Harley Finkelstein is the president of Shopify. He may love entrepreneurship more than anyone we've ever met.
Harley’s problem: How do you aggregate the power of millions of small businesses to help them compete against giants?
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Pushkin. When the pandemic hit in twenty twenty and everything shut down, hundreds of thousands of people in the US reacted in a surprising way. They started new businesses. This isn't just some anecdotal thing, right. You can see it in the data. In twenty twenty, the rate of new business formation went through the roof. Now two and a half years later, the economy has reopened. Things are sort of back to normal, but entrepreneurship hasn't died down that much. The rate of new business formation is still way up from where it was before the pandemic. In a world that feels scarier and riskier than ever, people are more willing than ever to bet on themselves. They're becoming entrepreneurs. I'm Jacob Goldstein and this is What's Your Problem, the show where entrepreneurs and engineers talk about how are going to change the world once they solve a few problems. My guest today is Harley Finkelsty, a man who may love entrepreneurship more than anyone I have ever met, and this trade is a good fit for his job. Harley is the president of Shopify. Shopify started out building software that makes it easy for people to start online stores. Today, millions of stores use Shopify, and the company is trying to solve a new problem. How do you aggregate the power of millions of small businesses to help them compete against giants. My conversation with Harley started with the beginnings of his life as an entrepreneur. He was a kid who was so impressed by the DJs he saw playing at his friends bar Mitzvah's that he started his own DJ company. I'm started at DJ company because I want to be at DJ and nobody would hire me. And how old were uh? And it was my dad that said, why don't you start your own company? High yourself? And so I did? And actually when my dad did my dad and have my parents very much money, but my dad made me a business card and the business card had said Harley Finkelstein DJ. And that was the endorsement or the validation, whatever you want to call it. That I needed to have the hutzpah or audacity to walk next door to my neighbor and say, um, can I DJ your son's bar Mitza and what they say? They said no? And so then I mean, were you always starting companies? Was it just can can you draw? A line from there to starting a T shirt company when you're in college. Yeah. During during high school, um, I wasn't. I wasn't really in sports. I wasn't really into like you know, um different like school clubs. I was. I was an entrepreneur and so I was always trying to start different companies. I started a bunch of smaller ones that didn't work out. Started a poker chip company, making poker chips. I started a company that had was a slipper company called Woolen Stock, didn't do very well. I started a bunch of small, little side houses like that. But it was only in college when I was I went to McGill in two thousand and one where I needed to actually start something for real because my mom and sisters my dad was around anymore. Mom and sisters needed needed the support financially. And that's when I started making T shirts universities and that was really the first business that made any real money. Can you give me? I feel like there's this very like rom com meat cute of how you get to shopify. There is I don't know if it's rom Comms, it's a meat cute. I moved to Ottawa in two thousand and five to go to law school, not to become a lawyer, but to become a better entrepreneur. Ottawa, Canada. That's right, yeah. Mentor of mine told me the teacher business was cute but had never really had any real potential of scale, and he was teaching law the next year at the University of Ottawa as a guest lecturer. Convinced me that law school might be like finishing school for entrepreneurship, and it very much. Was moved to Ottawa, Canada in two thousand and five, had no friends, had no family there, asked where the entrepreneurs hung out and was directed to a coffee shop in a small little town area of Ottawa called the Glebe and I walk in. There were five other entrepreneurs and one of those entrepreneurs was this brilliant programmer name Tobias lute K, and he just moved to Canada a year or two earlier because he met a girl in Canada and couldn't work because he didn't have his working papers. So started a business selling snowboards on the internet. And in two thousand and four, there was two ways to sell a product on the internet. You either posted your products on a marketplace, or you paid some big enterprise software company millions of dollars total marketplace like eBay, or was Amazon market Amazon wasn't really marketplace, so basically eBay. There was a couple others like that, but but eBay, that's exactly right. The alternative was you would you would go and spend a million dollars with IBM they had a product called WebSphere or ATG or SAP, these big companies, and he didn't have a million dollars. So you wrote a piece of software to sell these snowboards and very quickly realized that other people may also want to use the software to sell their own products. And I was one of those first people. I became one of the first merchants on Shopify, and I moved my