Osayame (Osa) Gaius is a software engineer with extensive experience and is the Founder and CEO of Parrot, an end-to-end payment solution that uses SMS to drive a better checkout experience. Before Parrot, he served as the Vice President of BlackRock and was a senior software engineer for both MailChimp and Luma.
Having grown up in Nigeria, Osa went from having minimal computing exposure to being an ecommerce software development expert. He received his bachelor’s in computer science from the University of West Georgia and worked as a research intern at Texas A&M University and the Georgia Institute of Technology.
Here’s a glimpse of what you’ll learn:
- Osa Gaius’ unique journey into entrepreneurship
- How Osa founded Parrot and built a prototype
- The fundamentals for acquiring and using venture capital
- Parrot’s successful strategy of utilizing free users
- Why accelerators are such a powerful tool for startups
- Crucial tips for how to pitch your brand
- Balancing the need for fundraising and hitting the ground running
- The incredible value of partners early on in your startup
- How fundraising can be fun and engaging
In this episode of the Ecommerce Wizards Podcast
Successfully launching a startup is a daunting task for anyone. Even seasoned entrepreneurs encounter new problems and obstacles when starting a new business. The process is as exciting as it is difficult, so advice is essential to getting it right from the beginning.
Osa Gaius quit his job and started a company, but he needed investors to make it work and take it to the next level. His friends and family initially helped, but he needed to acquire venture capital to explode the business. At the onset, he had to deal with the challenges of the pandemic while pitching his product to investors. Osa found success with his company, Parrot, having run a successful fundraising campaign of over $2 million. Now he shares his knowledge and his experience with you.
In this episode of the Ecommerce Wizards Podcast, Guillaume Le Tual interviews Osa Gaius, the Founder and CEO of Parrot, on launching a successful startup. They break down Osa’s introduction to entrepreneurship, building an MVP, and acquiring free users to fuel growth. They also touch on the best ways to acquire and utilize venture capital after fundraising.
Resources Mentioned in this episode
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Guillaume: Hello everyone, Guillaume Le Tual here, host of the Ecommerce Wizards Podcast where I feature leaders in e-commerce and business. Today’s guest is OSA Gaius, he’s the CEO and founder of Parrot which can be found at getparrot.com. Today we’ll be talking about the journey to raising money from VC for a tech startup. And before we get started, we have our sponsorship message:
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All right, Osa, thank you for being here today.
Osa: Thank you for having me. It’s great to be here.
Guillaume: Right. So let’s start a little bit with your entrepreneurship journey. Tell us about you and then we’ll dive into the main topic?
Osa: Yeah, great question. So I’m actually Nigerian-American, I came to America when I was about 10 and I really fell in love with computers. I knew at that point that I wanted to do something around computers. I used to make video games so I thought I’d go on to be a game designer, but I ultimately realized that software engineering or working as a software engineer was where I wanted to be. So after the school for Computer Science I went and worked at the startups in the Atlanta ecosystem, Cardlytics, MailChimp and a few other startups. And after MailChimp I really knew that I wanted to go to a startup. I wanted to find a way to start a business and technology and help people who were struggling with technology find a really, really good solution. So that’s ultimately what led me down the path of becoming an entrepreneur.
Guillaume: Well, congrats on making the jump to becoming an entrepreneur. I’m happy I’ve made that jump and I remember it was scary. So let’s talk about raising money now. That part like, where were you when you started? Like, did you have a business plan? Did you even have a prototype? Like, what did you present?
Osa: Good question. For me, my fundraising journey was a little different than maybe some other people because I was an engineer. So I knew how to build the product or the first version of a product that I felt customers would need, and I saw that need at MailChimp. While at MailChimp, I was working in one of the largest email marketing companies in the world. So I got to engage and interact with a lot of merchants who used MailChimp for email marketing and they would tell us other things they wanted, other things they wanted us to build, and one of them was around SMS. So before even leaving MailChimp I had a very strong sense of what the first prototype would be for what Parrot eventually became.
So while there I built the first prototype. Again, I was a bit blessed because I had been an engineer for a while so I could build it, I could ship it, I can put it on Product Hunt and then get feedback from people about, do you like this or do you not like this? And so for me that was kind of my journey which was figuring out how I could be very capital efficient and be essentially cheap in building my first prototype, taking the first prototype to market before I actually started raising money. And once I had a good prototype that I had built and I had a few customers for, that’s when I went to my friends and people who were close to me and said, I need a little bit of money to pay for servers, I need money to essentially do a little bit more work because at this point I had quit my job to build the prototype a bit more. It was kind of, I was all in on the idea because I had some feedback from the market and all I needed was a little bit of money to pay my rent and also to pay for servers. And that’s when I decided to go actually start raising money from my friends.
Guillaume: Okay, so you had a built prototype and you got a few customers, how many is a few?
Osa: I think a few at that point were like three.
Guillaume: Okay, that’s a few.
Osa: And for us at the time the prototype is actually a Shopify app, you know, a simple Shopify app that will let you create a simple SMS campaign and just hit send. It didn’t do much besides that. It was a one page app essentially, with maybe two or three screens. So by that point we had one or two customers kind of poking at it, using it every other day or every couple of days. So we knew there was something there, we just needed to keep expanding the product, which, since I was the only engineer and the only salesperson meant finding more time to write more code and finding more time to talk to more customers. But again, rent was due and I didn’t have a lot of savings enough to stretch out for an indefinite amount of time, so I knew I needed a little bit of capital to keep on running.
Guillaume: So did you just do the jump or you still had the other job on the side to help you pay while you were creating that new prototype?
Osa: No, I did the jump but I don’t advise it for everyone.
Guillaume: Not necessarily a good idea but hey, why not?
Osa: I was lucky. At the time when I started Parrot I was about 28. I had no kids, I had a pretty sizable savings from working for a couple of years. So I knew in the worst case, parents were kind, after a year I wouldn’t be destitute. So I felt a little more confident using my savings to fund the business in the early a few months before going on and asking for money from external investors.
Guillaume: Yeah, because like sizable savings for personal use versus for business use is a completely different scale of measure. You need way more money on the business side of things. So it’s interesting that you did the job. I did that transition with a part time job to create my company so that was a bit easier and smoother. It’s interesting to see a full on jump and say let’s cut ties with the job market and let’s build this thing. So congrats on doing that. So you had your first few customers but then you say the app was much more simple, that bare minimum viable product that sort of barely does what it does now I guess to some degree, how did you present that to friends, etc? Did you present them the vision? Did you present some photoshop mock-ups of what it would be in the future or something?
Osa: Good question. This was actually right after COVID started, March 2020. I quit my job in February, I was working as the Vice President Engineering at BlackRock Investment Bank. So in February I got my bonus for the year and I put that in the savings account and I said, I quit. So in February and March we got these early customers and it started to make sense. So what I did was I went to two of my very close friends. One was a director in another engineering company and the other was a product engineer. So they understood software. So what I did was I showed them the software, like, hey I’ve built this and these folks are using it and I need money to go pay Twilio costs, which is our provider for SMS, I need money to pay for Heroku, which is where we host our servers. So for them it was very easy to understand why I needed the money and what the money was going to go towards because they essentially could read the code. One of them actually rolled the sleeves up, wrote a check, and then actually started helping me write a little bit of code, like some tests to make sure that the software was working.
So for me that was kind of a best case scenario for early investors because they understood exactly what I was doing, what needed to happen to get to the next level, and so they just kind of pulled out their own personal checkbooks. One had to go to his wife and be like, ‘Hey, can I give Osa 10 grand?’ Luckily she said yes, and that was how we got that initial round of capital done. That got us through the summer of 2020 when COVID was really happening and hitting the forest.
Guillaume: So you went with the first round of seeds from friends and family, the few 10s of 1000s. Also, those are not very expensive things, you know, a Twilio server for SMS messages and hosting servers and so on. Then you also had somebody who was willing to work hands on, which is the best type of investor regardless if it’s early or later level VC. Somebody who brings more than money is ideal because, yes money is great you need it, but once you receive that you still have to do all the work. So if you have somebody that can bring additional value maybe like contacts, introductions, access to different suppliers and providers that you would not have had access to without that person and hands on expertise which is complementary or just extra work capacity. For sure it sounds like a way better gameplan than just money raising. Okay, so now you’ve got friends and family who pitched in a few 10s of 1000s or something like that, what’s the next step in your journey to actually getting the VC money?
Osa: We knew that summer 2020 the world was shutting down and e-commerce was starting to really explode. So our initial thesis the SMS for e-commerce was going to be big, really got proved out that summer and we were heads down. Like I mentioned, we got a little bit of help on the engineering side from one of our VCs essentially, just doing QA for us. The same VC sent us an intern, a kid in college who was able to do additional testing and also started helping a little bit with engineering. So we just spent all of the summer building the product and we launched a second version, like a V2, we added a few more screens, it was a bit more full-fledged. But the biggest thing was, we were able to actually start to connect to Shopify stores and do a little bit more automation. So that summer we got an explosion of users, we got about 200-300 users sign up over the summer. So we knew we had enough to go out and start talking to a bit more advanced investors like folks who would want to see a bit more traction.
So what we did that summer was we actually went to an early stage investor called Hustle Fund, who does very early deals when it’s still the founder and maybe a very small team. We loved that process because the investment team at Hustle Fund literally logged in and used the product, like five, six times. They used the product, gave us a bunch of notes on UX things to change and then they wrote a sizable check into the business that helped us really spend that summer heads down. At the end of that summer we joined an accelerator for like 2-3 months, which is something I recommend highly for people. It’s something like Y Combinator or something similar like TechStars. We joined one called Excel Appraise, which is an accelerator primarily for B2B companies that do sales motions. And that was a very sizable check of about $100,000 and it really helped us get from the end of summer 2020 all the way through to the end of 2020. Because that’s when we brought on our first full time person to help with marketing and sales and help with customer success and customer support. That’s how we made it through 2020 by raising a small amount at the start of the year, kind of around March, and raising a little bit more in the summer and then raising a bigger round at the end of that summer.
Guillaume: So you were not yet in the millions? From what I’m hearing, you’ve passed over the five figure raise and now you’re under six figure raise but you’re below a million and still raising. If it’s not confidential, how much of the company did you need to give away just to get to where you had a few 100Ks in raising?
Osa: So I’d say through 2020 we probably sold about 10% of the company and we only took in about 180 grand. So a very little amount of money but a sizable chunk of the company because these folks were just investing in an idea at that point. I think for most of 2020 it was just Osa. So it wasn’t a company, it was just a Delaware corporation and also on Zoom. So it really was very early and I think those early investors were able to help shape the vision and literally shape the product by using the product and being like, I’m not your ideal customer, I’m not a merchant but I’m going to log in to your software. I’m going to log into Parrot, use the first version, break it, do QA for you. So for us that first year was really important to get to a point where we could actually go out and start asking for millions.
Guillaume: So you were able to look at a few 100 customers at this point if I understood correctly. You had 200-300 customers, how did you acquire those customers? Also more as a comment, I see that you decided to acquire customers before going to see the VC, that was probably on purpose in order to have an easier negotiation time and get more leverage in negotiation with the VCs.
Osa: I completely agree. I think the advice that I would give to myself if I was doing this again is, definitely try to close deals before you build the full product, try to build an MVP, or even just mock some screens that you can go and show customers and say, hey, do you want to buy this? Because what I found in my experience was that being able to show someone who wants to write a check or a VC or even an angel investor some very clear description of this is the person I’m building the software for or this product for, and being able to literally talk to them about what the person wants, what that customer needs, makes your life way easier as a founder. It just gives a lot more confidence to the person writing you the check, especially if they’re writing that check from their own personal checkbook. And we were able to acquire those first 200 customers by building a Shopify application. We knew it wasn’t a long term product but we knew it was a very easy way to validate our theses around, do people want to text their customers? And if they do text their customers, were the customers engaged? So we spent all of 2020 validating that and we got really lucky because when we built the first prototype, we weren’t the first apps that would even allow you to do any kind of texting on the Shopify marketplace for free.
