Jim McKelvey: The Innovation Stack | E69
#69: The Innovation Stack with Jim McKelvey
Fail-proof your start up with techniques developed by Square’s co-founder and billionaire, Jim McKelvey ! Today on the show we’re chatting with serial entrepreneur and author Jim McKelvey. Jim co-founded the super successful point of sales company, Square, along with Jack Dorsey who is the CEO of both Square and Twitter. Jim also founded Invisibly, a project to rewire the economics of online content; LaunchCode, a non-profit that trains people to work in technology; and Third Degree Glass Factory, a glass art studio & education center in St. Louis. And if that wasn’t enough, in 2017, Jim was appointed as an Independent Director of the St. Louis Federal Reserve. Jim, recently released his first book The Innovation Stack. Tune in to this episode learn what an innovation stack is and how Square’s innovation stack helped them beat Amazon as a small start up, hear Jim’s definition of what it means to be a true entrepreneur and understand how to find the perfect problem when looking to start a new business venture.
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#69: The Innovation Stack with Jim McKelvey
[00:00:00] Hala Taha: Hey, everyone! It's Hala. Before we kick off the show, I want to say thank you to everyone who has left us a review on Apple Podcast or a comment on your favorite platform. Reviews are the number one way to thank us and reviews help us reach more listeners by improving our Apple Podcast ranking. I'd like to share a recent review from Monroe79
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[00:01:00] Young And Profiting Podcast. A place where you can listen, learn, and profit. Welcome to the show. I'm your host, Hala Taha. And on Young And Profiting Podcast, we investigate a new topic each week and interview some of the brightest minds in the world. My goal is to turn their wisdom into actionable advice that you can use in your everyday life. No matter your age, profession, or industry, there's no fluff on this podcast.
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[00:01:54] Because you'll love it here at Young And Profiting Podcast. Today on the show, we're chatting with serial
[00:02:00] entrepreneur and author Jim McKelvey, Jim co-founded the super successful point of sales company Square along with Jack Dorsey, who is the CEO of both Square and Twitter. Jim also founded invisibly a project to rewire the economics of online content
[00:02:16] LaunchCode, a nonprofit that trains people to work in technology and third degree glass factory, a glass art studio and education center in St. Louis. And if that wasn't enough. In 2017, Jim was appointed as an independent director of the St. Louis Federal Reserve. Wow. Jim recently came out with his book Innovation Stack, tune in to this episode to learn what an Innovation Stack is and how Square's innovation stack, help them to beat Amazon as a small startup. Here
[00:02:46] definition of what it means to be a true entrepreneur and understand how to find the perfect problem when looking to start a new business. Hey Jim, welcome to Young And Profiting
[00:03:00] Jim McKelvey: Hello Hala.
[00:03:01] Hala Taha: Okay. So my first question is taking it way back. I've listened to a lot of different interviews that you've been on, and I know that they usually start off with talking about how you met Jack Dorsey.
[00:03:15] Who's the CEO of Twitter and how you guys started off with Square, but I'm looking to take it away back. I know that your mother suddenly passed away back in December, 1989. And my father actually passed away about a month ago, and I know how difficult that can be, but also how motivating that can be when somebody really close to you passes away.
[00:03:37] So help me understand like who you were as a person prior to your mother passing and the type of changes that went on both mentally and physically after she passed away and helping you to become the person that you are today.
[00:03:51] Jim McKelvey: Wow. So mom died very suddenly. It was suicide and it was not something that we were expecting and
[00:04:00] it really blew my world up.
[00:04:01] Because up until that point, I had lived in a very isolated world. There were no real problems. My dad was a professor, so we never, we were never rich, but we were never worried about money. And a lot of the world's problems seem to not bother us. And when mom got ill. We thought that sending to a psychiatrist would make it all go away.
[00:04:26] And and she led us to believe this. My mother was very tough and she didn't tell us how bad she was feeling cause she didn't, I don't know why, but the bottom line is her suicide really knocked me over. And at the moment when it happened, I realized that I was actually mediocre in everything that I did.
[00:04:44] So I had three jobs at the time. I had a, I had my own company that was making storage cabinets for compact discs and basically stereo cabinetry. So that business was going pretty well. I was actually working full-time for IBM at the time, but I was working in the Los Angeles office. Have to actually physically go into the office.
[00:05:00] I was one of the first remote workers. And then I was a glassblower. So I had a glass studio that that I was working at. And I would basically blow glass during the day, do my IBM consulting at night and then run this other company in the sort of interstitial moments. And then mom died and I realized that I was mediocre at everything like my company wasn't that good.
[00:05:19] And I, wasn't a very good IBM employee and I was a mediocre glassblower. Decided the day my mom died that I would focus on something. And so that was Mira, the company that actually, I still own I'm in their office right now, but started Mira basically the night mom died and I quit IBM and I, for a time stopped blowing glass.
[00:05:41] And then I stopped. I basically got rid of my company. So I put it all into this little software company, which didn't make any money for the next five years. So I went five years without an income.
[00:05:51] Hala Taha: Wow. That's so cool. It's terrible thing that happened. And I didn't realize how traumatic it was.
[00:05:56] So I'm sorry that I brought it up right away.
[00:05:59] Jim McKelvey: You're a tough
[00:06:00] interview. It's this is good. It's good content, but it was like, I've never had an interview start off with bomb suicide, like ever. Phenomenal.
[00:06:09] Hala Taha: Yeah. There's silver lining in all of this, and that's the fact that her death was a wake-up call for you to not be mediocre.
[00:06:17] And I did want to share that lesson with my listeners, the fact that you don't have to wait until somebody passes away and your family to get that fire under you. But a lot of the times, like those situations do bring out a lot of drive and motivate. For example, like I said, my father died from coronavirus last month.
[00:06:35] Yeah. It was really bad. For me, I feel like I can take over the world and I have all this passion because I just want to make him proud. And I know that other people have had similar situations like that. So also during my research, I found out that you were quite a nerd growing up.
[00:06:50] Jim McKelvey: And still I am.
[00:06:52] Oh, yeah, it does. You don't grow out of that at least I didn't.
