Becoming a true entrepreneur involves more than simply running a business. It requires identifying a problem that no one else has tackled and taking any necessary steps to solve it. This is exactly what Jim McKelvey did when he co-founded Square with Twitter CEO, Jack Dorsey. Their innovative card reader revolutionized payment processing and empowered small businesses that had previously been unable to accept credit cards. Through the creation of a powerful innovation stack, McKelvey was able to compete with even the most formidable competitor, Amazon. 


Problem-Solving and Innovation

To truly succeed, entrepreneurs need to identify a problem that no one else has tackled and take the necessary steps to solve it. This requires a unique approach and the ability to think outside the box.


In the competitive world of entrepreneurship, it’s not enough to simply run a business. The most successful entrepreneurs have a problem-solving mindset and are always on the lookout for ways to innovate and disrupt the status quo. By identifying problems that others have overlooked or deemed unsolvable, these entrepreneurs are able to create groundbreaking solutions that have the potential to transform entire industries.


One example of a successful problem-solver is Jim McKelvey, co-founder of Square, a mobile payment company that revolutionized the way small businesses accept credit card payments. Before Square, small businesses were losing out on revenue because they couldn’t accept credit cards. This was a problem that had been overlooked by the major payment processors, who focused their efforts on serving larger businesses.


McKelvey and his co-founder, Twitter CEO Jack Dorsey, saw an opportunity to solve this problem and level the playing field for small businesses. They developed an innovative card reader that could be plugged into a mobile device, allowing anyone to accept credit card payments. This groundbreaking solution not only empowered small businesses but also disrupted the payment processing industry, forcing major players to adapt and compete with the new technology.


But Square’s success wasn’t just about the card reader. It was also about the innovation stack that McKelvey and his team created. An innovation stack is a series of tools, technologies, and processes that work together to create a powerful platform for innovation. By combining various technologies and solutions, McKelvey was able to create a platform that was not only innovative but also scalable and adaptable, allowing Square to compete with even the most formidable competitors, like Amazon.


McKelvey’s story is just one example of how a problem-solving mindset and a willingness to take risks can lead to success in entrepreneurship. By identifying problems that others have overlooked and developing innovative solutions, entrepreneurs can create groundbreaking products and services that transform entire industries. And by creating a powerful innovation stack, they can build platforms that are not only innovative but also scalable and adaptable, setting themselves up for long-term success.


The Story of Square

Square, the payment processing company, was born out of what founder Jim McKelvey calls a “perfect problem.” In 2008, a customer interested in a glass spout could not make the purchase as McKelvey’s studio only accepted Mastercard and Visa, and the customer had an American Express card. This incident made McKelvey think about how many small businesses are unable to accept credit card payments due to the expensive and confusing registration process.


At the time, credit card payments were only legal for registered merchants, making it difficult for small business owners to accept card payments. McKelvey’s curiosity and passion for problem-solving led him to research credit card companies, uncovering a world of complexity and unfairness. He discovered that credit card vendors charged small businesses 1.8 cents on every dollar processed, while large corporations paid only 0.04 cents on every dollar processed.


This realization prompted McKelvey and Jack Dorsey to found Square in February 2009, with the aim of making payments accessible to all business owners. The name Square came from the term “square up,” meaning to settle a debt or make something fair. The company’s mission was to “square up” the world of credit cards and make payments accessible to everyone.


This story shows that perfect problems can lead to great innovations. McKelvey’s experience demonstrates the importance of being curious, persistent, and passionate about solving problems. In this case, a small annoyance became an opportunity for innovation that changed the way we make payments today. Perfect problems do not have to be significant challenges. It is the individual’s approach to the problem that can make it “perfect.”


Pitching with a Twist: How Square’s Creative Methods Secured Funding

Innovative pitching techniques allowed Square’s co-founders, Jack Dorsey and Jim McKelvey, to secure investments for their startup company. Six months into launching Square, the pair needed funding and decided to showcase a working prototype of a card reader that processed payments and plugged into an iPhone’s headset jack. However, they demonstrated the device in a very unexpected way. They asked potential investors for a credit card, swiped it using the card reader, and charged it between $1 and $40, depending on how much they liked the cardholder. This not only showed investors proof of the device’s functionality but also gave the co-founders some extra spending money.


