Building A Team Of Inspirational Leaders w/ Affirm CEO Max Levchin | Greymatter

This episode of Gray Matter is in partnership with sfelc, a curated community of engineering leaders working to evolve the way leadership is implemented in the tech industry. At the annual SFELC Summit, a firm co founder and CEO Max Levchin shares leadership lessons from the early days of co founding PayPal and advice for building a mission driven company culture.

So let me introduce you to our moderator for this fireside chat, Benjamin Jun. He's the chief builder at HVF Labs, which stands for Hard, valuable and fun. It's a fintech startup studio and it's focused on helping where technically differentiable solutions can unlock world changing companies. It's helped spin off companies like Affirm, Max's company, Divi Homes and Yelp. He's been the co founder and CTO of Cryptography Research which which provides security tech for payment systems across a number of different applications. Please welcome Benjamin June to the stage.

Hi everyone. I am super glad to be here today and I'm super glad to invite my good friend and our next guest, Max Levchin. A lot of you know Max in a lot of the different dimensions, so I'll just keep this brief. He's known for starting three companies that have significantly changed the landscape of finance and how we look at data. That's PayPal, that's Slide, which is now part of Google, and Affirm, the personal finance company. He's also started around 10 companies, mostly through HVF Labs, which is his startup studio. He's also invested in and advised about 100 companies, mostly through Syfy VC, which is his personal venture arm. So why don't we welcome Max up on stage. Max is celebrated as someone who's used his technology background to be an effective leader and I think that's a very rare combination as much as we think this is a a place of Silicon Valley. So Max, a lot of people know a lot of aspects about you, but one of the kind of unsung things about you is that cryptography has always been sort of a big love of yours. And I know that PayPal was actually started as a company to bring cryptographic technology into mobile devices. How did crypto become something that you're passionate about and why?

I had this friend in college named Dave Blumenthal and he was about four years ahead of me in school and whatever he did, I wanted to do at least as well. And one day he left a copy of the Digital Encryption Standard Spec on his desk and I picked it up and fell in love. There's no more complicated story than I read through the Des spec. And I thought holy crap. Like all the spy novels that I read where they say secret codes, that's how that works, that was that.

And when it came time to start PayPal, you had a side company, you had a side hustle that was actually writing security tools for IT people and then you had an envision of how that would change. Maybe like me a little more on that.

Sure. So I did in fact fall in love with crypto through literally reading one of the these days horribly outdated, but back then standard way of encrypting information. As that sort of became an obsession, I went out and read more books and took some classes and did more and more, all the while starting companies in college and failing at them with this unenviable consistency. So one of the things that I had to do actually just pay my bills and one of the bill paying gigs that I sort of had on the side was I adminned a lab. And being a newly minted security guy, I was not going to have just a basic password. I had a two factor authentication for every spark box that I admin. Those of you who don't know what spark boxes are, pretty historic technology, but beautiful pizza boxes. So anyway, so I had a one time password generator which back then came in a form of a physical device. So I had a pocket full of these little cards and because University of Illinois was cheap, they wouldn't spring for RSA which was the proprietary one. They used ones from places like Cryptocurrency and a couple other companies. And eventually I accumulated sort of a pocket full of these little sort of credit card sized calculators that upon pressing a key would spit out the next password, just like Google Authenticator today will do in the form of an app. But this is 25 years ago. And so at some point I got introduced to the Palm Pilot, which was the very first kind of a real programmable device that you could do things with and thought well, why in the world would I have to carry all these secure key generators in my back pocket? Instead I can just emulate the stuff in my Palm Pilot. So I built an app which was back then, I think not called an app at all. But I ended up having to reverse engineer a bunch of these cards. Some of this involved actually some hardware hacking which was really exciting. And eventually somebody would say oh yeah, I have to dig out my crypto card and say oh, I don't need to do that. I have a Palm Pilot that will compute my password for me and within sort of a four or Five of these bragging sessions, people said, well, how much can I pay you so that I can have this? And long story short, I released this thing as a shareware and made a meaningful number of dollars on it. At the time, it almost paid for recurrent food expenses. But I was so committed to my user base that one of the sort of more memorable moments from PayPal history, Peter Thiel walked in on me while I was fixing bugs and answering fan mail slash bug fix requests for this thing called Secure Pilot. Said, what is this thing? What are you working on? I'm just answering my technical support emails for SecurePilot. What is Secure Pilot? It's my side hustle. I have this little company I built that emulates cryptographic key generators. Have these eyes the size of a place, they're like, what the hell are you doing? We're three months behind launch schedule for PayPal and you're fixing bugs for a side hustle? You gotta get rid of this thing. But PayPal was founded not as PayPal but as a company called originally Fieldlink and then Confinity, which stood for confidence and Infinity, which was going to bring real cryptography to really, really low power devices like Palm Pilot and then Handspring Device. And it was full 20 years ahead of its time because these chips were something like Dragon Ball, which is a horribly low power chip. So you really cannot do any real crypto on it. But crypto's kind of always permeated my life as a passion. And back before crypto was these funny bitcoiny things that people trade. No, I'm kidding. But cryptography, not cryptocurrency, which I also admire and think is really cool. But this was full 20 years before any satoshi action.

