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    Affirm: Max Levchin (Part 2 of 2)

    Leveraging brand partnerships and collaborating with innovative online brands can help create a simpler and more affordable solution for consumers, leading to rapid expansion and success.

    enJune 20, 2022

    About this Episode

    After PayPal sold to eBay in 2002, Max Levchin could have relaxed on a beach for the rest of his life. But that’s not the kind of person he is. He isn’t happy unless he’s coming up with new ideas and building companies – so much so that he actually fell into a dark place after leaving PayPal. He didn’t fully find himself until years later, when he rediscovered his passion for the “hard, valuable, fun” problems of fintech. Now, Max runs another billion-dollar company: Affirm, a “buy now, pay later” service that’s transforming how we purchase things on credit. This is the second part of a two-part conversation with Max; to hear the story of PayPal, be sure to listen to part 1!  

    See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

    🔑 Key Takeaways

    • Seek new challenges, embrace change, persevere through setbacks, and make a meaningful impact through purpose-driven entrepreneurship for ultimate success.
    • Chase fulfillment and passion in work instead of material possessions, as external rewards can't bring lasting happiness.
    • Stay ahead of the curve and capitalize on future trends by paying attention to societal shifts and embracing innovation for entrepreneurial success.
    • Max Levchin's motivation to create Slide was driven by his desire to challenge himself, surpass his previous achievements, and build a visually appealing platform for photo-sharing.
    • A successful company requires a harmonious blend of collegiality and respect for professional abilities, emphasizing the importance of a balanced workplace culture that values both kindness and professionalism.
    • Finding fulfillment and success in work requires aligning personal values and passions, as highlighted by Max Levchin's journey from corporate life to entrepreneurship.
    • Find challenging and meaningful work that aligns with your strengths and passions to create something valuable and fulfilling.
    • The current credit scoring system is flawed, and there is a need for innovation to provide fair evaluations and better financial solutions for individuals.
    • Buy Now Pay Later services like Affirm offer a more transparent and manageable approach to borrowing, appealing to younger generations seeking clarity in payment terms and avoiding debt traps.
    • Affirm's AI-driven underwriting decisions consider various data points, enabling them to provide quick and accurate loans. They prioritize timely payments and help merchants capture transactions for customers without credit cards.
    • Leveraging brand partnerships and collaborating with innovative online brands can help create a simpler and more affordable solution for consumers, leading to rapid expansion and success.
    • Starting a new business requires significant capital and partnerships, along with effective promotion strategies and collaborations with retailers and banks to scale and succeed.
    • Affirm's intentional targeting of younger generations and underserved communities, along with its commitment to transparency and solving complex math problems, has helped build trust and a strong customer base.
    • Max Levchin's focus on sustainable growth and employee well-being drives Affirm's success, while his commitment to innovation propels the company forward.
    • Recognizing and seizing opportunities, along with hard work and intelligence, is crucial for success. Luck provides the initial push, but sustained effort and work ethic are necessary for long-term accomplishments.

    📝 Podcast Summary

    Max Levchin's Journey: Purpose, Innovation, and Perseverance

    Max Levchin's journey highlights the importance of finding purpose and solving hard problems. Despite his success with PayPal, he felt rudderless and unsatisfied, leading him to explore new ventures. His desire to make a meaningful impact pushed him to create innovative solutions like affirm, a platform that revolutionizes the way we buy products on credit. Levchin's story teaches us the significance of constantly seeking new challenges and being open to change. It also emphasizes the value of perseverance and resilience in overcoming setbacks and finding fulfillment. Ultimately, Levchin's dedication to solving hard problems demonstrates the power of purpose-driven entrepreneurship and its potential for success.

    Finding fulfillment in work over material possessions and the significance of passion in finding meaning.

    Max Levchin learned the importance of finding fulfillment in work rather than chasing material possessions. He realized that money and material things weren't bringing him happiness and he was missing his girlfriend dearly. So, he decided to recreate the environment that sparked his creativity and joy during the early days of PayPal. He rented an office space, filled it with whiteboards, and invited brilliant minds to brainstorm together. This informal incubator quickly generated cool ideas and sparked a need for structure and prototyping. It was during this time that he heard Jeremy Stoppelman's idea for a review website, and without hesitation, he jumped at the opportunity. Levchin's journey teaches us the significance of finding meaning and passion in our work rather than solely pursuing external rewards.

