The Observer Effect – Tobi Lütke

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Welcome to the third interview on 'The Observer Effect'. We are lucky to have one of the most interesting founders in technology and commerce - Tobi Lütke, Founder and CEO of Shopify. This interview was published on December 16th, 2020.

Tobi is one of the most thoughtful and first principles oriented founders I've met and this was a fascinating conversation. Enjoy!

Sriram KrishnanLet’s start with the basics. Walk me through a typical day in the life of Tobi Lütke.

On a Typical Day

Tobi Lütke

Here’s the honest answer: obviously I have a schedule and people helping me manage my time, however, I think a lot about where to devote my attention. In this way, there is no typical day.

My attention is the most liquid and valuable resource that I have. Even back in the day when Shopify went public, I spent a good deal of time pre-selling the various investors. During meetings, I would say, “Hey, I'm here, and we've been doing this roadshow, but I actually spend a lot of my time on the product.” This was to set expectations because I knew I wasn't going to attend very many investor conferences. Fundamentally, my attention belonged to the product, not to the sales and marketing of it.

A day in my life really depends on what's happening. That said, usually I have themes. For instance, I have a priority list, and I have decision logs that chronicle all the things I am trying to figure out.

These cover different questions. For example, if I had just taken the company over, how would I change it? How would I build a company to potentially disrupt Shopify? I try to make my calendar match these bigger topics and other urgent priorities. In a way, the calendar is nothing more than a strategy. Although it's incredibly easy—and it has happened to me quite a lot—to have circumstances dictate the calendar. Because of this, there’s this constant tug of war between the actual priorities of the company and the kind of things that have to be done.

So, I end up trying to insert themes into my days. Like today, for instance, I have a meeting with my small team to begin the week; I reserved my afternoon for product reviews—what we call “greenpathing exercises”—where, oddly, I'm trying to discern how everyone is thinking about the main things we're working on. I do this because oftentimes I feel as though I am the connective tissue combining operations, finance, and more formal business functions with the product itself. This connection helps me to make good decisions.

Lastly, on Wednesdays, Shopify doesn't do scheduled meetings. Usually, I have a list of memos to read or reactions to record to various mock-ups and so on. This is basically my very loosely defined schedule.

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Illustration courtesy Shopify

On Time Management

How do you work with your so-called “expansion pack team” on reallocating your portfolio management on time? What does that loop look like?

A lot of this is almost automatic by just having a good color coding system, which is really fun. [laughs]

At one point, I started complaining about blue weeks where every single time slot was taken. And someone said, “Well, if you don't like blue, I can make any color.” And I replied, “Well, how about we color based on leverage?” And that’s just what we did.

We ended up labeling my product-related things red, investor/Board of Director-related things some kind of teal color, et cetera. And the thing I’m looking for is a balanced week; a week where, ideally, I manage to devote about 30% of the time—at least—to the product and then as much as possible to things like recruiting, bigger picture projects, and one-on-ones.

And so, if my calendar becomes too external or too much of anything, it's the first thing we see when we sit down for our priorities meeting. This makes scheduling a lot easier.

On Meetings

This is a very natural segue to my next question. One of the theories behind this whole set of interviews is diving into the atomic bits of how we spend our time in meetings. This time compounds over the long term and has a massive effect. What does a good meeting with Tobi look like? Alternatively, what does a bad meeting with you look like?

So actually, agendas are not terribly successful with me. I admire how other CEOs I’ve spoken with always have a strict agenda where everyone has a speaking slot. I find that absolutely fascinating. Even if I really set myself to an agenda and say, “Okay, great, this is going to happen,” I can't get through half of a meeting like this. Partly because a good meeting is, for me personally, when I learn something.

