The Story of Stripe 💳

How do you build a 95 billion dollar behemoth and the 4th most valuable private company in the world with just seven lines of code?

It’s by doing things that don’t scale.

And this is exactly what Patrick and John Collison did when they transformed online payments by building Stripe.

So let’s get into it. This is the Story of Stripe 💸✨

It’s 2005. In a small Irish village, Patrick Collison just won the Young Scientist of the Year award at the age of 17 for his project "Croma: a new dialect of LISP," earning him the title “the smartest redhead in Ireland” from an Irish newspaper.

With this huge achievement behind him, Patrick, one year later in 2006, at only 18 years of age moved to the US with his brother John Collison who was 16 years old at the time. Patrick went on to study at MIT while John enrolled at Harvard.

At this stage, it’s already pretty clear that the Collison brothers have a bright future. But they didn’t want to wait to prove that. So they launched their first startup called Auctomatic in 2007. The idea for that was simple. It was a SaaS platform for eBay power sellers to track inventory and traffic. They even got into Y Combinator, and within 10 months, it was acquired for $5 million.

Now, after the acquisition (especially at that young age), most people with $5 million in the bank would go out and spend it all. But not the Collison’s…

Patrick became the Director of Product Engineering at Live Current Media, the company that bought Auctomatic, while John continued his studies at Harvard. And despite their separate commitments, they continued to collaborate on side projects.

When they stumbled upon a problem that bugged them both…

It was 2009 when the brothers had identified a significant problem: complexity and inefficiency of accepting online payments. 

At the time, startups had no easy options for payment processing. Setting up with banks involved weeks of administrative work and high fees. On top of that, traditional methods were slow, expensive, and cumbersome. 

PayPal, the other option, was also complicated and had its issues, including delays in fund access and a lack of a white-label solution.

Recognizing a gap in the market, Patrick and John wanted to build a solution that was simple, efficient, and developer-friendly.

But instead of Stripe, they build /dev/payments👇

With this idea in mind, in 2010, they came up with seven elegant lines of code that anyone could insert into any app or website in just a day to connect to a payments company, and they called it /dev/payments (I know… not the best name out there😂).

They once again got into YC and with the fresh funding were able to focus 100% of their time on their new idea. At this point, they had to change the name to Stripe due to Delaware’s naming regulations and to appeal to traditional bankers (thank god).

But payments weren’t a new problem — it was actually in these developer’s faces constantly. So, why was nobody else solving it? Paul Graham has a great essay, Schlep Blindness that tells us why:

But Patrick and John set out to solve this hard problem at a time when there was a great tailwind — the acceleration in the number of online businesses — and within 2 weeks of building the prototype they had their first transactions with a YC company, 280 North. Below is a snapshot of John doing their first production deployment of the Stripe API — shortly before their first transaction.

In the beginning, they weren’t sure how big the market was or if they could provide the user experience that they wanted. They also weren’t sure if they could fully address issues like fraud, non-US payments, and solving similar problems that PayPal does but in a user-friendly way.

And this ignorance, according to Paul Graham from that same essay, is probably why they picked payments to work on.

But how did they turn seven lines of code into a $95 billion startup?👇

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During those first few months, while they were refining the prototype and determining if they could create the desired experience, Stripe primarily operated with a Minimum-Viable-Product (MVP).

So much so in fact, that on the backend, when someone signed up to Stripe, Patrick would call his friend, who would then manually set up a merchant account for that user.

Basically, to start, Stripe just made an “easier-and-faster-to-implement-API”. They were not really a company — they were just trying to figure out if this approach resonated with their target customers.

This is called a Wizard of Oz experiment 🧙‍♂️

So, playing Wizard, the Collison brothers got Stripe their first 20 customers from people they knew at Y Combinator and gathered essential feedback before building out their first real, no illusions, Payments product.

Not only did Stripe lean into their network… they were also very forward about it. As Paul Graham outlined in another one of his famous essays, Do Things that Don’t Scale:

So, as they were gathering feedback from the right people and making their product better — more and more people spoke about Stripe because they made something customers needed to do really easy. Developers typically have high standards and they talk to one another. And Stripe exceeding those standards led to continued word-of-mouth growth.

Then, on September 29th, 2011… Stripe launched to the public 🚀

Today, Stripe is used on more than 1M websites and facilitated 1 trillion dollars in total payment volume with +12 different products across 46 countries.

In short, payment processing is a key financial infrastructure for businesses, and an increasing proportion of commerce is being transacted online. Stripe solves this perfectly by offering a developer-friendly, easy-to-integrate solution for startups and SMBs to accept payments on the Internet.

Stripe has expanded its target customers to include global enterprises while serving small companies as well. On top of payments, it added products such as Radar for fraud detection, Atlas for company incorporation, and Treasury for banking-as-a-service. And this multi-product strategy is working well with 94% of enterprise customers using multiple Stripe products.

Stripe’s future is looking bright because the Internet is massive and still growing globally. But for the company itself, the next milestone is to IPO soon which will be probably one of the biggest Tech IPOs ever.

Will you purchase shares of Stripe when they go public?

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— Mehmet Karakus