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Leap Academy with Ilana Golan
The Lean Startup: Eric Ries Reveals the #1 Mistake New Founders Make | E160
01:16:53
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- [00:01]
Eric Ries
In startup media, it's always the same, like you have a great idea, something happens, boom, you make all this money. But then the dot com bubble happened. We couldn't raise more money. We weren't making any money. The company utterly collapsed. It was a complete humiliation. I thought it was the worst thing that had ever happened.
- [00:14]
Ilana Golan
The Lean Startup. The Minimum viable product build Measure Learn. These aren't just concepts. They became the operating system of an entire generation of individuals and companies. Eric Ries had taught people how to build something worth protecting, but he never taught them how to protect it. Now he's launching his new book, Incorruptible to fix that.
- [00:36]
Eric Ries
Today we teach people that they need to make money by whatever means necessary. Extractive, exploitative, or honest. Doesn't matter. But the data shows that people who are committed to achieve some long term mission actually create more shareholder value in the end than those that don't.
- [00:50]
Ilana Golan
I think sometimes our identity is attached to our title or to our company. How do you recover from that?
- [00:56]
Eric Ries
I actually felt for many years of my life, if my business goes out of business, I will die. So what we need to do is.
- [01:04]
Ilana Golan
Welcome to the Leap Academy with Ilana Golan show. I'm so glad you're here. In the Leap Academy podcast, I get to speak to the biggest leaders of our time about their career, how they got where they are today, the challenges, the failures, and countless lessons. So lean in this episode is going to be amazing. I'm on a mission to help millions reinvent their career and leap into their full potential land their dream roles, fast track to leadership, jump to entrepreneurship or build portfolio careers. This is what we do in our Leap Academy programs for individuals and teams. And with this podcast, we can give this career blueprint for free to tens of millions. So please help my mission by sharing this with every single person you know. Because this show has the power to change countless of lives. Diocese. Okay, so let's dive in. If you ever worked in tech, you've been touched by this man's ideas, whether you know his name or not. The Lean Startup. The minimum viable product build Measure Learn. These aren't just concepts. They became the operating system of an entire generation of individuals and companies. Like, I remember how this became like a movement. And the Lean Startup book didn't just sell. It changed the world and how we build. But Eric re spent years watching these companies get built. We'll talk about it. And then watching them get kind of dismantled. And he realized something that hunted him. He had taught people how to build something worth Protecting, but he never taught them how to protect it. Now he's launching his new book, Incorruptible to fix that. And it's going to be so, so, so fascinating. So lean in, Eric. Welcome to the Leap Academy show.
- [03:00]
Eric Ries
Thank you so much and thanks for those kind words.
- [03:02]
Ilana Golan
So we gonna take you back in time. You grew up in San Diego, 70s, describe a little bit of your childhood and you also somehow in your new book you actually talk about the Price Club and how that impacted you. But, but talk to me first about who was Eric.
- [03:19]
Eric Ries
My parents are doctors. I come from a family of doctors. My grandparents are doctors and dentists. It's an incredible story. My family was all bound up in World War II and all kinds of stuff happened. It's the long journey that brought them to the United States. So I grew up in San Diego and that was as far from the east coast as my parents could get. They grew up on the east coast and they wound up practicing medicine in San Diego, California. So it's physically as far as you can get in the continental United States from where they grew up. But you know, you bring your culture and your values and everything, you bring it with you. Doesn't really matter where you are. So I was raised, they wanted me to be a doctor, of course, but I was raised with the importance of education, of being of service to other people. But they also wanted me to have a liberal arts education. So they wanted me to learn to write, they wanted me to learn history. I really had a focus on having a well wide education. And if you think about descendants of survivors, that's a common feeling that nothing of value truly can be taken with you. You can lose your house, you can lose all the physical assets they have in the world, but the skills and the knowledge you have inside that your access to the truth is something that can never be taken from you, no matter what. Now this all seemed very old fashioned to me growing up in San Diego, California. You know, I was like, oh, that's just lessons from another century. What does it have to do with me? Of course, as an adult, I wish I'd paid a little bit closer attention, unfortunately. And my life was totally changed the day that my father brought home from work a beige gray IBM XT personal computer. We're talking about the ancient thing with a five and a quarter inch floppy disk where like a rubber band connected the thing. This is an old computer and these computers couldn't do anything out of the box, literally nothing. But in those days they came with a printed paper Manual and they had some kind of programming language always baked into the operating system that was so that you could program it to do whatever you wanted it to do. And I don't know why, to this day, I don't really know why. But that captivated my attention like nothing I'd ever experienced at that point. And so I started programming computers in all my spare time. That was really the only thing I wanted to. I wanted to play video games, I wanted to program computers, I wanted to learn about it.
- [05:18]
Ilana Golan
And that's fascinating because at that point you were not studying this in school.
- [05:23]
Eric Ries
No, our school didn't even have a computer. Yeah, there were not computers lying around everywhere. I was lucky actually. Later I got to go to a computer math science magnet school. This is back when magnet schools were still a thing in public education and they had Apple Iie computers for the kids to use during a computer lab. But again, we got to use that like once a week at a special occasion. That was of course my favorite part, my favorite school. I think one of our math teachers had a computer that we could sometimes use. You know, it was just access to computational technology was incredibly rare and nobody could quite understand, even at that point, what they were good for. And again, this was one of Steve Jobs brilliant insights. He had figured out that computers would be excellent for education and he had done a good job convincing people that we should allow students to have access to technology. But a lot of the people who are taking him up on that offer really didn't know what the technology was for. Like what was it for? And I remember, I feel like, you know, I look back on it now, God bless my parents were willing to allow me to waste all this time on something that they definitely did not see as a good use of time. I was in my parents basement all the time on the computer when I know for sure they would have been rather I was with other kids, be outside playing sports or doing any kind of socially useful activity whatsoever. But they were willing to indulge this odd hobby of mine without really, I think, having any expectation that it would turn out to be useful in some way, let alone that it would be the thing you could make a career out of.
- [06:45]
Ilana Golan
At that point, did you know what you wanted to do? Like I literally as a kid had two options. Be a doctor or be, you know, like a lawyer. That's kind of all I knew.
- [06:53]
Eric Ries
Those were my two options. Also not because, I mean, it's funny, cause my parents are doctors. They don't. Not exactly. They have the fondest feelings for lawyers, but they really understood in their bones that you need to have a profession and you need to have something that is going to be intellectually stimulating, going to be a source of career security. That's what it meant to have a career. And so I didn't want to do that, But I didn't know there were other things you could do. I didn't even know there were other options available. So I just assumed that would be me. And one day I basically found out you could get paid for computer programming. In high school, we had TI82 programmable graphing calculators. Again, so primitive by today's standards, but if you knew what you were doing, you could program the graphing calculators using a conventional programming language. So I would make little video games for my classmates to play on the graphing calculator when we're supposed to be doing math. You know, this is also in a day when people, like, even if you were an advanced math program or whatever, like, all the kids had to learn the same thing at the same time. So I found school relatively boring. I had a lot of free time at school. You weren't allowed to do your homework during the school day, so I had to, like, wait until I could go home. I was just. It was, you know, that was not the best student. So I had time to sit there. And I made Tetris and Lunar Lander and all these fun games. I would distribute them to my classmates. And one day, one of our teachers had gotten this cable where you could download your software onto your computer. So I did that download these video games. And I remember I posted them on Usenet. I was just on the Internet. This is the very early Internet I posted on. And this, like, so embarrassing. Now I posted, like, my actual name with my home address. Like, here's who I am and here's my program, whatever. And somebody sent me a donation. It was shareware. So someone sent me $10 or whatever it was in the mail. I opened an envelope one day. There's a $10 bill thing. And I'm like, someone paid me for computer programming. I couldn't believe it. I just thought, what a scam, you know, Like, I would pay them for the privilege of doing this. You could do it as a job. And anyway, it kind of like planted the seed in my mind that you could get a job programming computers. Who ever would have imagined such a thing? So I talked my way into various internships, and I, like, I got. I started to get this professional experience. And yeah, I Thought I would be spending my whole life programming computers. I obviously could never have imagined what came next.
