December 2, 2015 – Max Levchin is a serial entrepreneur with a long list of credits to his name, including being co-founder of PayPal, chairman of Yelp, board member of Yahoo, and is currently involved in two exciting companies, Affirm, where he serves as CEO, and Glow, where he serves as chairman.
In this podcast, Max talks about hiring the right people, on true passion for an area of business, on the difficulty of building a network effects businesses, and the happiest day of an entrepreneur’s life.
The full transcript is below.
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Max on the difference between the capacity to learn about a type of business and true passion for it:
[C]apacity to learn … doesn’t quite substitute, as it turns out, for passion. Passion to learn isn’t enough to drive someone to run a company for five years with the same degree of intensity as you get when you’re just excited to learn something new. … And that was to me ultimately the learning. You have to work on systems problems products that in times of difficulty, the passion for the subject, the passion for the problem you’re trying to solve, carries you through the difficult times.
Max on network-effects businesses:
I think the honest truth to that is most of it happens by accident. It’s easy to analyze them retrospectively but kickstarting a network effect is very hard. And to start building something and hope it has a network effect: you can design for network effects, you can analyze for network effects, but it’s fairly rare that you can say, “I’m going to go start a business. It’s going to have a network effect,” and you also have a very clear understanding of how to get there. … And also — this is probably oversimplifying it significantly — but there’s lots of things that go wrong along the way. Typically you know you have a network-effects business when you have a networks-effects business.
Max on the joy of being a serial entrepreneur:
The happiest day of an entrepreneur’s life — and fortunately this is something that as a serial entrepreneur I got to repeat over and over again — is when you walk into a completely empty office that you just rented and this is where the magic is going to start happening. And there’s nothing there. It’s completely empty: typically wires sticking out of walls and the Internet isn’t turned on yet and you’re crosslegged on the floor with a laptop open and desperately trying to get online. That is the most cherished moment in every one of the companies that I’ve ever started. And any chance I get, I relive that.
Max on measuring the legacy of an entrepreneur:
I ask the question, “How many users do I have?”, which is a shorthand for how many people depend on me to offer or to provide something meaningfully good in their lives, something that improves their well-being, something that helps them, something that gives them a chance to lead a higher quality of life. And so, if one day I need to tally up how well have I done as an entrepreneur, I could see somewhere in the neighborhood of a couple of billion people that are happier or at least slightly better off, maybe have slightly better experience with their personal finance because of the products that I started. I think that’s a good metric.
Navin: Hi! Welcome back to Chat with Champions. My guest today is Max Levchin, a serial entrepreneur and founder of Mayfield alumni company Slide, which was acquired by Google. Max has a long list of credits to his name, including being co-founder of PayPal, chairman of Yelp, board member of Yahoo, and is currently involved in two exciting companies, Affirm, where he serves as CEO, and Glow, where he serves as chairman. Max, welcome to the podcast.
Max: Thank you.
Navin: So Max, let’s start with the story of your journey to today. I’m sure all our listeners would love to hear the varied experiences you have had over your career.
Max: I was born in Kiev, Ukraine, which at the time was part of the Soviet Union. Two weeks after we left as refugees and headed for America, the Soviet Union collapsed and I was stuck with a passport to a country that didn’t exist for the next decade. But I went up to Chicago and went to high school there, then went to University of Illinois at Urbana-Champaign, which was an exceptional stroke of luck because this was ’97 and Mosaic, which later became known as Netscape, the first graphical browser, was developed on campus by this guy named Mark Andreessen and so I got basically through sheer luck, the front row seat to watch the web develop from a far less user friendly Internet, just in the very very first days. So I got the entrepreneurship bug right there on campus. I watched Netscape founded right there and all the sort of really smart kids around me would pick up and move to Palo Alto, California. My family told me that if I didn’t finish college they would disown me so I begrudgingly did but managed to start and fail at a few companies while I was still at Champaign. And pretty much right after graduation, figured out a way to finally pack my belongings and drive them across America to Palo Alto, California where I promptly started another company. And that company was called Confinity, but fairly quickly thereafter it was changed to PayPal. That was my first kind of a real hint of success and I was Chief Technology Officer.
Co-founded it with this guy Peter Thiel who’s pretty famous these days and we grew from absolutely nothing to an IPO in 2002 and then in 2003, eBay acquired us and we became a part of that company. I figured out that being a senior executive at a company I didn’t start was really not my thing so I left fairly soon thereafter. I started a company called Slide and helped start another company called Yelp and wound up Chairman of one and CEO of the other. Mayfield was my primary backer to Slide and that was an interesting journey. Slide was media and entertainment, which as I found out was really not my strong suit but I managed to spend the next five years just bruting it out sometimes and sometimes truly enjoying it and ultimately didn’t, to be completely honest, get it to the scale that I thought I could really get, but Google came along and offered to acquire it for quite a bit of money.
