Jim McKelvey is a cofounder of Square which is a financial services, merchant services aggregator, and mobile payment company. He created a company which is helping millions of small business owners take digital payments from a simple and innovative device, called the Square Reader. He along with Jack Dorsey, who is also the CEO of Twitter, approached the issue of credit cards with a new perspective and had gained worldwide adoption of their product and eventually turned the company into a unicorn. Jim is also the author of THE INNOVATION STACK: Building an Unbeatable Business One Crazy Idea at a Time.
How was Square able to beat Amazon while still a startup?
“So that’s a really good question. So, Amazon typically wins when they do the following thing; they copy your product, they undercut your price by 30%, and then they add the Amazon brand, and they’ve always won using that formula. And in Square’s case, they didn’t win. And so, when they did that to us, which was about the middle of 2014, 2015, everyone’s expecting Square to die. And a year later, Amazon quit, which was the reason I wrote this book basically. I mean, I was happy we won, but I couldn’t answer the question. In other words, I couldn’t say, Oh, here’s why Amazon quit. Because literally there were no other examples. So, what happened was, I spent basically two years looking for any other company that this had happened to, and I eventually found that it actually happened to a lot of firms. But over the course of history, not a lot of contemporary firms.
And then I saw this pattern, which is what I call it an innovation stack and that… I guess we can talk about that for hours. But the simple idea is that if you are doing something that is new and different enough in the marketplace, copying it becomes super difficult even for companies like Amazon. And at the beginning of most industries, you will see this phenomenon. An innovation stack basically gives you not a new company, but a new industry, and basically dominance over that industry if you happen to be the company who started it. So, it’s a very, very powerful tool that nobody ever discussed before, so that’s why I wrote it.”
How did The Innovation Stack contribute to winning over its competitors?
“Well, it’s an interesting phenomenon because an innovation stack essentially eliminates competition. In other words, it creates such a green space that there is effectively no one else in that business. So, the companies that I profile in the book, Square being one of them, but there are a bunch of… I mean there are literally hundreds of examples of companies that perform a series of innovations that solely differentiate them from other companies that nobody else can compete. And so, it’s funny because I guess Christina, when you ask that question; the question kind of assumes that there is a… How do I put this? It assumes that competition is like what we’ve always been taught to believe it is, which is that you have five other companies that are basically doing the same thing you’re doing, and you have to beat them. Sometimes they win, sometimes you win, but there’s this sort of back and forth with competition. Companies with innovation stack effectively have no competition. I mean they do, but it’s so trivial and it’s so irrelevant in that it’s a completely different thing. You don’t actually beat your competition within an innovation stack, you build an innovation stack and then you just basically have no competition.”
Why is timing as important as knowledge in startups?
“So timing is interesting because in some cases, it’s more important than knowing how to do something. So, for instance, if I know what to do, I’ll say I know how to build something or how to produce a product, I can still do the right thing. But if I do it at the wrong time, it doesn’t work. So, I was lucky because I’m a glass artist, and I got to work with the world’s best glassblower. And in the glass studio, timing is super important. Because if you make the right move at the wrong time, it still doesn’t work, even if you do the right thing. So, as glassblowers, we’ve become really students of timing. And then I learned that in the studio, and then I looked at my professional life. And I realized that a lot of the time, I was doing the right thing, but I was doing it the wrong time, and it didn’t work. But timing is one of those things that’s never taught in school.”
So how can one learn the right timing?
“So, it’s something you practice. And the first step… I can only really give the first step. The first step is just to be aware of the temporal component of success. So, if you recognize that there’s a temporal component to success, what you then do is you start thinking in terms of, when is the right time to start judging. And you’re never going to be perfect at it, but you’ll be a lot better than someone who ignores timing entirely, which is what most of us do. Most people, as soon as they have a solution, boy they’re out with it. Or as soon as they think of something, well, they say it, or they do it. I mean there’s never that, okay, now it’s ready. Is the world also ready? And I find that more and more I ask myself that.”
Why do you think copying is a great place to start but won’t help achieve transformational change?
