We'll be right back.
We had a beautiful apartment with big windows, a full kitchen and we were walking distance from everything we wanted to see.
It didn't feel like we were visiting.
It felt like we were living there.
And that made the trip so amazing.
And when you take your own vacation, that's actually a great time to host your home on Airbnb.
Your swanky art collection and handy kitchen gadgets might be just what someone else needs to feel right at home on their next trip.
Plus, your earnings from hosting could help offset the cost of your next trip.
Your home might be worth more than you think.
Find out how much at Airbnb.com.
Hey, just a quick message.
If you're building a business right now, imagine getting advice from the founder of Tarte Cosmetics or Airbnb or even Sir Richard Branson or Mark Cuban.
Well, you can get that advice.
Every Thursday, we drop an episode of the How I Built This Advice line.
It's where I bring back a previous founder we featured on a past episode.
And together, we help real entrepreneurs, people selling skincare, dog toys, pottery, food, whatever.
We help them work through the challenges they're facing right now.
And the best part?
This kind of advice, world-class, battle-tested, is completely free.
All you have to do is call 1-800-
433-1298.
Tell us what you're building in under a minute and you might be the next guest on the advice line.
So give us a call or send us a voice memo to hibt at idwonderycom and tell us how we can help you.
If you've ever been to a VC pitch, they're really weird things because they're basically the VCs are up there playing defense.
They're like goalies.
And the entrepreneurs, the people who are pitching are just lying to them.
Right.
Now they're telling some truths.
This is our hockey stick growth here.
This is our projections.
And this is what we're doing year two and five.
And yeah, they have no idea.
So the game is sort of attack and defend.
You're attacking, they're defending.
We changed the entire tenor of the room by saying, look, here's all the stuff that we don't know.
Here's all the stuff that might blow up in our face.
Here are legitimate reasons to not invest in this business.
Welcome to How I Built This a show about innovators entrepreneurs, idealists and the stories behind the movements they built.
I'm Guy Raz and on the show today how Jim McKelvey joined forces with his former intern and revolutionized credit card payments with Square, today a multi-billion dollar business.
A lot of people think that regulations that make it frustrating to run or even start a business are put in place by anti-business politicians.
And in some cases, that may be true.
But a lot of regulations exist because, well, big businesses want to protect their monopoly.
Economists sometimes call this regulatory capture.
You see it in food, in health care, and as you'll hear in today's story, in banking.
Whenever you use your credit card, it goes through several middlemen.
The point-of-sale provider, the payment processor, the merchant's bank, the card network and then the issuing bank.
It's a highly complex and highly regulated transaction.
And it's also why stores end up paying up to 3.5% in fees every time you buy something.
Those fees, by the way, are passed back to you in the price you pay for the thing you're buying.
Now, imagine trying to get into that chain of middlemen.
Why would anyone with a monopoly allow you to take a piece of the action?
This was the exact challenge that the founders of Square faced back in 2009, when they had the idea to simplify the process.
At the time, Jim McKelvey, who you'll hear from in a moment, was a moderately successful glassblower in St.
Louis.
He had previously founded an early Internet business that was focused on web and publishing tools, sort of like an early version of Adobe Acrobat.
Back in the 1990s, when Jim was building that company, he hired a local intern, a teenager, who would later go on to co-found Twitter.
And that would be Jack Dorsey.
And when Jack Dorsey was fired as CEO of Twitter.
Many years later, in 2008, Jim reached out with an idea.
That idea came to him, like so many ideas we've had on this show, from a personal frustration.
Jim couldn't accept all credit cards for the glass art he sold.
So together, the two of them came up with something completely new.
Not just a payment system, but a physical reader that you plugged into your smartphone's audio jack.
And why the audio jack?
Well, we'll get there.
Square's rise was not without huge challenges from the credit card industry, from tech companies and even from a major competitor that tried to put it out of business in 2014.
But today Square's parent company Block, is a behemoth with gross profits of over 10 billion last year.
A big part of how Square not only survived but thrived is because of Jim McKelvey's restlessness.
His relentless willingness to just dive into problems stems in part from a personal tragedy that struck when he was in his mid-20s.
As you'll hear, it turned him into someone who has a hard time just standing by when he feels like there's something he should do.
Jim grew up in the suburbs of St.
Louis in the 1960s and 70s.
His dad was a professor at Washington University and his mom was a journalist turned stay-at-home mom.
Jim studied economics and computer science also at WashU, where he actually got published at an unexpectedly young age.
I took a beginning computer science class and it was taught by a professor who wrote the book for the class.
And the book was terrible, but it was this.
It was the book that he wanted to sell, and he sold it at a high price to these students who were forced to buy it.
I was indignant about that.
And I was mouthing off because I've always sort of, I'm a hard guy to shut up.
I was saying that I could write a better book than this piece of crap.
And one of my buddies said, well, why don't you?
So freshman year, out of stubbornness, I wrote what was basically a spite book.
I rewrote the textbook for my Intro to Computer Science class from the perspective of a student.
And that book turned out to be pretty popular. and actually got me a publisher.
And this is a book, it was called The Debugger's Handbook.
Yeah, yeah.
The problem with these early languages was that they were poorly implemented and the products had a lot of gotchas.
They had a lot of mistakes.
And if you would encounter one of these, unless you knew the sort of trick, well, you were stuck.
And so I spent many hours unnecessarily stuck Because nobody would explain these tricks to me, and you just had to know somebody who knew the trick you know and they could fix it.
And I thought, well, this is stupid.
Somebody should write down all these tricks.
And that was my book.
I mean, it wasn't so much a how to program.
It was how to fix every mistake that you're about to encounter.
I mean, this is early word processing.
Did you like print it out on a dot matrix printer and photocopy it?
I mean, how did you even make the first version of it?
Yes.
In fact, the first laser printers... had just come out.
Right.
And they were expensive.
It was very expensive.
Oh, they were insane.
It was like 10 cents a page.
And it was this thing that the computer science department had one of.
And if you were a senior professor, you could like print five pages a day.
And one of my professors actually gave me his passcode so I could print my book.
All right.
So this ends up being used on college campuses and high schools.
How much money do you think you made from publishing this book?
I made thousands.
I didn't know what I was doing.
Like more than $10,000, $20,000?
Probably less than $20,000.
I was a real deal for the publisher, you know, I was 19.
So I mean clearly you were a like precocious student and you graduated in 87.
But were you, did you get recruiters sort of seeking you out saying hey, come work at our computer company?
You know whatever that meant in 1987.
Yeah.
No, no.
There was one interesting side effect because I was published.
I ended up having a reputation that I didn't really deserve as a good programmer, as a good engineer.
So what I learned was that, as long as I shut up and always associated with people who were actually better than me, I could sort of hide in this crowd of super achievers.
And that's probably the thing I learned best in college, which was I can go into a group of people who are way better than me and I can make them more productive.
Yeah, which is a hugely important superpower, right?
And this will come up later when we're going to talk about this, because later on in some of your best-known businesses you admit you're not – you didn't – we're not the programmer.
