What is an innovation stack, and how does it help startups break free from the dominance of established market players? Dr. Diane Hamilton tackles this topic with today’s guest, Jim McKelvey, the co-founder of Square, a startup that enables small merchants to accept credit card payments on their mobile phones. Jim describes how Square miraculously survived an attack by Amazon by simply carrying on with what they are already doing. In his book, The Innovation Stack, Jim looks for historical precedents of the peculiar situation that Square found itself in, and found a rare pattern that these startups share: a list of innovations that made their businesses unique and eventually enabled them to dominate the market. Listen as Jim harks back to the historical meaning of the word “entrepreneur” and encourages us to do things that have not been done before. As a bonus, he also gives us a glimpse of how his newest startup, Invisibly, is developing innovations in micropayments in relation to web content.
I’m glad you join us because we have Jim McKelvey. You probably know him as the Cofounder of Square but he has a book called The Innovation Stack. He’s going to give a lot of advice for entrepreneurs and leaders to create an unbeatable business one crazy idea at a time.
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Entrepreneurship, Risk-Taking, And The Innovation Stack With Jim McKelvey
I am here with Jim McKelvey, who is a serial entrepreneur, inventor, philanthropist, artist and author of The Innovation Stack: Building an Unbeatable Business One Crazy Idea at a Time. He is the Cofounder of Square and served as the Chairman of his board until 2010 and still serves on the board of directors. In 2011, his iconic card reader design was induced into the Museum of Modern Art. Jim founded Invisibly, an ambitious project to rewire the economics of online content in 2016. He’s the Deputy Chair of the St. Louis Federal Reserve. It’s nice to have you on the show, Jim.
Thank you, Diane. I’m happy to be here.
I’m excited to have you here. My family is from St. Louis originally. I lost a computer in a cab once and found it because of Square. I am very excited that they were able to let me find that. I had no idea what cab I was in. I had no idea where it went. I thought I paid through Square and I called them and they found my computer.
That is the best customer support story I’ve ever heard and I’ve heard some bad ones.
It was this funniest thing. I love Square and I use it all the time. I’m very interested in your other company, Invisibly, but we’ll get to that. I want to get a little background on you because I know that you’re a glassblowing artist. Your friend Jack Dorsey and you cofounded this Square. For those of you who is not familiar with Jack Dorsey, he’s the cofounder of Twitter as well. How do you be friends with the cofounder of Twitter, be a glassblower and create this amazing company?
I hired Jack when he was fifteen years old. He came to work for me at another company that I still have. We became friends and colleagues and then he went off and went to college. He became a massage therapist. He started Twitter and then they kicked him out of Twitter. That was about 2008. He came back to St. Louis for Christmas and told me the story about how he’d been kicked out of Twitter. I suggested that we go get even with the guys who kicked him out and he said, “Why don’t we do something positive and start a new company?” That’s what became Square.
Who would think of a massage therapist and a glassblower? That’s a very eclectic group of individuals. What led you to want to be business individuals after that?Chaos favors startups because they are better able to handle rapidly changing situations. Click To Tweet
I love working with Jack. He’s very creative. He and I always get along. It was fun working with him for years. We had a good rapport. At that time, it was the middle of the recession that the economy is looking terrible. We thought this is probably a good time to start a business because chaos favors the startup. When there’s a lot of chaos, the startups are relatively better able to handle rapidly changing situations than non-startups. We thought it was a good time.
You had to go up against some stiff competition. I love Peter Thiel’s quote. A lot of people know him as the author of Zero to One and as an entrepreneur and investor. He said, “Who can say they went up against Amazon and won?” You can. He tells us how he did that in the book. We talked about how this was an irreverent tone to this book that there was some comic book, Initial Beginning. Tell me a little bit about the beginning of this book.
I didn’t want to write a business book. I’ve read too many of them. I thought they were boring. Even the ones that are useful are like some horrible vegetable that you don’t want to eat but it’s good for you. I was telling stories about entrepreneurs who had done amazing things. I thought the stories would be better told as a comic, so I did a graphic novel. My whole book was a graphic novel and the reason why there are very few comics in the actual print edition is one of the superheroes in my graphic novel is Herb Kelleher, the founder of Southwest Airlines. He was critical in the book because what happened was Square got attacked by Amazon. Miraculously, we survived. When we survived, I looked for other companies that had survived Amazon and there were none. I was happy we survived but I was also confused because I couldn’t explain what happened.
