It's a win for everybody down the whole ecosystem.

Absolutely. So every time...

Right now, every 70 seconds, someone has their first sale.

I remember the day I had my first sale, I was in a coffee shop, I opened my email.

I built the software so it was my own email which the software sent to me, which is kind of funny.

Was your mom buying something?

So it was someone buying a snowboard from Pennsylvania who I've never met.

Someone I've never met deemed the thing I'd build worthy.

That's when you become an entrepreneur by the way.

It's not when you start building something, you're just a builder then.

Every 60, 70 seconds, someone has this experience.

This is like some mother of three in Idaho that brings some kind of skill from her local community into a product which then is being sold and which then creates a new economic way of getting money there and which then eventually leads to them hiring people and all these kinds of things.

Our customers get something, their buyers get something they want.

They find unique products and these kinds of things.

There's a partner ecosystem that builds all these kind of little apps and extensions for Shopify that really make these stores unique.

Everything just gets kind of better with no externalities that cause so much problems in the tech industry usually.

It's an easy mission to tap into for the people who join here.

They come here because these are great jobs, but then often through a transition period through a year or so afterwards, people start really, really caring about the effects that Shopify has.

What about the people?

I mean, just managing the complexity of the business must be much more than it was before, obviously.

What's straightforward about scaling and what was not straightforward about scaling to that degree?

I'm trying to think of something about straightforward, right?

It's an amazing question to stump me with, honestly.

No one in the world knows how to build companies of this type, right?

It's not a skill that anyone has.

You can't read a book or play a video game.

There's nothing that you can truly do.

The only thing is you can cultivate the skill to quickly figure out what to do when you get into a situation where you have to make a choice.

This is why I think, especially the sort of secondary city approach to building companies, is so valuable because there's nowhere around having to build a learner's organization.

You have to because you're not going to find all these ready -made people.

How did we scale? Again, we have a hiring process that really, really finds people with high future potential.

Then we try to help them reach this potential 10, 20 years earlier in their career than they ever thought was possible through coaching, through book clubs, through just anything.

We have an internal podcast which talks about all these events that led up to today and how we made decisions and what we considered and how we went wrong and all these kind of things.

Everything in Shopify is kind of built around this idea that if someone shows up with a fixed mindset, they convert them into a growth mindset quickly.

Then once they have a growth mindset, they fill people with context and we had them get better at their craft.

Then the kinds of people who like challenges, if you like putting them into a situation where they say, okay, here's something that's really, really important for this company.

It's a strategic move.

You care more about this than anyone else we found.

Why don't you give us a goal?

We'll help you as much as we can, but we also trust you to be able to do the best job you can and we think you're ready for this kind of thing.

You do that at scale.

This is not like the one time I'm thinking of that we did that.

This is actually the way all of Shopify functions.

If we bring in experts in topics that are important, like when we built a payment gateway, we really needed people who understood the payments industry.

They're not the people who run the group.

They are the people who support those people.

Those are the tweaks to the formula.

We found that this is how it works or at least this is how it worked for us.

Aside from being a learning organization or learning culture, what other words would you use to describe the culture that you're instilling or trying to get at Shopify?

I've mixed opinions on culture.

I think they're getting dangerously close to the point where a lot of people think that culture is manageable and it's just something that managers have to own in some kind of form.

I think culture is just the sum total of all the people who work with each other.

Shopify is super happy with internal multiculturalism.

One thing, again, they're a Canadian company and one thing Canada is increasingly known for is that for the last 30, 40 years, Canada has run the biggest third -wide experiment in multiculturalism.

And by the way, it worked well.

In fact, it probably works better than alternatives and that's a very, very important lesson Canada is starting to teach the rest of the world because I can tell you when Germany 10 years ago had this conversation about, hey, should we double -click on assimilation or multiculturalism?

No one talked about the example that Canada has actually been running this experiment successfully.

That's something which I find so inspiring about Canada, especially as an immigrant from Germany.

That's something we really like within Shopify as well.

Every one of our offices has different culture and that's okay.

There's no Shopify culture.

I know there's companies like, apparently, I've never worked for Google, obviously, but apparently people internally talk about sort of a Googliness score, which to me sounds super dystopian and I hope I score low in that because I don't want to be like everyone else around.

I actually am super happy being different and I'm super happy about everyone being different and I want everyone to show up as their authentic self at work, not some sanitized conclusion of what people should be like.

And feel comfortable in who they are.

Exactly. Feel like show up like you are and that's what we celebrate.

Diversity is a strength as our prime minister keeps saying and I absolutely agree with.

I tell you, via here in Ottawa, if a lot of people from Toronto office are coming to visit because you're working on preparing for some conference together or so, the culture of the Ottawa office is different that day just because of who showed up that day.

That's actually a way to think about culture.

The culture is like how constrained do people feel?

Are the two original authentic people showing up or some like sanitized guarded version of people.

And the sanitized guarded version isn't just...

It's not just sort of a word of suits where it's sort of obvious.

I've been to a lot of Silicon Valley companies where everyone wears hoodies.

So this comes in all.

Everyone's optimizing for being seen to be similar to the people who happen to get the promotions and it's very, very quick that you end up losing something that makes companies really much better.

So this is again, so we don't manage culture.

We just hire interesting people and let them be themselves.

And I can directly measure the quality of a meeting with how different people spend their lives up to the point of arriving at the meeting.

So the more the worse the better.

How do you think about employees in terms of process versus or process and bureaucracy in terms of being adaptable and nimble and the organization that you want to run?

