Jim McKelvey: Billionaire Co-Founder of Square on The Innovation Stack

We're taught this myth, I think, about innovation being this cool thing that we should be doing. And then we feel weird when we actually come into a situation where we have to be innovative and it doesn't feel cool or comfortable. And then what happens is you find yourself in a situation where there's something you want to do and there's no YouTube video, there's no expert there. It's you, you've reached the level of human knowledge. So humans have done a lot of stuff, but we haven't done this one thing that you want to do. So now you have to be innovative. Now you have to invent stuff. And that's really difficult, demoralizing. It's scary. And you'll start to question yourself because you'll sit there and say, 'Well, gosh, every other time in my life where I felt this way, I probably should have quit.'

Oh yeah.

They asked me to stand on the dots.

So this is actually the reason I wrote the book. A year after, so the story was I started writing it because Herb Kelleher, who was one of the guys I interviewed, basically said to me, 'How are you going to share this information with the world?' Like, I was not intending to write a book. I met with Herb, he got very excited about some of the stuff that I'd seen, and he said, 'You need to share this.' And I thought, well, I don't want to do a boring business book because they suck. And so I decided to do a graphic novel, which I thought would be more fun. Worked on it for over a year, and then when I got to Herb's chapter, I called him up and said, 'Hey, Herb, I'm going to do this thing as a graphic novel.' And he didn't like that idea at all. He said, 'Look, if you're going to do that, just leave me out.' And I wasn't going to leave Herb out of the book. So I redid it as this, but I saved chapter nine for you as in its graphic novel format.

So, this is actually what the book originally looked like. It was all like, 'Oh, this is a burning city, there's a murder.'

This protective instinct that's wired into you that says, 'Oh, if I'm doing what everybody else is doing,' and as soon as you start doing something that nobody else is doing, all the people who love you are going to say, 'What are you doing? Where are you going?' And they'll start pulling you back. 'Don't do that. You got a good job at a law firm,' you know, or 'Don't move out there.' They'll pull you back, not because they're jealous of you or anything, because they love you, because they want to protect you. And those are the people you've put the most weight probably on those people's opinions, and they're all saying, 'Come back. Don't, you're encountering nothing but failure.' Like, it's failed. It fails again because if it's succeeding, you don't work on it. But it's failure after failure. And this continues until you quit. And my book, if you read it, it's not going to give you any tricks, but what will happen, I hope...

Okay. Well, thank you very much for joining me, coming in. Full disclosure, this is my first podcast interview.

Yeah. First time, so this thing can be an absolute epic disaster, and I will 100% blame it on you.

But you like operating outside of the city walls. So...

Outside of the city walls. So I read your book.

Yes, I read it. I'm still one of the last few people that still like to actually read.

There's something, I'm a visual learner, so there's something about seeing the words on the page, thinking about it, getting lost in it that I think is very different than listening to audiobooks, which I do from time to time. But yeah. So, I brought you a present, but you know, this was not originally supposed to be a book. It was supposed to be a graphic novel.

So the story was I started writing it because Herb Kelleher, who was one of the guys I interviewed...

Basically said to me, 'How are you going to share this information with the world?' Like, I was not intending to write a book. I met with Herb, he got very excited about some of the stuff that I'd seen, and he said, 'You need to share this.' And I thought, well, I don't want to do a boring business book because they suck. And so I decided to do a graphic novel, which I thought would be more fun. Worked on it for over a year. And then when I got to Herb's chapter, I called him up and said, 'Hey, Herb, I'm going to do this thing as a graphic novel.' And he didn't like that idea at all. He said, 'Look, if you're going to do that, just leave me out.' And I wasn't going to leave Herb out of the book. So I redid it as this. But I saved chapter nine for you as in its graphic novel format. So, this is actually what the book originally looked like. It was all like, 'Oh, this is a burning city, there's a murder, you know. This is unbelievable.'

This is absolutely unbelievable. So, why don't you... It would be disrespectful, Herb. So, Herb was right. So, first of all, Herb died. Like, my plan was to... And by the way, this is yours.

