# Affirm Max Levchin on Why Grading Talent by Letter (A or B) is Total BS

How to Create a Culture of Post Mortems and Writing · Why You Should Only Study Failure Not Success & The Biggest Surprises Scaling to $18.7BN Market Cap

20VC · Feb 5, 2025 · 62 min · 12,832 words
Speakers: Max Levchin, Harry Stebbings
Source: https://www.996.fm/episodes/20vc--ep-0db1bb8d/

## Cold open

**Max Levchin** [0:00]:

Think opinionated is exceptionally valuable. The hard red line for me is always once I can't trust you. The story about knowing the letter grade of every person you hire in your company, whether it's 2,000 people like Affirm, but it's just silly.

**Harry Stebbings** [0:16]:

This is 20 VC

## Intro

**Harry Stebbings** [0:17]:

with me, Harry Stebbings, and today we have an incredible guest. Simply put, Max Levchin is one of the great technologists of our time. As the founder and CEO of Affirm, today, he's built an $18,700,000,000 monster monster in the buy now pay later space. Prior to Affirm, he was one of the original cofounders of PayPal. Max is also the cofounder and chairman of Glow, a data driven fertility company. He's also an extremely successful angel with a portfolio including the likes of Yelp, Pinterest, and Evernote.

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## Conversation

**Harry Stebbings** [4:12]:

Max, I am so excited for this, dude. It has been a long time, so thank you so much for joining me today. Thank you for having me. Not at all, but I'd love to start with actually something that you've said before when it comes to hiring brilliant people. You said brilliant people have extreme personalities more often than not. And when I thought about that, I thought, do you want them in your team as a result of these extreme personalities?

**Max Levchin** [4:38]:

You mostly do. Everything is arranged, and so you inevitably find yourself asking the question, you know, how extreme is extreme, and, what will it cost me if this person blows up or goes into some sort of a behavioral tailspin. But most of the time, truly brilliant people are worth the quirks, and it's a hallmark of a good manager who knows how to bring out the best from the people even if they are extreme.

**Harry Stebbings** [5:05]:

When we think about extreme levels, often extremes are dislikable. They're not that amiable. They're very opinionated. How do we think about that being a pro versus a con?

**Max Levchin** [5:15]:

I think opinionated is exceptionally valuable. The sort of pinnacle of teamwork achievement is to have really strong opinions, not hold them back, and yet manage to not so profoundly offend the person or the teammate that you're judging or providing feedback to that they choose to opt out, whatever that means for the problem. But you want someone who can walk into a room and say, that is a pile of garbage. And I love all of you. You're amazing people. I'm proud to be part of this team. But what we've built here together is not gonna ship because it's terrible. And now we're all gonna regroup and rethink and build something better. Like, that that is the way of trying to couch the blow, but if you don't give the blow, you're gonna ship garbage.

**Harry Stebbings** [5:58]:

Teach me. I do that, and people get offended. They get emotional, and they get upset. And I get told that I'm too direct. What do I do?

**Max Levchin** [6:05]:

Empathy is important. Understanding that when you're judging someone's work, there's two possibilities. It's bad. It's they've done the best and circumstances intervened, they can do better, but it wasn't it isn't good enough, and they need to know. But you know they can do better, and the moment is about telling them, this isn't your best work, but I know what you can do. And this is just it's an embarrassment, but it's not an embarrassment of your ability. It's the embarrassment of the time you had or the effort you've been able to put in, and that's okay. Like, that we can fix. Sometimes you look at work and you say, wow. Like, this person cannot do better. Full stop. Don't worry about being direct. The conversation you're gonna have with them at some point very soon is I don't think you have a place on this team anymore, and that that's a much harder conversation, but you have to have it too.

**Harry Stebbings** [6:48]:

You always just said to me, and I and, literally, you said this years ago. You said when there's doubt, there's no doubt. And I always loved it, and I always think to that. But on the extreme element, where does extreme good transition to extreme bad? Have you had that before? And what have your lessons been?

**Max Levchin** [7:03]:

Any form of narcissism or selfishness, self orientedness is probably the most important trigger of turning an extreme personality from good to bad or set in the opposite way. You can be as great at throwing tantrums or as direct in your criticism as you want to be if you maintain a good degree of humility. And just remember that the second it becomes about you being better than everyone else, everyone else will start hating you. And if you're their boss, they're gonna hate you quietly, and that's the worst possible situation. And so what do you really want is to constantly remember that you are but a part of this team. And when you're criticizing someone's work or you're telling them this has to be redone, you're always redoing the work together. Like, maybe you're not going to personally move the bids, but you're gonna have to be involved because they're not gonna be happy with the second round of the well, this is still garbage. That's really important. I think there are many ways where extreme personalities flip into being toxic, and so you just have to constantly watch out for it. But it is the price you pay. Brilliant people are often over the top, and that's part of the ingredients that make them brilliant.

**Harry Stebbings** [8:12]:

When they flip him to toxic, is there a redeeming route back, or is that generally a one way road? I

**Max Levchin** [8:19]:

believe in second chances in general in life, except in matters of integrity. The hard red line for me is always once I can't trust you, I can't ever trust you. From that one in my worldview, there is no walking back. It's not true with kids. Kids lie because they're exploring. But even with my own kids, I've had sort of very, very difficult conversations where I said, look. This is a thing that in my professional and personal world of adults, it's the hardest thing to come back from. And the fact that you just told me something that isn't true is really hard for me to hear. And saying that to a teammate, you're not you're not gonna talk to them like you're talking to a a 13 year old. You're gonna say, look, I can't trust you over again. Get out. So other than that, I think there is a way to walk back a lot of it to no matter how crazy toxic a situation could be. If it's a situation, the the judgment you have to make as a leader is is the person profoundly toxic or did the situation turn toxic? Situations come and go. People don't really change that much.

**Harry Stebbings** [9:13]:

You said earlier, has the person done all they can to execute on the task and to achieve what they want to? Where I struggle is we have differences in expectations around what one should and can do. If you are a head of sales, listen, there's always more you can do. There is always another gift you can send, like you can click, thoughtful comment you can do, additional resource you can send. I will do everything to fucking win. And people on teams don't always think quite as bluntly obsessively as that. How do you think about that alignment between what is rational to expect?

