Here's What Really Matters to Build a Truly Successful Brand (with Jim McKelvey from Square!)

At what point did you start thinking, okay, my job in a company is just to get in and then get out really quickly? And maybe there's some practical, I don't know, lessons or books or anything like that that you can recommend for people to kind of get into that mindset.

Yeah. So in my case, I realized that I was lousy at a manager— as a manager, because I tried to do it and I didn't enjoy it and I wasn't particularly good. And I have trouble sort of focusing for, you You know, 90-minute meetings and my— like, the greatest thing in the world for me is the fast-forward button, you know. So I discovered very early on that I was not the right person to lead things, but I also had, you know, sort of this weird skill which allowed me to build things that hadn't been built before. So I'm really— I won't say I'm comfortable doing stuff that hasn't been done before, but I'm relatively comfortable. In other words, compared to the average people— average person, I'm way more comfortable in a situation like COVID-19 where nobody knows what the hell's going on. Or starting a payments company when you don't know anything about payments, or, you know, all the other stuff that I've done has been pretty much new to me, but also in many cases new to the world.

I think there's multiple points where you guys could have died really easily. I think there was a point where I was reading a story Amazon could have killed you, the feds were after you. Like, how many times did you guys come close to just being like completely gone?

Once. It was Amazon. So the, the, the big deal at Square was when Amazon copied our product about 4 years in. and undercut our price by 30%. And when Amazon does that to a startup, the startup dies. And that is a 100% true statement, except in one case. And this case is Square.

Wow.

So we were the only company to ever survive a direct attack by Amazon as a startup. And I, I say that very boldly. I've never been contradicted, and I've said it probably 500 times now. But that's actually why I wrote this book, because You know, I was happy we survived, but I couldn't answer the question, why did we survive?

Yes.

And so I started looking for other companies and I couldn't find any. And then I, I stumbled on this, uh, this sort of historical trip where it turns out that what happened to Square has happened to a lot of companies throughout history. Maybe 1 in 1,000 companies actually has the same thing happen to us that happened to us happen to them. And I was like, oh my God, there's this pattern. And it's, it's not a common pattern, but it's super, super powerful. And what I noticed was all of these companies had the same trajectory as Square, which is we were trying to serve underserved markets. We built this thing called the innovations— called an innovation stack, which I'll explain.

Yep.

You know, as much as you want. And then once you get an innovation stack, you end up creating a totally new market that you then just totally own. So the biggest bank in the world, innovation stack. Biggest airline in the United States, innovation stack. Biggest furniture company in the world, innovation stack. And like on and on and on. And I saw this like, holy crap, I've got like— I've got this insight that I wish I'd had when I was, you know, 20 years younger. And so I went to Herb Kelleher. So Herb was a founder of Southwest Airlines and he was actually— so most of my research was from history. And the problem with doing historical research is you can delude yourself into thinking you're right just by picking the right examples. So if you study like the right parts of history, you can say, oh, well, people always do this. And it's like, no, you dumb shit. They don't always do that. It's just you were really selective in what you sampled. So I took all my research and I was like, I can't do anything with this until I validate it with somebody who's actually still alive. And most of the people I studied were all dead, but Herb Kelleher was alive. And so I took all my research down to Dallas and I spent an afternoon with Herb and I showed him everything I'd done and we had a great time. And, and I said, you know, do I have something here? And he said 2 things. He said, first of all, you absolutely do have something here. And he said, he said, you've got to publish this. He's like, you the world needs to see this because it's what we did at Southwest Airlines, but I didn't realize that it was what was happening at the time. And I've heard that again and again, which is this pattern, once you see it, is obvious, but it's not obvious until you have it pointed out. So if you— so what happened was Herb Kelleher, who's like an idol of mine, basically said, go write a book. And I was so jazzed that I decided that I would not write a business book because business books are boring and pretty much suck. So I decided to write a graphic novel. So The Innovation Stack, the first draft was just all graphic novel. And I went to show it to Herb and he hated it. Like he hated the idea of a cartoon because he thought the topic was too serious to treat, you know, sort of in a funny way. And so I, I was really surprised because like Herb had a great sense of humor, but I rewrote the book for Herb, uh, as, as text. Actually, it was this text and graphics, but then my publisher killed the graphics. It was like half text and half graphics. It was really sort of schizophrenic. Yeah. So he just said, look, you know, nobody's going to read your graphics on an e-reader or an audiobook, so just start typing.

So for, for Square, you mentioned you had 14 different things that differentiated you. I'm assuming in the book you have a lot of different examples too. So What are some practical examples you could use Southwest or whoever, just say, hey, this company was different and here's how their innovation stack really separated them. It's like, you know, these couple of things. Do you have something like that?

