Shopify, a Start-Up, Starts Its Own Business Competition

It is routine, of course, for start-ups to participate in business plan competitions and related events. It is virtually unheard of, however, that a start-up would hold its own competition to foster start-ups — especially one offering a first-place prize of $100,000. But that is precisely what a start-up called Shopify is doing.

Founded by Tobias Lütke, Shopify is a software-as-a-service company that provides affordable tools to run a Web store. It has 20 full-time employees with headquarters in Ottawa. The Shopify application began in beta in 2006, and the company generated its first full year of revenue in 2007. Last year, it says, its revenue exceeded $2 million.

The business competition — Build a Business — started taking entries in January, and is open to any new, Shopify-enabled Web store based (in participating states) in the United States. The Shopify subscriber with the highest revenue in its best two months from the period between January and June will win the $100,000 prize. Prizes of $5,000 each will go to the overall runner-up and to top stores selling apparel, digital goods and electronics. Entries are permitted until April 30.

To open the contest, Mr. Lütke joined with Tim Ferriss, an angel investor who is the founder of the Four Hour Work Week, a lifestyle design consultancy, and author of the popular blog and best-selling book of the same name. Mr. Ferriss is well known for espousing the virtues of working smarter, not harder, and outsourcing just about everything.

The two met at a technology conference, RailsConf 2009, where both were invited speakers. They bonded over a mutual gripe about what they call “wantrepreneurs” — or wannabe entrepreneurs. These are people, according to Mr. Lütke and Mr. Ferriss, who are consumed with hesitation, worry or negativity.

In Mr. Lütke’s view, wantrepreneurs perpetuate notions — like e-commerce has to be expensive — about online retail that can discourage potential customers from trying Shopify. Mr. Lütke boasts that Shopify’s service costs $24 a month and lets small stores integrate with drop-ship services, while giving them a chance to design their own “boutique” look instead of using generic templates, or profile pages that get lost in the shuffle in marketplaces like eBay and Etsy.

Similarly, in Mr. Ferriss’s view, wantrepreneurs who read his blog are likely to post comments or Tweets that question his advice and studies without testing them in the real world of business. Their doubts, he believes, can scare off other potential readers.

The two entrepreneurs spent about 15 minutes hatching the idea for Shopify’s Build a Business competition. Though neither had participated in a business competition before, they’re both competitive people — Mr. Ferriss a tango world champion and Mr. Lütke a former sponsored, competitive video game player. They concluded that a competition could help them turn doubters into evangelists for their brands.

It took four months to arrange and refine the competition rules and the online tools to run it, according to Mr. Lütke. Along with a $120,000 outlay for prize money, Shopify faced legal and administrative costs, but it avoided promotional costs by relying on Four Hour Work Week and Mr. Ferriss to spread the word. Mr. Ferriss, while he did not contribute financially, has written and produced Web content promoting the competition, and helped Shopify produce tutorial-style videos for participants.

Mr. Lütke determined before the competition that it would have to inspire at least 600 new accounts to be successful. New customers, he figured, would spend a minimum of $24 a month for six months to compete, translating to at least $86,400 in revenue for Shopify.

Mr. Ferriss expects the competition to “incentivize people to start companies,” using Shopify and his own newly released second edition of his book. He believes the competition will effectively begin start-ups that last years beyond the six months of game time. “The recipe to create entrepreneurs is very effective with competitions,” he said. “People respond to incentives, competition and recognition, especially if multiple prizes and social support are incorporated.”

So far, Shopify has signed up more than 1,000 new Web stores, already exceeding the expectations of Mr. Lütke, who expects 50 to 100 more participants to sign up by May 1.

See The Prize’s guide to coming business plan competitions. And here’s how to win a competition.