Five Takeaways From ‘The Founders’

First, Europeans And Chicago

Max and his family immigrated to the US from Ukraine in 1991. His parents were physicists and they came to a point where they feared the government were watching them, while at the same time, the economy was collapsing. The Levchin’s decided to immigrate to Chicago, not unlike Sam Zell’s family during WWII (as we discussed in Episode 47).

Max then attends college at the University of Illinois at Urbana Champaign (UIUC) where he graduates with a BS in Computer Science. In 1998, she starts a company called ‘Fieldlink’, with a focus on improving the security of the Palm OS (Palm Operating System).

Levchin is now a multi-billionaire and is the co-founder and CEO of Affirm, a publicly traded fintech company.

Second, Relentlessly Pivot Until Success

When a company ‘pivots’ from some trajectory, it typically means they are changing course on some aspect of the business. Levchin’s Fieldlink company, as described in Soni’s book, made some really genius pivots.

Starting out as a Palm OS security company, with a focus on securing data stored on the devices (like with mobile wallets), it soon morphed (under the new leadership of Peter Thiel as CEO) into a company called ‘Confinity’ with a focus on allowing Palm users to securely ‘beam’ money to one another over the wonkey Palm infrared (IR) port.

With no real customers yet, but with a singificant amount of VC backing, the company slowly moved away from being a Palm-centric company to a web-based company that allowed people to send and receive money over email. Many people provided input on the use of Palm money ‘beaming’ as not being a great idea during the growth of the company, including Reid Hoffman (the would-be founder of LinkedIn), who was a friend of Thiel and an early member of the Confinity board.

One way in which X.com and Confinity did it right was by choosing email as the backbone of their platforms - riding a surging wave of adoption.The Founders, pg. 128

There are many more wild pivots in the story as X.com enters the picture, but suffice it to say, the story of Fieldlink’s growth and success helps to exemplify the necessity of moving in a direction (it does not necessarily need to be the correct direction all the time), and being willing and flexible to correct course as and when needed.

If there were two paths where we had to choose one thing or the other, and one wasn’t obviously better than the other…then rather than spend alot of time trying to figure out which one was slightly better, we’d just pick one and do it. And sometimes we’d be wrong…but oftentimes it’s better to just pick a path and do it rather than just vaccilate endlessly on the choice.Elon Musk in a 2003 public talk at Stanford, quote in ‘The Founders’, pg. 178

Third, How Did Elon Musk Get His Start?

I found it interesting to read a bit about Elon Musk’s first successful venture in Zip2, which he ran in various capacities between 1996 and 1999. Zip2 apparently sold map-based city guides to newspapers. The company sold to Compaq Computer in 1999 for $307 million in cash, of which Elon Musk received a check for $21 million at age twenty-seven.

My bank account went from like, $5000 to $21,005,000…Elon Musk quote in ‘The Founders’, pg. 46

There’s an interesting YouTube video of Musk taking delivery of an F1 McClaren he bought with the proceeds of the sale of Zip2.

Musk parlayed well over half of the proceeds of his Zip2 sale earnings into his next venture, X.com, which of course is another central player in the PayPal story.

Fourth, Palm Pilots And The PayPal Brand

In one part of the book, Levchin attends a 3COM conference in San Jose where, after the conference, he solicits a ride from Jeff Hawkins, the founder of Palm (recall that Hawkins is also the author of ‘On Intelligence’, which we reviewed in Episode 48 of Dream 10)!

Hawkins soon realizes that Levchin is not really looking for a ride home; rather, Levchin tries to get Hawkins to tell him the direction Palm is taking with regard to security and the Palm OS so Levchin can potentially help Fieldlink in this regard. In his conversation with Hawkins, Levchin learns that Palm is already going with Certicom to help improve Palm OS Security!

As an aside, I too, worked on integrating Certicom Elliptical Curve Java libraries into a Palm Server HotSync product I worked on around the same time, so this part of Levchin’s story really resonated with me.

At one point, Levchin seeks the counseling of Dr. Dan Boneh at Stanford to help review some of the cryptography primitives he was developing, which turned out to be a very wise decision, as Dr. Boneh said he could break Levchin’s crypto ‘with a pencil.’ (pg. 103)

Since ‘Confinity me some money’ did not have catchy ring to it, the company hires consultants to create a name for their money-beaming Palm Pilot software. ‘Master-McNeil’ were hired to help Confinity come up with a better software product name. Options included: eMoneyBeam, Zapio, MoMo, Cachet, and PayPal. The rest is history.

Fifth, Nebraskans Are Apparently Really Good At Customer Support

As X.com began to struggle with it’s rapid growth and customer support, one employee, Julie Anderson, brought an idea to Musk. She recommended that her sister, Jill Harriman, and others living in Nebraska, might prove a valuable resource to help address X.com’s growing customer service needs due to their communication skills, lower cost relative to sourcing local California talent, and were even faster in solving customer service issues.

Following Musk’s approval of the idea, the Nebraska operation grew from a couple dozen folks to 161 in under one month, and in a few more weeks had more employees than the entire X.com Palo Alto office.

In less than a month, the Omaha, Nebraska customer service center got through the entire email backlog of the company proving itself a huge corporate resource from that point forward. It turned out that Omaha was also a great location because of the history of military presence in the region and the resulting infrastructure that had been put in place, like fiber-optic network cables.

PayPal remains one of the largest employers in Omaha to this day!

Conclusion

‘The Founders’ is a fascinating book, choc-a-block with great technology and business anecdotes. I am amazed by not only the individual journeys of the founders discussed in this book, but also by the incredible teams of people they were able to put together who helped make PayPal the huge market-moving success it is today.

Relevant Links

• Dr. Dan Boneh at Stanford
• Elon Musk’s F1 McClaren Delivery
• Palm OS Programmer’s Manual on Beaming Technology
• Nautilus Tracker