Tobi Lütke is the CEO and co-founder of Shopify. 20 years ago, he was just a German coder who emigrated to Canada to launch some ecommerce platform with another German. Now he’s the world-renowned thought and tech leader who has revolutionized online shopping for billions. He’s also the creator of many open-source libraries like Liquid, Active Merchant, and the Typo weblog engine.
Tyler and Tobi hop from Germany to Canada to America to discuss a range of topics like how outsiders make good coders, learning in meetings by saying wrong things, having one-on-ones with your kids, the positives of venting, German craftsmanship vs. American agility, why German schooling made him miserable, why there aren’t more German tech giants, untranslatable words, the dividing line of between Northern and Southern Germany, why other countries shouldn’t compare themselves to the US, Canada’s lack of exports and brands, ice skating to work in Ottawa, how VR and AI will change retailing, why he expects to be “terribly embarrassed” when looking back at companies in the 2020s, why The Lean Startup is bad for retailers, how fantasy novels teach business principles, what he’s learning next, and more.
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Recorded July 23rd, 2024
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Thank you to listener Maximilian Roos for sponsoring this transcript.
TYLER COWEN: Hello, everyone, and welcome back to Conversations with Tyler. Today I’m chatting with Tobi Lütke, who is the co-founder and CEO of Shopify, the famous Canadian e-commerce firm. Tobi, welcome.
TOBI LÜTKE: It’s so good to be here. So good to see you, Tyler.
COWEN: I have so many questions. Do you still do stand-up meetings?
LÜTKE: [laughs] Whenever we have hack days, I do them. You know what? I feel they need to make a comeback. 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? It’s some Slackbot or so telling everyone to stand up and type something. It just doesn’t do the same thing. It’s one of the problems with remote companies.
COWEN: It may be harder to monitor. What other systems do you have for getting good information out of meetings?
LÜTKE: Out of meetings? I grew up as an outsider — as in, I have an outsider mindset, which is hard to argue from first principles at this point — in a small town in Germany that was super not interested in computing. I learned all sorts of skills for observing people doing interesting things from afar.
My lifeline back in those days was getting a copy of the back archives of the Linux kernel mailing list and so on. This is how I learned C programming and so on. I grew up as an observer on information. That’s what I do just for fun a lot.
Also, that means I grew up on the internet, which is good and bad. One of my ways to get a lot out of meetings often involves saying high-conviction, incorrect things, and just waiting and seeing everyone wanting to correct me. It’s a more efficient way of —
COWEN: It’s like Twitter. If you want to learn something, you say something —
LÜTKE: Yes, basically. It’s like saying something wrong on the internet. Yes, it works in real life, too. It’s not people’s favorite thing that I do. We have a Wiki inside, and there’s a blueprint for me, and it says that I do this. Some people have reasonable warning these days.
COWEN: The systems for making meetings better — should we also use them in our social lives? Family dinners, get-togethers with friends?
LÜTKE: I don’t know. I think porting what makes companies work too far into private lives can also backfire. With my kids, I always booked one-on-ones. They call them dinner appointments. 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.” They choose some restaurant. We go there, and that’s what we’ve done for a while. Of course, that’s cell phones down. I think that’s an important thing to do.
With meetings inside of a company, we do a bunch of things. We periodically delete all recurring meetings because it seems very hard for people to subtract. It’s very easy to add. That only leads one way. We have ceremonies like this.
It would be interesting, what would happen if everyone would have to zero some of 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.
COWEN: 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?
LÜTKE: [laughs] What a fascinating observation.
COWEN: The idea, am Tisch — there’s something very German about it. You can pound your fist on the table.
LÜTKE: It’s a Stammtisch, really. I think in both those instances, people do something which I think has a lot of relevance to this 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 one of those extremely important outlets. It’s an original safe space in a way.
At some point, people say, “Okay. Well, you’re clearly off.” At least people say this to me. I can go pretty far in venting. Germans can be going very far. Stereotypes are funny because they often are true. Venting, catastrophizing, these kinds of things, and then having your friends reel you in.
