The Industrialist's Dilemma: Patrick Collison, CEO of Stripe

TL;DR

Stripe builds APIs that let internet businesses charge credit cards without the bank's mortgage-like application process of paperwork, faxes, and weeks of setup. The founders started it out of frustration that nothing simple existed, then realized only about 2-3% of consumer spending happens online, signaling huge untapped growth. Its edge is simply being a better, easier product.

Transcript

[MUSIC] [LAUGH] Patrick Collison, CEO of Stripe, Co-Founder of Stripe. Welcome to the class. >> Thank you for having me. >> Yes. [LAUGH] Okay, so, we will get into that. I will have a way of bringing that up at the end. So just to set context, we just obviously went over some of the business and obviously the forces at play. Why don't you level set... Read More

Key Insights

• Stripe builds APIs that make it easy to build an internet business, serving technology companies whose customers purchase remotely through the internet rather than in person, acting as the conduit for those businesses' revenue and customer data.
• Before Stripe, getting access to charge a credit card programmatically involved a mortgage-like application process at a bank, requiring you to describe your idea, convince them to support it, then endure weeks of setup, paperwork, and faxes.
• The founders started Stripe out of frustration and surprise that no simple credit-card-charging tool existed, initially not believing it was a big deal while simultaneously building iPhone apps on the side under the early name /debt/payments.
• The market opportunity became clear when the founders realized only around 2-3% of total consumer spending happens through the internet, meaning roughly 97-98% is yet to be enabled, revealing massive future growth despite online commerce's veneer of maturity.
• Stripe's primary competitive advantage is simply being a better product: faster to set up and easier to understand, which lowers activation energy so more people actually experiment and pursue ideas rather than not bothering to integrate.
• Product quality traits like polish, smooth animations, and ambient superiority matter enormously even without a rigorous structural framework to describe them, which Collison argues Clayton Christensen's disruption theory struggles to explain with Apple.
• Silicon Valley is a graveyard as much as a cradle: companies like Wang and Osborne grew to billions in annualized revenue with tens of thousands of employees, yet failed so completely (Wang's 1992 bankruptcy) that people no longer even recognize their names.
• Stripe's scale as of the talk: roughly 350 people, about five years old, processing tens of billions of dollars, with 27% of Americans having bought from a Stripe user in the past year, up from 3.8% two years prior.

Questions & Answers

Q: What is Stripe and what does it do?

Stripe builds APIs that make it easy to go and build an internet business. Its customers are technology companies and software-enabled services whose own customers are not physically present but make purchases mediated through the internet. Stripe provides the tools to programmatically charge a credit card, sitting at an important nexus by integrating into apps and websites and acting as the conduit for those businesses' revenue and customer data management.

Q: Why did Patrick Collison start Stripe?

The founders were developers themselves and were astonished by the non-existence of something like Stripe. Collison recalls forlornly googling for an easy-to-set-up tool that would just enable charging a credit card. It seemed implausible that no such thing existed, especially given the favorable economic incentive to collect money and pass it on. They started working on it literally because they were frustrated and surprised it didn't exist, initially not even thinking it was a big deal.

Q: How did businesses accept online payments before Stripe?

Online transactions before Stripe were enabled by banks. Getting access to the tools and infrastructure to programmatically charge a credit card involved a mortgage-like application process. You had to go to the bank, describe your idea, and convince them they should support it, followed by weeks of setup, paperwork, and faxes. Even once you got access, it was fundamentally a technology service that was only as good as the other technology services banks offered, meaning a high barrier to entry and overhead.

Q: What is Stripe's core competitive advantage?

The primary thing that enabled Stripe's initial traction was simply being a better product. It could be set up faster and was easier to understand, which made people more likely to actually do something with it rather than not bother integrating. By lowering the activation energy, more people experimented or pursued ideas. Once businesses got up and running, it was much easier to operate their ongoing business with Stripe, since Stripe sits at a fairly important nexus in their operations.

Q: How big was Stripe at the time of this talk?

Stripe was roughly 350 people and about five years old, with its age publicly observable. Press estimates cited in an article circulated before the talk put the amount being processed at tens of billions of dollars, which Collison indicated was the estimate from that article. The company revealed that 27% of Americans bought from a Stripe user in the last year, up from about 3.8% in the preceding period two years earlier.

Q: What did Collison identify as the market opportunity for online payments?

About eight to nine months in, the founders realized that only around two to three percent of total consumer spending takes place through the internet, meaning roughly 97-98% does not. Considering the likely direction of that trend, it seemed obvious that far more commerce would happen online in the future. Despite the veneer of maturity to online commerce, a large share of future transactions was yet to be enabled, which crystallized the opportunity and led them to take leave from school.

Q: Why does Collison mention Wang and Osborne?

Collison uses Wang and Osborne to caution that Silicon Valley is as successful a graveyard as it is a cradle for new companies. Both grew to billions of dollars in annualized revenue with tens of thousands of employees, yet subsequently failed. Wang had an ignominious bankruptcy in 1992. He notes that not only did these companies fail, but people in the room had not even heard of them, so he suggests taking everything he says with a grain of salt.

