Shopify President Harley Finkelstein | Catalyzing Entrepreneurship

Hi everyone. Welcome to Grey Matter, the podcast from Greylock, where we share stories from company builders and business leaders. I'm Heather Mack, head of editorial at Greylock. Today. Greylock General partner Mike Dubois interviews Harley Finkelstein. Harley is the president of Shopify, the e commerce platform that facilitates the operations for more than a million online businesses around the world. In this interview, Harley discusses how his earliest entrepreneurial ventures paved the way for his role at Shopify, how the company grew to the major e commerce platform it is today, and the company's unwavering mission to enable entrepreneurship at scale, no matter how much the commerce landscape changes. This interview took place as part of Greylock's Iconversations series. You can watch a video of the interview on our YouTube channel and you can read the transcript on our website greylock.com thanks for joining.

There's a pretty good mix of folks in this room. Brand founders, e commerce infrastructure founders, B2B commerce and stuff at Web3. And thanks to Harley for joining us and entertaining a slew of questions from the group and some topics I've prepared on this. I thought what would be interesting to go into is really to start thinking a little bit about how you approach entrepreneurship in general. I think Shopify is essentially a platform for enabling entrepreneurship and I've always admired how steadfast in the mission you've been. So I want to spend a few minutes on that, talk more deeply about some of the stuff going on on platform and kind of efforts from the vantage point Shopify has. Kind of what the future of commerce looks like from your end. A big theme, it seems, through your life and career has been entrepreneurship and enabling it. Was there a moment in your life or when was the moment when you kind of decided that this was your calling, this is what you were going to dedicate your life to.

Quick show of hands, how many of you had sort of small little side hustle businesses when you were like 8 to 10 years old in the room? Yeah, I mean my people, that was it. I mean, growing up I wasn't really into sports. I wasn't really into like hobbies and the way most kids were. I was kind of into this idea of like starting little businesses and I liked the idea of collecting, you know, sports cards. Not because I thought it was cool to have like some like Michael Jordan rookie card. I thought it was cool to sell it for more money to my neighbor. I thought that was a great thing to hustle my neighbor into, pay me all of his allowance. My first real kind of entrepreneurial thing was I was 13 years old. I'm Jewish by background. I went to a lot of our mitzvahs, as I think a bunch of you did. And I wanted to be a dj. Nobody would hire me. Cause I was like this big and didn't know how to dj. And so I started my own DJ company and hired myself. That year was the same year we moved from Canada to South Florida. And I ended up DJing, like something in the neighborhood. No exaggeration, like 500 bar and bar mitzvahs. And while even in high school, all my friends were going out, getting drunk and doing whatever you do. In high school, I was DJing Bar Mitzvahs, which at the time, like, seem really cool. Now I say it out loud, seems super lame. But that's what I was into. I was into this idea of. And it wasn't even about the music or about the entertainment. I just liked the idea that I was able to deliver some value and somebody would pay me for it. And I think a lot of it had to do with this idea of independence that I can do whatever I wanted because I was able to make my own living. Where this got really serious for me was in 2001, I moved from South Florida to Montreal to go to McGill. I was born in Montreal. It's my Hometown. Went to McGill, and things got really rough with my family. My dad was no longer around. My mom and younger sisters had basically there was no money. And so a friend of mine was at student council at McGill University. And he told me that McGill at the time was spending somewhere in the neighborhood of $25,000 per semester on orientation or frosh apparel. The stuff you got the first day of school. Montreal. I don't know if any of you know about Montreal, but it has a rich history of the schmata business, the clothing business, kind of like New York City. And the reason is, in fact, it's a really interesting thought, which is if you look at cities that have a disproportionate amount of immigrants, you will often see a massive textile trade, shamante trade, apparel trade, because the barrier to entry is very, very low. I started selling t shirts to McGill and then eventually sold to a lot of other universities across Canada. And again, I wasn't really into T shirts per se. I was into the fact that this tool called entrepreneurship that I pulled out of my pocket for DJing and also for apparel, it solved the problem. The problem when I was 13 was I wanted to DJ. No one would hire me. The problem when I was 17 or 18 was my mom and sisters needed money and I needed to pay tuition. I ended up moving to Ottawa in 2005 because a really good mentor of mine convinced me that law school would be like finishing school for entrepreneurship, that I would learn certain skills and certain tools in sort of that three year period that would be very valuable to me as an aspiring bigger entrepreneur. Moved to Ottawa, had no friends or family there. I'd never even been to Ottawa before. And so like many of you have moved to new cities, I'm certain I would ask, where are the entrepreneurs? Where do the entrepreneurs hang out? And I was directed to a small coffee shop in Ottawa. And that's where I met Toby. And Toby had just moved to Canada a year or two earlier. He met a girl, he was from Germany, he met a girl who lived in Canada. He moved there, couldn't get a job because he was a new immigrant. So like a good aspiring entrepreneur, he started a company selling snowboards on the Internet. And in 2004 there were really two ways to sell product online. There was you either use a marketplace or you paid a million dollars for some ridiculous IBM web sphere stack. And so he was really into this new language called Ruby on Rails. He was a core developer with a few other people like dhh. And there were a few companies that were really thinking about, there are few people in the world thinking about Ruby on Rails and how we would build scalable software at a much faster pace. And he was one of them. And so he wrote a piece of software to sell these snowboards and very quickly realized that other people may want to use the software for their own products. And I was one of those people. I became one of the first merchants on Shopify. And I turned my sort of wholesale T shirt business into a direct to consumer retail business. And I spent the rest of law school and business school selling T shirts. Went to practice law for all of 10 months in Toronto. Moises and I talked to this yesterday, like just the worst experience of my entire life. The law firm environment. You were a good lawyer. I think I was a really, really bad lawyer. And I just, I hated the environment. I hated the fact that it wasn't about how much value you added, it was about who you were, what your last name was, how long you've been there. It just wasn't for me. And so I called Toby in 2009 and said, I would love to join you and a small group of others and help build this company called Shopify. And the fundamental reason for that was I thought Shopify was the greatest catalyst I'd ever experienced as an entrepreneur. I talked about that tool, I pulled out Shopify. It felt like it gave me superpowers that I was able to use that tool called entrepreneurship and wrap it with the superpower and I can build things faster and at much larger scale. And 13 years later, we have millions of stores on the platform. We've helped millions of stores start scale and grow their businesses. And Today we're about 10% of all E commerce in the US and in other countries. Even higher than that.