**Max Levchin** [9:48]:

So my brilliant wife frequently reminds me that more often than not, it's about incentives. The unlock for you. The reason you are so obsessed with fucking winning is because it's your company. It's your project. It's your passion. Like, you've been doing this since you were 14 years old. And, like, the only goal is to do more of you. And so you don't need motivation. Like, your incentives are aligned. Like, you were essentially born with a microphone in your mouth to, like, just trying to get bigger. And Literally. Yeah. And I don't think it's, you know, nothing to be ashamed of. It drive and grit that is the the other side of that coin are rare, and people who have it end up being entrepreneurs or something resembling entrepreneurship because it is such an unstoppable force. Is amazing. Like, if you don't have it, it's a thing you can't really teach. On the flip side, there's plenty of other people that you not just need, you require to achieve your goals. Like, no one is an island in pursuit of their entrepreneurial ambition, and you have to figure out what it is that motivates them. And in many cases, the motivations are not at all relatable for you. Like, you had decided at some point that you're willing to work Saturdays and Sundays to succeed, and that's just it. And, like, yeah, some people go to the pub and others go skiing and everybody has their thing. And you decided, no. I'm just gonna work, and that's what I'm gonna do. And having that conversation with someone who's just joined your team, like, hey. We're all gonna work on Saturday and Sunday because I wanna succeed, is not gonna do anything for them. What you need to do is figure out what is it that they're looking out for and what what is their goal. And if their goal is to go skiing three days a week instead of two, you may have made a hiring mistake. But if their goal is to feel great about their work, the investment you have to make isn't about beating them up about this work quality is garbage or telling them go work harder. It's to say like, hey, I know you're motivated by quality. Let me spend all available time to just get to a place where you look at every pixel you put down or every sound you record and you're just falling out of your chair about how good it is and it can't really get any better. That's what motivates you, I know, and that's what we're gonna do together. That's what team leadership is all about. The the the difficult part of leadership of teams is always deciding that this is irredeemable because you want people to have second, third, fourth chances. But at some point, you're like, well, okay. You're great, but you are a hiring mistake, and I'm so sorry.

**Harry Stebbings** [12:05]:

At what stage are you forced to hire b team players? I find it absolutely absurd that we think we can only continuously hire 18 players. 18 players, by definition are exceptions, and you can for the first 50, maybe a 100. I still don't think so with a 100. But when you are the size of a firm, you know, it's impossible to only have 18 players. When are you forced to hire a b team? How do you think about that?

**Max Levchin** [12:28]:

So think at any given time, you're hiring the story about knowing the letter grade of every person you hire in your company, whether it's 2,000 people like Affirm, but that's just silly. Like, you don't know. People are, these days, coached and trained and fine tuned to be exceptional interviewees. And so somebody coming in and telling you their life story, like, you know they have watched probably an interview you conducted with someone who's a professional interviewer who spelled out what it looks like when you're hiring an a player. You know, someone's gonna be like, extreme personality is very important, Max Levchin said. So how do I get myself more extreme? What I need and so I I I don't think you can really judge a or b overall grade at hiring time. I think you can assess someone's coding ability, but a really, really good assessment test requires a take home because, like, you can implement quicksort on camera very quickly, but so can a c player these days. And so you have to give people a lot of time. And if you've given people a lot of time, they will inevitably stray from the rules of whatever the test is. So, anyway, the the point is you can filter out c players. You can definitely filter out d players. Differentiation between b and a is what happens once you brought them in. You go like, oh my god. That is a brilliant hire. And more often than not, you say, I thought this was gonna be a great hire. It's a good hire. Like, I'm I'm happy I'm happy we have them. And the question there is, what do you do to get the absolute best work from this person? And will they have the the Steve Jobs quote, a players, hire a players, b players, hire c players, is profoundly true. There should be an asterisk explaining why this is true, and reason for it is fear. A players love working with other a players because they know the demands of the job and the team dynamics just make them better. So you want to have people who challenge you and tell you, hey. I know you're an a player, but that just wasn't good. Let's go redo this together or you go redo it, whatever. So a players just want to escalate away or accelerate away from the pack. B players frequently say, look, I'm a worker b, and I know I'm not an a player, and that's okay. I am just going to grind out good code, art, sound, whatever. But some of them are fearful and say, well, if I have too many b players around it, let alone a players, I will look terrible. It will be very obvious that I'm just not that good. There are people here who are a lot better than me. So the way to fix this is for me to become a manager and for me to hire a bunch of people who aren't very good at all, like, much worse than me, and then I'll look like the tallest mushroom, and that'll be great. And so that is the the real danger of B players. Like, having people who are perfectly willing to do good work day in and day out is not the worst thing in the world. There's plenty of things that a players will turn their nose from because it's just not that challenging. It's not accelerating them out of the APAC, and these are very, very good for that. And a lot of b players over time grind their way to being a player. So you're investing in their future, and they know it. So that that's also positive. But b players who have fear of being found out are the ones that you have to watch out for.

**Harry Stebbings** [15:28]:

In terms of, like, the actions that they take, I loved the statement you said. You said, we take calculated risks, do the calculating. And what I wanted to ask that was, when you review the journey, what was the biggest calculated risk that you took? And success or fail, what did you learn from it?

**Max Levchin** [15:46]:

When I started the company, I sat down with a bunch of bankers and said, hey. I'm gonna start a company where I'm going to do away with this imbalance. I'm going to eliminate fine print so consumers do not have to read fine print of you know, to find out what the business model is and and so on. Many others for ideas like this. Several of them, including some very well known people whose names will not be revealed, laughed at me and said, like, you're insane. Like, this is not just, like, the way you make money in this industry. It's the way you make money. It's the only way. That's all been competed down to the only money you have is in the form of things that the customer doesn't understand because everything else has been wiggled out. And I'd say, you know, I don't think so. And I don't actually have a full model in Excel or in my head or on paper proving that I'm right. So this was not a calculated risk. But I think it's not really worth running a company that fits neatly into the mold of screw the customer, make some money. Like, I want to run the one that says, never screw the customer. Let's see if we can make some money. And, like, at this point, we're public. Our financials are visible. We do very well financially. And so it is it was totally possible, but this was a non calculated risk at the very beginning of the mission that I just sort of decided, like, we're we're gonna do it. And so the calculus of the first bet was, like, not a calculus at all. It was just like, ah, I think it's gonna work, but I'm I'm okay finding out that I'm wrong.

