#233 Elon Musk, Peter Thiel, Max Levchin (PayPal‪)‬

In "The Founders: The Story of PayPal and the Entrepreneurs Who Shaped Silicon Valley," author Jimmy Soni delves into the tumultuous journey of PayPal, from its inception to its critical role in the dot-com era. The book reveals the company's struggle to survive amidst intense competition, regulatory challenges, and internal conflicts, including the ousting of CEO Elon Musk. Soni highlights the relentless drive and innovative spirit of the founders, particularly Musk, Peter Thiel, and Max Levchin, who prioritized creating an exceptional product over expanding their sales force. Their approach, characterized by a mix of obsession, risk-taking, and an almost irrational optimism, ultimately led to PayPal's success. Despite various setbacks, including failed merger talks with eBay and a high burn rate, PayPal's focus on customer experience and strategic maneuvers, such as leveraging eBay's platform risk, propelled the company to its IPO and subsequent acquisition by eBay. Soni's account underscores the importance of founders who are willing to bet everything on their vision, shaping not only their product but also Silicon Valley's entrepreneurial landscape.

• The book is dedicated to the author's daughter, Venice, who was one year old when the project began and six upon completion.
• Venice's presence contributed to the happiest years of the author's life.
• The author shares a message to Venice about the importance of creation and collaboration with others.

"Your life will be shaped by the things that you create and the people you make them with."

This quote emphasizes the dual importance of what one creates and who one creates with, suggesting that collaboration is as impactful as the creation itself.

• The book discussed is "The Founders: The Story of PayPal and the Entrepreneurs Who Shaped Silicon Valley" by Jimmy Soni.
• The author of the podcast expresses admiration for Soni's work and the dedication to his daughter.
• The podcast host was deeply engrossed in the book and anticipates difficulty in doing justice to its quality.

"The story of PayPal isn't just people banding together to shape a product. It's about how banding together shaped the people themselves."

This quote reflects on the transformative experience of the PayPal team, highlighting the personal growth that occurred alongside the company's development.

• Elon Musk's quote opens the book with an expletive, reflecting his candid nature.
• Musk reminisces about the early days of PayPal and its subsequent impact.
• Musk corrects the notion that PayPal was hard to create; it was hard to keep alive.

"The company wasn't hard to create at all, he said. Rather, it was a hard company to keep alive."

This quote from Musk underlines the challenges of sustaining a startup, particularly one facing numerous external threats and internal pressures.

• PayPal alumni have significantly influenced Silicon Valley, building, funding, or advising many notable companies.
• Opinions on PayPal's founders are polarized, viewed as either heroes or heathens.
• The early years of PayPal are often overlooked, yet they are crucial to understanding the founders' later successes.

"To skip PayPal's creation is to neglect the most interesting stuff about its founders."

This quote stresses the value of understanding the origin story of PayPal and its founders to fully appreciate their later achievements and character.

• PayPal emerged from the merger of two companies, Confinity and X.com.
• The early days were marked by legal challenges, skepticism, and intense competition.
• The founders' inexperience was seen as an asset, bringing fresh perspectives and avoiding preconceived notions from established financial institutions.

"They purposely hired for inexperience. They hired for, they prioritized intelligence and enthusiasm."

This quote explains the hiring philosophy of PayPal, which valued raw talent and drive over industry experience.

• Max Levchin grew up in Soviet Russia, immigrated to the United States, and developed a passion for computers.
• Levchin's limited access to computers led to a disciplined approach to programming and problem-solving.
• His grandmother's resilience and refusal to surrender greatly influenced him.

"I had this living example of someone who would never surrender under any circumstances."

Levchin's quote about his grandmother exemplifies the importance of having role models who embody perseverance and determination.

• Peter Thiel's intelligence and potential were recognized by peers at Stanford.
• Thiel's lectures, despite small attendance, were pivotal in connecting him with Levchin.
• Thiel's investment in a saturated e-calendar space taught him valuable lessons about competition.

"Thiel would later cite his smart calendar investment as a rich vein of learning, a failure whose lessons included minimizing competition that would pave the way for PayPal success."

