No. 345: The Arming Of The Rebels


Joann King Herring sat across the living room, lively and engaging as ever. I was standing in her world. As a 16-year-old junior at Houston’s Jesuit Preparatory School, I was a lower middle-class outsider thrust into a world that I couldn’t fully grasp at the time. The geopolitical concerns of the 1980s were long past (or so we all believed at the time). But the 70-year-old socialite and philanthropist still carried herself as though she influenced foreign policy, and in the home of a mutual friend in Houston’s famed River Oaks area, Herring still held court. In a small corner of a major city, she was a titan that influenced outcomes a world over.

It was 1999 and, perhaps, the first time that I heard the phrase “arm the rebels.” Herring was a friend to a Texas Congressman named Charlie Wilson and four years after that meeting, their story, Charlie Wilson’s War, would be on the New York Times‘ best seller list [1] before getting turned into a major Hollywood motion picture in 2007. It was a tale about short-term success and long-term failure. It was about doing too little and doing too much. The film covered two American figures who lobbied the US government to fund a resistance against the then-USSR’s occupying forces in Afghanistan.

Now 90 years old, Joann and her friend Charlie armed the rebels over a 10-year event known as Operation Cyclone [2]. As the conflict came to a close, an official of one of the war’s affected countries would later tell the sitting US President, “You are creating a Frankenstein.”

But Herring and Wilson’s efforts worked, in the end. They armed the rebels and those rebels won. Whether or not the fruits of their labor had a net-positive or net-negative effect on global war and peace will be left to national security experts. The relevancy of this anecdote being used is simple: the act of “arming the rebels” maintained three components over that ten-year span from 1979 to 1989: (1) tools, (2) money, and (3) psychological support.

The rebels defeated a heavily-armed Russian military machine with American tools, American money, and the promise that they had the full support of the American government. This communicated to the opposing military that the money, the tools, and the rebellion would continue. The unbeatable army was beaten by endless supply, force, and psychological warfare.

Shopify and The Arming of The Rebels

Harley Finkelstein on Twitter

Arming the rebels @Shopify-style, a 3 step guide: 1. Create a network of fulfillment centers across America 🕸️ 2. Allow small businesses to leverage these centers 📦 3. Add in robots 🤖 Result: Affordable products shipped on a two day cycle to 99% of America. 💪

Shopify has done a tremendous job executing on their corporate rallying cry: We arm the rebels. Having passed Ebay to become the second-largest eCommerce ecosystem in North America, Shopify has maintained that Amazon is next – an unbeatable army in its own right. Once known solely for its role in small cap eCommerce, Shopify now services financial processing, loans, fulfillment, hardware, and an ecosystem of developers at the beck and call of merchants who can afford their services.

Shopify exists to basically arm the rebels. We want a lot of people to go out and compete against Amazon.

Tobi Lütke, founder and CEO

But what happens when you execute on two components – the tools and the money – without the psychological support? The phrase “arming the rebels”, coined by Ruby on Rails creator David Hansson in reference to Shopify’s role in a densifying eCommerce landscape [3], has a hopeful ring to it. It implies that Shopify is punching upwards (it is). But Shopify will also need to punch downwards to maintain its position.

Shopify has investors excited because it is increasingly seen as the most likely challenger to Amazon’s ecommerce dominance. While many retailers, both traditional and online, have tried to tackle Amazon’s “everything store” head-on, Shopify has succeeded by arming individual merchants with the same technology and capabilities, but with more control. [4]

Shopify’s merchants have nearly every resource at their disposal except for one. The company is slow to champion the very brands that use their platform. Out of fear of coming off as partial, Shopify has thus far hesitated to provide the one advantage that could lock brands into their ecosystem for the long term. Yes, one of three components necessary to arm the rebels: psychological support.

The Big Game Ad That Wasn’t

Screen Shot 2020-02-02 at 10.07.59 PM

I waited, fruitlessly, for Shopify’s Super Bowl advertisement. I wanted the brand to discuss – in front of the biggest audience – its evolution over time: the agencies that its ecosystem has fostered, its move into financial technologies, the DTC Era that Shopify’s invention pioneered, and the robots that will eventually fill its 3PLs.

