LEAKED MEMO from Shopify CEO

What's up, everyone? This is Alex, the host of Founders Journal. As you may know, I built Morning Brew from my senior year of college until we sold the business in 2020. And now I'm building a variety of businesses in different spaces and different stages. I'm basically averaging 1 to 2 new businesses per year. And because of that, I have had the opportunity to test a ton of different products and services, ultimately landing on a core software stack that serves as my business operating system whenever I start a new company. I have my go-to banking service. I have my go-to formation service. I have my go-to domain hosting service. But probably the most important of them all is my HR service, Gusto. If you're a longtime Founders Journal listener, you know how much I think about people in the context of business. A business is nothing without its people, which means a platform that helps me manage and take care of my people is invaluable. And that means I've tried every HR platform under the sun, always with the same exact goals in mind. First, I want a product that's intuitive and delightful to use. As a non-HR person, I find the intricacies of payroll, benefits, taxes, compliance, and expenses to be painful. So I just want something that makes my life easier. Second, I want it to be affordable. I'm a bootstrapper at heart. I started Morning Brew with $0 and I started StoryArc with $0 as well, which means I don't have infinite dollars to drop on SaaS products. And third, I want a platform that acts as my one-stop shop for all things people. I want it to handle payroll, benefits, hiring, onboarding, and taxes, all while integrating with all of the other tools in my business stack, whether it be QuickBooks, Slack, or Google Workspace. Well, Gusto hit the trifecta, which is why I am a customer and use it for every single one of my businesses. Yes, this is a paid sponsorship by the amazing team at Gusto, but I would sing their praises even if I wasn't being paid to do so. So if you're looking for a platform that takes the pain out of payroll, benefits, and HR, I highly recommend you check out Gusto. And if you sign up at gusto.com/alex, you will get your first 3 months free. Now onto the episode. What's up everyone? This is Alex Lieberman and this is Founders Journal. For those who are longtime Founders Journal listeners, welcome back. For those who are new to the show, here's the deal. Founders Journal is my audio diary made public for the world. My goal is to increase your odds of success as an entrepreneur by sharing the stories, lessons, and tactics that I experience as I build my businesses. You can expect the podcast Monday and Wednesday with episodes that are under 20 minutes in length. And if you want to get notified when a new episode comes out, make sure to subscribe wherever you listen. Today on the pod, I am talking about a leaked internal memo from Tobi Lütke, the CEO of Shopify. I'll break down what the memo said, the most important points Tobi made, and what I think it means for you as an entrepreneur. Lastly, if you haven't yet introduced yourself, please do so. I love getting to know the community, so shoot me an email at alex@storyarb.com. That's alex@storyarb.com. Say hi and I'll get the conversation Now, let's get into it. About 2 weeks ago, Shopify's CEO Tobi Lütke posted on X with a video of someone making music using AI. The text of his post read vibe composing, a nod to vibe coding, which I've talked about on the podcast and you've likely learned about if you've spent time on X in the last 3 months. I replied to Toby's post saying, when vibes selling? And then I broke down this idea of Shopify being so AI-enabled that any entrepreneur could go from ideation to first customer with the click of a button. The steps I shared went as follows. First, share your product ideas or customer problems. Second, Shopify helps guide you to a new business to start. Third, you decide the idea you want to pursue. Fourth, an entire Shopify business is stood up with the click of a button. This includes business formation, Shopify site fulfillment, integration Payments, etc. 5, vibe selling. Tobi responded to my post saying, you basically just called Sidekicks roadmap, and Sidekicks refers to Shopify's AI-powered assistant. So between this and Tobi's frequent AI commentary online over the last year, it has been clear to me how seriously he is taking AI, not just theoretically, but as a tool for accelerating his own business and entrepreneurship in this country. But on Monday, April 7th, he dropped the hammer, sharing his commitment to and seriousness about AI in a way that I believe will reverberate around tech and public company boardrooms for a very long time. Here's what happened. Tobi Lütke posted screenshots of an internal memo he had sent to all Shopify employees after he found out that the memo was in the process of being leaked. The email talked about the impact that AI was having and will continue to have on businesses inclusive of Shopify and what that will mean for his company and all of Shopify's employees should the company want to continue growing. The entire memo is a great read, and I'm going to link to it in the show notes, and