The episode features Toby Lütke, CEO and founder of Shopify, and Kaz Nejatian, President and COO of Shopify, discussing how they've built an economy comparable to Greece or New Zealand in scale.

Shopify's platform supports millions of merchants generating 444 billion dollars in collective revenue, with approximately 5 million people employed across the ecosystem and 650,000 developers building on the platform.

The conversation explores how Shopify has solved management and technical challenges at country-scale, from payments and banking to taxes and logistics, while maintaining a decentralized merchant-first philosophy.

Both Lütke and Nejatian are immigrants to Canada, bringing perspectives on entrepreneurship as a form of immigration from traditional employment, and discussing how reducing friction enables more business creation than policy interventions alone.

Building an Economy at Country Scale

Shopify's Q3 GMV annualizes to 184 billion dollars, comparable to Greece's 203 billion or New Zealand's 204 billion GDP, with millions of merchants and 5 million employed people across the ecosystem.

"It's funny to think about Shopify as a small economy... it's collected people who joined the team and then eventually it got a ticker symbol and now it has various institutions" - Toby, reflecting on the 19-year journey from first line of code to economic scale.

The vast majority of people globally work for small and medium businesses, typically 50-90% depending on the country, making the liquidity of new business creation critical to economic vibrancy.

"The fate of entrepreneurs is a bit of a where's Waldo story throughout human history... it tends to be not recognized or not talked about a lot but it always plays a very important role" - Toby.

Shopify's approach is reducing friction rather than relying on policy changes, believing that entrepreneurship demand is constant but supply is limited by Byzantine complexity in starting businesses.

The Immigrant Entrepreneur Thesis

"The way I think of Shopify entrepreneurs is that they are immigrants from big companies... people who left big companies saying I can't work here let me start something on my own" - Kaz.

Both Toby and Kaz are immigrants to Canada, drawing parallels between physical immigration and entrepreneurial immigration, where people leave situations they can't tolerate for opportunities they create themselves.

"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" - Kaz, comparing their role to making physical immigration more accessible.

The pattern of immigration has accelerated throughout history as travel became easier, from the Mayflower's difficult journey to modern air travel, and Shopify aims to do the same for entrepreneurial migration.

Rejecting the 'Lifestyle Business' Label

"The term lifestyle business is a construct of Silicon Valley... it's actually pretty mean because businesses were around for a long time and we didn't call them lifestyle businesses" - Toby.

Running a small business is actually more hardcore than venture-backed startups, which get teaching from Y Combinator and funding from investors, while small business owners have no such support system.

"If anything, if you're looking at a techie path of businesses... that sounds a lot more like silver spoon businesses to me than what entrepreneurs and SMBs do" - Toby.

Toby regularly talks to hundreds of Shopify customers through instant message, finding that spending time with entrepreneurs and founders makes you become the average of those five people you spend most time with.

From Zero-Sum to Positive-Sum Commerce

Early Shopify had forums built into the admin interface in 2006, but no one used them because merchants viewed retail as zero-sum competition for the same dollars.

The physical world is permeated with zero-sum thinking because only one business can occupy a particular location on a particular street, creating rivalry for finite resources.

The online world attracted positive-sum thinkers who realized markets could expand dramatically, like sneakers growing from purely functional items to a massive fashion and community-driven market.

"There is so much more blue ocean opportunity in the world because there's so many more people who would be really into things if a supply would be there" - Toby.

Shopify merchants now actively share knowledge across Reddit, Twitter communities, and Facebook groups, with merchants building applications for each other that they give away freely.

"Imagine if a startup found a growth hack and just gave it away that would never happen... whereas Shopify merchants will build an application to help you with some part of your store and literally give it away" - Kaz.

Shopify Capital: Fixing Small Business Lending

Traditional banks require personal guarantees for small business loans, essentially lending to individuals rather than businesses, creating terrible deals that can bankrupt entrepreneurs after a single failure.