As a scientist, I started looking and doing research. What I found was a rare pattern. In order to find enough examples, I had to look back in history. I had several hundred years of historical research supporting my thesis but I needed a live example. In other words, I needed somebody who had built a world-changing business and was still alive to tell me if my theories were true. I went to Herb Kelleher who’s the legendary founder of Southwest. I brought all my research to Herb. This is before I wrote the book. I said, “Herb, here’s this theory, thesis and process. Is it what happened to you? Is it right?” Herb got super excited. He said, “Yes, you are onto it.” He pointed out a few areas where I had overlooked some stuff. I was so jazzed out of going out of Herb’s office, half-high on nicotine and having one of my idols verify what I was doing that I thought I’m going to write a comic book.
These stories are too epic to tell with just text. I started on a comic book. A few months later, I told Herb. I said, “Herb, it’s going to be great. We’re going to do the whole thing as a comic.” Herb hated the idea. This was surprising because he had a great sense of humor. He said, “Jim, what you’re talking about are very serious things.” He was in his 80s. He didn’t think it was serious enough. I was not expecting this from Herb Kelleher but out of respect for him, I wrote his section and a few other sections as text. Before I could show it to Herb, he died. Out of respect for the man, I thought, “I’m going to give this a more serious treatment, but it still reads in some ways like a comic book. You’ll still get it.” I did save some of the comics and if you go to JimMcKelvey.com, I’ll give you a free copy of the comics. A lot of the stories were destructions of a major city, murders, gangs, Nazis and all this stuff. That’s good comic material. We talked about all that.
Who drew the pictures?
Trevor Goring, a great artist from DC and Marvel.
You’ll get the best. When you write about you and other billionaires, you’re profiling these heavy-duty people. Are you saying that everybody can model after these people? Some people read this and go, “I’m not Herb.”
First of all, Herb wasn’t Herb until he got thrown in. Herb was a lawyer. He wasn’t even in the airline industry. He was a lawyer who this little startup airline hired to defend themselves in court. Herb eventually became the CEO and he was credited as the founding team of Southwest Airlines, but it wasn’t he aspired to be an airline executive. Interestingly and this is why the book is super relevant and why I wrote it. If it was some memoir, that would be deadly. If it was something that wasn’t accessible to everybody then why write a book? The interesting pattern that I found, and this is what I thought was worth working on, was that at the core of every one of these world-changing companies that I studied, and I profile four in the book very heavily but there are hundreds of examples. At the core, every person was unqualified to do what they did. There’s a very good explanation for that, and that is the only comic that I studied were ones who did things that were entirely new. If you’re doing something entirely new, you cannot be an expert. There is no expert for the new.
I’m curious what are the four companies.
I profile Square because I’ve got inside knowledge there, then Ikea, Southwest Airlines and the Bank of Italy, which you’ve never heard of, but you probably have heard of Bank of America. Bank of America and Transamerica were founded by this guy who was a produce vendor. A kid who dropped out of school at age fifteen and built the biggest bank in the world. The pattern is amazingly empowering. If you’re in a situation that you don’t want to be, you’re uncertain and you don’t know what is happening, these skills and behavior of the entrepreneur who by definition, is somebody who is doing something that is new and hasn’t been done are completely relevant. Ironically and tragically, it is a place that we find ourselves in. I’m on the Fed. I’ve spent four hours on calls and nobody knows what’s going on. This is completely unprecedented. What is happening with COVID-19 is foreign and is it going to be so disruptive that unfortunately, we are throwing the world into the state that most entrepreneurs are in, which is they don’t know what is going to happen next.
You said you’re on the Fed and I interviewed John Tamny whether we need the Fed or not. I’m curious what do you think about that in this time.
It’s phenomenal. You have a Central Bank that is decentralized. There are thirteen different entities. There’s the FOMC and then there are twelve regions. Each region is independent. They’re politically neutral so there’s no politics at the Fed, just a bunch of smart people trying to do the right thing. They have limited tools when it comes to the overall economy but there are some powerful tools. They are doing everything possible. I will tell you this and I don’t think I’m betraying any confidence here. The Fed does not know what is going to happen. We’re running models, we’re looking at the data and we’re making our best decisions. This is a completely unprecedented situation.
My husband is a plastic surgeon. He can’t do any work at all. You think of some of these industries that you would never think would be impacted. I could see that everybody needs to have this business and entrepreneurship knowledge. Do you think you came by it naturally as an entrepreneur? Are you a risk-taker? Do you have those traits that they say you need to have to be a good entrepreneur?
No. As a matter of fact, that’s another reason that I wrote it. It’s because there’s a hero myth that gets spawned about entrepreneurs that were somehow these risk-taking mavericks that are fearless and bold. I can speak for myself, I am not that. I’m a guy who is sitting under half an inch of Purell in my basement. I’m a naturally timid person in a lot of ways. I’ve had a life where I’ve been thrown into so many weird situations that I’ve developed a skillset of I keep going even though I’m afraid. The hero story with entrepreneurship does a great disservice because when I was writing this book, I had a person in mind. I will not embarrass her by using her name. You probably know somebody like this. She’s super confident and great at almost everything she does. Yet when she comes across a problem that has not been solved before, she says, “I’m not qualified to do this,” and she hesitates.