Shopify has armed the rebels by supplying some of them with the funds necessary to operate or expand. Now, it needs to influence the demand curve for the businesses on its platforms. Shopify needs to become an evangelist for its brands.

The phrase “arming the rebels” has a hopeful ring to it. It implies that Shopify is punching upwards (it is) but will also need to punch downwards to maintain its position.

When Squarespace’s Super Bowl ad premiered, it was enough of a threat to Shopify’s market position that the company’s corporate Twitter addressed their smaller competitor in a sequence of tweets that felt somewhat out of character. Shopify is currently trading at a $54 billion market cap; Squarespace remains orders of magnitude smaller, and private.

Shopify on Twitter

Hey, @SquareSpace we believe in supporting independent businesses too! In fact, there are over 40 businesses in #WinonaMN that are on @Shopify. So we’re going to promote as many of them as possible during the #BigGame. #WelcometoWinona #SupportingIndependents

Given the market position that Shopify has earned, it’s become clear that Lütke’s position on psychological support must change and it should have begun with Super Bowl LIV. Shopify’s promotional power could reduce insurgent competition while closing the gap with the incumbent company that it is challenging: Amazon. Shopify must evolve into its own marketplace. As customer acquisition costs rise for small-to-middle market retailers, Amazon has become a reasonable partner for retailers looking to increase top-of-funnel awareness. From 2PM‘s A Familiar Strategy:

Amazon is harvesting consumer data to become an efficient vertical reseller. The Amazon products will continue to have the preferred place on product pages. In this way, opposing marketers’ frustrations are founded. It may be true that external brands will continue to be penalized for competing against Amazon’s private labels. The Seattle eCommerce giant seems to be preparing for a day when their data harvesting practices – a process that has spawned countless private labels – will be called into question.

Lütke’s likely opposition to this idea is clear: By selecting brands or products to feature in a marketplace format, Shopify becomes a kingmaker of sorts. A kingmaker is a person or organization with great influence on the value of a candidate. This person or organization uses policy, finance, and competitive forces to influence succession. I contend that offering loans or advancements to merchants is another form of kingmaking. Now that Shopify has begun to market financial products, there is less of an argument to be made. 

Shopify’s moat has been discussed at length: Community and the partnership ecosystem are two buzz phrases that come to mind. But the Ottawa-based SaaS company has drawn the line at promoting the businesses that support the ecosystem; the company rarely pushes traffic and media attention to the companies growing within the ecosystem.

One of the three key resources for Operation Cyclone was psychological support. In the context of Shopify’s use of the phrase, the third resource is missing. If Shopify is comfortable defending its position against Squarespace by promoting independent retailers on Twitter, their management team should also feel comfortable supporting its own marketplace.

In December 2019, saw nearly 47 million visitors with over 40% of the traffic coming from the United States. While official numbers have yet to be reported, the Super Bowl was viewed by over 150 million people. Situated in this audience were potential consumers who may want to start their own company, developers who may want to build for Shopify, and consumers who may want to buy from Shopify.

Amazon, Google, Microsoft, Walmart, Hulu, Quibi, Verizon, and Squarespace shelled out fees to advertise during the big game. However – direct-to-consumer brands were noticeably absent, priced out by the exorbitant costs of doing business. Imagine a $5.7 million, 30-second advertisement that sent tens of millions of Americans to When those potential customers, developers, and consumers arrive: they’d see a curation of Shopify’s greatest brands – new and old, established and fresh. Shopify wouldn’t have only gained new customers or partnership prospects. Shopify would have influenced the awareness, growth, and viability for a number of brands that are dependent on three key resources.

In a June 2013 report by the Foreign Press [5], Edward Luttwak lists the five rules for arming the rebels: (1) Figure out who your friends are (2) Be prepared to do all of the work (3) Don’t give away anything that you wouldn’t want back (4) Do not invite an equal and opposite reaction by a larger power and (5) Lay groundwork for the endgame. For Shopify, that endgame involves an emphasis on demand-side economics. For the companies that rely on Shopify’s increasing suite of tools, they must thrive to remain B2B users.