[00:06:57] Hala Taha: And so you didn't really fit in as a child
[00:07:00] and you decided very early on that you weren't going to care if you fit in or not. And I think that probably helped you as well as hurt you later on in life. Could you talk about that a little bit?
[00:07:10] Jim McKelvey: It wasn't so much that I wasn't going to care. It was that at some point I couldn't do anything about it. So caring too much wasn't going to help anything. It wasn't like I was this stoic. I, this is, I don't care what other people think? No, I really care what other people think. But at some point it doesn't do any good.
[00:07:27] So at some point the rational part of my brain just said, look, you got to proceed whether or not people are pissed off at you or think you're an idiot or, so I've been called a lot of names and at some point I just gave up putting any energy into it, but I guess I still care. I just don't do anything about it.
[00:07:45] But yeah. It was a big wake up call because what I became was this thing called an entrepreneur. And at the time people weren't calling people, entrepreneurs, it's entrepreneurship is this sort of popular term these days. But when I started doing it, it wasn't very
[00:08:00] popular and people thought it was weird to start your own company.
[00:08:03] And I thought it was stupid if you didn't go to work for a big company. So it was good to have that fixed. And yeah, I hear a lot of people say, oh, don't care what other people think? That's not a good piece of advice because most people can't do that. But what I would say is don't care too much, what other people think.
[00:08:22] And, if you can get away from a lot of the social dopamine drips that you get from trying to get followers or likes or things like that, that may help.
[00:08:33] Hala Taha: Yeah. And I believe you don't use any social media at all. Is that true?
[00:08:38] Jim McKelvey: I don't. So it turns out I wrote a book and my book publicity team has set up Facebook and Instagram accounts and then Twitter, of course, cause Jack started the company, but I don't use it.
[00:08:49] If you connect with me on one of the social accounts, it's not me. It's my team. That's to sell books and I have to say, I don't have anything against social media, but I
[00:09:00] don't choose to use it personally. I feel the same way about drugs. Like, I don't use drugs I got nothing against drugs. If you want to use drugs, we can still be great friends.
[00:09:08] A lot of my friends, use a lot of drugs. I just don't do it because to me, drugs are probably not something I should be using. And I feel the same way about Facebook.
[00:09:16] Hala Taha: It's crazy because you are a multi-billionaire, we haven't had many billionaires on the podcast.
[00:09:20] Last billionaire I had on the podcast was Naveen Jain, 40 episodes go and maybe there's something to it. Like having a laser focus, not getting distracted by trying to impress people in this fake virtual world.
[00:09:34] Jim McKelvey: But Hala, I don't have a laser focus. Like I do six different things. Like I'm on the fed.
[00:09:38] I'm going to going into the glass blowing studio today. I'm gonna spend an afternoon blowing glass. I wrote this book, know I do work with Square I got another company. Like I like focus is not one of the words you would use to describe me but I will tell you this having a surplus of time is very valuable.
[00:09:56] So I'm one of these people that I think if I got into social [00:10:00] media would be probably the same way that if I got into drugs is I probably use too many of them. Like I'd probably be really concerned about what people think or trying to be clever or trying to look cool or trying to be accepted.
[00:10:10] I think the sort of weaker parts of my personality would dominate and I would just get sucked in. And so I've explicitly eliminated that I also don't play video games and I know that's on cool too. But to me, I would rather spend time talking to people or working or hanging out with folks in real life.
[00:10:30] Even if it's, these days over video chat,
[00:10:33] Hala Taha: Yeah, I think that makes total sense. I'm similar. Like I don't watch any TV, I just don't because I'd rather, work on my podcast. I have a full-time job aside from just working on my podcast. So you have to choose where you spend your time and like you said, social media might not be a great use of your
[00:10:48] Jim McKelvey: I love, let me phrase that a different way. You have to choose where you spend your time. But you should choose where you don't spend your time. Okay. In other words, and this is a different way of
[00:11:00] looking at the equation. Like most people say I should do more of this. Like I should learn how to play the piano.
[00:11:04] Where's that time going to come from? And I was taught years ago a trick by Jim Collins who told me to have a don't do list. And the don't do list is this, it was life changing for me because I got rid of all sorts of things that I shouldn't be doing. And this was pre social media. So social media wasn't even an option, but I got rid of my TV. I don't watch news.
[00:11:23] Hala Taha: Yeah. Especially
[00:11:25] with everything going on. Now, you still don't watch news?
[00:11:27] Jim McKelvey: Look, I know what's going on. I know about black lives matter. I'm going to marches and I'm actually heading to the NAACP office and NAACP is my neighbor in at LaunchCode. So I'm going to go into their office. Do some things to hopefully help them today.
[00:11:42] But I don't know. I haven't seen the videos. I, and it's not because I'm trying to avoid it. It's just that, because the news cycle is tremendously draining. If I get little snippets of news here and there that's enough, I do read, but I read typically weekly
[00:12:00] publication. So I don't get the daily hammering of stuff because it's I just get too depressed.
[00:12:04] If I soaked in all the news, I probably couldn't leave this room.
[00:12:08] Hala Taha: Yeah. I wasn't paying attention to news for a really long time until coronavirus happened. And then I just became obsessed with it.
[00:12:15] Jim McKelvey: Yeah, but so a great example, coronavirus, like I learned everything I could about Corona virus.
[00:12:21] And then I kept watching the news and everything in the news was stuff that I already had learned. So I went to the scientists. I work with Washington University's medical school. I'm actually funding some research to try to get us a vaccine and more importantly, to try to get us some testing. So I'm deeply involved in this, but I'm not learning stuff on a daily basis.
[00:12:40] That's new. And if I get a piece of information, Two or three hours or two or three days after somebody else, does I still get it? People call me all the time and tell me stuff that they think is important. That's how I get my information.
[00:12:53] Hala Taha: Yeah.
[00:12:54] That's really interesting. So I want to move on to the topic of entrepreneurship and I want to talk
[00:13:00] about your book Innovation Stack.
[00:13:01] So from my understanding, you prefer to build completely new markets. You like to do things that have never been done before, rather than copying a proven solution. You call this being a true entrepreneur. Could you define what an entrepreneur means to you? Because I know you have a very specific definition.