The issue I think we’ve seen, especially at the beginning of this decade, is people ported their venting online and then got their one take retweeted forever because it just captured the imagination. I feel people misunderstood what was actually going on for a little bit. I hope everyone has acclimatized to this reality now.
COWEN: 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?
LÜTKE: Yes. I actually think even just talking about venting being a thing that’s actually good, and prefixing when someone just wants to actually say a bunch of things, like field-test some takes, is a good idea. I think that can disable the power of it spiraling with everyone right after. I think that’s useful, but I don’t know.
I didn’t go to it because it wasn’t in my neck of the woods, but I’ve seen parties 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. Then they’re supposed to tear it up and toss it away. Just to allow people to have plausible deniability of whatever they want to talk about because they just fall on, “Oh, I was told to represent this.”
I don’t know if it’s a good idea, but I love that someone is trying this because that seems like a social license to actually talk about stuff that otherwise can’t be talked about and seeing where it leads. Often, it leads to exactly the wrong place. Then you get that out of your system, and you don’t need to share it as a tweet afterwards.
COWEN: Are German meetings different?
LÜTKE: Yes.
COWEN: How?
LÜTKE: I’m German. I grew up for 20 years in Germany. I then moved to Canada.
COWEN: You’re from Koblenz, right?
LÜTKE: I’m from Koblenz, right. I 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. Again, I’m German. I started a company with another German, both in Canada, for Americans. Shopify is an interesting milieu of different cultures.
Straight off the bat, Germans are just blunt. 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. Products are either below it or good, great, world-class above it. Below that, nothing else registers as anything of value, which is totally different in North America.
I think there’s good and bad that comes from this. I think a cultural appreciation for good products, craftsmanship done right, and so on is something that’s more associated with Europe. But the quick iteration, be embarrassed by the first version, and then build from there, is something that North America does better.
It’s interesting. I’ve seen this in meetings where people fell along cultural lines of, should we ship this? Should we not ship this? Is it valuable to build it this way? Or should we spend 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 iterate very, very quickly? Yes, they go differently.
COWEN: Are Canadians different in meetings than US Americans?
LÜTKE: Yes, as well. 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. I’ve seen Canadians more often think about what’s the next step after this step, but also just low ambition. That’s probably not the most popular thing to say around here, but 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.
Actually, I found it’s very easy to work around. I think a lot of our success has been due to just me and my co-founder basically allowing everyone to go for world class. Everyone’s like, “Oh, well, if we are allowed to do this, then let’s go.” I think that makes a big difference. Ratcheting up ambition for a project is something that one has to do in a company in Canada.
COWEN: 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?
LÜTKE: I don’t know. Inasmuch as Shopify may be seen as something that succeeded, that alone didn’t do it. It would’ve been very, very nice if that would’ve happened. Now there’s another cohort of founders coming through. Some of them have been part of Shopify or come back from — I believe there are some great companies in Calgary, like NEO, that are more ambitious.
I think it’s a bit of a decision. The time it worked perfectly was when Canada was hosting the Winter Olympics, which is now a little bit of ancient history. There was actually a program Canada-wide that’s called Own the Podium. That makes sense. It’s home. We have more winter than most, so therefore let’s do well. And then we did. It’s just by far the best performance of Canada’s Olympic team of all times. I think to systematize it and make it stick — changing a culture is very, very difficult, but instances of just giving everyone permission to go for it have also been super successful.
COWEN: Why were you miserable in German school?
LÜTKE: 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 am literally the opposite. I need to have every problem before I can learn the answer to it.
What we were being taught in the ’90s and during this time was in stark contrast with what was interesting for working with computers. That was really the most fun thing for me to do during this time, and it seemed very valuable even then.
This probably sounds too abstract. Latin as the first extra language is just not highly utilitarian. 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 start with English. That would be a good start.
COWEN: 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?
LÜTKE: The hot take here on this is, there are. They’re called Shopify and Palantir and others.
COWEN: 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.
LÜTKE: 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. What I’m hearing — and it makes sense — it’s just that tech is something that Americans do, from the perspective of Germans. I really don’t think the general population believes that 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 areas. It’s 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. You have to be optimistic about the future. Otherwise, why would you want to contribute to progress and make it come faster? That’s one thing.