**Harry Stebbings** [17:06]:

What highly calculated risk did not work out? Where your process was right, but the outcome was wrong?

**Max Levchin** [17:12]:

We have a whole culture of postmortems at Affirm where we record every decision we make, especially I'll give you like a very retail one because I now that I said postmortem. Postmortem culture comes from engineering and obviously I'm an engineer by training and and past, and so it's easy to reason in those terms. But years ago, we had decided to very rationally scale our infrastructure because we expected a giant launch with just a crazy amount of transactions, and it was all gonna be 10 x bigger than what we were at the time. And so we were prepping at breakneck pace and scaled up every part of our back end infra and then our front end infra and everything, everything. And then the day off, it just fell apart massively because we basically overloaded our back end with our front end. And so we were all dressed up with no place to go, and the entire database data layer of Affirm was just in shambles for several hours while we were cleaning it up. And but it it really was a self inflicted one where we were like, well, we we just don't know how big it's gonna be. So let's assume it's gonna be super huge. It it was very modestly sized at launch and turned out to be just a learn from that? Do the calculating. This was not a an unforeseeable error. Someone should have sat down and said, alright. So we're scaling the frontier faster than we're scaling the back tier. At some point, given the architecture of the system, you will have what's called an oversubscription of front end connections to the back end, and the back end will start choking. Because even if front end doesn't do anything, just holding these connections expensive. If you have, like, a 10 x mismatch, you're going to bring down the database, and that is what happened. So someone should have done that work. That would have been a calculated risk that did not would not have backfired, but this time it did.

**Harry Stebbings** [18:51]:

You mentioned the post mortem culture there. People always say you learn so much from your failures. Do you learn more from your successes or from your failures, Max? Failure

**Max Levchin** [18:59]:

is for sure. It's boring to analyze success. Like, well, we did well. It's good. I'm tired. I'm gonna go to sleep. It's kind of the the natural, like your oxytocin Do you know is I think that you've

**Harry Stebbings** [19:09]:

actually learned the same thing? We just don't analyze success because it's successful. It's like, yep, move on. And actually, if we analyze why you were successful, it's because we actually were really thoughtful around, you know, CAC

**Max Levchin** [19:21]:

over time. Problem is that with successes, the texture of each individual decision is much harder to detect. If you look at the world as a funnel analysis, which is a really good way of thinking about a lot of things, you start over here and, like, become aware of a thing, start thinking about it, start considering it, start deciding it, deciding, succeeding or failing. There's a real kind of a blur between the first five steps. And, like, this is true of web apps and checkout funnels and advertising and all all kinds of other things. If everything has gone pretty well, there's a lot of effort that has to go into, alright. Well, that step to this step of the funnel, the conversion rate was 95%, and the next one was 95%. Next one was 95%. Well, which one did the best? I don't know. They all seem like 95%. It's pretty good. Now you should ask the question, what could it have been 96? Like, why didn't we do better? And so you're inevitably asking the question in terms of failure again. You're not really saying, how were we so good and smart that 95 was, you know, that's really high. It's really good. Should we have done 94? Would that have been enough? Like, those questions are kind of boring and pointless to ask. I I really believe in asking the question in terms of what should we have done better, even if it's the most successful thing ever. It's nice to take a victory lap and sort of high five the team. But ultimately, the question has to be like, is a I have a friend who grew up in a very managed parenting environment where his parents would ask him when he showed up home from school with a 98% result in a test, like, what happened to the other 2%? And, you know, I'm not sure it's a great way to have a childhood, but it's a great way to run a company.

**Harry Stebbings** [20:50]:

Can I ask you if I'm a founder listening to this and I'm going, wow, I really wanna have a post mortem centric culture, but I don't really know how to do that, like, as of today implementing that? What advice would you give to me on how to implement and start a post mortem centric culture?

**Max Levchin** [21:04]:

So for everything, create a document space. So every time we have a blip for whatever definition of in our systems or in our processes or in our models, anything. A separate conversation is carved off on Slack. A separate conversation is documented in a Google Doc or a Notion or any whatever tool we're using for this topic, but it's segregated. Very difficult to peel away details having to do with event one if you're coming like it with event two. And so first sort of most important thing is make sure you have separation of data streams. Because if if you get good at post mortem culture, you will gather a lot of data and a lot of it will be irrelevant. Like people will say, well, this also happened at the same time. I see it in the logs, like something just went down. And in other words, I'm like, no, that's unrelated. This was because of whatever, something else. And so you want your data plentiful. You want as much of it segregated into a separate pipeline of raw content as soon as possible. You want preservation of this information in a special place. You want someone responsible for writing it up and distilling it from pages and pages of kind of raw data into a essentially a white paper, and then you want the entire team to go and comment on it. And the most important thing you can do about the entire process is you have to completely separate any form of apologizing, responsibility taking, you know, we should do better next time. Like you have to be clinical about it. Like this happened, it wasn't good, here's why. You have to give people who were feeling directly responsible for the flop, whatever the flop was, to feel very free to comment on what happened. Like you need to encourage them to speak to the fact that they screwed up yet without any sense of like, well, I need to make myself look better or I need to create a cast a certain light on decisions that I made. Like, just get rid of all emotion, exactly describe what happened.

**Harry Stebbings** [23:03]:

Do we have a structured time for these post mortems? This is like, hey. We have a weekly postmortem on what happened last week. How do we make sure that we don't just go, yeah. It's a really nice idea, and then actually not do it?

**Max Levchin** [23:13]:

You have to give people responsibility to do them. You have to have a very directly responsible individual for authoring and presenting the postmortem. That's very important. You need to make sure their manager knows that their list of responsibilities has now been enhanced by this postmortem and they're on a hook for it. We typically try to say, hey, it's a week, maybe two weeks. Like, that's the most you're allowed to take to generate a real postmortem. And then there is a weekly review that takes place within the teams that are postmorteming something basically going through like, hey, this happened, the postmortem has been prepared. And then someone even more senior will say, that's a reasonable explanation, I buy it or like, you know, this is not quite deep enough. Like, we need a better analysis of what doubt or I don't actually think these are accurate. And this is where you need your A players in the room because they will have the experience and the intuition and sort of past knowledge of how these things go to kind of say that that's a deep enough post mortem or this is just like you describe what happened, but he didn't explain Outcome. Well,

**Harry Stebbings** [24:12]:

highly differentiated in opinions.