You were not coding this stuff.
This was not your –.
I'm good at explaining stuff because I have a pretty simple brain and I don't understand things that are too complex.
But to your original question, which was, you know, did I have any job offers after school –
So I actually had its job possibly working for a giant accounting consulting firm.
And I thought about it.
I was like, oh, this is like death.
Because they had this thing called Method One, which was this massive multi-ring binder tome of how to solve every problem.
And it was like, you didn't have to think, you just had to go to method one.
And I was like, I can't do that.
So I had this computer science degree, but nobody was hiring programmers at the time.
So I didn't really have the ability to just go out and get a job, but I had this glassblowing skill.
And I thought, well, maybe I could sell my work.
I became a glassblower, basically.
Yeah.
So this is interesting because I have a lot of questions about this.
I guess in your senior year, you took a glassblowing class at WashU.
And what drew you to glass?
Because when I think of glassblowing, certainly like in the late 80s or sort of the mid to late 80s when you took it, I'm thinking like the people who would go to Renaissance fairs or – right,
Like it is a –
It's like something you would see at like ye olde, you know, right?
Like some reconstructed, you know, English village from the 15th century.
Like what was it about glassblowing?
Were you just like, this sounds cool?
The thing that captivated me about glass was the material itself.
It is this amazing material.
And especially when it's hot, it's like it's alive.
So the glass blowing is sort of like dance, except it's this technical dance where you have to manage heat, and you got to manage.
But what was also super interesting about glass at the time that I got into it was that nobody was doing it.
Because glass factories, which are these big industrial furnaces, did not let artists come in and just play with the stuff.
This was like going into a Ford Motor Company and saying, hey, can I borrow the assembly line?
I want to make some car, and I don't know what it is.
So there was none of that until these two guys in Ohio basically created this small furnace.
And we had one at WashU, but it was this little junky furnace.
And so nobody was doing it.
It was a completely open field, which means there was no competition.
So I could sell work.
Yeah.
Because even if my work was garbage, it was the only glass in the gallery.
What were you making, like bowls and—
And then through luck, I actually got a job at IBM.
In St.
Louis?
Well, no, it was IBM in Los Angeles.
So this was the original remote work.
I'd met some people at WashU who knew about my book, and they needed some writing done at IBM.
So they hired me temporarily at IBM in Los Angeles.
But I was living in St.
Louis.
And I impressed them enough that they said, hey, can you just stay on and keep working with us?
And then I quickly realized that IBM didn't know when I did the work.
So I could work in the glass studio during the day and then do my IBM work at night.
Nice.
And I guess eventually they started to send you to do work around the country and you were able to actually connect with galleries in different cities and sell your work right.
Oh, yeah.
So I'm just curious, like how lucrative was this business?
Like how much would these galleries sell a vase, for example?
I mean, 500 bucks was a pretty good price.
I'd get half of that typically.
But you were making a decent living.
I mean, if you're selling a piece for 500 bucks and you're getting half of that and you're in a couple of galleries and
You know, you were probably subsidizing your income from IBM.
My rule was $1,000 a day.
Every day I work in the studio, I make $1,000.
Wow.
$1,000 a product.
Okay.
That's a lot of money for that time.
Yeah.
Well, I mean, that's allowed me to start my other companies.
Right.
My venture capital came out of the studio.
I want to ask you about a business.
I don't even know how to approach this because it's a difficult moment in your life.
You're 24 and your mom passes away just before Christmas, I think.
Well, she committed suicide just before Christmas.
So, I mean, yes, that was December 18th, 1989.
That was my world exploded.
Yeah.
Did you, had your mom, had she struggled with depression for as long as you knew?
Yes and no.
Yes, she had struggled with it.
I did not know this severity.
She never got over the postpartum with my brother and struggled with it.
Electroconvulsive therapy, like a lot of heavy stuff that I had no idea was happening.
Mom hid it very, very well.
Because you had a happy childhood.
You're an Eagle Scout.
I had a great childhood.
I never knew anything was wrong with my mom.
And then towards the end...
She had been through a bout of depression, which she had sort of fought through.
Like there was, it was not a situation where my mother, you know, attempted suicide and failed.
My mother's suicide was so well planned that nobody could have caught her or stopped it.
Like, and she did not telegraph her punch at all.
She planned it, you know, but dad and I were just caught by total surprise.
And it just destroyed my world.
And most of us don't want to talk about that, also because there's all kinds of you know baggage connected to that.
Yeah, yeah, it is.
But it's, I mean, it's...
Losing my mom completed my education.
Maybe it didn't complete it, but it voided it.
There was so much that I would not know but for having to deal with the sudden death of my mom.
I mean a lot of the energy that I have comes from the feelings that are stirred up when I think about what I could have done to save my mother.
Part of me knew that mom was in trouble and that I could have done more.
And I didn't.
Hell, I could have just gone home and taken a walk with my mother every night.
That could have saved her life.
I didn't do that.
To this day, I regret the inaction.
And so when I find myself in a situation where I think something needs to be done, I no longer sit there and say well, someone else will probably do it.
My attitude is like, you got to be the one to do something.
You know, it's natural, it's instinctive for us to say, what could I have done more?
When in fact, in many cases, it's beyond anything that we could do.
Yeah, yeah.
I mean, that's, but that's like, you don't know, right?
To me, if you try and it doesn't work, well, you tried.
But if you don't try, well, that seems wrong.
If I care about something and I don't try to fix it, then I question whether or not I really cared.
Do you remember how long it took you before?
I mean, you're 20, you're so young, right?
I mean, it's... I was a kid, yeah.
Do you remember how long it took you before you were able to just even pick yourself up?
I mean, I can't imagine dealing with something so traumatic like.
I mean, it depends what you mean by pick yourself up.
What it did was it put me in touch with this entire world that I didn't know.
So here I am thinking I've got this... idyllic existence with no problems.
I've never even had a cavity.
Okay.
I've never even had a tooth filled.
Okay.
That's how easy my life was.
Yeah.
And then all of a sudden this happens and I lose mom.
And I mean uh, it was all of a sudden, as if, you know, somebody turned on black light on the hotel room and you see what stuff's on the bedspread.
Uh, Sorry about the analogy, Guy.
No, it's a good analogy.
It's actually a very good analogy.
The point is, it just woke me up.
And all of a sudden, I started seeing pain in people, like pain in my friends.
I was trying to make up for 24 years of obliviousness by just being in touch with people who were suffering.
And my God, they're everywhere.
We are everywhere.
It's not they.
It's a we.
So in sort of the midst of this, I mean, I think around this time you had been working on another business.
You've been doing glassblowing work and everything.
IBM wasn't that interesting to you.
And I guess you started to think about starting your own company, which would become a company called Mira.
It was a document imaging company.
Tell me a little about how that came about, that idea came about.
So I already had my own company.
I had a company that built CD storage cabinets.
Like carpentry.
Yes, carpentry.
Although I had a factory do these things.
It was mostly marketing and sales.
I see.
