How to Beat Your Competition Like Square Beat Amazon
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Alexis Gay: You're listening to The Shake Up, where we explore the business decisions that dare to be different and the leaders who are shaking up their industries. My name is Alexis Gay.
Brianne Kimmel: And I'm Brianne Kimmel. And on each episode, we'll bring research and data- backed insights to dig into the minds of business leaders and learn how they make the decisions that challenge the status quo.
Alexis Gay: You can support the show by following us on Apple Podcast, or at Spotify, or, honestly, wherever you get your podcasts.
Brianne Kimmel: We'll be there, hanging out, talking business, ready and waiting to shake things up with you.
Alexis Gay: Brianne, question for you. What are you working on these days?
Brianne Kimmel: I'm a venture capitalist and help tech companies with strategic insights to scale their business. Alexis, what's your deal? You're a comedienne hosting a business podcast?
Alexis Gay: Wouldn't you know it? I used to work in tech and now I'm a comedienne hosting a business podcast.
Brianne Kimmel: Well, here we are.
Alexis Gay: Happy to be here.
Brianne Kimmel: Are you ready to dive in?
Alexis Gay: Absolutely. Today on The Shake Up, we are lucky enough to talk to Jim McKelvey, the cofounder of Square and author of The Innovation Stack.
Brianne Kimmel: I am so excited for this episode. We'll be talking to Jim about how he and the Square team beat Amazon and how they went on to disrupt the entire digital payments and financial industry.
Alexis Gay: Awesome.
Brianne Kimmel: Well, one David and Goliath moment that doesn't really get talked about all that often is the fact that Square actually beat Amazon with an identical product. For anyone thinking about starting something or are frustrated when an investor says, " Isn't Amazon, Google, Facebook going to build this anyways?" Investors are so quick to assume that big companies will win, but that wasn't the case here.
Alexis Gay: Yeah, that's something I hear all the time. It's super rare to go up against Amazon and win. When Jim tried to find other companies who'd done it successfully to see if he could learn anything from their strategy or copy any part of their successful approach, he actually had a really hard time finding someone who had done it. I, personally, wouldn't want to go up against Amazon, but I don't think Jeff Bezos is going into comedy any time soon so I think I'm okay.
Brianne Kimmel: Yeah, that's a great point. Amazon started selling an identical card reader for a fraction of the price of Square.
Alexis Gay: Yikes.
Brianne Kimmel: It's crazy. If you look at the pricing plan, with Square, they charge 2. 7% on each transaction while Amazon was doing a promotional offer at 1. 75% for new customers and then later increased that to 2. 5%. Amazon definitely came in with the better pricing plan, with a lot more existing distribution-
Alexis Gay: Totally. Double yikes.
Brianne Kimmel: Yeah, Jim called out this existential threat when he was on CNN and said, " When you undercut your price by 30% and have Amazon- ed the brand and all of the other stuff that they bring to the table, you're dead." And so for a leader of a company to openly talk about how hard the competition was and what it's like to compete head on with Amazon, is a really interesting conversation.
Alexis Gay: Yeah.
Brianne Kimmel: I oftentimes encourage teams to actually look at the team composition of who they're going up against. Oftentimes, these large platforms or these big multi- product companies, they'll experiment and dabble in a lot of different things without the team structure or the resources to truly make it a success. It's viewed as part of one of many things that they're doing. And so, I think it really comes down to, is the thing that you're building a core priority for that company, and does that team actually have the resources and the desire to really find product market fit and turn this into a core part of their business?
Alexis Gay: Do you think that this dynamic, this incumbent versus startup competition is ultimately good for consumers?
Brianne Kimmel: Absolutely. Yeah, competition is a way for startups to stay relevant. It's a way for big companies to really stay on top of trends and sometimes these can be behavioral trends, sometimes these can be audience or market trends where, when startups start to take off in new markets, it forces the incumbent which, historically, has started maybe in Silicon Valley, it forces them to explore new regions, it forces them to break out of the Bay Area bubble in ways that they haven't really had to think about before.
Alexis Gay: You could say that having money to burn is a competitive advantage, but in the case of Amazon versus Square, Amazon had plenty of money to burn. Obviously, it wasn't profitable at the time and neither was Square, but they still had plenty of money. That didn't seem to be the thing that ultimately caused their dominance over Square. What would you recommend to startups that are going against somebody who has what feels like a limitless line of credit to burn?
