Co-Founder of Square - How we beat Amazon & built a $50 Billion + Company | Jim McKelvey

Oh yes. At some point in your life, you're going to find a problem that the world has not solved yet. Every fiber of your body will tell you you're wrong. Don't accept the lack of qualification as an excuse. You're not qualified to do this new thing. Neither is anybody else on the planet.

My mom's suicide was one that I didn't take any action. I could have done more to save my mother and I didn't. And I feel that guilt.

Yeah, but it wasn't all positive.

Well, I've been using it personally to develop software which is fantastic. I mean, it's a 20x output improvement, that much. It is. Oh my god, it's amazing. We can do things so quickly and so well that it's now making bad design really dangerous. So in the old days, you could poorly design something, but because it took you 4,000 man-hours to make the next iteration, you didn't have a lot of leeway. And if somebody pushed back with some crap piece of software, which I've always rebelled against my entire career, basically been fighting bad design. Now I've got this weapon because I just say get out of that seat and I will fix it myself. And even though my coding skills are no good compared to really good coders, they don't have to be anymore. So it's now the question of what do you want to build? What's the experience you're trying to create for the user? And that's front and center, and that's all that really differentiates any software now. So that I think is a huge advantage with AI. Look, there's the obvious stuff. It's going to replace a ton of white collar busy work, and that's a social danger, but it's also a huge benefit. And hopefully you believe that the economy is resilient enough to reallocate those resources. That's going to be a wild ride too. That is going to be very, very disruptive because once corporate America wakes up to how much that they're paying for doesn't actually need a human, there will be fewer humans working. That is a fact.

So first of all, I'd say that that fear is well-founded. Yeah. Like if you are afraid, you're paying attention. Okay. Now, the question is, okay, I got this one lifeboat and the Titanic is sinking and there are 13 seats on this boat. And it's not the 1900s. We're not just going to give it to the first class ticket holders. You're going to have to earn one of your seats, and those seats will be earned through contribution in the things that still matter. So how are you dealing with your customers? How are you producing value for whatever your stakeholder class is? I mean, I know those are vague terms, but if I was an accountant right now, I would sit there and say I now have to be 50 accountants because that's the leverage that I'm going to get in the next year from these tools. So what do I do that represents the output of 50 accountants? Like do I single-handedly take on public auditing tasks, one person, or what am I doing where I can be one of the people on the lifeboat? I mean, assuming you want to do it. The other thing you'd say is, well, okay, this ship is sinking and I'm just going to take a helicopter somewhere else, and just eject and do a different career. I've had I don't know how many careers I have. I was just joking the other day because I got something called an ATP, which allows me to essentially work for United Airlines. And I was joking with my family, 'Look, if everything goes to hell, I can get a job flying planes for United.'

Well, I mean, no, they have to hire me first, but it's basically private pilot, commercial pilot, and then there's this thing called an ATP, which you really only get if you're going to fly planes for a living. But I was kind of like, well, I wonder if I could do it. And I was joking when I said to my family that, 'Hey, look, if everything else burns to the ground, and the Bitcoin all gets stolen and all this other stuff, we're fine because daddy can go fly planes.' Yes. You know, I think one of the wonderful things about AI and the world and podcasts like this, look, knowledge is freely available. Anything they teach at MIT, freely available. Anything you want to learn, unless it's some secret thing, which there are very few secret things anymore, right? You can do it. And now the question is, are you the sort of person who wants to switch careers? Maybe you were an accountant and maybe accounting is going away. I've got a friend right now who worked at an investment firm, and I can't name the name of the firm, but he caught them doing something they shouldn't have been doing. I said, 'Well, why don't you go work for the government?' Instead of trying to make money for rich people, go and try to enforce the laws, try to make sure that there's less theft of people's assets. And this was a case of that. So I think you can switch careers these days, and if you don't have the skills for the new career, well, that's six months. The speed at which you can ingest knowledge and have AI tutors, but a lot of times you don't even need to learn the new stuff because the new stuff is becoming irrelevant. You just need to know what you don't know. It's this amazing world, and I think it would be scary but also super fun.