We were in premium catalogs and whatnot.
We should explain to people that there was a time where people would store their CDs like books on a shelf.
Yes, this is correct.
And it made money.
But it was a mediocre business.
And I was a mediocre glassblower.
And I was a mediocre IBM employee.
And then my mom dies.
And I realize... that my mother has seen nothing but mediocrity out of her son.
I don't know.
You have three businesses and you're 24.
That doesn't sound mediocre to me.
I have three businesses, but they all kind of suck.
Yeah.
I mean, you're a super motivated 24-year-old.
I mean, that seems like a little bit of a stretch to say that you're mediocre.
So having your own business was not as cool then as it is now.
Right, right.
And I looked at what my mother got to see, and she saw her son as this kind of mediocre weirdo.
At least that's how I saw it.
And then I thought, well, this is not who I want to be.
So I quit IBM.
I closed my CD business, and I stopped glassblowing.
I said, I'm going to focus.
And what am I going to focus on?
Well, I'm going to focus on the thing that creates fortunes.
You know computers because I've got a computer degree.
So my friend and I started a company called Mira.
And this was, it was like what Adobe Acrobat would become.
It was a document reader.
Exactly, yes.
You know, it seemed like this visual thing was going to be important on computers, that they weren't going to be just text.
So we started building this thing that was very similar to Adobe Acrobat.
Except that there was then Adobe Acrobat, which kind of wiped the floor with our product.
I want to ask you about that.
Before that happened, because I think it happened in the first year or two after you launched?
Yeah, about 91, 92.
Did you make any money before that time?
Very little.
Very little.
Okay.
And you had been able, from what I understand, to fund this because you had made money from working at IBM and glassblowing.
Like you actually, I mean, this kind of nuts in 1990 or 89, you're 25, you had 50 grand.
I mean, that's a ton of cash that you saved up.
I saved a lot of money.
Yeah.
Presumably you could hire, you could bring some people on and hire them.
I did.
Yeah.
I had the capital, but it was more than just the capital.
I'm also cheap.
Like I can live on air.
My budget was $25 a week. food, clothing, and transport.
That was what I lived on.
All right.
So you're working on this product, but actually Adobe, which is a much more powerful, much bigger business, they come out with the Acrobat Reader and that just kind of sinks your entire business model.
Yep.
So you guys have to change what you do.
So what do you do?
I mean, that's it.
Your mirror's dead at this point.
So Mira's dead, but we had attended one trade show when we had a product.
The trade show was the Association for Image and Information Management.
I don't know if they're still around, but they were the trade show for imaging.
And I was struck by the irony of people leaving the imaging trade show with bags of literature on how to have a paperless office.
Physical literature.
Physical literature.
From these companies about how to have paperless objects.
Okay.
So I came up with this idea.
What I wanted to do was take all my competitors' products and charge them to put their brochures on my software.
So we did use my software to create the first CD-ROM. for the imaging trade show.
Basically meaning explain.
You would take scans of.
We would take scans of all their literature and we'd charge them 10 bucks a page to put it on our software.
Oh, so basically the pitch was, hey...
We're going to give a CD-ROM to everybody going to this trade show.
Do you want to be on it?
Yes.
It's like FOMO.
And so everybody will want to be on it.
So they'd have to pay you to have their literature on the CD-ROM.
Correct.
And then the trade association tried to stop me from doing it because they said well, this is our trade show.
You can't do it.
And I was like, well, I'm hard to kill and you can't stop me.
And so then they sent the lawyers after me, but I laughed at them because what are you going to do?
Take my car?
Like, good luck trying to start it.
So, but the problem guy was that I made so much money putting my competitor's literature on my CD.
I was like, why am I trying to sell software when I just made 70 grand producing a trade show CD?
Yeah, I mean, it's an amazing – I mean, at the time, it sounds like printing money.
It's like owning a classified newspaper, right, at the time.
Oh, it was great.
And then you would have to – how would you distribute the CD to every exhibitor or every attendee?
Well, in the first trade show, since we were prohibited from attending it ourselves we had to – get companies who wanted more booth traffic to distribute it.
So I got all the major companies to distribute for me.
They just have a stack of them on their tables, okay.
Oh, yeah.
It was a reason to go to their booth.
I mean, it was the best thing.
And again, I charged them for that.
Like, we made so much money on that.
I mean, there was a period of time where I can imagine this was a great business, because how many trade shows?
You know thousands of trade shows a year.
There are 5,000 trade shows.
And the first one I did, I made 70 grand.
On one product, on one CD.
On one.
70 grand profit.
$70,000 of profit.
And that was with the trade association actively suing me and trying to stop me.
Hmm.
So imagine how much I could make if we cooperated with the trade associations.
Yeah.
Which is what we did for the next two years.
We made friends.
I'm not going to pick a fight.
So we did all the other trade shows.
I want to just break into this story for a moment because, from what I understand, something happens during this time where you're transitioning from being a imaging software company to a CD-ROM literature company.
And that is you would meet somebody who would factor very prominently in your life.
And it starts with a coffee shop.
In St.
Louis.
So tell me about this coffee shop and why it was relevant to what you were doing.
There was a lady named Marcia Dorsey who owned a coffee shop called Shenandoah Coffee.
And we were building a trade show disc and had screwed it up so badly.
That we were in a fire drill to redo, you know, probably 200 hours of work.
How many people were working with you, like 10?
It was probably 10, but that weekend it was probably 20.
It was everyone we could find.
And one of my colleagues went in to buy some chocolate-covered espresso beans to keep the workers awake.
And Marcia says, well, what do you guys do?
And he's like, oh, we work with computers.
And she's like, oh, my son loves computers.
And he's like, well, how do you like to make 50 bucks the hard way?
So this 15-year-old kid comes over middle of the afternoon and he introduces himself and he's like hi, I'm Jack.
And Jack pulled an all-nighter with us that first day.
Jack, this is Jack.
Jack Dorsey.
Dorsey.
Yeah.
And he's a 15-year-old kid and he knew enough about computers that he could help you guys fix this CD-ROM problem.
I mean, he wasn't doing a program.
He was running a scanner.
It was take this page, scan it, type this file name correctly, and do it 3,000 times in a row.
But what I quickly noticed was Jack came to work for us then afterwards.
I mean, after he got out of trouble with his mom.
Got out of trouble because?
We sent him home at 5 a.m. or something.
I see.
Okay.
And then what I discovered was that whenever I gave Jack a project, he would always do it better than I was expecting.
And I got curious about how deep that river ran.
So I kept giving him harder and harder projects.
And he kept delivering every one of them.
And I was like, oh, my God, what can this kid do?
Tell me about him at 16.
Was he like a savant?
I mean, was he like a programming just genius?
No, he was very good.
We called him Jack the Genius.
That was his nickname.
But, you know, he was not a genius.
He was just very good.
Yeah.
And so finally, we started doing some more serious work together.
And then I saw the train coming to hit the company, which was the internet.
So this was 95.
It was absolutely clear to me that the worldwide web was going to wipe out the CD-ROM trade show business.
