Example Company Overview
COMPANY REVIEW
COMPANY
Co-founders Tobias Lütke and Scott Lake started out in 2004 wanting to figure a way to sell
snowboards online. Finding a lack of quality software to set up a credible online store, Lütke
wrote the code himself. Hence the Shopfiy axiom that ‘the first store was our own’. The notion
that the nascent company truly lived its own product is something that has reverberated since
then with startup businesses using the product.
Evidently the snowboard gig came second place to the e-commerce platform subscriptions
that started to sell, and Shopify started up. Today, the company supports upwards of 500,000
merchants. That’s an 840% increase on the 2012 figures. Since the public listing in May 2015,
NYSE:SHOP is the best performing US-listed tech outfit. A $1B market cap in 2017 (as of last
week), and a 500%+ return on shares since the IPO. That’s also a jump from 165,000
merchants at the time of the IPO to the half million or so now.
Post-IPO performance-.
We are now witnessing the blossoming of Shopify, but as the stock has matured quickly to be
one of the most expensive software stocks listed, the sharp growth rates will be difficult to
maintain in accordance with investor expectations. Even Lütke was quoted as saying “I don’t
know how much longer we can keep that going”. High churn rates are twofold, firstly because
of the heavy e-commerce competition in the marketplace, and secondly due to the
experimental nature of business ideas. Many fail and fall away. Others are too short-term In
the nature of their product offerings, following fads or fashions that drop off with the season.
Some stores sell direct factory stock lots, and disappear thereafter. This can tarnish the idea
that Shopify actively supports ‘maker’ or ‘artisan’ market segments, as it has done recently
with Etsy.
Also, as with many tech companies exhibiting blistering growth, Shopify has yet to post a
profit. However, as it derives over 60% of its revenue from subscription-based services, these
offer solid visibility, cash flow, and therefore generate confidence to investors. Additionally,
current financial exposure is mitigated by the majority of Shopify’s revenue originating with
merchants within the US, thus the USD exchange rate fluctuation is less impactful than if the
company operated with a more global user base.
TIMELINE
2004 - Snowboards
2006 - $200K FF funding + Shopify launched
2007 - $250K seed funding
2008 - 10 staff and $60K/month revenues posted
2010 - $7M Series A (Bessemer) - Lake leaves
2011 - $15M Series B
2013 - $100M Series C - Shopify Payments launched
2014 - 120K merchants
2015 - IPO raises $131M
2017 - Amazon integration - merchants sell on Amazon via Shopify stores. Stock increases
10%.
Current - Market cap of $10B - (equivalent to Twitter) - 2,000 employees - 5 cities. HQ - Ottowa.
PREMISE
The notion that Shopify exists for the sake of makers and artisans is untrue. Certainly it holds
great appeal for those demographics, mainly for lack of entry barriers due to relatively low
costs. Instead, Shopify wants to cater to all who wish to function virtually. Start to finish, soup
to nuts, a complete solution to enable the merchant to sell whatever they want to sell, from
wherever they need to do it. To take commerce online. Literally from ‘the trunk of your car’ to
begin with…to bricks and mortar and beyond.
Tag lines the company employs are non-complex and self-explanatory:
“The e-commerce platform made for you.”
“Sell online with Shopify.”
“The easiest way to run a growing business at
scale (Shopify Plus).”
Perhaps the most resonant mission statement is something mirrored by our own discussions.
The Shopify premise is simply that:
““Everyone has the ideas and energy to start successful online businesses, but they
lack the tools.”
Shopify therefore offers an extensive toolkit to enable the user to create and manage an
online store. Content delivery is included to ensure stores function quickly and effectively,
and Shopify or Google Analytics help users track habits. The development of the Shopify
offering follows several core tenets:
1. Build something people need - being close to the target demographic helps
understand what this is.
2. Build something unique - this was built to give merchants a novel option, to develop
their own business online as opposed to just posting product in a global store.
3. Build it better - where uniqueness is tough to achieve, ensure the product performs
better than the competitors.
If we revisit the IPO performance in contrast to that of ETSY (an apparent competitor), we see
marked differences. SHOP shares jumped from $17 to $35 on the first day of trading and
have performed robustly since, whereas ETSY witnessed a 40% drop since its IPO at the same
time in 2015. Etsy’s offering is ultimately being viewed as a more basic premise. It allows
“people to connect, make, sell and buy products”, whereas Shopify if enabling the software
that in turn allows small and medium sized businesses to set up online. Shopify is much more
oriented toward the ecosystem, the ‘Omni-Channel Commerce Platform’, and designing a
platform to ‘launch and grow brands’.
