This is the network State podcast and I'm here today with Toby lucky and kazden jadian, the CEO and CEO of Shopify, one of Canada's largest companies. Shopify is internal economy is actually on the scale of a small country, on par with Greece or New Zealand, depending on how you calculate.
They have solved many different kinds of management and technical issues in order to build a company that has such a scale, and we also get into what kind of small country they would build if they had the opportunity. Along the way, you'll learn a bunch of things, including how Shopify is building something that's like a new kind of hanziatic league, as well as what the Honda League actually was. That kind of thing interests you. Let's get started. Thanks, thanks for coming on.
This is the second episode of the network State podcast, this new podcast on everything from you know, obviously starting new countries, but all the people like yourselves who have built startups that are on the scale of small countries and Pro-Tech policy makers and everything that's religious kind of building the future- and my first guest was vitalik, a fellow Canadian founder, and you guys are my, my second, so you're basically the kind of people who've literally built giant economies, okay, and you know the goal here is something where you know there's there's some good Tech podcasts, but actually those Tech podcasts are often, you know, they're they're focused on the business of tech and so on, and that's fine and that's good.
You know, prices are important or what have you, but price is always being secondary to why I've been in the space, since being secondary, I think, to you know, you guys, like you know, we're doing it for, for building something of meaning, and so that's kind of what I wanted to talk about today. So that is sort of Preamble. Of course I can ask you guys about your background and all that type of stuff, but we can kind of like hook it to that Vector of you know we've built giant, you know companies and giant communities, and what's next is the end of the internet just coins, or do we have one more level? Could we get to cities or even new countries and so on? Right and for you know, everybody you know has probably heard of Shopify at this point. Toby, you're the CEO Cas, you're the relatively new CEO, right, you've been with the company for a while, but you just recently became CEO. I'm remembering that, right, yeah, I'm, I think, five months into the job. Well, but you, being with Shopify for a while- yeah, but four years- one thing I just kind of wanted to do for folks. People have heard of Shopify now. It was Canada's largest company. It is still one of Canada's largest companies.
You've built an economy that's on the scale of a small country, and what I want to talk about today is what it means to manage something like that. And could we go one step further to actually maybe even starting a small country or a small city? And what would the next step be? And what have you learned from what you've built?
And so, just like you know the scale of the Shopify economy: there's millions of merchants, billions of dollars built from scratch, their stats and your SEC filings or stats on your website. Millions of merchants you have. Your Merchants have millions of employees. Do you wanna, do you have some stats that you want to Rattle off? Yeah, I mean, I mean you, it's funny to think about Shopify as like a, as a small economy it's.
This is definitely sort of a mindset we should take and the like we should. We should explore that angle. Obviously, like it's, it's funny to think about this because at some point- I you know- it's snowed. Like 19 years ago I wrote the first line of code on the Ruby project and then a long way it's like collected. You know people who joined the team and then eventually it got a ticker symbol and now it has obvious, like various institutions along along the way, the millions of merchants are partaking in the global network of Commerce and Global economics.
That says there's also internal economics around. You know, where there's a theme store, there's an app store inside of Shopify, there's like a developer Community Building against that and increasingly, I think it's a really, really good way to look at everything because it's a big. It's a large exercise in, you know, creating incentives for people to, you know, like, harness people's enlightened self-interest to for the betterment of the entire community and so so there's definitely Echoes of economics and like in the company. But, yeah, like it's. It's hundreds of millions of people buy from Shopify stores every year. If there's overview of estimating, around 5 million people are employed by the app developers, by the, the stores themselves. Also good jobs. One thing that almost everyone forgets in the context of economics and is that the vast majority of people in the world work for small, medi businesses. It's- it's depends on the country, but it's usually.
It's always above 50, it's usually as high as 80, 90, and that entirely depends on the liquidity by which new businesses are created, because new, like small businesses tend to go out of business, for often for no fault of their own. Like, like, like circumstances, with the people who run the businesses, the family changes that might be, you know, a tragic death which prevents any kind of continuity of a business that was created because it's so much, so much. These small businesses are built around their Founders. In most ways it's a leaky bucket and I think the vibrancy of almost every economy depends on how quickly the slicky bucket is being refilled and and Son Of Living tends to go up if.
If a bucket is filled faster than you know, it leaks out. This is what we care a great deal about, right, like we think that the world, especially the world of Entrepreneurship, is this sort of meta-emergent phenomenon that just exists, partly because some people just cannot work for other people. There's, there's probably some kind of Gene that prevents people like that, gives people The Authority, problems, that that, but necessitate them reaching for independent themselves.
This has been true for all of human history. It sometimes it becomes a little bit, it becomes illegal in places, and both places don't last. So it's, it's this like if the, the fate of entrepreneurs is, the is a bit of a where's waldor story throughout human history. It tends to be not recognized or not talked about a lot but, like it's, it always plays a very important role, and so you know. I think what Shopify is trying to do and like in a sort of somewhat hyperal way, is: we believe that we, the entrepreneurship and economies actually relates a lot more to the friction of starting businesses than their policies, because there's the, the demand for doing it and wanting to do it is constant. The opportunity is variable, but we're living in a type of enormous opportunity around the internet, and the thing that's governing supply and demand there, like, like, the thing that's preventing business from succeeding, is often just visit Byzantine- almost Kafkaesque complexity of starting these businesses or the set of requirements that that the medidictates like, for instance, I started my snowboard store, which which worked well for me because I could program and I like 20 years ago and I understood the internet and so on, and therefore I could overcome the hurdles in a way, but I I don't think we want an internet where the only people who can start new businesses in retail space. Other people also happen to be programmers and so Shopify is trying to like less learning, like the learning curve. It just just cause more entrepreneurship through. This is the interesting part of the country is biology, which is like Toby and I are both immigrants and the way I think of Shopify entrepreneurs is that there are immigrants from big companies.
They're people who left big companies saying: I can't work here, let me start something on my own, which is like an interesting story of like my family did, like can't sit here anymore, gotta go somewhere else. And if you add the collective revenue of Shopify Merchants, that's 444 billion dollars last year as the second largest company in the world. Their Collective Revenue- and it's an interesting thing about it- becomes that like our job is to make that immigration pattern easier, like if you think of like people who left on the may, like come to Mayflower, like that was a really long journey. Some came, but not a lot, and a pattern of immigration got faster and faster so people could emigrate out of things they didn't like into things they did like, because just travel got easier and our job at Shopify is to make that Journey from a job you don't like to a job you love may be difficult, but you'd love it easier. Well, it's really interesting because something I've thought about- and you are maybe the experts- and there's a question I've always wanted to ask- is: you know, there's this concept of a so-called lifestyle business, right, where you know it's not really swinging for the fences, you're just kind of having fun running your cuff shop.