I think it’s very hard to hire staff that’s willing. 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. It seems to not be true in Germany, so access to excellent talent is simply harder, based on them making cultural decisions differently, partly because startups are a low-status pursuit from the best I can tell.
COWEN: 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.
LÜTKE: You’re asking very good questions that I much rather would ask you. [laughs] I don’t know. I wish I knew. I started at a small company in Germany; it didn’t do anything. So, it’s not like people didn’t do this. I came to Canada, again, this time it worked. Then I was head down for a very long time, building my thing because it was all-consuming, so I didn’t pay too much attention to — I wasn’t even very deliberate about where to start a company. I started in Ottawa because that’s where my wife and I were during the time she was studying there. We could find great talent there that was overlooked, it seemed, and gave everyone a project to be ambitious with, and it worked.
I think that if you create in geography a consensus that you’re a company really, really worth working for because it’s interesting work, great work, it might actually lead to something — then you can build it. I don’t quite understand why this is not possible to do in 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. I apprenticed as a computer programmer, and I thought it was exactly the right way to learn these things. Now, 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.
COWEN: I think part of a hypothesis is that the Netherlands, and also Sweden, are somewhat happier countries than Germany. People smile more. At least superficially, they’re more optimistic. They’re more outgoing.
LÜTKE: I think it’s optimism.
COWEN: 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. Maybe that’s bad for tech. I wonder: people in the Bay Area — do they have a great sense of humor? I’m not sure they do. Maybe there’s some correlations across those variables.
LÜTKE: I think they actually banned humor for a little while in the Bay Area. It might make a comeback now. I really do think it seems like an easy out, but it’s actually potentially . . . The optimism angle is load-bearing for this. You’ve 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’s changing the world, but every company — if you want it to work, it’s causing progress, both adding to the vector of progress, but also maybe just changing some trajectory in some space a little bit. If Shopify wouldn’t have happened, something like this might be highly distributed. Many, many pieces of software or something else would be there. It would not look like Shopify.
The world of computing is extremely path-dependent, just like every other part of the world. You want to be able to add something. This is also why ignorance is usually useful because you should be ignorant to the low odds in the beginning, one of the reasons why at least some founders often are young. These things are important.
Another aspect of the European Union: People study very long. I know this has gotten updated in the time since I was there, but man, in my trips home, I had a lot of 32-year-old student friends, and that’s just— cool.
There’s a significant amount of Nobel Prizes awarded to people for their work in their 20s, and we should just have a clear cultural understanding that those are useful years to be out and building things. Nothing is single-causal, and I think there are a lot of contributing factors. I would have trouble weighting them, but lack of optimism is the one I would put on the top of the list.
COWEN: What is a German-language word that you still use when you think because there’s no close English-language equivalent?
LÜTKE: I don’t have —
COWEN: Heimweh, right? That’s a possible contender.
LÜTKE: Heimweh. Verschlimmbesserung is such a good word. What that means is, by trying to improve something, you made it worse. And maybe it’s also born out of pessimism about the future, but it’s just so wonderful because you see it often. Chesterton’s Fence — people don’t often know what parts of a 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 kinds of situations.
COWEN: How about Auseinandersetzung? The process of coming to terms with something rather than just putting it out there.
LÜTKE: They are beautiful. Even gestalt is a word that might actually have been integrated now in English, but there’s no equivalent of that. I don’t know.
But the reverse is also interesting. Entitlement is not a word that Germans have, which I find really, really interesting. Sometimes in Shopify, I have to explain to people. I sit them down. “Hey, gratitude and entitlement are two sides of the spectrum. It’s your choice where you are here after you have a pleasant experience or maybe with some downsides along the way.” A very important conversation to have with the interns sometimes if — I don’t know — the provided food is cold or something like this.
I get in these situations where I sit down and okay, 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 struggling, actually, because there’s no term. 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 a string like this, which perfectly represents it and does it better. But anyway, nothing I could easily recall.
COWEN: Do you still read books in German?