T shirt business to Shopify in two thousand and six. And so in two thousand and nine I called Toby and said, I'd love to join you in a small handful of other people and help you build this company and make it easier for more people to try their hand in entrepreneurship. And I was about twelve or thirteen years ago. Great and so Shopify now is giant, right, And you know, It's interesting because I feel like for most people, Shopify is invisible. It's maybe like the way you know, Intel was in nineteen ninety before they started putting their name on every computer or something. Shopify is the thing behind the thing. So it's I mean, it seems like pretty close to if you've bought something online and it wasn't Amazon, and it wasn't Walmart, it was probably a Shopify store, Right, there's a good chance it's a store that's running Shopify. But just so briefly, like, what's the briefest version of what is Shopify. Shopify is the easiest way to sell a product to a consumer, and the vast majority of our merchants uses to sell online. And as we've grown, we're now ten percent of all e commerce in the US. As we've grown, one of the things we've also done is try to figure out what are the other elements of starting and running and scaling a business that is difficult. So whether it's accepting payments, or it's shipping, or it's raising money having capital, we've gone ahead and gone to these other we call merchant solutions. And what we're trying to do is we're trying to use our size, our economy of scale being this ten percent of all e commerce, which technically, if we were a retailer, we would be the second largest online retailer in America just given our sales volume. So companies using Shopify sell more stuff than anybody else online except Amazon. That's right, Yeah, that's exactly right. So if you compared to Target, for example, or compared to best Buy, Shopify and aggregate store sells more than those places. So when we go to negotiate rates on payments or on shipping or on capital, we're doing so as effectively the second largest online retailer in America. And then we give those economies of scale directly to the entrepreneurs, and we think that's what really helps them level the playing field, like get a sense of the scope of what you do. I thought it would be useful to to just talk through an example. Sure, right, so I have this podcast it's called What's Your Problem? And like we don't have any merch why not? Why not? Indeed? Yeah, so let's white T shirts or black T shirts? Sure? Or like we could have fun with it, right, we could like have like a magic eight ball that says, what's your problem? And it has you know answers, you're you're not grinding hard enough, or you haven't found product market fit or whatever. So say I come to shop, if I sign up for shop, if I like, what is the set of things you can do for me? Yeah, so you come to shop fl dot com and for twenty nine dollars you can se a beautiful online store. You can pick a theme, or you can design your own theme, and you can start adding products. You can say I'm going to add this hat or this T shirt, this water bottle, or you can in fact, if you if you're not sure exactly what's going to resonate ironically around the product market fit example you gave, you can actually do something called print on demand, where you actually put up a bunch of shirts without even making those shirts yet, and the ones that sell will get printed automatically and then drop shipped to your to the consumer. But you come on, you build this beautiful store in a matter of an hour. You have you know, Jacobs merch dot com all set up. What's your problem and what com? Okay, what's your problem? Sure? Um, what's your problem? Dot com? Well, the ways that taken I'm sure it is okay, problem dot dot com or like dot okay that's good, or dot co or something like that. Um, And so you set up your online store, you add inventory, you set up your payment gateway, and now you're ready to sell. Now you can launch your marketing campaign. You can post ads on Facebook or Instagram or Google from there, or TikTok or snapped it or anywhere for that matter. When orders come in, you go to your shop fight admin and that really is your central retail operating system. That's sort of the the the central nervous system of your of your business. And orders come in, you can fulfill them. You can use Shopify to do fulfillment. You can use us to buy shipping labels if you want to see where your traffic is coming from. And you want to understand, I just I just want to slow down a little bit there. So when you say I can use shopify to do fulfillment, this is like new ish for you. Right, stuff you described up until then it feels like sort of Shopify classic. Right, It's like all the online stuff, it's all the just software stuff. And I feel like there is this shift you're making now into the physical world and a number of dimensions, right, And fulfillment is a piece of that. You had an acquisition last year, right, Right, So fulfillment seems obviously it's hard to write software. But software it's like famously a good business. Right, You're write the software once and then you can sell it as many times you want. There's no marginal cost. Fulfillment seems harder if I dare say so, I mean, tell me about getting into that side of the business. So what does it mean that you can do my fulfilm? Yeah? Sure, So just