Betting on IGOR

This book was my best buy of the year so far. It packs tons and tons of experience into 400-some dense pages of interviews with the founders of 30 startups. I was particularly interested in the story of PayPal’s early days as recounted by cofounder Max Levchin, the guy that drove technology for the company from 2-person to 1000-person eBay acquisition. The reason PayPal made it, while their clones and competition in 2000 didn’t, was dealing with payment fraud. Some of their competitors were seeing 25% fraud rates — for every $4 transaction, $1 was coming out of their pockets in theft.

PayPal, at one point, was losing more than $10 million a month. When Levchin started looking at it, he realized that while PayPal was growing so fast nobody really noticed it, the fraud rate was growing faster. It’d quickly go from being 1% of their transactions to 3%, then 5%, then 10%… and at some point they wouldn’t be able to bear it. And they had no tools to stop it. Online fraud is perpetrated by smart criminals, and it’s often organized crime, not individuals. They could have thousands of accounts involved pushing tens of thousands of dollars at a time without any way for PayPal to connect it all up.

That’s when Levchin and an intern built IGOR. It’s still pretty much a secret exactly how it works; initially, to even use IGOR, employees had to go into a private room and sit at a terminal and use it. There were no other copies. The investigation department is a little bigger today, but the reason stands that PayPal succeeds because of its ability to screen fraud, its ability to assess the risk of a buyer and seller and decide whether to take that risk or not.

So I’m betting on IGOR, and PayPal, to be able to do that better than I’ve been able to. I’m betting on PayPal to assess those risks and identify the unacceptable ones faster. That’s why they’re now the only payment gateway available to my new customers. Only once they pass the IGOR test can they pay by credit card on repeat orders.

“I think the hallmark of a really good entrepreneur is that you’re not really going to build one specific company. The goal–at least the way I think about entrepreneurship–is you realize one day that you can’t really work for anyone else. You have to start your own thing. It almost doesn’t matter what that thing is.”
— Max Levchin

If that describes you, pick up a copy of this book. With 30 different stories, you can pick it up for a few minutes at a time and still get a lot out of it.