- [09:02]
Ilana Golan
I know. So let's talk about that because again you, you decide to go to Yale, you eventually moved to Silicon Valley. Talk to us a little bit of the beginning of your career. What was it like?
- [09:13]
Eric Ries
Yeah, yeah, I was a computer science major, although I spent just as much time in the philosophy department as computer science. But at Yale. Yale's a little bit old fashioned. You're not allowed to get a BS and a BA at the same time. I wanted to double major and it wouldn't let me. I was fighting bureaucracy always, always in my life. A real problem with authority, I guess. Anyway, so I decided, okay, I'll get a BS in computer science, that'll be useful. But then the dot com bubble happened while I was in college, so I actually dropped out of Yale to do a startup. Just like if you've seen the movie the Social Network. Oh yeah, we had that exact experience right up until the point where they made any money. We never did. But we did all the other parts. We did all the other parts just like in the movie. So that didn't work out.
- [09:49]
Ilana Golan
But let's talk about it because I think that's really, really important. Right? Because that's how I grew up. Like I started in intel and then I went to startups and the waterfall was real. You hide, you create something from out of nowhere and then you launch it and you wait for people to just appear. Right. And you don't realize that nobody wanted it in the first place. Right. So talk to us a little bit. What feel like what happened during that experience?
- [10:14]
Eric Ries
Yeah, I had been an intern at Microsoft which was like a high prestige internship in those days. I got to meet Bill Gates, you know, it was super cool and I have very fond memories of that time. But that was the pre antitrust Microsoft, the ruthless Microsoft, the waterfall Microsoft. I really learned a very particular idea about how products are developed and it was very stage gate. It was like you have the technical requirements document that you have the technical specification document, then you do the architectural design and do the thing and whether customers want the product or not didn't matter. It's nominally one of the steps, but remember we were also like cramming software down people's throats whether you wanted it or not. And so it was like the customer gets a vote, but like they were a pretty minor part of the process. It was definitely not like we never started with like what does the customer need? I think a lot of Cases, you wouldn't even be clear who the customer was. We were also making developer tools and like really arcane stuff. So it's like, well, who even is the customer for this thing anyway? As an intern I was not required to ask such questions. I was just told the customers are going to get dis. You make it. Yes sir. You know, I just did what I was told, you know, so I was like, oh great, I know how to do that. That makes a lot of sense. And so we were building this startup and we built it the same way. Like we spent an inordinate amount of time on this business plan. The people who worked on this business plan have gone on to have such exceptional careers. It was like the highest concentration of brain power and like future net worth. This is a very high powered, very high powered business plan. Here is like 50 pages long. We pulled like so much data. We were like looking up census records and making deductive models. We thought we were so clever. So we made this beautiful, beautiful business plan. And according to the business plan, the value of every customer we signed up for our product was like, I don't know, whatever, it was $25. And so we were like, great. We raised money and then we're like, now we have a budget for marketing. We know exactly the value of a customer knows. The whole thing was a fantasy. It was not any way based in reality. We didn't know how to sell to customers. We didn't know how to make any money. We didn't know. We had no idea what we were doing.
- [12:07]
Ilana Golan
But we were doing a plan.
- [12:09]
Eric Ries
We were following this plan and it was a brilliant plan. So we get a brilliant outcome. And look, we had consumed all the startup media there was. In startup media it's always the same. You have a great idea, something happens, boom, you make all this money. So we just were like, well, we're just doing the technology. That's the hard part. The easy part will be somehow turning that into something useful. And in retrospect, we had no idea what we were doing. And not only we have no idea what we're doing, we had so much hubris. We were full of disdain for people who did know what they were doing. So we're like, we don't want to make some like ad supported company like Yahoo. We're going to make a real business. It's like, how are you talking about? Yahoo is a big company, you're nothing. But we had that entrepreneurial arrogance, ego.
- [12:46]
Ilana Golan
Yeah, yeah, yeah.
- [12:46]
Eric Ries
It was a very ego driven thing. And in retrospect the fact that it collapsed so quickly, which honestly was only made possible by the fact that the dot com bubble collapsed. So in retrospect, the dot com bubble collapse. One of the best things that ever happened to me because it drove all of our investors out of business. We couldn't raise more money, we weren't making any money. The company utterly collapsed and it was a complete humiliation. At the time I thought it was the worst thing that had ever happened to me because in the movies, when you watch a movie about entrepreneurship, my favorite entrepreneurship movie by the way of all time is Ghostbusters. Okay, good. The Ghostbusters are like a canonical entrepreneurship story. Like people forget the business lessons of Ghostbusters, okay? They start in a university lab, they're a university IP spin out. The university thinks they're too bold, it's too innovative an idea and they get kicked out. So they only start a small business because that's the only thing they do. Like they borrow the money from whose family, they set up this business and they write a business plan, they have an ad, they buy TV ads. Like it's a very waterfall based plan. And if you remember carefully from the movie, they are literally eating the last of the petty cash. So their Runway is. They're down to their last day of Runway. And it just so happens that Zul invades Manhattan that day. Like thank goodness is had waited one more week, they would have been bankrupt and there would be no Ghostbusters. But luckily in the movies, the customer walks in the door right when it's always darkest before the time. Anyway, that's the. We all have imbibed that lesson. So.
- [14:09]
Ilana Golan
Right. So we're waiting for that.
- [14:12]
Eric Ries
Yeah. So in the movies, in Ghostbusters and in every one of these other movies, the most satisfying part is when the plucky protagonist who had been told in Act 1 that their idea was no good, they never amount to anything, gets to go back to those same people and say, see, you were wrong, I was right. Now I'm on right in real life, you have to go back to those same people and be like, you were right. I'm going back to school to finish my degree. It was humiliating for such an ego driven person. Think about how painful it was to admit to have been wrong was horrible. But in retrospect, I'm glad I got to go back and finish my degree. I actually know people from that era whose thing that they were doing succeeded. Some of them are still doing that same thing. Success can be far worse of a trap than failure ever Is. Anyway, so for me, it was a blessing in disguise.
- [14:58]
Ilana Golan
Did you understand what this failure teach you or not yet?
- [15:03]
Eric Ries
Not at all. In fact, so much so that part of the reason I got to go to Silicon Valley is not because I wanted to go to Silicon Valley, although that had always been a dream of mine. But I actually applied for jobs all over the country because I was embarrassed. I was like, I don't know if I'm ever going to be able to get a job at all. I applied for jobs in New York, in Boston, Seattle. I went back to Microsoft and I applied in Silicon Valley. And I never forget. I went for a job interview in Boston and the guys were all in suits, and it's like a tech startup, but they were like, serious, and they're
- [15:32]
Ilana Golan
like, okay, and we don't wear suits.
