Tobi Lütke on Creating Shopify for Americans as a German in Canada

Conversations with Tyler is produced by the Mercatus Center at George Mason University, bridging the gap between academic ideas and real-world problems. Learn more at mercatus.org. For a full transcript of every conversation enhanced with helpful links, visit conversationswithtyler.com. Hello everyone, and welcome back to Conversations with Tyler. Today I'm chatty with Tobi Lütke, who is the co-founder and CEO of Shopify, the famous Canadian e-commerce firm. Tobi, welcome.

So good to be here. So good to see you, Tyler.

I have so many questions. Do you still do stand-up meetings?

Whenever we have hack days, I do them. I, you know what, I feel they need to make a comeback. Like the Friday afternoon stand-up meeting is just one of the greatest accelerants for businesses. I'm highly encouraging everyone to do them. The digital version doesn't work so well, does it? Like it's some Slack bot or so telling everyone to stand up and type something. It's just like, it doesn't do the same thing. That's one of the problems with remote companies.

And it may be harder to monitor. What other systems do you have for getting good information out of meetings?

Okay, so I grew up as like outsider, like it's as in kind of have an outsider mindset, which is kind of hard to argue from first principles at this point, but like in a small town that was super not interested in computing in Germany. So I learned all sorts of skills for observing people doing interesting things from afar, you know, just like I, my my lifeline back in those days was like getting a copy of the back archives of a Linux kernel mailing list and so on. This is how I learned like C programming and so on. I grew up as like an observer on information. That's what I do when I just for fun a lot. Also, that means I grew up on the internet, which is good and bad. So one of my ways to get a lot out of meetings often involves saying high conviction incorrect things and just waiting to figure out who, like seeing everyone wanting to correct me. It's a more efficient way of—

So it's like Twitter.

Yes, basically.

If you want to learn something, you just say something wrong.

Say something wrong on the internet. Yes, it works in real life too. It's not It's not people's favorite thing I do, but we have a wiki inside and there's a blueprint for me and it says that I do this. So some people have reasonable warning these days.

The systems for making meetings better, should we also use them in our social lives? Family dinners, you get together with friends.

I don't know. I think porting what makes companies work too far into private lives can also backfire. Although I did. You know, with my kids, I always booked one-on-ones. We called them dinner appointments. And I tell them, I'm going to treat you as an adult and we're going to have an adult conversation until you say you're a kid again. And I'm going to answer every one of your questions to the best of my abilities. And they choose some restaurant, we go there. And that's what we've done for a while. And of course, that's, you know, cell phones down. I think that's an important thing to do. What we do with meetings is like, inside of company, we do a bunch of things. We, you know, periodically delete all meetings, recurring meetings, because it seems very hard for people to subtract. It's very easy to add. Only leads one way. And so we have ceremonies like this. It would be interesting what would happen if everyone would have to zero-sum their follow list. Zero-budget their follow list. I think that would significantly change people's experience with social media. I wonder if that's a good idea.

Also with your friendships, it's striking to me when I'm in Italy, I very often see what I call street conferences. That is people talking to each other often heatedly and they're standing. When I'm in Germany, people are talking to each other heatedly, they tend to be sitting. Do you have a similar impression?

What a fascinating observation.

You know, the idea am Tisch, it's something very German about it. You can pound your fist on the table.

It's a Stammtisch, really. But really, you know, I think in both instances, people do something which I think has a lot of relevance to the sort of real life versus social media conundrum that people are wrestling with, which is that I think there's a significant human need, unacknowledged, for venting. I think venting is like one of those extremely important outlets that like, it's our original safe space in a way where like at some point people say, okay, well, you're clearly off. At least people say this to me. Like I can go pretty far in venting. You know, Germans can be going very far. Like stereotypes are funny because they often are true. Venting, catastrophizing, these kind of things, and then having your friends reel you in. But the issue I think we've seen over especially sort of beginning of this decade is as people like ported their venting online and then got their sort of one take retweeted forever because it just captured the imagination, I feel people misunderstood what was actually going on for a little bit. And I hope everyone has sort of acclimatized to this reality now.

So how do we create safe outlets for venting in companies or institutions? What is it that one does? Because you don't want it to turn into negative contagion, right?

I actually think like even just talking about venting being a thing that's actually good and prefixing when someone just wants to actually just say, get a bunch of things, like field test some takes is a good idea. I think that can disable the power of it spiraling everyone right after. And I think that's useful, but I don't know. I've seen, I don't, I didn't go to it because it wasn't my neck of the woods, but like, I've seen parties organized or evenings organized now where everyone gets a note with an outrageous position that they are supposed to represent for the rest of the evening. And then they're supposed to like tear it up and toss it away, just to allow people to have plausible deniability on whatever they want to talk about, because they can just like fall on, oh, I was told to represent this. And I think that's, you know, that seems like I don't know if it's a good idea, but I'd love that someone is trying this because that seems like social license to actually like talk about stuff that otherwise can't be talked about and seeing where it leads. And often it leads to exactly the wrong place. And then, you know, you get that out of your system and then you don't need to share this as a tweet afterwards.

Are German meetings different?

Yes.

How?

So I'm German. I grew up for 20 years in Germany. I then moved to Canada.

You're from Koblenz, right?