Yeah, I mean, that's...

I have lots of thoughts on process.

I actually think process is probably one of those things that the business world of right now will be most embarrassed about when we look back.

It is amazing how little...

what I refer to as good process exists in most businesses.

There's three kinds of process.

There's a kind of process that makes things that were previously impossible to do possible.

That's good. And there's a kind of process that makes something that was previously possible significantly simpler, which is also good.

Like make it 10 times better.

Ideally, make a process that makes an entire thing that previously took like days, make this lightweight.

That's good. And then there's everything else.

And I bet you 99 .9 % of our process that exists in corporate America is the third category, which is actually just telling people to behave slightly different from what common sense tells them to do.

So we have lots and lots and lots of examples where we just avoided having to create process by just changing the environment in which we all spend our time in.

Like changing the way the offices work.

It's interesting. I don't know.

It's like this is a kind of lessons that we've maybe learned.

I think it's fascinating.

I wanted to talk to you about how the environment impacts people because some of the stories I got from people who work here are relate to the microwave being changed to make sure that it had one button and the hot water, the old hot water tanks used to have like three buttons you had to hold down at the same

time. So walk me through like how you think the environment affects people and why you were so adamant about those things not existing here.

I ask everyone to do world class software, right?

Like build something that's significantly better than anything ever made in this particular space.

But if you like arrive in the office and the first thing you do is you get hot water for your tea and you faced with some kind of absolutely insane user experience where they used a touchscreen for no particular reason, or you had to like push three buttons down just to get hot water.

Like the obvious thing to use the device is feels like an afterthought from the user experience.

Then I can't really ask everyone to do better.

In fact, I can. But then again, I'm fighting gravity and which I don't like to do.

So much, much better way to do is just make sure that everything is off the kind of like everything that we control the quality around us that I want to see in our own products.

Because I think people are so much more affected by their environment than when we like to believe.

Like again, I had one of the best things that ever happened to me in my life is I moved between countries, right?

When you do, you actually you will learn so much like you can't explain culture of a country to someone in the country.

It's like explaining water to fish, right?

But if you leave somewhere and then move somewhere else, you actually end up with a sort of outside perspective to both.

There's a UI from Canada, you talk to people about Germany and everyone talks about great engineering and all these kind of things and weird things, right?

But then I go to Museum of Modern Art and go to like a detail Rams exhibit with a design I really like.

And that looks like my house when growing up.

Like this is all this stuff is not fancy stuff that's actually the default coffee maker and razor and the radio that everyone has in their house during the 80s and 90s, right?

And so why is there so much appreciation for great craftsmanship?

Because we were surrounded by it growing up.

And I think this effect is something you need to use to advantage when you build a company.

If someone is in an inspiring space, that just is full of great design and where everything just works, your base level of what you will do in your own craft is going to be significantly affected by this.

So the corporate America way of doing this would be have a crappy cubicle farm and then post motivational posters everyone saying have high standards, right?

Which is crazy. And clearly that doesn't work.

So this is how we find that changing the environment just helps us get the things that we want.

Sounds like my day as in government.

How much of your job would you say is about finding these processes that don't make sense and eliminating them?

Like how much of your day is about elimination or subtraction?

I would say actually a lot.

As a CEO you are the holder of the standard.

Things need to clear your minimum quality bar to get out and are being shipped.

Many of my conversations are this is what it should be and here's how we can get this kind of thing there.

Or here's why this is not quite there.

And this is how you get into the wonderful teachable moments.

Or sometimes you write something about it.

If it's generalizable, sometimes you record a podcast episode about the kind of topic.

So it ends up being a lot of it.

I want to come back just to the environment before we move on one more time.

Is there anything else that you do within the physical or even virtual environment of Shopify that's used to nudge people's subconscious?

Well, yes. Not just such a big thing.

It's probably not no surprise I'm a huge fan of Richard Teller.

I'm Danny Kahneman and Atmos Tversky are my spirit animals.

So I am a big fan of behavioral psychology and all these kinds of things.

I see that as a better path forward other than posting process.

And what they figured out is just you change the environment to make it so that people just their common sense compels them to do the right thing.

The shortest way of stating that is water will always follow the easiest path down any kind of mountain, obviously.

The water everyone gets that you cannot go and just post a sign saying, hey, there's a village on the other side of the mountain.

I need you water to go over there so that they can have water.

That sign is not going to work.

You will have to dig a ditch.

And so building companies is actually very similar to me.

This was one of us.

It doesn't sound like much, but it ended up being an important moment for us.

When we first started serving lunches at Shopify, we had our own kitchen.

And it was really popular, of course, and we were a small company then.

The bigger problem we had was after lunch, the room was a mess.

Not initially, but over time.

So what happened very quickly is the posters went up saying, hey, here, please bring your plate back to the kitchen afterwards.

It's funny how we tend to escalate.

After what, someone puts an exclamation mark on it.

And even at some point, we tried social proving this.

We had a picture of my co -founder who was really sad looking with an empty plate and just tried to shame people into it.

And that worked for a couple of weeks and I didn't.

And then at some point we realized if you just put a tray next to every exit of the lunch room, that's where you can just put your cutlery into your plate and make sure that's not overflowing.

Everyone's going to do the right thing.

Everyone wants to do the right thing.

It just be asked people to have to invest their willpower into doing the right thing.

And that's not right.