This quote highlights the formative experience of learning from failure, which helped shape Thiel's future business strategies.

• PayPal's initial concept was an application for Palm Pilots.
• The company started with minimal resources, including a closet office, a CTO without air conditioning, and a CEO with a long commute.
• The founders' belief in each other's potential to build big things was evident from the start.

"We all believe that the others were going to build big things."

This quote captures the optimism and confidence shared among the early team members, foreshadowing their future success.

In conclusion, the podcast transcript provides a detailed look at the early influences, philosophies, and struggles that shaped the founders of PayPal. The narrative underscores the significance of resilience, intelligence, and the right team dynamics in the journey of entrepreneurship.

• The prehistory of PayPal involved a company with minimal resources and a part-time CEO commuting from Chicago.
• Max Levchin and Peter Thiel had a significant relationship based on trust, especially during challenging times.
• Charlie Munger emphasized the importance of having colleagues in complicated work.
• Elon Musk, even before his success, was known for reaching out to smart and interesting people for knowledge and networking.

"Founders have to have somebody they can actually trust. There are so many people who are good at being good to you when things are great, but when shit's not really working, who do you objectively talk to? Levchin and Teal had each other."

• Trust between founders is crucial, especially during difficult times.

"Everybody engaged in complicated work needs colleagues. Just the discipline of having to put your thoughts in order with somebody else is a very Useful Thing."

• Collaboration and peer discussion are valuable in complex work.

• Elon Musk's internship at a bank led him to believe that traditional financial institutions were not innovative.
• Musk valued physics and considered it to be fundamental in asking the right questions about life and the universe.
• The book "The Hitchhiker's Guide to the Galaxy" influenced Musk's thinking about the importance of questions over answers.
• Musk believed that a recursive loop of self-improvement and focusing on usefulness to others is key to success.

"If they're this bad at innovation, then any company that enters the financial space should not fear that the banks will crush them, because the banks do not innovate."

• Musk perceived a lack of innovation in the banking sector as an opportunity for new entrants.

"A lot of times, Musk explained, the question is harder than the answer. And if you can properly phrase the question, then the answer is the easy part."

• Properly framing a question is often more challenging and crucial than finding the answer.

• Musk's first company, Zip2, experienced rapid growth but also internal conflicts due to Musk's aggressive leadership style.
• After selling Zip2, Musk invested a significant portion of his earnings into X.com, demonstrating his confidence and risk-taking attitude.
• Musk's view of the internet was that it would fundamentally change the world and act as a global nervous system.

"I just work. I wake up, I open my eyes, I work, I work until I fall asleep."

• Musk's work ethic was extreme, often working nonstop and living in his office.

"My bank account went from five thousand dollars to twenty one million and five thousand dollars."

• The sale of Zip2 was a major financial turning point for Musk.

• Musk's approach to X.com was different from the typical internet startup; he saw it as a chance to fundamentally change the financial industry.
• Colleagues at X.com and Confinity (later PayPal) noted Musk's salesmanship and vision.
• The companies, initially separate, eventually merged due to their shared focus on simplifying financial transactions via email.

"The business types treated the Internet as a 20th century gold rush. Musk saw it differently. I thought it was something that would fundamentally change the world."

• Musk had a transformative vision for the internet and its potential impact on society.

• PayPal prioritized hiring top talent and maintained high standards even if it meant slower growth.
• Levchin and Thiel's recruitment strategy involved offering a compelling vision and mission to potential hires, rather than competing on salary alone.
• The company culture was intense, with a focus on changing the world and a relentless work ethic.

"A, players hire A players. B, players hire C players. So the first B player you hire takes the entire company down."

• Hiring standards were critical to maintaining company quality and culture.

• Musk's drive to win and obsessive nature were evident in his early correspondence and actions.
• His approach to business and life was characterized by a relentless pursuit of success and a willingness to work tirelessly.

"What matters to me is winning, and not in a small way."

• Musk's primary motivation was to achieve significant success, not just minor victories.

