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Shopify's Tobi Lutke: The VCs Who Passed Were Right. They Just Missed One Thing.

By Tobi Lutke · Investing · 1 min read

VCs said the market for online stores was too small. They were correct. What they didn't realize: Shopify was the solution to that exact problem.

Key Points

In 2008, there were only 40-50K online stores. VCs said the market was too small.
They were right — but Shopify was the reason the market was small
Friction between demand and supply shapes the planet more than people realize
Every time Shopify made setup simpler, more stores appeared

The reason there were only 40,000 online stores is because it was hard, expensive, and everyone who tried ran into brick walls of complexity.

The VCs Were Right

In 2008, Tobi Lutke was on Sand Hill Road pitching Shopify. The VCs looked at the numbers. About 40,000-50,000 online stores existed. Even at 50% market share, the business was too small. They passed.

Years later, one of those partners asked Lutke: what did we miss? Lutke's answer was devastating. You had it right. The market WAS small. What you didn't realize is that Shopify was the solution to the problem you identified.

"The reason there were only 40,000 online stores is because it was hard and expensive. Everyone who tried ran into brick walls of complexity — which Shopify smoothed over one after another."

The Most Underrated Force on Earth

Lutke believes friction is the most powerful force shaping the planet. Politicians say we need more entrepreneurs. Their solution: incentive packages, accelerator funding. They try to increase demand.

But demand was never the problem. Millions of people wanted to sell online. The friction in the middle was the problem. Every time Shopify made the process simpler, more stores appeared. Today: over a million merchants.

"Friction is probably the most potent force shaping the planet that people just don't acknowledge. The demand is already huge. The friction in the middle is the problem."