But anybody who's actually run a small business finds it's not a lifestyle business, it's your whole life. You know, right, it's it's as hard as running like a big company, but it's harder because you often can't get Venture Capital. You don't have the support of some you know franchise, like all the Starbucks franchisees. They don't have to deal with branding, they don't deal with marketing, their products are set for them. They have to negotiate with vendors. Basically they have some buffer because you've got this giant chain that is backing them right. What I saw, especially during covid, with lockdowns and so on, is many of these small businesses just went under. For example, in San Francisco, even even in normal times, like there's some ice cream shop that's spent like two hundred thousand dollars trying to just get through the right regulations and then just stopped.
Now, not that many people have 200k in disposable capital and to put that into just regulation and so on, before you've sold your first ice cream cone is actually kind of bananas. I thought about that because on the one hand, as you say you know tobia and Castle- is that you know people are want to do this and we depend upon new businesses and small businesses, not just everything being scaled on their hand. It's really hard to do that and that pushes people. I see this in medicine also. You know the independent practitioner. There's so much regulatory complexity that they're pushed into being an employee of a large Hospital chain, right, or or maybe they go and work in Pharma or something like that.
So between that thesis of like I want to start a small business or run a small business, and the antithesis of all this regulation is becoming such a, you know, frictional cost. As you said, maybe Shopify is the synthesis where you are like a, like a centralized Hub of this Hub and spoke Network and you provide- you know currently provide- obviously- inventory and Logistics and pricing. More recently you've done Banking and taxes. Maybe eventually you do compliance as a service and you file all these forms for people in different jurisdictions and keep them compliant so they can just focus on customer service and so now they're not wholly, you know, just on their own, but they're also not like fully dependent. You know, if they, if they, really want you, they could unbuckle from you guys and go somewhere else. You wouldn't want that, but you know they could. And the other thing is that, like the, the Shopify Community, just like Founders tend to, you know, tech companies tend to have similar things and stick together.
It seems like a lot of your Merchants would have a lot in common and like organizing them would be really pretty, pretty interesting. So, like citizens of Shopify or what have you- let me pause there- get your thoughts on that. I think that you you touch on like many things there, but maybe one thing to like just like underline partly because it's sort of one of my pet topics- is it's just the concept of Lifestyle business. Like the term lifestyle business is like a constructive Silicon Valley, right, yeah, it's actually like pretty mean because it's. It really is like I don't know how we renamed businesses to Lifestyle businesses just so we could call Ventures businesses and and how this succeeded.
It didn't come out of like rails or whatever they were like. Oh, your business doesn't have to like like. I thought it wasn't. It wasn't it something out of base camp? Didn't they come up with the term? I don't think it actually originated from Silicon Valley. Am I wrong about that? Interesting, my friends have fun. Sickness might have done done it to us, and okay, so maybe without laying the blame at anyone's doorstep, it is a pretty funny thing because, like you know, like businesses were around for a long time and we didn't call him lifestyle businesses.
It's I, if anything like if you, you're looking at sort of a techie path of businesses which is like you, you, you. You start a business by an application to Y combinator, you get all this teaching and then afterwards people give you money. But that sounds a lot more like silver spoon businesses to me than and and like what, what entrepreneurs and smps do, because that's a lot more hardcore. So I mean this is the greatest thing about like, I think I mean you have a greater privilege. We have Shopify. Specifically is that we, you know, like I, I talked to hundreds of our customers through instant message and so on, and our customers are entrepreneurs, right, like it's, like there's everyone who knows founders of companies, who, who build things knows how, like, like a- it was a very exciting people like maybe, yeah, hit her dog's fingers- who just don't take you know no of an answer, and like, like, make things happen and it it's really, really great. Like you know, I think everyone ends up becoming sort of for the average of the five people they've spent the most time with and like if you, if you can load that number up with as many entrepreneurs and Founders as you can, and that goes really really well for you and I think it inspires everyone.
And so it's interesting because when Shopify started, it was extreme. Like like actually like the first version of after launch had in the admin interface, because back then, like this is 2006, right, like this is like a stone ages of the internet, but or at least the software as a service World, like no one knew what is what you put into an admin interface and what you don't, so so we actually had like forms right built into the admin, like this was one of the main tabs in in in Shopify and no one used it. And in fact, everyone was like why is this there? Clearly I don't want to talk with my competitors, so you know, sort of at the beginning there was a very clear everyone was thinking about the world of retail as a zero-sgame and as a rival over a sphere or competing for the same dollars. I think one thing that has happened is, I mean, the physical world is permeated with serious. I'm thinking because it sort of makes sense and in a lot of ways, like, like only one businesses can be in this particular place, in this particular street, right, like there is a lot more rivalry for finite resources. I think, like the online world hasn't attracted the positive. Some thinkers, people build internet businesses in in in in that realm and you know, like you know, this legal Market just wasn't what it was like 20 years ago, which was, you know, yes, people bought sneakers when they had to like ghost play, squash, and you know some people use another fashion statement- but that market grew so tremendously just because people, like created a community of, but people really cared.
The craftsmanship changed with the, the Aesthetics changed and and this is now a very, very large Market where it wasn't before and I think the sort of sense of hey, there is so much more blue ocean opportunity in in in in the world because there's so much, so many more people who would be really into things if a supply would be there and if a narrative in the story is fair, then like it, just it's, it's, it's, it's. It's. Migrated there and and now people are perfectly happy to share. Like it's actually like across Reddit, across like Twitter communities- of course Twitter, of course Facebook groups. It's like it's it's. People are really sharing, people are actually comparing notes and people are super happy to like, help each other in any which ways they can in the SMB Community or in the in the tech founder community. In the SMB Community- sorry, I should, I should say this should- be saying: is there some cross-pollination from sort of the non-zero-smentality of 10 back- well, ideally non-zero, subatalia, Tech into, let's call it, rather than lifestyle, maybe SMB, would you? Would you think it's more neutral term? Yeah, okay, I was a. I was a tech founder, I was a YC founder. I was the type of founder Toby was talking about a second ago and my mom's a shoptime merchant. Oh yeah, so one of the things that happens- I don't think this ever happened transparently when I was in Boise- it's shoptime Merchants build applications for each other. Imagine if a startup found a growth hack and just gave it away. That would never happen, because the growth hack is your growth hack, whereas shopline Merchants will build you, you have a storage run, you build an application to help you with some part of your store and you will literally give it away to other merchants, because I think they've our best.
