How to build a successful tech startup according to Paypal founder Max Levchin

the work of an influencer never stops Max Levchin hit it rich at age 27 then he went right back to the office in 1999 leptin co-founded PayPal which was sold to eBay three years later for 1.5 billion leptin gained 100 million dollar fortune from the deal soon after he launched slide a social networking business that he sold to Google from hundreds of millions he now runs yet another company the digital loan business affirm and other endeavors as well legend is here to talk about how to find and build successful tech startups over and over again [Music] hello everyone welcome to influencers I'm Andy serwer and welcome to our guest Max Levchin CEO of a firm co-founder of PayPal part of the PayPal mafia and a million other endeavors maybe just a polymath we can call you that we'll get into all the things like that oh my god anyway welcome good to see you good to see you so max how would you describe what you do to say an 8 year old nephew what do you do for a living what's your work so I normally tell people I start and run companies that's kind of a 1:1 liner introduction but when pressed I revert back to I just write code but that's kind of how I think of myself a coder coder a hacker a builder a company starter that I haven't thought of this one okay careful all right maybe we can loop back to it why don't you tell me about a firm your latest company right now it's been latest company for over seven years so it's a bit of a bit of a long in the tooth startup but still very much a start-up the it's a bit of a throwback to my PayPal day so PayPal was all about innovating above the credit card rails where we took credit cards which 20 years ago were really hard to use online and built user interface which turned out to be much more than user interface to make it easy to use in a browser and online commerce was never the same 20 years later took me a long time to realize that the underlying infrastructure the what's below the rails below the ground isn't especially well made it's not transparent it's not especially consumer friendly it has its own user interface problems makes money on people's mistakes kind of at a very fundamental level and so I wanted to go back in there and see if it can be remade better so 7 and a little bit years ago we started a company with initially just a very narrow view of let's do a better job scoring credit so so the venerable credit score that everybody uses today is pretty opaque it's not really clear there's plenty of information online where this fraction is how much credit you have used in this fraction is how much money you make but there's not a whole lot more to it that's been well understood and as a result for personal experience I came to the US as a teenager had to have my PayPal co-founder sign for my first car loan my first cell phone you know this is after PayPal IPL so your credit history is is not exactly well utilized as your credit is being assessed and so firm initially was this idea let's build a better score let's build something that's transparent let's that's inclusive that brings people into where they're being excluded and then it expanded from there where at this point we are embedded at the point-of-sale as a lender of record so when someone wants to buy a thing we will underwrite you tell you hey here's how much credit we can offer you will actually pay the merchant so we'll take the risk on you and finance your purchase and then we'll build you over time the cool thing about a firm sort of through this commitment to transparency we price everything in dollars as well as rates you know exactly how much you will pay all in so your principal your interest we stopped at that number so once you've paid us the amount we promised that you will you cannot pay us more which means we don't compound interest into the principal but more portly we don't charge fees of any kind including no late fees and so as a result it's probably the most honest or transparent financial product out of the market and that was we did that five years ago and been growing very very quickly since serving the millions of users and billions of dollars lent keep expanding keep on adding new financial products so how do you measure success I mean in how many users do you have do you have to get accepted by various legacy systems like payment systems like merchants etc we measure success by number of users we have that that is the most important what is that try not to talk in precise numbers but it's in the single-digit millions at this point so I'll keep it at that the better measure I think is that number in juxtaposition with user satisfaction so you can have a lot of users but if they hate you you know get very far kind of you know places like the DB come to mind but our huge satisfaction scores have been extraordinary the Net Promoter Score for the company basically from inception and through today has been north of 80 yeah last week was 83 I think and so that that's a pretty good sign that most of our users would gladly recommend a firm to their friends and we would I use it though max in other words how would I win what I want to use this and try it if you're buying a peloton bike or a Castro mattress both great companies right here in New York City you would find us offered add the point of sale and the choice there is yours we can say hey I'm just gonna buy it with my debit card because I have the cash and I don't need any help or you might use your credit card especially if you're sort of hunting for points and you want to double down on those but if you're younger or an immigrant or don't like credit cards whatever whatever sort of a stripe of society or you come from there plenty of people that turns out that say I just want a payment plan that tells me exactly how much money I'm gonna owe and what I'm gonna be done and I don't want a card or an account or anything to chase me down later and make me spend more money or charge me peas I didn't expect so that's what a firm will do for you about a third of our