**Max Levchin** [24:15]:

These days, the ones that I see are very matter of fact, it is never about the individual. It's always about the events. Always come down to a, this happened, this choice was made either by a program or a human. And if it's a program, it's a bug or a poorly calculated outcome. If it's a human, it can be a judgment error. Like, I thought I would flip the switch and the lights would go on. It turned out to disable power for the entire city. That's a conversation we've had here, but it's never controversial. It's in the past. We need to do better. What do you do? Like, you add a big guard on the switch that says, before you're gonna turn off the lights for the entire city, please read this to a to a light warning.

**Harry Stebbings** [24:50]:

And speaking of kind of the decisions that lead to the post mortems, you said before make reversible decisions fast and kinda makes me think of the one way, two way doors. Yeah. Honestly, I think everything's really a one way door. I mean, there are very, very few things that are two way doors. How do you respond and think about

**Max Levchin** [25:06]:

I I don't agree. Things that change your reputation, things that change relationships with partners, decisions that do that sort of thing are basically irreversible. Once

**Harry Stebbings** [25:18]:

you But you think it's like when you look at I always use this as example. When you look at the transience of news and reputations, you know, on All In said about the, you know, Uighurs and it being below his line. A week later, he was number one on Spotify, and is. And honestly, has not impacted his reputation one bit.

**Max Levchin** [25:39]:

There are probably some people who disagree with you on that topic. I I don't know exactly who they are, but I think we can guess. But I agree that superficial statements, even explosive or incendiary even fall off the newsline faster than you would expect them to. I think people's reputations recover and get managed and manipulated. And maybe it's true for companies too. But I think rational people have long memories and do not forget or not easily persuaded by Spotify top 10 or, you know, whatever is the front page of the Wall Street Journal today. The decisions that probably I care about a lot more are architectural decisions. You can decide to invest a year into rebuilding your systems in some new fashion. And if that's a bad decision, you're going to look back and say, well, we're too far in. It was a terrible call, but, you know, it's just, you know, it's so far in. Like, what do we we can't just uproot this. So many people will be upset. Or you agree to a deal that is economically nonviable and you have you're staring at a giant black hole and you want to get out of it, you signed a contract and you can't. And maybe it's, like, not that much money and so you don't care, but sometimes it can be a lot. So I I believe in one way doors, and part of the post mortem culture is all about identifying one way doors that you thought were two way doors and saying, we shouldn't have done that because that turned out to be not a thing we could easily come back from. I agree that a lot of decisions that seem like one way doors are not. That's probably a very fair statement.

**Harry Stebbings** [27:03]:

Is there a decision that you thought was really reversible? Make it fast, and it turned out not to be so reversible.

**Max Levchin** [27:10]:

I think for every 10 of the ones that I thought were not reversible, only one, maybe two were irreversible.

**Harry Stebbings** [27:18]:

You've also said something that I love, which is care about how we make things, mind the quality of the invisible parts. I really like that. And I'd love for you to expand on it.

**Max Levchin** [27:28]:

Yeah. That's another reference to Steve Jobs. He's obviously such a brilliant product guy and I aspire to be a good product guy myself. I think the notion of so it's a off repeated story where they signed the insides of the motherboard on, I think the first Mac or something like that. And so the team put their signature on it and the narrative around it was if you build something beautiful and amazing, you don't mind. In fact, you take pride signing the insides because if anyone ever looks, they will be blown away by just how beautifully the whole thing is designed. And so that that's where you want your artist's signature. There's definitely a natural and very healthy tension between shipping fast and building things beautifully. And building things beautifully requires design and time and consideration of what the next version would look like so you don't have to rebuild from scratch. There's not a hard and fast rule to know what matters so much that you wanna do a great job. And therefore, you will always have a team cleaning up or refactoring code or dealing with tech debt. Like, that that's a property of every startup that's been a startup for a decade. But there are parts that are obviously going to be important and valuable and could be as simple as some basic UI decision or something as complicated as a machine learning model that deals with credit underwriting, which is, you know, one one of our sort of crown jewel type achievements. We have some very, very, very advanced ones. Those things, you know, matter. You know you cannot let them be anything but the absolute best you can possibly produce. When somebody tells me we're doing x and it's gonna be a month late, my natural reaction is to sort of jump up from my chair, like, you know, how can you possibly how dare you be so late with this thing? Like, why can't we ship it yesterday? I absolutely make exceptions for things that I know are going to be crucial for months and years to come. That's where you have to mind the quality of the invisible parts. A lot of times these are in the back end, be it credit or scalability or, you know, infra, etcetera. It doesn't make me it doesn't make it any easier to cope with to hear someone say, yeah, it's it's slipped by a month because we found something that has to be redone. But you know it's important and you sort of try to try to cope.

**Harry Stebbings** [29:32]:

How do you feel about the concept of, like, the lean startup and MVP ship? When it's ready, just like the first thing you can get into customer's hands ship, does that lead to a generation of shit software, or is it actually a great way to get customer feedback?

**Max Levchin** [29:44]:

I think there are definitely things that you want in the hands of the customer as quickly as you possibly can. Like, have a prototyping team at Affirm that is trusted slash empowered to ship stuff that is not really beautiful or production quality even to get customer feedback because it's really important to find out if something some crazy idea that we have has any sort of odds of success. Once it's out there and you get data and you think the data tells you that this is great, you don't just say, cool. Let's leave it out there and go to the next one. We basically pull down the feature, pull down the product and say, okay. Now we're gonna do it right. We're gonna make it scalable. We're gonna make it beautiful. We're gonna make sure that it actually stands the test of time. The idea of finding out of the idea was really important, but if you believe that ideas speak for themselves so much that it can be garbage, you will end up with a collection of garbage and generation of garbage software. And you just have to know when the moment is to say, actually, that really does have traction. Someone will build a better version of this if I don't do it myself. And that that's what you have to do now.

**Harry Stebbings** [30:49]:

Do you think speed is the most important determinant of success in startups?