take a step back for a second. While the Internet sort of democratize a lot of things, the one thing you didn't really do very well was help with sort of you know, atoms where software's bits and bites atoms and moving product that didn't actually get better through the advent of the Internet. But going back to that conversation we were having a few minutes ago, because we now have such scale, because we are ten percent of all e commerce in the US, we thought about this. We're like, well, what if we can actually help small businesses and larger businesses with fulfillment, And so we began to create this network of third party warehouses where we tie them together using our software. It's called FMS, fulfillment management software, and any any third party logistics company can apply to be part of this logistics network. And third party logistics is another giant kind of behind the curtain, and exactly it's it's who ships you everything. But the idea is not necessarily that we wanted to get into logistics. It's that it's one of those barriers to success that we thought we can play a role in. So I'm curious, as you're expanding into these different parts of business, basically, what's what's been particularly hard? What are you still trying to figure out how to do? What went wrong? What was harder than you expected? Um, Initially we decided we don't want to build our own warehouses. It's just the business model that we are using is different than Amazon. We are not doing one day delivery. We don't think we need to own everything ourselves, and so fundamental we thought, hey, there are all these warehouses all over the that are empty. What if we made them part of the network and effectively configured them using our software. Not every partner warehouse was very good, some of them actually were really bad. But because we were using a network of warehouses, and because Shopify's brand was the thing connecting all these things, even if it was a third party warehouse, we were responsible. And in the first couple of in the first year or so of fulfillment and shipping a Shopify, we really noticed that some of the warehouses were just not hitting a quality control standard and so we had to take some of them offline. And that was and does that mean, I mean, does that mean basically, customers don't get stuff when they are told they'll get stuff, or it's broken. It could be accommodation thing. So if they're doing some sort of look what's called custom kitting, where they need to sort of the product hast to look. Let's say you want to, you know, for your merch company, you want to send out your box with stickers on it. Maybe the stickers are misplaced, Maybe it doesn't get there on time, Maybe it's the wrong product, maybe it's broken. It could be a combination of all those things. But we actually had to pull some partners out of the network because they weren't hitting a certain quality control thing. Which, again, even though we're leveraging third parties from the merchant perspective, to the millions of merchants you shopify, they don't really care who salt it is because customers it don't care. It's always Shopify's faults. Yeah, and that was really really challenging for us. I mean it is extraordinary, Like fundamentally there you're competing against Amazon, right, and like Amazon is so good at that, it's unbelievable. Like I'm old enough to remember ordering things before Amazon existed, right, and they're so much better than anything that came before. And you have to be at least that good. Yeah, And so I respectfully disagree. I don't think we actually have to be We have to be, we have to be as good a thing we do, but we don't have to do is we don't have to focus on like like this thing, this one day to delivery thing is just not that important for most merchants and most consumers. You have to be that reliable and that good exactly doing what you'll say you'll do. It's like Amazon is extraordinary at that. For Shopify, people's livelihoods are at stake. And because people's livelihoods are at stake Shopify, for most of the merchants on shop for the millions of merchants, we are the most important piece of software they use and so the term it uses exactly the right one. We have to be reliable and I think we've done that really, really well. But but that is a constant challenge. After the break probably talks about the challenges of growth and of layoffs. Now back to the show, So what's what's like the next thing you're trying to do? Like what so that's what? So you you? I mean, do you have the warehouse situation? Is that now that you've got that's in a really good place, what's the new warehouse problem for you? Yeah? And there's always new new sort of merchant challenges to solve. I mean, anyone who's been following the news knows that Apple has made advertising and particularly privacy changes that make it more difficult to target a particular consumer. So, for example, I love writing motorized skateboards. I've been a motorise skateboard guy for a very very long time. Um My interests are technology because you know, I lead a technology company and skateboarding. And so if you are boosted board or you're one Wheel, do you know those companies? Yeah, the one Wheel is like the guy on one it looks really cool. Yeah, it's like a boost board it's just like a skateboard, but the dude's not pushing exactly. It has motorized