Yeah. Amazing. I mean, I want to come back to your personal story a bit. I think one of the topics that I think a lot of people here are interested in, that kind of ties to the early vision for Shopify is the platform piece. And I think what's really notable, I mean, there's a bunch of people I'm looking at here in the room today who have built significant at scale businesses on the platform.

Can you raise your hand if you built a scale business with the platform? Great. Wonder who to be nice to.

Yeah, I mean just, I imagine early on, just the builder mentality, Toby, all you guys thinking about just kind of building as full of a solution as you can for entrepreneurs, wanted to get going. When did it become clear that the platform approach was the right one? And what were some kind of the assumptions that you made kind of going into that?

In the early days of Shopify, we used to get this report from our support team of three would send us this report, I think every Thursday or Friday. And it was basically a list of customer complaints that they had or voids in the product, things that were lacking in the product. And at a certain point that list got longer and longer. And I think most entrepreneurs and most founders would have had this experience. You have to make a decision, either you're going to build everything or you're going to need to find another way to supplement the platform's lack of the lack of product market fit that 100% of merchants are going to get. And so there was no way that we would ever been able to build every single feature request that was coming out of the support organization. And so it felt like the easiest thing to do would be, well, why don't we just create a bunch of APIs and let third parties come and build on top of it. The problem was that none of you in this room wanted to build on Shopify in those days because you have a classic problem, which is chicken and egg. And you're not going to build unless we have a lot of merchants, and we're not going to get a lot of merchants unless you actually build to fill in the product gaps. I remember when we launched the theme store, Daniela reminded me of the story. Earlier today, we launched a theme store. No one wants to build themes for Shopify because again, why would you spend any time building for a platform that has very few customers of your product? And so we created a competition. We gave out an ipod touch to the winner. And recently on Twitter, the person that won found me and said, I still have the ipod touch. And it says things, theme store winner, whatever it was. So we did a lot of things in the early days, things that just didn't simply scale. I would call app developers myself and say, look, I know you're building for Force.com or some big enterprise e commerce company. I think you should build for Shopify. One of the cool parts of building for Shopify in 2010 is there's nobody else. We had such a small group of app developers that if you build something of actual value and you believe that our ability to scale the platform in terms of getting more merchants on is going to continue and it's going to grow, you will be part of the furniture of the App Store program. And over time, it got better and better. What we started realizing was anyone that was really good at thinking about commerce and sort of modern retail, we were giving them an opportunity to find as many customers as they wanted for their app. So effectively we would become their go to market strategy. And in return, Shopify would provide 100% product market fit for anyone that used the platform, regardless of what were the nuances of their particular business. Remember, there was an early story of a merchant on Shopify who was a European sneaker company who badly needed some sort of shoe size converter. And they were adamant that we should build it ourself. And it was obvious that it was like the worst thing we could have spent our time working on is building some sort of, you know, shoe size converter. I remember having this conversation myself with this merchant and eventually it turned out there were these. There were a bunch of third party app developers in London at the time who had just built a bunch of these sort of like free tools online. Like, just like a website where you put in like your US Shoes shoe size and you got the American or you got the European shoe size. And we just contacted them and say, look, take everything you've built for the web and just put it into the app Store. And eventually, as they did and others did it we actually, we built a real app program and then over time, as the merchant base grew, we got 5,000 merchants and 10,000 merchants and 100,000 merchants, it became a lot easier to recruit more app developers. I think the key though for us has been many of you have heard, if you've listened to anything I've ever said, I talk a lot about this, but that Bill Gates line, a real platform is where you create more value for others and you capture for yourself. The thing that Bill Gates line, quote unquote, I think it's called the Bill Gates line. He certainly has owned that set sentence. But the thing that that's missing is the next sentence is, and over time, the proportion of value should continue to grow on the side of the partner. And I think we've done, we've added a lot more to the core offering of Shopify. The definition of what most merchants need most of the time is what we built into core. But even if we build something like email marketing ourselves, we still leave room for customers, Klaviyo and all these other email marketing companies to make lots of money to create great value for our merchants. And I think that relationship we've had with the merchant community and then the partner community over time is something that I think is really quite unique. And part of it is because we've always left room for others to participate in sort of the Shopify economy.

Yeah, it feels like with scale, the needs of merchants, of developer partners and of Shopify have the potential to conflict more often or in more interesting ways. Are there instances where you feel like you maybe provided a suboptimal merchant experience unintentionally Suboptimal merchant experience by kind of having a partner kind of serve that need versus Shopify having done it or how are there instances where this balance has been hard to strike?

Yeah, I mean, in the early days of Shopify, we had third party app developers that were basically doing mobile web optimizations of an online store. This is like 2012 or 2013. But what you saw was the traffic on the mobile web was increasing. This is not mobile apps. The mobile web browser traffic was increasing. Transactions were not at this point. I mean, it was still pretty much like a way to browse, not a way to transact. I mean, it was years later where you saw more than 50% of transactions on Shopify were completed on a mobile device. But we had a bunch of these third party apps that their only value was they would take your online store on a desktop and optimize it for the mobile web. And that felt at a certain point where we saw more and more traffic going, okay, this has now crossed the threshold and now it is what most people need most of the time. And so we built that ourself. So there's going to be times where, and we've been honest about that to say, like that definition is dynamic. It's going to change. The trends in commerce and retail are going to change. So there's going to be times where we're going to add new products, new features. The best app developers that have been on the platform in some cases since day one, they've always found opportunities to add more value. There's always surface area around. And every now and then I run into an app developer that sort of criticizes us and says, well, you're building everything yourself. And I direct them to 8,000 apps in the App Store. Some of which, by the way, I mean, we talk a lot about these IPOs that have happened on Shopify from the merchant perspective, whether it's Oatley or it's Allbirds or it's Figs, my suspicion is we're going to have a lot more app developers that businesses that were predominantly built on the Shopify API that will go public and that'll be as an exciting of a day for us as any of the merchants that have gone public. Yeah.

