Why Shopify is a magnet for founders with Glen Coates

D2C e-commerce typically has customers with high gross margins because they're eliminating, you know, like, that is literally the premise of direct-to-consumer. I'm taking the retail margin and the wholesale margin at the same time. So Shopify had customers with extremely high gross margins and extremely simple needs, right? I just want to sell 5 candles on my website. I just want to sell Allbirds, and I only have the the first version of Allbirds, there was only a few of them. Simple needs, high margins. B2B e-commerce is the exact opposite of that. It's extremely complex needs and razor-thin margins.

Welcome to the Startup CEO Show. I'm your host, Mark MacLeod. In this episode, I sit down with Glen Coates, who was formerly founder and CEO of Handshake, and now is VP Product for Core at Shopify in their enterprise division. Now, Glen and I go way back. I actually helped sell his company to Shopify, and it was really great to catch up with him. We walked through the, the Handshake journey, the whole process of selling to Shopify. He's almost at his 6th anniversary as a Shopify employee, and so we talked about what makes Shopify such a great company, keeping so many great founders around., we explore, you know, lots of different aspects of Shopify. This was really a, a fascinating discussion. If you run an app on the Shopify ecosystem, you're also gonna want to listen to Glen's advice. I hope you check out the episode and I hope you enjoy it and subscribe to get future episodes. Thank you, Glen. Welcome to the Startup CEO Show. It's a true pleasure to have you here. How you doing today?

Good, man. It's good to see you again, Mark. For, for those listening, Mark and I are prior friends and acquaintances. Mark was instrumental in my company landing at Shopify, my company Handshake landing at Shopify. So Mark and I actually know each other pretty well from the trenches back in the day. Mark is much more cooler looking now than he used to be. Mark was kind of a blazer and shiny shoes man back in the day, and now he's very enlightened, as you can see if you're watching this.

Thank you. Yeah, last time I saw you in person, I think we had a coffee somewhere. Down in Manhattan, uh, very shortly after you, you join.

Yeah, right after. But honestly, those times are all kind of a blur. Those times are, there was a lot of, uh, there was a lot of liquid, uh, liquid medicine around that time. So I can't remember all the, uh, the, the various recoveries.

Yep. That's fair. That's fair. Well, let's get into it. Like, first of all, everybody knows who Shopify is and we're going to spend a bunch of time talking about Shopify, but maybe let's take a step back and, and tell folks what Handshake was, what you were trying to achieve. Just walk us through that journey and then separately, then we'll, we'll talk maybe about the decision and process to sell it, but let's just start with what Handshake was.

Yeah, well, Handshake started in about 2010. So I had a sort of a computer science background, worked in video games for a while, had this weird thing where I, so I got the offer from an ex-high school teacher to move to San Diego when I was 26. And he was like, hey, I've got this company with my wife and we sell eco-friendly shopping bags. Do you want to move to San Diego and run our office. So I ended up moving to San Diego, um, not really knowing anything. Um, I knew how to code, didn't know how warehouses worked, didn't know how retail worked, didn't know how supply chain worked. And, um, the business that I was running happened to have a very big wholesale component, which led to me being at trade shows a lot. Trade shows, you happen to have to write a lot of orders out by hand back in 2008.. And so I'm doing a lot of writing orders by hand and I think iPhone has come out. I think, wouldn't it be great if there's an iPhone app for this? I end up writing an iPhone app that was originally a, like an order entry tool for a salesperson, right? Like punching my orders when I'm talking to my customers. And that grew from being an iPhone app to an iPad app. And it was very like salesperson driven for the kind of wholesale industry. And then eventually Of course, like everything, it went online and customers wanted to place their own orders without going through a sales rep. So we added, like e-commerce, but it was wholesale e-commerce. And so as you can tell, the thing that I'm describing is starting to sound a lot like Shopify, except only for wholesale, right? And so our whole, our whole mission was just how do we take these pen and paper, old school ordering wholesale businesses into the kind of post-internet, uh, post-mobile, uh, world.

I love it. And sort of kind of coming, I guess, is this fair to say, like from the opposite end, like the bulk of retail is still in a physical store, even though online keeps growing. And so Shopify started with pure online. Now it also does in-store. Wholesale by definition, the end retailer was probably selling in a store. Is that, is that fair to say?

Exactly. And so Handshake was really like, okay, you're a wholesaler selling to all these retail stores. You've probably got salespeople who are either at trade shows or out on the road meeting with their accounts. And they do a lot of their work on pen and paper or in spreadsheets or something that feels very old school. How do we give you a great iPhone app to do that work a little better? And of course, because I'm an insane masochist, I picked the most old school, brutal, like change management people to build an iPhone app for. Because I thought, you know, life's too easy and how do I make it really, really hard?

Well, you succeeded. Yeah. I can only imagine, especially, I don't know, you're dealing with overseas and antiquated ERP systems, people whose systems are in like Cobalt or BASIC and like, you're probably dealing with all of that.