I'm from Koblenz, right? Yeah. Celebrated 2,000 years when I was a teenager there. Julius Caesar might have come through and that was probably the most exciting thing that ever happened there. I think it goes back into the stereotypes culture. I'm German, I started a company with another German, both in Canada for Americans. So like Shopify is sort of interesting milieu of different cultures. Well, I mean, straight off the bat, it's Germans just are blunt. Like we're just like, there's just no shit sandwich. Configuration that needs to be constructed to say if something is bad. I think Germans have a more innately higher quality bar and less tolerance for underperformance on that quality bar. It's like products are either like below it or, you know, good, great, world-class above it. But like below that, nothing else registers as anything of value, which is totally different in North America. I think that's good and bad that comes from this. I think sort of a cultural appreciation for good products, craftsmanship done right, and so on is is something that's more associated with Europe. But the quick iteration, be embarrassed by first version and then build from there is something that North America does better. And so it's interesting. I've seen this in meetings where people fell on cultural lines of, you know, is this, should we ship this? Should we not ship this? Is it valuable to build this way? Or should we, you know, spend a couple of like, spent months and months and months trying to figure out exactly what to build and then build that and try to get it as close to perfect as possible? Or should we just like, it's it very, very quickly. So yes, they go differently.

Are Canadians different in meetings than US Americans?

Yeah. Yes, that's true. It's more on the side of American, definitely on a minimum quality bar. I think Canadians are often more about long-term. Like, I've seen Canadians more often think about what's the next step after this step, but also just lower ambition. That's probably not the most popular thing to say around here, but like Canada has sometimes— like Canada's problem often culturally is a go-for-bronze mentality, which apparently is not uncommon for smaller countries attached to significantly more cultural or just bigger countries. I found it's very easy to work around because I think a lot of our success has been due to, you know, just me and my co-founder basically allowing everyone to go for world-class and everyone's like, oh, okay, well, if we're allowed to do this, then let's go. And I think that makes a big difference. But ratcheting up the ambition for a project is something that one has to do in a company like in Canada.

But is there something scarce that is needed to inject that into Canada and Canadians? Or is it simply a matter of someone showing up and doing it and then it just all falls out and happens?

So I don't know. Inasmuch as Shopify may be seen as something that succeeded, that alone didn't do it. It would have been very, very nice if that would happen. Now, there's like another cohort of founders coming through who are like, some of them have been part of Shopify or come back from the Valley. There's some great companies in Agri, like Neo, that are more ambitious. But like, I think it's a decision. I think it's a bit of a decision. Like the time it worked perfectly was when Canada was hosting the Winter Olympics, which is now a little bit of ancient history. But there was actually a program Canada-wide that's called Own the Podium, which, because, you know, that makes sense. Like it's home. We love— we have more winter than most. So therefore let's do well. And then they did. Like it's just like by far the best performance of the Canadian Olympic team of all times. And I do wonder if it's actually Like, I think to systematize it and make it stick, that's changing a culture is very, very difficult. But instances of just like giving everyone permission to go for it have also been super successful.

Why were you miserable in German school?

I think because German school at that time was in love with serializing out answers and trying to fill you up with as many answers as possible and hope that you would be able to apply them to problems you encounter later. I don't know if there's a good theory for that being a sensible approach that would stand up to reason. It certainly didn't work for me. I kind of am literally the opposite. I need to have every problem before I can learn the answer to it. That was in stark contrast, you know, what was being taught in the '90s and so, and during these times was like in stark contrast with what was interesting for, you know, working with computers. That was really just like the most fun thing for me to do during this time and seemed very valuable even then. You know, this probably sounds too abstract, like Latin as first extra language is just like not highly utilitarian. That is not the— like knowing Latin is very rarely the correct answer to questions you might encounter later in life. Not saying it's not valuable in some way, but maybe like start with English. That would be a good start.

But there's plenty of technical talent in Germany and plenty of young people speak English quite well. Why aren't there more German tech giants?

I mean, the hot take here on this is like, there are, they're just, they're called Shopify and Palantir and others.

But in Germany, Germany's not a tiny nation. The EU is of course a large market. Enough of you speak English to have a common language.

I would love to know. Honestly, I think about this a lot, but I don't know if I'm the best person to analyze it because it's like what I'm hearing and it makes sense. It's just that tech is something that Americans do from perspective of Germans. And it's like, I really don't think the general population believes that it's truly like tech is adding a lot to life. This may be a reflection of areas I go to visit. Again, I mostly visit family and friends in smaller, like not the tech centers of Germany, having these conversations, there is very much a pessimism about the future that I think means you cannot build tech companies because you kind of have to be optimistic about the future to like, otherwise, why would you want to contribute to, you know, progress and making it come to be faster? So I think that's one thing. I think it's very hard to hire staff. Like in North America, I found that people take big chances. If they believe and have conviction in a company doing something, they would leave an excellent career to give it a go. And it just like also seems to not be true in Germany. So like access to excellent talent is just simply harder based on them making culturally decisions differently, partly because I think startups are a low-status pursuit from the best I can tell.

But say we compare Germany to the Netherlands, which is culturally pretty similar, very close to Koblenz. They have ASML, Adyen. Netherlands is a smaller country. Why have they done relatively better? Or you could cite Sweden, again, culturally not so distant from Germany.