You can't try to do it, but I want the maximum amount of people's willpower that they are going to expand doing the time at Shopify to be beneficial to our customers and not invested into going out of your way to return a dirty plate to some sink.

And so a lot of Shopify folks, there's nudges for people.

People don't have one -on -ones for a long time, they're getting a nudge about it.

And suddenly you can universally have one -on -ones much better than having policy with rights of what some people do.

You're known for running, Shopify is known, I guess, for being a very resilient organization.

One of the stories that we talked about the first time we ever had a conversation was about you moving buildings.

Can you tell us that story and what happened and why it happened the way it did?

Yeah. I've always been a fan of, I mean, this is called, Nassim Taleb finally gave this concept a name with his book, Anti -Fragile.

I firmly believe that if you want an organization that lasts, you need to be okay with bad things happening.

And in fact, I think the quality of an organization is not how good it is at preventing bad things from happening, although it's a useful skill, but I don't think that's necessarily the quality of organization.

The quality of the organization is how quickly it does react to bad things happening.

So this started very early with long before it became cool.

I was sort of... This is before anybody even knew about anti -fragility or had names.

Yeah, long before this was a name.

I locked into our server farm and turned random servers off, right?

Because I just wanted to make sure that we're not relying on memcache being up.

And we did that in production.

Oh yeah, internally, it's called the Toby test.

Yes, that's cool. It really made a point and it created a culture where everyone says, Hey, you know what?

Things going wrong is not actually this rare thing, but it's actually something that's not an ordinary thing that just does not cure every day.

And so I think it was really important.

So we always looked for opportunities to do this kind of thing.

I really, really like changing something just so that everyone has to adapt.

Frying on change is actually one of the core values.

And it's a huge disclaimer.

The thriving on change thing we're serious about.

This is something that comes up during hiring saying, Hey, you really need to understand what that means.

Because if Shopify is not absolutely not a company for everyone, this one thing you really have to be okay with.

Things are going to change a lot.

We are not going to pretend that Shopify lives in a static world of unchanging requirements.

And so when we had this sort of changing offices, we were about, I think 600, 700 people from one office to the next in Ottawa.

And our landlord was really unhappy about losing us.

So it wasn't giving us an extension on our lease.

And the second office started going later and later.

At some point, we had the conversation about what are we going to do if we need a plan B here, if those things don't line up anymore.

And so plan B was okay, well, just we have to ask everyone for work from home for a little while.

And that didn't actually sound so scary.

And then over the course of next week, I increasingly fell in love with plan B.

And at some point that we, like, I was really disappointed.

And I heard that it actually became like the buildings, it would line up, we could do it.

And so I'm like, why don't we still go with plan B?

Because, you know, the increasingly hired people in other offices, I think a company needs to like a company that wants to be able to work well across different offices, especially with some people working remotely as well, needs to have a lot of empathy for those people.

Because unless you have ever done this yourself, it's very, very hard to work with.

You just don't know what it's like to not be there and not hear those conversations and not be in office and so on.

So we decided to make plan B, plan A.

And so we closed our office as in we deprogrammed everyone's form one day, send an email the evening before and said, Hey, we want we're going to be homeless for for for for a month.

And let's like if anyone has some good ideas about how to deal with that, please share.

And it was pretty chaotic.

It was really, really, really good business for all the out of our coffee shops initially.

Like people started collecting, some people had, you know, houses downtown, so that's maybe became basis of operation.

Our chefs ended up buying an old taco truck.

Oh, that's amazing.

They drove around town and, you know, just to add everybody in pop up little pop ups and posts on chat which parks they would park at and people could come.

And so it was actually a wonderful time.

We had a great time.

Everyone was really glad to be back in an office afterwards.

And but but we learned so much about tools we had to like, which just didn't work anymore.

Like we didn't learn where we were relying on physical proximity, which is physical proximity is an incredibly powerful force.

But you need to appreciate it.

And you need to know when you use it using it as a crutch.

Because if you add a remote person into the team, suddenly, you kind of littered with examples of this.

Like we did our big developer conference last year in San Francisco.

Day one was really, really great day two, we arrived and there was no power in at the place.

And this was across all of San Francisco, I might add like this is the, you know, the capital of technology in the world.

And we had no electrons come from the sockets.

It was absolutely remarkable.

I think most companies would have canceled day two.

In our case, like everyone just immediately said, Okay, this is probably gonna last.

People ended up getting like, like move the entire conference, we couldn't go into the room because fire marshals wouldn't let us so move the entire conference to the parking lot, then people then to get 10 shades.

We didn't have PA systems.

So they created like small groups, they come up with topics, we estimate that like probably five to 10 new companies were created from just the people who were networking that they otherwise would have followed like a single track conference and end up being actually almost a better day than what we

have planned. And I love that because that's what we trained for.

This is important. Like reacting like this is, I think it's something you want to cultivate as a company.

Yeah, I think adaptability is massively underrated, whereas efficiency is a little bit overrated, especially in a rapidly changing environment.

You know, in some cases, sure.

But in so many cases, efficiency is something that companies like, in most cases, I've been in companies which are really, really on this sort of efficiency drill, what they actually often do is, is they actually creating something in the name of efficiency, they're actually becoming worse as companies,

because what they actually do is they trade things that look inefficient, but could have been paralyzed with something that looks efficient, but now has all sorts of dependencies, right?

Like, hey, take these things, everyone's doing the same thing.

So instead centralize it.

Well, great. You just like, if your background is engineering, you immediately ask, you know, that sometimes is the right solution, but not always, because now you have contention for a single resource.

