Shopify recently announced the termination of 20 percent of staff and selling out Shopify Logistics to San Francisco-based supply chain management company Flexport. In a blog published on May 4, CEO Tobi Lutke emphasized the company’s mission while “changing the shape of Shopify”.
“There are a number of consequences to this, and I don’t want to bury the lede: after today Shopify will be smaller by about 20% and Flexport will buy Shopify Logistics; this means some of you will leave Shopify today. I recognize the crushing impact this decision has on some of you, and did not make this decision lightly,” he said, addressing the team members.
We’re thrilled to share @flexport will expand our global services into last mile & e-commerce fulfillment with plans to acquire the assets of @Shopify Logistics, including @DeliverrInc! Read more about what this means for Flexport customers. ⤵️ https://t.co/8m4zoTXJl9
— Flexport (@flexport) May 4, 2023
Follow-up
The affected employees were assured a follow-up in the next five minutes. Lutke added that Shopify would compensate the affected employees in the best possible way. “There’s no way to make this good news, but we designed a package that will attempt to make it the best possible version of a bad day. I’ve included details below on how we will support you,” the CEO said.
This is the second such shock by Shopify in the last year. In July 2022, Shopify cut its workforce by 10 percent, citing an overestimated bet on the e-commerce boom during the Coronavirus pandemic.
“It’s now clear that bet didn’t pay off. What we see now is the mix reverting to roughly where pre-Covid data would have suggested it should be at this point. Still growing steadily, but it wasn’t a meaningful 5-year leap ahead. Our market share in e-commerce is a lot higher than it is in retail, so this matters. Ultimately, placing this bet was my call to make and I got this wrong. Now, we have to adjust. As a consequence, we have to say goodbye to some of you today and I’m deeply sorry for that.”
The Year of Hope
Over the year, Shopify launched a series of products to recover from losses. In the same month, Shopify partnered with YouTube to boost Creator Economy. In August, the Canadian e-commerce company launched Shopify Collabs to connect the creators with Shopify merchants. It was followed by the launch of Shopify Capital in the booming Australian e-commerce market.
In September, the company launched Shopify Markets Pro and Shopify Translate and Adapt in a bid to capture cross-border trade. Later in the same month, Shopify entered into competition with physical marketplaces with the launch of the hardware device POS Go.
Starting the year on a high note, Shopify launched Commerce Components to redefine enterprise retail. Shopify upgraded the enterprise retail search and discovery by partnering with Google Cloud in March. Recently, in April, Shopify joined hands with Melio to launch the Bill Pay expense management tool.
It promises to streamline the process of expense management without any additional subscription fees. Bill Pay also helps Shopify merchants save 16 hours of paying business bills on a monthly average. It is twice the faster as other B2B solutions available to manage expenses.
For the past year we’ve been subtracting everything that’s in the way of making the best possible product. This is extremely important, because we are heading into a decade of high velocity and massive change. We will require speed, agility, and a great deal of innovation.
Tobi Lutke, CEO, Shopify
Why did Shopify Sack 20% Staff?
Despite all these developments, what went wrong was that Shopify had to terminate 20 percent of its workforce. Defining the company’s main quests, Lutke said: “Shopify finds it useful to talk about the difference between main quests and side quests internally. The main quest of the company is its mission, the reason for the company to exist. Side quests are everything else. Side quests are always distracting because the company has to split focus. Sometimes this can be worth it, especially when engaging the side quest creates the conditions by which the main quest can become more successful”.
In 2006, Lutke founded Shopify with Scott Lake, who also helped him start the snowboarding equipment online store, Snowdevil. Then working as a computer programmer, Lutke saw an opportunity to help independent merchants sell online products.
“In the beginning, as a small startup, companies are intensely focused. It’s often said that larger companies are more sluggish but this is not because of their size, it’s because of all the side quests and distractions they accumulate along the way. This happens because larger companies can afford to be somewhat inefficient, especially during stable economic boom times. But once they need to adapt to some new paradigm they can’t. They will get replaced by more focused competitors, or collapse outright,” he said.
“For the past year we’ve been subtracting everything that’s in the way of making the best possible product. This is extremely important, because we are heading into a decade of high velocity and massive change. We will require speed, agility, and a great deal of innovation,” the CEO added.
Shopify’s Main Quest
According to Lutke, Shopify’s primary quest was to power independent selling, making it easier to sell and purchase using the internet. The company now sees the potential of artificial intelligence in making the copilot for entrepreneurship possible.
“I think that we have built the best commerce platform in the world for that. Technological progress always arcs towards simplicity, and entrepreneurs succeed more when we simplify. But now we are at the dawn of the AI era and the new capabilities that are unlocked by that are unprecedented. Shopify has the privilege of being amongst the companies with the best chances of using AI to help our customers. A copilot for entrepreneurship is now possible. Our main quest demands from us to build the best thing that is now possible, and that has just changed entirely,” Lutke explained.
Dissecting Logistics Arm
Coming to the next big announcement, Lutke revealed how he launched Shopify Logistics. “Building logistics infrastructure is a side quest every e-commerce entrepreneur is eventually pulled into because of the way the logistics industry works: a series of disparate players, all focused on different aspects.”
He was quick to add that the logistics job involves careful designing of software to run an online store. “To run logistics, you will use pen, paper, and phone calls a lot. And most of the time your service providers don’t talk to each other. Coordinating them to act together is your burden,” Lutke added, mentioning the common challenges.
Shopify handled logistics on behalf of its merchant partners with its fulfillment network powered by Deliverr’s software and technology developed by 6 River Systems. “We set to work building software addressable logistics that didn’t exist before,” Lutke said.
