456: How to Build an Unbeatable Business with Square Co-Founder Jim McKelvey

28:46I come home. Like I, one of my things is I fly planes. I have a, I get home. I had a four day meeting last week. I showed up for 24 hours and they were kind enough to schedule the 24 hours of actual work in the four days around a block that I could fly in, do my work and leave. And I got home for dinner. I'm not saying it's ideal. I'm not saying that I wouldn't be probably a better parent if I was home even more. But also, you know, the other thing is I'm pretty wealthy now. Like Square has caused a lot of money to appear in the McKelvey bank account. And I just don't think it's cool for them to see their parents not working.

29:27Like, I don't think that's a good message either. So I got, I got, I got to raise kids who are around, you know, wealth and I don't know, maybe I'm rationalizing my own behavior. I'd probably be doing it anyway, but I like to tell myself I'm doing it for the kids. Do you experience burnout? No, not in the traditional sense, because remember, I always have partners. Like every one of these things that I start, um, I start and start and start until I find the right partner and then they run. And then I basically work for them. So like the diaper lab that took me a year to do. And I started just out of frustration, making prototypes in my bedroom.

30:05Like I went out, I got a sewing machine. I got a bunch of materials. I had a friend who had a, uh, who had a fashion company. I went down and worked at her, her, uh, workshop for a couple of, you know, a couple of days. And I got some prototypes together and I was like, I'm going to build this myself. I'm going to build it myself. And then I got my prototypes together and I was like, okay, now I need to hire somebody. And I hired somebody and they were terrible and I hired somebody else and they sucked. And I hired somebody else and they made me pay them a bunch of money and they didn't do anything.

30:29And then, you know, the fourth try, I got somebody who actually worked at my glass studio who was fantastic and wanted to do the diaper thing. And I was like, you run it. And she's been phenomenal. And so now we're going, right. That doesn't cause it doesn't cause burnout in the sense of like, I run out of energy. It just causes burnout. It's kind of like, oh crap, it's not working again. You know? So. because it's really fun to start things but for me uh i have to kind of always try and contain myself and i've had to over the years just kind of go you know what need to focus need to focus need to focus because it's really fun to start things i agree and i don't think you need to focus you need to have somebody else who is focused whom you will whom you trust and that's actually more probably more difficult yeah look man i could talk to you all day but uh and i really enjoy this conversation, but I know we have to work towards wrapping up.

31:21We're going to move to the hot seat round if that's okay. Okay. And I've not been Fred these questions in advance, just for the record. Yep. Yep. Yep. So rapid fire. All right. So what daily habit makes you a better founder and person? I don't wake up to an alarm. I sleep until whenever I can and I don't stress myself out in the morning. So I come to work happier. Who do you trust in business? um people i've worked with people i've seen and i tend to trust everybody so i i'm a sucker for trusting everybody if you could go back in time what's the one thing you would change about square not a damn thing and i'll tell you why i think we've been phenomenally lucky like we passed we passed a hundred billion dollars in market cap at one point i know we're down from that now, but we'll be back.

32:14Like that is an insane run of good luck. I mean, a lot of smart people, a lot of hard work, a lot of dedication and, and, and, and, you know, all nighters and stuff like that. But, uh, would you want to mess with that? Would you want to like have those butterfly wings flap some other way? Not me, brother, you know, let it ride. Don't, Don't, don't need the DeLorean. Love it. Where's the best barbecue in St. Louis? Oh God. Um, the best you can go to, um, is a salt and smoke. And the best you can't go to is this little guy out in St. Charles who only opens up during the summer. And I could give you directions there, but I don't know the name of the place.

33:01Like it's just this dude off the side of the road. And he does not have a health rating on his pickup truck, if you know what I mean. Yeah. Awesome. What's the one thing someone will learn if they enroll in your program, how to beat an unbeatable business on the founder platform? What's the number one thing they'll learn? The one thing they'll learn is to recognize the line between when you should innovate and when you should copy, which is a mistake I made for years. like I spent so much of my time failing because I was doing stuff that was appropriate in normal business but was not appropriate in the world of innovation and that crushed me and I made that mistake for 20 years without without recognizing it because you know I would I just thought I was an idiot like I just like I would go out and I would I would copy the practices that worked in this different world.