Do you actually want your entire company to have like, like everyone have a dependency on like one team?

Like clearly, you don't because you want to go as fast as possible.

And those are exactly the kind of ways how large companies slow down because on the name of efficiency, they create a massive dependency graph, which is invisible, but slows everything down.

Internally, you have something called the Toby manifest.

So do you mean the Toby blue brand?

Is that what it's called?

Okay, so it's got a trust battery.

Like what is on this list?

So it's a friend of mine, put me on to idea, look back, essentially, it takes a long time for people to learn how to work with each other.

So I always look for ways to short circuit these kind of processes as much as I can.

So in this particular case, I just wrote the things that people otherwise take a year to figure out about me, like how I work, how I think.

And so that's on our internal wiki.

And it's under, you know, vol .jobfire .com slash Toby or what's an internal address.

And everyone can, who has their first meeting with me can kind of figure out, you know, what's probably a good thing to do.

And what isn't a good thing to do.

So I think it's very, very helpful.

What's on that list?

You know, things like don't prepare PowerPoint presentation is a good one.

So some things are just sort of tactical.

It's not the way I like, like, I like conversations, not presentations, especially in, you know, smaller ones, like I'm not a big fan of huge meetings.

And so that's just useful to know, because like, like, no one wants to do this wrong.

Right. And so but there's other things like there's sort of a personality test world called the Enneagram.

I know, there's millions of these kind of things.

Enneagram happens to be the one that Shopify is really into.

In that world, I'm a challenger.

What that means is someone comes up with an idea.

I will take the opposite side of that idea, even though I agree with the idea.

So when I when I challenged an idea, someone else's idea, that's actually exactly what I would do with my own ideas.

This is my internal process, just, you know, like in a room.

And so it's important that people don't immediately become defensive because I don't I'm not out to get them.

I think, oh, Toby doesn't agree with me or exactly, because I've seen this effect too many times that, you know, someone has a really good idea.

I say, well, how about we do exactly the opposite?

And then they really immediately came over to my point of view.

I'm like, Oh, hold on a second.

No, no, no. I like yours better.

And that caused why was that so easy for to convince you?

Why was it so easy to convince me?

No, like, it doesn't make you wonder what's so easy to convince them to change their mind.

I think it's human nature.

This is I wish it wasn't so but like, it's there's a thing like North America is blessed with a very low distance of power in as a culture, right?

But still, the problem is if you have a founder of a company, you have a CEO of a company, especially if you earlier meetings.

As much as I wish it wasn't so, people treat you with some difference because of all the sort of social credit that you have.

And so I don't want people to, I want people to have a conversation with and I do to their ideas, exactly what I do to my own ideas.

And the proof that process we get to better understanding because I want the best idea to win at any point and I don't care if that comes from me or from someone else.

So writing this out and telling people full disclaimer, this is probably what's going to happen is really, really helpful for us to have better meetings.

One of the things on that list is, I think the concept of a trust battery.

Can you expand on that?

What is that? What does it mean?

Yeah, I find this, a trust battery fits in perfectly with sort of your topic of your entire world.

It's just a mental model for how to think about the relationship between people, right?

It's something that actually exists, but it's really documented.

People sort of think about trust as almost an on -off kind of thing.

Like, I trust my mother.

I don't trust the NSA or whatever.

But it's actually clearly a gradient.

It's something with a lot of different points on this particular spectrum.

If people meet each other, especially in a sort of curated context like a company, like both of us start working here and we both got hired.

So we both ran through the gauntlet of how to be hired here.

So that means we probably will trust each other, let's say 50%, right off the bat.

When we have these interactions, we have a meeting like the one we just talked about, combat an idea, or we just talk about an idea.

We come up with something even better.

We work well together.

This slowly charges, right?

I think it's useful to have this metaphor between people, because it allows you to sort of talk about the trust that exists between two people without actually becoming personal.

You know, so much about working in teams is the way you communicate about working together, like the way you give each other feedback.

It's so much easier to say, hey, I love working with you and the kind of work you do, but you don't show up to the team meetings.

I just want you to know those two things offset each other.

This is why your trust battery with the rest of the team is just not going up, even though you're doing great work.

That's a much better conversation than saying, hey, do you not care about us?

Do you, because then you're attacking the sort of identity where this is actually a factual discussion about a concept.

The trust battery is really useful for two people to converse about working together, but it's more important than that.

I already said I want Shopify to be a company where people have an enormous amount of personal autonomy, but it's not possible to just bestow that on everyone.

Because trust needs to be earned.

When you have a concept like this, where you can say, hey, get to 90 % of the trust battery with the majority of people around you, and then we give you an area to own, and then we trust that you own.

That's what people do already.

All we're doing is putting a metaphor into play that people can refer to and give people a goal saying, hey, here's what I get if I build the trust with the rest of the team, and so on.

What are the other mental models that you use to either run Shopify or interact with other people?

As you know, I read lots of books.

I'm fascinated with the concept of mental models.

You've listed over 100 on your page.

I know you're working on a book on the topic.

There are so many more.

There are so many metaphors that come from different fields.

I sometimes feel like I learn more about how to build a great team from learning to play an instrument than from any kind of managerial training or something like this.

I just think this is the way we become better at anything.

I sit down with especially younger engineers, designers, and so on in a company, and they ask me how to get better.

People know how to get better at their craft, but I think most cases the best way to get better at what you do is to go broader, just learn at the other skills.

We have a reading library, essentially a book club across Shopify.

