How Shopify's Morgan Brown helps them stay ahead of the competition
How Shopify's Morgan Brown helps them stay ahead of the competition
Morgan Brown (00:02):
There's a whole ecosystem of capability that takes this kind of core product and extends it in many different ways. And you get this really powerful flywheel of more people contributing to the ecosystem, which creates a stronger product offering.
Peep Laja (00:21):
I'm Peep Laja. I don't do fluff. I don't do filler. I don't do emojis. What I do is study winners in B2B SaaS because I want to know how much is strategy, how much is luck? How do they win?
Peep Laja (00:33):
This week Morgan Brown BP growth at Shopify. Shopify is an absolute eCommerce category leader. Founded in 2006 by Toby Lutke and Scott Lake. It's now a $7.6 billion company with over 7,000 staff. You want to know how to win? Well here's the company that's won. In this episode, we talk about enabling potential customers to start their business, rather than targeting B2B clients. We hear about encouraging conversions by offering beat potential payoffs for small risks. And we hear how focusing on the merchant, not the customer help differentiate Shopify from other platforms. Let's get into it.
Peep Laja (01:14):
What's the hardest problem Shopify currently has? You guys are category leaders so brand awareness is massive. So I imagine signing up customers is not a top problem, something else.
Morgan Brown (01:27):
Yeah. I think Shopify's biggest problem or biggest area of opportunity is how do you bring Shopify to the world? Shopify has primarily grown up in mostly Western English speaking markets, and that dictates a very specific type of commerce, right? We're kind of in like eCommerce forward nations, Western markets, and so if you think about bringing Shopify to the world, that's a lot of new regions, new ways of conducting business, new ways of accepting payments and so on and so forth.
Morgan Brown (02:00):
And so solving that can truly bringing Shopify to the rest of the world is one of the challenges that the company faces. I think the other one is obviously the company faces increasing competition. Shopify was a little secret over the past decade or so, but certainly with COVID and kind of the shift in consumer and business behavior, Shopify's ridden a lot of those tailwinds. And so there's a lot of people interested in this space, the number of dollars flowing into eCommerce from venture capital or otherwise is staggering. And so continuing on our mission and continuing to be the category leader and pushing forward is certainly another huge area.
Peep Laja (02:43):
In the category of eCommerce platform, so build your own online store and there's BCommerce, and Magento is somewhere in there and there's Enterprise Tools and also smaller ones like Equine and all these other players. So there's almost a question in this saturated category where seemingly most have feature parity, they'll mostly do the same stuff. Why would somebody choose Shopify over others? How were you thinking about those advantages, the reasons to choose you over other platforms?
Morgan Brown (03:13):
Yeah, I think one of Shopify's incredible advantages is the ecosystem in which it exists, right? So Shopify app developers, Shopify agencies, Shopify experts, there's a whole ecosystem of capability that takes this kind of core product and extends it in many different ways. And you get this really powerful flywheel of more people contributing to the ecosystem, which creates a stronger product offering, which creates a more compelling product to try and use and stick with. That's one of the big advantages that Shopify has.
Peep Laja (03:54):
You don't really seem to be leading with that messaging on your marketing assets, your website and ads. That's the advantage that you have, but it's not really a reason to choose Shopify as a store owner.
Speaker 3 (04:07):
Do you feel stuck full of ideas, but no plans watching the days pass by thinking this can't be it. Yeah, this is for you. You weren't put on this earth just to work for someone else's dream. You've got dreams of your own. That's right. You want to do more, create more, leave your mark on this world. So why waste one more second?
Morgan Brown (04:37):
The things that you see like in our paid advertising and that type of thing is we really want to talk about the opportunity to become an entrepreneur, that it's easy to get started. That it's actually less intimidating that it's basically a free option. One of the most impactful books here at Shopify is Antifragile by Nassim Taleb. And one of the big things that he talks about is optionality and how people generally undervalue low cost or free options.
Peep Laja (05:09):
Nassim Taleb is a risk analyst and an author, a thought leader. His Antifragile theories suggest that lots of small calculated risk with big potential upsides are better for an economy than huge risks, which can fail catastrophically. In SaaS terms, pricing structure, which allows lots of small customers to take a chance without a huge investment means you aren't taking on the risk of having one or two big enterprise clients, which really hurt your business if they fail or leave.
