Episode 108: Tobi Lütke, Shopify

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Jun 15

Today's guest is Tobi Lütke, CEO & Founder of Shopify.

Shopify is a Canadian e-commerce company with more than 6,000 employees. Its mission is to make commerce better for everyone, so businesses can focus on what they do best: building and selling their products. I was excited about this episode for a few reasons. This is our first members only episode and I couldn't think of a more exciting guest than Tobi to kick off the bonus content; in addition, Shopify is an important company that is not just a huge financial success, but also a company that's deeply committed to purpose. I've heard Tobi talk before about how he wants to make sure that Shopify is a company that's around in a hundred years and that the planet is as well. And it’s this urgent sense of purpose which is what led him to discover the importance of tackling climate change. While he will freely admit that he’s not an expert on climate change, Tobi is a good example of somebody who understands that, as a leader, it's important to care about mission and impact as much as profit. Moreover, he believes there are things that his company and the millions of customers it serves can do to do their part. '

Shopify recently rolled out a sustainability fund where they committed to spending at least $5 million USD annually to fight for our environment. While it’s just a start, I think Tobi is a good example of how you can come in as a learner, find a way to have an impact and then increase that impact over time.

Enjoy the show!

You can find me on Twitter @jjacobs22 (me), @mcjpod (podcast) or @mcjcollective (company). You can reach us via email at info@mcjcollective.com, where we encourage you to share your feedback on episodes and suggestions for future topics or guests.

In today's episode, we cover:

What is Shopify
What are its values
Tobi’s thoughts on consumerism
Tobi’s view that companies need to think of the world holistically
Shopify’s journey and what it discovered purchasing carbon credits
The misaligned incentives caused by poor quality carbon credits
Tobi’s personal journey in learning about climate change and taking action on it
The need to reform capitalism and the mechanisms to do so
Where Shopify is currently on its climate journey
Tobi’s reasons for optimism and what he sees as the key solutions
The need to reframe solutions beyond carbon sequestration and offsets
Why companies need to take responsibility for climate externalities

Links to topics discussed in this episode:

Jason Jacobs: Hello everyone, this is Jason Jacobs. And welcome to My Climate Journey. This show follows my journey to interview a wide range of guests to better understand and make sense of the formidable problem of climate change and try to figure out how people like you and I can help.
Today's guest is Tobi Lütke, the CEO of Shopify.
Shopify as a Canadian e-commerce company with more than 6,000 employees. It's mission is to make commerce better for everyone, so businesses can focus on what they do best: building and selling their products. I was excited about this episode for a few reasons. One, this is our first members only episode.
And I couldn't think of a much more exciting guest than Tobi to kick off the bonus content but ,two, Shopify is an important company and it's not just a huge financial success, but it's also a company that's deeply committed to purpose. I've heard Tobi talk before about how he wants to make sure that Shopify is a company that's around in a hundred years, but he also wants to make sure that the planet is such, that it's attractive for the company and us to be around in a hundred years.
And that's what led him to discover the importance of tackling climate change. Now Tobi is not an expert on climate, but he's a good example of somebody who understands that as a leader, it's important to care about purpose and impact as much as profit and that even though he might not be an expert on a problem space, there are things that he can do and that his company can do to do its part. Shopify recently rolled out a sustainability fund where they committed to spending at least $5 million USD annually to fight for our environment. Now it's just a start and they've got a long way to go. We've all got a long way to go, but I think Tobi is a good example of how you can come in, not as an expert and you can find a way to have an impact and then increase that impact over time. Let's bring them out here. Tobi Lütke, welcome to the show.
Tobi Lütke : Thanks so much for having me.
Jason Jacobs: Thanks for coming on. As we said before I hit record, you're a much busier guy than I am. So I'm deeply appreciative that you're making the time to come on and talk about this important topic, especially given all the other important topics that you're out talking about and acting on these days.
Tobi Lütke : I love your show, so and I think it's, this is a topic I love to talk about, but I actually don't get a chance to talk about it. So, this is just my pleasure.
Jason Jacobs: Well, I publicly invited you on Twitter to come on the show without knowing that you are a listener. So I have to ask, how did you find our little show? If you even remember.
Tobi Lütke : I think over the last couple of years, me and my wife had gone deeper and deeper into the topic of climate change specifically, like, especially with de-carbonization negative decrementing carbon. We have a small team like working on this. We found that, for such a big space, it's amazing how few people are scratching below the surface.
When I was sort of lamenting the fact that it seems like the motivator for a lot of people in the space is maybe not actually having the impact, but rather sort of doing something that they can feel good about people taught me. I was like, Oh yeah, that sounds good. Jason tends to discuss them. You should really listen to the podcast.
So this is how I found it.
Jason Jacobs: Awesome. Well, it's such an honor to know that you're a listener and I have to say as well in prepping for this discussion. I mean, obviously I knew Shopify by reputation, but I learned a lot about your approach and there's a number of elements that really kind of speak to me, not the least of which is I feel like I would need a Harley.
So. The reason that you have a Harley and Harley is such a great compliment to you. And also the approach about this collective that's looking to unpack this problem and learn about this thesis kind of thing. And that, that kind of keeps people motivated over time, but it's not a capitalist pursuit to get rich or provide jobs.
I mean, those are important byproducts, but not the driver. And then just kind of the continual learning and adapting and just kind of constantly taking you were solving the problem in a more holistic way takes you. That is really the MCJ spirit. So without officially being part of the community until today, you really embodied the MCJ ideals.
So thank you for that. But why don't we, I mean, just for, for me, but also just for any listeners that might not be aware, what is Shopify?
