Masters of Scale – Reid Hoffman: Shopify’s Tobi Lütke
The secret to massive scale? Be a platform. Build a virtuous cycle where everyone wins, and you’ll emerge the biggest winner of all. This is what Tobi Lütke did when he built Shopify – and then opened it up to the world.
Become a platform
- To achieve massive success, businesses should become platforms by opening up parts of their business and letting others build with them, rather than obsessing over beating competitors and maintaining market share.
- Building a platform requires patience and solving important problems. Success is measured by revenue generated by third-party developers, not the company’s profits.
Solve a real problem
- When starting a business, focus on solving a problem, even if it means creating your own solution. Success can come from unexpected opportunities and being open to learning new skills.
- Identify the common 80% of industry needs, focus on building that, and allow outside developers to create specialized apps for the remaining 20%, to avoid feature creep and create a successful product.
Collaborating with developers
By encouraging third-party developers to create apps, platforms like Shopify and Eventbrite are able to quickly respond to user needs and create more value for everyone using the platform.
Shopify’s platform thrived outside of Silicon Valley by focusing on commerce and building a foundation before going public. Their diverse range of merchants and core product attracted developers, with room for expansion in many categories.
The story of an overconfident lemonade stand owner and the lesson of platform building
In the book Blitzscaling, the author Reid Hoffman shares the story of Archibald T. Whinnymaker III who started his own lemonade stand as a child and eventually built a successful nationwide chain by solely selling his Whinnymaker brand.
However, his obsession with beating competitors and maintaining his market share led to his downfall when a platform called Loretta Lovegood’s Open Emporium entered the market and allowed independent merchants to sell their own lemonade and cookies.
Hoffman advises businesses to become a platform, building a virtuous cycle where everyone wins, to achieve massive success. This means opening up parts of your business and letting other companies build with you.
What we did to get the platform off the ground is to basically leave all the economics for Shopify on the table and give it to the third-party app developers. It just started out – and to this day – is an incredibly valuable platform to build on for other people.