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Tobi Lütke's Ambitious Evolution
Building Shopify Into an $87 Billion Juggernaut
Justin Gordon
November 19, 2023
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Recent Founder Deep Dives
Tobi Lütke
Tobi Lütke, co-founder and CEO of Shopify, went from selling snowboards online to building a company that as of this writing is worth more than $87 billion.
Millions of entrepreneurs around the world today use Shopify to build their businesses, from small businesses with a few sales to giants like Mattel, Skims, Kylie Cosmetics, and Gymshark.
Shopify has been at the forefront of the e-commerce revolution and, in the last two decades, Tobi has gone from a CTO at a tiny company to a world-class CEO leading a team of 10,000+.
It wasn’t an easy transition for Tobi, but his own evolution helped Shopify succeed to a level few could have imagined.
Let’s get to it.
Early Days
Tobi grew up in Koblenz, Germany, and early on in life, he was diagnosed with all sorts of learning disabilities. In hindsight, he likely had ADHD, and he’s also Dyslexic.
At the age of six, his parents bought him a Schneider CPC, the German equivalent of the very popular at the time Commodore 64 computer.
Tobi was hooked immediately.
He started playing lots of video games and in the years to come he even began rewriting the code and tinkering with the hardware for fun.
Decades later, he’d continue playing video games and praise their application to learning how to run a business.
It’s something he’d reflect on in an interview on Invest Like the Best:
But the real lesson, I think that you learn from these games is not even this sort of fluidity of resource allocation and multiple stakeholders and then quick reaction and short-term, long-term thinking, it's actually just recognizing that, even though a game simulates an economy, there's another resource that is way more limited and is way more important, which is your attention.
It's really, a real-time strategy game, especially played at a very high level one-on-one, it’s really a test of how good are you at paying attention to what's going on? How well are you investing your attention?
This passion for video games carried over to his approach to school, doing whatever he could to get back to his computer:
From an early age, Lütke had what he calls "authority problems."
In school in Koblenz, Germany, he preferred to deconstruct the questions teachers gave him rather than deliver the expected answers.
He took shortcuts, determining the minimum number of hours he needed to spend in a particular class and still pass, so that he could spend most of his time with his computer.
His approach to school also foreshadowed his later career path and he wouldn’t stay there long.
After the 10th grade, Tobi left school and became a software engineer apprentice at Siemens as part of a German program to increase the number of computer programmers in the country.
He was paid to program all day at 17 years old and he loved the two-year experience.
Then, around 2000, he went to Whistler on a snowboarding trip where he met Fiona McKean, who would later become his wife and an important figure in this story for a number of reasons.
After meeting in Whistler, the two of them fell for each other immediately.
Eventually, Tobi convinced Fiona to move to Germany with him. He was programming for a startup at this time and Fiona had just finished her Bachelor’s degree, so she made the jump and they lived together for 10 months back in Europe.
When Fiona decided to join a Master’s program in Ottawa, Canada, the two of them made the move back to Canada, living with Fiona’s parents.
It was around 2004 at this time, and Tobi, after working remotely for a startup for a while that ended up going bankrupt, was looking for his next move, hoping he didn’t have to join a big company, which was far from his ideal work situation.
Little did Tobi know at the time, that the next big company he’d work for would be his own.
But first, he’d launch a company that would lead to the founding of Shopify.
Snowdevil
After a work permit issue essentially prevented Tobi from working for a small startup in 2004, his only real option was to start a company.
But Tobi also wanted freedom and to challenge himself:
It kind of makes no sense, right? Especially tech, there’s such a minor chance of actually getting any kind of returns on it. So you don’t do this for – I can only speak for myself. I certainly did not do this for monetary reasons.
The reason why I did it was because I thought it sounded amazing not having to answer to anyone – back to authority problems.
I wanted to make my own technology decisions and these kinds of things. I wanted to see what I could do. I wanted to challenge myself.
