Transcript: Jim McKelvey



The transcript from this week’s, MiB: Jim McKelvey, Co-Founder of Square, is below.

You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.


BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, what can I say, a master class in entrepreneurship, technology, learning from your mistakes, building a wonderful brand and wonderful company. Jim McKelvey, he is the co-Founder of Square along with Jack Dorsey. They built an amazing company which is now publicly traded.

He has done a variety of really fascinating things and I think you will find our conversation quite intriguing. He is also the author of “The Innovation Stack: Building an Unbeatable Business One Crazy Idea at a Time.”

I have a decent number of authors pitch me on coming up on the podcast and for the most part, I find a lot of the books little tedious and tough to plow through. And so, you don’t hear those folks. The folks I bring, the books tend to be more interesting.

I found this to be a really amusing, well-written and fascinating book not just about his experiences at Square but Jim went back and said, why did Square win when there was so many forces aligned against us, including behemoth Amazon. And so, he put in the research and said, let’s figure out what we did right and see if there are lessons to be shared with the world, and that’s what this book is about. You’re going to find this conversation to be absolutely fascinating.

So, with no further ado, my conversation with Jim McKelvey.

VOICEOVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: My extra special guest this week is Jim McKelvey. He co-Founder of Square along with his colleague Jack Dorsey. He is an Independent Director at the Federal Reserve Bank in St. Louis. He is also the author of a book “The Innovation Stack: Building an Unbeatable Business One Crazy Idea at a Time.” Jim McKelvey, welcome to Bloomberg.

JIM MCKELVEY, COFOUNDER, SQUARE: Thank you, Barry. Actually, I’m now the Chair of the St. Louis Fed which is …

RITHOLTZ: You are the chair but not that the president.

MCKELVEY: … terrifying. Not the president. No.


MCKELVEY: I don’t get the vote on that interest rate. I get to vote on the little interest rate.

RITHOLTZ: That’s fascinating. We’ll talk about that in a bit. But let’s start out with your background and I have to begin by asking you a question, what’s the difference between an entrepreneur and a business person

MCKELVEY: These days, nothing because the word is the same. But originally, the word entrepreneur meant somebody in business who was doing something different, very different. So, we’re talking about the Wright brothers trying to build the first airplane or somebody who you thought was crazy.

These days, entrepreneur has sort of lost that original meaning and it means just anybody who starts a business. But the problem with that is that you can’t then talk about how different it is to do something where you’re not copying what everybody else is doing and try to invent something yourself.

RITHOLTZ: So, let’s say with that theme because if I were to go to Jim on your site, there is a big banner that says, “Do something that has never been done.” Explain what you mean by that.

MCKELVEY: Yes. So, there’s a lot of talk about how we like to be innovative and how we like to be creative and people are supposed to like that and I’ve never been comfortable doing that although I’ve done it occasionally and I wanted to address the fact that it’s actually really scary to do something where you don’t have any peers, where you don’t have any validation, where you don’t have anybody else when you look around and say, well, they’re doing it, too, so it must be sort of OK.

If you’re doing entrepreneurship in its classical definition, you’re doing something that is going to be very, very scary to you on almost a biological level because humans are herd animals. We like to be in a group.

RITHOLTZ: Right. It’s — I was a big fan of “Mutual of Omaha’s Wild Kingdom.”


RITHOLTZ: There was always that shot of the herd of whoever, gazelle, zebra that one zebra on the outskirts of …

MCKELVEY: Always felt so bad. Yes.

RITHOLTZ: … that you know what happens next, right?

MCKELVEY: That was me. I was that — I was always that kid. Yes.

RITHOLTZ: Away from the herd and …


RITHOLTZ: … lunch for the lions.

MCKELVEY: Yes. Yes. That describes my schooling.

RITHOLTZ: So, that raises a lot of really interesting questions beginning with why is Silicon’s focus on disruption so misguided?

MCKELVEY: I think looking at disruption, which is this term that we really use to death in Silicon Valley, is it’s a bad focus because if you’re looking to disrupt, it puts your eye on the thing you’re trying to disrupt. So, we’re going to disrupt healthcare. OK. Yes. I — there’s a lot of stuff wrong with healthcare, what do you want to disrupt?

But if you spend your time looking at what you want to destroy, it triggers that copying function in your head that says, I should do this, I should do that, and you start becoming indoctrinated into the thing that you’re trying to destroy. And so, I believe you should kind of ignore the thing that you are replacing and just focus on the problem that you’re trying to solve.

And then you get this sort of weird thing because Square, which we now call Block, is – has always been called a very disruptive company but I actually ran the numbers on the number of companies that we wiped out.

RITHOLTZ: Right. American Express, Visa.

MCKELVEY: Yes. They’re all bigger.

RITHOLTZ: MasterCard, right? You killed all of them, right?

MCKELVEY: We haven’t disrupted anything. Like we knocked a few ISOs into sort of more honestly pricing their products but even they are still around. I mean, we didn’t destroy much. What we did instead was we created a new market.

RITHOLTZ: And we’re going to talk a lot about Square coming up. But let — here’s another quote of yours that I really enjoyed, “Chaos is a good thing.” Explain.

MCKELVEY: Yes. So, chaos is where you get new ideas. Chaos is that — it’s this moment that would put your brain into a different form of thinking. So, if you got — if you’re — if you’re pattern match, which we’re all pattern matches, and you see these patterns and you don’t think. You do the things automatically. You go through most of life on autopilot as you should

But occasionally, something goes wrong and it’s weird and things are not working like they should be and that put your brain into this different state. And so, I say chaos because it’s a little scary to think of chaos but it’s also a very good creative place.

RITHOLTZ: That makes a lot of sense. One more — one more quote.

MCKELVEY: Thank you for reading the book. I mean, I have to say this, you, as an interviewer, have prepare really, really well for this.

RITHOLTZ: Can I tell you something? And I shouldn’t say this out loud because I’m kind of revealing my secret sauce. We do a lot of prep when people show up for an interview and my thought process is how often am I going to get a Jim McKelvey sitting in front of me for 90 minutes. I’m not just going to walk in and coast, I have to do my homework. And I am genuinely shocked that that is this exclusive market niche.

MCKELVEY: It’s — it’s — it makes you special. I hate to explain to the audience but a lot of people who has interviewed me about the book haven’t read the whole book and — or they got CliffNotes or something.

RITHOLTZ: I appreciate you appreciate the work. Let me give you one other quote of yours, “Reward loyal customers now or risk losing them.” Tell us what that means and then I’ll share an anecdote.

MCKELVEY: So, there’s a different pricing power you have if you have an innovation stack. So, my book sort of focuses on this world of entrepreneurial companies that build these things called innovation stacks. We can get into that detail later.

RITHOLTZ: We will. We will.

MCKELVEY: But the idea here is that if you have one of these things, you have amazing pricing power. You have extremely low cost. You effectively have customers that are willing to do things differently just to experience your products and this allows you a massive amount of pricing flexibility.

And I ran the math and it’s actually better for you to keep your prices absurdly low by normal sort of MBA calculations and if you under charge the market, you will actually maximize revenue.

RITHOLTZ: That’s really — that’s really kind of interesting. So, I used to have the Starbucks app on my phone and every day in the way into the office, this is pre-pandemic, I would swing by Starbucks even though we had a coffee maker in the office and pick up their egg white and turkey bacon sandwich and Starbucks flat white and I would go to my office.

And then they stopped, they like had less and less of this in stock, was hit or miss whether they had it and then the pandemic hits and they converted their Starbucks points and then I get an email from Starbucks telling me that despite the pandemic and everybody stuck at home, use it or lose it, your points, which used to last forever, if you don’t use them by May 11th, they’re going away. And I got really annoyed at that and then …

MCKELVEY: You should.

RITHOLTZ: And then out comes the story that Starbucks has this $3 billion float because if you have the app on your phone and it gets refilled with your credit card, 50 bucks or 25 bucks every time it runs down, multiply that by a million Starbucks customers, they’re sitting on $3 billion, $4 billion. That was pretty much the last straw for me. That and the — I don’t care about the float.


RITHOLTZ: But wait, you’re sitting with all this money and you have to take our already reduced points? I’m done with you. And P.S., the same time I’m getting emails from Delta, your Silver Medallion status …

MCKELVEY: Absolutely.

RITHOLTZ: …is fine, don’t worry about it, we’re going to roll it over for a year, you’re good, and I’m like that’s the right way to retain a customer.

MCKELVEY: And even more insidious than that is the fact that when you are in a panic state yourself, when you’re in chaos, when you — when something disrupted like you just had the world shut down because of COVID.

RITHOLTZ: Right. Right.

MCKELVEY: You are in a heightened state of — of — of imprintability. So, in other words, if Starbucks does you a service at that moment, if they help you out, if they say, we’re going to …

RITHOLTZ: Stays with you.