So we built this free, essentially not a paid product, and gave it away to Shopify merchants who were very small, think mom-and-pop stores making $1,000 a year max. So a lot of those folks would just use the hell out of Parrot because it was free and it was cheap. They could just play with it, text their customers and get a little bit of traction for their own e-commerce businesses. We were able to get 200 because we went to Shopify and said, ‘We are a new company, could you please put us on the front page of your app store?’ And they had a program that summer where they would put you on the front page for like a week or two and then they take you off. It was kind of a showcase, like, ‘here are the cool new apps that just got released’. And so we got on that showcase and it spiked our user growth. Then from there we started getting merchants referring us to other merchants talking about Parrot.
We also tried another acquisition tactic. We would show up at Shopify meetup, so we did speak at Shopify meetups in the community, and we found one really good customer there as well that became our first paying customer at the end of 2020. So we thought, how can we be very scrappy with marketing since we had low amounts of money? And one way we found was, go beg Shopify or beg other people to put you under their pages because they have traffic. And too, we found that just physically going out before COVID and even during COVID on virtual events, just going out to merchants and trying to be around them and trying to talk to them, that was a really cheap way to acquire customers.
Guillaume: So the first 200-300 were like free users using a free account. Of course, you want them to graduate to paid user accounts and of course, some will just sign up right away as paid users. When you were negotiating with the VC, did that seem to affect things? Let’s say there were three users which in a way still shows product market fit, does that affect things versus if you had more paid users?
Osa: I think most was 2020 again, because we were really talking to investors and we were putting in like, 110 and like 5000 in some cases, like low amounts of money. It was really more about the excitement around, hey, you got a free product that people are using every couple of days. Okay, this is interesting, where’s the vision? So I think there was less pressure to convert those users to paid even though we could. We could have essentially made the product paid and spun down the free people or try to do kind of a freemium question. But we just decided, let’s keep it free through the whole of 2020 but keep it essentially focused on growing excitement and growing users rather than growing the actual paid revenue base. And we found that the VCs who we were talking to resonated with them because they were like, okay, we’re learning, we’re understanding the market. But when we did go out to raise millions to be honest, that was the first thing you heard. It was like, ‘Well, how do you plan to make money?’ because free users using a free Shopify app is not the same thing as a scalable revenue business that can be worth millions or billions of dollars in the next 10 years.
Guillaume: Yeah, for sure. So it’s true VCs just want to see the growth path, like how fast can you acquire users but they also want to see how you will make money with this thing. So other than just an exit, can that thing eventually grow into a profitable business or exit is the only plan? Although most of them want to go the exit path and will demand that you have an exit plan for sure. So how much were you able to successfully raise with the VC?
Osa: So what we ended up doing after we ended the accelerator program, the Excel Appraise, I think we wrapped that up in Q4 2020. So right when things were getting back to normal a little bit. I was in San Francisco at the time. I had just moved here and so the city was finally opening back up. So we started with fundraising in Q4 2020 and we just went out and talked to probably 100 venture capitalists and anyone we could talk to and say this is our idea, this is where we’re going, this is the vision and this is my background. I think at the time we were raising a million bucks so like we needed a million dollars. We needed to hire a team, we needed more engineers, like this has to grow because we have this early momentum we got to capitalize on it. So we ended up raising all through Q4 like during Christmas and through Q1, like the first half of Q1 2021. We put together $2 million from Harlem Capital, a VC firm in New York and Upfront Ventures, which is a VC firm in LA. Those were our two primary investors. But other folks came in and wrote large checks like my boss, Ben Chestnut the CEO of MailChimp came in and wrote a large check to us. The CEO of Calendly, Tope, who’s also Nigerian, wrote a check. So we had a lot of people come in and support us. And then in Q1 we kind of wrapped up and then started hiring our team.
Guillaume: Congrats there. It’s a nice journey. You were able to also attract some of the big name investors even though it was a smaller investment than the VC. It’s fun to have them as you can have them on the board of directors or as advisors, I guess they probably are there. So you had to go see 100 VCs, more or less, where did you find these VCs? How did you use your Google and Venture Capitalists to try to find some of them and how did you find 100 VCs to go and pitch to?
Osa: This is why I recommend accelerators. Because accelerators are essentially programs to, for folks who are listening, help coach entrepreneurs from the idea stage where you’ve got a cool idea and you acquire MVP. You need to get it to the point where it’s ready to be investable because by default your idea is cool and interesting, because you came up with it, but it may not be ready for someone to pour a million dollars or more into it. For us, we spent those three months doing the accelerator. Every week we talked to our mentor who’s a former founder and also now a VC on our pitch, our customers, our revenue. So we spent all that three months essentially getting ready to fundraise. And so in Q4 when we were ready to fundraise after leaving the accelerator, the accelerator made a bunch of intros. I’d say probably 30-40 intros to VCs out of that 100 came directly from Excel Appraise and they did a really good job of booking those meetings for us, like, it was really efficient. And so by the time we went to fundraise in Q4 we already had 30-40 meetings booked. Then the question was how do we go get more? Again, we had 30 but we needed 100 in my mind so we then reached out to our network, so existing investors who’d given us money, friends, cold emailing. We did a lot of outreach because we wanted to make sure that we had way more meetings than we thought we’d need. So in the worst case, if only 1% of people we talked to gave us money we’d still have enough in the bank at the end of Q1 2020.
Guillaume: And how was your experience pitching more or less 100 VCs? How did you feel about some of those pitches with, good, the bad, and the ugly?
Osa: It was interesting because I had been inside all year so I actually hadn’t really interacted with human beings for most of 2020, I had a really bad case of COVID. So for me, pitching all over Zoom, cause all our pitches were done on Zoom, I didn’t meet a single VC in person at all. That was really difficult because you had to wake up in the morning and just be on the computer taking calls for eight hours a day and sometimes 10 hours a day. That was a very different shift from writing code for all summer 2020 and talking to customers to now just being like, back to back booked on meetings. So the first thing I learned was kind of the mental health part of that, because you are essentially just selling yourself and hearing ‘No’, all day. I think probably 90% of the meetings we took were immediate or quick ‘No’, like immediate email follow up or a couple of days later. So what I had to learn within that process was, okay, there’s going to be a lot of ‘Nos’. Like Pareto’s Principle, the majority of things that are going to happen are going to be ‘No’. So just kind of become Zen and embrace the ‘Nos’ and embrace the feedback. I did speech and debate all through college and all through high school so I’m used to getting feedback but I think feedback is a lot harder when you need the money and you’re being told, ‘You’re not ready’ or ‘The concept doesn’t make sense’, or ‘Your startup sucks’. So this is real feedback that you’re going to get as a founder because you are asking someone to give you like a million dollars of their money, and you know, they have a responsibility to their limited partners as well.
So we found that we got really, really good feedback. But what I will say as a founder doing that for the first time, I had to take a step back and say like, this is feedback to help me improve even if it’s a ‘No’, it’s not the same thing as someone telling you like you’re an idiot. It’s feedback on, here’s what you could do to get a million dollars in the best case. So for me it was a great process but I wouldn’t lie, the first time doing it’s actually very mentally challenging and you have to take a step back every day and pause and reflect before you go into the next day of pitching.
Guillaume: It must be difficult at some point if you’ve heard ‘No’, No’. Did you have some self-doubt like, should I keep pitching, it’s just a numbers game, or actually maybe the idea does suck?
Osa: Yeah, self-doubt is real. That’s probably the hardest thing you have to overcome. Because self-doubt in the abstract might not seem that bad but if you have a lot of self-doubt going into it, let’s say you’re pitching all day Monday and you’ve got a bunch of ‘Nos’. You have to kind of pause and reflect and deal with that self-doubt before you wake up in the morning and pitch on Tuesday because if not, you won’t pitch well. Like, if you don’t believe if you’re not committed, the next morning you’re going to sound like crap. You’re going to maybe just sound not confident and the worst thing you could do is not sound confident when you’re pitching because it doesn’t speak well. If you’re asking someone to give you a million bucks and you don’t sound confident, it’s never going to work. So for me I think I had to learn that self-doubt was something you had to take stock in, reflect on and deal with before you start the next day of pitching, that way you’re pumped and excited.
I’ve got to be honest though, I got lucky. During the fundraiser I went back home to Miami where my family is, my mom’s there and my sister. So I essentially spent a lot of that time in Q4, like December, pitching from Miami. I’d be on Zoom pitching every day instead of being at home in San Francisco where I live. For me, that was helpful to be around family because my family has no concept of what pitching means or why raising VC money matters. For them it’s like, oh, you’re done with your day of pitching let’s go eat some Nigerian food. And so for me, I recommend people to think about that when they’re pitching. Try to find other things in your life to kind of recenter you and give you positive energy so that you can come into the next day of pitches feeling like, I believe in this and I’m going to go and crush it.
Guillaume: Yeah, both the positive and the negative, it’s always good to have somebody who recenters you. I remember that Brad Pitt commented, ‘If your ego is getting too big on too much good stuff’ and then when he’s doubting himself and asks his wife something like, “What’s the name of that movie that I didn’t like that he was playing in?” Like, that puts you back on Earth. So that’s on the extreme side of too much success that gives you that inflated ego. But on the negative side or if you have lots of negatives, to recenter, family sounds like a good plan. Thank you for sharing and opening up on that feedback. So now that you’ve lived it, like you’ve successfully raised about $2 million, what would you do differently now that you have that experience if you had to start over and give yourself some advice?
Osa: This is ironic as an engineer, I would say write less code. I think we wrote a lot of code, we built a lot of products. That applies whether you’re doing brick and mortar, whether you’re doing software, whether you’re doing direct-to-consumer. Like we spend a lot more time on product and a lot less time on customer development. And I think our fundraise would have gone way easier, probably it might have taken even half the time if we had more customers. Like, more paying customers who either had signed a contract or had actually wired us money upfront for the product. I think we spent a little bit too much time making a really amazing product and making it essentially like a mini MailChimp for SMS. But I think instead, we could have taken a step back and said, we’ve got an MVP, let’s go sell the MVP extremely well over 2020. But instead, I think we’ve probably spent 90% of 2020 fundraising and the rest of the time was spent on product when you think about the end of 2020, that is Q4.
So I think if we had spent more time in Q1, Q2, Q3, 2020 just selling the product and not really building the product, we would have been well served in Q4 to just have a bunch of revenue and say, we’re fundraising, here’s the revenue. I think a lot of folks when we did fundraise liked the product, they loved the product as venture capitalists who were investing in the product and the team at that early stage. But I think revenue and sales would have helped us much more quickly close those deals. And again, hindsight is 2020, you know, I’m an engineer so I spent time building the product because that’s where I know best. But again, I learned that people will always love people who are building things for other people but it’s much easier to get them across the hump in terms of writing your check if they can see customers who’ve already signed an agreement with you, or have already paid you money.
Guillaume: Yeah. It’s why we were having that earlier discussion about, did you have the clients or paid users and how many inquired before having the discussion with the VC. They want to know that you’re ready to scale, that you have a way of acquiring customers and that this business is scalable with revenue. But to your point, let’s go deeper into it in the sense that, you say you spent too much time on the product and making the product awesome, but if you had more customers it would have been easier to raise money and maybe more money. But at the same time, to be able to sell the product there’s a certain level that you need to reach with the product. Do you believe that you had sort of already reached that and you just sort of kept building, that you could have started basically, your mass sales campaign sooner?