And so I told the whole company well look, we need to pivot into conference publishing, you know, using the same tools that we have.
But instead of publishing trade show literature, we're going to do, you know, boring technical papers.
And everyone was like, yes, Jim, yes, yes, yes.
And they all said yes.
But none of them did anything differently.
And so the only person who would listen to me was Jack Dorsey.
So his second summer at Mira, I took Jack aside and I said look, none of these other people are going to be here in six months.
You and I have to go off and save the company in the meantime.
Okay, so you are seeing the handwriting on the wall.
You know that most companies are going to start making their own websites and they will not need your services anymore.
And so you guys decide to pivot away from trade conferences to, I guess, academic conferences.
Like you launch a publishing platform for, for research papers that people would present at these conferences.
Yeah, we took large, boring books and made them into small, boring CDs.
So you basically, you're still in the CD-ROM business.
It was just, you shifted to academic conferences.
Yes.
Where you saw more opportunity, at least for a longer period of time, because the internet would have killed that business too.
Oh, actually the internet is, I mean, that business is still going today.
Oh, wow.
Yeah, yeah, yeah.
Mirrors still makes money.
But not on CD-ROMs.
I mean no, it's web publishing, but I mean like, the core tech is still.
You got to collect these papers and verify them and jury them and rank them and publish them and yeah.
Okay.
So you guys have this product within a product and that ends up kind of saving.
Saves the company.
Yeah, yeah.
And when, you know, having this kid, Jack, I mean, did you say to him, hey, you know, don't bother going to college.
Just come work here.
No.
No.
No, I'm not going to talk somebody out of going to college.
I mean, my father was a professor.
He's a dean of the engineering school.
College is – that's the family business.
Fair enough.
All right.
All right.
So Jack Dorsey goes away.
He kind of leaves your world, right?
Yeah.
And he goes on to –
I think he drops out.
Yeah.
Yeah.
I went to college.
Then we did different college and then he drops out.
Okay.
But you continue to run Mira into through the 90s and then you step away in 2001.
Yeah.
But you had enough money.
I mean, you were able to build a glassblowing studio in St.
Louis.
Yes, yes.
Built a world-class glass studio in St.
Louis.
This is what you were doing?
Yeah.
Full-time?
Yeah, blowing glass and, I mean, I did some other stuff.
You know, I built some apartments.
But I was not full-time at Mira anymore.
Mira was still paying me, but I wasn't the boss anymore.
All right.
You have been keeping in touch with Jack Dorsey when he comes back to St.
Louis, and he would go on to co-found Twitter, right?
And become the CEO.
Many people know the basic outline of the story and we told some of it when we had Williamson.
But
The basic story is he was a very young CEO and, for a variety of reasons, he was pushed out by the board.
They pushed him out after two years in 2008.
And Twitter at that time was still very new.
It was like really niche.
Not that many people were using it, but it still made some news.
And I guess he had come back around Christmas in 2008. and you guys reconnect at that time.
From what I understand, you started talking about maybe doing something together.
Tell me why that was interesting to you in 2008 when you had this really nice business and life.
It sounds like you had itchy feet.
You wanted to do something new.
I mean, I was a little bored.
Got it.
I... was comfortable, but not, you know, fully engaged.
And what they did to Jack seemed wrong to me.
They not only kicked him out of Twitter, they tried to write him out of the history.
And I know this very well because I was reading at the time the reports and they would mention Biz and they would mention Ev as the founders of Twitter, and they would omit And that would admit another guy, Noel Glass, I think.
I will say to his credit, William did not do that in our interview.
He certainly gave Jack Dorsey credit where credit was due because he really did invent Twitter.
I mean he was the one who coded this thing and who came up with this thing.
Well, had you asked Ev that question in 2009, I wonder what kind of answer you would have gotten.
Right.
It was a different story.
Yeah.
They've all grown up.
Right.
But you felt like it was unfair.
OK, I get that.
But the idea of starting a business, you had itchy feet.
You were bored, as you say.
And here was this guy that you knew for a long time.
And what you thought, wait a minute, this could be a cool opportunity to do something with him.
No, that wasn't it.
It was Jack's idea to start the company.
Because my original idea was let's just go out to California and make you know, make war on the Twitter, guys.
Wait, sorry, what do you mean?
What did that mean?
It was spite, you know?
I don't know what we're going to do.
Wow.
In hindsight, it seems very unusual.
I mean, it's not a great use of your time.
So, Guy, in point of fact, that was probably an idea in my head for 30 seconds.
Right, okay.
And that was not fully serious.
It was not fully addressed.
But that was what I said.
And then Jax said, well, why don't we build something new?
It just can't involve social media.
And I was like, okay.
Well, that still leads to a lot of stuff.
We had to figure it out.
So we decided that we wanted to do something with mobile phones, because mobile phones are just.
You know, the iPhone had just come out.
Right.
Let's figure out what to do with it.
And then off to California to come up with ideas.
And then we hired Tristan O'Tierney, the first iPhone engineer.
And he was going to be starting in a couple of weeks and we didn't have a really good idea to do with this iPhone.
But Tristan was starting, so we had to come up with something.
You go to San Francisco, you hire this guy who had been an engineer on the iPhone.
Yeah.
Obviously, Jack had a reputation already being at Twitter, and you had experience.
You probably weren't as well-known in the Bay Area.
I was nobody, and Jack was somewhat nobody.
Right.
But you had hired this guy without exactly knowing what you were going to do, which is very typical.
I mean, it was then, it still is now.
Yeah.
And I was fishing for other ideas, but hadn't come up with anything.
And then I went back to St.
Louis to sort of pack up my stuff.
Okay, I'm going to move to California and take my fiance with me.
And that's how committed I was.
And I was in my studio trying to sell a piece of glass.
I mean, I was there and I got this phone call from this lady in Panama who wants to buy this ridiculous thing that I'd made.
It was a glass bathroom faucet.
2,000 bucks.
Ugly as can be.
It's been sitting on the shelf for years.
But I need the two grand.
Like $2,000 is really going to help me, you know, with the cash flow and moving out.
And I lost the sale because I couldn't take an Amex card.
You only accepted Visa and MasterCard.
Yeah, yeah.
Which was very less common today, but it was super common in 2008, 2009.
Yeah, Amex charged too much, so we didn't take it in my studio.
We'd always successfully been able to get people to have a Visa or MasterCard, but this lady didn't have one.
And I am sitting there talking to this lady on my iPhone and I look at my iPhone and my attitude towards the iPhone changes.
Was it was this magic device that should become anything I wanted it to?
It turns into a book or a TV or a map or a flashlight or a phone or like.
That's what this device is supposed to do.
And it didn't turn into a credit card reader.
And I thought, well, that's what we should do.
We should make the iPhone turn into a credit card reader.
When we come back in just a moment, Jim reaches out to investors with 140 reasons why his exciting new idea just might fail.
Stay with us.
I'm Guy Raz, and you're listening to How I Built This.
Hey, welcome back to How I Built This.