RITHOLTZ: Stays with you.

MCKELVEY: Then they got a customer for life. Conversely, if it’s at the moment they choose to jab their thumb in your eye, then you’re going to hate them and you’re going to go on air and hate them and …

RITHOLTZ: Shocking.


RITHOLTZ: It was a Starbucks in the lobby of our old office building.


RITHOLTZ: And I was a regular there and I like strong coffee so I used to defend them against people who like, yes, I prefer Dunkin’ Donuts. That’s because you’re — drink some coffee that puts a little hair on your chest.


RITHOLTZ: But this — by the way, a hundred Starbucks points, what is it?

MCKELVEY: Who cares?

RITHOLTZ: Coffee, it’s — the cost of it is so meaningless but the thought process behind it was up yours and I was like, no, up yours, I’m the — I was spending, I don’t know, 500 bucks a year on Starbucks.

MCKELVEY: And you can get coffee elsewhere.

RITHOLTZ: I can and do and I will occasionally get Starbucks but I am no longer a regular.

MCKELVEY: It probably doesn’t taste as good anymore either.

RITHOLTZ: No. It’s still — it’s still pretty good coffee. The question that I’m curious about …


RITHOLTZ: … am I just on real cost and the only person who got angry with that?


RITHOLTZ: What percentage of people who said, wait, you’re taking my points away?

MCKELVEY: You are — so there’s a calculation that you make if you’re strictly looking at spreadsheets and you say, well, they got $3 billion for the float and our stores are kind of closing and we need a little bridge and we need — they — they — they make some sort of cold calculating decision.


MCKELVEY: That sort of looks good on the spreadsheet. What they forget is how impactful that is during the crisis on the psychology of their customers and those people remember forever and that’s just a terrible moment to do anything against your customers. It’s also a wonderful moment to do something for your customers.


MCKELVEY: So, if they had a way to do what Delta did and be positive …

RITHOLTZ: By the way, same exact circumstances.

MCKELVEY: It’s same — yes.

RITHOLTZ: No one is flying, nobody’s going to Starbucks, your points at both are just sitting there.

MCKELVEY: Yes. And Delta is probably worst-case, right?

RITHOLTZ: Yes. So, Delta said, hey, we’re good. We’re going to roll your flight status over to 2021 and any canceled flights, you get a lifetime credit, you could use them in the future, don’t worry about it.

MCKELVEY: Fly Delta, baby.

RITHOLTZ: And now, good luck getting me on a different — something besides Delta.

MCKELVEY: Yes. I expect to see on a Delta flight holding a can of or cup of Peet’s coffee.

RITHOLTZ: So, anyway, we digress and your points happens to be I digress is when you have an opportunity to delight a customer, what would you do?

MCKELVEY: So, the interesting thing here is I was studying trying to figure out why the math was different for companies with innovation stack and this is really sort of personal to me because I was very focused on having some sort of theoretical basis for the stuff that I was saying. And what I did was I found this perfect case study, which was Southwest Airlines.

Southwest Airlines had tremendous pricing power and during the Herb Kelleher years …

RITHOLTZ: Who was one of the founders and original CEO.

MCKELVEY: Yes. He was one of the founders, a legend, and Herb kept the prices low and the he left and Southwest Airlines raised their prices.


MCKELVEY: So, it was this perfect case study of this company that had an innovation stack and then all of a sudden started messing with the math. They made a lot more money right after Herb left for a few years.


MCKELVEY: Since that time, five new competitor airlines, like complete new airlines that would have totally died if Herb was at the helm are now competing with Southwest.

RITHOLTZ: That makes a lot of sense and P.S., Southwest was always a pain in the butt but they were very cheap because you had no assigned seats.


RITHOLTZ: You have to get up. You have to wait on line. I am a former, to your point, former Southwest flyer …

MCKELVEY: Me, too.

RITHOLTZ: … because I just don’t have the tolerance for the headache and it’s not diskounted enough, uphill a little more for Delta and feel like …


RITHOLTZ: … I’m getting a better experience and not feel like cattle boarding an airline.


RITHOLTZ: So, all right. Enough endorsing Delta and trashing Southwest and Starbucks. So, let’s talk a little bit about your business background. Turns out that you were — you were doing something with CD-ROMs and somebody you knew said, hey, I have a kid who’s good with computers, and you hired this kid as an intern. Tell us about that.

MCKELVEY: That’s a software company. This was in the late ’80s, about ’89, 1990. I guess it — this would have been about ’92 but back then, my company Mira was in a desperate situation. We had just screwed up this disk that had to go out and we were hiring everybody and the lady who sold us chocolate-covered espresso beans, her name was Marci Dorsey and her son Jack Dorsey came to work for us when he was 15.

He showed up in his bicycle. He pulled an all-nighter with us the first night at his first real job.


MCKELVEY: And he became a cherished part of the team from then. I called him Jack, The Genius when he was 16. This used to embarrass him but now he’s sort of grown used to it.

RITHOLTZ: A 15-year-old pulls an all-nighter, that’s a lot of chocolate-covered espresso beans.

MCKELVEY: Well, Ritalin wasn’t commonly available back then.

RITHOLTZ: The latest today is candy.

MCKELVEY: Hey, you can have about — you can have — shake any kid a couple of (inaudible).

RITHOLTZ: Right. Right. So, you start working with him for this company. Eventually, you decide to bolt because the company was not doing what you wanted it to do anymore and tell us about that.

MCKELVEY: I’m a terrible leader. I don’t direct the troops well and they sometimes don’t follow me. And I saw the Internet coming. The Internet was going to wipe out our product which was an Internet-based tradeshow disk. It had all the stuff that the brochures and stuff in a tradeshow and in fact, (inaudible).

RITHOLTZ: The disk replaced all those bags of paper that people carry around.

MCKELVEY: Yes. Yes. Get rid of the bags of paper, have a disk. It made a ton of sense in the early ’90s and it was going to get wiped out when websites were coming along. And I saw this and I said to the troops, hey, let’s stop making disks and start making websites, and they were like, yes, sure, Jim we’ll do it.

But they didn’t — they didn’t follow me. None of them — none of them would listen to me except this 15-year-old. So, Jack and I went off by ourselves that we basically created a new company and that company still runs today. It’s amazing that 30 years later, what Jack built is still running.

RITHOLTZ: Wow. And you said he was a really good coder, he knew exactly what he was doing.

MCKELVEY: Good code and good guy. I mean, he was a lot of fun and we got on famously and after he was showing the door of Twitter the first time, he asked me if I wanted to start the company with him. So, I got sort of paid back 20 years later when he said, hey, Jim, let’s do something together again. I was like, cool, what do you want to do?

RITHOLTZ: And that’s really an interesting story because, and you described this very nicely in the book, as you’re telling the story of we’re trying to think about what to do, it wasn’t like we have an idea, let’s build a company, it’s, we want to build a company, let’s find an idea that resonates with both of us. At that time, you were doing glassblowing.


RITHOLTZ: And you have some nice products and you have some products that are kind of ugly.

MCKELVEY: I have a lot of them.

RITHOLTZ: But you shuffled off to the side and prays someone comes along and takes the inventory off your hand, a client wanted to buy an ugly piece of glass via an AMEX and you couldn’t accommodate her. Tell us about what happened.

MCKELVEY: Yes. So, the dirty little secret about art is that a lot of artists make stuff they’re not proud of and we don’t signal it in the price. So, you look at my stuff and I’ve learned very, very early to charge the same if I hate it or like it. And this was a piece I hated and for good reason, I think. It was ugly.

But this lady wanted to take it off my hands. It was like $2,000 piece of glass and she tried to pay me with an AMEX card and I couldn’t complete the sale because I couldn’t — she didn’t have a Visa card, she didn’t have a MasterCard.

And so, I lost the sale. I was really upset. And I called Jack on my iPhone and I said, hey, man, I know what we ought to do, I said, we ought to build a system so that I can take a payment on my iPhone. And Jack got quiet for a second and he said, that’s interesting, and that’s how Square started.

RITHOLTZ: So, now, you guys want to launch this company. You designed the hardware. Do you have any background in hardware design or hard reading or software?

MCKELVEY: No. I don’t have any — well, I have a background in software but it it turns out of the — between the two of us, Jack and me, he’s a much, much better programmer than I am. So, it was pretty much Jack leading the software effort and me doing everything else because there was so much software work to do that I was trying to keep all the other stuff away from him.

So, I was dealing with the business licenses. I was buying office furniture. I also got into an argument with Jack about how we were going to get the credit card read. So, his attitude was we’ll build some software that will take a photo of the card and we’ll just use the photo, and I thought …

RITHOLTZ: OCR to convert the …


RITHOLTZ: Got you.