Nassim Taleb (05:37):
We encourage taking on a pile of entrepreneurs because the system needs them. You guys got here because of entrepreneurs, not because of bonus earners and bureaucrats and not thanks to bankers by the way. All right, you didn't start the industrial revolution without risk takers who have small downside, big upside.
Peep Laja (05:54):
A note of caution. When you're the low cost option, you run the risk of having terrible margins and attracting the worst type of customer. Low cost can attract the type of buyers who demand the most, have minimal to no brand loyalty and their lifetime value is low because they're deal seekers. They can be needy and drain a lot of support resource and they're more likely to complain. And it tends to be the opposite with high cost products.
Morgan Brown (06:18):
Effectively we want to make trying entrepreneurship, trying Shopify like the cheapest option possible, right? Because low cost options have incredible potential upside to them. And so our advertising really talks to the ease of getting started. We don't want to hit people over the head with all the thousands of things that you can do with Shopify. We really want to let them get into the door and then knowing that each business and each person's in a different position, different market, different stage, whatever, we can then start to unveil the things that might make sense to them based on their business. Maybe it's like the retail point of sale, hardware or whatever. So it is really about getting people started on that journey.
Peep Laja (07:05):
Winning on messaging starts with your identity. What's your brand DNA, your story, what are you about? Shopify's DNA is lowering barriers to entrepreneurship, to economic independence. After your brand identity comes positioning. Which well defined audience are you for and what use case are you solving for?
Peep Laja (07:23):
Then we get to the tactical layer, messaging. High stakes messaging, which is a copy on your homepage or the landing pages that you drive a lot of expensive traffic to, is where most companies botched their efforts. Symptoms of ineffective messaging aren't easy to spot. To win at messaging you need three capabilities. One, know what the people you're selling to want, how to think about the problems you solve. You find it out through qualitative research. Two, copywriting skills, and three, know how what you're saying is landing on your target market. And you find this out through message testing. That messaging, right? There sounds very like small business focused. And then you have Shopify Plus, and then you have your shop app, which is kind of like buy from there instead of Amazon.
Morgan Brown (08:12):
Yeah. Even in Shopify plus the idea is to lower the friction and the cost of entrepreneurship. In the past like standing up, even for a big brand that wanted to have their own eCommerce website. Traditionally it's been super expensive. You have to hire your own development team, maintain engineering. You have reliability, you have localization, you have all the payment integrations. And so even while the kind of arm the rebels line talks about small business, the idea of reducing friction in terms of entrepreneurship and making commerce better for everyone everywhere applies to anyone, any business of any size.
Peep Laja (08:54):
In the classic strategy book, Good Strategy, Bad Strategy the author Richard Rumelt says that a goal is not a strategy.
Richard Rumelt (09:01):
Good Strategy, Bad Strategy came out of me because of a growing frustration in the gap between what one thinks of as strategy and what passes for strategy in so many companies, in so many politicians' mouths, in so many government agencies, in so many nonprofits, universities, school systems, they say they have a strategy, but they don't. They have something else. Something I call bad strategy and their strategy is not the absence of strategy, it's an active force of mistaken belief in how to think strategically and how to create strategies.
Peep Laja (09:48):
Strategic growth starts with an honest assessment of where you are now. What's going on? Think through your internal assets and external pains, strengths and weaknesses. Next, get clear on where you'd like to be in one year or five years or whatever. What's a non-negotiable outcome. Now map out what's the gap between where you are and where you want to go.
Peep Laja (10:09):
Next, define all the obstacles. What's keeping you from closing the gap? Why aren't you there already? Why have haven't the obstacles being addressed before? Getting crystal clear on your obstacles is key. If you get this wrong, you might render most of your plan useless.
Peep Laja (10:26):
Next, define a set of initiatives and projects to overcome the previously defined obstacles. Each initiative should be designed to overcome an obstacle. So after implementing each, you're starting to close the gap. A word of caution, don't confuse obstacles with symptoms. Our return is high is not an obstacle it's a symptom. Slow rate of growth is a symptom. And your job is to figure out what is really blocking your revenue growth. So what is the dream that you're building towards? And why are you there or not already? What are the obstacles in your way?
Morgan Brown (10:59):
Yeah, I think the dream for Shopify is to create economic independence for anyone that wants it around the world.