I'm Guy Raz.
So it's around 2008, 2009 and Jim McKelvey has an idea that could be a game changer for small business using an iPhone to help read credit cards.
And one of the first people he runs us by is Jack Dorsey.
He said, that's interesting.
Those were his exact words.
And he said nothing else.
Yeah, I want to jump into this, right?
Seems like a pretty great idea.
Because, you know, at the time people would have these like credit card, like these sort of boxes that were plugged into the internet and connected to a register.
And you would swipe the card through this thing, right?
But it was big and heavy.
It was like a brick.
Yeah, and expensive.
They were a thousand bucks.
And so you're.
You were saying let's make something that works with an iPhone, that we can plug into the iPhone.
Yeah.
I mean, hardware was my idea because Jack wanted to do software only and just use the phone.
And I'm like, no, we need a piece of hardware.
Right.
And then we quickly realized that there are two ways to process a card.
One is called card present and the other is called card not present.
And card not present is way more expensive and way more risky for the merchant.
So you want to do card present.
You want to prove that the person buying the thing is there and has a credit card.
Otherwise, you're vulnerable to a chargeback any time.
So it's no protection for the merchant.
So the merchant needs card present.
And the only way to get card present was to read the magnetic stripe.
And I said, Jack, we need to read the mag stripe.
And Jack said, no, you're crazy.
We need to read the number using the camera that's already on the iPhone.
We just scan the number.
That seems to make more sense, right?
Because then you have to have another device connected to it.
Well, yes.
His way makes more sense except for the fact that it doesn't work.
Yeah, like you can't just tell the credit card industry to accept an image because think about it.
I can take a picture and mail it to Singapore.
Does that mean my credit card's in Singapore?
Right.
So you can scan your card, but you don't get card protection.
I see.
All you've done is saved yourself typing 16 digits.
So you knew that it had to be read by the magnetic strip in order for it to work.
Yes.
My attitude was that we're not going to get the credit card monopolies to change.
They had rules specifically preventing exactly what we were trying to do, among a bunch of other laws at the state and local level that were preventing what we were trying to do.
Which meant that and just let's just break it down for a minute the laws prevented a merchant from accepting a credit card payment outside of this existing system.
Correct.
So then, if the system controls who pays for credit cards, if Visa MasterCard, Dynamics control the system, how do you change that system?
If they are the rule makers and they own the businesses and they actually make the rules about the business?
Well, you have to get them excited to change their rules.
I mean it was clear in the first day yeah, that there were.
I counted 17.
There were probably more, but i stopped counting at 17 rules or various regulations that we were breaking in some way.
Some of them were laws.
Some of them were network rules.
Like OFAC, KYC, like you have to know your customer.
Well, we could figure that out eventually.
That's a banking regulation.
But we were certainly in violation of that in the early days.
But I guess the question I have is what would their incentive be to do it?
I mean, like when you looked at this world of credit card transactions in 2008, were most small businesses accepted?
I'm assuming most small businesses accepted.
No.
No.
The reason they should change their rules is that we would bring them millions of new merchants.
Why would this system bring in more merchants?
Basically, if you didn't have $100,000 of business...
You would not take credit cards.
That was sort of the cutoff because it was too expensive.
You had to have a sponsoring bank.
You had to have a certain level of accounting.
You had to have a physical location.
You had to have a business that had a certain stature.
Like none of the small businesses could make those requirements.
So if you're like a farmer's market business, you just take cash.
Yeah, forget it.
The system was built for merchants who had $100,000 or more in transactions.
It was never designed to serve the little guy.
Basically, they didn't have very good negotiating positions, so they would get screwed individually.
And companies like Walmart and Target, who had big...
You know departments of lawyers and lots of ability to.
You know sort of negotiate on their behalf, paid lower fees.
So if you were a small business owner, you're going to be paying all kinds of transaction fees that could eat in like five, six percent of the sale.
Oh, yeah.
Tremendous amounts of fees.
And hidden fees like tricks.
It was just vile.
So this is.
I go back to my question, which is if a credit card company is making six, seven percent on a small business transaction, I would think they would have an incentive to try and block what you were trying to do.
Well, what we were doing was we were telling them basically open up the market to all these people you don't get to exploit.
Yet
We didn't say it like that, but the understanding was you guys are making so much off these little merchants.
I'll bring you even more of them.
And we never argued with the network fees.
So remember the Visa and MasterCard fees.
They're fairly straightforward.
Where the crazy abuse is, is all the middlemen in those transactions.
So Visa and MasterCard, they don't really abuse the merchant, but the abuse happens with all their partners.
Like the independent sales organizations that work for the banks, that work for Visa and MasterCard.
You know, there's this chain of people and in that chain everyone takes a huge cut of the little merchant.
So Visa and MasterCard were the guys who had the rules.
They weren't negatively impacted by anything that Square was going to do.
So it was easier to convince them to change it.
And there was, I remember I mean even small business like there was.
It was an opportunity for even a small business person to do credit card processing.
Like I know.
I know of people who had businesses but like had a side hustle where they would do credit card processing and make like a few hundred grand a year just from that business.
Yeah, yeah, yeah.
And going back to the credit card companies for a sec, I mean I understand why they would be interested, because you're basically saying we can bring in an order of magnitude more businesses into the world of credit card transactions.
Because if we can reduce the fees, cut out the middlemen, you guys make more money and basically square this company.
We will be the only middleman.
Correct.
And-
I guess my next question is why wouldn't the credit card companies just think well, why don't we just do this ourselves?
Well, that's not what they do.
They don't deal with the credit card networks.
You say credit card companies.
The technical term is networks.
And what they do is maintain the brand, write the rules.
So we're talking about Amex, Visa.
Yes.
Amex, Visa, MasterCard, Discover.
You know, Dynacard, JCB.
Like you name any credit card system and they are a rulemaking brand body.
Okay.
Their job is not to deal with merchants.
Their job is not to take any risk.
Their job is not to push any paperwork.
Their job is to keep the system running.
They're taking 25 basis points or 15 basis points off a Walmart transaction or a Square transaction.
So they're getting paid either way.
So they were incentivized actually to see this work.
Oh, yeah.
Because you guys are basically saying, look, we're going to do the work for you.
For all intents and purpose, we're going to be the sign up, you know, a store, a shop.
They're just going to deal with us.
Yeah.
And we'll pay you guys.
We'll handle everything else.
Yeah, we'll pay your rack rates.
So there were all these things along the chain.
Okay, so this is one challenge.
A second challenge... is that hardware, right?
You've got to build something that is going to scan or read a stripe and somehow connect to an iPhone.
But the iPhone is proprietary.
Like you need Apple to agree to let you plug into the iPhone to let the thing work.
Well, yes, you did need Apple's permission.
That was the thought of the dock connector.
They had this little port at the bottom.
They still do.
Right.
And at the time it was this big port at the bottom and you had to pay Apple for access to that port.
