Shopify: Igniting an Ecommerce Revolution
Will we see a $100M revenue ecommerce company operated by a single person in the next seven years?
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Executive Summary
Shopify's value prop to small and medium businesses is to start selling online for less than $100. Why is this important? Company strategy is dictated by the times and their first goal was to make it dead simple to sell something online.
I’d argue that Shopify is now competing against Amazon for current and future ecommerce market share. Why is this important? By making it simple and cheap to sell things online, and improvements in logistics, Shopify sellers aren't beholden to Amazon FBA (which has exorbitant fees).
In the next seven years, we’ll see our first $100M company that was launched and operated by a single person. Why is this important? Much like an influencer can amass a multi million person following with just a smartphone, next gen entrepreneurs will be able to orchestrate production and logistics with an app.
Intro - Arming the Rebels
Shopify has changed e-commerce forever. In my spare time, I run an e-commerce store for a family owned business. Moving to the Shopify platform has been empowering and unlocked value for our business. Shopify is ‘arming the rebels’ and creating an entrepreneurial revolution against Amazon. But what’s the next move for Shopify, and ecommerce in general? My prediction is that we will see our first $100M revenue company in the next seven years that was launched and operated by a single person. Much like The Doors’ Jim Morrison predicted ‘one man bands’ back in 1969, I think we can say that EDM artists like Tiesto in the 00’s were manifests of that vision. With technology moving faster, it’s not a stretch to think we’re too far off from empires built by a single person.
"I can envision one person with a lot of machines - tapes, electronic set ups - singing and speaking, and using machines." - Jim Morrison, lead singer of the iconic band, The Doors.
#1 - Shopify's value prop to small and medium businesses is to start selling online for less than $30.
Go back to 2005, and Shopify’s CEO is looking to build a website to sell snowboards online. He quickly realized how fragmented and difficult it was to simply build a website. Tobi launched Shopify in 2006 to make it dead simple to build an ecommerce site. Fast forward to 2021, and Shopify merchants now see more unique quarterly users than Amazon.
I can personally attest to how difficult it is to build an ecommerce even in 2014. A few of the headaches to sell online prior to Shopify included:
Costly to start. Estimates to build the site started at $10,000.
Ongoing costs. When even the smallest of changes needed to be made, it seemed we had to involve an engineer.
Poor design decisions. Not only was it expensive, but as someone who never had experience in ecommerce before, I’m sure I made all kinds of dumb design decisions that detracted from conversion rates.
Limited customization. Our options to customize were limited, if we were able to do them.
Difficult integrations. Without access to a plug and play platform, enabling something as simple as a form was a costly request and would take a significant amount of time.
Shopify’s platform has enabled it to support small businesses opening a shop for $30/month, and still be profitable for Shopify. Their platform has enabled developers to create best in class design experiences that can be customized, without sacrificing conversion rates due to poor design decisions. Their proliferating app store has made it easy for small businesses to add apps and functionality to their stores that could have been impossible or very costly just a few years ago. Lastly, Shopify’s native integration into Google, Facebook, Microsoft, and more, allow small businesses to easily market their products on search engines, and easily allow shoppers to easily buy on those channels.
As Ben Thompson of Stratechery says,
Building and managing platforms is extremely difficult, and extremely rewarding.
#2 - I’d argue that Shopify is now competing against Amazon for current and future ecommerce market share.
To setup this argument, I think you have to start with Amazon’s “Fulfillment by Amazon” (FBA) model. The quick summary is that Amazon offers a service that lets small business owners ship their product to Amazon fulfillment centers, where Amazon fulfills the orders for those products, and thus gives small businesses access to Amazon’s one and two day shipping network. The upside of this service is it allows small businesses to have their products listed on Amazon, which can be a huge tailwind for business. While this service is OK for some, it can become so costly that it is a barrier for some with lower margin products. Or quickly make successful small businesses realize how much profit they are leaving on the table.
So what is Shopify’s opportunity? Logistics have continued to improve since Amazon ignited the ecommerce revolution, with USPS delivering on Sundays and improvements in delivery networks. This may have set up Shopify merchants to be just as successful selling on Shopify compared to Amazon, without the FBA fees. There are also improving third-party logistics companies like Deliverr, that allow Shopify sellers to offer the ‘holy grail two-day shipping’ without paying an arm and a leg to USPS/FedEx/UPS. If shipping is predictable and relatively cheap, then offering free shipping can be an option for sellers, which can increase sales by 10%, and conversion rates by 50%. With predictable rates and reliable delivery times, this also opens up the ability for Shopify sellers to offer two-day shipping, which nearly half of consumers said they were willing to wait within two days for a delivery as opposed to a quarter of consumers who said they would wait within 3-4 days.
#3 - In the next seven years, we’ll see our first $100M company that was launched and operated by a single person.
Two trends that are occurring today that I think could make this prediction true. The first trend is the rise of social media influencers and their ability to amass a huge following with just a smartphone. In 2016, Kylie Jenner already came close to fulfilling this prediction, as her small team amassed $300 million in sales, after launching in 2014. The power of the influencer combined with the second trend of a rapidly growing dropshipping industry could make it reasonable that a single person could amass a huge following, then open a Shopify store on the back of dropshippers. What’s a dropshipper? Think of it as a company that holds all the inventory, you create your designs for t-shirts (for example), then they fulfill the orders.
While dropshippers are known for supporting classic merch items (tshirts, coffee mugs, etc.), there are similar business models popping up across other industries such as restaurants. The rise of ghost kitchens will be another future post. Stay tuned….
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