[00:13:20] Jim McKelvey: Yes. So the word entrepreneur was first popularized a century ago by an economist who needed a word to describe somebody who is doing something different and that's different for business. So you can be very successful in business and basically do what somebody else has already done. So my friend Howard owns a bunch of coffee shops.
[00:13:40] He's made millions of dollars and coffee shops have been done before he opened a really successful coffee shop, but there wasn't anything really that different about his coffee shops versus all the other coffee shops. And he would be a very successful business person. In history, we needed a word to
[00:14:00] differentiate people who did something different from people who were doing
[00:14:04] stuff that had already been done. And so that word was entrepreneur. Now in the last hundred years, the definition has morphed to mean anybody in business. So if you start a coffee shop, we call you an entrepreneur today. But I don't use that definition. I use the archaic definition because I need a way to differentiate doing new things with copying.
[00:14:23] And by the way, I don't have anything against copying. I always try to copy right now, I'm in the studio. I'm designing a piece of glass and I am trying to steal everybody else's techniques. Like I am trying desperately to find a way to make this shape through copying other people. And I keep failing because nobody's ever done this thing before, so I'm going to have to go invent it.
[00:14:45] And, but invention is a last resort, but the problem is most people don't even have a word to describe somebody in business who's does something new. Because the word entrepreneur these days doesn't mean
[00:15:00] that it means just anybody in business. So the reason I wrote this book was because I stumbled upon this super powerful concept that allows Square to become, a multi-billion dollar company that allowed us to survive an attack by Amazon and allowed us to do all these really powerful things and
[00:15:19] we weren't the only company that had done this, that there was actually hundreds of companies throughout history that had exactly the same experience. And I was like, oh my God. One of the things that these companies all had in common was that they didn't begin by copying another business. They began by creating a new market and that's super powerful.
[00:15:36] And if your listeners wanted to do something to change the world, I think there's more powerful and creating new than in copying what's already.
[00:15:42] Hala Taha: To your point that you can get super successful. If you create something completely new, I think you can reach new heights in terms of success, but what is the pros of copying someone?
[00:15:55] I think it's less risky. Tell us about that.
[00:15:58] Jim McKelvey: Yeah. So copying is great. Like
[00:16:00] you should always try to copy. So what I talk about in the book is this idea of the perfect problem, this idea that some problems are unsolved and some problems are unsolved and unsolvable, but if it's solvable, but it hasn't been done yet, that's a perfect target area.
[00:16:17] And if you do something in that area, you will almost certainly be very successful that said, I don't want a bunch of people running out there and saying McKelvey said don't copy. So I'm just going to like reinvent the chair. No chairs work like I'm sitting in a chair right now. This chair is great and I wouldn't
[00:16:34] have any time at all, if I had to reinvent everything every day. So yeah, absolutely copy. And if you, by the way, if you just want to make a bunch of money, don't be an entrepreneur, just be a business person, find a business that works, copy what everybody else is doing. You can go to a trade show. The trade show can teach you what you don't know.
[00:16:52] You can hire a consultant if you don't like it's a formula. And all you have to do is work the formula, but I'm not interested in that. I'm
[00:17:00] interested in solving problems that the world hasn't figured out yet. And you can't copy the solution the first time. And that's the thing. We are such a copy centric world.
[00:17:11] All of school is copied, basically your entire schooling experience up through a PhD. Cause even if you do a PhD, which is supposed to be original research, like you're really supposed to copy the way other people have done original research, like it's just a formula and run that formula works, but it's not going to solve a new problem.
[00:17:28] And that's what I want to do. And so that's why I wrote this book. And then in the process, I discovered that it was resonating with people who also felt frustrated that they didn't have the right tools. That they could copy to solve all the problems I wanted to solve.
[00:17:45] Hala Taha: So you mentioned the concept of the perfect problem.
[00:17:49] So I know that you founded several companies Square and visibly LaunchCode. What are the problems that you're trying to solve with those companies?
[00:17:58] Jim McKelvey: In Square was a question of getting
[00:18:00] small merchants. So the, I was a small merchant. I want to be able to take credit cards. So that was the original problem that we solved invisibly as trying to solve the problem of people's identity online.
[00:18:10] Basically, you don't have a voice in how your content is created. If it's advertising supported, because an ad doesn't allow you to pay more for something that you like and less for something you hate. In other words, if I steal 20 seconds of your time and piss you off, I'm still gonna make it the same amount of money as if I give you 20 seconds of pure joy.
[00:18:29] And you'd rather be able to pay more for 20 seconds of pure joy, but there's no mechanism for doing that online. And the reason, one of the reasons that, we're losing journalism and we're losing news and we're losing great content is because these economic models are broken. So that's what invisibly does.
[00:18:43] And then LaunchCode was an attempt to basically allow people to become programmers for free, because I knew we had this worldwide shortage of programmers and I thought the best way to get somebody to do something is to give them something great for free. So at LaunchCode, we give you a world-class
[00:19:00] education in six months, that gets you a job, and there's no charge for that.
[00:19:05] And because it's free to everybody, we have thousands of people now that have gotten free training and real-world jobs as programmers. And it is life-changing. LaunchCode, Squares a big deal, but LaunchCode is probably more impactful on daily human lives because you're talking about people we're half unemployed and probably other half of the average salary with people start LaunchCode was 17,000.
[00:19:30] And when they finished the program, it's 55,000. So we're taking people three X, their salary. And it's just life-changing so yeah, I do stuff like that.
[00:19:40] Hala Taha: That's amazing. That must be so rewarding. So I think a lot of my listeners, they want to start companies. They want to start businesses, but they don't have the ideas.
[00:19:49] They're unable to find the best business idea. So how do you become more aware and alert to the perfect problems that are out there?
[00:19:59] Jim McKelvey: So what
[00:20:00] I recommend is that people find something that appeals. Here's the problem, Hala entrepreneurship in its current definition, this just start a business. It's like starting a business ship is super popular.