right, So if you're a boosted board or you're one wheel the ven diagram overlap of Harley's interest which is technology and skateboard, I am the perfect ideal customer for it, so they can target me really really well, Well, that has become a lot more difficult now because of some of the change that Apple has made, so UM what roads. Really it's harder for them to target you on like Facebook. Yeah, they can target because it's much harder to buy targeted Facebook and Instagram ads. That's exactly right. So that has made it more difficult, more challenging for small business to find their their target customers. Well, we figured out was well, if we look at um Shopify as a whole, we actually have a lot of good indication, a lot of good insight on the type of customers that might be right for your particular product. So if you're on Shopify and shopfy plus in particular, where this product is this feature sits, you can say I want to send more of these three products here, I have ten skews, but I want to send more of these three skews, you feed it into the audience's algorithm, we feed you back with the sample audience or a lookalike audience. And now, when you're buying ads on some of these ad platforms, whether it's Facebook or Instagram or any the others Google for example, you don't just upload your product description and your product photography and your meta information. You also upload this lookalike audience. And we know by doing so you will get a higher return dance. And are you I mean, that's sort of the kind of ad targeting version of your big idea, which is aggregating, which is scale basically right, it's bringing the power of scale to small businesses, right, when that's the big idea. Yeah, when you combine a lot of tiny little lights, you end up with the sun. Is a question that I've heard, you know, but a lot a lot of tints. But more importantly, think about it this way. When you sell in a marketplace, if you're a brand, you are able to leverage the economy of scale of that market Sell on a marketplace like Amazon, like any any Bay or something or Etsy or any of those, you get to leverage the economy's a scale of those marketplaces. When you build a custom online store on your own, you get independence, right, you own your customer, your customers, you own everything on Shopify, you get both. You get independence and you get this massive economy as a scale, and we think that makes us a really unique company. You seem very confident. Actually you have a very confident vibe. But I'm curious, like, what what are you worried about? Right, you're running this big company. It's been tough times in various ways. When you think about the company, what worries you? A bunch of things. Um, we're now you know, we have but ten thousand people to work at the company today. That's that's a lot of people making sure everyone's working at the right thing at the right time. That is obviously you know, how do you scale culture? That's one thing. The second thing that I worry about is um I think that it is getting harder for in some cases, for small businesses to grow and to succeed. I think there's a lot of aggregation happening, and I think that it's like I think for as a consumer, I'll say that's not even as a president Shopify, I think for retail to be interesting and exciting, it needs to have more voices, not less, and I think there are some times where I worry about that whether or not we're all just going to end up wearing the exact same basic thing. The other one is, it's more about the macro environment, right, I mean, your stock it's down a lot, like a lot of other growth companies, and maybe more importantly, like a lot of other growth companies, you had to lay off a lot of people recently after sort of making a big bet on growth. Tell me about that, I mean, tell me about sort of the bet you made and what worked out and what didn't work out. Yeah, I mean that was one of the most challenging days of think if any leader's life is to do layoffs, and we lay off about ten percent of our team a couple months ago. When the pandemics started, let's call it March twenty twenty. March twenty twenty pandemic starts, all these physical retailers have to shut down their stores, and most of them did not have another channel to sell by, and so their business went from whatever was doing to zero. And we were really fortunate to be the recipients of most of that business. Most of those retailers that shut down their physical stores to move online, came to Shopify, and very quickly they opened up these beautiful online stores and started selling and in some cases, and we don't take any credit for it, but we certainly, you know, we helped ensure the business continued when as things continued through the pandemic, it was clear that e commerce was playing a much larger role, both in the lives of consumers and also in the lives of retailers. There's a there's an equation that a lot of people monitor, which is e commerce as a percentage of total retail. So the numerator in that equation is e commerce and the denominator is all of retail. When the pandemic hit, two things happened. E commerce went up, and the denominator went down because you pulled out all physical retail. So it looked for for some time that like e commerce was everything, and it was. We knew that that was not going to stay, but we did think that the growth rate that