Brianne Kimmel: Yeah, it's a great point. I would say, from the perspective of Square, they've done a great job on category creation and product positioning. I think, increasingly, people are making values aligned decisions and Square is a strong position to support these small merchants everywhere. I recently read that 83% of millennials want brands to align with them on their values, and so it's harder for a big giant like Amazon to deliver specifically these values across all of the different products and all of the different things that they do. Because Square came in as this nice player in the ecosystem that deeply cared about small businesses, that culture is something that continues to compound over time, and I also know that this has been really helpful for them on the hiring side of things where they're able to attract really great talent and really great people that care about small businesses. So it's nice to see that when you start to invest in culture and you really build a community around what you're doing, that can become a real competitive advantage when you go up against these big guys that, quite frankly, have lost their heart and soul.
Alexis Gay: It's so funny you say that about Amazon losing their heart and soul because I don't think it's a controversial statement to say. Of course, I completely agree, and so many people feel that way. People talk about Amazon like their big brother, and yet, everybody I know has Amazon Prime and orders something once a week.
Brianne Kimmel: I also feel like a lot of times it's very easy to view these outcomes as more binary outcomes. You can have Amazon, which is consistently doing well across all of their different revenue streams. From AWS to their retail part of the business, they're just consistently well quarter after quarter. What's also nice to see is there is this next level down of public stocks that are really helpful to small businesses and ones that have really started over the last 12 months, like Square was up 250% in 2020, Shopify was up at 86%. So while Amazon feels like this all encompassing giant and something that a lot of startups might be afraid to go up against, we actually see that there's this long tail of companies that are also doing really well over the last 12 months and ones that have really been able to ride some of these strong, COVID- related tailwinds. And it's not just Amazon and the big tech companies, there's room for new companies to get started in a lot of these same sectors.
Alexis Gay: So, Brianne, something you said about tailwinds actually really makes me think of something that's come up a couple times in my career, which is that, if an established player is replicating your product or coming into your space, it's not always a bad thing in the sense that sometimes they're essentially paying major amounts of money to help educate your market and expose the availability of your product out there to people who don't know that it exists. And something that we've talked a little bit about is that Square, still to this day but certainly early on, had a really strong association with small businesses, which makes the fact that one of the key components of their early success was a big partnership with Starbucks, which feels like the opposite of small business to me. That, of course, led to Starbucks investing$ 25 million in Square.
Brianne Kimmel: Yeah, this is something that's a common misconception in the ecosystem is to be small business friendly, or to be a bottom- up SaaS company, or to do things for small businesses you need to choose one or the other, either selling to small businesses or going large enterprise. What I'm seeing today is companies that have been the most successful and ones that can build a very enduring business, they do a combination of both. Square was in that position where they had a really strong product and engineering team that was building for millions of small businesses. That doesn't mean that they aren't able to leverage that same technology, those same engineers, to sell at more of a franchise or at a multi- national level to a business like Starbucks. On paper, we all know Starbucks is a massive company with so many locations in every city and in every neighborhood; however, the core mechanics of how Starbucks used Square was largely the same as selling to small businesses. And so I think as companies start to get creative and they layer in some of these enterprise playbooks, it enables you to unlock even more customers, even more revenue, essentially leveraging the same technology that you've already built.
Alexis Gay: I do wonder if founders are tempted sometimes to go in with this alpha, what some might consider aggressive, presentation. Here's our attack. Here's how we're going to crush it, destroy the competition.
Brianne Kimmel: I would say that, oftentimes, that is potentially shallow thinking. The reason for that is, it's important to acknowledge that you will have competition. The next level thinking is, where do we potentially see an upcoming threat? Or more importantly, where I get excited is, how do you actually find ways to turn your potential competitor or your direct competitor into a partner or into a frenemy. This is something that we see a lot with SaaS companies, where it's better to have integrations with your competitors and to find ways to play nice than to simply build your product in a way where you're not integrating with other companies and you operate in a silo. I think with that sort of siloed thinking, the challenge is that you run the risk of losing relevancy, of turning away customers because they're using different parts of other people's technology for different things. And so I do look for teams that are thinking more about, here's where we're at today, here's what we want to own and we're going to be world class at. Here are the things that we need to integrate, or these are the features that we need to have as part of our greater product vision, but we don't want to build them; we're actually going to connect with someone else who's doing that in a more best- of- breed way. If you price it with a more premium position in the ecosystem, that's also great where you can build a more enduring business because you have not only great hardware, you have great software to go with it, and then you're pricing it in a way where it does feel more premium and it feels like small businesses are really buying into this community and buying in to be a part of what Square is building.
