“Entrepreneurs are in the business of solving problems that have never been solved before.”
Jim McKelvey is the Co-Founder of Square and Author of The Innovation Stack: Building an Unbeatable Business One Crazy Idea at a Time. Jim had the idea to start Square when he couldn’t take a customer’s credit card at his glassblowing studio. Square would go on to survive a major challenge from Amazon due to its Innovation Stack.
“If you put yourself in a situation where the only solution is to create something new, then you need to understand that the process of innovation is different.” An Innovation Stack is a series of interlocking inventions. While individual elements cannot be viewed individually, the entire Stack fails if one block is missing. We are surrounded by hundreds of examples, but we don’t consider them innovative because they serve as the basis for entire industries.
Jim co-founded the non-profit LaunchCode to provide people with nontraditional backgrounds free education and job placement opportunities in tech.
LISTEN AND SUBSCRIBE
SPEAKER
Jim McKelvey
Co-Founder
Square
MODERATOR
Anthony Scaramucci
Founder & Managing Partner
SkyBridge
EPISODE TRANSCRIPT
John Darsie: (00:09)
Hello, everyone. Welcome back to SALT Talks. My name is John Darsie. I'm the managing director of SALT, which is a global thought leadership forum at the intersection of finance, technology, and public policy, and interestingly our guest today is going to be able to cover pretty much all of those three pillars of SALT. The SALT Talks are a series of digital interviews that we started during this work from home period and are going to continue even after hopefully we kick this virus that provides our audience a window into the minds of subject matter experts who are leading investors, creators, and thinkers. What we're also trying to do during these SALT Talks is provide a platform for what we think are big ideas that are changing the future.
John Darsie: (00:49)
Today we're very excited to welcome Jim McKelvey to SALT Talks. Jim is a serial entrepreneur, an inventor, a philanthropist, an artist, an author, and a glassblower as well, which I'm sure we'll get to during the talk, and he's the author of a book called The Innovation Stack: Building an Unbeatable Business One Crazy Idea at a Time, which I would highly recommend for those that are entrepreneurs or looking to build a business. Jim is the co-founder of Square, and he also served as the chairman of the board until 2010, and he still serves on the board of directors. Square has been one of the big success stories in the tech industry over the last decade. In 2011, Jim's iconic card reader design was included in the Museum of Modern Art. Jim founded Invisibly, which is an ambitious product to rewire the economics of online content in 2016, and he's also the deputy chair of the St. Louis Federal Reserve.
John Darsie: (01:44)
If you have any questions for Jim during today's SALT Talk, a reminder, you can enter them in the Q&A box at the bottom of your video screen. Conducting today's interview will be Anthony Scaramucci who's the founder and managing partner of SkyBridge Capital, which is a global alternative investment firm. Anthony's also the chairman of SALT. And with that, I'll turn it over to Anthony for the interview.
Anthony Scaramucci: (02:03)
Well, Jim, it's great to have you. I've got to hold up your book. I love the cover. The Innovation Stack, just holding that up for everybody, Building an Unbeatable Business One Crazy Idea at a Time. You probably think John Darsie's sane and I'm crazy, but I just assure you, when this is over, you'll realize it's the exact opposite. Okay? He's the one that's nuts, not me.
Anthony Scaramucci: (02:26)
But I want to go to you. The book is great. We're recommending it to everybody. I'm holding it up. Right after college, you graduated from Washington University, amazing school in St. Louis. You had a degree in economics and computer science, and you had authored two computer programming textbooks. How do we get there to glassblowing artist? Tell me what happened here. Tell me the evolution of Jim McKelvey.
Jim McKelvey: (02:52)
It can be explained by basically bad planning, or in my case no planning. I graduated with these two degrees, took a job with a startup run by a crook. I was too clueless to realize that the guy was a crook. Right? Sometimes you work for a guy-
Anthony Scaramucci: (03:07)
Sometimes that happens. You can work for a crook, and you can be clueless about it. That does happen to people. I have empathy.
Jim McKelvey: (03:15)
Sometimes it happens.
Anthony Scaramucci: (03:17)
And, Darsie, don't be looking at me. Okay? I'm talking about other people, Darsie. Okay? Go ahead, James.
John Darsie: (03:22)
Of course. You would never make a bad decision like that.
Anthony Scaramucci: (03:26)
I've made my series of bad decisions. Sometimes I'm a little bit too gullible, Jim. But go ahead. I'm sorry.
Jim McKelvey: (03:32)
So, I ended up in this situation, and I realized what was happening one day, and so I went and I quit. I was like, "Oh, this guy's screwing everybody he deals with." My number's going to come up next. So, I went in, and I just quit. I didn't have another gig lined up. I didn't have another job. So, I woke up the next morning. I was like, "Oh crap, how am I going to pay the rent?" and the answer was I thought, well, maybe I could sell my glass work, because I was doing glass ... I had just taken one year at college, but I was TA for the college, and I had access to the studio. So, I went in, and I thought I could make some work and sell it, and it just turns out that I couldn't, because my work sucked.
Jim McKelvey: (04:14)
But it's amazing how good you can get at something if you say, "This is what I've got to do." Right? So, within six months I was making a really good income, and I've just stuck with it ever since. As a matter of fact, I'm heading to the studio this afternoon. I've been a glass blower for 30 years. Well, it was a great business, and now it's a great hobby.
