Good at making decisions October 30 2013

Everyone on my team of executives has earned their right to be there by consistent stellar performance and a hunger to become better a tiny bit every day. Yet, even the individuals sometimes have their doubts about their performance.

Recently I sat down with a member of my team who confided in me “I know it’s my job to know what to do but sometimes I feel out of my depth”. I immediately interrupted him and told him: “You earn your job not by knowing what to do. You earn your job by making great decisions when you don’t know what to do.”. In a fast growing company like Shopify reality changes every few months. At scale, everything breaks. Not knowing what to do is how we spend most of our time. It’s those times that make or break an executive.


Jason Calacanis interviews me on the future of retail August 08 2013

Jason traveled out to Ottawa for the (fantastic) Accelerate Ottawa event and interviewed me for an episode of ThisWeekIn.

 


The Apprentice Programmer March 03 2013

I dropped out of school when I was 16 years old. School was not for me. To me, computers were so much more interesting. Right or wrong, I felt like I wasted my time there and my real education was starting when I came home. I lost respect for the institution and of course this meant that I no longer bothered to put any effort into it. They diagnosed me with all sorts of learning disabilities and started to medicate me. I wanted to leave it all behind.

I decided the best thing to do was to drop out and start an apprenticeship as a Fachinformatiker - computer programmer. This might sound like a stupid decision to people in North America, who often go to College or University to get a degree in something like computer science, but in Germany leaving high-school for an apprenticeship is not out of the ordinary. It is called the dual education system, and it is likely one of the main reasons for Germany’s success.

The system has its roots in history of the region. Carpenters and a number of other important craftsman trades have used an apprenticeship system to teach and build expertise for hundreds, if not thousands of years. The underlying idea is that there are professions that profit more from experience then theoretical understanding and that education time is far better spent doing the actual work by watching or listening.

Many companies in Germany take on apprentices, much like North American companies accept interns and co-op students. If a company decides to take you on as an apprentice, the position is guaranteed by the state. Should the company go bust, you are placed with another company the next day. There is a web of companies guaranteeing the positions for each other, spread all across the country.

Unlike interns in North American companies, apprentices in Germany are treated like normal junior employees except they are cheaper, (700 marks per month or $400USD when I went), often younger and misses about 60 work days a year to attend classes at their vocational school. The schools teach the theory behind each chosen trade and certify the students at the end of 3 years with an exit exam which concludes the program. Student apprentices, (they called us “Stift” = Pen), who successfully complete the program and pass the exam earn the vocational title.

I landed an apprenticeship with a company in my hometown called BOG Koblenz - a subsidiary of Siemens - a company with a history of taking on apprentices. For some reason I vividly remember this one question from my interview:

The number of lilies in a pond double every day. So, on the first day of the month there is one lily. On the second day, two lilies, the next day four lilies, then eight, sixteen, thirty two, etc. If the pond is full on the 30th day of the month, what day is it half full?
That was not exactly difficult.

Three other Stifts started with me at the same time. On our first day we got a tour of the 150 person company, which seemed massive to me at the time. The first year was about paying our dues: 3 months running the cafeteria, 3 helping in accounting, three more working in inventory, and then three months at reception. It was a rite of passage, they told us.

The first 3 months in the cafeteria meant I quickly met everyone in the company and learned what kind of coffee or tea they liked. I made sure to keep them well caffeinated. My absolutely favourite group of people worked in a small room in the basement of a secondary building. I do not remember what their official titles were, but they were essentially doing Skunk Works down there.

They did things differently than everyone else. Most of the company used an esoteric programming environment called Rosie SQL - which seemed like death to my Demo Szene honed sensibilities (Assembler, Pascal or bust!) - these guys used Delphi. I fell in love with it! Here was a programming language that put humans before machines. It was built for instant gratification, experimentation and rapid prototyping. Its window management library called the VCL was so much greater than anything I had seen before. More importantly, it was run by Jürgen.

Jürgen was a long-haired, 50-something, grizzled rocker who would have been right at home in any Hell’s Angels gang. He was a rebel. He refused to wear the company attire, refusing to use the formal language, called people out on bad ideas when he saw them in plain language. Despite of all this, everyone respected him. I tried my best to make it absolutely obvious that I wanted to work for him. I borrowed the Delphi manuals and committed them to memory in my downtime between coffee runs.

At the same time, I would attend my vocational school every Friday, and twice a year we would go for two straight weeks to study and take exams. This was a much better way for me to learn. It felt relevant. I learnt the fundamentals of things picked up from being around Jürgen’s team. We learned about algorithms, Big O, etc - even some basic soldering and electrical work.

It turned out those learning disabilities were not real disabilities; I was simply a kinesthetic learner. I could not understand or come up with solutions to problems I have never had. At my vocational school, I knew the problems we were solving. I had been in those situations. It was great! My self esteem and confidence improved quickly.

My plan was working.

After the first year, Jürgen drafted me to be a part of his little basement-dwelling team. It was probably the most important thing that happened to me in my professional life. Jürgen was a master teacher. He created an environment in which it was not only possible but easy to move through 10 years of career development every year. It is a method and an environment which I am fiercely trying to replicate at Shopify.

Most days I came to work and found a printout of the code I wrote the day before annotated with red marker everywhere. I used poor idioms or could have chosen better abstractions or done a better job hinting at the architecture of the overall system. This taught me not to tangle my ego up in the code I write. There are always ways to improve it and getting this feedback is a gift.

