Beyond the Build: Yotpo’s “Think Small to Scale Big” Strategy

Welcome to Beyond the Build, a new series from Shopify where we share stories behind the Shopify ecosystem, a platform where founders, developers, and innovators come to build for more than 1.7 million merchants worldwide. 

In this episode, host Fatima Yusuf sits down with Tomer Tagrin, the co-founder and CEO of Yotpo. 

Yotpo is an ecommerce marketing platform with advanced solutions for customer reviews, visual marketing, loyalty referrals, and SMS. In 10 years, Yotpo has grown to over 450 employees, over 30,000 customers, over 500 partners and alliances worldwide. They just recently raised $200 million in funding, and are now valued at over $1.4 billion.

In this interview, Tagrin explains how building Yotpo, developing new products, and making strategic acquisitions, all started from one misleading review—and how their culture and vision kept taking Yotpo to new heights.

The one bad review that started it all

Fatima: Right before this interview you said to me: "Yes, we're at a $1.4 billion valuation, but we're not a unicorn. We're a flamingo." What does that mean?

Tomer: In the fundraising process, I had a slide talking about the Yotpo culture. The slide is basically displaying a flamingo in a flock of pigeons, meaning that, despite the [high company] valuation, Yotpo is a flamingo, not a unicorn. We are a real animal. We are a real business to provide real value to customers over time. It's very, very important to remember that internally. That's something that I'm talking a lot about with employees.

The day that we think that we are a success or the days that we fall in love with words like unicorn is a very problematic day. It's a great joke and we like to use our sense of humor. So it was also like a spin off on the entire unicorn thing.

Fatima: This is obviously a great milestone for you all, but take me back to the beginning. How did Yotpo start? Where were you personally and how did you come up with this idea?

Tomer: Omri Cohen—he's the smarter half—and I met at Tel Aviv University before we co-founded Yotpo. We finished a combined degree of electrical engineering and computer science. The reason we founded Yotpo is because one of my friends from back home made fun of us that we didn't buy him anything for his birthday. Then we decided one year to do something. 

It was 11 years ago and, because I'm the geek, I did the research online to find a fancy camera. He was big on photography back then, so we [also] bought him a photography course. After his second lesson the teacher told him that we bought him the crappiest camera that we could have bought him. All of my friends made fun of me. I went back and I saw that my decision was based on a reviewer named “Fatima123,” a person you don't know anything about. Are they real, are they not real?

That's when we decided, "Okay, let's solve authenticity with reviews, and let's create trust on that." 

During that process we started interviewing a lot of Amazon top reviewers. We interviewed a lot of businesses, but we didn't know how to get to merchants. That's one of the great things about Shopify for us. We were two engineers [based] out of Israel. We didn't know anything about marketing, business development, or sales. And Shopify literally had the best APIs. 

So we just built Shopify integrations. It's funny, before this podcast, I was looking for emails that I had from around 2012 with Harley [Finkelstein, Shopify President]. Harley's a regular person and he's answering me on regular stuff about the [Shopify] App Store. We were talking about really tactical things.

We launched an app on Shopify and that's how we got our first customers—because of Shopify's APIs. You had really good documentation back in the day.

Listening to merchant feedback: The catalyst for growth

Fatima: So you were shopping on Amazon and realized that this was needed. Was it the first iteration of the product that ended up taking off?

Tomer: No, we actually started with, "Okay, let's build a search engine to rank all of the reviews in the world." We actually went and built scrapers and had an algorithm for ranking, and we invested a lot in that. 

Then we understood that the number one problem is how do you verify that that person actually bought the product? We could verify that she or he is a real person. They could connect their social profiles and we'll build a ranking system, but how do I know that you actually bought that specific product? 

Then we saw that the only way to do that is actually to connect to the business side and close the loop by generating the reviews ourselves. That was the iteration that took off. We launched on Shopify and we started getting merchants to use that.

We had 100 merchants and nothing happened. Not a single review. Literally we had a bunch of widgets. We saw traffic onsite, but nothing happened. Then we had one customer, Ryan, and the store name was the Loop Loft on Shopify. He’s sold his business since then, but I think Loop Loft is still live. He started generating about 20 reviews a week. 