Osa: Yeah. I mean, you’re thinking right about it. If you’re thinking about it kind of as an engineering problem, like what kinds of things can you do in parallel, or what kinds of things can you get to 50%, and then go sell? I think for us we had a lot of products that were pretty much done, there were 60% there and we spent time getting them from 60% to 90%. Whereas, if we had stopped at 60% we could have gone and sold aggressively to bigger customers. Instead, we got it to 90-99 and then went to those customers, but by the time we did that, to be honest, it was time to go fundraise. So I was like, well, we can’t spend our time selling because we’re fundraising. There’s only so many hours in a day, you can either spend eight hours on the phone with customers or eight hours on the phone with VCs. For us, because we had spent so much time on the product we had to make a choice, either we try to sell through Q4, like just hit the phones, hit the email, or run some ads and grow the customer base or pause selling, pause marketing and just go fundraise. And we made the decision to just go fundraise. And although it made the fundraise harder, we think that was the right call. But to your point, if we had gotten the product to like 60%, and spent all of Q3 selling instead of building like we did, Q4 would have been much, much cleaner and smoother from the fundraise process I think.
Guillaume: So that depends if you have the resources to bring your prototype far enough to even get the first paid customer. So it depends how big is what you’re trying to build and what kind of skill set you have because for you, it’s your passion, it’s your time versus how much you have to pay others to build the prototype. I think even Elon Musk is building space rockets and he’s not the one building the space rockets, we have to understand that, you have to pay a lot of staff to build that stuff. I’ve also seen it from other startups who say that they tried to build very large and ambitious products, but even just reaching a sellable prototype is difficult and they might need VC money to finish building the prototype and it might not even be anything sellable yet. So in your case you’re in good positioning such that it is possible for you with just the initial rounds of friends and families to build a finished prototype and even have the luxury of going too far and over building it before you start selling it. But I think the general idea behind this is, if you have more sold customers, or paid customers before you go to see the VC you’ll have an easier time raising money. And who knows, you may even end up raising more or giving away a smaller percentage of the company.
Osa: The phrase that one of my friends likes to use is, ‘It’s all about traction’. I think traction for a lot of businesses I talked to looks more like revenue or sign pilots. And so to your point, I always think about, from an engineering perspective especially if I’m building something, whether it’s a physical product or digital product, when does my customer feel comfortable giving me money? So I think some people are willing and some customers are excited. Think of the early adopter, referencing ‘Crossing the Chasm’, some people are willing to give you money for a product similar to a Kickstarter before it’s done. And those are the customers we think we could’ve spent more time finding and we focus on finding now or people who are so excited that they’re willing to put their credit card down and say, ‘Give it to me when it’s ready, but I really want it’. I think those are the best customers from a product perspective, because they’ll tell you what to build. We had a few of those and they’ll literally be like, ‘No, I need this feature’, ‘I need the thing to do this thing’. And they’re willing to write you a check to go build that thing that they want. It might be annoying because your customer is telling you exactly what to do. But I think the right way to think about it is, this customer is telling me what they’re willing to pay for, so I might as well just take that feedback, take their money and go build for them.
Guillaume: Yeah, as long as you believe that this is a need that is general enough and not like there are only one or two fringe users of that new feature that’s unique to his business, and it can be part of the core build that you want to market. I think it’s pretty comprehensive. Is there anything that we haven’t covered in terms of your journey of raising money that you’d like to share?
Osa: Yeah, I think the other approach that some people don’t think about and I sort of have founders think about today is, do you need to raise money? I think for us we were pretty clear that we needed to raise money given the type of business we were building. We knew we needed engineers, we knew it wasn’t scalable to have one engineer. If I had a co-founder maybe one person could be selling and one person could have been building. But for us given that there was one founder, we definitely knew we needed to raise money to go hire help. I didn’t have the personal war chest to go fund the business entirely. I considered taking loans, like that was an option that was given to me early on. In March 2020, I got a loan from the bank and spent 20k to hire another engineer and build the product while you go sell. But I think the right way to think about it is, you could fund your idea with your money and get to a place where you have a strong MVP, either by having a part time job or by just using your own war chest.
But I think the right way to think about it is, what are the milestones you need to hit and I would say always have a bias for hitting those milestones and don’t really worry about the funding situation. So I think I was really worried about giving up equity. I was like, I don’t want to give up equity, it’s my company. But what I realized later was that giving up equity could actually help me bring on partners that will help me grow the business in terms of the vision and in terms of how quickly we could hit our milestones. And it was less about money in the bank because it’s not like I’m using the money for my own personal purposes.
So I think a lot of entrepreneurs should take a step back and say, what’s the vision for the company? What are the milestones they will need to hit? And then ask yourself, do I need external capital to do that? And what types of capital will do that for me in the most effective way possible? That could be loans, it could be grants, if you’re doing something in the non-profit space, or in the environmental space. It can be friends and family, but it also can be your own money and your own time to get yourself there. And it’s fine to combine those, switch those. But I say don’t be rigid and don’t be stuck on any one path, just focus on the milestones you need to hit and how you can get there the best way possible.
Guillaume: Thanks for sharing this. And now the market is changing, you know, we’ve had the interest rates going up, there was the war in Ukraine which started months ago. We’ll see how that goes, it has become crystal balled but it seems to stabilize a bit. Let’s hope for the best, we’ll see what the future holds. Investor money seems to be harder to come by now. It’s like they’re tightening the money policies and so on. Do you have any sort of opinion on this in terms of what’s coming? Is it the right time to raise money or should people try to have a different plan or wait a bit to raise? Or should they still go for it anyway? Or even with the current round that you had, are you trying to stretch it a little bit more because of the current world situation that might be harder than usual to raise money?
Osa: I think it’s definitely from a macro perspective a very difficult time in terms of the economic challenges we’re facing across the globe. But to your point, we’ve got real issues around people suffering. Like, there’s real problems in the world that people are dealing with like displacement, folks are dealing with the refugee crisis in Europe. So I think it’s a really hard time for everyone. I think as an entrepreneur, you have to bring that into your fundraise. You have to think about, well, the person across the table I’m asking for money from has got challenges, they’ve got investments and are probably being affected by what’s happening there. There are folks thinking about COVID’s longtail, like, are we done or is there more coming? So I think there’s a lot of uncertainty not just in the US but across the world. So I think if you’re trying to build a company right now and raise money for a company, I would say, think about the problem you’re solving. And think about it from an economic perspective, like, are you solving a problem that is going to matter even if the world shuts down? I mean, shut down in terms of the COVID. If the world shuts down again because there’s an economic crisis or a health crisis, or God forbid, like a full scale global exchange of war, is your business going to matter?
I think for a lot of folks if you’ve got a passion and it really makes sense, it’s probably going to matter. If you’re building a really good product for a really good set of customers, those customers plan to be alive for the next 24 months. And so if you can go sell them your product today, even within the midst of this unrest and uncertainty, then you’ve got a proof point for what you’re doing matters. And that’s way easier in terms of going to fundraise with a story of, this thing matters, it’s going to matter irregardless of what happens in the world unless there’s a thermal nuclear exchange. And I’ve got customers signed up for this and they are paying me money despite the uncertainty in the economy. I think that’s the right way to approach fundraising.
I think the other way to approach it could be a bit more Cavalier, which is just like, it doesn’t matter if the world’s ending and I’ve got a good idea just fund me. But I think you’re going to have a lot more challenges with that approach today than maybe two years ago, where there was a lot more money and a lot more sort of bullishness around products and software and these kinds of things. But I think a good example is like, if you’re a direct-to-consumer brand and you’re making a really good product for a really good set of consumers, those consumers are going to keep buying. So I think from a macro perspective, I don’t see anyone thinking that consumer spending is going to significantly contract. I think people think, well, consumers are going to keep buying things and they will keep ordering food, they’ll keep ordering clothes. People are not going to go away as fundamental bins but I think what you as an entrepreneur have to do is connect what you do is worth fundamental human need that isn’t going to be affected by an economic downturn. It’s very hard to think about your company that way but you have to think about your company that way, if you were to either sell more customers or raise more money during this very, very bleak time.
Guillaume: Right. And another thing to add to this is, there’s never been as much money as now, it’s just that they’re more hesitant to give it out because governments have printed so much money which leads to devaluation of the currency. But there’s never been so much money in the world as there is now and there’s only going to be more because the government will print more money again next time they have financial troubles. They just ease policies to print money. So it’s just a question of, if the value is really there you just need to step up a notch. If the value is really there it’s really useful when you’re solving a problem. There’s still like trillions of dollars of exchange worldwide but the VCs don’t write checks as much as in a Cavalier way right now, they’re more concerned about where to invest. But of course, there’s still so much money to invest everywhere. We’re soon coming to the top of the hour, are there any last thoughts you’d like to share about raising money or what things to do better next time you try to raise money?
Osa: I think the advice I gave to a group of founders at the accelerator I went through when I went back to speak to them was, fundraising is really fun. Like, it’s really fun if you go into it with a growth mindset. Think of resilience and grit as your two most important skills to cultivate when you go into a fundraiser because this is emotionally taxing, it’s physically taxing, you’re sitting for eight hours a day just giving a pitch. Think of it like being on Shark Tank but at home on Zoom, over and over again you’re just like saying the same thing, it’s the same pitch. So if you go into it with a growth mindset and you focus on your own mental and emotional health during that process, you’ll be able to come out of it feeling like you warrant the bunch because VCs are really smart people. They talk to hundreds of people who are trying to get money from them every single day. So they know how to ask for money because they give money away and they know how to think about companies from a macroeconomic perspective.
So for you as a founder it’s your job to talk to VCs but I think most important is to learn from them and to understand what they’re saying because the more you can understand it the more you can iterate on your pitch, the more you can understand it the more you can borrow lessons to apply to your business because they see 1000s of businesses every year, whereas as a founder, you only see your business. Maybe you see your friends’ business, your friend’s friend but you never get to see hundreds if not 1000s of businesses at a macro level and assess what’s working, what’s not working, where they’re struggling, where they’re not struggling. And so what I’ll say is focus on growth, focus on being more resilient and having more grit and find ways to make sure that you keep growing emotionally and mentally during that process. Because it will be hard, it will be difficult, but what I’ve learned in my experience is that you can come out of it being much smarter and much more emotionally stable if you focus on growth as opposed to just getting a check.
Guillaume: Congrats on that personal journey Osa. If people want to get in touch with you, what’s the best way?
Osa: Yeah, the best way, always send me a note [email protected], or you can go to getparrot.com and try Parrot.
Guillaume: Awesome. Thank you for being here today, Osa.
Osa: Thank you so much.
Guillaume: Hello everyone Guillaume Le Tual here, host of the Ecommerce Wizards Podcast where I feature leaders in business and e-commerce. Today’s guest is Derric Haynie CEO of EcommerceTech.io, which is a logical recommendation platform for e-commerce merchants looking for the right tool to grow their store. Today we will be talking Magento versus Shopify, big debates here. I think that’s going to be fun. So Derric, our guest is a Shopify expert. His whole technological recommendation platform stuff is around Shopify tools, in which tools Shopify merchants need depending on which kind of problems they have, checkout, growth, whatever it says, and well as your host, I’m a Magento expert, so we’re going to have some fun.
Before we get started, our sponsorship message. This episode is brought to you by MageMontreal. If a business wants a powerful e-commerce online store, or to increase their sales or to move piled up dormant inventory, to free up cash reserves, or to automate business processes to gain efficiency and reduce human processing errors, our company MageMontreal can do that. We’ve been helping e-commerce stores for over a decade. Here is the catch, we’re specialized and only work on the Adobe Magento platform. We’re among a handful of certified Adobe Magento companies in Canada, we do everything Magento related. If you know someone who needs design, development, maintenance, training, we got their back, email our support team [email protected] or go to magemontreal.com Before we start, a shout out to Robert Rand of JetRails who connected us. Otherwise, this episode would not exist, so thanks Robert. Now let’s get to it, thank you for being here, Derric.