“So copying is interesting because it almost always is the best solution to a solved problem. So if you want to build a chair, I would suggest you not try to invent a new type of chair, that you look at the millions of other chairs that have been built throughout human history and pick which one you like. So, sitting on objects is a solved problem. Now that doesn’t mean there isn’t some radical new chair design that would be totally different and cool, but generally, if your job is to be seated or create seating, it’s a solved problem. Copy a chair.”
How has sacrificing functionality in favor of beauty and simplicity help Square to build trust and reach greater audiences?
“Oh, so we did a funny thing, and I’ll claim responsibility for this because I was the guy that did it. When I was designing the Square reader, I found… I had two designs. One with a long track, one with a short track. And the long track read the card perfectly, but it didn’t look cool, and the short track was difficult to use, but it looked really cool. And we were at least the one that looked cool, but it didn’t work as well. But it had this miraculous, mesmerizing effect over people. And that is when I would test the units, the long track; people weren’t that excited about it. When I tested the short one, they were just blown away. And so even though the short one was more difficult to use, I released it as the product because it got people’s attention. And the fact that it was slightly difficult to use, I think, was ultimately good for us, because it gave people a reason to focus on not just the reader, which was difficult use, but also all the other stuff that Square was about. So, while they were playing with our reader, they were also thinking about, how we didn’t lock them into a contract, how our prices are really fair, how we would settle their money three days faster than anybody else. All this other stuff that we were doing became the thing that was worth focusing on. So instead of spending two seconds thinking about my product, they were spending two minutes thinking about my product, and that’s a huge difference.”
What is the importance of commitment, and how has it helped you?
“I think the question that I ask myself is, at what point is it appropriate to quit, and how should you think of quitting? And this is actually one of the central reasons that I wrote the book. And that is, if you are doing something new, you’re doing something that has never been done, then you have no guarantee of success. You also have no guarantee that there is a finite number of things you need to do to solve the problem. So, let’s say you’re trying to solve a problem, like building a new type of flying machine, and you’ve got a new idea for a way of getting man into the air, you don’t know if it’s going to work. It might not work. It might not be possible. I was just at a Leonardo da Vinci exhibit. It’s here in St. Louis at the Science Museum. And Leonardo had a bunch of ways he thought people could fly that didn’t work. Okay? They just flat out, can’t fly that way. But he didn’t know that. But the point is, once you start trying something, it may never work, but it also may be one little invention away from success. So, the question is, when is an appropriate time to give up, and how does one maintain perseverance? And so, the way I look at it is, most people, I believe, quit too soon. And worse than that… And this is the person I wrote the book for. There is a person, and I won’t tell you her name. But there’s a person that I know who I wrote this book for. Because every time I was writing a chapter, I was thinking of this person.”
“She is fantastically talented. She can do so many things, and she’s great at them, and she cares deeply about some pretty serious problems. And every time she wants to solve one of these problems, if she doesn’t feel qualified because nobody else has solved this problem before, she disqualifies herself. And I wrote the book with her in mind thinking if I could just tell her what it’s like to actually solve one of these problems. If you don’t feel qualified; You’re never going to. No one’s ever going to be qualified to do something that’s never been done. The Wright brothers were not qualified to build an airplane; They just built an airplane. They were not qualified to be pilots, but one of them was a pilot. So, this idea that we have to be qualified to do everything that we are going to do in our lives is a terrible thing that holds us back. So, what I do in The Innovation Stack is basically explain… First telling the stories that I’ve lived through, and then telling the stories that people throughout history of, look, this stuff is different. It is weird and strange and scary, but you don’t always have to quit. And, probably the best compliment I got in the prerelease of the book because we sent out review copies of the book.”