Yeah, I would say the beginning of Handshake, there was the thing that made it possible, or the thing that made it feel like a thing worth doing, was, you know, the tailwind of mobile arriving. It was just a moment of— because prior to that, it wasn't like anyone thought that like pen and paper was a good idea. It was just like, well, how do we do this mobile? And the answer was like, you know, Palm Pilots and a whole bunch of crap that was not very fun to use. And the iPhone arriving was really the sort of, you know, disjoint in the curve of like, okay, this is clearly the way this should be done. Who's going to do it, right? And so there was a tailwind of everyone's buying their first iPhones, and then the iPad came out, and it's like, I mean, every salesperson in the world was like, obviously I should be using this iPad thing. So there was a bit of like that mobile tailwind which made the made the ordinary sort of brutal change management of how do you get all these old school people to change, to do work in a different way easier than it would've been otherwise. But it was still hard, but there would just was that, there was that moment in time, you know.

Interestingly, your timing is not dissimilar to Shopify itself. Uh-huh. Like Shopify was, was in market and I was there in 2010 part-time, but I was there. Still a very small company then. Were you aware of them or that didn't come into your universe yet?

Just barely, but it wasn't, I mean, if you go back, I mean, you'll remember this Mark, like back in 2010, I don't think it was a bit more of a competitive race. It was like, you know, there was Shopify, there was BigCommerce, there was, you know, Magento, there was, there was still more, there was even, what was it called? Volusion. There were still players kicking around and everyone was sort of, it wasn't really clear who was coming out on top. Um, at that point, I think.

Let's not forget Yahoo Stores.

Oh yeah. I mean, who could forget?

So, so walk us through, uh, you know, the journey, like the, the highs and lows and, you know, what stood out for you when you could do a retro on Handshake?

Yeah, I would say the, I mean, when I think of it, so it was 9 years total. Uh, you know, to be very honest about it, I, I felt like the first 3 years were the kind of fun builder times where I was still doing, spending the most of my time coding. Like I wrote the original version of the app myself and then we eventually brought on the first few engineers, but the first 3 years I would say were the super fun coding all day, all night. Time, which I really enjoyed. Um, you know, made tons of mistakes, but I really enjoyed that. Was very builder-y, right? And then we were successful enough that we raised a seed and then a Series A, and then the Series A is what was around 15 people. And that brought us into like Era 2, and I would say Era 2 was the let's scale sales and marketing and let's have Glen become a real CEO time, AKA let's stop having so much fun. But like, that was, that was when it was like, okay, pull back from spending so much time coding and being in the product. Let's start building out sales. Let's start building out marketing. Let's start having an org chart. Let's start building a real company, all that kind of stuff. And I would say during that period, um, uh, that, that was like less fun, but we were still growing quite aggressively and it was still, you know, like up and to the right, like felt really good. Although I, at the time I was sort of, I was doing things that I found very challenging. I don't know if I found them as fun as I did the building, the building part. Um, but I was in this sort of like, this is the right thing for the company and I'm going to be a real CEO. I'm going to be a real, I'm going to be a real boy, you know. Um, I know exactly. Look, I'm a real boy now. Um, and then, uh, I would say then that like the last third was probably the hardest part. And like, to be transparent about it, like we, um, like many startups, we pushed very hard into, like, so we, Handshake started off mainly serving smaller companies like Shopify, although not quite as small as Shopify, right? Because Shopify is like, I have no business at all. I'm, I want to sell a candle on the internet, like that small. A small wholesale business is like, they might be doing a million in revenue or something like small like that, right? Sort of similar to probably like the beginning of where Shopify Plus starts today-ish, right? Um, and so Handshake grew up on a lot of these like smaller companies and then, you know, like it, like so many SaaS companies, right? It's like, oh, we're going upmarket because the ACVs are higher and the LTVs higher.

And was that your decision or was that the VCs pushing you?

I guess it was both. Like they were definitely like, hey, it looks like you should go upmarket. Like the economics look better. Um, and You know, I definitely, I mean, look, this is the thing that Shopify got so right and Handshake didn't quite get right enough, which is, um, you know, Shopify committed so deeply from the very beginning to being a product that is so easy to use that it doesn't use human support people as basically a crutch for the inability of people to figure out the product on their own, right? Now, again, easier problem because it's like, oh, I want to sell 3 candles on my store. Well, it's not that hard to set up 3 candles through a website. But when a, you know, when an old school wholesaler comes in and says, well, here's my 10,000 products and I exported them from QuickBooks in this crazy format, like you can just take that format, right? And you're like, well, not really. And like, now we get into this, like, how do we help you do it? And so it was always hard. I would say the thing that was true about Handshake was that, um, it was just as hard to onboard the, you know, $100 a month customer as it was to onboard the $1,000 a month customer.

That's definitely an argument for moving upmarket then.

Exactly. You can see how we got there, right? The mistake I made was, um, that, uh, we sort of extrapolated that curve one or two steps too far, where I think the right place for Handshake was in the mid-market somewhere, right? Like the, you know, the companies that would pay us $1,000 a year were probably too expensive to serve. The companies paying us $10,000 to $50,000 a year was probably the sweet spot. And then going above that, is, but then we tried to go above that, right? We were like, let's just draw this curve out a little bit further and let's go way up. Um, and we were just not ready for that. Like, and specific, and at the time I didn't really understand exactly why. I now understand that like Handshake was just not really architected truly as a platform, right? Like it did not really have the APIs, the SDKs, the extension points, the all the things that you need in order to let, you know, like a—

those enterprise customers probably have very custom environments, right?