"If you're a small business the type of loan you usually get requires a personal guarantee they're not actually lending money to business they're lending money to biology" - Kaz.

Toby's first interview question for Kaz was about why banks don't lend to small businesses despite the bank charter's purpose, with Kaz responding that the answer requires going back to the 1600s and the history of incorporation.

Shopify can underwrite merchants better than banks because they see traffic building, inventory visibility, and every transaction from the moment merchants sign up, often before incorporation.

"We lend money based on this data like we give people money based on this data and so it's a very real thing" - Kaz, emphasizing their superior underwriting capability.

Shopify Capital overwhelmingly funds people who wouldn't get access to loans elsewhere, including minorities, women, and people with low educational credentials.

The consequence of personal guarantee requirements is that successful merchants often had to start six businesses before succeeding, and without Shopify's model, the first failure would have bankrupted them.

The One Dollar for Every Thirty-Eight Model

"For every 38 dollars our merchants make we make one and that's literally the goal is to accrue far more benefit to the community than we take" - Kaz.

Shopify thinks of the community as existing independently of the corporate structure, with the goal of maximizing benefit to that community rather than extracting maximum value.

This model reflects Shopify being fundamentally on the same side of the table as customers, which is rare for businesses to accomplish.

The company's biggest opportunity to grow comes from the success of people on their platform, creating aligned incentives where Shopify participates in revenue increases they help provide.

Absorbing Complexity: Taxes, Payments, and Infrastructure

"There's nothing better than making it so that only a few people have to figure out the complicated stuff and then we amortize it over the entire thing or we absorb the complexity so everyone else doesn't have to" - Toby.

Entrepreneurs have finite attention, and how that attention is invested matters enormously for business success, making complexity reduction critical.

Every time Shopify removes complexity by pulling it into the platform, merchants spend freed attention on improving products, marketing, and finding market fit, causing faster growth.

Germany has actual regulatory laws about checkout processes, requiring specific button text and representation, which can codify models that become obsolete with new payment methods like cryptocurrency.

There are both private regulations from card networks requiring audits and public regulations creating barriers, with one-click checkout historically blocked by patents and various compliance requirements.

Shop Pay amortizes all audit overhead and compliance costs across the Shopify network, making it affordable as part of the platform while maintaining merchant independence.

Smart Contracts as New Coordination Primitive

"Cryptocurrencies and smart contracts allow you to see the history of change and knowing the history of change is as important as the current state" - Kaz.

"We basically have largely three different ways of creating things: policies and process, culture and incentives and narrative, and organizational design" - Toby, with smart contracts representing a fourth way.

Smart contracts enable large-scale incentive alignment that can continue executing forever, even if the blockchain stops moving, with transactions resuming seamlessly 10,000 years later.

"I'm a crypto maximalist and I think it's an interesting history... you just need a starting point to build upon it and to build upon" - Kaz, comparing crypto's current state to the janky early English common law.

The new primitive allows solving problems at vastly higher coordination scale than previously possible, though people overestimate short-term impact while massively underestimating long-term consequences.

Toby realized that concepts treated as constants, like ownership, are actually more interesting when examined through crypto primitives, such as separating utilitarian value from status value in NFTs.

NFTs for Community and Credentials

The most interesting use of cryptocurrencies in commerce isn't payments but community building, with NFT gating creating experiences around being fans of things.

Traditional brands like Mattel are creating interesting experiences that are much more easily done in a wallet-aware world, solving the internet's original lack of identity problem.

"I really disliked that the crypto ecosystem was calling things wallets... but I've really come around that it was actually a genius idea" - Toby, recognizing wallets as attestation systems like driver's licenses.

Attestations of skill sets are what degrees represent, just a slow way of proving you're the kind of person who can complete Harvard, and crypto enables much more fine-grained attestations.

NFTs as badges could enable dependency checking for content, limiting posts to those who've demonstrated specific credentials or completed specific actions, solving context loss problems.

