The Success Story of Shopify: Lessons learned for SaaS Businesses

June 17, 2024

May 25, 2021

•

6 min read

It’s not an exaggeration to say that the 21st century is the age of technology and digital transformation. Software as a Service (SaaS) companies are emerging as optimal solutions for the burgeoning e-commerce industry.

Regarding the cyber-commerce and SaaS model, Shopify could be the greatest success at the present. From a shoestring operation 17 years ago, this e-commerce platform has grown to a juggernaut, one of the largest, best-in-class for online merchants. Its current worth, as of May 15, 2021, is somewhere at $133.58 billion.

Shopify didn't have a big start but it has been leaping at an astounding pace thanks to appropriate strategies. The company set a very good example for SaaS start-ups or any growth hackers in the field of technology.

Therefore, today we will walk you through the developing history of Shopify and give you some best practices the company is applying to thrive in the long run. Without further ado, let's dive into the Shopify success story.

The development of Shopify: From an online store to a giant commerce ecosystem

Unlike other giant e-commerce businesses born in the Silicon Valley, Shopify took root in Canada, seeded by a German migrant named Tobias Lütke. However, the early days of Shopify didn't resemble what it is now.

A humble start

At first, all three co-founders of Shopify had no idea of how to build a platform. Instead, they wanted to find e-commerce software so they could open an online store for snowboards in 2004. Lütke had tried the best of the best available on the market at that time, including Miva, OsCommerce, and Yahoo stores. Still, he found them all to be not user-friendly, hard to customize, and expensive.

With technical expertise on his hands, Lütke decided to build his own solution with two other friends, Scott Lake and Daniel Weinand. The snowboard website came out later with the name “Snowdevil”.

The design of “Snowdevil” at that time was outstanding. (Source: E-commerce News)

Starting as merchants themselves, the Shopify founders can resonate with store owners when they face difficulties in opening an e-store. This is also the foundation for the “merchant-first" approach that keeps the number of Shopify subscribers growing more and more.

“Snowdevil" did make money but it was more well-known among the developers' community. Therefore, in 2006, the founders released the very first official Shopify version with customizable templates, order tracking based on an RSS feed, and an automated inventory system. It also featured fundamental functionalities such as image uploading, tag editing, and item grouping. A PayPal or credit card processor integration was used to process payments.

The initial design of Shopify with a very basic interface (Source: Product Habits)

During its first year, the company made around $8000 monthly, not an ideal number for a unicorn start-up. Moreover, most customers were from the Rails community, which was the open-source web application framework that Shopify was built from.

The CEO decided to make a complete overhaul in 2007. Shopify went from charging fees per purchase to subscription-based pricing with a small transaction fee. This change opened up a series of important landmarks of Shopify in the next decade.

The turning point

Shopify continued to thrive as an e-commerce tool after the pricing change. The customer pool grew larger and the head of the company saw an opportunity to make a big leap.

In 2009, Shopify officially released an API platform and Shopify App Store. This service launch successfully transformed Shopify from a single tool to an all-rounded platform. The target audience of the company is not only merchants but also technology experts, app developers, agencies, and affiliates in e-commerce.

Shopify App Store of early age with a handful of apps (Source: Shopify Partners Blog)

One year later, the SaaS rocket received $7 million in funding raising Series A. The company was, at that time, backing up more than 11,000 online stores and its revenue was more than $125 million.

The fundraising success of Shopify continued with a $100 million investment from OMERS Ventures and Insight Venture Partners in 2013, one of the biggest venture capital investments for high-tech companies in the 2010s.

With such a huge amount of capital, Shopify continually introduced new products and services including:

Shopify mobile app on iPhone: allowing users to set up, make small changes to their products and inventory on small screen devices
Shopify Experts: a community of developers to help merchants set up and customize their Shopify stores
Shopify Plus: a solution for enterprise-level businesses with exclusive access to top-quality apps, professional community, and dedicated resources.

The e-commerce ecosystem continued to complete itself with the launch of Shopify POS, Shopify Payments, and Shopify Fulfillment.

Shopify App Store, one of the milestones of Shopify international expansion, grew rapidly from 100 apps in 2013 to 2000+ apps in 2018. On average, Shopify merchants were using at least 6 apps to support their online business.

Shopify App Store becomes an integral part of merchants' growth. The UI/UX of the app store has changed several times and it is neat and clean now.

Since the significant pricing change since 2007, the company has grown up to be a billion-dollar business with a strong liquidity profile of $2.36 billion and a 47% YoY increase in revenue in the first quarter of 2020.

