
PayPal Never Could Have Been Built Lean - tsondermann
http://www.leehower.com/2010/03/paypal-never-could-have-been-built-lean.html
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jdietrich
I think that it is easy to be led astray by anecdote. I think that PayPal is
such an outlier as to be irrelevant to almost all of us.

There's the fact that this all happened a decade ago. PayPal launched at a
time when the internet was effectively undergoing a Western Expansion and many
claims were being staked to build essential infrastructure. Very few
ecompanies really understood the internet, there were very few incumbents in
the online space and huge opportunities for first movers.

I can't imagine any VC today allowing a startup to spend in the way PayPal
did. As we all know, back then it just wasn't realistically possible to be
properly lean because building stuff was so much more expensive. I'm sure the
idea of YCombinator would seem as nonsensical to the founders of the nineties
as multimillion first rounds seem to us today.

The article alluded to the fact that payment transfer is exceptional in
structure. I struggle to think of other startups that required such enormous
network effects to become sustainable and had such extraordinary cashflow
issues.

I think that there's a strong case that a PayPal-like business _could_ be
built lean today, but I'm not sure it's relevant - I don't think any of us are
trying to build those businesses and I don't think any of us would succeed in
doing so. Looking at the likes of Facebook, I think it's clear that the
biggest, most network-dependent businesses really can be built out of dorm
rooms these days.

~~~
ojbyrne
Isn't youtube also an outlier?

~~~
jdietrich
Absolutely - I don't think many of us have much to learn from a vast,
unprofitable company that sold for $1.65bn. As far as I'm concerned, Chad,
Steve and Jawen won the lottery - their intelligence, insight and connections
bought them a lot of tickets, but they still won the lottery. They're very
interesting companies, but I think it's dangerous to think that we mortals can
learn anything from them.

Usain Bolt is the fastest man in history. We understand that he's a genetic
freak who happened to try out for the best track team in the world. Exactly
the right man in exactly the right place at exactly the right time. We
understand that he's so far outside the norm that he can eat 40 chicken
nuggets and run 100m in 9.69 seconds on the same day. We understand that what
he does teaches us nothing about what we should do if we want to run faster.

YouTube was founded by three guys working for PayPal who were likewise exactly
the right men in exactly the right place at exactly the right time. What they
did is very informative if you happen to be well-connected guys in the valley
who chance upon perfect timing. For the rest of us, "sell out to Google" is
not a business plan. It seems to me that the whole point of what we're doing
here at HN is to upend the old notions about what it means to start up. The
discourse has long been dominated by VCs who are only interested in billion-
dollar companies, but I for one am far more interested in the idea of ten
thousand people becoming millionaires than ten people becoming billionaires.

Patrick of BCC is for me the prime example of the new startup logic.
Absolutely any of us could realistically aspire to do what he has done. He's
not making 'fuck you money', but he's making a good living from a couple of
evenings a week. How much happier would he be if he were a billionaire? In
utilitarian terms, what is the net benefit of a million Patio11s vs one Chad
Hurley?

These sorts of articles really bug me, because they seem to me to be part of
this age-old cultural notion about what geeks ought to be doing with their
lives. For the rest of the human race, it's perfectly acceptable to pursue
your own happiness, but if you're really smart you're expected to change the
world. I'm sure there are plenty of people who really do want to change the
world, but I'm also fairly confident that most of us just want to do cool
things and have enough money to be comfortable.

It seems to me that the dialogue about startups is warped by a particular kind
of charming, eloquent VC. I think there are a number of very influential
people out there who are using our sense of public service, our avarice and
our ego to manipulate our expectations of success. I think we as smart people
are pressured enough without our own community distorting our sense of what
constitutes a good day's work.

I think that talking about mega-companies is just as harmful as our cultural
fixation on size zero models, or the sense amongst some young men that the
only good jobs are playing ball or rapping. I think paying much attention to
outliers is inherently harmful as it warps our sense of what is normal and
reasonable and realistic.

I think that startup culture has a sickness - a disease that we caught in High
School and that we have incubated since. I think we expect far too much from
ourselves and have an unrealistic sense of the threshold for success. DHH is
considered a radical, in no small part because he has a very specific scope to
his ambition. He is noteworthy in the startup community for saying that there
are such things as 'enough revenue' and 'enough customers. We forget that to
most ordinary people, DHH has wealth and freedom beyond their imagination. I
think the schoolroom sense of "I expected better of you, you're a bright boy"
has evolved into this sense that we are in it to serve shareholders and VCs,
that we are in it to do something superhuman. Why is there a sense of shame to
say in our community that we just want to pay the bills and have fun doing it?
Why do so many people seem to sneer at the likes of Tim Ferriss? Why can't we
be happy to do things just for ourselves and our customers?

~~~
patio11
_How much happier would he be if he were a billionaire?_

Decidedly less happy, I think. For one thing, it would be virtually impossible
for me to find Ms. Right without the money thing creating an adverse selection
problem. I'd also virtually have to have People, because you simply can't be a
billionaire without having People, and I prefer to spend my time with people
rather than People if you catch my drift. I don't want to ever have my own
accounting office.

I've been doing sit-down-think-this-year-through budgeting for the first time
in several years (because a salaryman has virtually no need of budgeting:
you're paid exactly enough to live the salaryman lifestyle and since you don't
have time to do anything else what the heck would you need money for). There
is a gap between my new means and my desire (e.g. I'd like to be able to
travel abroad three or four times this year and my current income will not
support it), but it isn't a ginormous gap and I expect to close it fairly
quickly. So there's a marginal happiness return on income for me up to, oh,
call it $80k a year. Throw in a nice young lady and a bit of support for my
family and I might even have a marginal happiness return up to $200k a year.
After that, it might as well be WoW gold for me: having the number increase
over last year makes me happy because it means I'm doing well at the game, but
it won't have a significant impact on my life.