MCKELVEY: So, it turns out if know the subtleties of credit cards, that actually cost more and that’s called a card- not-present transaction and cost you more and I thought, no, no, we want to get card present rates, which means we need to make read the magstripe. And so, I had this idea for a little magstripe reader. It was actually an idea that I got out of Make magazine. Make magazine had this like hacker’s story about some guy who turned his mobile phone into a credit card reader and I was like, we can do the same thing.

So, we took this idea and I went to my studio and I started building a credit card reader. So, I basically built the hardware before Jack get the software working. It was sort of a race.

RITHOLTZ: So, the hardware, in its original form, is a square with the tape reader on the inside?


RITHOLTZ: And the plug to go into the headphone jack of the iPhone.

MCKELVEY: Yes. Yes. So, in its original form …

RITHOLTZ: Bigger than a square though.

MCKELVEY: Yes. It was — it was — it was sort of a rectangle and it was made — the first one I made small. So, I had a couple of big prototypes. The first one I made small was for a demo with Steve Jobs.


MCKELVEY: And I got — I was — we were terrified because Steve was a legendary …

RITHOLTZ: Little intimidating.

MCKELVEY: Yes. Yes. And especially if you’re the hardware guy because Steve is a design zealot.


MCKELVEY: And if you make something ugly, he won’t touch it. And even getting a meeting with Steve Jobs was a big deal because nobody — like Steve was pretty sick at this time and he didn’t take too many meetings but we had a meeting scheduled and I was the guy that had to make the hardware.

So, I was terrified and I went into — do what a good person does which is steal ideas from better people. So, I went in to Steve’s Apple Store, I went into the Apple Store and I started looking all the stuff that he was building and I saw all the computers were made of aluminum and I think, well, Steve likes aluminum. So, I made the first square reader out of a solid block of aluminum forgetting, of course, engineering 101 that aluminum is conductive and that this basically, when I hooked it up, turned our card reader into a cardio reader. It was basically turned into a heart monitor.

And actually, your boss, so, Mike Bloomberg was the very first guy to see that because Jack had a demo with Mike back when Mike was the mayor in New York and Mike was trying to get the Square open a New York office and he — Mike was the first person to see that aluminum reader.

RITHOLTZ: No kidding.

MCKELVEY: Yes. It was a disaster.

RITHOLTZ: So, how did you go from aluminum to the little plastics?

MCKELVEY: Well, it didn’t work. I mean, the aluminum reader if you touch it with your finger would short out.


MCKELVEY: So, you’d have to swipe without touching. So, I switched to plastic immediately thereafter and then we built a square reader and it’s been square ever since.

RITHOLTZ: I got to imagine it’s easier to work the electronics and wiring in plastic than it is in aluminum anyway.

MCKELVEY: It was a little bit. But, I mean, basically, casing is a casing. The hard part is getting all the stuff miniaturizing in the reader and getting that spring and resistors. I mean, there’s a lot of — we jammed a lot of stuff in there.

RITHOLTZ: So, the meeting with Jobs was with the plastic square, is that right?

MCKELVEY: The meeting with Jobs got canceled.


MCKELVEY: It got cancelled because Steve got sick.



RITHOLTZ: So, that’s amazing. So, one of things I found fascinating was the discussion about credit card companies and how they disadvantaged small businesses. How is it possible that they’re charging small businesses 40 times as much as they’re charging large businesses to process their credit cards? That’s just an absurd number.

MCKELVEY: So, it’s amazing. When I discovered that — actually, I discovered that information on the first day of research because I was looking — I was following the money trying to figure out where the — where the money was being made and it turns out a small business account makes 45 times more profit than a billion-dollar company like Starbucks or Wal-Mart


MCKELVEY: And this is in terms of the fees that are paid by the merchant and I thought, well, that can’t be. Like that you can’t — it can’t be — it can’t be 45 to one …

RITHOLTZ: So, just profit relative to the total transaction.

MCKELVEY: Yes. So, it turns out that it’s really expensive to be poor. You may have heard that …

RITHOLTZ: I’d learned that growing up.

MCKELVEY: Yes. Yes. I mean, like if you don’t have enough money, like diapers cost 10 times as much if you’re poor and have to buy them (inaudible) at a dollar store than if you can buy a bulk at Sam’s Club or something.

RITHOLTZ: There was a couple stories right after the financial crisis about these businesses and families that could not afford to go bankrupt, which is an expensive legal proceeding.

MCKELVEY: Yes. Yes. Yes.

RITHOLTZ: If you don’t have enough assets, you just walk away and let the business sort of wither on the vine. You can afford to discharge your debts in bank.

MCKELVEY: Yes. It’s — it’s – it’s really — it was eye opening. I mean, I sort of knew this because I sort of live this because I have a lot of friends who are artists and I was an artist and you live with marginal credit and weird …


MCKELVEY: … like guys sleeping in the back of their cars and stuff like that. So, I was familiar with it but what I didn’t understand was how pervasive this was and how powerless small merchants were. And what Square did was we basically said, OK, we’re powerless individually but if we get a million of them together, I bet we got some power, and that’s eventually what we did.

RITHOLTZ: So, what else did you find about the credit card industry when you looked under the hood? What else struck you as unfair or outrageous?

MCKELVEY: One of the things was the way credit card systems were sold. So, they were sold on these three-year contracts typically where you would be lied to and I was personally a recipient of this behavior. Somebody would show up in my glass studio and they would say, hey, what are you paying for credit cards like, I don’t know, I can’t tell what they’re charging, bills are too confusing, and he goes, let me take a look, and he’d come back and say, hey, guess what, kid, we can save you money.

And so, I know we sign up with them and it took me a couple of cycles to realize what was going on. They would always say they save me money and it would never be any better. And the reason was, first of all, the system is unnecessarily complex and second …

RITHOLTZ: That’s a feature, not a bug. It’s by design, right?

MCKELVEY: It’s by design because if it’s so complex, you stop the argument. What page on these 42 pages are you arguing with? So, if you don’t understand something, you can’t really argue against it. And secondly, the system is so …

RITHOLTZ: There’s a line in the book that you wrote that struck me while you’re processing that thought which was how bad does an industry have to be that it turns into a checkmark, how much lying must you have, where is the checkmark where there may be material misrepresentation which you will not hold against us within their boilerplate.

MCKELVEY: Yes. So, when we went to cancel our first merchant account, I had to fax in a form to cancel the account and one of the checkboxes on the form was to say, why do you cancel the account, and one of the answers was misrepresentation, which is a fancy word for lying.

RITHOLTZ: Right. Right.

MCKELVEY: And the court word, yes, think about how bad an industry has to be before lying becomes a box on that — that you checked, like we don’t want to make our customers write out the fact that we’ve been lying to them, it’s just part of the form. And I put the form in the book like it’s so appalling.

Look, the abuses small merchants were receiving was similar to all small groups. Like if you are small and powerless, there’s somebody who’s going to prey on you and they’re going to prey on you to the extent that the economy allows them to. I mean, that’s capitalism, that’s …

RITHOLTZ: Up until the point where someone else spots an opportunity and says, hey, we could do this faster, cheaper, better and make it much less onerous with the small business person.

MCKELVEY: Yes. And that’s eventually what happens, hopefully, I mean, that’s hopefully what happens. But what happened to credit card reader is the same thing that happened to travel, it’s the same thing that happened to banking customers, I mean, they’re example after example after example of people who are sort of collectively powerful but individually powerless.

RITHOLTZ: So, let’s talk about collectively powerful. It turns out that you are little niche that become successful enough that it attracted some unwanted imperial attention from Bezos and company. What was it like when you realized that suddenly the juggernaut, that is Amazon, was coming after your business?

MCKELVEY: So, Amazon decided they wanted to take our market away.

RITHOLTZ: To be fair, your square is white and their square was black.


RITHOLTZ: That’s very different.

MCKELVEY: Yes. A black rectangle. They did do that bit of originality. It was chilling. It was very — it was absolutely terrifying. It was one of those moments where your hands tingle, at least my hands tingled because how do you fight Amazon. Like when Amazon attacks a startup, the startup dies.

RITHOLTZ: You described it in terms from the “Godfather” as discovering the horse head, only they mailed it to you in a box with a smile on it.

MCKELVEY: They mailed us a horse head with free two-day shipping. Yes. It was terrifying and then, of course, once the terror wave passes, then the question is what do you do, what are we going to do, what are we going to do. And so, we asked these questions, we asked them at the board, we asked them at the office and we’re asking these questions of how do you fight Amazon


MCKELVEY: And the first question — the first answer we looked at was, well, let’s find somebody else who’s beaten, let’s find a startup who survived.

RITHOLTZ: Good luck with that.

MCKELVEY: There are none. Yes. They don’t exist.

