Tobi Lütke & Kaz Nejatian on Shopify's Country-Sized Economy | Network State Podcast with Balaji #2

This is the Network State podcast, and I'm here today with Toby Lutke and Kaz Nanjadian, the CEO and COO of Shopify, one of Canada's largest companies. Shopify's internal economy is actually on the scale of a small country, on par with Greece or New Zealand, depending on how you calculate. They have solved many different kinds of management and technical issues in order to build a company that has such scale. And we also get into what kind of small country they would build if they had the opportunity. Along the way, you'll learn a bunch of things, including how Shopify is building something that's like a new kind of hanseatic league, as well as what the hanseatic league actually was. If that kind of thing interests you. Let's get started. Thanks. Thanks for coming on. This is the second episode of the Network State podcast. This new podcast on everything from, you know, obviously starting new countries, but all the people like yourselves who have built startups that are on the scale of small countries and pro tech policymakers and everything that's related to kind of building the future. And my first guest was Vitalik, a fellow Canadian founder. And you guys are my. My second. So you're basically the kind of people who've literally built giant economies. Okay. And, you know, the goal here is something where, you know, there's, there's some good tech podcasts, but actually those tech podcasts are often, you know, they're, they're focused on the business of tech and so on, and that's fine and that's good. You know, prices are important or what have you, but price has always been secondary to why I've been in the space. And it's been secondary, I think, to, you know, you guys, like, you know, we're doing it for, for building something of meaning. And so that's kind of what I wanted to talk about today. So that is sort of preamble, of course. I can ask you guys about your background and all the type of stuff. We can kind of like hook it to that vector of, you know, we've built giant, you know, companies and giant communities. And what's next? Is the end of the Internet just coins or do we have one more level? Could we get to cities or even new countries and so on? Right. And for, you know, everybody, you know has probably heard of Shopify at this point. Toby, you're the CEO. Kaz, you're the relatively new coo, right? You've been with the company for a while, but you just recently became coo. Am I Remembering that, right?

Yeah, I'm, I think five months into the job.

Well, but you've been with Shopify for a while.

Yeah, about four years.

One thing I just kind of wanted to do for folks, people have heard of Shopify now. It was Canada's largest company. It is still one of Canada's largest companies. You've built an economy that's on the scale of a small country. And what I want to talk about today is what it means to manage something like that. And could we go one step further to actually maybe even starting a small country or a small city? And what would the next step be and what have you learned from what you've built? And so just like, you know, the scale of the Shopify economy, there's millions of merchants, billions of dollars built from scratch. There's stats in your SEC filings or stats on your website. Millions of merchants. You have, your merchants have millions of employees. Do you want to do some stats that you want to rattle off?

Yeah, I mean, I mean it's funny to think about Shopify as like, as a small economy. It's, this is definitely sort of a mindset we should take and like we should, we should explore that angle. Obviously. Like it's, it's funny to this because at some point I, you know, this is now like 19 years ago I wrote the first line of code on a Ruby project and then along the way it like collected, you know, people who joined the team and then eventually it got a ticker symbol and now it has obviously like various institutions. Along, along the way the millions of merchants are partaking in the global network of commerce and global economics themselves. There's also internal economics around. There's a theme store, there's an app store inside of Shopify. There's a developer community building against that. And increasingly I think it's a really, really good way to look at everything because it's a large exercise in creating incentives for people to harness people's enlightened self interest for the betterment of the entire community. And so there's definitely echoes of economics in the company. But yeah, hundreds of millions of people buy from Shop first stores every year. We estimating around 5 million people are employed by the app developers, by the stores themselves. Also good jobs. One thing that almost everyone forgets in the context of economics and is that the vast majority of people in the world work for small and medium businesses. It depends on the country, but it's always above 50%. It's usually as high as 80, 90%. And that entirely depends on the liquidity by which new businesses are created. Because small businesses tend to go out of business for. Often for no fault of their own. Like, like, like circumstances with the people who run the businesses. The family changes. There might be, you know, a tragic death which prevents any kind of continuity of a business that was created because it's so much, so much. These small business are built around their founders. In most ways it's a leaky bucket. And I think the vibrancy of almost every economy depends on how quickly this leaky bucket is being refilled. And standard of living tends to go up if a bucket is filled faster than it leaks out. This is what we care a great deal about. We think that the world, especially the world of entrepreneurship is this.

Sort of.

Meta emergent phenomenon that just exists partly because some people just cannot work for other people. There's probably some kind of gene that prevents people, that gives people the authority problems that, that necessitate them reaching for independence themselves. This has been true for all of human history. Sometimes it becomes a little. It becomes illegal in places and both places don't last. So it's this like the fate of entrepreneurs is a bit of a Where's Waldo story throughout human history. It tends to be not recognized or not talked about a lot. But like it's. It always plays a very important role. And so, you know, I think what Shopify is trying to do, like in a sort of somewhat hypero way is the belief that the entrepreneurship in economies actually relates a lot more to the friction of starting businesses than the policies. Because there's the demand for doing it and wanting to do it is constant, the opportunity is variable. But we are living in a time of enormous opportunity around the Internet. And the thing that's governing supply and demand there, the thing that's preventing business from succeeding is often just this Byzantine, almost Kafkaesque complexity of starting these businesses or the set of requirements that the medium dictates. For instance, I started my snowboard store which worked well for me because I could program and 20 years ago and understood the Internet and so on. And therefore I could overcome the hurdles in a way. But I don't think we want an Internet. The only people who can start new businesses in retail space. Other people also happen to be programmers. And so Shopify is trying to lessen the learning curve. It just cause more entrepreneurship through this.

There's an interesting parallel to countries Balaji, which is like Toby and I are both immigrants. And the way I think of Shopify entrepreneurs is that they're Immigrants from big companies. There are people who left big companies saying, I can't work here. Let me start something on my own. Which is an interesting story of that's what my family did. Can't stay here anymore. Got to go somewhere else. And if you add the collective revenue of Shopify merchants, that's $444 billion last year. That's the second largest company in the world. Their collective revenue, the interesting thing about it becomes that our job is to make that immigration pattern easier. If you think of people who left Mayflower, that was a really long journey. Some came, but not a lot. And a pattern of immigration got faster and faster so people could emigrate out of things they didn't like, into things they did like because just travel got easier. And our job at Shopify is to make that journey from a job you don't like to a job you love, maybe difficult, but you love it easier.

Well, it's really interesting because something I've thought about and you are maybe the experts in this, a question I've always wanted to ask is, you know, there's this concept of a so called lifestyle business, right, where you know, it's not really swinging for the fences, you're just kind of having fun running your coffee shop. But anybody who's actually run a small business finds it's not a lifestyle business, it's your whole life, you know, Right. It's, it's as hard as running like a big company, but it's harder because you often can't get venture capital. You don't have the support of some, you know, franchise like all the Starbucks franchisees. They don't have to deal with branding, they don't deal with marketing. Their products are set for them. They have to negotiate with vendors. Basically they have some buffer because you've got this giant chain that is backing them. Right. What I saw, especially during COVID with lockdowns and so on, is many of these small businesses just went under, for example, and in San Francisco, even, even in normal times, like there was some ice cream shop that spent like $200,000 trying to just get through the regulations and then just stopped. Now not that many people have 200k in disposable capital. And to put that into just regulation and so on before you've sold your first ice cream cone is actually kind of bananas. I've thought about that. Because on the one hand, as you say, you know, Toby and Kaz, is that, you know, people are want to do this and we depend upon new businesses and small businesses not just everything being scaled. On the other hand, it's really hard to do that, and that pushes people. I see this in medicine also, you know, the independent practitioner, there's so much regulatory complexity that they're pushed into being an employee of a large hospital chain.

Right.

Or maybe they go and work in pharma or something like that. So between that thesis of like, I want to start a small business or run a small business and the antithesis of all this regulation is becoming such a, you know, frictional cost. As you said. Maybe Shopify is the synthesis where you are like a, like a centralized hub of this hub and spoke network and you provide, you know, currently, obviously, inventory and logistics and pricing. More recently you've done banking and taxes. Maybe eventually you do compliance as a service and you file all these forms for people in different jurisdictions and keep them compliant so they can just focus on customer service. And so now they're not wholly, you know, just on their own, but they're also not like, fully dependent. You know, if they, if they really want you, they could unbuckle from you guys and go somewhere else. You wouldn't want that, but, you know, they could. And the other thing is that like the, the Shopify community, just like founders tend to, you know, tech companies tend to have similar things and stick together. It seems like a lot of your merchants would have a lot in comm. Common and like, organizing them would be really pretty interesting. So like, citizens of Shopify or what have you. Let me pause there. Get your thoughts on that.

I think that you touch on like, many things there, but maybe one thing to like, just like, underline partly because it's sort of one of my pet topics. Is it just the concept of lifestyle business? Like the term lifestyle business is like a construct of Silicon Valley, right? Yeah, it's actually like, pretty mean because it really is like, I don't know how we renamed businesses to lifestyle businesses just so we could call ventures businesses. And how this succeeded, it didn't come.

Out of like, rails or whatever. They were like, oh, your business doesn't have to like. I thought, wasn't it something out of Basecamp? Didn't they come up with the term? I don't think it actually originated from Silicon Valley. Am I wrong about that?

Interesting.

My friends at Sickness might have done it to us. Okay, so maybe without laying the blame at anyone's doorstep, it is a pretty funny thing because, like, you know, like, businesses were around for a long time and we didn't call them lifestyle businesses. If anything, like, if you're looking at sort of a techie path of businesses, which is like you start a business by an application to Y Combinator, you get all this teaching and then afterwards people give you money. That sounds a lot more like silver spoon businesses to me than like what, what entrepreneurs and SMBs do, because that's a lot more hardcore. So I mean, this is the greatest thing about like, I think the greatest privilege we have with Shopify specifically is that we, you know, like I talk to hundreds of our customers through instant message and so on, and our customers are entrepreneurs, right? Like everyone who knows founders of companies who build things knows how, like.

Both.

Are very exciting people. They are heterodox thinkers who just don't take no for an answer and make things happen. And it's really, really great. I think everyone ends up becoming sort of the average of the five people they spend the most time with. And if you can log that number up with as many entrepreneurs and founders as you can, then that goes really, really well for you. And I think it inspires everyone. And so it's interesting because when Shopify started, it was extreme, actually. First version after launch had in the admin interface because back then, this is 2006, right? This is like the stone ages of the Internet or at least the software as a service world. No one knew what you put into an admin interface and what you don't. So we actually had forms built into the admin as well. Was one of the main tabs in Shopify and no one used it. And in fact, everyone was like, why is this there? Clearly I don't want to talk with my competitors. So, you know, sort of at the beginning there was a very clear. Everyone was thinking about the world of retail as a zero sum game and as a rival verse we are all competing for the same dollars. I think one thing that has happened is, I mean, the physical world is permeated with zero sum thinking because it sort of makes sense. And in a lot of ways only one business can be in this particular place, in this particular street, right? There is a lot more rivalry for finite resources. I think the online world has attracted the positive sum thinkers. People built Internet businesses in that realm. And you know, like, you know, the sneaker market just wasn't what it was like 20 years ago. It just was, you know, yes, people bought sneakers when they had to like go play squash and you know, some people use them as a fashion statement. But that market grew so tremendously just because people, like created a community of people really cared the craftsmanship changed, their aesthetics changed. And this is now a very, very large market where it wasn't before. And I think the sort of sense of, hey, there is so much more blue ocean opportunity in the world because there's so many more people who would be really into things. If a supply would be there and if a narrative and the story is there, then it's migrated there and now people are perfectly happy to share. It's actually across Reddit, across Twitter communities, across Twitter, across Facebook groups, people are really sharing, People are actually comparing nodes and people are super happy to help each other in any which way they can.

