They’re the hidden powerhouse behind the vast majority of the networks you use everyday. Respectfully known as the ‘Paypal Mafia’ by Fortune magazine, the powerhouse is responsible for the rise of LinkedIn, Youtube and Facebook. The group initially began its domination by launching the most popular online payments company and has gone on to fund and launch a remarkable group of companies reviewed at hundreds of billions.
Their undeniable success would appear to be calculation over luck. As the old saying goes, once you’re lucky, twice you’re good. In PayPal’s case, there’s way too much “good” to be written off as “lucky.” These guys are gods among businessmen.
Eric Jackson is the CEO of CapLinked and PayPal’s first marketing director and also the author of the award-winning book The PayPal Wars, his firsthand account of details why PayPal alumni became so successful. He answers the many questions regarding what factors turned PayPal into an incubator for so much entrepreneurial talent.
As PayPal’s first marketing director and now the founder of a start-up called CapLinked, he has seen the incubation process from beginning to end. The answer lies not just in PayPal’s hiring practices, but also the unique circumstances and vision of the company’s founding. There are four major factors that he felt contributed greatly to their success:
1. Good People, Good Culture
PayPal had great people working within an entrepreneurial organization. When Thiel and Levchin started the company, they drew on their personal connections for targeted early hires aimed at building a strong core. Thiel pulled his Stanford University contacts (including this author) for business roles, while Levchin roped in engineers he knew from the University of Illinois at Urbana-Champaign.
Besides bringing in A-players who would go on to recruit other invaluable talent, management empowered its employees and encouraged them to take ownership of company initiatives. Dissent wasn’t just allowed; it was encouraged. As Stoppelman has said: “I was a 22-year-old whippersnapper, and I remember firing off this e-mail that disagreed with the entire executive staff. I didn’t get fired — I got a pat on the back.”
2. Solving a Big Problem
PayPal’s founders had a monumental vision that encouraged employees to dream big. As currency contagion swept the globe in the late-90s, many countries devalued their currencies, effectively wiping out the savings of their citizens. Thiel extolled PayPal’s employees to envision how the online payment system they were building could eventually enable people to keep their savings outside of the reach of corrupt governments who would devalue it.
Of course, this meant PayPal had to grow quickly in order to have worldwide reach. In order to turn PayPal into a global, ubiquitous payments network, they attempted to service on top of eBay’s network of auction buyers and sellers. To use a sports analogy, PayPal was meant to be a home run — we weren’t going for a single or a double.
3. Enduring Difficult Challenges
To achieve PayPal’s big vision, its team had to overcome a series of overwhelming obstacles that would’ve sunk most startups. The initial business model of making money off the float (i.e. the balance users kept in their PayPal accounts) proved flawed; he states “not only did users typically withdraw their money, but we were having to pay the credit card association’s 3 percent fees on payments funded by credit cards.” At their low point in 2000, the startup was bleeding $10 million per month. But a broken business model wasn’t PayPal’s only threat.
eBay proved to be a none-too-gracious host, as Meg Whitman instructed her team to put up road blocks to limit the use of PayPal on their site. Foreign organized crime rings began using PayPal to siphon money out of stolen credit card numbers, exposing us to millions in losses. Government regulators also came after them, taking a “punish first, ask questions later” approach to our new payments service. (At one point, PayPal was banned from the state of Louisiana. Enough said.)
4. Prioritizing Execution
Chasing a big vision and facing huge challenges, PayPal’s early team had no choice but to relentlessly execute. The scope of what needed to get done was extensive. Jackson recalls “In the three months after I joined the startup in December 1999, we pivoted not once but twice, changing both our platform (going from a focus on Palm Pilots to the web) and our market (shifting from person-to-person payments to a focus on online auctions).”
Even though it was years before Eric Ries would coin the term “lean startup,” PayPal had a nimble product development process where they pushed new features live several times a month, captivating users with an ever-evolving product. The entire team understood that moving quickly mattered more than being perfect.
It was this unique combination of circumstances, talent, and audacity that would make PayPal an incubator for so many successful entrepreneurs. And this is why the alumni of PayPal — more so than contemporaries like Google, Yahoo, Amazon or eBay — have gone on to create an amazing collection of companies.