LÜTKE: Occasionally. I must read one book in German a year as a self-policy, which I violated last year, which I was not super happy about. One thing which I find disappointing is when . . . Obviously, I take the opportunities when I want to go to something that’s originally written in German, but I try to read this in an original.
Wittgenstein’s Tractatus is an example of this. The English translation is so much better because the translator asked for so many clarifications by Wittgenstein that it just ends up being readable. I found a book which was actually beautifully set — I think MIT published it — of the original German, the English translation, and a translation back to German from the English translation, all in three columns, and that was perfect.
Sometimes the English translations get updated again, like for Kant or something like this. I’m actually a fan of rewriting books every — I don’t know — 25, 50 years for two generations down the line because they just get hard to access. Often you get that by reading the English translation. I feel like I lose opportunities to do this.
COWEN: In your opinion, where exactly is the dividing line between North Germany and South Germany? The people in Freiburg will say, “Oh, it’s Mannheim.” But that’s insane, right? Where is it for you?
LÜTKE: You’re asking me to poke a hornet’s nest here. 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.
COWEN: 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.
LÜTKE: It’s very hard to draw a straight line, though. You end up with a very, very, very jagged line if you’re trying to do the best possible job there. Anyway, lots happened in Germany for a long time to cause culture to be classified to wherever it is now.
COWEN: 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? How do you read that?
LÜTKE: Yes, this worries me a great deal. Comparing to the United States is a bad idea in general. Actually, it’s the best possible idea if you’re going for optimism, but it’s not the best idea if you are looking to stay sane. 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, things are bad.” I think the comparison of Germany to Netherlands makes a lot more sense, and I think that’s where you can figure out what might be actionable.
America is just really, really, really different, so first of all, that. Every once in a while, there’s an economy that really can hang with America. I think 2014, ’15, it was looking really, really well. I think what happened there — again, nothing is singularly causal.
The productivity numbers are really low, and I think the employment in the public sector having grown to the degree it has . . . I don’t know if it’s causally related or correlation with the same thing, but it’s just pretty clear to me that if the ratio of referees to builders or critics to builders is going out of whack, things grind to a halt. We saw this even in Shopify adoption. It just took a lot longer for Canada to want digital products, and Shopify is always selling and finding its best customers in the United States the first 10 years, easily.
Believe me that Shopify is pretty good. Now there’s a compounding advantage for people who have adopted it earlier. That is a tiny zoom of a much bigger fractal that I think is at play there.
COWEN: How has Canada changed the most since you moved there?
LÜTKE: It feels like it’s the optimism angle, and I think this is the thing that worries me the most. Canada had a massively underappreciated — at the time — project in multiculturalism that worked. It started under Pierre Trudeau, really, just putting the country together with great leadership, great vision, and Canada had a string of leaders that were almost too good for a small country. There was this, “Hey, we are getting along well. We are friendly. It’s a high-trust environment, and the best days are going to be ahead of us.”
I think it’s so hard to point at exactly what changed it, but the cultural narrative has simply shifted now. I do think people are a little bit more circumspect in looking at the country. I think the problems are more clear. There’s a lot hanging on real estate, and real estate is not by itself . . . It’s valuable to a second order because of all the other things being valuable.
I think the worst thing is, from my perspective, that Canada seems to be okay just exporting the raw materials for everything. That started as beaver pelts being sent to London for turning into high-margin hats. Canada has no refineries. It all goes to Houston, even though it produces a good deal of energy. Waterloo is 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.
There’s a lot of readiness to export the CEO cultural conversation about maybe we should have people build things here as well. It seems like a country which now has so little self-confidence. I see this running Shopify. A huge amount of our employees we hired last year — I think it was 60 percent or so of our engineers — were boomerangs, coming back from storied American companies. Most of them are Canadian. Often, they say this was 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 that Apple.’”
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. I think this 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. I think a stronger Canada is better for absolutely everyone.
COWEN: Do you agree with the stereotype that Canada is especially weak when it comes to branding? 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?