Derric: Thanks so much for having me, I’m really looking forward to this. I’m looking forward to learning more about Magento because it is a platform that I honestly need to know more about, but I’ve neglected for a while.
Guillaume: That’s an interesting way of starting so it’s going to charge. Same thing here, I’m pretty sure I’ll learn a few things about Shopify. I did my research obviously before our podcast meeting today.As the guest, I guess I’ll let you have the opening salvo.
Derric: Well, Shopify versus Magento. Shopify as a platform in some ways you could call it a down market solution, but it actually scales well with the business and frees up a lot of costs. For instance, in DevOps or in managing your own servers. It frees up some costs in development in a lot of ways because there are so many different things that you can plug into the tool that become accessible by the marketing team, accessible by the CEO who doesn’t know how to code, and it gives a little bit more of that freedom and flexibility, I would argue, to make it so that you don’t have to always send it to the Dev team.
Guillaume: Okay, that’s a nice one to start with. I’ll stage my answer a bit before I give it. I do believe in a general way that Shopify is a great product and if it was not already on the market, somebody would come up and invent Shopify. There are very few projects where actually it is the right pick to either do it on Shopify, or do it on Magento. It’s a narrow overlap of a zone here. Very often there’s a clear platform that is the best choice for that specific project. Should you build it on Shopify or should you build it on Magento? I’ve personally lived both, I’ve been doing this for almost 15 years now. And you know, since Magento version one, that was like 10 years ago or so. I’ve seen projects like right now we are doing some project that we’re migrating people away from Shopify or Shopify Plus and we’re building on Magento commerce. And I’ve seen the other way around as well, to be fair, that some merchant left Magento and went with Shopify.
So, I think I have a pretty fair perspective to some degree on this. So if we’re talking about total cost of ownership, there’s a few different nuances to discuss. But in a general way, the cost of ownership is lower on Shopify, like Shopify just wins in the cost category, but that win comes also at a cost, a different kind of cost. Like what are you giving up so that it doesn’t cost as much and that’s where a lot of this battle comes in because the two platforms are fundamentally different. It’s a different mindset, it’s a different philosophy behind it. So on Shopify you have a SaaS, the software as a service platform, which means you have a black box there, that’s the main thing by the Shopify theme. And because it’s maintained like this, by that big corporation they decide how the user experience will be. And there are very severe limitations as to what can or cannot be changed, as per what they decide should be changed, and so on. So if you want to have a very customized workflow, or very customized experience. There are things that Shopify would just not allow you to do. It’s not even a question of budget. And yes there are lots of plugins or extensions, if you wish, on the app store that you can add to Shopify, but even that has its limitations.
So without going too technical, just a little bit here, if the software does not offer what’s called an API endpoint here, if Shopify does not allow you to modify that specific functionality that you want to modify, it is just forbidden, it’s not a question of money, you just can’t period. So even though there are apps that add additional functionality, if there are some apps that you would not be able to create on Shopify, because your plan does not provide an endpoint to connect you to modify the functionality that you desire to modify. So that’s one of the key things that you’re giving away to have that lower cost. They say here’s the sandbox in which you’re going to play, and this is the safe zone, go do whatever you want to do in that sandbox, and if that’s great for you, well, awesome, you got a very good product with Shopify at a lower cost. But it has a limited range of sales scenario or customer experience that it can support or offer. I could go on for a long time but I don’t want to hijack the microphone. I will pass it back to you.
Derric: I will play your side here and I’ll talk more about these limitations in detail because they are quite a pain in the butt. The first one has to be the checkout functionality. Checkout on Shopify is owned by Shopify and you cannot modify the checkout at all. If you are a Shopify Plus merchant, there are many changes you can make to the checkout process, but it still has certain limitations and functionality. So just as an example, there’s a great tool called Order Bump that you can put on that checkout page and you can just click once to add a product to the cart right there at checkout, great idea that makes merchants a lot of money. You cannot do this on a Shopify regular plan, you can only do this on a Shopify plus plan. And it’s still limited in design and functionality based on certain rules and limitations that Shopify puts forward. I would say that is one of the major limitations.
You mentioned user experience, there’s a lot you can do with user experience. You can change the entire layout and design of any page on the site, except for that checkout. But what you can’t do is you cannot improve some of the fundamentals of your PageSpeed load time. So I have seen in the past, there’s a company called DFO Global. They had a website on Shopify, they were a very large successful company now, and they said, we think we can build a faster loading landing page than Shopify. And so they got PageSpeed, load time down from maybe on Shopify could average three to five seconds, which is a little high, because you’re usually on a shared server of theirs. That’s the black box you’re talking about. You don’t own the server. So you cannot fundamentally get a better PageSpeed load time. They got their PageSpeed load time down to under a second by using their own server and a very slimmed down page design and building it all from scratch, it is very expensive. But I think they’ve invented their own platform at the end of the day and now they are actually selling to the merchants and using it in their own business.
Guillaume: It’s not Shopify anymore?
Derric: No it’s not, it’s a completely different platform than both but yeah they migrated completely off. So those are some of the limitations. A third one that comes to mind and usually there are things you can do for PageSpeed load time that help but it will never get it into this sub-second range because you don’t own the server and that kind of limits you. The third thing is not a scandal but a big problem that arose in the last few months here was the Shopify subscription billing API. For a while Shopify didn’t offer anything as far as the subscription payment directly. They had an integration with ReCharge and a few other tools that allowed you to use them as the subscription backbone. Then they would actually hijack the checkout experience and you would check out on rechargepayments.com, essentially, mysub-domain.recharge payments.com. Now Shopify created the subscription billing API.
But in my opinion, they did a bad job rolling it out. It actually caused companies like ReCharge, I think there’s another one called Chargebee, they had to shut down getting new customers while they migrated from their own platform to the Shopify billing API. And there were a lot of API functionality that they needed that didn’t exist. They rolled this API out too early and in a lot of ways a lot of merchants and subscription brands on Shopify were hurt in the process. It was not better. Now, I think the goal and where they are now is a better process. But for a few months, like you said, that black box, you had to deal with this problem because you’re on Shopify, as opposed to Magento. So those are some of the costs that I see on the Shopify side that we experienced recently. So I’m not really winning this game.
Guillaume: Well, I don’t think it’s about winning. I prefer actually a search to the truth quite frankly and you can notice I’m not very adversarial about it, more like trying to find what’s the rule here. It goes beyond just Shopify and Magento what you’re talking about here. It goes to a SaaS solution, Software as a Service versus an environment that is fully open that you own the server and that you control it. Of course, you don’t want a server in your closet, go through a proper hosting company specialized in this. But it is a more fundamental trade off than Shopify versus Magento, this specific point. So with any SaaS software, you’ll say well, if the experience is fine and the number of features that I have for my subscription system, I’m fine with it, then great. Lower costs, you delegate all the trouble of maintaining the server, maintaining the IT infrastructure and all that to the company’s Shopify, and you don’t burden yourself with that, you focus on building your business, which is awesome. But you pointed so well, here, the limitation of this is that you don’t control the customers’ experience in the business. You’re now missing functionalities from that switch of which was the subscription system, the external system or Shopify system.
So when you’re on a platform that is open, such as Magento, then you have full control of the experience. You control your own system, infrastructure and server and all that. So that’s the positive, the negative of owning that full thing is the full burdens on you. So you cannot rely on a big corporation like Shopify to provide all that infrastructure for you, the IT expertise and so on. So it’s why Magento tends to position itself. Actually, when it was created, it was for the mid-market industry. Now, how do you define mid-market? There’s a lot of definition and it changes per country, and per tax return filing and what not. But I say over 25 million dollars per year, and over 250 employees kind of range, you tend to be in the mid market.
Derric: What are some other pros where you think Magento does better? Is it like a higher skew count?
Guillaume: Yeah, higher skew count Magento can win on this one on the commerce version of it by using database sharding. So basically, you can just explode your database and have as big of a catalog as you could possibly want. There are risks and downsides and limitations as well. So that’s the flashy side of it, like as big as you want, wow! But in reality, you have to remember that all those products will need to be indexed. So there could be a limitation on practically speaking how you handle that even though the theoretical models are all as big as you want, they may have a few million products that you have the limitation So that’s what database sharding, if you’re talking some other specific areas that I believe Magento is way stronger, is especially around everything that’s multi-site, multi-brand, multi-language, multi-currency, multi-warehouse, multi-store.
Because Shopify will claim like oh yeah, we support multi-site, multi-brand multi-language but you have a clone in Shopify of this, it all lives in an individual silo like that. So it’s not a true multi-everything like Magento has because Magento just has one instance, and you have all these branching out from it like a tree. So you can even share catalogs across your multiple brands. You can have one brand that’s selling at whatever store, another brand that’s selling at another store, another logo and all that but they share catalog, or you can share catalog data, what you choose, how you manage that.
So you can decide to say, I want to dominate Google or something like that, and then you’re going to have your single catalog with different domain names and logos that will come up on Google’s search results. Then you try to dominate Google this way, and they buy from the first and third and second results that are all you in different looks. You could even have slightly different prices if you wanted, you could adjust the catalog a little bit there. So, the true power of Magento often comes down to that. That’s a fundamental infrastructure thing, that Shopify could hardly replicate without some major headaches and the vector of everything. Magento is made this way. We have learned that three structure that start from installation and branch out to multi-store, multi-warehouse, multi-country, multi-currency, multi-language.
Derric: I was about to ask about country and currency because in Shopify, often it’s one storefront with a currency switcher. In Magento, you often find you’re creating separate domains and separate storefronts for separate regions.
Guillaume: Yes, but that’s more like just the decision thing. You choose how you build it, you will typically have it all any way on one installation of Magento, so that when you do your version update, you only do one version update on one instance of installation and then every site gets it. Of course, each site still needs to have its own control, because there’s more manual control of everything in Magento. But if you want to do a sub-domain, US dot or Canada dot or dot US or slash US, slash Canada, whatever, it doesn’t matter. You choose how you structure that thing after that.
Derric: Let’s talk about this version update. Because this comes in as a con, I would say, the site goes down for this.
Guillaume: Actually, that depends how you do it. You could have it down to a few seconds. Literally, a few seconds.
Derric: Few seconds, 1000s of dollars?
Guillaume: Depends on which store. Most stores won’t have a problem, like I did my WiFi cut for five seconds or something.
Derric: Let’s talk about uptime. Who has a higher uptime percentage? Certainly, I’ve seen outages in Shopify. I’ve heard people can’t log into their own back-end and Shopify partner logins are down, a few other things like that. Their front-end has had a couple of rolling blackouts, that kind of thing. But what do you think, who’s got the best uptime?
Guillaume: The uptime is decentralized here because Shopify is centralized. But then every Magento merchant is hosted wherever they’re hosted. So you have decentralization in that discussion for uptime. So it comes down a lot to who’s your hosting partner. On Magento commerce, you have two choices, you can buy Magento commerce cloud, which is now called the Adobe Commerce, they just renamed that last week, so then Adobe is your hosting provider in that case. Alternatively, you can buy Adobe Commerce on premise. It just means not hosted by Adobe, doesn’t mean you put it in your closet. Then you could go see any hosting partner that you want, like Nexus, JetRails, Webscale, and all that. So then it depends on the performance of that specific hosting company for the uptime reliability of this.