In the SMB community or in the tech founder community.

In the SMB community. Sorry, I should say this.

So you're saying is there some cross pollination from sort of the non zero sum mentality of tech? Well, ideally non zero sum mentality of tech into let's call it rather than lifestyle, maybe SMB. Would you, would you think it's a more neutral term? Yeah. Okay.

I was a tech founder, I was a YC founder. I was the type of founder Toby was talking about a second ago. And my mom's a Shopify merchant. Oh. So one of the things that happens, I don't think this ever happened transparently when I was in YC is Shopify merchants built applications for each other. Imagine if a startup found a growth hack and just gave it away. That would never happen because a growth hack is your growth hack. Whereas Shopify merchants will build, you have a storage run, you build an application to help you with some part of your store and you will literally give it away to other merchants. Because I think they've, our best merchants have intuitively realized that the goal is to maximize the size of the D2C space. Maximize the size of like direct connections to customers, which by the way, they all like. This is why they all love Shop Pay, that magical button on the Internet that makes shopping easy. It's because they can all be on the same side of the table against like regulations that ban them from having one click checkout otherwise. Right.

Well, so I. There's two really interesting things about that. First, so can you explain the regulatory barrier to one click? I actually didn't know about that.

Well, it was patent batting one click checkout for a very long time.

Right, right. So that part I knew. So you mean patent barrier, but not basically, let's say artificial barriers?

No, there's also regulations that have the card networks have regulations that require you to get audited every X month for your vault. There's banking Regulations, like there's private and public regulations that make the world of entrepreneurship difficult.

Germany actually has laws for checkout, like actual regulatory. Every button has to say these words in the process. This is how you have to represent. Luckily they're reasonably well chosen and conformed within sort of a zip code of best practices.

The thing about that is it often codifies a model that becomes obsolete. Like for example, with the crypto payment, you don't need to take their address and so on. And probably it over specifies it to a point that a crypto payment would, would maybe not fit into those rags. I'd have to read them. That's interesting. Yeah, I did know about the patents and the overhead of audits. And again, this is a thing where, you know, shop pay, you're amortizing all of that across the Shopify network so it's affordable. It's basically like effectively part of the surcharge of kind of like using the platform that pays for all that collective stuff but still gives them independence.

The like. If you think of like Shopify, we, our merchants, I think for every $38 our merchants make, we make one. And that's like literally the goal is to accrue as much, accrue far more benefit to the community than we take. If you think of like, if you think of the community as being like one thing, as being a thing that exists independently of like the corporate structure, what you try to do is maximize the benefit to the community. That's kind of how we think about it.

Well, I mean, it is. I mean, if they're making X without Shopify, let's say they're making $20 and probably that's. Maybe they may not even exist without Shopify, but they're making $20 before and now they're making $39. They're happy to give you one. And so that, I mean that's obviously like a good deal given everything that you guys give to them. You know, one I thought I had, you know what that sounded like, by the way, is like open source for merchants. You, you guys have built like an open source app store for merchants and they kind of trade away the things and it's sort of like it's like branding and it's kind of being known within the merchant community. Is that, is that how I should think about it? Like what is the, is, is, is that part of it as well as the DTC thing? Or am I, am I off base on that?

Yeah, no, I think, I mean it's a spirit of sharing.

Yeah, I Didn't mean. I didn't mean to sound cynical. It was in the spirit of sharing. I mean it's kind of like you know, you do. You sort of have. You're giving back to the community. You are showing how capable your firm is in a sense. It's kind of like for all the reasons people publish open source, also for just the love of doing it and whatnot. So that seemed to be an analogy. You're right that maybe startup might not give away their growth hack, but startups do Open Source and SMBs share Shopify applications. Would that be fair?

Yeah.

Okay. So. Well there was. There's one thing by the way, on the lifestyle thing, I agree with you by the way, the lifestyle term is patronizing. You know here is kind of a cut that I've seen before on like startup versus SMB. Well, so SMB is a proven business model. It's you know, you're eating breakfast and it's often debt financing and the goal is not hyper growth and it often does not involve new tech. Whereas the startup is an unproven business model. It's like tweet your breakfast, right? Haha. You know, rather than eat your breakfast. And it's more equity financing, it's high growth and it's new tech. Go ahead.

I think it's actually a very weird state is that in startups it's actually bad assumptions of the financial system that favors risky over the many. If you actually go to a bank and you're like a startup that has massive risk and have some equity checks from some VCs it's actually relatively easy to get debt financing from. I mean walk into a bunch of banks, they'll give you venture debt. Whereas if you were my mom were Shopify merchants. The inability to understand production capital is actually tilts. It's one of the other things that makes starting a business difficult. Right. Like my mom can't get a bank loan to start a small business. She just can't. And if she did, she couldn't even grow it because banks don't understand how those businesses grow. The economics of it are weird. Whereas the established patterns for equity are there. The established patterns for non equity financing and these businesses have become very difficult. Which by the way why Shopify Capital exists. Shopify Capital exists because we wanted to fund merchants, not because in fact this was Toby's. When Toby and I first met, this was his first interview question for me. He asked Kaz, I've read the bank, I've read the bank act, I've read bank charters. Why don't banks lend money to small businesses? Do you remember this conversation, Toby?

Yep.

Yeah. And, and I.

What was your answer?

I said you have to start in the 1600s because there's a long history of this going wrong for, for small businesses, like starting from, you know, the idea of incorporation.

Kaz's actual answer was, so you have to go back in the 1600s. And I wrote a book on this very topic which was by way the shortest job interview I've ever had because we were done. Anyone who reaches back and also is an expert on esoteric topics that are highly relevant to the job is part of a team.

Well, that's awesome. What's the precise of the book?

It's honestly, it actually becomes like how incorporations started. This will be very boring for everyone. But the idea of a corporation starting with a British East India Company, it was a very weird thing. You buy shares in this thing and those shares would give you the ability to have an annuity. Right. Those annuities could then be bundled up and sold as equity. And they were much more easily modelable for people than annuities coming out of a small flower shop, for example. So banks started building risk models around that rather than this. So if you're a small business, the type of loan you usually get requires a personal guarantee. They're not actually lending you money to a business, they're lending money to biology and saying, hey you, you have a house, I'll give you money for a business. Which is a terrible deal for small businesses.

Right.

So the underwriting engine to underwrite small businesses doesn't exist. You can fake it, but doesn't exist.

And one of the consequences of this is a super undesirable secondary order effect here, which is that I'm thinking of several of our largest merchants, which are really 100 million revenue billion dollar plus revenue merchants, which started on Shopify and they are the sixth Shopify store that the founder started. If you have to reach to get to capital, you have to reach through the corporate barrier and you have to personally guarantee the number one store, which is the successful discovery of something that didn't work. That taught you a lot. Also disables your ability from partaking in the economy again, even though you have now built the skills. So I think this is really regrettable. I read obviously the banking charter isn't that clear on these kind of things, but one of the reasons why the banks have the protections that they do and the guarantees and the Federal Reserves is because it's recognized that Relending to small businesses is a economy improving and a society improving institution. Yet they don't do it. So we have to kind of replicate these institutions inside of our own mini economy. Now we can do it because again, because you're so early part of a journey of our merchants, they cooperate often after signing up for Shopify. So we see the traffic build up, we see the, you know, we have inventory visibility and these kind of things. So we can underwrite people massively better than what banks could do. But this is only just, this is path dependent consequence of us being just more motivated to do it because we are doing it as a complement to the mission rather than as a. I don't know why bank. I mean because banks have to for their charter. Right?

A mission, not a man.

Look, I, look, I had three point of sales startups that failed spectacularly before the fourth one did. Okay, like, like if I was a, if I was, if I was a founder of a business that Silicon Valley didn't understand, the first one would have bankrupted me. I wouldn't have started number two, three or four. Like, and that's like. And there's a weird, this is what Toby talks about. There's a very weird capture that has happened in our large institutions where the words they say are not the same as the things they do. Yes, this is honestly like the very weird thing. And if you think of Shafa Capital, which by the way funds overwhelmingly people who would not get access to any loans like because they're minorities, women, people with a low educational pedigree. If you think of those people, it's actually not Shopla is the one kind of check, but it's other Shopify merchants that are funding it. Right. Because the way it works is Shopify merchants have paid us, we take that money and put it back in the economy.

Yeah, well, it's. What's interesting is it might also be something where eventually I don't know where the regulations are on this, but you could have the Shopify fund so that those merchants on platform who are successful could put some percentage into invest, you know, kind of backing your fund and investing in the next next big Shopify merchant, which is a platform they understand. I'm not sure if that's something you've thought about.

It's almost like you work here.

Well, the, the thing is it was interesting is you know, you mentioned underwriting and I think that's like really important that you know, you guys and other folks, you know, when you have enough scale you can use machine learning to do better underwriting and just pull straight margin out of that. Because the bank does not know every single action that they took on the Shopify platform. Since the beginning, you. You have seen their six, you know, their five failures before their six success. So you have a track record on them. And then you can, you know, you can basically scope and bound your risk appropriately with all the signals that you now have over 10 years of operation. All the data exhaust that you collected for all these other purposes can now be repurposed for underwriting. Am I wrong about that? Would you agree with that?

Yeah, yeah. That's actually what Shopify is. I mean, the very product is that, right? Like, if you want to start a business before Tobi started Shopify, the amount of money you had to spend to get an equivalent of Shopify was a lot. The fact that we give you Shopify for $29 is actually an underwriting decision. Like, we are underwriting. Like, it's like it's. It's us essentially taking coupon on a very, very long bet.

It's funny. It's kind of like. Have you ever seen the movie the Founder about the founder of McDonald's in the movie? I'm not sure if actually it's true in real life, but supposedly, you know, the key insight for McDonald's was that they weren't actually in the retail business or the. The restaurant business. They were in the real estate business. Because they've made the presence of McDonald's at least at one point in history, boosted real estate values around it enough that actually they made the maximum money from buying the real estate and then having the McDonald's there and the hamburgers were actually a way of increasing the value of that real estate.

Right.

And so it's. It strikes me that that's actually in some way similar to this, where I'm not sure I could make it illiterate. But it's not simply the small companies. It is the sort of capitalization that could be, you know, the next big dog leg up.

Right?

Because, you know, that's something that helps them, helps you, you know, makes holding happen. But you wouldn't be able to do that without obviously, the platform itself and being, you know, building everything you did over the last 15, 15ish years. Like, maybe that's. Maybe that was totally obvious. And, you know.

It'S not. It's just like total agreement.

Essentially what I wanted to do is, is move the center of opinion to within, like our community and actually also the policymaker community to realizing that actually we can go from just starting new companies and communities and currencies to new cities and maybe even new countries. And how to do that? Well, in a sense, obviously you guys have heard the term tech policy, right? And that's like a very. That in a sense though it's Interesting point. It's a, it's like a small ball way of talking about network state or startup city. The reason being because tech policy is like the blocking and tackling of, you know, for example, where are the laws around the German checkout thing that you just mentioned? Right. But tech equals network and policy equals state. So the, the ultimate level of like tech policy is a new state where you can determine that policy from scratch. And you know, it's the same like, you know, attraction of, wow, I can do a new business from scratch and I have to build everything, but I have root access over it. That's amazing. So that's kind of, that's kind of the goal of this. And have you guys seen, have you read chapter one of the Network State? Have you seen the book? Should I describe it at all? Yes.

No, no, We've both read it. Or at least I've, I've read the first three chapters and my wife read the whole thing. So this, this was dinner conversation a couple days ago.