Tobi Lütke : This is been a long story now. And it was in back in 2004, really very different age of the internet for one reason or another. I found myself starting this online business.
Yeah. We're selling snowboards. And I really, I did have a garage full of snowboards and bindings and goggles and all these kind of things. And. My role in this little two people, diode startup thing. It wants to do the technical side. And I imagine being able to set up Nannette still would be something that I can do probably enough in the afternoon.
And because 2004 is a long time ago. It's 16 years ago now, but like there was a dot com rise and crash. And most of us companies were eCommerce companies. Like often times, people tend to make fun of if they didn't remember the dot com crash. It's like the Webvans, Pets.com. Exactly. Yeah. All e-commerce. So I figured coming into this four years after the whole thing, that ecommerce would be a solved problem.
And it turns out, although there was some software, there was clearly no one's built software for a new business that starts online. Like, online entrepreneurship was not something that had been productized. And all the things that existed were old and long story, I'm a programmer, I ended up just building my own store.
I made a it's by our choice to build my own and store and Ruby and Rails, which wasn't even released yet, but I just knew I had access to it and pre-release, and really liked it had a great experience building this business, but have along the way experienced and found something that was really sort of a transformative event for me.
And that was then. I really got the first order, which was a couple of months after I started building this and deployed it and put it live a gentleman from Pennsylvania ordered the first snowboard for me, even though I knew exactly what would happen in this moment, like the email, my laptop got was literally email.
I had to type at some point, like in the code, it just ended up being this profound event. Like it felt like that's the moment I became an entrepreneur instead of someone who builds thing. And afterwards, I started looking for chances to I've experienced this again, but rather because this is a sort of a one time event, I realized having other people go through having a similar journey would actually be much more meaningful to me personally. And so the software I build that turned into Shopify, this is really what, what Shopify is, is basically the software I wish I would have found in 2004. Modernized to the right now take care of everything, but software can take care of if you want to build a retail business. Because it's entrepreneurship is an incredibly important aspect, more than half of all people in the world work for small businesses. Small businesses, for one reason or another, at times. So there needs to be significant replenishment of this to keep the pool there for all these economic impact for them, for employment. And also just for new product generation, new idea participation. And I think the internet has been more beneficial to centralization and for one person becoming really, really big then necessarily for democratization.
I think be a feeling some of the effects of that these days. And so it really Shopify is let's give all the things that the biggest retailers build says, except give it to the people would just sign up today and help them along try to massively impact the positive, the success rate of businesses online.
And the cool thing is if you put a lot of small things together, you end up with a very big thing. We have a million over a million merchants Shopify now. And if you put it all together, all the business which started on Shopify and they're using it, in terms of volume, it will be the second largest retailer after Amazon in the United States for online sales.
So it's a good story. That's seen us grow from like the two of us all the way now to like 6,000 people. And it's a public company and we prioritize learning, exploration, having a hypothesis and figuring out what the answer to it might be. And this has been our path.
Jason Jacobs: I heard you talked previously about how there was a transition point from thinking about the technology.
The business was a black box and that at some point you transitioned and then really kind of took on being a steward of the system of Shopify and not just the output that came out the other side, but I get from Shopify deep sense of purpose. And I'm curious, is that something that you had going in or was there some kind of hit your head in the shower moment along the way? When and how, and why did that purpose get infused in the company?
Tobi Lütke : I think the driving purpose initially was curiosity and the desire to half a kind of problems for which you would have to learn interesting skills to solve them. I remember this with my cofounder, Daniel, when we were deciding what to do, should we really do this Shopify thing?
The motivator for us was honestly. Why not, should we not do it? Like we don't really have much dependence and we can spend our time and it's probably not going to work, but we're going to learn a lot. So that was the initial, the reason for us to do it. Certainly,neither of us would imagine that we would make money with it.
In fact, neither of us took, we didn't take a salary until I think a company that was five years old. Of course, there's some privilege in being able to do this. We just all moved in with my parents in law and just kept costs down. And this is how we could pull it off. But basically we dedicated ourselves to Shopify just because it was interesting.
But this moment of he kept coming back to the experience of this entrepreneurship. It's helping someone half a first say it really does change that. I'm extremely grateful to my grandmother who had this business that I experienced. Cause that's a printing shop and grandma was an entrepreneur.
Her identity like people in my family talked about grandma in that particular way. She's an entrepreneur because at some point the first person walked into her coffee shop. That's why she's an entrepreneur. It's a fundamental identity changing event. And so the purpose became, this was so tangible and now when I look at Shopify, again,
it's not about what'd you think it would be like, clearly I'm looking at customer numbers, GMV and stuff like this. The metric I like best is like about every 50 seconds on Shopify someone has their first sale that is now something be made significantly more common because of us following this interest of ours, as far as it took us.
Jason Jacobs: When I think about e-commerce, I certainly think about from a consumer experience standpoint, it's great and makes it more convenient and makes it more accessible. And I get that as a small business, starting out competing with giants it is a way to get, reach and leverage and distribution that you couldn't otherwise dream of if you needed to be in 10,000 retail stores, for example.
But I also think of consumption. And so I find it interesting. I mean, do you feel like this kind of consumptive culture that we have of goods and material, things, and cars and houses and pairs of shoes and fashion. And Oh, the pipe cycles getting compressed and styles changing, et cetera, and Apple changing the format of the dongle so that they can force you to upgrade and all these things.
Is that a broken part of our society?