And so I spent a year at Google, trying to help them with their social efforts. That was once again a reminder that as a senior executive in a very large company I didn’t start was really not what I was suited for. So after a year, I asked permission to leave and walked away essentially after a few attempts to find something interesting to do within a pretty fascinating place that is Google. I wanted to do something in at least one of the following categories: health care, finance, energy, food, water, and education — and pretty quickly got excited about building something in finance again. It was very strange because I swore I decided to not do this again after PayPal but turned out that I truly enjoyed it and almost four years later now, we have this thing called Affirm and it’s doing really well and I’m enjoying every day coming to work tremendously. Meanwhile, I did wind up with a little bit of a side project, which grew into a huge life of its own called Glow, which was an attempt to predict fertility windows for women that self-identified as infertile, using just data science or modeling and we got pretty far with that.
Built a company out of it and it now does essentially, if you’re following the idea of quantified self, think of it as quantified reproductive system. We’re now onto quantified pregnancy. We have all kinds of plans for primarily women’s health. It’s really fascinating how little is invested in research, especially in women’s reproductive health. Although I’m not a woman, I can tell you I was pretty flabbergasted by the amount of opportunity, frankly, that existed in that space. I’ll stop there but that’s what I’m working on now. I spend most of my time running Affirm, trying to build it into a very big company and helping out the team of Glow.
Navin: That’s great! So you’ve been clearly involved in a lot of companies. You mentioned some work the way you wanted them to and some didn’t. So as you have built these companies, what’s been the importance of teams for you?
Max: It ‘s basically, in the final analysis, the only thing that matters. Teams ultimately — and not just the individual qualities and skill sets of the people — but the way they mesh together, the interactions between players, the mosaic that you create by hiring people and sort of putting them together, that’s really what determines success and failure at every company that I’ve been involved with and I think that’s probably true for any company out there. It’s really hard to build a great company with a team that has really glaring weaknesses or has poor interpersonal skills between people or conflicts or lack of respect — all those sort of pieces that conventional wisdom tells you that success and growth and just being at a hot startup paves over a lot of problems. That’s true for a while but as soon as the first sort of stumbling moment occurs, that’s when you need to lean on your team and you find out whether it’s going to work great or it won’t.
Navin: So I think I completely agree with you. My strong belief is people make products, products don’t make people, so it’s extremely important to build an intuiting company to have the right people on the bus. So given your long history of entrepreneurship, what would you say should someone look for in the people they hire? Are there any characteristics that come to mind when you hire people?
Max: I think it’s fairly specific to the person trying to build the team. So in my case, I’ve found that one of the most important things right after establishing a person’s qualifications, a person obviously needs to be really smart. They have to be really expert in their own field. They have to show the capacity to learn very quickly, show the willingness to change their mind, show a willingness to just become a bigger, better expert in what they think they’re already excellent in. All those things, if they’re not someone you would personally connect at a personal level, someone who’s company you don’t enjoy — the relationships are brittle because in the moment where everything’s general okay and people are feeling good about the company, you can respect someone for their skill sets and you don’t really have to like them. As soon as the tensions go up a lot and you’re running into a brick wall, you’re running out of money, your product isn’t growing, the despair sets in, you have to fire someone, any form of conflict within a team, that’s when the pressure on interpersonal communications and relationships between different team players really goes up high. And so having someone next to you, where you can ultimately feel a sense of camaraderie even in tough times, to me is really important. That doesn’t mean you need to be best friends. In fact, one of the fallacies that I personally fell into in the past and have seen other companies ultimately really suffer for, is if you compromise merit, attention to skill set quality, intelligence, willingness to learn, capacity to learn. If you trade those out for just people you really really like, people that you truly enjoy hanging out with, that is just as risky.
In one of my companies, I felt that I assembled one of the most cohesive management teams. People really liked one another. They were best friends. We spent a lot of time together outside of work, very socially – just a warm, happy place to go. And in that team, there were a couple of people that we all sort of knew were not as skilled as the roles that they occupied demanded but it was okay because they were so nice, everyone was willing to pull for them. Everyone would say, you know what, that person’s not quite qualified but they’re so good and we’re just such good friends. It’s going to be all right. We’re just going to step up and carry their load. And that works fine when times aren’t tough, but when it’s really really all hands on deck and everyone’s going 150% in their own area they have to put out, that one person who isn’t ready to carry their own load, there’s no spare capacity. No one is there to back them up. No one’s there to do their work for them.