Okay, awesome. So, you know, I very much consider it a V1, a work in progress. You know, just like you guys, like any, you know, entrepreneur or founder, I'm like, oh, excuse my dust, right? Like my dents. I know there's a dent in the side of the door there. Okay, I'll fix it. But, but it's a V1. I'm working on a V2 and actually like a, the Network State movie and so on and so forth and actually huge additions to the book where everybody's like, oh, you dumb engineers, how are you going to build the roads? And I'm like, you know, who's going to build the roads but engineers. It's civil engineering, right? You know, like wastewater treatment, electrical engineering, three phase. Like that's, that's what we all learned in school. Like, I know how to do some of that. And you know, a lot of the folks in our community have, you know, hard engineering backgrounds. Right. And so the, the concept is in the V2 of the book to, to not just flesh out and answer every single fact and so on, but kind of have it also translate into multiple languages. It's gone viral in like Japan and Catalonia, all these places where I never expected it. It was pretty cool. It was like a video in Japan with like a million views on the Narcissist. So. But bringing it back to this podcast, basically. You know, we talked about the scale of the Shopify economy. We made the point that Shopify is on par with a small country. You know the stats you mentioned, you have, your merchants have 5 million employees. Shopify has 650k developers if you have even 2 million merchants. And Shopify's merchant population alone is somewhere between Latvia and Slovenia. Your GMV for Q3, if I'm not mistaken, I saw it reported as like 47 billion. So that's like annualized at $184 billion. GMV, like gross marketplace value, total value of all the transactions. And that's like, you know, if you compare GMV to gdp, it's not exactly the same, but it's in the ballpark. Greece is at $203 billion, New Zealand's at $204 billion. So Shopify's economy is like on the scale of like Greece or New Zealand, which actually pretty legit.

Right.

And so, you know, when, when you're building something like that, it's obviously more than just setting up a storefront. There's, you know, you guys now have the balance product which is like a bank account. You've got your tax product which is doing, you know, like a, like a, I guess if I'm not saying it's like a better sales tax computation, but eventually maybe it's like a intuit for small business. I don't want to give away a product roadmap, but am I, am I in the ballpark there?

It's, I really, really like our tax product is what I'm going to say. I think it's like a very, it's very proud of it and it's very loved.

Well, you know what's, what's interesting with, with that would be you guys could, since you actually understand the tax code and could put that into code, you could give pop ups and tooltips saying hey, you should do X, Y and Z. And you know, you can optimize your thing here with a complicated code over time, obviously get on base, which is sales tax optimization. Then you could actually give tips to people to like do X and do Y and do Z. Which hasn't actually happened yet, but I've often wanted to see, maybe you're the right guys to do it.

Totally.

Stay tuned. Okay, fine, stay tuned.

But you're right. In which the meta learning of a community is there's nothing better than making it so that either Only a few people have to figure out the complicated stuff and then we amortize it over the entire thing or we absorb their complexity so that everyone else doesn't have to. I think the. And this is probably like one of those places where things get really close between, you know, network state, ideas, crypto and Shopify, like, what we want. Like, we think a lot about incentive design. What we love is that we are sort of like, as a business, very much on the same side of the table of our customers, which is actually a fairly rare thing for businesses to accomplish. So we see it as our biggest opportunity to grow the success of our lack of the people on our platform because we are participating in the revenue to be taking a small part of the increase that we can also provide. And so, yeah, the most wonderful thing that we were sort of hoping for when the company started and which has proven out over and over again and it's reconfirmed every single time we launch something like tax, is that the entrepreneurs have finite attention and how that is being invested matters. So if they have to file their taxes and have to run through a lot of complexities or if they have to, you know, just like build a logistics system for a couple of years or, you know, like all these kind of things happen in the sort of, like in the success journey of every merchant. Traditionally, every single time we subtract one of those by just taking the complexity of this and just put pulling it into Shopify and just kind of removing that. Like, the time actually gets spent on improving the products, improving marketing, finding more market fitness, and they grow faster. This is why I'm saying the world is much more shaped by friction than by policy in the end. Now, sometimes policy causes friction, but it's very hard in my mind for politicians to say to launch an entrepreneur action plan, which causes some money into some kind of thing. I think that's very hard to do anything other than just distort the playing field. It actually often causes a negative effect because now people will be distracted by filing a bunch of application forms rather than actually improve their product. And so I think we can act as a thing against that.

Sometimes there's an interesting thing that happens which is like, I wonder how you think of Shopify. I think of Shopify as like, there's a core platform that everyone's on, and then every other service we provide is voluntary. The merchant can take it or not, they can take our payment system or not, our tax system or not, which is kind of like how the governments used to work right like when the US first came up with the greenbacks, California and Oregon opted out saying we don't want this, this thing doesn't work. Whereas I think it's become like a very, like. Because it's an opt in system, it's a voluntary system for merchants. They can decide for themselves if it's good for them or not. So it's become a very, I think it actually allows us to aggregate their wishes in a way that is totally voluntary and opt in rather than like this like weird thing that happens elsewhere which like you must take this closed thing or not.

It's a new Hanseatic League, you guys, if you're ancient.

Yeah, I just, I just like, I just like the. I mean I'm also like a customer for weird comparison to like random points of history.

So.

Well, I will explain that to our viewers who don't know. Actually Kaz, you're a historian, economic historian. You go, okay, well, the Hanseatic League, it was like an alliance of merchants in northern Europe that was actually almost completely, it was for mutual self defense, was almost completely nonviolent. And it's a really interesting model for sort of network cooperation between you know, basically independent entities. And so thinking of you guys as kind of a modern network hanseatically is kind of, kind of interesting. I have a few actually remarks I want and maybe jump to the next one first on the attention point, it's interesting. You know, lots of folks have talked about this. Alon has talked about context switching. Have you seen that meme that has like four levels of brain at the end? It's like galaxy brain. Yes, right. So it's like, you know, what is the constraint on a business? You know, like, and I'm not saying obviously this is sometimes true, but like level one is money, level two is time, level three is risk. And then maybe level four is attention.

Right.

And so money and time are kind of obvious. Risk is something, I think and maybe you could invert three and four. But you know, for example, this is, this is something that, you know, Brian Armstrong and I talk a lot about. Like at big companies, the scarcity, the scarcest budget is often risk. Budget like the budget take a risk. At small companies it's often attention, like what they focus on. Right. So maybe those two are tied and you know, being able to just automate something by clicking, you know, is a huge savings there. And the second kind of thing I was going to say with respect to that was here's a vision of the future, which I'm not saying is necessarily 100%. People will argue there's parts of it that aren't good. Okay, but let me, let me bounce it off. You get your thoughts. In a sense, let's say you're running not a Shopify store, but a retail outlet offline. What you're doing is essentially arbitrage. You are guessing that the water bottles that you buy wholesale from the manufacturer, you will be able to mark up at 5 or 10% and sell them cold on the beach at this place at this time and make, you know, a markup there. Right. You are trying to literally buy low and sell high this particular good. And you multiply that across not just the water bottles, but the apples and everything else that you're buying. And you have to take inventory risk while doing that. Right? Now, once you put that into a Shopify storefront, or let's say an Uber Eats storefront or something like that, now suddenly you've got a lot more analytics and you could maybe have multiple storefronts and you could try different branding. It's way easier to change the signage. And so now the arbitrage becomes purer. You're just hitting keys on a keyboard and you're like, okay, Apple's here, banana's here. And maybe you don't even have to execute the order on the back end until the person orders on the front end because you. Your latency doesn't have to be that fast if they're ordering it online.

Right.

So in a sense, what you're kind of doing is. And of course, it's far from this today. There's still a lot of physicality to it. And maybe I'm wrong and maybe you'd counter argue, but in a sense, what you're doing is you're moving it closer to almost pure arbitrage, like an intellectual game of hitting keys. And actually, you know, drop shipping reduces the physicality, all those things. Do it. Tell me if you agree with that. Disagree with that.

I think, I think it's. I agree with it. But I think that ends up eventually, like getting stuck on a local maxima. Like, I think this got like, for a couple of years, there was a period of time where like drop shipping became the. Specifically, drop shipping directly from China became a very common tactic that employed. And the reason why that ended up in problems is because it turns out that retail is not quite as. I mean, obviously like cold drinks on the beach. There's a clear demand for this kind of thing in a moment. But what we see, most of the businesses that actually grow Are the ones which aren't purely utilitarian or aren't like marketing directly to Homo economicus, but rather are building communities.

Right?

So, I mean, so give an extreme example is supreme, right? Like which, you know, has built an extremely close community around their product, including its own narrative stories and so on. I think we see this generally, like, the best products end up being created and some kind of intersection of interests. Like, for instance, like, just let's take a real example of something that someone who grew up on the platform is Allbirds, the sneaker company. Now, they made great wool sneakers, but they also like extremely sustainable, sustainably done. And like, that's an intersection of multiple interests. People want great shoes, they make fantastic ones. And then also people who are environmentally conscious. This is the wonderful thing about the Internet. You get into this, like Kevin Kelly wrote this wonderful essay, 2006, 7, 8, about finding your 1002 fans. And I think the exploration around making something that is very meaningful to you beyond the pure sort of economical cost of goods, plus 10% markup or 50% markup or whatever, if you build something that's a story and that causes lifetime value and optimized for that, you actually do better than sort of a supermarket kind of like world.

I'm known for saying I disagree. So I disagree actually with you a little because I think there's like a misunderstanding of why people buy, like, buy things. I think there's like a. Basically think of like the interesting history of trade going back to a guy known Utzi, who's actually like, we have his fossils. He died in Europe, I think, 8,000 years ago. But yeah, like, we have like this fossil fuels. But like the trade that happened that was local was essentially trade for things you need like food, nuts, those things. You didn't go very far looking for those things. You just hung out around your village and you got what you wanted. But trades for things you want. Like, when you go very far distances, people back before the wheel would travel hundreds and sometimes thousands of miles for what is now called lipstick.

Essentially, that's the reverse of what you might think. You might think for the things that you need, you'd go far, and the things that you want, you'd buy them closer.

This is a really fascinating. I mean, this is a real fossil that I think you can call it. I mean, it's sort of preserved in the glaciers in Alps. So they analyzed everything that was on him. He clearly was a trader. He was moving through the Alps from one place to another, and he didn't quite make it. Actually, I think they found an error in his back. So someone made him not make it. But they analyzed the items on his body, and the goods he was traveling with were sort of the arbitrage goods, the nice to haves on his body, like the jewelry, tattoos and so on. Then they charted out where they came from. Came from a region of about 3,000 km around the point they died. And that just tells you how vibrant trade actually was like 6 to 8,000 years ago. Our story is not quite right. Trade probably caused language in order. I mean, nothing is cause and effect. Exactly. But like, we have been traders and merchants and barterers for as long as we are recognizably homo anything. And I think that's. It tends to not be part written into the story quite as much.

Do you know Gobekli Tepe? I'm probably pronouncing that badly. It's like this set of ruins in Turkey that pushed back like the dawn of civilization like thousands of years from before. People thought it was the one with.

A very peculiar religion.

Yeah, got. It's got. It's got like some weird towers and stuff there. It's like under a mound. I think you're right. You know, one thing, it's interesting. There's this. There's a podcast called the, I think Follow Civilizations podcast. And it goes through all of these ancient civilizations that didn't make it. Just like otsi, you know, an arrow in their back or something. Right. And you realize actually in some ways we're like. You play a game Battletoads.

I did.

It's a really hard game and. And you often get really far and then you die. Right. And I'm like, is that what civilization is? And we're. We've just gotten to like level 80 and we just need to not. I mean, it's kind of an interesting way of thinking about it. Go ahead.

Yeah, I'm just. I'm just. I'm honestly, I'm just delighted that we are doing the Hanseatic League, the East India Company. We do Itzy, and then we also do Battletoads. I think this is the range of his podcast is fantastic.

That's wonderful. This is.

