The Innovation Stack | Jim McKelvey

Summary of: The Innovation Stack: Building an Unbeatable Business One Crazy Idea at a Time
By: Jim McKelvey

Introduction

Embark on a journey to unravel the secrets of building a truly innovative business with Jim McKelvey’s book, ‘The Innovation Stack: Building an Unbeatable Business One Crazy Idea at a Time’. This summary sheds light on the key distinction between creating a lucrative business by copying others and building a revolutionary business by stepping into the unknown. Discover the importance of solving ‘perfect problems’, creating an ‘innovation stack’, and maintaining a distinctive edge in a competitive landscape. The book will equip you with valuable insights, inspiring stories of pioneering entrepreneurs, and a newfound understanding of what it takes to significantly impact the world.

Copying Ideas Versus Entrepreneurship

Building a successful business is not just about copying what is already established. It requires stepping out into the unknown and finding new ways to solve new problems. Many lucrative businesses take an already established idea and repackage it into an ever-so-slightly different form. However, to make a significant impact, one needs to draw a giant circle around everything that humankind already knows and leave the circle by treading uncharted territory. Real entrepreneurs are fearless explorers who find new ways to solve problems. By exploring outside the walls of what is already known, entrepreneurs can discover new and unseen opportunities and make a real difference in the world.

The Birth of Square

In 2008, Jim McKelvey lost the chance to sell a double-twisted glass spout for his art studio when the customer revealed that she only had American Express. This sparked the idea that led to his company, Square. Square’s mission was to make credit card payments accessible to all small business owners. The world of credit cards was like the Wild West, making it illegal for unregistered merchants to accept credit-card payments. McKelvey stumbled upon the perfect problem, an unsolved problem that only he and co-founder Jack Dorsey had the drive to solve. McKelvey plugged away at learning about how credit card companies work and discovered a whole world of complexity and unfairness. He unearthed that credit card vendors were making 45 times more profit margin from small businesses than from billion-dollar corporations. In February 2009, they founded Square. The company’s name came from the term “square up,” which means to settle a debt or make something fair. The aim was to square up the world of credit cards by making payments accessible to everyone.

Square’s Unique Pitch Approach

When Square needed funds, co-founders McKelvey and Dorsey turned to venture capitalists. They showcased a working prototype of a card reader that plugged into an iPhone’s headset jack and processed payments. What set their pitch apart was their unconventional approach. They asked potential funders for their credit card, charged them between $1 and $40, and gave them proof of the transaction in their bank accounts. They also included a slide in their pitch deck titled “140 Reasons Square Will Fail,” outlining all the possible ways their company could fail. This transparent approach allowed them to challenge the conventional “attack and defend” dynamic between founders and investors and put them on equal footing. Ultimately, Square’s unique pitch approach landed them investments, with one managing partner at a top venture capitalist firm calling it the best pitch he had ever seen.

Square’s Innovation Stack

When Square was founded, its three founders faced a series of unfamiliar problems, from the legality of their payment system to market competition. However, overcoming these challenges helped them develop an innovation stack that revolutionized payment processing. By focusing on simple design and a transparent pricing model, Square gained merchants’ trust and offered a better user experience than traditional credit card companies. The decision to forgo transaction fees resulted in small losses, which Square overcame by convincing millions of merchants to use their payment system. This approach led to a path of innovation that made Square a powerful and resilient business.

The Innovation Stack of Square

Meet the Wright brothers of aviation and learn about how innovation stacks evolve. This is the story of Square and its founders, Jack Dorsey and Jim McKelvey. Square’s innovation stack consists of 14 blocks that work together. The stack’s entire success depends on each one working correctly. One of these blocks is Square’s low-pricing model. It encouraged people to sign up for a trial period and fit well with the company’s mission of accepting credit-card payments from small businesses. To keep costs low, the company made hardware dirt cheap and developed a card reader that cost 97 cents, which was unheard of at the time. Each new advancement required its innovation, leading Square to innovate because they had to.

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