Peep Laja (11:07):
Is that X number of people on the platform or...?
Morgan Brown (11:10):
Yeah, I think you could measure it in a bunch of ways, but I think a couple of different ways to think about it is like, how easy is it to start a business? If you think about reducing the friction to starting a company, starting a business is really hard right now.
Peep Laja (11:24):
Is it? I don't know.
Morgan Brown (11:24):
Yeah. It's super hard. You know, you own several of them. You have-
Peep Laja (11:28):
My perception is not that hard but-
Morgan Brown (11:30):
Well, you've done it a few times. Right. But think about, you had to figure out how to incorporate something for the first time. You have to figure out what it means to pay taxes. You have to understand what it means to be registered to do business.
Peep Laja (11:43):
So Shopify going to tackle all of that stuff.
Morgan Brown (11:46):
I don't know that Shopify will ultimately tackle all of it, but I think Shopify's long term vision is how do you reduce the cost of like taking that step? If Shopify can make trying entrepreneurship as easy as possible for as many people as possible that's the long term game, that's the infinite game.
Peep Laja (12:03):
And what's the obstacle?
Morgan Brown (12:05):
When you talk about every entrepreneur and enabling economic independence for everyone, that's serving a lot of people, right. And how do you do that in a way that makes sense and doesn't get so complex that it's not any better than what exists today. How do you think about the right order of operations to go and do that? If you look at what Shopify has done today is focus really strongly on the online store. And then from the online store started to think about what are all the different pieces that make growing and managing a business challenging, right? Like access to capital is really hard to get. A lot of small business owners can't qualify for a bank loan to grow their business. They can't get access to capital and so Shopify created Shopify capital, which allows entrepreneurs to leverage their business earnings and whatnot, to get access to capital that they otherwise couldn't get access to. Shopify shipping and fulfillment network, same thing, getting a product from point A to point B is really hard, so how can we make that easier?
Peep Laja (13:07):
Are you trying to maybe, using your economies of scale and your size, to then compete on price so you're cheaper than some other ones or how are you thinking of pure pricing?
Morgan Brown (13:19):
We're not really the cheapest. We're certainly cheap by the standards of having to build it all yourself, but we're certainly not the cheapest option that's out on the market. And I think for us really Shopify wants to be as accessible as possible, but also offer... Shopify is an operating system. You can run your entire business effectively on the back of it. That's essentially how it's priced, right. It's how can you make that accessible and full featured as possible. There are very few versions of Shopify out there. You basically have Shopify Plus, you have the basic plan and then you have the light plan. It's designed to be really comprehensible and straightforward.
Peep Laja (14:04):
In your strategy do you have like guardrails that say, okay, whatever we ship, whatever we build, it needs to be simple, like not more than this many price plans.
Morgan Brown (14:14):
Yeah, absolutely. So I think there are some very high level principles and they kind of unfold from there. So build everything to help make merchants more successful. That's it do that. And if we make merchants more successful, we make more money, which we can then use to invest in making more merchants more successful.
Morgan Brown (14:32):
The second piece from that is that we want to solve problems that most merchants have. When we're solving a problem in the online store, the user interface, the admin, how do we solve the most common problems that 80% or more of merchants have and solve those really well, and then enable underneath that. So Shopify has its admin layer, but then it has its code layer, liquid, that you can then go in and customize things very specifically. And so it kind of abstracts away all the complexity for the problems that most merchants have to kind of keep it as simple possible. But then it still enables very custom, specific implementation and execution in the code layer in liquid if you actually need that. Or you can add an app or so on and so forth. And so in that way, it gets away from that disease of Microsoft Word, where every single option has all these tool bars and all that type of thing, because they're trying to solve for everything in the UI. And Shopify is very much not that, that's the strategy.
Peep Laja (15:40):
Make merchants' life easier, that central theme that one liner, is that something that Toby intuitively knew from day one or did that evolve that, oh, actually we need to capture the essence of it into a one liner. Do you know the story there?
Morgan Brown (15:56):
So I'm not Toby, but I can say that he started as an entrepreneur. He ran Snow Devil, which is a snowboard company. And the whole reason Shopify got built is he was trying to create eCommerce software for himself so he could sell these snowboards.