33:57And then I would take them over to my world and do them competently, I thought, but they wouldn't work. So the only conclusion I could come by was I was incompetent. It turns out I may still be incompetent, but in fact, there's a different set of rules that applies if you're innovating. And what your course will teach is that. Last question. If you could have dinner with any entrepreneur dead or alive, who would it be and why? AP Giannini founded the biggest bank of the world, uh, gave away all his money, which is why you don't know him like the Carnegie's or the Rockefellers, but he was a humble man, but he could have been the richest person in the planet.

34:34And he did exactly what we did at square a hundred years before. And, um, I, I study him in the book, but I've never met the man and I would dearly love to. Incredible. Well, Jim, it was an absolute pleasure as always thank you so much and uh yeah uh look forward to connecting again in the future what a pleasure nathan all the best man bye bye hey founder fam i hope you enjoyed our chat with jim as a special tree we're going to include our exclusive workshop that we did live with jim presented to the founder plus community in which terry our community manager and founder plus students go in depth on all their burning questions.

35:15So make sure you stick around. This one is not to be missed. It's not too often that we are talking to a new instructor at Founder and it's not too often that we're talking about a new course that's being launched, but that's what we're here to do today. I've got Jim McKelvey with me. He's our new instructor here at Founder for our new course, How to Build an Unbeatable Business. Now, some, if not most of you will be familiar with Jim's work. He's a glassblower turned billionaire co-founder of Square, which is now Block, one of today's most visionary minds on innovation. And he's going to showcase through the course and through our chat today, what he believes to be the method to build an unbeatable business.

36:00The idea and the purpose of this session is to introduce you to understand how to build a resilient, fast-growing, and highly profitable business in any economy. And it's an honor to have you here. Welcome, Jim. Thank you. It's going to be fun. Hey, Jim. Yeah, I have a payment strategy question. We've built the largest ACH mobile payments platform in the cannabis retail industry. and we have about 200 ,000 active users. We're growing 7 % month over month. Good. Yeah, and we're really recognizing though that in order to really succeed, we got to jump to the next adjacent vertical outside of cannabis because federal legalization is coming and we're going to have to compete with credit cards at some point, no matter what.

36:59And how would you premium right now? Because you're a weirdo who figured it all out, but they're about to make what you're doing too legal. Too late. Yes, exactly. And yeah. You're about to get too legit. All right. I get it. How would you think, how would you think about the next vertical adjacent vertical competing? You know? Yeah. What would you do? Oh, well, first I'd look at what you're good at. I mean, are you good at serving? uh you know quasi legal entities and where's the next one you know um and i don't know what sort of back page uh uh businesses there are that that are the equivalent of cannabis but that might not be what you're good at like it it may turn out that you've got some sort of other core strength You just sort of got strong in the cannabis world and then, you know, are going to go out.

37:57I mean, if. What one thing we we got really good at by necessity is that we guarantee these ACH payments and you got it. You got a 48 hour window in the ACH network clear. Right. And we guarantee the payment. And, you know, not everybody's bank account has cash in it when it goes through. uh and so i don't want to get too too deep on sort of a payments consult but i assume you're working you don't have a banking license you're working through a bank with a license right yeah in colorado yeah and so we what we're really good at is we built a machine learning model that's predictive around whether or not a transaction is going to clear and oh yeah so that's that's hugely relevant i mean you just described novell netware i mean i'm looking at you thinking you might remember Ray Norda.

38:49I mean, if you remember network in the early days, sorry to put everybody under 40 to sleep, but, um, like Microsoft was the big, bad bully in the computer world. Uh, and there was a little company in Utah that continually kicked Microsoft's ass and nobody else did. And it was this company called Novell and they made this product called network. Now, originally they had a suite of products kind of like you have. But they had all this stuff, hardware and software, but they had this little piece of software that was the glue that everybody wants. If you've actually got predictive analytics for fraud, that's a $100 million business.