Merchants have intuitively realized that the goal is to maximize the size of the d2c space, maximize the size of, like, direct connections to customers, which, by the way, they're all like this is why they all love painted magical button on the internet that makes shopping easy. It's because they can all be on the same side of the table against, like regulations demanded from having one click checkout otherwise, right. Well, so I I understand.
There's two really interesting things about that. First, there's, so can you explain, the regulatory barrier to one click. I actually didn't know about that. Well, it was a. There was a patent back, it was patent batting one click checkout for a very long time, right, right, so that part I knew. So you mean patent barrier, but not right. But basically, let's say artificial barriers. No, there's also regulations that have the card networks, have regulations that require you to get audited every X month. Ah, for your Vault. There's, like there's banking regulations, like there's private and public regulations that make the world of Entrepreneurship difficult. Germany actually has laws about check for, for checkout, like actual regulatory, like every button has to say these words in in the process.
This is how you have to represent like. Luckily, they have a reasonably like- they're not a- reasonably well Chosen and and conformed like within sort of a zip code of best practices, and the thing about that is it often codifies a model that becomes obsolete, like, for example, with the crypto payment, you don't need to take their address and so on, and probably it over specifies it to a point that a crypto payment would would maybe not fit into this right, because I have to read them. That's interesting. Yeah, I did know about the patents and the overhead of audits and again, this is a thing where you know shop pay.
You're amortizing all of that across the Shopify Network, so it's affordable. It's basically like effectively part of the surcharge of kind of like using the platform that pays for all that Collective stuff but still gives them Independence, like. If you think of like Shopify, we, our Merchants- I think for every 38 dollars our Merchants make, we make one and that's like literally the goal is to accrue as much the crew- far more benefit to the community than we take.
If you think of like, if you think of the community as being like one thing, as being a thing that exists independently of, like, the corporate structure, what you try to do is maximize the benefit to the community. That's kind of how we think about it. Well, I mean it is. I mean, if they're making X without Shopify, let's say they're making twenty dollars and probably that's maybe they may not even exist without Shopify, but they're making twenty dollars before, and now they're making 39. They're happy to give you one, and so that I mean that's obviously like a good deal, given everything that you guys give to them.
You know one- I thought I had. You know what that sounded like, by the way, is like open source for merchants. You guys have built like an open source app store for merchants and they kind of trade away the things and it's sort of like it's like branding and it's kind of being known within the merchant Community. Is that- is that how I should think about it? Like what is the is? Is that part of it, as well as the DTC thing, or am I off base on that? Yeah, no, I think I mean it's a spirit of sharing.
Yeah, I didn't mean. I didn't mean to sound cynical, it was in the spirit of sharing. I mean, it's kind of like you know, you do you put you sort of have, you're giving back to the community, you are, you are showing you know how capable your firm is. In a sense, it's kind of like, for all the reasons people publish open source, also for just a love of doing it and whatnot. So that seemed to be an analogy. You're right that maybe start might not give away their growth hack, but starts to open source and smb's share Shopify applications. Was that? Would that be fair? Yeah, so okay, so well, there's, there's one, I think.
By the way, on the lifestyle thing, I agree with you. By the way, the lifestyle term is patronizing. You know, here is kind of a cut that I've seen before on, like startup versus SMB. Well, so SMB is a proven business model- it's, you know, you're eating breakfast, and it's often debt financing and the goal is not hyper growth and it often does not involve new tech, whereas the startup is an unproven business model. It's like tweet your breakfast, right, you know, rather than eat your breakfast, and it's more Equity financing, it's high growth and it's new tech. Go ahead, look, I think it's actually a very weird state is that.
And startups? It's actually a bad assumptions of the financial system that favors risky over like the many. If you actually go to a bank and you're like a startup that has a massive risk, it has to have some Equity checks. For some VCS it's actually relatively easy to get that financing from. Let me walk into a bunch of banks: they'll give you venture debt, whereas if you're my mom, were a Shopify Merchants like the, the, the, the unability to understand like production capital is a heart is actually, it tilts.
It's one of the other things that makes starting a business difficult. Right, like my, my mom can't get a bank loan to start a small business. It's just camp. And if she did, she couldn't even grow it because Banks don't understand, like, how those businesses grow. The economics of it are weird, whereas the, the established patterns for Equity are there to established patterns for, for non-equity financing, and these businesses have become very difficult, which, by the way, was Shopify Capital exists. Right, Shopper Capital exists because we want to fund merchants, not because, in fact, this is. This was Toby's when Toby and I first met. This was how we- this was his first interview question for me. He asked: Kaz, I've read the bank. I've read the bank act. I've had Bank Charters. Why don't Banks? Let's lend money to small businesses. Do you remember this conversation, Toby?
Yeah, yeah, and what was your answer? I thought you have to start in the 1600s because there's a long history of this going wrong, for, for small businesses, like starting from you know the idea of incorporation. Caz's actual answer was: so you have to go back in the 1600s, and I wrote a book on this very topic, which was, my way, the shortest job interview I've ever had, because we were done like like anyone who's, anyone who reaches back and also is next expert on esoteric topics that are highly relevant to the job, is mine, is part of a team so well, that's awesome. What was, what was the what's, what's the proceeds of the book? It's honestly, it actually becomes like how incorporation started.
This will be very boring for everyone, but the idea of a corporations starting with a British East India Company- it was a very weird thing. They buy shares in this thing and those shares would would give you ability to have an annuity right. Those annuities could then be bundled up and sold as equity, so that so, and they were much more easily modelable in like for people than annuities coming out of a small flower shop, for example. So Banks start like building risk models around that rather than this. So if you're a small business, the type of loan you usually get requires a personal guarantee. They're not actually lending you money to business. They're lending money to biology and saying, hey you, you have a house, I'll give you money for a business, which is a terrible deal for small businesses, right? So the under the underwriting engine to underwrite small businesses doesn't exist. It's if you can fake it, but doesn't exist. And one of the consequences of this is like it's a super undesirable secondary order effect here, which is that like, like I'm- I'm thinking of several of our largest missions, like, like, which are really like 100 million Revenue, Billion Dollar Plus Revenue.
