Shopify makes ecommerce easy. Here’s how the Canadian company became a top performer
Online purchases are a huge business, but they can’t happen without the underlying software needed to host the virtual store. Today, many online retailers are relying on ecommerce platforms that come directly through a homegrown Canadian company.
Founded in 2004 and launched to users in 2006, Ottawa-based Shopify provides virtually everything needed to conduct sales online. In addition to website templates and apps, Shopify offers cloud-based invoices and pay stubs, QR and bar codes, shipping labels, and even point-of-sale hardware such as card readers and receipt printers for brick-and-mortar businesses.
The company was founded by Tobias Lütke, a computer programmer who moved to Canada from his native Germany in 2004. Back home, after working for a large company, he tried to start a business creating software for call centres. It was unsuccessful, but it pointed him forward: he knew he couldn’t be happy working for someone else.
In Canada, Lütke and his friends decided to open an online store to sell snowboarding gear. He thought configuring the site would be the easiest part, but it turned out to be the toughest, since no existing software met his standards. He developed his own, and the online store launched using Lütke’s system.
Once winter was over and snowboard demand petered out, the partners felt there was more opportunity to make money off the software platform.
And that’s how Shopify was born. Its structure is a concept called Software as a Service (SaaS) which describes a business that centrally hosts its software and licenses it by subscription.
Shopify lets individuals or companies easily and quickly set up for online commerce, with most running their stores through Shopify’s site. Taking advantage of a free trial and templates, someone starting from scratch can set up a basic hosted online store in only a few minutes.
Shopify makes its money through monthly subscription charges, along with fees on consumer payments made through Shopify’s payment gateway, or through third party payment systems should businesses prefer to use their own.
It wasn’t easy at first, and Lütke often found himself with only a few weeks’ worth of funding to keep Shopify going. It survived thanks to some angel investors and Lütke’s determination to see it through. One of his initial mistakes, he later admitted, was charging clients a percentage of their sales.
Switching to a system of monthly subscriptions provided a more reliable source of revenue, and Shopify started to turn a profit within three years of its founding.
Today, the company also makes money from add-on apps, including those for fraud prevention, inventory management and email marketing, and offers a premium service for high-volume merchants, Shopify Plus, that’s capable of handling 500,000 hits per minute.
It’s now a top performer, with over 243,000 active Shopify stores across 150 countries that generate a combined $14-billion in sales. It has more than 900 employees across four offices in Ontario and Quebec. Its clients include Red Bull and Budweiser, and it has partnered with several large Internet companies including Facebook, Twitter, Uber, and Amazon, which ditched its own third party merchants’ website in favour of Shopify’s.
Online sellers can use Shopify’s platform to sell products to consumers directly through Pinterest and other social media, or their own websites or mobile apps.
In the fourth quarter of 2015, Shopify reported revenue of $70.2-million, an increase of 99 per cent over the same period in 2014. For full-year 2016, it expects to have revenues of $320 to $330-million.
Shopify isn’t unique. The market is jammed with similar online-store software companies, including major players such as Volusion, Big Cartel, and Bigcommerce.
Still, most critics put Shopify at the top of the list, citing the company’s ease of use, especially for novices; its ability to accommodate large or quickly-growing companies; its 24/7 phone and chat support; and the large number of available templates, apps and add-ons. Lütke believes
in leveraging the talents of others, and many of the apps offered are created by outside developers, who then sell them directly to Shopify’s clients through Shopify’s app store.
Having been a struggling entrepreneur himself, Lütke designs his company’s features specifically to help others who are trying to get their businesses off the ground, and who seldom have the time or expertise to set up their own sites.
Shopify doesn’t require users to know any computer code, as some of its competitors do. Lütke has added more back-office capabilities to make it easier for merchants to ship their goods, keep track of inventory and pay their employees, which in turn means more revenue for Shopify.
The company went public on May 21, 2015, raising more than $131-million. Lütke ensured that its voting stock stayed in-house to prevent the possibility of any unwanted takeovers.
He initially worried that the IPO would negatively change the company, but it hasn’t. He credits much of that to his employees who are hired for their ability to solve issues and take risks: the company famously says that the key is in how people act when they don’t know the answer.
Lütke also believes that much of Shopify’s success is due to the fact that it grew slowly, operated frugally, and never forgot its lean early years, which helped it avoid the overvaluation that seriously hurt many Silicon Valley start-ups.
The majority of its customers are based in the U.S., but Shopify steadfastly remains Canadian. And while it’s a flourishing company worth $2.5-billion, it’s virtually unknown to the vast majority of consumers, who aren’t aware that they’re buying their products through Shopify’s software.
That’s fine with Tobias Lütke, though. For him, it’s all about making it easy for others to look good and be successful.
