Shopify’s Workforce Cutbacks and Logistics Business Divestment

*Elements of the video have been paraphrased for readability. 

Charles, LIDD President 
Welcome to the podcast, Jorge. I’m glad to have you here. As we were discussing earlier, having legal expertise in the company is crucial. It ensures that we don’t make any mistakes that we might regret later on. Can you tell our listeners more about your role at LIDD?

Jorge, LIDD Corporate Development Manager
I go through documents and ensure that everything is alright for the company to sign and that they are not getting into any unnecessary trouble. I also make sure that the company is covered from the other side’s perspective. I have a background as a lawyer and help with many contracts that the company has to deal with.

Charles
Thanks Jorge.

So today we’re doing something new, which is ripped from the headlines. We’re going to talk about something that’s in the news and explore it from a LIDD perspective, sharing operational insights on the subject.

Jorge
Exactly, and what people also don’t know is that we’re going to switch sides, and you’re going to be interviewed in this interaction, which is great for me as well. I’m a fan of the show, been following since the start, obviously. Who isn’t?

Charles
So today, what is the story here that we’re going to be talking about?

Jorge
It is about Shopify laying off 20% of their workforce and getting rid of their logistic business.

Charles
Right, it’s so interesting. Everyone in the world now knows Shopify, but what many people don’t know is that Shopify is a Canadian company. It’s a software package that allows anyone from a candle maker in her garage to a multi-million dollar consumer products company or retailer to have a commercial website really easily. You can click and connect a a very simple website and sell product through that website thanks to the Shopify package, and it’s been enormously successful. It’s a tech darling up there with the metas, the Amazon, the Googles, the Microsofts, it’s not quite at that level but it’s it’s very close in that it is worth billions and billions of dollars and like so many other tech companies this year, they have gone through a wave of layoffs. Just recently Shopify announced a – what did you say it was a 20 reduction in their Workforce?

Jorge
It is a 20% reduction, which was actually followed by a 10 reduction from about 10 months ago.

Charles
Right, it’s a huge reduction, and we’ve seen this with all the other tech companies. It’s pretty much something we’ve seen, not only that, we’ve actually seen it in much of the professional services industry. So the question is, why is that? I mean, we all know kind of roughly, there are two main drivers.

There’s interest rates that have gone shooting up. And I always laugh at this because the don’t say it within a historical context and I think when I first bought a house, I’m an old man, Jorge – when I first bought a house, interest rates were higher than they are now. So then you get to complain, you know, all these jet actors have no idea what an interest rate really is.

Jorge
Yeah, but to be fair, you didn’t have to spend money on your Amazon and Netflix accounts, and you know, we have more spending now, that’s just the truth.

Charles
That’s true. We played board games to entertain ourselves, and we liked it.

Jorge
Exactly, you just had to invest a nickel, and that’s it.

Charles
But that’s it. So my point is, it’s not even just about where the interest rate sits today, it’s the massive rapid increase with no predictable ceiling, no stop, that has pulled a lot of people who were traditionally very willing to throw money at anything, back. And that supply of easy money has disappeared.

One of the things that happens in the tech world, is if the supply of easy money disappears, then the number of startups who’ve got ample cash to steal software engineers from the major corporations also dries up. And that means that the major software tech companies are less inclined to worry about protecting their staff from being poached, and they can start letting people go because all of these companies. For example, Elon Musk kind of launched it right when he got rid of so much of the staff at Twitter, and you know, Twitter still works whether you like it or not.

Jorge
It actually works, and they are still hiring people – laying off people doesn’t mean that they stop hiring,  right?

Charles
Right, its different but the same. But anyway, so part of that general trend, what else would you want to say about that?

Jorge
Well, that was one of the general trends and one of the reasons for letting people go. One of the other reasons Shopify gave for laying off people was due to AI, the AI revolution, the AI era.

Charles
But in his whole description, and explanation to his team about why they should start this new endeavor, although he did talk about AI, and as I understood it, it’s more than just the principle of AI and evaluating all the places that we are investing, he also really underscores the idea of well-made quests.