RITHOLTZ: And at that time, you guys weren’t engaged in rapid growth. You didn’t even have time to think about them. You’re so busy just dealing with all the new clients and new revenue. How much — how much headspace — how much rent free space was Jeff Bezos taking in your head or were you just too busy …

MCKELVEY: It was almost zero


MCKELVEY: We looked at what we could do. There was very little we could do. I mean, we couldn’t build a brand like Amazon.


MCKELVEY: We couldn’t actually even match their price because their price …

RITHOLTZ: They had to cut you 30 percent.

MCKELVEY: They had to cut us 30 percent which what they always seem to do but we ran the numbers and we would be losing — like our margins were so slim that if we cut our margin by 30 percent, we’d be underwater on everything.


MCKELVEY: And so, I was like, well, that’s just death in another form so why go down that way. So, we didn’t do anything. We basically ignored Amazon.

RITHOLTZ: And what happened?

MCKELVEY: Amazingly, after a year, they gave up and they — I got to say something nice about Amazon, when they gave up, they decided to mail a Square Reader all their customers.

RITHOLTZ: Now, why would they want to do that? That’s kind of a fascinating coda to one of the four Horsemen of the Apocalypse, stampeding into your living room …


RITHOLTZ: … why send the Square Reader to everybody.

MCKELVEY: Well, it’s because they wanted to take care of their customers. Amazon always has that, I’ve heard, empty seat at the table that represents the customer at the meeting and I believe, I hope this is the reason, that they thought we were the best solution for their customers and they said, here, we’re not there for you anymore but Square is.

RITHOLTZ: That’s amazing. So, you’re one of the few startups to have beaten Amazon. Have you ever spoken with Bezos about this?

MCKELVEY: No. No. I have not. I’ve — I did meet — we hired a few people that used to work for him and I got the back story on it and …

RITHOLTZ: Choose smaller market not big enough margin for them …

MCKELVEY: They were getting (inaudible).


MCKELVEY: They were getting (inaudible). Yes.

RITHOLTZ: You would think that small businesses and a startup that’s solving a problem might have a little bit of loyalty to you.

MCKELVEY: Well, they would — look, Amazon was expected to win that battle and this is the thing that made me write the book because I couldn’t answer the question. So, we won and I was happy. And then after the happiness sort of subsided, then I was just confused like, wait a second, we won but why, like why are we here, what — what — what in the world happened.

And so, it took me two years of research to figure out that there was actually this pattern, this thing that we did that wasn’t that commonplace but, boy, if you do it this way, you can even survive an attack by Amazon. And that’s what led to the innovation — led all the research, like that’s the thing that led me actually to the research and then, I mean, the reason I wrote the book honestly is because Herb Kelleher, whom I was interviewing to sort of complete my research, basically — he said, well, how are you going to share this with the world, and I was like, my God, I just got a homework assignment from one of my — from one of my idols. It was weird. Herb was like, what are you going to do about this, and I was like, God.

RITHOLTZ: That’s really quite amazing. So, you’re now no longer CEO but you’re still on the board.


RITHOLTZ: How did you come to realize …

MCKELVEY: So, I was never CEO, I was Chairman.

RITHOLTZ: You’re chairman.

MCKELVEY: Jack — so, from day one, Jack wants to be CEO and I didn’t. So, that was a quick …

RITHOLTZ: But you had a lot of operational …


RITHOLTZ: … responsibilities.

MCKELVEY: I was doing all the stuff that Jack wasn’t, which was like most of the stuff besides software.

RITHOLTZ: When did you realize it was time to relinquish certain responsibilities and step back and say, let me led a new group coming in and take over running the day to day?

MCKELVEY: In my case, I was doing about a dozen things and I eventually got somebody who was better than me at all those dozen things.

RITHOLTZ: You just delegated your way out of work.

MCKELVEY: I always assume that I’m mediocre at what I’m doing and I will always try to find somebody who’s better than me.

RITHOLTZ: I like that.

MCKELVEY: Well, it’s been true. I mean, I’ve been pretty mediocre but I’m fast. So, I’m — like in a startup situation, I will get things done very, very quickly and OK but I will — I will very quickly give that control to whomever is better and can prove it. And in my case, there were about 20 things to hand over and when those things were handed over that also happened to coincide with the birth of my son and people at the office are working 12, 14-hour days and if I continued that, I would probably be divorced right now and I just didn’t — I didn’t want to be the guy who was showing up eight hours a day when everyone else was putting in 12.


MCKELVEY: So, it’s better at that point for me to step back. But really, I was not necessary at that point. I mean, I’ve done what I needed to do.

RITHOLTZ: That’s really — that’s really interesting. And to put a little coda on what you did, your card reader design was inducted to the Museum of Modern Arts Pantheon of great designs back in 2011. That had to be pretty satisfying considering you’re not exactly a hardware designer, you’re a glassblower.

MCKELVEY: Yes. As a guy who did art for 20 years, it was sort of flattering and insulting at the same time, right? Like they didn’t take any of my glass but they took this little piece of plastic that read a credit card.

I mean, look, I’m an engineer by training. So, I got — I mean, I can remember — I’m a technologist and a guy who builds things. But I also sort of like art and I was — I was flattered but also sort of insulted.

RITHOLTZ: Quite interesting. So, Jim, I really enjoyed the book. A lot of — a lot of business books can be a little staid and dry. This is funny and acerbic and you seem to be having fun writing it. What was the process like putting all these ideas down on paper?

MCKELVEY: I had fun rewriting it. It went through its eight — it went through eight drafts. The first five drafts were graphic novels. So, I thought the — I hate business books. Theye boring. They put me to sleep.

RITHOLTZ: They can be. Yes.

MCKELVEY: I think most of them are terrible and I didn’t want to write one even though Herb Kelleher, who was one of my idols, basically assigned me a homework assignment, I thought, well, I’m just going to do it as graphic novel. I’m going to make this fun because it turns out that the stories that I tell in the book are actually — they lend themselves to pen and ink. There’s the destruction of a major city and murder and not seasoned. It’s like there’s a lot of stuff blowing up.

RITHOLTZ: Fun stuff.

MCKELVEY: Yes. I mean, it’s like — and it seemed to me like it would be a better comic book and I wrote the drafts as a comic book and then I showed it to Herb and he hated it.


MCKELVEY: He hated it and I was …

RITHOLTZ: He’s kind of old school …

MCKELVEY: But he’s got a great sense of humor. He has a legendary — legendarily funny great sense of humor. I was expecting he was going to love it and I was so crestfallen when he said, Jim, if you’re going to do it that way, leave me out.

RITHOLTZ: Really? Wow.

MCKELVEY: And I have to credit him for this, there’s one — Herb, first of all, didn’t want to be portrayed as a cartoon superhero, OK, and here’s the thing, here’s why Herb is so much smarter than I am, it is because if you tell a story as a graphic novel in pen and ink, you’re telling a hero story and superheroes are different from you and me.

The whole purpose of my book is to say, look, what makes these super successful companies and super successful founders is not some superpower that the founders have, it’s this superpower that anyone can access and it’s really a story for the everyman and Herb stopped me from making a giant, giant mistake although I did.

If you go to, I did put some of the graphic novel that I did on – so you can just download for free. It’s a comic book but it’s not about Herb. But, yes, I don’t think you should have to — so, here, look, here’s the thing, Barry, the reason I wrote the book is because if you’re in business or in life, you’re going to occasionally run up against this line where humanity has not figured out how to solve this problem that you’re looking at and on the other side of that line, there’s no crowd, there’s no herd, there’s no safety in numbers and you are going to feel if you step across that line terrified.

You’re going to feel fear. You’re going to feel all these things. You’re not a superhero for stepping across that line. You’re just that scared gazelle.

RITHOLTZ: You’ve left the safety of the herd.

MCKELVEY: And you’re terrified, OK. Imagine what’s like to be that gazelle. I mean, I see those documentaries and I almost cry because like that was me in grade school and most of high school. It’s just terrifying.

But unless we get people to step across that line occasionally, I’m not saying live across that line, I was like being bold or any crap like that. I’m saying, look, a couple times in your life when you run up to the edge of what people had figured out, you can choose to step across that line and maybe solve the problem, maybe. I think you’re not necessarily going to solve it but maybe. You got a chance and I want more people to do that.

And so, that’s not a superhero story. So, Herb Kelleher, I wish he was still alive because I wish he got to see the final copy of the book because there’s not a cartoon in it and it talks about the everyman. It talks about this power that we can all have as scared humans.

RITHOLTZ: So, let’s talk a little bit about that before we get to what the innovation stack is. I want to ask you copying, perseverance, audacity, tell us about that combination.

MCKELVEY: Yes. So, perseverance and audacity, so, we all talk about grit and perseverance and how perseverance is really — this — this — this laudable thing. You should stick with it. Don’t give up. Don’t quit. And I’m kind of a quitter except in certain circumstances and I’m not a quitter when I feel threatened, when I’m terrified, when I’m that gazelle that’s out of herd.