We were like, "What the hell is going on there?" 

We picked up the phone and we called Ryan. We asked him, "Can you share what you're doing? It's working really, really great." 

He told us that after someone buys something, he sends them an email asking them to write a review and redirecting them to Yotpo. 

Then the entire notion of post-purchase email came up—that was our epiphany. So we did that.

Then we built another technology called “email review” where you don't need to leave the email in order to give a review, you just reply. That's where it really took off. We saw a lot of usage, a lot of traction. After, we told Ryan that based on his 20 reviews and his idea we were able to raise $1.5 million. That was really what gave us the runway to build what we built.

Fatima: That's awesome. And when was this? 

Tomer: It was around 2013 when it happened.

Running a business and raising capital: Two different worlds

Fatima: What was that experience like? Raising [capital] in the commerce realm at that time versus now are two completely different worlds, right?

Tomer: So first of all, I hate raising money in general, but it was definitely a nightmare experience. On the one hand, it was because we didn't understand a lot of what was going to happen [during that process]. But on the other hand, we knew that we wanted to build software for SMBs. 

I remember one of the investors asking me, "Why are you not selling [your software to] Best Buy or Macy's?"

I didn't know how to connect with Best Buy to sell them. We knew there were a lot of [Shopify] merchants so we told them, "Look, there's a new thing called Shopify. Yeah, they're still small, but a lot of people are going to sell online. It's going to happen."

I remember a lot of investors tried to talk us out of it, saying, "You're thinking too small. Look at how much GSI Commerce was sold for and how much Magento was sold for. Look how small Shopify is. Enterprise is the only way to go." 

For the next five to seven years, people told us, "SMB in ecommerce is such a small market. You'll never pass $10 million revenue mark, no matter what you're going to do."

But Shopify was growing and by the time Shopify had its IPO [Initial Public Offering], it was a big deal already.

SMBs: The future of ecommerce 

Fatima: Oftentimes people miss the point of what Tobi [Lutke, Shopify co-founder and CEO] was trying to create. They’d say he’s limiting himself to a smaller market, and he’d counter that he was trying to expand the market. That's what you obviously saw at the beginning too. 

Tomer: I also heard Tobi telling that story on a few podcasts. Internally, we were joking that we are modeling what Tobi would do. He's Tobi, right? He was much more strategic. He was much more thoughtful. He would probably know how to navigate the situation. 

But for us, it was extremely frustrating. I remember me and Omri really trying to rethink our decks and rethink our story to tell investors that one day we might go enterprise. They are there, but we couldn't convince a lot of people that you know what? This is actually going to become a thing.

Fatima: I still hear people assume that the only way you're really going to scale is if you go up market. The truth is, if you're thinking like that, you're still kind of missing the point, right? Because there are so many businesses that are helping the SMBs and everyone is moving towards supporting local. We want to see these small businesses thrive and there's so much opportunity to serve those customers and create a super successful business while you're doing it.

Tomer: Yeah. I have two interesting stories on that. The first one happened about a year ago when I was interviewing an independent board member for Yotpo. Throughout the process, we meet a few times and I'm talking about our strategy. We always have a line we always say in fundraising talks: "We think Victoria's Secret will 'die by 1,000 cuts,' or 1,000 mini brands. That's the future of ecommerce." She was nodding her head. 

Then eventually she asked me, "Yeah, but when are you going to enterprise? Show me your enterprise team. Enterprise is the future." 

We were actually going into battle on that after two meetings. I told her, "Look, I don't think this is going to work."

She literally couldn't grasp the strategy of, "You know what? Yes, we might have some enterprise, but Yotpo is an SMB company."

A lot of people still today, they believe in [focusing on SMBs] in theory but then they say, "No, it can happen only for Shopify, but it's very hard to take it to another level as well." 

"Even when you talk to the big ecommerce enterprises, they want easy-to-use experience. They are nimble, small teams. They don't have a lot of budget. They don't have a lot of people."

The second story I can tell you is, today, Yotpo has tons of enterprise brands from IKEA to P&G, [to] Steve Madden, but even if you talk to the big ecommerce enterprises, they want the easy-to-use experience. They are nimble teams, they are small teams. They don't have a lot of budget. They don't have a lot of people. 