Derric: There’s one other factor that came into play when I worked at a beauty box subscription, which was on Magento 2 and had a large tech team and DevOps person and all these stuff as well as an outsourced agency. It was the kind of store that really peaked with traffic. An influencer would post on Instagram and I had a screenshot of like 45,000 concurrent visitors to the site. Now the site was down because somewhere about 10,000 concurrent visitors, the server couldn’t handle the volume, it became a serious issue. I mean, technically it was a very successful day but it was also a very frustrating day because of a lot of customer service complaints on social media and stuff like that. So is there this additional risk of uptime there?
Guillaume: I believe that this is very similar on both platforms because what you just mentioned here like 10,000 concurrent visitors visiting at the same time would be sort of the limit roughly on that Shopify plan, which is a limit that they decided to put there. Is that applicable for Shopify Plus as well?
Derric: Providers limit the number of visitors but it could be true. I know for example, Kylie Cosmetics, they had a special scalable infrastructure plan for her store so that when she posted to Instagram, they could support the volume going to her store. They had to hash that out with her personally because she’s a very large personal brand. And it was the swings in volume there.
Now, if you’re a small merchant, and you’ve been getting 500 hits a day or 1000 hits a day, and all of a sudden you get 40,000 that could cause you to crash. But what’s interesting is that your instance isn’t just on one Shopify server, it’s kind of across the entire Shopify network. So in most cases, you should be able to scale relatively infinitely. If you’re a large size, then you’re a Shopify Plus merchant. Then you’re talking with your rep and you’re saying, we need to make sure that our infrastructure can scale infinitely as many new visitors that hit the site. Another thing to note on that was when I was in the beauty box subscription, and maybe this isn’t a problem today, I wanted to use a CDN network so that the pages would load instantly. They said that there had to be a small amount of software that was run on the server for every time the page loaded on the homepage, and that was kind of what was causing the crash. Whereas most of the time for every page, but the checkout, I believe, maybe the cart page for Shopify, it can load through a CDN, I mean, Magento should be a CDN.
Guillaume: Magento is a CDN as well, especially commerce comes with Fastly. Otherwise, you choose what you put it on, you want to put fast in or whatever. Yeah, it’s fully CDN as well.
Derric: It was just the way that my team decided to do it, which is a risk. And now if you’ve got MageMontreal, or a guru to prevent you from doing something silly with your site or your back-end then you probably won’t run into too much of a problem. But if you build a site in which loading the homepage requires software to load on a site, then you have a fundamental limitation and server bandwidth and can no longer go through a CDN for services.
Guillaume: But now we’re talking about some sort of hard limits from either architecture or from server side and stuff like that. So, even Shopify will have some unless they decide that there’s no problem. I’ve heard of some limitations, but they’re quite high like on Shopify Plus, like 10,000 checkouts per minute. I mean, if you have 10,000 checkout per minute,
Derric: You’re in the process of a super merchant if you’re Amazon.
Guillaume: You’re pretty successful. Yeah, it’s not really a problem. But I’ve heard of some limitations like that, and of course on the nonplus plan. Those kinds of limitations somewhere, it’s a black box are hard to know, which is typically not a problem. So, on topic five you can typically just do a flash sale and not worry that it’s going to work fine. On Magento, when you do a flash sale well, check with your hosting company first, because they’re providing your infrastructure. So flash sale is something that we always plan, we look at it like, okay, how big of a flash sale we’re talking. Most of the time, it’s not a problem, it’s just like you have a server that’s big enough to support it. Even with a merchant in mind, we’re seeing names like 15 million dollars per year of online sales, specifically just online, it’s still running on a single server. Also, we’re not even yet at the clustered approach of having multiple servers separating the database from the web server and running that bigger infrastructure of multiple nodes, and so on.
So, even doing flash sales on the site that’s 15 million per year of sales, you can still handle that on just one server, just like buy it big enough that it can take the peaks from flash sales. And if the merchants are really that big, then they just get into that clustered approach of having more than one web server and then they can scale and plan how much you’re going to spend on those flash sales and we can sell and so on.
Derric: So this brings us to this point of technical expertise inside an organization because I think if you have a low technical understanding of servers bandwidth, then you don’t have a CTO as an e-commerce store owner, which a lot of early and mid stage stores don’t have anybody dedicated specifically to the technology, then it can be really scary to go with a Magento build, you will be fully reliant on your partner who’s meant like you’re either a development agency or some sort of technical partnership. And if that relationship doesn’t work out, you have to find another one immediately or you can’t make any changes to the website and you have no idea how your server uptime is going to be responding and all of those things.
So I feel like Magento leads itself of course towards larger providers multi-store, I totally agree with multi-warehouse. Now Shopify does have those solutions. I don’t think they do it quite as well. That’s the important thing to say. Especially, I think of a company like Men’s Wearhouse like stores or retail locations, and dozens of warehouses in its own custom supply chain. And I don’t even know what platform they’re on, but I have to imagine they’re not going to be a good fit for Shopify. But I think about a company like Timbuktu which is I think doing 100 million dollars a year but started more direct to consumer e-commerce then launched a couple of stores. I think they haveNew York, San Francisco, something like that. And are branching out that way you are seeing them continue to be able to scale through the Shopify platform with very few limitations for that growth. So back to the original point of technical know-how in the company should be a concern when making the decision. At a certain point, once you’re at 100 million in revenue, you can hire in-house for that technical role. But at three million years in revenue, can you really bring in a CTO full-time to manage?
Guillaume: I’ve seen part-time CEO’s either coming directly from us to providing that role as the agency or other consultant brought on part-time, just like your accountant or your lawyer, you don’t need to hire a full-time lawyer, unless you’re really big or full time accountant. You just do that portion of the books and of closing the month’s or whatever and closing the year and just returning that. So you don’t need someone full-time to bring that technical expertise or independent verification that we are headed in the right direction, technically speaking. So that’s for the high level strategic point of view or like a CEO.
Hands on, you do need more technical capability to run a Magento store. And it’s part of why it’s not made for small businesses. You do have to expect to spend several 1000s of dollars per year on that Magento store because you need either the extra power or you need that extra flexibility, or you say I don’t want to be like all of my competitors who yes, they can design, the visual of the user experience but they cannot go any further than that. Ultimately, we’re all going to have the same experience more or less than Shopify with no difference. Did I buy at one or two or three to customize that feature? But it’s going to be roughly the same experience for the checkout process, and from the purchasing process and all that. So you go to Magento, because you want that extra power for personalization, or you must go there because of the complexity, for example, the catalogue complexity of the multi-brands and so on. We were talking about multi-warehouse, so that’s true you need to think also about the future. Go ahead, you had something to say.
Derric: Yeah, growing into it, as well. So yeah, even if you are at the 10 million dollar revenue mark, but you know the growth of the business is going to involve all those complexities just listed, you can kind of build in advance on the Magento platform. But if you know that it’s going to stay relatively, let’s call it streamlined or simplified, then you have a tough decision, or you can be more confident on Shopify. The next spot I thought we would take it is actually payment processing. You made me remember Shop Pay having the same checkout experience isn’t always a bad thing, it can be a good thing. With Shop Pay, the user once they buy from one Shopify store, their information is stored similar to Apple Pay or any other kind of payment process like this. And then if you go check out on a different Shopify store, you can actually check out without having to put in your payment information. So it significantly increases conversion rate and makes a sort of network effect, which means as Shopify grows, it’s going to be easier and easier to sell on Shopify with Shop Pay. Now, the downside is of course, Shop Pay is just one way you can pay. You can also use a buy now pay later tool, you can use PayPal, you can use a few other ways. Those are all options available on the Shopify platform. So you’re not limited but the limitation is only when paying through Shop Pay itself, which is the primary payment processor for probably all Shopify stores.
Guillaume: So you can use whatever payment processor you want on Magento, assuming they have Magento extension, which most banks do. The most popular one tends to be Monetaris and we’ve seen a lot of Stripe and PayPal as well. And then people who want Apple Pay will use that typically Stripe or Braintree from PayPal to allow Apple Pay, because Apple Pay doesn’t want to position themselves as a competitor to those platforms, it’s just like an add-on. So that’s their approach for it. For now, there is Authorize.net and there’re a lot of US banks that you can just ask the bank, and if they have it, there’s often on their website, and then you can use those lower rates that you’ve negotiated with your bank to the benefit of those lower credit card processing rates as well on your website. So that’s it.
Derric: Those rates only exist if you have negotiation power.
Guillaume: Exactly. So it’s for the bigger merchants again, so you see it’s not for the same targeted audience.
Derric: You know what the rates typically are? Really quick I’ll give you that. So Shopify regular is 2.9% I believe it’s also plus 30 cents, and then Shopify Plus is 2.4% plus 30 cents transaction rates and those are the only options you get. And of course, like I said there can be other payment options still at checkout but primarily people pay through that.
Guillaume: Okay, well that sounds like the same as PayPal basically, you know, 2.9% plus 30 cents so this is a universal rate for everybody. But even Stripe if you contact Stripe, then they will negotiate rates that are not listed on the website. So it’s always about the negotiation power of your brand. Say, I’m going to bring you over 10 million a year in processing power, but I think your rate kind of sucks, can you lower it a few points? And very often they show flexibility there. It’s always a question of negotiation directly between the merchant and the payment processor. And don’t take the list of rates during the negotiation.
Some payment providers are easier to know how much it can cost you if they give you like a flat rate, but just like lower, and this like around the two percent, or if you have a company like Moneris in Canada, it’s a bit more difficult to know because every single credit card like it’s an Amex platinum, or if it’s a Golden Visa, or whatever, you know it’s going to change the rates. So, it’s like you just average at the end of the month, because you have no clue how much your rate processing will be. But in the end it is lower, you’re just in no way to know how much. So that’s what Moneris specifically so it goes case by case with the payment gateway providers.
Derric: One downside of Magento is that you have to go find your own payment provider. And with Shopify, you’ve got out of the box.
Guillaume: You will have to create yourself a merchant account either with PayPal, with Stripe, with the Authorize.net, Moneris or others. That’s the case about screening the account. But often, if you come from the brick and mortar store and established company, they tend to already have a payment processor for their stores at their retail company, and then they can often use the same payment provider as their retail brick and mortar store online. But not always, sometimes they have stuff that we’ve never heard about. And then of course, we just bring them to one of the big online player for payment processing.
And that reminds me also, we scripted this point quickly. But again about the point of planning for the future, sort of trying to avoid replatforming. It depends a lot on this, are you able to keep your business simple, because some business can stay fairly simple in their catalog and so on and scale to 100 million, but not all of them. And some of the businesses can be small, but they have complex needs. It wasn’t too long, let’s say they have one warehouse in the States, one warehouse in Canada or one warehouse in Mexico, whatever. And then there are small companies with few employees but they already have to manage their business like a multinational because they have warehouses across the borders and it becomes multi-lingual multi-currency, multi-warehouse pretty quickly and multi-problem. And then you have that complexity coming in.
So I have a Shopify merchant like this around. They started with nothing, did great, went to about 5 million a year of online sales on Shopify and now they’re replatforming on Magento Commerce because of all those extra capability that they’re looking for, and also to add B2B. So you know it was strictly a B2C experience. Now they want to add B2B, so Magento Commerce has a B2B module also. And unlike some other platform, which is out of scope of discussion, like the Salesforce or whatever, that you would be stuck with two platforms with Salesforce. There’s one B2B platform and one B2C platform and you sort of double your upkeep costs, then you have to retain your website again to design on the second one with Salesforce because Salesforce bought one B2B platform and bought one B2C platform, so it’s not the same. So you want to offer B2B, it’s a different experience, different platform. But we have a bit of that kind of case with Shopify, which B2B is sort of nonexistent out of the box.
