Shopify: Evolution of a Leader

Lessons from Tobi Lutke's ongoing journey from Founder to CEO to Steward

Welcome to the Nongaap Newsletter! I’m Mike, an ex-activist investor, who writes about tech, corporate governance, the power & friction of incentives, strategy, board dynamics, and the occasional activist fight.

If you’re reading this but haven’t subscribed, I hope you consider joining me on this journey.

Superstar Leaders

I think it’s fair to say all investors seek and desire world-class “superstar” leaders to lead their portfolio companies. They’re like “cheat codes” for solving tough problems and driving long-term shareholder value.

Of course, what does “superstar leader” even mean? Why are they so effective? How do you assess someone’s potential to become a superstar? Can a superstar turn into a super dud? Are there commonalities and/or ex-ante signals we can look for?

To the shock of no one, these questions perpetually swirl in my head, because leadership is an important part of corporate governance (which I’m obsessed about) and investing. I also believe understanding leadership is important to one’s personal development. How you “lead” yourself and which leaders you “follow” has compounding consequences.

For this write-up, I wanted to share my (abbreviated) take on superstar leadership by showcasing Shopify founder/CEO Tobi Lütke (who I consider a superstar) and his ongoing leadership journey.

As Tobi goes from startup founder to public company CEO to now e-commerce steward, he faces compounding challenges that (in my opinion) requires leadership evolution and continually leveling-up. This isn’t an easy task and comes with great public scrutiny, but I think he’s done a remarkable job so far.

What’s really cool to me is the lessons I derive from Tobi’s journey can (in my opinion) be applied/embraced in our own lives. You don’t have to be a public company CEO or a category steward to be a “superstar” leader of yourself and level-up. Let’s dig in!

Disclaimer: This write-up is not a stock recommendation nor investment advice. It is for informational and educational purposes only. These are my personal opinions and takeaways. Also shoutout to WCM’s Business Culture Analyst J.B. Horner for being a great resource for this piece.

Shopify: A Starcraft Inspired Business Strategy

If you’re new to this newsletter (welcome!), I highly recommend reading my previous Shopify write-up (A StarCraft Inspired Business Strategy) first.

In that piece, I examine Shopify’s strategy through the lens of real-time strategy game StarCraft. For background, Tobi Lütke is a big fan of StarCraft and is quite open about taking inspiration from the game. Shopify even recently sponsored the StarCraft ESL pro tour and announced an esports team:

This write-up builds upon themes and ideas from that StarCraft piece with a greater focus on leadership and personal development “hot takes”. Hopefully it’s not too redundant, but expect some overlap in concepts.

“Stealing” From WCM Investment Management

Disclosure: Technically, this write-up is WCM sponsored content. (Woohoo! I’m now in the newsletter big leagues!) I say “technically”, because WCM is a consulting client of mine and this write-up falls within the sphere of work I’m currently helping the research team with. Normally, a piece like this would be exclusively distributed to WCM’s internal research/learning newsletter, but it was my idea/suggestion to publicly share this to highlight some of WCM’s culture work and promote their Business Culture Analyst opening.

This write-up also leverages culture research from WCM Investment Management and interviews with portfolio managers Mike Trigg and Sanjay Ayer to get their thoughts on Shopify’s culture and how it informed their investment in Shopify.

For those unfamiliar with WCM, they’re a “quality growth” investor based in Laguna Beach, CA who focuses on investing in companies with widening moats (they call it “moat trajectory”) and “strong” company cultures.

Not many investors prioritize culture work to the extent WCM does, so when they initially approached me about working together, I saw it as an opportunity to “steal” some of their culture knowhow and level-up my own investment process. Needless to say, Shopify was top-of-mind of WCM research I wanted to review.

Incidentally, “stealing” is also our first lesson.

Announcement: WCM Is Hiring a Culture Analyst

If enjoy this write-up, you might want to check out the Business Culture Analyst role at WCM. This is the kind of investigation and thinking you’d being doing as a culture analyst.

Culture is an essential part of WCM’s investment process, and you’ll definitely learn and contribute a ton. I don’t get a finder’s fee or anything, but feel free to mention this post if you apply.

Lesson: “Good Artists Borrow, Great Artists Steal”

“Stealing” is one of my favorite concepts, but it’s easy to butcher the implementation (in my opinion).