Merchants where, which started on Shopify and- and they are the sixth Shopify store that we founder started right like, if, if you have to reach, like to to get to Capital, you have to reach through the corporate barrier and you you'll have to personally guarantee the, the number one store, which is for successful Discovery or something that didn't work that taught you a lot, also disables your ability from partaking into in the economy again, even though you have no build for skills.
So I think this is this is really regrettable. I I read, you know, obviously, for bankish Charter isn't like that clear on these kind of things, but like one of the reasons why the banks have the protections that they do and the guarantees and the Federal Reserves is because it's recognized that relenting to small businesses is a economy improving and a society improving institution. Yet they don't do it. So so so we have to kind of replicate these like institutions inside of our own mini economy. Now we can do it because, again, like we're wonderful, like we like, because you're so early part of a journey of our emotions, they, they incorporate often after signing up for Shopify. So if you see the, the traffic build up, you see the, you know, if you have inventory, visibility and these kind of things, so we can underwrite people massively better than what banks could do. But this is only just, this is path dependent- consequence of us being just more motivated to do it, because we're doing it as a complement to the mission rather than as a I don't know wiping. I mean because banks have to open for their charger. Right, look, I look. I had three point of sales startups that failed spectacularly before the fourth one did: okay, like, like, if I was a shot, if I was, if I was a Founder of a business that Silicon Valley didn't understand, the first one would have bankrupted me. I wouldn't have tired number two, three or four, like and that's like, and it's a weird. This is what Toby talks about. There's a very weird capture that has happened in our large institutions where, like, the words they say are not the same as the things they do. Yes, like, this is honestly like the very weird thing. And if you think of shopah capital- which, by the way, is you know funds, overwhelmingly people who would not get access to any loans that could sort of you know minorities, women, people with low Edge, like, low educational pedigree, like, if you think of those people, it's actually not Shopwise, everyone kind of check, but it's other Shopify Merchants that are funding it.
Right, because the way it works is Shopify which have paid us. We take that money and put it back in the economy. Yeah, well, it's. What's interesting is it might also be something where eventually- I don't know where the regulations are on this, but you could have the Shopify fund so that those merchants on platform who are successful could put some percentage into invest. You know, kind of backing your fund and investing in the next, next big Shopify Merchant, which is a platform they understand. I'm not sure if that's something you've thought about. It's almost like you work here.
Well, the the thing is, what's interesting is you know- you mentioned underwriting and I think that's like really important that you know, you guys and other folks. You know, when you have enough scale, you can use machine learning to do better underwriting and just pull straight margin out of that, because the bank does not know every single action that they took on the Shopify platform since the beginning.
You have seen their six. You know their five failures before they success, so you have a track record on them and then you can, you know you can basically scope and bound your risk appropriately with all the signals that you now have. Over 10 years of operational, all the data exhaust that you collected for all these other purposes can now be repurposed for underwriting. Am I wrong about that is? Would you agree with that? Yeah, yeah, I think that's actually what Shopify is, I mean, the very product. Is that right? Like if you want to start a business before Toby started Shopify, the amount of money you had to spend to get the equivalent of Shopify was a lot. The fact that we give you Shopify for 29 is actually an underwriting decision like we- yeah, we are underwriting, like it's like it's it's us. It's essentially taking a coupon on a very, very long bet. It's funny, it's kind of like: have you ever seen the movie? The founder in the movie?
I'm not sure if actually it's true in real life, but supposedly, you know, the key insight for McDonald's was that they weren't actually in the retail business or the the restaurant business. They're in the real estate business because they've made the presence of McDonald's, at least at one point in history, boosted real estate values around it enough that actually they made the maximmoney from buying the real estate and then having the McDonald's there and the hamburgers were actually a way of increasing the value of that real estate. Right, and so it's. It strikes me that that's actually in some way similar to this, where I'm not sure I could make it illiterate. But it's not simply the small companies, it is the sort of capitalization that could be, you know, the next big dog leg up right, because you know that's something that helps them, helps you, you know, makes whole thing happen. But you wouldn't be able to do that without obviously the platform itself and being, you know, building everything you did over the last 15- 15 is years, like maybe that's, maybe. That was totally obvious and you know it's, it's, it's, it's not, it's just like total agreement. Essentially, what I wanted to do is move the center of opinion to within, like our community and actually also the policy maker community, to realizing that actually we can go from just starting new companies and communities and currencies to new cities and maybe even new countries and how to do that.
Well, in a sense, obviously, you guys have heard the term Tech policy, right, and that's like a very that in a sense. So it's an interesting point. It's, it's like a small ball way of talking about Network state or startup City, the reason being because Tech policy is like the blocking and tackling of you know, for example, where the laws around the German checkout thing that you just mentioned, right, but Tech equals Network and policy equals state. So the the ultimate level of like Tech policy is a new state where you can determine that policy from scratch and you know it's the same, like you know, attraction of wow, I can do a new business from scratch and I have to build everything, but I have root access over it. That's amazing. So that's kind of that's kind of the goal of this. And have you guys seen, have you read chapter one, the network State? Have you seen the book? Should I describe it at all? Yes, no, no, we've, yeah, we've both read it, or at least I've, I've, I've, I've ever the first three chapters, and my wife read the whole thing. So this- this was dinner conversation a couple days ago- okay, awesome. So you know, I, I very much considered a V1, a work in progress. You know that, just like you guys, like any you know, entrepreneur or founder, I'm like, oh, excuse, my dust, right, like my dead. I know there's a dent in the side of the door there. Okay, I'll fix it, but but it's a V1, I'm working on a V2 and actually like a the number State movie and so on and so forth, and actually huge additions to the book, where everybody's like, oh you dumb Engineers, how are you gonna build the roads? And I'm like you know who's gonna build the roads? But Engineers, it's civil engineering, right, you know, like, wastewater treatment, electrical engineering, three phase, like that's, that's what we all learned in school. Like I, I know how to do some of that and you know a lot of the folks in our community have, you know, hard engineering backgrounds, right, and so the the, the concept is in the V2 of the book to to not just flesh out and answer every single fact and so but kind of have it also translate into multiple languages. It's gone viral in like Japan and Catalonia, all these places where I never expected it, which is pretty cool. I was like a video in Japan with like a million views on the nurse yet. So but bring it back to to this podcast. Basically, you know we talked about the scale of Shopify economy.