Yeah, I mean, when I first met you, you had already basically written what I guess we now call Google Authenticator. And at the same time you were talking about building this company, doing Palm Pilot. The Palm Pilot cash transfers, which was about as foreign as Bitcoin to me. I have to confess, sort of how I got to meet Max was actually as a bit of a home wrecker, I tried to convince him to leave Peter Thiel to work with me. Thankfully for the world, that didn't happen.

Imagine, if you will, a tropical location, a bar, drinks with umbrellas in them, and Ben intimating that there's room in his startup for a guy like me, while I'm eyeing Peter Thiel, who's sitting in the back of the bar talking to someone else excitedly about this company that he just started with to be called PayPal. For a moment I thought Ben and his friend and co founder Paul were really cool. Just promised this dude Peter to do something with him. I guess that's the one that got away. So we joined forces full 20 odd years later, but stayed friends as our conversation. And the tropical bar, incidentally is real. We were at a conference called Financial Cryptography, which I think still exists in a place called Anguilla, which is known for a bunch of things, including the fact that it has an extremely lax tax regime and basically affords you all sorts of anonymity. And so there were three types of people at that conference. Broke students like me, real cryptographers like the R and the S of the RSA were in attendance that particular session. And a bunch of guys in two piece suits that spoke with really heavy Eastern European accents and would come up and say, can you help me with anonymous transfer? And on occasion I still get calls from investigators saying, hey, did you meet this person 20 odd years ago at Anguilla? Like terrifying.

So we're going to talk about leadership and I want to switch right to talking about PayPal. One of the things that I've noticed for the projects that we work on is if you wait for the TechCrunch article to come out, if you wait for the metric, if you wait to show up in that map of the industry, it's too late to use that feedback in any meaningful way in what you're working on. And so as you think back to the PayPal days, what were the major milestones in your mind that you were pushing your team towards? And are those the same milestones that were heralded by the world?

The thing that's really important in PayPal, a firm, every company ever been a part of or near, one of the most important things you can do is find a metric, ideally one metric. Although the more complicated the thing you're trying to build, the harder it is to just pin down the one thing that matters.

What was that metric at PayPal?

So the original metric at PayPal was number of users. And it was actually kind of a cool story. So my really good friend Russell Simmons, whom I met, not the rapper, the software engineer, future CTO of Yelp. He and I went to college together. He was our basically first engineer at PayPal. And all of us learned sort of the same exact set of skills on the UNIX prompt. He was the only person who really knew Windows. And I had this idea because we decided that number of users really matters. I asked him to build a screensaver so that first we were all coding on Windows because Mac was in a temporary, desperate situation, so there was no Mac OS yet, really. And so we were building everything on Windows. He built this really cool screensaver that just showed this number. And I would forlornly stare. 102, 102, 103. Did anybody sign up yet? I just did. All right, that doesn't count. And so it was a very slow early growth. And then we figured out this idea of incentivizing users to invite their friends. And so you'd get $10 if you invited a friend and they joined and they would get $10. It's a good interview puzzle, by the way. Does this institute an infinite sum or does it not? And what's the true cost of user acquisition? Number of people who got that wrong, including many venture capitalists, is kind of unbelievable, but true answer at the end of the session. So as we figured this out, the counter started spinning faster and faster and faster and faster. At some point, I was like, whoa, it just moved by 2,000 in, like, 50 seconds. What's going on? At some point, our main database was brought down by the screensavers. Completely true story, where I had to figure out what the hell was going on.

