Shopify at $4.5 BILLION in ARR!! Growing a Stunning 46%!

Hey everybody, I wanted to talk a bit about Shopify at 4 billion in revenue. In fact, Shopify is at 4.5 billion in revenue as I record this growing almost 50% a year, which is pretty crazy. Now, if you're in the Shopify ecosystem, if you know a lot about Shopify, some of what I'm about to talk about you may already know, but I think Shopify is something very interesting to learn from as a case study. And Shopify IPO'd back in 2015 worth just over a billion dollars. Today it's worth 200 billion. So that is an incredible run from 2015 to today. And there's a number of reasons that happened, but perhaps what's most important is that Shopify was not quite the breakout leader when it IPO that we think about it today. Shopify has clearly become the number one solution for SMBs to sell outside of Amazon, there are others and tons of folks use even lower end solutions like Squarespace and Wix and WooCommerce on WordPress. But for an SMB that wants a turnkey solution to sell themselves, Shopify is the dominant player. But it wasn't true. When it IPO'd, Shopify made a ton of very thoughtful bets to get to where it is today in its dominant position. So let's talk about Shopify at four and a half billion in revenue, growing 46% year over year. So number one is just interesting is that Shopify is not at the moment seeing the insane growth that it saw during COVID E commerce was a category where all of a sudden when these times changed, everyone that was selling from a small store immediately needed to sell online. So there was a massive boost. And not only did Shopify see it, but everyone in the Shopify ecosystem saw Klaviyo with email marketing and Gorgeous and contact center attentive and others in mobile marketing. And that boost is not completely over, but it's not quite what it was at Covid. So Shopify had insane same growth right after the pandemic hit. Now last quarter it's at 46% growth, which is still incredibly fast at four and a half billion in revenue, but coming down a bit as the growth of E commerce returns to normalcy. So it hasn't taken quite the same reversion to the norm that Zoom has. Zoom exploded so quickly, but now is growing around 20% after everyone's digested and work to the world of Zoom. But this movement from real world commerce to E commerce and the combination of the two, selling offline and online that's still in progress, yet not at the crazy rates before COVID but still bet on e Commerce. 46% growth at 4/2 billion in revenue is incredible. Okay, point number two, what's the NRR at Shopify? Because it's so interesting, because Shopify is so SMB focused And in fact sh. Shopify has a lot of tiny SMBs, what sometimes we call VSBs. Very small businesses. So what's their NRR? Well, you know, it's interesting. It's 110% sort of. And 110% would be pretty amazing when so many Shopify vendors really are one or two or three person shops. But that includes payments. It includes fintech which we'll chat about a lot next. Without the fintech payments, the NRR is likely below 100% which is kind of what I would expect from very small businesses. It might even be 90 to 95% range. Even HubSpot selling bigger deal sizes. 10k SMBs is only 100% NRR. So there are a lot of ways to slice it. But maybe the most interesting thing is to add more value to small businesses to drive the NR up. We've seen that with Bill.com, which has gone from 110 to 120 plus percent NRR from SMBs as it added payments and more services. Same thing with Shopify. Shopify adds payments and more services for its customers. So instead of just being basically a website you can sell from, it becomes more of a full featured E commerce solution. Over time, NRR again goes up by providing more value to 110%. Small point number three. Shopify has revenue both from software and from payments from FinTech. And as we'll see next, it switched over time and payments is actually much bigger than software. But what's interesting is that Shopify doesn't mince words. It doesn't it call a spade a spade. It only calls recurring software revenue. Mrr. Now big deal to Wall street. It talks about revenue, it talks about the four and a half billion, but they are very clear on their metrics. What is MRR and what is payments? And I think it's wise for all of us to do the same when a lot of us now have multiple vectors of revenue. I think calling it all ARR and not being clear or at least not stacking the different types of revenue on top of it or so we can clearly see what is software revenue and what is fintech or services or payments or hardware or others. There can be times I guess to obfuscate and Hide. But Shopify doesn't do it. Shopify calls a spade a spade and they've done incredibly well. So, point four, this fintech thing, and, you know, we saw it switch with Bill.com, we saw the influence of taking payments at both WIX and Squarespace in different ways. Shopify is extreme. Shopify now is a fintech with a layer of software underneath. So in 2016, the revenue is much smaller. About 400 million in revenue was split even then. In 2016, it was split about even between SaaS payments for the Shopify platform and what they call merchant solutions, which is payments and other revenue as a piece of what you sell on the platform. And the SaaS pieces have continued to grow, but the SaaS piece is only about 1.2, 1.3 billion of that, 4.5 billion. So that's incredible. Shopify would be wildly successful doing over a billion in SaaS revenue, but if they hadn't added payments in merchant services, they would only be about a quarter of the size they are today. And in fact, they might even be smaller because their retention and their NRR would be lower. So this is really incredible. Now, we all can't magically add a fintech layer or a payments layer or merchant solutions layer to our SaaS products, but more of us can than we think. The mind bodies, the toast, all of these blended models. It's worth thinking about and it's not always easy. When we looked at Both Expensify and build.com we saw it took them years to decide they were ready to handle, to bring payments in house. It's complicated. So. So take your time. You do not have to diversify your revenue streams before you're ready. But boy, Shopify is three times bigger because it became a fintech because it added payment and merchant services on top of just software. Otherwise it would be a fraction of what it is today. Point five, partners. This is a point we really miss with a lot of SMB leaders like Shopify, also like HubSpot and others, which is how important partners are. And they can be all different. But in the Shopify