You're asking very good questions that I much rather would ask you, you know? I don't know. I wish I know. I like, I spent, I started a small company in Germany, didn't do anything. So it's not like people didn't do this. I came to Canada, did it again. This time it worked. And then I was heads down for a very long time building my thing because I just like was consuming. So like, I didn't pay too much attention to geo policy. I wasn't even very deliberate about where I started company, right? Just I started in Ottawa and because that's where me and my wife were during the time she was studying there. And then we could find great talent there that was overlooked, it seemed, and gave everyone a project to be ambitious with and it worked. And, you know, I think that if you create in a geography a consensus that you're a company that really, really is worth working for because it's interesting work, great work, and might actually lead to something, then you can build it. I think this is something that I just, I don't quite understand why this is not possible to do in, you know, so many places in Germany, because again, Germany does have this wonderful appreciation of craftsmanship, which I think is actually underrepresented in software. I think it's only recently, usually by Europeans being brought up, Patrick Collison talks about it more and more. And certainly I do too. Making software is a craft. I think in this way, Germany Czech Republic, other places, Poland, are extremely enlightened in making this part of an apprenticeship system. And I apprenticed as a computer programmer and thought it was exactly the right way to learn these things. That means there's, I believe, a lot of talent that then makes decisions other than putting it together to build ambitious startups. Something needs to be uncorked by the people who have more insight than I have.

I think part of the hypothesis is that the Netherlands and also Sweden are somewhat happier countries than Germany. People smile more, at least superficially. They're more optimistic, more optimism going. It's striking to me that Germans, contrary to stereotype, I think they have a quite good sense of humor, but a lot of it is irony or somewhat black. And maybe that's bad for tech. And I wonder, people in the Bay Area, I mean, do they have a great sense of humor? I'm not sure they do. Maybe there's some correlations across those variables.

I think they actually banned humor for a little while from the Bay Area. I think it might make a comeback now. It seems like an easy out, but like it's actually potentially, I like the optimism angle is load-bearing for this. You got to believe that the future is going to be better than today to want to make the future come sooner, which is in your tiny, tiny, tiny little way. I'm not talking about every company is changing the world. Like if you want it to work, it's like causing progress, both like add to the vector of progress, but also maybe just change some trajectory in subspace a little bit. I think if Shopify wouldn't have happened, something like like this might be highly distributed, like many, many pieces of software or something else would be there. It would not look like Shopify. It's like the world of computing is extremely path dependent. I mean, just like every other part of the world. So you want to be able to add something because, so this is also why ignorance is usually useful because like you should be ignorant to the low odds in the beginning. I think one of the reasons why at least some founders often are young, you know, these kinds of things are important. Another aspect of the European Union, if like, it's just like people also study very long, right? Like I know this has gotten sort of updated in the time since I was there, but man, I had a— in my trips home, I had a lot of 32-year-old student friends and that's just like, cool. There's a significant amount of Nobel Prizes awarded to people for their work in their 20s, right? So, and we should just have a clear cultural understanding that those are useful years to be out and building things. And you know, I think it's nothing is single causal and I think there's a lot of contributing facts. I would have trouble, I think, weighting them, but like optimism is the one— lack of optimism is the one I would put on the top of the list.

What is a German language word that you still use when you think because there's no close English language equivalent?

I don't have—

Heimweh, right? That's a possible contender.

Heimweh.

Sehnsucht.

Verschlimmbesserung is such a good word. Okay, so what that means is, By trying to improve something, you made it worse. And it's like, I mean, again, maybe it's also like born out of pessimism about the future, but like, it's just so wonderful because you see it often, you know, some, you know, Chesterton's fence, people don't often know what parts of large system are important parts that have a lot of cultural or technical understanding coded in them and which ones are just there because we were in a hurry building the system. And sometimes you find out which is which very quickly afterwards. A word is useful in these kind of situations.

That is a good word. How about Auseinandersetzung? You know, the process of coming to terms with something rather than just putting it out there.

But they are beautiful. I mean, even Gestalt is a word that isn't— I mean, that might actually have been integrated now in English, but like, there's no equivalent like of that. But the reverse is also interesting. You know, entitlement is not a word that Germans have, right? Like, which I find really, really interesting. I make— I Sometimes in Shopify, I have to explain to people when I sit them down, it's like, hey, gratitude and entitlement are two sides of the spectrum. Like, it's your choice where you are here after you have a pleasant experience or maybe with some downsides along the way. Very important conversation to have with interns sometimes if, I don't know, provided food is cold or something like this. I get in these situations where I sit down, okay, well, I'm doing this in German now because this is the moment where I have to roll out this thing and then I'm just like struggling because there's no term and I'm like, That's an interesting fact that we don't have a word for this. So this happens as well. Now, of course, someone's going to send me like a string like this, which actually perfectly represents it and does it better. But anyway, nothing I could easily recall.

Do you still read books in German?

Occasionally. I have like, I must read one book in German a year as a sort of self-policy, which I have violated last year, which I was not like super happy about. But one thing which I find disappointing is when, you know, obviously I take the opportunities when I want to go through something that's originally written in German that I'm going to try to read this in original. So like Wittgenstein's Tractatus is an example of this. It's like the English translation is so much better because the translator asked for so many clarifications by Wittgenstein that it just ends up being readable. So I found a book which was actually beautifully said, I think the MIT published it, of like original German, the English translation and a translation back to German from the English translation, all in 3 columns, and that was perfect. So sometimes the English translations also just often get updated again, like for Kant or something like this. And I'm actually a fan of rewriting books like every, I don't know, 25, 50 years for the next 2 generations down the line, because they just get hard to access. So often you get that by reading the English translation. So I'm trying to— I feel like I lose opportunities to do this.

