Will Google Spawn a Mafia - Like PayPal?

No, this isn't a post about La Cosa Nostra.  But many recent articles such as this one in the New York Times talk about the PayPal Mafia - entrepreneurs who emerged out of PayPal - and the potential for the fraternity of ex-Googlers to invest in, and found, the next wave of innovation in Silicon Valley.

Implicit in such speculation is the belief in a contagious, high-tech version of the Midas touch - Google was so successful in such a short time that the Kool-Aid in the company cafeteria must have been liberally dosed with the entrepreneurship gene.  After all, PayPal (in which we were the first institutional investors) alumni went on to start or invest in high-profile companies such as Facebook, LinkedIn, Slide (portfolio company), Yelp, Geni, YouTube ... with its crop of young, affluent and connected techies who know no boundaries, shouldn't Google spawn even more of the next generation of successful startups?

My answer is a resounding ... maybe.  Yes, there is a very real PayPal mafia, but there isn't an equivalent eBay mafia - and eBay invented C2C e-commerce and bought PayPal.  Nor is there a Yahoo! mafia or an Amazon mafia, even though both companies invented and dominated large categories of the Internet.  Was PayPal really that special, and can Google be similarly special?

PayPal, unlike so many of the large Internet players, was always an embattled company.  They morphed their business plan dramatically along the way, struggled initially to exist as a value-added service on a hostile platform (eBay) that had a competing offering, were attacked by all manner of fraud artists, faced periodic state and federal investigations, and went public in one of the most trying times in recent US economic history.   PayPal's primary problem was always survival, and being nimble while dealing with dinosaurs was crucial - just as it is for most startups. 

Google's journey to eventual blockbuster status wasn't all smooth sailing either,  but after the first couple of years, when Google had figured out the CPC model (with some help from Overture :-)), Google's primary focus was on scaling - and that's usually a problem that emerges late in a startup's evolution.  Most startups don't have the luxury of dominating their target market (Search) while also running a printing press spewing forth hundred dollar bills (Adwords).

PayPal was very successful, but raised a lot more money (~$250M) than Google ($40M) and exited for far less ($1.5B vs. Google's current market cap of $180B).  The average PayPal employee got a whiff of wealth, but hardly the tens or hundreds of millions that so many Google veterans pocketed thanks to Larry and Sergey's generous options granting policies and the lofty valuation of Google by the public markets.  And while it takes guts to climb out of poverty and build a business, it takes even more to sustain ambition and hunger when your biggest problem in life is dodging calls from wealth managers anxious for your business.

Because PayPal was acquired by a much bigger company, there was a pretty rapid exodus of top talent, many eager to prove that PayPal's considerable success was neither a flash in a pan nor enough of a showcase for their abilities.  PayPal was still relatively small and tight-knit as a company when it was acquired, and the smart techies leaving PayPal all knew each other well.  When they ventured out on their own, these entrepreneurs had a cohort of investors, co-founders and advisors who were aligned in attitude, experience and timing, a fortunate coincidence indeed.

Google's success continues to this day, seemingly without bound, and the incredibly smart, talented, rich and connected folks who choose to leave are on a very personal timeline, usually dictated by options vesting dates; and Google tries hard to keep them by offering a mix of professional and financial blandishments.  Departures take place in a trickle, therefore, and not en masse, and given Google's size, connections within alumni are necessarily looser than at a smaller outfit like PayPal.

Startups need to start out laser-focused, often on ideas that seem quite small and all about the here and now rather than the distant and transformational. I wonder if after helping build a colossus like Google, its alumni will be satisfied working on startup ideas that of necessity will appear tiny in comparison. To their credit, many of the first few Google progeny (e.g., FriendFeed and Weatherbill) seem delightfully concrete, although no doubt with ambitious expansion plans - I sure do hope this trend continues, although I've seen my share of (unnamed!) ex-Google companies that are venturing far beyond the realms of the possible.

Googlers do have quite a few things going for them, of course - the Google selection process was skewed towards off-the-charts-smart people, they did well in a decentralized meritocracy that valued engineering talent much more highly than competitors such as Yahoo or eBay, and Google's policy of allowing employees to spend up to 20% of their time on pet projects has let hundreds of them experience the full lifecycle of conceiving, developing and launching a new product or service. 

A few of these services succeeded, but I suspect the most valuable lessons were learned from the many more flops and Googlers imbibed a culture of failing fast and objective metrics-driven decision-making.  These are essential ingredients for entrepreneurial success.

So PayPal was a very special place,an incubator of talent unrivaled in decades.  But there's enough going for Google that it just might become #1 in that contest as well.

Comments

[keith jones]

Sorry friend, but there is a Yahoo! mafia, you can read about it here http://endmafia.com

[addicting games]

great blog discussion, google is dominating browsers and like paypal it seems like a mafia deal haha! they could definitely make a better browser for users.