The Innovation Stack

1. What is "The Innovation Stack" by Jim McKelvey about?

• Entrepreneurship and Innovation: The book explores the concept of true entrepreneurship, focusing on how world-changing companies are built by solving problems that have never been solved before.
• The Innovation Stack Concept: McKelvey introduces the idea of an "Innovation Stack," a series of interlocking inventions and solutions that together create an unbeatable business.
• Case Studies and History: The book uses the story of Square (co-founded by McKelvey and Jack Dorsey) as a primary example, but also examines historical cases like Bank of Italy (now Bank of America), IKEA, and Southwest Airlines.
• Surviving Competition: It details how these companies survived and thrived against massive competitors, including how Square beat Amazon at its own game.

2. Why should I read "The Innovation Stack" by Jim McKelvey?

• Unique Perspective on Entrepreneurship: The book challenges the conventional wisdom that entrepreneurship is about following checklists or copying others, instead emphasizing audacity and creativity.
• Practical Lessons: Readers gain insight into how to approach unsolved problems and why copying existing solutions is not always the answer.
• Inspiration for Innovators: It provides motivation for anyone who wants to make a significant impact, showing that you don’t need to be an expert to start something new.
• Real-World Examples: The stories of Square, IKEA, Bank of Italy, and Southwest Airlines offer concrete, relatable examples of the Innovation Stack in action.

3. What is the main concept of the "Innovation Stack" in Jim McKelvey's book?

• Definition: An Innovation Stack is a series of interdependent, original solutions that a company develops when facing problems that cannot be solved by copying others.
• Evolutionary Process: The stack evolves as each new solution creates new problems, requiring further innovation, until a unique, defensible business model emerges.
• Survival Mechanism: Companies build Innovation Stacks out of necessity, not by choice, often when entering uncharted markets or serving previously excluded customers.
• Competitive Advantage: The complexity and interdependence of the stack make it nearly impossible for competitors to copy, providing long-term protection.

4. How does Jim McKelvey define a "perfect problem" in "The Innovation Stack"?

• Unsolved but Solvable: A perfect problem is one that has not yet been solved, but is within the realm of possibility for you to solve.
• Personal Relevance: The magic ingredient is you—if you have the ability and motivation to solve it, it’s perfect for you.
• Catalyst for Innovation: Tackling a perfect problem forces creativity and leads to the development of an Innovation Stack.
• Not Always Obvious: You often only recognize a problem as perfect after you’ve solved it and others begin to copy your solution.

5. What are the key takeaways from "The Innovation Stack" by Jim McKelvey?

• Entrepreneurship is Rare: True entrepreneurship involves doing something genuinely new, not just starting a business.
• Copying vs. Creating: Most businesses succeed by copying, but transformative companies invent when they must.
• Innovation is Iterative: Solving one problem leads to new problems, requiring a chain of innovations.
• Survival Over Disruption: The most successful companies focus on survival and serving new markets, not on disrupting existing ones.
• Anyone Can Innovate: You don’t need to be an expert; audacity, humility, and perseverance are more important.

6. How did Square use the Innovation Stack to beat Amazon, according to Jim McKelvey?

• Multiple Interlocking Innovations: Square’s success was not due to a single invention, but a stack of innovations—simple pricing, free sign-up, cheap hardware, no contracts, beautiful design, and more.
• Difficult to Copy: Amazon could copy individual features, but not the entire interconnected system, making it nearly impossible to compete effectively.
• Customer Focus: Square focused on serving previously excluded small merchants, building trust and loyalty.
• Doing Nothing: When attacked by Amazon, Square chose not to react or change its core approach, relying on the strength of its Innovation Stack.

7. What are some historical examples of the Innovation Stack outside of Square, as discussed in "The Innovation Stack"?

• Bank of Italy (Bank of America): A.P. Giannini built a bank for the “little fellow,” introducing innovations like low minimums, branch banking, and simplified underwriting.
• IKEA: Ingvar Kamprad, after being excluded from trade fairs, developed catalog showrooms, overseas manufacturing, self-assembly, and a global supply chain.
• Southwest Airlines: Herb Kelleher’s team created a low-cost airline with fast turnarounds, standardized fleets, open seating, and a unique company culture.
• Common Pattern: In each case, the companies were forced to innovate due to exclusion or attack, resulting in a stack of interdependent solutions.

8. How does "The Innovation Stack" by Jim McKelvey differentiate between entrepreneurs and businesspeople?

• Entrepreneurs as Outlaws: Entrepreneurs leave the “walled city” of known solutions and venture into the unknown, risking failure to create something new.
• Businesspeople as Copiers: Businesspeople operate within established markets, succeeding by copying proven formulas and making incremental improvements.
• Rarity of Entrepreneurs: True entrepreneurs are rare, as most people and companies prefer the safety of copying.
• Mindset Difference: Entrepreneurs are driven by audacity and a willingness to solve perfect problems, while businesspeople focus on efficiency and optimization.

9. What advice does Jim McKelvey give for building an Innovation Stack in your own business?

• Start with a Perfect Problem: Choose a problem that hasn’t been solved and that you care deeply about.
• Invent When You Must: Copy existing solutions when possible, but be ready to invent when copying won’t work.
• Iterate Rapidly: Expect that each solution will create new problems, requiring further innovation.
• Embrace Discomfort: Be prepared for fear, uncertainty, and lack of feedback—these are signs you’re doing something new.
• Focus on Customers: Build for the needs of new or excluded customers, not for disrupting competitors.

10. How does pricing strategy fit into the Innovation Stack, according to "The Innovation Stack" by Jim McKelvey?

• Low, Not Lowest: The goal is to offer a consistently low price that reflects the efficiencies of your Innovation Stack, not to undercut competitors at all costs.
• Builds Trust: A low, transparent price fosters customer trust and loyalty, which is more valuable than short-term profit maximization.
• Competitive Barrier: Keeping prices low leaves little room for competitors to enter the market, as they would need to replicate your entire stack to match your price.
• Corporate Alignment: Low pricing signals to employees and customers that the company values long-term relationships over short-term gains.

11. What are the most important qualities or mindsets for entrepreneurs, according to Jim McKelvey in "The Innovation Stack"?

• Audacity and Humility: The courage to try something new, combined with the humility to admit you don’t have all the answers.
• Perseverance/Stubbornness: The willingness to keep going despite setbacks, fear, and lack of external validation.
• Comfort with Discomfort: Accepting fear and uncertainty as natural parts of the entrepreneurial journey.
• Focus on the Problem: Deep care for the problem you’re solving is the best motivator and source of energy.

12. What are the best quotes from "The Innovation Stack" by Jim McKelvey and what do they mean?

• “You don’t plan to innovate, you don’t want to innovate, you don’t aspire to innovate, you have to innovate.” – Innovation is a necessity when facing unsolved problems, not a goal in itself.
• “Copy when you can; invent when you must.” – Use existing solutions when possible, but don’t be afraid to create new ones when needed.
• “Humility and audacity are allies.” – Being open to not knowing, while still having the courage to act, is key to entrepreneurship.
• “If the innovation feels right, it probably feels right to a hundred other people with the same idea. If it feels too early, in my experience, that’s a good time to leave the walled city.” – Acting before something feels comfortable is often necessary for true innovation.
• “Qualification matters only in the world of copying, not in the world of entrepreneurship.” – You don’t need to be an expert to start; expertise is built through the process of solving new problems.