One of the areas that I think is most kind of, that I hear most chatter around in talking with merchants now, and this is kind of ties to my previous background. Running at scale paid marketing budgets is just the cost of acquisition going up for a variety of reasons. But with att and with iOS measurement challenges, it seems to be more pronounced than ever. At the same time, I've heard Toby and you state early on, kind of playing kingmaker is not what Shopify does. Kind of never pit up one merchant against another. Which kind of ties into how one might. You're probably sick of getting asked the question, will Shopify become a marketplace? But I think on audiences this has been a really interesting kind of effort to watch because it feels like merchants love this. How have you guys thought about building out what is essentially kind of perhaps, perhaps a competitor of Facebook lookalike audiences or maybe a supplement way for merchants to really drive traffic.

Yeah, I mean, it's fundamental. Not a competitor, because Facebook look like audiences, was fundamentally a set of third party data that contributes a bunch of some of the stuff that Apple's putting out in the world. Whereas. So I'll answer directly, the reason that audiences opt in is because we don't want to default everyone to share their data. There's going to be merchants on the platform that is going to say, fundamentally, I don't want to share my information with anybody else. However, one of the things that audiences is doing, you guys know what audiences is, okay? Most people do. For those that don't, if you're a Shopify plus merchant and you have 10 SKUs, you pick three SKUs you want to sell more of, you put them into the audience algorithm. We feed you back with a lookalike audience or a sample audience. And now when you're buying ads on Facebook or Google or Instagram, when you upload your product descriptions and your metadata and your photography of the product, you also upload the sample audience. And we can pretty much guarantee you will have a higher return on ad spend from that. So it's opt in. You don't have to do it. One of the things we're realizing is, and we're talking a lot more about audiences now, because now we're seeing it, it's beginning to scale really well. The more people that opt into it, the richer the algorithm becomes. The more information we have, the better we can help you make decisions. And so I think that two things are happening. One is merchants that may be hesitant to share their data are becoming a little more comfortable with it when they realize one, it's anonymized data. And two, modern retail is not zero sum. It's positive sum that there's so much business out there that it's okay for you to participate in this. Because, yes, you may be making another merchant somewhere else in a different category a little bit more money, but you're also funnily making yourself more money as well. And the delta between you being somewhat uncomfortable, but sharing is offset by your return on ad spend. And over time, we think that we want to get audiences to a point where it is a bad thing, it is a mistake to buy ads on a particular digital Surface digital network without actually first running your products through the audiences. We're not there yet, but that's where we want to get to. And we're not a marketplace, by the way, just to answer that first question very directly, but that is something we can do. And. But the reason it's opt in is because you don't have to participate in it. One of the things you get when you sell product on a marketplace, you get to borrow the economies of scale from the marketplace and they charge you rent for that in the form of like listing fees, but also transaction fees. When you build a tech stack, a custom tech stack for your brand. You get full ownership, you get full independence. What we're trying to give you with Shopify is you get both. You get economies of scale because you are part of a community that is the second largest online retailer in America. And at the same time, you get full independence. We don't own your business, we don't own your customers. We don't own your data. It all belongs to you. Our job is to be good custodians of all those things so you can make better decisions. But if you decide you want to leave Shopify and you want to take all your customer data with you, you should do that. We hope you don't, but that's the role we want to play. And I think one of the reasons that there are people in this room that have said to me in the last two hours, I've been a shareholder of Shopify's for, you know, since. Since day one, since the ipo, most people in the world don't really know Shopify because fundamentally we've been the brand behind the brand. The only thing that's changed recently is Shop Pay. Shop Pay has now put the Shopify business front and center in a way that just had not happened before. And so random New York person that's walking the street right now, he or she is now seeing Shopify the Shop Pay button across most of their favorite stores. Now they're beginning to be like, what is this Shop Pay? It's by Shopify. But for the most part, we've. And this is a very. I think this is where being based in Canada has been quite helpful. We have played really nicely and we've been in a good position being the brand behind the brand and letting our merchants look really good, not us.

Yep. So we're talking about some of the at scale stuff here on audiences. If I go back to the beginning and think about what is the core competency of a merchant early on or as a brand founder trying to get started, in my view, like the art is around finding your initial kind of audience, your initial 1,000 fans, if you will, as you think about removing a lot of the other competencies that a merchant would have had to need to build in house over time and replacing those or kind of supplementing them with Shopify and its partner ecosystem. How do you think about the role you play in that core and that initial kind of discovering those fans, Would you say that is still ultimately on the brand founder to kind of figure out?

Yeah, I mean, there's some things we do to sort of help them get found. It's funny, we all sort of take this for granted now, but like out of the box for $29, the SEO that you get with Shopify is equivalent to what someone was paying millions of dollars for eight years ago, five years ago, even. So we try to make it really easy, but ultimately we don't do manufacturing for our merchants. It's up to them making the products. That's up to them. And we don't give them customers. We just, we don't hand it to them. Now, if they want to be given customers, it is a much better version of that business model is a marketplace. They will give you those customers. I think what people miss about the marketplace model is those are not your customers. You are renting customers from that marketplace. They belong to them and they will rent it to you until they decide they don't want to rent it to you anymore. But you are not actually building any direct relationships. And so your ability to build a brand, build an audience is up to you. What we're trying to do is find all the ways we can make it easier, whether that's through audiences, through SEO, or. Or it's even through things that are simple. Like in the admin, when you're looking at your analytics and your reporting dashboard and it says you are getting really high quality traffic from Pinterest randomly, you should go and buy Pinterest ads. Or your best customers are coming from this geography, you should go buy ads in this particular geography. And so rather than give them the fish, we try to like, teach them how to fish so they can feed themselves for a lifetime. And not everyone likes it. Some people want to be given the fish. And that's just not. That's not our model.