MCKELVEY: So, I tend to create situations that put me in those moments, I mean, even this interview, I mean, I’m scared right now. I’m not used to media.

RITHOLTZ: You shouldn’t be.

MCKELVEY: Yes. I know I shouldn’t be but my hands are sweating over here. Right. But the point is if you are audacious enough to step across that line, if you are somebody who is willing to do something that seems a little bit crazy, then you don’t have to have a lot of self-discipline. Your self-discipline comes from your survival instinct.

And this has always been my hack because I’m a lazy guy, I sleep too late. Just — just — there’s a ton of lazy in my DNA. But there’s also a ton of fear. And so, what I will do is I will put myself in circumstances where the fear sort of counteracts the lazy. So, I end up being kind of a workaholic in certain situations where I just committed this thing and now, I got to get it done. Really, you want to do this, OK, well, that’s going to take a lot of work. So, you don’t have to be disciplined if you are audacious.

RITHOLTZ: So, now let’s talk a little bit about the innovation stack, what is that and how can we put that to work in our startups or existing businesses?

MCKELVEY: So, the innovation stack is this weird thing that I found at every company that I studied that fit the following model. OK. So, when I was trying to explain what happened between Square and Amazon, I said, OK, so let’s look for other companies when they’re small and not very powerful that were attacked by these major forces either governments or industries or competitors that work hundred times their size.

Let’s look for the real underdog and then find the underdogs that won that battle and see if they have anything in common. And what they had in common, among other things, was this thing called an innovation stack. It wasn’t called that, I just had to coin the term, but it was this mess, it was this thing and I was like what are they doing, what are they doing.

And the answer is a company that’s inventing something that’s totally new is not inventing one or two or three things. They’re probably doing 10 or 20 or 30 different things that have never been done before, certainly never been done before in combination, and in combination, all those things affect the other thing so you get this real mess.

And so, innovation mess didn’t make a good title. So, we came up with innovation stack but stack makes it sound sort of linear and it’s really the sort of snarl of interlocking things that you’re doing differently.

RITHOLTZ: It’s a jambalaya. It’s just a pot of brood things and use the example, hey, if there’s an 80 percent chance that Amazon is going to beat us at the first thing in our stack and an 80 percent chance on the second and the third down to the 14th, what you’re left with is a tiny percentage …


MCKELVEY: … that they’re going to beat you on everything across the board.

MCKELVEY: Yes. Yes. The house always wins if you have to toss the dice 12 times, you’re going to — you’re going to crap out.

RITHOLTZ: So, let’s talk about two other companies. We already talked about Southwest. Let’s talk about the Bank of Italy, what was the Bank of Italy’s innovation?

MCKELVEY: So, the Bank of Italy is amazing because when I say the word bank to listeners of your show, they all think of what was invented by a kid who dropped out of school at age 15 and was a produce vendor. I mean, this guy sold lettuce for a living and his name, AP Giannini, is not one you’ve probably heard of but he, at one point, could have been the richest person in the world and he built what you think of today as a bank.

So, what do you think of the bank? You think about branch you can go into. You think of tellers that you can talk to. You can think of a loan you can get for a car or a house. You think of the fact that you can go to a bank if you’re a woman, right?


MCKELVEY: He opened the first bank for women. Like what you think of his banking, a hundred years ago was totally different, and AP Giannini created something called the Bank of Italy originally and then that became successful enough that they bought the Bank of America, renamed the Bank of America and I know you’re saying, wait, I hate Bank of America but like Bank of America 50 years ago was still very innovative and very cool and the Bank of Italy was what started it all. Amazingly, it was from a kid who knew nothing about banking and just wanted something to include the little guys.

RITHOLTZ: So, that was a problem that he identified and wanted to solve, similar to square. Let’s talk about IKEA, what is their innovation stack?

MCKELVEY: So, IKEA was very interesting because Kamprad who’s the founder of IKEA tells a very personal story about how he was terrified and scared and crying in fact. This was right after World War II and his country was in devastation. The economy was a mess.

He was trying to make this furniture — actually, he was trying to make a catalog first and then he was trying to make furniture and the furniture, manufacturers of Sweden basically ganged up on him and prevented him for going to the tradeshow so he had to do his own tradeshow, which is what created the IKEA showroom. The first warehouse showroom was created because he was kicked out of the tradeshow.

And then he was actually kicked out of the country because they wouldn’t let him manufacture his wares in Sweden. They had this industry group that had such a lock on manufacturing They said, we won’t make it for you. So, he’s like, well, I guess I’ll go to Poland.

Well, Poland had just been wrecked by the war but they were very eager to rebuild. And so, he was sort of forced to build an innovation stack because they wouldn’t let him copy what everyone else is doing. And this is sort of one of the things I get into the book and that is, look, usually, copying is the right solution. Do what everybody else is doing. That’s probably what the — that’s probably what’s going to work. But if you can’t copy, you’re going to be forced to innovate and innovation can lead you to be, in this case, the biggest furniture company on the planet.

RITHOLTZ: And IKEA is wildly, wildly successful.

MCKELVEY: And very profitable although we don’t know because it’s very private.

RITHOLTZ: Because it’s private. Right. It’s one of the biggest private companies in the world.


RITHOLTZ: So, another quote of yours that I thought was quite fascinating, “Every man-made object that you have ever encountered began as an idea in someone’s minds. Ideas compete for atoms.” Explain.

MCKELVEY: Yes. This is an idea — so, everything you see in the world is I like to think of it as a sea of success. So, I’m sitting in the studio right now and I’m looking at a microphone. Well, somebody had this idea for this microphone and somebody had to then build it and there were other competing designs for microphones that didn’t make it into your studio, OK, and every molecule in this room, including you and me, like we competed for molecules biologically, right?

Our parents somehow survived and yours did and mine did. How it happened? Peace me but it did. If you look at that, everything in the world is a winner to get its atoms into existence and you may sit there and say, well, this is a crummy coffee cup that I’m holding and it could be better to handle, it could be more comfortable than all this other crap.

But the fact is that coffee cup won. You don’t know the explanation but you know it’s the winner. So, you are surrounded your entire life by nothing but winners.

RITHOLTZ: It’s so funny you say that because I have a pet theory that says everything you see is survivorship bias.


RITHOLTZ: And because you’re surrounded by winners, you don’t see the millions of losers and iterations and failed attempts that went into trying to build that, which is my theory as to why people continue to put money into plays and restaurants that have such a horrific success rate because all they see is Hamilton, all they see is the high Michelin star rating.


RITHOLTZ: They don’t see the 51s or the millions that failed before that.

MCKELVEY: Yes. And you can have selection bias in an individual form. It’s just called denial, right? Selection bias on one person is just denial. You got to work this time.

RITHOLTZ: Well, I have to repeat it, I found the book to be like a really fun read, which is what not what you expect from a business book and you clearly have a sense humor and some snark which comes before for us in the book.

MCKELVEY: Thank you. Did you catch the dirty joke?

RITHOLTZ: Which one?

MCKELVEY: Well, yes, yes, there are a couple in there. You probably didn’t. There is one in there I will not tell because I promise not to tell. But my editor was sort of checked out on the last part of the book. He did another job and he didn’t tell me. So, he didn’t really scrutinize what I was writing.

RITHOLTZ: So, you snuck some?

MCKELVEY: I snuck this in and I told him and he’s like, you have to tell me, and I was like, no, I don’t, you’re the editor, you have to catch it. And so, we had this like game of chicken and he gave up and went into publication and I’m not going to say what it is. But like, yes, there’s some stuff in there that …

RITHOLTZ: I love the idea of Easter eggs within a book.


RITHOLTZ: Just to kind of have …

MCKELVEY: Have some fun. Yes.

RITHOLTZ: We’ll talk about the name change. We’ll talk about some of the other things you cofounded or founded. Let’s start with Invisibly. Can consumers really profit off of all of their private data that these online companies and social networks are grabbing? Tell us a little bit about Invisibly.

MCKELVEY: I wish I could give you a strong yes. I will give you sort of a kind of right now. But the idea behind Invisibly is very sound, which is that you should stop being the product and start being the person in control.

And what I mean by that is when you’re using a platform for free like Facebook or Twitter or any of those platforms, Google for this — for that matter, they’re going to monetize you and what that means is that they serve you things that serve them …


MCKELVEY: … and only them. So, I’ll give you an example. Facebook has figured out that the more time you spend on their platform, the more money they make and they have also figured out that if they piss you off towards the end of your browsing experience, you’re going to spend more time on it.


MCKELVEY: So, it serves them to get — they’ll show the pictures with your cousins and your kids and all the cool stuff and then if you — if it looks like to their algorithms that you’re going to leave, they will piss you off on purpose.