**Max Levchin** [30:53]:

It's one of the most important. It's very rare that I cannot think of more than, like, fewer than a handful of companies who had gotten to huge success, huge scale by just kinda rolling along. I'm sure I don't know the inside story, and what seems to me like rolling along is probably not rolling along. In fact, may they were probably feeling like it's brick and mortar pace on the inside. They just didn't show it very well. Like, there's some founders and some CEOs who have the duck foot property where they're, like, blasted above water and the feet are going at crazy pace below water. I am not one of those. You can always tell if I'm trying to go faster, you know, from from the feet up. But there are people who are capable of maintaining composure and maybe their teams are composing themselves too.

**Harry Stebbings** [31:34]:

It's interesting. You said we are a writing culture. Favor short pithy one pages to novels or live rants. I personally like a live rant being born with a microphone in my hand as you kindly suggested. What does a writing culture truly mean to you, Max? And why do you think it's optimal?

**Max Levchin** [31:52]:

So it feeds back into that notion of postmortems. Right? If you have a depository and we literally have a postmortem depot where people can go and review every major or minor thing we did going back to the beginning of Affirm time and learn from it. It's really valuable. We have a library of case studies that are internal to the company saying, well, that was a screw up. The great outage of x y z. What happened there? Oh, we managed to overload the back end with the front end and and so on. So it's just very valuable to have these things not in a form of oral tradition, but, like, written down. And then to do that well, you have to have writing culture where people are typing up random words that come into their mouth and are in their minds and basically say, alright. Well, read this. It makes sense in my head, but maybe you'll make sense of it too. So you have to have some baseline quality requirement for writing. And basically, the most important thing about technical writing and business writing is simplicity. Like, if you're reading a 12 page thing describing a feature, you're probably gonna miss details. And so if it's a feature that's meant to be confined to, like, 25 by 25 pixels, the description should be two pages, maybe three. You should not have many, many, many pages of prose describing the, you know, impact on the world you expect to have and how this relates to world hunger, etcetera. Pithy is important. Live rants are good as motivation sometimes. They're good at sort of aligning the team around a story and a strategy that the story represents. In my experience, and I host an all hands meeting at least once every two weeks more often than that, usually, you end up saying 12 things and people remember two. So the shorter, the better. Like, it just just being short and pithy is way more valuable, even spoken. But in writing, people just run out of time. We have distractions. Notifications are popping up. Like, you have a 12 page to read. You're like, oh, man. And some people are very good at focusing, but I think majority of people are less focused than they'd like to be and less focused than they think they are.

**Harry Stebbings** [33:51]:

Mike, so you're back in the office now?

**Max Levchin** [33:53]:

It's quite hybrid, and it really depends on the geo. So we have offices now worldwide. And by offices, I mean, places because some places do not have an office. Our world headquarters notionally is still San Francisco, so that's where I'll be today. And I think it'll be on the order of half full, maybe a little bit more than half full. Our other coast office in New York will have standing remotely. There will be not enough seats, not enough cubby holes to hide in because people will be there in in such quantities and and everything in between. It's not true that we are fully back. We have not stayed Would

**Harry Stebbings** [34:26]:

you like to be fully back if you could? Every CEO I speak to says, I I wish we were fully back or we are fully back.

**Max Levchin** [34:33]:

I think there's a ton of value in being fully back. Again, like everything else, there's texture to this value. If you have a c level team, one way of pushing them into the b level is you make sure they all sit together and are surrounded by a players who are constantly telling them like, hey, go better. Do do do more. If you have a great team, some people are actually more productive when they are able to cut out all distractions. And so they can hide themselves in their spare bedroom and just write code for twelve hours or design product for twelve hours or or whatever it is. And so I care a lot more about output and productivity than I care about where you are physically. But the thing that I'm completely non compromising about, there has to be enough together time. And so the notion of everybody back in the office, even if all of your meetings are on Zoom because you're talking to our team in Madrid from San Francisco, it's hard to make that argument. It's just not a very productive use of commute time. If you live in East Bay and you need to get in BART and you ride across and you get to the office and you get into a cubbyhole and then you're on Zoom for twelve hours or five hours or six hours or whatever it is, it's hard to make the argument that you should have been in that BART train coming in and coming back. The argument of I've never met my team, but I'm as productive in person. I only see them on Zoom is a stupid argument. That's just not true. Like, you form relationships. You understand each other's decision making style. You break bread together. You form camaraderie. That has to happen. Like, that that is entirely not optional. And I think everyone who's saying, can be fully remote and these people don't ever have to meet in person is kidding themselves.

**Harry Stebbings** [36:01]:

When was morale lowest in the company? And what did you learn about leadership from that period?

**Max Levchin** [36:06]:

We had to do a layoff two years ago. That was morale lowest point for me and I think everyone around me. And those are never easy and I've had to do more than one in my life. And every time it doesn't get any easier, it's always brutal. And no matter how Did you learn anything about messaging

**Harry Stebbings** [36:25]:

from the first time taken to the second time?

**Max Levchin** [36:28]:

Very first time I had to do it was certainly not Affirm, which and every time I have done it, said I have I hope to never do it again. But the very first time I did it, I didn't know what I was doing, and I was terrified of owning the responsibility that I screwed up. I I I was the CEO every single time I had to do a layoff. And the first time you feel like everyone's gonna blame me. It's my fault. I just want to run and hide. This is terrible. Like, I I have to go through with this, but I can't wait for the moment to be over, for the day to be over. I just need to, like, not be here. Actually, a good friend of mine who was at the time an exec at that company took me aside and said, hey, this sucks for all of us. You are the leader. Like, you have to be out there helping people pack their boxes. Like, you have to be part of the goodbye. This is not a death sentence. It's a professional event. It sucks no no less than any other really major trauma, but you can play this from the comfort of your office or in the middle of the floor that's crying and, like, go be with the people. It'll feel better in the end, and they will feel better in the end. And so that's what I did. It was sort of between cathartic and therapeutic, and I I that was that was a really important lesson to learn. You you cannot hide from the grief that a layoff is. And then the other thing that I learned over the years of watching my friends have you know, having to do it and certainly having to do it a couple times myself, empathy is really important. The other things that you will find if people actually if you've built a great culture, this isn't the thing you can fix in the moment. But if the culture of the company is great, the blow is much softer than you think it'll be. Because people understand that you tried with every possible strategic or tactical idea to not have to go through this. And so this is the decision it was the last decision of a long list that you could have taken. And they are inevitably more understanding and less hard on you than you are on yourself. Like one of the more amazing and sort of emotional events for me of the Affirm layoff couple years ago now was every single person I talked to had said, hey, I get it. This happened. We grew too fast. We overhired. I understand. I even understand why me and not the next person. I hope there's an opportunity to come back. I really love this place. I wanna come back. Is overhiring a calculated risk? Yes. It certainly is. That's a good answer in retrospect to your question about calculated risks that did not pan out. You decide that you want every incremental engineer to build more features while the fundraising is good. And then suddenly it's not. And what do you do? And there's nothing you can do other than to say, so sorry, but some of you cannot have a seat anywhere.

