The 140 Reasons Square Should Have Failed
Guy Raz Newsletter – February 26, 2026
Most people assume the biggest threat to entrepreneurs is politics. That some anti-business lawmaker woke up one day and decided to make your life harder.
Sometimes that’s true.
But in Jim McKelvey’s telling, the more common story is quieter and nastier: the rules are often written by the biggest players in the market, for the biggest players in the market. Economists call it regulatory capture. Founders call it the moment you realize the game is rigged.
McKelvey and Jack Dorsey ran headfirst into that reality in 2009, when they tried to build a product that seems obvious now: a tiny reader that would let a person take credit cards using a smartphone.
What sounded like a simple idea was anything but. It meant stepping into a chain of middlemen, regulations, network rules, bank requirements, and gatekeepers. It meant making something new, while still playing by rules designed for someone else.
Listening back, I came away with five key lessons, especially for anyone building in a highly regulated industry, or any industry where incumbents have had a long time to build moats.
1) Don’t confuse “complicated” with “inevitable”
McKelvey does a great job explaining why card payments feel so immutable: the transaction runs through a maze. Point-of-sale provider. Processor. Merchant’s bank. Card network. Issuing bank. Everyone takes a cut. Merchants pay the price. Consumers pay it again in the form of higher prices.
But the most important point is this: the complexity isn’t just technical. It’s structural.
A system like that produces two outcomes at the same time:
It becomes very hard to disrupt.
It becomes extremely profitable for the people who sit in the middle.
So when you’re staring at a problem that feels “too regulated” to touch, it’s worth asking a blunt question: is this regulation here to protect the public, or to protect the business model?
If it’s the second, that’s not a reason to walk away. It’s a sign the opportunity is real.
2) Constraints don’t just shape the product. They can create the breakthrough
Square’s first hardware choice is one of those founder moves that sounds like folklore until you remember it had to be true.
Apple’s dock connector was gated. And the iPhone’s battery was so bad that Apple didn’t want third-party hardware pulling power from it.
So Square went through the headphone jack.
Not because it was elegant. Because it was available.
McKelvey describes reading a hack in Make Magazine and realizing: we can make a credit card swipe look like sound, then decode the sound.
This is what I love about real innovation. It’s rarely a straight line from idea to execution. It’s a series of “fine, then we’ll do it this other way” decisions, stacked on top of each other, until something works.
If you’re building anything meaningful, you will meet gates you can’t open. The winners are the ones who find a side door, then build the whole business through it.
3) The best founders know how to weaponize candor
One of the most memorable parts of this interview is the pitch strategy.
Instead of walking into venture meetings with the standard performance, the projections, the hockey stick, the inevitable destiny, Square put up a slide with “140 reasons this business will fail.”
McKelvey insists it wasn’t confidence. It was candor.
That distinction matters.
Most pitches are a defensive sport. The VC is the goalie. The founder is firing shots, often with a little fiction mixed in. But when you lead with what can go wrong, you change the power dynamic in the room. You invite collaboration instead of cross-examination.
4) Real defensibility is built, not declared
When Amazon entered payments in 2014 and undercut Square on price, the default response would have been: panic, engage, start a war.
Square did something that sounds passive but is actually strategic: they didn’t play Amazon’s game. They kept serving customers and kept building.
McKelvey’s explanation for why Square survived is the concept he calls the “innovation stack.” If you invent something genuinely new, you don’t invent one thing. You invent a stack of things. A dozen interlocking solutions to problems you only discover by doing the work.
And that was Square’s “moat”—a collection of hard-earned, non-obvious decisions that fit together so tightly that an outsider couldn’t easily replicate them.
5) The best motivation is responsibility, not achievement
The most personal part of McKelvey’s story has nothing to do with payments. It’s about his mother’s suicide, and the regret he carries about what he wishes he had done. He talks about learning, painfully, not to assume “someone else will do something.”
That ethic shows up everywhere in his life. In how he builds. In how he takes risk. In how he describes his work now that money isn’t the motivator.
It’s also a reminder that founders are rarely powered by a single fuel source. Yes, there’s ambition. Yes, there’s curiosity. But often the deeper engine is a kind of moral restlessness. A refusal to stand by when they see something broken.
Not every founder needs that origin story. But every founder needs the posture.
Because the world is full of problems that survive on collective inaction. And the moment you decide, “I’m going to be the one who tries,” you separate yourself from most people.
Here’s a distillation of what I really learned from Jim:
When a market is controlled by rules, the opportunity isn’t to complain about the rules. The opportunity is to learn them, route around them, and build something so real that even the gatekeepers eventually have to let it through.