We made the point that Shopify is on par with a small country. You know stats you mentioned you have your Merchants, have five million employees, Shopify a 650k developers. If you have even 2 million Merchants, then shopify's Merchant population alone is somewhere between Latvia and Slovenia. Your gmv for Q3, if I'm not mistaken, I saw it report as like 47 billion, so that's like annualized at 184 billion dollars. Gmv like gross Marketplace value, total value of all the transactions, and that's like.
You know, if you compare gmv to GDP, it's not exactly the same but it's in the ballpark. Greece is at 203 billion dollars, New Zealand's at 204 billion dollars. So shopify's economy is like on the scale of like Greece or New Zealand, which actually pretty legit, right, and so you know when, when you're building something like that, it's obviously more than just setting up a storefront. There's, you know, you guys now have the balance product, which is like a bank account. You've got your tax product, which is doing, you know, like a, like a. I guess, if I'm saying it's like a better sales tax competition, but eventually maybe it's like a Intuit for small business. I don't want to give away a product roadmap, but am I, am I in the ballpark there? It's? I really, really like our tax products. That's what I'm going to save. This. I think it's like a very it's, we're very proud of it and it's very loved. Well, you know what's what's interesting with with that would be you guys could, since you actually understand the tax code and could put that into code, you could give pop-ups and Tool tips saying, hey, you should do X, Y and Z, and you know you can optimize your thing here with a complicated code over time. Obviously, get on base, which is sales tax optimization. Then you could actually give tips to people to like: do acts and do y and do z, which hasn't actually happened yet, but I've often wanted to see. Maybe you're the right guys to do it. It's okay, yeah, totally stay tuned. Okay, fine, I'll stay tuned. Okay, it's like, but like, but you, you're right in which, for me, to learning of a community is like, like there's nothing better than like, making it so that I- I- I've only a few people- have to figure out the complicated stuff and then we amortize it over the entire thing, or or we absorb the complexity so that everyone else doesn't have to.
I think the- and this is probably like one of those places where things get really close between you know- networked State ideas, crypto, and and and and, and, and, yeah, and Shopify, like, what, what we want, like, we think a lot about incentive design. What we love is that we are sort of under like, as a business, very much on the same side of the table of with our customers, which is actually really rare thing for businesses to accomplish, so so we see it as our biggest opportunity to grow the success of our lack of, of the people on our platform, because we are participating in the revenue to us. We're taking a small part of the increase that we can also provide. And so, yeah, like the, the most wonderful thing that we were sort of hoping for when the company started and which has proven out over and over again and as we confirmed every single time we we launch something like tags, is that the, the entrepreneurs, have finite attention, and how that is being invested is it like matters. So if they have to file their taxes and I have to run through a lot of complexities, or if they have to, you know, just like, build a logistics system for a couple of years, or you know, like all these kind of things, it happen inverse sort of like in the success journey of every Merchant. Traditionally, every single time we subtract one of those by just taking the complexity of us and just pulling it into com, into into Shopify, and just kind of removing that like the, the time actually gets spent on improving the products, improving marketing, finding more Market fit, and they grow faster. This is why I'm saying like the world is much more shaped by friction than by policy in the end.
Now, sometimes policy causes friction, but it's- it's very hard for, in my mind, for- not for for politician to say so- to launch a entrepreneur action plan which causes, like, puts some money into some kind of thing. I think that's more that that's- it's very hard to do anything other than just distort the the playing field. It actually often causes the negative effect because now people will be distracted by filing a bunch of application forms rather than actually improve their product, and so I think we can act as a like a like as a as a thing against that. Sometimes the interesting thing that happens, which is like I want to help.
The type of Shopify I think of Shopify is like there's a core platform that everyone's on and then every other service we provide is voluntary. The merchant can take it or not, they can take our payment system or not, our tax system or not, which is kind of like how the governments used to work right, like when the US first came up with the greenbacks, like California and Oregon opted out thing.
We don't want this thing, this thing doesn't work. It was like. I think it's become like, very like a because an opt-in system. It's a voluntary system for merchants. They can decide for themselves if it's good for them or not. So it's become a very. I think it's actually allows us to aggregate their wishes in a way that is totally voluntary and opt-in, rather than like this, like weird thing that happens elsewhere which, like you, must take this closed thing or not. It's a new Hanseatic League. Mm-hmm, you guys, if you're ancient history, yeah, I, I just, I just like, I just like. I mean, I, I'm also like a customer for weird comparison, to like random points of History. So well, I will explain that to our viewers who don't know. Actually, Cas, you're, you're a historian, academic history, you go okay. Well, the hanziak league is like an alliance of merchants in northern Europe. That was actually almost completely it was. It was for Mutual self-defense, was almost completely non-violent and it's a really interesting model for sort of network cooperation between you know, basically independent entities, and so thinking of you guys as kind of a modern Network hansiotic league is kind of kind of interesting.
I, I have a few, actually, remarks. Have one and let me jump to the next one. First, on the attention point. It's interesting. You know, lots of folks have talked about this. Elan has talked about context switching. I ever seen that Meme that has like four levels of brain at the end it's like Galaxy brain.
Yes, and first, right. So it's like you, you know what is a constraint on a business you know, like- and I'm not saying obviously this is sometimes true, but like, level one is money, level two is time, level three is risk and then maybe level four is attention, right, and so money and time are kind of obvious. Risk is something I think, and maybe you could invert three and four. But you know, for example- this is something that you know, Brian Armstrong and I talk a lot about- like at big companies, the scarcity, but the scarcity budget is often risk budget, like the budget take a risk. At small companies it's often attention, like what they focus on, right, so maybe those two are tied. And you know, being able to just automate something by clicking, you know, is a huge savings area. And the second kind of thing I was going to say with respect to that was: here's a vision of the future which I'm not saying is necessarily 100 people will argue there's parts of it that aren't good. Okay, but let me, let me Bounce It Off. You get your thoughts in a sense. Let's say you're running not a Shopify store but a, a retail outlet offline.
