The Founders: The Story of PayPal

PayPal processes over $1 trillion in payments every year. But its product began as an afterthought.

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The PayPal founders’ originally wanted to beam money between PalmPilots.

After all, everyone they knew had a PalmPilot! E-mailing money would be a backup in case you left your PalmPilot at home.

The problem was, not everyone was a Silicon Valley early adopter. Few people had PalmPilots at the time, and money beaming never caught on.

What did catch on was that throwaway product: e-mailing money. Buyers and sellers on eBay flocked to PayPal, with users growing ten-fold every month.

In the excellent new book, The Founders: The Story of PayPal and the Entrepreneurs Who Shaped Silicon Valley, author Jimmy Soni tells the story of how this iconic company came to be.

A key advantage for PayPal was its laser focus on hiring the best people.

Few had experience in payments or designing internet products. But they were smart, capable and driven.

Once they joined PayPal, the company trusted them from day one. Having real influence made these new employees act like owners.

PayPal also kept very close to customers.

They used their own product frequently to suss out bugs. Employees even responded to user complaints on eBay forums, earning great loyalty in the process.

And even before Confinity and merged to form PayPal, the young entrepreneurs carefully observed the competition.

One would often find the names of the other’s employees in its customer records. They were keen to learn from their competitor.

Just four years after its founding, PayPal was acquired by eBay for $1.5 billion. For eBay, it was an admission that it couldn’t beat its scrappy competitor.

PayPal has some great lessons for founders. Sometimes the market shows you what your product is — be open to it!

It also shows how critical hiring is. Indeed, PayPal’s staff was so good they went on to dominate Silicon Valley, founding Tesla, SpaceX, YouTube, LinkedIn and more.

For investors, PayPal shows the timelessness of a question from Arthur Rock, perhaps the first venture capitalist: “Who do you admire?”

PayPal co-founder Max Levchin deeply admired his grandmother.

She overcame antisemitism and sexism to get a PhD in physics in the Soviet Union, a rare feat. Later, she was diagnosed with breast cancer but willed herself to live another 25 years.

Any investor who heard that story would know that Levchin aspired to be as tough as his grandma. But how many investors would think to ask?

Fortunately, if you missed that, PayPal’s off the charts growth would catch your attention. Any startup that’s growing ten-fold every month is a bet you have to make.

Tech giants often had massive growth early. PayPal’s early numbers look a lot like those of Google, YouTube or WhatsApp.

This is why I strongly emphasize growth when I make early stage investments. Whatever its flaws, it’s hard to argue with a startup that’s 10X-ing its customer base every few weeks.

Somewhere right now, there’s another PayPal. A small group of driven people who are creating something big.

And I won’t stop until I find them.

What lessons do you draw from PayPal? Leave a comment at the bottom and let me know!

More on tech:

The Power Law (Part One)

Amp It Up

The Lean Startup

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Photo: “PayPal Co-Founder Max Levchin, Allen & Company, 2015” by Thomas Hawk is licensed under CC BY-NC 2.0.


7 thoughts on “The Founders: The Story of PayPal”

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