ecosystem, 46,000 partners referred a customer to Shopify in the last year. 46,000. And that's up 73%. That's growing even faster than revenue. And it takes a while to nurture ecosystem partners. But they've got almost 7,000 apps on the Shopify ecosystem, 7,000 folks that can plug into their software, and 46,000 partners driving massive amounts of revenue to Shopify. So go long here, staff. This Early. We've also seen this with HubSpot where a massive moat and defensibility have our agencies agencies deploying HubSpot that charge another 10 or $20,000 but do the heavy lifting to bring HubSpot into a company. Same thing happens in the Shopify ecosystem. There's agencies and partners that help you bring your store and if you own those partners or relationships or you're the number one vendor in the space, magic can happen. Because most of these smaller partners and channel partners and agencies, frankly, they've got to standardize on one vendor. You see it a lot of them standardize in CRM, more in Salesforce, more in the enterprise. But they'll standardize on HubSpot for SMBCRM and they'll standardize on Shopify for E Commerce. And look, I haven't really even used BigCommerce. I don't know if BigCommerce is better or worse than Shopify. It's their distant number two competitor. But thousands and thousands and thousands of agencies that, that only have time to do one to learn the quirks of one vendor and they learn Shopify and it's incredibly powerful. So if you see this happening at all, if you see a burgeoning ecosystem of partners and vendors around your app, boy, invest as much as you humanly can. It is one of the most defensible things that Shopify and HubSpot does and truly almost a, if you're not in the ecosystem, a secret part of their success for both of them that, that you really wouldn't know. And, and dig also into the discussion I did with Brian Halligan, the and previously sealed HubSpot where he just, I asked him how, how much of a secret sauce that their their channel network are and he just laughed. He's like it's so powerful. So, so lean on this if you have it a partner ecosystem because boy, it's powerful at Shopify and HubSpot and others and bill.com and others. Okay, just a couple more quick bonus notes that are, that are interesting about Shopify number six and it's interesting because we've also seen this with Zoom. Shopify is both getting more enterprise but not more enterprise. So what do I mean by that? What's interest of us, you know, go up market over time. We've seen so many of these, these leaders as we've looked at over over the years at Saster, folks that build up, they go up market over time. Datadog started off as 80% small business. Today only 5% of the revenue comes from small business. And the vast majority is, is 100k up in enterprise deals. So most of us, many of us follow that path that way in part because enterprise deals just get bigger and bigger. And the NRR is more. Shopify and Zoom are interesting because they've both gone more upmarket, but their SMBs have grown so fast that they've grown even faster. So Zoom has added a massive enterprise salesforce and they're building out contact center and enterprise software. But there was such a rush of SMBs to use Zoom post Covid that the SMB business grew even faster than the epic growth of its enterprise business. And Shopify seen the same thing. They created a distinction organization and in part a product called Shopify plus. It's not completely distinct, but its features and software tailored to bigger stores and it was wildly successful. Shopify plus, it's sort of more enterprise edition quickly grew to a quarter of Shopify's revenue, which is huge, right? That's a billion dollar product line. But the strange thing is as E commerce exploded, there's so many SMBs that it grew faster. So in fact Shopify plus declined. Declined from sort of a peak of about 30% of Shopify's revenue down to about a quarter. So it just goes to show that we shouldn't shoot from the hip on how that balances between small, medium and large customers. Lean in on all of them. If you have any segment of customers that is 10% or more of your revenue, show it the love, give it attention, give it a team. Because we don't always know what the mix is. Shopify and Zoom do not quite have the mix of Enterprise and SMBs we might expect. And there's others like Datadog that everybody uses. Everyone loves Datadog. I would not have expected it to have become as extremely enterprise it as it is as it goes to billions in revenue. Nor would I have expected a product like MongoDB which is very enterprise and complicated to have such a long tail of small customers so many years into market, right as it's at a billion of revenue, it just proves that while you can see how the ratios roughly of small, medium and large customers will be even at a couple million revenue, right? Do you have any big, you have any small customers that those early patterns tend to become our longer term patterns, we don't can't exactly predict how that pie chart will work over time. So whatever you do, don't abandon your smallest customers or don't not show them their love. Because Shopify, HubSpot, MongoDB are reminders that small businesses can scale infinitely. They can scale to billions of revenue. And even the datadogs are reminder that those long tails matter even if they become a smaller, a smaller percent of revenue. Finally, incredible, incredible, incredible growth. It wasn't that long ago that in 2013 Shopify was doing 36 million in ARR. In 2015 it was worth just a billion as it IPO today 200 billion in a dominant market position. Pretty incredible, pretty incredible challenge to some of the ways we think they're doing it with partners with small businesses as well as large businesses lasting as long as possible. And again with just an incredible evolution really to a fintech on top of software. Take some learnings from this. See which of the little pieces of Shopify you can add. And most importantly, maybe this year, add a layer. Add a layer. That's my big challenge for this year. Maybe it's a fintech, maybe it's payments for you, maybe it's adding an enterprise layer or a mid market layer, maybe it's adding channel partners and investing more in your ecosystem or your API. But one of the best ways to expand is to add a layer and Shopify again to wind up as it fits. Four and a half billion in revenue growing 50%. But without those layers, without those ecosystem partners, without Shopify plus going more at market, without its fintech, without all these pieces, it might be at best a quarter of its size, a billion an error and that's a huge difference.