Anthony Scaramucci: (04:40)
All right. Well, before that you co-founded Square with Jack Dorsey who's also the founder of Twitter. So, tell us a little bit about that. You lost $2,000 on the sale at your studio apparently, and I want to hear that origin story. How did it all come together? How did Jack find you, you find him, and how did you get this amazing business started?
Jim McKelvey: (05:07)
Right after I became a glass blower, this was 1989, I started another company, which I still have today. As a matter of fact, that's when I met Jack. I hired Jack when he was a 15-year-old kid. His mother was our I wouldn't say drug dealer, but she would sell us-
Anthony Scaramucci: (05:27)
You could say drug dealer. It's okay. [crosstalk 00:05:29]
Jim McKelvey: (05:28)
So, we bought from Marsha Dorsey chocolate-covered espresso beans which, before ritalin was readily available ... They're basically putting it into the water supply now. But back in the early '90s, if you wanted to stay awake, you munched on coffee beans, covered in chocolate. We bought piles of this stuff from Marsha. We found out her son liked computers. We worked with computers. So, this 15-year-old kid shows up, and that was Jack. He's an amazing guy. He did a great amount of work for us. We became friends.
Jim McKelvey: (06:02)
And sort of 20 years later, I guess it was 15 years later, he had started Twitter, gotten kicked out of Twitter, and was back in St. Louis for Christmas. We started talking, and Jack said, "Hey, why don't you come out and start a new company with me?" I was like, "Great. What do you want to do?" And he said, "Well, I don't know. What do you want to do?" So, we went back and forth. Neither one of us had an idea. But then I was in my studio-
Anthony Scaramucci: (06:27)
Next time you guys are going to start a company, can you invite John and I to the lunch table? We would be interested. I'm just letting you know. That would be great.
Jim McKelvey: (06:33)
It wasn't a very posh thing. We were having this conversation in my studio. I mean, Jack was a nobody. I was basically an artist. So, it wasn't this big thing. But I was there, trying to sell a piece of glass, and the truth of the matter was it was this piece of glass that I hated. It was ugly as ... Just terrible. And this lady was going to pay me like two grand for this thing, and I lost the sale because I couldn't take an Amex card, and I was pissed.
Jim McKelvey: (07:03)
It was a phone sale, and I was talking to her on one of these things, and I looked at this thing. My attitude towards this device is it turns into anything I want. Right? It becomes a phone, a TV. It becomes a map. It becomes anything. This thing should turn into whatever I want, but it wouldn't turn into a credit card machine, which was what I wanted to turn it into. So, I called Jack up in California, and I was like, "Hey. We should turn iPhones into credit card machines." That was the idea behind Square. Didn't know if it was going to work, but turns out it was a pretty good idea.
Anthony Scaramucci: (07:41)
Well, not a good idea; it was an amazing idea, because you had a seam in the marketplace where credit card companies ... I don't want to use the word gouging, but let's use the word gouging. Okay? They were really taking a vig off of these small businesses. So, you interceded and you closed the gap for them. That was a huge benefit to small businesses. Is that fair to say?
Jim McKelvey: (08:04)
Oh, a ton. A ton. What I discovered in starting Square was that the lower part of the market paid most of the fees. The little guys got screwed way bigger. I actually ran the math, and it was ... If you calculate the profit that you make on a transaction at Walmart versus the profit that you make on a transaction at a small company, it's 45 times higher. So, the little firms are paying almost 50 times as much as the big ones are, which is unconscionable.
Anthony Scaramucci: (08:37)
Just for all of our viewers and listeners, that is a huge competitive disadvantage. We're going to have the author of Monopolize on. I believe that's next week. Is that not right, John Darsie?
John Darsie: (08:47)
Yeah. It's on Monday, David Dayen, the author of Monopolize, talking about big tech monopolies.
Anthony Scaramucci: (08:52)
Yeah. So, what happens is if you're Walmart, you can squeeze down the credit card company, but if you're mom and pop in St. Louis on a local main street, you cannot. See, you guys came in and helped them split the seam, which is a great, great thing for the country.
Jim McKelvey: (09:08)
Yeah, yeah. It turned out to be a really great thing, and then interestingly enough, and this is actually the reason that I wrote the book, was three years later we got attacked by Amazon, one of the big monopoly companies. I try not to knock Amazon too much when I'm trying to sell a book, but, look, the fact is, when Amazon attacks a startup, the startup dies. And Amazon copied our product, undercut our price by 30%, and everyone expected Square to just get wiped out. Amazingly-
Anthony Scaramucci: (09:42)
So, how did you survive? How did you survive that?
Jim McKelvey: (09:46)
Well, that's the funny thing. We didn't do anything differently. We looked at all the stuff that we were doing, and we were doing everything for a good reason. So, we didn't change anything. We didn't even lower our price. Then we sort of fought Amazon for about a year, and then Amazon gave up. When they gave up, they mailed one of these little Square readers to all their former customers. So, I've got to say, out of respect for Amazon, when they quit, they quit in a sort of admirable way. They were sort of gracious in defeat. But I couldn't explain what happened. The amazing thing to me was why did we beat Amazon, because if you look at the history of companies, this doesn't happen. Startups don't survive this. And somehow we did.
Jim McKelvey: (10:37)
So, I was happy we won, but I couldn't figure out an explanation. I basically started researching, because I get obsessed with problems. I started looking for other companies that this had happened to, and it turns out, if you look back in time, there are literally hundreds of examples of the same thing having happened throughout time. So, when I saw this pattern, I was like, "Oh my god. This is really interesting." But the problem with doing historical research is you can really delude yourself into thinking you're right, because you can cherry-pick your examples, and then you're like, "Oh, I've proven that the sky is always red." Well, no, it's not, but you're just taking your photos at the sunset after dust's in the air or something.