In your opinion, where exactly is the dividing line between North Germany and South Germany? So people in Freiburg, they'll say like, oh, it's Mannheim, but that's insane, right? Where is it for you?

You know, you're asking me to poke hornet's nest here, which I, like, I'm going to have too many unhappy people by actually committing at all to this question. So I'm going to take a pass.

Like I would say Limburg is still South Germany because historically it's been Catholic, but somewhere not too far north of Limburg, North Germany would start.

It's very hard to draw a straight line, though. You end up with a very, very, very jagged line, I think, if you're trying to do a best possible job there. Lots happened in Germany for a long time, like to cause culture to be calcified to wherever it is now.

Yeah. Now Canada, in the data I see right now, Canada seems to be having a per capita GDP recession, and I'm not sure how to interpret that. The US has been growing at a decent clip. Europe, more or less steady, growing at a very slow pace. Why in per capita terms does Canada seem to be moving backwards? Is that a composition effect, or how do you read that?

Yeah, I mean, this worries me a great deal. I mean, okay, so comparing to the United States is a bad idea in general. I mean, actually, it's the best possible idea if you're going for optimism, but it's not the best idea if you are looking for staying sane, right? Like America is exceptional. It's an unbelievable economic might. It's an unbelievable country in so many ways. You hear in every country, well, if you compare to the United States in this one thing, things are bad. I'm like, well, I mean, I think the comparison of Germany to Netherlands makes a lot more sense. I think that's where you can make real, you know, figure out what might be actionable. America is just like really, really, really, really different. So first of all that. Every once in a while, Canada has an economy that really can hang with America. I think 2000 years or 1450, like it was looking really, really well. I think what happened there, again, nothing is singularly causal, but like it's, it's, it's the productivity numbers are just really low. And I think the employment in the public sector having grown the degree it has, it's just like, again, I don't know if it's causally related or correlation with the same thing, but like, it's, it just is pretty clear to me that if the ratio of referees to builders is, or critics to builders is going out of whack, that like things grind to a halt. So we saw this in even Shopify adoption. Like it just took a lot longer for Canada to want digital products. Shopify is always selling and finding its best customers in the United States for first 10 years easily. And then you have already, like if you believe me that Shopify is pretty good. Now there's a compounding advantage for people who have adopted it earlier. And I think that is sort of like a tiny zoom of a much bigger fractal that I think is at play there.

How has Canada changed the most since you moved there?

It feels like it's the optimism angle, and I think this is like a thing that worries me the most. It just, I think Canada had a massively underappreciated at the time project in multiculturalism that worked, and it started under Pierre Trudeau, really just putting country together with great leadership, great vision, and Canada had a string of leaders that were like kind of almost too good for a small country. You know, there was like this, hey, we are getting along well, we are friendly, we are like, it's a high-trust environment, the best days are going to be ahead of us. And I think it's so hard to point at exactly what change did. The cultural narrative has just simply shifted now. I do think people are a little bit more circumspect and looking at the country. I think the sort of problems are more clear. Like it's like, There's a lot hanging on real estate and real estate is not by itself, like that's, that's, it's valuable to a second order because of all other sort of things being valuable. I think the worst thing is like this, from my perspective, is that Canada seems to be okay just exporting the raw materials for everything. And that is usually like, that started as beaver pelts being sent to London for turning into high margin hats. And it's like, Canada has no refineries. It all goes to Houston, even though it produces a good deal of energy. You know, Waterloo is like basically a raw material export, as well as one of the greatest schools on planet Earth. Waterloo students are load-bearing for Silicon Valley companies. You know, there's a lot of readiness to export with zero cultural conversation about like, you know, maybe we should have people build things here as well. There's just no— it seems like a country which is now so has so little self-confidence. I see this as running Shopify. A huge amount of our employees we hired last year, I think it was 60% or so of our engineers were boomerangs coming back from storied American companies. Most of them were Canadian because like, and often they say it's because we wanted to work for Apple because my parents said, man, you're really doing well in tech. You might actually get a real job in Red Apple or so. And, you know, if you hear this a lot, you do, and then you go there and you know what, you actually liked that job and then you come back. And I think this kind of thing needs to happen a lot. We need to have some more of these stories out there. Canada is a pretty good country. I think it's a major, major asset to the United States as a great friend. And I think a stronger Canada is better for absolutely everyone.

Do you agree with the stereotype that Canada is especially weak when it comes to branding? So there's Shopify, there's Molson, you could say there's hockey, NHL, but not that many Canadian brands. Why is that? Or do you challenge the premise?