This is.

This is the kind of thing I love. You know, the. Actually, it's funny is that the one previous point that you made where you said actually that it was very boring, the history of the corporation. Actually, Kaz, I actually think all of that stuff is very applied right now. You know why?

Why?

Because, you know, we are probably reinventing many institutions over the next currently and over the next years and decades. And so, for example, the advent of cryptocurrency and the smart contract is a sort of, I mean, the corporation is a social abstraction, right? To take this thing that just exists in our heads and treat it in some senses as a person that can own property and where you limit liability, that was a social convention that people had to arrive at. You know, as you talk about. And similarly, like a, like a, like a smart contract is like that. It is an abstraction where we are essentially all agreeing to treat bits on computers around the world in a certain way because they have certain properties, they're hard to muck with and whatnot, and they give us mutual value and we cooperate in that way. So I think a lot of the stuff about how those things emerge, because they didn't emerge in their clean, final, debugged edge, case optimized form, they emerged in a very messy way early on, are useful to learn about.

Look, I'm a crypto maximalist and I think there's an interesting history of it. Do people actually look at crypto right now and say, oh, this thing is janky, it doesn't work. You know what's janky and also doesn't work? The common law of the English empire. You just need a starting point and you need to build upon it and just build upon it. People misunderstand how things are created. Things are created by tinkering, not by five year plans. Like you just have the thing you have and you tinker upon it and you improve it and you make it better over time. And all of a sudden you look back and you're like, oh, wow, this is like the very interesting British common law, French civil code thing that I think is like a difference between tinkering and not.

And I'm a code Napoleon and academy francaise. The top down versus the bottom up, right?

Yeah. And I think there's something very wonderful about this idea that what cryptocurrencies and smart contracts allow you to do is to see the history of change. And knowing the history of change is as important as knowing state. It's actually very important because actually what you end up doing is you have to kind of project forward and say, ah, this tinkering led to this. I can tell you there's a part of Shopify that Toby himself wrote called Active Merchant. It's an open source library. You can actually look it up. That started like how we think about payments, payment processing on the Internet. Actually, Toby doesn't take credit for this, but I will give him some activemerchan really started much of commerce on the Internet. Like if you look at all the modern payment companies, they'll say, ah, we saw ActiveMerchant and they said, oh, we should build something for this. And that was just tinkering, right? It was just a tinkering from the last thing they built. And I think that's the most wonderful thing about thinking about certainly smart contracts. It is a thing that you can tinker with.

And I totally agree with what you say in that we are sort of reinventing or at least reintegrating novel ideas about history from these new primitives. Right. I have to say when I really started studying crypto, which I'm hugely into, I had this sort of rapid realization of that things that I treated as almost just constants, they're actually more interesting than they were just the concept of ownership. Just dividing ownership of a thing into two bits into two separate aspects, such as the utilitarian value of something and the status of something. This is something you talked in length about. I probably learned this from listening to constants becoming variables. I was fascinated with I own NFTs, which I'm extremely happy about having. And I have a sometimes from the actual artist, like a version that I'm hanging on the wall. But if that's being stolen, it just doesn't matter really to me, someone else can enjoy this. I own the rights and those things are separate. They were just treated as the same thing. Partly because there was no other way in the physical world, because there was like the ownership and the utilitarian value were linked because you couldn't take one without the other. It's just like it tells us something new about the world. Where this becomes the most interesting really is this to me is like the building anything. States, countries, cities, communities, villages, companies is done with people. And we basically have largely three different ways of creating these things. We have policies. We have policies and process as one. We have culture and incentives and narrative as another one. And then there's, sorry, incentives in the third and then organizational design or incentives is sort of a third way. Everything that we ever built in the human world is really us Using these free tools and solving large scale coordination challenges has to always be done like this. And you have to people then misunderstand some of the policies or end up bringing external incentive systems or hierarchies into the mix and everything gets really, really messy. And leadership is largely like finding and somehow changing people's minds with same tools. We haven't had anything new come online until the smart contract. The smart contract is a way of large scale incentive alignment. It is amazing how many people work together and believe in the same things. Trusting with a trust into the system externalized because there's a smart contract, it's verifiable and people believe in it. But it can continue executing these incentive systems for absolutely forever. Even if the blockchain stops moving, you could resuscitate it and the next transaction would interact with it, no problem. Even 10,000 years from now. This has been used for a whole lot of things. Many of them are not actually valuable, but the new primitive is there and we will figure out in the next 10 years all the amazing things that can be done with it. I think this is super exciting and again, I do think every time something new becomes possible that was previously not possible, people overestimate the impact of that in the short term, but massively underestimate the long term consequences of it. Because at some point people have done their 6, 7 attempts to do something with it, all of them failed, but they have now an intuitive native understanding of the primitives and can can apply them to large scale problems.

I think there's actually really interesting consequences to how cryptocurrencies work in commerce, honestly. And people usually first go ah, payments. I think payments is interesting, I'm a payments nerd, so we can talk about it. But I think there's a more interesting thing which is what Toby was talking about earlier on, which is most of the things you value have a community around them. If you think of things you own, things you value to have a community around them. And we're early on this journey but we're really, really still seeing really interesting use of cryptocurrencies for gating of things, NFT gating or creating communities that are almost entirely about being fans of things. And you look at these super traditional brands like Mattel being one, like creating these interesting experiences that are about community. IOS are much more easily done in a wallet aware world because the original sin of the Internet is like lack of identity. And you know, cryptocurrencies are actually solid in a really interesting way that allows you to not just have a community, but to actually be able to recruit and trade that community away and like really cool ways. So I think we're going to think about like 5,000 years from now, people are going to look at us playing with these NFTs and they're going to think about us as like we're otsi of the NFTs.

Including the arrows no.

Big, no idea what they were doing. They were just like, these were just toys to them. But it's really, it's going to be, it's very clearly going to be a thing. I just don't know what time frame.

Well, it's interesting. Okay, so I, I was writing out a bunch of remarks and all those interesting comments. One concept, by the way, where there's sort of a difference between like ownership versus utility is like let's say federally owned parks. In theory, the federal government owns it, but anybody can walk in and use it. That's like one example of A owns it, but B, C and D can use it as an example. Another thought, you know, was that, you know, your kind of tripartite thing there, I might summarize it as policies, process and payments. Just as an alliterative thing. And you'd mentioned common law earlier. And I think one thing I've said before and I've thought a lot about is that you go from common law of the uk, which is all just kind of iteration, then the Constitution, which is like written down, and then smart contracts, that's like version 3.0 where it's even more universalist, it's even more auditable and fair and so on. Then it's like turning it into literal code, not just legal code. And I think actually, you know, somebody once said, why is it that all founders, at a certain point they all become like philosophers and they post stoic stuff and Marcus, all this type of stuff. And I actually had an explanation for that, which is the founder starts as lead engineer and ends up as chief psychologist. Right? Because you're basically managing this gigantic community first within the company and then also outside. And, and managing humans is very different than, you know, like working with machines, but you kind of need both, right? The machine will do exactly what you ask it to do. If you shut down a node, boot up a node, shut down a node, but doesn't care. Humans aren't like that. They're highly stateful, you know, and they are, they are, they're not lte, they're not time invariant systems.

And so that's not that deterministic, it turns out here.

Like non deterministic. Exactly. That's right. And, and so, so on the one hand, anything that you can do with the machine, you actually prefer to do with the machine, if you can, because then it can scale, you can iterate on it. It doesn't, its feelings aren't hurt, and so on and so forth. On the other hand, that's why founders Actually, like all this stuff, you know, all these things become applied subjects. Even if you start in engineering, you actually have to pick up effectively a humanities education because only history gives you enough, you know, game film on what large groups of humans actually do. Let me pause there. Tell me if you guys agree with that.

I totally agree. I think company building is applied philosophy in a way. If you hang out with people who are good poker players, they are going to be the most interesting game theorists you ever come across. And they have no idea that they have any kind of aptitude for this. They just pick it up intuitively because like the game they dedicate themselves to is applied game theory.

They solve it in hardware.

Exactly. Actually, it was super interestingly sounds like that they analyze with fmris, like go players and poker players. They look at cards, look at board, and it's actually the visual cortex that lights up, which is a big part of the energy budget of a brain. So we actually basically figure out how to use your GPUs. Yeah, yeah, yeah, we use the GPUs. And it's actually funny because, I mean, this is. We are now getting on a crazy tangent. But it's really funny because when you talk to these people and say, why did you do this move? They actually say, it seemed beautiful. And you realize. Yeah, because aesthetics is the only way how your visual cortex can actually communicate with your reasoning brain. So it has to use basically smoke signals to send the information back. And it kind of all fits together. It's really neat.

The other thing that's like that, just to digress on your digression for a second, is I think a lot of computations are like, so. So one part is like the visual, like using your gpu. The other is people are very social animals. So there's fairly complicated things. If, for example, someone says, oh, A will be happy if C does D with E. Right. That's like actually a fairly complicated graph theoretic thing. If you were to actually like write that down, you'd actually have to explain that, you know, a social computation that somebody will feel this if somebody else does this to this person with this other person at this time. Right. I've thought that there might be something like that as well. Like for those people who are good socially, there's like a graph engine. Just like there's a visual cortex. I should probably talk to a neurologist and see if there's something there. One part I just want to come back to for a second, then move on. Is the. The part about the ARBITRAGE point and the community point, they're actually kind of related where you know, how much of selling is just arbitrage versus how much of it involves the community. And, and I do think it's both because if you're just doing drop shipping, you don't have as much of an investment, you're just seeking a return. You're not there for the long term. And the guy who loves it will, will probably outlast because they'll, they'll last even beyond where the market is temporarily down or they'll figure out some iteration because they are just up at night working on it. And you know, that's also related to crypto where it's, you know, it's not just payment really, it's about community and people who share the same values. And it's almost like, you know, what the yen is to the Japanese, a cryptocurrency is to its community. The yen has value even if you're not Japanese, because enough Japanese people give it value. So if enough of those people coordinate, they can actually build something amongst themselves even if the rest of the world doesn't really value it. Even if you don't hold the yen, you know that even if you don't personally hold it, you know the yen has value. So that's kind of a thing about crypto where it's not just a technology, it's a community as well that I think you guys get that others don't and that Shopify is also, you know, your community is actually a big part of it. It's not simply just a tech stack.

We'll fall over agreeing with each other. I think the other thing you definitely learn is one of the common problems around the office for me as a founder of a company is I say things which are really important to me. Here's a change. Shopify has a core value Fry. We're going to change, we're making changes. And I can supply this with all sorts of metadata as what we are doing. I know in the end this is going to be translated into a fortune cookie because the packet size, the MTU of communication inside of a company is so small that everything has to be packaged in a fortune cookie. And then unfortunately this fortune cookie is then non deterministically unpacked by everyone. And so one, I think mistake a lot of founders do, why this is a very complicated journey for people is that initially you have a very small group of people. We can move huge context over pizzas and beers in the evenings and you get everyone not Just the title of the article. You actually give them the exact wording of the article and sort of align through that. As things get larger, you will have to consider your words very carefully in the way that you have to pick how you are packaging them because you need to ideally determine what the fortune cookie will actually say. And then you will have to deal with all the variants and unpacking again, that's what best we got in the world of how we are building organizations and communities again. The smart contracts though can be an antidote here. If the particular thing that you're trying to do can be almost arbitrarily complex, if in the end it tells everyone how to behave or what good looks like in the community. And I think that's exciting. I think this is completely new ways. You look at something like DoorDash or so and you realize yes, it's not a smart contract, it's a centralized system and server in the middle which does the two sided marketplace brokering. But there's like millions and millions of drivers working towards an incentive system that they know works for them. And that's all coordinated by something like software which is fully deterministic and provable and observable. You could imagine a Victorian version or hanseatic version of DoorDash where someone tried to build this entire thing with telegrams and a very, very, very large middle management like call century layer of people who are then trying to recruit drivers and set shifts and move food orders around. I don't think this, like even if something would try, I don't think it would work right. So you just sort of get the sense for that. Computing isn't just computation isn't just like allowing us to become more efficient at things that we want to do. It really gets more interesting when we realize hey, there's now things that can be done because we can solve problems at vastly higher coordination tags and coordination challenges. I can certainly this hanseatic version of Doordash, I don't know what fortune cookie could be crafted that would unpack for millions of drivers or I got horse drawn carriage stewards to behave correctly in all situations. It can't be created. Right. So I think that's awesome.

