What Shopify Got Wrong With Small Business E-Commerce

It’s been a bad couple of weeks for Shopify and especially its employees. The e-commerce platform, which has a 4% market share of all websites (a huge percent, but WordPress for comparison, has 43%), is laying off 1,000 workers, which amounts to about 10% of its global workforce. Shares closed down 14% on the announcement, a substantial tumble after Shopify had a meteoric rise over the past few years.

In a staff memo Shopify CEO Tobi Lutke admitted that he made a big bet and got it wrong. Lutke bet that the COVID 19-era  how long the pandemic-driven e-commerce boom would last. He expected that online spending over commerce in stores would “permanently leap ahead by 5 or even 10 years.” Shopify had staffed up extensively to meet the then-current and what expected would be a future demand during a sustained shift to e-commerce.

So what happened here?

Shopify itself proudly touted how much of its growth in 2021 came from small businesses, but even back then people were sounding the alarm bells. I was considered to be making a hot take when I predicted that there wouldn’t be a long term shift of small businesses to dedicated e-commerce over a long period of time. Anecdotally I can share firsthand evidence that a lot of the aspiring e-commerce branches of clients – both hosting and consulting – largely fell by the wayside.

This is because for a lot of small businesses, dedicating yourself or heavily pivoting to e-commerce is one of the worst things you can possibly do.

Small businesses often rely on things that huge providers like Amazon or Wal-Mart can’t provide. Physical locations that people actively want to visit, personalized customer service and in-store experiences that just can’t be replicated online have been some of the unique advantages small businesses have had even prior to the rise of the Internet.

When people talk fondly about small businesses they grew up with or even positively about ones in their neighborhood, they’re almost always remembering the type of experience that is logistically impossible for the Amazons and Wal-Marts of the world to provide. This is why the impact of COVID-19 on small business has been so devastating in the first place. Beloved local institutions and restaurants have closed down in the past two and a half years, leaving people genuinely heartbroken.

The short-term pivot to E-commerce during COVID was kneejerk but also understandable. Institutional aid for small businesses during COVID-19 was lacking and for the most part they were left to their own devices. As I wrote about in a previous article, with everything shut down people urgently needed to pivot their business model. Others were obviously bored despite things being relatively stable or having savings to fall back on and were able to branch out and explore new ideas.

As I also note in that article, my clients (and most small businesses, as evidenced by this Shopify situation) have returned to the old ways. Plans to start separate Shopify stores, subscription services and even in a few cases close down retail locations have been permanently shelved. This is because going all in on E-commerce is effectively trying to compete with Amazon and other major providers directly, which is a monumentally bad idea. 

When you do this you’re effectively trying to compete with Amazon on its own terms. You’re phasing out every advantage you as a small business have over Amazon – the unique experiences, the personalized customer services, special products that Amazon may not stock – in favor of things that Amazon will always do better, every single time. Online shipping, logistics, and even customer service are battles your E-commerce store just isn’t going to win with Amazon. Amazon has more money and more people to devote to this than any small business ever will.

This may be a bitter pill to swallow but no small business on the planet is going to have the trust, reliability, and security as Amazon does. There’s much criticism you can level at Amazon but they’ve made the e-commerce experience trustworthy and reliable in a way that very few small business e-commerce platforms can guarantee.

This doesn’t even factor in how long it takes to truly get an e-commerce business off the ground. Estimates vary widely but a recurring one is 3-5 years. That sounds reasonably accurate unless you get incredibly lucky.

Essentially, a small business going all in on E-commerce in the way that Shopify banked that many of them would is putting all of your eggs in a single insanely fragile and easily breakable basket. In terms of competing with Amazon it would be like trying to beat LeBron James by challenging him to a basketball match.

This is what Shopify got wrong, and Lutke owns up to it in the article.

“It’s now clear that bet didn’t pay off,” Lutke said. “What we see now is the mix reverting to roughly where pre-Covid data would have suggested it should be at this point. Still growing steadily, but it wasn’t a meaningful 5-year leap ahead.”

This may be where I risk a controversial take, but the pivot to E-commerce may go down as just another small business trend that failed to change the SMB market forever. Much like Facebook’s infamous pivot to video, this was billed as something absolutely everybody needed, urgently, because it was going to reshape the economy forever. It didn’t. E-commerce will be far more meaningful than video marketing for any given small business, but not to the extent that Shopify gambled on.

Yes, E-commerce is a valuable component of many small businesses and numerous small businesses are dedicated to it successfully. It’s still not what your small business necessarily needs. Much like all of the other trends I’ve gone over on this very website, E-commerce will become a tool in the toolkit. So pivot to what works for your business and not what everyone is desperately telling you that you need. Odds are that following the latter advice will only make money for the people selling the trend.