P.S. If you loved the episode, follow the show in your podcast app so you never miss one. And please SHARE this newsletter so others can learn from some of the world’s greatest entrepreneurs!
On HIBT This Week!
Square: From a Lost Sale to a $10 Billion Company
Jim McKelvey wasn’t trying to start a fintech company. He was just a glassblower in St. Louis. On a productive day, he could make $1,000 in the studio.
Then he lost a $2,000 sale because he couldn’t accept a credit card.
He stared at his iPhone and thought: this device can do almost anything. Why can’t it take a credit card?
This was the question that jumpstarted Square.
But this “simple” idea was extremely complex: layers of regulations, middlemen, hidden fees, and networks designed to keep small businesses out.
It seemed… impossible.
But Jim had been breaking into hard systems his whole career. He’d built and pivoted companies for decades. And along the way, he’d partnered with a teenager named Jack Dorsey, long before Twitter existed.
Together, they hacked their way in (literally routing credit card swipes through a headphone jack). And within a year, Square had 50,000 customers.
So how did a glassblower crack open one of the most protected systems in America? How did they survive being copied by a giant incumbent? And what was the invisible advantage that made Square nearly impossible to replicate?
Tune into the latest episode of How I Built This to find out!
HIBT Advice Line: Keep the Main Thing the Main Thing
This week on the Advice Line, I’m joined by Alexa Hirschfeld, co-founder of Paperless Post. We talk about how AI is changing creative work and how Paperless Post is tackling it head-on. And then we get into the callers:
First up, Jess: When does a collaboration need its own identity?
Jess founded Five Dot Post after her late husband’s cancer diagnosis, creating empathy-driven cards that say what people are actually thinking. The brand has grown to $350K, but they are juggling a new partnership. Alexa’s advice: consider an umbrella-company model. Keep the main thing the main thing.
Next, Carolyn: Should I build a team or outsource manufacturing?
Carolyn’s Creative Garland Company makes distinctive paper garlands and did about $43K in her first full year. But she’s hit a production ceiling and is wondering how to delegate. Alexa reframed the decision: break the business into components and figure out what truly requires Carolyn’s taste.
Finally, Sayuri: How do I educate people about a product they’ve never seen?
Sayuri’s Sumo Yoga makes tatami yoga mats handcrafted in Japan. She’s in the early stages and feels like she needs to educate people before she can sell. We pushed back: lead with the product. Spotlight the tangible benefits and let the underlying philosophy be a layer on top.
Alexa leaves us with this: Keep the main thing the main thing. There will always be distractions. But the companies that last aren’t the ones that chase everything. They’re the ones that stay centered and evolve on purpose.
If you would like to be featured on an upcoming episode, call and leave a 1-minute message at 1-800-433-1298 or send a voice memo to hibt@id.wondery.com
Wow in the World!
Grandma G-Force’s Diaper Mansion!
What do you do when Grandma G-Force needs a new home? Build her one out of DIAPERS, of course!
Me and Mindy come up with the most bonkers construction plan ever: creating an entire house using the fluffiest, most absorbent materials we can find. But here’s the surprising part… diapers are actually incredible building materials!
They’re super absorbent, waterproof on the outside, and surprisingly strong when you stack them up. From diaper walls to diaper furniture, we’re creating the squishiest, most comfortable home ever built!
Will Grandma G-Force actually want to live in a house made of diapers? Tune in to find out why this unusual building project is way more scientific than you’d ever imagine!
From the HIBT Archives!
Paperless Post: James and Alexa Hirschfeld
When James Hirschfeld pitched the idea of selling virtual paper invitations in 2007, nearly everyone thought he was crazy. Why would people pay for something digital when Evite was free?
But James and his sister Alexa saw something others missed: people still craved the elegance and formality of traditional stationery, just without the hassle of stamps and mail.
The sibling duo faced the classic startup challenge of educating a market that didn’t know it wanted their product. Investors couldn’t understand why anyone would pay for “fake paper,” and users initially struggled with the concept.
But James and Alexa persisted, partnering with high-end designers to create digital invitations that looked and felt premium.
The biggest test came in 2020 when COVID-19 threatened to kill their business overnight. With in-person events canceled everywhere, Paperless Post seemed doomed. Instead, the pandemic proved their model: as people shifted to virtual celebrations and socially-distanced gatherings, demand exploded.
Fifteen years after launch, having sent over 650 million invitations and earned a Saturday Night Live parody, Paperless Post proved that some of the best ideas are the ones that nobody else believes in.
See you next time!
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