**Harry Stebbings** [39:00]:

And so the theory was, hey, the features will pay off and that will return cash. Good. And it didn't or it was like, hey, we will have a continuous cash tap of fundraising that didn't happen.

**Max Levchin** [39:11]:

The analysis is typically about how fast something will grow, how well you can have the market protect your cash flow. If it doesn't, how profitable something will be. It's roughly what you said, but the calculus is a little bit more complicated. You're typically estimating more than a few variables. One of my favorite internal lines at Affirm is Affirm is a constant multivariate analysis problem solving. Like, it's very rare. It's like, well, that thing, do we think it's five or is it 10 or is it be is gonna be 500? Like, those are very easy to estimate. It's like, well, we have nine variables and they're all nonlinearly distributed. And some of them multiply with the others and some of the other ones, we don't really know how they relate to the first pack. We're gonna have to estimate all of them and predict the outcome based on that. And so it's hard problem to solve, not just for Affirm, but for any company. You're inevitably evaluating a bunch of variables concurrently.

**Harry Stebbings** [40:01]:

Max, you said about growth there. Can I ask a blunt one? Is Klarna growing faster than Affirm? And how do you think about that in terms of Klarna's US expansion?

**Unknown** [40:12]:

I think they announced that they grew 32% last quarter. I think we announced that we grew 35%

**Max Levchin** [40:20]:

in the last few quarters. And their their numbers aren't public. They're about to go public. So it's it will be a little bit easier to track their numbers, I think, for for all involved. But for the last several quarters, from estimates, we have been taking share in the market against all competitors, not not just them. That's a good sign for us. We we offer more services though. Majority of our competitors specialize in paying for or something very, very specific. We made the decision from day one to provide every possible service from the forty five day super short term loan all the way out to four years. Very, very few people do everything. And so it should be a natural consequence of our ability to serve all that we would take disproportionate share.

**Harry Stebbings** [41:00]:

That entrance into the market is is is pretty well done. Is that the size of the market? Is that the not grabbing the opportunity from your side? How do you that? Because it's a big task to go after The US market from Sweden of all places, respectfully. How do you think about that? Is that like, fuck, we dropped the ball or, like, fuck, it's a massive market?

**Max Levchin** [41:20]:

I think are you asking me to analyze their strategy? That's a post mortem they will have to write for themselves. I'm not sure I'm qualified. I I I I don't have all the information. Also, I I think it's very healthy incidentally for CEOs of startups to spend very, very little time on other people's strategy. The competitive analysis is valuable at the product level and sales strategy level and sort of, like, what do they do that we could do better is a really good question to ask. What is their strategy is like asking what weather will be twelve months say, from

**Harry Stebbings** [41:54]:

hey, they've been really smart in this part of that go to market or that partnership. Yeah. We

**Max Levchin** [41:58]:

do lots of that. Like, we we tear down all competitor products, all their sales products, sales efforts, like everything we can get our hands on, we learn from because it's free. Like someone is making mistakes for us, we should learn on those too. Is regulation a friend of buy now pay later or an inhibitor to growth? I think we're always on the record as pro thoughtful regulation. I think you shouldn't be paying any late fees, but, you know, late fee cap, was very happy about because I think that's a it's a good development. People should not be building their profit models based on I'll just raise the amount of late fee. Do you like being a public company CEO? Some days, yes. Other days, no.

**Harry Stebbings** [42:34]:

I think it's eight days. Days where you're at

**Max Levchin** [42:36]:

yes, and one of the days you're at no. Days when it's yes is when it's not very different from being a private company CEO. Being a public company, generally speaking, gives you access to more capital, exposes you to really smart investors you can engage with. So there's lots of things to like. There's some investors out there that will only invest in public equities, and they are brilliant people. Like, they've seen it all before. They could write books about what a great public CEO looks like. And you wanna go spend a half an hour with them and ask them, teach me how to be as good as blank. If you're a private company CEO, they might take your meeting, but they're probably busy. If you're a public company CEO, they might own your stock, and then they want to talk to you because they want to assess you as much as they want to help you. And so that's an a cheat code to access some of the best brains out there. The days where you're like, oh, man, is inevitably when you're like, well, I now have to go read this filing that we have to make because it's of my responsibilities to make sure I understand everything we're putting out there in the public and can't avoid that. And those are small prices to pay, but you you do have added responsibilities that were not what you thought you'd be getting into when you were getting a computer science degree.

**Harry Stebbings** [43:40]:

Is your mentality tied to the market cap of the company? It's so difficult to detach yourself from the valuation of your company. What have been your biggest lessons on that?

**Max Levchin** [43:51]:

The short answer is I'm sure it is, but I'm sure I put an enormous amount of effort into making sure it's not. And so it's a balance you're constantly trying to strike where the thing that is hard, harder is when you think you're doing a fantastic job and you can look at the internal numbers and you look at the external numbers, you're like, I am absolutely crushing it. And so sometimes it's very tempting to say, well, by now the market should know and they should just give us high marks and that means the stock goes green, green, green. And more often than not, you have a temporal mismatch where you're doing great, you know you're doing great and the market thinks you're not. And if you're a startup or fairly high volatility stock, you end up with, well, I did great. Why am I getting punished? And the short answer is it's the market. Like, you you just don't get to tell it when to react to good news or bad news and and how. So the more you sort of convince yourself that in the end, there's a great I think it's attributed to Warren Buffett, but it's actually from, Graham, his mentor. In the short term, the market is a voting machine. In a long term, it's a weighing machine. I take great comfort in saying this to myself whenever the market, I think, misjudges me. But I will say that I I've gone through some great lengths, by the way, to make sure I don't accidentally stumble on my ticker. So, you know, my Apple desktop, if I click the top right corner and stocks drops down, I cannot see my stock ticker. So I I don't accidentally discover that today's a red day or a green day just to make sure I stay focused. You have to think long term. If you are catching yourself thinking short term, and by short term, I mean, let's have an amazing quarter and like you're you're in trouble. Do you see a dip in employee morale there when stock go down? I don't, but I think I make it my business. Every time I talk to our outcomes as a company, I take great pains not to talk about the price of the stock. The only time I talked about the price of our stock to our employees at length when it was flying very high after the IPO and it's really the heady days of '21, I'd actually repeatedly said, look, do not get accustomed to whatever numbers you you're reading on the screen today. Like, we will not know what this company's worth for years. Just like if you think it's too low, good for you. If you think it's too high, it may well be. Like, just do not look, do not get conviction that this is actually correlated to some tangible metric. Like, first, we have to get profitable, then we have to show revenue growth rates, then we have to show net income growth. And that's what you know, long term, the the weighing machine, that's what that weighs. It's not weighing sentiment. It should not be weighing sentiment.

