Thu Sep, 2012 by Derek Mehraban
On Thursday, September 13, 2012 Jack Dorsey, founder of Twitter and Square gave an insightful talk to 150 University of Michigan Engineering students. Here is my best attempt to capture what the Twitter and Square founder said in his one hour discussion, and Q&A session. Enjoy.
Jack is looking for ideas on something we take for granted. The concept of paying each other. Money touches every person on the planet. People feel bad about the concept of money, what can we do to lift that burden, so people can get into it immediately, and focus on the experience. Currently merchants have to deal with a POS, a calculator on top of a cash box, with a separate credit card reader on the side. Multiple receipts stapled together, and you throw it away. Square is changing all that. And providing value on both sides of the counter.
Jack Insight – If you have an idea – get it out of your head. Get it on paper. Draw it out. If you don’t get it out of your head, you will constantly make excuses on why you can’t get it done.
Jack Insight – If you wait for the technology to exist, you will never get anything done. If you have the idea, you get it out there, iterate it, and get it done.
Jim McKelvey (co-founder of Square) was at an art fair and couldn’t accept credit cards because he had bad credit, and the women customer only had a credit card. He couldn’t get a CC machine, because he had bad credit. He lost a $2,000 sale, because he couldn’t get a credit card processing machine. PROBLEM – NOW SOLVE IT. They wanted to answer the question, “why couldn’t you receive Credit Cards?” Within one month they had something that worked, where Jack could swipe a credit card, and money would go into his bank account. Jack would ask his buddies for their credit cards and run it to demonstrate. He ate very well that month.
When Square began they had 3 merchants. Flight instructor. Coffee Store. Flower Merchant. With 3 merchants, and the team in his studio apartment, they went to raise money. Raised $10M with no users, at a $40M evaluation. He believed in the potential of the marketplace. The guy from Sun Microsystems Vinod Khosla (the best VC). One of the types of merchants they found immediate resonance with – Bands. Want to buy t-shirt or CD at concerts, bands now use Square. Don’t have CC machines, cuz too much in fees, or bad credit.
Jack built an application so people could download it for free, and then get a Square reader in the mail, and immediately start accepting credit cards. Watching the Silent Comedy video of the band, who is using Square. Huge increase in sales thanks to Square. People love signing w/ their fingers. Love email receipt. Works out very well for a band on the road. Lifesaver!
When we started there were only 8M entities in the US who accept CC. There are over 26 Million small business = Massive, massive market that was currently locked out. When people go to the bank to get a CC process, they have to go through a huge process, only about 10% of people get accepted to even have CC. Square accepts about 95% of people who apply to accept CC. You have to be kidding me!
Uses of Square? Babysitters, Tutors, Bands, Craigslist, Etc. Then coffee shops started showing more interest. Take all the pain away from what people had to go through. Remove the POS machine and replace with an iPad. Becomes their register, and a personal computer. People immediately go to Apple Store – buy iPad with ATT service, they need no DSL, and can immediately begin accepting CC payments with Square. Small business could not offer this before, but now it gives them such a great advantage for them.
After so many purchases, you can get rewarded for something back. Download Square Register or Pay with Square. Started on building the terminal. Moved up to POS register, so people can make a choice to grow their business. A Lot of what we take for granted on the web, very simple analytics, are being used with Square. No small merchants had this. Offline commerce is over 90% of purchases, only 6% of commerce has moved to online globally.
Receipts? What can you do w/ the receipt? What if the receipt could actually be an application. Jack got in front of the company, tasked them to build something where he could walk into a coffee shop, order cappuccino, and walk out without knowing if he paid for it or not. In a few months, they developed Pay With Square.
So now you can download the Pay w/ Square app, enter your CC, and then select merchants so anytime you walk into that merchant, you can open a tab, when you walk in give your name, and your photo pops up on the register, they see that, confirm, and the purchase happens. As you walk out - it gives you a push notification, asking if you want to leave a tip? You can then tip on the quality of the coffee.