I remember we made software for GM. One particular car dealership needed a faster system to estimate the value of incoming used cars. A big competitive advantage. Jürgen gave this project to me. Shipping it meant Jürgen and I had to drive to the dealership which was a day trip away. In preparation for it, the company gave me extra money so I could buy a suit. We work for Siemens after all. We had to look the part.

The day before the installation, Jürgen casually tells me he has somewhere else to be. I would be going by myself. I felt overwhelmed but somehow managed to make a good impression and got everything working regardless.

This pattern kept on repeating itself. Jürgen somehow knew the extent of my comfort zone and manufactured situations which were slightly outside it. I overcame them through trial and error, through doing, and immediately applying the theory I was learning at the vocational school to practice at my apprenticeship, I succeeded.

My degree is not recognized in North America so I am technically a high school dropout. My cofounder at Shopify has a PhD, so we always joke that together we average out to a bachelor’s degree.

Not that degrees matter anymore. They do not. Experience does. That is one of the things my apprenticeship and the dual education system in general taught me: experiencing and learning things quickly is the ultimate life skill. If you can do that, you can conjure up impossible situations for yourself over and over again and succeed.

Perhaps most importantly, the apprenticeship program gave me a solid head start. If I had gone to a University and studied to get a PhD like my Cofounder, I might JUST be getting out of school. Instead, at 32 years old and I have been paid to build complex software for almost half my life.

That is a powerful concept and one within the reach of almost any German student thanks to the dual education system. At the last count, there are 356 different occupations or occupational categories which offer apprenticeships. From hair dressers to oven builders to various specializations of computer programming. For hands-on people or kinesthetic learners like me, the apprenticeship program created a legitimate path to success.

It was the perfect environment for me, I learned a lot, and I am eternally thankful to have chosen that path. If only more countries struggling with dropout rates and job creation would give their students a similar choice.

Pick your compass metric February 21 2013

One of the most important tasks as a leader in a startup is to pick the right metric to track. This is often referred to as the ‘compass metric’ because it will be your compass for growth. It’s important to note that ‘compass metrics’ will likely change over the lifetime of a business.

Let’s say you started a new social network. When it’s time to pick your first compass metric, you settle on tracking the sum of people who log in on a given day: Daily Active Users (‘DAU’).

Good pick. It’s hard to misrepresent a metric like DAU. If people don’t like your service, they will likely not return, and your DAU will fall over time. Another metric you could have picked is daily sign ups. This would also give you a good sense of progress, but it’s not nearly as robust. Although you want sign ups, they aren’t necessarily synonymous with the health of your business. By spending a lot of money on marketing you might get a lift in sign ups, but if none of these sign ups ever return, your metrics would tell a misleading story. Daily sign ups look great, but without daily active (and engaged) users you’re just filling up a leaking funnel.

The metric you decide on will be your compass for growth. You implicitly tell your team that if someone moves this metric in the right direction they are doing a good job. If you launch a lot of experiments you can sometimes allow people to use other metrics for some early readings, but you should only conclude the efficacy of your experiments by checking the impact on your compass metric.

After you settled on the compass metric, you have to choose a time frame. This is important because you want to have a very tight feedback loop. If you have a 6-month sales cycle and your chosen metric is bookings, then it’s very hard to properly experiment.

Lastly, you have to design the user interface for your tracking. How exactly are you going to keep your entire team informed? From which angle are you going to look at your metric? As an absolute number ($10,000 in bookings this month), or as a relative number (30% growth over the last quarter)?

Let’s take Shopify as an example. We are a fairly complex business with (thankfully) many different streams of revenue. Most of our money comes from customers that pay us subscription fees. After a lot of experimentation, we concluded that the best compass metric for Shopify is weekly CMRR growth.

 

CMRR?

CMRR stands for Committed Monthly Recurring Revenue. FromBessmer’s cloud computing law #2:

[…] To achieve better business visibility, most top performing cloud companies focus on Annual Contract Value (ACV) or Monthly Recurring Revenue (MRR) - the combined value of all of the current recurring subscription revenue - instead of bookings. We recommend companies actually take this a step further and track the forward view of Committed Monthly Recurring Revenue (CMRR). The CMRR differs from the MRR in two ways. Firstly, it includes both “in production” recurring revenues of the customer and the signed contracts going into production. Secondly, it is reduced by “churn” which is the MRR expected to be lost from customers that are anticipated to be ending service in the future. CMRR gives you the most pure forward view of the “steady state” revenue of the business based on all the known information today. This is the single most important metric for a cloud business to monitor, as the change in CMRR provides the clearest visibility into the health of any cloud business.

In short, you take the monthly value of all your active customers, plus committed sign-ups and upgrades, minus the monthly value of all your downgrades and churn. Then you calculate the growth of that number compared to last week.

Our internal goal is to reach 3% weekly growth, a very ambitious number given our size. The user interface is simple. Monday mornings, our system sends an email to the team:

Red ✘ if we fell short, green ✔ if we made it. Everyone gets it.

Most groups that have a direct CMRR impact also get their own versions of this email that reports how their group did compared to everyone else.

 

Weekly meeting

Every Thursday we have a quick funnel meeting. This meeting is attended by everyone who has a direct impact on the CMRR number, including those in sales, marketing, partnerships, etc. Everyone in attendance shares two things:

  • What have we learned this week
  • What we are going to do differently next week
This is the motor of a fast-growing multi-million dollar venture-backed business. Our growth comes from a combination of choosing the right time intervals (1 week), the right compass metric (CMRR), and the right perspective (week over week growth). There is only a minor amount of support scaffolding built into this structure: one email and one meeting a week. Everything else flows from that.X