I curate the books that are in it.

There are books that you have absolutely nothing to do with business, like drawing on the right side of a brain, understanding exposure.

These books are there because I really want people to just say, okay, you're an engineer.

If you learn to draw, you're going to have so much more empathy for working with designers.

You're going to have such a different appreciation about how light works, and so on, so on.

This is really what I try to do with people.

That's what I try to do myself.

I've found some of the most interesting lessons that are useful to building a company like this.

Again, as we said, in playing video games where people don't expect it, this is why people are so surprised with my comments.

StarCraft is an absolutely wonderful game of incomplete information in a box that can be played very quickly.

Factorio teaches you how to productize and optimize an entire massive complicated system and so on.

I think people just have broad interests and follow them.

Where did your love of reading come from?

It came pretty late.

I'm actually dyslexic, so it's actually hard for me to read.

I read very slowly.

I didn't read any books for the first 20 years of my life.

Then, at some point, I challenged myself to read a book fully.

That was a wonderful book called Cryptonomicon by Neil Stevenson.

It's still one of my favorite books.

This was so good of a book to pick up first.

It was almost random, because I just learned so much from this book.

It's a piece of fiction, but you learn so much about even cryptography and all these things that are relevant to me.

I started picking up more and more books and devouring them from that point on.

I found books are the closest you'll ever come to finding cheat codes for real life.

You can access the entire learning of someone else's career and sitting down for 12, 14 hours, if you're a slow reader.

I read a lot. Which books would you say have influenced you the most over the years?

There's some incredibly specific books.

What comes to mind?

It's hard to pick the most important book.

It depends on what you're doing, of course.

One book, which I find stunningly insightful, is called Mindset by Carol Dirac.

It really puts its finger on the thing I need to change for most of the people who start at.

It's growth versus fixed mindset.

It's one of the most liberating experiences for people who can transcend.

We all have fixed mindsets on some things.

Most people have growth mindset on some others.

Actually, having the language, having the mental model of it, improving yourself after you understand this, but then helping others traverse this through one -on -one meetings, it's just so powerful.

I think that's one of the best.

There's a book called Parkinson's Law.

Have you ever come across it?

Many people know about the bike shedding analogy.

It comes from this book.

It's 80 pages. It's really old.

It's a comedy book written, because back when he wrote it, you couldn't really criticize the queen of England and so on outside of comedy.

That's the way he could write it.

I read that really early in Shopify's history.

I felt like it allowed me to disrespect companies that existed a little bit more and encourage me to do things.

Similarly, there's a book called The Design of Everyday Things, which I'm just a huge fan of.

It's actually similar in the way that, why are things designed so poorly around us over time?

How did this happen?

It just makes it in a way that book, you read it and afterwards, oh, I'm not the only one who just are these kinds of things.

It gives you some legitimacy of actually complaining because he makes a very impassioned case for that more people need to complain about bad design.

There's some books which are incredibly relevant for building up Shopify, lots of books by Nassim Taleb, Team of Teams by General McChrystal.

There's plenty of great books.

How do you filter what you read now?

Everybody wants your attention all the time.

You're running a $15 billion market cap company, you've got 4 ,000 employees, and yet you still make time for you when you're not playing Fortnite.

How do you determine what goes into your mind and what you're reading and consuming?

I mean, so again, I have to be very picky about the books just because I do tend to go cover to cover on books, so I'm committed for a very long time to a bad book if I pick up a bad book.

At some point, I usually dive deep into the literature behind things.

It's really important to me, again, on the quest of building a better company, one of the sources often that is completely underexposed to the business world is actually the academic world.

This is why I go really deep into behavioral economics or something like this.

And then I first find some important person's biography, and they usually reference all these kind of interesting moments that happen.

And then I try to find the books that sort of came out of these moments and so on.

Because I need the historic sequencing of something before I can really make sense of it.

If someone just gives me facts about something, I can't really...

If I don't have a tree to hang those ideas on, then I just fall to the ground.

That's usually my approach.

I spend a year reading about really understanding something like evolution because I'm always amazed how few people really understand how that actually works and how few people understand how relevant emergent concepts and emergent systems are to anything we are doing.

The stock market is an emergent system that no one controls.

It's common laws in an emergent system that no one controls.

Evolution is all around us all the time.

And in fact, it's precisely, I think, the reason why Shopify has been working so well, because we create a synthetic environment which sort of lends itself for the emergence of great solutions to problems in the common space.

And that's really the way I'm thinking about this place.

Those would be examples of things I go in.

Systems thinking is one of my favorite sub -topics.

I noticed the book on the bookshelf over there.

Yeah, it's probably the most common book here just because I give it out so much.

So, it's actually when we do our internal summit where we get the entire company to Ottawa in February every year, I have nowhere to tell everyone to accompany something.

I actually was here.

I just spent most of that talk just teaching systems thinking because it's just like the world is a better place if people realize that.

Root causes are really rare.

And again, events don't happen in sequence and are cause and effect all the way through.

The world is loopy.

If something is bad and you want to change it, there's usually something that reinforces the bad behavior and we have to change it.

We have to change that to change the situation.

I want to geek out on decision making a little bit here, which is something I know you've put a lot of thought into.

But I want to start with what's the hardest decision you've ever made?

I don't know what the hardest decision is that I ever made.

I can tell you the one I did the worst on.

It was the most important decision which I took too long to make.

So again, Shopify's story is a little bit different from most venture fact and then public companies in the way that it started with Snowboard selling.