Tobi Lütke : Well, I mean, that's the deepest potential question you can ask about consumerism. It's hard to, you kind of have to zoom out very, very far too. Zoom back in. I think to a degree, this is human nature. It's very easy to demonstrate through biology and food just reasoning about fitness, why the desire to accumulate resources would be an advantage to fitness in the serengeti and so on.
So like we know this is fairly deeply rooted. I think the topic gets a little bit too one dimensional than most people, reason about it. I think there's a difference between people desiring good products. It's sort of as general a consumerism that we point out. Like for instance, I don't think people keep buying and throwing away things because they love stuff.
I really think people do this because they hate the stuff they get. If you go like one Shopify store I really like is this is a Canadian sort of local business called Viberg, which is very high quality leather boots. Now, if you buy one of those, you know, who made this, like this is a specific person made the boots.
It uses the Goodyear weld method, which makes. It's very easy for anyone who knows leather working to resew the shoes, these things will probably last forever, very expensive. It costs money to make things by hand a certain level, but like you buying this forever. And then I think actually a lot of what we see in society is actually the lack of availability.
You go at this from a systems perspective, why is the quality of everything we buy so low? Now, clearly this is motivated by we needed to reduce prices to actually allow more people to participate and being able to acquire the kinds of things that are meaningful or at least needed by them, the necessities, but there's a lot of structure that ended up reinforcing bad quality products reigning supreme, such as the distribution, just look at the last hundred years.
50 60, but only wave you saw distribution of products was food department stores, department stores stocked everything. Department stores had very limited floor space. In fact, the companies pay for getting into eye height on floor space and all these kind of things, which some people don't really fully understand the mechanics behind this, but because of this competition for good floor space, you ended up in the zero sum environment.
So who is able to pay most is going to be the people who ended up having the highest profit margin on a product. If your cost basis is better than everyone else, you can pay more for a good floor space to get your cost basis, to be lower you have to reduce quality. Ideally you also increase the packaging and use all sorts of other means of influence like the advertising.
There's an entire other thing we could talk about about like the advertising monopoly that the consumer packaged goods basically had because they had more leverage over the TV networks and the TV broadcasters have a cost basis for ads was lower. As the visible, we all grew up with the same nondetergent ads and all this time.
So you end up in this reinforcing loop that basically had nothing to do with quality anymore. In fact, the point was almost like because the view of a consumer came to the department store, you purchase something. And if that broke, you threw it away. You didn't even go back to the department store. So there was actually no way, even if the conscientious business wanted to know in which wave of boots that are being sewed break, they couldn't because they couldn't access it.
It was completey disintermediated. So what I like about what's the situation right now, it's actually, you're going through this massive disintermediation, this particular channel, and this direct to consumer thing happens again. And, but direct to consumer movement is a lot more about quality. You can see what Allbirds guys and their sustainability angle making real connection for people who purchase wool sneakers, they last, if they don't work, you send them back to them and send you a new pair. And then they know in which way these things failed so they can improve the product. And that creates a completely different cycle of reinforcement. So I had actually in a lot of ways, the probably average quality of things consumed is going up significantly because the entrepreneurs and the brands and the, I actually get it plugged in again, this people will end up using the products. And I think there's from what we seeing on Shopify. Yeah. It is fast fashion. It's not gone away. In fact, it's some guys it's going to get even faster, but we see a lot of alternative products for people who want to buy differently and we see that increasing across the spectrum, which I think is pretty cool.
Jason Jacobs: And so, I mean, what you're talking about, not only speaks to being better for the planet, but also speaks to building a longer term, more durable product and company and brand. And I know in one of your blog posts where you talked about carbon, you mentioned the importance of not just wanting to build a company, that'll be around in a hundred years, but making life in a hundred years and the planet in a hundred years be a place that's attractive to be around for and I'm curious, where did that come from? I mean, how and why did you start taking that long view and why do you think it's such an exceptional one, given that it seems to make so much sense?
Tobi Lütke : I tried to hold myself in the company building to high standards I can sort of think of. I use a term called comprehensivism which is a lovely term coined by Buckminster Fuller, which really sort of says, you need to think about you are not allowed to micro optimize in your sort of arena. You'll have to look at comprehensively the entire planet. And so what that means to me is that like a company, especially company, company is important. We all spent enormous amounts of time. If you've worked for companies that face companies that's a lot of our effort goes into that is where we spend a lot of time that's fair of all camaraderie comes from and the journey to be honest kind of path dependent on what the company is doing.
So companies need to in my eyes, think about a world really, really holistically and specifically understand what the externalities are of a companies. Now externalities is a topic which comes up in climate all the time. We know that pollution is largely a negative externality, which happens to not be taxed back to the factories and that's causing all sorts of problems and really needs solving.
But externalities there's positive and negative. And also neutral externalities of companies. I think one externality of Shopify is more employment, which is I'm really, really proud of. There's more people who are going to book for more people like entrepreneurs, because more people are going to give it a try to build a company.
If it's something that is easier, that's an externality. And by the way, a criticism of a lot of especially tech companies often is about externalities. It's like the unintended side effects of them succeeding, maybe having side effects in society that might not be desirable. And they seem...
Jason Jacobs: Like Airbnb driving up rent prices for locals.
Tobi Lütke : Exactly. I don't think that nets out Airbnb as a bad company. It's just, they need to acknowledge that that is something they do, and they need to have a story about how they still net out positive. Companies need to be positive sum for the world and not just for their shareholders. And I think this is a very, very large piece of confusion has been caused by his own Milton Friedman idea of shareholder capitalism.
