Author: Jim McKelvey
Well, so Mira was the first company I really set up and my god, that was 1989. So I had none of these concepts. I didn't know what I was doing. But what was interesting about Mira was that what the company did was invent a new type of product, which was basically taking trade literature and putting it on CD ROM, not terribly innovative, except if you thought about it.
Back in the day, people would go to trade shows and there was no internet. So there was no place to go for a central reference on entry information. So like we would go to the National Electric Sign Association, NESA, you know, and these were all...
I remember how long ago it was, because it was before they invented the blue LED, but like the slides were just like yellow and green, red, yellow, and green and red, yellow and green. But they couldn't do it. It couldn't do blue yet, so he didn't have full color. But I still remember, the rumors were blue LED, that's how old this company was.
But the thing that Mira was doing was building a small innovation stack in the world of publishing. And it was pre-internet. And it was very crazy. Because what I learned in Mira was basically how my stuff was different from other people's stuff.
When I had a problem in my business, and I would go to one of my friends for help, they would give me advice that worked in their business, and I bring it over and try to copy it in my business, and it wouldn't work. And I always thought it was me, I thought I was just a bad manager. And that may actually be true. But it's also true that the tools that apply to businesses have sort of established business models that are different from the tools that entrepreneurs use.
2. What sparked the actual name innovation stack for you while doing your research?
So what happened during the research, I was not looking at already companies in the tech world because I Well, first of all, I knew Square having lived through it, but the tech companies I think are all bad subjects to study because they have these tremendous network effects, these tremendous marketplace effects, and those effects can overwhelm everything else.
In other words, you can be, you know, just a complete idiot running a company with network effects and you will be successful. Like you just take you can put, you know, a small hamster is at the helm of some of these companies and they would still make money.
So I excluded tech from my studies and I just went back, I looked at non-tech phenomenon. And, I started to see this pattern. And all of a sudden, it started to clarify. And I was like, wait, all these companies are doing the same thing that we just did, which was invention, on invention, on invention, on invention, on invention, no single invention being that significant. But the collective was super powerful. And it was also unique.
I saw this and in the book there are four examples that I cite in the book, but I found dozens of examples. And I was like, Oh, my God, this is a pattern. And of course, whenever I have an idea, I always assume that somebody else had it earlier than I did. So I started looking through the literature to see if anybody had talked about this. And I couldn't find anybody. I just did, nobody had discussed it. And I was like, okay, I need to coin a phrase, call it an “Innovation Stack” and then I needed to describe the phenomenon, which eventually became the book.
3. You kind of touched on it, but in layman's terms for those unfamiliar, what is an innovation stack and when starting a new entrepreneurial venture, how do you personally go about innovation stacking?
So an innovation stack is just a collection of reactions to a harsh environment. And when I say reactions, I mean, innovation is usually the last resort, i.e. copy if you can, but be ready if you can't copy this is a solution to invent another solution yourself. And also be ready for that thing that you invented to cause other problems that you will also need to find solutions for. And that is sort of the core dynamic of the innovation stack, which is like, Oh, I got this little problem, I'm going to do this, I solve this problem but I've created these other two problems. So I'm going to do this and this and, and that cycle, if carried to completion, will typically resolve in one of two ways:
Either it will overwhelm you, in other words, you have too many problems, and you'll just die. Or you will find that you come up with this thing called an innovation stack, which is just a bunch of stuff that you do differently from everybody else that solves the initial problem that you set out to solve.
I think the most important thing, for me, and actually from some other people who've read the book, who themselves have been super successful, is to recognize that it feels different, to do an innovative process than to do what is considered normal business. You know, in the normal course of business, you're going to be hiring experts, working with consultants, stealing talent from your competition, who has certain skills, like you're going to be doing all this stuff that sort of presumes that in somebody’s head there is the solution to the problem you're facing. Innovators don't get to do that.
Exactly. And that's what actually was probably the most fascinating part of the book for me was looking at that distinction that you created between entrepreneurs and business people. Because I think for so long, we kind of put everything into the category of entrepreneurship, especially now, we call everyone entrepreneurs, anybody that has a business is an entrepreneur. So I think that distinction you created actually raises the progression of entrepreneurs to really be that type of person that creates something really revolutionary, or something that's truly unique. And it's right outside the city wall that you're talking about in the book.
Yeah, and, you know, I didn't create it, I repurposed it. I would credit Joseph Schumpeter, 150 years ago for actually coining the term and popularizing it.