[00:20:15] It's cool these days. And because it's cool, a lot of people are going into it just because that's the way they want to make money. And in those cases, I think those people would be well-served by just copying an existing business. Find something that's working in Cincinnati and move it to Des Moines or find something that works in San Francisco and copy it in New York.
[00:20:36] That's a good formula for making money. I am not the right guy to talk to about that stuff. I believe if you want to be an entrepreneur, you're probably not going to succeed, but if you succeed, your success will be a hundred or a thousand X. What a normal business person would be. Think about the problems that you're going to encounter.
[00:20:58] And understand
[00:21:00] that money is a very weak motivator. The difference between being a middle class person in the United States and being a billionaire is not that great. And I'm just telling you there's not anything really, that money makes that much of a difference. If you get, if you're basically in the middle of class, It doesn't get much better than that.
[00:21:20] You're still gonna sleep indoors. You're still gonna have Netflix. You're still gonna have just all the stuff is pretty much the same. Like maybe you'll have a fancier car, but you know what, who cares? Maybe you'll fly on a private plane as opposed to a regular plane and you know what, who cares?
[00:21:35] That just, there's no big difference. So money is a very weak motivator. If you get into real problem. So pick a problem you care about. So I'm not interested in talking to people who want to start a business. I want to start a business. I don't care, but somebody who comes to me and says, Hey, Jim, I want to fix this problem that I care deeply about.
[00:21:56] So look, just look out your window. Look at the issues we have in society.
[00:22:00] Okay. The terrible problems going on right now, I spend every morning working out with a guy. He's a 76 year old African-American like he was been, he'd been through the civil rights movement. He's been through all these situations.
[00:22:11] Like he and I talk every morning for an hour and a half about what's going on. And he's telling me all these things that there should be solutions for now, are those going to be good businesses? Will some of them will be. Some of them will be great businesses because what I talk about in the Innovation Stack is the massive power of serving the unserved.
[00:22:32] And that's different than most people. When they think about opportunity, there's oh I'll make this product that rich people will buy. There aren't a lot of rich people, but if you make a product that every person can buy. Well, that's amazing. So one of my projects right now is I'm trying to figure out a way to make a five cent diaper.
[00:22:51] In our diapers cost 25 cents. Poor women can't afford it. Poverty starts a lot of times when a young mother can't afford diapers for her kid. And then horrible stuff
[00:23:00] happens because the kid can't go to preschool or the mother can't hold down a job. Like it's. If you look at where poverty starts, that's one of the places.
[00:23:06] And I'm like, why is the world paying 25 cents for a diaper? I think we could do it for five. Now, can I build a 5 cent diaper? Absolutely not. Will I ever be able to, I don't know, I'm literally investing in investigating hyper absorbent materials right now, because that's a problem that I care about.
[00:23:24] If you don't care about that. Don't work on it, but find a problem you care about.
[00:23:29] Hala Taha: So you just gave a great example, this diaper issue that you're working on. You're certainly not a diaper expert.
[00:23:35] Jim McKelvey: My, my two year old daughter would differ with you, but yes, I'm not. No, I'm not a diaper expert. I don't know anything about diapers except,
[00:23:42] Hala Taha: Yeah.
[00:23:42] So how do you deal with all that uncertainty? Like how do you get comfortable with uncertainty going into a problem that you don't know if they're, if you can solve, how
[00:23:52] do you get past that?
[00:23:53] Jim McKelvey: So the answer is, and again, this is one of the reasons I wrote the book because I wanted people to know what it was [00:24:00] like firsthand to feel that. You're not going to get over it.
[00:24:04] There is no trick to getting over the uncertainty there. If you are doing something that has never been done in human history before you are going to feel really weird, you're going to feel alone. You're going to feel scared. Probably your friends who love you will tell you that you're stupid. And not because they want to criticize you, but they'll say Hala, don't do that.
[00:24:27] Hala Taha: Yeah. It's because they care about you most likely.
[00:24:29] Jim McKelvey: They care about you. And they are looking at a world of copies saying what she's doing, I've never seen before. So therefore it's never gonna work. And don't get in that flying machine. And I say, yeah, most of the early flying machines killed their operators, but then the Wright brothers got it.
[00:24:47] And we have the airplane. And think about Orville and Wilbur Wright being the first pilots, because neither one of them were qualified to be a pilot. Nobody had ever flown a plane before. Like how could they be qualified?
[00:25:00] So I think you're not, and this is the thing that pisses me off.
[00:25:05] People expect these sorts of simple answers. Oh, here's a way to not be afraid. No, you probably are going to be afraid. Here's a way to not be scared. No, I'm scared. I've done it 20 times. And I still, every time I have to do something, they knew I get scared, but the difference is if you're expecting that you're better prepared to handle it.
[00:25:28] So in algae I use in the book, it's a difference between being an adventurer and being, or I should say an Explorer or being a tourist. If I'm going to go be a tourist, I expect to sleep in doors and have room service. Like I just, I've got this sort of tourist thing. Now, if I'm planning to go visit someplace that I've never been before, and it turns out that place has been unexplored in human history and I get off whatever the vehicle that drops me there.
[00:25:57] And like I'm in a jungle and I've brought my
[00:26:00] laptop and a visa card I'm probably going die. Okay. But if I know I'm going to be dropped off in a jungle I'll probably bring flashlights, band-aids, a machete. Like I'm going to, I'm going to pack for the trip. So if you're going to be an entrepreneur, at least you should know how to pack for the trip.
[00:26:18] Hala Taha: I love that analogy. When I was doing my research and studying, I found out that you don't consider yourself to be a good leader, and that's very different than a lot of the people that I've interviewed in the past. You never really take the CEO role. Jack Dorsey is the CEO of Square really quick to give up that role when somebody competent comes along.
[00:26:38] So help us understand, how did you realize that? Like you, weren't a good leader. You weren't a good manager. What made you decide that I'm not going to be a CEO for any
[00:26:47] companies that I felt.
[00:26:48] Jim McKelvey: So I tried it for awhile and it was one of these things like accounting, which I can do accounting. I know how to do accounting, but I'm not a natural, good accountant.