I think that's a terrible idea. And I don't think Milton actually thought this was a terribly good idea after he penned his piece, like Shopify is Canadian. We're not even allowed to be shareholder companies, you have to be stakeholder companies. Our articles of incorporation demand this from us.
We have to act in the best interest of all stakeholders, which includes the shareholders, of course, but like for employees, of course, super important. And the customers are super important and, frankly, our local communities where we have our have offices in. Obviously, the environment is a stakeholder. So this is important as a transition piece.
And I think this is generally starting to be understood even in this sort of more Milton sort of inspired American business culture lately. And so the environment just comes up as a important point. Yeah. I'm also, by the way, I grew up in Germany. So like I had a green party leading the country I grew up in, or at least being part of government for as long as I can remember.
So maybe some of us, I think Germany did a good job keeping this on topic before it was fully vogue. And so this is something we wanted to do. We've calculated the carbon footprint of Shopify entirely. We've done what I thought was the right thing to do which is we bought all the carbon credits and offset everything.
And at some point I was like, well, hold on a second like, just explain to me exactly what we are buying. And then that's sort of started a journey of like, just digging below the surface, which ended up being really very consequential for me personally, because frankly, I just wasn't impressed by what I ended up finding.
Jason Jacobs: And when you had that realization where you said, well, we want to build a longterm company and we're not on a sustainable path on climate, and we need to play our part to make sure that the not just Shopify is strong, but the underlying foundation of the planet we live on is strong to support us, our employees and all the other people in the world.
Was it a long road to go from that realization to action?
Tobi Lütke : It took longer than I would have expected. And maybe I think a good deal has happened in the year and year and a half, two years since we went through or maybe I just know where to look now. I thought it was very, very tricky to find initially the people who we're thinking again holistically about the whole space.
Like for instance, I wouldn't say if a carbon offsets that we ended up having and purchasing were averse. But like I found out there's a lot of carbon credits in the world, which are really just, if you have a particularly bad factory, something really polluting and you tear it down and you replace it with a really clean one.
That's really, really good for environment. And you should do this, but guess what? Right now, it actually behooves you to actually turn that factory back on for a little bit as bad as it is. Just accept the negative externality, then shut it off. Retrofit the existing one. To put all sorts of filters. You can put in there to capture the carbon emitted and all these things, and then run this sort of improved version office, really bad thing, but you really should have replaced because now you're going to end up not just running a factory.
It's not as effective as a new one would be, but you had lower capital cost to do a retrofit and you get to sell the difference between running that really, really bad polluting previous factory and all the changes you made for filters, and you can sell those as offsets. It might actually end up being, making more money this way.
Then if you would have replaced it and done the right thing and just, I find, I'm not saying this is what happens everywhere on all of us, because you have to be a little bit, you really have to not give a shit to act like this, but it happens enough that there's a lot of these carbon credits, which actually don't really do the thing. One thing I learned from Shopify, I think I've said this in the same blog post is this is amazing entrepreneurs. Like I'm thinking of Leanne who ran a business that's all, it really, really believe it create fashion, but it also happens to be vegan fashion, but that wasn't the point.
That was her point, but not the point she was making to her customers. She just saw it really, really good articles the way she explained this and why she wanted to run this particular business is because you said every single time someone purchases a piece of outerwear, they actually vote. That's a democratic process.
They vote not just for me as an entrepreneur, but actually vote for literally everything that made this product happen. And if you have two businesses next to each other, and one of them causes an externality like animal cruelty, which is uncaptured as an externality and the business right next to it is vegan, but sells better products. Every dollar that doesn't go to the animal cruelty one, but goes to the clothing thing, actually votes for the entire planet to rearrange itself, to provide more of that, because that is a market you're pushing, that's what you're causing. So people actually change the word significantly, by the way, they spend their money.
And so this is on my mind, but I'm saying, what am I actually buying? What am I actually going to cause a planet to provide me more of? Do I want more factories to be turned off? Or turned on again, even more, they shouldn't in our case, but we ended up like a lot of our carbon credits ended up coming from other sources, like natural gas capping landfills, which is not a bad thing, but it doesn't do anything for what I think is the largest problem, which is the amount of carbon in the air.
Jason Jacobs: Just backtracking a bit was the first thing that you committed to doing then figuring out how to get the company to carbon neutral within the walls of the company. Is that where you started?
Tobi Lütke : Yeah. And that was the starting point. I forgot. I know it's like three levels of us. I just forgot the right terms for them, but they want to get, as far as we can.
We want to take this as far as we can. And just trying to understand what it actually takes, where our emissions are. Even, that was a tricky project. How did you do this, then you might imagine, especially for something...
Jason Jacobs: Just to understand where you are today, let alone set a benchmark and figure out how to make those improvements.
Tobi Lütke : Well, and also you get into the sort of subtleties, so like a package traveling from one point to another. So that has been caused by... Shopify was involved in brokering the transaction, absolutely. But the package is then mailed by one of our customers. So is it their responsibility to account for carbon, but it's also transported by UPS.
They are technically driving the trucks and, or flying the planes. So isn't it their responsibility trying to make these decisions. It's actually like, how do you account for this?
Jason Jacobs: It's a weird analogy, but it's kind of like when you're shoveling the public sidewalk in front of your house and where does your house stop?
And the neighbor's house started. Since you're shoveling it anyway, shouldn't you just shovel the whole sidewalk because people walk down the whole thing. They don't just walk down the piece that touches your yard. I think that's the point you're making. Where are the lines of demarcation stops so that everyone owns their piece, but that collectively we get the whole thing.
