Why the “PayPal Mafia” is Killing It

That’s the title of my Huffington Post editorial that ran today. In the wake of Yelp filing for an IPO a couple of weeks ago, I explore the issue of the amazing track record PayPal alumni have in starting companies:

Why are PayPal alumni so successful? Or, to consider the question a different way, what factors turned PayPal into an incubator for so much entrepreneurial talent? As PayPal’s first marketing director and now the founder of a startup called CapLinked, I’ve been privileged to see the entire process firsthand. The answer lies not just in PayPal’s hiring practices but also the unique circumstances and vision of the company’s founding.

I go on to identify four reasons why the experience of working at PayPal prepared the company’s alumni to become great entrepreneurs.

The editorial was based on a presentation I gave at Startup Weekend in Orange County a couple of weeks ago. Here’s the slide deck for those of you intimidated by a 900 word HuffPo essay. 😉

 

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PayPal Mafia Confidential: Damon Billian, Community Evangelist

It’s time for the return of my occasional series “PayPal Mafia Confidential.” As I noted in my first installment with Giacomo DiGrigoli, my objective is to interview some of the amazing people I had the good fortune to work alongside during my years at PayPal.

This interview is with Damon Billian, who served as PayPal’s first community manager during a time when the company faced serious customer service turmoil. In his online persona of “PayPal Damon,” he pioneered online evangelism and helped repair the company’s brand with his efforts. Damon graciously shares his thoughts on working at PayPal and how community management has changed over the past decade.

Eric: I had the pleasure of working with you at PayPal, where you were one of the public faces of the company as PayPal’s community manager. You took over that position back in 2000 at a point where viral growth was causing PayPal’s user base to grow faster than our customer service infrastructure. Describe what that situation was like, and what steps you took to address this crisis.

Damon: The situation was quite stressful to say the least. But it was also challenging in a good way. The company had some procedural issues—including the way we would limit or lock accounts suspected of fraud—that weren’t very customer friendly that had to be changed, so we constantly had to look at ways of improving the customer experience in order to keep the traction our product had established.

But growth was a challenge in and of itself. Even with many of our customer service reps answering several hundred emails per day, there was no way we could keep up with the onslaught with the small team we had. And hiring in Silicon Valley was very difficult during the boom years. Thank goodness the company was able to ramp up a large customer service center in Omaha, where the labor market allowed us to recruit all of the reps that we needed to keep up with our growth.

As battered as PayPal’s image was by its early customer service problems and fraud woes, it still proved to have a stronger brand than eBay’s Billpoint, our chief competitor. What factors do you think contributed to the company’s brand strength?

There are many factors you could point to, but from my personal perspective I would highlight the following:

  • We moved on our product faster to develop tools for the eBay market. I have to give [Chief Operating Officer] David Sacks a great deal of credit for this, largely because he was interested in customer feedback.
  • Our loyal customers did a great deal to defend us to the greater internet community. I saw this firsthand in the forums serving as the company’s community representative. I have to give a great deal of credit to some of the loyal PayPal customers I worked with. (A big shout out to Mike, Mike, Bob, Stephanie and Sandy. You guys know who you are!)
  • PayPal’s corporate culture was an asset. We all believed in what we were doing and the company org structure was relatively flat. If I felt like sending [CEO] Peter Thiel or David Sacks an email about an issue, they didn’t mind it and in fact encouraged it. The work structure was very conducive to doing what was best for the company.
  • The company hired strong people. Look at the explosion of companies that came from the PayPal Mafia. I honestly feel like a slacker because I haven’t created a company of my own. 😉

I’ve heard you say that Cluetrain Manifesto was an inspiration for the way you approached your job at PayPal. Looking back, describe what kind of legacy you think the book has had.

Yes, the book was an inspiration for some general guidelines about communicating on the internet. It definitely broke new ground in terms of highlighting the need for two-way communication between a company and its customers.

That being said, the book also neglected to address some of the negative things that can happen online, including some of the dangers that a community manager can encounter online when a company has hostile critics. During my many years online, I’ve had hate sites created against me as an individual (more than once while I was at PayPal) and even received death threats. I’ve had people illegally access my credit history illegally and post personal information about me online.