What you're doing is essentially Arbitrage. You are guessing that the water bottles that you buy wholesale from the manufacturer, you will be able to mark up at five or ten percent and sell them cold on the beach at this place at this time and make you know a a mark up there.
Right, you are trying to literally Buy Low and sell high this particular good and you multiply that across- now just water bottles, but the apples and everything else that you're buying, and you have to take inventory risk while doing that right now. Once you put that into a Shopify storefront or, let's say, an Uber eat storefront or something like that, now suddenly you've got a lot more analytics and you could maybe have multiple storefronts and you could try different branding and it's way easier to change the signage. And so now the Arbitrage Raj becomes purer. You're just hitting keys on a keyboard and you're like: okay, Apple's here, bananas here, and maybe you don't even have to execute the order on the back end until the person orders on the front end, because your latency doesn't have to be that fast if they're ordering it online, right. So in a sense, what you're kind of doing is- and of course it's far from this today. There's still a lot of physicality to it and maybe I'm wrong and maybe you'd counter argue- but in a sense what you're doing is you're moving it closer to almost pure Arbitrage, like an intellectual game of hidden keys. And actually, you know, Drop Shipping reduces the physicality, all those things. Do it. Tell me if you agree with that, disagree with that? I think. I think it's I, I agree with it, but I think that ends up eventually like getting stuck on on a local Maxima, like I.
I think this got like like for a couple of years. There was a period of time where, like, Drop Shipping became the specifically Drop Shipping directly from China became a very common tactic that employed, and the reason why that ended up in problems is because it turns out that retail is not quite as I mean obviously like cold drinks on the beach is is. There's a clear demand for this kind of thing in the moment, but what we see, most of the businesses that actually grow are the ones which aren't purely utilitarian or like, aren't like marketing directly to homo economicus but rubber, are building communities, right. So the- the- I mean so if they give an extreme example- is supreme, right, like, which you know, has built an extremely close Community around their product and including its own. You know narrative stories and like and so on.
I think we see this generally: like, like the best products end up being created and then some kind of intersection of Interest, like, for instance, I like, just let's take a real example of something that someone grew up on the platform is Alberts, the sneaker company. Now they, they make great wool Sneakers, but they're also like, extremely sustainable, sustainably done and like. That's an intersection of multiple interests: people, people want great shoes.
They- they make fantastic ones, and then also people who are environmentally conscious. This is the wonderful thing about the internet. You get into this. Like Kevin Kelly wrote this wonderful essay 2006, seven, eight, about finding your 1002 fans, and like I think the exploration around like making something that like is very meaningful to you beyond like the pure sort of economical, like the cost of goods plus 10 markup or 50 markup or whatever.
Like if you, if you build something that's a story and that causes lifetime value and optimize for that, you actually do better than sort of a supermarket kind of like liquid. I I'm not forcing, I disagree. So I disagree actually with you a little because I think there's like a misunderstanding of why people buy like, buy things. I think there's like a basically think of like but the interesting history of trade going back to a guide on utsi, who's actually like. We have his fossils. He died in in Europe, I think 8 000 years ago we had a good like this- fossil fuels- but like the trade that happened, that was local, was essentially trade for things you need like food, not those things, those that was like what. You didn't go very far looking for those things, you just hung that around your village. You got what you wanted. Trace for things you want like we go very far distances. You go people, people back before the wheel would travel hundreds and sometimes thousands of miles for for what is now called lipstick, essentially that's. That's in that's reverse of what you might think. You might think for the things that you need, you'd go far into things that you want, you'd buy them closer. This is a. This is a really fascinating. So so this is, I mean this is a real fossil, but like I, I think you can call it, I mean it's sort of a like preserved in the glaciers. It was for Alps, so they analyzed everything that was on him.
He clearly was a Trader. He was moving through the Alps from one place another, one who didn't quite make it actually, I think. I think they found error in his back so someone made him not make it and but. But they analyzed the, the items on this body and like the, the goods he was traveling with were sort of the Arbitrage Goods: the nice two halves on his body, like the jewelry, the like tattoos and so on. Then they charted out where they came from, came from a region of about 3 000 kilometers around the point they died like, and that just tells you how much how vibrant trait actually was like six to eight thousand years ago. Like our story is like not quite right. Like like trade probably caused language in in order- I mean, nothing is cause in fact, exactly- but like like we have been Traders and Merchants and barterers for as long as we are recognizably home or anything, and I think that's it tends to not be part written into the story quite as much do you know? Go back, Lee tappy, I'm probably pronouncing that badly. It's like this, this set of ruins in turkey that pushed back like the dawn of civilization, like thousands of years from before.
People thought it was the wonderful, very peculiar religion. Yeah, it's got like some weird towers and stuff there. It's like under a mound. I think you're right. You know one thing: it's interesting. There's this: there's a podcast called the- I think, follow civilizations podcast, yes, and it goes through all of these ancient civilizations that didn't make it just like, let's see, you know, an arrow in their back or something right. And you realize actually, in some ways, we're like you're playing battle toads- I did it's a really hard game and and you often get really far and then you die right and I'm like, is that what civilization is? And we're, we've just got into like level 80 and we just need to- not- I mean, it's kind of an interesting way of thinking about it- go ahead. Yeah, I'm just, I'm just. I'm honestly, I'm just delighted that we are doing the Hanseatic League, the East India Company, we do Etsy and then we also do Battletoads. I think this is the range of his podcast is fantastic. That's wonderful. This is, this is. This is the kind of thing I love. You know, the actually is funny is that the one previous point that you made, where you said actually that it was very boring- the history of the corporation actually has.
I actually think all that stuff is very applied right now. You know why? Why? Because you know we are probably Reinventing many institutions over the next currently and over the next years and decades, and so, for example, the Advent of cryptocurrency and the smart contract is a sort of- I mean the corporations of social abstraction right to, to take this thing that just exists in our heads and treat it in some senses as a person that can own property and where you limit liability. That was a social convention that people had to arrive at. You know, as you talk about. And similarly, like a like a like a smart contract is like that.
It is an abstraction where we are essentially all agreeing to treat bits on computers around the world in a certain way because they have certain properties, they're hard to muck with and and whatnot, and they give us Mutual value and we cooperate in that way. So I think a lot of the stuff about how those things emerge- because they didn't, they didn't emerge in their clean, final, debugged Edge case, optimized form- they emerge in a very messy way early on- are useful to learn about. Look, I'm a crypto maximalist and I think it's an interesting, interesting history of it. Like, like the way, do people actually look at crypto right now and say, oh, this thing is janky, it doesn't work.
