Introducing “The Comeback,” the story of one team’s search for a good problem, and the lessons learned along the way. Read part two: Rebuilt here.
Pivot or die. For Shoelace co-founder and CEO Reza Khadjavi, the need to choose hit him like a punch to the gut.
It was 2019, and four years had passed since Khadjavi and his co-founders launched the Toronto-based adtech startup. Despite amassing over 6,000 users and growing the team to 40, the advertising landscape had suddenly shifted dramatically.
As a result, growth had plateaued, cash was dwindling, and the company faced a crisis with no easy fix.
“Things were starting to get pretty dangerous,” Khadjavi recalled.
It is a far cry from where Khadjavi and his co-founders are today, but it was this turning point that allowed them to find success in their current venture: Motion.
To understand that journey, and how its lessons helped the founders close a $30-million USD financing round this month, we first need to revisit how Shoelace ended up so close to the brink.
Dropping out and starting up
Khadjavi’s path to entrepreneurship didn’t start with a grand plan or a clear vision. It began with a simple reality—in 2008, he had dropped out of Concordia University.
He already loved business, but realized that school wasn’t going to teach him what he wanted to know. He and his older brother, Ali, decided the best way to learn was to start a business themselves. The pair had no money, no hard skills, and admittedly, no real idea of what they were doing.
They brainstormed all kinds of ventures—and considered starting a moving company or house painting business before landing on a dry-cleaning service. The brothers called it Nettoyeurs Express, and soon found themselves picking up laundry in Montréal, having it cleaned at local dry cleaners, and delivering it back.
Khadjavi wanted customers to be able to choose their delivery dates, and experience seamless service at the touch of a button. But they had no capital to build the software platform they needed to run the business well, and they couldn’t afford to hire someone.
And so he decided to figure it out on his own. Khadjavi spent his mornings on the road, handling deliveries, and his nights hunched over a computer, teaching himself how to code.
“If you have something that you really want to build, it becomes a lot easier,” Khadjavi said recently. “I always had something specific that I wanted to change on our website, and I was Googling my way to figuring out how to code it.”
With some help from a friend, the platform was built in a couple of months. It was janky, but it worked. More importantly, it ignited something in Khadjavi.
“I just felt like there was something really magical about software, both as a craft and as a business,” he said.
And so, in 2014, Khadjavi took a pause on being an entrepreneur, sold his laundry business, and took a job as a software developer at a Toronto-based retail startup called Hubba.
It was there that he met Alexander Sloan and David Berglas, who would soon become his co-founders.
Hubba was a product discovery platform that connected brands with retailers, helping them showcase their products and enabling buyers to find new inventory for their stores. Led by an executive team with experience at BlackBerry, Wattpad, Mozilla, GMP Securities, and Workbrain, Hubba was, at the time, one of Toronto’s fastest growing startups.
Sloan was a software engineer, and Berglas was an early marketing, sales, and customer success hire.
“We were in this crammed little office in the MaRS building, and we were sitting next to each other, and we would work on the same features,” Sloan remembers. “Reza would build up the frontend for the features, and I would build out the backend. That’s how our working relationship started.”
For months after work, the trio would talk about creating their own startup and what Khadjavi describes as “the itch” to build.
In 2015, they took the leap, leaving Hubba looking for a problem they could solve with tech.
“We had endless ideas,” Sloan recalled. “Reza has a head full of ideas. Always has, still does. He’s a very good product thinker, and he’s always coming up with things. Maybe we were just young and naive, but we were sure we would find something.”
Khadjavi described that period as one of “delusional confidence.”
The co-founders all believed their product thinking and technical chops would be enough to land them a winning idea.
At the time, Toronto’s tech scene was booming—acquisitions were happening left and right, growth seemed limitless, and tech founders were becoming some of the city’s biggest names. The state of optimism in Toronto tech fed into their belief that they’d soon hit on something big.
“We thought that surely, if we put our heads together and go all in and spend all of our time trying to build something together, it would work out,” Khadjavi added.
Facebook Ads, simplified
After a healthy mix of productive discussion and heated debates, the trio began to focus on advertising. More specifically, Facebook ad targeting.
