Square’s Founding Moments
A curious phenomenon happens when some people experience success—they immediately stop taking chances. Nobel Prize winner, Daniel Kahneman, calls this loss aversion, and it helps explain why some entrepreneurs have a hard time innovating once they’ve been successful.
Square co-founder and CEO, Jack Dorsey chose a different path. After founding Twitter, he surprised the world by also founding Square. Jack’s response to success was more innovation, not less.
Jack, and co-founder Jim McKelvey, created a way to bring payments to anyone with a smart phone, and then fought for a year to get it approved by the financial industry. Less resolute builders would have quit when up against such an entrenched and slow-moving system. But the team at Square persevered. Starting with payments as a way to open the door, they have built an entire suite of tools to help small businesses succeed. In his open letter to potential investors, included in Square’s S1, Jack puts it this way:
“The strength of this business is more than the money it generates. The collective power of our millions of sellers sustains a scale from which we can build valuable financial services and marketing services, creating reinforcing and virtuous cycles back to our core business of payments. We’ve made getting capital as easy as tapping a button. We replaced pen and paper accounting with real-time insights into sales patterns and customer trends. Everything works together seamlessly to help our sellers make smart decisions for their businesses. When they succeed, we succeed.”
This virtuous cycle has led to over a billion dollars in annual revenue and more than 2 million active merchants in their first five years.
I vividly remember my first glimpse of the product—I started running around the office charging each of my colleagues a dollar for the chance to see the iPhone card reader in action. The device was thrillingly ingenious, but what caught the attention of Sequoia was the founders’ transformative impulse to democratize access to economic empowerment. The card reader was the way in, but economic transformation for small businesses was the goal.
The team at Square deserves special credit. The press tends to focus on Jack—both showering him with glory when things go well and shame when they don’t. And as co-founder, he is the company’s spiritual leader—relentlessly driving the company. But one of his greatest acts as leader has been to assemble an exceptional management team that he deeply trusts. Here’s one small example of how: before board meetings, he encourages me to meet with his direct reports, to hear first-hand the good, the bad and the complicated issues of the day. Many CEOs would be apprehensive about this type of direct access, but Jack sees it as an essential way to provide transparency and to ensure that everyone is perpetually improving.
Perpetual improvement is a theme that the Square team takes seriously. To quote Jack, “companies have multiple founding moments.” In addition to the initial founding of the company, there are subsequent founding moments when the team comes together to create something special and as a result the company is never the same. Square has done this with each new major initiative.
On behalf of Team Sequoia, congratulations to everyone at Square on today’s IPO. We’ve enjoyed a long partnership and hope for many more founding moments.