• PayPal's pivot from a focus on Palm Pilot transactions to email-based money transfers was a key strategic move.
• The team learned the importance of adapting ideas, listening to criticism, and continually improving their services to meet user needs.

"You start off with an idea, and that idea is mostly wrong, and then you adapt that idea and keep refining it."

• The process of refining and improving an initial idea is crucial to startup success.

• Musk and other successful entrepreneurs are depicted as incredibly efficient, smart, and hardworking, often working 80-hour weeks.
• The narrative suggests that at the highest levels of business, competition is fierce, and the most successful individuals are those who are relentless in their efforts.

"There is a small number of insane people who will do nothing but work 80 hours a week no matter where you put them."

• The drive and work ethic of successful entrepreneurs are portrayed as nearly superhuman.

• The founding team of PayPal, including Peter Thiel and Max Levchin, were focused on creating a new form of currency and had a vision for the company that went beyond conventional financial transactions.
• Despite initial skepticism and challenges, the team's commitment to their mission and innovative approach eventually led to PayPal's success.

"The objective is over there, and I know it's over there, so we should all go over there."

• Clear vision and direction from leadership were instrumental in guiding the company towards its goals.

• Michael Moritz of Sequoia Capital invested in Elon Musk's company in August 1999.
• Moritz advised Musk against having all his assets tied up in the company, except for his house and car.
• Sequoia might have reconsidered the investment if they knew the challenges ahead.
• The investors and founders, including Elon Musk, Peter Thiel, and Max Levchin, entered the venture with a degree of ignorance about the difficulties they would face.

"Moritz was like, dude, you should not have basically everything you own except your house and your car in a company." "Had Moritz and Sequoia known precisely what they were signing up for, he'd wondered if they had signed up for all at all."

• Moritz's advice reflects a common investor caution against over-concentration of personal assets.
• Sequoia's potential hesitation highlights the risk assessment that venture capitalists undertake before investing.

• Elon Musk favors simple language and was against the use of acronyms and jargon.
• Musk's leadership style involved working closely with his team and facing challenges alongside them.
• This hands-on approach was seen as powerful and motivating by employees.
• Musk's disdain for corporate jargon was evident during Sandeep Lau's interview when Musk told him to stop using "bullshit words."

"Musk said, stop using bullshit words." "The engineers recall their CEO working elbow to elbow with them through knotty technical challenges."

• Musk's request for simple language indicates his preference for clarity and directness in communication.
• The quote about working with engineers showcases Musk's collaborative and involved leadership style.

• X.com, later known as PayPal, faced an attempted ouster of Musk as CEO in the summer of 1999.
• Despite challenges, the company secured funding from Sequoia, built a product, and made significant progress within four months.
• Musk's drive for fast, impressive results reflects the startup ethos of rapid development and scaling.

"Four months later. That episode was ancient history." "As ever, Musk wanted faster, more thoroughly dazzling results."

• The first quote demonstrates how quickly the situation at X.com evolved from crisis to progress.
• Musk's desire for rapid results emphasizes the high-paced environment of startups.

• Negative press about X.com resulted in more signups, demonstrating the Streisand Effect where attempts to suppress information can lead to greater exposure.
• X.com faced regulatory barriers in its ambition to become an all-encompassing financial platform.
• Musk realized the potential of simplifying money transfers by using email addresses instead of account numbers.

"The extensive coverage, although it was negative, left X.com with more signups than before, the negative headlines."

• This quote illustrates how negative attention can inadvertently benefit a company by increasing its visibility.

• David Sacks, at Confinity, emphasized the importance of simplicity and focused on a streamlined PayPal signup process.
• Steve Jobs' approach to product design, as described in an anecdote, also favored simplicity and directness.
• Feedback from customers, such as eBay users, was crucial in guiding product development and strategy.

"Sachs became a zealot for efficiency within confinity and simplicity without." "Mike was shocked when Steve Jobs walked into the room, ignored their work, and walked right up to the whiteboard."

• Sacks' focus on simplicity within the company and for the users was a key strategy for PayPal's success.
• The quote about Steve Jobs demonstrates his approach to product design, focusing on simplicity and user experience.