RITHOLTZ: And that’s how they’re — one of their tricks to keep you engaged.

MCKELVEY: Well, yes, it’s well know. Now, that is not good for you …


MCKELVEY: …but it’s good for Facebook.

RITHOLTZ: How do you monetize — how do you as the individual user flip the script and monetize that?

MCKELVEY: So, about five years ago, I started working on this idea that everybody’s had. This idea called micro payments and micro payments are simply making you the center of the transaction. So, if you see an ad, you get paid for seeing that at a tiny amount.


MCKELVEY: And if you view a piece of content or read something or listen to something like you listen to this podcast, then we should — we should — we got to Barry, right?

RITHOLTZ: I used to have a quarter cent for this.

MCKELVEY: Yes. We should pay Barry. We got to pay him for all the work he did (inaudible) you read the book. Like that should be compensated. So, at the center of this though is the person in charge and what we’re trying to do with Invisibly is create an invisible agent and this agent is going to buy for you and sell for you.

They’re going to buy at the lowest price that they can. They’re going to sell your eyeballs at the highest price they can. They’re going to negotiate on your behalf. So, the first thing we’re going to stand up is a newsreader which will take most of English language news and give you control of it.

And look, I can’t tell you that people are going to want to use this because news is so polluted right now. Everyone things the news …

RITHOLTZ: But I love the concept of this, it’s really the …


RITHOLTZ: It’s really interesting.

MCKELVEY: It’s a great concept. Barry, I can’t swear that it works but if you go to, you can try it. And look, we’d give it another shot and the hope is that if we can give people control, then they will feel better about what they’re consuming and also what they’re selling because believe me, if you think something free, you’re paying for it with your attention…


MCKELVEY: …and you should be in control of that.

RITHOLTZ: So, the old joke is if the product is free, then you’re the product.

MCKELVEY: Yes. That’s true.

RITHOLTZ: So, that’s it. How do you like working with Founders Fund? They have really interesting history

MCKELVEY: I really like Founders Fund. Founders Fund was the only money I wanted in the company and it’s because of Peter Thiel. So, micro payments, if you know anything about the history of the Internet, everyone’s had the idea, nobody’s made it worked. So, we’re talking about 25 years of constant failure.

So, when I was pitching Peter — well, first of all, forget Peter. When I — when I did the — when I did the company, I said, well, I could fund the company myself but that would be stupid because then I’m just an idiot who has no validation. So, I thought who would be the most validating capital in the world and I thought I need somebody who’s made contrarian calls, who’s been right, who’s been in your face, who’s not afraid to be a little controversial and only two names came to mind. It was Elon Musk and Peter Thiel. And Elon, I can’t get in touch with him but I can get in touch with Peter and I went and pitched Peter.

RITHOLTZ: And they both were part of the original PayPal Mafia.


RITHOLTZ: If memory serves.

MCKELVEY: Yes. But, I mean, Peter has made contrarian calls and being right. This is the thing, when Peter invested in Invisibly, he said to the rest of the world, you better pay some attention here because somebody who’s been right more often than you are is putting his money in this.

RITHOLTZ: So, let’s talk a little bit about what you learned building a billion-dollar business. Square went public. It’s become wildly successful. What are the lessons from that?

MCKELVEY: Wow. I think it’s the lesson of serve the unserved. I mean, what Square has been focused on from day one are people who weren’t invited in the party and we began with payments, that’s where we were. We’re now doing that with Cash App which is a runaway success.

But Cash App is essentially a bank in your pocket. It’s a way of trading stock. It’s a way of buying crypto. It’s a way of — it’s a way of participating in the financial system that people like you and I take this for granted. We think, well, why are there unbanked people. There are unbanked people for the same reason that their businesses are too small to declare bankruptcy. Like you don’t realize how many people are excluded.


MCKELVEY: So, Cash App is inclusive there. We just bought Tidal. Our excitement with …

RITHOLTZ: Yes. That was a big surprise. It seems like a little outside of what Square folks is all about.

MCKELVEY: Yes. It is if you think of it in terms of music. If you think of it in terms of artists and how artists are at the sort of receiving end of a lot of abuse, like we really think that empowering artists through the Tidal platform could be transformative for the music industry and for the artists. So, look …

RITHOLTZ: In other words, get them a fair payment on their streams and downloads.

MCKELVEY: Yes. And look, I mean, you can get the same song on Tidal that you can on Spotify. I mean, like we’ve got a higher data rate. But, look, they’ll catch up at some point. And I think it’s more about what the artists are going to experience with Tidal. But, again, the focus is just like what can we do to empower the people who have traditionally been left out of the party.

RITHOLTZ: So, let’s talk about defy. Do you see Square’s business as part of the decentralized finance movement or are they outgrowing the traditional payment system?

MCKELVEY: So, it’s a little both. I mean, as a — so, I’m a fed regulator now, I actually get to see regulation from inside the Federal Reserve and regulation is really, really good for a lot of things. But if it becomes too ossified, if it becomes too restrictive, then it becomes bad, and I like the idea that we got decentralized options.

RITHOLTZ: What do you make of the name change of Square to Block, Inc.? What does it say about the role crypto is going to play in the Square ecosystem?

MCKELVEY: So, the Block was a pretty sort of clever on a couple levels.


MCKELVEY: It was the three-dimensional version of Square. It’s Block, blockchain. It was also block you. It has some negative connotation to.

RITHOLTZ: On Twitter.

MCKELVEY: Yes. I mean, look, there’s a lot of — they got blocked on Twitter. I mean, look, you take the good with the bad. The Square brand really means payments and people think of Square, they think of getting paid.

They don’t necessarily think of person-to-person payments or bank in your pocket like Cash App. They certainly don’t think of music like Tidal. They don’t think of other things that we might be doing. And so …

RITHOLTZ: So, this is sort of the alphabets of Google search.

MCKELVEY: Yes. Yes. So, we’re still calling — you’re still call it search Google, you still call payment Square but we got this thing over it that have — I mean, Google’s case, they got a space program. In our case, we got something called spiral.

RITHOLTZ: So, let’s talk about something else you’re doing besides chairman of the St. Louis Fed and by the way, I have my Fred Swagg.

MCKELVEY: I love Fred. Yes.

RITHOLTZ: I haven’t worn that T-shirt to Bloomberg yet but I’m a giant Fred fan. For those of you who like manipulating economic data and generating charts and things, Fred is the best. Tell us about the innovation district for downtown St. Louis and how did you get involved in that.

MCKELVEY: So, St. Louis has had some hard times and I wanted to build something in my hometown that was going to not only show off how cool St. Louis is but also attract people to it. And so, we bought the old Post-Dispatch building where the newspapers used to be printed. This is basically a factor.


MCKELVEY: And we put $100 million new office in there for Square and a bunch of employees and then we saved some space for some new folks who want to come in and we’re hoping to catalyze this whole district because what I’m trying to do in downtown St. Louis is create this sort of swagger that you have in the fancy offices.

So, I mean, I don’t know if you — Barry, when he was taking me through Bloomberg — when Barry was walking me in the studio, he was talking about Bloomberg has a curved escalator.


MCKELVEY: It’s the coolest thing in the world. It’s the only curved escalator in North America, right? It’s just so cool and Barry feels cool walking down this curved escalator because that’s how you should feel if you work for Bloomberg because Bloomberg is (inaudible) organization, right?

I want people to feel that way when they work for Square and when you work in Square in Melbourne or Sydney or our offices in San Francisco and New York, you feel that swager because our offices are great. We didn’t have a great office in St. Louis. Now, we do. Our office in St. Louis is spectacular.


MCKELVEY: And I want the people to come in to St Louis. It’s the best office we’ve got. I want people to have that swagger and I wanted them to carry a little of that outside and bring more people to St. Louis.

RITHOLTZ: So, is this an enterprise zone? It’s hard to spit that out. What — what — what is this actually set up as?

MCKELVEY: It is — possibly is I don’t know the tax. There’s a bunch of tax things.


MCKELVEY: I didn’t pay much attention to that. Look, it’s just a cool building and I think it’s an opportunity zone or something like that.

RITHOLTZ: Opportunity zone.

MCKELVEY: But you know what, I honestly didn’t pay much attention. Look, the numbers are terrible. Whenever one — sometimes — everyone is like, can I invest with you, I was like, yes, yes, you can have the whole thing. It was not a good investment.

RITHOLTZ: Not a moneymaker.

MCKELVEY: It’s not a moneymaker for me but that’s OK.

RITHOLTZ: That raises an interesting issue. You’ve been a serial entrepreneur and a fintech investor. The traditional route from your success is, hey, become a venture capitalist, see the bunch of companies, lead a bunch of A and B rounds, why not go that route?