In the same way that Salesforce became the ‘Mothership’ of CRM, Shopify has positioned
itself to be the energetic axis around which new SME businesses (not predominantly
individuals), developers, online brand consultancies and ancillary support industry develops.
The emphasis has also always been to develop its services mobile-facing, as strongly
evidenced in the IPO submission to the SEC as “if our solutions do not operate as effectively
when accessed through these (mobile) devices, our merchants and their customers may not
be satisfied with our services, which could harm our business”.
Shopify generally now competes directly with BigCommerce and Volusion, both of which are
also turnkey e-commerce platforms. In contrast, WooCommerce, for example, is not ‘turnkey’
as it relies on a WordPress foundation to set up and operate the online store.
In terms of using the product, Shopify aims to be simple:
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Select a plan.
Purchase a domain via Shopify, or point your own domain to your Shopify store.
Choose a design, or purchase a custom version and pay for a designer.
Add in products, marketing content, pricing.
Develop and implement an inbound e-commerce strategy to attract customers.
The last point stands in stark contrast to Etsy, in which your ‘store’ is set up and prospective
customers search for it via the marketplace. Shopify instead treats its merchants as
businesspeople, and expects them to figure out how to brand themselves, develop target
personas, specify metrics for benchmarking etc. Of course there are the ancillary support
structures that merchants can pay for within the Shopify ecosystem, or they can do it the ‘old
fashioned way’. Themselves.
STORE DESIGN + ECOSYSTEM
The merchant is responsible for setting up the store, and can access ‘quick click’ install free/
premium themes to do so. HTML/CSS generates custom designs as well, but of course this
will incur costs via professional design service providers able to do so. In contrast to Etsy’s
very narrow ‘design’ boundaries, Shopify is more malleable and open to design
implementation rather than there being an overwhelming Shopify thematic that permeates
the experience.
The main issues in self-branding a Shopify store arrive in the form of Liquid, the coding
language used. If a merchant wishes to undertake full customization, then associated costs for
Liquid developers will be expected. However, for more minor design modifications in
branding direction this can prove rather costly. Self-hosted platforms based on more
common languages such as Wordpress begin to assert a value proposition as their user
communities are larger, and novices can manage development.
Extending store functionality is a matter of accessing the App Store where over 1,400 choices
are available, both free and paid. This is seen as one of Shopify’s great advantages, namely
that such a thriving ecosystem is now in place and revalidating the native platform, much as in
the case of Salesforce. By offering so many fully integrated ‘plug and play’ options, running
business functions such as accounting, inventory management, customer service, marketing
and social media outreach, shipping and fulfillment are all more automated within Shopify. An
example is Freshbooks, a leading accounting software integration. It costs $32/month to
integrate, and so doubles the general costs of using Shopify itself as a small business tool, yet
the convenience of having bookkeeping bound to transactions in a single space obviates the
need for externalizing bookkeeping activities. Time is money, and small business appreciates
the opportunity to keep the focus on growth and not the pennies.
The question here is how complex our approach needs to be. We do not need to emulate the
full suite of business processes, but needs to focus purely on how it assists the conversation
around the product to mature in to a purchase. Extensive and impressive as it has become,
Shopify essentially virtualizes everything we do in business. Yes it undoubtedly makes doing
business easier in some ways, but does it actually assist you to perform your business
interactions better?
PRICING MODEL
Shopify has a comprehensive, transparent pricing system that attempts to address all needs
across the spectrum from an individual startup idea to a fully-fledged enterprise operation. It
does not contain any hidden surprise fees. It is structured as a product you pay for each
month, as opposed to a pure per item transaction fee (as with Etsy) that intrudes upon
profitability commensurate with your level of sales volume success. Shopify works on the
aforementioned subscription services fess (monthly dues for the platform), but the merchant
solutions (fees collected on a sale) have been contributing more to growth, up from 19% of
total revenue in 2012 to above 40% currently. The merchant solutions side of the business
gives merchants the liberty to accept customer payments within Shopify’s platform, but the
margins are lower than the subscription side of the business. Thus, when the merchant side
grows the company’s gross profitability drops.