Derric: There’s a couple of good apps that provide the wholesale side of the business, you can create either a sub-domain or sub-folder, which allows for logins and different rates and pricing by vendor. So there is a way to do that but it is a Shopify app, the prices on that app are not bad at all. But it is a little bit fundamentally different. I’ve heard issues with how this might integrate with inventory management and a few other kinds of hiccups that it causes. But I would say that it’s probably not as seamless as Magento doing both. But it is absolutely doable to sell wholesale or B2B which is typically to have different pricing for specific users that are like managed accounts as opposed to just the mass market.
Guillaume: So through those apps and their capability or limitation?
Derric: Yeah, but that app is integrating fully with Shopify, and plugs into your existing catalog. It’s just changing that front-end user experience. I would say it’s what it’s doing right so you can hit that wholesaler login button, and then it takes you to a login page into your credentials. Then all of a sudden, you are looking at different collections and different product detail pages that start at 100 units or whatever, and then show you the discounted pricing for you specifically, up to that 1,000 units that you want to buy. Because that’s typically the two things that are changing when we talk about the B2B or wholesale side is that the unit volume is significantly higher, then there might be some form of tiered discounting or products unique to certain vendors. So only they get to see these products or something like that. So that all can be managed on Shopify, it is just through an app as opposed to let’s say native. And I honestly don’t see Shopify changing that anytime soon, because they are so focused on their B2C platform.
Guillaume: So you get sort of the B2B through, not even an afterthought, actually purely through partner so that the app itself does not cover B2B. It’s whatever the app marketplace covers there for B2B.
Derric: Those apps are only doing one thing and so they are moving fast in improving their features and functionality they integrate with a lot. They know that they need to integrate with everything. And so you’re seeing maturity in this market now in a way that didn’t exist a few years ago. There might not have even been a wholesale app, or any legitimate there was a real cheaper one I think a few years ago but now they’ve got well funded venture backed startups that are building off of the Shopify platform. And that’s maybe where we could take it.
Next is how in Shopify, I feel like it is enabling the technology to build on to its platform, in a way that is bringing rise to really unique businesses. Of course, Klaviyo is now everywhere but started on Shopify and grew, there is another one called Privy and there’s other Shogun, and because of purposely lacking functionality in Shopify, there was room to build these apps. The apps themselves started making quite a lot of money. The Shopify did a great job empowering their partner ecosystem and that has created a really unique space, I would say. I don’t know anything about the Magento, extension and app ecosystem. So I know that there are a lot of apps that crossover between the two. But I don’t know how Magento might empower their technology partners or anything like that.
Guillaume: That’s different. So what’s interesting about Shopify, which you just mentioned, like it’s a venture backed ration of a fairly large company that just like addressing the Klaviyo, we like Klaviyo, are working with Magento as well, now they have the Magento plug in and all that. So, that’s interesting, the creation of those larger companies on Magento. Since we address customization as that’s the key focus when you present Magento is, sky is the limit or budget’s the limit. What do you want to see here? We do just like everything and every business is so different and because we’re going naturally with the complex cases to solve, even with all the bells and whistles that comes with Magento. There is never enough bells and whistles. So, those companies still make us develop a lot of custom work, and there’s a very large marketplace. I don’t have the exact numbers, but I know for a fact that the Magento marketplace is dwarfed by the Shopify marketplace, like how many apps are available on Magento?
Derric: Just because of the customization and in some ways it’s better to just custom code sometimes than to pay a monthly subscription for something. For instance, when I mentioned Shogun, it’s a landing page builder designed drag and drop functionality, so it makes it wiziwig and ease of use. Now, the pro of that is that the idiot marketer can now change the page around without having to bother the tech team. But the con of it is, of course, paying that subscription fee. So if you’ve got a development team that can execute on changes needed for product detail pages, then you probably don’t need a landing page builder. And so you’ll never have to build one. There won’t be an app or extension for that, because it should just be done in a custom way.
There’s a few others to do that, like how you change your navigation menu in Shopify is often in app instead of with custom coding, and a few others. There’s this whole low end of the Shopify app market, which I consider tools that two guys in the garage developed and do like one small thing, it adds a bundle and it adds a discount, adds a little widget here, little dropdown there. Those are all the things that you would always custom code in Magento, which I think is a very big pro to Magento. I’d rather have them custom coded, but at the same time, it’s going to cost me 600 dollars to custom code it, or I could pay 5 dollars a month. It will take many years to get to 600 dollars at 5 dollars a month. So that is the tradeoff. In Magento I think you pay upfront for development whereas in Shopify, you get sucked into a tool that solves that problem that you pay for in perpetuity.
Guillaume: Yeah, so the subscription model, the short-term can be super interesting and long-term and becomes different, so the apps in Magento, almost all of them like 99%, are one-time purchase. It’s not expensive, typically it’s like 99 bucks, 200 bucks, 300 bucks. And if the enterprise version of the open source version, they put the ad, more or less 300 bucks on it, so the 300 dollars purchase becomes 600 dollars. And it’s a one-time fee and that’s it. So it’s more like part of the upfront development cost. And then for the version updates of those plugins it varies per vendor, a lot of the very large vendor like Amasty will give you lifetime free updates. Others will give you only updates for a year, but majority tend to give free updates, lifetime, not all of them.
Derric: So as a merchant listening to this, you’re thinking I’d rather just pay once, pay it upfront. But there’s actually this hidden cost, just in how kind of Business Economics work. It’s why Microsoft used to sell Microsoft Excel, now they sell an annual-like subscription to their products, because by having a recurring payment, SaaS model it provides, in a weird way, the capital to that technology company in order for it to invest in growth and scalability.
So in some of these one-off tools, there doesn’t need to be too much more developed, except for some updates, but they’re only always going to solve these one things. Whereas if you think of a platform, I’m thinking of the customer service solution, gorgeous, which is now also on Magento. But they are charging monthly launched specifically on the Shopify app ecosystem. And they launch with a relatively low feature set, knowing that they would have to continue to build features over time to reach their beautiful end goal of their vision. And so I think that you have a lot of certain technologies, and these could be technologies that you add on that aren’t Magento extensions, they’re just apps. They’re just other tools like Slack and Asana are not necessarily part of your e-commerce technology stack, but you’ll still use them in your business. But there’s a value to paying monthly for something and seeing that feature set grow over time, as opposed to a one-time fee for a very specific fix. Yeah, I’ll leave it at that.
Guillaume: It’s a fair point of view. So I’m not going to argue that point like one-time fee versus recurring, but the recurring sometime can have improvements within the pans, if you will get improvements, some makers of plugins will give you improvements. But often, it’s just like you said, new version fixes. But sometimes there are improvements in the case by case. But I think the main differentiator is not exactly that, even though it’s one of it, that’s more like, if you have a cool idea, if you search for that plug in, there are the odds that there’s a plugin that does your cool ideas way higher on Magento, because there’s so many 1,000’s of extensions, like just the core Magento extension in the market despite 1,400 extensions, and that’s bigger than the Shopify marketplace, and that’s just the official one.
Derric: Some guys have got over 6,000 now.
Guillaume: That’s just the official because it grew up a bit but then you have all the vendors that are not listing on the marketplace. Because the marketplace you need the code review by Adobe and all that and it’s long and it’s slow. So there’s a lot of vendors that want to sell on their sites, we have 1,000s and 1000s of extra plugins that you can just buy directly from vendors.
Derric: There’s something there. I would say that most of the things that you’re going to need to change, there’s probably an app for that. I’m kind of hinting I do not like the one-time fix app that you pay a monthly subscription to, and the developers aren’t working on that tool anymore. I do not like that in Shopify, whereas in Magento, it’s clearly well accepted and it can fit the business perfectly. It also sounds like Magento, correct me if I’m wrong but these extensions, I think they’re all changing the backend code. But that’s what you’re paying for is like, just make these auto-like adjustments to the code that you’ve already written and then just injecting it into my site. In Shopify, you’re more like renting the code, I guess is the best way. Shopify is rented in a lot of ways, semi-rented land, because they own it and they can change a lot of the rules. But Magento is true owned property. Nobody’s going to be taking it back anything from you there.
Guillaume: I’ve heard something also about the licensing for Shopify, maybe you can tell me more. On the marketplace Shopify and Magento are two of the key players. There are a few other more of course out there. Shopify positions themselves, when I’m talking Shopify Plus here versus Magento Commerce which is Salesforce, big commerce. So Shopify Plus position themselves little bit lower than everybody else sort of as the least expensive option. But I’m told that if you add all the recurring subscription costs for plugins, for personalization, especially in the context of a large more enterprise grade product with Shopify Plus that base license cost difference that is lowered Shopify Plus quickly goes up, that there’s not much of a licensing difference afterward.
Derric: So we want to separate out the cost of Shopify Plus and the cost of your e-commerce technology stack. So if you’re doing 25 million plus a year, you should have a personalization engineer who should probably be adjusting or alarm spotter, some big AI based personalization tool, which I’m sure isn’t like something that you can just build yourself. You need that because they’re literally merchandising solutions. They know what products to show at what times and increase conversion rate. And you’re going to need a host of other tools on both platforms for a lot of other things. Everyone has their own email service provider separately and all those things.
So the question is, what other tools do you have to buy on Shopify that you wouldn’t buy on Magento. There’s not necessarily too much more in the technology costs for the Shopify Plus itself. I made the calculation a while ago, I have it in like a LinkedIn post. We found out that it was something around two million in revenue, maybe it’s a little bit more, you should switch from Shopify to Shopify Plus, specifically based on the transaction rate savings that you’re going to make. So you go down from 2.9 to 2.4%. And so you can do the math on 1.5% is less than two or more than 2,000 dollars, you’ll save money switching to Plus. That is really almost the only reason to switch to Plus is the savings in your transaction rates.
They do give you access to flow, they give you a dedicated merchant success manager, and you might get some better bandwidth, or maybe a couple of other things along those lines. But it really is, I would say, move transitioning upgrade based on transaction volume that you move from Shopify to Shopify Plus, and in some cases I have seen merchants move down even as their revenue goes up from plus to Shopify, because they ended up using a third party vendor for a lot of their payment solutions. That was again, just a custom thing to them.
So that’s the main difference there and absolutely you’re correct that Shopify Plus is still coming in on the low end of the market .The majority of Plus merchants are doing under 100 million a year, whereas probably the Magento enterprise are probably much higher than 100 million a year and they’re in the billions. So you definitely see those complex multi-billion dollar conglomerates being more successful on the Magento platform, whereas those fast growing digitally native vertical brands that are famous on social influencer and with a very specific like DTC channel as their primary focus, I’d argue see more success on Shopify.
Guillaume: For a small brand, actually, I do recommend them very often if the product is appropriate to go on Shopify, like a small mom and pop shop, they are too personal they’ve a bit of personal savings, you want to start, no, Magento is not made for you, sorry. I know you’ve seen a cool template on Template Monster or P Forest at ninety-nine bucks, you’re buying them into the wrong platform and product. This is made for the mid-size market but it also tailors well with the smaller company but are still fairly large and the also the enterprise solution there. So like when you go the licensing costs and all that for Magento, even though there’s a tier like starting at 500k a year of volume it’s not for those making 500k but more for the word 500k. But like we’re venture-backed or something we’re going to explode next year, we’re going to grow and we’re going to be a mid-size company in a few years from now. That’s more who they’re aiming at. So typically Magento is like at least a million and that can be a good fit.
I see a better fit in our agency with like three million in that kind of client that tends to be good especially if they have complex needs, again, is one of my previous examples. You’re a small business with just few employees but you can have the same problem as a multinational if you have warehouse in multiple countries, currencies and languages and so on. Adobe acquired Magento three years ago, and since the acquisition of Adobe, Magento is getting pulled even more upmarket. That’s how I feel it’s happening. And it’s becoming even more enterprise grade and enterprise solution and so on. So if you look for example, at the top 1,000 internet retailer internet merchants online, this is where you can see the stats get totally skewed toward Magento being the market leader there.