MCKELVEY: I did. I’m a VC but, I mean, I don’t — I don’t live with it because it’s honestly kind of boring. Like what my venture capital firm does is we invest to Software as a Service companies that are going to 10X the returns and our returns have been fantastic but it’s so boring.

RITHOLTZ: Is this a family officer or is this open to other investors?

MCKELVEY: No. No. No. It’s open to every — it’s FINTOP. You can — you can go to FINTOP. It’s an open fund. I don’t know if I’m allowed to say when we’re open but, yes, I mean, FINTOP is a VC fund and I’m a general partner and we make a lot of money.

We make a lot of money by using a formula that makes a lot of money and the formula, I’ll tell you what the formula is. Big platforms have to buy small companies because big financial platforms are terrible at innovation and if you identify the companies that they have to buy and fund them for three years, they tend to do 10X your money.

RITHOLTZ: Interesting. Really interesting.

MCKELVEY: No, it’s not. That’s really boring. Come on.

RITHOLTZ: You don’t think — you think 10X is boring?

MCKELVEY: No. I think it’s — I think – but it’s a wonderful result. The process that I go through there is so mechanical. It’s not interesting because it’s a formula that works.

RITHOLTZ: Because it works.


RITHOLTZ: It’s successful.

MCKELVEY: Yes. And the other partners work really hard and I …

RITHOLTZ: You just count the money that comes in.

MCKELVEY: I show up and do …

RITHOLTZ: You’re Scrooge McDuck, you just show up and …

MCKELVEY: I’m — I’m — I make it …

RITHOLTZ: I’m just swimming in the gold coins and …

MCKELVEY: They use me to fire people, like if I have to talk to an entrepreneur about how they should leave their own company — but — but — but I’ve done it myself.


MCKELVEY: And I occasionally have to pull somebody aside and say, hey, look, it’s really good to be the other guy.

RITHOLTZ: That makes — that makes a lot of sense. So, let’s stick with traditional banks and being unable to innovate since you mentioned you’re looking at small companies that can facilitate 10X on larger platforms, why can’t traditional banks innovate and what are the missed opportunities that these folks are creating for startups?

MCKELVEY: So, banks and financial institutions become structurally conservative for a very good reason, which is you don’t become a big bank if you ever lose money. So, one of the classic images of the bank is the bank vault, this giant piece of stainless with all these bolts and, I mean, we don’t see them that much anymore but like they used to be why you should trust this bank because we had this big vault.

Look, if you lose money, you’re dead. I don’t care how innovative you are. As a financial institution, you first have to be conservative. You have to be good at auditing, accounting, record keeping. You have to be good at legal and compliance and all these things that are not innovative.

The problem is that these organizations that get too big become structurally conservative. They promote only accounts and lawyers and auditors and after a while, they kill innovation. So, what you have is this company that needs to grow. They need to get new products in but they can’t.

So, then they have to buy their way into that and it’s actually a pretty good marriage because the big platforms are given regulatory permission to access the rails of commerce whereas the small companies aren’t.

So, I mean, we even went through this at Square when we started our product. We had to get permission from Visa and MasterCard and the banks to even transact legally on the rails.

RITHOLTZ: So, when you first went to Visa and MasterCard and said, hey, we want to credit card processing, what was the response, what was the pushback like?

MCKELVEY: The response was we have an apt — we have a rule against exactly what you’re doing in our operating regulations. It says you can’t do what Square wanted to do.

RITHOLTZ: So, how did you get around that?

MCKELVEY: We had to get them to change their minds.

RITHOLTZ: And I got the sense from the book that you guys were kind on not like Uber violating rules and laws but you were kind of right at the edge when you were a startup.

MCKELVEY: We built a product that violated by my count at least 17 rules and regulations.

RITHOLTZ: That were promulgated by Visa and MasterCard and not …

MCKELVEY: Visa and MasterCard, the federal government, we — I mean, the total body count was like 17.


] And then it wasn’t like we were intentionally trying to flaunt the laws. It’s just that we couldn’t build our product in compliance with everything initially.


MCKELVEY: And we had to have a working product because when you’re building something new that somebody has never seen before, if you don’t have a working prototype, people can visualize that they will always map you into something they’ve seen …

RITHOLTZ: Their history, their frame of reference.
MCKELVEY: Right. Yes. And so, if you’re going to break that frame of reference, you better do it with a product that actually physically exists and works. And so, to make it physically exist and work, we had to break a bunch of rules. Now, what we did was get compliant with all those rules or in some cases, get those rules changed. In one case, we had a MasterCard, Visa, American Express to actually change their operating regulations for Square to exist.

RITHOLTZ: How on earth do you get behemoths like that to change their — because I – my assumption is all those rules not only have they been vetted by lawyers and everybody else, they all work to the advantage of AMEX and MasterCard.

MCKELVEY: Well, yes. Rules exist but remember, there’s a time when that rule is written and if the world moves 30 years and remember, we’re talking about tech years, so we’re talking about probably 100 years in banking time …


MCKELVEY: …then that rule may no longer be applicable. And so, those rules can be rewritten. They had been written by humans. They can be changed by humans. And the way we got them changed was we did a demo that dropped jaws at MasterCard.


MCKELVEY: And MasterCard said — well, actually, it wasn’t MasterCard. I say MasterCard. It wasn’t MasterCard. It was Ed McLaughlin.

RITHOLTZ: Yes. And his title was …

MCKELVEY: He was chief of something.

RITHOLTZ: Right. Because you talk about in the book sending money with the credit card and the reader in the early days of Square and people were like, that’s not possible.

MCKELVEY: Yes. Yes. They were like, what the hell happened. Yes. I mean, and we did a demo for Ed and we knew that his decision was going to determine the fate of our company because if he said no, we were dead.



RITHOLTZ: That’s amazing. So, how — tell us about the demo.

MCKELVEY: We did the demo and it went perfectly. I mean, Jack and I demoed the product about 50 times. So, we had our game done perfectly and the great thing about Jack Dorsey, one of the many things, he’s very quiet. He’s very calm. I’m a nervous guy like I get …

RITHOLTZ: You’re high energy.

MCKELVEY: Yes. But I’ve also learned to never interrupt. I will never interrupt anybody. So, we did the demo and then Ed said, you realize that violates our operating regulations, and I said, yes, sir, we do, and then neither Jack nor I said a thing for like 20 seconds. And I don’t want to count …

RITHOLTZ: That silence is just …

MCKELVEY: I don’t want to count 20 seconds of dead air on Bloomberg.


MCKELVEY: Just right now, just imagine how horrible you feel, how tight even clenching on that 20-second count and then he said, so, I guess we have to change our rules and he left the meeting. He looked at his team, glanced to his team, he’s like, I guess we got to change our operating regs, and he left the meeting.

RITHOLTZ: How it goes? What was the eye contact like with you and Jack at that moment?

MCKELVEY: I was — I was probably suppressing a laugh like a kid in the back of a classroom in high school. I was so giddy at that moment because I was like, my God.


MCKELVEY: Now, we can live. Like we hadn’t won yet because we hadn’t really — we didn’t even know if anyone wanted the product.

RITHOLTZ: You have to think someone at that level and says, we’re going to change MasterCard’s rules so your product can do what it does, that feels like, now, all that’s left is going out and doing it.

MCKELVEY: Now, all that’s left is going out and see if anybody but me wants this product because we had not been …

RITHOLTZ: You had to know …

MCKELVEY: No. We didn’t. We didn’t – because, look, and this is – this is another thing about innovation, you don’t get to test your product if it’s truly new until it’s built and working because if you say, we’ll imagine this, they can’t do it, right?

Elon Musk when he was building the early Teslas, he was like, well, it’s an electric car and people think electric car, what do you think – what do you think of electric car, golf cart/


MCKELVEY: Right. You think of this crappy little thing and it’s got terrible acceleration. Electric cars accelerate great and …

RITHOLTZ: Right. No gears needed and instantaneous.

MCKELVEY: So, Musk used to sit you in the car and he’d ask you to pick your favorite radio station until you reach for the radio dial, he’s punching the accelerator and glue your (inaudible) with 5Gs of acceleration to the back of the seat and that’s how he did it. You have to build that demo.

If we hadn’t had permission for MasterCard to build it, we couldn’t have released it. But the day we released it, we didn’t know if anyone wanted it. This is the thing about innovation, you don’t get that guarantee. I got to say this to your listeners because it’s so important, you’ve been told your whole life not to jump unless you got a guarantee, unless you got to study, like show me the report from McKinsey or something that’s going to prove that what I’m about to do is going to work. So, I’m not like responsible or at risk or anything.

It doesn’t exist. If it’s being done for the first time, you can’t prove that it’s going to work.