• X.com and Confinity, both working on online payment solutions, engaged in intense competition on eBay.
• The competition included sign-up bonuses and aggressive tactics to gain users.
• Musk and the X.com team recognized the talent and threat posed by Confinity, leading to a merger.

"Thus began one of the most ferocious and unusual battles in Internet history." "In lebchin and teal, Musk found something he rarely encountered, competitors as driven to win as he was."

• The first quote describes the fierce competition between X.com and Confinity on eBay.
• Musk's recognition of his competitors' drive underscores the intensity of the startup landscape.

• Peter Thiel and Elon Musk anticipated an economic downturn and pushed for quick fundraising.
• Their decisiveness allowed PayPal to secure funding before the market crash, ensuring the company's survival and future success.
• Other online payment services were not as fortunate and eventually failed due to lack of funding.

"Peter kicked everyone's asses to get that funding round done." "If we hadn't raised that $100 million round, there would be no PayPal, there would be no SpaceX, no LinkedIn, and no Tesla."

• Thiel's urgency in securing funds was critical for PayPal's future.
• The second quote highlights the pivotal role of this funding round in the success of multiple influential companies.

• PayPal faced a massive backlog of customer service complaints which they addressed by decentralizing customer service.
• The company's approach to problem-solving was proactive and adaptive.
• Elon Musk's philosophy tolerated failures as a side effect of iteration and rapid decision-making.

"I never stopped and thought, will this work? That question was completely foreign in those years." "If there were two paths where we had to choose one thing or another... we would just pick one and do it."

• The first quote reflects the company's action-oriented mindset during its early years.
• Musk's quote reveals his preference for decisive action over prolonged deliberation, accepting the risk of failure as part of the process.

• The team at X.com, influenced by the experiences of companies like Apple, believed in the importance of founder-led leadership.
• They observed that startups often become less efficient as they grow, a paradox explored in "The Mythical Man-Month" by Frederick Brooks.
• X.com reorganized into small, independent teams to maintain innovation and avoid bureaucratic slowdowns.

"The founder may be bizarre and erratic, but this is a creative force and they should run the company." "Both Musk and Sachs had observed an irksome startup paradox."

• The first quote emphasizes the value of a founder's creative vision, even if their management style is unconventional.
• The second quote highlights the challenge of maintaining productivity as a startup scales, leading to the strategy of small, autonomous teams.

• PayPal sought to reduce transaction costs by encouraging users to maintain balances in their accounts.
• Transferring money internally within PayPal accounts incurs negligible costs.
• Musk emphasized the importance of offering debit cards and checks to prevent users from transferring money out of PayPal for bill payments.

"If enough customers kept money on their accounts, the team realized that the company could transfer dollars between users at no cost."

• This quote explains the financial strategy behind encouraging users to keep balances in their PayPal accounts to minimize transaction costs.

"Musk insisted that the company continue distributing debit cards and even checks... So give them the goddamn checks."

• Musk believed in providing users with the means to spend their PayPal balance directly, thus retaining money within the system.

• Elon Musk, as a young CEO, faced internal disagreements regarding the company's direction.
• David Sacks highlighted the importance of reducing friction for customers.
• A coup within PayPal led to Musk's ouster, with Peter Thiel taking over as CEO.

"David Sachs has brought something to their attention when they're building up this product. And he said every moment of friction for the customer was fat to be cut."

• Sacks' philosophy was to streamline the user experience by eliminating obstacles that could deter customers.

"So began the clandestine effort to cut Musk, the co-founder and CEO and biggest individual shareholder, out of the company."

• This quote details the internal power struggle that resulted in Musk being removed from his leadership position at PayPal.

• Musk expressed sadness over the coup but did not seek retribution.
• He instructed his supporters not to resign in protest, indicating his realistic understanding of the situation.
• Musk's moderate response surprised even his long-serving allies.

"The whole thing is making me so sad that words fail me. I have given every last ounce of effort, almost all my cash from zip2, and my marriage is on the rocks. And yet I stand accused of bad deeds to which I have not even been given the opportunity to respond."