Increase of sales and tips with this new system. Only company in the world that is going after offline commerce, that is going after every single part. Some people are building out individuals aspects (bank, coupons, etc.) but Square is building all things at once. They have the opportunity to level the playing field. Currently merchants have to spend $10K to buy a POS system that gives them analytics, etc. Square can do that easily. Tell you how many people who are searching for lemonade around you, or if it’s hot suggest to consumers of places they can get lemonade. About a month ago Square partnered with a firm called Starbucks, and anytime you swipe a CC in Starbucks or use the application, Square is processing the payment. Bonus! We’re a coffee business, we don’t want to build payment technology, we want to focus on coffee. You guys seem to know this pretty well, and we want in. Starbucks touches 70M unique americans per month. Huge touchpoint for Square. Starbucks wanted Square to “shine a light” on more small businesses, and the neighborhood. That is good to hear!
Bridges - The Golden Gate Bridge was built over the straight, called the Golden Gate. It’s the last place on the planet you want to build a bridge. Earthquakes, wind, weather, fog (obviously). It’s a 1.7 mile stretch. Was supposed to take 5 years. Got it done in 3. Supposed to cost $50M and they did it for $20M. If you ask an engineer to build something across the golden gate, he may build a nice bridge but it may not look good. A designer may build a pretty bridge, but it may fall down. To build this bridge was audacious in it’s effort. A bridge has one distinct feature - stays up 100% of the time. Utility - it brings people from point a. to point b. It also takes your breath away as you come out of the Sausalito tunnel and see the bridge coming out of the fog.
Square is providing utility - moving money from point a. to point b. If we build a great company, then everything else takes care of itself. We are designing and building a cmpany, that in turn will help us build a great product. WE are building something beautiful. Something iconic. Something that people don’t need to notice, and when they do it’s something amazing.
What can Square do to make payments better for everyone? Currently payments feel like a burden. So now what? Jack opens it up to the students...
Q: Can we use Near Field Communications NFC with square, so he can just have a card and the phone can read it.
A. NFC is a technology it’s not a product. Would be cool if NFC in a bracelet or a wrist and if you had that you could jump on any computer and it would recognize you and have all your materials there. Or a phone that knew who you were, because it reads your NFC. Square uses geolocation to determine that the payer is near the register, as you walk in the merchant is notified, and what you like, and then they can know who you are and improve the experience.
Q. Do you think we’ll ever transition beyond having a piece of plastic on our pocket?
A. I do it in SF today. The future is already here. “The future has already arrived, it’s just not evenly distributed yet.” The goal is to distribute the future around the world. Jack doesn’t carry his wallet around, only his phone. Taxi cabs, food carts, all on Square. He just takes his phone.
Q. Square streamlines the process for both retailers and users. How might Square incentivize users to not just benefit, but to boast about their experience like Yelp and tell others to come there.
A. How do we make it more social to encourage more usage? Pay w/ Square app, merchants have a card and you can send to your friends. Send to your friends and see where you’ve been. We need to build more social tools, just not fully built out yet.
Q. I’ve noticed that Paypal has a similar card reader. How do you compete w/ them?
A. We went through a lot of thought so we never had Pay in our name. Reason, we didn’t want to be limited to just payments. What really needs to change is not just payments, but the whole experience around it. Paypal has done amazing work with payments online. Now that Square is out, Paypal has started to shift its focus to offline, since 90% + of commerce is offline. About 70% of your spend happens within 5 miles of where you live. Paypal came out w/ applications, and tried to simplify what Square is doing and created a triangle reader, so it can point up to the cloud, and then the money goes to the cloud. Called Paypal Here. Didn’t make a ton of sense, since what we’ve found is the device, is the name of the company, is the product. People would see Square in a taxicab, people remember what they see, a white square device, and remember and become a new user. Simplified messaging. Square looked to see what Paypal was doing, but wouldn't worry too much about it.
“If you worry too much what your competitor is doing, you’ll lose."
Must have a strong vision. Square has momentum - it’s ours to lose. We have a very strong vision. We don’t want to do what they do, want to do what we want to do. Jack’s main job is to keep the organization focused on what their mission is.
Some of the original people involved in Paypal are now on the board of Square. Many paypal people left after it was sold to ebay.