39:32Easy. Easy. It's a billion dollar business if you're good, because everybody's doing that. Now, how do you know that you're doing it that well? And are your models trained? And are they unique? Like, I don't know. I don't know what your innovation stack looks like on that business. But it's pretty easy to go through. I mean, just make a list of all the 20 things you know that nobody else does. If it's more than five or six things, you've got a pretty defensible business. If you've got 10 things or more, you could almost publish exactly what you do and no one will be able to copy it. Like once, like according to my research, if you get past 10, and actually this isn't something I put in the book, but the math of doing 10 things right simultaneously is almost zero if somebody's trying to copy you.

40:26So if you've got that and it's already been sort of debugged on the cannabis industry, then I mean, God, every payment company going to be looking for this so you just you know payment sass it's a great model right right right um okay i have a zillion follow-up questions but it's it's very niche so yeah sorry man i we get to i love your course ask me a really specific glass blowing question for the glassblowers in the audience you should all be really upset that the lithium in the world has disappeared the battery companies are buying up all the lithium and lithium is a component in crystal. And like we're having to reformulate every glass formula around the world to not use lithium.

41:17It's a real problem. There, another niche answer. Thanks, Bob. Hirschha? Hey, so when you were describing your background and everything, the city got in touch with the CEO of Southwest. How did you exactly do that? Is there a strategy for connecting with high profile individuals like that? Well, it helps to have a company that he's heard of and to be very respectful. I wrote him a letter. Figuring that anybody over the age of 50 probably read letters. So I didn't try to send him an email or any of that stuff or call his office or get an intro. I got an intro from, so he was chairman of the Fed in Dallas, and I was on the Fed in St.

42:07Louis. So I was able to sort of work out who his assistant was, and I just sent a very nice letter. I said, Mr. Kelleher, I've been doing this research. Here's my phone number if you ever want to call. And to his credit, he didn't book an appointment, send me a notice, calendar invite. He just called my phone. And like I can tell you where I was standing. I was in the square office next to the copy machine. I looked down. I see a 214 area code, which I just happened to know is Dallas, Texas. And I was like, 214, that's where Herb lives. And I answered the phone. And sure enough, it was Herb. so i mean you kind of got to know your mark um people are really tough to reach these days and are becoming tougher um actually the little product that i'm working on right now that is not legal because it like microsoft blocked it but i'm working on a paywall for your email you can have a personal paywall like somebody wants to email you you like put up the hand um so it's it's very tough to reach these people these days that said the direct approach worked really well for her.

43:15The other thing is, you know, don't underestimate humility. Don't brag too much about how cool your company is. You want somebody to talk to you. Thanks a lot. Philippe? Yeah. Hi, James. Hi, Terry. Good to see you again. I'm a designer, industrial designer. So I do surgical products. And so by nature, innovation and very often disruption is where I dwell. So I really hear what you're saying. At the same time, this is my area of play. So when that's your water, so to speak, where you swim, any advice you can share about, you know, once you're here, what type of mindset should you have or what type of tactics should you adopt or stuff like that so that make the journey a bit easier?

44:04so i can tell you a really interesting industrial design story i'm the guy who made the square reader a little white thing i should i should have one on me but i uh we know what that is yeah anyway it's it's a little thing and it reads a credit card mag stripe and we're phasing them out because mag stripes are being phased out but basically it's this long and it should be this long like any decent industrial designer uh and in fact like all the guys who've copied us have have realized that our unit is too narrow for the card to smoothly move through like it rocks because you know you got this little little surface and if the surface was just twice as long it would work but it's basically an inch long and the cards rock until you practice a little bit so the question is i'm a good engineer and i figured out very early like on my second prototype that long readers work better than short readers.