..when I have my own ideas, the first thing I tend to do is just try to falsify them, to figure out why what I'm thinking about is probably incorrect... I started a company because I love learning. I went into programming because I found it fascinating. During meetings, I just love to hear the things that teams have discovered. When you're discussing an idea or a decision, I want to know what has been considered. To be honest, I find myself more interested in the inputs of an idea than the actual decision. I say this because when I have my own ideas, the first thing I tend to do is just try to falsify them, to figure out why what I'm thinking about is probably incorrect. This is actually something that I have to explain to people that I work with. If I like someone's idea, I tend to do the same thing: I try to poke holes in it. I usually say, “Well, the implication of this choice means you've made the following assumptions. What inputs did you use to make these foundational assumptions?” Effectively, I'm trying to figure out if an idea is built on solid fundamentals. I find that shaky fundamentals tend to be where things often go wrong. The decision being discussed could be the perfect decision according to the various assumptions that everyone came into the room with. But if those assumptions are faulty, the seemingly perfect decision is faulty too. Interestingly, assumptions are rarely mentioned in the briefing docs or in the slide deck. Usually, I'm trying to make sure those are rock solid. Through this process, I invariably end up learning something completely new about a field. That gives me great confidence and comfort both in the decision and the direction. On Enneagrams and Comprehensivists Two words have come up a lot in preparatory conversations: comprehensivist and enneagrams. Could you talk about both? Interesting. [Laughs] I feel like I'm becoming known for pointing people towards the enneagram. I actually don't think it's that valuable on its own. The valuable thing about any of these personality-type constructs is that they do a really good job of teaching people that other people are very different. That realization is probably one of the biggest growth moments for people in general. It tells you that different people play different roles. On that note, I do think that, ideally, people should play their own roles really, really well. I play the role of challenger, personally. I find that the enneagram helps me remind myself that with different people I have to talk about the same things in different ways. I think it allows you to skip some time which would otherwise be touch and go at the beginning of a relationship and helps build trust better. In short, it enables us to have fruitful and effective conversations. And comprehensivist, I mean, that's a fancy word. [Laughs] I don't think I've ever used it outside of putting it into my Twitter bio when I was reading Buckminster Fuller. That said, I do like range. I find that the first 80% of every field is pretty quick to learn—it’s equivalent to the Pareto principle—and I think that creativity generally is people using lessons from one field in another field in different ways. Because of this, I find learning fascinating. ..creativity generally is people using lessons from one field in another field in different ways... On Time and Attention on Shopify You try and design how your company spends time and attention. One particular incident came up recently which I found really fascinating. You wrote a script to delete every recurring meeting at Shopify. Talk about why you did that, and what you ended up learning from it. [Laughs] So, going back a little bit further there—you know what, I should talk about books. One thing that is interesting is how people have accused Shopify of being a book club thinly veiled as a public company. We tend to read a lot and talk about a lot of books. We read Nassim Taleb’s books and one person on my team began talking about Antifragile and gave an outline. He said, “I think Nassim is putting a word to the thing that you keep talking about…” Now, I come from an engineering perspective. One of my biggest beefs with engineers, in general, is that they love determinism. I think there's very little determinism in engineering left that's of value. An individual computer is deterministic; once you introduce even just a network connection into the mix, everything becomes unpredictable and you have to write code that's resilient to the unknown. Most interesting things come from non-deterministic behaviors. People have a love for the predictable, but there is value in being able to build systems that can absorb whatever is being thrown at them and still have good outcomes. So, I love Antifragile, and I make everyone read it. It finally put a name to an important concept that we practiced. Before this, I would just log in and shut down various servers to teach the team what’s now called chaos engineering. But we've done this for a long, long time. We've designed Shopify very well because resilience and uptime are so important for building trust. These lessons were there in the building of our architecture. And then I had to take over as CEO. When that happened, I made two decisions: one, I'm going to try to learn as much about business as possible. But, if business is very different from software architecture, I'm going to be no good no matter what I do. And so, I ran an experiment to treat engineering principles, software architecture, complex system design, and company building as the same thing. Effectively, we looked for the business equivalent of just turning off servers to see if the system has resiliency. For instance, we used to ask people to use their mouse on their non-dominant hand for a day. We introduced these little nudges to ensure that people didn’t become complacent. ..I ran an experiment to treat engineering principles, software architecture, complex system design, and company building as the same thing... On Culture There are a bunch of really fun stories around this. I had a conversation with one of my co-founders, and we were discussing our unique problem: namely, Shopify was a company initially for American customers, built by German founders, in Canada. [Both laugh] It's a very complex thing. For instance, we talk a lot about how different cultures interact because we couldn't have built Shopify without the Canadian optimism. These things were not necessarily things that we would recognize, at least when it comes to optimism, coming from Germany. That said, there are also challenges between cultures. For instance, Canadians are unbelievably nice. Like, no one wants to ever say anything to upset anyone. This is why we need to emphasize the importance of feedback. In this way, the uphill battle is more real for us than it would be for a Silicon Valley company. There's so much on the theme of how Shopify is not a Silicon Valley company. I think you pointed out one of these themes right here. Exactly. For instance, if we had built the company in Israel, this would not have been a challenge. It's really important to understand that culture is real and multi-layered. The “host” city’s effect on the employees in that local office is very real. To do something world class, you have to show up with a lot