So, it was actually profitable there.

And then I stopped saying Snowboard still focus completely on building Shopify.

And then through a lot of work and many years eventually Shopify became a profitable company itself.

But my goal was I wanted to build world's best 20 people lifestyle business.

That was really my goal with Shopify.

I just didn't love the idea of venture capital.

I'm European so I tend to think that companies exist to make money at a certain point.

Using other people's money to just try to grow over everything, it just seemed wrong to me.

But I had lots of evidence that Shopify really was a growth company.

The venture capital model is for a certain kind of business and it's a really good fit for that kind of business.

I think I knew that Shopify was one of those companies and then I artificially constrained it.

So, the decision I didn't make was, can I and should I transition Shopify from being a lifestyle business to a growth business?

And the reason why I ended up like so, I feel now that I was the limit.

I was the bottleneck on potential for Shopify for like a good year and a half period in which I just dragged my feet making this call.

And I'm so traumatized from that.

I never want to be a bottleneck of a company again.

And this was another one of those things that just pushed me into, I need to look after my own personal growth.

I need to be a head of whatever company needs me to be at and so on.

Eventually, I made the decision in a very data driven way.

I saved up some money instead of investing it immediately into hiring someone new.

Once I had like $50 ,000 saved, I took five ideas we had of marketing ideas, ideas to how to grow Shopify and just funded all of them at the same time and said, if two of them work, they're really a growth company that's being held back by these resources.

And they all five worked.

So, I became super bloody obvious.

It became very, very, very obvious.

You mentioned you took too long to make the decision.

How do you think about speed when it comes to decision making internally?

Yeah, the most important thing, I tend to talk with people about this a lot.

I think the most important thing that people have to understand is how undoable is a decision.

If an idea is fully undoable, I want people to almost make it as quickly as they can.

So, the problem is that you can never un -VC fund yourself.

So, when a decision is something that you can't take back, then it's worth really, really understanding.

So, in terms of decision making, I don't think I can teach terribly new things.

The most important thing is get all the context and then make a decision.

If you just do that, you're already doing a better job than the vast majority of people in business because almost everyone makes a decision and then gets data to support that decision.

So, you're already out ahead if you do that.

And then your skill in decision making is directly proportional to your quality of information acquisition.

So, how good are you at making decisions?

How good are you at acquiring information?

How far can you go?

How many resources do you have?

Do you have the ability to go directly to a database and ask a question?

Do you have the ability to call the right people up to ask them about their experience?

Did you read the books already which allow you to identify a situation as something that's like something else where you can go and reread it to figure out are you considering the same fact?

So, those things are the things that you would need to cultivate as a skill.

And then lastly, one thing I started really early which has been exceptionally useful is when and ever since this decision of turning shop a finder growth company occurred, I tend to take, when I have to do a major decision, I have a small log file.

I just put one paragraph in about the decision I made and what information I considered to be the most important one which pushed me into the direction.

And then I just sort of revisit that every half year and just say was I right about this given benefit of hindsight?

Because eventually, you know if your decision was right.

And so, it's actually if your job is to make decisions, it's worth treating it like any other kind of thing to get better at.

And so, this allows you to do it.

What have you learned from going back and reading that?

Not about outcomes of decisions, but maybe more about the process by which you used to reach a decision?

Yeah, I think Kahneman calls it hindsight bias, right?

We have a very, very strong bias to underestimate how difficult it was to make a decision and really just treat difficult decisions that were made as if they were obvious all along because you now have all these additional information afterwards, right?

So, it cues you of that to a degree, which is really, really helpful for anyone who leads people.

It's also, like I've just learned you know, every single time I got a decision wrong, which just happens, like I found that the piece of information I was missing was actually totally available to me.

And I just, you know, I just didn't go get it.

Is it because you didn't get it or you didn't realize it was going to be a relevant or salient piece of information?

Usually, I just didn't put it in.

You had thought about it and dismissed it.

Like you realize, like, hey, this was a thing that would have actually made me change my mind and and that person knew it already.

And so I didn't go to ask that person.

So I didn't. Do you think subconsciously that's you going like, I know this bit of information might make me change my mind, but I've already made my mind up and I don't want to have to do the mental labor of going back and then?

And that happens. And then you have to be honest with yourself saying, hey, you know, how would you want to make decisions based on what the best idea is or based on being right in a way or getting your way and so on?

Again, you need like, this is why it's a good practice, because it it just forces you to recognize when you make mistakes.

Right. Take me back a little bit to the early days of Shopify and the struggles you were having.

Maybe walk me through some of the things that you learned since then.

Some of the mistakes that you made, possibly running the organization that you look back and you kind of laugh at yourself and you're like, oh, man, like I wish I would have done that differently.

Or I'm really interested in not only the mistakes you made, but really like how you learned from those mistakes and didn't repeat them.

Yeah. I strive to never make a wasted mistake.

Right. So I tend to refer to it as even internally, when there's failure, we tend to refer to it as the discovery of things that did not work.

Just because it's just it really helps with the right kind of mindset.

I mean, from the earliest days, no one's ever going to commit more egregious bugs to the Shopify code base than I did.

No one's going to accidentally cause more downtime than I did.

I've kind of like done so many of these kind of problems already, which now there's like automated systems to prevent it from happening.

Right. So that helps a lot.

I've committed every major in the book and I have unbelievably patient people who work for me, who allowed me to grow into the role I'm playing now in this company over time.

