Latest / Financial Survival Network / Elon Musk and the PayPal Wars -- Eric Jackson #5926

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Elon Musk and the PayPal Wars -- Eric Jackson #5926 · Financial Survival Network

• 0:00
  Yeah, it's funny. I gave a little bit of a profile of sort
• 0:04
  of what I saw inside eBay in my book The PayPal Wars, I talked
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  about their culture being really different, that Elon and Peter and Max levchin At
• 0:14
  built a culture of execution, of working hard and working fast and trying things
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  out, listening to our customers and build it vents. Even at quite the
• 0:23
  opposite, they had very bureaucratic culture, which was a surprise for dot com.
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  You are listening to Carrie Letz's Financial Survival Network where you get valuable information
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• 0:54
  Welcome. You are watching and listening to the Financial Survival Network of Carrie
• 0:59
  Luttz. Hey, it's mid October. We made it so far without a
• 1:03
  crash. How much longer that will go? Your guest is as good as
• 1:07
  mine, but got really interesting guest here for you, Eric Jackson. He
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  is the author of a book PayPal Ores, and he was in the thick
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  of things when PayPal was becoming a major brand and Elon Musk and his partners
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  were fighting it out of Eric's great to have you on the show. So
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  you found yourself kind of an observer and a participant to history, but you
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  didn't really know it was history when that was happening until till much later.
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  That's right, Kerry, and thank you for having me today. Yeah,
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  it was incredible to be part of the creation of PayPal in those early years,
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  and to look at all the people I worked alongside, you know,
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  not just Elon Musk, but also Peter Tail and Max Lovechen and went on
• 1:57
  to start a firm and he was the chairman of the Alp Reid Hoffman who
• 2:02
  started linked In, David Sacks. Yeah, it's just the list goes on
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  and on and on. So it's really incredible to look back at it.
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  The founder's of YouTube as well, So just to be the middle of that
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  was amazing, and it worked with all those people was also amazing. But
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  yeah, you can never know that it was such a historical company right in
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  the middle of it. You just trying, you just try to do your
• 2:25
  job and also build a business. I know it was an attorney and in
• 2:32
  two thousand, I actually got called up by Donald Trump to handle some cases
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  far not knowing that one day the guy was going to be president. So
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  it's only when you connect the decks that connect the dots backward, as Steve
• 2:45
  Jobs said, that you see the significance of it. Hey, so uh
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  in this place, this is before everybody made their billionings. Right. Elon
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  eventually, I'm going to skip to the end, had a falling out with
• 3:00
  them, and he left. But he was smart. He didn't burn bridges
• 3:05
  because they all became investors and they worked within on his successive enterprises SpaceX and
• 3:13
  Tesla and Boring Company and Neurallink, and I don't know if you can probably
• 3:19
  think of a couple others that I missed here. So that's you got these
• 3:23
  really strong personalities and they're kind of bumping heads together, but they must have
• 3:30
  bet a measure of respect on all parts for them to wind up investing together
• 3:38
  and working together again. That's actinally right, carry And you're right that there
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  was some conflict, as there often is when you're trying to pursue anything worthwhile.
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  And Elon and just for contacts, Peter Tiil had started a company called
• 3:53
  Confinity and it's that's a company they created his PayPal software and Elon, whose
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  office was just down the street. They were neighbors on University Avenue in Palo
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  Alto. His company was called X dot com. Now that name is going
• 4:08
  to sound familiar to viewers, even if they don't remember the original. Yeah,
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  the original online bank that Elon informed, uh, they'll they'll think of
• 4:15
  Twitter, and it was recently rebranded as ex Uh. So you can see
• 4:19
  a pattern their spacexx dot com and now Twitter and and so Elon Elon had
• 4:26
  a vision for the company. After the two companies merged and and uh it
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  ran into some conflict with with some other members of the team. And I'll
• 4:34
  be happy to describe that to you. But the point in jamaking is that
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  even though that that happened, uh, there there was resolution and there also
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  was an understanding that, hey, we've got to all work together here.
