Thinking Like Tobi: A Sneak Peek into The Shopify Decision-Making Machine

Poke holes in your idea. Figure out why you're wrong. Repeat.

Until recently, few people knew about Shopify. They were a Canadian website builder helping people set up online stores. Then something changed. People began to take notice. It became clear that they weren’t selling websites, they were selling entrepreneurship and changing commerce as we understand it. 

Shopify is fascinating and so is their German-born, Canadian-living CEO and co-founder, Tobias Lütke. He isn't the first person to start a successful business, so what makes him special? Launching a company is very different from running it, and the people who are good at the first aren't usually good at the second. We need to pay attention to Tobi Lütke because, as his company has grown from a two-person storefront to a multi-billion dollar success, he’s negotiated an even rarer and more challenging turn, morphing from a code-obsessed creator into a remarkable leader. 

I’ve studied Shopify and Lütke for the past 6 months. I consumed every podcast interview and blog post I could get my hands on. As I began to understand more about the company and their leader, my admiration skyrocketed.

Writing this series has taught me more about company building and leadership than anything before. These essays aim to break down those lessons - things that weren’t immediately obvious - into digestible and practical ideas.

For the next 4 weeks, I’ll release an essay on Shopify and Tobi Lütke. Learn from one of the best about how to grow a successful company intent on effecting meaningful change and building for the long term. Sign up to receive them in your inbox each week.

The Lütke Foundations of Decision-Making

  1. Understand if the decision you're making is undoable or not. If a decision is fully un-doable, make it quickly. Get feedback, update your information and reassess the decision. When a decision is something that you can’t take back, then it’s worth really, really understanding. You can't undo the decision to take on funding from a VC firm, so you better understand it and its implications before you do. Some decisions need to be made quickly, others slowly. Understanding the difference between the two is what makes a good decision-maker.  

  1. Seek simple solutions. A bunch of smart people in a room can find themselves looking for more and more complicated answers, particularly as the scope of the business expands and the stakes increase. Lütke won't have it. "I'm always deeply suspicious of people who try to solve problems by immediately running toward a complex solution to something that could be solved simply." 

  1. Making good decisions and building good companies means navigating uncertainty. That's difficult, yet the best executives do it on a consistent basis. Lütke tells the story of a conversation he had with a member of the executive team in which the executive said to him: “I know it’s my job to know what to do but sometimes I feel out of my depth”. Lutke immediately told him: “You earn your job not by knowing what to do. You earn your job by making great decisions when you don’t know what to do. At Shopify, just like any other high-growth company, reality changes every few months. At scale, everything breaks. Not knowing what to do is how we spend most of our time."

  2. The long-term view is the only one that matters. Perhaps the most valuable tool in Tobi's toolkit is his ability to adopt the long-term view. It's well-known that Lütke is an avid gamer. He identifies as part of the Zerg race in StarCraft. Many non-Zerg StarCraft players get frustrated in long games because Zerg is extremely difficult to beat in “late game”. It's clear how this long-game strategy has filtered into Shopify. 

    In November 2018 someone on Twitter predicted that Amazon would acquire Shopify in 2019. Tobi Lütke gave a typical “late-game Zerg” response:

“Every decision you make is a balancing act between the needs of right now and the long-term benefits. In this way, everything is a deferred decision, and I think a lot of success in life is how good you are at making long-term choices.” - Tobi Lütke

What Lies At the Heart of Good Decision-Making?

Good decision-making is the result of trying to falsify your ideas. By poking holes in your idea, you begin to figure out why it's probably wrong. As you learn to understand the inputs and assumptions around decisions, you falsify and improve them reliably and consistently. A decision could be the perfect decision according to the assumptions that everyone came into the room with, but if those assumptions are faulty, the decision’s faulty too. Flawed assumptions = flawed decisions. 

Without the ability to objectively evaluate your ideas and abilities, improvement is impossible. It's easy to be emotionally invested, even infatuated with your own work, but if you truly care about doing great work, that attachment is dangerous. It inhibits growth. A willingness to listen to and learn from others, and to have your ideas challenged and changed, is how you build great things.

Questioning the validity of your thoughts and ideas provides mental hygiene, but more importantly, it reveals the novel ideas that have been hiding behind your assumptions. You're not aiming to find flaws in your and others’ thinking, but rather to identify what you've been missing and how you might take advantage of it. Every person and every company makes flawed decisions, but your ability to recognise them and turn them into an advantage is what separates the best from the mediocre. 