LÜTKE: Because Canada exports no products. Shopify and Lululemon export. I’m sure I’m forgetting . . . Molson, sure, but I don’t think it’s not the ability to do branding. It’s just, Canada does not appreciate commercialization of any kind. Canada wants to invent. It’s remarkable how many papers that are foundational to the current revolution of the AI boom — University of Toronto and Waterloo papers, Geoff Hinton and his lab, and so on. Bengio and so on.
Canada loves to have a eureka moment, but it’s seen as a low-status thing to then go and try to build a business around it, which is probably amazing from the perspective of our neighbors, [laughs] but probably not so good for the wealth of a country. We are not metabolizing any kind of innovation.
Shopify is very much an operation here as like, let’s make something that at least was a brand of businesses initially, and increasingly people beyond businesses recognize it. I think that is an important thing. It’s the same thing as we don’t refine the oil, or we don’t make the hats from the beavers, or we just don’t create the final product. We send the raw materials everywhere. If I could change one thing, I would do that.
By the way, this is deeply encoded in policy. There’s a thing called SR&ED tax credits. I’m not going to bore you with the details there, but you can claim those if you do research and development and try to claim them for anything that’s commercially related. It’s remarkable. I, at various points, just stopped applying for them because we were just too commercial in lots of ways.
You’re being paid for doing original research, which I think is a great policy because often original research 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 on the staff to have meticulous time sheets and submit an ungodly burden of documentation, which literally makes the commercialization jobs terrible. Therefore, the good people don’t want to work in this environment and so on, so on, so on.
COWEN: 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 and asymptote?
LÜTKE: Canada is about — I don’t know if it’s accurate numbers, but I think generally right. Canada is about 41 million people. In the last three years, three million people immigrated to Canada, which 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 the fact that in this time of adding three million immigrants, we added almost no housing. It’s just not a great idea to do that. That’s causing a lot of bad downscaling 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 part of the 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’ve walked away from these priors that have clearly identified to work, all of it. Certainly, 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. I think Canada should just fall back on that and run that up.
COWEN: Why does Ottawa remain such an underrated city? Americans will take a three-day trip to Toronto or Montreal, but Ottawa is excellent. It has the national museums, very good food. Obviously, it’s the nation’s capital. Why does it stay so unknown?
LÜTKE: What a wonderful setup.
COWEN: And it’s close, right?
LÜTKE: Thank you for the platform.
[laughter]
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. Then we stayed for 20 years, and Shopify built a great company there because people really love it there, and they were itching for a better employer, I suppose.
Obviously, it also gets really cold. I had these wonderful parts. My commute to work was skating on the canal every day. Where else in the world can you have a commute like this? But the first time I visited, it was really, really cold in the winter, and I had my questions. In the summer, you go to a cottage, and that’s just the other-side-of-the-world thing. It’s a wonderful quality of life, and I think that matters.
COWEN: Don’t you have the world’s largest outdoor ice-skating rink, seven kilometers or something?
LÜTKE: Yes, that was my commute.
COWEN: That was your commute, all seven kilometers? How much of it?
LÜTKE: Well, maybe two of those was a commute. I was right in an office downtown, and then we were living along the canal, like two blocks in. It was very cool. A very nice thing. Nice way to start a day. I’m sure I wrote my best code in those days.
COWEN: The future of the internet — when will virtual reality stores matter?
LÜTKE: That’s a good question. Virtual reality stores — I don’t have a great answer there. I don’t think they will port the exact Fifth Avenue boutiques online, other than having virtual twins for people who specifically want to see those. I don’t think the future of e-commerce is going to be strolling through virtual malls or these kinds of things.
I think the exact way this is all going to compose is going to be different. I think that innovations in virtual reality are going to be much more about virtual avatars, or real people having . . . It’s just like talking to a product. Shopify represents mostly the catalog of products that people really want rather than the necessities. The Fifth Avenue boutiques would also be the ones using Shopify for point of sale, and purchasers are a lot more deliberate around this. People often spend weeks thinking about, is this something they would like to purchase? And they’re really looking forward to a package arriving, hopefully very quickly.
I think there’re lots and lots of touchpoints there. The place that is probably the most virtual area that we see already is furniture. The placing of a couch in your living room is just better than looking at it in some store, right?