I was going to go even further because he went to Victorian time, he was going to go back to Darius.

Okay.

But I think there's a part of the problem, honestly I think is that the reason transfer of knowledge has become harder is because communication has become easier. Like there's so much like this, this is the meta problem with Slack. This is everyone's been a problem with Slack, right? Because the tax on communication has gone down. We have a lot more of it, which means transferring knowledge has become more difficult now. It's become more democratized and this is a good thing. But I think it has become like in a world in which part of why doordash works is because the communication channel between the people is very clean, there's no noise to it. Go here for this price, for that value. Pick this. Like that's just like can you imagine trying to coordinate that in Slack or even worse in an office? Like you just never get anything done. And I think there's a very, I.

Don'T know, I think it's actually a really good insight that communication has risen and then necessarily average context has dropped. And it's like if you ever have a tweet that starts going really viral, it goes outside of those people who kind of know you or know what words you're using and. And then it goes to like a group of people who have just no context whatever. Besides those characters have no don't care about anything else. And they'll often attack it or they'll go crazy about it or not understand it or something like that. Right. I actually have a solution for this or a proposed solution that is actually a technological one but just to give a little more flesh on the bones of the problem. Ben Horowitz said that his biggest thing that he learned when being CEO was or just really a senior executive needs to know is any statement how it's going to be perceived by every single person in the company. The same statement that may make a ton of sense to your exec who has lots of context is just going to be perceived differently by somebody who's just joined versus you know, like a merchant or somebody who sees it online. And so you have to sort of build in armor plating or what have you to make it hard to interpret. But you have to. You're doing a very space constrained environment and I think of that as almost like it's like a one liner script with no local dependencies. You know, it's. Or it's like, like it's like tweet like communication because you're just, you're establishing a beachhead and you're living off the land and you have no local dependencies. Right. But that does limit what you can do because really what you want to be able to do is dependency check. You want a dependency check prior to installing to take that computer science analogies. How do you dependency check well, one way of doing it would be like, for example, you have an implicit one. If they're within your slack, they're within the company versus outside. So it's like a dependency check. But you can actually generalize this with smart contracts, as you're saying and NFTs, not in the sense of like an art NFT, but like a badge NFT. For example, you might have a post that's only legible to those merchants who have sold at least $1 on Shopify, right? Those are folks who have gone through the entire interface because it's like a different thing to think about doing it versus actually doing it, right? And then you might offer those people, hey, can you give us feedback on it? Right? And maybe it's like you further limit only those people who sold $1, $1 and did so in the last year. They sold their first dollar in the last year because the older merchants have figured out the interface enough, right? So that's something which you could, you could have very fine grained conditional queries on, on groups. If they have that particular nft, they can log in. Another example, you know, elon has like 100 million followers and I've thought for a long time, what if they could do something other than just like an rt? Maybe he could put out for example a task that is limited to only those people who have the rocket science credential, right? They had that NFT and so those hundred thousand followers of his who are rocket scientists suddenly can collaborate on something and it's muted for other people. Or a third example, like you're an educator and you limit replies to those who've done the reading as demonstrated by them asking, you know, answering correctly three questions and getting a little NFT badge for that, right? So NFTs is little markers of I did this, I completed this, I have this, you know, thing. I think LENS protocol is based on that. So I think that's one possible solution to this context loss problem. Let me know your thoughts.

I love it. Like, I mean this is what we are like NFT gating is what we, how we call it in commerce, right? Like it's, people will be able to like, you know, like we can get into this, it doesn't matter. But I actually think fundamentally if everything is in the abstract realm of status and Internet accessibility and can I read something or not, I think that's valuable in a lot of sub communities, I think to make it mainstream, I think you want to bridge it to the physical world. So this is why this is, I think A role that Shopify quote specifically help with. Initially I really disliked that the crypto ecosystem was calling things wallets so casually. I really didn't like the term even though I sort of get it with like it being money. But I actually, I've really come around around that it's actually was a genius idea because what most of the use of a wallet these days is actually in the like attestation cards that you are allowed to operate a vehicle and these kind of things. And I think actually that is the better, maybe not even the better use, but like a more consequential use in the long run attestations of skill sets. I mean this is what degrees are in schools, right? Like degrees are just a really, really, really slow way of getting an attestation that you are the kind of person who can complete Harvard or whatever and then other people can run a fortune cookie quality smart checks on that. And like for instance to get you into companies, that's how some companies recruit. Doing this way more fine gained is way more interesting. I think this is where we will find some of the most fascinating use cases because it can solve the noisy channel problem. It can mean that you can have a conversation amongst people who have proven applied success in rocket science or have a respect, but by those that do. And then you can have a community and conversation filtered down to that. If that's something that is of value to some people, which is currently very hard to do other than in a sort of a temporal kind of way by invite only.

That's a problem.

I think Toby, is that you can actually replicate this today in centralized systems. Like a Facebook group is closed and has rules is perfect for this. But the problem is that's not transferable in a way that is useful, right? Like I would love to limit all my interactions with like people who have never screamed like cancel that person like just like across the Internet. Like if I could just have like a browser plugin that says okay, just like remove those people from my like thing that would just make my. It would significantly improve my life. But right now I can't. That's not adoption. And because I want to live in the real world, I have to abide by the real constraint placed on it. So I think there is a missing primitive in the world that I think wallets can solve.

So I agree with you guys more than you might. I mean I think of this as computable context. Computable context is a good term because it's like on this person or on this individual, on this entity. I can look up their history of NFTs. It's like their resume, but it's a computable resume. It's not just their GitHub commits, which is fine, or their LinkedIn self self attestation. It is something that is both what they have like themselves chosen to display and then also maybe what others have, you know, set. Right. And you know, it's funny, you also mentioned the wallet. You know, upstream of everything in crypto in a sense is identity. Because if you do that digital signature, you can send $1 but you could also have one vote in a protocol. You could enter, you know, get into one door or you could show one credential. So the ENS kind of thing of like showing your identity up top that gates all those other actions is kind of like your, as you said, your, your identity within your wallet that you kind of show your, your, your card to, I don't know, get through the TSA or something. Right. Anyway, so the computable context thing is just something I think takes your insightful points, you know. You know Kaz, your point on the communication has risen but context has dropped and maybe give some way of dealing with that. Right. You know, it's kind of like you've seen the Simpsons episode where he's like a beer the cause of and solution to all of man's problems. Right. And so it's funny but you know, often, you know, technology the cause of and solution to all of these problems. Right. I'm sure someone will be like, oh, that's a perfect encapsulation. Everything I hate about tech, blah, blah. I'm like, you know, it's actually, it's one of these things where people made cars and the first cars were not that great and they, you know, they belched out fumes and so on and now we're actually solving that. And, and so it actually is true. It's a cause of a solution to. Even if it sounds like a joke. Okay, let me pause there and get your thoughts and I'll move on to the next question.

I'm pro beer is what I want to go on this record as.

So we covered basically the scale of Shopify economy. We cover the point that you've built something literally on par with a not so small country. You know, you're GMV annualized is on par with like Greece or New Zealand's gdp. Even if it's not exactly apples to apples, it's in the ballpark. You mentioned Shopify's collective revenue of all the merchants is 444bill, you know, which is, which is crazy. And actually, is it 444bill or is it 184am I GMB and Revenue are.

Different things because you're counting GMB that goes through Shopify, whereas their collective revenue is more than just that. Right? They sell on many channels enabled by Shopify. Like many of our merchants have a very large B2B business. For example, okay, you can buy, you know, you can buy some of the beauty brands that we sell in stores. So the revenues are higher than our gmv.

So, so that. So like even if we just took the limited number of 184bill as your Q3 annualized GMV, that's still massive, right? So then, you know, so you've done this thing, you've built this thing. You've also managed both, you know, like internal and external pieces. You know, one thing is given that you actually have a perspective that is comparable to that of a serious country in terms of like the scale of the economy, you know, have you thought about putting up like a Shopify stats dashboard, for example? I put up a bounty a year and a half ago on an inflation dashboard. And I was thinking Stripe or Square or Shopify or Coinbase. Somebody who has a long history of prices. You guys are perfectly positioned. You have a long history of prices across many different kinds of merchants. You can see how those have changed. You could calculate aggregate stats and you could build a site that would be much more granular than the CPI because people could just punch in their own basket of goods and you could actually see just. Okay, I'm not hallucinating it. Guacamole is way more expensive, you know, Right. Because you kind of think, am I, am I crazy or is all this food gotten way more expensive? Or am I just, you know, like, is it in my mind, Right, because you don't save every receipt. You don't have all those graphs. Right, but you guys do. So you could actually aggregate them to show graphs for individual items. I kind of think that would be just a huge traffic driver and it's a source of shadow statistics. And maybe it's like an extitution, like an external institution that replace an institution. Like, you know, maybe the Canadian government might even use it. What do you guys think about something like that?

I like the idea we haven't driven it. We have such stats internally for sure because we're monitoring this. I mean, I would say there's a couple of hurdles in a way of doing this. Straight up, there's Certainly a conversation people have to have just the merchants and how they would think about even aggregated versions of.

Yeah, of course they have to opt in and share it and so on. Yeah, go ahead.

I think one of the quips early by our sort of early investors, board members about Shopify is that Shopify is the kind of company that only Canadians can build because it's like fundamentally wants other people to look good rather than itself. And we really like to be a brand behind the brand thing now due to the success this has sort of evolved since and we are putting Shop Pay more centered as a clearly a global thing and the Shop app and so on. So maybe this might be a good time to rethink some of those things. I mean for like just purely on merit, like I think would be super cool thing to do. Like I think having some kind of, you know, Google Trends or Cloudflare radar for the like small medium business world. We are hosting a significant percentage of the SMB world and like Shopify runs a good percentage of Internet traffic is Shopify stores. So we are definitely at the stage now, but I would say recent arrivals at the stage that we can start thinking about sort of more representative larger things. There is one event, Black Friday Saber Monday, which has always been, you know, some it's a. Internally it's like there's a lot to it just because frankly we have to keep a lot of servers from going on fire because the traffic surge is so massively ahead like almost a year forward during those times. And we've talked about this externally and kind of create like we actually do share like sort of a real time dashboard. Like if you can see how, you know, you see like different countries come online, different time zones and so on and the sales per minute and it's always a fantastically interesting thing. So there's certainly demand for this. I guess it's a great idea and maybe you should just prioritize it.

Great. Awesome. I'm happy to help by the way. If you guys want maybe we can have this as a little launch clip for when it goes or something like that.

Go ahead, sweetie. I'm just literally going to send you the career website after this and join W2. You can join our crypto team. Man. Well.

I am happy to help and let's see how we can collaborate. So one thing that's kind of the macro point on that I love the concept of Shopify Trends and what you might do is it may be that free inflation stats were like your public loss leader and then anybody could sign up for the pro version and just see all these trends across everything and maybe every merchant that contributed their numbers got free access. Something like that could be something that's like a stone soup model. Right? That's just, that's just, that's off the top of my head. You know, quick thought experiment.

