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35 UNDER 35

How Shopify Got the World's Online Cash Registers Humming

The co-founders of Shopify designed an internal solution that became an external sensation.
Tobias Lütke (left) and Daniel Weinand (right) want to link all aspects of online and brick-and-mortar shopping into one seamless experience through Shopify.

Editor’s Note: Vote for your top pick among Inc.'s 35 Under 35 Coolest Entrepreneurs of 2014. Inc.com announces the Readers' Choice winner Thursday, June 26.

Sometimes the best business ideas come from solutions to temporary problems.

So it was for Tobias Lütke and Daniel Weinand, who inadvertently co-founded Shopify in 2004 because they wanted to sell snowboards and other winter gear from their online shop in Ottawa.

Both computer engineers from Germany, Lütke and Weinand were totally disappointed by the suite of tools available to them to build an online presence for their store, as well as to sell and keep track of inventory.

So they built their own software and soon attracted the attention of other business owners who liked the software's simplicity and the way it connected so many key features, such as point of sale, cool website design, and low cost. At the time, the alternative was costly software from vendors who charged tens of thousands of dollars.

"We had a long time to spend thinking about what it would be like if the company became big one day," says Lütke.

Flash-forward 10 years, and Shopify has more than 100,000 customers in 150 countries powering their businesses on Shopify. Collectively, those stores logged about $1.6 billion in sales through the platform in 2013.

One reason Lütke and Weinand are so successful is they've designed a simple, affordable one-stop shop that lets entrepreneurs design their online stores but also facilitates sales in brick-and-mortar stores by turning an iPad into a point-of-sale machine. It further integrates front and back operations with accounting software and inventory management. The two sell their product as software as a service, for $29 to $180 a month, plus fixed fees from 2.15 pecent to 2.9 percent.

After years of running a profitable business, Lütke and Weinand switched gears in 2010 to grow faster, including hiring more employees, tackling a burgeoning international market, and offering a point-of-sale product. They quicikly attracted more than $122 million in venture money from Bessemer Ventures and Omers Ventures. The investments give the company a valuation of more than $1 billion.

Shopify has competition from the likes of payment processor Square, other startups like Shopkeep, and even tech heavies such as Amazon, Yahoo, and Google, which also want to help small-business owners set up websites. But according to Ross Fubini, partner at Canaan, who has invested in the space through competitor Shopkeep, "this is a huge market, and everyone, from the yogurt shop to the bait-and-tackle store to therapists, is going online for global customer reach." So there's plenty of room for growth and for multiple players.

But there are challenges, particularly as consumer shopping moves to mobile devices, and service providers like Shopify need to figure out how to meet the new needs of sellers. In January, for example, Shopify released its mobile application, which lets consumers take payments on iOS phones and synchs payment information with back-office functions such as order fulfillment, accounting, and other store information. The company is working on a similar service suite for Android devices.

"It's a new world of consumer behavior and corresponding need for tools for [small and medium-size businesses] which are simple, and simple to pick up and use," Fubini says.

That doesn't worry Lütke and Weinand. They already know that.

"Commerce follows the latest trends extremely closely, and a company that enables commerce needs to be extremely nimble and innovative in implementing sustainable technology," Lütke says.

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IMAGE: Courtesy Company
Last updated: Jun 24, 2014

JEREMY QUITTNER | Staff Writer | Staff Writer, Inc. and Inc.com

Jeremy Quittner is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.




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