- [15:34]
Eric Ries
Yeah. I was just so uncomfortable. I'm like, But I'm like, I need this job, you know, I gotta do a good job in this interview. And they look at my resume, they said, your startup here seems like it was a big failure. I'm like, yes. They're like, now what at the level of strategy did you learn from this failure? And I'm like, you know, that customers didn't want to buy our product. And they're like, that is not strategy. And I realized in this interview that I. I was pretty good at BSing my way through questions, you know, like, educational career had taught me to, like, answer arbitrary questions you didn't understand from authority figures who had disdain for you. I was good at it, but I was like, I would just have that sinking feeling like, I don't know what they're asking me. I don't know what to say. I don't even know what the word strategy means. And I definitely had not learned anything yet from this failure. I just was like, I don't know. We tried to make a thing and it didn't work. What do you want from me? I didn't get the job because they were just like, you know, this is an embarrassment. And I went out to Silicon Valley. I'll never forget. I did these interviews. And people would be like, so it looks here like you have this failed startup on your resume. Tell us about it. And I'd be like, I'm sorry. Like, you know, and they'd be like, sorry, this is great. And I'm like, great. What's great about. They're like, oh, man, you must have learned so many lessons on somebody else's dime. We didn't have to pay you to learn about this thing you. And I'm like, well, I didn't. Sorry, I didn't learn any lessons yet. They're like, you have. You just don't know it yet. Like, they understood something that I didn't understand about myself. That going through that kind of failure, it catalyzes something inside of you because you don't want to do it again. And when you're building a company from an ego place, you want everything to be just the way you want it to be. But once you've cracked that and you're like, I don't want to have that experience again, now you're starting to take your first step on what I think is the real entrepreneurial journey, which is. You're like, no, no, I don't want things to be the way I want it to be. I want to learn the truth of the situation.
- [17:20]
Ilana Golan
Oh, my God. I think I just got this, like, big. Anyway. But that was so powerful.
- [17:25]
Eric Ries
It was very. And I can talk about it now. This is 25 years ago. I have some experience now. I have some things to draw. And I've coached so many other people through this. So I'm. I get it now. At the time, I was utterly baffled. The blessing of Silicon Valley, the genius of it, really, in those days. There's a bunch of people trying to ruin it right now. But the core of it in those days was simply this simple idea that the doers, the people who had taken the risk, whether you succeeded or failed, you couldn't help but have learned from that experience. And therefore, to have tried and failed is a noble act, not something to be embarrassed about. I travel all over the world and meet people who still, in many cultures, if you have a failed startup on your resume, it's a black mark, it's an embarrassment. Or even, like people are afraid even to try it. There's still modern industrial economies where they have personal liability for startup bankruptcies. What a chilling effect. So the magic formula of Silicon Valley, I didn't make that formula, I inherited it. I came into it completely naive, and it embraced me and gave me just unbelievable opportunity. So I'll never have anything but gratitude for the fact that other people built that ecosystem. And I'm very protective of it now because I want the next generation to benefit from what I benefited from. And also I want us to broaden. You know, obviously, Silicon Valley has had this very narrow, highly biased way of rewarding people like me. I think as an economy, we have to offer that to more and more people.
- [18:46]
Ilana Golan
Exactly. And for those listening, I Think this is so fundamental because we're so afraid to fail. And I always say, you always going to be stronger after you failed once. Like, you're just a different human altogether. You're more open to ideas. You learn so much. You come more humble. Like, I came with a lot of ego. Like, I got this. Like, it just what makes you more
- [19:07]
Eric Ries
likely to become an entrepreneur tends to be those kinds of characteristics. So we all kind of have to go through it, I think. I always wonder what Nietzsche would have thought about the fact that his famous aphorisms have become pop songs. So, you know. Yeah, yeah. It's like we all know that what doesn't kill you makes you stronger, but have we really thought that through? Like, I don't actually think we have processed that too much.
- [19:24]
Ilana Golan
I know. Well, yeah, we'll not go there because in Israel we take it to a whole different level of, you know, and what does kill you makes your mother stronger, etc. Like, we will not go there.
- [19:35]
Eric Ries
But let's definitely. Let's not do that. Let's not do that.
- [19:37]
Ilana Golan
We will not do that.
- [19:39]
Eric Ries
Times are too dark for such things.
- [19:40]
Ilana Golan
Too dark. But tell me for a second. So you co found imvu?
- [19:45]
Eric Ries
Yeah.
- [19:45]
Ilana Golan
And you have a lot of learning from that. Tell me a little bit how you learned from this and then how did that build you eventually to the next thing?
- [19:53]
Eric Ries
Oh, God, I was so fortunate. The first startup I joined in Silicon Valley was another waterfall style like disaster. And a bunch of us who were refugees from that company started a new company and we were just like, look, let's just try to make some new mistakes. We didn't want to just have the same thing happen again, so. And I was the youngest person on the team, and yet they trusted me to be the CTO and to build the technology in the way that I thought made sense. Which again, in retrospect, like, what did I do to deserve that? Their faith in me? I have no idea. But they did it. They could easily have said they wanted it to be something different, but they were willing to indulge these ideas. And of course, I hope they felt after a while that they could see that they worked. And it was interesting about that experience of doing something countercultural, because lean startup was not popular in the early days. First of all, it didn't even have a name. It was just Eric's stupid thoughts about whatever, you know, me and Steve Blank and a couple other people shouting into the wilderness. And somehow we were able to get people to believe in it anyway and see the Evidence, but we couldn't explain why did it work? The why question haunted me. And like, again, people sometimes think of these questions as very philosophical, but to me, they're always very practical. I had a very practical problem. I'm hiring people older than me, more experienced than me, who have had their career made by their adherence to a certain ideology. And here I am being like, hey, would you like to see the evidence that the thing you were raised and had success with, it's been superseded by a new idea? You know, turns out humans, not that interesting. I like that if you have an ideological commitment, you're not interested in data that shows anything different. That's true in business as true in any other field. So it took me a really long time to figure out how to solve this problem, which was like, how do I explain to other people in terms that they could understand what we're doing here and why it works? And Lean Startup was not my first attempt, by the way. I tried quite a few metaphors, quite a few other ideas to try to bring these ideas together. But Lean Startup was the first framework that worked to solve my practical problem. So, borrowing ideas from Lean Manufacturing, I still wasn't calling it Lean Startup. But when people say, why does this work? I would teach them about Taichi Ono and the fundamental cycle time of manufacturing and batch size reduction. And I taught them single piece flow from Shigeo Shingo and all these ideas. It's funny, I became this manufacturing expert and I'd never set foot in a factory at that time. I knew nothing, nothing about manufacturing except what I had read in books. But I didn't need to manufacture anything. What I needed was a metaphor, a set of conceptual vocabulary that I could use to explain concepts to people. And once I started to do that, that was the key thing that made things possible for me.