I think if it's a good thing for world, we should do it. But you'd be shocked how little time we spend thinking about how to monetize things. Honestly, like it's not that like I think this is like one of those very weird things where like time value of money is a hell of a drug for other people and we try to very much not on that particular drug.

I agree. I was just thinking about how you could have it be sustainable since you're going to be running a lot of compute jobs and so on and so forth on it. Right. But I agree with you. I mean, in fact I'm a career academic. I was actually, I was certainly not, you know, I don't know if I'll give the exact dollar but like let's say I was not focused on making money for the vast majority of my life and I'm still not focused on making money but I'm focused on making meaning. And so I'm with you guys on that. So one thought by the way, just, you know, the kind of macro point here I think is international networks should be able to collect better statistics than nation states. So like international versus national and network versus state. And the reason being because you have the same format, you are digital native, you have data analysis chops you, you can do the user interface, all the type of stuff you can, you know, it's real time. None of that is something. There's a few governments like Estonia or what have you that have some of those characteristics, Singapore, some of those characteristics. The one thing you cannot do is you can't coerce people into just giving you the data. You know, governments can do that with the, you know, but, but you don't need that. And so I actually think this is an important kind of growth area to get into because it puts you upstream. It's like non obvious but it basically makes you like a news outlet where the information breaks first at Shopify and then stories are written downstream of that and you could eventually put that into an oracle that then allows people to programmatically access and maybe do interesting things with it. So I actually think this is a potentially strategically important thing because you know, you actually guys define what is true from data and Then folks react to that, which is actually a good place to be in terms of also focusing people's attention. What's important if, if some shortage is happening and people don't know about it, you might see it first and you could alert people to that rather than, you know, the Cardassians. Nothing against the Kardashians, but I'm just saying, like, you can help prioritize. Let me pause there and I'll move on to their point.

We have observed. We have observed preferences on our databases rather than state preferences. Like, this is one of those things that, like, it's real about, like. Yes, I think like the 3 terabytes per minute of like, data going through Aria for, like, it's not like a. It's not nothing. One of the most wonderful things about Shopify Ology is that we are much closer to a real world than most, than much of the technology world, honestly, because we deal with this very real thing. It's commerce.

Inventory.

Yeah, inventory and shipments. And like, this is like a real thing. So it's like, it's like it makes our ability. Look, we put our money where our mouth is on this, right? We lend money based on this data. Like, we give people money based on this data. And so it's like a very real thing. So I think I agree it is useful, but Toby and I are going to have a later conversation about whether it's useful for Shopify or we should just give it away to the world.

Sure. Great. Okay. Well, let's do it somehow. But that's great. You know, it's funny, it's like tcpip. You have to do sin and ack when there's like a packet that's dropped. Or for you guys, the physical shipment aspect is way more complicated than just a sin and an ack. Right?

Yeah.

So, yeah.

One of the most surprising consistent themes is just how much more complicated atoms are than bytes. There's five stages of grief related to this that everyone's going through a job, fire and whenever they get into the realm of logistics.

Yeah, I think. Why is. I think it's because atoms have many continuous failure modes and digital things tend to fall into buckets to a greater extent, you know, or you just have less control over the world outside and so on. Maybe that's. Maybe there's obvious reasons, maybe there's non obvious reason.

I think trucks listen less well than computers is my answer to this thing. They tend to listen to instructions less well.

But you know, my concept of like, talk about like the concept of generalizing the idea of printing things out, you know, so obviously you know the concept print a document, right? An electromechanical process springs to life. It whirs. You're thinking in the same way you can almost think of you hit something on Uber Eats and you're like printing it out, right? Everything happens in the digital world first and you hit print and it comes there, right? Or you scroll through Shopify website and whatever you find interesting, you hit buy and then materializes, it prints out at your doorstep, right? So everything starts in digital world first and it's really important. You hit print and it materializes. Now of course the critique of that as well, obviously the printing in the normal sense is fully automated, whereas the the package appearing at your door is not. But every individual step of it has been like, there are for example robots that grow food on the farms. There's things that will package it. You can see clips of each of these things. There's things that will delivery robots will bring it to your home and so on. So the, the thing is you couldn't build the robotic Shopify economy globally, but maybe you could build it in a neighborhood. I know Amazon tried something like that with drone delivery. Have you thought about doing something like that?

Like we would probably play the role of, you know, providing the demand liquidity for the people who want to build neighborhood 3D additive, you know, printing.

But it's too complicated to deal. You can't run trucks and all the types of stuff.

I mean maybe in the future, but not yet. Like we have plenty of downstream challenges from.

Also it's not our job, but it's not our job. I think it's our job. Like this is a really important thing about Shopify is that we're not a company that's trying to take over every aspect of the world. Honestly, we really aren't. We really are trying to create this. If you look at how Shopify built payments, for example, most companies want to build payments for cool. How can I go full stack to all the rails and just own the entire thing myself? To extract every ounce of value, Shopify built payments on back of 720 payment providers, including one main partner in Stripe. Like I think our job, honestly, just like we think it's our job to make commerce easier for entrepreneurs. We think our job is to make it possible so developers can do things. But we don't have like lots of things we just don't want to do, but we want to make possible for other people to make an insane living doing it. So if There's a drone delivery startup out there. It's Kazopify.com. send me an email. We'll create APIs that make your life easier.

That's cool.

I think that's a really good visual sort of. When you sort of think about this as concentric circles, there's the world of technology, Turing machines, and incredible amount of opportunity. Space that's theoretically created is sort of like the inside of the cell and then the outside of the cell is like the. Call it the real world, for lack of better term, like the maybe the world of atoms. Shopify is kind of like, we are not an academic, ivory tower, lab coat kind of Eureka company. We are like a bunch of craftsmen, tinkerers, and we are very firmly on the membrane. We are basically funneling or taking everything that the opportunity space creates and try to get that to people on the other side as quickly as possible. Because we want to, we want their businesses to succeed. Right. So we are very, very large. Think of ourselves as an aggregator of opportunity and value. And sometimes we take active roles in creating some of those technologies. But we do this as a. Only if the rest of the industry kind of doesn't do the job we wanted to do. So maybe it helps.

That makes total sense. And you know, actually it's interesting. I have a better sense now, like basically almost anything digital. You're like a, like a connective tissue between the bits world and the atoms world. Like that inner ring of the concentric circle. It is something where owning trucks and planes and so on is like a very capex intensive thing. And it's probably better to just do that with a partner or something. But you can dispatch them and you might say, hey, implement our API and then you can more easily, you know, talk to our network or something like that. That helps me get a sense of it, if I'm not mistaken. Yeah. Now, one other thing that's kind of related to sort of managing an economy level thing is you've had a great balance of the centralized and decentralized. Now, often these are just to kind of motivate the question. Often centralized and decentralized are nowadays portrayed as totally antithetical, right? No, you have to be either one or the other. And often though, it's useful to have some balance or to use the right tool in the right circumstance. So you have this decentralized. You know, as you've said many times, you're arming the rebels by allowing people to sell online, but that's a balance of your centralized scale and this sort of decentralized entrepreneurial energy. And so it's like a state setting the rules of the market and then you let people interact and then the state takes a slice of that in the same way that Shopify sets the rules of your economy. And then you let people sell and interact within fairly large parameters and then take a cut of that. Right. And so do you have thoughts on when you do something centralized versus when you do it decentralized?

Yeah, I think key thing is, I mean, this is true with all words. Like words are pointers at regions of a brain. The brain is set to private read. Other people have no observability of what the concept really encodes in your brain. And basically birth of pointers into private memory regions. And it means something different to everyone. And then unfortunately, people end up fighting a lot over these definitions. Like centralized. Decentralized, I think is just given that we're talking at a podcast with a lot of people from a crypto sphere means something specifically. I think the broader term Shopify always thought of itself as actually an agent of decentralization. Even though clearly we were running centralized servers that ended up being like, I started Shopify in 2004. There was certainly no way to build it in a completely decentralized way, given what we were trying to do. The closest thing would have been put the source code up and do the WordPress thing and let everyone install it on their own servers. That was the definition of decentralized in both days. That wouldn't qualify as decentralized in this newer sense where Shopify. But Shopify does prey on the altar of decentralizing opportunity. This is called democratizing. Opportunity is the thing that we really want to push everywhere because again, the Internet is awesome and entrepreneurship is important. And it would be weird if the Internet would be a bad place for entrepreneurship. So this is everything we are building is basically so that the people who are starting out have a fair shot at building something that conforms to the expectations of the customers that might exist. Like, find the 1000 true fans.

I was going to give a concrete example. Here's like, obviously, you know Uber. Do you ever hear of the company called Sidecar?

Sidecar is pre existing to Lyft. Like what? No, When Sidecar was what Lyft became, became Lyft, isn't it?

No. Well, so actually. So Lyft. Lyft survived. Sidecar did not. But I actually believe Sidecar was even started before Uber. The thing about Sidecar is, you know, it was like, you know, it's a good Good try. You know, company didn't work out or whatever, but what they did was they were actually leaning into the Hayekian decentralized model in the sense that they said, look, every driver knows their own supply and demand. We're going to let every driver set their own prices and every customer wants to satisfy like they want a specific car, some person wants a Mercedes and some person wants this, and so on and so forth. So you're going to let people scroll through and find the driver at the price they want in the make and model and they treat it almost like a shopping cart kind of thing. And you pick and then you book a ride.

Right.

And it actually turned out that the Hayekian model of like decentralized local computation didn't work as well. You know, the central actor of Uber or Lyft seeing every ride and all past people who had booked there and aggregating them such a way that you didn't see Mercedes or BMW, you saw like a, a luxury version like Uber Black or you didn't see, you know, Toyota or Ford, you just saw Uber X. Right. And then they would actually also just quote a straight price to that. And they essentially centralized the market. But they, the difference versus like 20th century communism is that they weren't just doing that without information, they actually had better information, not worse information. And so I think about this as a concrete example sometimes of where sort of libertarian ish Hayekian theories, which are, which are, you know, I'm sympathetic to, you know, don't always work. And actually, sometimes the centralized model actually produces better economic results for everybody. So let me provoke with that. And that's very similar to some of the decisions I'm sure you've had on like do we set this as a default or do we set it and it's not even able to be edited or do people actually be able to edit it? You know, those kinds. You have to make decisions a thousand times when running something. What you guys are doing.

I dislike it when I greet people who mock Hayek. So this is bad for my DNA Balaji. I'm trying to figure out in what way you are wrong. So I can defend Hayek, but I can't quite think of one. I'm going to tweet at you later.

It's a common. Cass and I have a long standing proxy war between Friedrich List on my side and Adam Smith.

Adam Smith.

Adam Smith, yes.

This is a very common conversation that Toby and I have between Liszt and Hayek and Marcus Aurelius and Julius Caesar. Just a common conversation between he and I that we disagree with over frequently. Luckily it usually works out in Toby's favorite.

Well, you're being kind. I don't actually think that's true but I mean the Listian economics again I'm not going to get too much into it but the main difference to the last here is just that there's a role in defining. He approaches economics and state design much more in a way that you define a game that is leaves enough space for the market but also biases the self act like the self dealing or the self interest in the market towards a greater good which is like I think Lassifia just shies away from and takes on faith. So just as a local instance of a similar story to the one you shared, Shopify launched with a theme store just because we wanted to allow the designers just clearly we want to create a two sided marketplace there so that people have these amazing designs. The first version of that was like purely everyone sets whatever prices and you had like this massive drawdown. Like it just ended up everyone underbid each other and no one ended up making money and the quality just suffered enormously. And then in the next version what we just did is like hey, we just set a minimum price of I think it was $180 or $200 for a theme which was $160 more than the average theme was being sold. And of course you have to go through a bit of change management and angry emails about this kind of thing and for three months no one posted themes and then month four suddenly really high quality themes are being submitted. So I've seen creating parameters for the health of a game to be a useful thing. I don't think that has. Again, I still don't know if this is truly a centralized versus decentralized debate at all because again you can actually set parameters for decentralized games for smart contracts in the future. Previously you needed to be like a central actor to do this.