One of the questions we were talking about before this dinner was around kind of the tension between serving early stage entrepreneurs upstarts while also trying to scale an enterprise business. And I think that's something that, as I was kind of asking for feedback on questions before, and I think it's a topic that a lot of founders in this room struggle with. How have you thought about it? I know plus has kind of been partitioned off and there's kind of different ways you all have approached this. What generalizable advice would you have for founders that are kind of trying to serve both ends of the spectrum?

That is one of the most difficult things for a piece of software or frankly, a company to do. I mean, we're in this beautiful restaurant and we're enjoying this food. And I don't know who owns this restaurant, but presumably at some point someone had a conversation about making the restaurant bigger and bigger and bigger. And eventually there's a certain point where you're going to get diminishing marginal returns on the restaurant size versus quality of the food. The quality of service software is a bit different because software should fundamentally scale. It should make it easier for people of all sizes to use. But the problem is that years ago we had a bunch of competitors in sort of that SMB space. I don't think any of them exist anymore. Some of them do, but most of them don't exist anymore. But there were all these SMB companies, e commerce companies, and almost every single one of them to a T all moved up market. Every one of them, BigCommerce even decided like somehow a year ago that that's where they should be going. Everyone moved up market because one upmarket you have higher customer lifetime value. The cost of acquisition is almost the same in many cases, but higher lifetime value and the churn is much lower. So what happened is you went from having a funnel that looked like this to a funnel that looked like this, but the quality of those merchants were much larger. And so they all moved up market to do that. And they all struggled. The reason they struggled was because what they missed was that the brands that we love today, like most of the brands we love today, our favorite brands, they started just a few years ago on Shopify at their mom's kitchen table. And if you don't help those people that are at their mom's kitchen table get started and make it really easy. And then once they get bigger and once they scale, you need the complexity to reveal itself over time. So what I mean by that is not everyone needs like when people are getting started, nobody needs cross border task compliance. When people are getting started, nobody needs to do ridiculous like ERP integrations. But there's going to be a point where they need that and when they need that, that has to reveal itself. And so one of the most challenging parts of Shopify is to make software that is so easy to use that anyone at their mom's kitchen table could get started in a couple of hours and build a beautiful independent scalable online store. But when they grow, when they become larger companies, larger, they can upgrade and they can take more merchant solutions, payments, capital, shipping, they can add balance, they can start selling cross market with either Shopify Markets or even our partners at Global E. Maybe they add shop pay installments, but all these things reveal itself to them at the right time. And that's the reason why you see on Shopify, not only do we have these small little entrepreneurial startups, like aspiring entrepreneurs who just have a story in the shower in the morning, but. But we also have these massive multi billion dollar companies. And the ones we like to talk about the most are the ones that have gone from kind of that first sale to full scale. But that is really one of the most challenging parts because at some point every aspect, every segment, every cohort of merchants is going to say, I want way more of this stuff also. And you have to do it in a way that is scalable, that is easy to use, but it doesn't overwhelm them at any stage. It's one of the reasons why we think shipping is really important. We didn't really like the shipping logistics industry is difficult. One of the reasons that we think it was important for us to actually tackle that with SFN was because it felt like it was one of those areas where there was a natural off ramp out of entrepreneurship. You got big enough where now you need to deal with a 3 PL or you have to deal with like some massive company who's doing shipping on your behalf. It gets really challenging. And so what we're trying to do is because now again, if you were to pretend that we were a retailer, single retailer, we'd be the second largest retailer, online retailer in America. We're trying to use our economy of scale across every single problem point for an entrepreneur and for a business and for a brand to reduce that barrier to success and doing so at the right time, with the right set of features, but then also having things like hydrogen, which is our version of headless. You don't see many companies that stretch. Let's take a simple example, email marketing. Most people use email. This is pretty much across the board. Most people start with the BCC line for email marketing, then they move to some sort of free version. They use some Gmail widget or app or plugin and then eventually they move to mailchimp, maybe with constant contact and eventually they get to exact Target. And then eventually it's some massive enterprise Oracle SAP type email system. There is a natural graduation as you scale, which means you keep migrating from platform platform to platform as you grow. The fact that that doesn't happen on our platform is one of the things that I'm most proud of.

Yeah, I'm glad you mentioned fulfillment because this also feels like an area that is not obvious from a cultural DNA standpoint. Just From a DNA and kind of company's core competency, going from kind of bits to atoms, thinking about, do you acquire into that? What do you build in house? You articulated why it was important to do that as you thought about different ways to get into it to avoid distracting from your core. How did you guys make that decision?

