I have finished reading the PayPal founding story. I love reading stories about the products I use.
Learnings:
- PayPal (Confinity-side) assembled a wonderful team and created a very entrepreneurial culture. David Sacks and Peter Thiel played important roles. It was actually David Sacks who was responsible for the last-minute deal with eBay. He played a critical role as COO as well. He did it again with Yammer. Huge respect! I loved reading about Max Levchin and Reid Hoffman as well. Very inspiring entrepreneurs.
- PayPal had no business model early on. They actually claimed to be free and remain free forever. They wanted to make money on the float. I believe it’s critical to have a business model early on. PayPal was lucky that their introduction of fees was accepted by users. Yahoo wasn’t that lucky: when they introduced fees for Yahoo Auctions, their service basically fell apart.
- PayPal burned lots of money. They have raised (and burned) about $200M and Peter Thiel was mostly responsible for fundraising.
- Most of the key people knew each other before. They worked together at the student-newspaper The Stanford Review. This crew was the magic sauce.
- Again a reminder that M&A’s can be very tricky. Both mergers with X.com and eBay were tricky as the cultures turned out to be quite different both times, which caused trouble.
- They mostly succeeded because they had a culture of rapid development, iterating and shipping new features fast. From my view this was the single most important factor: Make customers happy. Build something users want.
- The vision was very bold: Changing the world by giving people more freedom about their currencies and money transfers.
- Most of the employees were customer service representatives. They have built a 500 person customer service team in Omaha, Nebraska (hometown of Warren Buffett). Only about 200 people worked at the headquarter in Silicon Valley. The point is: no matter how scalable your product is, once you have millions of users, you need customer service. As Facebook and other companies, there was a time when their backlog of unanswered emails was tens of thousands of emails.
- A catchy name is a plus. PayPal was much better than X.com, although there was a big struggle because the X.com people pushed that PayPal be rebranded.
- Today PayPal doesn’t have a very good reputation, because of their poor usability and slow site. Nevertheless I use the service quite often as it’s just very convenient.
- The large fees are critiziced very often as well. The problem is that credit card processing costs PayPal about 2%, plus they also have fraud charges (at one time fraud alone accounted for 1% or even more). They have lost many millions on fraud alone. It was a huge problem in early days until they focused on anti-fraud features.
- They communicated with their customers on message boards. That was quite important.
- Their focus on eBay was clearly the most important pivot/strategy
Note: All facts are from my memory so not all details might be 100% accurate. If you want to check the details, go read the book :)