you should definitely check it out. And it's something of an instruction manual. I believe that AI is going to be the great equalizer for entrepreneurship, enabling more businesses to be created more cheaply than ever before. But it is also going to be the great de-equalizer, creating a massive barbell between businesses that fully embrace AI and those that do not. Toby's memo acts as a step-by-step guide for how you end up on the right side of history and point your employees in the right direction. So let's go through the memo point by point and break down what it means for you. Toby starts by saying, we are entering a time where more merchants and entrepreneurs could be created than any other in history. We often talk about bringing down the complexity curve to allow more people to choose this as a career. Each step along the entrepreneurial path is rife with decisions requiring skill, judgment, and knowledge. Having AI alongside the journey and increasingly doing not just the consultation but also doing the work for our merchants is a mind-blowing step function change here. End quote. Beyond AI, technology has always been the great equalizer of entrepreneurship and innovation. Each major technological breakthrough has created a step function change for entrepreneurs, increasing the possibilities of what you can create and decreasing the resources needed to create it. What makes this breakthrough different, and Toby alludes to this in his opener, is the type of shift that AI is creating. Computers ran calculations faster than humans ever could, but humans needed to be involved. The internet connected with other humans faster than humans ever could. But again, the internet was an output of human input. Same story for mobile, social media, and other innovations. But for the first time, a technological innovation doesn't just replace human effort, it replaces human cognition. And by replacing human cognition, you have the ability to outsource white-collar work at almost no cost. Because of that, I think a few things will prove to be true. First, the profile of AI-driven businesses will look so much more attractive than non-AI-driven businesses. They'll be way faster moving, way higher margin, have way smaller teams, and their people will be empowered by AI versus fearful of it. Second, I also think the skills that make human white-collar workers valuable will narrow to a few key traits that are uniquely human. The first is trust building through demonstrated empathy and service. The second is taste by having a deep intuition of what makes people feel something. The third is attention by knowing what creative and stories will stop people from scrolling. And the fourth is coordination, acting as the conductor of a symphony with musicians that are a combination of high-skill humans and specialized AI agents. Moving down the memo, the entire next section breaks down this idea of reflexive AI, which refers to Tobi's expectation that all Shopify employees, inclusive of himself, should default to AI as a thought and work partner for all that they do. He says that AI turns 10x employees into 100xers, and the only way to use AI reflexively is to develop the skill of working with AI by using it a lot, like working a muscle at the gym. He then adds in the now famous Shopify adage that in a company growing 20 to 40% year over year, you must improve by at least that every year just to requalify. This goes for me as well as everyone else, end quote. Outside of the memo, I just love this idea of having to requalify for a job. It may be scary to some, but for the type of company that wants to grow 20 to 40% per year, it needs to attract people that are excited by growing that fast. And this requalification mindset is a perfect perfect filtering mechanism to weed out candidates who just don't subscribe to that philosophy. And his point of including it within this specific memo is that now, if you want to requalify for your job at Shopify each year, he does not see another option but to adopt and embrace AI fully, because if you don't, someone else will. And if Shopify doesn't, a competitor will. Tobi then breaks down what reflexive AI at Shopify means with 6 specific action items for the company. First, using AI effectively is now a fundamental expectation of everyone at Shopify. He reiterates this point that he doesn't think it is possible to opt out of using AI and continue to grow at the speed that is expected of you at Shopify. I also like that he makes this the first point in this list because it is the core thesis of this entire memo, and every other point after this is a far more specific call to put this expectation into action in your work. Second, AI must be part of your GSD prototype phase. Prototyping is one of the areas that AI has made 10x more efficient and accessible already. 