Exploring the essence of innovation with Jim McKelvey

On Sept. 14, Cresset will host a Founder Stories event with Jim McKelvey, Co-Founder of Square and author of “The Innovation Stack: Building an Unbeatable Business One Crazy Idea at a Time.” Jim is a serial entrepreneur, inventor, philanthropist, artist, and author. In addition to being a Co-Founder of Square, he founded Invisibly, an ambitious project to rewire the economics of online content, and is a Deputy Chair of the St. Louis Federal Reserve.

Below, Jim shares his perspective on the nature of innovation, what it means to build an “innovation stack,” and what makes entrepreneurs tick, all of which he will expand upon during the Cresset Founder Stories event on Sept. 14.

Jim, how did you go from a glassblower to the founder of a major payments company?
When I lost a glass sale because I couldn’t take the customer’s credit card, I looked at the iPhone in my hand and wondered why I could take pictures and read the news but couldn’t take a credit card payment. I love solving problems, so I called up my buddy Jack Dorsey and proposed solving this one together.

What is an “Innovation Stack”?
If you try to do something truly new, you will encounter a series of problems. The solution to one problem leads to another problem, sometimes several. This problem-solution-problem chain repeats until you end up with a collection of both independent and interlocking inventions, or you fail. If you succeed, you have an Innovation Stack. Innovation Stacks evolve by survival.

In the book you talk about the difference between an entrepreneur and a business person. Can you explain?
The word entrepreneur has lost its shock value through sheer overuse. Today, all businesspeople are considered entrepreneurs, which is like calling all tourists explorers. Both the business person and the entrepreneur build companies, but businesses are everywhere while entrepreneurship is rare. Entrepreneurs are rare. But their skill set is not so uncommon—and is something you already possess. It comes down to taking on a problem that nobody else has ever solved and doing whatever it takes to solve it. The first step is finding the perfect problem for you. In this book, I use the term entrepreneur to suggest a rebel, explorer, or people driven by more than just profit or even common sense. A good way to understand the original meaning of entrepreneur is to substitute the word crazy. Reserve the word entrepreneur for a person who does something truly new. Businesspeople do new things on small scales, but for the most part, they don’t step outside of what has already proven to be possible. Or if they do, it’s on such a small scale that it doesn’t produce transformative change. Instead, it is the “crazy” entrepreneurs and their perfect problems that bring us the future because they solve problems that have never been tackled.

A problem is often the start of an entrepreneurial venture. You write that problems are clear and plentiful in the book, but finding the perfect problem requires something different. Can you explain? Building an Innovation Stack begins by choosing to solve a problem that nobody has solved before. The perfect problem has a solution, but not a solution that exists yet. Perfect problems need not be massive challenges that affect the world; they can be trivial annoyances. The magic ingredient that makes a problem perfect is you. You don’t simply choose a problem; the problem must also choose you. In other words, don’t pick a problem that you think other people might have; pick a problem you know you have. When I find the right problem, I no longer feel anger. I feel energy. If you care about a problem deeply enough, for whatever reason, your motivation can be infinite.

Businesspeople often copy what others before them did in order to get ahead. It’s something we’ve been taught to do in school and is prevalent in many industries. While copying is often good advice, you argue that it’s not the only advice. What do you mean?
Copy what everyone else does and you’re a businessperson. Copying solutions is smart, but it doesn’t work for some problems. Copying also doesn’t create anything new. Find the solution to a problem that no one else has figured out yet, and you’re an entrepreneur. Copy when you can; invent when you must. Copying is a great thing, but it should not be our only thing. Copying is almost always the way to counter a competitor, but it will never produce a situation where no competitors exist. Copying almost always feels comfortable, but it will never produce the thrill of invention. Copying is most always the right answer, but it will never produce transformative change.

People often feel they need to be an expert in something before they launch a business in that field. What do you think about the idea of “experts” in entrepreneurship?
In regular business, it definitely helps to have expertise; but entrepreneurs are in the business of solving problems that have never been solved before, so there are no experts yet. I mean, yes, Jack and I hired someone who knew how to program an iPhone when we started Square, and his expertise was important. But he wasn’t the entrepreneur; we were. And our lack of expertise in the problem we were trying to solve wasn’t just a given, since there are no experts of the new, but it also was a virtue because the system that already existed hadn’t solved the problem we were trying to solve. So not knowing the system was pretty handy. We went about it completely differently from the existing credit card processors, and it worked.

You mention audacity, stubbornness, and humility as traits that entrepreneurs often possess. Are there others?
I mention those plus perseverance, optimism, and the motivation to square up in the book. Anyone who has studied entrepreneurship would probably add risk tolerance, impatience, and creativity to the list.

Do you feel like your own personal story lines up with some of the founders you studied?
Yes, especially when I read about some of the crazy things they did in order to solve their problems and build their Innovation Stacks (even though none of us knew we were building them). For example, when I first heard the stories of A.P. Giannini, the founder of the Bank of Italy, which later became the Bank of America, I knew I had found someone I could identify with. We even chose the same city. Our motivations were nearly identical: we wanted to include more people and square up an unfair system. Another similarity was that we had no idea what we were doing. We both entered industries that had been designed to serve a select group. We saw injustice and cowardice and abuse. We had no idea how to fix it. But even to us outsiders, some basic problems were obvious. Our systems had to welcome, even encourage, people who had previously been excluded. Bank of America and Square were eerily alike, just a hundred years apart.

Receive more inspiration from Jim. Register for Cresset’s Founder Stories event on Sept. 14.

Cresset refers to Cresset Capital Management, LLC and all of its subsidiaries and affiliates. Cresset Asset Management, LLC provides investment advisory, family office, and other services to individuals, families, and institutional clients. Cresset Partners, LLC provides investment advisory services strictly to investment vehicles investing in private equity, real estate and other investment opportunities. Cresset Asset Management, LLC, and Cresset Partners, LLC are SEC registered investment advisors.

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