Even though it took me a very long time to adjust to this.

There's some really honky ideas I had for what Shopify should become that totally wasn't right and the timing wasn't right.

Sometimes maybe they're actually the right ideas, but like five years too early and it's all you learn from it all.

It's hard to kind of put you ahead.

There's not a single thing I would change about Shopify.

Even though we've ended up with very close calls and it was by no means skipped over the entire years between starting Snow Devil to becoming a profitable company.

I spent a year and a half being out of money and asking my father -in -law who I was living with, me and my wife, for four checks to meet payroll and I never will figure out why he actually gave us checks to us, but we were essentially dead in our life support for a long time.

It was only actually a recession which sort of saved Shopify because at this point it was good enough and people were replacing really expensive e -commerce systems with much cheaper, but at this point better Shopify.

Just that experience of not being able to make payroll or being desperate to get money to make payroll, does it change how you run the company today?

Oh, yeah. I had to learn to make every dollar count and it's a hard habit to shake.

I actually think it's one of those kind of lessons that you get deprived of if you go straight into a startup accelerator and then go and get the Series A funding with not a lot of effort.

Every company that's being funded, you're going to get a lot more of whatever they were already doing.

If the company at this point of getting funding was already good and making every dollar count, really understood its market, then you can kickstart a story that produces almost 100 % growth for a very extended period of time.

In some cases, you're actually fueling some completely different behavior.

I think it helps a lot.

Talk to me a little bit about...

You mentioned the first thing we talked about was video games and how your focus changes what you see in the game.

What is your focus on a day -to -day basis here?

How do you invest your time?

It's a mix. I spent a good deal of time with my direct team and the leadership team of Shopify.

It's probably a foot of 40 % of my schedule.

I assisted. We called my expansion pack here at Shopify to keep a video game analogy.

He actually has a full report of exactly how time allocated and we rebalance my time every quarter like you would do with capital.

I spent a lot of time with my leadership team one -on -ones.

I right now have two new executives who I'm helping to onboard.

I spend more time with them.

I also have a good chunk of my time.

It's what's called writing time which I can allocate against something that I really want to work on.

Often, I write a spec for something that just needs to be done or I write a quick essay about some important decisions that were in the topic as well.

What it really is is I have a spotlight and Shopify is a really big room in which I can move around and look around with my spotlight.

When I see something I don't like, I tend to go digging a little bit and say, why is that so?

Why is a lot of time on that screen so low?

What else is that team is going to?

Should I have a conversation about how important website performance is to the perceived quality of a software?

Or I encountered that for really good legitimate reasons we switched from Coca -Cola to Pepsi.

But the Coca -Cola company, we're number one.

We're aiming too high for being a Pepsi company.

Pepsi is number two.

Shopify is number one company.

The standards are too high for stock in Pepsi.

Those are really, really random decisions, I'm sure.

Again, environment matters.

I get to have interesting conversations with people about random things like the soft drinks.

By the way, I don't even drink soft drinks.

This is very symbolic.

The last bit, honestly, it ends up being recruiting.

Recruiting is just so key.

You got to get the best people on the bus and if you have the best people on the bus, you're going to have fun no matter where the bus is going.

This ends up being a good deal of time.

What would you say is the smallest habit you have that makes the biggest difference?

Like in Shopify? Just in general, in life.

Any habit you have that makes just an asymmetric difference.

That decision log is a pretty good example of it.

This is going to sound so weird and patty, but I love it.

I'm going to share it.

Five years ago, I got introduced to shaving with a straight razor.

This is like super random.

That's how it used to be done.

It's actually a wonderful world of craftsmanship.

You get like razors made by one person where you can call and talk with them about how you want it and all these kind of things.

It's like Japanese blades and German grit and so on.

The craftsmanship behind that is wonderful to begin with.

We live in a world of disposable everything.

I just found that starting a day, just making the lava and doing something that's actually difficult right off the bat in the morning, every morning, it's just one of those random things that starts the day.

You cannot zone out doing this.

You're doing this for five minutes.

You're committed to a craft.

It's something you can get better at.

There's seriously consequences for the mind drifting and doing something else.

It's almost a little bit meditative.

I would say starting the day with something in the routine that's actually not super autopilot to do starts a day out in the right way.

I like that a lot. I know we're butting up against time here.

I have a few more questions that were submitted that would be remiss if we didn't ask.

One of the questions that people wanted me to ask you specifically was, how do you separate people who know what they're talking about from the people that pretend that they know what they're talking about?

I don't know. I just feel like you can tell.

I do dig. I want to be able to be...

Your challenge function would help with that.

I try to understand enough about everything that's relevant to Shopify.

Not that I'm an expert, but that I know what the experts think.

I'm still heavily in engineering and technology and so on.

I added a lot of the fields that make up the world of business when I transition from being the technical founder to looking after the business side as well.

I tend to not just leave things unchallenged and just say, hey, let's do a couple of ping pongs here about making sure that you're actually serious about saying this and making sure that the person's actually really saying the thing they're saying because sometimes people say what they think you want

to hear. That's really obvious if you just start asking a bit.

Again, then the trust battery comes in.

You do that a few times with people and then you don't need to do it anymore.

After I hired my first CFO, every single spreadsheet I got from him looked really, really complicated and was far beyond my Excel skill set.

But I learned how to use the craziest Excel look -ups because I just rebuilt the same spreadsheets from the raw numbers and make sure that it wasn't like a sum that wasn't drawn all the way across the column or something like this.