The upside is that merchants receive value. Integrated services within the platform make it
simpler to grow a business. There’s no need to set up additional payment functionality, and
therefore no need to incur additional complexity. Real-time business performance results are
more visible, and over 83% of users worked with the Shopify Payment service in 2015. Simply
put, Shopify will charge you a transaction fee for every single sale, unless you use Shopify
Payment. Therefore when the merchant business grows, it indicates that merchants are
staying with the platform. Shopify’s vision of value is stated as just this, i.e. they do not chase
the $$$, rather focus on the longer-term empowerment of their customers. Loyalty is being
nurtured, and this is the long game for carving out a solid niche in the same territory as
Amazon and eBay. Amazon giving way to Shopify by shutting its Webstore was a big leap for
Shopify. Despite Amazon’s size, its focus was still with the consumer as opposed to the
merchant. Shopify, among others, was able to gain ground and start owning the merchant
territory, while Amazon recognized that integration was key in allowing it to focus on alternate
growth strategies.
In terms of a new user starting up, Shopify technically caters to the ‘first level’ of purchasing,
that being individual interactions and simple transactions for simplified product offerings.
This is Shopify Lite. In proximity to our initial target persona of the individual startup
entrepreneur, this provides some similarities to the ‘one-to-one’ personalized interface we
have been developing.
LITE
$9/MONTH
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Mobile. NO NEED TO LEAVE FB.
Sell in Facebook Shop section.
Communicate with customers via FB
Messenger.
Minimal setup, take and add photos with a
few clicks.
Inventory updates on FB when synced with
your Shopify account activity.
Buy button
Add products to any website/blog
Accept credit cards.
On Buyer side, they can save purchase info
within FB for future activity.
Real-time order tracking within FB.
As Lite is intended to reflect the needs of the ever-mobile, versatile user, the Buy button is the
primary feature. As this feature is only available on the Lite plan, it actually renders this
product option as a simple POS tool. Click and purchase from anywhere online, and keep in
touch through the process via Messenger. This option is Shopify’s overt attempt to compete
directly with PayPal rather than providing a more comprehensive set of online store
functionality. That feature set arguably starts at the next level.
Shopify lets first-time users try out (following a free 14 day trial) their online store ideas for
$29 per month via the Basic plan. The more successful the users are with the platform, the
more $$$ Shopify generates via transaction fess coupled with the subsequent higher-priced
subscription tiers. There is little financial barrier to entry, and it is worth nothing the $29 figure
in terms of company churn, the Shopify statement being that each month they “gain
thousands (of merchants), and probably lose hundreds”. With ‘value propositions’ in place for
the user in terms of integrated functionality and reduced business costs elsewhere, a monthly
figure in the ‘twenty-something dollars’ feels like a sweet spot for the monthly value assertion
of setting up and running a business.
Post-Lite plans develop as follows:
BASIC
$29/MONTH
START YOUR
BUSINESS
STORE TURNOVER $10K
SHOPIFY
$79/MONTH
GROW YOUR
BUSINESS
STORE TURNOVER
$10-50K
ADVANTAGE
$299/MONTH
SCALE YOUR
BUSINESS
STORE TURNOVER $50-250K
2 people
Credit Card: Online - 2.9% + 30¢. In Person 2.7% + 0¢
Transaction Fees: With Shopify Payments - 0.
With External - 2.0%
Shipping Discount - Good
5 people
Credit Card: Online - 2.6% + 30¢. In Person 2.5% + 0¢
Transaction Fees: With Shopify Payments - 0.
With External - 1.0%
Shipping Discount - Better
15 people
Credit Card: Online - 2.4% + 30¢. In Person 2.4% + 0¢
Transaction Fees: With Shopify Payments - 0.
With External - 0.5%
Shipping Discount - Best
Typical abandoned cart UI.
The pricing experience for the Shopify merchant, when working within the Shopify Payments
umbrella, therefore breaks down in to:
1. Monthly Fees
2. Platform Transaction Fees - none (unlike other competing platforms)
3. Credit Card Fees - standardized, although as Shopify recently set up in-house POS
processing the 3rd party is not required. Shopify is therefore the receiver of any such fees
as per PayPal etc.