**Harry Stebbings** [46:26]:

Max, we're gonna do a quick fire round. So I say a short statement. You give me your immediate thoughts. Does that sound okay?

**Max Levchin** [46:31]:

Sure. But sometimes I will take a very long time. He'll have to edit out the awkward silences. It's the choice of podcasting. What do you believe that most around you disbelieve? I have this conviction that I can learn anything very, very quickly. And eight out of 10 times, I'm right, and two out of 10 times, I'm completely wrong. I decided two years ago that I was just gonna read the attention paper and become an expert in LLMs. You Just read all the papers after that. And I'm I'm still in the process of getting anywhere near expertly status. I try to keep up. It's a lot of really interesting stuff happening in AI.

**Harry Stebbings** [47:03]:

I just have Mark Banning off on the show about twelve hours ago, and he said we're getting to the upper limit of LLM efficiency. Agree or disagree?

**Max Levchin** [47:11]:

Agree. But I don't think we are going to stay with LLMs forever. I think we're going to expand the systems that use LLMs. Reasoning models already are not pure LLMs. They have some iterative processes within them. I think we'll we'll invent more really interesting things with that. Like what? An obvious idea, which I know has been explored and will be explored more, is a notion of multiple competing LLMs basically debating each other for the right answer. Like, that's not a pure LLM model. Like, you you can amplify intelligence of humans by having three smart people in a room instead of just one person.

**Harry Stebbings** [47:45]:

As a public company CEO, do you have to have an AI story today?

**Max Levchin** [47:49]:

I generally really dislike stories that have no substance. So I think you have to ask yourself, are we taking full advantage of the best available tools and the most interesting available tools right now are AI? So if you sort of look through your closet and say, we're not really using any of this stuff. I gotta have a story for the market. You're doing two things wrong. You're telling a story that isn't true, and you're not using the most interesting available tools. If you're using the most interesting available tools, your investors might be happy if you told the story. But if you didn't, I don't think they should really care that much. Like, as you go public, a lot of this becomes, are you growing at the right scale? Are you taking appropriate risks? Are you managing to profitability? The storytelling hour of, oh, by the way, we have this shiny item that we're so excited about that feeds the voting machine. And I'm sure some of it is important, but I spent a lot more time feeding the the weighing machine.

**Harry Stebbings** [48:37]:

Max, what would you do if you knew you couldn't fail?

**Max Levchin** [48:40]:

Basically do exactly the same thing I do now. So before Affirm was a thing, I made a list of difficult problems that I thought required solving. I decided that financial services or money at the core is one that I am well suited to solve just given my past and, you know, experience that I bring. But if I knew I couldn't fail at anything, I would revisit my list of hard problems and that inevitably had things like food, water, shelter, energy, just solve them all.

**Harry Stebbings** [49:10]:

If you could start a company with only one member of the PayPal Mafia again, who would it be? Peter. Why? He's

**Max Levchin** [49:16]:

amazing. Like, he's brilliant.

**Harry Stebbings** [49:18]:

More so than like Elon?

**Max Levchin** [49:19]:

Elon is brilliant too. If if I could have a choice between starting a company with Peter or starting a company with Elon, it'd be a very hard choice to make. I think Peter is a more known quantity for me. That's why I answered the way I did. So we started the company together, and Elon Elon's company merged into PayPal to form the the modern PayPal. So I know exactly what he's like under pressure and stressed out and trying to raise money and not succeeding for a time and dealing with personal life issues. So I've seen them go from, you know, mid twenties to, older. And so the risk change over time? When you observe someone closely for a long time, you don't actually notice the change. You see the episodes, but you don't know how the person really changes. We've all grown up. We've all become probably more measured and slightly more careful, slightly less crazy, maybe slightly more crazy. I don't know. He he hasn't changed very much. The the the thing that makes Peter Peter is and by the way, actually very similar to Elon in that sense. So there's there's a really interesting echo between the two. They both have this amazing quality that I spent as much time absorbing as I could over times that I worked with them, where they bring out the best effort in people around them. Like, they somehow make you feel that you can and should do better work. Like, the the conversation with Peter always left me thinking the problem that I thought was really too hard to solve. I should go give it another try. Like, I think I can. I think this this is actually doable. And he is genuinely excited about you solving this problem through the capacity that you have. And I think that's an amazing thing to work with someone on anything because they're just fueling your desire to stay late and, you know, do more work. What's your favorite consumer brand and why them? I love Airbnb less so because like, the overall brand is amazing and obviously it's a super successful company, but their tagline, at least the one they promoted for a while was belong anywhere. I think it's such a profound two word brand statement. Like, you know exactly what it means. You know exactly what they stand for. It's evocative. You imagine yourself in all kinds of crazy places, even in the Himalayas or in the Amazon and, you know, like, that is an amazing story told with two words. But back to my brevity, love of brevity. I think, kind of the old world, the probably my favorite brand that I look at every morning. So I'm a huge fan of coffee and bicycles. Not not at the same time frequently, but sometimes at the same time. So every morning I roll out of bed, I stumble downstairs and make myself an espresso. My favorite espresso machine brand is La Marzocco. It's this, like, I don't actually know that much. They're from customers, so I have to full the full disclosure. But they were a huge favorite of mine long before I convinced them to give Affirm a try. It tells this amazing story of Italian manufacturing and, you know, the someone with a mustache smelling the coffee fumes going, oh, this is a perfect espresso. And I get it's this sort of a story in a cup that you just think, it has to go hundreds and hundreds of years back. They must have been making coffee in Venice, you know, with mortar and pestle or something. I don't think it's nearly that old. I think it's maybe on the order of 60 to a 100 years old, but it's just this like timeless coffee awesomeness that I love. And I use it every day and every time I look like, yes. Yes. My coffee machine. Love it so much.