[00:26:58] I'm not that
[00:27:00] sort of person. And I could force myself to do this thing that was unnatural for me. And I would do it poorly. And then I met somebody who was a great accountant and he loves it and he's just phenomenal. And I was like, wow, I can pay you to do this thing that I'm not very good at and should be doing probably anyway.
[00:27:16] And that just was this light bulb, the one on my head. And then I looked at the other things that I was doing. I was like, wait a second. I'm actually not very good at running these meetings. And I don't really enjoy measuring the weekly progress of the teams that I don't enjoy, motivational retreats and all this.
[00:27:31] Ah, I wasn't very good. So I realized pretty early on that I was a terrible leader, but I still wanted to solve these problems that I still wanted to start companies. And then I realized that, wait a second, there are people who are great leaders who love that. So why not work with them?
[00:27:45] Like when Jack and I started Square, there was like this, there's that awkward discussion. You're like two people start a couple of who's going to be the boss we had zero questions. It's I was like I don't want to be the boss. And Jack's I want to be the boss.
[00:27:55] I was like, great. You're the boss. That was it. It took a minute and a
[00:28:00] half. Yeah, and I love the fact that Jack's the boss. He's just doing way better than I would have.
[00:28:06] Hala Taha: Since you brought up Jack, let's talk about how you guys met. I think it's a really unique story.
[00:28:11] Jim McKelvey: So I hired Jack when he was 15 years old, his mother owned a coffee shop and he was this little kid.
[00:28:19] Loved working with Kim computers and came into our office and we put them to work and he pulled an all nighter with us on his first day at the office. So we ended up becoming friends after that. Work friends, but he even as a 15 year old was incredibly competent. So I kept giving a bigger assignments.
[00:28:36] And after a while we did a special project, just him and me, which turned out to save the company. And Jack and I stayed friends. I wouldn't see him every year cause he moved out of town for awhile. But after they kicked him out of Twitter, he came back to St. Louis. We caught up again and he suggested that we started another company together.
[00:28:53] He invited me to start a company with him. I thought that's cool. What do you want to do? And he was like, I thought you had an idea. I was like, I don't have anything.
[00:29:00] So that's what we started.
[00:29:02] Hala Taha: Yeah. So I think there's a lot of lessons to be learned with your relationships. So he started out as your intern.
[00:29:08] You were still young, I think you were like 25 or 26
[00:29:10] when you moved here.
[00:29:13] Yeah. So you were still young, but you were more experienced than he was. How was it? Becoming kind of business partners with somebody who was so much younger and less experienced than you at the time? Like how did you trust him?
[00:29:26] And did you learn anything from that?
[00:29:29] Jim McKelvey: So it turns out that there is a huge age bias in this country. So at LaunchCode we place a lot of people and we placed programmers where I placed a programmer six months ago, who was in his 70s. 70 year old programmer, like a program. The number one bias in programming is not gender or race.
[00:29:51] It is in fact age. And if you are prejudice, which I guess to some extent, we were all prejudice a little bit, but if you see people of
[00:30:00] color or a certain gender or a certain age, and you say they can't do this job, then you're really limiting yourself and those people. So to me, the fact that somebody is really young, like 15 years old doesn't mean that he or she can't manage a team, do great work.
[00:30:18] So I don't know, like it's I just never saw Jack as a 15 year old. Like he was just somebody who I'd give him a task and he'd do the task. So I gave him more tasks and after awhile I gave him too many tasks. That he couldn't do them all. So I started hiring people to work for the 15 year old.
[00:30:33] Now the people I was hiring was in their thirties. They were basically working for somebody who came to work on his bicycle, but he was still their boss. And I made sure they knew he was their boss. And Jack did a great job. So you got to get over this idea. Don't prejudge. So what if they're 50.
[00:30:53] So what if they look a certain way, you just, but that's so baked into everything we do that I think, look,
[00:31:00] there's phenomenal talent out there. This is the, okay, so you want a trick. Here's a trick go where the people ain't. If everybody's got a problem, hiring women, programmers, which statistically they do, for some reason that bias still exists, which is insane.
[00:31:16] Wow. That means that you, if you can hire women, programmers will get better programs. Just so simple, like we're seeing right now that there huge biases in society. That doesn't mean there isn't talent. It just means that the talented people don't get the same opportunities. If you can give them the opportunities will you'll get better too.
[00:31:54] defy the stereotypes and I love it.
[00:31:57] Hala Taha: Yeah. I think it's a really important topic to discuss there's
[00:32:00] age-ism and it's goes both ways, whether it's young or old people just have their prejudices. Something I was looking at the news today, unlike you. And I saw that Twitter and Square will make Juneteenth which commemorates the end of slavery on June 19th
[00:32:16] 1865. It's going to be a permanent company holiday. So I thought that was really cool.
[00:32:21] Jim McKelvey: That is really cool. And thank you for telling me.
[00:32:25] Hala Taha: You didn't know? It just happened yesterday. They announced it.
[00:32:28] Jim McKelvey: I don't read the news on a daily basis and I have to say I haven't checked my Square email in three days.
[00:32:33] Yeah, I got hundreds and hundreds of pieces of email, so that.
[00:32:36] Hala Taha: Yeah. Do you know what Square is doing in relation to supporting black lives matter and anything with their inclusion and diversity plans and how they're doing there?
[00:32:45] Jim McKelvey: I know what I'm doing. Yeah. But as far as, the company's process, I don't know what the company's it would be inappropriate for me to speak for that because they're doing so much. If I named three of the programs and they were doing 12 others, I would just upset everybody. Because I don't have a complete
[00:33:00] list of all the stuff we did. Look I would say this there's sort of two general things that we can do as corporate citizens.
[00:33:09] One is treat our employees really well. Try to quash biases and look, we all have biases. Like I got caught the other day on something that I, it was a bias that I. And somebody pointed out to me and I was so embarrassed. Like I couldn't even I felt terrible for about a week. Somebody caught me on something and I was like, oh my God, I can't believe that.
[00:33:29] I would say that. But I, it was this thing that was just it was in there and somebody exposed it. So we try to be good citizens that way. But the second thing we could do and I think Square's done a wonderful job with this is build tools that connect people and payments and allowing small businesses and small individuals, like if you're using Cash App is phenomenal.