Square’s pitch deck also included a slide called “140 Reasons Square Will Fail,” which highlighted all the risks and pitfalls that could affect the company. This was an unusual tactic, as most companies only focus on positive aspects and avoid discussing potential problems. However, this slide had a miraculous effect on investors, and one of them even called it the best pitch he had ever seen.


By using humor, the slide conveyed a serious message: the founders had considered every possible reason their company could fail and were not afraid to be transparent about these potential problems. This approach challenged the conventional “attack and defend” dynamic between founders and venture capitalists and put the co-founders on equal footing with investors.


Square’s innovative pitching techniques helped the company secure investments by grabbing potential investors’ attention and setting them apart from other start-ups. The co-founders’ willingness to discuss potential problems showed their confidence and transparency, which ultimately led to their success.


Startup Pitching


How Square’s Early Problems Led to a Game-Changing Payment Processing Solution

The story of Square’s early days is a lesson in the power of innovation in the face of seemingly insurmountable challenges. Despite encountering legal problems and other issues, the company’s founders, Jack Dorsey and Jim McKelvey, forged ahead with their vision of creating a simple, affordable payment processing system for small businesses.


Their first innovation was a straightforward pricing model that offered a flat 2.75% fee on all transactions, with no hidden costs or per-transaction fees. This helped establish trust and transparency in an industry that had long been opaque and confusing to small business owners.


However, this pricing model presented a new challenge – Square still had to pay transaction fees to the credit card networks, which meant that they were losing money on small transactions. To solve this problem, they needed to convince millions of merchants to use their payment system and generate a huge volume of larger transactions.


Overcoming this challenge led Square down a path of innovation, as they developed new features and tools to attract and retain merchants, such as inventory management and analytics tools. They also continued to simplify their pricing model and improve their hardware, with the introduction of the Square Reader and the Square Stand.


This process of solving one problem only to encounter new ones – and then innovating to solve those as well – is what McKelvey calls an “innovation stack.” In the case of Square, this stack of interlocking inventions transformed the payment processing industry, making it more accessible and affordable for small businesses than ever before.


The story of Square’s early days is a testament to the power of innovation and perseverance in the face of adversity. By staying true to their vision and constantly innovating to solve new problems, Dorsey and McKelvey were able to create a company that changed the way people think about payments – and paved the way for countless other startups to follow in their footsteps.

Examples of Innovation Stacks That Evolve Over Time

Innovation stacks are not preconceived plans but rather a series of problem-solving measures that emerge over time as a business struggles to survive. This concept is exemplified by the Wright brothers, who created the first airplane, and Square.


The Wright brothers had to invent many things from scratch because no one had ever flown a machine before. They needed a lightweight engine to turn propellers and to build these propellers themselves. They had to figure out how to steer the plane with a not-yet-invented yoke and develop a safe way to land. By the time they finished, they had created a massive innovation stack.


Similarly, Square’s founders were not initially trying to be innovative but rather trying to stay afloat. Their innovation stack consisted of 14 blocks, including simple design, low pricing, and cheap but beautiful hardware. Each block had to work in conjunction with the others, and the entire stack would fail if just one block was missing.


For example, Square’s low-prices block encouraged people to sign up for a trial period and fit well with the company’s mission to make it easy for small businesses to accept credit-card payments. However, low prices also required low costs just to break even, which Square managed by keeping its hardware cost dirt cheap. Through continual problem-solving, Square built a portable card reader that was ridiculously cheap yet had no catch and no strings attached. Customers could leave as they wanted, which was unheard of at the time.


In short, both the Wright brothers and Square innovated because they had to. They faced unfamiliar problems that required new solutions, and each new thing they created required its own invention. They built their innovation stacks through continual problem-solving, which allowed them to survive and thrive.


