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How Shopify Became the Go-To Ecommerce Platform for Startups

Dissatisfied with options for online storefronts, a snowboard seller and his friend built one themselves. Now thousands of other businesses use their customizable store builder.
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Tobias Lütke was frustrated. He knew he had something great to sell (a line of elite snowboards), but he couldn't find a practical way to retail his merchandise online. Even with years of professional programming experience under his belt, Lütke found that his efforts were continuously thwarted by rigid e-commerce platforms with limited design options, making it difficult to integrate with other services.

"At one point, in an especially frustrated moment on a Friday evening, I said, 'Well, if I spend all weekend working really hard, I can probably create the software myself and then we won't have any of these problems anymore,'" he says.

Before long, Lütke and friend Scott Lake were less motivated to sell snowboards than they were to build a business around the e-commerce platform they had created to help others sell their wares online. The duo spent a year and a half expanding and improving their software, paying special attention to flexibility.

With $200,000 from friends and family and $250,000 from an angel investor, Lütke and Lake officially launched their customizable online-storefront builder in 2006 and called it Shopify.

Humble Beginnings
It was a rough start: The co-founders went without salaries for nearly two years, and shortly after launch, Lake departed. "It took a while and the beginning was slow, but then people started realizing we had a good product," says CEO Lütke, who brought on Cody Fauser as CTO and Daniel Weinand as chief design officer.

The new team's focus on perfecting their creation paid off in 2008, when the Ottawa, Ontario-based company became profitable. In 2010, Shopify attracted the attention of investors, securing $7 million in funding, and in 2011, the company raised another $15 million.

The slow start now seems like ancient history. More than 21,000 online storefronts are powered by Shopify, selling merchandise from loads of small-business owners as well as big names like Angry Birds, the Foo Fighters and 50 Cent. Shopify stores sold $124 million in products in 2010, and Lütke says figures reached $275 million last year.

U.S. retail e-commerce sales reached $145 billion in 2009, up from $142 billion in 2008. Total 2010 retail e-sales were an estimated $167.4 billion. Source: U.S. Census Bureau Online shoppers spent a record-breaking $1.25 billion on Cyber Monday in 2011. Source: comScore The U.S. saw its heaviest week in online shopping ever in the seven days ending Dec. 18, 2011, with consumers spending $6.3 billion, up 14 percent from the prior year. Source: comScore U.S. e-commerce sales are expected to reach $278.9 billion in 2015. Source: Forrester Research Online retail spending in the U.S. reached $48.2 billion in the third quarter of 2011. Source: U.S. Census Bureau

Customizable features
Shopify offers an extensive suite of tools for creating and managing an online store. Shops are fully hosted, and the company delivers a top-notch content-delivery network (at no additional charge) to ensure that stores run quickly, worldwide. And there's no shortage of variety: Virtual storefronts can be designed using one of 100 customizable themes. "We put a lot of work into the store themes, making sure designers were able to create any kind of design they came up with," Lütke says.

Other features of the platform are equally flexible. Store sites can accept payments via PayPal or from more than 50 other payment options; customers' habits can be tracked using either Shopify Analytics or Google Analytics; and Shopify's subscription plans run the gamut, from $26 a month for a basic package to $160 a month for unlimited features. Shopify offers a free 30-day trial for any of its four pricing options.

Assembling the Right Team
Although Lütke's expertise is in programming, he has performed nearly every job at Shopify--from sales to customer support. He says that experience gave him an "intuitive sense" for when to start hiring and helped him decide who the best candidates were for the positions that needed to be filled.

"Once you understand the job, it's so much easier to hire for it," Lütke says. "Even after you hire for it, you have a much easier time actually talking with and engaging individuals who are doing the job, because you have a better common language with them."

Lütke has continued to use this hiring model to attract more top talent, even as the company has grown tenfold. Shopify started off 2011 with 10 employees and now has more than 100; the company recently relocated to a larger, five-story office building to accommodate the growing staff.

So what's next for this online-shop architect? "To me, a great company starts with a great product and ends with a great product," Lütke says. "That's what I'm really excited about, and that's what I want to focus on."

How to Create a Product that Sells Itself
These days, Shopify's team includes a vice president of marketing. But in the beginning, co-founder and CEO Tobias Lütke depended on the platform's users to be its champions.

So what are Shopify's secrets to developing a successful product?

1. Create something you need.
When Lütke couldn't find an e-commerce platform that met his needs and expectations, he created one himself.

"It is incredibly powerful if you solve the problem you actually have yourself," Lütke says. "It's really tough to develop a good product when you don't have very close proximity to the people who actually use your product. The closest proximity you can have to those people is to be that person."

2. Make something unique.
Find your niche: There should be a need in the marketplace for your idea, product or service. Shopify wasn't the first e-commerce platform, but Lütke and his team developed it to give retailers a new option in the e-commerce world.

"[Using] our product is probably the first time that people who actually ran an online store built an online store," Lütke says.

3. Make something better.
Even if it's not unique, make your product the best version out there. Lütke knew the original platform he developed for his online snowboard store wasn't necessarily what every e-tailer was looking for, so he spent a year and a half improving Shopify before launch. He continues to emphasize product development: In response to a 2,000 percent increase in Shopify stores' sales through mobile devices, the company recently released features for users to create designs specifically for tablets and iPhones.

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