~~~
sailormoon
Trust me mate, once you're on that $200k you'll be able to list any number of
reasons why you'll expect a happiness dividend from $300k.

The highest-paid person I know makes about $700k/yr and to listen to him you'd
think that making only seven tenths of a million dollars every year was the
most miserable burden any man ever had to carry. My kind offers to relieve the
load, needless to say, go yet untaken ..

------
richcollins
It's unfortunate that Eric chose to label his philosophy "Lean" because it's
become synonymous with "bootstrapped". Lean doesn't mean cheap it means
efficient through validation of a business model before scaling.

~~~
jaytee_clone
I was thinking the same thing.

From my knowledge, PayPal followed some what of a lean approach. Their initial
product was about sending money between palm devices. When they tested it and
figured out that no one would use it, they just pivoted to online money
transaction, which more people found useful. That's when they started to
scale.

Now that sounds pretty lean to me.

------
davi
_At PayPal we spent tens of millions in marketing through our referral program
(get a friend to join we'll give you $5-10)_

Assuming a good business case (which PayPal had: bootstrap network effect with
pure money), could a web startup ever get funded to do something like that
today?

~~~
jeff18
Assuming you will get a measurable ROI for each referral, you probably could
just go to the bank and negotiate a traditional loan to pay for it.

~~~
_delirium
A lot of the ROI is speculative and aggregate, though, isn't it? You're not
mainly buying the potential profitability of the _specific_ new customer, but
attempting to buy a network with enough critical mass to get off the ground as
a viable payment mechanism. I'm not sure how you measure the ROI on that,
since it's got huge uncertainty.

~~~
jeff18
If you are going to spend tens of millions of dollars on a referral bonus
promotion, it better not be speculative!

~~~
_delirium
Well, it's the nature of markets dominated by network effects that outcomes
tend to be fairly binary: either you build your critical-mass network and win
huge, or you don't, and go bankrupt. I'm not sure there was a plausible
middle-of-the-road outcome where PayPal becomes a small but profitable niche
company.

~~~
failquicker
I'm not sure that I agree with that. Niches have popped up and thrived middle
of the road in markets that paypal vacated. Adult content and gambling come
immediately to mind. So if they weren't getting the wide net traction they
were after, they probably could have focused the beam into a successful niche.
Who knows, If things went differently paypal could be working the neteller
circuit of transactions.

------
inboulder
Never mind the cost of the network effects, PayPal only stayed in business
because it figured out effective fraud loss minimization, which its completion
did not (billpoint etc). Preventing fraud is mostly orthogonal to the
lean/cash intensive issue.

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emanuer
Why it couldn't have been build lean:

1\. It needed a critical mass of both buyers and sellers

2\. Customer service in financial industry is expensive

3\. The 2 main competitors (Billpoint & C2it) had bottomless pockets.

(4.) Web 1.0 technology was expensive.

~~~
rjurney
If you actually look at what Steve Blank has written, it says that you need
lots of funding to enter a new market. Paypal did just that.

Therefore 'Lean' in this case means 'Tons of Money.' Its a theory that means
more than its title. Maybe its wrong, but this article fails to even discuss
it.

------
rjurney
It would be great if we could actually debate this topic instead of debating
different interpretations of the title.

Lean doesn't mean cheap. It can mean more expensive. It simply means
recognizing the cost of entering different markets and not spending too early,
to optimize funding around finding a business model instead of the product
development cycle.

------
manderson2080
In 2001, when the money was flowing, everyone's solution for any startup's
problem was to throw money at it. Today, there many other outlets for growing
an intelligent idea: blogs, press, alternative incentives programs. And
minimal hardware/software costs to build such a product. While PayPal, in
2001, could maybe not have been built lean. It is very possible for the next
PayPal-like startup to disrupt the market now on a micro-budget.

~~~
steveklabnik
Yep. I don't think Venmo has gotten an insane amount of funding, for instance,
and I think it's just as disruptive as PayPal was.

~~~
klenwell
"When people trust you, you can pull money from their accounts at will."

Hadn't heard of Venmo before this. But yeah, that sounds like it could be
pretty disruptive.

~~~
adw
They're not doing much that's dramatically new - check out the M-PESA system,
which is massive in North Africa...