But, here's the thing. Like, if we don't have a word for something, or if the word that we use has now gotten some different meaning, then the people with the secrets, you know, because people figured out what I figured out, you know, over the last 100 years, so where is all their knowledge? Like? How did they share that? and the answer is, well, they couldn't. Because they didn't have a word.
And it's funny because I literally start the book with the definition of the word that I needed to write the book. And it was, it was sort of shocking, because when I set out to write the book, I realized at that moment, it wasn't until that moment I realized that, "Oh, wait a second. I can't do this in the English language, like the English language is deficient." Like maybe if I were speaking Mandarin or Swahili or some other language that I had these concepts, but like English didn't have the concept that I needed. And I was like, Oh, well, that explains why I didn't find this discussed anywhere.
4. That's true. So to go into that, who are some other entrepreneurs that employed the innovation stack that didn’t make the book but are still worth studying? Just to continue to understand this more.
Well, you know, Nikola Tesla, fantastic series of cascading innovations within the world of electricity. Fascinating. But again, the problem with using Tesla as an example is that these days, if you say Tesla, the scientist, everyone thinks, oh, Tesla, the car company. So it's just horrible. It just confuses everybody. So I kind of stick away from that, but fascinating reading.
And, of course, Tesla worked for Edison, who also had, you know, gotten this concept, pretty much down. And he actually had somewhat of an innovation factory. And in a lot of ways, he was fascinating to study.
It's funny, what you can do, instead of listening to my examples, you go find your own and the formula for finding your own is take an industry pick, I don't care what it is. Shoes, whatever. Let's take shoes. Okay. Now, shoes aren't much different from the way they were 20 years ago, and 50 years ago, but like, if you go back far enough, in time, you'll find the beginning of the shoe business was probably super interesting. That's not what I studied, but you can literally pick any industry and trace it back in time, you'll find an innovation stack.
So airplanes, okay. heavier than air powered flight. Look at the plane, most airplanes look like they did in the 1970s. If you go back to and watch an old James Bond movie, everything was out of date, the telephone, the dress, like everybody looks weird, except the plane, it's like "Oh well, I flew in one of those last week.
So trace aviation back to its start and boom, you hit the Innovation Stacks. And in this case, you know, the Wright Brothers would be a great example of an Innovation Stack, but you can literally discover your own just by tracing it back to the beginning of any industry.
5. Seems that some of the best 'perfect problems' to solve are discovered by our frustrations with old ways/methods of doing things. What are some problems in the world today that still frustrate you?
Oh, my God, I got dozens. The one I'm sort of playing with right now is an inexpensive diaper. If you know anything about diapers in the United States, about a third of us families struggle to pay for them. They're quite expensive. And it turns out, they get more expensive, these are poor, because if you're rich, you got them on diaper services or Amazon, or a subscription where they can pull up a semi to your front yard and unload diapers.
But if you're poor, you're buying diapers in small quantities from super expensive dollar stores or local stores. It's a mess. And I thought, well, you know, if we could take the average price of a diaper from 25 cents down to five cents. Maybe we would stop the cycle of poverty that I see around me. I literally spent a lot of time in neighborhoods where that makes a difference. And so I'm working on diapers.
Now, do I know what the heck I'm doing? No. How am I doing? It's just material research at this point. I'm just trying to figure out something that will not cause a bunch of landfill problems and is cheap and will absorb but you know, half a cup of pee. But I mean diapers is a good example and super low tech. It's one of those things that I believe would really help people, if I'm successful. I'm only half-heartedly working on it. I don't get up every morning and work on diapers...Yet! I haven't quite gotten obsessed with it yet. But that's an example of a problem.
6. You talk about the juxtaposition between copying and innovating. What strategy do you use, as an entrepreneur, to clear up your thinking for original thought?
Well, you got the first one, which is don't pollute yourself with other people's thoughts too much, if you're trying to do original work. and what I try to do, if I have to do something, and I want it to be sort of non-derivative, like writing, I just isolate myself. I don't consume stuff that might infect me with other people's thought patterns. Because I'm so, well, I think a lot of people are like this, but I'm heavily, heavily conditioned to copy my solutions from the world. Like 99.99% of the time, that's how I'm going to react to the world, in all cases. So that isolation is super important.
The second thing I find that is helpful for me is I do wildly different activities. So I'll go work in the glass studio, or I'll go work in the woods, or I'll go fly a plane, or I'll go sit at a daycare. Or, you know, sometimes I go to a sheltered workshop. I don't know if you know what a sheltered workshop is. Here in Missouri, these are basically homes for handicapped people and people with mental disabilities. And I'll just go work with them to just spend a day in an un-air conditioned room sorting bolts. With the guy next to me who, you know, has really, really serious problems.