A couple things on sort of fulfillment. The first thing is no one really loves this fulfillment side of their business. No one's in love with it. I mean, even the people that are the most operationally excellent founders and leaders I know still don't love that aspect of the business. And the companies that we all believe do it well, they were kind of forced to do it really well because they had no choice. Consumers have been completely recalibrated in terms of expectation. I actually don't think consumers need one day shipping. Just to be clear. I think what consumers deeply need and have come to expect is the anticipation, the approximate anticipation of when my package is going to arrive. That is what matters most. And it is almost impossible for small businesses and even medium sized business to do that. Even some very large companies that many of us shop from don't tell you when your package is going to arrive. They sort of give you a five day window. I mean, that is not what consumers want. They want to understand when it's coming. So when you looked at sort of the fulfillment space, it felt like there were sort of three blocks of fulfillment. The first block is from the manufacturer, from the factory where you make it to the port. And we were watching what Ryan was doing and now Dave Clark is doing at Flexport for a long time. And frankly it felt like they were taking a very modern, very scalable approach to a really difficult problem. And so we decided for that first phase from factory to port, Flexport would be a great partner for us. We should build deep integration so people can track that first phase. The second phase is when it gets to the port. How does it go from the port to the fulfillment center? Most people refer to that phase as the balancing phase. You have to balance your inventory. And we were actually going to build software ourselves. We'd started building software ourselves. We, we bought a company a couple years ago called Six River System. They were formerly the guys from Kiva. Amazon bought Kiva and didn't, you know, they all left. They started 6Rs. We saw what they were doing with these sort of what they call Chucks, which is their robotics company. And the Chucks are really, they're a really wonderful way to make pretty much any warehouse, any Fulfillment center more efficient. So using, along with 6Rs, we were going to build that balancing software. And then we began to ask merchants what they thought about it, who they were using. And it was obvious that all sort of roads were pointing to this company called Deliver. Do you guys know Harish from Delver? Some of you do. And Harish and his team had simply built something that was just unequivocally better than everybody else. And every merchant that was using Deliver for any part of their business, whether it was crosstalk or it was balancing, was delighted by it. Like, imagine that being delighted by your balancing software. So in that case, it was obvious that if we had an opportunity to acquire Deliver, we should. And we had an opportunity a couple months ago, and so we acquired them. And so that second sort of phase is really powered by Deliver. The final phase is, okay, now that you know exactly now it's in the fulfillment warehouse, how do you get it from the fulfillment warehouse to the actual end consumer? So like the person who bought it right to them? And it turned out that there were all these warehouses or 3pls all over the US that were half empty, were not really operationally efficient, did not have robotics, did not have good software. And so when we began to sort of talk about this idea of what we call sfn, the Shopify Fulfillment network, all of these warehouses started contacting us and saying, hey, look, we have excess space. We were doing fulfillment for Forever 21 or for Barney's or for, I don't know, online for Neiman Marcus before bankruptcy. And we have capacity. We can handle all of your, like any of your merchants that want to use our warehouse, we can do so. And so we started building FMS software, fulfillment management software. And we said to all these sort of these independent warehouses, if you integrate with our software, if you're ambitious, you should also integrate with the Chucks, the six river system robots. We will make you part of this network and you basically will never have to look for a customer for your warehouse ever again. And so whether it's from, from the manufacturer to the port or from Port right to the end porch, there are pieces of that that we felt we had to own. There were pieces where there were just people that were doing it better, faster, more efficiently than we were, like, hareesh. And we don't really need to spend $10 billion because that's not our model. Our model is Asset Light software. First, we don't think any of our merchants require one day delivery. If they do, they can figure it out on their own. What they really want is, is to be able to offer a proper expected delivery date to their consumers. And what we think is really cool about delivery and fulfillment sort of as a whole, is that by doing so, we think that actually we will give small businesses and smaller brands a fighting chance against the bigger companies. Because this idea of being able to anticipate when your order is coming is massive. Not just for trust, but actual for business. Like, it does change the conversion rates. So that's why we're doing it.

Yeah. This kind of ties to a point on future proofing. I think one of the things I've heard you articulate that I love is one role of Shopify is helping merchants essentially future proof their business. And so I wanted to shift gears to talking about kind of what the next decade plus of E commerce looks like. I think you are in a really unique vantage point on basically the best vantage point probably on seeing where things might be going. There's a bunch of trends right now that myself, others in this room are spending time on around, whether it be live video creator, led commerce, wallet aware token, gated commerce, other things, and messaging. I guess if you look across everything that's going on, on kind of the next gen or future of commerce, if you will. Like, what gets you most excited right now?

I think retail and commerce kind of go in waves. There was like a wave of like, everyone wanted like crazy personalization. I remember talking to like some brands here in New York, like Kith, for example, and they were like, they want to like, do the whole initials on your shoes or on your sweatshirt. Or I walked in today to, you guys know, Saturdays, great brand out of here. Shopify store, both online and offline. They had an embroidery set up in the back. So like, I was like, what's that for? Well, you can personalize your shirt. Like, there was sort of an era of like, personalization that was everywhere. And then there was sort of like an era of like drop shipping. And then there was an era of, you know, subscriptions. Like, every company did a subscription. Like, you can use subscriptions on like winter coats. As if, like anyone needs that. There was an era where every single physical retailer, I kid you not, had a DJ in there. Everyone had it. It wasn't even on brand. It was like they're selling asparagus and they have a DJ in the back. And so all of these things, I think for some merchants, some of the time this makes a lot of sense. But not everyone needs a dj. Not everyone needs personalization. Everyone needs subscription. The way that we think about all these things. I'll go specific on my own opinion in a second. But as a whole is make it so that when you come to shopify, we make the important things really, really easy. Checkout inventory, ability to transact, beautiful storefront fast. If you have a massive flash sale because you got Jerry Seinfeld and Kit together, which I think is like the greatest collaboration ever, that you can handle any traffic spikes, that's the important stuff. We make that really easy. But then we also make everything else possible. And the reason I'm talking so much about future proofing is because there is no way for any brand that you've invested in, and you've invested, I know, in some of the best brands on the planet, there's no way for them to anticipate exactly where commerce is going. But the key is to find something that doesn't require you to ever have to migrate off of it. And if you look at a lot of the enterprise companies, enterprise e commerce companies, I think all of them have been acquired by some big software company. That's not how they're building it. It's not that they're bad or good, it's just they've built it in a certain way which is highly specific for a particular type of customer. My personal opinion is that a lot of these very large companies are beginning to also act very much more entrepreneurial. They don't want to have 8 month sales cycles and 3 month RFPs. They want something that's really, really great and they want to know fundamentally that the platform they're choosing today is future proofed. One of the things I think is really cool is on a personal level is I think this whole channel conflict, omnichannel stuff is going away. I think we've now gone past it. Every modern brand, every brand that we love doesn't really care where you buy from. They just want you to have a great experience. And I think even the term omnichannel will eventually, like in the next 12 months will be like talking about the color TV. You just don't say that because every TV is fundamentally color TV. And I think that's where it's going. I think that's where omnichannel is going, where it just doesn't matter how you sell. It is the modern day town square and it's digital and it's in person and it's. And I think actually that may not be like the sexiest thing we can talk about NFTs or Web3 if you want. Also it's probably far sexier to talk about, but that actually is the best version of retail, I think, of the last 50 years.