Yeah, happy to. But I would argue that I don't pivot. I just parallel. So the pivot is something's not working, switch. I don't do that. In my world, something's not working, I will keep going and keep going and keep going. Like Square didn't pivot at all. We did add Cash App. We did add Bitcoin mining. We did add TBD. We added stuff, but the original reader, that thing still works. The original software. Well, it's a bigger suite now, but there was no pivot. My glass blowing. I was literally at a glass conference in St. Louis this weekend with some of the best glass artists in the world, including Janusz Pożak, who I think is the best pair of hands on the planet right now. I mean, I love Lino, but he's in his 80s. And Janusz is just amazing. I was blowing glass with some of the best glass blowers in the world. I haven't left the art world. I still fly. So this idea of the pivot, I'm not a guy who pivots. I'm a guy who just adds the new thing. That does cause time allocation problems, but these days I've got AI to help me and a lot of support that I use. And I guess I left the Fed, but that was because I can't vote on interest rates anymore because they limit you to six years. I mean, hell, if they hadn't kicked me off, I would still be doing that. To your basic question was how we started Square. So true story. I was in my glass studio trying to sell a piece of glass to a lady from Panama. She was on the phone and she only had an American Express card, which I can't take because the take rates at American Express were too high. I was normally able to steer all my customers to Mastercard or Visa, but she didn't have one. And so I lost a sale and I was pissed. And I looked at my phone and I said, you know, this device should magically turn into whatever I want it to. It turns into a camera, turns into a TV, it turns into a map. But it didn't magically turn into a credit card machine. So that was the idea that I had. I want my phone to magically turn into a credit card machine so I don't lose another sale. I called Jack. We'd already started the company. We were going to go down a different path. But it was the second week of the company, and so I said we should maybe that was a pivot, one or two in there. But I was like, well that other idea I'm not excited about, but I am excited about getting paid personally. So that's where the original direction of Square came from. And then we just got amazingly lucky. We started in the middle of a recession, so we had access to great talent. It turns out that the problem that I had was shared by millions of other small businesses who also needed support. We hit this beautiful unclaimed territory. And that was because of right product, right time, but there was a lot of luck in that.

He wanted it and I didn't. I mean, that was the easiest conversation in the world. We were pretty much even equity-wise in the beginning. I mean, he had a little more because he had just had Twitter and I had a bunch of stuff in the Midwest, but nothing in the tech world. Then the question was, well, who should run this? And I'm a lousy CEO. I'm provably bad, partially because I keep doing other stuff and my focus isn't great and I don't like sitting through meetings or stuff. So I don't want to be the CEO. So I don't ever start anything by myself. I will always team up with a group and offload onto that group my weaknesses, which are I don't know all my weaknesses but I know enough of them to pick a good partner. Jack's a great partner for me because we're quite different. So Jack wanted to be CEO. I didn't want to be CEO. Boom. So Jack was CEO. That was great. Easy math there.

The innovation stack, which is a book that I labored on for three years, was never supposed to be a book. It was me trying to answer a question which is how Square survived an attack by Amazon. So what happened? When we were a startup three years in, Amazon copied our product and lowered their price on what we thought was a commodity, which was credit card processing. So they undercut our price and then they added the Amazon brand name, and they expected this to work. And frankly, so did we, because at the time, every time Amazon attacked a startup, 100% of the time the startup died. No one had ever survived an attack from Jeff Bezos. Nobody had ever survived an attack by Amazon. Now you could argue that Google survived an attack, but they were already Google, right? So monsters fighting monsters, but monsters fighting squirrels, the squirrel's dead. It was like a goldfish versus a great white. It was not a fair fight, and everyone expected us to be dead. And so we actually looked at, and the reason I know nobody survived an attack by Amazon was I was looking for another company that we could model our behavior after, copy who had survived Amazon. Well, we'll do what they did. Well, there was nobody. So we looked at our options. We didn't have many options. We can't become Amazon overnight. We don't have a brand. People pay Amazon to put a bug in their living room. We don't have flying robots. So there wasn't much we could do. So all we did was basically continue to serve our customers, build our product. And the amazing thing happened about a year later, Amazon quit. So Amazon after attacking us for a year said, 'We're out.' And they mailed one of our little Square readers to all their soon-to-be former customers and said go to Square, we're not going to do this anymore. So the question is what happened? This doesn't happen. Startups don't survive Amazon's attacks, but Square somehow did. So what explains that? And I couldn't answer this question. So I spent personally about two years researching and looking for patterns and looking for other companies or other systems that had survived. When does the goldfish survive the attack by the shark? When is that battle won by the little fish? And it turns out there is a pattern. It turns out it's rare, you don't see it a lot. But I saw the pattern, and in order to find it because it's not a common pattern, I had to look back in history and most of the people that I was studying had already died. So in order to get the data, I was reading history. I couldn't talk to anybody except for one guy. His name was Herb Kelleher. He was the legendary founder of Southwest Airlines. And he agreed to speak with me. So I flew down to Dallas and met with Herb for a day in his office, and he smoked two packs of cool menthols while I was there. And we talked about how when Southwest was this little startup airline that everyone expected to be crushed by the majors, they not only survived, but they became the biggest airline in the country. They beat United, and by any measure for the first 20 years under Herb, Southwest was kicking everyone's ass. Now, interestingly, in my book, I predicted Southwest's current problems because they changed their behavior. And so in my book, I call out that Southwest is going down, and they did. For exactly the reasons I anticipated. But the pattern was really interesting. And so what happened at that meeting was, at the end of the day, I was like, 'Mr. Kelleher, thank you. I am done. This is it. You've answered my question. I'm super grateful.' And he was like, 'Well, not so fast, kid. How are you going to share this data with the world? How are you going to share your insight with somebody besides just you?' And I got to paint the scene here. We got Herb Kelleher who is a legend, who has this deep baritone voice, and he is pacing around his office. He can't sit still. So I'm sitting on his couch, I'm staring up at this guy. He's gone through two packs of cool menthols. So there is this cumulous layer of cloud in the office, and I get this deep baritone voice booming down at me like, 'How are you going to share this?' It was like hearing God give you an order. I was going to say it sounds like a spiritual experience. This deep voice coming down from a cloud and telling you to do something. And so I was like, 'Oh.' And by the way, I revered Herb Kelleher. He was a legend. And so I resolved then and there to figure out a way to share it with the world. And what resulted as the innovation stack was me rewriting the book eight times until it was good enough to impress even Herb. I agonized over that book. I rewrote the whole thing eight times. And it reads, if you read it, I know most people don't read these days, but if you read it, I promise you it will not read like a business book. You have fun with it.