45:02So the question is, why did we reduce, why would we do, we release a short reader? Why did I purposely compromise my industrial design and get a product that worked 80 % of the time when I could have a product that worked 100 % of the time? And those really are the numbers. Like it was a, it was like a 20 % degradation in, in, in first swipe fidelity and was done consciously. And the answer is Uh, when I discovered the product, so I built two readers, I built up a long one and a short one, and I tested both of them. Um, the long one worked well always. And people were sort of not impressed. They didn't notice it.

45:48They didn't realize how amazing it was. I gave them the short one. And all of a sudden people were like, what the hell was that? show me that again where do i get like all the questions started coming and i realized that by making something not work that well i was in fact doing something more important than industrial just industrial design making something that was cool i was making something that got your attention and this is a really tough thing to do especially if you're in if you're in the design world, especially if you're making physical objects, and if you want to run into the room, I'll show you a physical object I'm working on, right?

46:30Because I'm working on a drinking glass that's hard to drink from. Like, that's my current project. It's so, well, actually, let's take the previous caller's question, right? Or the previous guy's question. How do you get the attention of somebody who's important? How do you get Herb Kelleher's attention? How do you get so-and-so's attention. Let's generalize that question. How do you get anybody's attention? We're all so busy. You know, as soon as Google gives me permission, I'm going to release a personal paywall so all you guys can like block everybody that you don't know. I mean, I'm all in the hide from the world camp.

47:09Well, if all of us are hiding and you've got a cool new product, how do you even communicate that this thing exists. You've got something new. Great. The world doesn't know. How are you going to break through that? And the answer is you need a moment of attention. That moment where they kind of, what the hell just happened? And that's what we created with the square reader, making it too small. Because it was too small, it didn't work very well. Because it didn't work very well, people would practice until it worked perfectly. And then once they practice, what they want to do, They want to show off.

47:44They want to tell their friends, hey, look at what I can do. Look at this cool thing. Hey, I can do it. You can't. I mean, they were bragging using my product. You know what they're doing else? They're bragging about the rest of my product, too. Like, it was the best. Like, it saved us millions and millions of dollars in marketing by making something a little bit crappy. So if you're in industrial design, I think you have this. well first of all you have this real responsibility to just not build garbage because a lot of industrial design is just flat out terrible and I could go on for hours um but that that is not terrible and is thoughtful also has this opportunity to you know more fully engage Like, how do you get the user or the human that's on the other end of it to love your product?

48:45And like, how do you do that? And it's a worthy, worthy area. Are you hesitating to take the next step in your e-commerce journey? Founder Plus has you covered. With proven frameworks tailored to your business needs for fast results, a supportive community of over 30 ,000 like-minded entrepreneurs, and weekly live mentorship sessions, Founder Plus is your key to success. Try Founder Plus today for just$1 for seven days and start building your dream business with confidence. You can visit founder.com forward slash start dollar trial or click the link in the description to claim your trial. But, you know, try making it a little bit worse and see if they get their attention.

49:26Thanks. That wasn't supposed to be part of the course. I like it. Jim, in your journey, especially in the early days, did you have any coaches, mentors, or people that you specifically looked to learn off? Not a one. I wish I had. I was always looking for one. As a matter of fact, this is funny. I used to be somewhat of a stalker when it comes to successful business people. I was always like reaching Herb Kelleher wasn't even difficult for me because I had stalked dozens of, you know, famous people throughout the years. trying to get time with them, trying to get advice, because, you know, at the time, the internet wasn't this thing that you could just, you know, go on YouTube and have somebody pontificate for 20 years.

50:23You didn't have courses like yours that are accessible to everybody. Like, you had to, you know, be born into it, it seemed. And there was no, I found no source of information. So I would talk to these business leaders, and every single one of them, gave me horrible advice. But that was because I was doing something different. Like I was on the other side of the line where their advice, which worked perfectly well in the world where you had a dozen competitors and known quantities and like all this management stuff that like applied over here. It didn't apply where I was. And I would take their advice and I would go try it and it would blow up in my face.