I think we see the early beginnings in this, and there are a couple of technologies that we’re tracking, like Gaussian splats, and these kinds of things that are just going to make it vastly simpler for people to make digital twins available from whatever they’ve managed to put together in real life. I think a bunch of this is coming, but I don’t know what the date is and what exactly is the form factor.
COWEN: 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?
LÜTKE: I think it will play a significant role, for sure, change retail. I think we will see significantly better products being made. I have an extremely bullish view on AI, specifically around utilitarian value. I think there are enormous quantities for company building. There’s enormous advantage for product creation. I think what we engineers experience around Copilot right now getting good — they are helping us do the job that we already have a significant craft in, but do it better. It’s extremely convincing.
I think people would want one day a Copilot or a Sidekick or something like this along more of the things we do which are at the edges of viability, which I think in the retail world, on the creation side of businesses and on the creation side of products — it’s just basically all the time. It’s a stretch. It’s the way you put yourself out there: You create the best thing. It’s a deeply personal thing to create the first version of a product that you try to create a company around. I think that’s really, really powerful. 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 . . . We have learned how to build excellent user interfaces. We’re quite approachable. We simplify enormously complex space to easy to reasonable point decisions in a pretty approachable and legible interface, which also looks good, and all these kinds of things.
That’s the top of a hill we’ve been climbing for 20 years — well, 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.” That’s the string we’ve been pulling on for all these years, and we’ve built very, very valuable companies that basically replaces going directly to the database or going to the command line. We built out these interfaces.
Now, 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, 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 that actually meets people where they are. It’s how you work with colleagues together, too.
I’m actually really excited figuring out what this is going to look like. I love the times wherever there’s a significant transition. 2010 to 2020 was boring because we basically just scaled the stuff we figured out towards the end of 2000-to-2010 period. Now we’re going to get into much more interesting times again, and there’s a lot to be figured out, and that’s exciting in the industry. I think where we will end up is a much, much, much, much higher mountain that we couldn’t have seen from the original hills. That’s always exciting to me. I think it’s going to be very valuable to people.
COWEN: 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. 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.
[laughter]
COWEN: How well do you understand all this?
LÜTKE: I don’t think I have a better . . . Honestly, businesses are just so different that they are hard to average out. There are a lot of businesses where their pricing strategy is aesthetics. 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, like an entire career of knowledge rolled into an intuitive quick decision, or completely making it up, like both sides of a midwit meme here.
I think economics fundamentally will have to roll a lot of data points into an average and then try to see which direction people are doing. There’s a lot of canceling and shoving out going on in the spaces that we’re concerned about.
Interestingly, we went through a high inflation period, and just tracking when prices in the system were following — that was deeply different, based on what kind of products they are and how people consider buying these products, obviously, on margins, too. Again, I feel for economists. [laughs] I think 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.
I think, actually, things are wonderful when they’re complex. I don’t know if you want to talk about company building, but companies are complex adaptive systems, much more than being industry-applied versions of military or slightly more complex organizations of military service. To a certain degree, it can explain why companies run by some of our engineering-type people have been outperforming things because people have an incorrect understanding of what engineering is and how it works.
Engineering fundamentally, at least for the last 30 years, has mostly spent time on trying to make nondeterministic systems into deterministic, which is kind of what we do in the real world of policy, mostly, and process.
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. And companies are automated nondeterministic systems, but you’re trying to get to build fantastic products at a great pace, inclusive of all the creativity by various actors in a company. 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 the mission.
I find these things just so fascinating to think about. This is going back to the beginning. I saw myself as an outsider, and I’ve made a study of other fields from afar, and there are so many amazing ideas in basically any given field that you can possibly name or imagine. Often what happens is, every field 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 put a better company?”
I saw myself as an outsider, and I’ve made a study of other fields from afar, and there are so many amazing ideas in basically any given field that you can possibly name or imagine. Often what happens is, every field 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 put a better company?”
