Levchin and Thiel hired many technical, high-IQ people at PayPal:
"So maybe it was groupthink, but for a small group of people to achieve something and achieve it
really fast, it was actually, in hindsight, a masterful thing to do."
Thiel: "friends-turned-employees came preinstalled with trust. Trust produced speed."
Balancing velocity versus groupthink: "A good rule of thumb is that diversity of opinion is
essential any time you don't know anything about something important. But if there's a strong
sense of what's right already, don't argue about it." - Max
The opinion Confinity developed about the value of PR: "It was much more important for recruiting
and for perception among investors than it is about actual product adoption."
Levchin on pitching your startup against Google: "To win, you need to tell a story about cogs. At
Google, you're a cog. Whereas with me, you're an instrumental piece of this great thing that we'll
build together. Articulate the vision."
"It's important to take feedback from your environment. You want to be as closed-loop as
possible." - Musk
"I kind of became, like, 'Dr. No.' Because I'd always have to say no to everyone's stupid ideas…
it was really important that we not squander our precious engineering bandwidth on ideas that
didn't make sense for the long-term strategy of the company." - Sacks
"Thiel abhorred bureaucracies, and now that Confinity was growing, he risked being ensnared by the
very things he had abandoned upon leaving law firm life — management, paperwork, meetings. 'Peter
is even less tolerant of bullshit than I am,' the famously administrivia-averse Musk remarked. 'My
bullshit tolerance is low, but Peter is like zero.'"
"If there were two paths where we had to choose one thing or the other, and one wasn't obviously
better than the other, then rather than spend a lot of time trying to figure out which one was
slightly better, we would just pick one and do it. And sometimes we'd be wrong… but oftentimes
it's better to just pick a path and do it rather than just vacillate endlessly on the choice."
"Both had observed an irksome startup paradox: as X.com had grown in size, it began to accomplish
less work of substance."
"Another engineer knocked Microsoft as having been 'written because it solved an existing
problem… if you have these off-the-shelf tools that will just work for you, then you're not
doing something that's new and interesting and unseen.'"
"For Musk, Thiel, and other PayPal executives, urgency was the default posture on all things —
including and especially its international expansion campaign."
Musk on having an obsessive customer experience: "That was a far more effective selling tool than
having a giant sales force or marketing gimmicks or twelve-step processes or whatever."
Intro
"During its first two years of existence, PayPal cycled through three CEOs, and its senior
management team threatened to resign en masse — twice."
"Just over two years passed between the X.com-Confinity merger and PayPal's initial public
offering on the Nasdaq, but many employees felt as though they'd worked a lifetime."
"Several said they did their life's finest work during this period." It was unforgiving and
intense, and yet remembered with pride and fondness.
"Ecology of talent": Bell Labs, Google, Florence.
Fertile scenes of thinkers, builders, artists, out of which revolutionaries come.
"Scenius" instead of solo genius.
Building blocks (chap 1)
Levchin learned programming as a kid in the Ukraine helping his mom detect radiation in food. He
emigrated to Chicago when he was 16; Ukraine was hostile to Jews. They had little money.
"Levchin soon became consumed by the world wide web and found networks and forums full of kindred
digital spirits."
Marc Andreessen was from UIUC; he worked on Mosaic and then started Netscape.
"One thing that really shaped me — and probably a lot of other people at Illinois — was this
constant sense of opportunity in the air because of Mosaic and subsequently Netscape." - Levchin
The pitch (chap 2)
Thiel: Stanford undergrad, law grad. He launched Stanford Review newspaper as a student.
Started a hedge fund after law school.
Levchin and Thiel hired many technical, high-IQ people at PayPal:
"So maybe it was groupthink, but for a small group of people to achieve something and achieve it
really fast, it was actually, in hindsight, a masterful thing to do."
The right questions (chap 3)
Musk pursued dual degrees in physics and finance from the University of Pennsylvania.
"Musk admitted to studying business as a hedge. 'I was concerned that if I didn't study business,
I would be forced to work for someone who did study business.'"
He loved video games and built them as a kid.
"From where he sat, the brains behind Yahoo and Amazon were just a few years older than him and
surely no wiser. But starting his own venture still felt risky, particularly with a Stanford
graduate school acceptance in hand."
