The Innovation Stack Jim McKelvey

Innovation Stacks and Crazy Entrepreneurs

entrepreneurSubmited by James McKelvey. McKelvey is a serial entrepreneur, inventor, philanthropist and artist. He is also the cofounder of Square, a merchant services aggregator and mobile payment company based in San Francisco, California.

In his book The Innovation Stack, he recounts how he and his cofounder, Jack Dorsey of Twitter, approached the problem of credit cards with a new perspective. The irreverent first-person narrative is an insider’s view of the world of entrepreneurship and a call to action for all of us to find the entrepreneur within ourselves—one crazy idea at a time. 

Here, he explains what an Innovation Stack is, plus what makes a real entrepreneur. 

Let’s begin with an obvious question: How does a glassblower become 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. It’s a series of interlocking inventions. You cannot view the elements of an Innovation Stack individually. The innovation evolves as a whole. Each block in the Stack works in conjunction with all the others, and the entire Stack fails if one block is missing.

When everything affects everything, you have a dynamic system. Dynamic systems are hard to understand and nearly impossible to copy.

The Innovation Stack Jim McKelveyIn your book, The Innovation Stack, you talk about the difference between and entrepreneur and a business person. What is it?

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 person driven by more than just profit or event 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.

In the book you say that spotting an Innovation Stack is often easier to do looking at history, and you give us a few great examples of companies with successful Innovation Stacks. Are there others that you came across while doing your research for this book?

There are hundreds of examples of Innovation Stacks surrounding us, we just don’t think of them as innovative because what they were when they were born then turned into the whole industry. Frozen foods, laser printers, ride sharing—pretty much any industry where there is a standard—at some point had explosive growth in it that was caused by an Innovation Stack.

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.

Do you feel like your own 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.

James McKelvey

Copyright Nicki McGuire

Jim McKelvey is the cofounder of Square, and served as the chairman of its board until 2010, and still serves on the Board of Directors. In 2011, his iconic card reader design was inducted into the Museum of Modern Art. McKelvey founded Invisibly, an ambitious project to rewire the economics of online content, in 2016. He is an Independent Director of the St. Louis Federal Reserve. 



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