Alexis Gay: It's funny you say that because Square's pricing at the time was priced so that, at a certain scale that they had not yet achieved, would one day make them profitable, so they didn't have a lot of wiggle room on their ability to drop their prices. It's interesting because they were sort of forced into that position of we can't meet Amazon's pricing. But something they did that was interesting at the time was, unlike existing credit card providers which charged certain per transaction fees, they had a standard fee across all transactions, and that actually helped differentiate them as well.
Brianne Kimmel: Square was investing a lot in education and workshops for small business owners, and they became this trusted thought partner where you are willing to pay a premium for a service when you know behind the scenes, there's a lot of information education.
Alexis Gay: Totally. So a lot of what we're talking about right now are all these different bricks that Square used to build up their stronghold in the market. From this partnership with Starbucks to their choices around pricing to how they took on Amazon and won, a lot of that was really innovative. But it's not that there was any one piece where they did this one thing and, tada, they survived. This approach that has really shaped Jim's thinking, he calls it the innovation stack. So, The Innovation Stack, by the way, one of my favorite stacks after pancakes, is the title of the book published by Jim McKelvey in 2020 about building an unbeatable business, one crazy idea at a time. In the book, he talks a lot about Square and some of the things they did to build their own innovation stack. He also talks about several other companies that were able to use the same approach to find success. And in describing what he means by the term, the innovation stack, he says, " Innovation stacked upon innovation stacked upon innovation gives you this weird thing where you end up with a market all to yourself and it's really hard to unseat a company that has all those innovations." A few of the companies he mentions in the book are Southwest Airlines, the Bank of Italy, and IKEA. Now today, Jim has a venture capital firm working with early stage fintech firms. Specifically, he looks to invest in companies with innovation stacks like they had at Square, where a company, as he says, is looking at so much of a defensible position that it doesn't matter what happens, they're bulletproof.
Brianne Kimmel: I think, potentially, one counterpoint to Jim is the fact that I love layering new innovations and more products on top of each other. I think sometimes on the consumer or on the customer side of things, when you start to stitch things together or you start to get into the mode where we acquire other companies to unlock new innovation, sometimes it creates a bit more of a disjointed customer experience. And the challenge with that, oftentimes, can be, if the core team is not driving innovation and you're leveraging acquisitions as your source for innovation, it can create a lot of problems where you have this older, existing product that's your core product and you're slowly layering other playbooks on top of each other, where it's not quite as cohesive. The interesting thing with Jim's concept of innovation stacks is, what we're seeing today is, a lot of companies want to start more bottoms- up and they end up focusing very heavily on product and engineering. What's interesting is that many of them are actually leaving revenue on the table and they're turning away large customers because they're so focused on just selling to other startups or just focused on this bottom- up motion.
Alexis Gay: Totally. Also, it's funny because I think with all the conversation that swirling around right now about whether Silicon Valley as a location, as a destination for innovation, is dead, and where the" next tech hubs" will be. There's a lot of... It's Austin, it's Miami, it's wherever. I think that that's something that people, especially pre- COVID, didn't think enough about, which is that you don't only have to go for the sexy companies that are splashing across TechCrunch headlines for your next partnership. You can look outside of Silicon Valley and explore other types of partners with other customer bases that may be a more interesting fit for your company, but it just might not... It might not be the kind of thing you can brag about over dinner to your other CEO friends, but it might be really good for your bottomline.
Brianne Kimmel: I think, oftentimes, in the Bay Area, or if you're in a very dense startup ecosystem, you end up selling to friends and family and you're not taking that next leap up to sell outside your network or to start closing large enterprise contracts because it's a different muscle, it's scary, you feel like your product's not ready. There's so many reasons why people avoid sales, and so I love Square's story because they had this unique ability to do both.
Alexis Gay: Totally. I think that that was one piece of what Jim refers to as the innovation stack for Square.