So you're doing a SQL query that.

Just Count Star is pretty expensive, as it turns out. I know I'm among friends when that elicits a real laughter. Anyway, so he definitely had to go fix the query. And then eventually we actually had to turn it off because we could not reindex the table fast enough for temporary counts. But number of users really mattered. And the walkaway lesson from PayPal, which I took with me to everything I've ever done since, unless you're building something really, really different. And there are exceptions, so this is not a universal metric, but it is really good to measure your impact on the world by the number of lives you've changed. It sounds extremely inflated and highfalutin and kind of is. But it all comes down to, how many people's lives have you helped or not? And at PayPal, I think we just thought of it as a, well, we need more users. But then we started getting notes from people saying, hey, you've changed my life. I can sell things on ebay now, and I'm making a living. And you become more and more inspired. And so mapping your work to human impact is pretty profound. And so every time I'm involved in anything, I typically try to map to.

That based on how you've grown personally as a leader, when you Kind of look back at and again I want to focus on the PayPal days, but I'm going to follow up by asking you what it is now. What do you think was in your toolkit then you had a couple of companies that you had tried to work on. You had a strong interest in puzzles and cryptography. As you look back, how should you have taken stock of what you knew and how should you have applied that as a leader? And then fast forward, I'm going to ask questions, I'm going to ask you the same question, what you're doing right now at a firm 20 years later.

I definitely have changed a lot over the last 30 years. I think in the early PayPal days, what I didn't realize actually relatively good at and I've now heard this feedback and sort of pleased me greatly because I didn't think of it as such at the time. I really thought leadership by example, if you expect your team to work, you work harder. If you're going to work the weekend, you stay up all night, sort of not one upmanship so much as you better be in the same trenches as your crew, otherwise they won't believe you when you say this is important, let's do something. And I think that balance with empathy of wait a second, I can tell people are burning out, we shouldn't be doing this. This is not so important that we need to sprint for this one. Let's measure it out. Which I think I sort of understood intuitively from doing things like running student groups and trying to just doing a lot of all nighters in college where I could sort of tell when my roommates were about to murder me for pushing them to do another puzzle. And at PayPal, I think it was entirely intuitive management where I just tried to lead by example, write as much code as I would be allowed to. Over time it became pretty clear that I was not in fact the very best programmer in the world, even though I really thought I was for a time. And then 25, 30 years later, you realize that a lot of leadership isn't really at all about even so much as trying to establish yourself as the alpha dog. It's actually about transferring responsibility in a way that doesn't guilt trip, for lack of a better term, the person that you're offering responsibility to, but empowers them and inflates them with or imbues them with a need to prove to their team that they're capable of achieving these results that are expected of them. And so I spend most of my free time reading books on psychology these days, because I desperately try to understand what motivated some people perform these amazing tasks and others appear indifferent. And so if you want a sort of prescription for avenue of growth, understanding how people think, understanding what motivates them, understanding how do you get them to align with the vision of the company on their own and to own it as opposed to take it, is probably the most valuable thing that I've learned.

No, there's two sides to that. Because to do that means you're giving up something. I mean, you're giving up the voice, you're giving up control. And when you chat with people who are probably newer tech CEOs, I know there's a couple of conversations you have around helping someone make that transition from being a VPE to a CEO. And I think it's applicable for a lot of different stages. Maybe you can go into that a little bit more.