- [22:28]
Ilana Golan
We need to pause for a super brief break. And while we do, take a moment and share this episode with every single person who may be inspired by this. Because this information can truly change your life and theirs. Now, I want to check in with you. Yes, you. Are you driven, but maybe feeling stuck in your career or a fraction of who you know you could be? Do you secretly feel you should have been further along in your income, influence or impact? Do you ever wonder how to create not just a paycheck, but the life you want with a paycheck? The thought leadership, the legacy, the freedom. Because that was me. And that's exactly why I created the Leap Academy program, which already changed the thousands of careers and lives. Look Getting intentional and strategic with your career is now more important than ever. The skills for success have changed. Aq, adaptability, reinventing and leaping are today the most important skills for the future of work. Building portfolio careers, multiple streams of income and ventures are no longer a nice to have. It's a must have. But no one is teaching this except for us in Leap Academy. So if you want more from your career in Life, go to leapacademy.com training check out this completely free training about ways to fast track your career and you'll even be able to book a completely free strategy call with my team. That's leapacademy.com training too many people finish their workday feeling frustrated, drained and unfulfilled. The good news is it doesn't have to be that way and you don't need necessarily a new job to fix it. Patrick Lencioni, author of the Five Dysfunctions of a Team and more than a dozen other bestsellers, created the Working Genius Assessment to help you pinpoint the kind of work that gives you energy and the kind that drains it. Over a million people, including myself, have taken it, and it completely changed how I lead and how I show up every day. So if you're a CEO or entrepreneur or someone who just wants to level up in business and in life, Working genius will give you the clarity and the confidence to operate in your strength and really find greater joy in what you do. Because confidence isn't about pretending that you're good at everything. It's about knowing where you're truly gifted. So take the Working Genius assessment today. Get 20% off with the code. Leap@workinggenius.com that's working genius dot com. You'll be glad you did. So during the financial crisis you started blogging. Is that your attempt to experiment? To explain this?
- [25:10]
Eric Ries
So I've never been the kind of person that can do a thing and write about it at the same time. I really admire people that can. I alternate between doing things, trying to understand them, and then I write about them after. So that's why my writing output is so painfully slow. It takes me years, years of my life to produce these things. Meanwhile, people are like blogging five times a day and doing hundreds. I don't know how they do it. Journalists. I don't know how they do it. Takes me a really long time to figure out what I want to say. So I had left imvu. You know, we had brought in a professional CEO and I was like, I do not want to be one of those co founders that needs to be kicked out. You know, I'm going to go gracefully. So I made a graceful transition plan and I left and I was like, now what do I do?
- [25:46]
Ilana Golan
Was that painful, by the way?
- [25:48]
Eric Ries
Very painful. It was extremely hard to do. And I've had this experience a lot in my life where it just. You just know it's the time. And I've been fired or laid off in my life, but I have had things fail, you know, so it's just very different. So this is like you're choosing to go at a time when people want you to stay. But if you're a founder especially, there's only two modes. People either want you to stay or they're trying to get you out. You know, it's like there's really like, you're like clinging to you and be like, no, you're not allowed to leave. You're an indentured servant, or like, you are in the way of this thing. And so I was like, I need to leave when people still want me to stay. That's the only time it's safe to go. They don't want to be one of those people have to be kicked out.
- [26:22]
Ilana Golan
Before you continue the story, can you take me just for a second through what's going on in your head? Because we have a lot of people that either have a job and they're trying to think if they want to leave, or they're contemplating whether they should start the business that they're thinking about. And those decisions are hard. Right. I mean, you can't just pros and cons around it. There's an emotional journey that goes on.
- [26:44]
Eric Ries
Yeah, look again, I wouldn't have been able to talk about it this way. At that time. I was still relatively immature. But in retrospect, I can say that there is a stillness you can get to if you tune out the mental chatter of pros and cons and this and that and whatever and just really ask yourself, like, what is right? What are my values? What is the high integrity thing for me to do here? And I remember at a certain point I was just like, I don't have the conviction that I'm the right person to carry this company forward anymore. And I'm also not in charge. We, as a new boss in town, I was on the search committee. I helped hire this person. I believe in their vision for what the company is, but I could just tell I am not the right partner for them. And it was a lot of these same issues, you know, my co founders who had been there from the beginning were like, you've gotten used to tolerating my crazy ideas. We had actually forged a reasonable partnership. And they were, like, used to the fact that every time they'd be like, eric, we need something done. I'd be like, great, no problem. We can make that happen. But the thing. The thing I was going to say next was going to be something ludicrous. In the early days, we would argue about it. Every time I'd be like, look, I know it doesn't seem like it's going to work, but if you will trust me. And I was also incredibly stubborn in those days. So it was like, look, your choices are we could do it this way and it will work, or we can spend as much time as you want arguing about it. Unlimited. I could carry an argument for days, weeks, months. I could not let anything go in those days. So it was like, look, those are your choice. The only choices. I cannot. I am incapable of doing it the dumb way. If I think it's the wrong. I just can't. I'm not wired that way. I. I'm not gonna be able to do it. I tried so hard so many times. I just can't do it because I just, like. I don't believe in it. So they were used to that. And we had built up a lot of mutual trust. And also including the trust the other way, where they would say, look, Eric, this is not a situation where we need one of your crazy ideas. I got this. You need to back me up in the thing I want to do. And I was very good at that, too. I could absolutely be like, I don't need to know. I trust you. But if you make the mistake of asking me how I think it should be done, I will tell you. So don't ask if you don't want to know. Anyway, the new person, you know, he had his playbook and this very defined thing that had worked for him in his career. And we thought in the hiring committee, we thought, this is the person who has what we need. More professionalism, kind of taking the company to the next level, whatever. And so I just felt like he would be like, okay, we need to get this thing done. And I'd be like, great, here's how it should be done. He'd be like, I don't think so. I think it should be done this other way. I just couldn't let go. Be like, okay, you're welcome to think whatever you want, but you asked me. This is my job. I do this thing. I built this company. With my bare hands. I know what I'm talking about. And we were constantly fighting about it, and I couldn't let it go, and he couldn't let it go. So I could just see the writing on the wall. I was like, this is not going to end well one way or the other. But nobody else could see it, which is really interesting to me. So I think a lot of the decision of whether to stay or go do these kind of bigger questions, even to start a company or not, it has to do with, like, what can you uniquely see that other people can't see? And that, again, requires a lot of stillness and quieting for me, like, really, like, getting underneath the surface, what's really going on here. And when I really understood that, like, I had to go, it was actually much easier. It was hard. It was hard emotionally to make that decision. But I remember sitting with our investors and various people who I was worried about disappointing. I was like, look, given that I need to go, how should we do it? And they became my collaborators in figuring out the details of how to make it really make sense.
- [29:47]
Ilana Golan
And by the way, do you do something specific to get to that peaceful place? Because I think sometimes when you are in the minutia, you can't really get out of the day to day. It's like you need a little bit of distance.
- [30:00]
Eric Ries
Well, now I can tell you that these are spiritual questions that require spiritual practices, like meditation. If you told me at that age I needed to do meditation, I would have been like, what are you, you're off your eyes?
- [30:08]
Ilana Golan
I know, I would roll my eyes.
- [30:09]
Eric Ries
Yeah, you gotta be kidding me. And I do think people sometimes feel like the message here is like, oh, I need to go to an ashram, 10 day silent retreat. And then I'll get clarity. Now, look, that really does work for a lot of people. But for me, these questions have to be answered in situ. You can't go away and then come back. You have to be able to do it to find the stillness in the thing that you're doing. So a lot of it for me was just taking a moment. It doesn't take a lot of time because the thing itself that you're trying to find is already there. You have to be willing to slow down to listen to the still, small voice.
- [30:42]
Ilana Golan
Your instinct is already telling you it's already there.