Like, yeah, they're going to customize everything. They want to customize everything, and you need to have the building blocks there so that they can do that without, you know, otherwise you just end up— I mean, if you go into the Handshake codebase, I think it still exists in GitHub somewhere, there are certain places you can go in there and you'll find a bit in our code that says if customer name equals blah, do this, do this special thing, right? Which is of course like the You know, the cardinal sin, right? Um, and so we were just not ready to be an enterprise-ready platform and we pushed very hard in that direction. And I made the classic first-time dumb startup founder mistake of going out over my skis on sales and marketing to the enterprise. We just, and the problem with that, of course, as you know, is that, um, when an enterprise go-to-market fails, it fails very slowly, right? Because sales cycles are very long.

It's funny, they both grow and fail slowly.

Exactly, right? So, you know, when you're doing SMB, if you're failing, you find out within a month. When you're doing enterprise, when you're failing, you find out in 18 months, right? And if your runway's 18 months, that's tough, right?

Yeah. And then you've built so much. A, because you're serving 3 masters there, right? What the SMB needs is different from what the mid-market, and then different from the enterprise. So like you're an inch thick and a mile wide.

Exactly.

Yeah.

So, um, so that, that, that push didn't work. And, you know, we, we burnt a bunch of runway on sort of a big enterprise go-to-market that ultimately just did not go anywhere. Um, and then, uh, we ended up having to scale back the company. I think we cut headcount by, you know, some pretty significant amount, something like 50%. And we refocused on that kind of mid-market segment where we really did have good product-market fit. But I mean, as you know, like, you know, startups are a thing that, you know, your margin for error is not usually like one entire fundraise.

No, no, no, it's not.

And so, yeah, I mean, like, yeah, and this is kind of when you and I met and we got to the point where we're like, okay, cool, here we are. We know what the business is now. We know where we do have product market fit. But we also, and look, by that point we had been at it for a long time. And I think I learned something, I learned something late in the game, which I mean, I'll tell this story. I'm not sure if I've told this story publicly before because like the thing about B2B e-commerce versus D2C e-commerce that was basically the investment thesis for all investors who invested in B2B commerce companies was, you know, the market size of B2B is so much bigger than D2C. Like it depends which Gartner, whatever report you read, but people always sized B2B at 2 to 3x as big as D2C as a market, right?

Yep.

So you're like, great, huge TAM, amazing. Right. So much opportunity. And, you know, this prior art of like the Shopifys, the Magentos, the Demandwares, the Hybris going into these markets and being successful. So, okay, great. Looks like an amazing market. And you remember Russ, Russ Jones?

Of course.

Of course. So Russ was an advisor to Handshake. I think after he left, he left Shopify as the CFO. He had taken Shopify public and we got connected with him at some point. And then he became one of my advisors in that sort of last third of the company's lifetime or so.

What a coincidence.

I remember doing a prep call with Ross before a board meeting and we were, we were going to go out and do a fundraise, right? And this is in, I want to say 2017 or 18 or something somewhere around there. And I'm doing a prep call with Ross and I'm like, hey, this is basically the fundraising story. You know, here's, the market, here's the product, here's the competitive set, you know, here's the things that we figured out and kind of got wrong, but we've now fixed. This is the story. It's a huge market and we're well positioned for it. And I'll never forget Russ said, he said he heard me, he heard me do the pitch and I'm in startup founder tap dancing, you know, look at the stars kind of mode, right?

Jedi mind tricks.

Exactly. I'm saying all the words and, um, and Russ says to me, he's like, Glenn, everything you just said to me, I totally believe you. I believe you that the market is huge. I believe you that you're, you know, the best company to solve this. You've got the best product. You know, I believe everything you just— I believe the things that you figured out that were not working and you fix them. And he was like, if all of that's true, why is this company so fucking hard to grow?

Sometimes the truth's hard to hear, right? Exactly. I can totally picture him delivering that as well, like in a compassionate, kind, but direct way.

I know he was very, very kind about it. Yeah.

Yeah.

I think maybe the time after that, he bought me a $2.50 breakfast at the Capitol Diner. Maybe he treated me once for that. Anyway, so, you know, but like at the time, I actually did not have a good answer for Russ for why it was so hard to grow. I later got to, you know, classic douchebag product 2x2 answer. I think the real answer was that, um, if you like, D2C and B2B commerce are similar in some ways, right? And they even share some customers in some ways. But D2C e-commerce typically has customers with high gross margins because they're eliminating, you know, that is literally the premise of direct-to-consumer. I'm taking the retail margin and the wholesale margin at the same time, right? So Shopify had customers with extremely high gross margins and extremely simple needs, right? I just want to sell 5 candles on my website. I just want to sell Allbirds and I only have, you know, the first version of Allbirds, there was only a few of them.

Right?

Simple needs, high margins. B2B e-commerce is the exact opposite of that. It's extremely complex needs and razor-thin margins. Like, you know, people who sell like, I don't know, like candy and cigarettes to all of the gas stations in America. These, these companies operate on like almost no margin at all.

Right?