we saw in twenty twenty twenty one was more reflective of what it would be in the future. You thought that pandemic era growth would persist, not just that people would know, but that the growth rate yeah, we we knew that the new baseline would stay, but we also thought it would just it would just increase, and so we staffed up a both support people and salespeople and those are really the two groups that we've staffed up. And then at the beginning of this year in twenty twenty two, we realized that, okay, it looks like the growth rate of e commerce is going to return to a more normalized place circle like twenty nineteen, like before the pandemic, or the growth rate's going to slow down. The growth rate is gonna slow, but it I mean, it's gonna slow to what it was pre pandemic, but on a much larger base because the rest of the e commerce, like adoption is not going to go away. And so we you know, we had this insight and we said, look, we took a bet that it was going to the growth rate was gonna increase. It didn't increase as much as we thought, although it did, it's still quite high, and so we had to make those changes and that was really really challenging. In a minute, the lightning round including praise for micromanagers and the hardest thing about being an entrepreneur. Okay, back to the show. We're going to close with the Lightning Round. You were our Mitzfit DJ Bar and Button MITSFJ. I was what's the one song that's best for getting everybody on the danceler September, Earthwinn and Fire. I heard another interview you did where you sort of made the case for micromanaging, and I loved it because it's it's nice and contrary. It's like the backlash to the backlash. So so give it to me. Give me the case in favor of micromanaging. The best managers I know are able to work sort of at the forty thousand foot view, set strategy, set the direction, you know, make sure the people were in the right in question. That's macromanaging, that's right. But also sometimes you have to get to the details. And I think the best leaders and managers I've ever I've ever worked with, they get into details when they need to. Some of the worst managers don't get into the details, and they only sort of work at the forty thousand foot view. And even Toby, like sometimes he writes code um. There are times where I look at a press release, right, I look at something that's about to go out, and I rewrite the sentence word for word or you know, wordsmith it myself, because I don't think it's good enough. And I don't think that's a bad thing. I think that there's this this hate on micro management, and I don't really mean micro management like you need to you don't trust the people that work for you. What I mean is it is important for leaders to get into the details when it calls for it. What's the best thing about running a tech company in Ottawa, Canada? Less distraction? What's the worst thing? Less inspiration? What's one thing I should do if I'm in Ottawa in say January, skate on the Rito Canal, the largest skating rink in the world. That's a good one, and come for dinner in my house. Okay, thank you? What in your experience has been the hardest thing about being an entrepreneur? Running a company at scale like Shopify forces you to get really really good at something. It also makes you get really really good at being self aware for the things you're not good at, and either hiring people that are better at at it than you are, or you know, I don't know, finding outsourcing it. I guess is someone else. What part of your job are you, in fact really good at and what part of your job did you realize, Oh, I'm actually not good at that, and I should get somebody else to do that part of the job. Yeah, there was a period of time that I was like chief operating officer of Shopify, and I don't think I was especially good traditional chief operating officer. I don't live in the details all the time. I tend to think about like I nack that into process. My favorite thing in the world to do is to tell the reason I'm on this podcast. Reason I love doing the show with you and I'll stay on for five hours if you'll have me, is I love telling the story of Shopify. I think the story of Shopify is fundamentally the story of entrepreneurship. And no matter where you come from, no matter who you are, what your background is, entrepreneurship has touched most of us. My parents are my father's an immigrant, my grandparents are Holocaust survivors. They didn't call it entrepreneurship, but starting a business was their means of survival. And the fact that I get to spend my life now helping other people find their own versions of success and survival is pretty damn incredible. So is that the part of your job that you like is telling the story? Yeah, yeah, by far. What's one piece of advice you'd give to somebody trying to solve a hard problem. I think a lot of people that are trying to solve hard problems foundationally because we're humane fear failure. One of the things that I often think about is like, what is the cost of failing at this particular thing. The cost of failing at this particular thing is not that bad, you might as well just go forward, full steam ahead. If the cost of failure is, like, you know, your family won't eat that night, or you can't pay your mortgage, that's something you should consider. But I think that I'm just just bringing back to