transactions and more than a third of our merchants offer what's called a zero percent loan so one of the things that you can you can take this into the bank as they say in our industry if somebody's offering you a zero percent rate it is not as you represent rings yeah right was there catch in other words yeah the catch is always there it's always in a fine print there's always the pay your loan down during the promotional period and if you don't there's $29.99 rates but the trick typically is it compounds from time of purchase all the way back it's called a deferred interest with full recapture it's the nastiest thing in the world should have been banned it's been attempted to get banned but you know something somehow the industry manages to weasel its way back into allowing it in some form and so one of things that we set out to do from the very beginning was let's build a true zero percentage but then what's your catch we don't have one so these percent that you would see at a firm is the only true zero percent that means that for example if you buy a pallet on bike people see a zero percent loan how do you make money then we have the merchant P down the interest so what's really going on is the merchant is transferring some of their margin to the consumer okay so it's an entirely honest transaction what it does do though it allows the merchant to preserve their pricing integrity they're not discounting they're helping you pay for your bike or your mattress or your whatever is you're buying overtime without ever having to say the price is not really the true price but there is no catch there's no late fee there's no flip to the different rates and god forbid there's no deferred interest and are you wearing a firm t-shirt by the way always were in a firm t-shirt Wow okay that's looking pretty good San Francisco yeah we now have offices in New York and Pittsburgh as well as San Francisco so I rotate through my logo and look how nicely done okay and you mentioned that you came to this country as an immigrant from the Ukraine right and and it's shaped your thinking obviously when it comes to this company because you were talking about trying to get credit and that being difficult how else did it affect your thinking you went to the University of Illinois there being a kid from another country you know it's the sort of thing that's really hard to self-examine so any form of well here's what I did to the little max it's probably a little Cesar exaggerated but I think I'm I'm fairly well known for my outspoken this in favor of certainly serve certain types of immigration because I think what it does to you as an immigrant is the sense of unlimited opportunity that just hits you in the face and you go from hey I just escaped something that was constraining my ability to be the best I can be to complete lack of limits and so I had a an extremely inspiring teenage years in early 20s I was surrounded by people that built the modern Internet so I was at the U of I as you mentioned on campus in 93 when mosaic launched so do you overlap with Marc Andreessen where were a couple years overlapping all of us kind of in the computer science department worked at some time or another the National Center for supercomputing applications where mosaic was developed and the web server was developed so all the kind of the things that we take for granted today weren't around 25 years ago and they were built by the hands of people that were in my school kind of I had a front-row seat to how the future would look like and so I entered school thinking PGG in computer science teach be a professor I come from a long line of advanced degrees and certainly my family expected me to do just that and by the time I was wrapping up junior year like one I'm gonna hopefully I'm gonna graduate because I know my parents are gonna murder me if I don't but the second I'm done with that I'm gonna just start companies and try things and so in that sense I think having an immigrant background gives you a little bit of a leg up because you're not afraid of anything we came to the US with 600 ollars to a family of five and the expectation was go figure it out what do you think about President Trump's policies on the immigration then I think that policies on skilled immigration and treatment of foreign students I don't know if that policy actually been enacted they've been talked about a lot but I have a very strong view on what I think is right I think we should staple some form of work permit and maybe a permanent visa to every advanced degree that we give here because what is the point of educating people in fantastic schools from faraway places if they're going to go back to their faraway place and better their country as opposed to the one that gave them education so I think that's a very very clear place where I have a strong point of view I don't doubt that immigration is extraordinary complex issue and would certainly from my faraway vantage point it looks like people like to bundle skilled immigration and various forms of refugee and crises at border of various kinds and I get it that I will never get it that's why I'm not in politics right right but in terms of putting up impediments for skilled students I mean happened them they're going to go back anyway because they want to but to actually force people to go back doesn't see me seem to make sense yeah I think that that's just extremely extremely short are missed right let's talk about PayPal because it really was kind of a moment in time in the history of Silicon Valley such as it is and it's become sort of legendary as I mentioned there's this PayPal mafia and I want to know you know what is it about that time and that story that resonates to this day you know again if you're in the soup it's hard to tell how the cooking is being done but I think it was just an extraordinary time extraordinary group of people I was very lucky to be to be at the the founding of that the I remember the exact date but shortly after we incorporated Yahoo's stock price apropos the the chair in which we said now went down something like