7 Questions With Square Co-Founder Jim McKelvey

"Is 2020 a good year to start a business?"

In 2009, glassblowing artist Jim McKelvey lost a sale in his St. Louis-based studio because he couldn't accept American Express cards. Fueled by the frustration of losing that sale, he got the idea for his next company.

McKelvey asked himself: Why is it so difficult and costly to accept credit card payments? He called his friend Jack Dorsey to see if there was anything they could do to alleviate the problem for small business owners.

The duo launched Square, a startup that would enable small merchants to accept credit card payments on their smartphones. Today, the company has more than 2,500 employees, and it boasts a market cap of $20 billion.

Even though Square transformed the world of payments, it was anything but a smooth ride. McKelvey woke up one day to discover that Amazon had copied their hardware, undercut them on price by 30%, and was offering live customer support.

"Amazon is a truly terrifying competitor. They are brilliant, efficient and rich," McKelvey writes in his book The Innovation Stack. "They have teams of the best people and are literally building an army of flying robots. They stuff the mangled remains of their competition into smiling cardboard boxes and move on to the next market."

The bitter battle between Square and Amazon lasted more than a year. But McKelvey and Dorsey ultimately did the impossible: Through persistence, determination, and constant innovation, they had defeated the most terrifying company on the planet.

I recently spoke with McKelvey for the INBOUND2020 conference, and you can watch it in the video below.

Below is an excerpt from our conversation about entrepreneurship, competition, and how we can all turn our outlandish ideas into viable businesses.

Q: In your book, you write, “A start-up fighting any tech giant is like a kid dressed as a soldier fighting an actual soldier.” Can you elaborate on that idea and give a specific example of where you saw this play out?

MCKELVEY: I can't tell you how chilling it is to find out that Amazon is attacking you. It's like a doctor coming in with a frown on his face, and saying, "Mr. McKelvey, you might want to sit down and maybe gather your family around." It was just so terrifying. We wanted to respond in some way, but there wasn't anything to do.

What we didn't know at the time, however, is that because we had built this thing called 'an innovation stack,' which is exceedingly difficult to copy, we were actually protected from Amazon. We didn't even try to match Amazon on price, but because of all the things we were doing that Amazon couldn't copy, we were protected.

Amazon wasn't your only problem. You also founded Square in the midst of the last recession. As the world grapples with a global pandemic and a potentially very severe economic downturn, what are some of the similarities you're seeing in the landscape now?

It's interesting because I studied companies throughout history, and one of the parallels I noticed is that almost all of the [greatest] companies had undergone some giant catastrophe. For instance, the biggest bank in the world was founded by somebody who A) knew nothing about banking, B) started it outside of the banking center, which at the time was New York, and he started his bank in San Francisco, and C) he started it the year before the great San Francisco earthquake. So literally the city shook and burned to the ground, and that's when he started his company.

We started Square back in 2008 and 2009, in the depth of the last recession. There are a lot of people feeling pain right now because of COVID-19. But I think what happens is that during the good times, we tend to stick to what we're used to. We're not looking for new things when everything's working well. But in times of chaos, when things aren't working well, then we start searching for new ways to do things.

You’ve said, “What has stopped me so many times before was this feeling of inexperience, that I lacked the expertise to do what needed to be done.” A lot of aspiring entrepreneurs think this way. How did you shift your mindset?

There's a time you should feel incompetent. There's a time you should feel unqualified. And that's when you're doing something truly new.

This is the difference between an entrepreneur and a regular business person. An entrepreneur will find that edge where society has not solved the problems and walk past it. At that point, you're not qualified to do it, but the fact is that nobody on the planet is qualified and yet someone is still going to have to do it.

The example I always use is the Wright brothers. Orville and Wilbur Wright were not qualified to fly their first airplane because mankind had not flown before. Now, if I want to go be a pilot today, I get trained, I get tested, and the FAA has to certify me.

That's not possible when you're the first. So you can't be qualified to do something new — you can only be the person who does it.

You did a talk called “Lies of Success” where you outlined some of the greatest lies aspiring entrepreneurs believe. One of those lies is “Ship Great Products,” and you say that being “fast and good” is better than being perfect. Can you talk about some of those lies?

There's this idea that the product has to be perfect, and I see this particularly among craftsmen and engineers. I'm sort of guilty of it, which is you don't want to send it out the door because you can make it better, you can make it better, you can make it better.

But at some point, you have to get the product in the hands of customers and see if they'll tolerate it even though it's not perfect. I went through a lot of re-programming in my own head after Square because there were certain things I had believed were sacrosanct, and it turns out I lived through the opposite experience.

One thing I thought was that you should believe experts, that experts were super valuable. I was trained as an engineer, and in engineering, we're taught to follow a lot of the people who came before us. Turns out, that's not always the case.

In starting Square, what we realized was that a lot of the people who we thought were the experts were actually giving us exactly the wrong advice. We hired this guy from MasterCard, and the only thing of value we got from him was that when he told us to do something, we did the opposite.

As a serial entrepreneur, is there a gap in the market or any sort of opportunity you see where you'd love to see more innovation in the next 5 to 10 years?

It's what happened with Square, it's what happened with Ikea, it's what happened with Bank of America, it's what happened with a bunch of companies that ended up dominating their field.

It's a really simple formula: Look at a market and try to find where the market ends. Take the market for cars. You really can't buy a new car for less than $15,000 in the U.S. That's sort of where it stops. What if we could make a new car for $2,000? Would that open up transportation in a new way?

If you look at where any market ends, most people tend to disregard it because they say, "Oh these people are too poor or they don't want our services."

[Southwest Airlines co-founder] Herb Kelleher told me that the government did a study saying that normal people didn't want to fly. It found that only rich people and business people wanted to fly. That was just plain wrong. Turns out if you only survey rich people who can afford to fly on airplanes, then that's probably what the survey is going to tell you.

If you're looking for opportunity, look for the people who are being excluded and try to bring them in.

If I'm an entrepreneur right now, and I'm starting a business in this "new normal," what are three pieces of advice you have for me?

The first piece of advice would be: Understand if you're an entrepreneur or a business person. Business people are more likely to be successful and make money because they're doing something that's already been done before. So a business person would copy another successful business, and that's how business is done and money is made. If you're an entrepreneur, then you're doing something that hasn't been done and might not work. So it's a lot riskier, and the rules almost totally change in that world. Understand which world you're in.

The second thing I would say is recognize your personal weaknesses and find the right partner. In my case, Jack was a perfect partner for Square because a lot of the things he's good at, I'm terrible at, and vice versa.

The final thing is to understand why you're doing it. The motivation is really important. If you're doing it for money or notoriety or anything that's easily accessible, then you're probably going to burn out. It turns out that money, fame and the flashy stuff are really weak motivators because once you have a little bit of money, you'll quit. The best motivator, at least for me, is a problem you care deeply about solving.

OK Jim, final question. This is going to be in the history books. Is 2020 a good year to start a business?

Yes. Absolutely. This is a year of chaos. It is a year when we're being forced to re-think the things that have always worked for us, and that is a great time for starting something new.

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