Q. Square receives 2.75 percent per transaction. Does that stop local stores from using square? Why that number?
A. The biggest thing that makes Square grow is our pricing. People don’t understand the credit card industry. Typically a merchant pays 1.5% to 5% for the credit fees. IF you have rewards card the merchant pays for that reward. They give you the full amount, then they take the CC fees at the end of 30 days. Small business doesn’t know what those fees are gonna be. It’s a bad situation. This has to end. Square charges 1 rate. 2.75% is the magic number, as they pay the interchange. Lose on some. Gain on some. Have a model that allows them to remain sustainable. No matter what card comes on the counter, they have the same charge. Some merchant statements are as high as 8%. Taxi cabs pay as much as 8% since the cab companies get billed, and they mark it up. Good for cabbies who are getting Square and going around the CC system of their cab company. A few weeks ago Square offered subscription based pricing, if you are under $250K and $10K per month, you can pay subscription rate of $275 per month to use Square.
Q. Many merchants who use square, aren’t super savvy computer users. How are you sure they’re OK?
A. Education - we need to build a product that when they open it up it leads them through what they need to get started. Provide better hardware. We think hardware solves a lot. We include a strand with the iPad. A cash drawer is also something they wanted. So we built a solution (with a 3rd party) plug cash drawer into iPad, and it opens when you make a payment. Having a cash drawer on the counter legitimizes the business, and makes them feel good.
Q. Are emerging markets different? They often use cash and not CC. Also, mobile devices?
A. We are looking at international markets. Only in the US now, looking to go outside US this year. Emerging markets are where payment innovation is happening. M-Pesa in Mexico, trading phone credits over SMS. We want to be open to the lowest common denominator. Not just about moving money around, but making commerce easier. Still perfecting the system in the US, looking at emerging. Trouble is regulation and working with local banks. A lot for questions for global expansion.
Q. What are Square’s biggest policy challenges?
A. #1. Financial institutions are doing pretty well now. Lobbyists go to capitol hill and talk about innovation and the merits of it. Square is creating jobs in the US. Increasing the small business economy. Major force in improving US economy. You can’t argue with job creation or bolstering the US economy. #2. Moving money across state lines. You have to talk to all the states to do that. Rules and people to talk to. Slows the pace of advancement sometimes. There are products waiting to launch, but still waiting for regulatory process. Square itself took 10 months to be launched, as they worked to prove it was a viable company that works, and shows numbers to prove point.
Q. What do you think the role of currency innovation will play in the future of Square. BitCoin?
A. Bitcoin is an amazing movement. that needs to stabilize, and Square will accept any currency that comes over the counter. If it becomes huge and accepted in the world, Square will accept it. We don’t just focus on currency.
Q. How do you protect against Fraud?
A. Fraud is inherent in anyone moving money. Building algorithms to show activity and visualizations, then humans view it and determine if its fraud or not. All transactions are geolocated, so we know where they are, and what is happening. $500 transaction at 3 AM in the middle of Grant Park. WE can tell if it’s strange activity, and determine identity and verify if people are who they say they are. We have tons of tools to do this.
Q. How did you manage Twitter when you were starting Square?
A. Managing time between two companies? What helps the most is building a system so as not to be reactive. So you don’t get stressed out. That’s where stress comes from. If you are surprised, and things happen you’re not aware of. Jack themes his days.
Mondays - Management meetings (both companies) Tuesday - Product Reviews, Wednesday - Communications & Marketing, Thursday - External and partnerships (meet with anyone outside the company), Friday - was focused on the company and culture - all hands, town square, and Tea time at Twitter. It started at literally Tea time. 30 people at Twitter and Jack makes a bunch of tea - at 4:05 PM gonna sit around and have Tea, talk about the company. so immediately people are like where's the alcohol? Drinks at team time. Wine, beer, cider - review everything that happens in the company. Saturday - is day off - go hiking, hang w/ friends. Sunday - is the best day for recruiting and strategy - just think. Space to think and be creative. Sunday is a good work day, then right back into Monday. Crisis happens, but then you go back to what is the normal days. Every Tuesday we review the current state of the product - if we don’t show anything - what are we doing? So every day we can see on a weekly basis if we are slowing down or speeding up - did it at both companies.
Hope you enjoyed this summary of the Jack Dorsey @jack talk at the University of Michigan, College of Engineering. #twitter #square #jackdorsey #digitalbus #ingenex