There is a lingering dismissiveness about SMEs, too often imagined as a collective of dodgy plumbers, hipster brewers and semi-pro bakers. But all the evidence suggests they are an economic powerhouse, driving massive growth, innovation, and job creation. SMEs can also allow people to work and prosper, to some degree, on their terms and if they are lucky, do something they love and are passionate about.
Back in 2006, Tobias Lütke had that kind of passion (and as far, as we know, has it still). Based in Ottawa, he wanted to set up an online snowboard shop and reach a wider audience than a physical store would allow. He found the digital tools available to be complicated, cumbersome and expensive.
Out of that frustration came the online retail platform Shopify, which has revolutionized the sector, making it much easier, and more affordable, to set up direct-to-consumer businesses and for physical retailers to make the move into e-commerce.
Shopify is famously simple and super-intuitive to set up and run and has become the go-to platform for retail entrepreneurs. The company sells itself as a champion of independent business. “Our goal is to not only level the playing field for independent businesses but tilt it in their favor - turning their size and agility into a superpower,” Lütke has said. And the consensus is that when it comes to supportive retail partner platforms, Shopify good, Amazon bad.
Shimona Mehta, Shopify’s managing director EMEA, describes it as a “mission-driven company”, and insists that mission is to “make commerce better for everyone”.
“We’re here to remove the barriers to people starting and scaling businesses, from ‘hello world’ all the way to IPO,” she says. “We democratize entrepreneurship”.
Shopify, now used by millions of retailers around the world, has just released an economic impact study—and it provides startling evidence of SME economic vigor (Shopify defines small businesses as merchants with less than $2.5m in sales).
According to the report, Shopify merchants supported 5 million jobs last year. Collectively, that would constitute the largest workforce in the world. Shopify’s partner retailers—digital and physical, mostly both—drive more than $444bn in global economic activity, a 45 percent increase from 2020. Again, collectively speaking, that would make them the second largest company in the world.
Crucially, successful SMEs often contribute to the success of other SMEs. Shopify’s “partner ecosystem” which includes everyone from designers, developers, accountants, and marketing experts to logistic providers, supported 656,000 jobs last year and generated $32bn in revenue. Shopify calls that economic ripple the “Shopify Effect”.
“That ripple effect means the impact of entrepreneurship extends far beyond individual businesses,” says Mehta. “We firmly believe that the UK economy and global economies are stronger with a greater diversity of independent businesses. These businesses are showing resilience and adaptability and they are vital for communities.”
It is that knock-on job creation the report identifies which gives Mehta the greatest satisfaction. “If you look at how much difficulty economies have been going through, and will continue to go through for a while—to know that we can fuel small businesses, that they can continue to grow and support jobs in the communities around them, that’s by far the thing I’m most proud of,” she says.
Of course, like many companies in the e-commerce space, Shopify had a “good pandemic”. With physical stores closed, many small retailers had to pivot quickly to establish an online business. And now, like many pandemic winners, it has hit something of sticky patch. Its share price has plummeted as growth has slowed. It posted a net loss of $1.4bn for the first quarter of 2022.
Shopify argues that profitability is not a priority right now, and it is continuing to invest in developing the tools that level or tilt the playing field for smaller retailers. “The last couple of years have just reinforced that sense of mission and allowed us to really think intentionally about where we invest to ensure that we are there for merchants,” says Mehta.
The share price drop is, one suspects, largely down to short sighted investors who simply expected the pandemic-driven exponential growth of e-commerce to continue at the same pace. E-commerce is still growing and Shopify is still growing, just at a slower rate than it has been. And the fundamentals are sound.
The reality is that physical retail has rebounded as it was inevitable it would. And Shopify is not just an e-commerce enabler, but is increasingly dedicated to helping integrate physical and digital retail in ways that make sense for retailers and for their customers, developing services such buy-online, pick-up-in-store (BOPIS).
“We need to ensure that people are taking advantage of the physical world and are set up for success in brick and mortar,” says Mehta. “That they’re creating the right physical experiences and the right, connected, omni-channel experience for their customers. We need to be able to empower merchants to understand deeply where their customers are, how they want to interact with you, and then to be able to build the best possible experiences in those places.”
As Accenture’s Andrew Carlisle says, as e-commerce does more and more of the heavy lifting in sales terms, the role of a brand’s physical store is as much about establishing brand identity as shifting product. “Retailers have been adapting physical space for alternative uses as consumers migrate to digital, and one of these models is the store as a marketing platform.” he says. At the same time, more and more digital-only, direct-to-consumer brands are realising the importance of a bricks-and-mortar space, temporary or permanent, in forging brand loyalty. “This change has also allowed digital-first brands to migrate into physical, creating pop-up and experiential concepts that amplify their digital presence,” says Carlisle, managing director - commerce lead for UK and Ireland, Accenture Song. “It is these digitally native brands, targeted at a particular niche or customer problem, that Shopify is doing such a good job of powering.”
Carlisle argues that these entrepreneurial SMEs are “Re-shaping both the retail and consumer goods sectors, adapting at pace to the needs of the customers and thinking differently about the linkage between digital and physical experiences.”
The new prize retail space, he argues, is social media and, again, Shopify is investing in helping new and existing customers develop “social commerce” while expanding the burgeoning “creator economy”.
“We’re empowering people to own their brands and their influence,” says Mehta. “We want to support creators who have got a passionate following they inspire, inform and entertain. That could be musicians creating their own fashion labels, or launching bespoke online stores, or beauty lovers starting their own beauty brands. We want people to be able to extend their brands and monetize them through social commerce.”
Earlier this year, Shopify launched Linkpop to support just that kind of social media-based entrepreneurship, essentially letting creators and influencers sell directly from their “link in bio” page. “Creators and merchants can not only host all of their important brand-building links in one place, but they can also start to launch social storefronts to sell directly on the platforms that they’re in,” says Mehta. “They create conversion through the social media app, rather than having to drag people away.”
Nor is Shopify standing still when it comes to moving things around. It has just spent $2.1bn on the US logistics company Deliverr, its largest acquisition to date. The pandemic has only sharpened consumer demands for quick, reliable delivery and easy returns—while making clear what a fragile business logistics can be.
The deal will help Shopify merchants rationalize physical and online inventories and make for smarter, quicker and more local fulfilment, which is good for the customer and, in reducing delivery distances, good for the environment. And on that note, Shopify has made a serious commitment to reducing or removing the emissions created by all that movement of merchandise.
The Shopify Sustainability Fund has invested $32m in startups and scale-ups pioneering new ways to permanently remove carbon dioxide from the atmosphere. Crucially, it is the key, and sometimes only customer to these emerging companies, providing revenue as they invest in new carbon-eating tech and processes. The fund’s spending makes Shopify one of the largest corporate purchasers of long-term carbon removal globally.
Shopify is a democratizing enabler for business, a platform for the skills, passions and insight of others. It encourages people with a good idea to run with it, removing much of the friction that might slow them down or stop them in their tracks. And it is proving, in business terms, that small is mighty.
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This article was originally published by WIRED UK