We brought Loren Padelford, the VP of [Shopify] Plus, [who is] now the GM of Revenue, to speak at Yotpo’s first customer conference two years ago. He said something that really resonated with me. He said, "There's no more enterprise."

I think in ecommerce, it's true. The word enterprise needs to be removed from the world. It's not a good word for ecommerce anymore.

Fatima: For those of you who don't know Loren Padelford, yes, he actually started Shopify Plus at Shopify and grew that business. To your point, the core of it is everyone is going to want simplified, turnkey solutions. 

No one wants clunky, hard-to-use, hard-to-upgrade software where one change means you're changing your whole system.

And so anything that is still using that is likely going to move to this eventually where it is really simplified turnkey software solutions.

Tomer: Exactly. Exactly that.

A long journey: Discovering what's truly important

Fatima: You've had this incredible journey with Yotpo and I know through the way you’ve had some trying times personally with your health that you’ve recently overcome. I wanted to ask about that and how that has, if at all, changed your mental model when you think about the business and life in general.

Tomer: Thank you. I'm still recovering. I cannot consider myself fully healthy. For the audience, two years ago I was diagnosed with advanced lymphoma cancer. Thank God I've been through chemo, through hell and back. I'm still waiting for my scans, but I'm getting better. Let's call it that. I'm not completely healthy yet, but definitely getting better. 

"It’s important to enjoy the people that you work with, they literally make your platform good for the world."

There's one huge advantage, I think, about something so powerful [happening to your health]. It really crystallized what's important and what's not important in life in a very black and white way. There are no colors in between. It makes everything very, very precise. And for me, [it’s important to] enjoy the people that you work with, [they] literally make your platform good for the world.

One of the things I'm really pushing, is that Yotpo is going to join is the Pledge 1%. It’s basically donating one percent of our equity to different organizations we are connected to. A lot of the organizations are SMBs and “arming the rebels.” It's something that we are big believers in. Definitely the personal journey on one hand is not taking ourselves too seriously, because eventually no one is going to die here. No one is a doctor or a brain surgeon or whatever. 

Really take the time to do good. I actually listened to a podcast with Tobi about stoicism. That really helped to shape my point of view on how to deal with difficult times, and how to be happy with what you have in life, because [it can feel like] there's never enough.

I can tell you yesterday when we finalized our round, it was such a huge moment. Whoever thought that we'd ever raise so much money at [a] $1.4 billion [valuation]?

On the same day, we lost an [investor] candidate I was really trying to get. We weren't able to get her. I was bummed and my wife asked me, "Why are you bummed? You should be happy. It's such a big day. Right?" 

I was trying to unlock my emotions, but I always remind myself to enjoy what we have in life, because it's not guaranteed. For real, you can’t take it for granted.

Fatima: It's also a real privilege when you're in a position where the thing you're doing every day is creating impact. Obviously we're all here for a limited amount of time and you want to have the most impact on the world that you can. When that's tied to the thing that you're doing every day it's really special.

Tomer: It's my biggest gift in life that at a very early age I found what I love, what I'm passionate about, that can give a lot of impact to a lot of people, from merchants to partners to employees. It's the biggest gift that I got in life.

Bringing life lessons to Yotpo's company culture

Fatima: So happy to hear about how you've been getting better and the improvement in your health. Since you’ve been back do you feel like the company's culture has changed a little bit too as a result?

Tomer: It's interesting. The answer is actually yes and no. Yes, because the culture must evolve. We are now almost 500 people and growing. I think you have to evolve the culture in order to sustain the growth.

The second thing is so many people stepped up. I remember when [the COVID-19 pandemic] started, I was actually just coming back [from leave]. A joke I have with my wife is that I wasn't even able to go to get a haircut because when the hair grew back, COVID hit and we started the lockdown. My wife was my barber for the last two years. If my hair doesn't look that good, you can blame her, but I think so many people stepped up. When COVID started, I remember telling my board that we didn't know yet if it was good for ecommerce, and everyone was scared.