**Harry Stebbings** [52:38]:

You can be CEO of any other company for a day. What company would you be CEO of?

**Max Levchin** [52:43]:

I have all these unfulfilled dreams of running a much smaller company that makes widgets. I spent my entire life making things out of bits. I would love to make things out of atoms. One of my favorite executives came up with a brand name for a company that would sell pickles called Lethal Pickles. This has to do with a story in the very early days of Affirm where I try to teach people how to make pickles because I love pickles too. I managed to screw it up badly enough where they eventually turned toxic and grew mold and it was terrible. And I was briefly trying to persuade people that it's fine. It's not it's actually not a problem. You should eat them and almost single handedly wiped out the entire firm team. But, unfortunately, no one ate any and we threw them away. But the story of a Max's lethal pickles survives in the annals of the firm post mortem history. Someone said, well, you should eventually go fulfill your dream of making things out of atoms and molecules in this case and, you know, sell pickles online, call it lethalpickles. So one day, I'll I'll start lethalpickles.com.

**Harry Stebbings** [53:41]:

I have the domain. We're we're gonna name the show Matt's lethal pickles and see how does. Final one for you. You're asked questions by employees, by investors, both private and public, by a lot of people everyday, journalists. What question are you never asked? It was like, it'd just be nice to be asked. It'd be interesting to be asked.

**Max Levchin** [54:01]:

If you are a careful student of my shareholder letters, of which I have now written, it cannot possibly be 16, but I think it's 16 or 15, you will see that every single one of them contains a reference to the movie Big Lebowski. You have to look sometimes hard to find it, but no one's ever asked me what's with The Big Lebowski in your shareholder What is with The Big Lebowski? I'm a huge fan of movies. When I was freshman in college, all I wanted to do is take computer science classes. And I came into my university thinking, I'm just gonna take every possible computer science class and nothing else because everything else is stupid and boring, and I just wanna write code. And I still love writing code. If I knew I couldn't fail, I'd solve the world's problems, and then I would just write code from that point on for fun. But it turned out that you actually had to take some required courses, so you couldn't just take computer science. So I I took film study as like a this will be easy. It'll be fun. I got to watch things that are actually, like, gems of moviemaking world, things like North by Northwest and, like, Hitchcock movies and all sorts of stuff that blows your mind. And if you don't know about it, you you wouldn't watch it because these are old black and white movies. Why would you care? Then you watch them, you're like, oh my god. Like, these these are stories that have to be required viewing. So one of the movies I watched was seven Samurai, and it became like this obsession where I've seen it over a 100 times. And no one asked me about that one either. But the silliest movie with yet a similarly profound kind of a cultural and, at least to me, intellectual impact on me is The Big Lebowski. It's this comedy, tragedy, whodunit commentary on nineteen eighties United States. It's like everything in two hours of cinema that if you haven't watched it, you should watch. And it is unbelievably funny. It's one of the funniest movies ever made. And somehow over the years, how do you interview talent? One of the things you can do is you can figure out if you share cultural artifacts at at the time of the interview. And so when I was interviewing a good half of my management team, I found out before or after I decided that they were the right ones. They were huge fans of The Big Lebowski. And so the team that writes the letter with me is this group of people who lost The Big Lebowski and we sort of made it our business of sticking Lebowski quotes into our shareholders.

**Harry Stebbings** [56:15]:

I have one final one for you that I know you won't have been asked. Right? I don't think you'll have been asked.

**Unknown** [56:20]:

Okay.

**Harry Stebbings** [56:20]:

But it's a kind of a meaningful one. What about the way that your parents brought you up? Have you deliberately decided not to apply to the way that you bring your children up?

**Max Levchin** [56:29]:

That's a deep question. So I grew up in an academic family and for them, the notion of advanced degrees was the ladder to climb. And so it was embarrassing that my mom never got a PhD to her mom, who was exceptionally important influence in my life and my mom's life. And so this notion of the way you achieve in the world, the goals to set, the ways to think about success and failure in life is measured through academic success. My grandmother has papers in the Harvard library. She's long gone, but, you know, she she was a Soviet scientist that managed to have her astronomy PhD thesis referenced in, like, dozens of academic papers in The United States. And so she achieved the academic peak early in life and and stayed there. And as she was very old and quite ill, she'd asked me, well, what about the PhD track? And I was just about to start my third company. I was like, you know, I'm gonna get a bachelor's and basically because of you. Otherwise, I would have long dropped out and moved to Palo Alto and started a company already. It all worked out in the end, so I'm not complaining. But they grew up in a world where entrepreneurship was not a factor. So the union was not a place where entrepreneurship meant anything in those days. I would love for my kids to at least explore entrepreneurship and decide that it's important. So telling them you must spend a decade on the school bench is counterintuitive to that. And so I never told them, you know, your your storied grandmother with her multiple PhDs is just, you know, waiting for you to get your first advanced degree and keep going. And, I I felt very guilty about it. The day we took PayPal public, my mom asked me, well, will you finally move back to Chicago and get a PhD? And I was like, but but this is not the response. Yet that that is what I was brought up with and it weighs on me and I don't want it weighing on my kids.

**Harry Stebbings** [58:17]:

Have you ever been asked that question before?

**Max Levchin** [58:19]:

I don't think so. Good try.

**Harry Stebbings** [58:20]:

I like it. It's a really revealing question. Max, dude, it's so lovely to see you again. I so appreciate you doing this, opening up, being so brilliant. You are fantastic, and I just so appreciate the time.

**Unknown** [58:31]:

Thank you. You're always you're always fun to talk to. Good to see you again.

**Harry Stebbings** [58:36]:

Honestly, I think I just have the best job in the world. I mean, getting the chance to sit with Max Levchin, cofounder of PayPal and now founder of Affirm, and ask the management lessons that I did, what an incredibly awesome job I have. If you wanna watch the full episode, can find it on YouTube by searching for 20 vc. That's 20vc.com. But before we leave you today,

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