Brianne Kimmel: The playbook and what is largely missing from a lot of startups that want to deliver this level of execution, is you typically need an operations team. That way you're not move fast, break things, and then someone else is left to pick up all the pieces. What's interesting with these sort of businesses is that we're actually seeing the contribution rate from people that are fresh out of school or from women in underrepresented groups in tech, the contribution rate is going up significantly because crosstalk it's no longer tied to, who is the person that's been at the company the longest?
Alexis Gay: Oh, really?
Brianne Kimmel: Or who is the person that's the first one at their desk and the last one to leave? The people that have the best ideas and that are not out executing each other, but are operating in a way where they're moving fast and not breaking things, are the individuals that are successful in this new environment.
Alexis Gay: Moving fast and not breaking things. Maybe that's the theme. Maybe that's the next era that we're moving into. That's wonderful. Well, Brianne, I think that all makes a ton of sense and I'm really excited to talk to Jim about it, maybe get his take on some of the things that we've discussed, and really dig into the decisions he made and how he defeated Amazon using that innovation stack. And also, I'm curious to hear how, exactly, the innovation stack has helped a number of different companies survive and... Oh, yeah. What a night spent in a Spanish palace taught him about Silicon Valley.
Brianne Kimmel: I'm excited to dig in. Jim's going to have some amazing tactics for business and I just love the Square story. There's going to be some really fun anecdotes that come up.
Alexis Gay: I know. I totally agree. Do you think I can get him to sign my ebook? All that and more coming up after a quick break. Today's episode is sponsored by those fine folks over at HubSpot. Managing conversations with prospects and customers and creating a remarkable experience can be tough. HubSpot wants to change that. That's why they created a CRM platform that makes it easy to align across teams.
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Alexis Gay: We love a unified system of record. We always say that. You can install live chat on your website and allow sales or support to get in touch with prospects directly.
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Brianne Kimmel: Yeah, and best of all, teams can get access to all of a contact's history so they can have more informed conversations with prospects and customers and design a better overall experience.
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Alexis Gay: Okay. We're back and I could not be more excited to bring on today's guest. He's the cofounder of Square and author of The Innovation Stack: Building an Unbeatable Business One Crazy Idea at a Time. Jim McKelvey, welcome to The Shake Up.
Jim McKelvey: Thank you. Hi, Alexis. Hi, Brianne.
Brianne Kimmel: Hi, Jim. It's so great to have you.
Jim McKelvey: I'm super excited, yeah.
Alexis Gay: Just a note on The Innovation Stack, quickly. Jim, you're funny. Like, you're very funny.
Jim McKelvey: Well, thank you, but looks aren't everything.
Alexis Gay: I really loved the writing of your book. I thought it was really engaging the whole way through and I also learned a lot.
Jim McKelvey: Thank you.
Alexis Gay: We love to learn. We love to learn crosstalk and we love to laugh.
Jim McKelvey: I didn't want to write a business book. I really hated the idea that it was a business book, but it is. That's the genre that it's in, but if you read it, there's actually this really dirty joke in the book that my editor didn't catch. I was going to tell him about it and then I thought, " No, man. If you're too checked out to find it, I'll leave it in."
Alexis Gay: Can I guess which one it was?
Jim McKelvey: No. No. It's in the book. Come on. If you got it, keep it to yourself. Yeah, it's in there and I'm sort of embarrassed about it, but it's also a really puerile joke so you have to have the pretty raunchy sense of humor to get it. But, oh yeah, it's there. It's there and keep it to yourself.
Alexis Gay: Okay, a secret's safe with me. So, Jim, just before we dive in a little bit, can you tell us, what is the innovation stack?
Jim McKelvey: So the innovation stack is this thing that I discovered while I was trying to answer a question that was plaguing me, which is how Square survived an attack by Amazon. I think we'll get to this in a minute, but Square was attacked by Amazon when we were a startup and, at the time, every company who had been attacked by Amazon when they were a startup, died. There was a 100% mortality rate, or had been absorbed into Amazon, which I would also consider maybe death or worse. And so we were looking at this very dire situation and we did some kind of crazy stuff and it worked. After it worked, I thought, " Why did it work?" And I couldn't answer that question, so... I'm a sort of nerdy engineer and I went on this research quest looking for other companies that had lived through similar situations. So I studied historical businesses, I studied boring businesses, I studied the airlines, I studied all these areas where technology was not the major force. But there was this thing that kept showing up in my research, and it was this thing that I labeled an innovation stack; it's just this very simple idea that invention is not one or two things, it's usually this messy conglomeration of 10, 20, 30, 40 things. So I always use the word" innovation" like a mass noun, like cement. You don't buy a cement, you buy cement. It's this thing with volume. To me, innovation is a mass noun.
