The Innovation Stack

Jim McKelvey's The Innovation Stack provides an inspiring look at how innovation can be the foundation for long-term success and competitive advantage. McKelvey, co-founder of Square, shares his insights on what it means to create an "innovation stack" - a process in which companies gradually layer unique solutions that help them grow and excel. The book is filled with examples from the business world that illustrate how courage, resilience, and a willingness to break established rules can lead to the creation of unique products and services. McKelvey emphasizes that innovation is not just about technological advances, but about a mindset that enables market change and value creation.

The innovation stack is a concept based on the idea of successive layering of original ideas. Innovation is not just a one-off discovery; it is a process where each new idea builds on the previous solution, differentiating the company from the competition. The approach is that the business continually adds new solutions and improvements that strengthen its position in the marketplace. Think of it as gradually building a complex structure where each layer represents a new approach or function. An example is the Japanese car manufacturer Toyota, which in the 50s introduced the principle of continuous improvement, known as 'kaizen'. As a result, Toyota built up a reservoir of innovation that enabled efficient production and quality improvement of vehicles without significant costs. Over time, this system became the foundation of its success and provided a competitive advantage that other car companies have struggled to emulate. In the modern world of technology, a similar approach can be seen, for example, at Amazon. When Jeff Bezos started selling books in the 90s, his goal was to create a platform that constantly adapted and improved according to customer needs. Amazon gradually added new features - from product reviews to personalized recommendations to revolutionary logistics solutions. Each of these innovations was a layer that reinforced Amazon's uniqueness and made it impossible to simply copy. McKelvey points out that the innovation stack is not just about technical solutions, but also about company culture. If a company encourages experimentation and embraces mistakes as part of the process, each new layer of innovation becomes a natural step in its development. Creating an innovation stack means investing in the future - in solutions that are tailored to specific needs and create a truly unique product. In this way, the innovation stack becomes a powerful competitive advantage. The more layers of innovation a company adds, the harder it is for competitors to copy. This ability to create something that is not only unique but also difficult to replicate is one of the greatest assets of successful innovative firms.

True innovation often requires companies to solve problems from the ground up, rather than just copying existing competitors' solutions. Many breakthrough ideas arise precisely when companies are forced to deal with challenges for which there are no proven answers. McKelvey uses the example of Square, which faced the need to develop an affordable and accessible solution for small businesses to accept card payments. At the time Square entered the market, conventional payment terminals were expensive and complex, leading McKelvey and his team to create their own, original solutions. They didn't go the route of adapting existing technology, but focused on developing innovative hardware and software that better suited the needs of small business owners. Solving problems from the ground up involved several steps that led to the uniqueness of their product. Square developed a card reader that anyone could easily connect to their phone, while also creating an intuitive app that made accepting payments easier. This approach meant that the company developed solutions that were tailored specifically to its target audience, setting itself apart from the competition. Apple took the same approach to problem solving in the 80s when it was developing personal computers. Instead of copying existing solutions for industrial machines, they created an intuitive interface for ordinary users that focused on ease of use. This decision proved to be groundbreaking and spurred the mass diffusion of computers among households. McKelvey believes that solving problems from the ground up strengthens a company and creates a competitive advantage. When businesses dare to leave the beaten path, they gain the opportunity to deliver truly new value that is unique and difficult to replicate. This approach also encourages creativity and entrepreneurship. According to McKelvey, it is this willingness to create from the ground up that is one of the main factors why some companies are able to sustainably succeed and leave a deep mark on innovation and entrepreneurship.

Courage and resilience are essential qualities for anyone venturing into the uncharted waters of innovation. Success often means facing the risk, uncertainty and many failures that accompany the pursuit of creating something truly unique. Innovators and entrepreneurs need the courage to venture into the unknown, to step out of their comfort zone and resist the pressure from the external environment that pushes them back into safe, proven solutions. When Elon Musk started the Tesla project, most experts doubted that electric vehicles could compete with traditional car companies. The challenges were enormous - from technical hurdles in the battery area to a skeptical public. Musk and his team faced many hurdles and multiple financial crises, but despite all the obstacles, they pressed on. This courage and perseverance has allowed Tesla to not only survive, but to become a leader in an industry that is now changing the entire automotive industry. Resilience is also key because innovation often takes a long time to show results. Many breakthrough ideas are initially unfeasible or misunderstood. A case in point is Howard Schultz, founder of Starbucks, who faced many rejections from investors before he was able to expand the concept of coffee shops as a place to relax and meet. But the rejections only made him stronger and motivated him to keep going. In the book, McKelvey stresses that courage and resilience are essential for innovators not only because they protect them from failure, but because they propel them forward when faced with misunderstanding and rejection. Courage enables overcoming fear and taking risks that can lead to unique solutions, while resilience helps to manage setbacks as a natural part of the process. Resilience and courage are thus the cornerstones of a successful innovation firm. Only by overcoming obstacles and managing periods of uncertainty can innovators create something that has a real and lasting impact on the world.