- [30:44]
Eric Ries
So it's like later life. I know all these analogies and metaphors that we use to teach these concepts. One of my Fayada teacher wants to explain it to me this way. Grip A pencil really tight in your hand, grip it super hard. And now if I tell you that you need to let go of the pencil, and you tell me, I can't let go of this pencil, look, I can't let go. Look, my knuckles are white, the muscles are contracted. I can't let it go. They're like, okay, then you've misunderstood the assignment. You are the one holding the pencil. So you think letting go is to do a thing, but actually letting go is to stop doing a thing. Can you let the pencil go? Can you open your hand and release? There is a mental equivalent of that that you can learn to do. And this is something everyone needs at work. I think it's so powerful because, you know, you get into a fight with a coworker, they're wrong and you're right, and they're dah, dah, dah, dah, dah. There's a great book called Leadership and Self Deception. Talks about how you put the person in the box. If you're in that box, you're like, penalty box. You're like the bad person always doing the wrong thing. And your brain, if you'll let it, would just sit there and make that person more and more and more the bad guy and you more and more the good guy over time. You put people in MRI machines. You can, like, prove that this happens, right? But if you actually want to get anything done, you have to be willing to let that mental chatter go. Because even if your mind is right and this person is the devil incarnate and whatever the things, you, nonetheless, you're in a situation with that person and you need them to do something for you. So, like, can you let it go enough to get to that quieter still and be like, what needs to happen here? And, like, a lot of times you're like, this person is the most evil person in the world. Like, if you really believe that, then don't you need to murder them? Your brain goes there. But I'm like, I don't see you with a knife. What's going on? You're like, well, okay, they're not the most evil person in the world. Like, great. Maybe they're just a regular old person who's pissing you off, right? So can we de escalate internally to find out what we need to do? And I listen. I've done that. I've obviously learned to do this many times, and I've been in actual fights with people who are, in fact, trying to metaphorically kill me. I've built companies where, like, I have enemies and they're really trying to put the company out. So, like, I've been in some bad situations, but in no time is it helpful to be like, blah, blah, blah, blah, blah, this person's evil. Whatever people someone call being strategic or being thought like, you just have to get to that other level. Rigby, given that this is happening, what can I do about it? What's the right thing to do? Now you might say, you know what? I can't work in an environment that tolerates these evil people. I need to quit. Okay. And then you're like, well, I don't know if I'll be able to get another job. Well, it doesn't matter. I'm sorry. You just told me that you need to quit. You must. It's a moral imperative. Great. Do the right thing and trust that whatever needs to happen next will happen next. So when you get to that point of inner integrity, it allows you then to make business decisions that have integrity, which is the first step towards being able to build organizations that themselves embody integrity.
- [33:17]
Ilana Golan
And we'll definitely talk about that because I think that's so, so, so important. I personally need the distance I need to hike. I need to see the whatever it is. Right. You call it whatever you want, but I think you're absolutely right. Distancing you a little bit, but also realizing that sometimes when it's painful, you can't talk about something from the wounds. You can talk about it when it's scarred up. Right. So sometimes you need the distance a little bit. You know, when it's a little more scarred, but you leave, which is a really bold thing. And then I think sometimes our identity is attached to our title or to our company.
- [33:51]
Eric Ries
Oh, yeah, that was really hard.
- [33:53]
Ilana Golan
So talk to me about how do you recover from that? Because that's a big thing of what we do in Leap Academy and help them reinvent themselves. But then why do you start blogging and what does that give you?
- [34:03]
Eric Ries
Yeah, it is a kind of ego death. Because when you make something, you become so ego identified with it, you think that when someone attacks it, they're attacking you. I actually felt for many years of my life, if my business goes out of business, I will die. My body could not differentiate between my business is in trouble to like, I'm being physically mauled by a tiger. And if you've never had that experience, you're like, these people seem delusional. Like, I'm just letting you know if there's an entrepreneur you admire, they've had this Experience. This is a very universal thing where you just. You get confused. I remember in the IMVU days, someone would come on our forums and be like, this company sucks. This product is a piece of crap. I felt like they had slapped me in the face. I'm like, you don't have a right to hit me. I'm gonna hit you back. Like, I was mad. And, you know, it took me a while to realize, like, they don't even know me. They didn't attack me. They've never met me. And of course, when I became a public intellectual, I never forget when someone wrote this blog post. The headline of the blog post was, nobody should Ever Listen to Eric Reese is literally the title of the blog post. And the first sentence was, I've never met the guy, but. And I was like, but you just called me out by name. This is a personal attack. And then eventually you realize, wait a minute, I'm not a real person to this guy. He has invented in his mind a character. There's a character in the drama of his life that has my same name, and that's the person you should never listen to. And I was like, oh, I agree. You've made up this crazy person in your head. I also don't think you should listen to that little voice in your head. So good. We're actually on the same page now. It's like you made a little sock puppet of me, and now you're telling people, like, don't listen to my sock puppet. It's like, well, that we agree with, but could you not. Could you give the stockpile? But you could call it, you know, Jeremy or something and call it something else. So all these forms of confusion were so, so universal. So for me, not being a founder anymore, letting this company go was very difficult. So I was like, I need a new identity right away. My plan was start a new company. And this is the first time I was like, wait a minute, I think I need to be the CEO of the company. So I should probably find out what a CEO does. I've been through three startups already. I do not understand what the job of the CEO is, and I'm not sure anyone else does either. So I was like, I better find out. I was like, before I go do this job, and I. So I would go meet with anyone who would meet with me. Now in Silicon Valley, if you're an even halfway successful founder and you're not doing anything, VCs will spend a lot of time with you. I didn't understand why, but I was like, VCs want to talk to me. All of a sudden, this is great, because everyone's like, look, this person's gonna start a new company. We want to make it, we want to get a piece of it. So I would ask him these questions, like, okay, so now tell me exactly when should you launch a product and when you should not launch a product? Or like, so when do I listen to customers and when do I ignore customers? What? I thought they were, like, the most basic 101 level questions that a CEO should know the answer to. And I would get these answers that would be like this. Well, you know that one time Steve Jobs did this thing. He did it this way. I'd be like, oh, okay. So I should be like, Steve Jobs. Like, yeah, yeah, for sure. But then. Then be like, well, but Bill Gates did it this other way that one time. Like, okay, like Marc Benioff, he famously did it even a different way. And actually, you know, now that I think about it, you know, Larry Ellison hates those guys, and he thinks that this too. So I'd be like, okay, what does this have to do with me? I asked you a very simple question, and you're telling me that Steve Jobs did it that way? Well, how does that help me? First of all, I'm not Steve Jobs. Second of all, maybe that was back then, and now it's now. How do I know that Steve Jobs succeeded because he did that thing instead of in spite of it. Like, people would be like, steve Jobs was a raging a hole. He would yell at everybody, like, okay, but did that help him or hurt him? Like, am I supposed to be like, so if you ever wonder why Silicon Valley people, like, do this, like, memetic thing where they ape, like, literally. Remember, like, Elizabeth Holmes would wear the black turtleneck. I used to joke about metaphorically putting on the black turtleneck to make people think you're Steve Jobs until someone actually did it. So anyway, I was just like, I don't get it. Maybe what worked in their industry worked in my industry. That's not helpful to me yet. That was all. This advice was all. I would go to startup conferences, and every speaker would be like, this person did it this way. But then, like, the next speaker would contradict what they said. I'm like, oh, we supposed to get. So I was very frustrated that I didn't know the answers to any questions. And at the same time, I was being asked to meet with startups, give them advice. I was being asked to be an advisor to startups for the first Time in my life, which I loved. I was really fun. But those meetings did not go well. Okay, Now Lean Startups, super popular, but in those days I'd be like, hey, we at imv, we would ship software to production 50 times a day on average. At a time when people were still
- [38:16]
Ilana Golan
doing like one to nine months.