Q: What kinds of services does Stripe power?

The vast majority of Stripe's customers are relatively new technology companies, making it oriented toward startups rather than large legacy online retailers. On-demand and internet services it powers include Kickstarter, OpenTable, and Lyft, among many others. Collison frames Stripe as serving the tech disruptors who are, as he puts it, fracking their way into the rest of the economy, building software-enabled services that charge customers through Stripe's APIs.

Summary

In this video, Patrick Collison, CEO of Stripe, discusses the founding and growth of Stripe and the company's disruption of the payments industry. He talks about the challenges of setting up payments before Stripe and highlights the company's focus on providing a better product and user experience. Collison also discusses the potential of the digital economy and how Stripe is enabling new types of online experiences and business models. He emphasizes the importance of staying lean and agile as the company continues to scale and navigate relationships with larger incumbents in the industry. Collison touches on the value of data and network effects in the competitive landscape and explains how Stripe benefits from a network effect within the developer community.

Questions & Answers

Q: What are the key features of Stripe's APIs?

Stripe builds APIs that make it easy for businesses to build an Internet business. These APIs enable businesses to go beyond simple online transactions and create more sophisticated payment processes, such as storing payment details for frictionless billing and supporting multiple payment mechanisms.

Q: Why did Patrick Collison and his brother start Stripe?

The Collison brothers were developers themselves and were frustrated by the lack of an easy-to-use and set-up payment solution. They couldn't understand why a simple task like charging a credit card didn't have a streamlined solution. This frustration led them to create Stripe.

Q: How did the payments process work before Stripe?

Before Stripe, online transactions were enabled by banks. Businesses had to go through a complex and time-consuming process to gain access to the tools and infrastructure needed to charge credit cards programmatically. This involved mortgage-like application processes, convincing banks to support their ideas, and extensive paperwork.

Q: What was the initial traction for Stripe?

Stripe gained initial traction because it provided a better product and user experience compared to existing solutions. It was easier to understand and set up, lowering the activation energy for businesses to experiment with it. Once businesses started using Stripe, it was also easier for them to operate ongoing business transactions.

Q: How big and successful is Stripe currently?

Stripe is around five years old, has raised significant funding, and processes tens of billions of dollars in transactions. The company has around 350 employees and has experienced significant growth. An estimated 27% of Americans bought from a Stripe user in the last year, up from 3.8% two years ago.

Q: Who are Stripe's customers?

Stripe's customers are primarily new technology companies and startups. The company is focused on supporting these businesses as they integrate payment solutions into their products and services.

Q: How does Stripe approach relationships with larger incumbents in the industry?

Stripe acknowledges that the economy is not a zero-sum game and believes there is room for both incumbents and disruptors to thrive. Rather than trying to compete with larger companies, Stripe focuses on providing a better product and experience. By bringing new transaction volume to the card networks, Stripe benefits the industry as a whole.

Q: How does Stripe think about digitizing the offline world?

Stripe sees itself as a bet on human laziness and the preference for doing things digitally rather than going to physical places. The company enables industries such as car sales to be done online through its payment solutions. Stripe believes that as the world becomes increasingly digital, more industries will adopt digital solutions, and Stripe aims to be at the forefront of this transformation.

Q: How does Stripe plan to stay lean and agile as it grows?

Stripe recognizes the challenge of maintaining agility and responsiveness as it scales. While it may not be entirely possible to avoid the risks and challenges of larger organizations, Stripe aims to leverage its position as a technology-driven company to stay nimble and innovative. The company also focuses on avoiding unnecessary risks and being deliberate with its strategy.

Q: What are the competitive advantages of Stripe?

Stripe's competitive advantage lies in providing a better product and experience for developers. The company has built a network effect within the developer community, making it easier for businesses to integrate Stripe and find developers with knowledge of the platform. Stripe is also able to expand its functionality and offer services that are not available elsewhere, such as instant payments to debit cards.

Takeaways

Stripe was founded to address the lack of an easy-to-use and set-up payment solution. The company has disrupted the payments industry by providing better products and experiences for businesses, particularly in the digital economy. Stripe enables the digitization of offline industries and aims to make transactions and interactions more convenient and efficient. As the company continues to grow, it focuses on staying agile and responsive while also maintaining relationships with larger incumbents. Stripe's competitive advantage lies in its network effect within the developer community and its ability to offer unique functionality and services.

Summary & Key Takeaways

• Stripe builds APIs that let technology companies charge credit cards over the internet. The founders, themselves developers, were astonished nothing simple existed and started building out of frustration, initially treating it as a side project alongside iPhone apps under the early name /debt/payments.

• Before Stripe, online payment access came through banks via a mortgage-like application process involving paperwork, faxes, and weeks of setup. The founders realized only 2-3% of consumer spending happens online, exposing vast untapped growth, prompting them to take leave from school about eight to nine months in.

• Stripe's advantage is being a better, easier-to-set-up product that lowers activation energy, sitting at a key revenue nexus for businesses. At the talk it had about 350 people, processed tens of billions of dollars, and 27% of Americans had bought from a Stripe user, up from 3.8%.