“This guy who is amazingly successful… And I will tell you, just to quantify a little bit of success. He has one painting on his wall in his living room that’s worth more than my entire house. Okay? I was sitting in his living room, and he read the book, and he said to me… This is a very successful entrepreneur, and he is very successful. And he said to me, if I’d had this book 20 years ago, I would not have given up so easily on some of my ideas. And this is a guy who was successful. He said, “I just wish I’d known this when I was younger.” And what I said to him was like, “Me too buddy.” I wish I’d had this when I was 20. I wish I’d had it… Because knowing how the process works and that you’re part of a process which is not going to give you a lot of positive feedback is one of the things that keeps me going now. Because I don’t feel so weird. I still feel uncomfortable, but I don’t feel as alone, because I know that others go through this and sometimes, they succeed.”
Why should passion and values go ahead of the bottom line?
“So, bottom line calculations for entrepreneurial companies are usually a mistake. Now for normal companies, they make total sense. Okay, if you’re eking it out in a market with a bunch of competitors, and you’re trying to get a little advantage, you get a little advantage, yeah, take it straight to the bank. You don’t have to give your customers a discount. There’s a different set of rules that apply to what I define as entrepreneurial companies. And when I say entrepreneurial, I mean the original definition of the term.”
“So, if you use the word entrepreneur today, you typically mean businessperson. But the original use of the term, 150 years ago, was to describe somebody who was not a businessperson. This was a crazy person who built something that hadn’t been built before that might not work. Okay, and that’s how the term entrepreneur actually came into use, and it has since morphed to become this universal descriptor for business. But if you’re doing something entrepreneurial, then you don’t have any guarantee of success. And in that case, the thing that will drive you are things like passion. Because you’re probably not going to get financial reward. Or certainly, if you’re looking for a financial reward, you will get more as a businessperson than as an entrepreneur. So, it might be somebody who just wants to make a lot of money, I say, great, go into business. Okay? If I see somebody that wants to solve a problem, then I say, “Well, you might have to be an entrepreneur.” And I don’t say it like, “Hey, it’s going to be really cool.” I say, “I’m sorry to tell you that you might have to be an entrepreneur.” But it’s really that way. You get a situation where it will feel lonely. And what will keep you going, when people are telling you you’re nuts, is that passion you have for solving the problem. And if you don’t have it, what will happen is you’ll quit really quickly because you’ll just run out of energy.”
How can entrepreneurs advance in a saturated market?
“So, entrepreneurs can advance in a saturated market basically by not trying to compete in a saturated market. So, by definition of entrepreneurs, almost make that question an oxymoron. By my definition, an entrepreneur does not compete in a saturated market. A businessperson competes in a saturated market. If you want to have incremental improvement vis-a-vis 40 similar competitors, I’m not the guy you want to talk to. Or I should say this, I’ll be sympathetic because I’ve been there, and I will be respectful if you succeed but I’m fundamentally not interested to do that. There are a hundred great books for people like that. There is no book right now for somebody who’s doing something new and weird. We don’t even have a term for what I talk about. The only word I could find to start writing this book about was the archaic definition of the word entrepreneur. I started to write the book, and as soon as I started writing this book, trying to explain this phenomenon I saw, when Square survived amazon, there were no words. I’d write the word entrepreneur, and everyone was like, “Oh well, I’m an entrepreneur.” I was like, “No dude, you’re a good businessman, but you’re not who I’m talking to.” And so, I had to go back and use this archaic definition. And it’s so lonely. I mean, it’s so lonely that we don’t even have words to describe that.”
Did location help grow Square?
“We were looking in New York, we were looking at St. Louis and we’re looking at San Francisco. Jack and I are both from St. Louis, but there wasn’t a huge programmer pool here. So, we were like, well, programmer pool is probably better in San Francisco. And since we’re a tech company, we’re probably going to want that. But New York was really cool. We both preferred living in New York personally. So, it was like, well, for ourselves, we’d live in New York, but to be loyal to our hometown, we’d probably do it in St. Louis. But then we opened the main office in San Francisco, and we opened satellite offices in the other two cities.”
What are the three most important pieces of advice you’d like to give?
“Gosh, I don’t think I should be giving a lot of advice, because I don’t consider myself an expert. I’m just a guy who’s done a lot. That doesn’t make me an expert, that just makes me more interesting at cocktail parties because I’d had a lot more failures, which are great stories. But if there was maybe one piece of advice that I would give somebody who potentially might want to be an entrepreneur, it would be to, on a regular basis, not a daily basis, maybe weekly or monthly; do something that makes you a little uncomfortable.”