Yeah. So what I was trying to do, and I'll get into a little sort of the meat of the book because most people won't read it, but here's the central theme. Almost everything you do in your life has a known solution before you attempt it. Okay? So I learned how to fly planes. Great. I just paid guys who knew how to fly planes to teach me how to fly planes. I didn't have to invent anything. I have not added any bit of innovation to the world of aviation. Zero. I'm a very good pilot, but I have not contributed anything to the knowledge set. And this is true for most of our lives. Almost everything you want to do, somebody else has done. There's a YouTube video, there's a course, you can figure it out, you can hire an expert, you go to a trade show. That's most of your life. In fact, for most people, it's all of their lives. You will never do anything original in your entire life. And I'm not knocking people. I'm saying that that's good behavior. I'm not going to eat an original lunch today. I'm going to go out and eat something. I don't know what I'm going to eat, but whatever it is, humans have eaten it for a long time. It will not be original. So what happens if you encounter a problem that we don't have a YouTube video for? If you encounter a problem where there isn't a known solution, so you bump up against that edge of human knowledge, nobody's ever done this. And what do you do? And at that moment, what'll happen is your fear response will kick in. And this fear response is protective. It's your body and your mind telling you, don't be out of the herd. Don't get out of the other group of penguins, right? The seals are coming. We got to stick together. The herding instinct is wired into us. And it's for good reason because humans behave well when they're in sync with other humans. Like I was kind of psyched that you were wearing a sweater today. I'm looking at you. You got a nice, I mean you got better physique than I do. But I was like, 'Thank God he's got a sweater on.' Because if you'd been in a suit or something, I would have felt weird because I'm wearing a sweater. Even that little thing. Humans like to be in sync. So if you end up doing something that humans have not done before, where you can't copy a solution, every fiber of your body will tell you you're wrong. And then all your friends will tell you wrong because they're going, 'Chris, what are you doing, man? Don't do that. Go back to the herd.' And my 300-page book describes what it's like in this world where you can't copy. And believe me, you have never spent time in this world. I didn't even realize what I was doing. As a matter of fact, for most of my career, I felt like such an idiot because every time I would do something that was truly different, I would feel all this fear and I would feel all this hesitation, and I was having panic attacks. I was pretty freaked out. And it turns out that was actually an appropriate response, but I didn't know that I was doing anything different. I thought, well, I'm just trying to do this thing. And I didn't realize that there's this totally different set of rules. When you can copy, the rules are known. When you can't copy, it's a wild world. And so the innovation stack is this thing that evolves when you can't copy. It is the result of living in this world where the solutions are unknown in advance and you have very few tools and weapons. So you have this very limited toolkit and you got to learn to use it. And so that's what I talk about in the book. And my hope, and this is the reason I want people to read the book. One, it's kind of a fun read, but two, at some point in your life, maybe you're going to find a problem that the world has not solved yet. Maybe it's something you care about and you want this thing and it doesn't exist and you can't buy it on Amazon. You can't find it on YouTube. It's this thing you want. You say, 'God damn it, I want this in the world and it's not here.' Like right now, I want a plastic-free diaper. I want a diaper that doesn't have any plastic in it at all. Doesn't exist. Really hard problem. You come to that moment, almost everything about you is going to say, 'Stop, Chris. Don't do anything.' My book, if you read it and understand it, will prepare you to cross that line. I'm not guaranteeing it will work. There's no promise of success when you're doing something that hasn't been done. But don't accept the lack of qualification as an excuse. Because back to pilots, were Wilbur and Orville Wright qualified pilots? No, they couldn't be. You can't be qualified if you're the first person to fly. If you are the first person to stick an airplane in the air and try to figure it out in the air, you're not qualified. I'm a way better pilot than Orville was. But he was the first guy to fly. Or maybe it was Wilbur. I don't know. They flipped a coin. I can never remember. But the point is, you're not qualified to do this new thing. But neither is anybody else on the planet. So if it's truly new, don't stop. Don't hesitate. I don't want the talent of the world, the people who can do new things, to disqualify themselves just because they're used to following their gut, their instinct, their body, their physiology. Because that's what your gut's going to say, stop. And what my discovery, I mean, thousands of people have discovered this, but I wrote the book on it. That fear that you feel is completely natural and it serves you well in most of your life. But don't live with it if you're trying to do something new. In that case, we got to have a new set of rules. And that's what the innovation stack's about. And it's really exciting because that's where a lot of the progress in the world is, right? It's the true innovators, disruptors that go completely against the grain and wander the unknown and pioneer new things that help humanity that everyone else can kind of stack on the back of.