And so yes, the market is. 2 to 3x as big as D2C, but if you adjust it for gross margin, it might not be. And then if you adjust it for complexity and cost to serve, okay, it's even smaller than that. Um, and anyway, like fast forward through all of this, like sad, sobby, crappy story. In a way, like when you and I met, like part of the thesis for, okay, like, well, why is it better to be part of a company like Shopify? Is because, um, once you are solving both of those problems together, so like if you can, if you as Shopify can come to, you know, the, the, the merchant and you can say, okay, you, you want to sell online and you want to sell wholesale and you want to sell retail, you want to do all these things. Bad news is that's sort of a big problem to solve, but the good news is if you do it all in one place, you can amortize all that, all those costs and simplify it down and just put it into one system that does it all. That's so much more, that's such a better deal for the customer, right? Because other, like the other version of that is like, I buy a D2C e-commerce thing and I buy a B2B e-commerce thing and then I buy a point of sale thing and then I have to integrate them all together. And of course they all fight with each other and I'm going to spend the next 5 years in IT hell and it's just going to be awful. Or you can just be like, I'm just going to do it all in one place. It's actually going to be not so hard to do. And there might be, it might be challenging in some ways, but I get a lot, I get a lot back in exchange for, for doing that. And so, um, to, to go all the way back to the top, like B2B e-commerce on its own is actually not a great business. But B2B e-commerce as part of like a unified stack is a great business. And that's kind of what we've seen, you know, in the last 5, 6 years that I've been at Shopify amongst other things. But it's just one of those things you learn the hard way as a founder, right? Like it's such a weird thing where it's like, there are some businesses that make no sense on their own, but make incredible sense as part of another thing.

That's, that's very true. Anyway, in Serma, what was, yeah, what was your state of mind when the board was like, you know what, we should find a home for this?

What was my state? I mean, like, it was a stressful time, no doubt, right? Like, if you go through a company layoff, that's like not an easy thing. I think if I'm being honest, I had like, one of the things that founders sort of have to have in them a little bit is the like, don't quit, like, don't ask yourself if this is going to work out. Don't question it ever. Like, you just have this mindless, like, I'm going to smash my head through this wall and then the next one and the next one and the next one. But the second you ask yourself, hey, is your head actually going to go through this wall? Like, that's the second that your head doesn't go through the wall, right? Um, and so I had that very mindless, like, don't ask why, just keep going thing, right? I think I read a, I read an article, I've tried to find this and I can never find it, but some, I read a newsletter back in like 2011 or 12 or something. And Mike and I were back in Projective Space at the time. And, you know, some VC funder that had done some analysis of like, okay, we interviewed our 50 most successful CEOs who all IPO'd and we tried to figure out like what makes a great CEO. And like the conclusion at the end of the, newsletter was just like, the only thing we could find in common between all these people is that none of them would quit.

Wow. That could be a feature or a bug, but it's probably most, most of the time a feature.

Right, exactly. Um, and so I basically approached the job that way for a very, very, very long time. And I think it was, you know, it was like conversations like that with Ross Jones where I had to just ask, and it was not just for me, I had to look at you know, my team. I looked at Mike, I looked at Brandon, I looked at Aaron, I looked at Mandy. I looked at all these people who'd been with me for, you know, better part of a decade in some cases. And I had to really think about them and say, like I said, even if I want to keep doing this, even if I want to keep smashing my head through walls for this thing, can I really in good faith ask Mike to give me another 5 years, Brandon to give me another 5 years, If I can't really give a super good answer to like Russ's question or, you know, the variations on that question, like, can I ask these people to keep doing this? Um, and so I think eventually I was just like, let's look at what the options would be because I don't have a super good answer at the time. I didn't have the pithy, like, oh, low margin, high complexity, yada yada. I didn't have that at the time. I would eventually get that, but I knew at the time I didn't have a good answer, you know. Um, and so it's really hard. I mean, you know, it's, it's hard to— I mean, I'm an atheist, but I almost think of it as like, you know, if you're— you have someone who's very religious and then you say something that makes them realize that God doesn't exist, right?

Their whole world falls apart.

God doesn't— like, it's almost a feeling of like, oh my God, God doesn't exist. What does that mean? What does that mean for what I've been doing for the last 8 years? Was I just praying at like a false altar? Like, what have I been doing? Right. And that's not true. I mean, handshake was an amazing journey. Like, you know, so many amazing people worked at our company. Our customers loved us. Um, you know, there are so many businesses that, um, there are a lot of businesses that provide incredible value to their customers. And build great culture that just happen to be not super good businesses.

Yeah, totally agree.

I was listening to, I mean, I listened to, I listened to the Scott Galloway podcast and he did a bit about this recently. It was about airlines. He was like, airlines are such an incredible, like if you think about what airlines have contributed to humanity over the last 50 years, horrible businesses, huge fixed costs.

Razor-thin margins.

Yeah, think about what life would be like on planet Earth if there were no airlines. It'd be not as good.

Mm-hmm.

But they're just not that good of a business.

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In May, it will be 6 years.

So that's, you've been there almost 6 years. The other company I was involved with going to Shopify was Ticktail with Carl. I think he's still there.

Still there.

Dan DeBow was there for a while. Farhan, like You just got Ray Reddy.

I know, we're collecting them.

Yeah, what is it about Shopify that, and it like keeps great founders? Because I can't tell you how many companies I've helped sell where the founders don't even make it through the earnout. Like they're just putting a bullet in their head, but like you could start something, you could go anywhere. Like there's something really compelling here. So I'd love to know what it is.