Jim McKelvey: (11:25)
So, I took all my research ... It was funny, because I'd done all this historical research, so basically I was studying dead people, and I needed to find somebody who was alive. So, I called Herb Kelleher who's the founder of Southwest Airlines. I called up Herb, and I-
Anthony Scaramucci: (11:40)
Legendary entrepreneur.
Jim McKelvey: (11:42)
He's phenomenal. Dearly miss the guy. But I flew down to Dallas, I took all my research to Herb, and I said, "Herb, I think what happened at Square is another example of what happened at Southwest. What do you think?" Then I just shut up and let the man talk. And he got really excited, and he told me a bunch of stuff that was exactly the same things that happened to us. And I said, "Okay, here are 15 other companies where I've seen the same pattern," and he's like, "This is exactly right." He says, "I've never heard it explained this way." He's like, "You need to go write this. You need to go write a book." So, Herb Kelleher was the one that basically convinced me to write a book, but I didn't want to write a normal book, because I hate business books. I mean, I see your bookshelf back there. Man, I almost feel sorry for you, because a lot of these things are just disastrous, boring tomes.
Anthony Scaramucci: (12:39)
You mean the books behind me you feel sorry about? Is that what you're saying?
Jim McKelvey: (12:42)
If you've read all of them. I'm looking at a few of them, and I won't sort of out some of the authors-
Anthony Scaramucci: (12:46)
Pick out one that you dislike, go ahead, that you feel sorry about me. Okay? There's the beautiful wife though. Right? You like that. Those aren't bad, right? But which book on the shelf you don't like? Go ahead.
Jim McKelvey: (12:59)
Edison.
Anthony Scaramucci: (13:00)
Edison. I couldn't get through that book, by the way. Okay? [crosstalk 00:13:04]
Jim McKelvey: (13:05)
I got that as a gift.
Anthony Scaramucci: (13:06)
Yeah, couldn't get through it. And by the way, since Edmund Morris wrote the Reagan book, Dutch, he's gone downhill in my mind. But somebody sent me that book. Somebody sent me this book though. This book is pretty terrific.
Jim McKelvey: (13:21)
So, what they should have sent you was this. My original book was a graphic novel.
Anthony Scaramucci: (13:27)
Oh, okay.
Jim McKelvey: (13:27)
The whole thing was cartoons.
Anthony Scaramucci: (13:30)
Yeah. I need that. I need that. [crosstalk 00:13:32]
Jim McKelvey: (13:31)
I'm surprised they didn't send it. I'm sorry, man. I'll send you one.
Anthony Scaramucci: (13:34)
All right. I need one of those. But let's talk about this though, because this is an ingenious revelation. And if somebody can actually read this and understand this, their business is going to get a lot better. So, tell the people that are queued in here right now what this is about. What's the central thesis of The Innovation Stack?
Jim McKelvey: (13:58)
The central thesis is that there is a difference between doing something that's never been done and copying. And that sounds pretty obvious, but it wasn't obvious to me over 20 years, because I was always going to business conferences and reading books and talking to experts whose problems never seemed to be like the problems I was having. And the problems I was having were typically the problems you have when you're doing something that's never been done before, and that's different from doing a business where there's a trade show and they're experts and they're consultants, and they're things that are known to work.
Jim McKelvey: (14:32)
The reason I think I was ignorant for all these years was because the word entrepreneur today means business person. So, if you start a company, if you start a coffee shop, we call you an entrepreneur. If you start a dentist office, well, if you open it, you're the entrepreneur. You start an accounting firm. Anything that you do to start a business, we say entrepreneur. But that's not why the word was originally used.
Jim McKelvey: (15:00)
The original use of the word, and I had to go back into linguistic history to figure this out ... The original use of the word meant somebody who was crazy doing something that has never been done and might not work. So, the Wright brothers trying to fly for the first time. They were entrepreneurs, because if you look at the history of aviation, at least from the early days, there was a lot of death and burning and mangled flesh. So, if you were one of those guys who was trying to fly when humans had not figured it out, you were an entrepreneur.
Jim McKelvey: (15:33)
It's a totally different set of rules if you're not copying, and copying, I'm not knocking copying. I try to copy everything. I try to never do anything original unless I have to. It's sort of the last resort. But if you're trying to solve a problem that's never been solved before, then you've got to think differently, and the process of thinking differently is one that we don't even discuss, because literally, Anthony, the English language doesn't have a word for it. And when I realized this, I was like, "Oh my god. It explains all these problems I was having." So, that was the genesis of the book.
Jim McKelvey: (16:12)
Then I wrote it as a graphic novel. It was supposed to be a cartoon. I showed it to Herb. Herb hated the idea of being portrayed as a cartoon character, so he said ... I was really surprised at this, because Herb had a great sense of humor, but he basically said, "Look, if you're going to make this as a cartoon, leave me out." So, I rewrote the book basically as text out of respect for this man.
Jim McKelvey: (16:35)
But the fundamental idea in The Innovation Stack is that, if you put yourself in a situation where the only solution is to create something new, then you better understand that the process of invention is different, that it's not usually one or two single things. It's probably 12 or 14 or 20 different things that you're going to have to do differently. Those things themselves are going to influence each other, which causes this giant mess. And this becomes what I call an innovation stack.
