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He didn t know the software industry per se, but he had a good reputation in the valley for helping businesses improve themselves, and he did a thorough analysis of our business Anyway, one of the recommendations that the consultant made was to raise our product price I was actually quite terrified to do that I thought our customers would just disappear overnight I was surprised to find that it didn t even have a blip on our sales volume So we went from $195 to about $325 overnight, and you know, there wasn t even a blip in the sales volume Smolin: But you were working with a better class of people Matfield: Well, essentially that s what happened We filtered out the nickel-and-dime crowd and we attracted people who were looking for a more serious product Smolin: Serious developers.

Livingston: What was one of the most surprising things to you Levchin: It was all surprising. Nonstop learning of things that I didn t really know before. The most surprising thing was how big it became. I never thought it was going to be that big. I think I told Peter, If we ever get to be 25 people, I ll probably quit because I like small companies. Is that OK The next time we talked about it, we already had 75 people, so I sort of missed my window. He said, Why don t you stick around till 100, and we ll see what happens Next time we talked, we had 1,000 people. Livingston: What advice would you give to a young programmer who s thinking of starting a startup Levchin: Try to have a good cofounder. I think it s all about people, and, if you

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are doing it completely alone, it s really hard. It s not impossible, in particular if you are a loner and introverted type, but it s still really hard. One of the ways PayPal changed me is that I used to be really introverted, and I sort of still am, but not anywhere near to the extent that I used to be. A big part of it was that I had run a company before PayPal, alone, and I thought it was fine. I could deal with it. But, you only can count on energy sources and support sources from yourself. There s really no one else who you can go to and say, Hey, this thing is going to fall apart any minute now. What the hell are we going to do The thing that kept us going in the early days was the fact that Peter and I always knew that both of us would not be in a funk together. When I was like, This fraud thing is going to kill us, Peter said, No, I ve seen the numbers. You are doing fine. Just keep at it. You ll get it. On the flip side, when Peter would be annoyed by some investors or board dynamics or whatever, I was usually there trying to support him. That sort of sounds touchy-feely, but I think you have to really have good people. If you have a good team, you are halfway there. Even more importantly, perhaps, you have to have a really strong cofounder. Someone you can rely on in a very fundamental way.

Livingston: Did you feel that way about Peter when you started Levchin: We hit it off really quickly. I have this IQ bias anybody really smart,

Matfield: Yeah, and we since then increased our prices more than once and generally have found that we have not changed the sale volume Well, in some cases actually an increase in price has increased the volume Smolin: So you ve expanded the product line quite a bit, as I see on the web site Have you had any that have tanked Matfield: Oh yeah, and you know, they ve not so much tanked that, you know, they probably haven t even paid the cost of the development I didn t see that as necessarily a failure I just saw it as, you know, I was interested in trying this or that concept, and some of them had less blatant need than others Smolin: Was it because it was a smaller market, or did you misgauge the market size or segment Matfield: Well, one good example is the Palm Pilot.

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