My plan was to... Yeah. Well, he was long dead, so I figured he wouldn't get too upset. Plus the guy's just a total badass and just seems like a hero for a comic book. But, Herb was right in probably the most fundamental way, which is if you think about the protagonist of this, right, a comic book. I mean, these are heroes. Like, I mean, this here's the guy, he's wearing a cape. Now, that happened to be the fashion of the 1800s. Guys wore capes, right? But, you know, like if you think about who's the center character, it's always somebody who's got superpowers. You know, at the very least they got irradiated in a positive way and they can run fast or jump high or at least they're rich like Batman. Like Batman's super rich. So, the story of The Innovation Stack, like all of my heroes are just very normal people who ended up in these weird positions and then because they had to respond, develop these things that made them super powerful, but it's not a superhero story. So if I'd told it in the graphic novel format, I think I would have lost a lot of the people who've related to the book, which is this idea that look, everybody is pretty much the same when we're doing innovation. Like there is nobody who's built for it better. I mean, there's some traits you can develop, but it's not like you need to be irradiated magically to be an innovator. It's sort of a last resort that humans are wired with, but we don't typically do. And so it's not that someone possesses these unique skills and they're just kind of going through it. It's more that as you go through it, you have to adapt and figure out challenges as you go.

And yeah. Well, I think you know like you're not going to lie passively. I certainly wouldn't. But the problem with innovation, one of the problems with innovation is that we're taught that it's this cool thing we should be doing all the time. 'Oh, you need to be more innovative.' You know, like, 'Sam, what are you doing that's innovative this week?' And most of the time your answer should be, 'Not a goddamn thing.' Like I don't do anything innovative. Like I don't want this building to be innovative. I want it to be like all the other buildings behind us built with steel and concrete and wood and whatever the heck keeps buildings standing. I don't want some guy to go, 'Hey, let's build a building out of straw.' You know, like I think we can engineer straw and go up 40 stories. Like, you just don't want that. I don't want innovative food, you know? I mean, I want good tasting food, but that's been invented before. Don't sit there and feed me some plant that no human has ever ingested. So, we're taught this myth, I think, about innovation being this cool thing that we should be doing. And then we feel weird when we actually come into a situation where we have to be innovative and it doesn't feel cool or comfortable. And then what happens is you find yourself in a situation where there's something you want to do and there's no YouTube video, there's no expert there, it's you, you've reached the level of human knowledge. So humans have done a lot of stuff but we haven't done this one thing that you want to do. Okay, you want to build something that hasn't been built. Great. So now you have to be innovative. Now you have to invent stuff. And that's really difficult, demoralizing. It's scary and you'll start to question yourself because you'll sit there and say, 'Well, gosh, every other time in my life where I felt this way, I probably should have quit,' right? Like the time you decided, 'Well, I could climb that building even though I've never climbed anything.' And you climb up as a kid, you fall off, you break your neck, break your leg or something. You've probably experienced some times in your life when you haven't been qualified and you've been penalized. Well, the problem with that is that that fear response when it kicks in and you're doing something innovative is what makes most people quit. So, most people, like the saddest story about this book, saddest story was this dude I was talking to, actually he's probably in his house. Well, he's in one of those really, really fancy buildings. I don't know if you can see that, but there's a really fancy building up there and he has got a really fancy apartment and he's waving to us. Yeah, and I probably know what he's waving, but like what this guy has on his wall. He's got, so I'm an artist and I kind of know what stuff costs. He's got one painting on his wall in his living room that's worth more than everything else I own on the planet.

Like take everything that I own, sell it at full retail, and the proceeds for that would not equal this one painting that he has.

Oh, yeah. It's a particular Rothko. Like, but it's like this. I was like, 'Oh my god.' And I was blown away. I saw the painting. I was like, 'Oh my god.' But I'm talking to him about my book because he was one of the early reviewers of my book, a very successful guy. And he said, 'Jim, I wish I'd had your book 20 years ago.' He said, 'I was starting a company and we were doing exactly what you described and it got so hard that we quit. If I'd known that it was supposed to be this hard, we would have continued and I would be even more successful.' I mean, like, don't feel sorry for this guy.

Generally not. Most of those people will quit before they get to the solution.

Yeah.

There's something that drives each of us in ways that we do not control. So I liken it to you don't have any control about who you're attracted to.