RITHOLTZ: That’s just astonishing. Maybe this is little hindsight bias because we now see how much demand there is first for Square. But if you would have asked me years ago, hey, anybody — so my wife used to teach fashion illustration and design and art. So, I’ve been dragged around to all these museums and all these art fairs and shows.


RITHOLTZ: And you show up at them in the old days, they would have the physical clunk machines and it was very, very clear early on that Square was made for those sort of people.

MCKELVEY: I lived in an easy up tent, baby.

RITHOLTZ: You see the whatchamacallit, you — it was not long after you guys form that you started seeing this thing show up everywhere.

MCKELVEY: Yes. At the littlest merchants.


MCKELVEY: People who you wouldn’t think would be ready to sell something or ready to sell something.

RITHOLTZ: Right. And those impulse buys especially a piece of jewelry, a sculpture, some sort of wind chime that’s a couple hundred bucks who walks around with $500 on them. Putting a credit card in an iPhone turns out to be just that’s the solution to that problem.

MCKELVEY: Yes. It turned out it worked. But, again, we couldn’t know that at the beginning.

RITHOLTZ: I guess. So, I know I only have you and the studio for a limited amount of time with some of our — with some of the last time we have. Let me ask you our favorite questions that we ask all of our guests and I’m going to start with tell us what you’re streaming these days, what was keeping you entertained during lockdown in Netflix or Amazon Prime or even podcasts. Tell us what you’ve been watching or listening.

MCKELVEY: I’m revising old episodes of “Community.”

RITHOLTZ: So hilarious. I went through the whole run of those.

MCKELVEY: “Community” “30 Rock” “Silicon Valley” that show which I kind of lived through.

RITHOLTZ: So great.

MCKELVEY: Yes. I got friends who are in the cast and I was like love this stuff, it’s so — I’m escapist when it comes to streaming and sometimes doubly so when I have to watch a Swedish television. So, my wife is Swedish.

RITHOLTZ: “Ragnarok”?

MCKELVEY: No. No. No. No. No. This is …

RITHOLTZ: We watched that. It was actually pretty good.

MCKELVEY: “Ragnarok” was good but I’m talking about Swedish public television.


MCKELVEY: My wife speaks Swedish with our kids. She’s trying to get them to speak Swedish and I’m trying to not learn Swedish so that my kids can talk behind my back with my wife. So, I’m not allowed in the room during this. So, there’s — we’re streaming Swedish TV.

RITHOLTZ: By the way. if you like “Silicon Valley” I’m going to recommend something to you.


RITHOLTZ: Which is the same thing only applied to gaming, “Mythic Quest” on Apple TV with, I’m forgetting his name, from “It’s Always Sunny in Philadelphia” plays the lead.


RITHOLTZ: It’s the same sort of absurdist comedy, only instead of being set in a software company, it’s set in a gaming company.

MCKELVEY: Very thank you. You’ve just …

RITHOLTZ: You will like that.

MCKELVEY: You’ve just made my Christmas vacation that much better.

RITHOLTZ: And I’ll tell you my favorite Silicon Valley story. So, when I was in the West Coast a couple of years ago, I did an interview with Marc Andreessen at Andreessen Horowitz.


RITHOLTZ: I fly — so that was during the week and we’re at the — for the whole week, we fly home on Friday or Saturday and I believe “Silicon Valley” used to broadcast on Sunday and Sunday night, I’m watching, I picked up the phone, I called Chris who was out there with me from my office, are you watching this, he’s like, yes. There was a scene set in the a16z building because I recognized it immediately because it has that waterfall …


RITHOLTZ: … that runs around the perimeter, it’s almost like an azure …


RITHOLTZ: … and goes continually around the building and I’m like, we were just there, it was such a weird experience to see the outside of building that you just were on television. It was really amusing.

MCKELVEY: Yes. (Inaudible) southside. Yes.

RITHOLTZ: So, “Silicon Valley” was such a great show. I really enjoyed it. If you like that, I think you’ll — I think you’ll like “Epic Quest.” It’s Apple …

MCKELVEY: “Epic Quest.” “Mythic Quest.”

RITHOLTZ: “Mythic Quest.” It’s Apple TV.

MCKELVEY: I’m on it. That’s the reason to subscribe. OK.

RITHOLTZ: Yes. There you go or if you have an Apple product, usually you get Apple TV free for a year or something. They’re good about giving that sort of stuff away.


RITHOLTZ: You mentioned Herb Kelleher, tell us about some of your early mentors who helped to shape your career.

MCKELVEY: My God, I didn’t have many mentors. I wished I had because I was always doing stuff where I wished I had some peers and what I realized — actually, what I realized very late was that I was doing things differently enough that my peers were not good help.

So, this is actually one of things that hit me in the book which was that a lot of the advice that I was following from people who are super successful, I would implement and would blow up and I thought, I’m just a terrible person, like I can’t do anything right. I turns up — it turns out that I was on that other side of the line where the physics are different.

So, if — and this is the thing that just drove me nuts is I would find competent successful people and asked them for advice and do what they told me to do and it would just be a disaster. Kelleher was the first gut, the very first guy that I sat within a room who I said, I did this and I felt this way, and Herb was like, I felt exactly the same way. But that was late in my career, I never had a mentor growing up.

RITHOLTZ: Right. You were doing quantum physics and you were asking people about Newtonian.

MCKELVEY: Yes. It was — it was …

RITHOLTZ: So, it just didn’t apply.

MCKELVEY: It was just different math, different math.

RITHOLTZ: Really interesting.


RITHOLTZ: Let’s talk — since you wrote this book, let’s talk about some of your favorite books or what you might be reading right now.

MCKELVEY: One of my favorite books right now is “Pre-Suasion” Cialdini.

RITHOLTZ: Robert Cialdini.



MCKELVEY: Fantastic book. I’m reading some Churchill. I’m going through Churchill’s autobiographies and his stories of Civil World War II and that’s part of my main read. I mean, look at Churchill, like he was a bad polo player. He was an aristocrat. He was a war hero. He was a leader of a nation. He was — he’s basically the reason we’re all sitting here like he …

RITHOLTZ: Pretty much.

MCKELVEY: If you credit westerns civilization to like one guy, that would be the guy. And he was a prolific artist and writer and he’s a great writer. And so, I’m just doing some Churchill.

RITHOLTZ: That’s really interesting. If watched “The Crown” he really is a key player in the latter episodes of that.

MCKELVEY: Yes. I wish, wish, wish I’ve been able to meet him but there’s enough of his writings and enough of his recordings that I feel like I’m learning something.

RITHOLTZ: Really intriguing. What sort of advice would you give to a recent college grad who is interested in a career in technology?

MCKELVEY: I’d say get engineering training. Learn to be a tech. Learn to be a geek. Go to the school that teaches you how to make the stuff for two reasons. Number one, there is a massive bias in Silicon Valley against people who are non-technical and the way you determine this is if they’ll ask — they’ll ask you very innocuously, are you technical, are you technical, and if you say no, I’ve got a degree in accounting or finance or something but not really hardcore engineering, they won’t invite you to the meeting.



RITHOLTZ: Interesting.

MCKELVEY: You’ll get bullied. You’ll get excluded. And just having those technical jobs would get you into those rooms. Now, what you do in those rooms depends on your other skillset but if you want to get in the room, you better be technical.

RITHOLTZ: Really, really interesting. And our final question, what do you know about the world of, fill in the blank, technology, payments, innovation, entrepreneurship today that you wish you knew 20 or so years ago when you were first getting started?

MCKELVEY: My God, I wish I knew there was a line between innovation and copying. I never recognized it. I never recognized that there was a different set of physics. That was the greatest revelation because I’d seen all these mistakes that I’ve been making again and again and again and all of a sudden, I was like, my God, I can’t explain what was going wrong.

It’s almost like if you — if you’re in a social situation and you just have this weird social tick and people don’t like you because of your social tick. You learned to get them under control and then people are nice to you like that’s what I felt like. I was — I was a failure for so many years in situations where thought I was prepared and ready to succeed and the fact was I was just playing a different game.

And if the game you’re playing is using a different set of rules and you don’t know the rules, then you’re going to fail a lot and that’s why I had — that’s why it took me so long to sort of get my career out of the dumpster.

RITHOLTZ: Really, really fascinating stuff. Jim McKelvey, co-Founder of Square, author of “The Innovation Stack.” Thank you for being so generous with your time.

If you enjoy this conversation, well, be sure and check out any of our previous 400 or so such discussions. You can find those at iTunes, Spotify, wherever you get your favorite podcast.

We love your comments, feedback and suggestions. Write to us at Sign up for my daily reads at Follow me on Twitter, @Ritholtz.

I would be remiss if I did not thank the crack team that helps put this conversation together each week, Mohammed Rumawi (ph) is my audio engineer, Atika Valbrun is our project manager, Michael Batnick is my head of research, Paris Wolt (ph) is my producer, I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.




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