51:12And this was not just mentors. as this was friends, like I'd have, I'd have trouble at my company. And I'd, I'd go to my friend who had a similarly sized company. And I didn't realize that my company was doing something new and his company was doing something that was established. Like I didn't see that line. I didn't, I didn't recognize it. So, oh my God, I made this mistake for like 20 years of applying the right rules to the wrong situations and, and getting terrible results.

51:47So, yeah, I never had a mentor. I always wanted one. I thought I had found one in AP Giannini, who was the guy that founded the Bank of Italy. But he died, you know, 30 years before I was born. So, like, I never got to talk to the guy. I've read his journals. I've read, I mean, I've read everything about the man. I feel like I know him. I feel like we'd be buddies if he was alive. but he's not. That's why meeting Herb Kelleher was such a big deal for me because he was the other guy who I was like, oh my God. I'd really love to talk to him. We might look towards wrapping up. I've got a few more questions for you.

52:23I guess you did touch on it earlier but who would you say this course is directed for? Who should be looking at this course? People who might find themselves in a situation where they're trying to do something that's never been done. And I know you can't predict if that's going to happen. But, you know, are you the sort of person who solves problems? And what problems do you choose to solve? You know, like if your idea of a good business is find something that makes money that's provably you know doable find the best people doing it learn what they've learned do what they've done yeah you can change it a little bit but basically do the same thing that is a winning strategy i wouldn't knock it at all um you probably won't get a lot of value from what i teach um However, you're going to be alive for a while.

53:34You are going to come up against situations in this world that you don't like and that nobody's figured out what to do with.

53:49And what do you do then? You quit? Well, you're not quitting because you haven't really started. But do you fail to start? And so, like, I honestly think everybody should read the course. I think everybody should should should get the knowledge. And here's why. You may never find yourself in that situation or may find yourself in that situation and say, OK, I'm not going to do anything. But I bet your ass you will know somebody who is. One of your friends, one of the people you know, we all know about 150 people, right? One of those people will be in that situation. And when you see that person and everybody else is saying, come back to the herd.

54:32Don't do it. That's stupid. It'll never work. You can sit there and go, ah, it's not going to be pleasant. But here you go. Here's what it's like on that other side of the line. And that's how we get change from this. That's how this world gets new solutions to problems that we don't have yet. Right. And it's brutal and unpleasant, but that's how the world moves forward. So I want more people doing that. So I would love to see everybody take this course. and if not for you, for your friend who's about to step across that line. Or maybe you. This is the thing about me. I never start out trying to do something original.

55:15That is not my goal.

55:19I want to fix this thing. In the case of Square, I just want to get paid. I thought it would take a month. I just want to get paid. It's still a little company so I can get paid. Turns out, big problem. Hard to do. We had to build all this stuff. We built all this stuff. We ended up being worth $100 billion. At least we were. I don't think we're worth that anymore. But, you know, stock market's been like that. Whatever. The point is, I was not expecting that ride. And if I'd known the stuff that I know now, it would have been a lot less terrifying. and I do mean terrifying I mean like real fear like you know yeah trips to the doctor with phantom pains weird right that that was that's just life so I think I would have been better prepared and I I want to better prepare others because those are the people are going to get stuff done we've got one more question from Scarlett before I get Scarlett to come and ask.

56:25Just for those who are wondering, the course is available for those of you who are Founder Plus members. Also, for those of you who are coaching students, the course will be in the platform. Bob, I think you've already gone through the course from what I heard earlier. So that's good to know. So if you are interested in knowing more about the course, please just check out our website. you could also get in touch with me um scarlet are you with us yeah i am um so first of all i really enjoyed the delivery of your course um it's actually really it made the process a lot easier but otherwise um i would just like to know how you managed to convince the people from mastercard to change the regulation, that one regulation that forbids exactly what you were trying to do.

57:19Wow. You know a lot about Square's history. Did you read the innovation stack? How did you know that? It's a perfect question. I'll answer it. But how did you even know to answer that? It's in the course, and I went through your course. Okay. Great. Great. It is there. It's a, but it's a very, very specific and cool question. Okay. So here's the deal. MasterCard had a rule specifically prohibiting card present aggregation, which was what Square did. It was the foundation of what we were doing. And they had this rule on their books for 20 years and we had to get them to change it. So how did we do that?

