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Jim McKelvey Has Altered the Way Money Changes Hands. Now What?

He flies his plane, plays the piano, blows glass, and works on the next big thing.

(page 4 of 4)

McKelvey eventually left Mira’s operations to better managers, he says. He kept blowing glass, and in 2001 he opened Third Degree with Doug Auer, who still runs the business. McKelvey met Auer when Auer was a teaching assistant in a glass class at Wash. U.

“I’d noticed something about the Washington U. studio he was running,” McKelvey said. “It was running really well. The equipment was kind of crummy, but it was really well-organized. There was clearly somebody who knew what he was doing, who thought about stuff, running it. So I took Doug out to lunch, and he said, ‘I’ve always wanted to have my own studio,’ and I said, ‘Me too. That’s always been a dream.’ And I said, ‘I just don’t have the time.’ And Doug said, ‘Yeah, I don’t have any money.’ And I said, ‘You know, Doug, I’ve got money.’ And he looked at me and said, ‘Jim, I’ve got a lot of time.’”

When I saw McKelvey in early January, he told me he’d just closed Third Degree’s books for 2010. “What we found is that we didn’t make very much money, but we didn’t lose any money, and we paid a lot of people who would otherwise be waiting tables to do what they love, which is work with glass. I think that’s success.”

McKelvey’s brother, Bob, is a pharmaceutical product manager who lives in New Jersey. “When Mira finally got to the point where Mira could exist without [Jim], he moved on to his next venture,” Bob told me. “Each time he’s gotten better. He moved on to Third Degree—bigger risk and bigger reward. It’s a successful business that took a joy for him, glass blowing, and made it profitable. I love skiing, but I didn’t go out and buy a mountain.”

McKelvey never intended to run Third Degree. He wanted a well-run studio where he could make his glass and teach glass blowing. So he was making glass faucets and teaching glass blowing, keeping an eye on Mira, learning the third movement of the Moonlight Sonata, and learning to fly when, in 2007, he realized his friend Donald was depressed.

“It was a situational depression,” McKelvey explained. “He’d been unemployed for two years, and he was just sort of auguring in. I have another friend, Eric, who lives and works in Tokyo, and Eric is just ridiculously rich, off-the-chart-crazy rich. He basically helps rich Japanese avoid paying taxes. It’s not socially productive, but he makes a pile of money, and he’s a nice guy. And he’s single, and he’s constantly just living this insane life. He has a beach house in Japan, and he has a hot tub, and he trucks in mineral water—tankers it in, in these giant tankers, water still hot from the hot springs where it’s gathered. And in his house he stores this mineral water, so if you want to use the hot tub, he fills it up with a thousand gallons of this water and you sit in it, and then when it’s done, he pulls a plug and it all rolls down to the sea.

“So I say to Donald, we’re going to visit him. I got a plane ticket, and we flew out to Tokyo. I wanted to throw as much weird stuff as possible at Donald, so he’d forget how upset he was. And it worked. We just tore that city up and had a ball. And during the process, my rich friend’s company employed this beautiful Swedish attorney. She was wonderful and really smart, speaks six languages. And
I found out as I was leaving town that she didn’t have a boyfriend! I was like, what do you mean?!”

“How did you happen to find that out?” I asked.

“I asked,” he said. “I was like, are you kidding me? Are you out of your mind? What’s wrong with this country?”

That was Anna. He stayed in touch with her by email, and when Eric sent her to St. Louis for work—work that McKelvey says she probably could have done in Tokyo—McKelvey picked her up at the airport, and the courting began. In 2008, he also reconnected with Dorsey, who had to explain to McKelvey what Twitter was. Dorsey had just stepped away from its day-to-day operations.

McKelvey drives a 10-year-old red Honda Insight, a three-cylinder hybrid car that resembles a prop from a low-budget sci-fi film. “It was the first one made,” he explains. “I bought it when they were all pooh-poohing environmental regulations in the Bush administration. I was just pissed off. It’s stupid to buy the first generation of any technology, but I figured if somebody didn’t, they’d never sell.”