Fatima: It was still the unknown.

Tomer: Exactly. We went to raise money and we decided to let go of a few people. It was a huge thing. I remember I was so confident that we would win. We had been through hell and won last year. 

"When 2020 started, I knew that we were going to come out super strong, and there was a huge conviction that Yotpo was going to come out stronger than before."

When 2020 began, I knew that we were going to come out super strong, and there was a huge conviction that Yotpo was going to come out stronger than before. On resilience, our culture was really put to the test. That was the thing that a lot of people were super proud of.

Preparing to hit a wall: Cue a complete rebuild

Fatima: The last time you and I chatted, we spent a lot of time talking about ambition. I remember you told the story that I really want you to share with everyone, about where Yotpo is going. You're seeing the growth. You get into this room and you start looking at your strategy for the next couple of years and you realize in two years, you're going to hit a wall. What happened there?

Tomer: I'll share a little bit. It was five years ago and we raised a bunch of money. We were doing like $8 million ARR, growing 137 percent at that point. Everything seemed great. We brought in our VP of Strategy—now he's our CFO—Ophir [Reshef]. I'll give the credit to him. He was leading a strategy session, which yielded two concrete outcomes. 

On the one hand, 100 percent probability, without a doubt, Yotpo will get to $50 million ARR. Maybe it will take more than a year, but in a year more or less, we'll get to that. 

The other realization was that we will never, never, never reach $100 million ARR. Why? Because back in the day, we were just a reviews company. First, we found that the TAM [Total Addressable Market] is not big enough. And second, because we occupied the lower end of the market, we started to notice a lot of competitors that were building, let's say, 50 percent of the products for 20 percent of the price.

We understood that it's going to be very hard to create a long-term moat and to really build a big company. I remember I was going to different people. I went to Adam [Fisher], he's on our board, from Bessemer [Venture Partners]. I also went to Jeremy Levine, who’s on the board at Shopify. 

I told them, "I'm screwed. I have a lot of money, a great company, but I have little time. I'm going to hit a wall in two years. I know that." 

They gave me a very hard time, and said, "What do you mean you have little time? We invested in Shopify; ecommerce is big. Think bigger, think better." 

We actually went and talked to a lot of our customers who were on the smaller scale. Back then the bigger scale brands were companies like Away and Chubbies. We understood the bigger problem was actually the fact that in between the categories, there's a problem.

Every brand is trying to win over consumer attention, so they're trying to build a great consumer experience. They can't because they need to connect their loyalty platform to the reviews, and their visual marketing suite to their loyalty platforms, and the referrals to their SMS. 

We said, "You know what? Let's consolidate everything. Let's become what we call an ecommerce marketing platform to really help brands. Make it easier for them to focus on building great experiences."

"The the past five years, the people familiar with Yotpo, started seeing huge progress in the platform itself. We needed to completely rebuild the platform."

Think about all of the solutions under the same data platform. It was a great vision. You see the numbers rise big-time, everyone internally got excited, but it was a nightmare of an execution because we needed to invest in the platform. The people who are familiar with Yotpo are going to start seeing huge progress in the platform itself over the next two years. We needed to completely rebuild the platform. 

Go big or go home: Acquiring companies

Secondly, we needed to go and build more products. So we built two more products. We acquired two more products. We are now building two more products and looking at another category to acquire and that takes a lot [of effort and energy]. In parallel, you have the low-end and high-end products, so you need to juggle all of that. 

A lot of people told us, "Now you're trying to build four companies in one company. You don't have a chance."

I remember there were a few meetings that we had where you could see this realization dawning. In the beginning you get excited and then you're going to start off talking about what it takes to build that. People started getting scared because it became very clear that we needed to rethink our go-to-market (GTM) engine. We needed to rethink our architecture.

For the last four years, we made a huge change in our architecture. We understood that. Part of the Yotpo mentality is go big or go home. Even if we fail, let's at least fail in trying to build something really, really big. That was the consensus around the room. That's what gave us the confidence that, "You know what? We can actually make it happen." So we went and we did it. 

"We were the first company to acquire a company in the Shopify ecosystem and that was a big deal."