• 4:49
  So Elon, to his credit, after leaving the CEO role, stayed a
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  helpful active member of the board. And I know that Peter til when he
• 4:58
  took over the CEO role, can alter with Elon a number of things,
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  especially around the exit strategy for the company. So they mended fences pretty quickly
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  and then insuing years. Yeah, you're right. I know founder Spond,
• 5:09
  which is a VC firm associated with with Peel invested in SpaceX among other investments.
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  So you're right that collaboration, you know, continued and fences were mended
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  and people work together to this day. There's still good relationships, right,
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  So I find that interest thing. So Elon's vision was this was going to
• 5:28
  be a global financial enterprise basically take over the whole banking sector and do things
• 5:34
  more efficiently and effectively faster. All this because before Petticyle it was really difficult
• 5:43
  to send money. You did have ach transfers I guess beginning, and you
• 5:49
  had finwire and some private bank wires, but otherwise to send peer to peer,
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  for me to send ten bucks to you Eric was like enormously expensive and
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  inefficient. Yeah, people forget about that today, right, You've also got
• 6:04
  Venmo and zell and other options. Now today it seems like it's so easy
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  and ubiquitous, you just pull out your phone and do it. But you
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  know, twenty plus years ago it actually was really quite hard. And with
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  the dawn of the Internet, at the down of the Web, I should
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  say, you started having online commerce, particularly for small businesses, all right
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  out of platforms like eBay. Well, that was great that they could do
• 6:30
  the selling online, but then to actually handle the payment it was completely all
• 6:35
  of live you buy to mail checks and money orders for things that were sold
• 6:42
  on eBay and and eBay. While the hobbyist idea was very popular right at
• 6:46
  beanie babies and pet dispensers, it was really small businesses getting on there and
• 6:51
  selling their merchandise that made it take off. But that was a pain point.
• 6:56
  It hurt everyone to have that lag in the convenience, the cost associated
• 7:01
  with it, record keeping was worse. Disputes can arise, So hayfoul showing
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  up radically changed things for that market, but also had the potential to change
• 7:12
  it in a lot of other markets too. And this was the vision that
• 7:15
  Peter Thiel and Max Lepchin had when they started Infinity, which was better known
• 7:18
  as PayPal, that they wanted to have a system that empowered people. That
• 7:24
  was a big and very important thing for them. Carrie, I remember the
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  first week I got there Peter and I've known Peter from my days at Stanford.
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  He was kind of an alumni mentor at the time, and so he'd
• 7:36
  started this company. I'd stayed in touch with him. I was working in
• 7:39
  financial consulting. He told me, hey, why don't you come on board.
• 7:43
  We're getting ready to scale up. We're doing adventure capital round. We
• 7:47
  need you to start, and you should start really soon. So he actually
• 7:50
  convinced me to tell my respected employer there was one hundred year old company at
• 7:56
  sixty thousand employees worldwide, that I should jump ship and leave to come work
• 8:00
  at this little startup. I didn't even know what my job would be.
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  I just knew that they were going places. So but well, I look
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  a lot smarter than I am when I just say that the company I left
• 8:11
  was Arthur Anderson, and the company I went to, well, you know,
• 8:15
  turned out to be a success. Yeah, And students of history that
• 8:18
  might be younger than us, well, well, perhaps have come across the
• 8:24
  name Arthur Anderson. It was a big six accounting firm at the time,
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  and it was taken down the Interron scandal just a couple of years after I
• 8:30
  lapsed. So good good timing is everything, all right, But I'll mention
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  that that vision though that Peter and Max had for PayPal, it was empower
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  people. This was you know, after through the mid to late nineties,
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  you had currency contagions in much of the developed world. You'll remember that,
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  right, that this recurring problem. Yeah, of countries they've been manipulating their
• 8:54
  exchange rates and their interest rates. You can't control both, you can only
• 8:58
  do one and and and uh. They came under fire and frequently had to
• 9:05
  defend their currencies, have a run on the currency. Uh. And as
• 9:09
  a result, a lot of times these these countries would actually lock up the
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  deposits of their own citizens and bank accounts to keep keep pressure off the local
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  currency. And so they'd eventually get screwed, as you know, the common
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  man always does, because the you know, they'd unleash this hyperinflation and it
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  would destroy their savings that was sitting there untouchable. So it was a you
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  know, pretty pretty bleaks h environment. And Peter and Max realized, hey,
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  you know, something like PayPal that can empower people to move their money
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  and give them instant access could be a game changer around the world and also
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  give people a lot more freedom and control. There's a real vision of freedom
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  there that that was the origin for PayPal. Yeah, and now we've got
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  to hundreds of different apps, you know, peer to peer transfer, money
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  transfer in the full life, and we got to cryptocurrencies as well. Yeah.