My point to her and the point in the book is if you’re doing something that’s never been done before, you are unqualified to do that. You are as unqualified as a fifteen-year-old kid to build the biggest bank of the world or a seventeen-year-old kid to build the biggest furniture store in the world or a massage therapist and a glassblower starting a payments company. You’re as unqualified as the rest of us but that doesn’t mean you can’t solve the problem. It means that when you do solve that problem, you will be qualified after you solve it. New problems are always solved by unqualified people because you don’t get qualified until the problem has been solved again and again.
If your husband is a plastic surgeon, he has to go through a board certification. There are standards that he has to meet every single year. He has to recertify and he has to do CME. He has to meet the standard because it is possible to be qualified to be a plastic surgeon. If he is doing something that has never been done before, he can’t be qualified. None of us are qualified. The problem is smart and capable people who have been taught their entire lives to not do something if they are unqualified stop themselves unnecessarily when confronted with new situations. I wanted to say, “Here are funny stories throughout the history of people kicking butt who were all similarly unqualified.”Nobody is qualified to do something that has never been done before. Click To Tweet
That’s so interesting that you’re talking about the unqualified situation. I interviewed Naveen Jain and I remember talking to him about how he switches industry completely. He’ll learn everything he can in one industry and then he’ll go completely into something he has no idea what it is because he goes in with fresh eyes. It’s like your golf swing. If you’ve already learned a bad golf swing, it’s harder to take the golf lessons because you’ve got to unlearn what you’ve learned in a way. When I’ve interviewed Keith Krach, who I’ve worked on board at DocuSign and different things. He’s such a humble guy for a billionaire too. He says he surrounds himself with people who know some of the stuff he doesn’t know. How important is it to surround yourself with people who have some of those traits and experiences that you don’t have?
Anytime you get a monoculture, you’re in trouble. You certainly don’t want to surround yourself with too many like-minded people. A little discord is good. A lot of it is sometimes good. I’m a big believer in wildly heterogeneous environments. I’m also used to being the weakest intellect on most of the teams that I form. It’s possible to over-expert the group. For instance, if you’re building something in an area, I’ll get Square as an example because I can use it personally. Jack and I hired no payment experts for the first year and a half of the company, like zero. We have one guy who was a consultant. He came from Mastercard in the early days to advise us. Everything he told us was straight out dogma from the industry. It was such useless crap because we were not building what everyone else had built. We didn’t want to copy what had already been done. All he did was copy. He was a high-level executive at Mastercard. If you wanted to build another Mastercard, he would be the guy to call but we were trying to do something different. All his advice was terrible. We got rid of him after a month because this guy is not only useless, he’s almost always wrong. We could almost pay him to tell us to do the opposite of what we should be doing. We thought that was stupid.
When you pick board members, there’s a lot of focus on picking board members with California’s Law wanting more women and different things. Who do you look for in boards if you don’t want the same exact experience? What are you looking for?
You look for people with heterogeneous skills. Anna Patterson, who was a search engine expert and a phenomenal engineer. She’s on the Square board. We sit her next to Larry Summers who is a hotshot economist and big thinker. Naveen who’s an AI expert. We got Amy from the National Basketball Association. We’re trying to get a collection of divergent opinions. We’ve got Lord Paul Deighton from the UK. There’s an actual British Lord in our board but he’s a totally normal guy. He had to become a British Lord because he was appointed to something and it came with a Lordship.
You don’t call him Lord?
He eats a sandwich with his hands. That’s how normal this guy is.
I want to get into what innovation stack even means. We should have started with that. All this stuff is so fascinating. You talked about Amazon attacking you. You don’t say how they attack you, you say you survived it. I want to know how they attacked you, what an innovation stack is, and how this relates.
Amazon’s attack, which was the thing that led me to write the book was a standard playbook. What Amazon does is copy your product and they undercut your price by 30%, and then they add the Amazon brand and they expect you to die. That always works. It turns out that when they did that to Square, we went looking for other companies that had survived that attack and there were none. All of a sudden, we’re looking at all these bodies and said, “We’re not learning anything from those guys.” We looked at our options. One of which was to try to fight Amazon on a price war or change our product to respond to what they were doing.