Navin: I’m pretty sure a lot of people will relate to that. So things don’t work out always the way entrepreneurs want, right? And you mentioned you have had your own fair successes, you have had a few things that didn’t work out the way you wanted. Can you share a learning from a difficult experience that shaped your journey?
Max: The list is long. There’s more than one learning. My guess is that I probably learned a lot more from my failures than from my successes. The most difficult, I would say, and Slide is very hard to classify because from different perspectives, it either looks like a success or it looks like a failure. I always think of it as not nearly as good as I wanted it to be so I tend to chalk it into the failure side of the board. Reality is, a fair number of people made a fair amount of money. It was generally perceived as somewhat of a success by some number of people so it’s hard to completely write it off but I was certainly gearing up for something to trump PayPal, something to really show them that my sophomore act is going to be as good as the freshman one. And it didn’t happen and it was fairly hard for me to internalize that and, of course, it sounds like it was a surprise when it didn’t happen. So for a year or two, as I witnessed momentum sputter out, I was navigating my own demons for quite some time. The learning that I got out of that company was in retrospect, of course, was extremely obvious but at the time, I think was very hard for me to swallow. So part of why Slide was the thing I was so excited to try, it was vastly different than PayPal. And so my first grand success, my foray into fintech where I knew nothing about it, worked out great. And I perhaps mistakenly assumed that my capacity to learn — and I’m a huge fan of learning; show me something I don’t know and I want to know more about it. It doesn’t quite substitute, as it turns out, for passion.
Passion to learn isn’t enough to drive someone to run a company for five years with the same degree of intensity as you get when you’re just excited to learn something new. And even though I never played video games, I was never that huge of a fan of popular culture. I was the typical nerd. I watched a lot of Japanese animation and played some puzzle games but I was never deeply driven by the sort of stuff that made Zynga a successful games company. So when Slide was building games on Facebook, I never had these moments of sputtering in my stomach or chest or whatever the right euphemism is for. I was never over-the-top excited about the products we were making.
And that was to me ultimately the learning. You have to work on systems problems products that in times of difficulty, the passion for the subject, the passion for the problem you’re trying to solve, carries you through the difficult times. And it turns out, especially now with Affirm, even though banal as it may sound, I have this somehow built in and/or wired passion for financial services. And it sounds extremely boring and pedestrian compared to video games to a lot of people, I imagine, but the day I stopped working on Slide was the day I turned off all my game consoles and donated all the games that I bought when I was doing research to become a better CEO for Slide and I was delighted to pull out my old manuals from the National Automated Clearing House Association, which is the way you transfer money between bank accounts and I was re-reading the old Xerox copies of various credit card regulations. And this kind of stuff, you don’t wish it upon someone else except when you love it and I really enjoy understanding how money moves around the world and I really enjoy working on it. And that’s why Affirm is such a perfect fit for me and why Slide, frankly, was the learning. Don’t work on things you’re not going to ultimately be in love with.
Navin: So given that you’ve been involved, right, in different kinds of businesses, one of the key things people talk about today is building network-effect businesses. So have you had any learnings along the way on how does one build a network-effect business or does it happen by accident?
Max: I think the honest truth to that is most of it happens by accident. It’s easy to analyze them retrospectively but kickstarting a network effect is very hard. And to start building something and hope it has a network effect: you can design for network effects, you can analyze for network effects, but it’s fairly rare that you can say, “I’m going to go start a business. It’s going to have a network effect,” and you also have a very clear understanding of how to get there. It’s a little bit like, in math, there’s the notion of proof by induction. There’s a strong proof by induction, in particular, proof by strong induction, which is you prove some number of base cases, n equals zero, n equals one, n equals two, and then you prove that given n, n plus one is also true. And network effects are a little bit like that. Once you have a network, you can pretty easily show that one or more person jumping onto the universal addressable Internet protocol system or the phone network, the subject of recent debate actually whether Uber has a network effect — I think it does — but you have all these fairly obvious n plus one is certainly a strong network effect given n. To get to that n though in the case of startups, you basically have to go through proof by existence of many, many, many base cases, and the cost of getting those n equals zero, n equals one, n equals two, etc., can be prohibitive. And also — this is probably oversimplifying it significantly — but there’s lots of things that go wrong along the way. Typically you know you have a network-effects business when you have a networks-effects business. Having said that, it’s fairly easy to isolate cases where you’ll just never have network effects and specifically, if you’re specifically looking for network-effect businesses you could probably spare yourself some work if you analyze your idea and see that it doesn’t have any.