Musk: go through with the Stanford graduate program, or join the tech boom? "I would spend several
years watching the internet go through this incredibly rapid growth phase and that would be really
difficult to handle — so I really wanted to be doing something."
He started a company called Global Link with his brother and got $3.5M VC in a few months. He
slept at the office.
Zip2, Musk's first company, provided local listings and maps to newspaper websites and media
companies. He wanted to compete directly with Yahoo but his colleagues had lower ambitions. He was
changed from CEO to CTO because he was too abrasive with his coworkers.
In Feb 1999, sold the company to Compaq (who owned AltaVista) for $300M cash (!). At age 27.
What matters to me is winning (chap 4)
Musk's home was filled with books about famous business people. He was prepping himself to become
one of them.
Musk didn't want venture capital because he wanted full control, and self-funded much of x.com
initially.
X.com wanted to be an internet bank but regulatory work was slow and high-overhead.
Musk: "You start off with an idea, and that idea is mostly wrong. And then you adapt that idea and
keep refining it and you listen to criticism. And then engage in sort of a recursive
self-improvement… keep iterating on a loop that says,, 'Am I doing something useful for other
people?' Because that's what a company is supposed to do."
"Too much precision in early plans, he believed, cut that iteration loop prematurely."
Musk fired his cofounder (a finance guy), and then his other co-founder (product guy) left also as
a result.
"Two decades later, Musk offered only brief reflections on the early chaos at X.com, calling it 'a
hot minute' in PayPal's history. 'There's always drama in start-ups' he said."
The beamers (chap 5)
On Thiel taking the CEO position at Confinity
"He had no interests in a CEO's administrative and managerial duties — he preferred sticking to
markets and money."
"Thiel could also see the value in operating experience — time in the CEO chair could fine-tune
his investor antennae."
Thiel: "friends-turned-employees came preinstalled with trust. Trust produced speed."
While their hiring approach had benefits, "hiring friends risked a cloistered, exclusionary
monoculture and made it exceptionally hard to let people go."
"Brilliance, nonconformity, availability, and the willing suspension of disbelief — these
qualities defined Confinity's first hires and formed the foundation of its culture."
(Availability, meaning spare bandwidth in their lives: no one was old or successful yet.)
(Their initial focus — beaming money around via Palm Pilot's — was all wrong. They iterated on
their idea, the pitch, the extrapolation of their market… how much energy did they spend on that
stuff? Was it worthwhile? Contrast this against something so clear and correct, like Google's vision,
or Microsoft's).
They made 100 pitches to SV venture firms, and all failed. They finally landed $4.5M from Nokia,
who wanted to make a bet on mobile payments.
Hosed (chap 6)
Confinity and X.com shared adjoining office suites early on at 394 University Ave in Palo Alto.
Ironic!
The opinion Confinity developed about the value of PR: "It was much more important for recruiting
and for perception among investors than it is about actual product adoption."
On choosing a catchy name (Paypal): "If people don't know how to say something, or if they are
fearful of saying it incorrectly, they will do anything to avoid saying it. Embarrassment is a
very strong emotion."
Levchin on pitching your startup against Google: "To win, you need to tell a story about cogs. At
Google, you're a cog. Whereas with me, you're an instrumental piece of this great thing that we'll
build together. Articulate the vision."
"Max kept repeating, 'As hire As. Bs hire Cs. So the first B you hire takes the whole company
down.'"
The Palm Pilot beaming transaction didn't even settle until it was later docked to a desktop. How
did they think this idea was viable?
Max, about things like the selection of the core programming language: "Anyone that did want to
argue about it wouldn't have fit in. Arguing would have impeded progress."
Balancing velocity versus groupthink: "A good rule of thumb is that diversity of opinion is
essential any time you don't know anything about something important. But if there's a strong
sense of what's right already, don't argue about it." - Levchin
Chad Hurley, future founder of YouTube, joined as a graphic designer out of college.
They stumbled upon using their website to allow users to email money, to satisfy the use case when
they forgot their Palm Pilots.
