Interview with Scott Lake of Shopify

July 5, 2006 in An interview

I followed some of the pre-launch buzz behind Shopify and everything I saw led me to believe these guys were doing it right. There's such a tremendous need for well done, simple, affordable, clean ecommerce solutions for small businesses. Yahoo stores and a few other players have tried to make this work - but no one that I've seen really seemed to "get it" from a functionality, pricing or usability standpoint, and none of the players is at the level that innovative web development is today. Well, Shopify finally launched a few weeks ago and it looks to me like they're delivering on the hype. It was my privilege to shoot a few questions at Scott Lake, co-founder of Jaded Pixel, the company behind Shopify.

1. Hi Scott, first - please tell us a bit about Shopify and what you are trying to accomplish with it.

Shopify is a simplified e-commerce platform that is designed to remove all the common barriers that small businesses, micro-enterprises and individuals face when trying to sell online. These barriers include hassles such as setting up hosting, integrating with credit card gateways, learning about security, SSL and the high cost of some e-commerce software.

2. How did you get started? You founded Jaded Pixel with a bunch of smart geeks. Did you guys start as a web development firm and evolve to Shopify, or was creating Shopify your project from day one?

Shopify actually evolved out of an online snowboard store that Tobi Lütke and I started a couple of years ago. We both knew that we wanted to run a company together but hadn't yet decided what it would be. Eventually we decided that we wanted to open a high-end online snowboard shop. We are both snowboarders and it seemed like something fun since we both were also interested in e-commerce.

To get things started, we looked long and hard at all the hosted, open source and commercial shopping carts that were out there and found that everything was either too over-featured or over-complicated for what we wanted to do. So when we sat down to talk it over, Tobi suggested that he build his own e-commerce app based on the then brand-new development platform called Ruby on Rails. Tobi is an amazing developer so I was all for it.

The result was snowdevil.ca and we sold about 40 snowboards that season. After the winter season slowed down, Tobi and I realized that there was a more obvious opportunity in providing an easy platform for creating e-commerce sites. Thus Shopify was born.

3. How have you funded Shopify? Can you tell us a little about how that process worked and what that looks like now?

We were lucky to have a very supportive network of friends and family when it came to financing Shopify. We raised a small seed round and have bootstrapped the whole thing ever since. We've kept our overhead is very low so we can go quite a while without having to worry about money. That being said, we are just beginning to think about taking an additional investment into Shopify.  So we will have to wait and see what happens on that front.

4. You were originally slated (at one point) to launch Shopify in Fall 2005. It took till June 2006. Looking back, what caused your delay, and how do you feel about it?

I don't feel that bad about the delay of Shopify. It was unfortunate that people had to wait for it but the reason for the delay had more to do with an evolving strategy then it did with underestimating the development time for Shopify. By this, I mean during the development of Shopify we decided to develop and release several other open source applications that could be used in conjunction with Shopify as well as with any other Rails app.  Here are few examples of some of the open source projects which have spun out of Shopify:

• Opinion – Forum software
• Active Merchant – For integrating payment gateways and shipping
• Liquid – Templating Engine

Here are a couple of other apps that we also released but are not open-source:

• Vision – Tool that emulates a Shopify install for designers
• Nametag – Domain pointing tool (included in Shopify)

The overall idea is that if something isn't core to Shopify, then we want to make it available as open source for anyone to use. The great news is that all of our open source apps have been used in some very interesting software and by some very interesting companies.

If it had just been just Shopify under development, the delay would have been unfortunate but considering all of the benefit that has come out of this strategy, I think we made the right decision.

5. You've done a brilliant job marketing this product. The pre-launch buzz was fevered and the excitement level of industry leaders reminded me of Jeff Bezos and the Segway. To what do you attribute this marketing success?