Toby Lütke (16:12):
I just have questions about the world in a way. And then I like exploring those questions. And sometimes that involves reading a book, but in the particular case of Shopify, it required building a company to a certain degree. Because I built this snowboard store and the thing I found and what I had many questions about is like, why is it so goddamn to build an internet company? Didn't we invent the internet so everyone can kind of do their own thing on it. You could participate.
Toby Lütke (16:36):
I wanted to do this in the form of building a business, which I think to me is one of the most pure forms of self-expression and it turned out to be incredibly difficult because no one has deemed to make it easy. And first of all, I wanted to know why not? And then second what would happen if someone would do it? Would there be a lot more people who are going to be entrepreneurs?
Morgan Brown (16:57):
He also is a developer, an engineer by background and grew up learning code through the open source community. And so he kind of like takes these ideas of open source software development. And a lot of it is kind of infused throughout this, right? So it's like, how do you create optionality? How do you make this easier? So there's lots of artifacts and things here at Shopify that help product teams, marketing teams understand what the long term vision is and kind of stay mission aligned.
Peep Laja (17:29):
So for a company of this size, what does the strategy process look like? Are you planning 10 years ahead? How specific does it get and what kind of parts are owned by let's say, individual product teams and tell me about that process.
Morgan Brown (17:43):
Toby likes to say that... he's a big fan of the book Infinite Games and Finite Games, right? And so the infinite game for Shopify is to make entrepreneurship accessible and deliver economic independence to as many people that want it around the world. And that's the infinite game. And then there's a bunch of finite games, which every team and company is playing to get to the next horizon, the next milestone to keep on playing that infinite game.
Peep Laja (18:11):
Jim Carse was a professor of religious literature and history at New York University.
Jim Carse (18:16):
We sat around once a week, 12 or 15 of us from different disciplines in the faculty talking about game theory. And I realized after a while what they were talking about was winning or losing a game. They weren't talking about playing the game. So I mean, the idea of play itself suddenly appeared to me to be a very complicated notion, nothing simple at all. So I wrote a paper making a distinction between the finite and infinite type of play. They didn't like it.
Peep Laja (18:52):
His theory of finite and infinite games suggests that there are goals in life and business, which are never ending or intangible, they had the driving force. Then there are finite games that help you get closer to the infinite goal, like hit your target conversion rate, minimize loss, maximize profit, become the category leader, have an IPO.
Morgan Brown (19:12):
In terms of the infinite game. I think Toby and Harley and the leadership team are really the ones that kind of sketch that out, the game that we want to play forever. In terms of the actual execution of the strategy for the year or for the next six months, those are done in kind of a recursive manner where you can go either bottoms up or top down, but take, for example in the growth organization, that I'm a part of, what we did is every sub-team every team in growth marketing does what's called an investment plan, which is basically a look at the next six to 12 months. Take the next 12 months, split it into six months, half one, half two, and then think about, okay, what are the big themes? What are the big rocks or big objectives we want to accomplish?
Morgan Brown (20:02):
What are the goals? What are the OKRs that would tell us if we accomplish that or not, and kind of create those at the team level. Then those go up into the organization level. So that plan goes up into the overall investment plan for the commercial organization of which growth is a part of, in that way you get kind of a recursive kind of view of all the plans and strategies where you could read the top investment plan, click into say the growth investment plan and click into the SEO or content marketing investment plan. And you could pull the thread all the way through
Peep Laja (20:40):
A lot of what you're saying is that how basically customer or vendor focused you are. What about also keeping an eye on the competition? So what is commerce doing or Amazon, how are you approaching competitive intel or benchmarking, or trying to be better than the alternatives?
Morgan Brown (21:00):
They kind of say in business that you either are bundling or unbundling, right in terms of strategy. And so I think Shopify faces a lot of competitive pressures, both from large marketplaces, like Amazon and also from the bottom with very specific kind of point solutions to specific parts of the business. And then even folks that are in our competitive set, like the Big Commerce, the Wix, the Square Space and so on. And so, yeah, like one definitely have seen competition really heat up in this area. Like I mentioned before, hundreds of millions of dollars flowing into the space.