I personally interpret “stealing” as taking a useful concept and repurposing it into something unique to you and your craft. You elevate it and turn it into something differentiated and better (for you). When done right, it honors the original source and can even push the concept forward.

So when I say I’m “stealing” WCM’s culture work, I’m repurposing it and re-applying their methods to my “craft” (i.e. corporate governance). The results are unique and differentiated to what I’m doing which WCM happily “steals” right back in-kind, because it pushes their own culture work forward. Win-win.

As I dove into WCM’s repository of Shopify culture research, I couldn’t help but laugh when I came across this passage:

“While [Tobi] has the respect and admiration of everyone…it was pointed out that his seemingly fresh, original viewpoints are often borrowed or synthesized from things he has come across…Tobi and the rest of the leadership’s cultural secret sauce really lies in distilling the best ideas they find in thought leadership and enacting them in a way that makes sense for Shopify.” (Source: WCM Culture Research)

For the record, I believe you can absolutely take a known idea and turn it into something that’s considered fresh and original!

Understandably, this WCM insight about Tobi and company feels “obvious” to Shopify watchers today, but I’d argue it wasn’t broadly known even a couple years ago. Also, I consider it a good sign when your primary research becomes “common knowledge” over time. It typically means the stock has “priced in” that information and you’ve generated a return on your work. Regardless of obviousness, “stealing” is still a great lesson to learn and embrace.

For leaders who operate at the edge of their craft/industry, there isn’t a clear playbook on how to proceed forward. If anything, everyone is waiting for these leaders to write the next set of playbooks to copy. Under these circumstances, “stealing” inspiration from other disciplines, creative upstarts, and other industries is often required just to push things forward and traverse the unknown.

This creative problem-solving mindset is also often necessary to overcome adversity, take on unanticipated shocks, and think through “impossible” constraints. This is why it’s important to examine practices across disciplines, embrace neurodiversity in the organization, and establish knowledge sharing relationships (i.e. CEO councils) with other leaders to cross-pollinate ideas that typically wouldn’t come across your radar.

Just remember, you must “steal” and not “copy”. Haphazardly copying a concept without making it your own can actually have value destructive consequences.

WCM’s “Journey” Based Investor Perspective

Speaking of stealing concepts and making it their own, WCM adopted an internal podcast after researching Shopify’s culture/training practices and learning about their own usage of internal podcasts.

I recently had the opportunity to record (host?) my own internal conversation with portfolio managers Mike Trigg and Sanjay Ayer to get their thoughts on Shopify, Shopify’s culture, and how they assess investment opportunities through the culture lens.

I have included my favorite big picture takeaways/themes of that conversation below (in my words and my interpretation):

  • Companies are on a dynamic journey with an unknown future. Consequently, if you’re trying to invest “long term”, you have to accept the investment thesis will evolve and change over time as new information and new uncertainties are introduced.

  • Understanding a company’s culture, as well as its “moat trajectory”, helps assess a company’s ability to traverse the unknowable and adapt to change.

  • There are many culture “mental models” (or typologies) to consider, but great cultures generally have alignment with a company’s competitive edge, demonstrates adaptability in the face of challenges, and has strong reinforcement mechanisms (i.e. drives consistency in values throughout the organization, shared language, dynamic leadership, etc.).

  • When you examine Shopify’s culture, it is very aligned with having a “win, win” relationship with their merchants and having a partnership mindset (this is an attractive typology). Tobi has explicitly purpose built the organization for adaptability and learning (which is rare), and his strength as a leader and “keeper of the culture” plays an important role in maintaining/reinforcing Shopify’s focus as they traverse the unknown. Things could certainly (and justifiably) change/evolve over time, but these are the key factors WCM pays close attention to.

Overall, companies are on an uncertain journey so it’s important to be aligned with this reality and take a “journey” based perspective to investing as well. The trajectory of your investment thinking is going to change as the trajectory of the company changes.

Stewardship Trajectory

If companies are on an uncertain journey that requires adaptability, it’s fair to assume leaders are on an uncertain journey that requires adaptability as well.

Recall the pressure you felt committing to the “right” school, job, business opportunity, spouse, etc. knowing that your decision will have compounding consequences on your life. Even when you felt like you made the “right” decision, recall how you still needed to adapt on-the-fly and level-up as your “personal roadmap” took unexpected turns outside of your control.