by 90 percent so there the crash of the the early internet crash the world was rioting internet business is off we were sort of looking at ourselves in a mirror going I did we take the worst time in history to start a company having to do with the Internet and so it was a lot of we're coming in from an extreme low before we shipped a product before we did anything and so that was kind of an interesting background noise that shaped us we were all super young and so was everyone around us but in terms of people who are starting companies in Silicon Valley at that time and always really it's sort of the domain of people have nothing to lose young or old but just people that are willing to go headfirst into a pool with no water but we uh we were surrounded by people telling us this will never work I remember going to see someone about understanding risk and credit card space and this woman asked me something along the lines of you know do you have this in place you know what's your your customer procedures and I generally held the line though I was faking it to the enth degree then at the end she says let me know so what's your chargeback management process and something in my face betrayed the fact that I'm like what are you talking about oh my god you don't know what a chargeback is oh honey you're done yeah I do they're going I must be so so I think that the fact that we're so unprepared and the early success has just emboldened us to serve you know we couldn't do wrong we we had to keep on trying and there are plenty of bombs plenty of things that we are absolutely doing very bad things we almost went out of business in numerous times but the people that's what came together we're ultimately really good and who were some of those people who is the PayPal mafia then I'd say you know at this point I think by mutual agreement there's about a hundred twenty-five co-founders okay but so obviously Peter and I started the company up until very early on Reed Hoffman was our first board member and then eventually an executive vice president so he sort of did all the really kind of a super-advanced BD type role and strategy people who've heard of in other contexts people like Steve Chen and Chad Hurley and Java creme so eventually cofounders of YouTube of course Russell Simmons not the rapper but a slightly less snow and co-founder of Yelp and Jeremy Stoppelman better known co-founder of Yelp were both in my organization on the technology side at PayPal started Yelp together a few years later ken Howry Luke no sick all these guys eventually wind up in founders fund Elon Musk obviously the merger between PayPal and XCOM gave birth what PayPal really became it's a long list it's an amazing group and one of my favorite things in my last job max was commissioning that photograph okay I think you had a little bit to do with the pointage of them off exactly where we got all of you guys to dress up a la The Sopranos yep and took that picture of you guys and you guys were so awesome to cooperate and the photograph is just to my mind epic it is an epic photo although number of times it reappears in the press at this point is sort of borderline embarrassing right but it was a figure we were holed up in a real-life Italian eatery in North Beach which is a historically Italian neighborhood in San Francisco and it was not air-conditioned so the the giant globules of sweat on all of our faces every L right just yeah really really well that adds to it I don't know if that was intentional at the time Reid looked like he was not enjoying really really looked I that was pretty classic so as PayPal went forward you know it became part of eBay and then it came out and now it's attached with venmo and so how has that evolution of payments proceeded does it make sense to you and is there still room I mean you're actually you're of course you're part of that world again today where does that all stand so I think the thing that is worth knowing or keeping in mind about payments credit lending banking it's either the largest - a second largest market in the world there's there's energy without which we're all kind of you know I'm not gonna have cameras to film us but other than that payments is gargantuan there's no US credit card outstanding balances right now are about trillion dollars just give you a sense for it that's just us it's not even in the world so and then volumes of payments going through the world and now the internet are in many trailers so there's always room and every niche every little thing you find in payments we kind of go wow let that little thing is broken it could really use some fixing is inevitably measured in hundreds of millions of dollars like the little stuff is hundreds of millions the bigger opportunities of bigger sort of ideas to revolutionize things are always they quickly become trillions and so I'm personally always very bullish on any payments Financial Services idea because the market is so massive because the infrastructure is so old one of the interesting things is actually kind of a neat observation which I don't hear a lot about but is absolutely true the first industry to really embrace computing after so the war machine was finance so if you look at people like Amex and people like Citibank like these really giant of a financial industry you in the 70s they were stocking up an IBM system/360 s and asked for hundreds and you know all these sort of classic big iron biggish iron computing and that's where they still have they haven't really upgraded and so in many ways what was the early adopter advantage now became shackles that hold some of the largest infrastructure players we have down because they really don't have the ability to say in a way where they're all let's build it from scratch or modern technology with better systems and so that's why disruption has been so plentiful in in the space and so yeah I think the development of you know p2p e-payments venmo is actually exactly how PayPal started twenty years ago now and there's plenty of other entrants and they're all growing at some ridiculous pace you