But is happy. Like, it's actually a wonderful experience. Before I could afford therapy, like that was my therapy, I would just because anytime I thought I had a problem, I just go work with, you know, people who have severe problems and I was like, "Oh, I got nothing to complain about." So mind clearing stuff like that has been super helpful for me.
7. Just like Netflix was able to fend off a giant company in Blockbuster, you all at Square, did the same with Amazon. How were you able to keep yourself and your team focused on serving customers vs. focusing on the competition?
Well, so we took a good look at Amazon, when they copied Square and looked at all the things that they were doing. The things that they were doing fell into two categories, either it was a direct copy of something that we were already doing, okay. In other words, Amazon, you know, copied or read or copied our software or copied a bunch of the stuff we're doing. Okay, so we said "well, we're already doing that and we're probably doing it a little better than they will because we've been doing it longer, we've had some experience."
The second thing was stuff that we used to do or just seemed insane. We couldn't, for instance, add the Amazon brand name; The Amazon name by itself legitimizes an offering. Square was a little startup people hadn't heard of, everybody had heard of Amazon. So by putting their brand on their product, their product immediately had, in some ways, had a higher stature than we did. But we couldn't copy that. I mean, wasn't like, well, we'll just go get a brand by Amazon. No, you can't do that. You got to build it. So that's off the table.
And then the insane one was the price that they were charging was below our cost. And we were like, well, to copy that one would be insane. You know, it just doesn't make any sense the price that they were charging and we thought, well, maybe Amazon is way smarter than we are. And figured out how to do stuff that we can't do. But it turns out that was not the case. It turns out they were just using their giant cash pile to subsidize a product and hoped to break into the market by essentially taking a loss.
So we didn't copy that either. As far as keeping the team focused, that was not hard at all, because we were so busy, we were scrambling like we were doubling in size every two months. Now, that is an insane growth rate. And that growth rate had gone on for almost three years. I mean you just wear out your adrenal glands. By the end of that you're so used to this hyper growth. Like something could show up at the doorstep that's on fire and you go, "oh, let's put it over there with the other burning stuff. And get to it later." So Amazon was really stressful, but as far as a net increase in stress, it wasn't too bad.
So one is to just understand the principles of the innovation stack. To know when it's appropriate to copy and know when you need to innovate. Recognizing that line is a huge thing. But, I'm super proud of Square for having come up with Cash App. Okay. So if you look at Cash App, I mean, that's a minor miracle, because Cash App was started, you know, actually, right about the same time Amazon was attacking us like 2014 2015.
There was no sort of viable person to person payment system out there. Venmo had this sort of nascent product, but nobody knew what Venmo was doing. Venmo failed twice and got sold twice. And it was failing a third time, until Square's Cash App actually set an example of how personal payments could be done. And since Cash App was released, Venmo has been copying everything that we do, I mean, just look at what Square does, and then watch Pay Pal do it six months later. I was joking at the board meeting the other day, because we just bought Tidal, and I was like, you know now PayPal has to buy Spotify, right?
But look at what Cash App has done. There's a complete innovation stack, there's so many things that we did for the first time ever. And it all fits together. It's a wonderful product, it's an awesome experience. And we keep growing it. So I was super happy that Square, even after becoming a public company, could still, you know, sort of do stuff like that.
I'm kind of excited about Tidal although I have to say I haven't got an idea of exactly what that's going to look like but you know, Jesse, who's sort of running that division now. Jesse gets it you know, now the question is, what is one of the problems in you know, the music industry and you know, is Jesse's team able to put together something innovative there? Maybe it remains to be seen.
The other thing is maybe Tidal just becomes a sort of a second runner to Spotify but I hope that's not what we do. But you know, if they want to be you know Venmo to our Cash App, Tidal will be the second thing it's kind of there now, but I think it could be a lot more.
9 - Recently Robinhood found themselves on the bad end of the public eye with their handling of stocks such as GameStop, AMC, and Nokia. Knowing that Cash App is also a platform that is democratizing investing, what did you personally learn from that whole experience?
So, you know, we sort of missed that whole experience, because Cash App does not allow you to trade some of those stocks. Yeah. Like we have a curated subset of stocks that we allow you to trade because I would explain the mechanics of it, and put your readers to sleep. But I mean, the bottom line is we didn't have a comprehensive offering. And they did. And they got into trouble.