Tobi Lütke : Exactly. And I think what they ended up deciding is they seem to care more about this and everyone else you're going to do two things. One is we shovel the entire sidewalk, ideally because we just apparently care more about sidewalks being a snow free than everyone around us, but B let's make it really, really, really, really, really simple for everyone who also happens to agree that sidewalks shoveled are a good thing to get their sidewalks shoveled, ideally with a single click and some robotics involved or whatever, I'm an overstretching the metaphor, but this is sort of a role we want to play.
Jason Jacobs: And from a progression standpoint. So if I'm hearing right, you started down the path of getting to carbon neutral for yourselves. And as part of that, you were trying to understand and then chart a path to make improvements and then offset in the interim you uncovered as you were offsetting that some of the quality and transparency was crap. And you started looking for ways to offset that higher quality while you're charting the path of improvement. And then concurrently started looking at it, the rest of the footprint or life cycle of that journey outside of the walls of the 6,000 Shopify employees.
Tobi Lütke : Exactly. And specifically, I tried to reason about these things from first principles. If I can, like I said, it's hard to do this and I'm also like, I don't have a background in, I'm not a chemist. I can basically just repeat what other smart people say. And then hopefully synthesize some of those kind of ideas, but the fundamental problem, but I keep coming back to is right now, this planet is pumping about a 10 kilometers by 10 kilometers by 10 kilometers cube of pure carbon atoms.
Into the air every year, just from a land use issue, if we would be super efficient at getting carbon atoms out of the air and just being able to fuse them together into stable cube, I don't even know what to do if a 10 kilometers by 10 committers cube. It's like when you put that and that's just what we add to the air every year. My issue is with so much about in the sustainability circle on in climate circles is that I don't think they acknowledged the problem. Like even the Paris Accord, it's largely about how we can stop growing the cube rather than getting anything out of air. So I have a CO2 meter here behind me.
I have one in this room I'm in, I have a big window. It's only cracked open. So now currently it's at 70 PPM, which means I should open the window more. But even if I would open the window now perfectly and there was, would be a wind. It would go down to 400 something PPM and beginning of industrial Revolution, it would have shown 225 or something outside.
Yeah. You put a lot of extra carbon into the air and there's all sorts of interesting effects that you don't have to get her into. That come from having tangible problem. I said it wouldn't get into it. It really shouldn't. But it's like once you're over 1,000, your IQ drops. Oh, and over again, if you in a group too much CO2 in that everyone's ability to do mathematics and so on, actually deteriorates.
So like from a purely intellectual perspective, we really should solve this problem. Even if you're not worried about the planet, we can agree that we don't want to make all society couple of IQs dumber by just pumping more and more carbon into the air.
Jason Jacobs: And it'd be great to get into. So, I mean, as you've uncovered this, and then more knowledge is making you more concerned and then you become determined to both personally and from a Shopify standpoint, play the biggest role you can in trying to help address this problem, which I think is great.
Where are you today? And. How did you get there? And the reason I ask is not just from a Shopify standpoint or from a personal standpoint, but also many of our listeners might be also leading companies or also trying to figure out personally how they can help. And so it'd be great, not just to talk about your successes, but also just to talk about your process and journey and learnings, because I think that will inform me and other listeners who are trying to go on their own journeys to figure it out.
Tobi Lütke : Step number one is like a technology issue and unfortunately, I think because of a lack of scrutiny, I think the sustainability industry kind of built a lot of I call them pressure release fives for the people want to do something it's super easy to do something everyone's going to push your products.
That do something, especially in the offset space, everyone should make a decision of what they actually want to do. Pick a topic, make it reforestation. If you want to make it carbon decrements, like actually getting carbon out of although that's really, really tough to do, but we can talk more about that because that's sort of the direction we are looking in.
I think pick a topic and then if there are great offsets being offered in this space, then I think it's worth doing. But, I think the step number one is have somewhat of a vision for what you want to cause what is the thing that you actually want to change? And then once you purchase products, ensure that the thing that you want actually happens more because of you purchasing these offsets. Because again, like, yeah, this is getting too technical, but offsets trade on a market. Like usually when you buy an offset, you're buying them from someone who's not actually the person who has the solar farm that they promise you, are you buying it from someone who bought it from them who waited until the demand was higher. And you just now paid, they made the premium that doesn't cost more solar farms to be created directly. Anyways, in a very indirect way it does. But is that what you want to cause? More importantly, to understand the impact of a company go through the exercises.
I won't go into how to do this as people we're very good at this kind of thing. We built a team that, that this internally, for many other companies, he met me and said, hey, we've gone through this exercise. Can you sort of eyeball our approach before we announce it and then we are happy to do so. We have some really, really great experts on.
Jason Jacobs: What do you call that team by the way? Is that a sustainability team or does it have a different name?
Tobi Lütke : They call it sustainability team for simplicity.
Jason Jacobs: And where does it live? Who does it report into?
Tobi Lütke : It reports directly into my Chief of Staff.
Jason Jacobs: Got it. And so that decision was made because you see it as a cross-functional activity that shouldn't report into any one specific function, but should have purview in a more holistic way across the organization?
Tobi Lütke : Yeah, exactly. I mean, the goal of our team is to get everyone aware of the decision we make, people are thinking funnily, about decision-making my experience has been whenever a decision has to be made there's usually like, yeah, there's a couple of bad ways to go. But once I actually, so with disciplined companies, which think well about decision making, those are usually fairly easy to discard that a lot of effects and the quality of the business ends up coming from recognizing that we have like five or six or seven good decisions that you can make.
But that they all have very different longterm repercussions. And so not stopping at saying, hey, we discovered one of the good ways to go. Actually, let's look at all the good ways that we could go. And then see if there's other stakeholders we can take into account and realize that one of those ways ends up being superior.