Morgan Brown (21:36):
And so we're constantly aware of what competitors are doing. What's working for them, where are they kind of going versus like what our long game is. And I would say Shopify's strategy, its mission, its infinite game doesn't change because of that. But we definitely are paying attention to that and trying to learn from it and then make better decisions from it. For example, in advertising, we've seen an incredible increase in the number of competitors who show up in Shopify branded keywords as kind of the category leader. There's a lot of companies that try to pick off that traffic from our ads, basically from that intent, from that brand awareness. And so we're constantly trying to adjust to that, learn from that and create better experiences for people looking for Shopify and trying to understand their options.
Peep Laja (22:33):
Most companies playing categories with existing giants, it's difficult to compete and win on better as the competition at the top is fierce. That being said, there's absolutely no winning if you have a lesser product. You need to be at least as good as the category leader.
Peep Laja (22:48):
When offering an alternative to a category leader, you need to move closer to the edges. You can't beat them by going after the same market, same customers as them. You need to choose a different where to play box. A key part of your strategy is to figure out how to focus on a space in a way that encourages others to play elsewhere and/or differently. Think of your target segment as a shape, like a smaller circle, a slice of the total market. A successful strategy is one in which the circles of others, especially category leader circles, don't overlap too much with your own.
Peep Laja (23:24):
Apple's circle doesn't overlap much with Samsung, but LG made the mistake of overlapping completely with Samsung and got beaten badly. They should have gone for a different market segment.
Peep Laja (23:35):
Niche down, beat a 10 X thing for a particular target audience, solve their specific needs 10 X better than anyone else. Then once you get a toehold in the market, you can expand out from there. A lot of now huge companies need just that. Facebook, Gamesight or Toyota and Kia.
Peep Laja (23:55):
How do you know what's working? What's working for the competition?
Morgan Brown (23:58):
If they're a publicly traded company, quarterly earnings calls and reports are kind of some of the best sources of information. I read those every time they come out. You can also monitor how and where they're spending their money. If you kind of assume that they are reasonable people, how they spend their money is a pretty good indication of at least what they perceive to be working. Those are some of the, maybe the less obvious ways. Of course, you then follow along what they're talking about, and that type of thing is also like a good way to do it. And then another really strong way is to understand what their customers are saying. What are their customers asking for? What do their customers like? What do their customers not like?
Peep Laja (24:38):
Do you have somebody who is a full time, competitive intel person reporting on these things? Or do you do this periodically, do individual product managers look into this?
Morgan Brown (24:49):
There's not a person that does that as their sole job, but we have market strategy teams. We have research teams, we have business analysts. And so anyone from an individual product manager, marketing specialist, all the way to someone trying to create a market report on the best options for feature X or whatever. And then it's imbued in how I think about working too, right?
Morgan Brown (25:14):
When I decided to work for Shopify, the first thing I did is go through all the onboarding flows of every major competitor and just try to understand them. And so I think it's not anyone's single job, but it's a learning culture at Shopify. So people are always interested in what's changing. And not even competitive products, I think just looking at competitive products is a very shortsighted way of doing things. So constantly testing new apps in all sorts of different categories, just really trying to understand what's kind of evolving out there and what's what's happening. Yeah.
Peep Laja (25:47):
Classically, they say that market positions in a category are very rigid. And once you get to the top, it's much easier to defend your position as opposed to come from behind and reach to the top. So since you're the king of the category, what kind of moats are you guys actively building going after the 7 Powers book? What are cooking up?
Morgan Brown (26:08):
We're the leader of a category that's still pretty small and still very early. In the last year, the eCommerce category grew as much as it had in the previous, I don't know, depending on who you believe five to 10 years. Right? And so it's still very early days. And I think even if you look at other technology driven categories, the whole idea of being at the top, for many it ends up not being true for a very long period of time, right?
Morgan Brown (26:34):
For every Google that exists, you have an Alta Vista, a Yahoo, a MySpace, whatever. And so I think that guarantee of lock in is not actually a sure thing. And I don't think anyone here at Shopify thinks that the job is done. It's still very early, especially in that infinite game. That's one.
Morgan Brown (26:56):
But to your point in terms of the moats Shopify has going for it or things that work really well, one is the counter positioning. Amazon is a customer obsessed, we're merchant obsessed. That difference in positioning actually creates a whole bunch of interesting strategy trade offs and sends you down very different paths, which I think is pretty obvious.
Peep Laja (27:17):
Well, what are trade offs?