At the time, Shopify had about 50,000 merchants on its platform, and Khadjavi saw Facebook as a “phenomenal” untapped distribution channel. The two platforms didn’t communicate well with one another back in 2015, and that’s where their new company would come in.
Khadjavi, Sloan, and Berglas built a platform that simplified Facebook’s ad setup for e-commerce stores by automating tasks like inserting code snippets and syncing product catalogues. It removed the need for manual input, allowing brands to quickly launch their first Facebook ads with minimal effort.
They named the company Shoelace, a nod to their initial idea of a cross-promotion platform, where businesses would connect like the criss-cross of a shoelace. The startup launched in 2015.
The idea took off relatively quickly.
With Khadjavi as CEO, Sloan as CTO, and Berglas as COO, the team was accepted into the Boomtown Accelerator, in Boulder, Colorado. There, they learned the basis of building a minimum viable product, understanding customer needs, and validating an initial concept.
They returned to Toronto with big plans to continue scaling the platform. The app found its first customers and began generating revenue the following year.
Shoelace would also raise a modest amount of funding during these first few years: roughly $2 million in what Khadjavi described as “tiny bits and pieces—whatever we could scrape together.”
In the first two years, the business didn’t seem to need much external funding. Khadjavi said Shoelace started out as scrappy and capital efficient, and often found itself right on the brink of profitability.
But they never quite reached it.
The road to rock-bottom
Shoelace had what seemed like the ingredients for a successful startup: a growing business with healthy revenues and a potentially global customer base, led by a founding team that clicked.
But in 2018, the ground beneath their feet shifted dramatically.
“When I joined, it was already a services business, but I think there was just a reluctance to call it that.”
Evan Lee
Facebook and Shopify—already tech sector powerhouses—strengthened their integration. The issues that Shoelace’s automation had been designed to address were suddenly solved.
The gap that Shoelace bridged no longer existed.
“The writing was on the wall that the market didn’t really need a product like ours anymore,” Khadjavi recalls.
Shoelace customers no longer needed their product, but they continued coming to the company for advice. Suddenly, the team found itself helping brands build and manage ad campaigns, implement their growth strategies, and execute media buys.
“Shoelace evolved to being more or less a full services business, because that’s what people in that space need,” Sloan said. “These entrepreneurs are busy people, and they often need the education and someone to bounce ideas off of. Sometimes, they just need someone to do this work for them.”
And so Shoelace’s team began doing marketing work directly, setting up and managing campaigns. Evan Lee, who joined Shoelace as a performance marketer in 2018, played a key role in this effort.
“It was a bit of a shitshow on the ground,” Lee recalled. “Everyone else’s portfolio was dying. People were leaving left and right. But my accounts were thriving. I didn’t think I was special, so I tried to focus on taking what was working and applying it so we could then achieve scale.”
Khadjavi credits the work of staff members like Lee and others as being what “saved” Shoelace during this time.
The services side of the business quickly became its biggest value generator, meaning that Shoelace was no longer really a software company.
“When I joined, it was already a services business, but I think there was just a reluctance to call it that,” Lee remarked.
That reluctance came chiefly from Khadjavi, who admits he struggled to accept the changing nature of the business.
“The word ‘agency’ became this taboo word that people didn’t really want to mention at the company, because they knew I hated it,” Khadjavi said.
Agency or not, Shoelace was still in trouble. By 2020, the startup’s gross monthly recurring revenue churn reached nine percent, nearly double the SaaS industry average. As the company exhausted its pool of new leads, replacing those lost customers became increasingly difficult.
Shoelace faced a similar threat: they could either try to improve the software behind their original idea, or pivot to becoming a full-service agency to help Shopify merchants with their growth marketing.
But without a clear software problem to solve, the former option would have very likely spelled the end of the company.
“It eventually came down to pivoting to an agency or death,” Khadjavi added. “So what do you pick? When I was faced with that choice, I decided: let’s choose to live. Let’s live.”
Up next in The Comeback: Shoelace’s founders make a pivot and zero in on the problem that set something new in motion.
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All images provided by Reza Khadjavi.