“Eat a new food, meet with people you don’t normally meet. Do something that’s a little bit uncomfortable for you. And they’re two huge benefits to that. One is over time, your comfort level, your comfort zone will expand. So, I’ll give you an example. I now like eating beets. Okay, I used to think they were disgusting, purple, slimy, and now I kind of like them. I figured out how to like eating beets. I’m just a little bit less of a jerk at a dinner party now because I’ll eat my salad. So, there’s that benefit. Your comfort area will expand, which is probably good for all of us. But the second advantage and this is the one that really gets home. It gets back to a great question you asked earlier, which is, if you do something where you are uncomfortable, you will become familiar with what it is like being uncomfortable.”
“If you choose to be an entrepreneur, if you choose to, by the classic definition of an entrepreneur, do something that nobody else has done, then you’re going to feel very uncomfortable, frequently uncomfortable. And so, if it is your only experience in life that everything is comfortable and smooth and easygoing, as soon as you experience discomfort, you’re just going to quit. But if you are one of these people who has over time built up a little bit of familiarity with discomfort, then you are more likely to endure and continue if you’re doing something new.”
“If I had to offer a piece of advice, that would be the advice. And then I would ask a favor, okay? And this is for me, because why did I write a book? Okay, I wrote a book, because, well, one I had a real problem that I couldn’t answer. Then when I saw the answer, I was like, Oh, I got to share this with people. But then I thought about my friend who constantly disqualifies herself from solving problems. And I thought, what if I could do something that would allow a million people or 10 million people or 100 million people to unleash their own problem-solving capacities? How do we do that? And the answer was, Oh, I got to write a book, okay? But your reader, your listener may not be that person. And that’s cool. But I bet you know somebody who is, and that’s the person I’d like you to reach out to with a message. And the message is really simple, which is that it’s not that you’re qualified to be an entrepreneur, okay? But it’s that nobody is qualified to be an entrepreneur. And I mean nobody is qualified. Even if we just wrote a book on the subject, you’re not qualified to be. Because by definition, you can’t be qualified to do something that has not been done before. And what I look for are people who solve new problems in new ways, and there’s no qualifications for that.”
“So, the nice way to say that is to say; stop disqualifying yourself, because you’ve been trained your whole life that you need credentials before you do something. Okay, biggest airline, started by a lawyer. Square, started by a massage therapist and a glassblower. I mean, you don’t need traditional qualifications to do something that’s never been done because there are none. So, this is my favor that I ask, which is everybody knows somebody who fits that. Get them. Well, they don’t even have to read this book, just read the reviews. Get enough of it so they get this central idea. I’m not trying to make two bucks of royalty about this. I just want to spread the word. Oh, and by the way, did you know that the book was a cartoon? Did I tell you that the book was originally a graphic novel? Oh yeah. So, this is really funny. I’m glad I mentioned. I didn’t want to write a business book. Business books are just insanely boring. When I have to read one, it’s just pain. Even the best sellers, they’re just garbage to read, put you straight to sleep. And so, I was like, I’m not throwing another body on that pile. So, I wrote a cartoon. I wrote a graphic novel.”
“My stories are all pictures, and I tie them together with some text. But it was like, get out the pen and ink. And that’s what I submitted to Penguin. And when they agreed to publish it, it was a half graphic novel. And then, after I’d signed the book away to these guys, they had a meeting with me where they said, “Look, Jim, you realize you can’t do a book that’s half a graphic novel.” And I said, “Why not?” And they said, “Because people use audiobooks and e-readers. 90% of your sales are going to be on electronic devices and over earbuds. And your graphic novel idea isn’t going to work on the two dominant forms of the way people consume information these days.” And I was like, “Oh my God, you’re right.” So, I had to rewrite it as a book, but I then actually kept the graphic novel parts. Because it was originally all comic, and we had to abandon it for the sake of the modern tech. But yeah, funny story.”
-Originally published on Medium