It’s been many years since I read the book, so I don’t know if any of these topics have been covered in subsequent editions.

In the years since PayPal, you’ve overseen community management at some very different companies, including startups for job search (Simply Hired) and personal finance (Mint.com). Are the challenges you’ve had to confront for those companies different from what you saw at PayPal? Or is community management similar across industries?

Job search is much more transient, which means folks don’t need to use it on daily basis, so it isn’t quite the same as a product like PayPal or Mint that might be used on a daily basis. You have many more specific user requests for additional features in any personal finance tool or e-payment product, so there’s a lot more input from customers about feature requests when it comes to these kinds of “sticky” products. My approach at all of the companies has been the same, though. You need a strong focus on engaging fans of the company while constantly looking for product feedback.

I think it’s safe to say that the art of community management has risen in prominence in recent years. For example, Bob Walsh dedicated a chapter in his book The Web Startup Success Guide, which is intended primarily for engineers. How do you think the discipline has changed over time?

A lot of companies think community management is just an extension of customer service, which is something I take issue with. An effective community manager has to know a great deal about product, policy, operations, customer service, communications, and marketing to get the job done well. It’s a multi-disciplinary position, and it needs to be handled that way.

The explosion of social media sites adds another layer of complexity to the job. I personally don’t look at community management or evangelism as being fundamentally different than social media. This may upset some people, since community evangelists are often viewed as “support folks” whereas social media workers often get classified as “marketing folks.” Social media folks are probably a little more inclined to use online distribution tools like YouTube or Flickr to broadcast content, but overall the roles aren’t really that different. Both roles are about engaging with your customers and solving their problems.

I also think there is a labeling problem in the internet industry with what is or isn’t social media. Are forums social media? I personally think so. People do the same things in forums that they do on outlets like Twitter or blogs—they make comments, share or post links, and are generally focused on a topical theme.

Tell us about what you’re doing now.

I just returned to the Silicon Valley after living in Thailand. While it’s a wonderful country, there’s been a lot of political instability there lately, which was a factor in my decision to return to the US. I’m currently looking for new startup gigs.

You’re one of the best so I’m sure you’ll have some great opportunities. Thanks for your time.

“PayPal Mafia” Summit Convenes in San Francisco

Angel investor Dave McClure assembled several dons of the “PayPal Mafia” on-stage Tuesday night for a Startup2Startup event in San Francisco. The panel included Max Levchin (Slide), David Sacks (Geni and Yammer), and Jeremy Stoppelman (Yelp). With a lineup like that, my CapLinked co-founder Chris Grey and I made the pilgrimage up north from L.A. to catch the show.

Dave capably moderated this group of heavy-hitters — Max only chastised him once for a stupid question — and the audience was treated to some insightful and candid discussion. I jotted down a few highlights from the panel:

Former PayPal colleagues Dave McClure and Aman Verjee showing me some love after the event.

Why have PayPal alumni started so many other companies?

By all accounts, it’s a pretty impressive list of companies and organizations started by PayPal people. The group pointed to several reasons. First, the company was “stress tested” by assaults from multiple competitive, legal, regulatory, and operational threats (hence the title of my book). This process promoted innovation and prepared employees for the future rigors of starting their own companies. David Sacks noted that the company’s recruiting was viral — Peter Thiel brought in people from Stanford, while Max hired engineers he knew from the University of Illinois at Urbana-Champaign. This lead to higher quality recruits than if we had relied on recruiters or job placement ads. With one of the best lines of the night, Max pointed to the company’s hiring philosophy as a reason for the Mafia: “The best employees are the ones who feel this is the last time they’re going to work for someone else.”

How did working at PayPal help you innovate with your current startups?

Even though Eric Ries’ lean startup methodology had not been developed at that time, David Sacks said that PayPal had a form of agile development before the concept existed. The product focus was on iteration, not perfection, which let PayPal pivot both its platform (going from Palm Pilots to the web) and market vertical (from person-to-person payments to online auctions). David called Yammer the ultimate pivot, noting that it was a spin-off from an internal tool developed at Geni. Jeremy said that from day one at Yelp he was focused on “what will we have to pivot on,” enabling him to fine tune the company’s business model.