The most interesting thing to tease out almost every time is what really matters. And one perhaps circular reference. So, HVF stands for hard, valuable and fun. So fun, I added many years later. But hard and valuable was actually a conversation that I had with Peter Thiel. Many of my formative conversations were with him as a manager and as a leader, because he has truly amazing capacity to bring out the very best in people he surrounds himself with. The one thing that is unequivocally true of Peter is that when you're in his presence, the first thing that comes to mind is, I think he believes in me more than I believe in myself. I can do better, I should do better. It's amazing how much of that he just brings into every conversation, every relationship that he has. And so one of the things that he taught me in a really amusing conversation, we were working on something, almost doesn't really matter what, and he'd ask me, well, what is this thing that you're trying to do here? And Russ and I probably staying up all night as we usually did back then, they said, oh, this thing is really hard sort of describing. He said, huh? But is it valuable? What do you mean? It's really hard. But think of the implication. You can beat your head against the wall and it's pretty hard, and the wall will probably not crack, but your head will. Was that of any value to anyone? Now, good news is that anything that's really valuable, unless it's like, oh, you just backed the truck into a barn and it was filled with gold, it's going to be pretty hard. So just focus on the stuff that's truly valuable and the Difficulties will come on their own. You don't need to worry so much about solving hard puzzles. And actually, back then, today it seems painfully obvious. Back then, to me, it was sort of a revelation. I was like, well, I spent my entire kind of formative years, from 17, 18, whatever I was till the end of college, learning how to solve hard problems. I took great pride in being a good engineer. I'm not sure I was ever a spectacular one, but I loved solving problems. I loved writing code. I couldn't get enough of it. And the harder, the better. Take the easier path. Seemed like an insult, because why would I solve the easy problems? Those are not cool. That's not even in the right dimension. Don't worry about cool or not cool or hard or not hard. Solve what matters, figure out what's valuable and go after that. And so a lot of the leadership conversations that I have today, kind of amazing. But for younger leaders, for people who haven't been in the industry very long, that fallacy persists and persists again and again. And I delight in retelling that story because once you grock it sort of like, oh, yeah, I should just solve the thing that matters. I don't need to worry about the hard stuff. It'll show up on its own. And there's plenty of hard problems. And the more you work with people, the more you realize that the truly hard problems are always about humans, their number, about code.

So when you have a team and you have a set of people, how do you think about complementing that team? Well, if you know you need more of Resource X, I think you know what the answer to that is. But when it's like, something is not quite right here, I think I'm missing something. I need us to. Or this person really does better in this way. How do I compliment them? How do you do that?

I think a lot of it is asking the team itself the question, what's the biggest blocker? What prevents you from shipping on time, delivering better quality? One of the things that I've learned over the years, which certainly didn't do ever, I think, at PayPal, my CTO and another friend from 25 years ago, our CTO at a firm, Libor, insists on writing a very detailed, brutally honest postmortem for every major or minor screw up that we've ever had. And in those documents, it is brutal. Like, oh, this thing just broke. We went for seven hours trying to find the bug and fix it and undo it and apologize and deal with the press fallout. You really want to Just go to sleep and maybe hide out for a while. And he's insisted for years that the engineers responsible for causing the problem and fixing the problem get together and write down, like, physically or type up what caused this by the time you're done. If you're honest, there's a glaring story in there that says we lacked X. And sometimes X is care or testing or things that are pretty technical and obvious. And sometimes we don't have anyone who knows how to do this. And we took it on the chin because no one here had that in their field of view. And you find out what you need and you look for it in your recruiting efforts. I think that that's the most honest, if painful way of doing it.

So there's a clear trend in the questions here. And I think I can summarize it pretty greatly, like, who do you want to work with and how do you know?