Jim McKelvey: (17:09)
If you look at the history of companies who've dominated their industries, at the beginning of every industry, there's one of these innovation stacks. Now, it doesn't happen that often, because most businesses are copies of other businesses, but when it does happen, things get really interesting and really different, and that's what I wrote about.
Anthony Scaramucci: (17:29)
Well, but I also think that there's a lot in here about how you have to adapt to your environment. Right? So, your plans for Square, they didn't go perfectly.
Jim McKelvey: (17:42)
No.
Anthony Scaramucci: (17:42)
You had to make changes. You had [inaudible 00:17:44] So, give us a few examples of your plans making contact with the enemy and competition and what you had to do to innovate and switch up that stack.
Jim McKelvey: (17:57)
Great example. So, we decided to connect our little Square reader through the headphone jack. So, it was going to plug in through ... I've got one of the last phones with a headphone jack. I've got a little Samsung here. But this is how we decided it'd connect, which Apple didn't want you to do. Apple wanted you to connect through their dock connector, which at the time was like this inch-long thing. We were sort of violating the iPhone by plugging in through the headphone jack, which nobody had done before, and we were sure it was going to piss off Apple. So, our great strategy was to get Steve Jobs to cover us. Right? So, Jack got in touch with Steve. That was not easy, because Steve was very ill. But Steve agreed to meet with us. Now, this was 2009, 2010. Steve, he was pretty sick, but-
Anthony Scaramucci: (18:57)
Well, he died in 2011, so, yeah, he was having a hard time. He had just probably gotten his liver transplant, right?
Jim McKelvey: (19:01)
He had just gotten his liver transplant. He wasn't seeing too many people, but we got an audience with Steve. I was terrified, because I was the guy that built all the hardware. So, Jack was writing the software; I was the guy that physically had to build this thing. Okay? If you know anything about Steve Jobs, you know that he was a design zealot. I mean, he didn't have any furniture in his house, because he couldn't find anything that was good enough.
Anthony Scaramucci: (19:26)
Right. He drove Laurene crazy. I mean, Walter Isaacson writes about it in the book. He couldn't buy a couch, the poor guy.
Jim McKelvey: (19:34)
No, no. If it wasn't perfect, Steven wouldn't touch it. Right? You would hand Steve a pen [inaudible 00:19:39] Yeah. So, I'm the hardware guy, and I've got to put a piece of hardware in front of Steve Jobs. I'm freaking out. I'm just freaking out. So, I'm a good copier. I'm like, "Okay. I need to steal Steve's own idea." I go to the Apple store, and I look at the Macintoshes. The Macs were all these sort of brushed aluminum, just sort of pill shaped.
Anthony Scaramucci: (20:06)
I'm looking at one right now. I'm touching it.
Jim McKelvey: (20:08)
Yeah. There you go. Oh yeah, the Mac. Right? So, I was like, "Okay, Steve likes aluminum." So, I go, I get a block of aluminum, and I'm milling the first Square reader out a block of solid aluminum, shove all the electronics in there, test the thing out. I'd been awake for two days. It works. I get it to work. Fly out to see Jack, hand it to my ... Because Jack's the one who's actually going to do the meeting. I hand it to Jack. It doesn't work.
Anthony Scaramucci: (20:45)
Oh god.
Jim McKelvey: (20:45)
He hands it back to me. I'm like, "No, no, no, man. Look, it works, it works, it works." Then [inaudible 00:20:51] And I've got to show you with a credit card what's going on here. I've got a credit card here. I'll try not to show my credit card number to the whole world. But what was happening was, as Jack was swiping it, he was holding it like this to keep it from rotating, because the thing spins. Right? So, Jack would swipe like that, and it would never work. When I swipe, I go like this. So, I don't touch the thing. Well, aluminum is an electrical conductor, and on an iPhone this is not the grounding plug, this is the grounding plug. So, I was basically making an open circuit. It was effectively a heart monitor-
Anthony Scaramucci: (21:37)
Got it.
Jim McKelvey: (21:37)
... because when Jack touched it, the thing shorted out, picked up his heartbeat, and totally ruined the signal. Okay. This before a demo with Steve Jobs. I've totally made something that looks cool and doesn't function.
Anthony Scaramucci: (21:51)
Got it.
Jim McKelvey: (21:52)
The good news is ... Well, there were sort of good and bad news. I think we were lucky. The meeting got canceled, because Steve got sick again. So, we didn't actually have to do the meeting. And I've built them out of plastic ever since. But, look, that's just ... I mean, I could tell you-
Anthony Scaramucci: (22:11)
But when you eventually got to the meeting, he probably loved the design, right? Because it looks like the old iPod, the small iPod, the mini iPod.
Jim McKelvey: (22:19)
Steve never saw it.
Anthony Scaramucci: (22:20)
Oh, he never saw it? Okay.
Jim McKelvey: (22:21)
Steve never saw it. He got ill. He canceled the meeting. We actually showed that first prototype to Mike Bloomberg, because we had another meeting with him, but ... Actually, I think we may have been saved by the fact that we didn't meet with Steve, because the funny thing was we were expecting Apple's lawyers to just tear us apart. What was funny was that Steve was such a powerful force at Apple that I believe the fact that we even had a meeting with him was enough protection that the lawyers weren't going to attack us. So, just getting on his calendar was probably what saved us, but, again, I don't know.