This really around sustainability is fairly often the case again, because they are so many products that are really kind of, this is not a new idea, but I do think that a lot of products being sold around sustainability and around offsets are really the modern equivalence of Catholic indulgences. Here is a way for you to pay money, which is something that's dear to you and you can sacrifice here so that you can feel better or that you can get some checkbox on some report. I think it is important to just think a little bit deeper about visa effects, the community, the sustainability community called the decarbonisation community has to come up with beter labels. It has to figure out how to explain if something is avoiding more carbon to get into the air, or if something actually decrements carbon.
And sometimes this gets really difficult. Like what's the tree. A tree, solar powered, self repairing self replicating machine that takes carbon atoms with the help of sunlight out of the air and then turns it into wood or whatever, that's cool. Sounds amazing. Problem is 40 years later the tree's done with that.
And then it's, I'm gonna release all the carbon back into the air. Is that. Actually decrimenting carbon by itself? Probably not. It certainly helps us temporarily. If you have more forest cover, then we get a bunch of carbon out of the air, but it's going to come back. So we buy time, if he really wants to sequester carbon using trees, you have to look up other ways of doing it.
But this gets into a lot of people, they faint even hearing of this. But honestly, if you plant quick growing trees and then after a certain point of maturity, cut them down and bury them. That's actually a lot better for the environment than it is to just let them grow as heretical as it sounds, because luckily decompensation doesn't work really well underground because it doesn't have enough oxygen there.
Jason Jacobs: Correct me if I'm wrong, but it seems like a lot of what I'm hearing from you is that offsets haven't been high quality and here are some ways to make them higher quality. Is that true?
Tobi Lütke : Yeah. For instance, we have committed $1 million, which I would love to get up to just buy direct carbon capture offsets.
Like futures, whatever at any price. Right now, there's basically two companies which do direct air capture or free all of them in prototype. None of them at scale, really ClimateWorks has a proper plant, but you end up paying like $500, $600, $700 up to a thousand dollars per ton of carbon that has actually been taken out of air. You can buy a ton of carbon offsets for $6 sometimes.
Jason Jacobs: I guess I'm finding, I mean, we could have a whole conversation just about that, but I have a more fundamental question, which is if the logic is that offsets are crap and here's some ways to have higher quality offsets couldn't you use that same logic and say, well, higher quality offsets are crap and what you really need to do is if you want to solve this in a more sustained way, is reform capitalism and get out of the mode of GDP growth at all costs, be more about harmony with the planet and with our resources and with our society and fixing inequality and things like that. Versus a healthy economy is a growing one.
Tobi Lütke : This immediately gets into the continuing on economy growth without capturing or somehow taxing or somehow dividending the negative externalities. This can only lead to one space. And I don't think anyone like non-economists in the world wouldn't agree that this is causing a huge problem for the environment.
I don't think we need to actually say goodbye to the entire idea of capitalism. I think capitalism can like stakeholder capitalism. We need to reform capitalism. That's I think the point, like we can't have companies can make enormous amounts of money by just externalizing all the costs to society.
Jason Jacobs: But how do we reform it?
I mean, as offsets the primary way that you're advocating that we reform capitalism, or are there other measures that you think would be more impactful or I guess said another way, just necessary parts of the equation to compliment the higher quality offsets.
Tobi Lütke : If I had my magic wand, I would create like a global same day carbon dividend idea that's well designed. Again we have a magic wand, so like this is it's easy to save these kind of things with a magic wand. If I get it my hand of a magic wand, this is honestly probably the one edit I would make on the climate side, because you want companies to the economy.
Markets are really, really powerful. Markets cause the things that markets benefit automatically. So it is so trivial, like just to take concrete. Concrete is 16% of entire energy usage of greenhouse gas, emissions, massive. This is one of the biggest parts of it. They're using the Portland method of creating concrete, which is probably reversed.
It just the best understood. And there's kind of no reason to switch it. Now they are companies like Carboncure, but you're kind of figuring out, and then some others, I forgot the name of a one from New Jersey, which you're kind of trying to make this more efficient, but the problem is it takes them so long to convince the concrete makers to do this because basically the concrete makers have to say, I believe in climate and I'm going to accept slightly higher cost basis for doing this.
And I'm going to use this as a brand to kind of get people to use my concrete, even though it costs a little bit more. Oh, well, it lasts longer too. But the problem is for guys who make concrete on the road, I'm not doing this and there's a lot of projects which go to the lowest bidder. And so, I mean, I'm not explaining you anything you don't know, but like the moment, but the actual energy input is going to be factored into concrete in some meaningful way, suddenly using less energy and using less negative externalities becomes not something that anyone has to argue for. It is self-evidently the direction companies are going to go. And I think the effect that would be significant.
Jason Jacobs: And as a CEO of a publicly traded company, do you think that you and other CEOs or that other publicly traded companies for that matter, that care about climate and believe that price on carbon as you described was the most beneficial thing we could do.
If we had a magic wand, do you and others have a role to play in helping bring that about it? And also, I mean, do you think it's ever going to happen in our lifetime?
Tobi Lütke : I mean, my hope is that this is sort of like first, gradually, and then suddenly that would be the way it happens. I mean, to a certain point, like at least in Canada we have it.
It has large enough holes to drive a truck through. It's a good first step. I hope so. And then can we play a role? Absolutely. Yeah, I'll be on record saying, this is the thing we should do. I think climate is something we have to solve. I emphasized for, for people who say, hey, we can solve this problem by turning the lights off every night.