Now that financing is stabilizing, were startups right in rushing to raise money before the crash?

Jeremy lauded prudence when it comes to financing, and said it’s generally wise for entrepreneurs to take advantage of financing opportunities when they have them. Max drew a parallel with PayPal’s experience in 2000. As the NASDAQ neared its peak in April of that year, Peter Thiel rushed to close a $100 million financing round for the company. Within weeks the stock markets began to dive and financing for the tech sector dried up. Had Peter and his team not made that opportunistic decision, the company would not have had a long enough runway to fix the major problems with its business model and get fraud under control. Max said that experience shaped his thinking again in 2007, when he sensed that markets had become frothy and a hard landing was in the offing.

How do you measure success?

I’ve heard Dave McClure make the point that choosing the right metrics is one of the most important things a startup CEO must do, so this question wasn’t a surprise. Max said it was how many lives you impact with your service. Jeremy said it was staying relevant in a constantly changing world. David said it was whether or not your company achieved its mission.

Which company is the most entrepreneurial: Facebook, Google, or Apple? (Hint: Let’s hope Steve Job’s health holds up.)

The panel punted on this question, so Dave took a poll of the audience. Claiming that companies that keep their founders active tend to be the most innovative, Dave asked which of Silicon Valley’s hottest companies was the most “entrepreneurial.” While admittedly an unscientific poll, the results were surprising: Facebook trounced Google in a 2-to-1 landslide. But even more surprising, in a room of over 100 entrepreneurs, Apple didn’t get a single vote. Perhaps Apple’s PR team has oversold the brilliance of Steve Jobs?

PayPal Mafia Confidential: Giacomo DiGrigoli, Yammer

The so-called PayPal Mafia has gotten a lot of press recently. My former colleagues have gone on to start, run, or fund an incredible roster of companies, including Yelp, Founders Fund, YouTube, LinkedIn, SpaceX, Facebook, Tesla, Palantir, Geni, Kiva, Slide, and Yammer. Clearly, something was in the water at my old company.

While I wrote about my experiences in my book The PayPal Wars, a book can only capture so much information, and that narrative only recorded my perspective. So, over the months to come, I plan to interview some of the amazing entrepreneurs whom I was fortunate enough to work alongside at PayPal. Many of them are well known, and others have been working behind the scenes, but they all have valuable insights to share. Since I’m on the strategy/product marketing end of the spectrum (as opposed to branding), I’m christening the series with the predictable yet appropriate name: “PayPal Mafia Confidential.”

My first interview is with Giacomo DiGrigoli, who served as PayPal’s first product manager for international payments, and most recently he was a product manager at Yammer. Giacomo graciously shares his lessons from working at PayPal, trends in Web 2.0 startups, and the differences in starting a company in L.A. versus Silicon Valley.


Eric: I had the pleasure of working with you at PayPal, where you were the product manager in charge of building PayPal’s international service. People may not appreciate how complex PayPal is behind the scenes, but building the international product was a massively complicated undertaking. Looking back, what lessons can be drawn from this product launch?

Giacomo: First off, the feeling is mutual — it was a pleasure working with you as well.

Building and launching PayPal’s international service, including the multiple currency platform, was indeed a complex project with many hidden moving parts: multiple countries, languages, regulations, currencies, etc. Not only did we tackle the intricacies of designing, building and marketing a new consumer-facing product, but every one of our internal and technical back-end systems also needed to be upgraded from the ground up to account for new functional requirements, including operations, analytics, chargebacks, and fraud detection.  On top of that, PayPal was already a significantly popular product with millions of active users, quickly becoming the ecommerce lifeblood for much of the web.  There was very little room for error.

The most valuable lesson I took from that experience was one that many startup entrepreneurs are familiar with: build small and simple, and iterate fast.  We rolled out the project in small stages, building on user feedback to offer direction for next steps, and to mitigate the operational and technical risks of relaunching PayPal’s core platform to accommodate our international users.  We cautiously measured each step to insure for PayPal’s longterm international success and to insure as little disruption as possible.

