Tobi Lütke on Building Shopify and Company Design

TL;DR

Companies are best understood as social technology: calling your project a company is the socially accepted permission slip to go all in on an idea, recruit thousands of people, and test your counterfactual against a market that funds you if it agrees. Shopify's founder argues no one knows how to build companies well yet, including him, and that rivalry beats copying competitors.

Transcript

One of the things I admire most about you is like you've been running your company for 21 years, something like that. I love people that do things for a long time. People that chase excellence that try to be great. My entire life is founders, right? So during the day, I read biographies of history founders. I've read like 410 of them. And then at n... Read More

Key Insights

• Companies are social technology because they make total dedication socially acceptable. Outside of school and university, being obsessively into one thing without a job is not accepted, but once you call the same activity a company, exploring your ideas becomes legitimate.
• A company lets you run the counterfactual to the world you see around you. You build the thing you think ought to exist, means test it against the market, and if the market agrees it moves energy back to you in the form of money so you can do more of it.
• The market can pull a better business out of your original project. Shopify's founder started a company he did not think had a very big market, and the market essentially pulled Shopify out of the project he began with, which he calls an incredible intelligence to tap into.
• The modern company is not old. Roughly 500 years of the concept came from entities that were closer to quasi governments, like the East India Company, so from first principles the whole arrangement would sound insane if someone proposed it today.
• Being impressed by your own old code is a bad sign, not a good one. Looking back at old work and finding it terrible proves you gained skills since; finding it good implies you stopped progressing, which the founder calls one of the saddest days of his life.
• Trying to become a very serious public company CEO after the IPO almost killed the company. The pattern was delegating everything, splitting into business lines, and arranging structure, and COVID is credited with saving the company at that point.
• Having no competition is not a good thing for a business. Without rivalry there is no one to keep you honest, so even when something seems really good you have no way to know, which is one reason things were going poorly.
• Rivalry differs from competition as a mindset. Competing produces copying, a Xerox strategy and Slack channels devoted to competitive analysis, which makes companies reactionary; rivalry is positive sum and creates you, the way Sampras created Agassi.

Questions & Answers

Q: What does it mean to say companies are technologies themselves?

It means a company is a social technology, a path dependent solution to social and somewhat legal problems rather than a natural object. It grants social permission to spend 14 hours a day singularly pursuing one thing, which is otherwise only accepted during school and university. It lets thousands of people join your project through a mechanism everyone accepts, called a job, and because the market returns money when it agrees with you, the whole thing is self financing.

Q: Why does the Shopify founder say all companies are terrible, including his own?

Because company building is like every other skill: your current best work looks bad in hindsight once you improve. He expects that in the next 20 years we will look back at how we build companies now and feel embarrassed, and he says that should be seen as the most joyous of moments. The comparison he uses is listening to your first podcast episode, or a programmer reopening old code and finding it too abstract and complex.

Q: Why is being impressed by your own old work a bad sign?

Because the gap between what you made then and what you would make today is the visible measure of your progress. As a programmer he normally reopened old code, judged it terrible and overly complex, and knew he had gained the skills to do better. The one time he opened old code and was impressed, he calls it one of the saddest days of his life, since it implied he had not been progressing, which figured because he had been building a company instead of programming all day.

Q: What is the difference between a competitor and a rival?

It is the same situation seen through a different mindset. Competing pushes you toward needing a version of whatever the other company has, a Xerox strategy, and toward companies whose most active Slack channel is competitive analysis where people post everything everyone else is doing. That makes a company reactionary. Treating other companies in your space as rivals makes a positive sum outcome much easier, because rivalries inspire you to be your best.

Q: Why is mimicry a poor path to excellence?

The analogy given is early fine arts training, where students copy great works. Copying a van Gogh does not make your next painting van Gogh quality. Companies fall into exactly this trap when they organize around competitive analysis and build their own version of whatever a competitor ships. The alternative offered is rivalry, which pushes you to be great on your own terms rather than to reproduce someone else's output.

Q: How do rivalries create people, according to this conversation?

The example is tennis: Agassi could not have been Agassi without Sampras being there, and Agassi states this clearly in his book. The added detail is that the Sampras who existed during the Agassi era, the one Agassi understood, was not a real person; reading Sampras's biography shows he simply liked tennis, while Agassi hated it. Michael Jordan makes a similar admission in The Last Dance, saying he may have made up a slight at some point, which the founder calls one of the most profound moments.

Q: Why does he say business books should be read skeptically?

When he moved from programmer to business, he read a lot of business books and quickly became dismayed at their quality, concluding they are largely written by people who have the time rather than by people who actually build companies. He also reads between the lines for the author's function: a salesperson presents every problem as solvable with sales, a marketer as solvable with marketing. He treated that as a trap to avoid, refusing to be the engineering type founder who sees everything as an engineering problem, which he calls blindness that would cap his capabilities.

Q: What is the reading habit he recommends?

Just make a habit of reading books, and the specific titles matter less than the habit. His rule of thumb is to change category at least once every three books or so, because that range alone gives you something to draw on for basically everything you will ever do. He frames books as the closest thing to cheat codes for real life, since you can access the entire learnings of someone else's career in a few hours: if you do not read books you live one lifetime, if you do, you live a thousand.

Summary & Key Takeaways

• A company is a path dependent solution to social and legal problems that lets you pursue one thing for 14 hours a day without it looking like idle tinkering. It also lets thousands of people join your project through the mechanism everyone accepts, a job, and it is self financing when the market moves money back to you.

• The founder says all companies, including his own $200 billion plus company, are terrible, and that in 20 years we will look back embarrassed at how we build them today. He frames that embarrassment as joyful, because the gap between old work and current work is the only visible proof of progress.

• Reading books is described as the closest thing to a cheat code for real life, giving access to someone's entire career learnings in a few hours. He warns that business books are largely written by people who did not build companies, and that each author reduces every problem to their own function, sales or marketing.