of world class skills, and not a lot of downsides. In this way, pushing people to give feedback is something very important for us. On Deleting all Shopify Recurring Meetings That was a tangent, but to get back to the question you asked, we found that standing meetings were a real issue. They were extremely easy to create, and no one wanted to cancel them because someone was responsible for its creation. The person requesting to cancel would rather stick it out than have a very tough conversation saying, “Hey, this thing that you started is no longer valuable.” It’s just really difficult. So, we ran some analysis and we found out that half of all standing meetings were viewed as not valuable. It was an enormous amount of time being wasted. So we asked, “Why don't we just delete all meetings?” And so we did. It was pretty rough, but we now operate on a schedule. I love that. I think it gives people permission to change things up radically. Another example of this was when you asked the entire company to work from home, or work without office space, for a month before the pandemic. Given COVID, this seems incredibly prescient. Could you talk about that? On Mandating Work From Home before COVID-19 [Laughs] Yeah, it makes us look better than I think we are, but we didn't have that in a crystal ball. You should just take credit for it. Say, “You know, I predicted this.” [Laughs] What actually happened is that we were going to move to a new office, and it was a bit delayed. Because of this, the time overlap between the leases got really tight. So, we ended up having a meeting, which was called Plan B. In it, my CFO said, “The current lender doesn't want to extend because he's so angry at us leaving. We need to have a Plan B just in case we're running out of the lease, and we can't get a new one.” In this meeting, we were discussing how we could deal with this. We decided that we would all work remotely for a month. At the end of the day, the timelines ended up aligning and we didn’t need a Plan B, but we decided to just do Plan B anyway. And that was that. So we sent an email saying, “Hey, next week, your desk phones won't work anymore. We're going to work together remotely, partly because we have some remote members and need to build empathy for them. And, partly because I'm sure we will learn a couple of important lessons from the experience.” I mean, it was probably a day or two of chaos. But it was awesome because this was shortly after we hired some people to look after lunches for everyone—our culinary team. They suddenly had no one to feed in the office. They ended up asking if they could have $5,000 to buy an old food truck and just drive around town with food packages. And what’s neat is that even though we no longer need a culinary team since we’re fully remote, that team has all gone on to amazing careers in completely different fields—oftentimes within Shopify—because those are the kind of people you can build world class companies with. Every time we change something and make something kind of crazy, like turning Plan B into the new Plan A, some people are just going to be amazing in those times, and those are the people that we love betting on. On Learning That is a theme: your being antifragile. It sets you up for crazy events, like a yearlong plus pandemic. Because there’s a direct parallel between what you folks did and what's happening now. Shifting gears a little bit. The other theme that comes up a lot with you is learning. I think there are a few threads here. One is your thought that learning a craft or skill is often a great way to become better at a different task, your regular job at Shopify, or at any business. The second is that you personally have a long list of things that you've learned: playing the guitar, kite surfing... Could you talk about your philosophy around learning, how you approach it personally, and how you think other people should? I have a complex set of thoughts on this. It is really my core value. I believe that the job we all have in life is to acquire knowledge and wisdom and then share it. I just don’t know what else there is. This is the bedrock of my belief system. When I get close to any field, I think about how far I want to go. I'm probably further along with programming. I don’t know if I want to get from 90 to 91% in programming when, with the same amount of work, I could figure out the first 60 to 70% of UX or even something like drawing. There’s a recent book about this called Range, which I really like. The book pushes in this direction and explores this topic a bit more than I do. But I just found myself nodding throughout reading it, because it turns out that very often—really, every field has fundamental wisdom that you discover when you're learning and talking to the people who have mastered it. I find that going wide and learning the best lessons from the people who have dedicated their entire lives to a certain pursuit gets you really, really close to mastery. On Jazz and Product Creation To give a more tangible example, I picked up guitar because someone asked me in an interview if I had any regrets from childhood. That was a weird question. [Laughs] I blurted out, “Yeah, I wish I would’ve learned an instrument,” just as a sort of noncommittal answer. And then right after, I was sitting down and thinking, “Hey, I can't outsource the blame of not learning an instrument to my thirteen-year-old self. My thirteen-year-old self was busy with whatever my thirteen-year-old self prioritized.” I need to own that I didn't practice or learn an instrument. If I actually want to learn an instrument, I can't complain about this. I need to just go and learn an instrument. So I got a guitar, and I had a goal to learn to play it. For instance, I really like blues music, and I wanted to get to the point where I could do some improvisation. I have befriended a bunch of musicians along the way, and I have learned so many amazing lessons from them. For example, one’s a jazz musician, and figuring out how jazz music works has probably been the single best lesson I’ve ever come across for how to make world class teams. I found jazz hard to penetrate initially. I've grown to like it now because I have an appreciation for how certain parts of jazz work. Really there’s a very, very fine set of rules. Basically, people show up with a mastery of certain instruments. Someone ends up being the jazz director and the rest of the band follows. What I love so much about this is that it’s such a great analogy for how someone has a vision for a piece of music that didn't exist before. It's not that there's full agreement or operational perfection. It’s not that everything is spelled out and there’s a song sheet and everyone's practicing. It's that everyone brings their own skill set to the piece of music. And it's not a free-for-all because it's actually harmonious, or intentionally dissonant. It's an exploration into a piece of music and you don't know where it's leading. It's trust in a particular, designated person who is not telling everyone what to do, but is just taking everyone on a journey that explores a space that befits the situation and the context. It's like, every note that everyone hits is not something that someone who is long dead told them to hit. It's the