By James Pethokoukis and Jimmy Soni

The story of PayPal’s rise is
perhaps the quintessential tale of Silicon Valley tech entrepreneurship in the
early internet age. Its alumni went on to found companies like SpaceX, YouTube,
and LinkedIn. And the company not only survived the internet bubble crash, it’s
still thriving as a Fortune 500 company two decades later. So to find out more
about the PayPal story, I’ve brought on Jimmy Soni.

Jimmy is an
award-winning author of three books. His first two, co-authored with Rob
Goodman, are Rome’s Last
Citizen,
a biography of Cato the Younger, and A Mind at Play, a biography of Claude Shannon.
His latest is The Founders:
The Story of PayPal and the Entrepreneurs Who Shaped Silicon Valley, released earlier this year.

Below is an abbreviated transcript
of our conversation. You can read our full discussion here.
You can also subscribe to my podcast on Apple Podcasts or Stitcher, or download the podcast on Ricochet.

Who are some of the names that you found particularly
interesting that maybe are less well known to the general public?

I
kicked the story off with Max Levchin, who was one of the co-founders of
PayPal. Today, he’s the CEO of a company called Affirm and he has this
entrepreneurial bug. People have asked him to try to pin down, why do you do
what you do? Why do you build multi-billion-dollar companies? He is like, “That’s
what I do. It’s actually just how I want to spend my time and energy doing this
specific thing.”

I
really took a shine to his story. He has a classic immigrant story. He arrives
when he’s in high school, arrives in Illinois, just outside of Chicago and ends
up at the University of Illinois. I kick the story off with Max because it’s
really Max’s work in mobile cryptography that starts the butterfly effect that
leads to PayPal.

So
I wanted people to know him. I think of him as this engineer’s engineer. And in
a way, I don’t know that he wanted that; he actually was really surprised
because he was like, “Wow, that’s a lot of me. I didn’t expect that.”
But I think that he’s probably one of the figures that’s not as well known but
that’s super consequential. And the way he worked really inspired this team of
engineers, even as they went on to do other things.

You’ve called PayPal a finishing school. What were the
skills imparted by that finishing school?

I
heard so many different stories and so many different little recollections of
lessons learned, or moments that stood out to people. I interviewed this person
and one of the things that she said was, “What I credit PayPal with is I
was in the room with people who were maybe a few paces ahead of me
professionally but were willing to take time to walk me through the finer points
of personal money management.”

I
think for this particular group, part of this finishing school here is the
actual nitty-gritty on how a series of pixels on the internet comes to be
valued for $1.5 billion. What the [YouTube] people did that was a byproduct of
their PayPal experience is they got the MySpace users to complain to MySpace
when they shut the YouTube product down. So, they turned the users against the
service.

The
last thing I would say is the finishing school had this odd quality. Some
people probably got what you might call fabulously wealthy. But many of them
walked away with enough success so there was a tiny bit of security, but they
by virtue of need had to keep doing other things in the world. They hit this
interesting sweet spot, right in the middle, where there was this real powerful
sense that you can be successful, but that your last outing maybe wasn’t quite
this massive thing that you would hope for.

There were a lot of companies founded in the late ’90s,
and only a fraction made it to the other side of the internet stock
bubble. Why is PayPal still around?

It’s
one of the key questions that I explored because PayPal properly understood is
basically created right at the tail end of the dotcom boom, but it really
starts to flourish in the middle of the dotcom bust. A couple key reasons for
their survival. One was timing. They closed a nine-figure, hundred-million-dollar
round of fundraising in March of 2000. Just weeks after that round closes is
when the NASDAQ really starts its slide.

The
second big thing is this was a team of exceptional problem solvers and many of
the biggest problems that they faced from the cost side, things like fraud etc.,
they were able to solve their way out of or invent their way out of. The third
thing is the product took off and they goosed the growth as much as they could.
Part of what they came to understand about payment networks is scale actually
matters a great deal.

The
last thing I would say is, they managed to make the business work. What they
had to do was actually figure out, how do you take something that’s completely
free, where we’re actually giving you bonus money to join, and turn it into
something that’s a revenue-generating product? That is the work of dozens of
people pressure testing ideas, putting things out into the world and slowly
taking a massive user base and transitioning them to a paid product.

Is there a particular story that you love, that reviewers
often don’t mention in their reviews?

There’s
a young intern whose name is Robert Frezza, Bob Frezza. And Bob was an
exceptional mind and was hired at the company for a summer internship. The
tragedy of his story is that he passes away while he’s working at PayPal. He
was a college student at Stanford and he is responsible for some of the
signature products that help the company fight fraud. A professor of his at
Stanford said to me, “If Bob were alive today, we would probably be talking
about him the way that we talk about Steve Jobs today.” Somebody who was
basically there to do a summer’s worth of work, ends up creating signature
products that make the company successful, earning equity along the way. At a
place like PayPal at that time, there was a real embrace for ideas, no matter
where you were in the organizational hierarchy. It wasn’t just one story like
this. I heard a lot, but I thought his story was particularly emblematic.

What did you learn about how innovation happens and how to
build innovation ecosystems?

There
is this tendency to think of the term “innovation” in an abstract way. But what
I discovered in diving into the layers of the PayPal story, in this context at
least, was about solving problems for real people. There’s this great quote in
the middle of the book when Elon’s asked about innovation, and he says,
“It’s a process of recursive self-improvement and you always have to ask
yourself the question, ‘Am I adding value for other people?’ Because that is
what a company is supposed to do.”

The
second is, this was a very hard period with a lot of disagreement. I think of
that as something we tend to paper over in these discussions about innovation: both
the level of difficulty, but also the level of, call it “righteousness,” that
people feel. We want our innovators to both create great things and be really,
really, really nice people. You are going to have some amount of organizational
discord in a place that is trying to go against odds and go against opponents
and all of that.

The third interesting thing to me is we have maybe a cast of mind about the kind of person that does technological innovation. Let’s call them young nerds, who may or may not be college dropouts. I think we need to retire that archetype. I think we need to have probably a slightly wider aperture of storytelling. I think that’s a narrative we need to start to move away from, because it also becomes limiting. There’s a way in which it actually holds us back and I think we need to dispense with it.

James Pethokoukis is the Dewitt Wallace Fellow at the American Enterprise Institute, where he writes and edits the AEIdeas blog and hosts a weekly podcast, “Political Economy with James Pethokoukis.” Jimmy Soni is the award-winning author of The Founders: The Story of PayPal and the Entrepreneurs Who Shaped Silicon Valley.

The post 5 Questions for Jimmy Soni on the History of PayPal appeared first on American Enterprise Institute – AEI.