I said, “This is the right time in my life.” I was 24 when I started. “This is the right time in my life to give this a go. I will learn a ton. There is no way this could be a failure on a personal level other than in the way that maybe people lose money.” But failure was a very real thing, but I knew I would learn a lot.
Through Fiona, he met his future co-founder, Scott Lake, who was a friend of Fiona’s family.
Scott and Tobi ended up snowboarding together at different times and Scott became a person that Tobi shared ideas with.
With the rise in blogging at the time, Tobi and Scott had an idea:
What we had in mind was something that wrapped good storytelling around products that people are excited about… but we were just much too early.
One of those ideas became Snowdevil.
In starting Snowdevil to sell snowboards online, Scott did a lot of the business setup and building relationships with vendors while Tobi handled the tech side of things. They both put $20,000 Canadian dollars into the business as well, which was all the money Tobi had at the time. They kept costs down with no office, just working at various coffee shops.
Snowdevil, as described on their website today, took a different approach to selling snowboards:
Snowdevil is not your typical snowboard store. Instead, Snowdevil is a partnership among two riders who are only interested in selling boards and bindings that they love to ride on. Nothing else.
Every year the guys at Snowdevil only choose about 10 types of boards and 5 types of bindings that they feel offer the best quality and design that the industry has to offer.
If this sounds a little elitist, it’s because it is. If we don’t like it, we wont sell it.
If you want big brands like Burton or K2, you should try Walmart. If you want high-end top quality brands like Never Summer, Nidecker, Technine and Arbor you should try us.
Yours truly,
Scott (Never Summer Legacy board, Nidecker Carbon 900 bindings)
Tobi (Arbor Draft board, Technine MFM Solo bindings)
Of course, they had to actually build the online store and this was in 2004 when there weren’t many great options.
Initially, Tobi thought he’d get the store online in a week, but with no software available to allow him to build what he really wanted, he had two paths forward. He could either compromise his idea or he could fall back on his programming skills and build something himself.
At the time, to get Snowdevil going, Tobi had to post a five-figure downpayment to get a Yahoo! merchant account, all the capital he had.
Fun fact, Yahoo! acquired Viaweb in 1998 for $49 million and the founder of the company was?
Paul Graham, who would later start Y Combinator.
After finding the programming language Ruby on Rails, which was created by David Heinemeier Hansson of 37Signals and had only recently been released, Tobi got heavily involved in the community.
He also decided to use Ruby on Rails to build Snowdevil and, 2.5 months later, the site launched.
Tobi had worked 16 hours a day coding the site throughout those months and he loved it:
It didn’t feel like I was doing crazy hours… there was literally nothing else more interesting in the world at this time.
Tobi also built a side project while hacking in Rails, a blogging platform called Typo, which ended up getting thousands of users.
But I digress.
With Snowdevil’s site ready, the very first order came from a gentleman in Pennsylvania, a meaningful milestone for Tobi and Scott and a metric they’d later end up tracking with Shopify.
But wait.
Where exactly was Snowdevil getting customers from in 2004?
At the time, the minimum bid was $0.20 on Google Ads and they could get an order for a $500 snowboard from those ads.
Let’s just say they had great profit margins and did well, recouping their initial investment quickly and basically being out of stock the entire time.
This was winter though and snowboards were in high demand.
By Spring, with sales slowing, Tobi and Scott thought about how they would make the business sustainable all year, which naturally meant they’d need to expand beyond snowboards.
At the time, Tobi was getting more and more people asking him to license the Snowdevil software for their own stores.
He finally decided to pursue the opportunity, a decision that, with the benefit of remarkable timing, would prove monumental.
Starting Shopify
After deciding to allow other stores to use his software, Tobi called Daniel, his friend from Germany, and asked him to spend a summer in Canada in 2005 to build it out.
While they started creating what would become Shopify, a name that Scott came up with, in the summer of 2005, it’d be a year and a half before it actually launched.
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