best note they can hit based on all the learning they have done as a musician in their entire lifetime. I think that's beautiful as a metaphor for how great products are created. We find that when organizing teams, even explaining this creates a lot of comfort around a little bit less structure and prompts a more open mindset. It enables creative exploration into complex and difficult spaces. On Shopify's Organizational Design I love that analogy about teams. For me personally, writing stories and fiction has been very similar for me. On the concept of teams and organization, Shopify is nothing similar to the company was even five years ago, let alone 10 years ago. I spoke with your team and there's such a big focus about making sure incentives were aligned, the teams were focused on the right long term goal, and teams don't have incentives that inhibit focus on the customer. Could you discuss the organization system of how you designed Shopify and how that has changed as Shopify has grown over the years? Again, I have only ever been at one company. And since we cleared one hundred... Well, you also have a secret socks store that I've heard of, so technically two… [Both laugh] Fair, fair. Since Shopify cleared 100 people, it has been the biggest company that I’ve worked for, so I really don't have a lot of experience with other ways to organize. I tend to think about incentive systems. I would like to create a company where—I dislike the term stakeholder, but there is no better term for it—the people who really do matter and should be considered are on the same side of the table. No one's actually negotiating against each other. Interestingly, people commonly design companies that are in significant conflict with their customer base. And you play these games to win them over, like taking them out to golf to get them to sign an enterprise contract. That's weird. I mean, I get that it works, but that's a different game than I'm playing. I really, really want as many people as possible to have the ability to engage in entrepreneurship, because there's a certain group of people who cannot work for other people, and they should have options, even in the digital world. And frankly, the internet has significantly pushed everything towards centralization and we know who owns most of it. ..I really, really want as many people as possible to have the ability to engage in entrepreneurship... If people agree that's potentially an issue, the best way to counteract it is to build business models that actually reinforce the opposite, and give people the ability to do their own things online or participate in production. Shopify is that to me. We want to make it so that for $29, for our basic plan, you get most of the things that Amazon built for itself, right off the bat. It's a democracy natively. A business can take the value it saves on not having to build out their own technology platform and invest it to strengthen other parts of their business, whether that’s product, marketing, et cetera. The organizational system is: don't have internal reinforcing loops that break this. I find it amazing how often I come across people who just miss incentive systems entirely. For us, it’s obvious. The best way for us to make merchants more successful, our customers more successful, is to actually do that. The best way to build our business is to make others successful. I honestly just love this concept. I have so many examples of misaligned incentive systems from other companies. I'm nodding so vigorously here. It's also funny, because that's how you see that we’re all really bad at company building. Like everyone's been in a company, right? I think we’re going to look back at the year 2020 and say, “How the hell did this work? We knew nothing and had all these mistakes baked into the systems of our companies.” And yet, we still somehow managed to build them. But my general assumption is that all companies are bad. The only thing you can attempt to do is build a company that's slightly less bad. My goal in life is to be slightly less embarrassed by Shopify in 2020 than all my peers will be. On the Power of Open Source Software That might be one of the most polite, Canadian things you've ever said. [Both laugh] When I think of designing systems, there are two parallels that I would love for you to talk about: one is your history in open source and how open source systems are organized. Two is obviously gaming, which I want to get to in just a bit, but talk to us about the power of open source and your history there. I grew up in Germany, and it's very open source friendly. I was born in 1980, so no one knew what computers could be. I think that everyone who spent time with them knew how important a role they would play, but I grew up in a city where almost no one had a computer or could talk about them. So I was really limited in that way. I only met people who knew computers later in life. And so my connection to computing was really through magazines. That was basically it, especially in the 80s and 90s. The internet took even longer to get to me. I remember experiencing the internet for the first time at a university. I talked with someone who went to school there and convinced them to let me into the computer room. It was all Unix, X Server, IRC clients—everything was source code. I ended up downloading and getting every piece of code I could get my hands on to learn from it because it was the first time I had access to these kinds of things. It was such a profound moment. Even to just communicate with people in other places. It made this enormous impression on me as this force of democratization. I found that the internet’s presence gave something to people that they just couldn't imagine. I was thinking about this the other day: as a twelve-year-old, the only way I could partake in end-to-end communication was maybe ham radio. That was it! That was all. And then the internet comes around and you are able to see anyone and just talk. I could pretend that this is not insanely profound because somehow it's suddenly normal these days. So that made a huge impression, and I love the idea of source code being available and people contributing. I learned from these pieces of software that I barely understood. I ended up finding my way into these discussion groups of people who discussed the code. I learned so much from that. The thing that I love and that I can create is code. So I looked for every opportunity I could find to just code anything. And initially, I would just add comments to an IRC client or something. That was really, really cool to me. I loved that. Later, I had a little bit of a crisis with my craft. I had done tons of fun programming, especially open source and demos, these kinds of things. Then I was briefly paid by Siemens to write code in a sort of constricted way. It resembled the opposite of jazz: when everyone had a song sheet and you had to reproduce a dead person's music poorly. But that was how you get rewarded and promoted. And so again, the misaligned incentive system reinforced this kind of thing. I thought that was really, really not useful. So I was actually trying to get out of programming. I was trying to build Snowdevil, my snowboard store, and use my technical skills to get a leg up, but then