I learned that there’s almost no such thing as too much communication between team members, especially when handling a change as large as what we had on our hands.    For months, we prepared our teams for a massive change to our systems, planned for the worst and hoped for the best.  We communicated each change clearly to our entire organization, and worked closely with teammates in marketing, operations, legal, customer service, analytics, and fraud operations to constantly insure that any changes we made to the product wouldn’t create any disruption to our millions of users.   We prepared for a massive onslaught of customer service issues that would backlog us for weeks.  For the tremendous revenue uptick and success that the product turned out for PayPal, I’m proud to say that the multiple currency launch was one of our best received, least disruptive launches.

Lastly, I learned the importance of trusting your teammates and delegating responsibilities across an organization.  At PayPal I had the pleasure of working with some of the most talented and dedicated designers, coders, marketers and business minds in the valley (and in our operations center in Omaha, NE).  Without the solid dedication and extraordinary talents of those team members who welcomed the massive challenge of this project with open arms; whose leadership, sense of ownership and willingness to share in a grander vision for PayPal in their respective portions of this product launch made an immeasurable difference, this project simply would not have been possible.

Much has been said about the competitive, fraud, and legal obstacles PayPal had to overcome before it finally became profitable, IPO, and eventually be acquired by eBay. To what do you attribute PayPal’s success?

Well, much has been said and written about the extraordinary talents of PayPal’s management team (Peter Thiel, David Sacks, Max Levchin, Reid Hoffman, Roelof Botha, etc.), and the significant contributions made by PayPal’s product, design and development teams, and I would agree wholeheartedly that our spectacular leadership played a significant role in PayPal’s success, so I won’t spend much time discussing that.  Instead, I’d like to focus on the team dynamics that I believe played an equally important part of PayPal’s success.

One of the things that made PayPal such a unique and uniquely successful product was our extraordinary team culture.  Our team not only enjoyed the work we were doing, but genuinely enjoyed one another’s company.  We trusted one another. We challenged one another as much as we challenged ourselves. We had culturally and professionally diverse points of view, sometimes completely at odds with one another, but we were always respectful of one another’s viewpoints.  We shared a collegial spirit of learning and teaching one another new things, and learned from our differences.  We made decisions, weathered mistakes, took on new exciting challenges and ultimately enjoyed our successes (and setbacks) together.   Our management team trusted us to make decisions, and we in turn took that trust to heart with a deep respect for the opportunities we’d been handed.  We were a team with clearly defined goals and responsibilities, and we took our work seriously.  We were connected closely to our customers (and in some cases, we were our own customers).  We cared.

Very often you hear of startup teams that are unmotivated, lack direction or inspiration, or just don’t click with one another on personal or professional levels.  To me, that’s the kiss of death for a startup.   If you walk into a room and it feels like a pall is sitting over that group of teammates, that no one is enjoying their work, or that people just aren’t enjoying one another, then you might as well close up shop.  The odds are already stacked against a startup the moment it’s created —  if your team can’t find the inspiration and joy in working with one another, it makes the rough times even harder, and the good times less pleasurable and motivating.

I think a large part of PayPal’s success, especially in the bumpiest parts of the road, came down to the fact that everyone who was there genuinely believed in one another, believed in our product, and enjoyed the challenges each day brought us as a team.  I’d encourage startups to always remember that:  you should be there because you WANT to be there, and because at the end of the day, you really love and are passionate about what you’re doing.  Otherwise, it’s just not worth it.

Over the past few years, you’ve played a key role in launching a pair of Web 2.0 startups, Geni and Yammer. In what ways have starting Web 2.0 companies been different from starting their Web 1.0 predecessors?

IMO, it’s a heck of a lot easier to start a new tech company today than it was ten years ago (or maybe I’m just ten years older). First off, there’s been quite a bit of development in the enterprise space specifically geared towards helping new startups and small companies communicate, build, launch and learn about what competitors are doing than there were a while back.  Whenever I have a technical issue that I think might slow down my progress, I can easily find a product that solves even the very specific niche issue I’m having and move on.  I can consult tech blogs like TechCrunch, TechMeme, etc — resources that really didn’t exist in earnest a while back — to discover what’s going on, find new products, etc.

Enterprise communication has also taken off, as evidenced by products like Yammer, SocialText, Chatter, etc. It’s much easier to effectively and quickly communicate within an organization than it was when you had to email your questions back and forth. Things are much faster now.