One of the most significant features of innovative firms is the ability to create new markets and customers that they previously had no idea their products could reach. These companies are not expanding an existing market, but changing the rules of the game by offering solutions that inspire and attract a whole new group of people. McKelvey stresses that true innovation doesn't respond to demand - it creates it. A case in point is Airbnb, which was founded in 2008 when Brian Chesky and Joe Gebbia decided to offer overnight accommodation in their apartment to conference attendees in San Francisco. At the time, the idea of short-term rentals of ordinary houses or apartments instead of hotels was unimaginable to most people. However, with this idea, Airbnb not only satisfied the need for cheap accommodation, but also created a whole new market that redefined the concept of accommodation and travel. A non-existent market or customers means that a business has the opportunity to reach people that no one has served before. Looking back in history, we find a similar example with Sony and its Walkmans in the 1980s. No one was clamoring for a portable music player then, but Sony was able to identify a hidden need - the desire for music "on the go." This move not only created a new market, but also completely changed the way people consume music. McKelvey points out that creating new markets and customers is more than just product innovation; it's customer access innovation. It means understanding their needs before they even recognise them. This way of thinking opens the door for companies to new opportunities that traditional businesses often don't see. It takes the courage to take risks to create a non-existent market and trust that customers will eventually find their way to the product on offer. It's like building a bridge into the unknown - with no guarantee that anyone will dare to cross it. But innovative companies are showing that this approach is not only profitable, but can transform entire industries and customer behaviour.

One of the defining characteristics of disruptive companies is their ability to ignore and break the established rules. Rather than following conventions and traditional norms, they seek new paths that allow them to create a unique product or service. This rejection of rules does not mean mindlessly breaking norms, but rather intelligently adapting the environment to suit their own needs. McKelvey stresses that it is this courage to reject existing structures that is key for anyone attempting something truly new. A typical example is Netflix, which originally started as a mail-order DVD rental company. At a time when the video rental model was stable and considered unchangeable, Netflix surprised by replacing high late fees with a subscription model where customers could keep movies for as long as they wanted. In doing so, it not only broke the established rules, but adapted to the needs of customers who felt bound by the fees. Netflix continued to break the traditional rules even later when it decided to invest in streaming services, which was considered risky at the time. While other companies stuck to traditional distribution models, Netflix decided to forge its own path, radically changing the way people consume films and series. This move not only differentiated it from the competition, but made it a pioneer in the streaming industry. McKelvey argues that companies like Netflix show that true innovation occurs when entrepreneurs dare to skip outdated models and set their own rules. This approach allows them to respond to customer needs in ways that are unimaginable to conventional competitors, who are bound by convention. However, rejecting the rules requires not only courage, but also a vision that allows a company to think outside the box of the conventional market. This approach not only creates a competitive advantage - it gives companies like Netflix the ability to shape an entire industry, push its boundaries and set new standards.

Uniqueness is not just an attractive feature of a company; it is also a powerful defence against competition. When a company creates products and services that are unique and original, competitors have difficulty copying them. McKelvey describes this principle as a strategic advantage seen in many successful businesses that create their own original solutions instead of imitating them, making them difficult for others to find. Tesla is a case in point. Tesla has not just created more electric cars; it has changed the whole concept of what a car can be by combining technology, design and efficiency. From its innovative batteries to its autopilot to its charging system, it has created a layer of uniqueness that competitors to date have not been able to fully emulate. Every attempt by competitors to copy Tesla is met with the challenge of overcoming the complexity and sophistication of its technology and brand. A similar example can be found with LEGO, which for decades has been producing building blocks that are hard to compete with. Not only does LEGO provide high quality, precision-built bricks, but it builds complex worlds and stories around its products, such as LEGO Star Wars or LEGO Harry Potter. Competitors may try to produce building blocks, but the original way LEGO combines creative stories with quality products is hard to emulate. Uniqueness acts as a protection against competition because it differentiates a company so much that it cannot be easily copied without a large investment and a sophisticated strategy. McKelvey emphasizes in the book that this barrier to access by competitors gives the firm time to further develop and strengthen its position in the market. If competitors cannot replicate exactly what the firm is doing, their attack loses its power and innovation remains intact. McKelvey argues that uniqueness is the foundation upon which the long-term sustainability of a firm is built. It is not only a way to attract customers, but also an effective defense that prevents competitors from gaining a foothold. This approach allows companies to not only grow, but also to protect their innovative work and continue to bring value to customers that they just can't find elsewhere.