actually make my money in another way so that I could reclaim programming as a hobby. Then, I found Ruby—which wasn’t really that well known—in August of 2004. Most of the documentation was in Japanese, but I was used to learning from source code anyway. I actually had a brief thought that maybe I should just learn Japanese. [Laughs] That didn't happen. But I fell in love with it. It was good. And then DHH (Ruby author David Heinemeier Hansson) ended up making a framework and that was such a perfect fit. On Gaming You're famously a gamer: your Starcraft accomplishments are legendary; you've hired people for Starcraft prowess; you stream... How have Starcraft and Factorio influenced you and why do you recommend them to other people tasked with building large systems? I never played team sports, funnily enough. For instance, if I had to play soccer, I wanted to be the goalie. This has been true all my life: I've always gravitated towards competing against myself in most things. And so, when you play as my favorite Starcraft race, the Zerg, if you're really, really good, you will almost win automatically. If not, you lose. I like this stark contrast because I really love failing. I feel so good when I do something, and it just doesn't work; especially if I get the feedback about why it didn't work. That gives me a project to work at to improve. And so maybe that's sort of interesting regarding losses. But, the way Zerg wins is basically a foregone conclusion. If the game plan works and you execute it well enough, you just win. ..the way Zerg wins is basically a foregone conclusion. If the game plan works and you execute it well enough, you just win... I think there's been a little bit of that with Shopify. We had the opportunity of being in Canada, being outside of the fray, and staying under the radar for a while about what we were doing. Silicon Valley famously underestimated commerce as a business model. I don't think I would have a career if Silicon Valley had understood sooner just how good transactions are as a business model and how important they are. On Attention as a Finite Unit The other interesting comment you made once about Starcraft and gaming is how it teaches you that attention is the real finite unit. Yeah. So here's the wonderful thing about Starcraft—it’s been around since 1998, so I was 18 years old when it came out. I spent a good part of my formative years playing that game. There’s a couple of amazing things about it. 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. Also, Starcraft is not a deterministic environment. There's not another person who's trying to mess up your plan. So in a completely unpredictable way, you will never be able to execute perfectly and you have to respond. What you need to do is have just enough of a defense to deal with whatever attack might come, but not too much. Because if you have too much, you end up having spent too many resources for defense. Ultimately, that is to your long term detriment. And so, you end up playing this game where, with very little attentional resources, you try to obtain the maximum amount of information that is to your unfair advantage, and then incorporate it into your game plan. When you just watch the game, it looks like you make decisions between extracting resources, investing in expansion, et cetera. By the way, that alone is a lesson that I think Starcraft players are already better at than a lot of people who end up getting MBAs. Both give you the same kind of decision matrix, except in an MBA it’s through business case analysis. You just get a more intuitive feel for this through video games. ..Starcraft players are already better at than a lot of people who end up getting MBAs... But then, very quickly, this no longer becomes the question anymore. The question really boils down to: How am I going to spend my attention? Am I going to invest into scouting? Am I going to try to outperform in this particular instance and fight by rearranging my units, or am I going to focus on bringing reinforcements in? I think that's just an incredibly valuable thing to learn: to experience firsthand things like being resource blocked. It's common. For instance, I had a recent conversation with someone from growth marketing, and they told me that they bought all the inventory that they could with their current strategy, and I replied, “Okay, so you’re resource blocked.” This is something that I know very well from a lot of video games. Here’s what you do: you generate more resources—the analogies are really, really good. On Factorio So Starcraft and MBA students. How about Factorio? So Factorio came a bit later. I'm playing lots with my kids right now, and it’s just amazing to be building these unbelievably complex factories together. I can only imagine these are even better training grounds than Starcraft. I honestly just think this game is profound. But the major reason why video games are valuable is because of this concept of transfer learning. For instance, people who are good at chess understand when it's time to perform tactics, and when it's time to focus on positional development. Not just in chess, but also in life. During the pandemic, I've been trying to get serious about chess and it's amazing how you can start to see its lessons apply to other situations in life too. Totally. Because so often you're like, “Hey, I actually have no information right now to make a tactical move in the space. So here's how we use our resources to develop our position because, as a position improves, tactics will become available.” The understanding that there's always a way to get in a better position is crucial. In chess, this means having more pieces influencing the center. Shopify spent a lot of time developing the center. We moved all our pieces that way, and maybe this is why we’re doing well. To wrap it back to the conversation earlier, being in Canada and having commerce underestimated really allowed us to overtake the map before people started having a full understanding of the potential of Shopify. I felt pretty good about Shopify’s position by the time I took it public. I actually imagined people would catch on a little bit sooner. Anyway, I was pleasantly surprised at how good our position was. On Trust Battery I want to discuss the “trust battery.” How does it work with new people, and how does it tie into people's work with each other? What does it mean to Shopify and to you? We talk about the trust battery as a metaphor quite casually. I know from people who are coming into the company that it may seem really strange. But it's something you just observe over time. Personally, I have found it really, really useful to be able to reason about a relationship without getting egos involved too much. I can have a conversation with someone saying, “Hey, you made a commitment to ship this thing, and you did. That's awesome. That's a super big charge on the trust battery, but you’re actually late for every meeting. Even though that's relatively minor—like it decreases 0.1% on your battery—you should fix that.” It plays a role like that. That said, it's not useful to talk about trust as a binary thing. People are quick to say, “You don't trust me!” And it's actually more, “Well, no, I trust you to a certain level, but you would like