[00:33:47] And it connects people and people who don't have access to the tools that middle-class Americans have. We're making those tools more available and we do it for small businesses and we now do it for individuals through cash app. And I think
[00:34:00] those things are just great for society.
[00:34:03] Hala Taha: I'm actually not familiar with Cash App.
[00:34:05] Is that similar to Venmo or is that
[00:34:09] Jim McKelvey: Yeah, it's similar to, but better than Venmo, so much better that. You'll just have to use it, but I can prove it.
[00:34:17] Hala Taha: Sure.
[00:34:18] Jim McKelvey: Cash App is an application that is outgrowing Venmo. Okay. So here, look at the, this is a real time of all of the applications in the world.
[00:34:31] Number one is zoom.
[00:34:32] Hala Taha: Okay. Makes sense.
[00:34:33] Jim McKelvey: Number two is Tik TOK. Can you see what number three is.
[00:34:39] Hala Taha: Is it Cash App?
[00:34:40] Jim McKelvey: It's Cash App, number three I just pulled, I pulled my phone out of the pocket and this is real time as of 12: 43 on June 10th. 3 in the world ahead of Instagram, ahead of WhatsApp, ahead of Netflix ahead of,
[00:35:00] Snapchat ahead of PayPal ahead of Disney, Venmo.
[00:35:04] I can't even see on but the point is this is a very useful tool. Yeah. You might want to use it like it's awesome. I'm not going to sit here and tell you how awesome, but just come on. It's free. It's fantastic. And I had nothing to do with this creation, by the way. Except I started the company that started the product, but I was not on the Cash App team, but I love it.
[00:35:23] Hala Taha: Oh, I definitely have to look more into Cash App.
[00:35:26] Jim McKelvey: You'd absolutely do.
[00:35:27] Hala Taha: Yeah. So let's go back to you and Jack starting off Square. So you guys had very little financial experience. How did you turn your lack of knowledge in the financial space into an advantage when starting Square?
[00:35:43] Jim McKelvey: So this
[00:35:43] is the process that I outlined in great detail in the Innovation Stack.
[00:35:46] And it's super, super powerful because this is the formula that essentially unlocks the power of these world changing companies. And we stumbled upon it. It was
[00:36:00] accidental and actually a lot of world changing companies stumble upon the same formula. It's very simple. You try to serve somebody who has been excluded from a market.
[00:36:08] You take a group that wants to do something, but can't, in our cases, it was merchants who wanted to take credit cards, but couldn't. In Southwest Airlines case, it was people who wanted to travel in the air, not on buses, but couldn't afford to. There are hundreds of examples. I won't bore you with them, but you start with that premise.
[00:36:27] And even though you don't know anything about it, and this is where entrepreneurship comes in, if you are doing something where there is the potential for expertise, Then you are almost always going to get your ass kicked by an expert. So if I want to go out today and fly an airplane, I will probably kill myself.
[00:36:52] But if I don't, I will certainly not fly it as well as a trained pilot. But if you are trying to fly the
[00:37:00] world's first airplane, where there are no pilots in the world, then you can have an even playing field. So Jack and I knew nothing about payments. So we went into a world where nobody else did either because we were building payments and credit card processing for this group that was completely unserved.
[00:37:19] And because the group was completely unserved, our total ignorance was not as big a disadvantage as it would have been in a known market. And this is, like Hala, this is so important for your listeners to understand. There are no experts at new things like right now. Are there any experts in world economic shutdown?
[00:37:41] No. And I'm on the federal reserve. Like I talked to the world's best economists and we don't have any expertise because we've never done this before. We haven't shut down the world's economy before. Okay. So now six months from now, we'll have some experts because they've all lived through it. Okay.
[00:37:53] But if you're doing something for the first time, It's like
[00:38:00] magically the playing field levels out. So the playing field is so steeply against you in a world of businesses copying, but all of a sudden, once you get past where the market is, the playing field becomes perfectly level. So the fact that Jack and I knew nothing about payments didn't hurt us because nobody else knew anything about this type of payments, because it didn't exist.
[00:38:25] We invented a new market and then we kept most of it to ourselves.
[00:38:29] Hala Taha: That's super, super interesting and very eye-opening. So when Square was taking off, Amazon launched a similar product, it worked better according to you, they marketed it very aggressively. They undercut the price by 30%. From my understanding,
[00:38:46] you are trying to figure out why you were able to compete successfully against Amazon when so many other companies have failed. And that's how you discovered the Innovation Stack. So can you explain to us what the Innovation Stack
[00:39:00] is like your definition of it, and then also what your Innovation Stack was that helped you compete successfully against Amazon?
[00:39:07] Jim McKelvey: Yes. So the odds of surviving an Amazon attack are basically zero. If Amazon takes your startup, copies your product, undercut your price and adds the Amazon brand, you die. And that happens well, basically 100% of the time, except in Square's case. And one, we survived. I was happy that we had survived, but I couldn't explain it.
[00:39:33] And so as somebody who was raised by a scientist, I got obsessed with answering the question. Why did, like, why was Square the one person spirit. It's sorta like one of these guys that falls out of an airplane, like there've been cases of people who have literally fall out of airplanes and their parents' sheets, don't open and they live and I'm like what do they do differently?
[00:39:50] And the answer is, if you're in that person, if you're that situation, you, at least I became obsessed with it is that it turns out that Square had this
[00:40:00] thing, which I now call an Innovation Stack. Which is the thing that protects you and an Innovation Stack is this thing that you build in response to a harsh environment where you have to invent new things.
[00:40:15] So this is why entrepreneurship is so important because entrepreneurs, by my definition, the archaic definition, do new things. And if you do new things that you can't copy, then the process you go through is fundamentally different. So what Square did, because we were trying to serve merchants who work totally out of the system.
[00:40:33] We couldn't just copy what all the banks were doing because the banks had systems to exclude these people. So we had to invent new underwriting, new hardware, new terms of service, new customer support, new software, new settlement rails. Like we did 14 things that were different. And these 14 things, if you add them up form what I call an Innovation Stack.