I also think that with ease of development comes greater expectation from consumers.  I’ve noticed far less tolerance for bad design from the every day consumers using language that was previously only used by designers and developers.  When my 13-year-old niece complained that “Facebook’s new newsfeed UI sucks; I hate it!”  I knew that consumer expectation was growing just as fast as our ability to launch new and interesting products.   So, with ease of development and great new technologies like AJAX, the ubiquitous use of Flash, etc, comes greater responsibility for great products.

Yammer has really taken off, and it’s done so as one of the few social media companies with an enterprise focus. In fact, the very term “social media” seems to connote communication services for friends, as opposed to tools that can actually enhance workplace productivity. Do you think that enterprise-level development is a good business opportunity for Web 2.0 companies, or is Yammer the exception to the rule?

Absolutely.  I think new enterprise products (social or otherwise) have only just begun to become commonly used in many organizations, and there’s still quite a ways to go to make these new tools as effective and ubiquitous as other tools (like email).  In many ways, I think these tools are slowly supplanting the majority of the need for email, intranets, etc.    But I still think there are tremendous inefficiencies within the enterprise space that still need to be solved, beyond improving communication.  Areas ranging from hiring and retaining talent to payroll to investing in new technologies to corporate development still need to be mined for better solutions.  I’m still shocked at how long some seemingly simple enterprise tasks take – there’s a mountain of opportunity here.  Any time you’re annoyed or shocked by something while working, that’s almost always an enterprise opportunity around that.

Switching gears back to PayPal, without a doubt it’s the undisputed leading service for selling physical goods online. But as the web becomes more social and virtual goods grow in importance, do you see a role for PayPal as a Web 2.0 payments provider? Or will Facebook (or some other competitor) eat their lunch?

I recently attended the PayPal X Developer conference, and it looks like PayPal is making some significant inroads with the development community.

I think the game is still on here.  Facebook has certainly made some strides with its platform, and including a full-fledged payment option would certainly be a threat to PayPal’s continued growth.  But until/unless the basic platform of the web fully switches from the web to Facebook, or an OS, or a browser, I think there’s still an opportunity here.

The risk for everyone involved, of course, is the same one that PayPal faced playing on a platform owned by a 3rd party.  eBay certainly didn’t make it easy to be a successful 3rd party on its platform, and certainly we’ve seen evidence of this on other platforms as well (e.g FB’s constantly changing platform, rules, distribution & emphasis on apps, etc).  The argument on the flipside, of course, is the same one that lead to PayPal’s success:  sometimes it takes a 3rd party to focus on complex tools (like payments) to really make them work reliably well.

I think it’s really still anyone’s game in social/Web 2.0 payments, especially in the platform/virtual goods and mobile payments space.   I’d also keep an eye on innovative payments products like Jack Dorsey’s Square – there’s still a chance for something completely out of left field to surprise everyone.

What was it like launching two internet startups in Los Angeles, and how was that different from Silicon Valley?

I may get some flack for this answer (especially from the likes of LA cheerleaders like Jason Calacanis), but I think startups in the valley are significantly easier to put together initially than their LA counterparts.  There’s no question that the opportunities available to entrepreneurs in the valley are much greater than in LA: tech meetups, conferences, VCs, finding coding talent, etc.   I tell people that starting a tech company in LA is like making a movie in the valley:  sure you could, but why would you want to?  Everybody else who’s seriously working on tech is in the valley, and everybody seriously focused on entertainment is in LA.  You’re stacking the cards against yourself.    That being said, LA has certainly produced some great products as well. It’s just a little bit harder than in the valley.

Likewise, I also think that over the last few years, we’ve seen some great innovation internationally as well.  Thought leaders in Europe are making new strides — people like Loic LeMeur at Seesmic (and the Le Web conferences) are creating some innovative and interesting new products/designs.   So it’s not just about the valley anymore (but it’s still  my favorite place to work.).

What’s next for you?

I’m working on a small digital media publishing product with my good friend Holcombe Waller.  It’s really just a small garage idea at this point, but we’re enjoying our work, and thrilled about developing something fun and innovative that we enjoy using ourselves.  If anyone’s interested in a demo, I’ll be more than happy to share.  Stay tuned!