more trust; you want trust at a completely different level.” For instance, if your cell phone is 80% charged, you're not worried about finding a charger. But when your phone in your pocket goes into low battery mode, you're thinking about your phone a lot. What people want to do in a company is get to the 80% or 100% level in the area that they run. You gain full autonomy this way. It’s a process that cannot be given to people by title or something like that. The world we're designing at Shopify doesn't look like this. Titles are largely backwards-facing, documenting things about people who have already accomplished a certain thing rather than obtaining a new responsibility. And so, it helps in this way. On Personas and the Best Thing that Ever Happened to him I’ve also heard about Shopify as a culture not being a fan of personas, especially when people try to project a certain persona that they are not. You know, the best thing that ever happened to me was when I worked for... well, I can't talk about the broader company, but a specific part of Siemens, in a specific office. The reason why it was the best thing for me is because it's almost the perfect counterfactual to how you should run a company. I honestly think that, you know, a coin flip has a batting average of 50%. If you just do the perfect opposite of literally everything about that place, you would probably clock in at 60 to 70% of getting everything right, which would mean you would outperform probably 90% of all companies in the world. So that was really, really helpful. Among other things, almost every incentive system was just wrong. For instance, there was no way you would get a promotion or recognition if you weren't dressed in a suit or if you didn’t use slides in a particular way that resembled the legal profession. They really taught everyone that, regardless of your gender, creed, or background, you should basically emulate the same sixty-year-old lawyer in persona. Effectively, your career was dependent on whether you got this right, and to me, that just seemed insane. This is infantilization, but the funny thing is that they call this professionalism. To me it is the exact opposite. It's infantilization because you literally have a policy about how to dress. If you have a policy on how to dress, that means you don't trust people to dress. It was a pretty stark experience. We try to figure out, as much as we can, how not to be like that. The point is, once I decided, “I'm going to start a company to do this thing”, even before I ever hired anyone, I realized that there are multiple avenues of failure, like financial failure or failure of it just not working. But the failure we were most afraid of was that the company would work, and then ten or twenty years down the road, it would be a company that we would no longer want to be hired by. This is such an important lesson. It's such an important thing to consider as you’re building your business. And it's actually an incredibly good way to make decisions about systems. One aspect of this, to me, is I want people who really, really care about what the company does. We are building hopefully amazing software for absolutely amazing people, like people who are unbelievably brave and really adaptable. Society tries to talk people out of this, like no one wants other people to be successful building companies. Silicon Valley might have gotten to a level of enlightenment where company building is actually encouraged, but the rest of the world isn’t like this. So these are people who do it anyway. Partly because they must, partly because they want to test themselves, or for whatever other reason. We need to take this seriously. We need to be able to really care about something, and yet being really into something—into the mission or into the customers—is somehow considered unprofessional. As a professional, you’re supposed to be indifferent to these things. This is why we don't want these personas and don't emulate someone else. ‘Authentic’ is actually overused because there's probably like 10 to 20% that everyone should leave at home because no one is perfect. But show off the most of what you've got and all your passion, and I think better things come from that. On Executive Coaching and Having a Growth Mindset Something which comes up often is your belief in executive coaching, both in terms of how it has helped you personally, but also for those around you. I think this is also connected to your growth mindset, and how you truly live and believe that. Could you talk a bit about that? It's absolutely connected to the growth mindset and a little bit of realism, as well. Because when a company is growing north of 30% for instance, this means that, at the very least, your job becomes 30% harder every year. There is this great Red Queen's r​a​c​e at Shopify where you have to become significantly better just to keep your job. That's something I explain to people quite frequently. It's not optional to grow, especially when it comes to executives. The learning curve of being a great executive is a lot less like learning the guitar, and a lot more like skydiving. It’s the kind of thing you should not do without an instructor. A coach is probably one of the highest returns on investment anyone can do with their attention. An hour spent with a coach has a 10x, 50x, 100x potential return on time spent. I was really lucky and met a great coach who actually joined Shopify full time just to do coaching and lead our talent acceleration team. ..the learning curve of being a great executive is a lot less like learning the guitar, and a lot more like skydiving... The coach was important because we didn’t have many people who were “readymade” because we were outside of “targeted” cities, being in Ottawa. Our strategy was to hire as many high potential people as we could and have them get to their potential much faster than they actually imagined was possible. Personal growth has no real speed limit. It's more dependent on how often a student is ready, and that often depends on the environment and the norms of a culture around the student. For instance, how often is the teacher appearing when the student is ready? If you can line this up at a fairly high hit rate, then people can go through nearly ten years of career development within a single calendar year. I know the 10x thing is overplayed now, but I have absolutely seen it. On Vulnerability For me, two things have to be true: having the right mentor or person show up at the right moment in your career to get to that inflection point. That's how step changes happen. The second aspect is a certain level of opening yourself up to being vulnerable and saying, “Hey, I don't know how to handle this situation.” This is really hard to get to. I don't know if I've solved this, but the first thing a VP or an executive or someone who's working with me gets is a note from me, which basically says, “Hey, the reason why you've got this job is not because of everything you know, but because you seem like the kind of person who can figure it out when you need to know something.” That's very basic but also very liberating. ..“Hey, the reason why you've got this job is not because of everything you know, but because you seem like the kind of person who can figure it out when you need to know something.”