Right. Like that's one of the things. Yeah. Like, 'Oh, you should like this person.' Sorry. No. I remember once I was in a situation where this guy was telling me I should be attracted to somebody else. And I was like, 'Yeah, but I'm not.' He was like, 'But look, this person's gorgeous.' And I was like, 'Yeah, I mean, it's for you.' I mean, I think German Shepherds are really attractive dogs. And you know, but I don't have control over that. Like, it's not this choice that we have. Like, there's certain problems. I believe that at least, you know, speaking personally, there's some things I care about, some things I don't. And I know there's some stuff that I probably should care about that I don't. But the stuff that I care about, if I work in that world, then I get this motivation that is really compelling and it's really personal and I just, you know, the things that I guess these happened to me when I was a little kid or maybe they're my DNA. I don't know, right? I don't know where the motivation comes from, but that's where I see most of the entrepreneurs who are successful pull their power. It's not because they need to get rich.

I'm pissed off. I just, stuff, no, it's not pure anger, but it's like I see this problem and I think, well, somebody ought to fix that. And then I think, well, wait a second. You got some time. Why don't you fix it? You know, and then I ask myself the question, well, if not for me, who's going to try this? And the fortunate thing about my situation now is that, you know, I can fail big and not put my family out on the street, right? So I get to take big shots.

Yeah. I don't see a lot of great innovation from people with tremendous resources. I've seen a lot from people who have scarcity. So there is this excuse that I've seen a lot which is like, 'Well, I'd do that if I was rich, I'd do that if I had the time, I'd do that if you know these things.' And most of the organizations I've started that have been super successful, and Square included, like Jack and I just self-funded the thing. Now we eventually took money from some investors but it wasn't like, 'Oh, thank god you got these two rich guys bankrolling this thing.' You know, we were fine, but we weren't super wealthy. But it was a problem that I cared about. Like, I was pissed off because I was a guy who was, I'm an artist. I make glass. I lost a sale. I was angry because I lost the sale. She wanted to buy this thing. She wanted to give me an American Express card. I couldn't take it and then it bothered me. And then I was angry about losing that sale for days after. I was like, 'God, I needed that money.' You know, you made the thing. Somebody wanted the thing, they're there. Let's get it done. Yeah. I mean, I had it like on the finish line and I couldn't take an Amex card. So, these are the things that I hear a lot of excuses. And one of them is I don't have the resources to do this. And like maybe if you're starting a space exploration company or something that's like insane, that would be...

Yeah, you need some money. But for most of the problems that we need to address, the tools are available and commonly so.

Oh my god. Yeah. Like even audio equipment and doing a podcast like this is super easy to set up.

Yeah. Literally, literally all self as far as I can tell. Sam, you have no friends.

Like I can see no evidence of any human else. But you're doing great. I mean, you got a two camera setup. You got decent lights. I mean, that power looks like it's going to fall off. And don't spill the champagne. But I mean, you know, like the point is here's an example. You're sitting in an example of empowerment. You want to put out content, you can do it. You don't need anybody's permission.

Yeah.

Yeah.

And that's why I ended up rewriting this book eight times because, you know, the first time I got it, it was factually correct. I had all the same data. But by the sixth or seventh rewrite I started to capture the emotional side which was really hard for me because you know I'm a scientist, economist, I'm a numbers guy, you know, so capturing that and really being brutally honest about what motivated me because that's the only data point that I can really speak honestly to and then the data that I got in front of the people in the interviews like with Herb and guys, I wanted to capture that. So, I wanted people when they read the book to feel something. You know, so I talk about my mom's suicide. I talk about, well, what happened in, you know, I mean, there's a murder in this book like it's there's a murder, you know, a little kid watches his dad get shot, right? You know, these are things and these are not made up stories. These really happened. I don't know how to express that except to share it. But the reason to share it is so that somebody going through it can tap into that power source because that's probably what's going to get you through. Because look, if you believe that the problem you're trying to solve is going to make you rich, well, let's talk about being rich for a second. Like you're probably sleeping indoors. You probably have air conditioning. Clothing's cheap these days. Like you're probably not, the difference between you at your current level and you as rich as the richest guy in the world, the delta is not that big, right? You know, who cares? It's not that much different. You know, oh, you're flying in the back of a plane and he's flying on a private plane. You're still flying. There's not that much difference. So these are weak motivators and my whole purpose of writing this thing and the reason that Herb asked me to write the book I think was so that we don't have so many people give up. Like the heartbreak was with that guy who had the Rothko, he quit. Like he had a product that might have made the world way better and we never get to see it. And even though he's well off, he still has this hang of regret.