I think companies are very bad, 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. There are all these things we didn’t yet have or didn’t yet understand. Eventually we’ll figure this out, and then, how could we even build anything before we figured out this thing? I find that such an interesting metafield of research. It’s almost applied good thinking to build —
COWEN: What if we never figure it out? How sure are you that, in the future, it will be that much better? We’ll have better technology, but organization?
LÜTKE: We have new primitives on which we can . . . sometimes also philosophies, but I’m not saying we’re going to build a perfect company. Everything is a set of tradeoffs. If the best soccer team on planet Earth gets 80 percent of perfection . . . You freeze-frame the replay. Very few people use a muscle incorrectly while actually approaching the role, and then beautiful orchestration of corporation without zero communication, and that’s . . .
Like, what’s a company? A company’s 5 percent? How many memos are never read? Which tells you, if you just get to 6 percent, you’re already doing better. 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 . . . A soccer game is the same one every time. You can actually practice for it. A company — 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 two years after you start writing code for a project, after which, it’s like someone puts an end in the code base, and you’re never going to change a thing again.” That was just accepted back then. Now we have pieces of software that are 20 years old, and they’re a delight to work on because we just build up these understandings. A lot of these lessons work in other areas as well.
COWEN: What do you think is the most common mistake your third-party retailers make in modeling the world?
LÜTKE: Thinking we have to build products that other people like. I think this is the silent killer. Shopify — someone’s called it Kevin Kelly’s “1,000 True Fans” essay applied at scale. Yes, everyone’s different, but actually, there are clear clusters, [laughs] and the people who are willing to dedicate themselves to build a product and go through that entire rigamarole and put themselves out there . . .
Well, 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 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, especially in retail, this has been bad. I’m actually wondering if that was a good set of ideas. I think there are good ideas in the book, but it feels a little bit ungenuine to just . . .
Customers are not the people who should say what needs to be built. I think they need to explain their problems, and the builders have to figure out how to solve these problems better. Otherwise, it’s an abdication of vision. I think the best companies end up following a long-term vision and a long-term mission. I think that’s part of it.
Then the people who have access to capital — they underinvest in growth. That always happens, too. I know, it’s scary to do internet marketing as it’s getting harder and harder, but it’s not priced out yet.
COWEN: Did you learn all this selling snowboards? Or it took until Shopify?
LÜTKE: The greatest thing about running Shopify is my customers are incredibly inspiring individuals. In a lot of places, it’s very hard to convince people to actually talk to their customers. Actually, 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 discontented 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 they’re entrepreneurs, and Shopify is honestly like a celebration of the small bits of capitalism. We love entrepreneurship. I should say that plenty of our customers have started on Shopify and are now absolutely massive billion-dollar-plus retailers.
There’s a great variety. Pretty much the entire spectrum of a retail industry in size are represented on the system now, but a lot of largest 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. There’s glory in entrepreneurship, and it’s underappreciated. Everyone talks about it, and politicians are always pro–business formation, but often, the behavior doesn’t conform to this.
It keeps getting harder policy-wise, as many have talked about; 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. We are not where we have APIs to start businesses, which is exactly how things should be. Friction changes the behavior a lot because everyone’s allowed to be an intelligent actor in their local incentive system, and if you are massively disincentivized of starting a company by just BS, you have to deal with what people want.
We want to be a counterforce to that. We want to remove friction where we can, again, if we can potentially advocate against bad policies, but we can do a lot about what happens after the policies stop mattering, and the next step. Because every single time we’ve 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.
More people who otherwise didn’t make the hurdle ended up making it through it, and not stopping is actually the thing that really, really leads to success in a reductionist way. We find that to be a really, really important discovery.
Again, 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 are actually on the same side of the table with our customers. Best thing we can do to grow Shopify is make our customers more successful because we are in this together, economically speaking. They take an active role in talking to us.
Every one of the product managers has hundreds of active WhatsApp conversations with fast-growing businesses. 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.
COWEN: What’s an interesting book you’ve read lately?
LÜTKE: Hmm, interesting book. I’ve been on a fantasy kick, which is not super conducive to that.
COWEN: What do you learn about management from reading fantasy?
LÜTKE: Ha!
COWEN: You read Sanderson, am I correct?