We liked our price and product. We did not lower our price. We did not change our product. We didn’t do anything. We looked at all the stuff we could do. Miraculously, we were doing everything we thought we should be doing. This is one of the hardest decisions we made, which was to not do anything different when Amazon attacked us. I got to say something nice about Amazon. A year after they attacked us, they quit. They gave up. They said, “We’re out.” Not only did they give up but they mailed a Square reader to all of their former customers. They had a couple of hundred thousand customers and they all got a Squared reader.
Have you talked to Bezos at all about this?
No, I haven’t. It was one of those miraculous things that when they got out, they were cool about it. It was like war in the old days when they treat the officers well or something, but there was some honor there. I respect them for that. The amazing thing about Amazon’s attack was that we survived it. I had to ask and answer the question, “Why? What happened? What did Square do?” It turns out that there was a long history of companies in similar situations. Southwest, Bank of Italy, Ikea and Birds Eye Food got attacked like that. You go through a dozen historical examples and it’s the same thing. These little startups who are doing something new get attacked by an incumbent.
A great example is Southwest Airlines because we understand what an airline is. Southwest was attacked by dozens of companies, but the one that was terrifying was United. United launched this airline called Ted, which was a direct rip off of Southwest. At that time, United was the second biggest carrier in the country. They were much larger than Southwest and much greater resources. They knew the airline industry intimately and hear they were going to copy Southwest. They failed to do it. The reason they failed was because Southwest had an innovation stack just like Square had an innovation stack. What’s an innovation stack? It’s a series of inventions that build upon themselves to create this collection of inventions that differentiates you and allows you to completely dominate a market. I won’t bore you with all the technical details of it but it is the most powerful thing a business can possess. If you have one of these things, in every case, the companies that I studied became completely dominant in their field.
What can we visualize about that?
Let’s talk about what was different about Southwest. It’s everyone’s hope, their airplanes. They’re all flying in the same sky with the same FAA and all that stuff. Southwest used one type of airplane, only the 737. They only flew direct. They didn’t have a hub and spoke thing. They boarded the planes differently. They had a single class of service, so they didn’t have to sort people to the first class or second class. They had a different ticketing system. They had a different way of turning their planes around. Southwest could turn a plane around in ten minutes and other people were sometimes taking an hour to turn a plane around. There were about 15 to 16 things that Southwest did completely differently. It was amazing.
I’m curious on the Square’s difference and what was their series of innovations?
What Square did was we originally tried to serve a customer that was not in the banking system. We were trying to serve very small merchants like myself. These people typically didn’t have commercial bank accounts. A lot of them didn’t have credit scores, regular addresses, businesses or all the other stuff that they needed. Because of this, the banking system essentially had no way of connecting to these people. When we decided that we would give them credit card processing. We got ourselves kicked out of the banking system. One of the things that I discovered in the first week of business was that Square was violating seventeen rules and laws with every transaction.
What kind of cause?
KYC, that’s Know Your Customer, Mastercard’s rules on card-present aggregation, the terms of service of almost every bank that we had, the way we did licensing agreements and OFAC. I stopped counting at seventeen but we were in violation of all of these things. It was chilling at first but then we realized if we figured this out, we will have no competition. It was obvious on the first day why nobody was trying to do what we were doing because we were trying to simplify the whole system. The system was designed to be complicated because complexity allows you to do a lot of shenanigans. In this case, the credit card companies and banks were fleecing the small businesses. We stopped that.
I used to work in banking, real estate and different aspects of finance. I’m curious, did you look at expanding into other areas or was it always aimed at making it simple for people to get around their credit card situation?Innovate when you have to. Do not innovate for innovation’s sake. Click To Tweet
We began with a simple product. We began in a very dark time. It was this 2009 to 2010. We were still under a recession. From that, we started expanding the products so that we were working with small businesses and we said, “What other tools the small businesses need?” Maybe an inventory system, point of sale system, a way to track and pay their employees or an incentive system. We rolled out a way for restaurants to do order heading and curbside pickup because people aren’t going into the restaurants but delivery is a big deal. We started building tools for our customers and ended up with a pretty elaborate suite of products.
These innovation stacks connect. Are there blocks in a way? How did that work?
It’s a mess. Basically, you do one thing and then you cause a couple of other problems. I’ll give you an example. Square decided to give a flat credit card rate of 2.75%. Nobody else in the industry was doing this. There was always some variable rate, which nobody understood and no merchant could tell you plus a fixed fee. We thought what the fixed fee is idiotic because nobody pays a fixed fee. There are no fixed costs. The fixed fee goes back to when they were used to be costly to move carbon copies around. Nobody’s seen a carbon copy since the ’80s. We simplified the pricing. Immediately, that caused a bunch of problems. First of all, they got us upside down on a bunch of our transactions. Anything under $5, we would lose money. We had to make up for that monetary loss by having massive growth and scale. We needed a way that was super easy to sign up. Instead of a 42-page written contract, we came up with a little agreement that was simply written and clear. You clicked on it and said yes. That also violated a bunch of bank agreements.