Dorsey doesn’t much care for conventional cars, either. So when they got back together in St. Louis over Christmas, they talked about what it would take to build a better electric car. Dorsey was interested in doing something new with mobile devices, McKelvey recalled, and McKelvey realized that he didn’t have the capital to start a car company. “But,” he said, “I can start a computer company, no problem.

“So in the middle of all this, I lose this sale to the lady in Panama, and I’m talking to Jack on my iPhone, and I look at my iPhone and I think, ‘Here is everything that I needed to save that sale. All the hard parts have been done: The network’s here, security’s here, the touchpad is here, everything’s finished, in my hands.’ So I said, ‘What we ought to do is build a payment system to prevent little businesses from getting screwed the way they’ve been getting screwed, because it’s really tough if you’re a small businessman to accept payment cards. You pay a ton of money…2 or 3 percent is the beginning of it, and then you’ve got all these fees, and you’ve got these PCI [security] compliance requirements.”

The credit-card processing cost to the merchant can amount to 6 percent of the gross sale, he said. Square would charge a fixed 2.75 percent rate plus 15 cents per transaction. McKelvey built the prototype card-readers, and Dorsey worked on the software. They launched Square in San Francisco at the end of 2009, with Dorsey as CEO.

McKelvey worked on Square intensely in the beginning, but scaled back his involvement by the end of 2010. “I said I’d do whatever was necessary to get Square to the point where they could hire people that were better than me,” he said. “I think we’ve gotten there now, at least with the stuff I was doing—and I was doing six things [for Square] at once.”

In December, Square and McKelvey sued Robert Morley Jr., an engineering professor at Washington University and a family friend. Morley did some work on the card reader. McKelvey claimed he was left off of a patent that Morley filed for some of the reader’s technology.

Square had 50,000 customers when it left its pilot program in October and has added about another 50,000 businesses a month since then, Dorsey told me in January. The company now has offices in San Francisco, with about 60 employees, and in St. Louis, where eight people have been coding for the Android platform. Square is expanding its St. Louis workforce “as quickly as we can,” McKelvey said. After Square’s second round of funding, also in January, The Wall Street Journal quoted an inside source who said the privately held company was now worth $240 million. Dorsey and McKelvey are
significant shareholders.

McKelvey had mentioned that his rich friend in Tokyo didn’t do work that was socially productive. “Is Square socially productive?” I wondered.

“That’s the reason all of us are at this company,” Dorsey said, speaking by phone from San Francisco. “We think it has a social impact. From the merchant perspective, it’s giving everyone access to the tools that we use. Everyone has a payment card in their pocket, but very few people can accept that. With Square, everyone can participate in commerce, and it’s taking a lot of the financial risk off the table. I think that’s a big deal… I think Square is going to be quite, quite large—on the level of, if not beyond, what Twitter is right now.”

I asked Dorsey if he had any idea what McKelvey might do next, and he said no. “It’s always surprising what he wants to work on. He’s the definition of a Renaissance man. He can do anything he puts his mind to, and it’s not limited to science or engineering or arts. He can do anything.”

“Well, so now what?” I asked McKelvey.

He took a deep breath. “I don’t know,” he said.

We were at Mira. We’d just listened to a YouTube post of someone else playing the third movement of the Moonlight Sonata while McKelvey fingered some of the notes on his desktop. “Start something new, hopefully,” he said after a pause. “I’ve got three or four ideas. I’m running with some of them; I’m sitting on a couple of them. One of them will probably emerge as a leader. Really, what I’m doing now is looking for problems to solve.

“Oh,” he said, “and I’ve got an idea that I can’t quite reveal yet.”

“Come on,” I said. “Is it a tattoo-removal device?”

“No,” he said. “It’s this crazy cosmetic. That’s all I can say, because I have to patent the stupid thing before I talk about it.”

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