know it's not very stripes yeah they're all these players that when stripe launched it was basically like PayPal - the business model because PayPal arbitrage card payments against bank payments scribe said the car payment is enough and everybody myself included said how you gonna make any money like the margin is this then and you know it's okay Tennessee or later years later it's uh I don't know whatever it is now thirty billion dollar company twenty five billion so all these companies can succeed because the marketplace if I mean no no guarantees but there's room for a lot of them it's just there's a lot of things that can be done better the opportunities are plentiful the market is enormous financial services is generally a market that naturally goes to multiple winners there very very few national monopolies because the markets are internationally speaking for sure Orkut so large and very diverse what's very successful here could not work somewhere else so you have to be willing to reinvent yourself or let someone else take the market I think the most interesting ideas also emerge when generational divides take place so Oh 8 was this watershed moment where whole generation watched their parents get cleaned or fleeced or whatever you think they did and so a whole bunch of young people said whatever it is my parents I'm not doing that mortgages that sounds terrifying I'm not gonna use credit cards that's a bad idea I'm gonna borrow no money and use debit cards that's really great until you've need by our first car you need to put a deposit in department so borrowing has to be reinvented maybe the origin of a firm is as much in this idea of let's go clean up borrowing as it is in answering the question how will young people buy our money if they are so actively saying I don't want a credit card right so that that that's where but these opportunities are everywhere I want to ask you about another group of tech companies one of the other companies that you founded was slide which was sold to Google and then you ended up working at Google for a while I want to ask you about those big platform companies like Google like Facebook and there are a lot of issues these companies are facing right now sort of for myriads facets and myriad size and I'm wondering if you've given thought to how they can rectify their problems should they be regulated should they be broken up what is your thinking on that those are hard questions to answer I think the general the relative measures of too powerful not powerful enough are always very hard to maybe they're certainly extremely powerful in the absolute sense yes Facebook probably knows far more about me than I think I know about me and that I think anybody should know about me really because they're an amalgamation of all my friends knowledge of me and even more so true of Google Facebook at least there's some amount of sharing that I do proactively Google like I met during my time at Google I met an executive who likened Google search box to an ear where's the world's giantest ear and billions of people come in and whisper in - it's here you know amazing things like where do I buy an engagement ring and also do I have cancer and will I die and it's a massive responsibility to hang on to that data and mine it for signal and figure out how to give the right answers and the responsibility that's implicit in what do you show someone that say do I have cancer you may push them to a decision that if you knew what they were gonna do next you would regret and so in that sense I think the responsibility on these companies is enormous and I'm not sure there's one thing they can do or anybody outside of them can do to say well here's how you fix the problem at that scale any company of any industry you're playing with human condition more than you're playing with balance sheet so my guess is the first thing they need to do is probably recognize internally sort of take very very seriously that what they're playing with is a lot more than their profit and loss and features and I think that's a weighty weighty set of responsibilities my guess is they're gonna end up facing a lot of regulatory scrutiny because our lawmakers and and others are pretty good at dealing with a human condition and thinking in terms of the human condition while tech companies are actually much better thinking in terms of growth and features and kind of detaching themselves a little bit from what people really really experience when the user products actually not to shift to a firm suddenly but one of the that I did very early on influenced by this experience of being inside the belly at one of the largest companies that Silicon Valley are produced I try to write down our core values which I'd never done before so this whole notion of core values and what do we stand for you know at PayPal if I'd said that I probably would have been sort of chuckled at because we're all super young and we just wanted to grow it to build a great company and the morality of it all was something that we cared about but as a side effect to look to go build a great business with a formost kind of backwards or the other way around where I said I'm gonna write down our core values I'm not gonna write a line of code until I know what it's for and we sort of played with this in that and with my co-founders and a bunch of early people and ultimately wrote down five things but the first one of these is people come first mm-hmm and I think you have to decide that you feel that before you start writing code and that's probably what's gonna have to happen to a lot of these large platforms that have not necessarily been living new people come first value or their version of the same idea but don't we're live in extremely interesting times I think the fact that these companies wield an extraordinary out of power is is starting to really reveal itself in big ways you mentioned law makers you were on the board of the CFPB and Mick Mulvaney disband that what was your never been fired until until that time what was your take I really enjoyed that process it was the