Because Canada exports no products, right? You know, Shopify and Lululemon export, sure, forgetting, I mean, Molson, sure. But like, I don't think it's like not ability to do branding. It's just Canada does not appreciate commercialization of any kind. It's like Canada, wants to invent. It's remarkable how many papers that are foundational to the current revolution of AI boom are in the University of Toronto, Waterloo papers, Geoff Hinton and his lab and Jeff Bengio and so on. Canada loves to have a eureka moment. It's seen as a low status thing to do to then go and try to build a business around it. Which, you know, is probably amazing from a perspective of our neighbors, but like probably not so good for the, you know, sort of wealth of a country. Like we are not metabolizing any of the kind of innovation. Shopify is very much an aberration here as like, let's make something that at least was a brand to businesses initially and increasingly people sort of beyond businesses recognize it. So yeah, like I think that is an important thing. Like it's the same thing as like, hey, we don't refine the oil or we don't make the hats from the beavers or, you know, We just don't create the final product. We send the raw materials everywhere. And if I could change one thing, I would do that. And by the way, this is deeply encoded in policy, right? So there's a thing called SRED tax credits. I'm not going to bore you with the details there, but you can claim those if you do research and development, try to claim them for anything that's commercially related. It's actually It's remarkable. We at various points stopped just applying for them just because we were just too commercial in lots of ways. So you're being paid for doing original research, which I think is a great policy because often original research kind of could need a boost. But then going and turning this into a product, you're completely left out. If you want to claim anything, you will have to ask every one of your people in the staff to have meticulous timesheets and submit an ungodly burden of documentation. Which literally makes the commercialization jobs terrible. And so therefore, you know, it's like the good people don't want to work in this environment and so on and so on and so on.

Do you think in Canada there will be an enduring backlash against immigration? I don't mean the phony student visas. Let's assume that's taken care of. But immigration as it had been proceeding, is that the standing equilibrium or is that going to dwindle an asymptote?

So Canada is about— I don't know if these are accurate numbers, but I think they're directionally right. This is— Canada is about 41 million people in the last 3 years, 3 million people immigrated to Canada, which, you know, is a significant percentage increase in size of population. There is a lot of cultural conversation about this. I think most of the conversation that I see is not really about veracity of immigration in general, but actually about like the sort of fact that in this time of adding 3 million immigrants, we added like almost no housing, which is like, so that's, you know, just that's That's just like not a great idea to do that. That's causing a lot of, you know, bad downstream effects. Immigration has my entire 20 years I've been here, 20-something, been very popular in Canada, which I thought was one of the most unique parts of the country. That's sort of part of a statement I made earlier about an almost unacknowledged effortlessness to multiculturalism that worked. Canada also implemented the thing that everyone's talking about, the skills-based visa program with point systems, which is well-designed and has been doing a lot of work for Canada in the past. It's not quite clear to me why we walked away from sort of these priors that are clearly identified to work, all of it. And certainly, like, things in policy land changed and opinions changed. I don't think people like this experiment. My significant hope is that this is not going to be one of those baby out with the bathwater moments because we have a great skills-based immigration system. And I think Canada should just like fall back on that and and, you know, round that up.

Why does Ottawa remain such an underrated city? So Americans will take a 3-day trip to Toronto or Montreal, but Ottawa is excellent. There's the National Museum, very good food. Obviously, it's the nation's capital. Why does it stay so unknown?

What a wonderful setup.

And it's close, right?

Thank you for the platform. It's a wonderful city. We ended up there because my wife was born there, but then actually studied there, maybe not expecting to go back. And then we stayed for 20 years and we built I feel like Shopify built a great company there because it's just like people really, really love it there and they were like itching for better employer, I suppose. Yeah, I mean, I have to, I mean, obviously it also gets really cold. I had these wonderful parts, like where just like my commute to work was a canal or skating on a canal every day. And you know, where else in the world can you have a commute like this? But also, you know, the first time I visited, it was really, really cold in winter. And I was like, I sort of had my questions. And when in the summer, go to a cottage and that's just like the other side of the whole thing. And it's just like, it's a wonderful quality of life. And I think that matters.

Don't you have the world's largest outdoor ice skating rink? I think 7 kilometers or something?

Yeah, that was my commute.

That was your commute, all 7 kilometers or how much of it?

Well, maybe 2 of those was a commute. It was right office downtown. And then we were living along the canal, like 2 blocks in. And it was very cool. A very, very nice thing, nice way to start the day. I'm sure I wrote my best code those days.

The future of the internet. When will virtual reality stores matter?

That's a good question. Virtual reality stores, I don't have a great answer there. I don't think we will port the exact, like the Fifth Avenue boutiques online other than for having virtual twins for them, for people who specifically want to see those. I don't think this is going to be the future of e-commerce is going to be strolling through malls or virtual malls or these kinds of things. So I think the exact version the way this is all going to compose is going to be different. I think the innovation in virtual reality are going to be much more about, you know, virtual avatars or like, or real people like helping you, like it's just like talking to the product. Like Shopify represents mostly the catalog of product that people really want rather than the necessities, right? Like it's like the Fifth Avenue boutiques would also be once using Shopify Point of Sale. Purchases are a lot more deliberate around this. Like people often spend weeks sort of thinking about is this something they would like to purchase and they're really looking forward to a package arriving, hopefully very quickly. And so I think there's lots and lots and lots of touchpoints there. The place that is probably the most virtual area that we see is already like furniture, like the placing the couch in your living room is just like better than looking at it in some store, right? Like, so I think we see the early innings in this. And there's a couple of technologies that we are tracking, like Gaussian splats and these kinds of things that are just like going to make it vastly simpler for people to make digital twin available from whatever they managed to put together in real life. And so I think a bunch of this is coming, but like, I don't know what's the date and what exactly is the form factor.