By the end of that evening in Houston in 1999, I conjured up the courage to ask Herring a question or two. I was wearing my nice blue blazer, that night, so I had more confidence than usual. We learned about Operation Cyclone from an alum of the school in one of our courses but it wasn’t yet a widely known story. So on that night, I felt privileged to speak with her before her answers would be honed by Madison Avenue public relations spinmasters. I asked Ms. Herring the type of simple question that a 16-year-old student would: “What did you learn from it all?” She replied with something to the effect of, “We should have given them more and faster. It all dragged on too long. We could have done 10 years’ work in three or four.”

When you arm the rebels, do whatever you can to make sure that they win. They’re fighting for their supplier as much as they’re fighting for their own well-being. After all, their war is now your war.

Read the No. 345 edition here.

Report by Web Smith, Edited by Hilary Milnes | About 2PM 

No. 342: The Antagonistic Mr. Elliot


In the closing scene of AMC’s final episode of Mad Men, the viewers are left to believe that our seven season survey of Don Draper ends in his personal enlightenment. In this particular moment: Draper is seen sitting on the grass, cross-legged and with no shoes. He’s meditating on a hilltop with a dozen or so other students. For what seems like just a moment, the audience is led to believe that the embattled protagonist is finally at peace with himself. And then he smiles. It’s the kind of smile that communicates “I’m still the best at what I do.” The audience is left guessing. The scenery, the moment, and Draper’s skill set suggest that Draper was responsible for conjuring one of the most impactful and audacious brand advertisements of the 20th century. It was a rare moment in brand history: an incumbent brand operated like an insurgent. The result? An ad that reshaped Coca-Cola’s narrative for nearly a decade.

The Mad Men scene of the origin story was fictitious, of course. The story of the advertisement’s impact was not, however. Like Ford and General Motors in the 1960s or Nike and Reebok in the 1980s, Coca-Cola and PepsiCo’s rivalry gave rise to the idea of insurgent brands. Insurgents are brands that arise out of the rivalries of incumbents.

In early 1886 an Atlanta chemist (and morphine addict) introduced Coca-Cola to the world. He called it a “potion for mental and physical disorders.” For him, it was a solve. The product’s main ingredient was cocaine, a narcotic that was – perhaps – less detrimental than his addiction. Pepsi-Cola followed just seven years later. It would be decades before the two companies became legitimate rivals. The arc of the two brands has become a case study in corporate brand competition. One that remains relevant to this day.

Pepsi-Cola had made hay during the Depression. Like Coke, the drink cost a nickel, but it came in a 12-ounce bottle nearly twice the size of Coke’s dainty, wasp-waisted one. But by the 1950s, Pepsi was still a distant No. 2. It nabbed Alfred Steele, a former Coke adman, who arrived embittered and ambitious. His motto: “Beat Coke.” Coca-Cola refused to call Pepsi by name — the drink was “the Imitator,” “the Enemy,” or, generously, “the Competition” — but it began tinkering with its business (and imitating Pepsi) to stay ahead. [1]

When John S. Pemberton secured the recipe for Coca-Cola in 1886, he couldn’t have foreseen a feud that would span three centuries. But for many consumers, the Pepsi vs. Coke feud is about as American as baseball. In 1899, Caleb Bradham decided to compete head on. Also a chemist, Brad’s Drink was later incorporated as Pepsi-Cola. And so began a roller coaster of a century that crescendoed in the 1970’s with the Pepsi Challenge – a marketing push that aimed to convince younger consumers that rival Coca-Cola had inferior taste and less cool. It worked. And so continued the back and forth. The two companies were well-established when the 1970s’ Cola Wars broke captivated American consumers (and international ones, alike).

