Stripe's Startup Playbook: Early Decisions Behind a Fintech Behemoth's Rise
Inside Stripe's Success: Key Early Moves That Shaped a Fintech Giant
Hi, I’m Anthony! 👋 Every Week, I look at the 10% of startups that did not end up in the startup graveyard. Most analysis are done on mature companies which is not actionable for budding entrepreneurs. I want to understand what founders did at the very beginning? What did they do before their startup become a household name?
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Actionable Insights
Today’s company in the spotlight is the beloved Stripe.
Here are key takeaways I have learned from the decisions that Stripe has made in the beginning of their journey:
🔥 Embrace a Bold Vision: Stripe's goal to "increase the GDP of the Internet" was a game-changer. Your startup should also aim for a vision that is both ambitious and inspiring, driving you and your team forward.
❤️ Focus on Cultural Fit in Hiring: Stripe’s meticulous hiring process, especially the trial week, ensured that new hires were not just skilled but also a cultural fit. For your startup, prioritize candidates who align with your vision and values.
🤔 Solve Obvious Yet Overlooked Problems: Stripe tackled a clear yet neglected issue in online payments. Identify problems that are evident but have not been adequately addressed in your target market.Company Background
Stripe is the cool company that everyone kinda knows but not everyone can tell you what exactly they do. In essence, it's the wizard behind the curtain of online payments. Think of it as the digital age's cash register, but way smarter.
Stripe makes it super easy for businesses, whether they're scrappy startups or big-time players, to accept payments online. They handle all the nitty-gritty details of processing credit cards, direct debits, and even those cryptocurrencies.
But it's not just about taking payments; Stripe is also about making the whole e-commerce engine run smoother with tools for managing revenue, preventing fraud, and even setting up subscription models. It's like having a financial Swiss Army knife in your digital pocket.
Now let's take it way back to the beginning. 🕒
Founder's background & vision
To say that Stripe has a strong founding team would probably be a massive understatement. By 2011 when Patrick (22) and John Collison (19) started Stripe, they were already millionaires from selling their previous startup Auctomatic. Both of them were technical founders and talented coders. But, perhaps more atypical for most geniuses, they paired that with humility and just being a nice human being in general.
But being a nice smart human isn't going to convince anyone to give up their high paying job and join these 2 young men into the unknown. The Collison brothers topped that up with a compelling vision to attract talent.
To increase the GDP of the Internet
Finding more people
Stripe had an incredibly high bar for hiring its initial team, it took them almost 2 years to hire their first 5 employees. The founders put a lot of thought into hiring, because the initial team could make or break the company.
"Instead of thinking of it as hiring 10 people, you should really treat it like you're hiring 100 people."
-Patrick Collison, Co-Founder Stripe
The process that Stripe used not only ensure that their hires are capable but also a good cultural fit for the team:
A trial week: Working with the team for at least a week before making an offer.
Experienced only: Stripe was a small startup then and had no capacity to teach. Hires have to hit the ground running.
You Cool?: Are you someone the team would want to come into the office on Saturday, just to hang out with you?
Equity Stake: Providing initial employees some skin in the game. "For our first 10 people at Stripe, we gave away more than 10% of the equity. Be extremely generous with your first employees and less so with your investors."
Being an online payments firm, the Collison brothers also have high technical requirements for its employees. The firm had to be developer centric when building for developers. Almost 8 out of the initial group of 10 are engineers.
In fact, the bar was set so high that Billy Alvarado, who joined as a finance/business guy was considered non-technical despite receiving a BS in Industrial Engineering and served as VP of Product & Engineering at SEVEN Networks before joining Stripe.
"But he doesn't code," Patrick recounted saying.
The Product
Stripe's initial mission was simple: they believed that enabling transactions on the web is a problem rooted in code, not finance, and they want to help put more websites in business.
They were other competitors such as PayPal that existed then that allowed websites to set up e-commerce and payments. But they were hard to use and not developer friendly. And people just accepted it as a fact.