Not talking about back office, but actual retail. Do you see in advance how AI is going to be changing retail and what does that look like?

I think it will play a significant role for sure. Change retail, I think it will also I mean, I think we will see significantly better products being made. I do think so. I have extremely bullish view on AI, specifically around the utilitarian value. I think there's enormous advantages for company building. I think there's enormous advantage for product creation. I think what we engineers experience around Copilots just right now getting good, that are helping us do the job that we already have a significant craft in, but like do it better, is I think that's extremely convincing. And I think people would want a copilot or a sidekick or something like this along more of the things they do, which are like at the edges of their ability, which I think in a retail world on the creation side of businesses and on the creation side of products, it's just like basically all the time. It's a stretch. It's a way you put yourself out there. You create the best thing. It's a deeply personal thing to create the sort of first version of a product that we try to create a company around. So I think that's really, really powerful, like super, like highly intelligent, very knowledgeable, zero judgment, always available, fast returning. Even text AIs are going to be fantastic. But increasingly, I think software is going to go through a rethink for this decade. It's just quite clear that most software, like we have learned how to build excellent user interfaces, quite approachable. Like we simplify an enormously complex space to easy to reason about point decisions in a pretty approachable and legible interface, which also look good. And you know, like all these kinds of things, that's sort of top of a hill we've been climbing for 20 years or a little bit less since whatever moment you pick in which Web 2.0 started, which really was the beginning of engineers saying, hey, we figured out how to build applications off the internet. And that's the string we've been pulling on for all these years. And we've built all very, very valuable companies that basically replaces the, like, going directly to the database or going to the command line. We built like these interfaces. I think now we are, instead of creating a place where someone can run around and switch a whole lot of toggles and change preferences to suit their particular idea, I think people can just tell us their goal and then we can work together on this. I think goal-oriented software is actually what we always wanted because it actually meets people where they are. It's like how you work with colleagues together too. And it's not— I'm actually really excited figuring out what this is going to look like. I love the times where there's significant transition. I thought the 2010 to 2020 was boring because we basically just scaled the stuff we figured out towards the end of 2000 to 2010 period. And so now we are going to get into much more interesting times again. There's a lot to be figured out and that's exciting in the industry. And I think where we'll end up is a much, much, much, much higher mountain that we couldn't have seen from the original hills, right? And so that's always exciting to me. And I think it's going to be very valuable to people.

Now, you work with so many retailers. Do you feel you understand retail price stickiness? Because economists don't. A lot of economic models imply prices are sticky, but when they move, they should move a lot. But you look at the data we have, it seems that big and small price movements are about equally likely, which means we as economists are fools. How well do you understand all this?

I don't think I have a better line. Honestly, I just— like, businesses are just so different that they are hard to average out. And like, there are a lot of businesses that do their pricing strategy as aesthetics. And aesthetics is one of those hand waves that humans do to explain away enormous amount of background processing that goes into it. In the best case scenario, it's like an entire career of knowledge rolled into an intuitive, quick decision, or completely making it up. Like, it's sort of both sides of a, like, Midwit meme here. Like, I think economics fundamentally will have to, you know, roll a lot of data points into an average and then try to see which direction people do. And there's a lot of canceling each other out going on in the spaces that we are concerned about. About. But sort of interesting, we, I mean, we went through a high inflation period and just like tracking when prices in the system were kind of following that was deeply different based on what kind of products are and how people consider purchasing, buying these products, obviously on margins too. So again, I mean, I feel for the economists, like, because I don't think, you know, I think physics Physics has given us a sense that there is a simple equation underneath everything, and we've built an aesthetic around this. And I think often too many other fields want to be more like physics. And I think actually things are wonderful when they're complex. Like, I think, I don't know if you want to talk about company building, but like, you know, companies are complex adaptive systems much more than being sort of industry-applied versions of military, slightly more complex organizations of military service. Recognition, which is not bad old, right? To a certain degree, it can explain why companies run by some of your engineering-type people have been outperforming things because people have an incorrect understanding of what engineering is and how it works. Engineering is fundamentally, at least for the last 30 years, has mostly spent time on trying to take non-deterministic systems, make them deterministic, which is kind of what we do in the real world with policy mostly and process. So I think what we can do now, if you're an engineer running a company, I think you come pre-equipped with ideas like systems thinking instead of World War II organizational structures. Companies are the ultimate of non-deterministic systems that you're trying to get to build fantastic products at great pace, inclusive of all the creativity by the various actors in the company and like trying to build inside of it a culture, a story, incentive systems that are just making so that the maximum amount of everyone's activity actually furthers a mission. These things just so fascinating to think about because this is sort of going back to the beginning. I saw myself as an outsider and I've made a study of other fields from afar. There are so many amazing ideas in basically any given field that you can possibly name or imagine. Like, and often what happens is like every field kind of reinvents the same core ideas and gives different names to them. And making a study of doing this kind of thing and just saying, okay, well, how do we build a better company? I think I think companies are very bad, like all of them. I think literally everyone, me and my contemporaries, myself especially, we are going to be terribly embarrassed by the companies we ran in the early 2020s. And so because there's all these things we didn't yet have or didn't yet understand or so, and then eventually we'll figure this out and then how could we even build anything before we figured out this thing? Again, I find that just like such an interesting meta field of research. It's almost applied good thinking.

