Shopify Assignment: Analyzing Entrepreneur Tobias Lütke

Shopify: Making Commerce Better Assignment Prepared for Moses Luka, Instructor of Management 1120 Northern Alberta Institute of Technology Edmonton, AB Prepared by GARV JR Shaw School of Business, MGMT1120 OA02 Northern Alberta Institute of Technology Edmonton, AB Date of Submission February 15,2024 1 | P a g e

Table of Contents Introduction………………………………………………………………………………… Page 3 Case Study…………………………………………………………………………………. Page 3 TOBIAS LÜTKE’S ENTREPRENEURIAL CHARACTERISTICS ………………..…… Page 4 Self-reliance and desire for independence ……………………………..……..…… Page 4 High energy level ……………………………………………………………..…… Page 4 High need for achievement………………………………………..…………..…… Page 4 Self-confidence………………………………………………………………..…… Page 5 Tolerance for ambiguity…………………………………………………...…..…… Page 5 Passion and action orientation……………………………………….………..…… Page 5 Internal locus of control………………………………………………...……..…… Page 5 WHY SHOPIFY DID NOT FAIL ……………………………………………..……..…… Page 6 Experience……………………………………………………………………..…… Page 6 Commitment…………………………………………………………….……..…… Page 6 Strategy………………………………………………………………………..…… Page 7 Expertise …………………………………………………………………..…..…… Page 7 Financing ……………………………………………………………………...…… Page 7 STAGES IN THE LIFE CYCLE OF SHOPIFY…………………………….………..…… Page 8 Birth stage. ………………………………………………………………..…..…… Page 8 Breakout stage. ………………………………………………………………..…… Page 8 Maturity stage ……………………………………………………….………..…… Page 8 SHOPIFY’S FINANCING…………………………………………………..………..…… Page 9 Conclusion………………………….……………………………………………………… Page10 References…………………………….…………………………………………………… Page11 2 | P a g e

Introduction Being an entrepreneur takes courage. One excellent example of an entrepreneur is Tobias Lütke, who started their business selling snowboards online and then developed software to be used in their online business, leading them to begin their own e-commerce company, Shopify. In this paper, Lütke's entrepreneurial characteristics will be discussed, and how Shopify grew and became one of the best online selling platforms it is. Case Study 3 | P a g e

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TOBIAS LÜTKE’S ENTREPRENEURIAL CHARACTERISTICS Self-reliance and desire for independence When Lütke and Scott started their business in 2004, selling high-end snowboards online. They showed the first characteristic of an entrepreneur: their want to be independent, self-reliant, and be their own bosses (Schermerhorn et al., 2020). This characteristic is maybe one of the most common characteristics of entrepreneurs. On a scale of 1 to 10, with one being the weakest, I will rate him ten because having the courage to be independent is a significant factor in starting a business. High energy level Being a retailer online, Lütke researched that there are no available software tools online that will allow them to keep their own brand. What they did next showed their second characteristic of being an entrepreneur, they built their own software. This showed his persistence, willingness to exert extraordinary efforts, and hard work to succeed. I will rate him ten because he does not let any barrier be a hindrance to him being successful. High need for achievement When Lütke figured out codes of a new computer language called Ruby on Rails which by chance is only available in Japanese, without even knowing Japanese, he showed this characteristic of an entrepreneur motivated to accomplish challenging goals. It is challenging 4 | P a g e