Morgan Brown (27:18):
If you are a marketplace like Amazon, you're trying to aggregate as many people as possible so that you have the most sellable asset as possible, right? And then you can dictate how much you charge and the rules of engaging that asset. So it's Amazon, Facebook, Google, eBay, whatever, LinkedIn, all these marketplaces have very similar dynamics. Or you have the platform side, which is what Shopify is and that's a very different set. There what you're really trying to do is trying to create the maximum amount of value for people on that platform so that they choose not to switch off of it.
Morgan Brown (27:56):
So one is counter positioning. The second is the switching cost. The hope is that you are so successful running your business on Shopify and it works so well for you, that there would be no reason to move off of it.
Morgan Brown (28:08):
I think other interesting things are kind of the network effects like we already talked about with app developers, the experts, the agencies, and that type of thing creates this ecosystem of extensibility and expertise. That is really self-reinforcing. And then branding, I think for sure, like you said, we are kind of the category leader of an emerging category. And one of the early goals of Shopify was could they make Shopify as a Google trend, trend higher than just eCommerce generally. And it was like an explicit goal to try to make Shopify more familiar than even the term eCommerce. And so branding plays a big part of it.
Peep Laja (28:46):
So are you tracking a share of search or what's the metric there?
Morgan Brown (28:52):
Yeah. We track share of search, share of voice for sure across a bunch of different things. A large number of Shopify stores come from other merchants referring us, which is really kind of the big metric to kind of track. And so that merchant referral rate is a very big part of it. We do quarterly surveys out to our merchants and out to entrepreneurs in general to try to understand what they know about Shopify, what their sentiment is to Shopify, has it gone up or down? What are the things they associate with it, if they're aware of the brand and that type of thing, all to try to keep an eye or understanding on that.
Peep Laja (29:28):
I can't say that I am able to describe what a Shopify brand is. I'm not a merchant, obviously. So how are you thinking about the Shopify brand and how would I know distinctly that it's you and not another.
Morgan Brown (29:42):
It comes down to that merchant obsession and there's a few kind of key pillars in there. But if you think of Nike's mission statement, or one of their core taglines is that Nike is built for athletes, right? And then they have an asterisk next to the word athletes and they say if you have a body, you're an athlete. And Shopify is merchant obsessed, it's built for entrepreneurs, anyone with a brain can be an entrepreneur. If you look at some of the stuff that our brand team has put out, the year in review, and some of the videos that we put out, it's very much in the corner of entrepreneurs, it's creating access to that at economic independence that is the brand positioning.
Morgan Brown (30:25):
So here's access to something that was inaccessible before. Shopify is fully on your side. We're only successful if you are, we don't have an extractive business model. We make money when merchants are more successful. It's not like an advertising model. It's not some other are kind of adversarial business model types, it's fully aligned. And so I think those are the main things that go into the value of the brand. And then there are a bunch of offshoots of that, but that's the main thing.
Peep Laja (30:55):
Awesome. Thank you so much, Morgan, for coming on and shedding some light on how Shopify thinks about competing and winning.
Morgan Brown (31:02):
Cool. Thanks Pat. Thanks for having me.
Peep Laja (31:08):
So what are the key factors that separate Shopify from their competition? One, to make entry as accessible as possible to encourage new business.
Morgan Brown (31:15):
If you look at some of the stuff that our brand team has put out, it's very much in the corner of entrepreneurs, it's creating access to that economic independence, that is the brand positioning.
Peep Laja (31:27):
Two, they encourage an active community of developers to make apps and new functionality for the platform.
Morgan Brown (31:32):
You get this really powerful flywheel of more people contributing to the ecosystem, which creates a stronger product offering, which creates a more compelled product to try and use and stick with.
Peep Laja (31:46):
Three, they're not resting on laurels. They don't assume they will stay on top.
Morgan Brown (31:50):
The whole idea of being at the top for many, it ends up not being true for a very long period of time. It's still very early, especially in that infinite game.
Peep Laja (31:59):
A final takeaway from Morgan.
Morgan Brown (32:01):
It's still very early days. And I think even in the last year, the eCommerce category grew as much as it had in the previous five to 10 years.
Peep Laja (32:10):
That's how you win. I'm Peep Laja for more tips on how to win follow me on LinkedIn or Twitter. Thanks for listening.