The cola competition study [HBS Case Summary: 2] is a prologue to a greater point. What happens when incumbents ignore insurgents? The inertia of dominance often becomes an incumbent’s nemesis. At the peak of the cola wars, a future founder was employed by Unilever and then Procter & Gamble. There, he led marketing for German toothpaste manufacturer Blendax. By working for these conglomerates, Dietrich Mateschitz had an early education in the gifts and curses of incumbency. And one chance meeting in Thailand provided his platform for insurgency.

In 1982 he met an Austrian toothpaste salesman called Dietrich Mateschitz, who had started drinking Krathing Daeng (founded in 1976) during visits to Bangkok and found it cured his jet lag. Mateschitz became convinced that the drink had wider commercial potential, and in 1984 the two men became business partners. [3]

The emergence of Red Bull serves a case study in insurgency-driven marketing and branding. Over the next three decades, Red Bull would go on to master alternative marketing, clawing domestic and international market share from incumbents that should have been equipped to stifle the Austrian beverage manufacturer’s advances.

Screen Shot 2019-12-17 at 8.58.27 AM
Global beverage market: leading companies 2018, based on sales | Source: Beverage Industry Magazine

But as with anything, it can be difficult for incumbents to obsess over potential competitors when existing threats exist. By 1979, Pepsi overtook Coca-Cola in sales after a clever “taste test” marketing push that outwitted the Atlanta-based manufacturer. This victory was relatively short-lived. By 1996, Fortune magazine declared the cola wars to be finished. And since, Pepsi shifted its focus altogether.

Concepting a new form of brand marketing.

Retail has been witness to a history of these brand battles. And if the future of retail is eCommerce, it’s likely that today’s next surprise is brewing. Insurgents take markets by surprise by operating in ways unanticipated by established corporations. They move differently and they rarely play by traditional rules. Incumbents are incentivized to preserve the status quo, retaining market share. It’s often the case that product-wise, all things are equal. It’s the subtle differences in messaging and community that tends to shift the conversation from old and stable to new and dynamic. Shopify is the Coca-Cola of this conversation. Shopify wasn’t first to democratize eCommerce but no platform has a better understanding of marketing and branding than the Ottawa-based SaaS company. In a recent 2PM report, I explained:

The growth of the DTC era can be attributed to SaaS companies like Shopify, BigCommerce, Magento [Adobe], and Demandware [Salesforce]. But in an industry where innovations are finite development cycles away, community and brand equity has become the key differentiator. [4]

Shopify’s innovations are numerous. Two of their top competitors (Salesforce and Adobe) are now cogs in corporate wheels. In this way, BigCommerce is the Pepsi to Shopify’s Coca-Cola. Of all of Shopify’s innovations, branding and sociology are ones that BigCommerce cannot seem to contend with. Led by Brent Brellm, the Austin-based SaaS company competes on the merits of its product. “We taste better” may as well be on his CEO’s whiteboard. But Shopify is more than the merits of its product, it’s a lifestyle brand. This perplexes BigCommerce’s leadership. In the platform wars, taste will matter as technologies shift toward no-code architecture. But brand will be equally important. Enter Elliot, a platform that seems to possess the tools that Shopify’s other competitors do not. And an emphasis on substance and brand.

On Insurgency and No-Code Development

Screen Shot 2019-12-17 at 11.10.58 AM
The rise of the no-code economy

Founded in July 2017 by Sergio Villasenor, Elliot announced a $3 million round in January of 2018. And like many venture announcements in that first quarter, the news came and went. Beyond a PR wire, the company’s announcement made no headlines. There was no grand entrance and even less buzz. This, despite a list of admirable investors and advisors.

We have orchestrated a blue-chip syndicate of seed stage investors including Bowery Capital, a national seed stage fund with offices in SF and NY leading the round, and Susa Ventures as the co-lead. Others participating include Acceleprise, Bam Ventures, Flexport, and SV Angel. [5]

Early on, Elliot’s founder built the company’s value proposition on the common premise: “We taste better.”  In SaaS, this is akin to iterating fast and architecting software superiority. For product developers, this product-first concept is the default.

