Why the disconnect? I think there's a general principle at work here: the less energy people expend on performance, the more they expend on appearances to compensate. More often than not the energy they expend on seeming impressive makes their actual performance worse. A few years ago I read an article in which a car magazine modified the "sports" model of some production car to get the fastest possible standing quarter mile. You know how they did it? They cut off all the crap the manufacturer had bolted onto the car to make it look fast.

Business is broken the same way that car was. The effort that goes into looking productive is not merely wasted, but actually makes organizations less productive. Suits, for example. Suits do not help people to think better. I bet most executives at big companies do their best thinking when they wake up on Sunday morning and go downstairs in their bathrobe to make a cup of coffee. That's when you have ideas. Just imagine what a company would be like if people could think that well at work. People do in startups, at least some of the time. (Half the time you're in a panic because your servers are on fire, but the other half you're thinking as deeply as most people only get to sitting alone on a Sunday morning.)

PayPal was started during the Internet Bubble, but it was in no sense a Bubble startup. Its success was a direct reflection of the intelligence of the people who built it. PayPal won because they built a better mousetrap.

Then we had the famous Buck's beaming—at Buck's restaurant in Woodside, which is sort of the home away from home for many VCs. Our first round of financing was actually transferred to us via Palm Pilot. Our VCs showed up with a $4.5 million preloaded Palm Pilot, and they beamed it to us.

Levchin: It was actually sort of a side effect. We had this merger with a company called X.com. It was a bit of a tough merger because the companies were really competitive—we were two large competitors in the same market. For a while, Peter took some time off. The guy who ran X.com became the CEO, and I remained the CTO. He was really into Windows, and I was really into Unix. So there was this bad blood for a while between the engineering teams. He was convinced that Windows was where it's at and that we have to switch to Windows, but the platform that we used was, I thought, built really well and I wanted to keep it. I wanted to stay on Unix.

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.

Levchin: We hit it off really quickly. I have this IQ bias—anybody really smart, I will figure out a way to deal with.

It was very positive. Both of us are really competitive and really—not mistrusting, but not willing to assume that the other guy knows what he's talking about. When we met, we sort of hung out socially, and then one night we had this showdown where we sat around in this café for like 8 hours and traded puzzles to see who could solve puzzles faster—just this nonstop mental beating on each other. I think after that we realized that we each couldn't be total idiots since we could solve puzzles pretty quickly.

We started building the product and then started looking around for funding. We went to a number of VCs and many of them turned us down because they were like, "How are you going to make money if you are going to give it away for free? What's the revenue mechanism?" We said we would capture detailed demographic information about people and that detailed quality of information on individuals would help us advertise to them. But of course advertising was not a proven revenue model at that time.

Bhatia: It helped us because we knew what kind of hardware we would need to be able to handle the kind of traffic to our site. Also, when you are hardware designers, you have tremendously more discipline in writing and describing software because in hardware you cannot get it wrong. Every turn of every chip costs you millions of dollars, so when hardware designers design any piece of software, they normally get it right. They use something called state machines to describe the functioning of the software. When you do that, you are very deterministic: if this is the input, then this will be the output.

So you write it in a very deterministic fashion and therefore you tend not to make too many mistakes. Whereas the pure software writers—the way they think and architect software is very creative. They put in lots of bells and whistles, but they think, "No big deal. If there is a bug, we'll fix it. Put in a patch." You can't do that in hardware. There's no patch. Once you ship a chip, it has to work all the time. So in terms of being able to test it out, there is somewhat of a difference, but I just think that hardware designers would be pretty good software designers as well.

Wozniak: You have to be very diligent. You have to check every little detail. You have to be so careful that you haven't left something out. You have to think harder and deeper than you normally would. It's hard with today's large, huge programs.

I was partly hardware and partly software, but, I'll tell you, I wrote an awful lot of software by hand (I still have the copies that are handwritten), and all of that went into the Apple II. Every byte that went into the Apple II, it had so many different mathematical routines, graphics routines, computer languages, emulators of other machines, ways to slip your code in and out of an emulation mode. It had all these kinds of things and not one bug ever found. Not one bug in the hardware, not one bug in the software. And you just can't find a product like that nowadays. But, you see, I had it so intense in my head, and the reason for that was largely because it was part of me. Everything in there had to be so important to me. This computer was me. And everything had to be as perfect as could be made. And I had a lot going against me because I didn't have a computer to compile my code, my software.

Livingston: What advice would you give to hackers who are thinking about starting a company or making something on their own?

Wozniak: First of all, try to have the highest of ethics and to be open and truthful about things, not hiding. If you have to hide something for company reasons, at least explain what you're doing. Don't mislead people. Know in your heart that you are a good person with good goals because that will carry over to your own self-confidence and your belief in your engineering abilities. Always seek excellence: make your product better than the average person would.