Navin: So one of the beliefs I have, having been involved with a lot of companies is, founders need to have a strong vision and mission so let’s pick, right, Affirm, a company you are running right now. What’s the strong vision and mission behind it?
Max: Sure! I completely agree with your view. I think it’s very similar to what I said: sort of passion for your vision. Belief that what you’re doing is not just right and hopefully valuable, but also just very important is what sustains you during really difficult times. So Affirm actually came out of a whole bunch of different observations and thoughts, distilled into this notion that consumer banking and consumer lending, especially as expressed by credit cards, just hasn’t changed in a very long time. And within it, lies this really almost insidious truth that credit card issuers or lenders really writ large make the most money when their customers behave in the way that is not actually good for their customers. In fact, their incentives are exactly misaligned with yours. If you miss your payment, they pocket a fee and that fee goes to them and that fee is 100% margin revenue. So a huge amount of profitability for issuers of credit to regular Americans comes from essentially encouraging them to behave badly or behave irresponsibly. And I think in the world of sort of mid to late last century, 20th century, you could get away with it because transparency just wasn’t that easily available. Today in the world of social media and Twitter and Facebook and being able to, in a 140 character sense, explain what happened to you and why you feel wronged, that kind of stuff will not stand. I think there’s an enormous opportunity and a social mission and just a necessity to shine the lights on all of this; make it as transparent and as honest as possible. And I think there’s no choice for any of these banks over time, but startups like Affirm can really push the issue forward and do the right thing by expressing exactly what they charge, how they charge, what the system looks like, and just revealing every little detail of it to the consumer. And so, that’s what we’ve been working on — with this notion of just fixing lending from the ground up — has been driving us for the last three or four years. It’s been pretty great!
Navin: That’s awesome! So Max, a very personal question for you now. You’ve been a serial entrepreneur like you’ve built companies. What drives you to do this again and again?
Max: I’m probably the happiest I’ve ever been right now as an entrepreneur. I had a brief aborted attempt to do a company in high school and it was very weird and I had constant fear of misunderstanding what’s going on and getting screwed. And then in college, I tried and tried and I failed. I was pretty happy because I had nothing to lose and it was really fun and I had a lot of really great friends around me doing this. And on and on and PayPal was extremely intense and fraught with a lot of peril but it was ultimately very successful. And at Slide the reason I showed up to work was sometimes because the mission was just amazing and oftentimes really, because I got to work with some pretty brilliant people and other times, I felt a sense of responsibility. I had all these people reporting to me, or people that I promised to do the best I could: my investors, my reports, my managers. And so, there’s always something that gets you out of bed in the morning and just rushes you to the office. But with Affirm, especially, and with Glow, the sense of mission is really overwhelming. The happiest day of an entrepreneur’s life — and fortunately this is something that as a serial entrepreneur I got to repeat over and over again — is when you walk into a completely empty office that you just rented and this is where the magic is going to start happening. And there’s nothing there. It’s completely empty: typically wires sticking out of walls and the Internet isn’t turned on yet and you’re crosslegged on the floor with a laptop open and desperately trying to get online. That is the most cherished moment in every one of the companies that I’ve ever started. And any chance I get, I relive that. And right now, I’m absolutely loving … Affirm is somewhere between 75 and 100 people at this point, so certainly well past the point of wires sticking out of walls and it’ll probably take a decade to come to full fruition, what I really imagine for it. But after that, I’d bet I’m going to be in any empty room somewhere again with wires sticking out of the wall and I can’t wait for that.
Navin: I have one last question. You have built companies. You are building more companies. So as far as your legacy is concerned, what do you want to be known for?
Max: I don’t want to think about my legacy for at least a few more decades, so hopefully I don’t have to make that decision too soon, but my greatest fear is fear of waking up one morning and going, “Hey, I’m irrelevant.” I think to an entrepreneur, especially somebody who builds consumer products, one of the things that’s really the way I measure my relevance, frankly my success is, I ask the question, “How many users do I have?”, which is a shorthand for how many people depend on me to offer or to provide something meaningfully good in their lives, something that improves their well-being, something that helps them, something that gives them a chance to lead a higher quality of life. And so, if one day I need to tally up how well have I done as an entrepreneur, I could see somewhere in the neighborhood of a couple of billion people that are happier or at least slightly better off, maybe have slightly better experience with their personal finance because of the products that I started. I think that’s a good metric.
Navin: That’s awesome. Very, very inspiring. So thanks a lot for taking the time. Having known you, even I learned a lot from today’s conversation. So thanks again for taking the time, Max.
Max: No worries. Thank you.