firing part yeah the firing part was uneventful I called into a conference line and they said hey the board's been disbanded thank you for a service yeah know what I know it feels like it was my box you know I need my but it was an unpaid position so there was no no boxer service but the process of hearing from stakeholders from everywhere like really really everywhere it was amazing so and I live in my own little insular Silicon Valley world they're people that I think are doing a really great job sticking to their moral principles and doing the right thing and people I think are probably walking the gray line and people I think really should not be building products that they're building and you know I don't make any secrets of who they are since I'm willing to put my opinion out there in public but it's very different when you sit down around a table with people that represent or advocate for people from truly impoverished communities people that are unable to make their mortgage payments and are facing repossession of whatever property that they have people that are fighting with some local agency that was supposed to stand behind a mortgage and there's now bankrupt and all the sort of like the reality of life in places that are not like Silicon Valley where we all get paid sick digit salaries or higher and these problems don't really come up and detail a conversation was a sort of an amazing window into how this country really works and so if you didn't have this sense of you know people come first you walked out of there every time feeling like wow like the world is a complicated place and not everybody lives in San Francisco in New York City what do you think about people like Alexandria acasio Cortez who are looking to address wealth and income inequality by for instance raising taxes on rich people I think in general what has struck me as amusing and to some extent tragic is that there's not a whole lot of people that are pounding the table for some form of socialism that lived in a socialist setting having grown up tour spending my first 16 years in a socialist country from personal experience the redistribution does not work because people doing the redistribution somehow always get a lot more and that you know that's almost too trite of a characterization but I'm not a fan of significant march into significant redistribution because I've seen how it fails and it works for a while because you're excited or that you know people are were excited right after the Soviet revolution in the teens of last century but fast forward to the 50s and the place was going downhill fast and by the 90s there were tanks on the streets because we couldn't couldn't contain the populace from tearing the country apart so I'm not a I'm not a fan I'm not a fan of the blunt let's just give the government all the power and all the money and then everything's gonna be okay having said that I think you know a lot of the folks in social democratic movement and various forms of serve a very progressive parties that or movements that we have in the US are kind of speaking to the same thing that I observed at this apv board the increment equality the desperate nature of life and a lot of these communities is very real so I don't think it's a my point isn't to ignore or to push it away just think the conversation could be more civilized and a little bit less flippant and I remain a big believer in conscious capitalism or more thoughtful capitalism as way of figuring out how to contribute to elevation of people who have been left behind or who are being left behind me not having short term goals I mean just having broader goals than this quarters Pinel for instance for companies for sure yeah I think so as an engineer any of them to go back full circle I write code writing code is all about testing and iterating and I think one of the things that we do a lot of is debate and not enough of his experiment the most exciting news I've ever heard whether I believe in it or not on the addressing poverty is the fact that there's a bunch of places in the US now try universal basic income I've no idea a few bi is a solution or not in fact there have been some reasons to believe that it's not but we want to know if it works here or not until we try it right so just having you know let's ship a bunch of features that try to make the world a better place for folks that have been left behind observe it for whatever number of years months quarters that it takes and then iterate on it and I think to me the two big areas are figuring out how to train people to prepare them for the next iteration of what the workforce will require I'm a big believer that jobs are not disappearing but they're being replaced and I think that's something very important and for younger version of our future workforce just investing very heavily into education a special education of people that without some form of help will end up on the disadvantaged side of society I think that's really really important and my my hope is that instead of spending too many cycles debating what is the perfect solution in creating what looks like partisan gridlock just iterating on good ideas that you know there's no shortage of papers and academics and sociologists and economists that all have a really really strong view usually backed up by good data that we then don't even bother testing we just sort of go right into debate of why it couldn't work so try more talk less okay on that note we're gonna wrap things up Max Levchin CEO of a firm thanks so much for joining us today thank you I'm Andy serwer you've been watching influencers we'll see you next time you [Music]

Channel: Yahoo Finance

Views: 98,831

Rating: 4.852663 out of 5

Keywords: Yahoo Finance, Personal Finance, Money, Investing, Business, Savings, Investment, Stocks, Bonds, FX, Currencies, NYSE, Equities, News, Politics, Market, Markets, Market Movers, Midday Movers, The Final Round, Max Levchin, Paypal, Affirm, Google, immigration, how to build a tech startup

Id: sqWJsSoWJ5w

Length: 31min 47sec (1907 seconds)

Published: Thu Sep 05 2019