The high kick of COVID-19

With the global pandemic and all the lockdowns, social distancing orders seem to pose a negative impact on enterprises all over the globe. However, this is not the case for Shopify. The COVID-19 outbreak has pushed regular businesses to join the online community. Most of them are SMBs with little understanding and resources for a digital transformation. This happens to be the main target audience of Shopify and the company has benefited greatly from the pandemic.

In 2020, the number of new stores created on the platform skyrocketed by 71% in the second quarter compared with the first. Revenue surged to $375.0 million in the second quarter, up from $204.8 million in the year-ago quarter.

The market capitalization value of Shopify has soared since 2020, the beginning of the COVID-19 pandemic. (Source: Companies Market Cap)

The upward trend continues and accelerates with several waves of the global pandemic. Shopify celebrated the new year of 2021 with glorious results. As of the end of 2020, the e-commerce platform was:

hosting more than 1.7 million merchants (it outpaced the total number of BigCommerce’s and Magento's merchants by 5x)
having nearly 4,800 apps in Shopify App Stores
generating almost 1 billion in total revenue

Is this just a pure stroke of luck that makes Shopify so successful for a SaaS business? What are the secrets of Shopify’s remarkable achievements? And what can other SaaS companies and start-ups learn from them?

Let’s uncover the success story of Shopify now.

What can SaaS businesses learn from the success story of Shopify?

Customer-first approach from the beginning

Since its early days, Shopify has been keeping its primary focus on merchants. The niche of this SaaS company is small and mid-size businesses with little to no technical skills and limited resources for a grand online transformation. Shopify offers a single simple solution for tech dummies to make their appearance online.

“Our singular focus is on making entrepreneurship easier, and making it easier for entrepreneurs to succeed.” - Harley Finkelstein, Shopify’s President shared.

Merchants on Shopify can operate their businesses on a single platform and sell online via a website, social media, and/or on marketplaces as well as in person with its POS systems. It’s a holistic ecosystem, which gathers almost everything in one place for customers.

The business model of Shopify is aligned with the prioritized focus: helping merchants become successful.

The subscription-based pricing system with a minimal charge on every transaction encourages stores to sell more online. Shopify merchants are hosted on Shopify servers (unlike WordPress with its self-hosting option). The fully hosted option of Shopify provides support, maintenance, and guarantees security for its customers. All are included in the plan pricing. Novice merchants don't have to pay attention to the hosting fees or bandwidth upgrades, which usually increase as the business grows. This sets the foundation for relationships with extremely new sellers.

Shopify highly values its relationship with merchants. The ecosystem is built around this core.

Many supporting services, such as Shopify Experts and Shopify App Stores, are introduced to make it easier for non-tech-savvy merchants to set up and run their e-business. The company also monitors the third-party services regularly to make sure all the experts and the apps available are high-quality. They will send email warnings to apps that show any indication of slowing down merchants' sites. Apps that keep getting bad reviews get lower rankings and some cases are even unlisted or completely removed.

To assist small operations, especially with the onset of the pandemic, Shopify opens Shopify Capital that offers small business loans. The advantages of reduced application processes, less paperwork, and credit checks help entrepreneurs receive funding quickly. During the peak of the pandemic, Shopify extended the trial period from 14 days to 90 days. This gives customers more time to explore the system and make a better decision as to whether moving online is a good option for them. Also, Shopify has built dedicated resources for COVID-19 with all the best practices and guidelines that retailers should be aware of.

Continuing efforts to optimize the offerings

Year after year, we keep watching new releases from Shopify. The offerings of Shopify now are a sophisticated ecosystem that blossoms annually.

In the annual Shopify Unite events, the audience finds out the latest updates of the platform and catch up with the latest trends. In 2020, Shopify initiated selling internationally with local domains with multi-currencies support in Shopify Payments. This is a great follow-up for globalization and localization.

Shopify Unite is a huge annual event where Shopify gives updates on new features and upcoming changes for merchants and partners (Source: E-commerce Magazine)

With the rise of Tiktok as a strong force in the race of social commerce, Shopify quickly formed a strategic partnership with this video-sharing network. The arrangement helps Shopify merchants to develop, run, and optimize TikTok marketing campaigns directly from the Shopify dashboard by downloading the latest TikTok app from the Shopify App Store.

Regarding Shopify Partners (app developers and experts), who mostly work with Shopify API, the company updates its library and releases new API regularly. There are also detailed guidelines together with inspirational stories shared on Shopify Partners blog which give developers more insights about Shopify apps and encourage them to build and submit their own app.

The UI/UX of Shopify itself is regularly enhanced with updates in Shopify Polaris. It is a design system that helps to build a consistent experience for all merchants across all disciplines.

Balance the benefits of different groups

As can be seen, there are 2 major audience groups of Shopify: Merchants & Partners. Sometimes, there are conflicts of interest between these groups, but Shopify is good at creating harmony for both.