So.

But yes, I think this is, I think this is sort of getting really into the network state and internal economics and conversations. I think there's very little experimentation along those lines in actual economics. And I would really hope that there's more in the future because I think we actually learned a lot more about incentive at group design and community, even by studying what's already happened in crypto, especially during the last summer. And I think that's really exciting.

That's a really interesting book Toby, that I'm going to make your case for you now which is going to bother me. But the guy named John List, who has no relation to Fred Lichlist from Esseintel who became the chief economist at Lyft, he has a book called the Y Axis. It's about real behavior. It's about behavior of real people versus what the macroeconomic theory tells you to do. I think the best case for why Frederick List was right, it's nearly convincing.

I'll make a quick remark and we'll move on just to, you know, I think the reason, maybe I don't quite say Hayek was wrong, but when he was, he was right in the 20th century and might be wrong this decade or this century is the whole thing, was the calculation problem. Right, the economic calculation problem. But the calculation problem is arguably an information problem. And now we're really good at solving information problems and we've got gigantic stores of data. And this is something I talk about in the book is maybe like China's centralized model with their CBDC seeing every single transaction. You know, they could do all kinds of machine learning and actually optimize their economy in a way that would, like, I wouldn't want it to work from an ethical standpoint, but it might. Right? Like, I cannot say a priori that it won't. Right. And you know, the thing that's funny is like the Shopify theme store, that's like a price floor. That's actually. Steve Jobs did that also, as I recall. It's like he said like 99 cents for, like, you know, songs. He didn't have them priced lower than that. And he understood that people would anchor on price. You know, Medicare in the U.S. in theory, it doesn't set prices because private insurers can set prices they want. In practice, it does. And all these charge masters and all these insurers anchor on that because the thing that everybody sees, it's like it's got that hub and that hub and spoke position. And so, you know, the other aspect here is when you're talking about why do people underbid is you're optimizing for that irrationality and low context, right? They're coming in. The first thing they'll do is sort by price. That's what's legible to them. Then they see everything is crappy, then they leave, and then nobody buys anything. And then you're actually literally acting on behalf of both the customer and the vendor by saying, hey, actually, we want you to get to know each other a little bit better. And we're saying a higher price, but you'll both like it actually overall, and more transactions will happen. And ultimately the justification for that is the GMV and the fact that there's a better customer experience. Even if in the, in the small you're quote, violating capitalistic laws, in the large, you are still, you know, serving it. So there's like you're, you're violating Hayek at the small level, perhaps, but you're delivering on at the large level. That might be one way of resolving it for you. Cass, go ahead.

I mean, I think, I think you have to be incredibly careful. But at four Sport, this is true. At Shopify, we're incredibly careful when we set defaults because the thing Hayek had called pretense of knowledge, which is the thing you think you know, but you actually don't know. So if you think you have perfect information in your design system, you almost always end up being wrong. As you know, we've seen in lots of, you know, Covid era policies, we think we know things, but we actually don't know them. So this is actually really important for software because when you set defaults, what you actually are doing is setting the exclusionary policy and you want to be really careful. And we are. This is why, like, look, I think, I think Shopify Payments is the best payment product on the planet. I think it's very, very good. I think there's no one who shouldn't use it. But you're free not to use it in Shopify. Like, you're free not to use it, you can use something else. But because I think you have to be very careful when you decide you have all of the information you need.

And also, like, I think you want some internal, like, I mean, Shopify Payments is, is very good. Partly also because it actually, even though it's an internal product that clearly is attached, we have an incentive to. I mean, we could make a unilateral decision. That's the only thing anyone uses. But again, company building is hard.

And.

Having some pressure on this product, having to succeed on merit is actually good. So even that is the team should have pride in building something that is superior to the other options.

It's an odd choice, by the way. Balji, like literally everyone else in this space, has made the different choice. Either people have made a choice, they will have only one default and only allow that, or people have chosen, they will have no default and no product. Whereas Shopify is alone in the space saying, we will have a product, you don't have to use it, it will compete with every other product on the space like if you think of like. I mean, I'm not. These are good companies. I think they've made different choices. Like Square has made a choice. You can only use Square payments on Square. Most commerce platforms have made a choice. They will have no payment product. Whereas Shopify has made a choice that we will have a payment product and you can compete with it. Which is like very. I think it's a different choice. This is like being self aware to know you may be wrong.

It's interesting because it's like you know, Bayesian statistics, like Bayesian software development. Like you get the first one and then you update when you get the next measurement and you update and so on. Now your probability distribution of how many people will actually want to use it, maybe it's 87% and you want to actually, you know, move it up each time. The other thing is, you know, so with agreeing with what you're saying, the alternative view is centralized is simple. Apple just makes a decision for you and you're going to like it. Right. The prefix A, the Omakaze model of software development and it just reduces the combinatorics and you don't have three choices here and four choices there and five choices there and all these different things. You just get one thing and it basically just works. And that was actually Rails design philosophy if I recall. At least early on it became more configurable. But the golden path is supposed to just work, right?

That's exactly it. Omakaze recorded. The defaults are right. But like you can change things. But we call that like the design philosophy in Shopify. Make the important things easy and everything else possible.

Yeah, yeah, okay, right, exactly. I just want to identify. I'm not saying I've got an optimal or you have anyone as an optimal solution along that axis, but identify that axis is a very important one for managing people at large scale. Like what do you decentralized? What do you decentralize? I think it recurs. So you know, we've basically talked about how you guys have managed and built something that is on the scale of a small country economically. What if you could start a new country, a small country, right. You know, like what would the Shopify country be? What would the Toby country be? What would the CAS country be? And it doesn't have to be just one thing. You know, just like that guy you said who had five things that failed and one succeeded. Right. You know I would, you know, the president of Canada could be, you know, the, the largest company in Canada or he could build New Canada. Right? What would you know? Perhaps. Perhaps leaving Canada out of it. Okay, what would you know? What kind of thing? If there's a new country, Toby, what would you build? Cas. What would you build?

I'm actually very interested what Castle built. I think. I think that would be vastly more interesting than, like, anything either. I mean, for what it's worth, this is like, I have not spent 15 minutes thinking about. This is why I love your book, because it's like, oh, man, there's so much more left in the tank in the future of things to explore.

But.

I would like to see people apply themselves to this. But it would probably not be my project.

I have. I have one thing that helps focus it a little bit. Like, you know, with starting a company is this huge thing. You have HR and you have. Well, it's not the first thing, but you have, you know, payroll. You have a zillion things to take care of. But usually the way you describe in a one liner is, you know, here's our first product and here's what we're selling and here's why people are buying it. And so on. The, quote, elevator pitch and so on, right? And the kind of equivalent thing that I have for, quote, starting a new country, just. And again, this is like a distillation of lots and lots of intentional communities and things that have been started, right? So a lot of history gets packed into this. It's not really just my invention, but I call it not coming up with a wholly new ten commandments for your new society, but one commandment, like one big moral or social thing, some issue that you think society is not solving that you'd solve with your new community. Just like a founder of a startup is like, oh, there's some economic issue that I'm going to solve in my new company. You solve this moral or societal issue with your new community, for example, it could be okay. I think I'd like to explore what a full keto community would look like. And people, you know, they drop the cookies at the border, you know, step away from the s', mores, right? You know, and you actually have something where you give people willpower within that community, where there's just like no sugar, no high fructose concept, nothing like that. And probably people would be very healthy. And I give other examples that are like that. So if there's like one feature, if there's one thing, policy thing, that you could wave a magic wand and change. You know, you've talked about, for example, fusion, right? You've talked about all the tech stuff that's being held back. You know, many of your tweets, I was like, huh, it looks. Sounded like I would tweet this or, you know, think about. Think a lot of same things. Right. You know, fusion's being held back, and there's a bunch of things that are getting held back. So technologically, that might be an answer, but there's got to be something. You think if you could wave a magic wand, you would. You would do differently?

I read your book, and one of the things I really thought about was how to French. Like, the French word nation is a better word than, like, the English word nation. Like, because, like, in. In. In. In French, you have this idea of payee, which is what we think of as a country, but national is just a group of people that have, like, a shared history or shared culture. And, like, in fact, in Canada, we have many nations in one country. I think, like, that's like, a very. That's an interesting thing to think through. So I'll. I'll. I'll. I'll engage with the, you know, the. The third rail topic directly because, like, you know, why not?

Okay.

I do. I do wish people were like, I could have a community that was more curious and less sure and more open to being offended. I think that would be, like. If I could, like, have a community. I mean, look, I'm. I'm alive only because Canada exists. I would have been for sure dead without Canada. Like, dead or, like, rotting in an Iranian jail cell. So Canada has a special place in my heart, partially because it is a country of many nations, and you can be a lot of different things in one country. If I could create, like, a political party, it would be like, hey, everyone here in this Discord Channel in my part of the world be more curious and less easily offended.

The tribe of people who are not tribal.

Yeah, yeah, right. I mean, at least tribal, but just one thing only.

No, I say that in a somewhat joking way, but it's also. I understand what you're saying. Go ahead. I think.

I think it's actually not. Being tribal is, like, tribalism is super fun. If it's, like, high. If it's sort of like the scientist version of being tribal, like, you know, like, when the World cup is on, I'm, like, German, not Canadian. I've both passed. It's like, I'm going to super tribal. If Germany plays Canada, it's not close, but, like, if Germany plays Canada in hockey, I'm also. I'm Canadian, right? So, like, I Think there's like. Like tribalism is like in our. Like it's built into our, into our brain. It's part of our virtual machine that we are running our brain on. It's like, it's like it should come out in jest rather than in like that we demand blood, like. Or affinity or absolute conviction. I think the, I mean if, like, if you're talking fancy edits to do to the psyche that we can encode into our community. And I tweeted about this a bit. I think one of the biggest issues in the world is that we are not like the builders are special in a way like that. We need to write back into the story. Like I really do. Like founders are courageous people who are going on journeys, discovering things and then bringing back their lessons. We are currently in a world.

That.

Treats the people who build things and the people who critique things equally. In fact, the airwaves are completely owned by the people who critique things. And because they get to write the story, it's actually they're basically more powerful. And I think, I'm not against criticism. In fact, I think high effort criticism is one of the most important things to inspire builders to do their thing. But I think critics are kept in the amount of value they can create for society by holding builders accountable or inspiring builders to do better. So they're really a supportive tissue for builders. And I think that. I think this is something which ought to be reinforced in the narrative for the good of all, including the critics. Because it just, I think, I mean I started a company in this sort of magical five, six years in the middle of the 2000s almost name any company outside of the Faangs. And it got started in this sort of, I mean probably six years time span that just ended up being like right when the Internet grew up enough to know that software as a service was a business model and advertising is good and the iPhone came was soon after. And you know, Web two before Web three was sort of a rallying cry of like, hey, we know how to build Internet software and so we should build the important bits of Internet software. Shopify is the retail Internet Web two whole kind of thing. Like a lot of us hung out together in ISE channels because a lot of us use things like Rails and we knew each other. A lot of us like know of each other. It was a fairly small community in those days of builders and talking still with a lot of them. And it's just like so many of them opted out. Like so like obviously the businesses worked. People Made money. No one that I knew did it for the money. It's a surprise to all of us that this ended up being useful in terms of or remarkable as a money thing. Like, a lot of us sort of, I think, made choices to start our own businesses, saying no to the careers that we otherwise would have had. It just like I think we would want like a community and a society where it's hard enough to build these things and it shouldn't be artificially, like, harder by. The only people who are asked to solve all of society's problems are also the people who already dedicated themselves to, to actually building the stuff we need. We should get politicians to solve society's problems instead. We should simplify. And so many. It became so hard that so many opted out. And I think we would have gotten massively better companies, massively better products, massively more product progress if not. I think some of them, luckily are all realize, like sitting on beaches, sipping mojitos is actually super boring and are starting to come back and become active. I think crypto has seen many join. I think AI is pulling some of us back to become builders again. And that's really good. And I think that's this for how exactly to do it, I don't know. But like, I think this would be like something I would experiment with.