The marketing success of Shopify was really just a case of being in the right place at the right time. When we started blogging about Shopify a perfect storm was really brewing and luckily we were swept along with it.  Here are the basic components of that storm:

• Ruby on Rails was taking off like crazy
• Shopify was staking its claim as the first e-commerce app for Rails
• Tobi's star power (core developer of Rails and creator of Typo)
• People started talking about something called Web 2.0

That being said, we did blog about Shopify a lot, we were also very active in all of our communities and we gave people lots of insight into how the product was coming along and what it was looking like.  So a combination of all that really led to the buzz about Shopify.

6. How have things gone nearly one month after launch? Are they in line with your expectations?

Things have been terrific since launch of Shopify. We have had so much interest from people all over the world which is great. Before we launched there was only a relatively small group of people who had seen Shopify, now anyone can see it and that generates a lot of questions, suggestions, and business opportunities. Perhaps the best part of my day is when I log in and look at all the new shops. It's incredible what people are doing with Shopify and exciting too. Soon enough we will be posting lists of shops on our site so everyone can get a look.

7. There was some hub-bub related to how you planned to price things with Shopify. You settled on 2% to 3% of transactions as your model. Why?

The initial price for Shopify was going to be a flat rate of 3.75%. The idea behind that was we thought that one price would keep things simple. If you have ever checked out what some other hosted e-commerce plans, it's almost like trying to buy cell phone service, the plans are so complicated. In any case, after we let that price slip it became evident that, although it was reasonable for small shops, larger shops doing lots of transactions would actually be paying much more than our competitors.

In order to still make Shopify attractive for higher volume sellers we dropped the price and split it into two tiers, one for sales under $10K per month [3%], and a lower percentage for sales over $10K [2%]. In the end, I think it was the right decision. Most people have been really happy with the pricing and it has certainly shown in the levels of sign ups.

8. What one element of Shopify do you feel/hope will propel you toward market success where others have either failed or floundered? (Just a wish, not hubris!)

The one element that I really hope will propel us towards success where others have failed would have to do with strength that exist within the Shopify store owners' community. Making a profitable e-commerce store is hard work. I love the fact that Shopify clients help each other in our forums. I love the fact that everyone feels like we are in this together and that we all will succeed together.

If I could pick a second element, it would have to be that I truly believe that we have made software simpler. Tobi and Justin Palmer have worked like dogs to make Shopify easy to use and that's not just a marketing quote either, it really is easy to use. I feel that we have gone beyond any other e-commerce app to date on this front and both Tobi and Justin should to be recognized for their efforts in this respect.

9. Can you share some of your favorite sources of business inspiration and ideas? (e.g. certain books/magazines/blogs)

Books:

• Blink by Malcolm Gladwell
• Tipping Point by Malcolm Gladwell
• Naked Conversations by Robert Scoble and Shel Israel
• Cluetrain Manifesto by Chistopher Lock, Rick Levine, Doc Searles and David Weinberger
• Freakonomics by Steven Levitt

Magazines:

• Business 2.0
• Wired

Blogs:

• http://www.horsepigcow.com/index.html
• http://www.businessweek.com/the_thread/blogspotting/
• http://paul.kedrosky.com/
• http://headrush.typepad.com/creating_passionate_users/
• http://avc.blogs.com/a_vc/
• http://onstartups.com/
• http://www.gagglescape.com/

10. What you've attempted to do is hard: Build a very significant application, enter an industry full of very strong players, stay true to your values, and on a budget. Do you have any advice for other aspiring entrepreneurs attempting to launch pull off a similarly insane venture?

Well, the best advice I can give you is what you mentioned above -stay true to your values. Tobi and I knew what kind of company we wanted to have and we have worked very hard to make Jaded Pixel the best place either of us could ever work. I worry day and night about our business but I never worry about how we are doing business because I know it is fair and honest and that is the most important.

A huge thanks to Scott for taking the time to share these insights and ideas behind his journey.

Scott has agreed to answer any questions you may have, in the comments to this thread.

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Great interview. Thanks for posting.