You had to pay Apple for a special chip that allowed you to build your hardware, and then you had to convince them to let you do it, and at the time the iPhone had a terrible battery and so they wouldn't let you do anything that sucked power from the device, because that just made the battery performance worse.
So there was almost zero chance of us getting permission from Apple to connect a credit card reader to their device.
So that seems like a pretty big problem if you want to use the iPhone as the main tool.
Yeah.
So fortunately, I'm a nerd.
There's a magazine called Make Magazine.
Yeah.
And if you open up the first issue of Make Magazine, there's this dude who hacked a cell phone and put a credit card reader in through the microphone jack.
So I'm thinking, oh, well, we can build a reader. and go through the headphone jack.
And I had a friend in St.
Louis, who was a professor at the university who actually had done work processing credit cards and doing sort of security systems for credit cards.
So I called him and I was like, hey, can you help me build this card reader?
He was like, oh, we'll just go for the headphone jack.
And I was like, oh, hey, good idea.
So the headphone jack could be the way into the iPhone, but you didn't need permission from Apple to use that.
Well, you did and you didn't.
They could have easily blocked us from the app store.
Apple could have stopped us.
And if we had offended them or made them felt threatened in any way, they would have shut us down.
All right.
So what was your process to like walk through those raindrops?
Oh, get Steve Jobs to bail us out.
Sounds really easy.
Yeah.
So Jack emailed Steve.
Steve was a fan of Twitter.
Jack got a meeting with Steve, which was canceled because of Steve's health.
And you gotta understand, Steve was this larger than life deity at Apple.
So anything that Steve was interested in, the upper management at Apple was also interested in.
So I think the fact that Steve was willing to meet with us, even though the meeting didn't happen, may have kept their lawyers at bay.
And what were you going to show him if you had that meeting?
So we had to show him hardware, which terrified me because he is a notorious design snob.
So much that when Bill Gates tried to show him the Microsoft Zune, he refused to touch it because it was too ugly.
So I've got this really ugly credit card reader and I'm about to go in front of Steve Jobs and I'm like, oh my God, I need to build something pretty and I need to do it fast.
And so I went to the Apple store to steal Steve's idea.
I was like, well, what does Steve like?
Well, there's a room full of it.
It's called the Apple store.
So I went down there and looked all around the Apple store and I was like, oh, he likes aluminum.
Yeah, like a MacBook, yeah.
Yeah.
And I take all the electronics I've got and I jam it into this little block of aluminum.
Polish it up.
Well, brush it.
No, we don't polish it.
Steve likes brushed aluminum, not polished aluminum.
Guy, you'll piss Steve off and he'll throw at it.
Like if Steve doesn't like your product...
There's a physical mark on your body from where it hits you.
That's what we had been told to expect.
So I'm terrified.
I build this reader and it works.
And Jack's getting ready to, actually he had a demo with Michael Bloomberg before the jobs thing.
So he was going to try it out on Michael Bloomberg.
And I hand him the reader like fresh out of the lab.
And he tries it and it doesn't work.
It doesn't scan the magnetic script.
Doesn't scan the magnetic.
Okay.
He hands it back to me.
Works perfectly.
I hand it back to him.
Doesn't work.
And what we noticed after three or four of these rounds was that I didn't touch the reader with my finger when I swiped a card, but Jack would hold it so that it wouldn't rotate in the microphone.
Jack,
Yeah.
And because he was holding it and because aluminum is conductive and because Jack has a heartbeat, it was picking up his heartbeat and the heartbeat was screwing up the reed.
Right.
So it was a cardiac monitor.
So that was the last time I built anything out of aluminum.
But the good news is Apple let us do it.
Apple approved it.
How complicated was it to make a physical reader?
It's a pretty simple device.
It was a read head.
And if you put a resistor in it, it sort of attenuated the signal to a point where it could be sort of interpreted as sound.
What you tried to do was make a credit card swipe look like a sound.
Got it.
And then you would decode the sound.
I guess to get people to adopt it, you also have to give these readers out for free.
Yeah.
And each reader costs you how much?
97 cents.
Oh, wow.
I'm cheap.
Well, I basically lived in China until I figured out how to build everything at the absolute lowest cost that I could figure out.
And I would argue about fractions of a cent with people in Chinese.
And I read that you wanted it to be a square, but you wanted to be very small.
You didn't want to be like chunky.
You had a very specific idea of how you wanted it to look.
Yeah.
So originally the company was called Squirrel, because we thought squirrels were cute and saved nuts and thought that was a good payment name.
It was a good payment name and another company had a payment system called Squirrel, so we pivoted to Square.
But I designed the Square reader to be the shape of an acorn.
It was supposed to be the acorn.
And if you look at the original hardware, it's designed to fit in the shape of an acorn, but it also happened to fit well within a small Square device.
The Square device was not very good at reading cards because it was so small that cards would wobble.
And I built two devices one that had a long track and one that had a short track and discovered something very interesting.
If I tested them both together, people preferred the long track device because it worked perfectly.
But if I tested them separately, which I often did because the long track device didn't fit in my pocket, Whereas the short thing you know would fit in.
That you know that little pocket in your jeans that nobody knows what to do with, that thing in the upper right corner of your blue jeans.
That's where my square reader lived.
And I always had it with me.
And I would try it with people.
And if I didn't have the big device with me, the reaction I would get for the small device was just mind-blowing.
Like people had never seen anything that small read a credit card.
It was like this magic trick.
And they were like, let me see that.
Show me that.
Do that again.
Okay, I want to just jump into division of labor.
Jack was making the... He was creating the interface for this thing?
Jack was mostly working on the server.
Tristan was mostly working on the iPhone client.
We had a few other people that were joining and working on various components of the software stack.
And you were working on the hardware, that piece, because you were a glassblower.
You had some... I was hardware... because I was the weakest programmer.
So I was relegated to everything else.
So dealing with the banks, Jim figured out.
Furnishing the office, figuring out how to incorporate the business.
Like everything but programming fell to me.
Okay so, from what I gather, about six months after you guys start working on this, you are ready to meet with investors.
You've got a working prototype.
And you are actually able to transact.
Like from what I read, like in these pitch sessions, you would pitch these VCs and you would say here, give me your credit card.
And you would charge them like a dollar or five dollars.
We would charge them the amount to which Jack disliked them.
Right.
Fair.
Jack had had a list of VCs he liked and didn't like.
And depending on where you were on that list, he charged you more.
One guy paid 40 bucks.
At that point, had you had the permission from credit card companies or not yet?
Oh, God, no.
No, no, no.
So you were able to still transact and use the reader, but it was technically not legal what you were doing.
Everything worked, but it was breaking many, many laws and rules.
Breaking rules because you were not allowed to charge people using an iPhone or because you weren't going through the right processors.
Why was that illegal?
Yes and yes and yes and yes.
There were so many rules.
From the banking rules to the hardware rules, to the network rules, to the money transmitter, rules that vary from state to state.
Probably to some accounting rule.
There were just so much stuff that we did not pay attention to.
But we built a system that worked.
So you could get away with it as long as it was a few small transactions.