LÜTKE: That’s right, I read Sanderson.
COWEN: They’re long.
LÜTKE: [laughs] They are long. They’re commitments. My son read the entire Stormlight Archive, four books, on March break, and I have such reading speed envy since then. It takes me a lot, lot longer.
Fantasy is very often a mirror to society in some reductionist way. It’s a simulation. It’s a simple scenario with some variables changed, and any book that you don’t toss across a room is a book that usually has realistic characters that have some depth to them, and following their story, given the changes in the environment, is fantastic.
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 a business system that we used to build. I think that’s really valuable.
I think Seeing Like a State is just a fantastic book.
COWEN: He just passed away. You probably saw that on Twitter.
LÜTKE: Yes, I saw. It’s yesterday or so, a couple days ago. Yes, what a fantastic mind. It’s one of those books you read which feels like it should be a particularly good book in a space of lots of books, but there seems to be nothing around it. It’s just crazy.
COWEN: I’ve had people ask me, “Oh, recommend to me other books like Seeing Like a State.” I’m not sure what to say.
LÜTKE: Exactly. There’s nothing quite like it. It’s really wonderful. I’ve been fascinated with the Burnham books.
COWEN: You mean Managerial Revolution?
LÜTKE: And The Machiavellians, especially for when they were written. Incredible books. The degree by which we have known a lot of these things but haven’t known the solution to some of the things that Burnham discusses are just remarkable.
I think the best book I’ve read recently was A Conflict of Visions by Thomas Sowell. I just find that an incredibly insightful book by creating a prior to a lot of political conversations, like a higher-order differentiation between people. I fundamentally think humans are limited, and that’s the best thing about humans. That systems that we can build can lead us to incredibly amazing feats of cooperation and coordination. Optimizing everything you do to find the best set of tradeoffs feels like an extremely mature way of seeing the world. I’m just constantly fascinated with Sowell’s writing.
COWEN: Final question: What is it you hope to learn next?
LÜTKE: I have been on a wonderful reconnecting-with-engineering kick for the last little while. I’ve really, really had a great time coming back. I think Copilot and AI have allowed me to mitigate all the downsides of not spending any weekends in work on computing projects. Again, I’m incredibly interested in LLMs, transformer, the machine learning world. It feels like an almost unending well of information and progress. I’m just fairly tapped on this. It’s hard to see this as a field because it just changes every couple of days.
I am most thinking about — and I really feel like I can contribute a little bit — just figuring out how to have higher-trust companies at scale. People describe as “I’m a small-company person,” “I’m a big-company person.” and I just don’t think what actually the difference is. I think people are using labels around something they feel, and they haven’t got the right words.
It’s probably many things that contribute to this, but certainly, parts of these things are a sense of agency and ability to impact. A lot of what happens in companies is that policies and processes — they’re 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.
You end up in these places where it doesn’t matter who you are, you’re going to do 7-out-of-10 work. 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 . . . the tools that we had to coordinate in people, and everyone holds their dismissal of trust as a part of this.
I think the best areas of a company like Shopify keep this ceiling open so that everyone can reach as high as they have ambition for. Sometimes teams come together and just do absolute world class. That means you have to be willing to accept underperformance as well. The floor can’t be quite so high, so sometimes you get somebody who can’t ship. Sometimes you get something other direction, then the wrong way. It all comes with the territory. Businesses tend to think about these things as disastrous events, and they’ll 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 that they vary understanding. Then after you are done with it, there’s automated systems that test. There’s automated linting, automated unit tests, and so on.
I know this sounds incredibly nerdy, but what this basically is, is trust plus Copilot and automated verify. It’s 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. I think we know how to build these systems now, and I think we can build enormously better companies this way. They’re just more fun for everyone, and they also lead to better products.
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. It’s just different sets of tradeoffs. I think the tradeoffs of building a company this way, rather than just reducing it to zero trust and mechanize everything, is enormous for society and productivity, and then just fun at work. I’m excited about that.
COWEN: Tobi Lütke, thank you very much.
LÜTKE: Great conversation. I really enjoyed this. Thank you, Tyler.