Brianne Kimmel: One thing that really struck me at the beginning of the book is the intellectual honesty of the founders at Square. You went through and listed all of the reasons that the company may potentially fail, which, I think in this environment, is a very audacious move to say... Not only to have a pitch deck of all the great things that are about to happen, but we've really thoughtfully broken down all of the reasons that we may potentially fail, and I greatly appreciated that level of honesty.
Jim McKelvey: So did our investors. It turns out that, Brianne, that was a pivotal moment in us selling the company to the investment community because, for the first time, I think ever, we admitted all the stuff that could go wrong and we openly discussed that in the pitch meeting. Look, humility is a super power, okay? Humility, if combined with audacity, gives you the ability to get feedback into your ego- saturated brain.
Alexis Gay: Absolutely. That's great advice across the board for anyone really thinking about starting a new venture. Okay. Let's talk about the meeting about Amazon. Tell us a little bit about... You, of course, know the meeting that I'm referring to. Do you want to set the stage a little bit?
Jim McKelvey: Well, Jack was dressed in all black and he announced that Amazon had copied our product and was going to undercut our price, which is what they always do, and he told the board what was happening. We have a very intelligent group of people on the board and we have a lot of experienced folks and we were all stumped.
Alexis Gay: Was everybody in the room with you?
Jim McKelvey: Yeah, yeah. This was a board meeting. The board meetings at Square are usually fun, and this was just dark. It was this moment where we hoped there was some solution, and we did what you normally do when confronted, which is, you look for other people whose solutions you can copy. Who's beaten Amazon? Let's find somebody. There must be somebody. Nobody. So then I went into full on panic. I was like, what are we going to do? What are we going to do? What are we going to do? And then we started iterating through the questions of, well, what could we do? One of the most basic ones was, Amazon was undercutting our price. Well, we could lower our price and match Amazon. But here's the thing, we chose our price to be as low as it could be and still serve our customers. If we had matched Amazon price, we would have been out of business. And it also was not something that would have been honest to our consumers because it would have basically been saying, " Oh, look, that price we didn't charge you for the last four years? Well, we could have done better." And our answer to our customers was, " Look, I'm sorry, we're doing as well as we can. We're doing the best we can and that's the price you get. And if we can lower it in the future, we will, but we can't do it just because the biggest company in tech has decided that they want to kill us." So we didn't lower our price. We didn't actually even do anything that was different which was the amazing thing. We wanted to do something because, look, if you're being attacked, the hardest thing you can do is to not react, or maybe not overreact.
Alexis Gay: Wow.
Jim McKelvey: Yeah.
Alexis Gay: That must have been a really hard conclusion.
Jim McKelvey: It was terrifying. And this is what made it even more interesting, when we won, for me to answer the question, " Why? What the heck happened?" Because I was so happy we won, but then I was like, " Why did we win?" Okay, was this just luck? Or was there some deeper pattern here? Was there something that might be a lesson for me or other people? But the strategic discussions, which I think I was privy to, were basically the same, which is like, " What can we do? What can we do that we're not doing?" And the answer was, nothing. We're doing everything we can do and we have been, because we're motivated by the needs of our customers-
Alexis Gay: Totally.
Jim McKelvey: ...which is focusing on the customer. So we weren't sitting there thinking, " Oh, well, if a competitor does this, this is our countermove." We were like, "What does the customer need?" And with millions of customers, you have a long list of requests.
Brianne Kimmel: One thing that I really loved at the beginning of the book, is when you talked about all of the regulatory constraints and, in the early days, the fact that Square was violating hundreds, if not thousands, of laws.
Jim McKelvey: 17.
Alexis Gay: Oh my God.