"I would love to limit all my interactions with people who have never screamed cancel that person... if I can just have a browser plug-in that says remove those people" - Kaz.

The Modern Hanseatic League Model

Shopify operates as a voluntary opt-in system where every service beyond the core platform is optional, unlike competitors who force single payment systems or offer no payment product at all.

"Shopify is alone in the space saying we will have a product you don't have to use it it will compete with every other product in the space" - Kaz.

The Hanseatic League was an alliance of merchants in northern Europe for mutual self-defense that was almost completely non-violent, providing a model for network cooperation between independent entities.

Shopify Payments is designed to be the best payment product on the planet, but merchants remain free to use alternatives, creating internal pressure for the product to succeed on merit.

This approach reflects being self-aware about potentially being wrong and maintaining Bayesian updating, rather than assuming perfect information in system design.

Setting Defaults: The Theme Store Price Floor

Shopify's theme store initially let designers set any price, resulting in massive underbidding where no one made money and quality suffered enormously.

The solution was setting a minimum price of 180-200 dollars, 160 dollars more than the average theme price, causing angry emails and three months of no submissions.

"Month four suddenly really high quality themes are being submitted right... creating parameters for the game to be useful" - Toby, demonstrating how constraints can improve outcomes.

"You have to be incredibly careful when you set defaults because I think Hayek had called pretense of knowledge which is the thing you think you know but you actually don't know" - Kaz.

This mirrors Steve Jobs setting 99 cents for iTunes songs, understanding that people anchor on price and preventing a race to the bottom that would destroy the ecosystem.

Centralized Scale Enabling Decentralized Action

Shopify built payments on the back of 720 payment providers including Stripe as main partner, rather than trying to own the entire stack and extract maximum value.

"Our job is to make it possible so developers can do things... if there's a drone delivery startup out there it's [email protected] send me an email we'll create APIs" - Kaz.

Shopify thinks of itself as an aggregator of opportunity and value, firmly positioned on the membrane between the world of technology and the physical world of atoms.

"We are not an academic ivory tower lab coat kind of Eureka company we are Craftsmen tinkerers... funneling everything that opportunity space creates to people on the other side" - Toby.

The company only takes active roles in creating technologies when the rest of the industry doesn't do the job they want done, preferring to enable others.

Communication Breakdown at Scale

"The MTU of communication inside a company is so small that everything has to be packaged in a fortune cookie and then unfortunately this fortune cookie is non-deterministically unpacked by everyone" - Toby.

Early in a company, small groups can move huge context over pizzas and beers, giving exact wording and reasoning, but this becomes impossible at scale.

"The reason transferring knowledge has become harder is because communication has become easier... the tax on communication has gone down we have a lot more of it" - Kaz.

As communication rises, average context necessarily drops, visible when tweets go viral outside of people who know you and lack all context besides those characters.

Smart contracts can be an antidote because they can be arbitrarily complex while telling everyone how to behave, providing deterministic and provable coordination.

DoorDash coordinates millions of drivers through software that is fully deterministic and observable, something impossible to imagine with Victorian-era telegrams and call centers.

The History of Trade and Community

Ötzi the Iceman, who died 8,000 years ago in the Alps, was a trader whose goods came from a region of about 3,000 kilometers around where he died, showing vibrant ancient trade.

"Trade for things you need like food happens locally... trade for things you want like what is now called lipstick, people would travel hundreds and sometimes thousands of miles" - Kaz.

"We have been traders and merchants and barterers for as long as we are recognizably human... it tends to not be written into the story quite as much" - Kaz.

Göbekli Tepe in Turkey pushed back the dawn of civilization thousands of years, showing that trade and community building are fundamental to human nature.

The best products end up being created at the intersection of interests, like Allbirds combining great wool sneakers with extreme sustainability for environmentally conscious consumers.