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  Hey, so you knew all the parties, all the major players here.
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  And so even though the Elon left under maybe less than positive circumstances,
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  he made the decision to leave, he wasn't fired, was he. Well,
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  it was a it was a pretty uh pretty contentious uh uh, I
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  guess it pends who you asked, right, So the the things came to
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  a head because Elon Elon is very sure of himself. I think that's not
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  gonna be shocked. You mentioned you've got you're familiar with the Walter Isaacson book
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  on him, and and I'm sure those of your your listeners that have followed
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  his career know that he's pretty confident. So his vision was he wanted to
• 10:48
  relaunch the PayPal platform, which was after the merger of the two companies,
• 10:52
  relaunch it and brand it with the X brand. And like you said,
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  he wanted to have a financial platform there was kind of a one stop shot
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  that handled everything. This is not too different from his vision for Twitter that
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  he's in the process of implementing. And because of that though he had all
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  development frozen on PayPal, he wanted to recreate it, build it on a
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  different platform. I will go out all the details, but it's a Unix
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  versus Windows and T debate at the time, like which software do you have
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  it run on top of? And so the point was that he actually was
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  focused on this, this big overhaul and the time when the company was burning
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  ten million dollars a month. This was in two thousand, after the dot
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  com crash, it was harder and harder for startups to raise money. We
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  had to get our business plan working, but yet we were losing millions of
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  dollars every month due to fraud. We had people they weren't hacking PayPal,
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  they were just walking in through the front door and using it to to trick
• 11:56
  people to send them money, or taking stolen credit cards that they got from
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  the black market uh and then redeeming catching him in and taking money out of
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  PayPal. So we had we had like a really significant broad loss, it's
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  like three hundred basis points UH to fraud. And then we also were losing
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  money on credit card piece because people were using credit cards to fund these payments.
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  So we had to we had to turn the business model around. Instead,
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  we were stuck, uh trying to recreate the wheel. And that was
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  a big part of the debate that led to UH to Elon leaving. And
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  but again I want to emphasize he played a productive role after he left.
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  So Peter took over UH and decided to keep the PayPal name, which a
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  lot of us, myself included thought made sense time because it had some brand
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  power, some brand cachet already and Uh Elon h Elon state a member of
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  the board and then amusingly, years later, bought that extra dot com domain
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  from eBay. This is after eBay acquired PayPal. They own owned PayPal for
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  about a decade decade and a half before spending them off as a separate company
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  again. So that domain, that x dot com domain eventually wound found its
• 13:15
  way back to Elon and Uh he's uh dusted off as old playboker and he's
• 13:20
  seemingly on the road implemented or try to implement his new model. They were
• 13:24
  you pittypal when eBay acquired it. I was, I was, and it
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  was it was a big It was a big shock in a way because they
• 13:35
  had talked with us a couple of times about by the company, but it
• 13:39
  never worked out. So I think most of us had already written off that
• 13:41
  it would happen. But PayPal at that point had gone public. Uh.
• 13:46
  PayPal actually the first I po after nine to eleven for dot com. That
• 13:50
  was a pretty significant thing. That was back in February of two, and
• 13:56
  it was it was trading, but the market was weak or pretty soft in
• 14:01
  time, and it was we just we increasingly had a couple of different pressures
• 14:07
  on our company. So first of all, we had a high dependence on
• 14:11
  eBay. We had about sixty seventy percent of our payment volume was coming from
• 14:16
  sellers on their platform. And eBay wasn't that fought of PayPal. They had
• 14:20
  an in house tool called bill Point that they had not launched wells Fargo,
• 14:26
  and they tried to preference them, but it was just an inferior product.