Jorge
Well, let’s revisits because it’s been something that has been mentioned so many times before, and it brought up in the article – having a main quest versus having side quests.

Charles
Right. This is so interesting, that when times are booming, you have this core essence that is what makes you who you are, and then you’re always trying to add to it. In Shopify’s case, his point was first of all those side quests, as he calls them, they are a distraction from the main course of business, which of course is true. But when your main course of business is in an economic environment where money’s just rolling in, and therefore you can afford to be slightly less good at managing that, then you can put your management focus on these side quests, which if they pay off, can be amazing, but they are also distractions. And now he says, well, “I’m looking at this AI revolution, and I’m thinking my main quest is under threat”.

You know what Bill Gates was saying the other day? He was saying that we are going to ultimately replace Google or search engines with a personal assistant. And I mean, there’s a lot of this is very sensible. I want to be able to go onto my phone, and I, you know, ask Siri.

But, Bill Gates is talking about this personal assistant where the AI gets good enough that I have my assistant book me my hotel. Don’t just search for me, but let me give you the criteria. You have my credit card, Mr. Personal Computer AI. You have my frequent flyer point. Go and book me the hotel – you kind of know what my profile is. So in that environment, that’s where the Shopify folks are like, should we be going down these side quests when the main quest is set to be radically challenged, and how do we adapt to that new world?

Where the Shopify story becomes totally interesting to us at LIDD is we have folks interacting, building API, doing all sorts of work with a Shopify all day long. All our customers use it. So our NetSuite and our Business Central teams are always interacting in some way with that application. But what’s really interesting to us is Shopify’s logistics business that they built out during the pandemic.

Jorge
Can you explain what Shopify’s logistics business was for those watching at home?

Charles
Sure. Shopify’s target market was people like Jorge, who make and sell products online. They built a logistics division that would handle the packaging and labeling for these small businesses. So if Jorge shipped his candles to Shopify, they would fulfill the orders for him. It was a way for Shopify to control more of the activities of a single business.

Jorge
But didn’t Shopify sell their logistics business to Flexport?

Charles
Yes, they did. Flexport is a logistics company that specializes in the last mile. They’re valued in the billions, but we’ll have to see how successful this move will be for both companies.

Jorge
In the context of Flexport being a good business or not, what is our take as consultants?

Charles
Our take is that it’s important for businesses to focus on their core competencies and not get distracted by side ventures. Shopify realized this and decided to divest their logistics business to focus on their core business of e-commerce. It’s a wise move that allows them to stay competitive and avoid being spread too thin. The lesson here is to stay focused on your core business and not get distracted by shiny new ventures that may not align with your long-term goals. As for Flexport, they have a good reputation in the industry and specialize in the last mile, so it could be a good move for them to acquire Shopify’s logistics business. However, only time will tell if this move will be successful for both companies.

Jorge
Do you remember what Shopify’s logistics business specialized in?

Charles
Well, they had a sociologist from Yale on their team, which is impressive, but when it came to shipping a box, that person might not know how to get it shipped. Their defense was that they had endless cash and could just buy robots to solve the problem. But two years and billions of dollars later, they sold their logistics business to Flexport.

Jorge
And didn’t Shopify have equity in Flexport and invest in another logistics company called Deliverr?

Charles
Yes, they did. And it’s funny how startup companies these days have these quirky names that sound like British rock bands from the 60s. But the point is, they’re not reinventing anything. They’re not replacing FedEx or UPS.

Jorge
But there must be some valuable software and digital technology developed in that messy mix of companies that could be useful to existing supply chains.

Charles
Absolutely. I’m sure there are some useful things there that could improve the existing supply chain. But there’s also a risk of trying to disrupt and displace instead of improving.

Jorge
So we do think that Shopify made the right decisions this year.

Charles
Yes, I think it was brave of them to recognize that they needed to focus on their core business and not get distracted by side ventures. It’s important for businesses to stay focused on their long-term goals and not get caught up in shiny new ventures that may not align with those goals.