- [38:18]
Eric Ries
Yeah, the most agile companies in the world would release once a month. That was considered mind numbingly fast. This is still in an era. Remember where software was sold with the year it came out in the name of the product? Windows 95, Office 2000. Okay. The software was not released frequently even in those days.
- [38:34]
Ilana Golan
I mean, we were at nine months cycles when your book came out. We were at nine months.
- [38:41]
Eric Ries
Yeah, that would have been considered perfectly normal.
- [38:43]
Ilana Golan
Yeah. What is he talking about?
- [38:46]
Eric Ries
So these meetings would go very badly. I mean, people would just be like, you're lying. That could never work. Okay, you called me, you asked me as a favor. I'm not getting paid to do this, by the way. You asked me as a favor to have this meeting with you and now you're mad. Maybe don't call me like. I was like, what do you want from me? I'm just telling you my lived experience. I literally saw this with my own eyes. What do you want? And I didn't understand this at the time, of course, but in retrospect, these people have been indoctrinated into an ideology and they did not want to see the evidence there was something different. So I was like, oh, this is a familiar pattern again. So I started blogging about it. And when I say blogging, okay, it conjures up something like very modern. But in those days, I mean, I remember I was literally sitting in a Starbucks parking lot waiting for some VC to meet with me. I was on my Palm trio and bored. And I was like, you know, I've been pondering this essay in my head for a while on my little phone keyboard. Like, I'll just tap out a few paragraphs and see. And I did that a couple times. And I was like, okay, I kind of like this. What should I do with it? And I was like, okay. I remember asking all my mentors, even Steve, what should I do now? Should I blog about this? Should I write about these? And the people are like, no, absolutely not. Worst idea you've ever had. That's an old man's game. After you retire, you can pontificate about things, but you need to go prove yourself. Who do you think you are to do whatever? And I actually had gotten a job A part time job at one of these venture firms. I was a venture advisor working with their portfolio companies. And when I first started blogging, one of the partners came to me as like, we have a bit of an issue here. You're giving away your ideas for free instead of using them for our proprietary advantage.
- [40:20]
Ilana Golan
Oh, my God, what gives?
- [40:21]
Eric Ries
It was not a popular choice, okay? This was not making anybody happy. But I felt it was right for me. I was like, this makes sense. Plus, my way I rationalized myself was because I did it anonymously. I didn't put my name on the blog. I was too embarrassed. But I was like, if someone asked me for a meeting, I could send them the blog posts and be like, look, if you think this is crazy, then we can skip the meeting. You don't have to yell at me. I was so defensive about the whole thing, but I started to get the hang of it. I was like, this is helping me therapeutically, like, process my own experience. And not just like subtle old scores, but try to explain. Like, I felt like I was trying to explain things to people that I had not been able to explain when the thing happened. So I had this, like, backlog of questions I needed to answer for myself, and this helped me do it.
- [41:04]
Ilana Golan
Did it ever rattle you, the objections and people like, pushing back?
- [41:09]
Eric Ries
Oh, no. I had a very strong ego, so I did not ever consider the possibility that I was wrong. And I think also, though, two things that really helped me in retrospect. First of all, people's objections were not very good. I spent a lot of time doing debate. Like, I love ideas. My parents insisted I get a very strong liberal arts education. So say what you will about Yale, but I was, I had really studied the real thing. This is not where you go for ideas. Okay, like, so my ideas colleagues from school are like, you're going into business. Like, what do you want to hang out with those people for? Come be in the debating society with me. We get to do that for a living for the rest of our lives. All those people are now politicians and bankers and all kinds of things. I had zero interest in that. For whatever reason. I was like, no, this is my calling. This is where I need to be and I'm going to bring ideas to it. So when people would object to my ideas, I was very keenly aware, like, is, are they making a good argument or a bad argument? And not to say that no one ever made a good argument. Of course, if they had a good argument, I would instantly be like, I would dedicate my Life to knowing the answer to your question, if that's what's necessary. And I would evolve my ideas often in response to people's objections. Interestingly, if I look back on it now, the most valuable objections were the bad ones. I remember once somebody was like, this doesn't make sense because entrepreneurship is innate. You can't teach people to be an entrepreneur. They have to have had a traumatic childhood that caused them to have this like chip on their. Like people have this like theory that if you were like psychologically abused and I was just like, that's definitely wrong, but I don't really know why other than I intuitively feel like you're being a bit of an a hole. Like I was like, I don't know what the problem with this is, but it's definitely wrong and I'm going to go find out. So large swaths of Lean Startup were developed in response to these kinds of objections. You know, I remember in my early talks I would talk about this and if there was someone in the audience who objected strongly, I would give a talk. And I get heckled from the audience. And anytime I would have a heckler or someone like that, I would be like, can I meet you? I want to know your whole life story. Like I'm like so interested in your objections. Teach me. And I realized that the hecklers were almost always product managers of long standing products. So like I remember one of them was like the product manager for like Madden 2005 at EA, a franchise where we come out with a new version of the same game every year. They'd be like, our new version is totally different from our last version. I'd be like, really? Is the business model different? Are the customers different? Is the definition of quality different? Are the reviewers different? Is the pricing different? Like all the essential things are. They'd be like, but the graphics are way better. I'm like, yeah, I get why you think Lean Startup is stupid. I finally was like, I get it. In your business you actually can predict and forecast what's supposed to happen, so you're fine. Hope mobile doesn't mess with your business model. Anyway, see you later. Right? Like as long as there's no technological disruption, you're going to be fine. You know, and of course those people have become Lean Startup fans in later in life. But anyway, so, so I was really interested, I was intellectually interested in the answers to these questions. Bad objections. I was like, no, it's not going to do it. But the other thing was I'm not like, Malcolm, gladwell for better or for worse, I'll never have the success he's had. Probably because I can't do the thing where I teach people about something that I have not experienced myself firsthand. So all these ideas were not my like random intellectual contributions. They were therapy for me to explain the thing I had already witnessed. So people come to me and they would say, look, Lean Startup can't possibly work once you get to size X. When I view was a five person company, they'd be like, well, sure, it'll work for five people, it would never work for 10 people. When we were 10 people, they say, sure, it will work for 10 people, it'll never work for 20 people. And I was hearing the objection for it will work for X but not for 2x the whole time. I can't remember how many employees we had at the end when I left. But like I just heard it and then people are like, oh well, whatever size it was when you left, that's the maximum size. It'll never work at size 2. I was just like, people have been saying that to me this whole time. I can see that it works. I had the conviction that I had seen what I'd seen with my own eyes. And of course I now realize how that was also a gift.
- [44:56]
Ilana Golan
And by the way, for those who don't know what you're talking about, can you dumb it down for them? Because I lived it, but I want to make sure our listeners are following you.