Now imagine a situation where your decisions not only had compounding consequences for yourself, but potentially had compounding consequences for society.

This is the situation Tobi Lütke is dealing with right now.

“Arming the rebels” is a wonderful battlecry for Shopify, but think about what is actually required from an execution and decision-making perspective. Tobi and company is making a commitment to their merchants and the independent e-commerce ecosystem to help them thrive and take on the biggest and baddest companies on the planet.

Not only are the requirements incredibly high for Tobi and Shopify, but they compound every year.

Tobi alludes to this reality when he talks about Shopify employees needing to “re-qualify” for their job every year:

“But we all have to re-qualify for our jobs every year. The red-queen race of Shopify's historic 40% or better growth is that everyone has to show up at least 40% better every year to qualify for our current jobs. I expect you to hold yourself and your teams to this standard.” - Tobi Lütke

While this is directed at Shopify employees, Tobi is also acknowledging to the world he needs to be at least 40% better every year in his own decision-making and leadership to lead Shopify and help “arm the rebels”.

I can’t even begin to tell you how extraordinary and important this self-awareness is.

If you were to ask me where I think I differ from most investors, I’d say it’s how I look at stewardship. In particular, I focus on “stewardship trajectory”. Put another way, while most investors focus on a company’s moat, I obsess about a company’s leadership and how their growth (or lack thereof) will impact a company’s moat over time.

The way WCM focuses on culture and “moat trajectory” to evaluate a company’s ability to traverse the unknown, I focus on “stewardship trajectory” to evaluate a leader’s ability to grow alongside the company and be a steward in the face of compounding uncertainty.

I previously wrote about corporate governance being the achilles’ heel of “high quality” companies, and how I believe few investors truly appreciate/realize the compounding effects of corporate governance on long-term value.

In the same light, it’s hard to capture the compounding impact of good stewardship (and its trajectory) on governance, strategy, culture, and moat expansion over the long-term. Investors intuitively understand the power of a superstar leader, but most have difficulty explaining with specificity how and/or why they’re so effective.

A key challenge of assessing stewardship is there isn’t a simple “cause and effect” formula to rely on. Companies are a summation of different “systems” that interact and influence each other. Making a change in one system requires evaluating the impact and feedback loops of the other systems to appropriately assess the impact of that one change in total. Not many people are putting in the work to figure this out. If they were, this newsletter wouldn’t exist.

In WCM’s early culture work of Shopify, it mentions the company describing their IPO as entering the “major league”:

Shopify IPO means graduation from minor league to major league and the company is a large startup. (WCM Culture Research)

Fast forward to 2021 and Shopify isn’t just a “large startup”, but an essential (still work-in-progress) institution of the independent e-commerce ecosystem.

What was required of Tobi as a startup founder in 2006 is much different from what was required of him as a public company CEO in 2015 which is much different from what’s currently required of him as an ecosystem steward.

Tobi can’t just be a “pro player” in this current game, but needs to perform at a perennial all-star level just to keep up and continue growing into a hall-of-fame player to help reshape the game long-term.

Again, Tobi is aware of this compounding growth and stewardship requirement.

This is why you see him so focused on “process over playbook” (there’s no playbook for where he needs to go) and continually mentions the importance of improving decision-making in the face of uncertainty. Shopify’s “base case” for the foreseeable future is traversing the unknown so Tobi and the rest of organization needs to get comfortable (and better) at executing in the face of this compounding uncertainty and intensifying competition.

This is not to say all his decisions, nor his process, will be completely “right” or perfect. Getting better at stewardship is an ongoing process and there are growing pains involved. For instance, Tobi still needs to (in my opinion) work on ensuring the “specialness” he brings to Shopify doesn’t walk out the door with him everyday, but that’s a common challenge many founders and a topic for another time.

For now, I’ll just say I believe investors have done a mediocre job supporting founders navigate this challenge. There’s a massive gulf between the “founder friendly” practices currently in place and the “founder forever” practices actually needed for the long-term.

That said, what’s important to me is Tobi’s “stewardship trajectory” (in my opinion) remains on track and he continues to grow alongside the needs of Shopify and the ecosystem.