[00:40:55] And it turns out that if you build an Innovation Stack. [00:41:00] You end up with this thing that at least in all the cases that I've studied ends up dominating the market. So whenever I found a company within Innovation Stack, that company also always became the biggest in their market, biggest furniture store in the world.
[00:41:19] Ikea, Innovation Stack, biggest airline in the United States. Southwest Innovation Stack. And this is in many times in the case of the face of ruthless competition. So how does a little startup survive Amazon, Innovation Stack? And by the way, Amazon, I got to give a plug here when Amazon quit, they mailed all their customers, a Square reader.
[00:41:42] Really cool.
[00:41:43] Hala Taha: So good.
[00:41:43] Jim McKelvey: They were really cool about it. Have to, I have to praise Amazon here, even though, I tease them a little bit, but they we're really classy in the way they got out of the fight. Hats off to Amazon. But look, I want people to have this power because
[00:42:00] this is the power that brings society forward.
[00:42:02] If you're fixing stuff that's already been fixed, that's useful. But if you're inventing the new fixes to problems that nobody else has solved before that's super useful. And nobody gives you a handbook on that because we don't even have words to describe.
[00:42:17] Hala Taha: So an interesting
[00:42:18] tidbit that I learned when I was studying your Amazon Square use case is that you found out that Amazon's reader worked better than yours, but you guys decided not to change the design.
[00:42:30] And I thought that was different than what most people
[00:42:32] would have done different.
[00:42:33] Jim McKelvey: I thought you were going to say stupid.
[00:42:34] Hala Taha: No, it's interesting because at the end of the day you won. So I want to understand, like why was having a sleek design more important than functionality?
[00:42:43] Jim McKelvey: Oh, I have a theory.
[00:42:44] So I'm the guy that made the Square reader, this big, this little tiny white thing. And I actually, the original built was even smaller than this. This is a, I think it was 22 millimeters. I think my first one was like a like 17. Anyway, there's a problem with making a credit card where you're this small and that is
[00:43:00] the credit card wobbles as you go through.
[00:43:01] So if it wobbles, it screws up the rate and you're never going to fix that. So the solution to this, which is what Amazon and everybody else did was they made the card reader wider. And I built wide readers at Square and I tested, I actually made 40,000 of the things, but we never released it because in my tests, I discovered this really weird phenomenon, which is that if I showed somebody a wide reader, they were ho-hum you just read my credit card.
[00:43:29] And if I use the tiny reader, they were blown away. Like I got their attention and all of us. They paid attention. And one of the hardest things to do, if you're a startup or if you're doing anything creative is get people to pay attention to the fact that you've actually solved the problem. You've actually built something new.
[00:43:46] And so despite the fact that the reader that I designed didn't work as well as it could, I kept the small unit because it grabbed people's attention. And during
[00:44:00] those couple of seconds, when people were saying, what the hell did you just do. We were able to say, it's Square, it's this new thing. You got to check it out.
[00:44:09] And at that moment of attention was worth the fact that it was a little bit hard to use. The other thing was because it was hard to use a little bit and still is by the way, the square reader to this day requires a tiny bit of practice, but it's something you can mask. It's like teaching someone to tie their shoes, tie your shoes, by the way, if you've ever tried to teach somebody yet, it's not that easy, but yeah, you can learn into two minutes.
[00:44:32] You can learn to use a Square reader in two minutes. And after that you get really good at it. Like these days I tie my shoes. I don't even think about it. And people would get proud of the fact that they were good at using their Square readers and then they would show off. Cause if you're proud about something, you.
[00:44:52] So did I just show my credit card front and back to the entire world?
[00:44:58] Hala Taha: I'll make sure I [00:45:00] don't worry.
[00:45:00] Jim McKelvey: Yeah. Sorry. I just put the front back of my credit card.
[00:45:06] Hala Taha: I did that out of the video. Not the audio. It's funny.
[00:45:08] Jim McKelvey: Yeah. Just blur that out if you will. Oh my Lord. Okay. Yeah.
[00:45:13] Sorry about
[00:45:14] that, whoops. Yeah.
[00:45:18] Hala Taha: Just a billion dollars. Don't
[00:45:20] worry about it.
[00:45:21] Jim McKelvey: You're not going to get that far on my court. Don't worry about it.
[00:45:23] Hala Taha: Okay. So that's really funny. And it's so interesting because it basically went viral because you kept the design. That's kudos to you for sticking to your guns and going with it. And it turned out to be super successful.
[00:45:36] Jim McKelvey: Yeah. You always get congratulated after you take the risk and it works, but it was just a gut call. I, we didn't do any user groups. There was no consultancy called in. It was just like, people are really reacting well for this. And. I just want to go for the big reaction.
[00:45:51] Hala Taha: So your book Innovation Stack has excellent reviews.
[00:45:54] I would recommend everybody to go out and get a copy. It's really fun. It's
[00:46:00] really engaging. I heard that you rewrote that book eight times. Square just took three weeks to launch or three weeks for you to design that product. So help us understand like why you wrote it so many times. And if that was like a very difficult thing for you to do.
[00:46:16] Jim McKelvey: So
[00:46:17] when I answered my question, when I figured out why Squares survived the Amazon attack, I did all this research and I found most of my research in history. And so the problem with historical research Hala is that you can delude yourself into thinking you're right, but you've just cherry picked examples.
[00:46:35] So if you want to prove any example, just pick the right subjects and it'll always work. I can prove any drug works if you let me pick the people that I get to use it on. So I had all this historical example and I thought this is no good. I need to speak to somebody who is still alive because most of the people I studied were dead, but I was able to meet Herb Kelleher, who was a legendary founder of Southwest Airlines.
[00:46:54] So I took all my research to Herb and I said, Mr. Kelleher, am I right? Is
[00:47:00] this phenomena that I think I live the way you see it. And he's yes, it was like, this is an incredible thing. You need to do something about it. So what Herb did was he basically said, get out there and tell the world. Herb Kelleher basically told me to write this book.
[00:47:18] And I was so excited because Herb is a legend or was a legend. He unfortunately died that I was so excited that I decided to write a graphic novel because I thought busy business books, by the way, suck, they're boring. They will put you to sleep. If you could distill listen to one, if you have insomnia problems, they're terrible.