Look, I've got a bunch of problems with Robinhood, and some of the things that they've done. And some of the ways they treat their users, which I'm happy that we don't do at Square. But I have to say that in this case, I don't fault them for getting upside down on this one. Because I think they were taken by surprise. Their system was overwhelmed. It broke. And they did what they could to patch it together. And a lot of people were upset.
But that's the nature of something that is sort of new and innovative. Test it out and it might break. But I love the fact that they were taking more risks. So I think the lesson for Square and us is that we should have been there with like, we should have also been a company that buckled under the weight. Like, I'm bummed that we didn't also get in a little bit of trouble there. You know, I mean, I think we need to take a little more risk.
10. Square contributed to e-commerce in a huge way, do you think blockchain technology can have an equal impact on future payment processing?
Oh, absolutely. I think blockchain is probably the most significant financial innovation in the last decade; it's huge. It has a bunch of problems. It has a bunch of (pause) well that might take a bunch of hours. I'm not this super fan of anonymous payment. I think anonymous payment is good up to a point, but then you better get legit, otherwise, we're gonna have massive crime.
And so I'm cautious and I believe governments are going to be pretty draconian in the way they start regulating crypto, because governments are going to start losing control of their tax bases and their economies. And I think that's going to be an area of sort of chaos. That said, I like chaotic environments. I think they're bad for most of the world, but if you're actually in the business of innovation. Chaos is your friend. Like anytime the world is disrupted, the innovators move ahead relative to everybody else.
And I'm not saying I want the world to be in a constant state of anarchy, but I'm saying that I think at least as far as blockchain, that's going to start coming, and when it does, we'll be in for some interesting times.
11. Your writing style is full of humor and wit. Was humor always something that you use to your advantage in business? And do you think humor goes a lot way for Entrepreneurs venturing out of the city walls as you talked about?
Yeah, it's definitely a protector against the absurd. So if you can laugh at stuff, you'll be better off mentally then if you cry about stuff. So I'm doing some work in a part of St. Louis, that's kind of rough. And I'm fixing up some old houses. And we got crossed with this one guy who burned our houses down. Like arson towards three houses and almost killed somebody. I mean, it was terrible! And I was really upset about that. And now I can kind of laugh about it because nobody got hurt, it was just a bunch of old buildings that got torched.
Having the ability to have even if it's gallows humor, even if it's like dark humor, which, in the case of arson, it is. Just the ability to laugh at yourself and the mistakes you make, because the process of innovation is riddled with mistakes. Any new discovery is going to be this rocky road. And if you could laugh at it, it makes a big difference.
My buddy who built Nelly's studio, he and I have been friends because every time I had a problem, he had a bigger problem. I would call him up and I would be like "you never would believe what happened," and he's like, "Oh, I just did this." I was like, "Oh my God." And we would laugh about it. So that's important.
And then by writing the reason there's so much humor in my book, and you know, in basically my life, hopefully, is because man that's the joy. Like, let's have some fun with this. You can learn a lesson and still be laughing at the same time. Especially because if you're laughing you'll probably remember that lesson better. So, I'm lucky I hang out with people who?
Well, I mean, I tell the story of Bob, in the book. Okay. So you know, Bob, the guy with the car. So I got a call from him. Like two weeks ago, he called me up. He's like, "Jim. I'm... I'm in Jail. I got into a fight with the cops. I wrestled the gun away from the cop. And the gun went off. And the bond is a million dollars. And you gotta come get me out."
And my first thought, My literal first thought was, "Again?! Like, seriously, second time with the cop? Really?" And Bob, this is 7:30 in the morning. Two weeks ago, he was like, "Hey, Jim, April Fool's!" He totally nailed me, he totally got me. Here's the messed up thing about this. When my friend Bob calls and says he's been arrested and shot a cop. You have to take him seriously. That stuff happens. Last time it happened, the cop shot him. But like, I got to take that one seriously, and he got me. I was laughing my head off. Hanging out with people who are like that and it just makes your life better. If you didn't hang out with people like that, at least listen to other people tell their stories, because it's good times.
12. Overall, what was your writing process like for this book?
So it started in Herb Kelleher, his office. I was basically vetting my research with somebody who was still alive because all the people that I've studied had died years ago. This guy is a legend like Herb Kelleher was one of the men that I idolized. Just, I couldn't believe I could talk to him, let alone have a conversation with him, let alone go out to lunch with men because he was so cool. And Herb asked me how I was going to share my work with the world. And this is like getting a homework assignment from God. Like, because Herb got this deity effect; He smoked so much that his voice came out of a cloud, you know, just a great guy.