Keep this “stewardship trajectory” in mind as you read the rest of this piece. Tobi’s desire and necessity to compound his leadership abilities and the organization’s capabilities are foundational assumptions in these lessons.

Lesson: Allocating Sense of Urgency

An important driver of both individual and organizational improvement is having the right “sense of urgency” working on the right problems. It’s not just about having a “sense of urgency”, but also knowing where it needs to go to drive the right outcomes.

When you study superstar leaders, you’ll notice many of them are excellent allocators of urgency.

A company can have all the capital in the world, but if that capital doesn’t have an appropriate amount of “urgency” attached to it, the results are usually poor-to-mediocre.

So how does Tobi think about allocating “urgency” within Shopify?

Based on my review of WCM’s culture research and publicly available Shopify/Tobi interviews, I believe Tobi takes a mission-based approach to allocating urgency:

  • In the past, not having competent competition removed the benefit of external pressure to drive and prioritize internal urgency. It can be hard when there’s no common enemy to rally around and help focus the organization on tackling the big problems.

  • Companies typically drive urgency with OKRs which works fine in well-defined parts of the organization (i.e. customer service), but you risk sacrificing creativity for quantitative measurability for the more ambiguous/unknown (but high impact) tasks. You end up stuck in an incremental improvement mindset and that’s not Shopify’s game.

  • Shopify is better at “exploring the map” than maximizing the resources they find. Companies often focus too much on building on the land they know instead of finding the most valuable land. Shopify’s pursuit of the unknown “global maxima” over the known “local maxima” helps clarify priorities and identify where the company’s “urgency” should be allocated.

  • As Shopify has gotten bigger, generating internal urgency might become easier as real competition prioritizes Shopify and puts external pressure on the company.

When COVID-19 hit in 2020, Shopify’s core mission of serving the merchants was a big driver in prioritizing their resources and increasing the urgency on product releases (by lowering Shopify’s typically high quality threshold) to help merchants survive/navigate the pandemic.

This mission based approach helps identify the “big and important” problems to allocate urgency and make appropriate sacrifices instead of wasting it on “incremental improvement” projects.

Lesson: Awareness of What Is and Isn’t in Your Control

Because Shopify’s “base case” is traversing the unknown, leadership must have the candor and self-awareness to know what is and isn’t in their control. I’d say Tobi is pretty consistent about having this perspective.

This awareness brings discipline in decision-making and ensures the company doesn’t prioritize and chase something they can’t necessarily control. That said, what is and isn’t in one’s control can meaningfully change over time.

In the past, Shopify was clearly not in control of their own destiny and depended on their merchants to be successful. While they still have a long ways to go and the future remains uncertain, Shopify’s influence and role in the ecosystem continues to compound and they may one day have some “control” in leveling the field on behalf of their merchants.

Lesson: Sacrifice Positions to Rebuild Around Strengths

You knew I was eventually going to make StarCraft references in these lessons:

A recurring theme many breakout startups must contend with is evolving the organization and culture to meet long-term future needs.

A big mistake companies often make is they hold onto parts of their culture that are no longer important to the next version of the company, and it distorts the organization and future effectiveness.

Misplaced nostalgia is a big contributor of this dynamic since it’s easy to look back and have good memories while forgetting how objectively bad and/or unsustainable some parts of the old culture were.

The same way software accrues technical debt, organizations can accrue cultural debt.

How do you address this “cultural debt”?

It’s certainly a balancing act determining what to retain and what to cut, but leaders need to recognize when things are going in the wrong direction and course correct. They need to continuously rebuild around the company’s newfound strengths (you compound new powers the past culture didn’t contemplate after all) while retaining the essential parts of the “old” culture that will help sustain the company’s forward trajectory.

Lesson: “Get Shit Done” Is Evergreen

One cultural value that should never die in a company is “get shit done”. Luckily, this value has been front-and-center at Shopify since the early days and remains a priority:

Culture and Employees

If you have ambitious goals, you need an equally ambitious team. Shopify is composed of hundreds of highly talented, deeply caring individuals all working on making commerce better for everyone. Our culture is continuously being redefined with every person that joins our company, but, at our core, we value people who:

  • Get shit done

  • Build for the long-term

  • Focus on simple solutions

  • Act like owners

  • Thrive on change

In those values, there is a focus on continuous learning and personal development. We are a fast growing company that is constantly trying to get better. We expect to see similar growth from everyone in our team. (IPO filing)

WCM Portfolio Manager Mike Trigg says he still clearly remembers the “get shit done” line in the S-1 filing when WCM initially started researching Shopify. IPO filings tend to be buttoned up so it really stood out that Shopify insisted on sharing this unedited value with the investment community. It made the research team want to learn more about the company.