Money talks (chap 7)
Musk was influenced by Amazon's success of being a superstore. He set the X.com strategy to be the
same thing, but for financial services.
"Debora Bezona had seen her share of companies as a benefits consultant, and when she signed X.com
on as a client, she remarked that it was 'the most diverse company I had ever worked with."
(Compared to Confinity, which was all 20-something males).
"Musk gave employees ample freedom — 'the room to be everything they could be' — but set
palpably high expectations for performance. 'I have never worked so hard and fast in all my life'
Bezona said."
"'Instead of writing everything yourself, we should use frameworks. You can get a lot more done in
a little time.' Musk supported the decision to switch to the Microsoft stack because it swapped
flexibility for efficiency."
If you build it (chap 8)
Both Confinity and X.com grew like wildfire after launch. Both teams lived at the office.
"The explosion of interest was exhausting yet energizing."
"It's important to take feedback from your environment. You want to be as closed-loop as
possible." - Musk
Sacks became Confinity's first head of product.
"I kind of became, like, 'Dr. No.' Because I'd always have to say no to everyone's stupid ideas…
it was really important that we not squander our precious engineering bandwidth on ideas that
didn't make sense for the long-term strategy of the company." - Sacks
The growth innovation was a cash referral bonus for inviting friends. "In time, this bonus effort
was hailed as one of the all-time great 'viral marketing' programs."
"Thiel abhorred bureaucracies, and now that Confinity was growing, he risked being ensnared by the
very things he had abandoned upon leaving law firm life — management, paperwork, meetings.
'Peter is even less tolerant of bullshit than I am,' the famously administrivia-averse Musk
remarked. 'My bullshit tolerance is low, but Peter is like zero.'"
"I don't want to be CEO. I had no desire to be CEO. It's really a lot of chores… being CEO
sucks." - Musk
The widget wars (chap 9)
"Network effects trump everything else" and Paypal got to email payments and eBay first.
"Given a teetering market and a take-no-prisoners competitor, Thiel and others in the company
began considering an alternative course. 'A lot of us came to the conclusion that this would be a
winner-take-all market, and that this should be a single company. Or both of us would spend
ourselves into oblivion."
X.com's initial offer for Paypal was 92/8% relative valuation! It was eventually negotiated to
50-50.
Elon wasn't excited. "To put Confinity on par with his own company was bad enough, but especially
so when he considered X.com's lead in non-eBay accounts. He wasn't overly worried about market
trends, user growth, burn rate, or the competitive landscape — X.com could have won through will
and skill."
"The reason I agreed to the fifty-fifty is because Bill Harris (his CEO) said he would resign if I
didn't. Otherwise, I was going to pass on the deal." (This was during a crucial fundraise).
A "shotgun wedding" merger.
Crash (chap 10)
100s of new users each hour, backlog of complaints, complicated merger, different techs, and
actively fundraising!
$8M burn per month for the merged company.
Thiel hustled to close the raise before the bubble burst.
The ankle-biting competitors in payments suddenly died off when the dot-com crash happened.
"If the team hadn't closed that one hundred million, there would be no SpaceX, no LinkedIn, and no
Tesla." - Woolworth, X.com's CEO.
The nut house coup (chap 11)
Using family in Nebraska to stand up customer service.
"Anderson thought of her sister, Jill Harriman, who lived in Nebraska and whose Midwest patience
she believed would offer a strong antidote to simmering user frustration. Musk saw promise.
'Just go hog wild,' he remembers telling her. 'Get a building and just go. We need a hundred
people in thirty days.'"
On being accepting of failure on the path to success:
"If you can't tell me the four ways you fucked something up… before you got it right, you
probably weren't the person who worked on it." - Elon
"If there were two paths where we had to choose one thing or the other, and one wasn't obviously
better than the other, then rather than spend a lot of time trying to figure out which one was
slightly better, we would just pick one and do it. And sometimes we'd be wrong… but oftentimes
it's better to just pick a path and do it rather than just vacillate endlessly on the choice."
The meeting size blew up after the merger, for some reason, and it was exasperating.
"2x problem" post-merger: the talent duplication that comes from having two people in every
position. CEO Bill Harris never resolved this, and took the blame for the slowdown.