Yeah, I mean, others in this room know I'm very excited about wholesale and like the opportunity to actually help brands.

Wholesale is not sexy. Wholesale is pretty cool. And you can do wholesale from Shopify. I started a little side hustle during the pandemic called Fire Belly Tea. And part of it was I was drinking way too much coffee and I have anxiety. So coffee in the afternoon for me is like really bad idea. As you can tell, I'm kind of hyper. Anyway, so I started drinking really good tea. And one of my best friends is David Siegel from David's Tea. And he started curating really good tea for me. Like the best green tea. And so eventually we decided we'd actually set up a store and I wanted to try out the new Shopify products. We set it up and so it's beautiful. We run it from the Shopify app. It's an incredible experience. But we just got, we got a note from Essence. You guys know Essence? Really amazing store. They're like, we want to carry Fire Belly tea. And so we have to have a whole different system for it. And the fact that Now Shopify is B2B means I can run everything from Shopify and whether it's wholesale, it's on Instagram, it's on TikTok. If I start producing music, it's gonna be on Spotify. It doesn't matter where the sale is made. There is one central nervous system for my entire business. I think that's what people are looking for. Forget all the bells and whistles. Like maybe we do a token gated nft for tea at some point. But the fact that I can do it and not have to worry about will my platform support it. That is the key ingredient.

Yeah. I mean, I think one of the. And it sounds like you're seeing this anecdotally too, but like it seems like the merchants start considering going kind of to physical retail either via their own shops or via wholesale much sooner than in the past. I think one of the catalysts could be cost of traffic increasing or, you know, what have you, or B2B kind of infrastructure getting better through Shopify and others.

Because you're not saying. Because no one's walking around saying, oh, I'm a online only merchant, or I'm an offline or I'm a wholesale merchant or. Or I'm a wholesale brand. It just doesn't happen. We are actually seeing now on Shopify manufacturing companies that traditionally manufacture for other brands that are actually setting up for Shopify and creating a random brand from scratch. So even manufacturers are going direct to consumer now. This sort of weird separation and these different categories of retail, it's all kind of breaking down. And I think ultimately it's going to be a very exciting time for retail in the next decade.

Yeah, I guess one way to distill kind of the question around this topic is like if you look at the the share of activity or the share of transactions that happen through a brand's website versus other channels, it sounds to me like you think that's going to look like the website will probably be less of a kind of factor long term.

I think the website has share going. I think website will still be very prominent. I think that until browsers become less relevant in our day to day lives, which I don't think will be the case, I think the primary channel will be the online store, but I think everything kind of feeds into that. Whereas I think if you go back even 10 years ago, E commerce was still big 10 years ago. The primary channel is the offline store.

One of the last areas I want to ask you about on this, I know we're kind of getting up against time, but is creator led commerce. And I think to me it feels like the next crop of brands are creators or content creators. And you have some of the more notable ones, whether it be Mr. Beast or Kim K et cetera. But there's also seems to be much of a kind of a torso and kind of longer tail of kind of content creators that are becoming brands enabled by Shopify and others. You built collabs. There's other stuff going on. Like I guess what is the role you think Shopify should play in all of this? Whether it be helping brands, helping creators kind of become their brands, or helping existing brands sell through creators.

What does your activity there look like? There was sort of like the drop shipping era like three or four years ago, you guys probably remember this. We had acquired a company called Oberlo. Do you remember that? Oberlo, yeah. And so drop shipping was like all the rage for like I don't know, 18 months or 20 months or so. And every time I went to a conference, whether it was a retail conference or an investor conference on Wall street, there was sort of this like judgment on like dropshippers, like dropshippers were not a real business. And they would reference the fact that the profit margins were so damn low and like they were here today on tomorrow and I actually think that was like, they totally missed the point on dropshippers. Dropshippers and drop shipping as a business model. It was a gateway drug to entrepreneurship. It meant if you had a blog, a travel blog that you can sell maps if you wanted in a risk free way. If you had a soccer blog, you talked about like, you know, the Champions League, you can try your hand at selling like actual soccer balls in a risk free way. It was a process improvement on retail. And if eventually you sold enough soccer balls, you probably went and bought inventory yourself. Part of what we're trying to do across, whether it was years ago with drop shipping or even today with some of the more creator stuff, is make it really easy to try your hand at these things. But there's going to be a set and meaningful set of content creators who have incredible audiences, who have massive subscriptions in terms of like on YouTube. They have a lot of subscribers and they want to build a brand, but they just don't know how to or they're just not good at it. On the other side, you have all these amazing brands that are amazing at building a brand and a product, that are trying to build YouTube channels and trying to build content, and they're just not that great at it either. And right now it's this ridiculous maze of complexity to try to connect really good brands with like relevant content creators that are sort of in their vicinity, in their vertical. And so we'd acquired a company called Dovetail a little while ago. Some of you I think, probably know Dovetail. And they were kind of doing something like this. And so what we did is we spent some time, did some work on it, and actually created Shopify Collabs, which is effectively an algorithmic matchmaking service to connect great brands with relevant content creators. And so the content creators are able to like content creators. That industry is $100 billion industry, $100 billion. 4% participation rate. If you increase that by another 4%, you change the lives of millions of people in every community in every country, but only 4% participate. I love Feastables. I love Feastables as a concept. I love Feastables as a product. I have a 3 year old and a 6 year old. My 6 year old loves Mr. Beats videos. Maybe shouldn't be watching, but she does. The Feastable branding is great, the product is great, the delivery of it, it's perfect. But not everyone is mrbeast. And so what we're trying to do is make it so that more content creators can actually monetize their audience. And more brands can connect with that audience as well and do so in a way that actually it's simple, it's convenient. And if they decide eventually that they're gonna hire or they're gonna partner with the content creator long term, make them a co founder, which we've already seen a little bit of around, that's cool. But just like everything else we've done, our job is to be facilitators of commerce and retail and entrepreneurship. And right now it feels like there's a huge opportunity connecting this group here with that group there and they're just not talking to each other yet.

