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David Sacks on what made the PayPal Mafia so successful
The employees of PayPal went on to build many of the companies that defined Silicon Valley in the 2000s, such as Tesla, SpaceX, LinkedIn, YouTube, Palantir, Yelp, Yammer, and more.
David Sacks—founding COO and product leader at PayPal—reflects on some of the factors that he believed contributed to their success:
“I think one of the key things was that PayPal innovated not just on product, but on distribution as well.”
He gives three examples of distribution strategies the PayPal Mafia brought with them to their next companies:
1. Virality. PayPal paid users $20 to refer their friends, which led to explosive growth. Virality was a huge factor in LinkedIn’s success.
2. Building on an existing network/platform. PayPal leveraged eBay’s power seller network, while LinkedIn leveraged their users’ network of email contacts. You want to “go where the users already are,” Sacks argues.
3. Embeds. PayPal let customers embed the logo on their websites and eBay auctions. YouTube employed this same strategy by making their videos easy to embed on Myspace and other websites.
Sacks continues:
“All of these techniques today are commonplace, but in the early 2000s, we were one of the first companies to do them… We were innovating not just on product but on distribution as well, and that is something that all of the PayPal Mafia companies have done.”
He contrasts the ~220 employees pre-IPO PayPal employees producing 7+ unicorns versus only a handful from Google even though Google had 100x the number of employees.
“It’s a really interesting question: Why?… I think this sort of scrappiness around distribution is a big part of the explanation… If you’re an entrepreneur working in a small team, you’ve got to figure out from zero: How do I get my first user? How do I get the second user? How does that go to one hundred, one thousand, one million?… [Google] never has to think about that. They’ve got guaranteed distribution of half a billion users. And so, I think that scrappiness around distribution is one of the key reasons that there’s been so many PayPal mafia companies. I think it’s an interesting thing to think about as you create your own startups.”