Tobi demonstrates a ridiculously deep understanding of the models he uses to assess situations and make decisions. It's clear that he's given plenty of thought to it, generally a good indication that it’s worth paying attention to. 

How Effective Decision-Making Shaped Shopify

John Phillips - an early Shopify investor - mentioned to Lütke that everyone who worked with him was the same guy, everyone came from the same programming background as Lütke and Daniel Weinand, Shopify's co-founder. He thought Lütke should shake things up a bit. So Lütke hired Harley Finkelstein, now the company's President, and several others from different backgrounds, and everything changed. Suddenly there was a diversity of opinion, a multitude of possible solutions to any problem. "I made one change," says Lütke, "based on one comment by John, and it massively impacted the company." Greater neurodiversity leads to better decision-making. Problem-solving changes for the better when you introduce people who have different life experiences. 

Lütke, and Shopify, place an emphasis on clear thinking and effective decision-making. It's at the heart of everything they do, and it would be foolish to discount the role it's played in their success up until this point. Decision-making affects more than the decisions you make. It filters down into all parts of the company. It influences everything.

The more you listen to Tobi discuss his thinking and decision-making processes, the more you understand how deliberate and structured he is about it. You begin to notice that he approaches thinking and decision-making in the same way that he approaches engineering: logically and methodically. I assumed that this was one of the reasons engineers love to work for Shopify, but he sees it as more of a second-order effect:

Tobi has an incredible ability to attract top talent. When starting Shopify, he was an influential member of the Ruby on Rails open-source movement. This, and his pragmatic and logical leadership style, attracted top talent from the open-source community as Shopify's first employees. Many of them relocated from around the world to this little-known company in Ottawa. The independence and resourcefulness of the typical open-source developer remain present in Shopify today. 

“In 2013, I was writing an experimental, open-source, behavioural analytics database and they weren’t just interested in it, but were actively trying to productionize it. I can't imagine another early-stage company doing that. They were only about 100 Shopifolk when I joined. While I've always admired Tobi, he and I didn't directly interact often and I wouldn't say he's the reason I joined. The culture he built was the reason I joined.” - Ben Johnson, former Shopify Engineer.

Product isn’t the only thing that matters in a technology company, but it’s a critical ingredient. Companies with the best engineers usually build the best product. The Shopify culture, built on Lütke’s decision-making foundations, is significant. As long as good engineers want to work there, Shopify will get better and better. 

Two essays in this series will dive deep into Shopify culture and the employee-centric nature of the company. They’ll analyse how they go about building world-class teams and the lessons to be learnt from them.

In the early days of Shopify, Tobi and his wife Fiona McKean were staying with her parents and living off savings. Cash flow was so tight that McKean's father, and others, had to write cheques so that Shopify could meet its small payroll. Lütke took the burden of this stress entirely on himself. He told no one at the company. "I was sitting in meetings," he remembers, "talking with my peers about building things that would take us a year when I knew we didn't have four weeks of money left. And I could not let anyone know that." He knew the minute he did, their focus would naturally shift to the short-term, to work on things for immediate benefit. For Shopify to succeed, he needed them to keep thinking long-term.

Having the support and backing of your team and your investors isn't enough to build a great company. The job of the CEO is to make difficult decisions and get them correct. This is made more challenging because the decision you make today will only reveal itself to be good or not in months and years to come.

Code Cubbit, Managing Director at Mistral Venture Partners, describes the difference between A-grade CEOs and other CEOs: "An A CEO is an executive who sees change coming, 6, 9, or even 12 months ahead of everybody else and has the ability to change course in the face of opposition from everybody else who is happy with the status quo." 

Peter Kaufman calls it advantageous diversion. But it's not enough to diverge from what everybody else is doing. You have to be correct. You have to have a strong opinion, which often goes against the grain, and then you need to have the conviction to stand by that decision. Tobi seems to have these qualities in spades.

In this series:

Part 1 - Thinking Like Tobi: A Sneak Peek into The Shopify Decision-Making Machine

Part 2 - Jazz, Malcolm X, and Building World-Class Teams the Tobi Lütke Way (Coming next)

Part 3 - Is Shopify The Most Intoxicating Company on The Planet?

Part 4 - Understanding the Shopify Product AKA Why Shopify isn’t Amazon

I aim to turn Zero Hypotheses into a rich learning resource for people interested in building great products and world-class teams. This is the first piece and I’d love to hear how you found it. Please, reply to this email or find me on Twitter.