... On a Good Partnership I got to meet a bunch of key people at Shopify as part of this and one very interesting relationship I would love to get your take on is your relationship with Harley [Finkelstein], Shopify’s President. You and Harley have had a long partnership. Talk to us about what makes that partnership work. I wonder if it might be easier for other people to analyze? We have worked very, very closely together now for a decade, and we have never had couple’s counseling or something like that. [Laughs] One thing that really makes it work is that we are just extremely different. Almost the only overlap we have is in how much we care about the mission of this company. Outside of that, his skill set is extremely different; his input is extremely different; his life experience is very different. It's very intuitive for us when to go with one of our ideas because this is what a relationship with a 100% trust battery looks like. It's amazing. It's very rare that you can get there in the world of business. We have, I think, very fertile grounds for this type of relationship to develop because the most interesting people most of us know work for Shopify. I get how that sounds a little bit mad, but it’s definitely true. Ten years ago, I had enough money for one Silicon Valley trip per year. That was it. I just didn't have the money to go. When I did, I loved it and took a lot of notes and talked about lots of ideas and brought some of them back. I went to Silicon Valley in order to recharge my “thinking big batteries.” As you can tell, batteries are a common theme. [Laughs] These trips allowed me to share what I learned, what I’m thinking, where things are going right or wrong, and other perspectives. Harley did the exact same thing in New York with a completely different group of people. And so, very intuitively, the executive team became a place where different people brought different lessons from different groups back. That said, we resisted reasonably well taking people’s fully packaged ideas into the company. We only take inputs, but we transform them via contextualization. At that point, it might be rejected or turned into something that we incorporate. I think that helped a lot. Finally, I'm working a lot on the product, and Harley is doing basically everything external, which is amazing. It's amazing because that allows me to leverage most of the social credit you get from being a Founder/CEO on the highest value thing there is: product work. I mean, this is why the company exists: we're trying to make a world class product. On Parkinson's Law That answer was amazing. It's like listening to somebody discuss a fantastic relationship. You don't quite understand why it works and you have no idea how you can reconstruct it for yourself. I want to get to some fun questions. I'm going to throw a few books at you and I want your thoughts on why those books mean something to you. First one: Parkinson's Law. Oh man, I love that book. I'm going to get the specifics wrong, but I think big picture it will be right. In fact, you reminded me that I should reread it as it's been a while. Historically, it’s been a book that I reread every couple of years. Remember when I mentioned that I figured out how to listen in on people who build open source talking amongst each other? Well, my current opinion is that one of the best things that happened in the last ten years are podcasts. Now, I can listen to experts talking amongst each other and be a fly on the wall to the most interesting conversations ever. Of all the things I could tell my sixteen year old self about the future, I think that would be the most exciting and mind blowing development. This used to be really hard to create, so I got pretty good at hacking it. For instance, I had the source code for Linux, I signed up for the Linux kernel mailing list, and I listened to how they talked about computer architecture. I then spent all my time trying to figure out what these terms meant. Amongst those, someone mentioned the term ‘bikeshedding.’ When I was following up on that, I found Parkinson’s Law. The book was written in the 50s or 60s and it's like eighty pages. It really criticizes the Commonwealth, and apparently, during the time when this was written, comedy was the only way to really criticize. It's written as such. It’s a scathing, wonderful criticism of very common human fallacies. Parkinson's Law, the title, is not even the most interesting thing! It talks about something really important: work expands to the time allocated to it, which has huge implications for organizational building. I mean, the TL;DR solution to a lot of problems of resource inefficiency is better timeboxing. But that's sort of a side topic. In the book, the picture of bikeshedding is painted by the idea that a board of directors makes all these big capital allocation decisions about building a nuclear power plant. After some time, they get all the way to the end of a meeting and then the board talks about the color of a bike shed. Someone says, “Well, how about we make it this one color.” Then, this huge conversation starts about everyone wanting to change the color of the bike shed. It's extremely good because it points out the reason why everyone just rubber stamps the nuclear power plant: people assume that if it made it all the way to the desk of a board of directors, it will have been fully reasoned by engineers and it's probably good to go. But then, something changes in our minds when the problem is something that we can understand in its totality. The meaningful thing about this story is that it points at a fallacy. The other important thing is it implies that people in groups end up really cancelling each other's good parts and exposing one another's downsides. There are lots of ways to talk about this, but it is really, really important that if you are anything other than a solo founder, you have to be a student of how groups of people making decisions together fail to create world class products. You need to study the very few instances of when this was actually done well. Again, open source ends up being one of the best examples of this. The two best examples of spontaneous organization that led to world class results are Wikipedia and Linux kernel. On The Design of Everyday Things The third book (we already covered Antifragile) that I wanted to discuss was The Design of Everyday Things from Don Norman. It's funny that it came up. Yeah, I love that book. Again, I think it's a quick read because it's almost comedic—maybe this says more about me than others but I find I can read books that are funny in one sitting, whereas other books take me a bit longer. But what Norman does better than anyone I've ever seen is point out from first principles just how badly designed a lot of our environment is. On that note, why are technical founders overperforming the market right now? I don't actually think it's because they're technical. I think it's because of a very specific childhood experience that a lot of the people running technology companies have had. Most of us grew up in a world which we knew would change significantly because it was really badly designed given what we knew about the potential coming soon. And this potential