We were the first company to acquire a company in the Shopify ecosystem and I remember that was a big deal. Even today it's funny, I hear people say, "I'm not clear about why some products Yotpo built and some products Yotpo bought." We made a very conscious decision to focus our engineers first on the platform and to re-architecture, because that takes a lot of effort.

We came to realize that we don't understand anything about loyalty [programs], and loyalty is very complex. We acquired Swell three years ago, and I can tell you now that loyalty is a very complex problem to have. 

Josh Enzer [cofounder of Swell Rewards] and Jim [James Peerless, cofounder of Swell Rewards], were an amazing team to join us. Josh leads our product marketing and strategy. He's such a force forward for the company. So that was a huge change in Yotpo's mindset. We were very focused on that. The first thing that we showed brands was that it is feasible.

We launched another product called VMS. It's a visual marketing suite. Think about it like a shoppable Instagram. It's been very, very successful for Yotpo.

We completely changed that. A lot of our review competitors, even on the low end, built that as well. We showed the world that you can consolidate [app] categories. Then we pushed our boundaries and said, "Okay, let's move quicker and consolidate more and more categories because the platform is getting stronger." 

"We were a reviews company, and changing from reviews to an ecommerce marketing platform was a pivotal change for Yotpo."

It’s about how you provide a consistent experience for merchants. Definitely that was huge. Up until the point that we were a reviews company and changing from reviews to an ecommerce marketing platform was a pivotal change for Yotpo. 

We didn't understand the magnitude of the change. Without it, we would have never become what's hopefully going to be the first public company on top of or inside the Shopify ecosystem. The only way to really becoming a long-lasting company is to really evolve and that was our biggest moment of evolution.

Fatima: You were definitely the first company to acquire others in the ecosystem. I think you definitely have a notable M&A [mergers and acquisition] strategy. It's an amazing thing to even see because it creates more opportunity for the ecosystem itself, right? There's more exit opportunities. We're seeing founders from some companies invest in others and the size and scale of what the ecosystem can do together is growing, which is pretty phenomenal to see. But I love that.

Tomer: Thank you. You’ve given me the opportunity to talk to a lot of entrepreneurs and help them succeed in the Shopify ecosystem. Everyone is asking me, "How did you succeed?" 

I keep telling them, "We just had the right timing. It's not that we were great on marketing or we did [Shopify] App Store optimization. We just put the app out. It was great timing. We built. We were engineers." 

When they [ask] me about fundraising, they always talk about an exit strategy, [thinking] that Shopify will buy [them out]. I always say, "You know what? Maybe that will happen." 

I don't know what Shopify's [M&A] strategy is, but it wouldn’t be smart to put your eggs in that [one] basket, because Shopify cannot acquire the ecosystem. They actually get much more value from a live and vibrant ecosystem. There is a long lasting list of companies on top of the Shopify ecosystem.

For entrepreneurs out there, I hope that Shopify will acquire you one day. Maybe that's a phenomenal thing. Just don't count on it, because I think it's actually counter-intuitive to the ecosystem, to the magnitude of what's happening here. It's even bigger now which I think is just amazing to see.

Fatima: The biggest thing is that there are multiple avenues to succeed. We've got Shopify builds, buys, partners, invests, acquires. At the same time there's more and more of that activity happening outside of Shopify. There's also companies in the ecosystem that have no intention of being these massive venture businesses, right? They're just building profitable SaaS companies. They're doing extremely well, 100 percent self-owned, [with] no intention of fundraising.

Tomer: Extremely well. For those of you who don't know, there are tons of millionaires that build software on Shopify that don’t necessarily want to build for an IPO or become the next “unicorn.” But they will build phenomenal businesses, extremely efficient, businesses for life. I completely agree with you.

"There are tons of millionaires that build software on Shopify that don’t necessarily want to build for an IPO or become the next 'unicorn.' But they will build phenomenal and extremely efficient, businesses for life."

Build for the long-term to build the company of your dreams 

Fatima: So how do we just nurture this? The ecosystem continues to grow in all these different ways so that people have multiple options to create success for themselves, whatever that looks like. That's incredible. I love your ambition and energy. What advice do you have for entrepreneurs out there? What are some of the biggest learnings you wish you had early?