This was well elaborated by YC founder, Paul Graham as the Schlep Blindness, where ideas are lying around unexploited because they are seen as a tedious and unpleasant task to solve.
“The most dangerous thing about our dislike of schleps is that much of it is unconscious. Your unconscious won't even let you see ideas that involve painful schleps. That's schlep blindness.”
-Paul Graham, Y-Combinator Founding Partner
And Stripe has avoided this and tackled the payments problem head on. They aimed to build a developer friendly payments platform that allowed owners to avoid setting up merchant accounts and deal with banks, while still ensuring transaction safety. Seven simple lines of code that anyone could insert into any app or website in a day to connect to a payments company. A process that used to take weeks was now a cut-and-paste job.
On top of that, it was kept simple with an eye for design, basically a platform that "didn't suck" and easy to use.
Validating the product
Despite Stripe's current tech sophistication, the initial testing/validation period was crude and a very minimally viable product (MVP). When someone signs up to Stripe, Patrick Collison would call up his friend who would then manually open a merchant account for that user.
During their incubation with YC, the founders kept putting their product in front of the other founders in their batch. Instead of sending them a link for their beta, the Collison brothers would request for the founder’s laptop and set up Stripe on the spot once they agreed.
So much so that there's a term for it, the "Collison Installation". By hustling for the initial users, instead of sitting behind their computers writing code, the Collison brothers are able to iterate and test whether this is a problem worth solving.
Acquiring customers (first 1000 customers)
And that is how Stripe acquired their first few customers, by literally getting it in front of customers. For their next 500 customers, it was a post by YC president Garry Tan on Hacker News for companies to sign up for Stripe to process payments.
Eventually, the painless solution of Stripe for payments started to spread through word of mouth by unsolicited reviews from tech bloggers. That is when Stripe knew that they were on to something.
"Initially it very much spread through a word of mouth process. That was surprising to us because it’s a payment system, not a social network, so it’s not something you’d think would have any virality whatsoever. But, it became clear that everything else was so bad, and so painful to work with, that people actually were selling this to their friends."
-Patrick Collison
And focusing on the right customers
Right from the start during the beta, Stripe was priced at the most expensive end of the spectrum compared to its competitors. 5% +$0.5. When all their competitors were charging 2.9%-3.2% + $0.3.
It might seem like a foolish move to not compete on price when you are a new startup in the field, but this is quite a smart long term move in my opinion. Stripe is now forced to burn the bridge and be focused on:
Creating a great product because of high expectations of a premium pricing
Attract a profile of customers that is less price sensitive
Effectively using pricing as a forcing function.
“We also had higher, not lower, pricing for Stripe while it was in private beta. We wanted to force ourselves to build a sufficiently good product that people weren't just using because it was cheap.”
-Patrick Collison
Financing
As young millionaires, the Collison brothers might be able to bootstrap the company for a few years at least. However, they decided to go for venture funding because of reasons other than money:
Domain expertise
Institutional recognition
In 2011, Stripe raised a $2m Series A round that was led by A16z, Sequoia, Elon Musk and Peter Thiel.
Musk and Thiel are co-founders of PayPal and understand the industry that the Collisons are in. With the duo, they are able to get long term thinkers about the industry and also operators that understand the day to day of running a company.
With A16z and Sequoia, famous venture capital funds, Stripe can derive immense credibility which would be important when working with banking partners in the future.
This was a very well thought out round of funding and increased the odds of Stripe succeeding.
With the strong foundations laid in the initial years, Stripe grew at a tremendous pace to become one of the most valuable private companies which was worth over $95 billion at one point of time.
How much do you think the initial decisions contribute to their success? Fluke or replicable?
For more in depth deep dives into Stripe 👇
Stripe: Thinking Like a Civilization | The Generalist
How Stripe Grows | How They Grow
Stripe: The Internet’s Most Undervalued Company | Not Boring