4. Add-On Fees - Shopify’s app store has free items, but many are paid. Usually one-time
app purchases, but sometimes can run off transaction fees as well.
Shopify lands in the middle in terms of general monthly pricing, when compared to
competitors such as BigCommerce and Volusion. It becomes more expensive when
compared to self-hosted e-commerce solutions (WooCommerce etc.), but can deliver ROI in
terms of own perceived value with the visibility of real-time costs with operating an online
store and marketing a brand. Fewer 3rd party costs means integrated compound benefits.
NUDGE?
The Shopify and Shopify Advantage (formerly Advanced) plans also contain the abandoned
checkout cart recovery service. This is akin to a nudge feature, though less personalized.
Statistically, 2 out of 3 e-commerce customers traditionally run through the process of placing
product in the cart, then check out due to distraction and fail to complete the purchase. This
tool automatically tracks and emails these potentially lost shoppers to funnel them back to
the point of sale and completion.
The abandoned cart feature is common in retail-focussed e-commerce platforms, and the
email nudge is functional enough. The question arises of how we can finesse any persistent
reminder feature with (eventual) machine learned syntax and relevant text content that
addresses specific transaction scenarios between the Seller and Buyer. A simple email
reminder is CRM territory, we need to exhibit strength and consideration in the way we
handle the situation, pulling the Buyer back in to the conversation and moving it forward.
ASSISTANCE?
In 2016 Shopify purchased Kit CRM, a company that provides store owners with a text
messaging-based online virtual marketing assistant that works directly with customers. It
analytically provides data on sales, which products are hot or not, and through which
channels the products are being purchased. It then develops recommendations based on this
data, for example whether to place a sale price on a certain item or stock lot due to lower
than expected performance. As a predominantly marketing tool, it also places requests to the
merchant to advertise product and deals on social media platforms to incite awareness,
increase sales volumes and grow the business.
This is Kit, outlined via an interesting short video piece we could possibly use as a template:
https://apps.shopify.com/kit
Kit is a work in progress, and mixed results have been recorded thus far. Integration with
Facebook Manager appears to complicate what should be an intuitively seamless process in
‘managing’ Kit, but use experience breeds familiarity and the Kit integration is definitely
something for us to monitor in terms of how it moves beyond pure marketing and actually
starts to informatively drive interactions to converted sales. If we perform a finessed version of
Kit’s task list by ‘understanding’ the subtleties of human data interaction, and is included
within the product offering, then we could have a significant advantage given that Kit
currently comes at a price. $10/month additional to other Shopify fees.
An additional acquisition came in the form of Boltmade, a cloud development company.
Along with the Kit CRM deal, this is notable as Shopify’s acquisition strategy appears to favor
small, talent-dense, relatively local (Canadian) founder-led companies that are still in early
stage and share the startup ethos. Both companies specifically focused on helping customers
first, and Shopify is following a strategy of pulling in minds and energy that refresh its ranks. A
salient lesson for us to consider in terms of aligning our priorities with those of any future
acquisition targets we select.
The enterprise class e-commerce platform is the newest addition to the Shopify line up, and is
becoming the place where any successful e-commerce venture scales and excels. As a solid
SAAS option, it services a growing roster of clients (NYSE / Budweiser / Tesla / Nestle) and, as
noted, in 2015 Amazon tipped its hat by closing down Webstores and advising Shopify as a
reliable substitute destination.
SHOPIFY PLUS WORKS FOR STORES WITH $250K+/MONTH REVENUES
The platform incurs the following fees:
Platform Fees - there are direct fees to Shopify for using the platform as a Plus client. These
cover software, hosting, and support access. These are basically predicated upon how much
you use the store. Shopify Plus uses a percentage of your monthly sales to ascertain platform
usage, so your ‘use’ of the store equates to your total sales volume. This is sometimes bone of
contention for users with Shopify as your sales volume does not necessarily equate roundly
with your platform use/support requirements. If you are excelling, then it will be proportional.
If you have a month of missed opportunities then you pay for your lowered performance. The
fees resolve to:
Gateway Fees - for processing.
App Fees - depending on the required functionality extension of the platform, the charges
vary accordingly.
Maintenance Fees - ongoing charges for upkeep.
SHOPIFY PLUS
$2000-$40,000/
MONTH
STORE TURNOVER $250K+
Credit Card: Online - 2.4% + 30¢. In Person 2.4% + 0¢
Transaction Fees: With Shopify Payments - 0.