You know, and it's a pattern. And this is the thing that I recognized this pattern. I saw it repeated and I was like, 'Oh my god.' So, how do we get people to not quit? And the answer is, you know, I'll send you 300 pages of reading. Like what will happen almost certainly if you start doing something significant, like I'm not talking derivative or copying somebody else's stuff, copying is great, copy everything you can, but like you start doing something significant that has not been done before, your fear response is going to kick in hard because you're designed as a human to want to be with everybody else. You want to be, we're herd animals. We all, I mean, I'm kind of glad you're dressed like me. We're both wearing jeans. We're both wearing a t-shirt. We're both wearing a, I mean I should roll up my sleeves, but you know, like but there's basically this protective instinct that's wired into you that says, 'Oh, if I'm doing what everybody else is doing, I'm fine.' And as soon as you start doing something that nobody else is doing, all the people who love you are going to say, 'Sam, what are you doing?' Like, 'What? Where are you going?' And they'll start pulling you back. 'Don't do that. You got a good job at a law firm,' right? You know, or 'Don't move out there.' They'll pull you back. Not because they're jealous of you or anything, because they love you, because they want to protect you. And those are the people you've put the most weight probably on those people's opinions. And they're all saying, 'Come back.'

Back. And then as you go in and work on your problems, you're encountering nothing but failure. Like it fails. It fails again because if it's succeeding, you don't work on it. But it's failure after failure. And this continues until you quit. And my book, if you read it, it's not going to give you any tricks, but what will happen, I hope, is you'll recognize what's happening. You'll go, 'Oh, yeah. I'm supposed to feel like this. I didn't expect this to be pleasant or comfortable or easy or predictable.' You know, like all these things. I didn't expect to feel cool. Like if you expect to feel cool as an innovator, right?

Yeah. And I wonder how much of it is, I heard this thing from like DHH who was on Lex Fridman recently and he was like there has to be this like homeostasis. So if you're trying to do something that's going to have a big impact, you're going to get sort of an opposite reaction of equal proportion. So if you're doing something small, doesn't really have a lot of impact, doesn't really have a lot of change, it doesn't really make a big ripple effect in the pool, you're not going to encounter that much resistance, but at the same time, you know, it's not going to be all that meaningful. Versus if you're trying to do something really important, a lot of people are stuck in the status quo and are incentivized to keep things as they are in the status quo. And so you're now a challenger. And if you're a challenger, the existing people in power, so to speak, or the people who currently are the dominating players will try to kind of stifle that.

It's not proven. It's not known. There are no words for it, you know. And so, I use the example in the book, which is sort of a bad example now because it's 20 years old, but you know, do you remember your first Uber ride? Your very first one?

Yeah. You got into some dude's car.

And you never got into a stranger's car before. That was absolutely forbidden when you were kids. Like you don't ride in a car with a stranger. And here's this guy pulls up and I remember I didn't know if I was supposed to get in the front seat or the back seat. Oh my god, that's funny, right? Cuz it's like you don't want to insult him, but like...

So, I was weird. And so, I sat in the front seat and that was awkward. And then I... But these are the things that you just... I'm not a conspiracy theorist. I think a lot of stuff that happens that looks like conspiracy is just inertia.

Well, so now you're talking about the durability of an innovation stack in competition. So that's sort of the second stage. So, stage one is you find a problem, you start building a solution. That solution is going to result in this thing which I call an innovation stack. It's just all the things you have to do to solve the problem. You might have to do five, you might have to do 50. You know, you don't know how many and you don't even know if the problem is solvable. So, you don't know. It's not like there's a road map in the beginning. You're like, well, I'll do these 10 things and it'll work. I mean, we certainly started Square with a pretty naive assumption of how easy it would be to build a credit card reader. And then a year and a half later, we finally got the thing legal and released.

It was illegal when we started. Well, have you known? You probably, I mean you may have not even gone down the path of doing it. In the first week I found 17 rules or laws that we were violating with our demo product.