Correct.
Nobody would notice.
Yeah, yeah, yeah.
So you had this and you're pitching this to VCs.
And also another thing you do, you write about this in your book.
You have a slide and it says 140 reasons why this business will fail which, from one perspective, sounds really, you know, bold and funny.
But I also think that in a sense, it's basically you saying we're so confident this is going to work.
I'm going to tell you why it's going to fail.
It wasn't confidence.
It was candor.
It was basically saying, look, this might not work.
And here's all the reasons we could think of that it might not.
And it changed the tenor of the room.
If you've ever been a VC pitch, they're really weird things because they're basically the VCs are up there playing defense.
They're like goalies.
And the entrepreneurs, the people who are pitching, are just lying to them.
Now they're telling some truths.
This is our hockey stick growth here.
This is our projections.
And this is what we're going to do in year two and five.
They have no idea.
So the game is sort of attack and defend.
You're attacking, they're defending.
We changed the entire tenor of the room by saying...
Look, here's all the stuff that we don't know.
Here's all the stuff that might blow up in our face.
Here are legitimate reasons to not invest in this business.
And so, because we put that up instead of playing defense the entire time, most of the VCs looked at our list and said well, we can help you with that one.
And I remember one guy telling me, oh, Amazon's going to attack you?
Don't worry.
I'm on the board of Amazon and I developed Amazon Prime and we can get them to leave you alone.
Like if you take our money, we'll guarantee that Amazon doesn't attack you.
So while you're pitching this, there are people are saying oh, we can help you fix this problem with the credit card companies.
We can help you with that.
Like no one thought that was going to be a challenge.
Oh, no, they knew it was a challenge.
I mean, you have to have a certain bold investor to back what we were doing.
But there are a lot of bold investors and we had several dozen term sheets.
I mean, I don't think we had more than three pitches that didn't result in offers.
Yeah.
So you guys raised $10 million.
Yeah.
11, I think, but yeah.
11.
$45 million valuation.
But I have to imagine that you needed a certain critical mass and momentum before you would see profit because probably the fees, the way the fee structure worked, at least initially, would mean that you were not going to make money for a long time.
Well, we had a lot of fixed costs.
We had a lot of employees.
We had a lot of things we had to pay for.
And therefore, we needed a certain scale in order for the business to work.
So, yes, we needed it to be big.
When we come back in just a moment, Jim faces a founder's worst nightmare when Amazon decides to break into the payment processing business.
Stay with us.
I'm Guy Raz, and you're listening to How I Built This.
Hey, welcome back to How I Built This.
I'm Guy Raz.
So it's late 2009.
Square launches, and within a year, it has 50,000 customers on a pilot program.
The company has also dealt with the first of many regulatory hurdles.
But suddenly, it's confronting a legal problem that it did not anticipate.
So you guys get hit with a lawsuit.
There's a guy named Robert Morley, and he's the guy that you mentioned a while back.
This is a professor at Washington University that you had called up for advice when you were first trying to build the card reader.
And then at this point, he claims that he actually invented the reader, right?
His name was on the patent and –
And that you and Jack had gone off and spun out a different business and shut him out.
Yeah.
And this is going to be, this is going to last for about six years, this legal dispute.
There are probably things you can't talk about because it was eventually settled.
But clearly there's somebody you knew, right?
And maybe even had a friendship with at a certain point.
Oh, yeah.
He was a friend of mine.
If you want to know the real story, just get the first issue of Make Magazine.
It's publicly available.
It describes exactly what we were building.
And I knew that when I went to Bob.
Now what I didn't do which I probably should have done is say hey Bob, help me make this thing out of Make Magazine.
But Bob decided that it was his idea.
And in fairness to him and, you know, this is not a documentary show.
It's a one person interview.
So I always try to be respectful of people we talk about, even protect that person too, because they're not here to to defend themselves.
But from what I understand, he he claims it's his idea.
And this sets off a series of lawsuits back and forth for a while.
Was that was that stressful?
Was that like did that distract you?
I mean, what was stressful was he was a friend.
But I don't think anyone else in the company thought it was serious.
Well, I mean, you know, I think understandably, you know there was money raised by the company and maybe you know he thought he was a consultant and deserved some.
Anyway, he received a settlement and that was that.
But I think it took about six years.
Yeah, something like that.
Okay.
So that's sort of in the back.
But meantime you, in that time period, kind of step away from running operations day to day at Square.
I think by middle of 2010 already –
You feel like, okay, this thing's got legs.
I don't actually need to be an officer in the company.
I don't need to have direct reports.
Well, my son was born and it's pretty clear to me that I can't work a 14-hour day and maintain what I consider the duties of a decent father.
Plus, I wasn't particularly great at any of the things that I was responsible for.
I'm not a good accountant.
I can do it, but I'm not as good as a professional.
So we had professionals stepping in at every area that I was in.
I've stepped away from every company that I've started that's successful and left it to people who are better at running it than I am.
I mean just like a little over two years after Square's launched, it raises money at a billion-dollar valuation.
I mean, were you surprised by that momentum?
Or by that point, were you like, yeah, we've nailed this thing?
The moment Square became real to me was when I was in a taxi with my wife.
We were in the back of a taxi in New Orleans.
And the taxi driver is using Square.
And he's so excited about it because he can get paid with a credit card.
And he's telling me about it.
He's like, you got to see this thing.
It's the best thing in the world.
And he's pitching me my own product.
And he gets everything wrong.
He gets all this stuff wrong.
But he is so excited.
You could see how it was just this magic unlock for him in his taxi business.
And I turned to my wife.
I was like, hold on.
This thing's big.
When I saw the impact, that was that was the thing for me.
So, yeah, I guess it was surprising.
I will say this.
The billion dollar threshold is sort of a magic threshold.
And it was kind of cool to cross it.
And then none of the daily things change.
So I think you just ignored it.
Yeah.
Go forward.
So what did you once you left?
I mean, did you leave leave or were you still did you still have kind of a foot in at Square?
Were you still still on the board?
You know, I'm basically the voice of the merchant.
I am probably, of the board members, the most connected to people who get their hands dirty or, you know, bus tables or clean up after other people.
I don't I won't say why I'm there because that's not my choice.
They have asked me and I've stayed.
I love this company.
I think it's really exciting what we're doing and I like the fact That you know we've not just built Square, we've got Cash App.
We've got these two sort of magical ecosystems that are empowering a lot of people.
And now we're bringing them together, which is even cooler, you know.
So you got one that's consumer and one that's merchant, and that's really powerful.
Yeah, I mean, Jack is still the CEO of the company, like, you know, 15 years later.
I mean, clearly he likes that role.
I mean, he likes the operational side.
Yeah, clearly he's pretty good at it.
Do you guys talk regularly?
Not that regularly.
I mean, Jack's a little hard to find.
I guess you have to go to like an ashram in Tibet or something.
I am not allowed to tell you.
I don't know where Jack is right now.
I mean, I always liked my interactions with Jack.
It was fun because he's really smart.
Yeah.