What if we never figure it out? I mean, how sure are you that in the future it will be that much better? We'll have better technology, but organization?

Yeah, we have new primitives on which we can, like sometimes also philosophies, right? But I'm not saying we're going to build the perfect company. Everything is a set of trade-offs. I just compared, if the best soccer team on planet Earth gets at like 80% of perfection, you freeze-frame the replay, everyone, very few people use a muscle. Incorrectly while actually approaching the goal and then, you know, beautiful orchestration of cooperation without zero communication. And, you know, that's like, what's a company? A company is 5%. Like how many memos are never read? And so, which to me tells you, if you just get to 6%, you're already doing better. Like that's a pretty good way of not being as embarrassed as everyone else. I think realistically, there's going to be a limit because these are not like soccer games, the same one every time you can actually practice for it.

Like a company is, you know, every day is a new day.

A new puzzle box dumped on everyone's desk. It's a different environment. But still, I think companies are vastly better now. When I started as an engineer, even apprenticing under my Meister, he said, you have 2 years after you start writing code for a project, after which it's like someone poured cement in your codebase and you're never going to change a thing again. And that was just accepted back then. And now we have pieces of software that are 20 years old and a delight to work on because we to just build up these understandings. There's not like a lot of these lessons work in other areas as well.

What do you think is the most common mistake your third-party retailers make in modeling the world?

Thinking they have to build products for that other people like. I think this is the silent killer. It's just like Shopify is like, some call it Kevin Kelly's 1002 Fans essay applied at scale. Yes, everyone's different. But actually, there's clear clusters. And the people who are willing to dedicate themselves to build a product and like, let go through that entire rigmarole and put themselves out there, they're actually inside of a cluster more like the people everyone else wants to be. And if they build things that they would love to have in the world, turns out that's, they have extreme insight and authority over this rather than running. There was some cross-pollination from the Lean Startup book to the retail world. And I think that's especially in retail, this has been bad. I'm actually wondering if that was such a good set of ideas. I think there's good ideas in the book, but like, it feels a little bit ungenuine to just like, I think customers are not the people who should say what needs to be built. I think they need to explain their problems and it's like the builders have to figure out how to solve these problems better. I think that's otherwise an abdication of vision. I think the best companies end up like following a long-term vision and a long-term mission. So I think that's part of it. And then the people who have access to capital, they underinvest in growth. That always happens too, which I know it's scary to do internet marketing as getting harder and harder, but like it's not priced out yet.

So did you learn all this selling snowboards or it took until Shopify?

Okay. So the greatest thing about running Shopify is like my customers are like incredibly inspiring individuals, right? Like it's like, it's, you know, it's, it's in a lot of places, it's very hard to convince people to actually talk to their customers. It's actually like sometimes our problem is the opposite. We have too many people in conversations with our customers. They are super open to sharing what they see and they're delightfully discontent with what we give them. They will tell us how to do this better every single time, but they will also tell us here's why, because, you know, they are entrepreneurs. And Shopify is honestly like a celebration of, you know, sort of the small bits of capitalism. So like we love entrepreneurship, I should say, Like plenty of our customers have started on Shopify and are now like absolutely massive billion-dollar-plus retailers. So it's not like, you know, there's a great variety spanning pretty much the entire spectrum of a retail industry in size represented on the system now. But a lot of the largest are people who started on the platform, which now has been around for 20 years. But we love entrepreneurship. We love founding. The concept of companies as a self-expression You know, just there's glory in entrepreneurship and it's actually, it's underappreciated. It's like really, really, really, everyone talks about it and politicians always like are like pro-business formation, but like often the behavior doesn't confirm to this. It keeps getting harder to policy-wise. I mean, let's talk about, you know, that's certainly an aspect in Germany as well. It gets harder and harder to start companies in some places. Again, the United States is the opposite. There we have APIs to start businesses, which is exactly how things should be. Changes the behavior a lot because everyone's allowed to be an intelligent actor in their local incentive system. And if you're massively disincentivized of starting a company, then by just BS you have to deal with, then people won't. So we want to be a counterforce to that. We want to remove friction where we can. Again, we can potentially advocate against bad policies, but we can do a lot about what happens after the policies stop mattering in the next step, because every single time we've we made Shopify more approachable or things that were previously complex and gating for people's success, every single time we made something significantly simpler, it actually caused more success. Like more people who otherwise didn't make the hurdle ended up making it through it. And like not stopping is actually the thing that really, really leads to success in a reductionist way. So we find that just to be a really, really important discovery. Again, And when we are part of a journey, I like to create the incentive systems and the business system of Shopify in such a way that we're actually on the same side of the table with our customers. Like, best thing we can do to grow Shopify is make our customers more successful because we're sort of, we're in this together, economically speaking. So they take an active role in like talking to us. Like every one of the product managers has like hundreds of active WhatsApp conversations with fast-growing businesses. And I think that's just kind That's a really, really, really fun way to build a business. It's a very, very, very rare thing that your customers are often the source of your inspiration.

What's an interesting book you've read lately?

Hmm, interesting book I've read. I've been sort of on a fantasy kick, which is not super conducive to that.