On the merits of its product alone, Elliot has a number of clones. A casual observer will find them in the brand’s Twitter mentions questioning how the company has begun to consume mindshare with its unique approach to antagonizing incumbent brands. The company, itself, has little protected intellectual property. And until recently, it had no marketing flywheel. But over time, I’ve observed the company’s playbook evolve into one reminiscent of an insurgent of old: Red Bull. The brand has become uncomfortably antagonistic. But you can’t behave insurgently without some level of discomfort.

Elliot on Twitter

@tobi Emojis must be a Plus feature 😉

Elliot contends that Shopify’s products aren’t for everyone. It’s no code approach is early but it will be of increasing relevance as vendors begin to shift away from development agencies to launch new merchandising operations. A Shopify Partner, who asked for his identity to be withheld, commented on this trend. He noted: “As no-code becomes more common, agencies like mine will need to find new ways to add value for our clients. Who is paying $100,000 to do what can be done for free?” In the Lean Luxe slack channel, former Shopify Editor-in-Chief Aaron Orendorff and notable copywriter contended with Elliot’s brand voice:

There’s a 100% chance I’m not your target audience. So that’s probably part of it. For me, it’s the mixed feelings of: (a) that’s clever and attention grabbing vs (b) I’d be uncomfortable to retweet it.

The founding team is rounded out by Clayton Chambers (formerly of Yotpo) who serves as the Head of Growth. Additionally, Villasenor was successful in hiring Marco Marandiz (formerly of Capital One, VRBO) as his Head of Marketing. The team has made an early impact, though it remains to be seen as to whether it has had a material effect on penetrating one of Shopify’s top advantages: its partnership ecosystem. What is evident is that the DNA of the team is different than the rest. And that, more than anything else, makes them something to watch. They’ve begun to build Elliot into a lifestyle brand, merchandising and all. They are out-Shopifying Shopify.

Sergio Villaseñor on Twitter

est. 2019

The technology and promotional DNA that the company possesses aside, a few questions remain. Can Villasenor convince Shopify’s target consumer that no-code architecture is an acceptable path forward? And can he convince development agencies to shift their offerings to account for a no-code economy? Frequent justifications for merchants considering no-code platforms include: speed, cost reduction, and ease of launch. No-code architecture allows early stage brands to sidestep developer shortages and agency fees, potentially decreasing startup costs and early investment needs.

Although no one is saying that coding is dead or that programmers are going to be out of a job soon, there is no denying that the current demand for software far exceeds the supply of coders and that many traditional ways of building applications are complex and time-consuming. [6]

According to my research, less than 8% of Shopify Plus merchants have a GMV that exceeds $10 million annually. Although, this number can improve. Shopify brands like Supply can grow from $2.5 million annual run rates to $10+ million run rates in just a year.

Shopify’s gift is that its brand partners mature over time, a process that has been aided by the company’s support systems and suite of technical services. Some analysts would argue that BigCommerce (or Salesforce or Adobe) would be positioned to benefit if Shopify ever lost community support. However, it’s likely that Shopify’s incumbent competitors are ill-equipped to facilitate such a shift. And besides, all proverbial cola tastes the same. But no-code is a different value proposition altogether. One that may become relevant as the economy tightens and venture capital becomes less available to early stage eCommerce brands and retailers.

Like Coca-Cola, Ford, and Nike before it – Shopify’s name represents more than its product. In May 2020, Shopify hosts its next Unite conference in Toronto. It’s the annual event that hosts thousands of loyalists that converge to praise Shopify’s continued growth. In the process, the event fortifies the phalanx of protection that the SaaS company has surrounding it. More than software, Shopify is the people, brands, and agencies that evangelize it. These are the company’s strategic advantages. If Villasenor and team have it their way, they’ll be in Toronto as well. But they won’t be in the event’s venue handing out cards with software specs, that’s what an incumbent like BigCommerce would do. They’ll be down the street from Unite, hosting their own party. And perhaps, a few Shopify clients will trickle in to see what the fuss is about. Some will scoff at the lack of decorum and some will nod at the audacity of it. That’s how it begins. That’s how it always begins.

Report by Web Smith | About 2PM