And he's hard to get a laugh out of, but it's a really good laugh if you can get it.
Like he does have a sense of humor.
It's just sort of buried there.
And so I would always try to crack Jack up.
And it's wonderful to be with somebody who's quiet because ideas can percolate.
And I talk a lot, but I'm also deeply respectful of silence.
And Jack and I together had these really great conversations.
And, you know, he would sit there sometimes for a minute and then say something.
And I wouldn't interrupt during that minute.
Fascinating.
It was so much fun.
Yeah.
All right.
So you are on the board and Square is really growing.
And then 2014, Amazon decides to get into this game.
They decide to get into the payments processing business and really are going to undercut Square.
They're going to charge a lot less.
Yes.
They had a product that...
Was basically copied Square.
It was a reader that you plugged into a phone, but they had a cheaper, it was cheaper.
They had cheaper, yeah.
Right, because Square is free, but then if you want to have more features, it's more, but they were even charging less, like lower processing fees, I think.
Yes, yes, yes, they were cheaper.
Yeah, I mean, that's a race to the bottom at that point.
Well, yes.
I mean, if you think of credit card processing as a commodity, which I think most people would, I mean it's a logical thing to conclude that oh, these guys give me the exact same money in my bank, except these guys will charge me less for that money in my bank.
Why wouldn't I go with the lower cost alternative and the brand name on top of it?
I mean, Amazon's got the brand name and lower cost.
Why would you not use them?
I mean, that 2014 square is huge.
But I mean, Amazon, it's Amazon.
We're not huge.
We're a speck compared to Amazon.
Right.
Yeah.
And so what role did you play in sort of, you know, being involved in trying to I don't know batten the hatches?
Well, obviously, I was very concerned.
And the first thing I did was I looked for companies that had beaten Amazon while they were startups.
And I found none.
None.
Of the Amazon victims that I had spoken to and there were several most of them were still so traumatized and so scared that I'm not allowed to use any of their names.
Okay.
So that's how bad it is.
Step two was a pretty awkward board meeting where we said, well, what can we do?
It wasn't what we could do.
So we decided to not do anything.
Yeah, I mean the strategy.
Square's strategy was to essentially ignore Amazon when they released this product.
Yes.
They decided we're just not going to engage.
Like, what are you going to do?
Well, you could lower, you could have, like, tried to compete on price, right?
We could have started a price war, but we didn't have the balance sheet for that.
You would have lost so much money.
That would not have lasted long.
But the Amazon product failed.
Failed.
And it failed so badly that Amazon gave us all their soon-to-be former customers and mailed them a Square reader and said we're out, go to Square.
Why do you think that the Amazon product didn't work and Square was able to withstand that competition?
We were forced to invent something that had never been invented before.
And when you're forced to invent, you end up building all sorts of stuff that's not obvious.
And this is what I call an innovation stack.
But you end up doing a dozen things.
In our case, it was 14 things that I counted.
These things that you do because you have to, and you know that you have to.
But the only reason you know that is you've been forced to learn that because you are the guy who invented it.
And we were doing 14 things and Amazon copied about three of them.
And the other 11 killed them.
They didn't know what we did.
And they couldn't because they hadn't built it from the ground up.
They just copied it from, you know, a boardroom somewhere.
Oh, let's do what Square does.
We'll make some software, make a hardware device, undercut their price.
Yeah, it seems like it's going to work, but it turns out it's way more than that.
If you invent something truly new, you're not inventing one thing.
You're inventing a stack of things.
And that invention becomes its own protection.
And as long as you behave.
I mean, it turns out there are a bunch of rules that if you follow these rules, you can preserve that monopoly for as long as you want.
I mean, it is a really, really powerful defensive thing.
And it kept us alive against Amazon.
Jim, I know that there have been a bunch of different projects that you've worked on after you formally left day to day with Square.
You worked on this idea of like micropayments for journalism and a coding academy that you had.
And you were a director at the Fed, at the St.
Louis Fed for like six years.
Yep.
I mean, it seems like you are – you don't like to do the same thing for too long.
Well, yeah.
Look, I –
I have tremendous resources now, stuff that I was never expecting to have.
And my family and I live pretty modestly.
So what are we going to do with it?
And I mean, the answer is we're giving it away.
I'm giving the money away.
But I just go around and occasionally get attracted to problems.
I say, well, who but a person who could afford to take tremendous risk could solve this problem?
And that's.
I sort of see it as a responsibility I have right now to tackle certain problems that are unsolvable if you don't have the ability to to walk away from a giant buyout or to do something crazy.
What kind of problems are interesting to you?
Right now, my focus is drug testing.
So it turns out that on a planetary scale, we've got about 30 new drugs a year.
And it's because the test costs hundreds of millions of dollars.
So if you could lower the cost of a test from, let's say, 100 million to 10 million, you'd have a lot more tests.
You would have a lot more shots on Google.
You would do a lot more things that would save lives.
So I've looked at this world and I've found some what I think are very inefficient processes.
And since I'm completely ignorant when it comes to the world of drug testing, I am using my own money to basically demonstrate that we can do it cheaper and faster and better.
I mean, you are, what, 60?
60.
Yeah, turned 60 this year.
And so you've got, you know, a lot of life left in you, right?
Especially if these drugs work.
Exactly.
Keep going.
There may be a side benefit here, yeah.
I have a suspicion that this is not the last thing that you're going to start.
Like, is this something that you still just energizes you?
You want to get out of bed and start something new?
Absolutely.
I used to work for money.
But it's weird when money is not a motivation, there's no reason to stop.
Like it used to be, oh, I'll earn enough too.
And then I would say, oh, now I can take a break.
Now, since money is not the goal, then I don't have any natural thing to stop me from doing the next thing.
So I tend to do more.
Yeah.
If you had to – if you look at where you are in life –
How much of where you are now do you attribute to how hard you worked and your great ideas and your skill, and how much do you think has to do with luck?
I've been so lucky.
I've been the lucky – I don't know how lucky I am.
Like if I went to go back and relive my life, I don't know that I would change a thing, because I might not get the luck.
And even with stuff like mom's death, I mean –
As hard as it was, it made me.
Without that, I would not have, I don't know.
I'm enough a nerd that I read science fiction and time travel and all this stuff and the butterfly effect.
If I had a time machine, I wouldn't use it.
I wouldn't go touch a second of the past, even though I've made so many mistakes, even though I've lost people.
I wouldn't even use it to save my mom.
It's just too dangerous.
Maybe I tried to save mom.
That's Jimmy Kelvey, co-founder of Square.
Hey, thanks so much for listening to the show this week.
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This episode was produced by Alex Chung with music composed by Ramteen Arablui.
It was edited by Neva Grant with research help from Catherine Seifer.
Our engineers were Patrick Murray and Robert Rodriguez.
Our production staff also includes Casey Herman, Chris Massini, John Isabella, Sam Paulson, Carrie Thompson, Ramel Wood, Noor Gill and Elaine Coates.
I'm Guy Raz, and you've been listening to How I Built This.