Every time we do something and try to solve a problem, but sometimes it would create other problems. We came up with a simple price but that created all these problems with the banking system. We had to get Square with the banking system and that caused all these other problems financially and with reporting. In each case, we had to invent something new. Taken together, we did fourteen things that were different and that became Square’s innovation stack. The point is that there’s a process here. It’s a process that if you look at the core and the start of most industries, that process exists. It’s hard to see because by the time we notice companies, they’re finished with this process and it doesn’t dawn on us all the different things that they’re doing. It’s like you walk on to Southwest Airlines and you don’t think this company is doing seventeen things differently than other airlines but it was. Every bank has copied what Bank of America was doing. A hundred years ago, if you went into what was called then the Bank of Italy, it was a totally different experience. First of all, you could go in so they would let you in. That was amazing because the Bank of Italy was the first bank to admit women.
Is that the A.P. Giannini story?
Who’s A.P. Giannini?
The founder of the Bank of Italy and a produce vendor. He’s a guy who sold lettuce.
What drew you to that story compared to something more modern?
I wanted to find another Square and another example of what had happened to Square except I didn’t want to use a company that was in the tech world. The problem with tech companies is that you can get network effect or you can get viral growth. Those phenomena are so powerful that they tend to skew the data. It’s funny when I hear these people studying tech company management practices. A lot of management practices at tech companies are abysmally bad, but they’ve got viral growth so it doesn’t matter.
The way they run meetings and handle people, the growth culture.
Does anyone run meetings well? It seems every industry I had been in the meetings are so crazy. You have meetings about the next meeting. Is it the same way there?
No, it’s different. I honestly think we do a pretty good job of it at Square but I’ve been with a bunch of companies who have this exclusionary macho culture. Uber was famous for it. WeWork had a lot of that crap. There are a bunch of companies that are dead who were doing that. A lot of these companies were very successful for a while because you get viral growth. You can be a terrible manager and abysmally bad but if you’re getting massive amounts of venture capital and viral growth, everyone will deal with it. I don’t think you should learn management practices from some tech company. What I did was I looked for a totally non-tech company.
I wanted an example from history. The reason I chose Bank of Italy was I wanted a financial service company and started for the purposes of including people who had been excluded from the system. In other words, something for the small business or as Giannini used to say hundred years ago, “The little fellow,” and then founded by somebody who was an outsider. I didn’t know what he or she was doing. Bank of Italy was a perfect example of Square 100 years earlier. Bank of Italy became the biggest bank in the world. It changed banking and it dominated the industry. The industry had to do everything that Bank of Italy was doing. That’s an amazing story. It’s funny that I made it into a comic book.
As you’re looking at these stories and ones you think are worth making into a comic book or telling and sharing. I’m curious about spotting innovation stacks. When you look at a company like Theranos for example, something that’s the panacea for whatever the situation is, how do you recognize if this is going to be the next Square or crash as Theranos did? Did you look at that and go, “That’s going to be great,” or did you have the warning signals?
I was not that close to Theranos because they didn’t let anybody in. There were no critical thinkers at that company.
You either thought it was the best thing or you weren’t in.
It was a siloed secret thing. It wasn’t like I was going to their parties. Square grew up next to Theranos. I never ran into them once, so they weren’t visible. I didn’t even know about them until Netflix. It was a little bit before that, but they were purposely seeking out people who were not familiar with what was going on. I don’t want to brag on them but if they had an innovation stack that worked, then it would have been life-changing for people. I applaud what they tried to do. It didn’t work. There’s a base note of practicality here that what you do has to work. Companies who are building these things have to be respectful of the fact that this is not a theoretical exercise. It’s imminently practical. As a matter of fact, practicality is the whole thing. If you look at some of the stuff that Square did, there was always a reason why we had to do it. This is another point of the book, don’t innovate for innovation’s sake. In other words, don’t be one of these people that says, “I’ve got to be innovative. I’ll do something that nobody else is doing.” That’s usually the wrong move. You want to innovate when you have to.
I’m thinking about many companies who are in the startup stages. I had Chris Yeh, who cowrote Blitzscaling with Reid Hoffman on the show. We were talking about how a lot of these startups are in that fake-it-until-you-make-it space because that’s how you get the funds and how people make it. Is there a lot of that going on in the startup space?The right time almost always feels early. If you feel like your timing is perfect, you're probably too late. Click To Tweet
Not in my world. There was no faking it at Square. We were completely honest with people. There was a slide in our pitch deck that had every reason Square could fail. We had 140 of them. We listed every single thing that we thought could kill us. We had frank discussions with them.
