Jim McKelvey and the Perfect Problem

August 7, 2020

Square co-founder Jim McKelvey joined TechTO for a vibrant conversation about innovation and entrepreneurship.

Think of the prototypical advice for entrepreneurs: “solve a personal problem.” Back in the early 2000s, Jim operated a glassblowing studio. His personal problem? A customer wanted to buy an expensive glass faucet, but Jim couldn’t accept the American Express card.

At that moment, Jim realized two things:

  1. He wanted to develop a better way for small merchants to process credit cards.
  2. He needed a partner with the ingenuity to design a new product and the boldness to shake up the finance industry.

Jim contacted an old friend who — many years earlier — worked as a teenage intern at the McKelvey family’s coffee shop. The friend, Jack Dorsey, had recently co-founded a startup that achieved some success…Twitter.  

Together, Jim and Jack launched Square, a platform that allowed small businesses to accept credit card payments via smartphones and tablets. Square’s little white payment terminals were quickly embraced by companies and customers, especially at places like hair salons, ice cream shops, and arts events.

What is a “perfect problem”?

On the TechTO stage, Jim shared his insightful perspectives about perfect problems, starting with three broad categories:

Problems that society has already solved. You might not be able to solve a particular problem (like a broken toilet), but you can hire someone else (like a plumber) to fix the issue.

Unsolved and unsolvable problems, like teleportation. No matter how hard you work, you are unlikely to solve problems of this scale, unless some kind of technical revolution occurs (like the discovery of a new branch of physics).

Unsolved but solvable problems. These are the “perfect” problems because they represent the potential of humanity.

The perfect problem has a solution, but not a solution that exists yet. Perfect problems need not be massive challenges that affect the world, they can be trivial annoyances. The magic ingredient that makes a problem perfect is you. You don’t simply choose a problem; the problem must also choose you. In other words, don’t pick a problem that you think other people might have, pick a problem you know you have. When I find the right problem, I no longer feel anger, I feel energy. If you care about a problem deeply enough, for whatever reason, your motivation can be infinite.

Who should look for a “perfect problem”?

Jim noted the way people use the word “entrepreneur” to describe pretty much anyone involved in leading a business. Drawing on some historical references (like Bank of America founder Amadeo Peter Giannini) and notable companies (like Ikea and Southwest), Jim emphasized the idea that a true entrepreneur tries to tackle a novel problem in an innovative way.

Looking for a perfect problem can be a foolish venture. According to Jim, you don’t need to be an entrepreneur to identify a perfect problem. In fact, outsiders are often better positioned to solve an industry’s problem than people working in that field. When faced with a challenge, many of us look to competitors and then copy their products with some incremental improvements. Outsiders, on the other hand, approach the problem without pre-existing notions about what is — or is not — possible.

What’s the benefit of focusing on a “perfect problem”?

Anyone who runs a business, especially a startup, knows about the infinite number of decisions that need to be made. Narrowing your attention to solving a problem can provide the team with very clear focus.

A laser-like focus for the entrepreneur is important, because few problems are solved in one step. More likely, one innovation will help address the original issue, but then create a few new challenges. One “perfect problem” quickly snowballs into many additional problems, some of which will lead to dead-ends and some of which will move the overall process ahead. Eventually, a successful company ends up with a chain of problems and solutions. Some of the solutions might be novel but many will be commonly used. The solution emerges from the creative arrangement of solutions — a concept that Jim refers to as the “Innovation Stack.”

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