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1 Thing Shopify Does Right

By Brian Withers - Updated Aug 14, 2017 at 5:12PM

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Shopify has survived to become a teenager by asking a simple question to help prioritize its development efforts.

Running a small business is hard. The Bureau of Labor statistics reports that almost half of all small businesses fail within five years, and two-thirds fail within 10 years. Shopify (SHOP -1.37%), the end-to-end e-commerce solution for small businesses, is now officially a teenager and has defied these odds. One of the key reasons Shopify has been successful is its ability to prioritize and focus on features that most merchants use, most of the time.

A young woman business owner dressed casually with knit cap in her rustic looking store of clothes that match what she's wearing.

A Shopify merchant. Image source: Shopify

Most merchants, most of the time

Tobi Lutke, CEO, and founder of Shopify, said that "Startups... never end up dying because of starvation, they always die from indigestion, they always eat too much."

Lutke goes on to explain that it takes incredible patience to focus on one thing, get that done, then move on to the next thing. If start-ups get distracted, that's when they stop doing the important things and "indigestion" happens.

Lutke recently talked to the Motley Fool and discussed the company's guideline on how it decides to work on a new feature. He used the example of when Shopify decided to put efforts into developing its mobile platform.

But that [Shopify on mobile] became so clearly a feature that most of the customers needed most of the time, which is, that's our internal test, when something clears this line of -- do most of our customers need it most of the time as a feature -- then it becomes something we're going to integrate into the core.

Shopify's mission is to make commerce better for everyone and has over 500,000 merchants on the Shopify platform, in 175 countries. Keeping up with the multitude of merchants is a tough task and the company could easily get distracted and try work on too many things. When I spoke with Shopify's director of investor relations, Katie Keita, she explained that the company uses its massive amount of customer data to help guide decisions on what features are needed to help its merchants be successful.

But the company has another defense mechanism against "indigestion," a partner network of developers creating individual apps for Shopify's customers.

Shopify's app store

In 2009, Shopify announced its app store for merchants. At the time, Shopify was serving only 5,000 merchants and even then the company was realizing that different merchants wanted different features. The company knew that incorporating all of these features into its core product would be counter productive for the company and its users. Lutke explained this in the announcement for the app store.

Every store wants to offer a unique buying experience but providing too many features makes the software cumbersome and difficult to use. The Shopify API solves this by allowing merchants to install exactly the features they need to get the most out of their store.

Fast forward to today with 100 times the number of merchants on its platform, the app store has served the company well. Shopify has over 1,800 apps ranging from customer service apps to social, inventory, and more. Shopify treats its developers as true partners and lets them keep 80% of the revenue from the apps they develop. As a comparison, while Apple's services revenue is soaring, it only pays its app developers a 70% share of the revenue.

Prioritization in practice

In April of this year, Shopify announced a credit card swipe and chip reader that it developed in-house for its merchants to use for in-person selling. While this seems to be a divergence from the company's core competence as a software developer, this product aligns with its mission of making commerce better for everyone and follows the company's prioritization guideline.

To meet the growing demand, in 2013, Shopify released point of sale (POS) software for its customers to be able to sell their products in person but relied on third-party credit card readers.  With a software solution for POS in place, the company could track merchant usage of the in-person feature, which helped the company gauge the potential use for a card reader. Satish Kanwar, Shopify's vice president of product, said the company had learned a lot from merchants as they used the POS software and that the retail store was "a necessary part of the growth and evolution of any retail brand, whether you started online first or not." This certainly aligns with the company's prioritization mantra.

When Shopify opened its first store, the odds were against the company surviving. Its ability to prioritize and focus on developing features that most merchants use most of the time has enabled it not only to survive but to scale its business to serve over 500,000 merchants today.

Brian Withers owns shares of Shopify and Apple. The Motley Fool owns shares of and recommends Apple and Shopify. The Motley Fool has a disclosure policy.

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