Technology is changing everything, especially how we shop online. Learning how to build a successful SaaS business is crucial in this era, as Software as a Service (SaaS) companies are at the heart of this change, offering tools that make running an online business easier and more efficient. One of the best examples of this is Shopify.

“The most important thing is it is really not so hard. People can learn a lot of Shopify” - Tobias Lütke, CEO of Shopify

What started as a small idea 17 years ago has grown into one of the biggest and most successful e-commerce platforms, worth over $133 billion as of 2021. Shopify’s journey from a small startup to a global leader is truly inspiring, especially for those interested in learning how to build a successful SaaS business in the tech world.

In this article, we’ll look at the key steps and strategies that helped Shopify achieve such great success. Whether you’re an aspiring entrepreneur or just curious about how tech companies grow, the story of Shopify offers valuable lessons. Let’s dive into how Shopify made its mark and what you can learn from their success.

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Shopify’s Early Journey

Unlike many tech giants that started in Silicon Valley, Shopify’s roots are in Canada, where it was founded by a German immigrant named Tobias Lütke. However, Shopify’s early days looked quite different from the powerhouse it is today, offering valuable lessons on how to build a successful SaaS business.

In the beginning, the three co-founders of Shopify didn’t set out to build a platform. They were simply trying to find good e-commerce software to launch an online store for snowboards in 2004. After trying several options available at the time, including Miva, OsCommerce, and Yahoo Stores, Lütke found them all lacking—they were difficult to use, hard to customize, and too expensive. This experience was pivotal in teaching them how to build a successful SaaS business by focusing on user-friendly and cost-effective solutions.

With his technical skills, Lütke decided to create a solution himself, along with his friends Scott Lake and Daniel Weinand. This decision became a key step in their journey to understanding how to build a successful SaaS business.

"It all started when we couldn’t find a simple way to sell our snowboards online, so we decided to create our own solution.” - Tobias Lütke, CEO of Shopify

This led to the launch of their snowboard website, which they called “SnowDevil,” a critical milestone that laid the foundation for Shopify’s growth and offered further insights into how to build a successful SaaS business.

The design of “SnowDevil” stood out for its time. As merchants themselves, the Shopify founders understood the challenges that store owners faced when setting up an online store. This experience laid the groundwork for Shopify’s “merchant-first” approach, which continues to attract more and more subscribers, proving the effectiveness of their strategy on how to build a successful SaaS business.

While “SnowDevil” did generate some income, it gained even more recognition within the developer community. By 2006, the founders decided to shift focus and released the first official version of Shopify. This version came with customizable templates, order tracking through an RSS feed, and an automated inventory system. It also included basic features like image uploading, tag editing, and item grouping, and integrated payment processing through PayPal or credit cards.

During its first year, Shopify earned about $8,000 per month—a modest sum for a startup with big ambitions. At that time, most of its customers came from the Rails community, the open-source web framework that Shopify was built on.

In 2007, Shopify’s CEO decided to make a major change. The company moved from charging fees per transaction to a subscription-based pricing model with a small transaction fee. This shift set the stage for the series of important milestones that would follow in the next decade, helping Shopify grow into the e-commerce giant it is today.

You might want to read our guide How to Start a SaaS Company (Step-by-Step Guide)

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The Growth: From a Small Startup to a SaaS Giant

Shopify’s growth accelerated after its pricing model shift, attracting a larger customer base and providing a key example of how to build a successful SaaS business. Recognizing a major opportunity, the company made a pivotal move in 2009 by launching an API platform and the Shopify App Store. This transformed Shopify from a simple e-commerce tool into a comprehensive platform, catering not just to merchants, but also to tech experts, developers, agencies, and affiliates, further illustrating how to build a successful SaaS business.

“In our original model, we had a flat rate system where everyone would pay the same percentage. We realized that we were turning away people that we really, really wanted as customers” - Tobias Lütke, CEO of Shopify

In 2010, Shopify raised $7 million in Series A funding, supporting over 11,000 online stores with revenue surpassing $125 million. The momentum continued with a $100 million investment in 2013, fueling the development of new products like the Shopify mobile app, Shopify Experts community, Shopify Plus for enterprises, Shopify POS, Shopify Payments, and Shopify Fulfillment. The Shopify App Store, integral to Shopify’s international growth, expanded rapidly from 100 apps in 2013 to over 2,000 by 2018. 

By 2020, Shopify had grown into a billion-dollar company, with $2.36 billion in liquidity and a 47% year-over-year revenue increase in Q1 2020, solidifying its position as a model for how to build a successful SaaS business.

Read Also: Successful SaaS Examples: 5 Success Stories to Inspire Growth

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Luck or Smart Strategy?

While the global pandemic negatively impacted many businesses, Shopify thrived. As more traditional businesses, especially small and medium-sized ones, moved online, Shopify’s platform experienced a surge in new stores and revenue. 

The company’s market capitalization soared and by the end of 2020, Shopify was hosting over 1.7 million merchants.

Was this success just a matter of timing, or does Shopify hold key insights for other SaaS companies? 

Today Shopify supports over a million businesses across more than 175 countries. From solo entrepreneurs to Fortune 500 companies, businesses of all sizes use Shopify to grow and manage their online stores. 

Let’s dive into the factors behind Shopify’s remarkable achievements and see what lessons can be learned.

Related Reading: Most Successful SaaS Companies: 5 Success Stories to Follow

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Key Strategies Behind Shopify’s Success for SaaS Businesses

1. Putting Customers First

From the outset, Shopify focused on the needs of its primary audience: small and mid-sized businesses with limited technical skills and resources. 

Shopify’s goal has always been to make entrepreneurship easier, providing a simple, all-in-one platform for merchants to sell online, through social media, marketplaces, and even in person with POS systems. Its subscription-based pricing model is designed to encourage merchants to focus on growing their businesses without worrying about technical details.

2. Never Stop Innovating

Shopify is committed to constantly improving its offerings. 

The company regularly unveils new features at its annual Shopify Unite events, keeping up with trends and expanding its ecosystem. For example, in response to the rise of social commerce, Shopify formed a strategic partnership with TikTok, allowing merchants to manage TikTok marketing campaigns directly from the Shopify dashboard. Shopify also updates its API and design systems like Shopify Polaris to ensure a seamless experience for both merchants and developers.

3. Creating a Win-Win for Merchants and Partners

Shopify expertly manages the interests of its two main audience groups: merchants and partners (developers and experts). 

Shopify fosters collaboration through forums and Slack channels, creating an engaged community where merchants can find help, and partners can build trust. Shopify also motivates developers to create high-quality apps, ensuring a transparent and growing ecosystem. The SaaS platform encourages merchants to use apps from the Shopify App Store, which benefits both the merchants and the app developers.

4. Thinking Long-Term

Shopify’s co-founder, Tobias Lütke emphasizes the importance of long-term strategic planning. 

The SaaS company focuses on key metrics like Committed Monthly Recurring Revenue (CMRR) and uses a framework to guide decision-making. Shopify’s leadership prioritizes work that maximizes customer value over time, using data to estimate the value produced and the time required to complete projects.

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Bottom Line

Shopify’s SaaS success is the outcome of well-balanced efforts across its products and services, user and partner relationships, strategic planning, and team development. SaaS companies can gain valuable insights from Shopify’s model to flourish in the rapidly evolving tech landscape.

Is there a Shopify hidden inside of your business? How can your business apply these lessons from Shopify? Have you tried any similar strategies and what were the results? 

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Reference

• Mixergy - How Shopify Became Profitable By Helping Anyone Open An Online Boutique