Jim McKelvey: I was going to say, if you multiply the fact that every transaction broke 17 laws, rules, or regulations, by the number of transactions, we were in the millions of transgressions. Yeah, it would have been a bad meeting.
Alexis Gay: Did that make you sweat? Would you think about that sometimes in the middle of the night and just be like, " Oh my God, we're breaking a lot of laws."
Jim McKelvey: In our case, we looked at some of these laws as these sort of vestigial things. There's a law in my neighborhood, you can't have more than 12 chickens. Well, nobody has 12 chickens in my neighborhood. It is on the books. Some of those laws were like the 12 chicken laws.
Alexis Gay: Okay.
Jim McKelvey: Some of the laws were simply ones that didn't anticipate the technology, and then there were a couple that were absolutely reasonable and needed to be complied with, OFAC, KYC, the security around moving money. We were in early violation of all that, but we had to get compliant with those and we did.
Alexis Gay: Wow. So, Jim, let's talk a little bit about Halloween in 2015. You got some pretty big news on that day. Can you tell us a little bit... Well, first actually, let me ask you this, were you dressed up?
Jim McKelvey: I was in costume.
Alexis Gay: Okay. What were you wearing?
Jim McKelvey: I was dressed as the Joker, my wife was dressed as Catwoman, and my son was dressed as Batman.
Alexis Gay: That's adorable.
Jim McKelvey: The best treat I got that night was Amazon announcing that they were going to discontinue their competitor to Square, and not only that, they were going to mail one of the little white Square readers, the thing that I designed four years earlier, they were going to mail one of those to all their customers. So Amazon was not only getting out of the business, but they were basically giving us all their customers.
Alexis Gay: Truly unbelievable.
Jim McKelvey: And I know I talk a lot of crap about Amazon, but they're a well run company. They were probably not trying to be nice to us, but what they were doing is, they were trying to care of their customers.
Alexis Gay: Right, right.
Jim McKelvey: So they offered this thing, the thing didn't work, and they said, " What's the best alternative for our customers?" Well, the best alternative was Square. So you know what Amazon did? They swallowed their pride, they got a bunch of our equipment, and they mailed it to their soon- to- be former customers. I thought it was a classy move.
Alexis Gay: Absolutely.
Jim McKelvey: Say what about Amazon, they treat their customers well. They have that integrity. I saw it and it was wonderful. So, Happy Halloween. They pointed to the press release and, I'm not going to tell my kid because he doesn't understand this, I tell my wife. I was like, " Guess what?" And oh my God, at that point it was like, " Wow, maybe we can have guacamole with our next burrito because we won't be poor again."
Alexis Gay: That's right. Full size candy bars next year.
Jim McKelvey: Yeah, yeah.
Alexis Gay: That's awesome. Wow.
Jim McKelvey: Not the fun size.
Alexis Gay: Did it feel real in that moment?
Jim McKelvey: No, it didn't. It didn't. This stuff takes days to settle in. Sometimes it still doesn't feel real. When I look back right now and realize the trajectory that we had, I was like, " Did that actually happen?" Yeah, it did, and it's well documented, but I still don't think a lot of the stuff that's happened to me is real. I've been so lucky.
Alexis Gay: Mm- hmm( affirmative)
Jim McKelvey: I feel like I'm the luckiest guy in the world.
Alexis Gay: Do you still have any lingering nightmares or thoughts of what if the opposite were true? What if Square did not exist today? What if Amazon had won?
Jim McKelvey: Oh, I'd be fine. I also considered myself rich before Amazon because... Not because I had a lot of money, but because I have really cheap tastes. The day I realized I was rich, I was going to work and the radio was giving away some$ 10, 000 prize, and the radio announcer's like, " Just imagine how$ 10,000 is going to change your life," and I though about it. It's like, oh my God, it wouldn't. crosstalk
Alexis Gay: Oh, and that's the moment.
Jim McKelvey: And I thought about how much money it would take to change anything. Look, I live in St. Louis, Missouri, I hang out with a bunch of people who are not rich. Do I have excesses in my life? Absolutely. I've succumbed a little bit, but basically, if Square had not happened, I would have one thing that would be... There was one reason that I wish it hadn't happened. These days, I have to say no to so many things that I would normally just say yes to, because people don't want to meet me, they want to meet my money. People are pretending to be interested in Jim McKelvey or my ideas or my book or whatever, and then they do that pivot, " Hey, Jim, I got this..." and then, boom, comes the ask. And that just bums me out. I went out to lunch the other day with somebody who I kind of liked and I didn't know him that well. He seemed really interesting. Oh man, half way through the lunch I was like, oh, here it comes, oh my God. And I was like, " Dude, you should have just had lunch with my wife. She runs the foundation and gives away money, I don't." So i regret that, but the rest of it's fine.