So much to dive into on this. I think the last question which comes back to the beginning and your story with Shopify that I want to ask on behalf of founders in the room who are I think universally the number one issue in building companies is to talent, both developing and recruiting. I think it's rare frankly to see an exec who joins so early. As you kind of scale throughout every juncture of the company and continue to be just where you are. I think for other founders out there who might be seeking their harley, what advice might you have and how should kind of founders, specifically earlier stage ones like when Toby brought you on, think about bringing on someone like yourself?

Toby is well known for a lot of things. He's a product genius. He's one of the smartest humans I've ever met in my life and I'll work for him as long as he'll have me. He's that good. And he thinks about like we're all here having dinner and like having good wine. Like he's right now at home thinking about Shopify and the product. I mean that's his ground state, that's what he thinks been the shower and so. But one thing that doesn't get talked about enough about him is that he is one of the most self aware humans I've ever met. And the reason I bring that up is because he has a clear view of not only what is he good at and what is he like, what can he be world class at, but also things he just doesn't want to do or doesn't like to do. And so even early on he identified certain parts of the company that he just wasn't going to work on. And he certainly took a bet on me. He saw some potential in me. One thing that founders and entrepreneurs don't talk about is when to leave a company. There is a right time to leave a company also and you should make it as easy of an off ramp, as you once did on the on ramp. You spend all the time this time bringing people on. Like you give them these great onboarding kits and you send them great emails and they come in, you're like, this is gonna be amazing, like lfg. But if you create an environment, a culture where it's just as easy to leave if it's the right time, you actually are able to off board people in a much more effective way. Now there's also like, there's a 0 to 1, there's the 1 to n. And different parts of Shopify are in different stages like sfn and fulfillment or audiences is very much in that zero to one land right now. Payments has like a penetration, I think of like 85% in the US that is very much one to n. That's a scale company and you may need different leaders, different times, different products. So going back to like, my point about Toby is we're about 10,000 people at Shopify and he is incredibly self aware about himself. And because he's self aware about what he's good at, what he's not good at, he's created a culture where all of us are very honest about this is not what I'm good at, but this thing, I think I can be a world class storyteller. And so I'm gonna really focus on making sure. This is sort of what I am focusing on, making sure the entire world, investors, partners, merchants, the public media knows that Shopify wants to become the entrepreneurship company or the best place to build a business. And there's been times where I've, you know, I ran plus and I ran the app store and at a certain point it got to a point where I was the wrong person to run it. I wasn't good enough for it anymore. It deserves someone better. And so I raised my hand and said, I think we need to bring in someone who's better, faster, smarter than me for this area of the business. Because that other area, I think one day I'm certainly not there yet. I can be the best in the world at this thing. And I think that is a really helpful cultural philosophy to have at any company of any size.

Awesome. Well, phenomenal set of insights. Let's thank Harley for spending the time with us. We have time maybe for like 10 minutes of Q and A or a few questions from the group if.

Yep. I'm curious about your Web3 experience so far. You know the thought behind funneling through a beta program, what maybe the bumps along the road are the Learnings are so far. Yeah, especially for those trying to get.

Through the funnel and then where you're.

Going in the future, I mean, the best way to get through the funnel. I'll answer that second part of the question because I think it's really relevant for a lot of people here is the best way to get our attention is to get our merchants attention. Years ago we had something called ActiveMerchant, which is an open source payment library. Some of you may remember that Toby actually wrote that himself and it was open source and like a bunch of our competitors, funny enough, ended up using it. But at a certain point, the reason we did that was because like every payment gate, we wanted to integrate with Shopify and we're like, okay, just integrate yourself. And then eventually we were a little bit more opinionated about which payment gateways we thought Shopify merchants should be using. And so we began to suggest certain gateways in the onboarding process. And a lot of payment gateways wanted to be part of that. The best thing that the, the payment gateways that really made it to the top of the stack were not the ones that paid us like the most amount of money. It was not the ones that we knew from college. It was those that our, our merchants were asking for. And I think that's one of the biggest hacks to getting visibility with whether it's in the App Store or it's being part of the Web3 rollout beta, or it's any category of the business. Even to be a capital partner is if our merchants are telling us this is who I want to use, there's a really good chance we're going to consider it. So the first part of your question, I think it has, I mean, Web3 had this massive run up and then I think given what happened the last six months with inflation, the economy and the capital markets, it became a little bit less more challenging to talk about, to get excited about NFTs and buying NFTs at these crazy amounts of money when you saw like, you know, people struggling. But I actually don't think that. I think this is just sort of a temporary slowdown in sort of the hype cycle of NFTs and Web3. I think actually this idea that you can create more loyalty and you can, you can reward your most loyal customers or fans or community members through the use of technology. In the case of like, like token gated commerce, for example, or token gated events, I think that's going to be a mainstay in commerce. Longer term, I think actually One of the cool parts that happened here is like in the last couple of months is a lot of the fakers and a lot of the phony people building for Web3 that really didn't actually understand the community, really didn't care. They were riding the wave. It was like, remember at some point, October till December 2021, I remember companies started adding crypto to the end of their names. Like, I'm not joking, they actually did like real companies. There's a coffee company that added like crypto to their name and immediately their stock would go up and like. And then of course now like that crypto has kind of come down. They got rid of those names. But I think what we'll see on the other side of this, which, and by the way, I think this will be a really good Black Friday supplemented holiday season for great brands. But going to next year, I think you'll see the ones that are still in the game are the ones that are the real ones as opposed to the ones that were just kind of riding the hype cycle. We've talked a little bit about how you've carved out certain pieces of value for different participants in Shopify. So the customers belong to the merchant and there's certain things that belong to the developer. So I'm curious to hear a little bit about how you think about where those boundaries are and how those shift over time. I mean, the merchant is the one we think about the most. I think with the merchant we are incredibly thoughtful about. It's their business, it's their product, their customers, their data. We are custodians. And the only right we have to any of it is to make their lives better. On the app developer side, they are using our API, they're in the App Store, they're in our community to add value to merchants. And so the app developers that actually have had the most success have had this very focused intention of adding value to merchants. And so when Shopify does something, we add something to our core product that competes with some aspect of their app. The best app developers, in my opinion, they don't like, take their ball and leave the park and go home. Leave the sandbox and go home. They're like, okay, well Shopify is doing like this component now. There's all this other stuff they're not doing that is all like available surface area, green space for app developers to build on top of. Now that being said, there are some app developers who, when a merchant leaves the platform, doesn't happen often will go and still work with the Merchant longer term, we're okay with that. What we much prefer to have is to have this sort of symbiotic relationship whereby like, what is good for like the app developer is good for the merchant is good for Shopify. And that ecosystem of reciprocity I think is part of the reason why we have this incredible long term app ecosystem as opposed to one where I mean you've seen a lot of great companies that have just completely destroyed their app. And I think we've tried to be a little more patient. Which means by the way, from a public company perspective, we leave a lot of like oil veins in the ground and don't tap them because we want to play a much longer game. Even though we know right now there are certain areas of the app ecosystem where if we built it right now it would generate more revenue for us, but it would break trust at a foundational level with the app app developers that would be very bad longer term. And some investors may not like that. We're okay with that because the right investors understand the sort of long term positive, some vision that we want to power commerce for everyone around the world.