To humanize the relationship between merchants and partners, Shopify opens and manages a myriad of forums, aka the Shopify Community. Here customers can raise questions for all developers and experts to discuss. On the other hand, Shopify partners can build trust with potential customers by giving answers, expressing their ideas and solutions in the discussion thread. There are also some Slack channels with a more private approach to enable merchants and experts to have 1-on-1 conversations.

Shopify Community is engaging more than 800,000 merchants and partners in meaningful conversations.

Shopify apps are vital for the growth of an online store, so the company always tries to motivate developers to build better apps. It creates a transparent, growing, engaging ecosystem between partners. There are standards an app needs to meet to be able to show up in the app store. If any apps are showing suspicious signs, such as copycatting, they will receive adequate punishments. Some apps have been unlisted for several months due to security breach. In the worst cases, a complete removal has happen a few times.

More than financial benefits, Shopify brings its partners appropriate credibility, intimate connection, and a supportive network.

In addition, the company encourages merchants to use apps listed on Shopify app stores. The platform itself doesn't build many apps, so merchants will find a lot of choices to activate Shopify functions. For example, to enable multi-language settings on Shopify, customers need to install a multi-language app among various options available in the app stores.

Also, some functionalities of Shopify are made simple for the sake of customizability. Therefore, it's up to the users to modify them so that they work smoothly. Usually, there are 3 options:

Merchants edit the coding on Shopify Liquid themselves. This is impractical for non-tech-savvy users.
They can also hire a developer, who can be picked from Shopify Experts. As they are familiar with Shopify coding they have a big advantage.
Or they can choose an app from Shopify app stores, which is easy to use and transparent in information and reviews.

All options are beneficial for Shopify Partners, who are tech experts and app builders.

Strategic planning is of the utmost importance

To build and maintain such a great SaaS empire, Shopify co-founder, Tobias Lütke, highly emphasizes the essence of long-term planning. He recommends these steps to build a feasible strategy for SaaS businesses:

Choose the metric to focus on depending on the stage of your company and what you’re trying to accomplish (Shopify’s compass metric is Committed Monthly Recurring Revenue - CMRR)
Choose a time frame that allows for a tight feedback loop
Keep your team informed of all the planning

To achieve the proposed CMRR, Shopify top leaders apply the following framework to clarify what's next in their strategies:

What is your product’s value proposition, and what is its time to value?
What is the competition like in the space?
What is each of the target customers worth? What is the potential market value?
What is the quickest way you can help your customers win?

Advice from Shopify General Manager, Brandon Chu: “Your goal with prioritization is to always be doing the work that maximizes customer value created over time”.

Relentless prioritization of products can be done by estimating two data points:

the amount of customer value that will be produced
the amount of time it will take to finish the project

Metrics to prioritize company activities in Shopify (Source: Black Box Of PM)

Company culture is never overlooked

Though Shopify is in its bloom, the company never wants its people to burn fast and bright. Personal life and team bonding are at the same level of importance as other financial metrics. “Instead of hiring for 18-month stints, Shopify aims for 10-year retention.”Inc. magazineexplained the internal success of Shopify.

Interestingly, there is a usual position inside this SaaS corporation: Director of Culture. It aims to span the company culture to multiple offices through the activities of the culture team. Konval Matin, who previously held this position gives more details about her team in an interview: “The team helps bridge the gap between the executive team and the rest of the company, making sure everyone is aligned”.

Konval Matin was the Director of Culture, a unique position in Shopify (Source: Sprott School of Business)

The company culture of Shopify is defined as “the sum of every single individual at Shopify”. All contribute to its creation, and whether people leave or join, their actions have a significant effect on the community.

To nurture the company culture, Shopify creates an internal ‘default to open’ environment where employees of all levels can easily reach out to line managers. New members have personalized onboarding flow so they know what to expect, and how to succeed at Shopify.

To keep a strong connection with employees and promote collaboration with other teams, Shopify members tend to use the following apps:

Spreadsheets and other Google online office is recommended for planning
Slack is the best for team communication
Google Hangouts helps to connect to the rest of the team in other offices
Day One works a journaling app for note-taking
Trello is good for projects tracking

In conclusion

Shopify success story is the result of proper effort distribution for its products and services, for users and partners, for planning as well as team building. SaaS companies can learn a lot from the model of Shopify so they can thrive in the fast-paced technology world.

Boost Commerce also gets a lot of inspiration from the success story of Shopify. We are building a strong team with close ties, offering the best product filter and search solutions with top-class customer service. We also welcome other app developers and affiliates to join our partnership program. Check it out here if you are interested. See you soon!

Ellie Ho

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Content Marketing Specialist

May 25, 2021

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6 min read

The Success Story of Shopify: Lessons learned for SaaS Businesses

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