Welcome to the first episode of our newest show, Business Breakdowns, featuring deep-dive conversations on individual businesses. In each episode, we will dissect a new company with investors and operators that know it best.
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Today we will be diving into Shopify. Shopify was founded in 2004 by Tobi Lütke and Scott Lake around their original problem of why it's so hard to build an online business when they struggled to open an online snowboard equipment store. Today, Shopify's goal is to make commerce better for everyone, and it's used by more than 2 million merchants to run their online businesses. It's essentially an on-ramp for people looking to sell online.
To help us break down Shopify, I'm joined by co-host Zack Fuss and our guest Alex Danco, who works on the Money team at Shopify.
To really understand Shopify, you have to understand its different business units -- Core, Merchant Services, Ecosystem, and the new Shop platform -- and the role they each play in making commerce easier and better for merchants. We begin this breakdown by covering each of those business units and how they compare to Apple's business lines. We then dive deep into how Shopify makes money through the first and second derivative of their merchant success and how Shopify thinks about friction in e-commerce. We close with an incredible analogy of Shopify and StarCraft and the tools that Shopify has built into the still-nascent world of e-commerce.
For the full show notes, transcript, and links to mentioned content, check out the episode page here.
This episode is brought to you by Tegus. We created Business Breakdowns to uncover the lessons and frameworks behind every business, and that's what makes Tegus our perfect launch partner. Much of the foundational prep for these episodes starts with research on the Tegus platform.
With Tegus, you can learn everything you’d want to know about a company in an on-demand digital platform. Investors share their expert calls, allowing others to instantly access more than 15,000 calls on Coinbase, Hinge Health, Farfetch, or almost any company of interest. All you have to do is log in. If you're ready to go deeper on any company and you appreciate the value of primary research, head to tegus.co/breakdowns for a free trial.
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[00:04:03] - [First question] - What Shopify is as a product
[00:05:58] - Product pillar 1: Core
[00:07:58] - Product pillar 2: Merchant services
[00:10:02] - Product pillar 3: Ecosystem
[00:12:04] - Product pillar 4: Shop
[00:14:08] - The evolution of commerce with the rise of the internet
[00:21:01] - Differences between high and low trust commerce
[00:25:48] - The role of friction and trust in stakeholder variety
[00:30:18] - Overview of all four product pillars’ business models
[00:33:10] - Shopify App Store
[00:34:16] - How Shopify competes and partners with their competitors
[00:36:53] - Shop Pay expands to Facebook and Instagram
[00:38:49] - Key areas where Shopify will continue to grow across their product pillars
[00:43:56] - Potential pitfalls of having such a high self-imposed quality bar
[00:45:12] - Conway’s law
[00:45:12] - Aggregators versus platforms
[00:53:35] - Unique marketing aspects for Shopify’s sales and marketing with their subscription model
[00:56:37] - Shopify: A StarCraft Inspired Business Strategy