Tobi Lütke: The Shopify pivot

Tobi Lütke was obsessed with snowboarding. Being from Canada, he and two of his friends decided to start an online ecommerce store that sold snowboarding equipment and accessories back in 2004.

But Lütke found that there were no suitable products on the market that he could just plug in to start selling online with ease. And so, he built his own ecommerce product.

And then something weird happened. More people started asking him about the infrastructure behind his ecommerce store than his snowboarding ecommerce venture itself! 

In 2006, Lütke started a company by allowing others to use his ecommerce infrastructure. He called this company Shopify. Today after 15 years, Shopify has over 1.7 million people hosting their ecommerce stores on it and is a huge multi billion dollar behemoth!

And it all started because Lütke helped others scratch the itch he faced himself!

Elon Musk and the genesis of SpaceX

30 year old Elon Musk had already hit two homeruns. Once with Zip2 and once with PayPal. PayPal was about to be bought over by eBay, which would earn Musk a cool 180 million dollars. So Musk decided to now focus on something that would help humanity. He wanted to make us humans a multiplanetary species.

But when he looked at what NASA was planning for Mars, he was hugely disappointed. Because there were absolutely zero Mars missions planned!

To change this, Musk decided to create his own Moon mission: something symbolic that would inspire the whole world to start chasing space again. He thought of the idea of the Mars Oasis project: sending a miniature greenhouse to Mars where a seedling could grow. He thought that by showing the world how far life had travelled would inspire the new generation again. 

To achieve his goals, Musk started cold calling aeronautical engineers and people with connections who could help him buy Russian rockets. Because Russian rockets were the cheapest in the market.

On his first trip to Russia, Musk was literally spat on. Russian space engineers treated Musk as a novice. Musk made two more trips to Russia. And managed to make a deal for buying 3 rockets for $7 million each. But at the last moment, the Russians changed the price to $21 million per rocket instead of for 3 of them!

On his return flight from Moscow to London, Musk made a decision. Why not build the rockets himself? And thats how SpaceX was born. Musk put in $100 million of his own money to fund it. And pivoted from launching a space ship to inspire public to becoming an infrastructure company that would help others launch their own payloads in space! Instead of looking for a solution to transport his own payload in space, he became the solution for space transport.

The infrastructure move

In any field, chances are that you will make more money – not building the product – but by building the infrastructure to build the product. Because there will be a lot more people facing the same problem as you.

As the saying goes, people make more money selling shovels during the gold rush, than for prospecting for gold themselves!

Roland Frasier, a serial entrepreneur and a business coach – teaches a trick to his followers. He asks them to list their top 7 biggest business expenses. And then asks them: can they build a product around any of those expenses to convert it into a profit centre? Because, just like them, others have the same expenses too.

So should you always focus on infrastructure rather than the product?

Foxconn provides electronic manufacturing services to the world. Instead of building and selling their own products, it provides the infrastructure to other companies who wants to build electronics. By some estimates, 40% of the world’s consumer electronics is made in Foxconn factories. Everything from the kindle to the iphone to the playstation consoles.

And yet, Foxconn is not even 10% the worth of Apple. Value capturing is more nuanced. Building infrastructure is not always more valuable to the world. But it almost always is a safer bet. Because you are already solving the problem that exists – that you yourself face.

Action Summary:

  • Others may be facing the same problems you face. Is there an opportunity there to sell the infrastructure to them too?