I can give my answer to this. And then I think the answer would be different for different people, but Shopify, I mean, look, it sort of comes from Tobi. Like Tobi is a very— he's a founder's founder, I guess. I don't really know how to say it other than like he's still as hardcore as he's ever been. He's, he's like never happy. He's like always like, what's the next thing? He's always like, you know, oh my God, like, I mean, obviously right now AI is the thing, but it's like, like the, the thing that happens internally is Something new comes out and Toby's like, why haven't we implemented this yet? Like when passkeys came out or when like when crypto is exploding or all the LLM stuff, or even just like some new CSS thing that's like, oh, there's a new CSS effect that all the browsers support. Like, why haven't we adopted it yet?

Is he asking this the morning after it came out?

Literally. Like, like there'll be a link. There'll be a link in a Slack channel that's like, look at this. And then as soon as you see that link show up, you know the clock is ticking to like, where the fuck is this thing? Why haven't we implemented it yet? Right? And it's just, it's just a matter of when, it's not a matter of if, right? And so, um, there is this sort of relentless drive to keep improving, stay on the cutting edge, um, You know, innovate. Sorry, it's such a, such a lame memey word, but like Toby really is, he's sort of like living in the future and is like perpetually like dissatisfied with the present. Um, which, you know, has it, has its pros and cons. Like sometimes, you know, and I think he'd be the first to admit this, like one of the downsides of living in the future and being angry at the present is that you are sometimes like too early to things.

Yes.

And, you know, Shopify has examples of that where we've been too early on a thing. Um, but, you know, I guess I'd rather that. I'd rather the version where we're sometimes too early than often too late on stuff. Um, and, uh, so I think that helps for founders. Like, founders feel like they are courtside for what's next. I think in a way that you might not if you ended up at a more traditional acquirer. Um, and, uh, so there's that. There is this sort of drive to do new things that is relentless. I would say the other thing, I mean, for me, I will say the thing that I was maybe not expecting about Shopify that I have learned that I quite enjoy is when you're a, when you're a small founder, right? And you know, like Handshake had millions of dollars of ARR, but not tens of millions of dollars of ARR, right? Um, when you are playing on the big stage is is sort of exhilarating and sort of interesting in a way that, you know, like thrilling your small customer base is very gratifying in a sort of very personal way. Like you're talking to your customers and they're like, man, I love that thing you guys shipped. Or like, man, this is making such a— like it has that sort of personal quality to it. Yeah. But, um, you know, the thing that, you know, when you do something at Shopify and, you know, you change something in the checkout and the internet changes the next day, or, you know, you create, you know, you make lending products available that literally would be impossible otherwise to like millions of businesses, you know, there's something about impact at scale, I guess, is, is the thing that, um, I've found quite rewarding that I don't think you get at a much smaller business unless you, you know, strike, strike gold and you turn out to be Instagram and then you, and then you suddenly become a 10-person team that is controlling a very large percentage of the internet. But, but outside of rare cases like that, you don't.

That's so rare. So rare. Right. 10-person company being bought for a billion dollars.

Yeah, exactly. So it doesn't happen too much. Although I feel like that's the opening bid for most AI. I mean, I feel like I could start an AI company and just—

I don't know why you haven't started an AI company.

I know I should start Glenn AI and then just like take bids starting at a billion.

I'll do that deal for you. There's no problem.

Yeah. Yeah.

I had Toby on the podcast last year and, uh, my observations were like, he's still the same Toby. Like super intense, works as hard as ever. Like he responded to an email when I reached out to him at like 4 in the morning. Yeah, maybe he was in Iceland or something. Like, I don't know. I was just like, the dude's busy. And, uh, I really admire that.

Yeah. I mean, the, the, the thing that you just brought this memory to mind, but like last year we did, um, we did Summit, uh, like our, like sort of internal employee summit in I want to say it was in June and it was at Anacare in Toronto and we had everyone there and we're in this huge, you know, the huge stadium hall thing. And so we do this sort of the day of all the talks and everyone's talking about what's coming. And then we had hack days, which is this kind of Shopify tradition of 2 or 3 days of people just hacking on cool side projects. And I think on the last night of the, of the week, it was a 3 or 4 day event, maybe 5, I can't remember. But it was, it was the last night and we had, you know, people DJing on. Like Harley DJ'd, Mike DJ'd. It was like everyone's partying up the front of the, the room, really fun. And you're like, where's Toby? And then you look and he's still at the desk like we had all the desks in the room as well. And he's just at the desk with like a couple of engineers, just like heads down, headphones on, just like, I don't know, he was probably some LLM thing at that time, but he was just like fully like in flow mode. And I was just like, yep, that, that, that's Toby.

Yeah. He told me like he's not about to step down as CEO, but he's like, sometimes I kind of just wish I was the CTO. Like I just, Love new technology so much.

What do you mean sometimes? 99% of the time.

My understanding is you're responsible for the app ecosystem. Is that right?

Amongst other things. Yeah.

Okay. Yes. I knew, yeah, I knew, I knew that wasn't the, that, that was an add-on. So I've, you know, I've had many clients either as coaching clients or banking clients who are in the app ecosystem. I helped sell one company called Privy in the email marketing space.

Yeah, I know Privy.

And, uh, hey, I'm just wondering what advice you might have. There's probably lots of folks listening or watching who are in the ecosystem. Like any advice you have on like how folks can stand out and thrive and build a really big business on your platform?