Alexis Gay: So, Jim, I want to take you back to a moment that you talk a little bit about in the book, which is attending a party at a Spanish palace. I guess my first question just is, if you could tell us a little bit about this palace? What's the vibe? Is this a dark, gloomy palace? Is this gorgeous opulence, Phantom of the Opera palace? What kind of palace are we working with here?
Jim McKelvey: This is your Disney castle palace.
Alexis Gay: Ooh, okay.
Jim McKelvey: This is badass, super wealthy, great- great- great- great- grandparents that has... This is nobility, back when they had nobility, back when the Queen of Spain funded Christopher Columbus rich. And it turns out as it happened, that that was this family. This was part of the venture capital for Christopher Columbus.
Alexis Gay: Wow.
Jim McKelvey: I've got to set the context because at this point, I had been perplexed by the answer to the question, how did Square survive Amazon? So I got this question rattling around my head and I can't answer it. I'm like, " What happened? What happened? How come I can't find it?" I'm studying, I'm talking to people. I'm basically obsessively trying to answer this question. I can't think it out, what inaudible. I was like, " What's going on? What's going on?" And so I go to this party and there's a tour group because the place is huge, and we go into the library and the tour guide shows... They show us the original letters of Christopher Columbus back to this family that had funded it.
Alexis Gay: Wow.
Jim McKelvey: And I was like, " Oh my God. This is his pitch deck. This is what Columbus did to get funded." And then I thought, " Oh my God. I..." Because I was living in the startup world, I was like, " Oh, you think you had it tough trying to raise your money for your startup?" This guy had to raise money and talk about hiring people. I hire people; if we fail, they lose their job. If Columbus fails, they die. And all of a sudden it just hit me in this moment. I remember it because the tour group had left. I'm sitting there just transfixed, looking at Columbus's handwriting, going, " Oh my God, that's the answer. That's the answer, that's the answer." And the answer was, I've got to mine history. I don't want to look around me in contemporary business. I need to look at history because if there is a power that protects you from forces like Amazon, if there is that power and it exists, it will have shown itself throughout history. And by God, the second I started doing that it was like, example, example, example. All of the sudden I went from no data to do my research to like, " Oh my God, I've got so much data. I've got too much data."
Alexis Gay: Totally.
Jim McKelvey: And so then I could be super picky about the stories that I actually deeply researched, and I could say, " Okay, I need one right here. I need one right there. I need one right there." So it was a beautiful moment in self discovery and research and also humility. What our forefathers had to deal with was just way worse than what we've got now. It is easy today-
Alexis Gay: Totally.
Jim McKelvey: ...compared to what people had to do. Yeah.
Alexis Gay: That's amazing. Jim, how has this discovery, your discovery of looking back on historical figures and moments in history where they were using the innovation stack, changed the way that you, now moving forward in a post... The post- Amazon battle, obviously not post- Square, how has that changed the way that you approach business today?
Jim McKelvey: The big insight of the book is that the process of innovation is fundamentally different and it feels different, and here's how it feels. What I tell my readers, or potential readers, is look, the reason you read The Innovation Stack is that, at some point in your life, you are going to run up against the edge of human knowledge. And when you do, you have this moment of choice. I want more people in the world to feel like they could. Not necessarily going to succeed, but at least understand that there is the potential for success on the other side of that line. Look at what that potential is like, sort of vicariously live through it, laugh about it, read some good stories about it. And let me tell you the thing. When you're in the process of building an innovation stack, it is so darn uncomfortable. I want people to have recognition. So first of all, recognize the boundaries; that's hugely helpful, okay? Secondly, understand when it's appropriate to copy and when you need to innovate. And a big chunk of the book is this discussion of how we are wired to copy and why that's good. I'm not knocking copying, have everyone like, " Oh, McKelvey hates copying." No, no, no, no. I do that every possible moment I can. I will steal your best ideas anywhere. I will use that, because that's what usually solves a problem. Innovation's the last resort, but if it is your last resort, then understand how it's different. Be able to recognize at least some of the big things about innovation that are likely to cause discomfort. It's your expectation. If you expect things to be harder than they are, you're probably going to be happy. One of the things I wanted to do was prepare the reader. Look, if you step across that line between the known and the unknown, it's going to get unpleasant. It will not kill you. It might be really wonderful on the other side eventually, but here's what it's like, be prepared. Your focus is to build. Your focus is to figure out something that nobody else has figured out. How many pieces do you have to come up with before you've got an innovation stack that actually works? And by the way, there's no guarantee that you're ever going to reach that limit, but you do. And if you do, the world changes. It's just amazingly powerful if you build one of these things.
