In 2009, a glass blower named Jim Mckelvey was attempting to sell a glass faucet at a local art fair. However, he was could not complete a $2,000 sale because he was unable to accept credit cards. He told his friend, Jack Dorsey, about what happened. Dorsey started to think about the credit credit card industry and wonder why it was so difficult for small merchants to accept payment. Dorsey learned that in order to accept credit cards, businesses were required to go though a difficult and costly registration process that most small business owners could not afford.
Additionally, the hardware processors that business used were cumbersome and prone to failure. Dorsey discovered that the bar code on the back of the credit cards was a printed audio file. When swiped, the credit card emitted a certain frequency which communicated with Visa or MasterCard. Mobile phones were capable of executing a similar process but lacked the hardware to do so. Dorsey build a simple version of a card reader that connected to the iPhone's audio jack. His device worked and thus Square was born. These days, you will be hard pressed to find a local businesses in NYC that doesn’t take payment with Square.
These are the reasons why I invested in Square:
- Simple Business Model
- Strong leadership
- Room For Growth
Business Model
When investing in a business, it is important to have a clear understanding of how the businesses makes money. Square generates most of its revenue from facilitating payments. They charge 2.6% plus $0.10 for transactions using a swiped credit card. For small business they will send you a credit card reader for free and for more established locations a credit card terminal costs $99. There are no monthly fees.
Leadership
Dorsey grew up in St. Louis, Missouri. He dropped out of NYU one semester before graduating, and moved to California. There he created an internet platform that facilitated dispatch for couriers, taxis, and emergency services. In 2006, Dorsey co-founded Twitter.
Dorsey comes off as a thoughtful and humble individual. In the presentation above, he dispenses valuable advice to a group of new entrepreneurs. What is particularly interesting, is that Dorsey is reading the advice out of Bill Walsh’s book, The Score Takes Care of Itself. Its easy to pass off ideas as your own and appeared smart. It takes a certain character to attribute ideas to others and to encourage people to continue their pursuit of knowledge.
Room For Growth
There are still many barrier for small business looking to accept credit cards around the world. A simple payment solution is necessary to facilitate transactions, especially in developing countries. Dorsey announced that he would relocate to Africa for an extended period in 2020, a move that some consider “reckless and ego-maniacal”.
Dorsey is a believer in Bitcoin and claims to buy at least $10,000 worth per week though CashApp. CashApp, a mobile payment service developed by Square, not only allows for quick and easy peer to peer transaction but it's also one of the easiest ways to purchase Bitcoin. This type of forward thinking will be a boon for Square in years to come. Over time, more people will leave their corporate jobs and move in the direction of small business. Square will be there to facilitate transactions in both local and internet currencies.
This is not financial advice
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