to work on something you are unfamiliar with but manage to do so; that is why I am rating him another ten on this characteristic. Self-confidence This characteristic is essential when one is starting a business. It would help if you believed in yourself that you could achieve your goal of starting a business. Lütke showed this characteristic when they began to think that the software he developed was an even better product than the high-end snowboards they were selling. He showed confidence in his work. He feels competent, believes in their work, and is willing to make decisions and level up their business. For this, I will rate him ten. Tolerance for ambiguity This characteristic was also shown by Lütke when they took the risk to shift from selling snowboards to selling software. He could tolerate situations with high degrees of uncertainty ; (Schermerhorn et al., 2020). He is willing to take risks, so I am giving him a ten rating. Passion and action orientation Lütke became the CEO of Shopify in 2018, a job he knew very little about but learned quickly (Schermerhorn et al., 2020). This is because of another entrepreneur’s characteristics. He acts ahead of problems and wants to get things done without wasting time (Schermerhorn et al.,2020). He was passionate about his job, read everything he could, and interviewed designers, programmers, and fellow entrepreneurs to learn from them. I can say from the very start that he has a passion for building software since he is a programmer and poured his talent and time, which helped him achieve excellence. His willingness to be curious and constantly ask why and what if. I will rate him ten for this characteristic. Internal locus of control As the environment around you changes, you can either attribute success and failure to things you have control over or to forces outside your influence (Mind Tools, 2007). Lütke believed he had control of his destiny when he began developing the e-commerce platform after he and a friend tried to open an online snowboard shop but couldn't find decent software, so he made one. This made me give him a ten rating for this characteristic. Overall, Lütke’s entrepreneurial characteristic has an overall rating of ten because he has passion, self-confidence, determination, resilience to learn and refine, adaptability, and is driven by excellence. He would not be where he is now if not because of these characteristics. 5 | P a g e

WHY SHOPIFY DID NOT FAIL There are mainly eight reasons why many small businesses fail. These are lack of experience, lack of commitment, lack of strategy, ethical failure, lack of expertise, growing too fast, poor financial control, and insufficient financing (Schermerhorn et al., 2020). Based on these reasons, we will determine why Shopify did not fail. Experience Even before Lütke decided to sell high-end snowboards online, he was a programmer. At 12, he is already rewriting the code for his computer games. He landed a computer apprenticeship at Siemens in his German hometown for seven years (Withers, 2017). He served as a core team of Ruby on Rails and has created many popular source libraries such as the Typo weblog engine, Liquid and Active Merchant (Book Tobias Lütke | Speakers Bureau | Booking Agent Info, n.d.). These experiences made a part for him to be able to be successful in his journey in Shopify. Commitment Lütke’s strong culture of achievement made them build a fantastic business that serves hundreds of thousands of merchants. He constantly challenges his team to do more, which has trickled down throughout the Shopify organization (Withers, 2017). He is committed to offering 6 | P a g e

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a unified and affordable platform for merchants who want to run a full-service e-commerce business of their own. Strategy Shopify is focusing on long-term growth and progress. Apart from focusing on technological innovation, it is also focusing on making its platform more merchant friendly. It has added several features that do marketing and selling on the platform more attractive for merchants. Here are some of Shopify’s Business Growth strategies: focus on innovation, grow the merchant base, help merchants grow their revenue, focus on developing partners program, and focus on long-term growth (Business Growth Strategy of Shopify, 2021). Expertise Though maybe Lütke has expertise in coding from being a programmer for several years, he has no experience or knew very little about becoming a CEO in 2008. But this did not stop him. He read everything he could and interviewed designers, programmers, and fellow entrepreneurs to learn from them, making him an expert through experience. Financing Business finance plays a crucial role in a company’s operations and activities. One reason for its importance is that it enables operations and activities, generates revenues and profits, allows expansion, achieves long-term goals, supports operations in different economic conditions, funds financial transactions, and exploits business opportunities (Sinra, 2022). In this case, Lütke attracted venture capitalist John Phillips, who invested $250,000 in the business. Phillips guided him that make Shopify sell shares and raise $131 million with a valuation of$1.27 billion (Schermerhorn et al., 2020). This allowed Shopify to generate revenues and profit, expand, achieve its goals, and have more business opportunities. 7 | P a g e