    Levchin's success: Identifying trends and understanding behavior in technology

    Max Levchin's success with Yelp and Slide came from his ability to identify emerging trends and understand human behavior in relation to technology. He recognized the potential of local search and took a chance on Yelp, becoming one of its early investors. Similarly, Levchin anticipated the rise of social media and the desire for personal photo and video sharing, leading him to create Slide. Although Slide's timing may have been a bit early, with the dominance of platforms like Instagram today, Levchin's foresight demonstrates the importance of staying ahead of the curve and capitalizing on future behavioral trends. It's a reminder to entrepreneurs to pay attention to societal shifts and embrace innovation in order to create successful ventures.

    From PayPal to Slide: Max Levchin's Journey to Building Something Bigger

    Max Levchin's motivation to create Slide and surpass the success of PayPal stemmed from his desire to build something bigger and more impactful. Despite his early success with PayPal, Levchin felt a need to challenge himself and create a product that would reach and engage a large number of people. He wanted to prove to himself that he could surpass his previous achievements and create something of significant value. This restlessness and motivation to start companies was a defining factor in Levchin's career. With Slide, the focus was on providing a visually appealing platform for users to showcase their own photos, ultimately leading to the development of features seen in modern-day photo-sharing software.

    Striking a Balance: The Importance of Professionalism and Kindness in the Workplace.

    The success of a company is not solely dependent on a positive and loving work environment. While creating a collegial and supportive culture is important, it's equally crucial to have respect for each other's professional abilities. Max Levchin's experience with Slide taught him that during challenging times, superficial niceties and personal affection may not be enough to sustain a company. A team that can rely on each other and display military-like intensity in holding their positions is essential. Levchin also realized that if there is a lack of professional respect within a team, it can hinder progress and success. Ultimately, this highlights the importance of a balanced workplace culture that values both kindness and professionalism.

    Embracing Entrepreneurship: The Importance of Staying True to Your Passion and Values

    Max Levchin experienced a period of uncertainty and questioning when he transitioned from being an entrepreneur to working at Google. While initially enjoying the lack of stress and corporate environment, Levchin soon realized that as an entrepreneur, he thrived on the freedom and ability to create his own rules. He felt restricted and confined by the corporate walls and ultimately decided to step down from his position at Google. This experience taught him the importance of staying true to his entrepreneurial spirit and finding intellectual stimulation in more independent endeavors. Levchin's journey highlights the need for individuals to align their work with their personal values and passions in order to find fulfillment and success.

    Seeking difficult problems for valuable and fun solutions

    Max Levchin's drive and passion lie in solving difficult problems that are valuable and fun to him. Throughout his career, he has sought out challenges and puzzles to solve, fueled by his engineering background. His essay titled "Hard, Valuable, Fun" was a pivotal moment of self-reflection, where he realized that he values tasks that are not only difficult, but also have inherent value. This realization guided him in identifying the class of companies he wanted to start. Although financial services seemed like a natural fit, he initially hesitated. However, with the support of his wife, he gave himself permission to create something similar to PayPal, but even better. This anecdote highlights the importance of finding meaningful, challenging work that aligns with one's strengths and passions.

    Reinventing the Credit Scoring System for a Fairer Evaluation

    The current credit scoring system is flawed and does not accurately reflect a person's true financial situation. Max Levchin, co-founder of PayPal, experienced firsthand the frustrations of having a low credit score despite his successful career. This led him to realize the need for a better way to evaluate consumers and their creditworthiness. The key insight was that people don't just want a better credit score, they want the ability to buy things without confusion or fear of high interest rates. Levchin and his team sought to revolutionize the credit industry by leveraging technology and alternative data sources to provide fairer and more accurate evaluations of individuals. This highlights the importance of innovation and finding creative solutions to address long-standing problems in the financial sector.

    The rise of Buy Now Pay Later services challenges traditional borrowing methods

    The traditional borrowing system, especially credit cards and payday lending, may not be the best option for consumers. These methods often come with high interest rates, compounded interest, and late fees, which can burden individuals with debt. However, with the rise of alternative solutions like Buy Now Pay Later (BNPL) services, such as the company Affirm, consumers have started questioning the effectiveness of traditional borrowing methods. BNPL offers a more transparent and manageable approach, allowing individuals to borrow specific amounts for a fixed period with no compounded interest or late fees. This shift is driven by the younger generations, who prefer to have clear payment terms and avoid the pitfalls of traditional borrowing.