The success of innovative companies is not just the result of good ideas; it is also the result of the ability to adapt and continuously learn. McKelvey stresses that a 'do and forget' approach is simply not enough in today's fast-changing world. Companies that want to thrive in the long term must be prepared to continually adjust their products, processes and strategies based on experience and customer feedback. An example of this approach is Facebook, which has undergone many transformations since its founding in 2004. It originally started as a simple platform to connect students, but has gradually adapted and grown according to the needs of its users. Facebook has introduced features such as chat, groups and Marketplace, responding to user demands and current trends. By constantly learning and adapting, the company was able to retain its users and expand globally. Another example of adapting is Nike, which has been responding to changing customer preferences and technological advances for years. It has moved from basic shoe models to personalised products in which customers can design their own shoes. The company is also investing in technologies such as sports apps and wearable sensors that track performance. In this way, Nike is actively responding to the evolution of the sports market and the needs of its customers. Adaptation and learning allow companies not only to address current challenges but also to anticipate future trends. McKelvey stresses that a willingness to change as needed and adjust strategies based on real-world experience is crucial for any company that wants to stay on top. If a company learns and adapts, it can face even the biggest challenges and even turn them into opportunities. This approach also creates a culture of continuous improvement and openness to change. Companies that don't stop learning build a team that can proactively respond to any change and are able to bring new, relevant solutions to customers. The ability to adapt and learn is therefore one of the most important factors for sustainable growth and innovation.

One of the most significant characteristics of successful innovative companies is their ability to create value that goes beyond financial gain. McKelvey emphasizes that true innovation has the potential to change the world around us and create positive change for society. Building a meaningful legacy means that a company is not just seeking immediate profit, but has a long-term vision that delivers lasting benefits. An example of such a vision is Patagonia, an outdoor apparel company that has long supported conservation and environmental sustainability. In the 80s, Patagonia began using recycled materials and even launched a campaign in 2011 called "Don't Buy This Jacket," which urged customers to buy less clothing to protect the planet. Although an unusual marketing move, it helped Patagonia build a reputation as a brand that cares about nature and attract loyal customers who care about sustainability. Another example is Bill Gates, who, after the success of Microsoft, focused his efforts on philanthropy through the Bill & Melinda Gates Foundation. Through the foundation, Gates focuses on solving global problems such as disease, hunger and poverty, creating a lasting positive impact on society. His philanthropic work has become a symbol of how a successful businessman can use his influence to improve the lives of people around the world. McKelvey points out that building a meaningful legacy is not only an ethical choice, but also a strategy that can help a company attract customer and employee loyalty. When a company contributes to something bigger than profits, it creates an emotional connection that has a profound impact on its long-term prosperity. This approach also inspires other companies that realize that profit is not the only measure of success. By building a legacy that positively impacts the world, a company becomes part of social change, which can be its strongest competitive advantage. With this long-term vision, a meaningful legacy has the power to endure for decades and deliver value that will be relevant for generations to come.

The Innovation Stack shows that the path to success is often indirect and fraught with challenges that require creativity, courage, and the ability to adapt. McKelvey's approach to innovation is to build a stack of solutions that complement each other and create a solid foundation for long-term growth. A company that can ignore traditional practices, seek new paths, and invest in value beyond profit has the potential to shape the market and create a lasting legacy. The book thus provides a guide for anyone who wants to create more than just a product - they want to deliver value that impacts the world. Do you have feedback for us? We'd love it if you let us know your opinion on our content! Just send an email to feedback@rewio.app with the title of this book in the subject line and share your impressions!