Square co-founder Jim McKelvey details how he changed the payment game and beat Amazon in a new book

Before Jim McKelvey launched fintech company Square with Twitter co-founder Jack Dorsey, he was the owner of a glassblowing studio—Third Degree Glass Factory—who missed out on a sale because he couldn’t accept American Express. That experience propelled him to delve into the world of payments, creating a tiny card reader that would eventually be displayed in New York City’s Museum of Modern Art. Now McKelvey, who’s expanding Square’s footprint by moving into the former St. Louis Post-Dispatch building, is releasing The Innovation Stack: Building an Unbeatable Business One Crazy Idea at a Time. In it, he reveals the titular strategy that allowed then-tiny Square to go up against Goliath—Amazon.

On writing this book now: I’m a guy who gets obsessed with problems, and I often find solutions but don’t know why they’re solutions. After we beat Amazon, that surprised me. I’m glad we won, but I couldn’t figure out why, so I started looking around. I thought, Oh, what happened here, it must have happened someplace else, but it hasn’t—nobody beats Amazon—so I had to explain it. For several years, I had this question burning in my head that I couldn’t answer. When I found the answer, I had to write the book. 

On creating a product without a roadmap: What has stopped me so many times before was this feeling of inexperience, that I lacked the expertise to do what needed to be done. I made the excuse to say, “I must first learn to be an expert before I proceed.” And what I realized was that, yes, in most situations, that’s an appropriate feeling. I’m a pilot, but I didn’t go and say, “I’m going to figure out how to fly planes now.” I took lessons and lessons and lessons. But the first pilots, Wilbur and Orville Wright, get into the plane—they didn’t get to study. Nobody had been in the air. So there are times when we don’t get to be an expert, because there can be no experts in the new. That’s what the book’s about. I wanted to reach out to everybody who has the potential to do something new and say to them, “Look, I get it. You’re going to feel unqualified, and that’s the only way you can feel. But history is full of great successes, when other people have been in the same position.”

On designing a Square card reader that was so small, it only worked 80 percent of the time—and why he didn’t go bigger: No good engineer—and I consider myself a good engineer—would do what I did. I built something that didn’t work as well as something else that I built. Oh, and by the way, we manufactured both of those. It wasn’t like these were prototypes. I actually ran 40,000 of the big ones and 40,000 of the little ones. The little one didn’t work as well as the big one, but the little one had this magical spell, and I thought the magic spell was probably important. Even though there’s no management course on magic spells, there’s no way to explain cool, there’s no way to explain beauty. The risk was trusting my instinct—I had data against the little unit. The little unit read 80 percent of the time, and the big unit read 100 percent of the time. But there was also this feeling, and maybe my years as an artist gave me a respect for that feeling. It was something that tugged at me.

The other thing about the little unit that turned out to be magical was that it wasn’t as easy to use. Because of that, once we started shipping, people became obsessed with learning how to use it. My wife and I like to drive manual cars. She grew up with a manual car; I grew up with a manual car. We buy stick shifts. Do you know how hard it is to find a stick-shift Volvo? It’s darn near impossible to. We have to buy used cars. They don’t make them anymore. But if you learn to drive the stick, you kind of like driving a stick. Remember who uses the Square reader. It’s a merchant, who uses it again and again and again. Well, if you use this thing three times, five times, you can learn it…people practiced using the product.

On hiring 15-year-old Jack Dorsey, whom McKelvey connected with through his family’s coffee shop: Jack was quiet as a teenager—never interrupted, didn’t say much at all—but his work was exemplary. And I noticed—he didn’t have to package it up and come running into my office, saying, “Here, Jim, look what I did.” When I noticed that he had redesigned the company logo, it was because I happened to look at the logo on his desk. I said, “Well, that’s way better than what we’ve been using, so let’s use yours.” The lesson for employers is that here is a very good example of extreme competence at age 15. Don’t discount somebody because they don’t look like something you would expect to be great. Competence comes in surprisingly oddly shaped packages.

On what he’d say to someone hesitating to launch a new product or business: Taking that first step is really the hardest part. You’re confronting one type of fear, which is the fear of incompetence. After that, you get a different type of fear, and that is the fear of survival: This isn’t gonna work. This isn’t working. I don’t know what I’m doing, but this isn’t working. It stays with you until you figure it out. That’s the process. I have never found a shortcut. There’s no guarantee of success.

On the smartest business decision he’s ever made: Ignoring the advice of my attorney, banker, and accountant, all three of whom advised me not to open Third Degree Glass Factory. The reason Third Degree is called Third Degree is because I got the third degree from my banker when I did exactly the opposite of what she recommended.

And the worst: I could talk about bad relationships—people I’ve trusted who have betrayed my trust. I could talk about the 20 bad decisions [I’ve made] this week and it’s only Thursday. I’ve made jokes that have killed sales. I don’t regret making a joke—I mean, I wouldn’t make that joke again, but I still cut up at meetings. That’s me. I think the biggest one for me was when I was a young manager, trying to be a manager. I am not a good manager…so now I just find myself great ones.

On meeting Southwest Airlines co-founder Herb Kelleher, whom McKelvey calls one of the greatest examples of the innovation stack: It was almost exactly three years ago when I flew down to Dallas and met with the legend. There was no book until I talked to Herb. I had all my research and all my facts, and I laid it at the feet of this towering figure, and he said: “Jim, you’re right. And here’s how we did this, and this fits here, this connects here.” This was a guy who is a legend, and he said, “Brother, you got it. When’s your book coming out?” I said, “Well, as soon as I can get it written.” It took me another two years. He died before I could show him. … I never expected to talk to somebody like that. That, to me, is like having an afternoon with Elon Musk. [Pauses.] Now, I mean, I’ve met Elon…but Herb was so generous and insightful and so fun. He was my inspiration for writing the book.