This ethos really stood out during the COVID-19 pandemic when the company upped their pace of product introductions to support merchants. It was not only a strong validation of the “get shit done” mindset, but also reaffirmed the company’s widely-touted adaptable and merchant-obsessed culture. Shopify’s cultural response to the pandemic was exceptional (even in relation to other “strong” culture companies), and wouldn’t haven’t been possible without this mindset.

Get shit done.

Lesson: Culture Is a Company’s “Creep”

In my previous Shopify piece, I talk about the role of “creep” in StarCraft and how Shopify is building the “creep” (they call it “retail operating system”, but I prefer “creep”) of the independent e-commerce ecosystem to help smaller players collectively take on larger competitors:

Zerg is an amalgamation that lives within an ecosystem called the “creep” (think of it as a living carpet that slowly expands across the map) which gives Zerg units enhanced abilities and players visibility into oncoming threats when enemies step “onto the creep”. Zerg thrives on this living, evolving “creep”.

Shopify has turned independent e-commerce sites into an online retail swarm capable of taking on much bigger players. The Shopify ecosystem makes it very easy for entrepreneurs to “spawn” sites and gives them the tools to be nimble and competitive online.

Where most see “One Platform, Every Channel, Any Device”, I see Shopify “Creep” that’s spreading across the commerce map and getting exponentially stronger as it expands.

This concept of “creep” can also extend to the organization where I consider culture a company’s “creep”. Culture elevates (prioritized) activities and provides visibility on what should and shouldn’t be worked on. Strong cultures serve as an implicit governance system that supports the core mission by enforcing collective stewardship of key values.

I believe this is why Tobi is so focused on Shopify’s culture. Culture is very much a “machine that builds the machine” concept, and leaders can play a big role in determining where to nurture “creep” expansion and where to let it recede.

It requires a lot more work expanding a company’s cultural values vs. maintaining existing values, but it’s necessary if you’re going to “explore the map” and win.

You can actually learn a lot about a company by understanding which parts of their culture they are focused on building out and which parts need to die off. It’s not a perfect process and there will be growing pains, but the key is the culture continues to expand into the unknown parts of the map.

Lesson: The “Meta” of Leadership

As a leader and organization grows in influence, they eventually attract the attention of other “pros”. The playbook that was previously highly effective starts to stall as big competitors specifically study your moves and proactively build strategies to stop them.

When this happens, the leader must evolve and change the “meta” of their leadership style to counter competitive responses.

5 years ago, Tobi was just an upstart public company CEO. Today, Jeff Bezos and Amazon are reportedly worried about Shopify:

According to Amazon insiders, this year Bezos became involved in COVID-related challenges, fighting counterfeits on the platform, expanding workplace diversity, and considering competitive threats. Apparently, one of the competitive threats that landed on top of Bezos’s list is Shopify.

This is complete speculation on my part, but I’d argue Shopify is much closer to Amazon’s Day 1 ethos than Amazon these days and Bezos understand just how powerful that be long-term.

This competitive attention also effectively means Tobi must constantly challenge his thinking and leadership “meta” to ensure Shopify stays competitive. Status quo and comfort is a recipe for getting disrupted.


Remember the original set of “superstar questions” I asked at the beginning?

Of course, what does “superstar leader” even mean? Why are they so effective? How do you assess someone’s potential to become a superstar? Can a superstar turn into a super dud? Are there commonalities and/or ex-ante signals we can look for?

I hope you’ve come to the realization there aren’t any preset answers to these questions, and it depends on situation, circumstance, priorities, etc.

It’s really about process over playbook.

To use Shopify and Tobi’s language, the key is you have to keep exploring the map and seek the “global maxima”. Focus on building a self-improvement process that compounds your potential and you’ll be well on your way in becoming a “superstar” leader for yourself.