Anthony Scaramucci: (23:04)
So, mission accomplished. I have to turn it over to John Darsie, because we have tremendous audience engagement. But before I do, I want to ask you one more question related to where you are going, because I think you are a polymath and you are a genius, and I want to hear about another contribution that you are going to make to our civilization. What is it going to be? And it could be glassblowing. That's totally fine. But I see something else in your future, and I want you to tell us what it is.
Jim McKelvey: (23:41)
So, I've got three things I'm working on right now. One is actually in the studio. I'm going in today. I'm making another set of ... I'm trying to make a cool rocks glass. I've been spending a lot of time drinking lately. You know, pandemic. And I just realized that I didn't like the glasses I was drinking out of. So, I'm going to go and try to make an object. I haven't made a consumer object in 15 years, so I'm going to go in and see if that'll work. Don't get your hopes up for that one.
Anthony Scaramucci: (24:13)
All right. Well, that's number one. You said there's three. So, what are the other two?
Jim McKelvey: (24:17)
The second is a project called Invisibly. Basically the economics of content are broken, and I think that's fixable if we can get micropayments working. That's a bunch of gobbledygook that nobody should understand. Here's the basic problem that every human has. You are not allowed right now to pay more for good stuff and less for bad stuff online, because most online content is either subscription or advertising supported. There's no way to pay more for good and less for bad. The problem with that is it's not all free. Right? Content isn't free. You pay for content essentially with your attention. But because your attention doesn't have this signal built in whether or not you like the stuff, crap gets the same price as quality. And unfortunately, that's-
Anthony Scaramucci: (25:09)
Makes sense.
Jim McKelvey: (25:10)
Yeah. That doesn't work. So, what I'd like to do when I go out is signal to the world that, if I spend 20 bucks on a hamburger this afternoon, I'm basically telling the world to kill more cows and build more slaughterhouses. If I go out and spend five bucks on a Beyond Burger, that's going to be a different vote, and that's how the economy works. But it doesn't work online, and it doesn't work for a bunch of reasons.
Jim McKelvey: (25:40)
So, anyway, I sat down with a bunch of economists at the Fed. We figured out how to fix this. The problem is it requires micropayments to work, and, if you know anything about the history of micropayments, they've never worked. Everyone's had the idea. Nobody's ever gotten it working. So, I'm working on that. That one, that's a long shot, but if Invisibly works, it's going to meaningfully improve people's control over their eyeballs, which I think is a good thing for the world.
Jim McKelvey: (26:07)
The other thing that I'm doing right now is a project called LaunchCode, and LaunchCode is something we started about seven years ago. It's a free class in programming. So, the deal with LaunchCode is you show up, we don't charge you anything, we give you free education, and then you get a job, and we get you a market rate job. And we've been training thousands of people. That's sort of a ... It's a nonprofit, but it's solving the talent gap in programming. So, those are sort of my three big focuses.
Anthony Scaramucci: (26:38)
Awesome. Well, go ahead, Mr. Darsie. We've got a ton of questions for you.
Jim McKelvey: (26:42)
Cool.
Anthony Scaramucci: (26:43)
I'm holding up the book one more time, The Innovation Stack. Everybody should be reading this book. By the way, I'm getting texts from Jack Oliver. He says hi, by the way, so I'll just throw that out there.
Jim McKelvey: (26:55)
Oh. I talked to Jack last week. All right. Jack, Jack, Jack.
Anthony Scaramucci: (26:59)
He says you're a genius, but we sort of already know that. But go ahead, Darsie.
John Darsie: (27:02)
Yeah. I have a followup question about Invisibly. How much of this idea was born in the last several years? There's been a lot written about how a lot of these journalistic outlets have gone behind paywalls, and we want to make sure that journalists get paid for their work. That seems to be the most sustainable business model for a newspaper outlet that's publishing online, for example. But then you have a lot of disinformation that's out there, and it's free. So, what's happening is a lot of people who don't have the means to have subscriptions to The Washington Post, The New York Times, The Wall Street Journal, The Financial Times, they're instead consuming ... I'm not going to name these disinformation outlets and give them that platform, but a lot of people are consuming stuff on Facebook and social networks that's out there for free. How much of that idea is born out of the desire to make sure that people are consuming the right information rather than disinformation?
Jim McKelvey: (27:52)
There's sort of two questions there. I'm going to take them both. The first is you named three of the five subscription models that work in the English language: Financial Times, Washington Post, Wall Street Journal, New York Times, and The Economist. If it's not one of those five paywalls, it's ad supported or losing a ton of money. Okay? Although those a five great information sources, I as a consumer want to be able to read stuff from all sorts of different sources. Right now, none of those sources are making money. So, subscription is not going to save everybody, because you just as a consumer are not going to have 40 subscriptions, but over the course of a year I'm probably going to want information from 40 different places. So, we really need to figure out a way to ... It would be like me saying, "Okay, pick five chain restaurants you're going to eat at for the rest of your life." You kind of go, "Well-"
John Darsie: (28:45)
Right. Does this apply to streaming outlets as well? Not to interrupt your missive, but I feel like the same thing is developing with these streaming outlets is that now everyone's unplugging from cable, but there's 15 streaming companies out there and you have to subscribe to all of them to get the content you want. Could a micropayment system work for digital video content as well?