coming soon was the march of computers and digitalization. I think that a lot of us, including myself, have leveraged this insight into significant enterprise value. I think this is the reason why we started these companies, but it’s more of a side effect. I think that the reason a lot of us did this is because we spent our teens and our formative years in this state of significant discontent regarding the quality of the things around us. Norman gave permission to really hate the door instead of hating yourself when you push it instead of pulling it. That is not your fault. No human has ever been at fault for pushing instead of pulling. That has always been the fault of the people who designed the door. Norman teaches this. For instance, Norman doors are what these kinds of doors are actually named because of the book. The Design of Everyday Things goes through a list of things and says, “This is bad, this is bad, and this is bad.” You can't put this book down and ever look at the world the same way. It gives you permission to think about how to improve the things around you. This is the most core insight into the entrepreneurial journey. People who learn how to think about how to do things in their environment better, and to understand that the objects in their everyday life have not been designed or created by people who are smarter than they are—they are the people who will become entrepreneurs. On His Wife, Fiona Lütke This is a question I'm actually very excited about, because I don't think you've gotten a chance to talk about this in public in the past. One almost universal thing that came up when talking with the people in your life was how your wife, Fiona, is a huge part of the ‘Tobi story.’ Talk to us about Fiona and your story together. I mean, I don't even know how to talk about it. Honestly, I find this to be a reoccurring story: when you meet people who have been very, very successful, they are often team productions. I had incredible luck to meet Fiona really early. We got together in our 20s—actually I might have even been 19. But we met very early in life, have an amazing relationship, and have three wonderful kids. Fiona is the rock of my life, honestly. She's probably one of the most well adjusted human beings I've ever met. She has an incredible, analytical mind—like unbelievably smart. To be honest, there is probably as much difference between me and her as between me and Harley. In her case, she’s just an incredibly empathetic person who understands people in a way that I might not. She has been an instrumental person to draw the good things out of me. I started Shopify after coming to Canada, so she was my connection to it all and she got me really reading wider. When I met her, I was probably reading comic books and she was reading Paris 1919. The distance between our intellectual tastes has been the same since; she's been speeding ahead and I have been trying to catch up. ...when you meet people who have been very, very successful, they are often team productions... Yeah, she was instrumental. She encouraged me to actually start a company. I mean, there's a funny story about why I started Snowdevil at the time I did. Because I was in Canada, I didn't have a work permit, and a family friend told us that I couldn’t work for another company, but I could start a company. I was thinking about whether I should do it or not, and she just plain said, “Look, I'm super busy because I'm finishing this degree. You should find something that makes you super busy. We don't have kids, we don't have a lot of costs. Now's the time to jump. So I'll jump with you.” And that was that. It's pretty remarkable. We have a strong partnership, we talk a lot, she knows what's going on at Shopify. She's my number one person I bring in confidentially on tricky, tricky issues. Probably every person I've worked with closely has her on instant message. So, I don't even know, it's just part of our system. It’s the unsung heroes; this is much more common than people understand. On How Having Kids has Changed Him I love this. I wanted to ask this also since my own story is very similar. Aarthi and I have known each other since we were teenagers and we’ve been on this journey together. I love the phrase “team production.” At every stage in our life and career, it's very much been the same thing. You mentioned kids. How has becoming a dad changed Tobi, the founder/CEO? Oh, man. Having kids is a humbling experience. You very automatically learn a lot of very valuable things for business. I think everyone intuitively knows this, but like really meeting new humans—just getting a perspective for the totality of the journey has been amazing. They then also constantly surprise you. We have three boys: ages ten, eight, and six. So it’s pandemonium, but it's the best kind of pandemonium. We do a ton of things together, spend lots of time together—I've always prioritized my family. I don't miss dinners… On Countering Silicon Valley Stereotypes That's a very interesting counter to a certain “workaholic” stereotype among founders. There's a guy from retail history by the name of John Wanamaker, and he said something really smart related to advertising. He said, “Half the money I spend on advertising is wasted; the trouble is I don't know which half.” That's sort of a special theory of decision making. I think there's a general theory of decision making, which is that 50% of what anyone does is important; we just don't know what 50% it is. A lot of what goes into company building is simply, “Go and try to figure it. Get to 60% of things working.” I find burning the midnight oil, the crazy hours thing—I don't deny that I've worked really, really long hours when I chose. For a while, and this actually lasted a couple of years, I admit, there just wasn't anything more interesting in the world than building Shopify. Of course, I chose to build it, but we still had dinner every night. Though now COVID has ended up creating a lot of long hours. I think it’s just priorities. Family matters more. It’s amazing to get to work on something so meaningful and impactful, but I find spending time with my kids to be the best. To make something a bit more direct, my kids are all into Roblox, and they wanted to know how to make things in Roblox. So I went and started them on programming and doing basically hacker trends on the Roblox games. And you know what? I learned a lot about how to make Shopify better from learning how the video game industry makes its tools. It's always something you can bring back even in indirect ways. It's pretty amazing. Video games, Shopify, but most importantly, hanging out with the kids and having dinner with family, I can't think of a better note to wrap this up on. Tobi, thank you so much! This interview was possible only due to the generous help and insights provided by Seth Godin, Harley Finkelstein, Jean-Michel Lemieux, Brittany Forsyth, Lynsey Thornton, Sunil Desai and many more people. A huge thanks to all of them! Tom White helped research and edit this interview - a big shout to him as well! Thank you for reading the The Observer Effect. You can subscribe here and get an email for every new interview (which should be about every few weeks). Send any thoughts/comments/questions by email or via Twitter.