Harris was a non-technical CEO, and this caused friction with the X.com staff, who were very
technical.
X.com was at the mercy of eBay. One policy decision could wipe them out.
Harris was focusing on user growth, but the rest of leadership believed revenue growth was the
core problem. They already had viral growth.
On Thiel wanting to depart: "The company would be fine without him in an operational role — and
more importantly, he would be better off without the encumbrances of executive life."
"Musk also blanched at the CEO's desire to hire more business and finance heavies. 'He was going
to "tame us young whippersnappers" with these, like seasoned financial executives or whatever. And
we're like, "Uh, these are the same seasoned executives at these banks who can't do jack, who
can't compete with us? Doesn't make sense."'"
Sacks thought the additional meetings and process post-merger were tanking the company's velocity.
"X.com's leaders took Bill Harris's rocky tenure as evidence that such 'supervision' was not only
unnecessary, but counterproductive. For every Schmidt-like success, there seemed to be a John
Sculley waiting in the wings."
Musk was skeptical that a wizened adult figure (Harris) was needed to whip young companies into
shape: "The founder may be bizarre and erratic but this is a creative force, and they should run
the company… If someone's the creative force, or one of the creative forces, behind a company,
at least they understand which direction to go. Maybe they don't run the ship perfectly. The ship
may be a little erratic, and the morale may be mixed. And some parts of the ship aren't working
that well. But it's going in the actual right direction. Or you can have a ship that has
everything buttoned down. The sails are full. Morale is great. Everyone's cheering. And it's
heading straight for the reef."
Button up (chap 12)
"Both had observed an irksome startup paradox: as X.com had grown in size, it began to accomplish
less work of substance."
"The word manager had acquired this negative connotation. To call them 'product managers' would
imply that their job was just to 'manage things' as opposed to 'make things happen.'" - Sacks
So PMs were called "producers."
They developed the idea of two deposits into an account to verify its ownership.
It was "an idea that, like velcro, you wish you had thought of." - David Sacks
The sword (chap 13)
"The two eng teams remained separate, and operated two websites. Musk wanted to rewrite Paypal on
MS Windows.
(He should have known better — he should have known this would cause a mutiny).
Musk said "Linux in 2000 was very primitive. It didn't have much support… so why the fuck are we
using Linux?"
MS Windows also offered a recruiting advantage for hiring engineers.
"Another engineer knocked Microsoft as having been 'written because it solved an existing
problem… if you have these off-the-shelf tools that will just work for you, then you're not
doing something that's new and interesting and unseen.'"
X.com's MS Windows servers needed to reboot every 13 seconds, due to memory leaks!
The Windows rewrite didn't go well: "During those several months, the company lost millions to
fraud. 'If you're spending that time fixing memory leaks,' one QA analyst remarked, 'you're not
solving the problem that's causing $30 million in loss.'"
Max's team had an aversion for Windows, despite any valid technical arguments
"With its open-source codebase and hacker roots, Linux reflected personal preference as much as
architectural choice — and made it hard to swallow a changeover to a closed-source system built
by a massive, multi-billion dollar corporation."
"I'm just going to leave, Levchin remembered thinking. This V2 thing is just destroying my will
to live."
Ambition's debt (chap 14)
Once he was ousted, Elon was free to productively pursue his passions of space exploration and
electrical energy.
Igor (chap 15)
Thiel was contrarian, appointing and betting on people based on talent rather than experience.
A round table after the coup: "with Musk out, the company was now theirs. But so were its crises.
Thiel divided up responsibility to those in attendance for combating each of the existential
threats."
Paypal/Levchin were the first to develop and use a CAPTCHA, to deter signups by bots in an attempt
to steal the $20 signup bonus.
The dials: "It's easy to stop fraud if you're willing to kill usability. What's hard is
maintaining a sufficient level of usability without letting fraud get out of control. So Max
controlled the fraud dial. I controlled the usability dial. And we'd come together to agree on a
compromise." - Sacks
Two-fold strategy of preventing fraud at the "front door" (gates / UX) vs. "back door"
(detection).
They converted the fraud problem to a tractable, mathematical problem.
"PayPal's use of random forests, for instance, was among the world's first applications of that
learning method for a commercial purpose."