Jim McKelvey: (29:05)
It works in theory, John, but it's really hard to set up, and we haven't figured out how to turn that corner yet. I've burned $30 million so far, and I have got nothing significant to show for it. The only thing I've got to show for it, which actually is significant, is I've got a survey to ... Part of our tech ... We just started playing with politics. I can call elections now. I can literally survey and get within a point of the final vote total. It's amazing. Actually, that's one of the reasons I was talking to Jack Oliver last week. But the politicians are all over us, because we've got this tech now. But that's not what the company's about. It's just this weird quirk. But if you need to call an election, let me know. And I'm sorry. I forgot the other part of your question.
John Darsie: (29:58)
It was about how much of this idea was born out of this disinformation, the amount of free disinformation that exists out there on the internet today.
Jim McKelvey: (30:06)
Oh, yeah. Yeah, yeah, yeah. Disinformation. So, it was not born out of that, but I will give you a really interesting piece of insider information that only the ad tech people know, and that is, if you take one of those readers from one of those five expensive publications you've mentioned ... Okay. So, this is somebody who's got enough money to spend 100 bucks a year subscribing to some content source. Okay. Now, let's take the value of that person's eyeballs as an advertisee versus somebody who reads something that is laughably fake news. Okay? Whose eyeballs are worth more per second? You want to take a guess?
John Darsie: (30:52)
I would think the person who's willing to pay for the subscriptions.
Jim McKelvey: (30:55)
Yeah. Most people make that conclusion. You're not only wrong; you're wrong by a factor of 10.
Anthony Scaramucci: (31:00)
Oh, I love the way he's sticking it to you, Darsie. Keep going, Jim. I'm going to turn my camera off. Hold on. You guys can just talk together. All right. I'm down. My camera's down, Darsie. Go ahead, McKelvey.
Jim McKelvey: (31:14)
There you go. No, no, no. I mean, it's the same conclusion I'd make, which is why I think this is so ... So, it turns out that, if you are so gullible that you believe the fake news sites, your value as a sucker for whatever product they're advertising is 10X. I can prove this. I've seen the numbers. You get more money if your audience is the sort of person who believes unquestionably or unquestioningly the content. The critical thinkers, the people who ask the questions, we're not worth that much as a set of eyeballs. But if you're gullible enough to think you should shove your IRA into gold or ... I don't know what they're advertising now. I don't see a lot of that stuff. But I've seen the data. It's chilling.
John Darsie: (32:09)
There's a case study in that today. There was an indictment in New York City about a crowdfunding campaign to build the wall on the southern border where they preyed on zealots to crowdfund the building of the wall, because the government was stalling on building the wall. And you have four individuals, one of which is very familiar to Anthony, who have been now indicted, because they were preying on the exact people that you were talking about.
Jim McKelvey: (32:38)
It's so sad. I have to say, preying on the trust of others is abhorrent. And I wish I had a solution for that. I will tell you that Invisibly does not. The only thing we're able to do, if our system works, and it doesn't work yet, is to give consumers the ability to pay more for good stuff and less for bad stuff and to control how their eyeballs are being bought and sold, because right now your eyeballs are being bought and sold a thousand times a day without your knowledge or consent. So, we're going to give you that control.
Jim McKelvey: (33:15)
What we can't do is make you exercise that in a thoughtful way. So, let me use an analogy with food, because people understand food. What I want to do is change the model, which is currently ... Here's the model that your intellectual food is being created under. We're never going to make much money for it, so we're going to pay the absolute least amount for our ingredients and sell it to you at a fixed price. So, that's the equivalent of saying every lunch in New York City costs 10 bucks. And you say, "Oh, great. 10 bucks. I'll eat a fancy restaurant." No, you won't, because the fancy restaurant just closed, because they can't put the food on the table for 10 bucks a plate. So, all you're going to be is fed the cheapest crap that they can get their 10 bucks from, and that's the model that we're living in with content.
Jim McKelvey: (34:12)
So, in our system, it's like the economy today. You'll have cheap options, you'll have expensive options. If you choose the expensive options, that's great. But if you choose the cheap options, that's also great. The interesting thing though is that we want to have the consumers exercising this choice in a way that's responsible, but we're not going to tell them what to eat. So, the analogy here is, look, you can go out and have a healthy meal. You can go out and have a meal that cumulatively will kill you. That's your choice. So, I'm not going to tell you what content's good, what content's bad, what's fake news, what's real news. We're not going to get into any of that. We're just going to reflect the value that the consumers see back in the price, but it's [crosstalk 00:35:01]
John Darsie: (35:01)
We could talk about Invisibly all day, I think. I want to pivot a little bit back to innovation stacks for a minute.
Jim McKelvey: (35:06)
Cool.
John Darsie: (35:06)
You talk about how Square ultimately prevailing against Amazon in this space is an example of an innovation stack. Are there any other prominent examples in today's business world of innovation stacks? I can think of one potentially with Tesla, now the market cap of Tesla having encompassed the entire automotive industry. But are there any others that provide an example for people of what innovation stacks are?
Jim McKelvey: (35:30)
Well, there are dozens, but let's take your example. Tesla's a great example, because Tesla didn't copy all the other car companies. Right? All the other companies were doing basically internal combustion engines, and when they did try to build electric, they build these sort of glorified golf carts. I don't know if you've ever seen an EV1, but the GM ... I mean, GM built Tesla to market with an electric vehicle by a decade, and yet it was such a ... I mean, they just got it wrong. I think it was because, in the world of General Motors, working on the electric car is like punishment. Like, if you're a bad engineer, they make you ... Like, "Oh, we're going to send you to the Russian Front or make you work on the EV1s. You can make a golf cart that slows down when you go up a hill."