How many of them did you have to come up against?
There hasn’t been a robot uprising. We haven’t had that one yet. Visa didn’t attack us, although they supposedly almost did. We did have to fight off Amazon. That was on our list. It happened and we had to survive that one. I would say probably twenty.
You wonder how many people would think of everything. Who would thought COVID-19 or who would’ve thought a lot of the things that are happening? Did you guys consider potential situations or catastrophes like this?
Like an economic meltdown? Did we consider a voluntary closing of the world economy? No, that never occurred to us.
Everybody’s in this tough time but you’ve started a new business. You’ve got Invisibly. How long have you been a part of that?
I’ve been at this for a few years.
This is an interesting thing to me. Tell people a little bit about what this is.
What Invisibly is trying to do is rewire the economics of content so that people become empowered. What I mean by that is, and it sounds theoretical, everybody in the world has a problem. That is when we consume something online, we are not allowed to pay more for good stuff and less for bad stuff. The two models that work online are subscription or advertising. Most of the content is brought to you by advertising. Most of the stuff that you put in your brain is advertising-supported, not subscription-supported. Take the English language’s only five written subscriptions that make money. New York Times, Financial Times, Wall Street Journal, Economist, and Washington Post. If it’s not one of those five, it’s making money through apps. The problem is, what if something you read is good?
The answer is the producers of this good thing don’t make more money from you seeing something good and they don’t make less money if they trick you and give you something bad. They only make money based on the amount of time you sit there looking at an article. It would be the equivalent of saying that you would pay for all your food based on how many calories you would buy. A lump of lard would always cost more than a beautiful salad. It’s a disastrous economic model and it turns out it’s possible to fix it but you need micropayments. Micropayments have historically never worked. I did a theoretical exercise where I figured out a way to get micropayments to work. We have been standing for a few years.
What do you mean by micropayments?
It turns out that when you view an ad, you’re paying the publication through your attention to that app. It’s only $0.25. If instead of spamming ads at you, I let you tell me what products you’re interested in. Your eyeballs become 100 times more valuable, which means you have to see only 1% of the advertising load you would normally see.
Is it a re-targeting type of software that does that?
No, it’s under the control of the individual. The whole promise of Invisibly. It doesn’t work yet. I’m not telling anybody its worth. We’re still building an innovation stack. I’ve told all my investors and all the staff that it may never work, but if it does, it will change the world. It will fundamentally give you the power over your attention, which I believe people need.
That’s interesting because it ties back into our conversation about the differences between what entrepreneurs have that make them successful. We were talking about some of the qualities or traits that they should have. For me, I try to build curiosity in people. You’re focusing on finding the things that people are curious about and making things available for them. As we talk about the difference between entrepreneurs and a business person, if they’re reading this, they want to be an entrepreneur and be able to utilize what they’ve learned in creating innovation stacks and all that. Is there any other quality or difference between being a regular business person or entrepreneur that you want to focus on?
Let’s differentiate a business person for an entrepreneur because the words are used interchangeably. The original definition of the word entrepreneur meant a risk-taker who did something new. New is the most important part. In other words, an entrepreneur was doing something that had not been done before. Whereas a business person does something that’s been done before. Let’s say you want to start a line of coffee shops. We would call you an entrepreneur. That’s an entrepreneurial thing. You’re starting a business. Historically, you would not have used the term entrepreneur to describe somebody who’s doing something that’s already been done, which is a coffee shop. A coffee shop has been done before. Therefore, you’re a business person. You’re starting a business, a string of coffee shops. You’re not an entrepreneur. If you’re starting the first marijuana dispensary and it’s never been done before, you don’t know what you’re going to do because half of your product is illegal in parts of the country and the federal banks won’t let you deposit cash.
That’s entrepreneurship. It’s slightly different. If we’re going to use a historic definition of an entrepreneur, which is somebody who’s doing something totally new, then it turns out there are certain traits that help you. Curiosity is absolutely key. I would also say humility which is a cousin of curiosity. You can’t be curious if you think you already know. Arrogance kills curiosity quicker than anything else. As soon as you have certainty about what the answer is, humans turnoff. It was amazing to me because we’re told that entrepreneurs are somehow these bold, adventurous, devil may care people. A lot of them are very humble, curious and scared. This is another interesting thing. Most of them didn’t want to be entrepreneurs. Most of them got unlucky and found themselves in a terrible situation where the normal stuff that was always working was no longer working. They were in this horrible situation and they adapt it by building an innovation stack and ended up being Titans of industry. If you look at the moments when those innovation stacks were being built, they were built by humble, curious, usually scared people.