• 14:28
  So people of the market are chosen PayPal, but that's a bit precarious,
• 14:33
  even though there's some mutual dependency there. And then second thing, we had
• 14:35
  regulators coming after U Slept and Ride Carrie. It was amazing and maybe it's
• 14:41
  not that surprising because we've seen some of this play out with crypto in recent
• 14:46
  years, just kind of shoot first, asked questions later for a lot of
• 14:50
  regulators, and they're not necessarily concerned about the welfare of the people. They're
• 14:56
  more concerned about doing their job. PayPal was novel tech, like you mentioned,
• 15:01
  people didn't really know what to make of it. So instead of working
• 15:03
  with the company to make sure that state guards were taken and people's money was
• 15:09
  safe, which it was, a lot of the regulators said we, oh,
• 15:13
  we don't know what you are, so we're just going to come after
• 15:15
  and get you. And for example, the state of Louisiana, of all
• 15:18
  places, said PayPal seasoned desist notice and it was just ridiculous because they didn't
• 15:24
  know what our classification was or is it a bank, is it a money
• 15:28
  transmission service? Uh? So you know they sent us a cease and desist
• 15:33
  letter. Well we we had uh we shared that information with all of our
• 15:39
  customers from Louisiana, telling them that that they were about to be cut off
• 15:43
  from their valuable PayPal account. But if they thought that was a bad decision,
• 15:46
  here's the phone number of the regulator. So the next day and they're
• 15:50
  switchboard melted down and they they recanted, they decided to work something out with
• 15:56
  us. So that was but that was it. That that one turned out
• 16:00
  well for the company. But we had a lot of other pressure on us
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  as well, so that that's what drove us to be uh to be acquired
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  and accept the offer from eBay. Yeah. Then even they just could never
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  figure out what to do with PayPal. Yeah, it's funny. I gave
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  a little bit of a profile of of sort of what I saw inside eBay
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  in my book The PayPal Wars. I talked about their culture being really different
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  that Elon and Peter and Max Levchin had built a culture of of execution,
• 16:30
  of working hard and working fast and trying things out, listening to our customers
• 16:36
  and building things. Even at quite the opposite, they had a very bureaucratic
• 16:38
  culture, which was a surprise for dot com but uh, Elli, yeah,
• 16:44
  yeah they were. They were reorguing every year, so people didn't know
• 16:48
  like who their next boss was going to be. They want to you know,
• 16:51
  you had an incentive it inside to attach yourself to as many projects as
• 16:55
  possible to be visible. It made things very bureaucratic, lots of meetings,
• 16:59
  lots of live decks instead of doing a you know, a numerical analysis on
• 17:03
  a spreadsheet to make your case and a few bullet points. It's kind of
• 17:07
  the way we did things at PayPal, you know, hash things out in
• 17:11
  a week or two with eBay as always, you know, in less,
• 17:14
  in less round of discussions. So I could tell from the culture early on
• 17:18
  that it was gonna be pretty different. And as a result, a lot
• 17:21
  of the good uh, A lot of folks at PayPal, like myself left
• 17:25
  in the ear or two following the merger. And interestingly though, because PayPal
• 17:30
  had a better culture, a lot of eBay's people came over to PayPal,
• 17:33
  the ones that were a little bit more you know, brighter and more ambitious.
• 17:37
  So they had decent talent come in for a while there. But over
• 17:41
  time, yeah, PayPal just grew and became bigger than the eBay and they
• 17:44
  had to spend the company off again. Yeah, they just never seemed to
• 17:48
  do what they were doing. Was it now they could again they go back
• 17:52
  to have their own payment system and actually seems to work better. I still
• 17:56
  think PayPal is probably better, but you know, interesting, so everything old
• 18:03
  is new again, Carrie, I feel like we're in the nineteen seventies.
• 18:07
  So yeah, why not go back to the late nineties on eBay? Why
• 18:11
  not? And now you look where Musk is, all right, you look
• 18:15
  where the others are. Basically they're still working together. You know, does
• 18:21
  this all surprise you? No? No, In fact, I think with
• 18:25
  hindsight it makes a lot of sense. But even at the time, there
• 18:29
  was there was a strong bond for all of us. I call my book
• 18:33
  the PayPal Wars for a reason. It was really hard to get this company
• 18:36
  started. It was tumultuous, and like any experience, it's a share experience
• 18:41
  for people. There's the bonds. You learn to trust each other's judgment.