Jim McKelvey: (36:24)
But Tesla, what they did was not just one, two, three things. They've probably got an innovation stack that's 40 or 50 things long. Now, I don't work at Tesla. I've met Elon Musk a sum total of five minutes in my life. So, it wasn't like he and I got deep on anything. But even from the outside, you could look at the way they're packing the batteries, the way they're putting capacitors in front of the batteries, the software, the way the car drives, the way it unlocks, the way they deliver the car, the way they sell the car, the Tesla dealership network. Oh, wait a second. You're not buying this from Scaramucci Auto.
John Darsie: (37:07)
No, it makes sense. I think it's happening a lot in the financial industry as well.
Anthony Scaramucci: (37:09)
That would be a hot car, McKelvey. That could be our next business, you and me. Okay?
Jim McKelvey: (37:12)
I'd do it.
John Darsie: (37:12)
You would have a lot of-
Anthony Scaramucci: (37:14)
It would have an '80s feel, and there would be a lot of ostentation to that car. Okay? I just want to make sure you guys know that.
Jim McKelvey: (37:22)
I think David Lee Roth is available.
John Darsie: (37:26)
Well, it's happening a lot in the financial industry as well, where you're seeing people from the tech world come and attack problems that are traditionally financial industry problems, and they're thinking about them in a different way. It's allowing them to re-engineer these systems without preconceived notions of the conventions that have existed in the past.
Jim McKelvey: (37:45)
Look, here's the whole point of the book. I'll save you from having to buy it now. And that is innovation is this thing we all talk about, but it's really hard and really unpleasant and probably should be the last resort. I'm not preaching innovation. I'm not sitting here going, "Look, this is what you should do." I'm a big believer in copying solutions, except that it doesn't always work. When people find themselves in a situation where there's an unsolved problem that they can't copy solution that, almost everybody stops. And I still feel that urge to quit as well.
Jim McKelvey: (38:22)
But when I was writing the book, I had this person in mind, and I always think about her, because she's super competent. She's intelligent, hardworking. She's got all those qualities for somebody you would say, "Oh boy. This person could be doing great things." And she does do great things, but she only does great things when she has permission to do it, i.e. a degree or a credential or somebody saying, "Oh, you're qualified to now work on this project." And when she encounters a problem that has not been solved before, she says, "Oh, I can't do this," and I'm like, "Wait a second. No, no, no. You can." And we had this conversation. She's like, "Well, I'm not qualified to do that." I was like, "Look, nobody's ever done this. You can be qualified."
Jim McKelvey: (39:02)
So, today, all right, I'm going to fly a plane today. I'm going to get in a plane. I've literally got a freaking book here that I've got to sit here and read on the Garmin G1000, because they just put a new ... Everyone's going to hate me now. But I've got to read this stupid book, okay? And then I've got to go take all these tests, because today if you want to get in a plane and fly a plane, you'd better be qualified. Great. That's the way it should be. Orville Wright who gets in the Wright Flyer-
Anthony Scaramucci: (39:36)
I've got to interrupt you there, because you're talking to capitalists, fellow capitalists. I love the fact that you have your own plane, okay? I want everybody to have their own plane. I want them to read The Innovation Stack so they can figure out how to buy their own plane. Okay? All right. But keep going, okay? This is great.
Jim McKelvey: (39:52)
So, the point is if you want to get in and pilot a plane today, you get qualified, you get trained, you get certificated, you pee in a cup. You're good to go. The Wright brothers could not be qualified to fly the first plane. Nobody is qualified the first time. You build the first anything in the world, I don't care what it is, you're not qualified.
Anthony Scaramucci: (40:15)
Well said.
Jim McKelvey: (40:16)
Nobody's qualified. You don't get credentials and permission and diplomas and little badges until it's become something that humanity has already solved. So, if you want to spend your whole life limited to the world of already solved problems, then you're going to have a great life. Nobody's going to give you any shit. Nobody's going to sit there and tease you or tell you you're stupid or call you crazy. But unfortunately, the world's never going to move forward unless some of us sort of step off the edge and usually fall, but sometimes we end up pushing the frontier of what humans can do a little bit further, and that's innovation. It's unpleasant, and it's something we don't talk about because we don't even have the words, but it's something that I think is desperately necessary.
Jim McKelvey: (41:08)
I mean, the reason I wrote a book, which by the way is hell ... Writing a book for three years is ... Well, it's rewriting the book. You write the book, and then you rewrite it and rewrite it and rewrite it, rewrite it until it becomes readable. But the reason I put myself through this is it's the only way I could possibly think of to get more people off the bench. So, the reason I want people to read the thing ... I don't necessarily want them to buy it. You can steal it. I'm sure there's a Tor copy of my book out there. But if you get the idea that at some point in your life you may encounter something where all of your training, all of your credentials stop being relevant, and you don't necessarily have to stop moving at that point. If we can get a few more people moving [crosstalk 00:41:54]
Anthony Scaramucci: (41:53)
I think it's brilliant. I just want to ... As a public service announcement for Penguin Publishing, buy the book. It's worth every bit of the $22 that you've got to spend on it.