Kevin Kelly's essay about finding your 1,000 true fans describes how the internet enables building meaningful businesses around specific communities rather than mass markets.

Active Merchant: Tinkering That Changed Commerce

"There's a part of Shopify Toby himself wrote called Active Merchant, an open source library... that started much of commerce on the internet" - Kaz.

Modern payment companies look at Active Merchant and say they should build something for this, demonstrating how tinkering from the last thing built leads to innovation.

"Things are created by tinkering not by five-year plans... you just have the thing you have and you tinker upon it and you improve it and you make it better over time" - Kaz.

This reflects the difference between British common law's bottom-up evolution versus French civil code's top-down design, with tinkering proving more effective.

Defending Builders in the Culture War

"One of the biggest issues in the world is that we are not... the builders are special in a way that we need to write back into the story" - Toby.

Founders are courageous people going on journeys, discovering things, and bringing back lessons, but the world currently treats builders and critics equally.

"The airwaves are completely owned by the people who critique things and because they get to write the story they're basically more powerful" - Toby.

Critics are capped in the value they can create for society by holding builders accountable or inspiring them, making them supportive tissue rather than primary actors.

The magical five-six years in the mid-2000s saw most major companies founded because the internet matured enough for software-as-a-service, advertising, and the iPhone.

"So many of them opted out... it became so hard that so many opted out and I think we would have gotten massively better companies massively more products massively more progress" - Toby.

Many founders are returning to building through crypto and AI after realizing that sitting on beaches sipping drinks is actually super boring.

The Pirate Problem: Critics as Highway Robbers

Critics can back builders into corners with low-capex criticism, forcing apologies followed by reparations, essentially committing highway robbery on the internet.

"If I apologize, well how are you going to make it right okay I'm so sorry let me give you something... extremely low cost structure" - comparing critics to patent trolls.

Media corporations can steal brand equity by using company names in headlines to sell papers, while those companies would need complex deals to use media logos.

The solution isn't becoming a critic yourself (V3) but allocating 20% to fight, 10% to defend, and 70% to build, treating content as a defense department.

"You have to go direct you have to actually tell your own story and have your own community or someone will do it for you" - emphasizing the need for owned media.

"If someone loud yells at someone who's building and every other builder... starts attacking that person what ends up happening is the incentive structure changes" - Kaz on collective defense.

"It's so important to defend Elon publicly because otherwise the incentive structure is screwed up" - Kaz, arguing for defending builders even when disagreeing with specific actions.

Shopify Trends: Shadow Statistics Opportunity

Shopify could build an inflation dashboard showing granular price changes across individual items, replacing government CPI with real-time merchant data.

"You guys are perfectly positioned you have a long history of prices across many different kinds of merchants you can see how those have changed you could calculate aggregate stats."

International networks should be able to collect better statistics than nation states because they're digital native, have the same format, and can do real-time analysis.

This would make Shopify like a news outlet where information breaks first, with stories written downstream, putting them upstream of narrative definition.

Shopify already shares real-time dashboards during Black Friday Cyber Monday showing different countries coming online in different time zones with sales per minute.

"We have observed preferences in our databases rather than stated preferences... it's not nothing, three terabytes per minute of data going through" - Kaz.

Building a Country of Curious Non-Tribal People

"I could have a community that was more curious and less sure and more open to being offended... be more curious and less easily offended the tribe of people who are not tribal" - Kaz.

"I'm alive only because Canada exists I would have been for sure dead without Canada... dead or rotting in an Iranian jail cell" - Kaz, explaining his gratitude to Canada as a country of many nations.

The French word "nation" is better than the English version because it distinguishes between "pays" (country) and "nation" (group with shared history), with Canada having many nations in one country.

"Tribalism is super fun if it's like high... if it's the scientist version of being tribal... it should come out in jest rather than demanding blood" - Toby.

Toby is German not Canadian during World Cup but Canadian not German during hockey, demonstrating healthy tribal expression without demanding absolute conviction.