entrepreneurship. I think that right now the cost of failure of starting a business is as low as has ever been in the history of the world. And so if you try shopify store, or you try starting a business selling lemonade in Manhattan and doesn't work, maybe try hot dogs and maybe try pretzels after that. That is something that wasn't available to previous generations. They just there was too much leverage involved, and just to flesh that out I mean the idea is, you can start a business now with almost no money, right, with almost no capital. You don't have to buy a factory. You don't have to even buy a cart. You just need a computer and an internet. You don't you don't have to buy inventory. I feel like there is some sharp, interesting entrepreneurship question that I could ask you that I haven't quite nailed. What is it? Is entrepreneurship easy to most entrepreneurs fail? Maybe will you give me a surprising answer? Is entrepreneurship easy? No, that's not the surprising answer? Okay? Interesting? Well, I mean I think that most people there's a glamorizing of entrepreneurship generally. And I think the reason that I thought that was the right question to ask was I actually, I think entrepreneur is still very very difficult. It's slightly less difficult now than it was, it's slightly less expensive now than it was, but it's still very very difficult. And so I think all the glamorizing, whether it's through you know, my friend is Damon John, So I'll be careful here, But like I think Shark Tank is an amazing show, but it glamorized entrepreneurship it is really difficult. What's the sort of under appreciated hard thing about being an entrepreneur loneliness. It's a lonely it's it's it's a lonely sport. And um, I don't think that gets talked about it at all. I mean entrepreneurship, you're you are by yourself for the most part. You may have a co founder, but but most people don't and at least when they get started, and even if you co found or just the two of you, Um, there's a loneliness to it. Um, anything else you want to talk about, I'd like you to start a merch store. I'm not out starting a merch store, Okay, I'm really not. I mean, advertising is a is a tough business. It's very cyclically. You know, you have a built in advertising like what they call these viral loops. You kind of have a built in viral loop here with your own too platform. You have a podcast. I do think what's your problem? I mean even just a shirt that says what's your problem? I don't know if it's like too aggressive, Well, it depends how how you say, Like it's like, what's your problem? Winky face? And then you're another one also, which is have you found product market fit it? Well, that is a possible problem. I mean there's a list of possible problems. Haven't found product market fit? Not grinding hard enough? I don't know. You tell me what are other clients hate that term? I don't know, like not not grinding card? Give me a good one. A possible answers for the entrepreneur of the question, what's your problem? Uh, what's your problem? Um? Like if we make a like a magic eight ball, has different answers come up. I can't get my shipping done on time. I don't know. I'm sorry, Uh, it's what don't Actually it's a very fascinating issue. You can almost sort of do, like like there's a whole other game version of of of your merch store, which is like, like, what is your problem for business? Like you've a problem with capital, You're a problem with like I can't accept payments, or I'm selling I'm selling CBD and no payment gateway will transact my product. Or I'm getting a bunch of returns, or have a coupon code and it got leaked on the internet on Reddit and now everyone's getting forty percent discounts. I feel like we're designing a monopoly for the twenty first century. Kind of cool. Yeah, I'm not out. I really quite like it. It is interesting, though, I mean this is total aside may be interesting. The merch store thing is fascinating because if you go back and you think about like merch ten years ago, twenty years ago, there really was a sense like merch was promotional product. And I think something is deeply changed around promotional around merch. It's no longer promotional product. And the best example I can give you is we've about twelve stores from the Kardashian Jenner group, right, I mean there's amazing businesses from you know, Kylie Cosmetics, too, Skins to Skims to Good American across the board. And I remember when they were first announcing that they were going to launch these stores, and the initial reaction by the market, by the public was, yeah, these are just going to be gimmicky kind of promotional things. But actually, in some cases, like Kylie Cosmetics is now one of the largest cosmetics companies on the planet. Jim telling me I'm not thinking big enough. Well, I'm gonna have to figure out a thing. I really believe it interesting. Maybe a magic gate Ball. It's a fun one. Gate is a fun one. Harley Finkelstein is the president of shopifive I do want to sell some merch, so you want to buy some If you want to magic eight ball or something else, let us know. Email us at problem at Pushkin dot fm, or you can find me on Twitter at Jacob Goldstein. Today's show was produced by Edith Russolo, edited by Robert Smith, and engineered by Amanda k Wong. I'm Jacob Goldstein. We'll be back next week with another episode of What's Your Problem.