100 hours of market or user research before making a business case for an idea is now a single search and a 5-minute wait on ChatGPT's deep research function. A product idea that you would've had to hire a designer to create a wireframe of or an Upwork developer to create an MVP of can literally now be built in seconds by a non-technical entrepreneur thanks to tools like Replit, Lovable, and Bolt. A painted door test that you want to run to see if a dummy landing page can convert paid traffic from Facebook can all of a sudden be spun up in minutes. AI website builder helps you with the landing page, ChatGPT helps with the ad creative, and that's it. Third, we will add AI usage questions to our performance and peer review questionnaire. This is probably my favorite of Toby's entire to-do list in the memo. Calling your company AI-first can feel as empty as a company's core values if not tied to behavior. The fact that employees are going to be evaluated based on their AI usage is an amazing idea, and it is one of the only ways you can truly create positive pressure for your team to take the technology seriously. It also would be awesome if he ends up sharing the questions they include in their performance and review questionnaire so other entrepreneurs can follow his lead at their company. Fourth, learning is self-directed, but share what you learned. Toby goes on to say that time will be set aside in monthly business reviews and product development cycles to talk about AI, and then dedicated AI Slack channels are expected to be used for people to share wins, losses, prompts, and best practices that they're experiencing with new AI tooling. Just a quick sidebar here. Given how important prompting is and will continue to be in leveraging AI, I anticipate that someone is going to build an amazing business creating a data database for AI prompts where people can search prompts for specific use cases, upvote or downvote prompts, fork prompts into new versions, and also post prompt bounties where whoever creates the best prompt for you earns a specific reward. Fifth, before asking for more headcount and resources, teams must demonstrate why they cannot get what they want done using AI. This is probably the biggest statement of the entire memo. For a while, CEOs and founders have been trying to figure out how to tell their companies that hiring will be slower and teams will be necessarily smaller without spooking their current employees. I believe Toby found the most eloquent way of saying it that I've seen. He says, what would this area look like if autonomous AI agents were already part of the team? This question can lead to really fun discussions and projects, end quote. What I love about this policy is it kills two birds with one stone. It implicitly asks employees to operate with a bootstrapper's mentality while working in a $102 billion company rather than throw money or people, which costs money, at a problem or a goal, what would it look like if you can only use AI? This question would have come off as unreasonable for Toby to ask pre-AI, but with AI, the expectation of your team to get more work done with no more or even fewer people is all of a sudden totally realistic. It also is another way that employees can be positively pressured to build with AI, since every employee is going to want to be more productive or exceed their goals that they're evaluated against within their business. But because of this policy, they won't be able to just resource more people in order to hit those goals. And finally, number 6, everyone means everyone. Toby just reiterates that reflexive AI and all of the policies that he outlined are the expectation of every person in the company from the very bottom to the very top. One last thought before we hop. I hope that you don't just read this memo, but internalize it and even better apply it and the specific policies within your business or your own work. Because actually using this memo as an instruction manual is a clear solution to the massive talk-to-walk gap in AI right now. There is endless yapping on the internet about AI because it deservedly is a generation-defining technology. Add on the social currency and dopamine-induced engagement that AI talk attracts. There's no wonder our feeds are filled with it. But when I go and ask 10 of my smartest startup friends how AI is being used in their businesses, their responses are flat. They say our sellers prep for meetings with ChatGPT. I edit my emails with Claude. Granola is my go-to tool for meeting notes. Most companies are dipping their pinky toes in right now. And when you ask yourself why so little, the answer is because that's what's comfortable. Add an efficiency here. Tell a friend you're AI fluent there. Post on social about how AI is a game changer, all without having to put in the work to rescaffold your entire business and reprogram your company's culture. Fully embracing AI is going to require discomfort. It's going to require lots of trial and error and pushing through understandable fears of what AI means for you. Now, this runs counter to how we are programmed as humans, but I believe it is a requirement if you don't want to end up on the wrong side of history. So if you want to walk and not just talk about AI, start with Toby's memo and treat it like an operating manual for your own business and your own work. That is it for today's Founder's Journal. Shoot me an email to alex@storyarb.com saying hi, hola, what's up, or whatever else takes you less than 10 seconds, and I'll get the conversation going. Thanks again for listening, and I'll catch you next episode.