Uh, the, the most sort of timely answer I would say, like, I think Shopify's, um, the developer platform has gone through a pretty major sort of upgrade over the past 2 to 3 years where So like Shopify hasn't had an app store and a developer platform, quote unquote, for a long time, right? I mean, I actually don't even know when it first started. Was it 2010? It was, it was before 2015 for sure. I don't think it was 2010, but, uh, yeah, afterwards it's been around for a long time. But, you know, if you sort of peeled back the curtain on the Shopify developer platform in, you know, 5 years ago, for sure 10 years ago, I think what you would find is like, you know, a pretty basic set of APIs. And, and sure, like the ability to like embed your app's UI in that sort of iframe within the Shopify admin. But like, it was a pretty— I'm being a little bit sort of reductive here, but it was kind of like just a bunch of APIs to read and write data from Shopify, and then just like an iframe you could stick your website into, right? And, you know, if you— when I got Shopify like a few years ago, if you looked at a Shopify app, if you actually installed them and like started using them, you would find that they were pretty like— it didn't feel like the app and Shopify really fit together. In the way that, like, you know, most iPhone apps really feel like they fit in with your phone, right? Like, when you pull up Instagram or Uber or Signal, you know, or whatever, like, these things really feel like they're part of the device. And I don't think Shopify apps felt like they were part of Shopify if you go back 5 or 6 years. They felt like a website that was yoinked in, right? Now fast forward, we've actually done all this work in the last few years to create, like, extension points and Functions and, uh, you know, Flow extensions and, you know, Polaris has gotten better and better. And like the net-net of all of that is that you can now build an app that really does truly feel like it's part of Shopify, right? In the way that like, I mean, I think of, I always think of this as like, you know, mobile web existed before the iPhone, right? I don't know if it was huge, but it existed. So you could be building some SaaS app on, on the website and you could have made your mobile web version, right? That would fit on the screen of like, you know, a BlackBerry or whatever, you know. But when the iPhone came out and there was like the iOS SDK and you could build natively for the iPhone, you really saw the companies split into two camps, right? There was the sort of like, well, we're just going to try and keep doing it the old way and we're going to sort of mobile web it a little bit and yeah.

Kind of like Facebook when they went public, right?

Exactly, right? Yeah. So there was sort of the, like, we're going to try and, like, cram the old web thing into the iPhone and hope it works camp because, you know, they had lots of huge stacks and man, it's going to be a lot of work to redo all of this. And then you had the new school people, one of which was Handshake. Like, this was literally my strategy was like, oh, I'm going to do it iPhone first. You know, I'm going to build fully native on this thing and I'm going to be like, bespoke for this, right? And I think Shopify is sort of going through that now. There's the, like, you know, the dev platform now lets you build, like, natively for Shopify in a way that before it was just kind of like a website yoinked into web— into Shopify. And I think there's just a huge opportunity there for app developers to sort of quote unquote, build natively, right? And I think now, like the, you know, shop— because also 5 to 10 years ago, Shopify wasn't maybe quite the dominant app ecosystem that it is today, right? And so for us to go to an app developer in 2015 and say, hey, we want you to build just for Shopify, we want you to write a bunch of code that's going to work just on Shopify and not anywhere else, maybe a bit of a tall order. Today it probably is a bit more worth it. And so I think the people who make that choice can sort of reap those rewards.

You know, I'll say, you know, it'd be self-serving if you were to say this, so I'll say it for you. I think the old advice from boards might be like, you know, diversify your platform risk. Don't put all your eggs in one basket. But I think that's bad advice now. I think just Shopify's just unarguably won the platform battle. It's the best place, you know, for potential distribution. It's the best place for your end customer, right? The combined solution's just going to be better. Like, um, like that notion of diversifying to spread platform risk, I think is just an old concept. Yeah.

And I mean, not to keep harping on Instagram, but it's like, imagine if Instagram had said, oh, we're going to hedge our bets. It's going to be sort of a mobile web thing so that we can get on all the phones. It wouldn't have been the same thing, you know? Yeah. So I mean, that'd probably be my most timely piece of advice. And I think what you just said makes sense as well. It's like, you know, do the A/B test in your head of like, what happens if I go all in on this thing versus what happens if I hedge my bets across multiple platforms? Like which of those seems like the more exciting business?

So you talked about like how different it is to operate at like real scale. And, but you remember what it was like to be a founder kind of dreaming of that scale. From that vantage point, like what advice do you offer to CEOs? Like you now understand what it means to kind of operate at scale. Like if you were mentoring, if you were now Russ mentoring the next Glenn, what, uh, what nuggets of wisdom would you share?