John Darsie: (42:06)
I want to leave you with one last question, Jim, and it's a followup to what you're saying about how we need to get people off the bench. So, we had a great conversation at our SALT Conference in 2019 between Mark Cuban and Steve Case on the idea that entrepreneurial success can be found outside of Silicon Valley. There's this bubbling up of entrepreneurial zest that exists in the American heartland. You live in St. Louis. Other areas of the country, other areas of the world, frankly. Mark Cuban has invested a lot outside of Silicon Valley. Steve has a fund called the Rise of the Rest fund, dedicated to funding entrepreneurs outside of Silicon Valley. You launched LaunchCode, which is a nonprofit to try to get people from nontraditional backgrounds free education and job placement opportunities in tech. So, how do we tap into that entrepreneurial spirit that exists in parts of the country but they might not have access to capital or expertise or the confidence they need to go out and truly innovate?
Jim McKelvey: (43:03)
I might get in a lot of trouble for saying this. I've never seen a problem with access to capital. Okay? So, I've got a VC fund. I get pitched all the time, which is by the way a horrible business, because you just ... People lie to you professionally. Your job is basically to have these people lie to you all day long. It's gruesome. But I hear people talk about "Oh, I don't have any capital." It's like, well, maybe your idea is a little messed up, or maybe you didn't do enough work. The investments that we make, we're fighting off other investors. These elbows are sharp for a reason. So, I don't see that.
Jim McKelvey: (43:44)
But what I do see is a sort of clubbiness to tech entrepreneurship, which has historically persisted in the Bay Area and to a lesser extent New York and a few other cities around the world. And the cool thing about a pandemic is that it is all now coming apart, this club that the rich belong to, which is the club of New York or the club of San Francisco. And, by the way, if you don't think you have to be rich to live in San Francisco and have a normal life, go check rents there. I've got engineers earning well into six figures that have five roommates. That's how expensive San Francisco has become.
Jim McKelvey: (44:29)
If you're a normal person and you have the skills but you don't have the financial ability to move to a coast ... Maybe you've got a parent you've got to take care of or maybe you've got some other that prevent you from just upping and moving. Well, we're breaking these clubs up. I mean, right now we're ... I mean, I guess we should all be sitting in a room together, but we're not. We're Zooming. And there's some lag over the video and a few other problems like that, but we've basically pulled it off. Right? And I don't know where you are, and I don't know where Anthony is. Actually, I'm assuming it's a bunker somewhere.
Anthony Scaramucci: (45:09)
I'm in a heavily fortified bunker with shitty books behind me, but it's so far so good-
Jim McKelvey: (45:14)
That Edison book is going to save his life.
Anthony Scaramucci: (45:15)
... because my wife is still allowing to stay here. I mean, once in a while she throws food in through the door, but I'm fine. I'm fine.
Jim McKelvey: (45:23)
The sheer density of the writing is going to be the thing that protects your head from the blast. In this twist of irony, you will be saved. I'll have to eat all my words. God, I hope that wasn't published by Penguin.
Jim McKelvey: (45:36)
But, anyway, the point is it doesn't matter as much. So, cities like St. Louis where it's pretty pleasant to live and we've got great health care and great schools, and houses are really nice and cheap. I mean, hell, we'll give you a house in certain parts of town. It's opening up talent to more opportunity, and I think that's what we need. So, I love what Steve is doing. The Rise of the Rest is fantastic. His bus came through here. I was on it and spoke at the events. I love what Steve is doing.
Jim McKelvey: (46:13)
I think we're just going to see that, not because it's a good thing to do or we're being nice to Ohio or anything like that. It's just because, look, greed is a good thing to harness, and greed is smiling on lower cost, higher quality of life cities. As long the town is here and it can move remotely, maybe live in St. Louis. It's a great city. Or whatever you think is a great city. Pick what you like and move there.
Anthony Scaramucci: (46:50)
You should know, because people are texting. We're getting questions and answers. Jim, you're a phenomenal guy, and you've left an amazing impression on our delegates. So, I would love to get you back.
Jim McKelvey: (47:04)
Anytime. This has been super fun. I love it.
Anthony Scaramucci: (47:05)
You've got to do me a favor though. You've got to be careful flying the plan, man, because you're holding up the operational manual there. And I'm not saying I wouldn't get in the plan with you. I would definitely put Darsie in the plane with you first though. I'd just like to try it out with Darsie before I take a ride with you. But I want you back on our show so we can talk about where the future is going. You're going to be a big part of it. I have no doubt about that. So, we've very grateful to have you on.
Jim McKelvey: (47:30)
Anytime. This has been super fun. You guys ask great questions. This is fun. Yeah. Thank you.
Anthony Scaramucci: (47:37)
All right. Well, God bless. We're going to turn it back to John Darsie. He usually does the happy recap. Go ahead, Mr. Darsie.
John Darsie: (47:44)
Well, I'm very excited to see your progress with Invisibly.
Anthony Scaramucci: (47:46)
We didn't make one comment about George Washington. McKelvey, look at what this guy thinks of himself with the George Washington portraits. I mean, I know I have shitty books, but look at this this guy. Look at this [crosstalk 00:47:53]
John Darsie: (47:53)
I try to create a background that lives up to Anthony's bookshelf.
Anthony Scaramucci: (47:56)
Darsie, at night, he walks around with that wig on. Okay? I've heard that from his wife, by the way. Go ahead, John.
Jim McKelvey: (48:01)
I need a wig. That's a good idea.
John Darsie: (48:04)
Well, Jim, thanks so much for joining us. Thanks everybody for tuning in. I highly recommend Jim's book. It will hopefully either help you take that leap into entrepreneurship or decide that that journey's a little bit too painful for you, and I think Jim provides both of those perspectives in a great way in The Innovation Stack.