But what do you learn about management from reading fantasy?

Ha!

You read Sanderson, right? Am I correct?

That's right. That's right. I read Sanderson.

They're long.

Very hard commitments. My son read the entire Stormlight Archives, 4 books on March break, and I have such reading speed envy since then. It takes me a lot, lot longer. I mean, I think fantasy is full— I mean, fantasy is very often a mirror to society in some reductionist way. So it's a sort of— it's a simulation. It's a simpler scenario with some variables changed. And any book that you don't like toss across the room is a book that usually has realistic characters that have some depth to them following their story, given sort of the changes in environments of I mean, obviously, Lord of the Rings is an amazing management book, if you will. Like the way Gandalf shows up at just the right time and has the exact right combination of words is certainly something that's extremely valuable. At least it conforms to the best version of the businesses that systems that we used to build. And I think that's really valuable. Seeing Like a State is just a fantastic book.

He just passed away. You probably saw that on Twitter.

It's yesterday or so, a couple of days ago. Yeah. What a fantastic mind. It's one of those books you read which feels like it should be a book, a particularly good book in a space of lots of books, but it seems like totally, like there seems to be nothing around it. It's just like crazy.

I've had people ask me, oh, recommend to me other books like Seeing Like a State, and I'm not sure what to say.

Exactly. There's nothing quite like it. It's really wonderful. I've been fascinated with the Burnham books.

You mean Managerial Revolution?

And Machiavellians are just like, especially for when they were written, incredible books. And the degree by which we have known a lot of these kinds of things but haven't known this solution to some of the things that Burnham discusses are just remarkable. I think the best book I've read was A Conflict of Visions recently by Thomas Sowell. I just find that is an incredibly insightful book by creating a prior to a lot of sort of political conversations, like a higher order differentiation between people. I've just found myself to be someone who I just, I fundamentally think humans are limited and that's the best thing about humans. Like, and that systems that we can can lead us to incredibly amazing feats of cooperation, coordination, and like optimizing everything you do to find the best set of trade-offs feels like an extremely mature way of seeing the world. I'm just constantly fascinated with Sowell's writing. So.

Final question, what is it you hope to learn next?

I mean, I have been on a wonderful sort of reconnecting with engineering kick for the last little while. I've really, really had a great time coming back. I think Copilots and AI has allowed me to mitigate all the downsides of just not spending any weekends working on computing projects. I, again, I'm incredibly interested in LLMs, transformers, the machine learning world, and it feels like an almost unending well for information and focus. So I'm just like fairly tapped on this. It's hard to say this as a field because it just like changes every couple of days. I'm most thinking about, and I really feel like I can contribute a little bit to just figuring out how to have higher trust companies at scale. I just think people, like people make a lot of, people describe as I'm a small company person, a big company person, and I just don't think what's actually the differences. I think people are using labels around something they feel and they haven't got the right words. And it is probably many things that contribute to this, but certainly parts of these things a sense of agency and ability to impact. A lot of what happens in companies is that policies and processes, they are well-meaning, they bring up the floor so no one actually does something really, really wrong. But what people don't see is they also bring down the ceiling. And so you end up in these places where it doesn't matter who you are, you're going to do 7 out of 10 work. And, you know, just the whole concept of entrepreneurship is about going for world-class and people need to leave in many places after a company gets to a certain size. I really think this is simply a path-dependent, unacknowledged situation that just comes from the way we have, like the tools that we had to coordinate in people and everyone's sort of wholesale dismissal of trust as a part of this. I think the best areas of a company like Shopify keep this like ceiling open so that everyone can reach as high as they have ambition for. Like sometimes teams come together and just do absolute world-class. That means you have to be willing to accept underperformance as well. Like, the floor can't be quite so high. So sometimes you get something you can't ship. Sometimes you get something with a direction in the wrong way. This all comes with the territory. And businesses tend to think about these things as disastrous events and will do everything to not experience this and therefore stymie all creativity. I think we are now gaining tools and approaches that can do this. At scale, just like what the engineers experience with writing code. And then you have a copilot that helps you write code well, given what you're working on and quickly gain the insights that you need in the task area understanding. And then after you are done with it, there's automated systems for test. There's like automated linting, automated unit tests and so on. It's to me, this, I know this sounds incredibly nerdy, but what this basically is, is trust trust plus Copilot and automated verify. So as a take on the trust but verify thing, I think that creates a wonderfully fun environment. It turns working on areas into almost video game-ish. And I think we know how to build these systems now. And I think we can build enormously better companies this way that are just more fun for everyone and also lead to just better products. I mean, this is clearly possible because I've seen it be possible and we just have to come up with a couple more ideas along those ways and we have to figure out the particular downsides because again, nothing is perfect, just different sets of trade-offs. I think the trade-offs of building a company this way rather than just reducing it to zero trust and mechanize everything is enormous for society and just productivity and just fun at work And yeah, so I'm excited about that.

Toby Lütke, thank you very much.

Great conversation. I really enjoyed this. Thank you, Tyler.

Thanks for listening to Conversations with Tyler. You can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. If you like this podcast, please consider giving us a rating and leaving a review. This helps other listeners find the show. On Twitter, I'm @tylercowen. @TylerCowen and the show is @CowenConvoes. Until next time, please keep listening and learning.