"Confinity didn't have interns in the traditional sense: Levchin preferred his teams small and his
engineers self-reliant. He wasn't about to tutor a college student."
Use the force (chap 16)
On upselling sellers to business accounts: "Human beings are creatures of momentum, and finding
ways to change the default (behaviors, thinking, narrative, etc.) can result in massive change." -
Amy Rowe Klement.
"The outages still caused panicky all-nighters, but unlike in the early months, the company felt
users were more forgiving. At this point, they needed PayPal as much as PayPal needed them."
Guerrillas (chap 18
Sacks formed an "ebay response team" — a cross functional group to work on the competitive
threat.
"The community liked PayPal. The community was successful with PayPal. We didn't like it — but it
was what our community wanted." - eBay's Rob Chestnut
World domination (chap 19)
"For Musk, Thiel, and other PayPal executives, urgency was the default posture on all things —
including and especially its international expansion campaign."
They received funding post-dotcom crash by cutting BD deals with a major bank in every region to
have them be PayPal's exclusive partner in that region. But they had no intention of leveraging
that bank abroad — they just wanted the war chest so they could win the domestic battle.
Blindsided (chap 20)
"Thiel had concerns about the IPO. '[Thiel] just kept saying, "I don't want to run a public
company. I [have] no desire to be a public CEO. I'd rather do other things. I don't want to go
public,"' Knight recalled. 'He convinced me. I didn't think it was any more complicated than
that.'"
Nov 18 1999 -> Feb 2 2000: from 1,000 users to 100,000 users. Apr 15 2000: 1M users!
"Peter was right to sideline them. The investment bankers just got in the way of PayPal's
success."
Outlaws (chap 21)
From the middle of January through early February, PayPal faced two lawsuits, the threat of a
third, was banned in Louisiana, had license inquiries from California and New York… These stiff
headwinds had delayed the IPO from Feb 6 to Feb 15."
People were super skeptical leading up to the IPO, but the IPO had a 55% pop on the first day.
The company was valued at $1B. Musk's stake was $100M.
"PayPal going public is what allowed me to have the capital to start SpaceX, because I could sell
stock or borrow against the stock. Before that, I didn't really have meaningful cash." - Musk
And all I got was a T-shirt (chap 22)
(PayPal crashing eBay's customer conference. Fun! So aggressive.)
"The IPO was incredibly helpful to the deal, because there was a mark."
eBay vs Paypal: "David Sacks told his product team that it wasn't clear who the 'victor' would
have been if the two companies had continued fighting it out. 'In these cases, if it's clear, then
a deal usually cannot be struck… Victors wouldn't want to be acquired because they'd know they
were going to win, and losers wouldn't be able to convince anyone to acquire them.'"
"In the final analysis, the eBay sale was another in the company's rich history of risk-mitigation
tactics. The list included merging, cutting bonus payments, fighting fraud, and even going public.
From one angle, PayPal's success was an exercise in careful hedging as much as it was in
innovating — and the sale to eBay was simply the latest hedge."
The floor (conclusion)
Most PayPal execs were planning to leave post acquisition. eBay did not want them to stay; they
had their own talent. Thiel left right after the deal closed.
"PayPal proved to its founders that talented outsiders could upend an industry."
Hiring for inexperience: they hired people for the fraud department who had no experience with
fraud, because they didn't want them to come in with mundane ideas about how to solve it. They
wanted first principles thinking about the fraud that PayPal was facing.
Musk on having an obsessive customer experience: "That was a far more effective selling tool than
having a giant sales force or marketing gimmicks or twelve-step processes or whatever."
Sacks as the product leader was obsessed with distribution
"They had this very savvy and sort of really mature perspective on how important it was to be
able to get your product into people's hands — and that that actually trumps the quality of
your product and many, many other things." - Ryan Donahue
Learning lessons from PayPal
"At PayPal we were sort of intermediate. We weren't as successful as some of the great successes
of Silicon Valley, but I think people sort of calibrated it and learned the best lesson — that
it's hard, but doable." - Thiel
Compare this to people who learned their startup lessons at Google — "everything is easy" — or
a failed startup — "it's impossible."