- [45:06]
Eric Ries
So lead startup is actually a very simple idea, which is that when we want to do something new, we are operating by definition in the environment of extreme uncertainty, meaning the environment where it is difficult to forecast what's supposed to happen. So when we make a business plan, we pretend that a business plan is a prophecy, a prediction about the future. But it's not. We can't predict the future, it's too uncertain. Instead, what it is is a set of hypotheses of things that if these things were true, our business would be in great shape. I call them leap of faith assumptions. Actually a term that was coined by Randy Komisar, who was one of my co workers back in the day. Leap of faith assumptions. So what we want to do is rather than treat them like a prophecy, we treat them like a scientist would, as hypotheses to be tested. The experiments that we run are called minimum viable products. That is the least expensive, fastest version of that product that we can do in order to discover whether or not the assumption is true. And if we succeed in determining the Truth of our assumption, whether the thing we find out is good news or bad news, it is still the accomplishment of a milestone. Because if one of our assumptions is invalidated, that gives us the opportunity to pivot. That's probably our most overused bit of jargon. In lean startup, a pivot is a change in strategy without a change in vision. And what we want to do if we have limited Runway is think about how many opportunities to pivot do we have left and maximize those chances. And if you study entrepreneurship, you will realize that almost all the great entrepreneurs, almost all the entrepreneurial stories, all the overnight success stories, you know, were 10 years in the making and there were all these behind the scenes pivots that happen all the time. So yes, that's lean startup in a nutshell.
- [46:40]
Ilana Golan
I love that. Thank you, Eric. I knew that I going to butcher it because I going to shorten it. So thank you for. No problem for saying it. It's funny because we had Astro Teller who the CEO of Google X and he talks about the most critical assumption and how do you validate those things? And we had the founder of Siri in our event and he talked about the overnight success that takes a decade, et cetera. But so, but you have all these insights, you know, and then in 2011 you come up with this iconic book. Did you know it's gonna be that game changing or did you know that it's gonna make such a big impact?
- [47:18]
Eric Ries
Well, no, of course not. Because you know, this is like a true black swan event. Jeffrey Moore called it inside the tornado. Like when you start one of these tornadoes, it's an incredible thing. But I knew I was onto something because I could just feel the electricity when I would talk about it. And I really misunderstood how ideas spread in those days. I kept expecting to fight the old ideas in a head to head contest. I actually like imagined that. I visualized it like I was building an army, the lean startup army. And one day we would face off on the field of battle against the stage Gate army, the waterfall army. After we got enough credibility, they would come out and meet. I was like calling them out everywhere I go. I'd be like, these guys suck. This is all wrong. We are doing something, you know, and I'm like waiting, waiting, waiting for those people to show up and be like, oh yeah, you say whatever, like let's go. Like I remember even I was criticizing Agile even in those days and I was like, when the agile people find out about this, we're going to have an epic showdown at the Agile Conference, Nope, never happened, was never invited to speak there. They were not. So no interest whatsoever. The stage gate people like they folded without a fight. Because of course I didn't understand. If I'd understood Thomas Kuhn a little better, I would have really understood that like the way scientific paradigms proceed is that the old scientists die. They don't get converted, they just take their old ideas to the grave. And the new scientists, they just choose the new paradigm because it helps them. They're like, this is more productive for running experiments. So we won kind of by default. A whole new generation of entrepreneurs and managers and leaders and board members and all kinds of people joined our movement and they just started using the new thing. So it became this thing. Now. The reason I couldn't really have understood how big it was going to get. I didn't realize how big business is. It's funny, I had chosen a field of study that has the biggest TAM in the world compared to almost any other field of study, and I didn't even know it. And when I started to speak and travel, I spent my whole career doing technology in Silicon Valley. I didn't know anything about anything. You know, I, when I first time I went to Brazil or went to Tokyo or just, you know, traveled anywhere in the world, you realize how big business is. It's so vast that right now there are people running real legit companies who are just finding out something that you've known for 20 years. I would travel in those days and people would be like, is the Internet a fad or is it here to stay? Is mobile going to be a thing? I know it's a thing, but it's going to affect, it's not going to affect my business. Right? I was like, what? I'm here to talk to you about Lean Startup and you don't even know about Clay Christensen. Do you know the semiconductor revolution is underway? I got to invite to do all this corporate work. So I was working with big companies and there's so many managers in the world, you can't imagine how many managers are alive today. And by the way, the research shows that there are even today very, very, very wide deltas between the best and the worst managed companies. If you want economic growth in the world, all you would have to do is bring all companies up to not excellent, but just Baseline Management 101 practices and you would create trillions of dollars in GDP. It's like incredible how wasteful most companies are. It's like astonishingly bad again because people go into business because that. Because they're interested in ideas. So idea diffusion in management is worse than most fields, not better. It should be better. If markets pressured and selected for value creation, it would be far better than it is. But that's obviously that they don't. They did. This would happen. It's so vast. And that, to me, was also very inspiring. It's like, oh, the opportunity for impact here is far bigger than I ever imagined. And I would have these hilarious moments of like. I remember I went to meet the team at GE Lighting. I do a lot of work with ge, which I wrote about in my second book, Startup Way. And the night before I'm going to meet the whole leadership team of GE Lighting, I was like, I better learn something about light bulbs. I knew absolutely nothing. I knew how an incandescent light bulb worked from school. And I was like, what's happened since Thomas Edison? I should probably learn about it. I go on Wikipedia and I'm just like, light bulbs. I'm like, oh. After an hour of learning about light bulbs, I'm like, oh, LEDs are taking over the whole business. I was like, wow. Light bulbs are actually a super interesting business and they're going through a technological disruption that's like, very close to home. It's like a new digital technology is just going to eradicate this whole field. And I was like, this is going to be a great meeting. I'm up to speed under whatever, and I get there and I'm doing this thing, I'm talking about winning startup, and they're asking me all the kind of questions company has asked me that are worried about a future disruption. Maybe, like, do you think in the distant future there might be a time when we need to do some kind of innovation? And at a certain point, I had to be like, I need to have a timeout here. Because, forgive me, I am not an expert, but I saw on Wikipedia that your whole business is going away, like, in the next three years. So are we going to talk about that today or we. That's the kind of thing we don't talk. It was like, if we don't talk about Bruno, we got to talk about it or we don't talk about it. And they were like, oh, yeah, we definitely don't talk about that. Like, and then there's like, one guy in the corner was like, finally, I've been trying to tell you guys. I'm like, the LED guys, like, jumping up and down like, hello. It was utterly fascinating. You're like, how could you work in this? You don't know about led, and of course they do know, but the politics of it are super complicated. And listen, let's be real, most of these people, their stock options are going to vest before this happens. They're trying to just squeeze a little bit more profit out of this old business. And GE had to divest of its lighting business in the end. So sad. Like Thomas Edison's company had to divest of like. Anyway, so I got a crash course, like you can't believe in how business actually operates all over the world. It was one of the most intellectually stimulating whirlwind experiences of my life. All because people thought this book was interesting to me. That's one of the gifts of the modern economy is it makes stories like this possible. I'm incredibly grateful for it.
- [52:47]
Ilana Golan
It completely changed the world, at least in the tech world. I mean, for us it was just like incredible. So. And by the way, in Lean Startup you actually instill a few business ideas which I am sure some people latched onto. And I don't think anybody really lashed into the long term stock exchange idea that you implement there. Right. And eventually you jump on it and you decide that this is something that you want to chase, which I assume if nobody chased it because it's really, really, really, really hard and you decide to go after that. Why sure.