• Musk's personal email reflects his emotional state and dedication to PayPal, despite the challenges he faced.

"While I didn't agree with their conclusion, Musk said, I understood why they took the action they did."

• Musk recognized the reasoning behind the coup, even though he disagreed with it, showing his ability to empathize with his opponents.

• PayPal reinvented itself as a big data security company focusing on risk management.
• The company's core innovation lay in its ability to detect and prevent fraudulent transactions.
• Max Levchin highlighted that the true innovation was not in the movement of money but in managing the risks associated with it.

"PayPal effectively reinvented itself as one of the first big data security companies."

• This quote underscores PayPal's shift from a payment processor to a company that excelled in fraud prevention and data security.

"We solved that problem, and other companies did not."

• Levchin's statement emphasizes PayPal's success in addressing the critical issue of fraud, setting it apart from competitors.

• PayPal faced significant platform risk due to its dependency on eBay.
• eBay's introduction of the "Buy It Now" button and default payment system threatened PayPal's market share.
• PayPal's leadership, including Peter Thiel and David Sacks, reacted aggressively to eBay's competitive moves.

"This change sent Peter and David Sachs into fits of anger."

• The quote describes the intense reaction from PayPal's leadership to eBay's strategic decisions that could undermine PayPal's business.

"They are definitely default aggressive. They were very highly entrepreneurial, very aggressive."

• eBay CEO Meg Whitman's assessment of PayPal's team reflects their proactive and assertive approach to business challenges.

• PayPal leveraged antitrust concerns to counter eBay's dominance.
• Keith Rabois was tasked with building an antitrust case against eBay.
• PayPal's political action and legal strategies aimed to highlight eBay's monopolistic behavior.

"PayPal leaders fomented their fears."

• This quote indicates how PayPal's leadership used the broader tech industry's fear of antitrust actions to their advantage in their struggle against eBay.

"EBay is abusing its market power over the online marketplace to distort and eliminate competition for payment services."

• The legal note sent to eBay headquarters encapsulates PayPal's argument against eBay's practices, likening them to Microsoft's antitrust issues.

• PayPal's IPO faced skepticism, but the company used misdirection and strategic negotiations to ensure its success.
• Reid Hoffman played a key role in silencing eBay by initiating acquisition talks.
• The company's efficient and strategic approach was evident in their handling of the IPO and eBay's potential interference.

"If eBay is in negotiations to bias, if they say anything to the public market, it's breaking fiduciary responsibility."

• Hoffman's strategy involved using the potential acquisition talks as leverage to prevent eBay from making negative public statements during PayPal's IPO quiet period.

"If what you're telling me is that your last offer is 850 million, Hoffman said, I can take it to the board. But just to be really clear, I have a mandate to sell the company for a billion dollars."

• Hoffman's firm stance during negotiations with eBay underscored PayPal's determination to achieve their desired outcome, whether it was a higher acquisition price or a successful IPO.

• PayPal's culture of aggressive growth and bias for action was instrumental in its success.
• Former employees went on to create significant companies, inspired by their experiences at PayPal.
• The founders' inexperience was seen as an asset, allowing them to innovate without being constrained by traditional methods.

"The very best employee at any job, at any level of responsibility, is the person who generally believes that this is their last job working for someone."

• Levchin's quote highlights the entrepreneurial spirit that permeated PayPal, with employees who were driven and self-motivated.

"We were really very focused on building the best product we could. We were incredibly obsessive about how do we evoke something that is really going to have the best possible customer experience."

• Elon Musk's reflection on PayPal's focus on product quality and customer experience as key to their success.

• The book detailing PayPal's journey offers valuable lessons for entrepreneurs and founders.
• The founders' approach to problem-solving, risk-taking, and innovation provides insights that can be applied to various challenges in business and life.

"Every single entrepreneur, every single founder, every single person attempting to do something difficult in their lives will draw lessons from the book that you can use in the future."

• The final recommendation emphasizes the book's relevance and the enduring impact of PayPal's story on current and future entrepreneurs.