Uh, stay out of B2B commerce would be the first one. The thing that I've learned just in terms of the way that I did the job, one of the things that I wish I could do, if I could do Handshake again, I, one of the things that I would do is I would stay much closer to the product than I did. Um, and one of the mistakes that I made was, you know, I did need to step back from doing quite so much coding. That was true. Like I needed to spend more time on other parts of the business. And, you know, I mean, I don't know if boards still give this advice, but at the time this was sort of the playbook, right? It's like, oh, you need to be a real CEO now and start building the business and let the R&D team do R&D things and don't spend so much time on that. The thing that I've learned at Shopify that has been surprising is that, so I don't build anything myself anymore. Like, the engineering team is thousands of engineers. I don't do any of it myself. I don't design things myself. The thing that I do do now that I did not do at Handshake, which is super weird, is I still review everything insanely closely now, right? So I don't do anything, but I review everything, like, down to the, down to the pixels, right? And I think the mistake that I made at Handshake is, like, as I pulled away from the doing, I also pulled away from the reviewing. And I shouldn't have done the second piece. I should have been like reviewing like a hawk the entire time, even as I let people do more and more of the build. Right. Um, and so that's, that's something that I would say I, I didn't get right. Um, and then I think you touched on this earlier, right? Which was, you know, I think Handshake did become a little bit spread too thin. Like it was, it was sort of trying to serve too many different types of customers. Um, and so it sort of became this thing that was like, you know, in pursuit of the enterprise became, we, we didn't put so much emphasis on, well, how does a small company get set up without us spending tons of time with them? Um, but then we still had lots of small customers and you kind of get caught in this thing of trying to serve too many masters and not being any good at, not being great at any of them. And, um, I think Shopify did— like, Shopify served small and mid-sized businesses up until like post-IPO, right? And sure, like, Shopify now supports enterprises, um, because we've got the depth and breadth of platform to actually do that in a scalable way and have it not turn into a bunch of if statements in the code that's like, if Supreme, um, or if Staples, you know, um, but, um, but Shopify was able to hold on to that focus for a really, really, really, really long time. And I think, I think some of that is just that Toby's like very focused, but I think there's also sort of the spiritual home of Shopify has always been the entrepreneur. And so I think Toby is just gravitates towards, you know, how do you help someone start a business?

In my early, like I was only there part-time, uh, but in that time I remember large merchants. I remember Mozilla years ago wanted to set up a merch store and they had huge reach. This is like maybe 2009, 2010. Mm-hmm. And Toby was just like, no, they wanted it. They wanted an SLA. They wanted these things. Like, why are we even having this conversation? Just like go away. Like basically just like laser focus, you know?

Yeah, extremely principled. And I think I was, I was not as principled. And I think if I could do it again, I would be a bit more, uh, yeah, I'd be a bit more ruthless about staying focused on like, who, how do I get, how do I become insanely good at serving these people? And then I would just say like, make sure that whoever your target customer base is are actually Like don't become American Airlines, right? Or, you know what I mean? It's like sometimes you can become insanely good at serving a customer segment that just isn't a good business and just be a bit rational about that before you, it's a really hard balance though, right? Like how do you, you have to be rational about the business, but you also have to be irrationally walking through walls all the time. And it's, it's, it's a, it is a hard balance to strike.

Yeah. For sure it is. That's why most of them fail. And, um, so the point on focus, I think, I think we've, we've more than covered. I completely agree with it. And this notion of now, like, not giving up the review and being in all the details, there's a term for that now. It's called founder mode, right? It's like, and Toby actually personifies it and always has, right? So I love that, you know, so staying on the notion of kind of lessons from this other side now, this whole other scale? Like you've touched on some of this already and it probably could be an entire podcast, but like what else have you learned from Toby?

You sort of learn something from Toby every day because he's such a voracious learner. Like it's, well, like a couple of years ago when I would say Shopify was not a very AI/ML-centric company 3 years ago. And, you know, Toby's known as being like a,, you know, very strong engineer. And I think he probably, when he looks in the mirror, he probably sees an engineer. Um, but I wouldn't say he saw like an ML engineer in the mirror 3 years ago. Um, and then, you know, GPT-3 came out and it was just like crazy to watch him go from being someone who probably didn't know that much about ML to just becoming like reading every paper when it came out and just like trying every open source model on his local machine and just becoming like, oh, if you prompt it like this, this is going to happen. And if you do it— if you say the words in a slightly different order, this other thing's going to happen. And he was just like so close to the metal, like just like— and a voracious learner. And I think, um, it's sort of a reminder of like, if you want to if you want to build a company like Shopify or even a smaller one that stays right there on the cutting edge, and I think that's a lot of what has made Shopify successful, is that it's never really fallen behind the times. And some of that is just like being just ruthless about just like always making sure you know what the latest technology is. Um, and, and, and learning. And it's, it's, uh, yeah, it's a— he sets a high bar in that way. And I think if there's anything that's been, um, that's been one of the things, you know. I mean, there's lots of other smaller things, but I would say especially lately because of, you know, it's like every week, you know, something's changing with like, you know, I mean, even even small examples, like, I'm, you know, we're playing with things now where, you know, a month, like, there's some migration thing that's happening at Shopify right now where we need merchants to move from an old version of a theme to a new version of a theme, and it involves some code changes. And, you know, you and I have been around long enough to remember, like, how these things usually go. And it's like, oh man, like Magento 1 to Magento 2, and like, oh my God, like, this is going to be years-long death march. And, you know, and it's even crazy to watch. Like, it's like, okay, well, we, you know, we tried getting GPT-4o to help with this migration. You know, the evals passed, you know, 0% of the time, or, you know, maybe 1 out of 100. And then we think, ah, this isn't going to work. Shit, I guess we're going to have to do the more manual version of this. Bummer. And then you come back a week later and you run the same thing through like 0.1 with reasoning set to high. And you're like, oh shit, it actually passes 85% of the evals. Like, maybe this can work. And I bet you next week it's going to be 95. And then it's like, so yeah, like right now the premium on like staying up to date and learning and, and, and making sure, you know, like the thing you thought was impossible a month ago, like, is it actually still impossible? Um, is the premium is extremely high, and this is again like one of Tobi's greatest strengths is just being relentlessly right on that cutting edge. And so that actually makes me feel, you know, Shopify is not a— I don't know if you went out on the street and said like, is Shopify an AI company? I don't know if many people would say yes. I don't know, like they'd be like OpenAI, like, you know, but But at some level, like being an AI company is sort of like how quickly are you ingesting and learning and applying the stuff? Um, and in that sense, I think, you know, uh, yeah, Toby's culture and rate of learning is maybe makes you the best kind of AI company, you know?

