Chapter 1: Introduction

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Chapter 2: Company Background

Stripe is the innovative company that many are aware of, yet few can articulate its core function. Essentially, it acts as the powerful engine behind online payment solutions, akin to a sophisticated cash register for the digital era.

Stripe simplifies the payment process for businesses, whether they are fledgling startups or established enterprises, making it easy to accept online payments. They manage the intricate details of credit card processing, direct debits, and even cryptocurrencies, providing a seamless experience.

Beyond just payment processing, Stripe enhances the entire e-commerce ecosystem by offering tools for revenue management, fraud prevention, and subscription services—essentially serving as a financial Swiss Army knife for the digital age.

Chapter 3: Founder's Background & Vision

Describing Stripe’s founding team as strong would be an understatement. By 2011, when Patrick (22) and John Collison (19) launched Stripe, they were already millionaires from their previous venture, Auctomatic. Both were technical founders and adept coders, but they complemented their intelligence with humility and kindness.

However, being personable alone wouldn't convince others to leave lucrative jobs for an uncertain startup. The Collison brothers attracted talent with a compelling vision: "to increase the GDP of the Internet."

High Hiring Standards

Stripe set a remarkably high standard for its initial team, taking nearly two years to hire its first five employees. The founders understood that their early 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

Their hiring process not only ensured capability but also cultural compatibility:

• Trial Week: Candidates worked with the team for at least a week before receiving an offer.
• Experienced Candidates Only: Stripe was a small startup lacking the capacity to train new hires; they needed individuals ready to contribute immediately.
• Team Compatibility: They sought individuals the team would enjoy working with, even outside of work hours.
• Equity Incentives: Early employees were offered equity to foster commitment. "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."

Given its focus on online payments, the Collison brothers also required high technical expertise from their employees. Nearly 80% of their initial hires were engineers.

The Developer-Centric Approach

The bar was set so high that even Billy Alvarado, who joined as a finance/business professional, was considered non-technical despite his credentials.

"But he doesn't code," Patrick recalled.

Chapter 4: Product Development

Stripe's initial mission was straightforward: they believed that the challenge of enabling online transactions was fundamentally a coding issue, not a financial one, and sought to empower more websites to thrive.

At that time, competitors like PayPal existed, allowing websites to set up e-commerce solutions, but they were notoriously difficult to use and not developer-friendly. Many accepted this as an unfortunate reality.

This concept was articulated by Y Combinator founder Paul Graham, who referred to it as "Schlep Blindness," where great ideas remain untapped due to the perceived tedium of solving them.

"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

Stripe directly confronted this issue, crafting a developer-friendly payment platform that allowed users to bypass the complexities of merchant accounts and banks while ensuring secure transactions. It reduced what used to be a weeks-long setup to a simple cut-and-paste operation involving only seven lines of code.

Moreover, it prioritized user experience with a clean design—essentially a platform that "didn't suck."

Validating the Product

Despite Stripe's current technological prowess, their early testing involved a rather rudimentary approach. When a user signed up, Patrick Collison would personally call a friend to manually open a merchant account.

During their time with Y Combinator, the founders consistently showcased their product to other entrepreneurs in their batch. Instead of merely sharing a link to their beta, they requested access to the founders' laptops and set up Stripe on the spot.

Acquiring the First Customers

This hands-on approach led to the acquisition of Stripe's first customers. They gained their next 500 users through a post by YC president Garry Tan on Hacker News, inviting companies to process payments with Stripe.

Ultimately, Stripe's user-friendly solution gained traction through word-of-mouth, driven by enthusiastic reviews from tech bloggers, signaling to the Collison brothers that they were onto something significant.

"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

Targeting the Right Customers

From the outset during its beta phase, Stripe priced its services at the higher end of the market—5% + $0.5—while competitors charged between 2.9%-3.2% + $0.3.

This pricing strategy may seem unwise for a new startup, yet it was a calculated long-term decision that compelled Stripe to:

• Focus on developing an exceptional product to meet the expectations set by its premium pricing.
• Attract customers who were less sensitive to price fluctuations.

"During the private beta, we maintained higher pricing for Stripe. We wanted to compel ourselves to build a product good enough that people wouldn't just use it because it was affordable."

• Patrick Collison

Funding Strategy

As wealthy young founders, the Collison brothers could have self-funded Stripe for a while, but they opted for venture capital for reasons beyond just capital:

• Expertise in the Domain
• Institutional Credibility

In 2011, Stripe secured a $2 million Series A funding round led by prominent investors including A16z, Sequoia, Elon Musk, and Peter Thiel. Musk and Thiel, both co-founders of PayPal, brought deep industry knowledge and operational insight.

With backing from reputable venture funds like A16z and Sequoia, Stripe gained significant credibility, crucial for future partnerships with financial institutions.

This strategic funding round laid a solid foundation for Stripe’s rapid growth, eventually becoming one of the most valuable private companies, once valued at over $95 billion.

Reflection on Initial Decisions

How much do you think these foundational choices contributed to Stripe's remarkable success? Are they merely a stroke of luck, or can they be replicated?

For more detailed explorations of Stripe, check out the following resources:

• Stripe: Thinking Like a Civilization | The Generalist
• How Stripe Grows | How They Grow
• Stripe: The Internet's Most Undervalued Company | Not Boring

Stay connected with DDIntel for more stories and insights, and feel free to share your unique experiences.

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