You talked about how you’d like to create these theories or models in your mind and things that you wanted to work on. I’m curious how you tie curiosity into some of the things. When I talk to organizations, I believe curiosity is the spark to everything that they’re trying to do in terms of innovation, engagement, motivation, drive and all those things. Where do you see curiosity in the process and how do you develop that in your people?
It’s essential and I am not a great manager, so I tend to not do a lot of development. I have managers that work for me that are good at that but I’m not. I wouldn’t be able to answer it. If you’re doing something that has never been done before, the initial team that shows up has tremendous curiosity because they have to be. Sometimes, the way to think of a concept as abstract as curiosity is to look at the opposite. You’re an expert in this so maybe I’ll ask you. What would you define as the opposite of curiosity?Curiosity and humility are cousins. Nothing kills curiosity quicker than arrogance. Click To Tweet
Status quo thinking in the workplace is the opposite because people rely on whatever they think is working. We’re back to that assumptions thing. When I studied curiosity, I found four things that inhibit curiosity. They’re fear, assumptions, technology, and environment. Technology is the over and under-utilization of it. We’re all fearful of certain things like looking stupid, asking the wrong question and that type of thing. The assumptions we make, if you think you already know, you’re in trouble. What’s interesting to me about curiosity, though it is tied into my next research, which is perception.
You’re talking about your board member who only had that perception of what he’d already done and that type of thing. Perceptions are also another quality that we need to develop in people because it pulls in IQ and EQ, which is what I wrote in my dissertation on Emotional Intelligence. CQ for Curiosity Quotient and CQ for Cultural Quotient. You take all these different types of intelligence and put it together. I am curious if you think the situation is going to change our perception of how we do business. How has this tragedy that we’re going through? Is it changing how you’re thinking about doing business or is everything going to come back to how it went?
I’ll give you two answers. First of all, chaos is fairly familiar to me because unfortunately or fortunately, I’ve tended to build organizations that are the first of their kind. That’s a chaotic world to live in. Square had no precedent, so we had to figure that out. LaunchCode, which is my nonprofit that trains people for free to become programmers and they get some jobs for free. It had never been done. I was amazed that nobody had ever done that. A lot of the stuff that I do certainly in Invisibly has never been done. I’ve spent a lot of time in these weird situations where I can’t copy somebody who has already figured it out. I don’t want to judge copying. Copying I believe is the most powerful force in the world. It is the thing you should always do. If you’ve got a problem and it’s been solved by somebody else, find out what they did and do the same thing.
That is almost always the right way to solve a problem. I’m not knocking you if your job is to copy. Your husband is a plastic surgeon. I’m guessing he didn’t invent every technique he’s using on people’s bodies. He’s not sitting there going, “Let’s see what this filler does.” I want him to be an expert. Expertise is antithetical to entrepreneurship because you can’t be an expert in something that’s never been done before. Most of the world rightly and justly should be copying. However, it is limiting to live a life and only restrict yourself to things that other people have figured out before you. I don’t want to live in a world where smart people don’t try at least a couple of things new.
Is it better sometimes to be second to market and not reinvent the wheel like Zuckerberg after Myspace or something like that? Is it better to always wait for somebody else to take the first fall?
Absolutely. I do a whole chapter in the book on timing. Do you remember the first social network? Nobody’s ever gotten this right.
I’m trying to remember. I had a Commodore before.
You probably used it. Do you remember GeoCities?
I do. It’s been a while though.
GeoCities was the first social network. There was Friendster and a bunch of other stuff, MySpace, and then Facebook. You sit there and say, “Was Zuckerberg a genius?” I don’t know. If MySpace had come along at the moment when mobile technology was making us hyper-connected as Facebook did because Facebook bought Instagram as mobile was taking off. Kevin Systrom is a friend of mine. I talked to the guy occasionally. These are moments of timing. Can you be too early? Absolutely. Here’s the weird thing about timing that I discovered. The right time almost always feels early. If you feel your timing is perfect, you’re probably too late. The reason you feel your timing is perfect is because you’re doing what everybody else is doing. With me, it’s fashion. As soon as I start feeling like I’m well dressed, I’m like, “I’m two months or two years out-of-date.” My wife was like, “You can’t wear those anymore.” I’m like, “What? I ordered four pairs of them because I finally figured it out.”
Google Glasses might have been too early.
Those were crazy creepy. I was at a party when Sergey came in wearing one of those things. Talking to Sergey while he’s got this glass that you know is doing something else. Here’s the experience. Talk to somebody who’s looking at their phone. That’s what it’s like. Even though they’re staring you in the eye but you know that they’re getting these feeds from elsewhere. It’s perpetually insulting to be talking to somebody. I’m not a violent guy but my first reaction talking to this guy was I want to smack those things off his face. It’s so insulting to think that you’re looking at me, pretending to give me your attention but you could possibly be clicking through cat videos.