    AI-Powered Lending with a Focus on Financial Situations and Timely Payments

    Affirm's lending decisions are powered by artificial intelligence and a comprehensive analysis of various data points. They do not solely rely on credit scores but rather assess a borrower's financial situation by considering factors such as cash flow. By utilizing AI, Affirm is able to make quick and accurate underwriting decisions, eliminating the need for late fees and other charges. Instead, they focus on providing reminders and multiple channels of communication to ensure timely payments. From the merchant's perspective, partnering with Affirm allows them to capture transactions that may otherwise not have taken place, especially for customers without credit cards. Affirm's model is based on minimizing risk and maximizing the number of borrowers who can successfully repay their loans.

    The Power of Strategic Partnerships in Revolutionizing Credit Card Debt

    Max Levchin recognized the need for a solution to the stress and high costs associated with revolving credit card debt. He created Affirm, a buy now pay later service, to provide a simpler and more affordable way for consumers to make purchases over time. To gain customers without spending marketing dollars, Levchin leveraged partnerships with e-commerce platforms, starting with 1-800-FLOWERS. This established brand partnership gave Affirm credibility and opened doors to larger opportunities. Affirm then collaborated with innovative online brands like Peloton and Casper, which were revolutionizing their respective industries. The success of these partnerships allowed Affirm to rapidly expand its customer base. Levchin's approach demonstrates the power of finding a niche and strategically collaborating with established and emerging brands to create a viable solution.

    The importance of financial planning and partnerships in growing a new business.

    Starting a new business like Affirm requires significant capital and the ability to fund loans for consumers. In the case of Affirm, the founder Max Levchin initially put up $100,000 of his own money to cover the payments to retailers before receiving payment from the consumers. However, the launch of the product did not immediately attract customers, showing that product launches often don't have an instant impact. To grow the business, they had to learn how to promote it and work with retailers to inform consumers about the option of paying over time. They also had to establish partnerships with banks to borrow money and gradually scale their capital program. Overall, it highlights the importance of financial planning and partnerships in growing a new business.

    Affirm's Success and Trust Building Among Younger Generations and Underrepresented Communities

    Affirm, a financial company, intentionally focused on targeting younger generations, particularly Gen Z millennials and Gen X. However, it also gained popularity among people of color, specifically black consumers, who often face disproportionate negative effects from credit ratings. Affirm provides an alternative for these underserved communities, who may have previously relied on predatory payday lenders. By treating these underrepresented groups with honesty and transparency, Affirm has successfully built trust and gained a strong customer base. Additionally, Affirm's financial success lies in solving a complex math problem, ensuring positive unit economics and the potential for future profitability. Despite fluctuations in the stock price, the company remains confident in the long-term value it offers to shareholders.

    Max Levchin prioritizes long-term success and employee value over short-term stock market gains in building Affirm.

    While the fluctuations of a company's stock price may be important to some, Max Levchin, the founder of Affirm, prioritizes the mission and the value he creates for his employees. He believes in building something that will be financially successful in the long-term, rather than focusing solely on short-term stock market gains. Levchin recognizes the significance of the stock price as an indicator of employee financial well-being, but his primary focus is on building a sustainable and thriving company. Despite his restlessness and constant search for new challenges, Levchin finds excitement and opportunity within the financial services industry, constantly exploring new ideas and products to propel Affirm forward. The commitment to innovation and incubation of new ideas ensures that Affirm remains on an upward growth trajectory and well-prepared for future success.

    The Underestimated Role of Luck in Success

    The role of luck in success is often underestimated. While hard work and intelligence play a significant role, the willingness to recognize and seize opportunities is crucial. Luck presents itself in various moments, and it is up to individuals to take action when these moments arise. However, it is important to acknowledge that not everyone may encounter these lucky moments, and this can lead to missed opportunities for even the most brilliant individuals. After recognizing an opportunity, it ultimately comes down to work ethic and the willingness to make sacrifices, such as compromising work-life balance, in order to achieve success. Luck serves as the initial push, but sustained effort is necessary for long-term accomplishments.

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