How Contrarians Think: The Early Days of Square, Yelp, & PayPal | Keith Rabois on the NFX Podcast

Check out NFX Podcast Episode Page & Show Notes

Key Takeaways

  • “It’s easy to be contrarian. It’s extremely rare and difficult to be contrarian and right.” Keith Rabois
  • It’s a lot easier to build a business when you see the world differently from other people. It will allow you to gain momentum and traction before the rest of the world catches on.
  • The basic principle of a contrarian is the ability to think for yourself, on any topic, and being able to derive a set of views independent of what other people around you think
    • That’s very difficult to do because everybody is influenced by the 5 people you spend the most time with
      • “If you spend a lot of time with average VCs, you’re going to start thinking like average VCs” – Keith Rabois 
  • PayPal didn’t have general managers, instead, they promoted the best people in each discipline to lead the team
    • “The best engineer would become VP of Engineering, the best designer would head the Design team, the best product person would lead the Product team”  Keith Rabois
  • “If you follow the rule book, you’re not going to create an iconic company from scratch. There is no rule book that tells you how to build the next SpaceX or Tesla by definition. And so you need to know what rules you’re going to change.” Keith Rabois 
  • “The team you build really is the company and with the right people you might have a phenomenal company, but a lot of people have an unmitigated disaster and most companies are somewhere in between.” Keith Rabois

Intro

Books Mentioned

Being A Contrarian

  • It’s a lot easier to build a business when you see the world differently from others. It will allow you to gain momentum and traction before the rest of the world catches on.
  • How did Keith become a contrarian?
    • He applies first-principle thinking 
    • He reads a lot of history
    • He held different politician views than his parents and their friends
      • Once Keith realized the people he looked up to were wrong about their predictions, he started to think about other predictions people were making that were also false  
  • The basic principle of a contrarian is the ability to think for yourself, on any topic, and being able to derive a set of views independent of what other people around you think
    • That’s very difficult to do because everybody is influenced by the 5 people you spend the most time with
      • “If you spend a lot of time with average VCs, you’re going to start thinking like average VCs” – Keith Rabois 
  • Keith is anti-FOMO, he’s JOMO; the joy of missing out
  • Peter Thiel wrote a book about secrets and contrarian thinking in Zero to One 
    • What secrets does the Founder have or team have, that are insights about the world that everybody else thinks are wrong, but prove to be accurate? 
  • “It’s easy to be contrarian. It’s extremely rare and difficult to be contrarian and right.” Keith Rabois

Lessons From The “PayPal Mafia”

  • At PayPal, Max Levchin and Peter Thiel focused on hiring the best people they knew
    • “They identified people with high potential at scale and mixed everybody together” Keith Rabois
  • PayPal didn’t have general managers, instead, they promoted the best people in each discipline to lead the team
    • “The best engineer would become VP of Engineering, the best designer would head the Design team, the best product person would lead the Product team”  Keith Rabois
      • “Everybody knew that their boss was actually pretty damn good at what he or she did…I think that was pretty fundamental.”
  • Being a Founder is like chewing glass:
    • “It’s not particularly fun, it’s very painful, it requires a lot of self-actualization and initiative.” Keith Rabois

Know When To Follow & When To Break The Rules

  • The art in most fields is understanding the rule and then knowing when to deviate
    • When you master all the rules you get to violate them
      • “Deviating from rules doesn’t make much sense, per se. It’s knowing why you’re deviating from the rule.” Keith Rabois
  • “If you follow the rule book, you’re not going to create an iconic company from scratch. There is no rule book that tells you how to build the next SpaceX or Tesla by definition. And so you need to know what rules you’re going to change.” Keith Rabois
  • Apple breaks a lot of norms but it’s now one of the biggest companies in the world:
    • It’s a closed platform
    • It’s a secretive company; they don’t let their different teams talk to each other inside the company.
    • They don’t actually use metrics for the most part to measure themselves
  • You want founders who are ambitious enough to think that they can change the world
    • You want founders who break some rules, but not all of them; that’s a recipe for disaster

Lessons from Yelp, PayPal, & Square

  • Key KPIs (key performance indicators) can be counterintuitive in the early days of startups
    • The counterintuitive but key KPI for Yelp was the number of unique, one-on-one personal messages from one member to another
      • This helped build Yelp into a viral social product
    • In the early days of PayPal, the team saw some eBay sellers writing on their selling lists that they only take PayPal
      • Although eBay sellers weren’t the target market, the PayPal team created a logo that sellers could use to signal to people that they accept payment via PayPal. eBay sellers went on to become a huge part of PayPal’s business.
    • When Square launched, they sent out about 20,000 Squares into the world and noticed that more and more users were signing up without Square doing any marketing.
      • It turned out that word of mouth about the device was spreading. Since the device was a square and the company was called Square, it was easy for people to remember and sign up for it.

The Team You Build = The Company You Build

  • “The team you build really is the company and with the right people you might have a phenomenal company, but a lot of people have an unmitigated disaster and most companies are somewhere in between.” Keith Rabois
  • COVID-19 has accelerated remote work; the impact of this remains unclear:
    • It’s harder to read social cues or build a relationship from conference calls
      • “It goes back to knowing the rules. I think there are some advantages to remote working if you know which rules you actually can’t break.” – Keith Rabois
  • The benefit of being co-located is mostly extemporaneous conversations; dialogues that wouldn’t have happened by scheduled meetings
    • The team at PayPal generated many good ideas while having drinks or getting food outside of work

Additional Notes

  • Contrarians views from Keith: 
  • One of the best things you can do as a founder is to find someone who loves to do the work that you hate
  • Not all founders are the same: You don’t want Elon Musk running AirBnb or Brian Chesky running SpaceX
NFX Podcast : , , , ,
Notes By Alex Wiec

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