Yeah. So let me give you an example of Southwest Airlines because, um, you know, I talk about Square all the time and it's, you know, uh, uh, but, um, let me tell you about, uh, Southwest. So Southwest just wanted to be a regional airline in Texas. And what happened was, uh, they got attacked by the existing airlines. And this was before airline deregulation. So these companies would undercut Southwest and they blocked their IPO and they were basically like blocking fuel pumps. And Southwest was in so much trouble that they had to sell one of their 4 planes. So they had 4 planes originally, they went down to 3 planes, and then they realized that if they could turn the planes around in 10 minutes, they could keep their same schedule. So they had to figure out a way to turn a plane in 10 minutes at the gate. Now, at the time, planes were taking an hour at the gate. Okay, so to go from an hour, which is the industry average, to 10 minutes is— it was thought to be impossible, but Southwest kept at it and they did like 15 different things differently. And I can tell you some of them. Like one, they only flew 737s, which meant that if one of their crews had a problem, they could swap planes. At United, they have 16 different type ratings if you're a United pilot right now. So you can't just go from a 787 to a 737. Oh, by the way, if you want to know why the 737 MAX is crashing, like, I can tell you why. Like, Herb Kelleher told me why the 737s, why the MAX is a problem.

Yeah.

Like, but the point is what Southwest did was different from— they had one class of seating so you don't have to sort people. They had this special boarding process that used plastic cards. They had no meal service. They had point-to-point. They used different airports. They did all these things. And if you put them all together, that's what Southwest Airlines was. It wasn't just one or two things. And the totality of that innovation stack made Southwest the most profitable, the most— well, they became the biggest airline in the United States and absolutely the most profitable airline Ever. I mean, they would just— they just killed it. And they did it right in the face of a bunch of competitors who had exactly the same tech. So the beautiful thing about Southwest is it shows the power of an innovation stack, even when everybody is flying 737s from Boeing. Yeah, so disruption is this weird thing because we talk about disruption like it's good, and it's not necessarily good. It's at best a side effect that happens if you're Competing in a, in a non-innovative space. So typically, let's say I'm going to open a coffee shop today. Okay, so I live in St. Louis and I'm going to open up a coffee shop. And forget the virus, let's assume people actually are out hanging out in coffee shops right now. Well, where are my customers going to come from? A, I'm going to talk a bunch of new people into drinking coffee, or B, people are going to leave the other coffee shops and come to mine. It's mostly gonna be B, okay? So if I have a really good coffee shop, that's gonna hurt the other coffee shops, but that's not entrepreneurship. If I was building something totally new, I would probably not touch any of the competitors because there aren't any competitors. You know, if you look at what Southwest Airlines did, they were not stealing traffic from Braniff and Texas International and United. They were stealing traffic from the buses Because like the people could have flown United were flying United because it was a totally different thing. But the people who could fly Southwest had previously been riding Trailways bus lines.

So a couple more questions from my side. We did talk about before the show started that you were concerned about small businesses given, you know, the current environment. And, you know, you wanted to say something about— and I've been talking with other— when I talk to my other founder friends, what we There's— yes, there's sadness around what's going on as a human being, but there is a genuine level of excitement that I've— this is probably the first downturn I've been through. There's excitement on the business side. What you said aligns with that, but do you want to talk about why you think right now is a good time?

Yeah. Square launched at the depths of the last recession. We started in 2008. That's when Jack and I started talking. We launched in 2009. It was buy one, get one free on condos in Miami up until 2010. So you could— and it's funny, the entrepreneurs that I study throughout history have all had these massive calamities. So the biggest bank in the world, like you probably didn't know this, but the biggest bank in the world was started by a guy who was a lettuce seller. He was a produce vendor. Okay. Didn't know anything about banking. He was 30, in his 30s. Which bank was this? What?

Which bank was this?

It was called Bank of Italy that then became Bank of America. So Transamerica, the Transamerica Tower, that was part of it. It was a guy named A.P. Giannini. But the point with Giannini is that he started his bank in San Francisco, California, the year before the Great San Francisco Earthquake. So the earthquake comes in and you think COVID-19 is bad. Well, San Francisco had the biggest earthquake on record and then it burned to the ground afterwards. Because of all the fires caused by the earthquakes. Giannini launches a bank into like a city in rubble, like a lawless, crazy place, and he starts a bank and it works. It turns out that if you look at the history of these companies, chaos and disruption, world wars, famine, like these crazy terrible things correlates really highly with super successful companies, like hyper successful companies. So, um, yeah, I think, I think this is a good time to start a hyper-successful company. Like, if you want to do something— like, it's a crummy time to copy something that works. Like, if you have a business plan to open up a coffee shop right now, you might want to sit on that for a while, right? Because who knows? But if you have a business plan to do something that's never been done before, Now's a great time.

Jim, what's the best way for people to find you online and also to get those 2 books?

Okay, so, so the comic book's free. I'll give it to you. Um, uh, it's, uh, at jimmcelvey.com and you can download it for free, or I'll actually even mail you one if you want to.

Yeah, people want the physical copy, man.

Oh yeah, the physical copy. It's— this thing's fun. Like, it's just flat out fun. Um, so, uh, jimmcelvey.com. Um, you can buy the book anywhere. I don't use social media, so you'll see me on LinkedIn and Twitter and, uh, maybe Instagram. That's not me. That's a marketing firm that's trying to sell my book. Um, and it's just for me personally, it's a lifestyle choice. I just, I would rather spend time with friends and, or something else than, than sort of trying to, you know, see how many followers I got. So if you care to sort of check out some of the stuff that I think is interesting, I put all that at jimmckelvey.com. So there are essays and blogs and links to a bunch of stuff that I think is interesting.

Love it. All right, Jim, thanks so much for doing this.

Eric, hey man, thanks. This has been super fun.