You know what's janky and else doesn't work? The common law of the English Empire. Like you just need a starting point a to build upon it and to build upon. Like people misunderstand how things are created. Things are created by tinkering, not by five-year plans. Like you just have the thing you have and you Tinker upon and you improve it and you make it better over time and all of a sudden you look back and like a lot. This is like the very interesting like British common law, French civil code thing that I think is like a difference between like tinkering a knot and I'm a code Napoleon and Academy Francais, the top down versus the bottom up, right, yeah, and I think there's like something very wonderful about this idea that, like what cryptocurrencies and Spark contracts allow you to do is to see the history of change and knowing the history of changes as important.
As young State like it's actually very important because actually what you end up being doing- they're gonna be kind of project forward- say, ah, this tinkering led to this. I can tell you like there's a part of Shopify- Toby himself wrote called active Merchant. It's an open source Library. You can actually look it up.
That started like how we, how we think about payments, payment processing on the internet. Actually, Toby doesn't take credit for this, but I will give him some active. Imagine really started much of Commerce on the internet. Like, if you look at all the modern payment companies, they'll say, ah, we sell active Merchant. And they said, oh, we should build something for this. And I was just, I was just tinkering, right, it was just a tinkering from the last thing they built. And I think that's what that's the most wonderful thing about thinking about, certainly, smart contracts, that it is a thing that you can Tinker with. And I totally agree with what you say in in that via with sort of Reinventing or at least reintegrating novel ideas about history from these New Primitives.
Right, like I I have to say, when I really started studying crypto- which I, I, I'm, I'm hugely into- like I had this like sort of a rapid realization of that things that I treated as almost just just constants were actually more interesting than they were like for, like I mean just the concept of ownership, right, like you know, like ownership, like just dividing ownership of a thing into two bits, into two separate aspects, such as the utilitarian value of something and the the status of something. You know, I mean this is this is something you talked about in length, about. I probably learned this from from, from listening to constants becoming variables. I- I was fascinated with. I own nfts which have extremely like, happy about the like, like having, and I have a, sometimes formed by actual artist, Like A version, but I'm hanging on the wall but like if that's being stolen, it just doesn't matter really to me like someone else can enjoy this like I, I, you know I own the right and and that those things are separate. They were just treat it as the same thing, partly because there was no other way in the physical world, because there was like like the, the ownership and vegetarian value were like linked because you couldn't take one without the other. It's just like it tells us something new about the world where this becomes the most interesting.
Really. It says to me it's like the building anything- states, countries, cities, communities, Villages, companies- is done with people and and we basically have largely three different ways of creating these things. We have. We have. We have policies. We have like policies and process as one. We have culture and incentives and like narrative, like as another one and based- sorry, it said it's- in the third and an organizational design or incentives is sort of a third way, but like everything that we ever build in the human world is really us. Using these three tools and solving large-scale coordination challenges has to always be done like this and you have to like, like people then misunderstand some of the policies or like, or end up bringing external incentive systems or hierarchies into the mix and everything gets really, really messy. And leadership is largely like finding and and and, so somehow changing people's minds with the same tools. We haven't had anything new come online until the smart contract. The smart contract is a way of like, a large scale incentive alignment, it. It is amazing how many people have worked together because like and and believe in the same things: trusting, like with a trust into the system externalized. Because of this there's a smart contact, it it's verifiable and and people believe in it.
But like it can continue executing these incentive systems for absolutely forever, even even if the blockchain stops moving, you could resuscitate it and just it would. Just the next transaction would interact with it. No, no problem, even 10 000 years from now. The question like this has been used for a whole lot of things. Many of them are not actually valuable, but like, the new primitive is there and and we will figure out in the next 10 years, all the amazing things that can be done with it, and I think this is super exciting. And again, I I do think every time something new becomes possible that was previously not possible, you people overestimate the impact of that in the short term, but massively under underestimate the the long-term consequences of it, because at some point, you know, people have done their six, seven attempts to do something with it. All of them failed, but they have no like an intuitive, native understanding of The Primitives and then and can can apply them to large-scale problems. I think, because it was actually a really interesting like consequences, to like how cryptocurrencies work in Commerce, honestly, and what people usually first go: ah, payments.
I think payments is interesting on my payments in order, so we can talk about it. I think there's a more interesting thing, which is what Toby was talking about earlier on, which is most of the things you value have a community around them. If you think of like the things, like you know things you own, things you value to have a community around them, and we're early on this journey, but we're really really still seeing, like you know, really interesting use of cryptocurrencies for, you know, gating of things, nft gating or creating communities that are almost entirely about being fans of things. And you look at like these, you know super traditional Brands like Mattel being born like creating these interesting experiences that are about Community. Others are much more easily done in a wallet aware world, because the original Cinema internet is like lack of identity and you know, cryptocurrencies are actually solved in a really interesting way that allows you to not like to not just have a community, but to actually be able to recruit and trade that Community Way like really cool ways. So I think I'm, I think I'm gonna think about like no, five thousand years from now, people are going to look at us playing with these nfts and they're gonna think about us as like we're OTC of the nfts, like like those people including arrows and objects, yeah, yeah, but no idea what they were doing.
They were just like these were just toys to them. But it's really, it's gonna be. It's very clearly gonna be a thing- I just don't know what time frame. Well, it's, it's interesting, okay. So I I was writing out a bunch of remarks and all those interesting comments. One concept, by the way, where there's sort of a difference between, like, ownership versus utility is like, let's say, federally owned parks, in theory the federal government owns it but anybody can walk in and use it. That's like one example of a owns it but b, c and d can use it as an example. Another thought you know was that you know you're you're kind of tripartite thing there.
I might summarize it as policies, process and payments. Just have as an alliterative thing. And you know you'd mentioned common law earlier and I think one thing I've said before and I've thought a lot about is that you go from common law of the UK, which is all just kind of iteration, then the Constitution, which is like written down, and then smart contracts, that's like version 3.0, you know where it's even more Universalist, it's even more auditable and fair and so on. Right, then you know it's like turning it into literal code, not just legal code. And I think actually you know somebody once said: why is it that all founders, at a certain point they all become like philosophers and they post stoic stuff and Marcus, so all this type of stuff- and I actually had an explanation for that- which is the founder star?