The Power of Sticking to Your Principles in Business

In the competitive world of business, there are powerful predators lurking around every corner, ready to steal customers and market share. For Square, their biggest threat came in the form of Amazon, a company with almost unlimited resources and a reputation for entering markets and dominating them. In 2014, Amazon copied Square’s card reader and made it better, threatening to ruin everything for the smaller company. However, Square managed to fend off the competition by sticking to its principles.


Square’s card reader was small and visually stunning, but lacked the functionality of Amazon’s machine. Instead of trying to compete with Amazon by changing its design or lowering its price, Square decided to do nothing. This was a risky move, but it ultimately paid off. By staying true to its core values, Square was able to stay ahead of the competition and eventually come out on top.


Square’s decision not to respond to Amazon’s copycat product was unusual, but it worked. Instead of compromising on its principles, Square kept doing what it did best and focused on delivering high-quality products to its customers. By sticking to its principles, Square was able to differentiate itself from the competition and build a loyal customer base that appreciated its commitment to design and functionality.


The Power of Innovation

McKelvey, was always searching for a mentor, a “true” entrepreneur who had built a successful and innovative business that revolutionized an aspect of the world. However, he found no one who fit the bill in today’s market, so he looked back in history and discovered the story of A.P. Giannini. In 1901, during a time when banking was primitive and unscrupulous, Giannini decided to open his own bank in San Francisco, the Bank of Italy.


Giannini revolutionized banking by focusing on the little man, considering small businessmen the most valuable clients a bank could have. He introduced branches, savings, checking, and small loans, making the world of finance accessible to hundreds of millions of people by building the first innovation stack. The Bank of Italy’s innovation stack consisted of two blocks. The first was a focus on the little man, and the second was opening banking to small businesswomen. When the Nineteenth Amendment gave women the right to vote, the Bank of Italy introduced the Women’s Banking Department, providing women with access to their own accounts without their husbands’ involvement.


The Bank of Italy’s innovation stack evolved through continuous invention, perseverance, and one man’s desire to square up the system. The bank eventually became the Bank of America, the largest bank in the world. McKelvey finally found his role model in Giannini, who created an innovation stack so powerful that it changed the world of banking forever.


Taking Action and Trying New Things is Key to Success

Many aspiring entrepreneurs feel they lack the necessary qualifications to start a new business. However, they may not realize that many successful innovators had no formal qualifications in their field. For entrepreneurs, expertise may be overrated, whereas in the world of copying, qualifications are essential.


If the goal is to iterate on an existing business idea, expertise in that field is valuable for copying and improving upon an existing product or service. However, for entrepreneurs, the key is to take action and try new things rather than being an expert at everything.


For example, Shake Shack’s success came from copying the menu of other restaurants and improving the packaging. The owner lacked originality in the menu, but made up for it with operations expertise and continuously devising strategies to bring Shake Shack to the top.


The founders of Square, McKelvey and Dorsey, had no financial expertise before launching their payments company, but they took the leap anyway. Six years after founding, Square went public on the New York Stock Exchange, and McKelvey met people he never dreamed of meeting, such as movie stars and MVPs.


Expertise may be useful when doing what everyone else is doing, but when it comes to doing something new, all entrepreneurs begin at the same level. What differentiates entrepreneurs from the rest of the world is their willingness to take action and try new things.


Creating an innovation stack requires stepping outside of your comfort zone and trying something unconventional, rather than making small changes to an existing business model. Solving a problem creates another problem in a chain of problem-solution-problem, which encourages continual innovation. Innovating is necessary because new problems arise from solutions.


To take actionable steps towards innovation, it’s important to lean into fear. Building a business is mentally challenging because the journey’s duration and outcome are uncertain. The voice in your head may tell you to quit to avoid failure. However, getting comfortable with discomfort and persevering has its rewards. While there may not be an end in sight, exploring the unknown is more exciting than remaining in a familiar environment.

Inspired by a book “The Innovation Stack”; Jim McKelvey


9 minutes read

What It Takes to Be a True Entrepreneur

In the competitive world of entrepreneurship, it's not enough to run a business - you must have a unique problem-solving approach and the ability to identify and tackle unaddressed issues to achieve success.