58:07First, we had a working product. We did not have some theory. We did not have some PowerPoint presentation or some keynote presentation where we said, oh, wouldn't it be great if? No, we went in and did a demo and the demo went like this. So first of all, you got to understand, Jack Dorsey and me were very different people I talk a lot he doesn't talk much at all but when I am demoing I never interrupt I never say anything Jack sits like a monk doesn't even get nervous and we'd done this demo for all the VCs around the country we'd done this demo for dozens like this was a year and a half into the company like we were so polished at this demo.

58:57We didn't even have to look at what we were doing. And here's how the demo went. We walked into the office. I asked the head of MasterCard for his MasterCard. I said, let's say you just bought me something or you just bought something from me. I swiped his card, turned around, said, you know, sign this. And I said, great. Dollar just went into my bank account. And he's like, that's a demo, right? And I was like, no, sir, that's live. That really happened. That money is gone from your card and in my bank account. And he looked really, really sternly at me. And he said, you realize what you just did violates our operating regulations?

59:49And I said, yes, sir, I know that. there was total silence in the room for 20 seconds and he looked at his team and he said well i guess we have to change our regulations and he walked out of the room and that's how mastercard came over i think if i'd said anything after that it might have killed it i think if jack and i had not been paying attention to him and had been paying attention to our slides or our pre, like if we had been anything but focused outward, it might've gone sideways. And I don't know, like I didn't ask him to change the regs. I just told him that I was aware that we were in full violation of everything they were doing.

1:00:44You know, like, and he got it. Again, humility, I think, in these pitches. And also, shut the hell up. If you're explaining something to somebody and they're smart, you don't have to go into the details. Just what's the problem? Why are we in this room? He understood it. And it saved the company. If he'd gone the other way, I certainly wouldn't be sitting here today. Just never happened. I guess in your case, it's actually quite the opposite of humility. is actually, you know, is so ballsy that you went in knowing that what you created outright violate their regulations. And they just, I guess they're, I don't know, probably just appreciate.

1:01:34Well, but don't put it in their face. Like, yeah, I violated their regulations, but I was like, you guys have to change your regulations. That wasn't what I said. I said, look at how cool this thing is. Look at this beautiful thing that we've built. Look at how wonderful it would be for all these merchants. Here, try it. And he thought it was a demo. And I was like, no, no, this thing's live. To prove that it actually works, like to prove the whole thing, there wasn't no theory involved. Like it actually worked. It was just complete, you know, it was an unregulated nuclear powered device. And the, you know, the government's sitting there, well, you're not supposed to have plutonium.

1:02:19And you say, you're right. I'm not as a civilian supposed to have this like big ball of plutonium, but yeah, there it is. And you know, don't get thyroid cancer. I appreciate your, um, your answer. Thanks. I hope, I hope you get to put it to play sometime, build the thing first, show them the demo, shut up. The demo speaks for itself. got it thanks scarlet okay jim thank you thank you kindly for your time this morning or this afternoon depending on where everybody is in the world it's uh it's been a pleasure it's been very very insightful and i like the way that you know there's a there's something out there now in our course catalog that really challenges people again to challenge the norm and step outside the box and take that leap of faith.

1:03:13So I really want to thank you for your time. Hey guys, I hope you enjoyed this interview. As you might already know, our mission at Founder is to help tens of millions of people every single week with our content, either start or grow their business, which is exactly why we're partnering with world-class founders such as Damon John, Alexa Von Tobel, Greta Van Riel, and so many more to teach crucial skills such as negotiation, finance, e-commerce, and so much more. So if you'd like to get access to these free exclusive trainings, please go to founder.com forward slash free. These are 100%. We go super in depth on teaching a particular topic, and I know that you're going to love them if you enjoy this podcast.

1:04:02so just go to founder.com forward slash free all right guys i'll see you in the next episode