So Herb sort of got me thinking, Oh, God, I gotta pump this. And then I thought about the format. And then the stories were so good. They were so exciting that I thought, well, I don't have to do a boring business book. I could do a graphic novel, because there are explosions and cities burning and Nazis, I mean there's all sorts of crazy stuff happening in these innovative companies. And I thought, wow, this is perfect for a graphic novel. So that's what I did. That was the book. Took about a year of putting together, I then was so excited to tell Herb, sort of like, surprise, look what I did, you know, and Herb hated it.
I think he was actually angry. And I was really, really sad. Because I was expecting the opposite response because he's got a great sense of humor, and I thought, well, this will be fantastic. And he wanted nothing to do with it. And he said, "Look, Jim, I can't stop you from doing this. But if you're going to do it this way, leave me out." Just out of respect for me just leave me out. And I was like, I'm not leaving Herb Kelleher out of my work. So I scrapped the graphic novel. And I rewrote the whole thing as the book that you now see.
But I have to give credit to Herb, because he perceived something that I didn't realize, which is that the graphic novel is the proper vehicle for a hero story. Okay, who are the protagonists in a graphic novel? They're the people with superpowers, they, you know, they can see through walls and they can bend steel or bullets bounce off them. They got something that you don't have, right? Like, that's the difference between the superhero and the rest of us, you know, and even Batman, you know, Batman's just like a rich guy, but he's a really rich guy who's got all of these weapons, cool Batmobiles, Bat coppers and Bat-whatevers.
There's no connection to the superhero. I don't look at Superman and go, "Oh, yeah, just like my last Tuesday. What I was doing by writing my book as a graphic novel was creating this barrier between my readers and their potential as entrepreneurs. The message in my book is like, “Look, the people who succeed here, they are not experts, they are not even all that special. They're just people who happen to be in these weird circumstances and then they build these innovation stacks, and then boom, they take over their industry”.
But it's not like Herb Kelleher or Jack Dorsey, or anything about Ingvar Kamprad, had superpowers. These were just people who refused to quit. And through dire circumstances, they become super powerful. But if I'd written this as a graphic novel, it would have alienated the people that I want to reach. And instead by putting it out as a book, I mean, okay, it's not quite as entertaining, but it's also way more approachable because I want you at the end of the book to sit there and go, “Hey, wait a second. All these super important super powerful, super wealthy folks are just like me”.
Oh, my God, I want you to see yourself in A.P. Giannini, like I want you to see yourself in the stories that I tell because, hey, that's who does this stuff. These are not superheroes.
The book you are reading I have rewritten eight times. Eight different revisions. It took me three years to write. It was not an easy task!
13. What were some books that you read early on that helped to shape your thinking Entrepreneurial thinking? And what’s the best book you have so far this year?
I'm currently reading Churchill’s autobiography on World War II, it’s “The Gathering Storm” and I'm still at the beginning. First of all, he is a brilliant writer and secondly, the nuances of the paths leading up to World War II are fascinating. World War II could have been stopped a thousand different ways, but it was this conglomerate of events that ultimately led to the killing of millions of people and literally changed the world.
As far as books that I have read over time, “The E-Myth” by Gerber, I read that in 1986 and I was too poor to actually buy the book so I read the whole thing in a bookstore. I was living as a student at the time in London and didn’t have any money. The book had a big impact on me because its main message was that if you are great at something and you start a company around that thing you almost certainly won’t do that thing. For instance, if you are a great plumber and you start a plumbing company that means you will be managing a fleet and ordering supplies, managing payrolls and doing all the things that aren't plumbing. You become more of a weird administrator. Which I thought was a very insightful thing.
The other book is a pre-publication draft of “Good to Great” by Jim Collins. He and I were speaking at a conference and he sent me a draft. The two mega ideas in there are one is good is the enemy of great which has always stuck with me. Because we have good, we tend to not have great. Good occupies the space and because the space is occupied we don’t keep looking.
The second idea that always stuck with me, much like I say in Innovation Stack, the people that ran these successful companies aren’t superheroes, these were pretty normal folks. And I thought those were really powerful. I can talk books, books, books all day!
14. Do you plan on writing more books in the future?
I don't plan on it, but I didn’t plan on writing the four books I wrote today either. But at some point if I have an idea that needs to be expressed in that way again, I guess I’ll have to knuckle down and do it again. But I don't plan on it right now.
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