I do think even such things end up causing a lot of when you feel like you do something, once people feel like they do something. If you're like I'm doing something. There's a lot of easy ways to do something. I think a lot of people have sort of made changes to their lives, but sort of satisfy them, but they are helping the issue.
I think there's a cap to how much effect can come from that. I think fundamentally we have decided to organize it. Oh, a planet in terms of markets and I think we need to modify them. I'm happy to go and I have, then I get chance to talk to politicians I bring this concept up a lot.
Jason Jacobs: So where is Shopify on that journey?
Cause I know running out of time here, but do you feel like you're still in the category of kind of doing something and feeling good that it's better than nothing but not nearly enough and you aspire to do much more over time or are you doing a lot already? And you're proud and feel like you're punching above your weight class. How do you self-assess on where you are and where you want to be?
Tobi Lütke : I think we're still early. There's a lot more to do. And I think they have the privilege at Shopify to be able to focus on such things. And do you want to figure out. I'm a techie. So I'm almost thinking about Shopify trying to implement the reference implementation.
Like the thing that is, hopefully, we can bundle up and saying, hey, here's a set of standards. They'll be found to be useful, how we think companies should evaluate their own role. And then he has a couple of degrees depending on how you want to go into it. How much of a personal impact you can have. And what we want to do is first of all, it's not just Shopify.
You have a million retail businesses on Shopify that we can and now making it very, very easy to get the kinds of offsets that actually we think have a tangible benefit right now. And therefore we can remove a lot of complexity from a day to day operations, because again, I think the will is there. The question of how it's often, what stops people in a way friction ends up being the thing that causes a lot of that things for environment, but be still very early because of you're running out of product.
If you want to decrement carbon, like actually get carbon out of th air, through ways like biochar and actually direct air capture and so on, they might be supply for about a hundred million dollars of investment worldwide. And the only way to get the supply for that is to spend a good deal of money building factories. Factories in the sense of direct air capture factories, like places really get the carbon out of the air.
And then ideally can either utilize the pure CO2 in some permanent way. Like there are some great ideas around concrete, which helps or try to get it it sequestered or converted into some kind of stable form. And some other ways, there's a lot of research that has to go into this. Through my foundation, we've contacted the people who wrote the papers on these topics. And we hear you guys are the first people who ever contact me about this and that's crazy. So we really have to go beyond the basics.
Jason Jacobs: So I did an episode a few months ago with David Heinemeier Hansson who I know that, you know, and he's not an optimist.
He thinks it's too late and he doesn't really see a way out of this pickle. You agree or disagree with that perspective? Are you an optimist?
Tobi Lütke : I think it's going to work out. I'm optimistic. There's three ways to solve this problem. And one of them let's dig. We figured out how to get carbon out of air and massively reduce the emission site.
I see the momentum to build up the understanding of this. And I bring this up. It's a daunting challenge. Just again, it's a 10 by 10 committers cube that they're putting into the air. I don't know how we're supposed to get ahead of it. But again, the human genome project was a very big project. It was stated for 15 years, it took after 13 years they didn't even have 1% done on after 14 year, we had a percent done, after 15 years we were done.
Jason Jacobs: So you're talking about number one is direct air capture. What are two and three?
Tobi Lütke : Number one is direct air capture and all sort of ways of getting carbon out of air. There's actually a lot about accelerating the natural processes, oceans, the biochar direction, this is actually a broader topic.
Yeah. Some things good. That should be everyone's favorite way of solving this problem. Number two is frankly energy breakthrough because every problem is an energy problem. Direct air capture is an energy problem fundamentally. Yeah, it costs a lot of energy to capture most wars are fought over resources in which again, artists, another form of energy.
If you have a fusion breakthrough, then that solves the problem as well, because it will drop the cost basis of energy creation to such a degree that all other methods of carbon-based efforts of energy creation will just become so uneconomical that overnight, next 90 years, the oceans are just going to pull out all the carbon out of a fiber natural processes.
And there's a lesser problem that comes from ocean acidification that comes from this. But maybe if you can figure out fusion, we can figure that one out too. And the last one is, for me, I'm a super, not fan of us, but putting sulfur in the air is going to be the last line of defense. And I think all communities need to work hand in hand on trying to make the, so that we don't have to use this, but those are the three layers of solution to at least the particular problem of global warming.
Although that does nothing for environmental.
Jason Jacobs: And given that there's an audience on this pod of people that are tackling this problem from all different backgrounds and perspectives, innovation, capital policy, academia, government, elected officials, et cetera. What do you want to hear about either from a personal foundation standpoint or from a Shopify standpoint?
Is there anything you're trying to solve for, or if a company was doing X or a nonprofit was doing Y and if the answer's no, that's fine, but I have to ask.
Tobi Lütke : The things I'm looking for specifically right now is, and this is actually, it's not a science problem. It's not even a company problem; it's not even a sustainability issue.
It's actually a branding issue. Just we need something new. We need something that isn't just offset or not offset. If you look at something, how do we reason about if that actually net removes carbon or if it's just slows the point of emission, or if this is just a temporal sequester? I think once we have language and build up equity in this language, just the nature of a problem will change, because suddenly I think automatically you will get more demand for the kinds of things that will make lasting change because people can ask for it. Right now, it's we have to sit down for an hour and talk about this, or you people have to subscribe to your podcast to really understand how many different layers and yes, and that is it too hard. Otherwise we need more people actually in research with research is surprisingly not as far along as you would imagine.
Jason Jacobs: Research in terms of finding projects to offset that are of higher caliber, higher consistency and more transparency. Correct?
