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 valuation 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, and you can watch it in full in the video below.
Below is an excerpt from our conversation:
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.
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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PROFILES.
— The billionaire who thrives in crisis[**HIGHLY RECOMMEND**]
— The celebrity who broke all the rules
— The real estate trailblazer
— Hearst's belligerent leader
— J.P. Morgan's alleged crime ring
— The most trusted messaging app
— The godfather of modern surveillance
PEOPLE TO KNOW.
The billionaire who thrives in crisis: Billionaire Orlando Bravo has been called "Wall Street's best dealmaker," but few outside of finance know his name. He's the driving force behind Thoma Bravo, a dominant private equity firm with $60 billion in assets. Orlando has argued for years that software is so essential to business that companies won’t stop paying for it, even in a crisis. The coronavirus pandemic has proven him out. Here's his secret to success. (WSJ; reply to this email if you can't access this article)
“Software is everything. It is the business. It’s what makes the business go.”
The celebrity who broke all the rules: Travis Scott is a rare breed of celebrity. The rapper is fluent in the language of the youth, but he talks very little about himself. He's omnipresent but also a bit elusive. He shares a daughter with Kylie Jenner, but he's incredibly private about their relationship. To Scott, mystery is the most powerful form of currency. In this profile, he explains his unorthodox route to success and influence. (GQ)
“All the kids in his demographic go wild for him—more than they do for anybody else, and that's unexplainable. It's the gift that he has.”
The real estate trailblazer: Leslie D. Hale made history as the first African-American woman to lead a public real-estate investment trust. Two years later, she's still the sole member of this industry club of female Black chief executives. “When you look past race and gender, you allow diverse people to bring their whole selves to work,” Hale says. “That’s what happened to me at RLJ.” (WSJ; reply to this email if you can't access this article)
“A lot of deals are made on the golf course or over beer. I don’t drink beer or play golf.”
Hearst's belligerent leader: In 2013, Troy Young was hired at Hearst to focus on how to make Cosmopolitan.com profitable, since newsstand sales of the print magazine were plunging like nearly every magazine’s at the time. Hearst editors were at first excited when Young arrived, thinking he would help them digitize their brands. But his crude comments and arrogance alienated employees and led to a toxic culture that ultimately led to his epic fall. (New York Magazine)
COMPANIES TO WATCH.
J.P. Morgan's alleged crime ring: Mike Nowak's global trading desk at JPMorgan was the powerhouse in futures contracts for gold, silver, platinum and palladium. Now, federal prosecutors have accused him and two other traders for participating in a racketeering conspiracy in connection with a multi-year scheme to manipulate the markets and defraud customers. In charging Nowak and others, prosecutors are testing an unusual application of a law formulated to battle mobsters, the RICO Act. This one is fascinating. (Bloomberg)
The most trusted messaging app: In a time of fear and distrust, people are looking for solutions that allow them to communicate securely. Enter Signal. It's an end-to-end encrypted messaging service, similar to WhatsApp or iMessage, but owned and operated by a non-profit foundation rather than a corporation. The app explodes in popularity during bad events. "It’s like, woohoo, we’re doing great — but the world’s on fire," says CEO Brian Acton. (TIME)
“Signal and other end-to-end encryption technology have become vital tools in protecting organizers and activists.”
The godfather of modern surveillance: Over the years, Palantir has worked with some of the government's most secretive agencies, including the CIA, the NSA, and the Pentagon's Special Operations Command. The company just went public, and this profile delves into what it means for a tech company to be marketing itself as the most powerful weapon in the national-security state’s arsenal in the year 2020. (New York Magazine)
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AUDIO TO HEAR.
Mark Cuban on building wealth: In this podcast, Mark Cuban gives listeners the keys to getting (and staying) rich. "Everyone's a genius in a bull market," Cuban says. "The great stock pickers aren't only the ones who make money when things are going up — they make money all the time." This is a masterclass on building a business, investing your money, and keeping your ego in check. (Link available to premium members.)
Hilary Swank on conquering her mind: For the film "Million Dollar Baby," Hilary Swank managed to pull off the physicality of a female boxer in only 90 days. Her mind screamed at her every single day, she says. "Just show up, and put the work in," Swank adds. "And next thing you know, you're breaking through barriers that you never thought possible." In this podcast, the legendary actress shares the techniques she uses to shatter her fears. (Link available to premium members.)
Chris Hadfield on conquering fear: Astronaut Chris Hadfield went temporarily blind during a spacewalk while only holding on to the orbiting International Space Station with one arm. He's learned that competence is the antidote to fear. "Just reading a book about something doesn't make you competent," Hadfield says. "You have to take the ideas and get into a situation as close to reality as you can." (Link available to premium members.)
VIDEOS TO SEE.
Chris Voss on the power of nuance: Nothing in life is fair, people aren’t rational actors, and you should never compromise. In this wide-ranging interview, Voss explains the importance of nuance in high-pressure situations. For instance, there’s a lot of power in recognizing the facts while also understanding how the other person interprets those facts. It’s called perspective. Deconstructing a situation and seeing it from multiple angles is key in gaining the upper hand in a negotiation. (Link available to premium members.)
Phil Knight on the joy of entrepreneurship: Phil Knight, the co-founder of Nike, says the early days of building the shoe brand were the most fun he's ever had in business. "Every Monday you went to work, and you knew it mattered what you did — including whether you met payroll on Friday," he says. Here's a deep dive on how Knight navigated the roller coaster of entrepreneurship while building Nike from the ground up. (Link available to premium members.)
Tara Westover’s unrelenting pursuit of learning: Tara Westover wrote the haunting memoir Educated, which is about her upbringing in a survivalist family in the mountains of Idaho. Tara was 17 the first time she set foot in a classroom where she learned about world events like the Holocaust and the civil rights movement. She discovered a new kind of life — one that took her to Brigham Young University, Harvard, and Cambridge. In this conversation, she explains how her love for learning led her to achieve success at the highest levels. (Link available to premium members.)
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