Like, there’s 121 stores out of the top 1000 that are in Magento, which positions as number one platform for that segment, the top 1000. You know, and then you have the other one, the other platform listed here, and Shopify is toward the end of the platform list, like we have a few other in front of this. If you go at the bottom 1000 stores, Shopify is gonna win a lot, or it’s gonna have a hard time maybe with WooCommerce, or I don’t know, but I don’t have the stats for this. But for sure, Magento is not winning low, and it is a mid market solution. So it’s part of why you have to be careful. And I was saying like, not every project is a good fit on both platform majority of projects can have a clear winner as should this be a Shopify project, or should this be a Magento project, it’s rare that you have a few in the middle, there are some but still, because you want to be careful to think of it for the future.
And when we’re talking cost, total cost of ownership, or replatforming, is one of the worst costs you’re going to ever have. So if you neither replatform, that could be like 100 grand on the cover of loss or something or whatever, it depends on what you you invest in that platform, then we’re talking like mid sized companies here with complex needs integration with the MRP system with the fulfillment system with maybe they have an own fleet, or samsara or other fleet management for their truck delivery system integrated with the website, the multi warehouse, and it goes quickly up in the bill. So then it becomes more like, you can get in several hundreds of 1000s of dollars of development for those kinds of projects, because it’s not a website anymore, maybe the users just see a website, I understand the whole complexity here. But in the back, it’s almost becoming an ERP to some degree in enterprise resource planning system. It’s integrating with the ERP submits the mirror, all the power, the complexity of that ERP so that let’s say it’s SAP that integrate with Magento here.
Well, Magento needs to be able to do all kinds of crazy stuff now. How merchants returns are handled, how the account creation is handled and stuff like that, let’s say you’re talking about the checkout process of a merchant, complicated business manufacturers, you look at their product structure, and you want to pull your hairs and you need to do another session to understand how the heck that thing is working, you know. And in their case, they want SAP to do all the calculations for shipping, and for the cost of the checkout and for taxes and all that. They don’t want the e-commerce store, which is the standard way of doing things to do those calculations.
Normally, you’d have let’s say your checkout for your US taxes, maybe you have UPS for your shipping, and then you contact ups for the shipping, if you have freight, maybe you have FedEx Freight, or whatever, and contact that for the shipping cost for your freight stuff. But they didn’t want that to come for all kinds of reasons. They need SAP to do those calculations. So during the checkout process, Magento can hijack the checkout steps and sort of stop there. Let’s go to SAP instead for all that shipping, pricing and rules and everything comes back here. And then the checkout continues. You got all that power for that large corporation running on SAP that needs any commerce store that has the power and flexibility to match SAP.
Derric: Yeah, for a large kind of enterprise provider like that, Shopify is just not an option. It can’t even make the shortlist because you’re talking about a lot of needs and custom integration needs. And so I think that’s where we have a cut and dry, clear winner for Magento. And I think we’ve been hinting at it, there’s this gray area on the growth and trajectory of the business where sometimes it’s not clear whether you should be building on Magento or on Shopify. The advice I would give is you need to build for your five year future. I’d love to say you want to stick with the platform for more than five years, but who knows what’s going to be held in the business for five years.
And you have to make sure you can afford to get there. You talked about hundreds of 1000s of dollars in maybe launching on Magento. Whereas it could be 10s of 1000s of dollars launching on Shopify. So if you know you don’t have the capital investment, you unfortunately have to underserve yourself slightly to make it to the five year future and then you pay that $150,000 to $200,000 replatforming fee at a later time when the business complexities get there.
Guillaume: Just to interrupt quickly about budgeting. I’ve heard a lot of quotes that are kind of similar in development with Shopify plus unlockbase. But yes, Magento tends to be just a little higher in general. So the larger agencies will typically do project either like a 100 a day and up in USD.This is like the general agency if you get the largest of all agencies several hundreds of employees they’ll typically do like 400k and up in a project, but then you’re talking several hundreds of employees or CGI or a center and then they’ll get the half a million a million dollar project and up. But that’s it, it’s a different ballgame. You will have smaller agencies that will do projects maybe in the 30k, 40k, 50k, range but you don’t have a 10k Magento project with professionals, that doesn’t make any sense. It’s in the outsourcing you are going to get a disaster.
Derric: Yes. Actually, that’s the way my first e-commerce business that I launched was Magento 1 outsourced agency and a big business.But I don’t blame the platform, even though the platform was overwhelming for us. It was our fault for not being ready or well trained in it, we eventually got pretty close up to speed. Comparatively, if you know nothing about your e-commerce platform, if you’ve never used one, maybe you’ve got a few retail stores and have just completely neglected your website, and are now moving online. It’ll be a lot easier for that person to get off the ground on Shopify, even though they are a 10 million dollar business with most of it being retail to get their e-commerce up off the ground through Shopify than through Magento. That doesn’t mean that it’s absolutely the right solution. I just think of the ease of their investment into the transition and even who they might want to hire to help run the DTC and e-commerce side of it, like the actual marketing and acquisition side not the development side and stuff like that. I do see projects for Shopify development, I’ve seen as low as 1500 dollars per starting store being built, I’d say most projects would be five to $25,000 for a good website build. And then of course, for larger more complex stores, higher skew count, or for migrations, because we have seen migrations from WooCommerce, from Magento, and stuff like that, then you could be at 30, 50, and at the absolute upper bound is 100,000. I think that’s the reason the cost gets really up there in Magento. Because with Shopify, there’s almost no custom API. It’s always either there’s a tool or a widget and integration, there’s very little that needs to be done there.
Guillaume: Yeah. That’s exactly back to that fundamental thing beyond Shopify and Magento. And you have a SaaS platform software as a service, and you have that open ecosystem on Magento. So with the SaaS platform, what you can modify is restricted by templates, is restricted to some areas, there’s limited customization that you’re saying checkout is not even allowed to be modified. Some of the restrictions or processes of how things work. Well, if they don’t even give you access to that specific functionality, then you cannot modify it.
There’s no API endpoint to connect due to modify feature, so it’s just impossible to do it. That’s why also those projects for Shopify will tend to cost less than love. Because there’s less you can do so they keep you in the sandbox there. The Magento project, by definition, tends to be the more complex projects, larger with the bigger needs and that full customization needs, and then integration with lots of custom API and all that it becomes huge. So the project can quickly turn into pretty much a software development project, and mirroring like functionalities from the ERP and stuff like that enterprise resource planning system. So it gets fancy quickly.
Derric: We have our answer, we’re settled, I agree completely. I think we’re totally on the same page here, which is good to hear.
Derric: That’s interesting. Now is Adobe providing the Progressive Web App option or?
Derric: Okay. So, in Shopify, we have progressive web apps, there’s a couple of players in the space, but they are separate SaaS products that you have to buy, and you work with their dev team to ensure success. Some of them are almost plug and play, you just have a drag and drop builder to make sure that the front-end experience is mirroring what you want it to. And then they actually will integrate with the other tools in your Shopify stack, to bring in the review widget tool, and the loyalty program tool. And there’s a few other maybe on-site chat tool, or whatever it is, so the good news is that they do exist, there is dev cost, and it usually is for the upper end merchant, I usually recommend that at about 3 to 5 million in annual revenue is right when a progressive web app becomes viable and scales in business.
Guillaume: I agree. That’s the minimum you need for that.
Derric: Yeah. And then the only other limitation is because you do have other apps that are showing an on site experience. So you have to make sure that that progressive web app tool can bring in all of those things. And some of them, if they don’t have the direct integration, there is actually an opportunity to do custom API development usually, in that situation. But then that’s a bloated cost kind of situation.
Guillaume: Yeah, exactly. It is part of the Magento, Adobe value-1:01:47 studio so yeah, it’s the future, they’re going there. That’s where the whole company is going it’s pretty interesting.
Derric: Shopify I don’t think is going to do it. Unfortunately, I think they’re letting the Partner Network create the headless commerce experience, which I find interesting, because I think they just should have headless commerce built in. But I don’t know how technically feasible it is.Because then every developer has certain limitations.
Guillaume: And talking with developers, I’d like your opinion on this. Is it easy to find developers and the merchants and so on? Because you have that proprietary liquid technology there for the code. So you need someone who knows liquid. Is that an issue to have a limited pool of liquid developers?
Derric: I would say there’s so many Shopify developers. And because of the size and growth of Shopify, people have flocked to this platform the same way you chose Magento. It kind of has happened to thousands of developers. There’s a whole agency network, we’re actually about to launch our own agency page that we’ve got about like 100 agencies that we’ve vetted, that are specific to e-commerce, some are specific to Shopify. And so there’s a lot of agencies there, but most importantly, there are these freelance networks. One of them is called FreeUp, there’s Storetasker, and there’s get Carson-1:03:20. There’s one other that I’m blanking on that I should know. It’s a pool of vetted Shopify contractors. And then you put your job there, which is like I need this page modified. I need the CSS here, I needed an SEO overhaul or something like that. And then the individual developer will send you a quote, a lot of times these are actually like smaller agencies that are on the platform, and then just looking for a small project. And it’s better than a freelancer Elance, or Fiverr or anything like that? Because they are specific to Shopify, and they’ve been vetted and are in the Shopify ecosystem. And then there’s Upwork.
Guillaume: You said Elance. They renamed it to Upwork so that was covered. Adobe typically presents it like that, like having my own sort of independent point of view. Adobe typically presents it since Magento is built on PHP, and there’s over 5 million PHP developers worldwide. It’s the most popular language or one of the most popular universal web, and then you have over 350,000 Magento specific developers worldwide that is so much bigger, and there’s a larger resource pool.
Derric: You need more resources to get anything done.
Guillaume: Which is true, which is why I have my own independent point of view. There’s so much learning curve to Magento. I don’t know exactly about the situation with the limited number of liquid developers on Shopify, but I have a feeling it probably evens out. So there are ups and downs for both.
Derric: You need them often but the pool is there for you when you require it. And I would say in both cases Magento, Shopify and really, most other platforms, whatever platform you’re on, you should be hiring developers and an agency specific to that platform, because it is really important. You’re talking about the learning curve for Magento. I can only imagine the things that you know because of 15 years of experience, that as somebody that knows PHP, but not Magento just comes in and breaks the whole system.
Guillaume: They need to learn. We’ve done it in the past, hired a PHP programmer with 15 years of experience are defined that the Zambia-1:05:40 PHP engineer, blah, blah, blah, he needs at least one year of full time work to go get his first grade junior certification, which is now called Adobe Certified Professional Developer. It’s at least a one year learning curve for a back end developer, to just get up to par, so to speak, to just be competent on the platform.
Derric: That’s interesting. I don’t know if Shopify has the same bar or not. They do have some certified partner programs and a few other things and resources. I do know that the platform’s I mentioned with the pools of contractors, they have their own kind of onboarding and vetting process and they do deny a large portion of applying developers that just don’t seem to have the amount of hours put into the platform to be successful yet.
Guillaume: Well, that’s the standard Adobe way. It was changed, it used to be different when it was the magenta day. So now Adobe does that for all their platforms, not just Magento. So you have the first grade, it’s like professional developer, second one’s expert, certified developer expert, basics for that and then the third degree is the master, which can be like a master architect, master full stack certified so you have that probation there. But again, it needs these one year full time experience to get possibly the realistic capacity of the first level of certification.
I think that covers well for developers. We didn’t talk much about AI, or what’s happening in there for Shopify, I just don’t know what’s happening for Shopify with AI. I can tell you what’s going on with Magento. But go ahead, tell me about Shopify or something.
