Our decision to square up the world of credit cards for merchants who had been excluded meant that we had to leave much of the established market behind. The existing market provided resources only to replicate existing solutions. Within this border, we could copy but not create.
Most people who start a business in a market they don’t understand just copy what works. But if copying is impossible, then you are outside the proverbial city wall and the game changes. At this beginning stage, when all options are open and almost nothing is settled, there is a sense of freedom and terror. You face an almost infinite field of possibilities and no clear criteria for choosing the best path. Copying someone else isn’t an option, because no one else has been there before.
As we set about addressing Square’s pile of problems, we realized that living outside the wall gave us two primary advantages. The first was that none of the problems we faced could be solved with strategies that existed elsewhere—that is, we couldn’t copy our way out of trouble. Either we didn’t have the licenses or the resources to employ other companies’ solutions, or else those solutions wouldn’t work for our purposes. It didn’t feel like an advantage at the time. We would have loved applying off-the-shelf solutions to our problems. But we couldn’t. We were forced to invent our own answers.
The second benefit of life outside the wall was that we were free to try anything we wanted to. Whatever was possible was permissible. We were so far from the city walls that nobody was even around to ask for permission. Entrepreneur is not the only word that has lost its original meaning; another such word is outlaw. The modern outlaw is a criminal or lawbreaker, but hundreds of years ago it simply meant someone who had lost the protection of the law. Being outlawed was punitive. People who failed to respect the law themselves were removed from those laws’ benefits. Outlawing was often used as a substitute for the death penalty in societies that lacked capital punishment, as it usually produced the same result.
Outside the wall, you are truly an outlaw in the traditional sense of the word. You are neither bound by the rules of a market nor protected by them. What this “freedom” gives you is speed. You must hunt your own dinner, but at least there is no buffet line. Speed is not that great an advantage when compared to being able to carefully copy something that works, but it is one of the few advantages you have, so you had better learn to use it.
Fortunately, being forced to invent our own answers created an environment at Square where new thoughts could germinate and evolve rapidly. If your survival is threatened, creativity dominates conservatism. New ideas were quickly tried and tested.
It was a combination of invention and iteration. These two elements complement each other beautifully. Try something new, see the result, try something new again. This allowed us to solve problems that other companies in the payments industry couldn’t. It is a great advantage. As the Silicon Valley cliché says, fail fast. Most new ideas fail or have some glaring defect. Maybe your credit card reader is actually a heart monitor. So build another one. Now.
Excerpted and adapted from The Innovation Stack by Jim McKelvey, published on March 10, 2020 by Portfolio, an imprint of the Penguin Publishing Group, a division of Penguin Random House, LLC. Copyright © 2020 by James McKelvey.
Q&A With Jim McKelvey
Q: What inspired you to write this book?
A: So the inspiration was to answer the question, “how did Square survive an attack by Amazon?” Because when we were a four-year-old startup, Amazon copied our product and undercut our price by 30 percent. And when Amazon does that to a startup, the startup dies. But amazingly, after a year of copying us—or trying to copy us—Amazon quit and mailed a Square Reader to all their soon-to-be former customers…I spent two years looking for the answer because I didn’t want to just believe we were lucky. I wanted to believe there was some other thing at the root. And I found a pattern…
What is your favorite chapter?
“Copies of Copies.”
For your readers, what are you hoping the main takeaway will be from this book?
What I’m hoping the reader gets from it is the recognition of what I call an invisible line. It’s the line between what we know how to do and what we don’t know how to do and it seems really simple, but I never saw it. And for 20 years, I was on the wrong side of the line making mistakes.
What does “worth beyond wealth” mean to you?
The message of The Innovation Stack is one of empowering millions of people with the things that previously only the rich had. And that’s just a really good message.
Why do you say that innovation should be a last resort? We have been taught that innovation is something to strive for, but you seem to take a different approach.
I believed the same thing you do, which is that innovation is a great thing that I should have in my life every day. But what I’m telling readers is no, no, no. What you should probably have in your life every day is what everybody else has. They’ve figured out how to feed themselves lunch, you should probably copy what they do…
…That’s how the universe works. Stuff that is successful gets replicated, stuff that is unsuccessful does not. And we, as humans, are told to be innovative, but in fact, it’s against our nature. And by admitting that innovation is the last resort, what I tried to do is prepare my readers for that moment when they run up against the edge of what humanity has done.
Jim McKelvey’s Book, The Innovation Stack, is available to order here.