So you just mentioned the before the platform, I'm sure that Shopify was by far the source of truth for all the data that was happening for the merchants. Since you've built a platform, I'm sure you've got people clicking emails and it's like that data's happening, you've got people writing reviews. That's happening outside the platform because you mentioned that you want the merchant to own the stack and the data that belongs to them. But you also have these things like Shopify audiences that are built up top of your data. How do you think about all this data that's flying around outside of the Shopify ecosystem and how that relates back to the merchant?

The merchants that are most successful on the platform that I think have the most amount of insights and levers of growth at their disposal, have one centralized database where everything flows into. And as much as possible we're trying to aim for that. It's not because we want to have some sort of like, you know, we're trying to be data greedy. It's because for most of these merchants, they're selling across so many different platforms, they're selling across so many different geographies, so many different channels that they're using. They need to have one view their business, make good decisions. And I think if you go Back to like 2015, even when you were used, even if you were a Shopify merchant, you probably had four or five tabs open in your browser. And over time, we're trying to collapse those tabs into one single tab, which is the Shopify admin, the back office. It's not because we want it to all be Shopify. It's because we want to be able to give the merchants all the information they need at their fingertips so they can make better decisions. And anything that sort of causes that to break, we're going to be against. Now, I talked about, like leaders of Shopify requalifying for their jobs. Shopify has to keep requalifying for our role as being the central nervous system or the retail operating system for our merchants. And there are times where we see a merchant that says, I'm going to export my data over here, and this is now my new retail operating system. And that's a really valuable thing for us because that, like that is the most motivating thing ever for us, for us to re examine. What are we doing wrong here? If someone is actually leaving Shopify's admin to go run their business elsewhere, something we are doing is not working. And that motivates us to figure out what it is. But the vast majority of Shopify, when they say they're working like they go to work in the morning, what they mean is they're opening up the admin. And that's the enviable position we want to be in, but we have to qualify for that.

You touched on this a little bit earlier, but we are in an inflationary environment, a very unique time. I think it's been decades since we've seen this type of an economy in the US Globally. I'm curious how Shopify sees its role in this type of environment. Right.

A couple things. It's a great question. A couple things that I think people, maybe this group doesn't underestimate, but I think that the general public does. Do you know what the gross margin of Costco for Costco is approximately? It's 10%. Yeah, it's pretty much 10% across the products, the membership across the products. When inflation hits. By the way, I think Costco is one of the greatest retail stories and one of the greatest retail businesses on the planet. And they do it year after year. And even the small stuff we all talk about, like the $1.50 hot dog, $6 chicken, it's brilliant. There's a lot we can all learn from that company, from those leaders when they have to pay more on raw materials or on the supply chain. It is dramatic for them. It really, really Hurts because they only are playing with 10%. For most merchants on Shopify that are direct to consumer, and most of them are direct to consumer, they have a lot larger profit margin. Not entirely drop shippers obviously wouldn't count here. But most of our merchants most of the time have a larger gross margin, meaning they're able to absorb more of the shock both from inflation from supply chain, from raw materials going up in price. That is one thing that most people don't understand. And so actually one of the things we've noticed in the last couple of months is that for the most part, the merchants that are direct to consumer, that are vertically integrated, they're having less of a difficult time on that particular issue of inflation from a Shopify perspective. When the pandemic hit, we did a 90 day free trial because we wanted more people to come on. There is constantly this sort of pressure from Wall street to increase pricing. We haven't really done that. And so we're trying to be like, you can't say you want to be the entrepreneurship company and then when things are hard for entrepreneurs, you start raising prices and you start making it more difficult for them. There is a responsibility. Like if you're going to say you are this thing, when times are tough, you actually have to show up at this thing. The way we've done that is not because we raised pricing. That's how pretty much every company increases their attach rate. It's by adding more value, it's by adding more capital, it's by adding more functionality to things like installments and markets and balance. And that's kind of the way we want to kind of show up. We want to be valuable in every single situation. We want to be even. We want to be disproportionately, even more valuable when things are tough. And I think we've earned the right to say that we are the entrepreneurship company for a lot of them. Not for everyone, but for a lot of them. Thank you for that question.

Thanks again, Harley.

Thank you.

That concludes this episode of Gray Matter. If you enjoyed this interview and would like to hear more like it, please subscribe to gray matter at SoundCloud, Spotify, or wherever you get your podcasts. For more content, you can. You can also check out our website, greylock.com blog and you can follow us on our YouTube channel or on Twitter at greylockvc. I'm Heather Mack and thanks for listening.