Yeah. I mean, you think about it, right? Shopify just celebrated its 20th anniversary, I think. From incorporation this past summer. That would be old by some standards. And at the time, you know, SaaS was reasonably new. I was, you can tell from the color of my beard, I've been around for a bit. And like, I was there for the birth of the internet. I was there for mobile. I was there when I forget what the acronym was, but it became SaaS. And this whole paradigm, like SaaS is essentially a database and you have to do work to get value from it. And now, This software is just gonna do shit for you. Like, it's completely changing. And I have some companies that are like, that are clients that are just pure AI companies and like, they are disrupting themselves. Like they haven't even recouped the dollars they've invested on V1 before they've disrupted on V2. And it's just like a race. Like, so it's just fascinating to see where this is gonna go.

I'm actually curious what you think here, Mark, where like, You know, if you went back a year, I would have— it's funny how quickly it went from, you know, I don't know, like the frontier model companies like OpenAI, Anthropic, etc. Like it's, it was sort of like, okay, they have the secret sauce, they have the magical thing, they have the thing you can only get if you throw billions of dollars at training. And then it moved into like, oh, well, actually Llama 405B sort of does it open source, and then it's like, okay, now it's DeepSeq, and it happens, the inference cost is like radically lower. Um, and I mean, not to bring it back to like American Airlines, but like, you know, do you think it's possible that like, you know, some of these frontier models may turn out to be not so much this like rare unique gem that only they may turn out to be like more like Linux, you know, like this thing that's like incredibly valuable, but distributed almost at like near zero marginal cost. And they become almost like, like human, like the human commons. Um, uh, and super duper valuable, but maybe not the, you know, they, they're sort of like airlines. You know, I don't know.

It's a great question. I, uh, I feel like I would need to be a lot more technical to have the canonical answer. Like I'd need to be the person doing the research like you are and like Toby is. I think like, you know, DeepSeek open sourcing and then Perplexity being able to like stick that model in the next week, like those kinds of developments are massive. Um, if I was Sam Altman, I probably wasn't too happy about that. Uh, but AI is just now going to be the thing, right? And so, um, when it's everywhere, there's different ways, different paths to success, I guess, you know, is the point. Like, uh, where maybe some of your direct end-user monetization goes away in this world of really compelling open-source models or costs coming down, but then embedding the model, like the deal that OpenAI has with Microsoft, and then, you know, providing all the enterprise support, like that's, that's a great business, you know, so different ways to, to skin the cat, I guess.

I'll share. I just, I just came from watching a demo video, Mark, on this topic that I think is just like one of these things that happened in the last week that's so crazy that, you know, and it's such an amazing application to like what we do in terms of entrepreneurship that Um, there's a thing we're trialing at the moment, which is, um, so we have Sidekick, which is the thing in Shopify where, you know, you can, you can talk to it and it can help you out with doing stuff inside of Shopify. Um, we're trialing out this thing at the moment, which is like basically like a voice in a screen share mode where you can like log into Shopify. You can say, you almost like start a call and you start a call like with Sidekick, but it's like, it's sharing your screen. So it's like actually reading the pixels and you can talk to it in voice mode. And I saw a recording of one of these, you know, like some of the people who like, you know, we did the trial with. And it was a recording of a woman, I think in Sri Lanka, who starts talking to the system and saying like, hey, how do I use this system? I'm trying to save up to buy a laptop. Like, how do I, how do I do this? And she gets confused because she's, she's not a native English speaker. Like, she's English second language. And halfway through it, and, and the agent's talking back to her, and halfway through it, she says she can't find the words, and she says, oh, uh, can, can I talk to you in Hindi? And the agent says, oh, do you want to talk to me in Hindi? And she says yes. And then it just switches into Hindi and then it just keeps going. And then she like, and then she just like figures it out, you know, and it was just like, you know, and it's just like things like that where you're just like, oh my God.

Yeah. Honestly, the future is here. I've thought that a few times, but I really think it now. And no, it's fascinating to watch. And I'll say, you know, I have a very vested interest in Shopify's success. It's by far the single largest portion of my net worth and Many times over the years, my financial advisors have been like, hey dude, they were probably not this informal, like maybe it's time to diversify. And I'm like, no, Toby's a pretty special founder. As long as he's motivated, I think I'll stick around. And I would argue like that's why you stuck around by, you know, all those amazing founders. And so I'm fascinated by your journey and I'm really thankful that you, You took the time to chat today and it's, it's awesome to, to see you virtually.

Yeah, you too, Mark. It's great to see you.

All right. Thanks so much. Hey, thanks for listening to the Startup CEO Show. If you'd like to connect with me, be sure to visit my website at markmacleod.me or follow me on LinkedIn at The Mark MacLeod or Twitter @MarkMacLeod_. And if you want to tune in again next week, be sure to subscribe on YouTube, Spotify, Apple, or wherever you get your podcast. We'll see you next time.