• 18:45
  You can appreciate, you know, going through the ups and downs. We
• 18:48
  had a culture that really encouraged people to innovate, take risks, but also
• 18:53
  you know, be accountable if you make a mistake, just gowing up to
• 18:56
  it and you know, move on. That kind of culture, I think
• 19:00
  as well as just the really good people that got recruited. I mean,
• 19:04
  you know, think about people like Peter t Elon, Musk and read Open
• 19:10
  who started LinkedIn, Max Louchon who started to affirm. All these people,
• 19:15
  you know, they've been successful because they are real visionary leaders, and that's
• 19:21
  that's evident to people that you know, are looking for a place to work.
• 19:26
  So a talent attracts a talent, and so I think that was another
• 19:32
  ingredient as to why this PayPal maffia as people like to call it as formed.
• 19:37
  So one of the things Isaacson says in his book about Muss, he's
• 19:41
  similar to Steve Jobs and his lack of delicacy or diplomacy and dealing with people
• 19:49
  they just see, he sees bad cold, he just says that sucks and
• 19:55
  do better. But he gets people to do better than they ever believed that
• 19:57
  they could. He gets more of them than they ever believed they had to
• 20:02
  put out. I think that's a reasonable description. Elon was very, very
• 20:06
  demanding, not necessarily in a bad way, because that that is part of
• 20:11
  what the company needed, and he wanted the company to move faster and really
• 20:15
  overcome some of the hiccups that they came around from, you know, merging
• 20:21
  two companies together. So that that kind of you know, it is it
• 20:26
  is a little ruthless, I guess you could you could say that, but
• 20:30
  I mean the flip side of it is, you know, that's that's who
• 20:33
  he is. That's how he's gotten to where he's gotten, and nobody should
• 20:37
  have any expectations of the contrary at this point. But you can see it
• 20:41
  even early in his career, even back in those pay Pal days, a
• 20:45
  lot of those attributes were already there, and you know, for good reason.
• 20:49
  I think it's served him well in the years since. Yeah, So
• 20:53
  if you want to, if you want to make an omelet, you've got
• 20:57
  to break some etings. And he's not afraid to, that's for sure.
• 21:03
  All Right. Well, hey, it's been a fascinating discussion here. I
• 21:08
  guess we find PayPal PayPal wars wherever find books used to be sold, Yes,
• 21:15
  and it's now Amazon. Yeah, Amazon and Barnes and Noble their website
• 21:22
  Books the Million. You can go to PayPal wars dot com to learn more
• 21:26
  and find links to all the retailers. Excellent, and that link is in
• 21:32
  the show notes to this interview on Financial Survival Network dot com. When you're
• 21:37
  there, sign up for your free newsletter. Got questioned or Eric or myself?
• 21:41
  You're getting a real insider's perspective. A lot of people say they were
• 21:45
  on the inside. Ict really was before Elon Musk was Elon Musk. I
• 21:51
  mean, I know somebody owns a Hedge fund, well known household word.
• 21:56
  We're probably twenty thirty billion now and I always refer to and say I knew
• 22:02
  him before he made his first billion. And that's certainly the case for you.
• 22:07
  Eric, I'm I'm gonna I'm gonna borrow that, Carrie, thank you.
• 22:10
  Yeah, all right, they just give attribution. It's okay to borrow
• 22:15
  all leads to attribute it. But no, just kidding, But hey,
• 22:18
  you knew Elon before he made his first billion, before he made his first
• 22:22
  ten billion, before he made his first one hundred billion, right, so
• 22:26
  that's something. And you haven't forgotten them either. That's the one takeaway I
• 22:30
  get from people who know Elon from the early days. You don't forget that
• 22:37
  Sky, absolutely not. He and also Peter Peter Thal are memorable and have
• 22:41
  done a lot for a lot for the country. All Right, On that
• 22:45
  note, Hey, questions comments for Eric myself kl at Carrie Let's dot com
• 22:49
  and get you an answer. Eric got a pleasure, Thanks so much for
• 22:52
  coming on. Thank you, carry thanks for listening to Carrie Letz's Financial Survival
• 22:57
  Network. Your solution to day's trying times For the latest, go to Financial
• 23:03
  Survivalnetwork dot com. Financial Survival Network now more than ever