It is an interesting case to look at some of these of why they worked and maybe it was the creepy factor. I noticed you had Steve Case wrote a nice thing about your book. He had good timing with AOL but some of these have a life cycle and other things to replace them. I teach some business courses where we get into the life cycle and different things but I have yet to see a book that’s remotely like this. I love the innovation stack idea. Looking at some of the past case studies that you have, I can’t tell you many classes I teach where Southwest Airlines comes up of servant leadership and different things that they’ve done to make them stand out. I definitely will include clips of this in the course as I teach. A lot of people can learn a lot from you and they probably want to know how they can get your book and find out more about you. Jim, is there some way that they could reach you, find your book or something you’d like to share?
JimMcKelvey.com has all my stuff on it, like essays and a free copy of the comic version of the book. Chapter nine of the book is a free comic. You can download it or we’ll mail you a physical copy if you give us your address. I wanted people to have the comic but we couldn’t publish comic. You can get the book at a number of resellers. Ironically, Amazon, the company that inspired this by attacking Square and setting me off on this path of curiosity sells the book.
Do they know that there’s a dirty joke in it that your editors missed?
There’s a foul joke in the book. I’ll tell you how it came in. I was on an airplane and I was writing this thing. I wrote this dirty joke. It was terrible. It was so bad that I laughed out loud like you sound crazy. I started laughing and then I immediately deleted it. I then thought, “No, it’s funny and it’s just raunchy. I will leave it in for my editor to catch.” My editors like editing. I was like, “I will let my editor have the fun of ripping this thing out of the text.” She missed it. It turns out it’s one of those jokes that by my guess about 70% of people miss. Granted, I’ve got a nine-year-old son, so my sense of humor is miscalibrated. I told my editor. I said, “You missed the dirty joke.” He said, “You have to tell me where it is.” I said, “No, I don’t.” The funny thing is my editor had already taken another job. He left Penguin and went to work for Medium. He was one foot out the door. He never bothered to follow up. I was like, “If the Penguin Publishing Company is going to put this in print, that I am perfectly fine if you get it.” It has not gotten me in that much trouble. Put it this way, if it gets me in trouble, fine.
We’ll have to have everybody read it to find out if they could find it. Let me know if you find it. I’d like to know. This has been so much fun, Jim. You are so smart.
If you find it, call her that you found it but don’t ruin the discovery.
Keep it to yourself but laugh. You can post a wink or something to Jim on Twitter that you found it.
Use it to tease others. Give people crap for not having the sense of humor of a nine-year-old. My son got it.
I haven’t found it yet but now I’m so curious. I’m going to have to find it. I hope everybody else does and I hope everybody takes some time to check out your book. Thank you so much for being on, Jim. This is so much fun.
What a pleasure. Thank you.
You’re welcome.You certainly don't want to surround yourself with too many like-minded people. A little discord is good. Click To Tweet
I’d like to thank Jim for being my guest. We get so many great guests. If you’ve missed any past episodes, please go to DrDianeHamilton.com. You can also contact me regarding Cracking the Curiosity Code or the Curiosity Code Index. Everything’s on the site. I hope you do that and I hope you join us for the next episode.
- Jim McKelvey
- The Innovation Stack: Building an Unbeatable Business One Crazy Idea at a Time
- Jack Dorsey – Twitter
- Zero to One
- Southwest Airlines
- John Tamny – Previous episode
- Trevor Goring
- Naveen Jain – Previous episode
- Keith Krach – Previous episode
- Anna Patterson – LinkedIn
- Chris Yeh – Past episode
- Reid Hoffman – Past episode
- Kevin Systrom
- Cracking the Curiosity Code
- Curiosity Code Index
About Jim McKelvey
In 2009, a St. Louis glassblowing artist and recovering computer scientist named Jim McKelvey lost a sale because he couldn’t accept American Express cards. Frustrated by the high costs and difficulty of accepting credit card payments, McKelvey joined his friend Jack Dorsey (the cofounder of Twitter) to launch Square, a startup that would enable small merchants to accept credit card payments on their mobile phones. In his new book, THE INNOVATION STACK: Building an Unbeatable Business One Crazy Idea at a Time (Portfolio/Penguin Random House; March 10, 2020), Jim McKelvey recounts the startup’s against-the-odds survival of a direct attack from the most dangerous company on the planet—Amazon — and reveals the business strategy that made Square impenetrable: —what he calls the Innovation Stack.
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