At Morgan Stanley’s Technology, Media and Telecom Conference in March, newly appointed Chief Financial Officer Jeff Hoffmeister said that the integration of Deliverr will help Shopify build cost-effective fulfillment capabilities for merchants. Deliverr aims to offer Shopify an asset-light network of warehouse partners besides carriers and last-mile providers. According to Hoffmeister, partners can assist core hub operations and areas where inventory is situated “on the edge of the network.”
Logistics, a Side Quest
According to Lutke, logistics was a “side quest” for Shopify. It was helping the company’s main quest to succeed. “From the beginning, we worked with lots of partners on all aspects of this same problem: warehouses, robotics, transportation, crossdock, freight. We iteratively built a solution, step by step, through software, leases, and M&A deals, that could be an independent company one day. Shopify was the perfect place to bootstrap this effort from 0 to 1 and we have done this. The next step is to take what we have and take it from 1 to N as a main quest,” he explained.
The company has sold Shopify Logistics to Flexport to accept it as a preferred logistics partner. Founded by Ryan Petersen in 2013, Flexport is now led by CEO Dave Clark. Calling Flexport the world’s best logistics operator, Lutke announced that Harish Abbott, Co-founder and CEO of Deliverr, will contribute from the company’s end to help Flexport become more ambitious and global in nature.
There’s nothing better than a Sunday where you love your work so much you can’t wait for Monday to keep building. The acquisition of Shopify Logistics opens up incredible possibilities for Flexport. Can’t wait to hit the ground running. Together, we’ll revolutionize the world of…
— Dave Clark (@davehclark) May 7, 2023
Flexiport aims to add efficiency to global supply chains and address software to improve the logistics part. “For Flexport, this acquisition enables our vision for a full digital transformation of the global supply chain that we will bring to all customers. This democratization and pooling of scale will level the playing field for cost and speed of delivery for all businesses, not just the largest corporations in the world,” Dave Clark, CEO of Flexport, said in a statement.
“The end-to-end supply chain industry has not undergone the technological breakthroughs and data platforming we have seen in other sectors. Flexport is changing that. After the past several years of public discourse focusing on what’s wrong with the supply chain, it’s exciting to look ahead to how Flexport can bring solutions and make the global supply chain better for everyone,” Clark added.
Flexport is expecting to close the deal with Shopify in the second quarter following the agreement to customary closing conditions, including the receipt of regulatory approvals.
“Following in the spirit of our partners at Shopify, Flexport has built technology solutions on top of a global, diverse network of logistics partners to make the world simpler for merchants and enterprises selling across all their channels around the world. With this acquisition, we will deepen and expand these partnerships, providing all merchants and businesses more opportunities to grow and succeed because their success is our success,” Clark added.
Striking Crafter-Manager Balance
Further addressing his team members, Lutke thanked the managers and crafters to help entrepreneurs build online stores and buyers transact easily. Calling Shopify a “crafter-centric vocational company,” Lutke added crafters help merchants develop words, bytes, pixels and floating point weights.
“Crafters are experts in their domains and are trusted to be self motivated. We don’t rely on management to be the task masters. The role of a crafter is to bring everything they uniquely have to build something wonderful,” he explained.
“The role of managers is different. Great managers take individuals and turn them into teams, snowplow obstacles, remove ambiguity, help crafters do their best and most creative work and, most importantly, ensure that the wonderful work of crafters aligns with the roadmap and is of impact for merchants,” Lutke added.
Shopify tracks management and crafters separately. It aims to strike a balance between the number of crafters and managers. This quite explains the termination. “Too few and you risk misalignment on the most important things, too many and you add heavy layers of process, approvals, meetings and… side quests. Our numbers were unhealthy, just like it is in much of the tech industry. One of the insidious consequences of this is that it leads to the company increasingly celebrating activities rather than crafter driven outcomes. With the right numbers we’ll fully focus on outcomes and impact,” Lutke said.
Coming back to Shopify’s main quest, the CEO said he wants less scope creep, fewer meetings and better shipping features for Shopify merchants. He also spoke on how each of the affected employees will be compensated by the Canadian e-commerce giant.
Compensation
“For those leaving us today, you will receive a minimum of 16 weeks severance plus a week for every year of tenure at Shopify. Medical benefits and access to our employee assistance program (EAP) will be covered through this same period. We’ll also offer outplacement services if you want them, all office furniture we provided is yours to keep. We legally need the work laptop back, but we’ll help pay for a new one to replace it. You’ll have continued free access to the advanced Shopify plan should you opt to take an entrepreneurial path in future,” Lutke said.
He assured that the affected employees will have a meeting with their leaders to discuss further compensation. Shopify also allowed them to access Slack and internal email for the day to receive farewells. Lutke thanked them for helping Shopify and its merchant partners.
“This is a consequential and hard week. It’s the right thing for Shopify but it negatively affects many team members who we admire and love working with. This is one of those times where both right and hard are true at the same time. My belief is that any enduring company makes a habit of doing the right thing, even if easy outs present themselves. Yet it doesn’t get easier to make a decision like this, and I hope it never does,” Lutke said.
“Shopify is stacked with exceptionally talented, merchant obsessed people. Crafters thrive in the best environment, given the best technology and tools with which to grow and develop their skills. Managers are deeply committed to the craft of management, all in on building incredible teams. Inspired tooling and systems will reduce the coordination tax. And everyone at Shopify is pursuing a singular, focused main quest – our ambition is greater than ever,” he concluded his blog.