STAGES IN THE LIFE CYCLE OF SHOPIFY Birth Stage Tobias Lütke and Scott Lake started their ambition of selling the product they love on the internet, high-end snowboards, in 2004. Lütke depended on ten friends and family to stake him$200,000 to sell snowboards. When they discovered that no software allowed retailers to keep their own brand, they made their own software. They noticed that the software Lütke developed is a better product than high-end snowboards. This was when they started establishing the firm. They shifted their focus from snowboards to e-commerce, and Shopify, the e-commerce platform, was officially launched in 2006 with their first hire Daniel Weinand, a German programmer and a long-time friend of Lütke. Breakthrough Stage In 2008, Shopify had ten staff and $60,000 in monthly revenue when its co-founder and CEO, Lake, decided to leave (Withers,2017). Until then, Lütke had been focused on the product and had no idea about the finances or business of Shopify, but now he had no choice but to step into the CEO role. It was also when Shopify attracted a venture capitalist, John Phillips, who invested $250,000 in the business. Sooner, Shopify sold shares and raised another $100 million under Phillips’ guidance. Through the years, Lütke grew from being hands-on programming and product development skills to becoming a visionary and strategic leader. Maturity Stage One of the most significant impacts Shopify has made was redefining the point of sale (POS) for e-commerce. In 2013, they implemented Shopify payments. This addition removed the 8 | P a g e

necessity of third-party payment gateways, allowing merchants to bypass them (Commerce,2020). In 2015, Shopify went public with an IPO which means it can list its shares on the stock exchange and make them available for purchase by the public. This big move for Shopify made them raise an additional 131 million with a valuation of $1.27 billion. During this time, Shopify also switched to selling subscriptions from charging merchants a percentage of sales. Shopify also started to offer a platform that supports traditional retail besides selling products online in a virtual marketplace. Shopify ensures that all options are available to the merchant to sell to customers, whether online or in an actual store. SHOPIFY’S FINANCING Shopify used different types of financing. During their birth stage, Lütke used Debt financing. Lütke depended on friends and family to stake him $200,000. While on their breakthrough stage, Lütke had an “angel investor” in the person of John Phillips. In the Maturity stage of Shopify, they used Equity financing when they went public with an IPO that made them available to sell shares to the public. 9 | P a g e

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CONCLUSION So far, Shopify has shown no signs of slowing down, even in the face of the pandemic, making them the most valuable, publicly traded company in Canada in May 2020 (Schermerhorn al, 2020). Shopify would not be where it is now if not because of its elegance and versatility and for Lütke’s solid management team. Lütke’s entrepreneurial characteristics, commitment, experience, and strategy made all his hardships pay off. 10 | P a g e

REFERENCES Book Tobias Lütke | Speakers Bureau | Booking Agent Info. (n.d.). Www.allamericanspeakers.com. Retrieved October 5, 2022, from https://www.allamericanspeakers.com/speakers/420163/Tobias-L%C3%BCtke#:~:text=Tobias %20L%C3%BCtke%20is%20CEO%20and%20co-founder%20of%20Shopify%2C Business Growth Strategy of Shopify. (2021, April 4). https://www.notesmatic.com/business-growth-strategy-of-shopify/ Commerce, F. F. (2020, March 24). Shopify’s Success Story: The Start, the Growth, and the Impact. Full Fat Commerce. https://fullfatcommerce.com/blog/a-history-of-shopify Mind Tools(2007, June 8). Locus of Control - Career Development from MindTools.com. Mindtools.com; Mind Tools. https://www.mindtools.com/pages/article/newCDV_90.htm Schermerhorn, J. R., Bachrach, D. G., & Wright, B. (2020). Management. John Wiley & Sons Canada, Ltd.Sinra. (2022, January 20). 7 Reasons Why Financing Is Important (2022 Guidance). CFAJournal. https://www.cfajournal.org/7-reasons-why-financing-is-important/Withers B. (2017, March 27). Tobi Lütke: Snowboarder, Programmer, and Shopify’s Unlikely CEO. The Motley Fool. https://www.fool.com/investing/2017/03/27/tobi-lutke-snowboarder-programmer-and-shopifys- unl.aspx 11 | P a g e

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