I just make sure that it wasn't mistakes, it's trust, but verify.

They're verified and never found a mistake.

I verified again, I didn't find a mistake.

I verified again, didn't find a mistake and eventually I stopped verifying.

It's like the way how you learn how to work with people.

What's the most common mistake that you see people make over and over again?

People are terrible at deciphering cause and effect or even correlation versus causation.

Again, I said this earlier, systems thinking is the best cure for this kind of thing, but there isn't always a cause for things.

They're much more, often there's a system that just reinforces something.

Everyone's complaining, why is all of the world of business so short -term focused?

It's because Wall Street wants quarterly reports.

It's a system reinforcing the thing that you want to fix and then people love putting hacks on easily identifiable problems and then think the problem goes away, even though the foil thing that's reinforcing this is not being addressed.

That's what I see a lot.

You keep bringing up systems thinking.

What does that mean to you in terms of how you want people to apply it here at Shopify?

This is thinking as it teaches you to draw diagrams of a certain kind.

Which really are like, hey, let's zoom out.

Let's declare the little boundaries of our system over all the stuff that doesn't matter, but within it, let's really figure out what forces exist and how they balance the loops, how they reinforce the loops.

Once you do that, you can then, part of what is so great about just this exercise is it is almost impossible for a room of people everyone in the room can talk about the same thing and mean completely different things.

But if you're writing a systems diagram on a whiteboard afterwards, there's a sink.

If someone has an assumption about that system working differently, that will come up.

I think that's why it's so powerful.

That's the actual way of how I wanted to.

It forces people to expose how they're thinking about something in terms of interactions, which allows people to kind of challenge, oh, I don't think it's that way.

Then you get to a better, deeper version of reality or understanding through that.

But there's also this entire other thing that's also acting on this.

Is that relevant? Then everyone's like, oh my God, you're right.

Then suddenly you make progress against coming up with a solution.

Last question that I want to ask you is, what do you think of algorithmic decision making and where we're going in that sense in terms of not only scaling and running an organization, but in terms of machine intelligence, if you will?

A very complex set of thoughts on this.

But I'm sort of in the...

I think broadly I'm probably in the Gary Kasparov kind of camp of thinking.

One thing he points out, which I really, really love, is that obviously famously lost to deep blue in chess, and he did not like that one bit.

Finally, he wrote a book about what I experienced for the likes of 20 years later.

One thing he did point out is that the discussion is framed too much about people against machines.

It's a narrative sleight of hand.

It's not really what we're seeing in the world.

It potentially even comes from this sort of deep blue experience, right?

Because there was the best grandmaster in the world to work champion playing against a computer and the computer came out victorious.

But that's not the way reality works because what he says is if even a reasonably good chess player with an engine, plays against just an engine, it's always the human and the engine who will win.

So we're interested in trying to get the best result.

And so I think humans assisted by technology are probably the thing that we should be going for instead of trying to replace people so much.

And I think we will see that effect significantly more.

And in a way, that's kind of what Shopify kind of is.

We think about Shopify a little bit as it's sort of a fire flower from Mario, right?

You find one and then you can throw fire boards.

You just got a superpower.

You want to be a superpower that people discover and just have skills that they never thought they would have afterwards.

They have a skill to start a business and scale it and become an entrepreneur and change your entire identity.

Your descendants, your grandchildren will refer to you as an entrepreneur because of that at some point you signed up for Shopify and somehow made it work.

But it's not Shopify which did it.

It's you. It's empowering people, giving them opportunities for self -actualization.

And so I think that's just a way to think about it.

Machines are there to help people not replace them.

Like humans should never wait for machines.

More machines wait for people.

And so in this way, I find myself so far outside of the world of technology.

I see so much technology over everything kind of thinking where just people are like, it's all there.

I just don't even think there is such a thing as truly the technology industry.

It's a weird construct.

Technology is a... It's not an industry.

It's not a stimulus strategy.

It's sort of a tactic.

It's a tool that you use to give people more skills.

And that's what I'm looking for.

And if I can automate a task so that people just, it frees up people, so they can spend more time on some things, sure, we'll do it.

No one needs to learn how to look at an order and figure out if it's fraudulent.

We can look at every single data point which we could also present to you, but we can just do it and do it for you.

That improves the quality time you can spend on building the business where we've been looking at it.

But I think we want to assist people instead of replace them.

I think that's a great point to leave this, Toby.

This has been a fascinating conversation, and maybe we'll continue for part two next year.

Awesome. Let's do it.

Take care. Hey guys, this is Shane again.

Just a few more things before we wrap up.

You can find show notes at fernamstreetblog .com slash podcast.

That's f -a -r -n -a -m -s -t -r -e -e -t -b -l -o -g dot com slash podcast.

You can also find information there on how to get a transcript.

And if you'd like to receive a weekly email from me filled with all sorts of brain food, go to fernamstreetblog .com slash newsletter.

This is all the good stuff I found on the web that week that I've read and shared with close friends, books I'm reading, and so much more.

Thank you for listening.

[Toby Lutke: The Art of Building Exceptional Organizations and Systems Thinking]-[#41 Tobi Lütke: The Trust Battery]

📋 Summary

Introduction: The Philosophy of Shopify

Video Games as a Training Ground for Business

Shopify as a Counterforce to Centralization

Culture, Environment, and the "Trust Battery"

Scaling and Anti-Fragility

Decision Making and Systems Thinking

Conclusion

🎯Key Sentences

📝Key Phrases

📖 Transcript