With External - 0.5%
ADDITIONAL FEATURES:
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Unlimited Products
Unlimited Data/Content Storage
Shipping labels - print (purchase discounted labels via Shopify)
24/7 support
Fraud Analysis - tools included within Shopify Payments.
Discount Codes
Website + Blog
Security - SSL Certificate
Gift Cards
Abandoned Cart Recovery
3rd Party Calculated Shipping Rates
Shopify Plus denotes a shift in consumer mentality in that companies would traditionally scale
and then generate (or acquire) competency in online presence development in-house. If a
company did not have this competency, then one of its most painful expenses was the
opportunity cost taken out of product development and marketing budgets. Shopify Plus is
riding on the success of its plans for SMEs down the ladder and attempting to remove much
of that opportunity cost.
‘IT’, in terms of developing that web store, fixing bugs, ensuring implementation and the
capacity/bandwidth to run everything, is fully integrated. Plus is therefore akin to an
outsourced IT Department that aims to function robustly and securely within a global platform
for the business. At a cost. Of course. However, as with the lower echelon plans, the
predictability of that pricing due to the level of service integration will start to yield ROI versus
scattered service silos that can hemorrhage cash due to lack of robust interconnectivity.This
general banner of ‘keeping functions in one place’ is a wide-ranging trend to which we
should pay heed. Our capacity to perform elegant, simple, yet effective business functions
within a lightweight platform for the merchant/customer/artisan could be a real strength.
Shopify, again impressive in its reach, is becoming a ‘Salesforce’ juggernaut with potentially
more and more orbital baggage,.
DIRECTION
With the acquisition of Kit CRM and a growing focus on putting data to work in favor of the
merchant closing transactions, Shopify is on one hand playing toward the startup
entrepreneur crowd to an extent, and on the other hand perhaps more to the retail sector as
brick and mortar stores ‘devolve’ in to mobile-activated showrooms. Also, the jump to
enterprise solutions with Shopify Plus is a clear signal in the wake of Amazon’s rare
acquiescence to another company that Shopify intends to push ahead and not just ‘carve out
a niche’, but place itself front and center in the race to be the preferred residence for all
enterprise-level business functions related to online sales arms of larger organizations.
Despite the company’s rapid (yet relatively quiet) ascent, there are active attempts in place to
try and ensure the organization retains the energies that birthed it. The company hiring
strategy is one example. Instead of grilling candidates on their track record accomplishments,
Shopify wants to ascertain what they might do in future. This therefore involves taking risks on
the apparent motivation displayed by applicants, and was actually a result of the company
initially being unable to afford the price tags associated with the candidates who did check all
the boxes. This approach, further down the track now, is still in adoption. It has resulted in a
culture of relative workforce diversity, something much in the Silicon Valley spotlight of late.
Shopify doesn’t wish to lose its soul. Being free to employ free thinking within the company
culture is something many organizations aspire to develop, but may find that entrenched
human attitudes get in the way. The companywide aversion to instituting ‘personas’ in the
workplace (read ‘stereotypes’) is extremely prevalent at Shopify. The counter demand is an
strong emphasis on being comfortable with discomfort, being as authentic as possible, and
openly gauging how triumphs and losses determine this actual level of liberty via a ‘trust
battery’. It’s a work in progress, as even the best laid intentions may go awry depending on
the differing cultural expectations of such a diverse workforce.
For better or worse, in the world of e-commerce Shopify is starting to fill out a central role, so
we need to benchmark ourselves with them going forwards to see where our functionalities
and approach are competitive, complementary, or in coopetition those of Shopify. The Lite
platform definitely shares some characteristics with in terms of simplicity, yet we have an
opportunity to play with the dynamics of the personalized relationship we can foster.
Likewise, the Shopify regular plan catering to the growing SME is somewhere we need to
functionally position our product beyond the immediate needs of the individual or small
head count startup.
What keeps pushing through the competitive haze is how effectively (or not) the personalized
touch of an early brand can be maintained and scaled as a company grows, and how ecommerce platform providers such as Shopify truly cater to it. Equally, when will the analytic
‘intelligence’ emerge to successfully assist and drive the merchant/user in improving their
pathway to a final sale? We need to (eventually) own these aptitudes.