Tomer: I don't think I'm in the position to give advice just yet. I always feel that it's just my point of view and in general, people should gather a lot more information and decide for themselves. It's a long-term journey. I know it's a cliche, but for someone that's been going at it for 10 years now, I actually think you have to have another 20 years, to really understand the meaning of it. 

I didn't have kids when I started Yotpo. Now I have a family and they're such a big part of what it means to build for the long-term and optimize for long-term. It's freaking hard to optimize for long-term because you have expectations. Yeah. It requires a lot of patience. 

"I didn't have kids when I started Yotpo. Now I have a family and they're such a big part of what it means to build for the long-term. It's freaking hard to optimize because you have expectations. It requires a lot of patience."

You see [certain] companies on TechCrunch growing so quickly and they're doing well. It bothers you and you lost that candidate and you want to do that, but you don't have the budget. It's hard. It really is hard, but compounding value eventually happens over time. 

I started to really appreciate that in the last few years where I actually see the value of going long-term and building the company of your dreams. That's something really, really big. 

The second thing to remember is don't take yourself too seriously. All of a sudden, my perspective changed. Eventually I realized that this is life and you cannot control everything. There are things that are beyond our control. 

When COVID-19 started and everyone was scared, there were three months where everyone in ecommerce, at least, was starting to do really, really well. Yet one of the parents at my kid's school texted everyone [to ask] if we could donate money to her because she's a travel agent and her business is completely ruined.

I remember our employees were celebrating [Yotpo’s 2020 successes] and I kept telling everyone, "Be super humble. Remember there's such uncertainty." 

"There are things that are bigger than us that we cannot control. I always try to direct our energy toward things that we can control and we cannot control the market. We can control Yotpo."

Who could predict that COVID would happen and it would be a good thing—if there's such a thing—for Yotpo or the ecommerce internal world. There are life events that are bigger than us that we cannot control. 

I can tell you now, a lot of Yotpo employees kept [asking], "What do you think, Tomer? Should we go quicker on SPAC [Special Purpose Acquisition Company]? Should we rush towards an IPO?"

That's also a lot of internal noise at Yotpo. I always try to direct our energy toward things that we can control and we cannot control the market. We can control Yotpo. That's something that's very hard to do, because it requires a lot of discipline, but I cannot control what I don't know. 

I remember when the market started to [go wild], we started getting so many SPAC offers. Some of them are really, really good. People were asking, [and] I was just like, the only thing we can do is optimize for when it's right for Yotpo to take that next step of becoming a public company. Right? When [the time is] right, we cannot control. 

Maybe the market is going to crash in six months. Who the hell knows? Maybe it doesn't; maybe it's continuing this way for the next two years, but we can't optimize based on that. We can optimize based on what's for us. 

The second learning is definitely putting your energy on the stuff that you can control. And maybe the last thing that is also a cliche, but winning is a team sport. It really is. It takes a village: the people that you bring and the people that you work with. 

"Winning is a team sport—don't forget about the team."

As entrepreneurs we have the advantage. I can hire much more experienced people underneath me that are much better than I am on so many different fronts. We would have never gotten here without the people that make up Yotpo. And there are certain people in Yotpo that have been with us for 10, eight, and five years, and it's just amazing to see there. Winning is a team sport—don't forget about the team.

Founders that scale

Fatima: I think in the way that you think about it—it's so clearly a long game for you. And you're showing so much patience and humbleness throughout the entire process. This isn't meant to be a knock, but it's kind of different than a lot of the Silicon Valley-esque companies that come out as startups and are sort of looking for that two-to-five-year exit strategy. It's much more of a short-term focus. 

Tomer: There's a lot of books that say “founders don't scale.” So Omri’s joke is that when we talk with entrepreneurs that are very much the Silicon Valley cliche, he says that, “Unfortunately, we are founders that scale.” That's the internal joke he uses, which I love.

In general, I really think Shopify has been such a huge part of what Yotpo is building and you guys are really paving the way. Yotpo is really, really thankful for the entire ecosystem. If we can help anyone whatsoever, please feel free to reach out. Thank you.