Principles from Max Levchin, The Founder of Paypal
How Risk Influences Decision-making
Estimated reading time (5 minutes)
Happy Friday, everyone.
On Principles Friday, I share one principle that can help you in your life or business, one thought-provoking question, and one call to action toward that principle.
This is our last newsletter of the year, and we're closing it out with a principle from one of the PayPal Mafia.
Principle of the Week
“Take Risks To Find You Who You Really Are” — Max Levchin
Max Levchin is a software engineer and entrepreneur who co-established the company that eventually evolved into PayPal. Despite being less recognized outside Silicon Valley, Levchin is a notable figure within the PayPal mafia. His contributions to anti-fraud technology at PayPal significantly impacted its success. Beyond PayPal, Levchin founded or co-founded companies like Slide.com, HVF, and Affirm.
Picture this: it's 1998, and Max Levchin, just 23 years old, decides to shake things up. What does he do? Co-founds PayPal, that's what! But hold your horses. It’s not the online payment giant you're thinking of today. Nope, back in the day, these guys were like the superheroes of handheld devices, specifically the PalmPilot.
So, Max and his partner in crime, Peter Thiel, whip up some security software for the PalmPilot. This isn't your run-of-the-mill app; it's like Iron Man suit level for your PalmPilot, solving crazy complex problems with cryptographic algorithms. It's like they're building the Fort Knox of handhelds.
But wait, how do you sell this genius creation? Well, Max and Peter put on their thinking caps and come up with a brainwave. What if people could store their money on their PalmPilots? Brilliant, right? And just like that, the birth of PayPal.
The app takes off like a rocket – 300 daily users peaking at a cool 12,000 users. Life is good? Well, not for long. In the year 2000, people start ditching the sophisticated PalmPilot version for a crude web demo.
Max and Peter are all, "Hey, guys, stick to the cool handheld version, okay?" But do people listen? Nope. They keep on with the web demo, and surprisingly, it explodes. Millions of users start pouring in. Now, this is where it gets tricky. Max has to make a call: stick with the cool cryptographic flagship or dive into the wild, wild web.
The PalmPilot market is his turf, his comfort zone. The web market is like a new, unknown universe. Tough call, right? Stick with what you know or risk it for the unknown.
In the end, Max takes the leap. They scrap the PalmPilot and go all-in on the web version. It's a risky move, like playing poker with the house's money. The success of the company is hanging in the balance. But guess what? Max nails it. The web version explodes, and PayPal becomes the powerhouse we know today.
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Question to Ponder
How does our perception of risk influence decision-making? If you were advising someone between picking Job A or B:
Job A: represents a career you are well prepared for, which you took college courses for, but did it because of pressure from your parents. In the long run, it will pay a lot of money and prestige.
Job B: represents a non-traditional career you are interested in and passionate about, and will pay a modest sum of money and is more fulfilling. It will benefit humanity and give you freedom, but forget about being rich and powerful.
What would your advice be? How would that advice change if you were picking for yourself?
Call to Action
Risk is an inherent part of decision-making, and navigating this relationship effectively involves careful analysis, risk assessment, and the ability to adapt and learn from the outcomes of decisions. Dan and Chip Heath introduced the concept of WRAP in their book "Decisive: How to Make Better Choices in Life and Work." Here is how you can use this framework to make better decisions that can reduce risk:
Widen Your Options: Encourage yourself to explore a broader range of possibilities before deciding. This helps avoid narrow thinking and opens up creative solutions. For example, if you are planning to launch a new product. Rather than limiting yourself to a binary decision (launch or not launch), widen your options by exploring different product variations, adjusting features, pricing, and distribution methods.
Reality Test Your Assumptions: Challenge your assumptions and beliefs about the options you're considering. Seek out information that may contradict your initial thoughts to ensure a more accurate understanding of the situation. If you are considering a job change. Instead of relying solely on assumptions about the new job, seek out individuals who have worked in similar roles, gaining insights and a more realistic perspective.
Attain Distance Before Deciding: Take a step back and gain perspective. By distancing yourself emotionally from the decision, you can often see the bigger picture more clearly, leading to better choices. We tend to fall prey to short-term emotions. Use the 10/10/10 framework. Ask yourself how you will feel about your decision 10 minutes from now. How about ten months from now? How about ten years from now?
Prepare to be Wrong: Acknowledge that you might not have all the answers, and your decision could be flawed. Be open to learning from mistakes and adjust your course if necessary. The future is not a point or a single scenario we must predict. It is a range. Consider a range of outcomes from very bad to very good.
These four steps are designed to help individuals and organizations make more effective decisions by encouraging a more thoughtful and comprehensive approach to the decision-making process.
Video of the Week
How to build a successful tech startup, according to PayPal founder Max Levchin
If you want to learn more principles, I interview founders on my podcast, The First 100, where they share how they acquired their first 100 paying customers. This week:
Episode 119 - The First 100 with Jules Veyrat, the Co-founder & CEO of Stoik
Episode 118 - The First 100 with Craig Unger, the Co-founder of Hyperproof
And that’s a wrap for now!
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