PayPal Early Days — Remo Uherek

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