Derric: I don’t know anything. I don’t think there’s anything, there might be some things going on in the background of how they’re managing server loads, and a few other things like that. But any AI solution that you would want to use is going to be an app partner to Shopify. Whether it’s a recommendation tool, like a personalization recommendation tool, dynamically changing web pages based on content, or there’s a price testing tool out there that uses AI to predict the best price of your products. And there’s AI copywriting tools and all these things. We actually just did an event last week called the future of e-commerce AI, and how it’s changing the industry. And yeah, Shopify didn’t speak and Shopify certainly knows that these tools are out there. But they focus on the platform dynamics, which don’t really require any machine learning artificial intelligence. Like I said, some server load time and maybe a few other things whether it could be sales. There’s not too much that they need to do in terms of building AI. But that is why I want to hear from Magento. And what are they building that is so great here?
Guillaume: Yeah, in that case, we likely have a win on the Magento site for the AI because of the following reasons. Yes, Adobe themselves, they charge AI with the Adobe Sensei platform, which is the Adobe AI platform that they are integrating across all their products, not just Magento. And why I say that, I believe that’s Magento and that is because how deep do you integrate your AI to capture data from your visitors to do the best recommendation or the best understanding of the person who’s shopping there? You need to go deep with this because that’s Magento they are some third party login providers to add AI in the form of Amazon personal likes so Amazon has that you know Amazon product recommendation engine, you can just pay per request and have access to it and Amazon will generate recommendation for your catalog to Amazon personalized. That can be integrated with a store like Magento and other types of stores as well. But the extension maker we integrated that Amazon personalized with Magento. Their touch point and data collection points are far more limited than what is built by Adobe, like Adobe is more of that big brother approach to everything on the website that tracks and feeds data to the AI to try to understand who’s in front of me now.
Even the page builder, the drag and drop page builder supports it, everything supports it. The main areas in which you can see artificial intelligence on Adobe, it’s strictly on the Adobe commerce version, we got its cloud or on premise, not on the Magento open source section. And then you will have product recommendations that are made through AI. And what’s really powerful about this, well, in this case, more data from visitors to give better recommendations. But by using AI in general, for product recommendation, let’s say you have a really large catalog, not large at all, but let’s say 40,000 skews. That’s quite the size of a catalog.
Now, if you want to suggest other products to buy, you could do it in the more manual way that there’s somebody that fills a spreadsheet and says, that’s insane for a 40,000 product, I agree. Then there is one better before AI it’s other tools like automated rules. If you’re in this section, show also this, if you’re looking at a camera, show bags and batteries and accessories, that kind of thing.
Derric: I think that should be dead as well.
Guillaume: I agree, then the next one after that better is based on some data like a beginning. It’s not AI, but just something smart, like people who bought also bought, people who viewed also viewed and it’s based on real checkout data. And this has a downside that you need enough data of people who have viewed the product out of your 40,000 skews for this to have any data to feed. And it will not be a personalized experience. Because everybody will see the same recommendation that people who viewed also viewed then here’s the three others that they viewed. This is almost like if you go to Netflix, or amazon prime video or whatever and everybody would get the same recommendation, doesn’t make much sense to me in terms of personalized user experience.
And that’s where AI comes in and just like trumps everything, because then on that whole catalog of 40,000 skews, you will have personalized recommendation based on who the AI thinks you are as a persona, and based also cross match with what sold in the past related to this and so on what might interest you. And then the kicker is that the AI will self correct. So across the full catalog of 40,000 products, if something does not convert, doesn’t add to cart, doesn’t checkout, it’s going to start suggesting something else. So it autocorrects everywhere based on performance. And that just becomes incredibly powerful. So that’s my product recommendation through AI for mathed catalogs.
Derric: I love that Adobe has that separate AI product. And I would imagine you end up integrating this into most of your builds for your merchant. Similarly, anybody I would say actually a lot of these tools are now scalable all the way down to starting stores. So I’m assuming Adobe Sensei is more than 100 dollars a month, right?
Guillaume: It just comes with the license, same fee, it’s included in all.
Derric: So it’s free for all Magento plans?
Guillaume: All Magento commerce.
Derric: Okay, that’s huge. Now I can’t necessarily compete on price. But there are personalization tools. I mentioned two, LimeSpot and Justuno are two of the big ones in the space, perfectly integrate with Shopify. You get all the data you need to make the right recommendations, and both are very good. Just fully robust solutions, conversion platforms, and merchandising platforms that understand, is this in stock, stop showing products that are out of stock, all of those things. But also, I know with LimeSpot specifically, it uses data points not just across your website, but across to their users on on all platforms, which is in a GDPR compliant way, they’re able to say, oh, well, this person was visiting another product intended to lean towards products that were female oriented. So I’m assuming they’re still female. So we will show them female oriented products on our site. So there’s just a basic kind of learnings that you can carry over across site that make their platform really powerful. And you can see that boosting conversion rate.
Guillaume: I believe that it can self pay if you have a large enough traffic base and catalog and complexity and so on. And there’s two more really cool things about that AI. Another one is visually similar products through a visual recognization of image and patterns through AI. So that’s really cool. If you’re familiar, let’s say with the website Adobe Stock, not everybody knows, but you can search by picture. Next to search is a little icon, upload a picture, you put a picture in there and then Adobe Stock will search for other similar pictures based on that image search on AI. So you have the same functionality in Magento because it’s using the same thing, it’s Adobe Sensei and then you can have a search visually similar and then it will show you garments or whatever that are visually similar. That’s quite powerful.
Derric: Believe it or not, it’s not as powerful as you think. Image search, in the sense of, let’s say, I have 40,000 skews. Now, most of the time, these skews, wherever they’re coming from, vendors or something like that are going to have tags or something associated with them, like meta description information that give us more about that product. And if you’re not getting that information from the vendor, and you need to create it, then yeah, using a tool that analyzes the image and creates a handful of tags for it can be really helpful. But usually, you know that it’s a women’s, a red dress, slim size with a bow. Usually you know those four things or whatever. So you don’t actually need the machine learning to find it.
Guillaume: It depends where so for a simple example I’ll agree with you. Then you get the more fancy, more complex thing. Let’s say you have whatever it is shoes, try on a Nike sneaker or Adidas or whatever to say what color’s the goddamn shoe. It has so many colors on it and the patterns are different, and the swirl and the descent of that, and nothing is really gray. It’s light gray, it’s beige gray.
Derric: When we’re recommending another product, you can get close just on basic functionality, show the recommendations, and then the engine finds out which products people are clicking on and makes the correlation over time. So you’re only saving a little bit of time by having that additional data at that.
Guillaume: What I suggest with this is actually to do what you just said to do. But to add an additional row of visually similar so that you separate the visually similar thing with what you just said, to keep all the benefits of what you just said. And you add the benefit of visually similar. And this is really cool in so many instances, because you have all that very advanced capability because they want to use this for a software like Photoshop for photo touch ups and retouching and so on.
So the software is smart enough that let’s say that this picture was a fancy picture of a woman wearing a dress, but she’s on an orange background and other white background. Well, the software is smart enough to know that the orange is not part of the garment, and this is not a white and orange dress, this is just a white dress. And it will suggest stuff like that. And same thing for the patterns that are on it, it can recognize the type of drawings, shapes and angles with swirls or whatever, or flowery and whatever. And it will suggest patterns that match let’s say products like tiles, you have a lot of subtleties, and marble tiles and whatever and stuff like that. And then you can see visually similar all just showing up like that on that extra recommendation row. It’s quite interesting.
Derric: I like that, I like the idea of having a second recommendation for visually similar because the first one could be products that this type of person is most likely to buy. The second one is products that are more like this product, but slightly different. And there’s kind of two mindsets inside of I think the consumers mind at the same time, which is like, I’m shopping. I’m gonna see things that I like, but look, I’m on this product, I want to see things that are like this product for now. And giving them the choice between those two options, I think is valuable. But now we’ve gone completely off topic.
Guillaume:Well, yes and no, went into AI which is not covered by Shopify directly, let’s say it’s a just wrap for AI because it’s a fun topic. They just added now they’re ready to buy a 2021 AI search as well for Magento commerce. So that was not there. Before we had ElasticSearch, very powerful for simulans accounts, like items in a few milliseconds. But now you have AI search. That’s the latest thing, it’s so new, I cannot tell you much about it.
Derric: That great powerful love it. And I love that it’s in-house. And again, with Shopify, it’s going to be an app, you’re going to pay a monthly fee. And the good news about it is that these app providers are phenomenal. They’re competing with each other. They’re building new products and features. It’s a relatively mature market of competitors there. So the pro of Magento here might be that you’ve got Adobe backing it and it’s probably a very good search functionality. But you it’s probably the only on site search functionality you can use if it doesn’t have a bell or whistle you like I mean, you probably can custom install it.
Guillaume: There are four Magento customizations. You can’t replace it with whatever.
Derric: But you kind of want it to be from Adobe, I would argue. Whereas Shopify said, we’re not even going to touch that category. We want the market to compete for the best on site search personalization, the same way they let them compete for the best email service provider, and they let you know best pop up Google and so forth and so on. They didn’t want to take those spaces so that they could focus on the core of the platform and let those markets they win if those markets grow and get better, essentially.
Guillaume: Yeah. I guess we’ve covered the topic pretty well. Is there anything we forgot to discuss about the Magento versus Shopify?
Derric: I think it’s been quite a lot. And at the end of the day, there’s a reason both of these are clear competitors in this large open space because they have different focuses and are good for different things. And so they are fairly well differentiated with that. One layer of overlap is the growing $10 to $25 million merchant could really go either way. And I think that, as far as you and I have contention, we’ll all be pulling into Shopify, probably still. And you’ll be pulling them to Magento at those stages. But again, it will come down to complexities for sure.
Guillaume: Exactly. The simpler the site, the simpler the business case, the three colored t shirt, the three sizes, and you just add to cart checkout, and nothing fancy. Go Shopify is going to cost less basically, for a very small merchant, go Shopify. Magento is built for the mid size market and is expanding more and more to the enterprise territory very strongly with Adobe having such a strong worldwide presence and enterprise grade software. It’s made for complex need, multi warehouse, multi brands, multi inventory, complex catalogs, large catalogs, the complex products here, the multi lingual and all that stuff. That’s when really Magento shines more and more. The more complex the project becomes, the more large scale it becomes in terms of complexity and implementation,
Derric: I could make one recommendation to merchants, it is to not overly complicate your business.
Guillaume: I agree. I’ll back 100% on this. If you can simplify, if it’s okay to use the standard thing let’s say the Shopify offers, well, it might be a good decision. But some businesses just cannot do it. Maybe their franchise approach or they have a lot of brands and stores and they need it to work that specific way, well, then that’s when they need to go the Magento way. The complexity, I don’t see it as a benefit, complexity is a negative, you want to reduce complexity. But sometimes those businesses have a lot of complexity. And then they need a platform that can handle that complexity, and it becomes Magento. But it costs more also both to build it initially and to upkeep it later.
Derric: That’s why I see, older, larger brands lean towards Magento. Whereas younger newer brands, which are simpler by nature, but probably looking to keep simplicity a little bit more by the nature of them. And by the way, the rise of those brands has only really begun because of the proliferation and opportunity that an easy to use platform exists. Meaning if you couldn’t use the cheap platform, then you never would have gotten the company off the ground in a non complicated way. One kind of be got the other and now you see more streamlined business models existing and thriving on top that couldn’t have existed in the year 2000 or even 2010
Guillaume: Awesome, I think we covered everything here.
Guillaume: All right. Well, thank you for being here today. Great recording, enjoyed the session together, talking about Shopify versus Magento as objectively as possible, despite us being each.. You’re a Shopify expert, I’m a Magento expert, but I think we did a pretty good job trying to be objective here with the comparison.
Guillaume: All right. Thank you.