The time Shopify nearly went bankrupt
Since its birth in 2006, Shopify Inc. has grown rapidly by making it easy and inexpensive to set up an online business, then branching from that core competency into mobile, point-of-sale and other e-commerce channels. By 2020, the Ottawa software company was the highest valued company on the Toronto Stock Exchange.
But in 2009, there was a stumble and Shopify nearly went bankrupt. At one point, CEO Tobias Lütke didn’t have the funds to pay his employees. Fortunately, his parents-in-law were kind people. They were already letting Lütke his wife live with them, and now they dipped into their savings to meet the company’s payroll.
The role played by Four Hour Work Week author Tim Ferriss
Like a river that begins as a collection of remote tributaries, the origin of Shopify’s turnaround had several sources. One was a technology conference in 2009, at which Lütke was an invited speaker. This was where he met and befriended another one of the invited speakers, Tim Ferriss, author of the mega-best seller Four Hour Work Week and founder of a lifestyle design consultancy.
Shopify was an enabler of entrepreneurship, teleworking, outsourcing and several other lifestyle choices that Ferriss was advocating. Like two comrades-in-arms, Lütke and Ferriss had some great discussions at the conference about how Shopify could pull out of its slump. They continued their talks over the phone after they returned to their hometowns.
Both agreed that Shopify was doing a great job on the supply side, offering a service that delivered a great deal of value. So, it was now time to work on the demand side to make people more aware of the possibilities, and to give them a nudge to overcome the fear of leaping into the unknowns of running a business. It was time do some promotion and offer incentives. And what better way to do it than by running a contest to build a business on Shopify?.
Both remember where they were when a key breakthrough came in their long-distance discussions. Lütke was at the cottage, lounging in a boat on a lake near Ottawa, and Ferriss was pacing on a San Francisco a street with a cell phone glued to his ear, about ready to go into a Thai restaurant.
“What if we give away a MacBook Pro notebook as a prize in the contest ?” asked Lütke.
“That’s way too nerdy,” replied Ferriss. “Not everyone is into notebooks like you, Tobi: If anyone is going to notice, you got to go big.”
Lütke accepted the recommendation, and “took out the last $100,000 in the bank” to put it up as the top prize in the Build a Business competition. The winner would be chosen from the businesses on Shopify with the highest revenues in any two months during the first half of 2010.
This would be one of the biggest prizes ever offered in a business competition. Although Lütke had gone ahead with the idea, he was still uneasy, and was mentally preparing to deal with bankruptcy. Ferriss, on the other hand, was confident. Encouraged, Lütke plowed on with the preparations.
The task proved to be quite complicated and took months of legal and administrative work to complete. One of the main problems was the different legal frameworks for contests in the various provinces and countries. Lawyers from all over kept asking if the contest was a game of chance or skill – because the applicable laws and regulations hinged on this important distinction.
99% of Shopify’s success is due to chance?
Lütke was actually rather uncertain how to answer the question of whether or not the Build a Business contest was a game of chance or skill. “The intellectually honest answer is that it’s chance,” he declared years after, in a 2019 interview. “You just can’t predict all the things that will transpire. Sure, Shopify has been enormously successful but 99% of it was chance.”
This is a rather remarkable admission on the part of the CEO of one of Canada’s greatest business successes. It accords with the notion that a business is a delicate balance between the levers in the captain’s hands and vast currents beyond. One day the water has barely a ripple; the levers work perfectly and guide the vessel to its destination. On another day, howling gales whip up the waves and the captain’s hand chafes on the wheel as his ship is tossed about like a straw.
But chance and luck for a business is not the randomness of throwing the dice. As the legendary scientist Louis Pasteur once said, “… chance favors only the prepared mind.” In other words, people who prepare and apply themselves, like Lütke did, more often get lucky than those who don’t.
And so, due to all the legal complications, Shopify ended up running the contest only in the United States. At the end of 2009, Ferriss published a post on his widely followed blog about the Build a Business contest. The contest got an even bigger lift when the New York Times did an article on the contest in February of 2010. By the time the contest ended on June 30, the number of new businesses on Shopify had increased substantially. It was a huge success and instrumental in starting Shopify’s recovery.
Source:
Tobi Lütke — From Snowboard Shop to Billion Dollar Company (https://bit.ly/3nkRKw5)