Alexis Gay: Yeah, that's great.
Brianne Kimmel: Amazing.
Alexis Gay: Well, Jim, it's been so much fun catching up today. We've gone to a palace with you, we've hung out on Halloween, there's been so many amazing stories, and this has been such a delightful conversation. One question for you-
Jim McKelvey: I'm sorry I didn't dress in costume.
Alexis Gay: I know, I know. One question for you, what are you working on these days?
Jim McKelvey: A couple of things. I'm working on a glass that's difficult to drink from, a whiskey glass.
Alexis Gay: I love that.
Jim McKelvey: To bring your focus back to the thing you're doing, because we're so distracted these days, crosstalk I thought, what if I could build a glass that is a little difficult to use?
Alexis Gay: Cool.
Jim McKelvey: I told the story in the book about the Square reader being difficult to use and why it's purposely difficult to use, this is the same thing. It takes your attention back to the thing you're doing, which in this case is drinking. So I'm working on that. I've got a company called Invisibly which is trying to solve, I think, the biggest problem in society right now, which is that our attention is not under our control. It's being bought and sold by platforms that are not necessarily holding our best interests at the highest level. The third thing I'm doing is I'm experimenting with a low cost diaper because it turns out that poverty really starts when young families, particularly young single mothers, have to pay for diapers and diapers are 25 cents a pop. I'm trying to build a five cent diaper. I don't know if it's possible, crosstalk but that's where the energy's going.
Alexis Gay: It sounds like we've got the right man on the job. I feel like if anyone can do that, it's definitely you. And where can people learn more and get a copy of your book?
Jim McKelvey: Well, from Amazon, of course. I've been dissing them all week so let's pay some love back to the company that I literally criticize on the first page. No, anywhere books are sold. I'd prefer you bought it from a small bookstore if you can do that, but get it on Audible, get it at Amazon. And my hope is that if you read it, you'll not only laugh, but you'll find this moment where you go, " Oh, wow. Now I recognize this moment that happened to me." And then, hopefully, you don't let the next one get past you.
Alexis Gay: Amazing.
Brianne Kimmel: Amazing.
Alexis Gay: Yeah, thank you so much for joining us on the show today. We really appreciate it.
Jim McKelvey: This was so much fun. Thanks. You guys have great questions. It was so much fun to do.
Alexis Gay: Hey, Brianne, are you ready to do that thing we practiced?
Brianne Kimmel: Oh my gosh, is it time? I'm ready.
Alexis Gay: Okay. Three, two, one. Don't forget to subscribe and leave us a review.
Brianne Kimmel: Don't forget to subscribe and leave us a review.
Alexis Gay: Pretty good. Today's episode was written and produced by Matthew Brown. Production support comes from Orange Hill. Our engineer is William Lowe with research from Cory Broccolini, and special thanks to Kyle Denhoff and Lisa Toner.
Brianne Kimmel: Word of mouth is the best way to help people discover our little podcast. Be sure to subscribe on Apple Podcast, Spotify, or wherever else you listen to podcasts.
Alexis Gay: And don't forget to leave a review to let other people know how awesome we are.
Brianne Kimmel: We have some amazing guests coming up this season that you won't want to miss.
Alexis Gay: See you next time.
When Jim McKelvey started Square, he wanted to help small business with digital payments. And his idea for how to help these companies was good. So good, in fact, that Amazon created a clone product (and undercut Square's pricing).
We learn how Jim not only defeated Amazon but grew Square into one of the largest digital payments companies.