I was actually reminded of this in another sort of ex PayPal person conversation a few weeks ago. So back in the old days at PayPal, there were what was known as the Max's aura test, where I knew that I would or would not work well with someone based on kind of the first couple of minutes of conversation. And I could never really put it down on paper, sort of explain what it really meant, but I sort of knew that this would be a great addition to the team or it wouldn't be. And I had to be reminded of the aura test. So it's clearly not stuck with me, but Liebor, who obviously has to hire and sometimes fire engineers and engineering managers all the time. So you and I were talking about this and he said, oh, yeah, I called it the hallway avoidance test. So that's where you can only do this x + facto. Unfortunately, you can try to get this in your head, but it's hard. But once you bring someone on and you see them in the hallway and they're just far enough away where you have a choice where you go, I have something I need to talk to you about, or where's the next conference room I can duck into? It's the hallway avoidance versus not test. And if it's hallway avoidance, you made a terrible mistake. Find a way to unwind that relationship. Get the person off the team. I think more practically speaking, you want the right balance between someone who is deeply vested in your success, whether they report to you or they're your peer, they're your boss. Doesn't really matter where they are in the org chart. You want someone surrounded by people who look at you and see someone who can do more, who can be even more contributive to the cause of the company, but not so much so that it's intimidating, frustrating or insulting. So you don't want a taskmaster, you don't want a drill sergeant. You want someone who is a friend and an enabler and I think most importantly somebody who inspires you. Like I think in the end of it all sort of I said a long time ago and it got sort of quoted around social media at some point. There's not a whole lot of difference between co founding a company and deciding to get married. The spouse is someone or your co founder is someone you're going to be with so tightly for so long. You want to be inspired, you want to be impressed, you want to try to impress that person and you feel all those things that that'll be a great relationship if you're settling or compromising. Certainly don't do that if you're trying to decide whether that's a spouse to have or a co founder or a report or somebody on your team. If you feel like I know what I'll look past X typically a recipe for disaster. Eventually it comes back to Hanu.

Let me close Max with a question that I'm seeing coming up here. Now, fintech and I actually think fintech and crypto are very related. It's sort of numbers and processing and transactions having real power. There is real evil in the world and there are real companies perpetuating it. But rather than go that way, you've chosen to work in an area where there are very powerful tools that can help people, but that can also be very oppressive. How do you know you're doing the right thing and how do you stand up and guide the 500 people at a firm to do that?

So the one thing that we didn't do at PayPal, which at the time I certainly didn't think about and didn't bother me one bit, and in retrospect I insisted on doing on the very first day of a firm as a concept was to write down our core values. And PayPal meandered through business plan and purpose. We pivoted, as the kids call it these days, about six times. So the PayPal of day one and PayPal of today are very, very, very different companies. There's almost no similarity other than the founding team was the same a firm actually it wasn't quite sort of whole cloth what it is. But we chose to go build, revolutionize, to use a long word, the way lending the Way credit is done because we felt that it was at best immoral and occasionally teetering and immoral, and we wanted to change that. And as I sort of wrote down the mission of the company, which is to change lives back to my counting humans through financial products, I said, well, that's not enough. I need to figure out what it means. What will we do and not do? And so I wrote down five core values. And then a little bit later I wrote down fairly lengthy document titled Affirm operating principles. It's not as long as Ray Dalio's, but it's meaningfully length. It was kind of a cathartic experience because I realized that there will be many ethical questions eventually that will not be black and white. They'll be plenty of grayscale in between the answers. And we would have to know how to decide. And so going through the process of writing down what isn't right at a conceptual level now build products. Interest is okay. Compounding interest is not deferred. Interest is toxic and evil. And whoever does that should be banned from the industry. Those things don't help because there'll always be another question that you're not prepared for. So you have to step back and ask the question, what are you willing to do or you're not willing to do? And one of the things that I wrote down seven years ago now making money on other people's misfortune is evil. We will not do that. And I think thinking like that, sort of forcing yourself to get deep into what are you doing this for and what will you not allow yourself and your team to do, was profound. And I'm super proud of the fact that our team stuck by those operating principles. And it is now such part of the fabric of the culture of the company that I don't think these questions even come up. People know what's right and what's wrong from our point of view. And I don't want to force it onto everyone. And the decisions can be made without consulting the managers or there's no chain of command that decides on morality. People know what the company stands for and how we solve problems. So I'm not sure there's a prescriptive narrative in there beyond the fact that writing down core values we was truly central. And I think a lot of companies these days really take it very seriously. Twenty years ago, Silicon Valley was not known for its core values. I think today it's much more of a thing. And there's a sort of whole avant garde of companies that are very, very focused on being mission driven, being benevolent or beneficent or whatever the fancy word you want to use for it. And I'm very happy that affirm is one of them.

All right. Thank you, Max.

Thank you.