[00:47:34] Even like the best sellers they're just poorly written. So I was like, I'm not going to write one of these. So I wrote a comic book. And I called up Herb, but I was super excited and I said, Herb, you're not gonna believe this. It's taken me a year, but I've written this as a graphic novel. And he was really disappointed because he thought that was trivializing, this very important subject.
[00:47:56] And he thought all that research that I'd done, he just didn't see it.
[00:48:00] So Herb said, look, Jim, I can't stop you from doing that, but I can tell you to leave me out. And I was like I'm not gonna leave Herb Kelleher out of this story. So I rewrote the thing again as like half graphic novel. And then
[00:48:14] regular book. And then that's what I sent to the publisher that was draft number six, sent that to the publisher. The publisher said you can't have this schizophrenia book. That's like graphic novel. And then back to text and the graphic novel and back to texts because that's not going to work on E readers or audio books or anything like that.
[00:48:30] So my publisher basically said, look, you've got a great book, but just rewrite the thing. As a book, but they did, let me keep a really dirty joke in there. I don't know if you caught it. But they really lend me. So yes, it's a business book, but it reads more like a, like what I wanted, which was
[00:48:46] stories like there's a burning city. There's murder. There's. There's just a bunch of stuff that blows up because look, entrepreneurship is actually really good theater because a lot of the times when you're doing something new, there are disasters and disaster
[00:49:00] and disasters are great stories.
[00:49:01] Like you don't want a story of a nice normal functioning nuclear family. That's just boring. Like you want somebody who's a space alien.
[00:49:11] Hala Taha: So like he said, it's a very fun engaging book. Make sure you go out and get it. The last question that we ask, all of our guests is what is your secret to profiting in life?
[00:49:20] And that can be financial or personal.
[00:49:23] Jim McKelvey: I would say my secret, which I've already shared is create space. So don't fill, leave some room in your garage for that tool, you might acquire leave some time in your day for some joy or to talk to a stranger, leave some space in your head by not filling it with, stuff that little psyche up.
[00:49:44] Like I, it's not that you don't want to know the news it's that? I can't know the news. If I know all the news use all the creative thoughts get stomped to death by whatever sort of headline I just ingested. So space is
[00:50:00] it's so easy to fill space up right now. We've got all these wonderful tools and here, honestly, I guess as an author, I'm asking you to give me some space
[00:50:09] in your head by taking three hours and reading or listening to my book and like, where's that space going to come from? That is that three hours less sleep. You're going to get you have to have space. And so if I'm asking for space, let me try to justify it by explaining this. The person I wrote the book for is a certain person.
[00:50:27] And I had her in mind when I wrote the thing she's incredibly competent, but every time she encounters a new problem that has not been solved by mankind or by anyone she knows, she hesitates, she quits, she just qualifies herself because she says, oh people can't do that. They can't start a top 10 Apple Podcast and keep a full-time job.
[00:50:47] Like whatever that thing is that, and I looked at her and I was like, how many millions of people are disqualifying themselves? Just like my friend did. And by the way, just like I used to do
[00:51:00] where you have the potential to solve the problem. But that doesn't mean you get to copy the solution.
[00:51:06] It just means that you have this potential. So don't sit on the sidelines. So the reason I wrote the book and the reason I'm asking people to give this time to this thing is to understand. When you are disqualifying yourself, because right now we have so many problems in the world that it can't just be up to a small handful of elite superheroes to solve it.
[00:51:29] Every person has the potential to do it. Look, I'm a guy who is basically a glassblower Nope. Payments experience. Look at Square it worked. Jack and I zero experience doesn't matter like you run this formula the right way. You don't need to be an expert because there are no experts, but you do need to be prepared to live in a world where you don't have expertise and that's a different thing.
[00:51:52] And that's what I've tried to prepare.
[00:51:54] Hala Taha: I love that's so inspiring and motivating Jim, where can our listeners go to learn more about
[00:52:00] you and everything that you do?
[00:52:01] Jim McKelvey: So I I, again, I'm not on social media. So don't, you could follow me, I guess it'd be flattering to my marketing guys, but their marketing team, actually, it's not guys.
[00:52:10] This is my marketing team is all female. Everybody works on my team. I have a 100% female team. I shouldn't use the word. Sorry, but don't follow me on on, on social media. I do have a website, jimmckelvey.com. If you go tojimmckelvey.com, I will give you a free copy of the graphic novel, because actually I did produce the book as, as a graphic novel as well.
[00:52:31] And I'll just give it to you for free. So you don't have to buy the book. It's not the whole book, it's just chapter nine, but it's a great story. And there's a murder. There's a,
[00:52:39] Hala Taha: that looks really cool.
[00:52:40] Jim McKelvey: Yeah. There's a city burning down. Yeah.
[00:52:43] Hala Taha: I'll put that in my show notes. So everybody has a link.
[00:52:45] Jim McKelvey: It's good. It's good stuff. So that's a jimmckelvey.com.
[00:52:49] Hala Taha: Very cool. Thank you so much, Jim. I think this was an awesome conversation.
[00:52:53] Jim McKelvey: Hala what fun and good luck to you and I'm terribly, sorry to hear about your dad. I know what that's cause I was like parents too, so yeah,
[00:52:59] Hala Taha:
[00:53:00] it stinks, life goes on and just
[00:53:03] keep on going
[00:53:04] up and up.
[00:53:05] Jim McKelvey: Yeah. I'm born by office right now. So that's the photo of my dad.
[00:53:08] Hala Taha: Oh, that's so nice.
[00:53:10] Jim McKelvey: He died seven months ago.
[00:53:14] Hala Taha: Oh, wow. That's recent too. Yeah. Yeah.
[00:53:17] Jim McKelvey: I know. It's like good luck to you.
[00:53:18] Hala Taha: Thank you so much, Jim. Have a great day.
[00:53:20] Jim McKelvey: Thanks. Bye
[00:53:21] Hala Taha: Thanks for listening to Young And Profiting Podcast.
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[00:54:00] Hala signing off.
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