The Innovation Stack: Building An Unbeatable Business One Crazy Idea At A Time

Physical Copy:


By: Jim McKelvey

Rating: A-

I wanted to spend some time diving into building innovation into our culture and finding best practices to make time for creativity and solving bigger problems. That search led me to a bunch of innovation books.

This one focused around innovation stacks, or several small innovations layered on top of each other, making it very difficult for the competition to replicate. Layering is necessary because once you try to solve a problem by innovating, you break something that needs another innovation to fix until you eventually solve enough problems to create a viable solution.

The author is one of the founders of Square. 

Side note. I really enjoy business books that are biographical from the point of view of the founder and the business. There are always colorful stories and I only want to take advice from people who have actually done what they preach. You should too!


Square is the company that designed the small card readers that you use to see only small service businesses use. Their reader is small, simple, and requires finess to use.

They went around Apple with their design by plugging into a different port on the phone than was required and designed by Apple. They asked for forgiveness instead of permission. There was a colorful exchange with Apple at the start. (These Square guys are cowboys. I like these dudes. Haha)

Amazon’s Assault on Square

Amazon came along to compete with Square. When Amazon comes after a business, the business NEVER (rarely) survives.

Amazon began by trying to create an easier to use card reader and offering live customer support. They made one 3 times the width of Square’s. Then they undercut Square’s transaction fees to be the cheaper solution. 

How did Square respond? 

They did nothing. Square stuck to their design because it was small and looked cool. People had to learn to hold it just right to use and so they had to teach their friends. This built in word of mouth promotion. They were already planning to implement live customer support. And they opted to make no changes on their price. They kept everything as simple as possible. From where you plug it in to their fee structure. 

Their innovation stack protected them.

Amazon’s solution never gained traction. Eventually Amazon gave up and sent all of their customers a little whit Square reader.

The book went on to give examples of innovation stacks in other businesses.

IKEA’s Innovation Stack

  1. Catalogue showrooms: Tempt people w/ catalogues, let them walk showrooms to touch and see products.
  2. Overseas Manufacturing: Boycotted in their home country. They didn’t give up.
  3. Efficient Factories: Designed a better manufacturing solution for their products.
  4. Knocked-Down Furniture: Broken down furniture is easier to ship and store.
  5. Self-Assembled Furniture: Customers assemble the products. This reduces overhead.
  6. Custom Design: Design beautiful furniture that is easier for customers to assemble.
  7. Interchangeable Parts: Product lines all use the same screws. Lowers cost to all.
  8. Global Supply Chain: Created relationships to allow easier global shipping.
  9. Warehouse Showrooms: Their broken down furniture can be stored in the showrooms.
  10. Winding Paths: Their stores follow a winding path to be more intuitive for customers.
  11. Food and Child Care: Solve problems for customers so they can spend more time engaged at their store.
  12. Low Prices: Given all of the quality built into the above, customers trust that they will get good quality with the low price.

Southwest’s Innovation Stack

  1. Maximized Aircraft Utilization. “Planes make money in the air, not on the ground”.
  2. Ten-minute Turnaround. Turning around a plane in ten minutes in an average industry turn-around time of an hour necessitated thinking and doing differently.
  3. Standardized Fleet. Only uses the Boeing 737. Flying one standard plane means pilots and crew could substitute for each other as needs arise.
  4. Batch Boarding. Passengers are boarded on a first come, first served basis. The color-coded boarding passes help airline crew to look at the passengers rather than the tickets and welcome them to the flight. 
  5. Open Seating. Passengers choose their seats as they board the plane. This not only saved boarding time, but also simplified flight bookings.
  6. Single Class. A single class flight makes the open seating plan possible. Keep it simple stupid.
  7. Fringe Airports. Southwest chose airports that were less congested because of their short turn-around time. Fringe airports also had lower landing fees.
  8. Direct Routes. Southwest went for the direct flying rather than hub-and-spoke strategy of most airlines. By going direct and keeping them in the air, Southwest was able to keep its ground crew and baggage handlers busy, getting higher output from both planes and people.
  9. No Food. In-flight meals are expensive and they aren’t good. Without this, the ticket price can be reduced.
  10. Friendly Staff. Friendliness is a corporate value. “It’s not a big mystery. Employees come first. You treat them well, they treat your customers well, the customers come back, and the shareholders love the results.”
  11. No Stupid Rules. “We replaced the rule book with guidelines for leaders and the first sentence was, ‘Always remember, these are just guidelines and you’re free to break them.’ We went from a thousand pages of rules to maybe twenty-two of guidelines.”
  12. Independent Sales. If you want to fly Southwest, you must buy from them. This saves the airline and their customers extra transaction fees. 
  13. Low Prices. Affordable flights have long been Southwest’s primary strategy. 

Summary of the 7 Lessons:

Lesson #1 Learning when is harder than learning how.

Timing of implementing your idea or business is just as important as what the idea is. Is “now” the right time to introduce it?

Lesson #2 First isn’t always the best in entrepreneurship.

Some elements of the innovation stack depend on each other. And when that crucial element is missing, it’s probably best to be late than early.

There were multiple social media sites prior to Facebook. But the leaps in smart phones made the timing just right for Facebook to take off.

Lesson #3 If the timing feels right, it is probably too late.

If the timing feels right to you, it probably feels right to thousands of others. It takes a leap of faith. Ask yourself “Is the world ready?”. If the world is ready, you’re ready.

Lesson #4 Great companies started out in a sea of obstacles.

Tenacity is table stakes.

Lesson #5 If you are under attack, do nothing.

Do everything you can for your customers and your company. Ignore hostility. The business community is smaller than you think. Make allies and create win-wins. 

Lesson #6 Be first in the mind of your customers.

If you can’t beat your competitors to the market, so be it. Focus your energy on beating them to the minds of your customers. Once customers commit to a brand, confirmation bias makes it difficult to leave.

Lesson #7 Copy when you can. Invent when you must.

There are a lot of pieces of business that need to be copied. Pick the best in each area and do what they do. Only invent when a solution does not exist. 

Next Action:

What is the most pressing problem facing your business?

Can you copy a solution from a leader in your industry?

If not, can you copy a solution from a leader in another industry?

If not, what is the next step to move toward creating a new solution?

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