It says lead engineer and ends up as Chief psychologist. Right, because you're, you're basically managing this gigantic Community, First within the company and then also outside. And managing humans is very different than you know like working with machines. But you kind of need both right. The machine will do exactly what you ask it to do. If you shut down a node, put up a node, shut down a node but doesn't care. Humans aren't like that. They're highly stateful, you know, and they are. They're. They're not LT, they're not time invariant systems, and so that's another deterministic. It turns out here like a non-deterministic. Exactly that's right, and and so so, on the one hand, anything that you can do with the machine, you actually prefer to do the machine if you can, because then it can scale, you can iterate on it, it doesn't, its feelings aren't hurt, and so on and so forth on their hand. That's why Founders actually like all this stuff. You know, all these things become applied subjects. Even if you start an engineering, you actually have to pick up effectively a Humanities education, because only history gives you enough. You know, game film on on what large groups of humans actually do. Let me pause or tell me if you guys agree with that. I totally agree, I, I think. I think company building is, is a supplied philosophy, you know, in a way it's, I mean like if you hang out with people who you know good poker players, they are going to be the most interesting game theorists you ever come Acro, sweat and they have no idea what they are, have any kind of aptitude, Focus. They just pick it up intuitively because that, like the game they dedicate themselves to is applied Game Theory. They solve it in Hardware exactly. Actually it was super interestingly sounds like when that they analyze with fmri is like go players and then poker players. They look at cards, look at board and it's actually the, the visual cortex, that lights up, which is a big part of an energy budget of a brain. So like we actually basically figure out how to use your gpus. Yeah, yeah, have you ever been used for gpus?
And and it's actually funny because I mean, this is we are now getting on a crazy tangent- but like it's really funny because when you, when you talk to these people and say like why did you do this move, they actually say like it seemed beautiful, like, and you realize, yeah, but because Aesthetics is the only way how you visual cortex can actually communicate with your reasoning brain. So so you it has to use like basically smoke signals to send the information back and it kind of all fits together. It's kind of it's. It's really neat, you know. The other thing that's like that, just just to you know, like digress on your digression for a second- is: I think a lot of computations are like: so one part is like the visual, like using your GPU. The other is people are very social animals, so there's fairly complicated things. If, for example, someone says, oh, able, be happy if C does d with e, right, that's like actually a fairly complicated graph, theoretic thing. If you were to actually you like write that down, you'd actually have to explain that you know a social computation, that somebody will feel this if somebody else does this to this person with this other person at this time, right, I've thought that there might be something like that as well. Like for those people who are good socially, there's like a, a graph engine, just like there's a visual cortex. I should probably talk to a neurologist and see if there's something there. One part I just want to come back to for a second and move on is the, the part about the Arbitrage point and the community point.
They're actually kind of related, where you know how much of selling is just Arbitrage versus how much of it involves the community and- and I do think it's both- because if you're just doing Drop Shipping, you don't have as much of an investment, you're just seeking a return. You're not there for the long term and the guy who loves it will will probably Outlast, because they'll. They'll last even Beyond where the market is temporarily down or they'll figure out some iteration, because they are just up at night working on it and you know that's also related to crypto, where it's, you know, it's not just payment really, it's about community and people who share the same values. And it's almost like you know what the again is. The Japanese a cryptocurrency is to its Community. The Yen has value, even if you're not Japanese, because enough Japanese people give it value. So if enough of those people coordinate, they can actually build something amongst themselves, even if the rest of the world doesn't really value it. Even if you don't hold the Yen, you know that. Even if you don't personally hold it, you know the Yen has value. So that's kind of a thing about crypto, where it's not just a technology, it's a community as well. That I think you guys get, that others don't, and that Shopify is also. You know your community is actually a big part of it. It's not simply just a tech stack. Here's her, I think. The other thing you you definitely learn is, like I, I, one of the common problems around the office for me as a founder of a company is, you know, I, I. I say things which are really, you know, important to me. Or like: here's a change: Shopify as a core value of thriving on change. We're making change and I could Supply this with all sorts of metadata as what we are doing. I know in the end this is going to be translated into a fortune cookie because the packet size for MTU of like communication inside of a company is so small that everything has to be packaged in in a photo cookie.
And then, unfortunately, this fortune cookie is when non-deterministically unpacked by everyone and so, like I, like one, I think, mistake a lot of Founders do over. Why this is like a very complicated Journey for for people is that initially you have a very small group of people. We can move huge context over, like pizzas and beers or in the evenings, and and you get everyone not just like the title of an article, you actually give them the exactly like the exact wording of an article and sort of a line through that, as things get larger, you you will.
You will have to consider your words very carefully in the way that you have to pick how you are packaging them, because you need to- like I ideally- determine what the fortune cookie will actually say, and then you will have to deal with all the like variants of unpacking again. That's what the best we got in the world of how we are building organizations and communities again. The smart contracts, though, can be an antidote here. Like if the particular thing that you're trying to do is a like can be almost arbitrarily complex, if, if, in the end, it tells everyone how to behave, or or what good looks like in the community, right, and I think that's exciting. I think there's like this is completely new in new ways. Like you look at something like doordash or so and you realize like yes, it's not a smart contract, it's a centralized system, a server in the middle which does the two-sided Marketplace brokering, but there's like millions and millions of drivers working towards a, like an incentive system that they know works for them, and that's all coordinated by like, something which like software, which is a fully deterministic and provable and observable. You could imagine the Victorian version of, or Hanseatic version of, doordash, where someone tried to build this entire thing with a telegrams and a very, very, very large sort of middle management, like call center layer of people who are then trying to recruit drivers and like set shifts and and move food orders around.
I, I don't think this like. Even if something would try, I don't think it would work right. So, like you, you just sort of get the sense for that. Computing isn't just a computation, isn't just like allowing us to to become more efficient at things that we want to do. It's, it's. It really gets more interesting when we realize, hey, there's now things that can be done because we can solve problems at vastly higher coordination attacks and coordination challenges. Okay, certainly this Hanseatic version of of doordash. I don't know what fortune cookie could be crafted that would unpack for millions of drivers or or, like at horse-drawn carriages, drive like stewards to behave correctly in all situations. So just you, it can't be created right. So I think that's awesome. I was going to go even further because he went to Victorian times.