So if I'm to summarize, like cultural innovation around curiosity and cultural innovation around builders and really it's a community first kind of thing more than a policy or technology first thing. And I agree with that. I would add a couple of thoughts on this, which are I've actually thought about some of the same, many of the same issues. It's funny, like, a lot of our tweets are just like this. I'm not sure. Yeah, right. So it's converging. Exactly. So, you know, one thing is. I'll just make a few remarks. Thank you. When you said this, you know, first is I realized, you know, okay, let's go back and beat up on our beloved Hayek. And you know that. So comparative vantage makes a ton of sense if person A is selling apples and person B is selling oranges. Right? You grow your apples, I grow my oranges, and you know, hey, we can trade or whatever. It doesn't work if one guy is growing apples, another guy's writing laws or, you know, generating media, because that is something where that by outsourcing that, by just focusing on what you love, which is the apples, you have outsourced the governance of San Francisco, for example, to people who are bad at it. Right. And they are actually, you know, if everybody's making a rational decision that, hey, I would have, you know, be able to do something positive sum and be able to build great stuff and so on and goes and starts a company, then the state is left to those who make irrational decisions and who, who cannot make good financial choices because if they were, they would be at a, you know, a fund or something. They, they're not good at engineering. If they were to be at a tech company. And so they are, are they're optimized for politics. Right? And that is a skill, but it is, it is a skill that is, that shouldn't be on its own, Right. You know, like Lee Kuan Yew is good at politics. He's also good at actually building. Right. And what I realized is actually that that's another place where the doctrine of comparative advantage breaks down. We have outsourced something that we should not have outsourced. And so then what I think that means is I've got like a V1, V2, V3, V4. They'll bounce off you, right? So V1 is, let's say, and I don't mean this in a negative way, this is kind of where I was as well. And so v1 is the naive optimism of the builder. I should just be able to build. Society should be set up so I can build. Right? But this is like, you guys play games. You play game civilization.

Yeah.

So what happens if you just put everything into technology and commerce and you're just peaceful and building?

Right?

Guy next door.

Yeah, yeah, yeah.

The guy next door comes, you have.

Something that someone else wants.

Yes, exactly. They come up with a spearman. They just have a little spearman and they just come in and they invade your thing and now you're dead. Right. And so that's actually how I think of a lot of the establishment, the, especially the media corporations and so on. They don't like these tech interlopers who are often demographically different. Like, we're all immigrants, right? We're all from overseas. The old money, in many ways, you know, people are like, oh, the tech guys are so rich. Their problem isn't actually, quote, tech guys are rich. The problem is that it's new money as opposed to the old money that owns the newspapers. If you go and look at all of these, like, media corporations, they're all owned by like these nepotistic families that have inherited from generation, generation. Often the owners are in like, you know, the, the back, you hear, you know, for example, Everybody recognizes Mark Zuckerberg, right? For better or worse, he's out in front. He's taking the hits. He's a founder. He's the son of a dentist, built it for nothing. Nobody recognizes Arthur G. Sulsberger, who inherited the New York Times company from his father's father's father's father's father, right? Once you apply that lens of like new money versus old money, well, actually, you can actually look at this kind of conflict happening many times in history. And so if V1 is billed and then V2 is, oh, let me be a critic and take my spears. Because what's the point of the critic, right? Their point is to take your stuff. If they can criticize you and get you to apologize. What comes after an apology is some form of reparation of some kind. You're giving up something, right? Because if I apologize, well, how are you going to make it right? Okay, I'm so sorry. Let me give you something. So it's essentially highway robbery on the Internet, right? Where they can back you into a corner for building something with this criticism. And it's actually. Think about how low capex it is, right? You had to go and take all this risk and spend all this time and write all this code and this guy can just tweet at you angrily and get you to back down and give you some money. And he didn't do anything, right? Extremely. Great. It's like, it's like the, the patent lawyers who go. What are they called? The lawyers who go around and Ambitious chases. Yeah, the ambitions. Yeah, exactly. It's a, it's a low cost structure. Patent trolls, like these are like the, the pirates who would just go and attack ships that were traveling, right. They're like bandits, essentially. Right. And one way of looking at that is think about how hard it is to, let's say, do a deal with, I don't know, I'm just picking the name Coca Cola, right? To use Coca Cola's logo for something, to advertise it. But a media corporation can just take Coca Cola's name and put it in their headline and use their brand equity to sell their papers, Right? Or your name and use your brand equity to sell their papers. They can just kind of steal. They're optimized for all that stuff, right? And so then once you kind of realize this, well, what do you do in civilization? One option is, and this is V3, and V3 is, I'd call it like reflexive reaction. V3 is you just become a critic back and you Spend all your time attacking them back, right? The problem with this is then you become them, right? So what I've come to after a lot of thought is V4, which is something like 20%, right? 10% fight, 70% built. You actually consciously think of this as a defense department and you allocate budget for content. Just like you have to have a legal staff, right? You have to have some degree of content budget. You have to go direct. You have to actually tell your own story and have your own community or someone will do it for you, right? And at first it's a necessary evil. And then you actually might get into it. You're like, actually this is pretty cool. You know, once I'm set up to do it, I've got like a nice, you know, studio or I've got a nice, you know, template for our blog. I've figured out a nice story. For example, we talked about earlier, Shopify Trends that generates a story every week and it's an awesome one. It's something that's on topic and so it's, it's like, it's something that you like, but it's also driving the news cycle. And you've got, you know, social media and people are subscribing to you because this becomes important information, right? So you're doing a service to community, as we talked about. You're also building your defense department because you're building a community of folks who are tuned into your version of events. You're helping your community defend themselves. And that's kind of what I think of as like V4. All right, let me pause here. That was a download, but I'd love your thoughts on that.

I'm sort of baiting Cass into it.

Like, I know I'm very easily baited. I mean, this is interesting, but as you were describing it, I just realized like, you know, we more or less got rid of piracy, like high sea piracy in the world by not any one person doing anything, right? We got rid of them by declaring them Persona on gr, that anyone could just kill a pirate and you'd be fine. Like it was a whole society saying, ah, those people are all reflectively bad. Let us all attack them.

Because I disagree. I don't think that's a story.

You don't think we got rid of pirates? The British Navy, plus like Persona on grata. How do you think we got rid of pirates? Super cool.

I think all startups are straight lining to the pirate ships. They have a share operations, people get recruited on merit. People, you got a share of a bounty. It's just there was no opportunity space for this kind of grouping during those times. And therefore the pirate ship was a pressure release valve, basically pushing entrepreneurial activity into the underground. I think we ended it by actually creating America, basically.

I think there's an interesting thing to be. I think there's a system design thing that happened which is if you attacked a pirate ship, you could take everything they had as long as you attacked a pirate ship. And that created very good incentives for people to attack pirate ships. And that's actually what's needed in the world today of critics. All you need to do is for a couple people to stand up and say, ah, I stand up against you with this person who you're criticizing. Because what usually happens is someone very loud yells at someone who's building and everyone else cowers. But if someone loud yells at someone who's building and every other builder.

The.

Bat signal goes off and starts attacking that person. What ends up happening is the incentive structure changes. The incentive structure of like picking you off one at a time changes. This is why I think it's so important. I disagree with some things Elon does or says, but it's so important to defend him publicly because otherwise the incentive structure is screwed up.

So it's funny because there's actually a resolution of both of your guys views into one thesis, antithesis, synthesis. And what that is is there's two ways of defeating pirates which are defense and conversion. Right? So are the pirates the bad guys who will just fight us to the end or could they become one of us with the right incentive structure and you know, the second model. Actually I've seen that in academia, you know, the fundamental similarity between the socialist professor and the capitalist CEO.

No.

They both deeply want to be in charge. Okay. There's actually something there. They're actually, I mean a lot of those social professors are pretty smart, right? And they have frustrated executive authority and they try to do everything through the state, right? But once they join the network and you actually give them that CEO title, they have more authority over fewer things. But now they. There's no one to complain to. So they open their mouth and then they have to close it because they have to do it themselves. And now they start figuring it out, right? And so that's. I've seen this over and over again. So many folks become, once they realize how hard it is to actually build something, how competitive markets are, it converts a lot of them. It may be the best way to convert them because it's a minus One for the pirate side and a plus one for your side now and then those that are left are actually those that can be mopped up and dealt with, you know, via coalition. Right. Basically, that is. That is a, you know, kind of resolution of both your views, which I actually, I've seen both of those in practice. Both the unionization of tech and the conversion of former critics into tech people, for example.

This leads me to where I started. Logy. You're good at joining our One on Ones. You should just put you in a careers case sitting on One on Ones. It's perfect.

I definitely want to talk to you guys about Shopify trends. I'm very interested in that. Okay, guys, I think we have covered almost everything I wanted to cover. I thought this was great. There's tons more we can talk about. But if you have any final comments, thoughts, anything you want to leave people with, stuff you're excited about.

Let me, let me, let me make.

A shameless pitch for something. If you've gotten to this point of this podcast, the odds are that you're a square peg in a round whole world. And Shopify is a company built for those people. It's a company of, like, ex founders who really believe in changing the world and taking ownership over your own life and helping other people take ownership over their own lives. It's not a typical tech company and, and it has ups and downs. But if you're open to being atypical and if you're deeply curious, please look us up. We're building something special and we could use more special people to build it.

Well, the best ad for working at Shopify is just you guys, so that's great. And we'll put that link in the show notes. Toby, you have any thoughts?

I know it's a new podcast. I'm amazed at your restraint of, like, because I know, like, literally everything. Like, I read your essays and like, we're talking about things partly poorly that you have written incredibly eloquent essays about. Like, for instance, I was just reminded, like, in our conversation that what I was drawing on was largely inspired by your founding versus Inheriting essay, which I really think is one of the top essays that I've come across in the last couple of years. So I'm amazed at your range because you're being a very good podcast host here and not jumping in. I think it's great fun. I was earlier critical on media being clearly an inherited radio world that is largely staffed by the critics. This is something I said publicly. I think podcasts are so different. And because you hear about the potential of new ways of creating countries even plus all the various histories or how empires fail, what we can learn about them or things about optimistic messages. Because podcasts are run by their founders, right? Like they are the thing that we are missing in the other mediums. And I think it's great that you like running this. I think it's a great topic. I'm glad to be here. Cas made a great pitch for Shopify and working with Shopify. So I feel like should meet a pitch your own podcast at the end of one of your episodes. That's not super useful but like, well maybe that's something to give back here.

I'll make one comment on your last comment and which is basically that I think with the tweets which are the ultra short form and the podcasts are the ultra long form, those are relatively less occupied by legacy media and that's one of the reasons we've made a lot of progress. And the other is that unlike a normal interview, the quote interview is hard hitting and they're supposed to ask interrogating questions and so on. And that was based on a distribution asymmetry of media corporation and the subject ours is based on distribution symmetry. It's actually peer to peer. And so I connect to you and I connect to Vitalik and we connect to others and so on. And so we're building actually something new together. So very glad to have you guys here and thank you for being on the networks podcast.

Awesome. Thank you so much for having us.

Cheers.