Tobi Lütke : If you need new ideas for tickling chemical processes, CO2 is very stable. It likes its carbon. It really doesn't like to give it away. You have sustained challenges like this before, and we figured out ways of compelling molecules to change.
This is an active area that needs to be figured out. Similarly converting the gas of CO2 into either products or stable form for proper sequestration is also something that there just has to be a lot more research. And then the community just has to ask. I think all companies, and this is not just sustainability topic.
All companies really need to think about how the companies sit in society inclusive of all the externalities, like this topic of externalities has to be more in the conversation. And I'm not just talking like, this is really like who benefits from your company's success and who doesn't. Is something going away that might be valuable, then you succeed.
It's okay if it does, but just make sure it nets out positive. I think this is a fundamental thing that I really hope the world has closed its doors on companies that kind of just can sort of sit in a particular swim lane and hyper optimized for value extraction in the swim lane. Not having to look beyond, I think that's what the energy companies are all hearing right now.
And I think this is what I think every company in the world should be asked and frankly for the people who build infrastructure, we should make sure that they make it easier for companies to have a good story, especially on that environmental side. This is something I'm trying to figure out with Shopify and then governments I get it. I understand the government's are ultimative multiple stakeholder environments. We, as a society, have to move ovation the overtone window to have a point where the majority opinion is just going to be that every company has to be responsible for its externalities. And then we need broad global conversation around how this can be introduced at least in the larger unions. I get the arguments about why no one wants to do it first. I totally get it. This is legitimately hard. No one wants to lose their domestic industry on, especially the sort of manufacturing side and so on, because suddenly the cost basis goes to higher custom new taxes, which for neighbors don't have to pay.
I get it, but this is why we need a global approach. And it's just like, we've solved global challenges before; we really need leadership around this.
Jason Jacobs: Tobi, I know we're a few minutes over here. Is there anything I didn't ask you that I should have, or any parting words for listeners?
Tobi Lütke : Keep digging deep. And the conversation is the most important thing. Like this is underexposed. Five years ago, if you would have come to me and said, hey, once we do sustainability, we actually will have to go read white papers and sometimes cause some new original research into topics just to get answers on things that seem fairly basic. I wouldn't have believed it. It seemed almost like the story I just told in the beginning of it, like I came into e-commerce in 2004 and figured we've done e-commerce for this time. Clearly you figured out how to do this and no, he didn't absolutely like, no one's built good eCommerce software in 2004 yet.
And definitely no one I have the people who wanted to start into eCommerce space. And this just kind of reminds me a little bit, like there's so much stuff going on, but so much of it cancels each other out, or just again, does something and therefore release the pressure of people, wanting to do something and wanting to do something good.
And this is a planet we are talking about, like e-commerce who cares, like what Shopify would never have happened. I imagine something would have come along. Maybe fewer people would have ended up having online stores now, which is regrettable, but it's not the end of the world, but sustainability kind of is.
Jason Jacobs: Well, it's funny with MCJ, which is kind of short for My Climate Journey, it started with the podcast, but there's this great community that's emerging. And half of it is new blood that's coming into the fight like me, who's committed to solving the problem, but doesn't necessarily know where to start or how their skills are transferable. And the other half is people that have been working on it for a long time, from a wide range of industries, perspectives, geographies, et cetera.
And our purpose is to, for people who are determined to tackle the problem that are ambitious to work on the most impactful stuff that are optimistic, that we can make a dent and that have a collaborative spirit, but that don't have the answers. This is a community where they can gather and compare notes and be on the journey together.
But also from an MCJ standpoint, we aspire to give them more pick and shovels over time to help them be more impactful. And some of that is knowledge. Some of that is connective tissue, events, training mastermind group, service years, capital, et cetera. And I had never thought of this analogy before, but it almost sounds like what you set out to do with e-commerce in 2004, we're setting out to do with making, addressing climate change, more addressable for the masses.
Tobi Lütke : Absolutely. This is how all change happens. It's like get a community of committed people together who have a hypothesis about how to do things better and just make it easy for other people to join the movement. That's what softwares; that's what information is. That's what a podcast is for. We need a facts-based, very scientific conversation.
Almost take it back to the top. And we derive how our approach to climate and we absolutely need to listen to the people who have been in this space for a long time and help them connect with the opportunity with the communities of people who are more action driven, maybe than people have been in the past.
So all of this has to be put together and I think you're doing that. And I think this is extremely valuable. So thank you very much for doing this and actually thanks very much for the invitation. I appreciate it.
Jason Jacobs: Well, you too. And I think it's phenomenal what you've achieved in a relatively short amount of time.
I am long Shopify. So it's also, I mean, I fully believe that you've just scratched the surface of what you have potential to achieve from a capitalist standpoint, but I also really admire your approach, how you've gone about it, both in terms of the commitment of Shopify to be a good citizen for those around, but also for the people within Shopify and making it a great place for employees to thrive.
And then thank you for caring about this problem, because you don't need to, and many people in your position don't but you do. And you've been showing that with your actions and although you're early-on in the evolution of the impact that Shopify aspires to have. You're already way ahead of the game in terms of most everybody else.
And I'm confident that you'll put the same resolve and thoughtfulness to addressing climate change that you have to every other aspect of your business. So thank you for that.
Tobi Lütke : Thank you very much.
Jason Jacobs: Hey everyone, Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey, you can visit us at MyClimateJourney.co. Note that is dot CO not dot com; someday we'll get the .com, but right now dot CO. You can also find me on Twitter @jjacobs22, where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. And before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers made me say that, thank you.