The Power of Expectations: Lessons from PayPal and the Pygmalion Effect


Hatched by Glasp

Sep 04, 2023

4 min read


The Power of Expectations: Lessons from PayPal and the Pygmalion Effect


In the world of business and personal growth, two seemingly unrelated concepts converge to reveal valuable lessons about the power of expectations. PayPal, the original product growth company, and the Pygmalion effect, a psychological phenomenon, both shed light on how our beliefs and perceptions can shape our outcomes. By exploring their commonalities and unique insights, we can gain actionable advice to enhance our own success.

PayPal: The Original Product Growth Company:

PayPal's journey to success began with a shift in their product strategy. Initially, they created a digital wallet and peer-to-peer payment facility for PDAs. However, they soon realized that the market for PDAs was limited, and the product did not solve a core user problem. This early setback taught them a valuable lesson - never grow a product without the right characteristics: a fit with user needs and a sufficiently large market.

Recognizing the need for change, PayPal shifted its focus to a web checkout and email-based digital wallet. They then launched the first-known consumer product referral program, offering users $20 for referrals. This referral program became a hype cycle technology trigger moment, harnessing the inherently social nature of sending and receiving money. By leveraging the referrals channel, PayPal experienced exponential growth, proving that properly tuned referrals channels can generate remarkable results.

Another significant growth lever for PayPal was their big merchant integration. The merger of Peter Thiel's Confinity and Elon Musk's allowed PayPal to target both consumer and merchant accounts. This strategy proved immensely successful, leading to rapid growth and catching the attention of eBay. In 2002, less than a year after their IPO, PayPal was acquired by eBay for $1.5B, solidifying its position as a leading player in the industry.

PayPal's strategy didn't stop there. They continuously sought to innovate and expand their offerings. They gave customers choice in payment instruments, prioritizing consumer needs over short-term gains. This user-centric approach fostered higher loyalty and demonstrated the value of putting the user first. PayPal's introduction of Venmo, a social payment experience, further exemplified their commitment to unlocking social connections in their products. By making the social feed a core part of Venmo, PayPal created an engagement hook beyond basic peer-to-peer payments.

Building two-sided network effects became another critical growth strategy for PayPal. By acquiring numerous merchants and consumers, they established dual moats, making it challenging for competitors to replicate their success. Additionally, PayPal embraced the idea of building new products adjacent to their main offering, solving core problems for existing users. This approach created a cohesive framework that enhanced the stickiness of both their main and auxiliary products.

The Pygmalion Effect: Proving Them Right:

The Pygmalion effect, named after studies conducted in the 1960s, explores the influence of expectations on an individual's performance. The research initially focused on teacher expectations and their impact on students' IQs. While subsequent analysis revealed negligible effects, the concept of the Pygmalion effect remains relevant in understanding how expectations shape our reality.

The Pygmalion effect suggests that what we achieve, how we think, act, and perceive our capabilities can be influenced by the expectations of those around us. Carl Sagan's quote, "The visions we offer our children shape the future," encapsulates the power of expectations and their potential to become self-fulfilling prophecies.

The influence of expectations is not limited to the classroom; it permeates all aspects of life. Our achievements, aspirations, and even our sense of self-worth can be influenced by the expectations others hold for us. Understanding this phenomenon reminds us to be mindful of the potential influence our own expectations can have on those around us.

Connecting the Dots: Lessons and Actionable Advice:

While PayPal's growth story and the Pygmalion effect might seem unrelated, there are common threads that provide valuable insights.

1. Product Growth Lessons from PayPal:

  • a. Ensure your product has the right characteristics: It should align with user needs and have a sufficiently large market.
  • b. Leverage referrals channels: Tune them correctly to generate exponential growth.
  • c. Embrace innovation and expand offerings: Build new products adjacent to your main one, solving core problems for existing users.

2. Harnessing the Power of Expectations:

  • a. Be mindful of the influence of expectations: The expectations we hold for ourselves and others can shape outcomes.
  • b. Stretch people's limitations: Change your perception of limitations to help individuals reach their full potential.
  • c. Surround yourself with successful individuals: Team success often translates into individual success.


The intertwined stories of PayPal and the Pygmalion effect highlight the profound impact of expectations on our lives and businesses. PayPal's growth strategies and the insights from the Pygmalion effect provide actionable advice to apply in various contexts. By understanding the power of expectations and leveraging growth levers, we can unlock our true potential and create a path to success.

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