- [53:21]
Eric Ries
So yeah, if you have your old beat up copy of Lean Startup somewhere, I don't know if it's on the shelf behind you, you can, you can pull it off. And like literally, literally on the last page, it's like one of the very last things I wrote and I can remember where I was when I wrote this idea. I remember the writing process at least start very well because it was big deal for me to write a book and I loved being an author because you get to have the last chapter where you just say, here's some things that people should do, not that I should do, other people should. I was like, this is great. I. My job ends when I put the being a public rules because you're not accountable for anything. You just put it out in the ether and then, you know, whatever happens. I just was like, this is so fun. So I'm just like, we should change education, we should change society, we should teach people this, we should do that. Which is, I was going off riffing on all kinds of stuff and one of the things I threw out there was this idea that we should build a long term stock exchange because fundamentally, like if you study total production system for like 5 seconds, you will be introduced to this body of academic evidence we have, which is very strong, that companies that have a philosophy of long term thinking outperform. So what the f are we doing here? I'm like, oh, okay, great. We're all going to make more money if we have a lot of long term. But everyone I would talk to about that would be like, well then. But then you can't take them public. Why is that? Oh, because investors only want short term returns. I'm like, but investors, they make more money if they think long term. There's all this evidence that having a long term investment philosophy also makes you more money. So it's like if you make more money as an investor for being long term and as a man, it's like, we have made a mistake. What we need is a human institution that can regulate the behavior of managers and investors at the same time. And I was like, what could that be? A union? Political party? A hotel? I was like, I was like, go rummaging through like my Monopoly set, you know, like, is it is a bicycle? Is it a this? And eventually I was like, oh, that sounds like a stock exchange. A stock exchange brings together companies and investors. I was like, oh, great. So what we need is a long term. And I just sketched out how it should work, three paragraphs. My work here is done. And as you say, nobody ever wanted to do this. That book is the carcass of Lean Startup has been picked over like you wouldn't believe. People finding business ideas out of it. Which I of course is the ultimate. Me too. But nobody ever called me about the stock exchange. And it's funny, there was never a day where I was like, I'm going to start this company. I was just like, this is an idea that won't leave me alone. And I can't understand why it's a bad idea. Everyone says it's a bad idea, but I could not understand. It just became my cocktail party conversation. So I think it's probably still up online. I did an interview with the Wall Street Journal and they were like, do you have any other ideas? Okay, hot shot. You know, lean Startup was pretty cool. What else do you got? So it was just like my answer to that. Cause I was just like, oh, we should build it. And they ran a headline that was like, lean Startup guys quote, crazy idea. They literally called it crazy in the headline. So like, people thought it was ludicrous crazy. And as you know from the story I told you before, that is like waving a red flag to a bull to Me, because I was like, I want to know what's crazy about it? And it was so polarizing. It was like I was back in my polarizing days. I did an event once for a bunch of authors, all other successful nonfiction authors. Huge room of us coming together, and everyone goes around the room and they have to say what they're working on next or something. It was like, you know, introduce yourself and get. Maybe it was like, introduce yourself and give a new idea that you haven't written about or something like that. It was like 50 or 100. It was like a huge thing. Just circles going around and around and around and around. Everyone's like, I'm doing this, I'm doing. Blah, blah, blah. It was fun. I was having a great time. Comes to me, I said, hi, America. I'm the startup guy. You know, whatever my idea is, we should. I just, like, gave the quick pitch for Lean Startup, and, like, the room erupts in applause. I'm like, ooh, that's interesting. I was like, well, I like that. But then I also would have rooms where people would, like, throw me out and be like, you need to leave. This is terrible. Like, it was very polarized. So, like, there's another Wall Street Journal article where an anonymous hedge fund billionaire calls it disgusting anonymously. Of course, he couldn't give his name anyway, so it was like, really, really polarizing. So I was like, this is fascinating.
- [57:04]
Ilana Golan
Yeah, that's a good thing, I guess.
- [57:05]
Eric Ries
Again, to me, this is an idea. It's interesting. I want to know why this is a bad idea. So I for years, asked everyone I knew at the end of every conversation, know anybody who works in the public markets? I'd never even met a stock trader when I had this idea. I knew nothing about it. And so I would just meet with every person, hey, I got this idea. Can you tell me why it's a bad idea? And everyone I met with would very confidently explain to me why it could never work. Bad idea, doesn't make sense. Whatever. And again, just like before, the quality of their arguments were horrible. What you're saying can't possibly be right because it doesn't make sense.
- [57:38]
Ilana Golan
And just for the listeners, and correct me if I'm wrong, Eric, Right. I think the idea is basically like, the companies that grow fast, right, eventually lose their soul to Wall street, but they have to keep on growing, right? Wall street expects them to keep growing, growing, growing. And what you're saying is, let's create a different way of judging these companies so that they can grow Long term, but without losing their.
- [58:02]
Eric Ries
Yeah, exactly. It's. That's how I would talk about it now. At the time, of course, I didn't have this clever language. I hadn't. I've learned a lot since then.
- [58:07]
Ilana Golan
Well, I learned from you, so I don't know. But you.
- [58:09]
Eric Ries
No, no, but this. But you got it exactly right. The growth is not a problem in itself. The problem is when growth becomes the all encompassing goal. Today we teach people that they need to make money by whatever means necessary. Extractive, exploitative or honest doesn't matter. High trust or low trust doesn't matter. You have to make money for your investors. But the data shows that people who are committed to achieve some long term mission actually create more shareholder value in the end than those that don't. So we conceived it as what I call the sanctuary for company builders. It's like, let's create a financial environment where those who want to build for the long term will feel respected and rewarded for doing so instead of constantly under siege, under assault. Anyway, so for. After years and years of finding that no one could tell me why it was a bad idea, I just thought, well, again, I didn't, I wasn't like, I'm gonna start a company and do this. I was like, I'm just gonna put one foot in front of the other. I'm gonna try to prove that this idea can work and we'll just see what happens. Because it was too big of an idea even to really contemplate. Like, I knew it would take decades to come to fruition. So it wasn't the kind of thing you could like, sure, let's go get a quick win. And like, also, how do you pitch that to a VC to be like, this could take a really long time. Okay. But I was like, I need to solve all the problems. Let me solve one problem at a time. Let me learn. How do you even go about starting a new stock exchange? What is the first thing you need? So I just like, I was like putting pieces together for years and years and years and next thing you know, we'd raise money. Next thing you know, we had a team. Next thing you know, we had had gotten this thing approved and now I don't run the company anymore. So I can I say we. But of course there's actually a really awesome team now that is the people qualified to run a financial services company farm far better than I. But I'm very proud of the progress we've been able to make. And yes, for those that don't know and you can also look it up@ltsc.com, we're the first new listings venue for public equities created since really since the creation of Nasdaq with a new different listing standards. And we trade stocks and we list companies and it's, we're in the same regulatory category as NASDAQ and ic.
- [59:56]
Ilana Golan
And in your new book Incorruptible, right, you describe basically like a bathroom floor, 3:15 in the morning, like.
- [60:03]
Eric Ries
Yeah, well, this, a lot of entrepreneurs will know this story.
- [60:06]
Ilana Golan
Can you share this for a second?
- [60:09]
Eric Ries
Yeah. So here's the situation. So the current version of LTSC is not the first version. We have several pivots in. And one of the most important and the hardest pivots we had to make was towards the. It's interesting in Lean Startup in the appendix there, in the last page, I had said I had sketched out the idea of the philosophy and then I had suggested some specific tactics of how to do it. And we came as close as you can get to having those tactics work and then still fail. And what happened was I was very naive. I didn't understand that building this company, it would be vigorously opposed by actual enemies. They're not competitors, but enemies. I didn't even know you could have enemies. I was so naive. So we get to a certain point with this company. We raised money. I recruited all these incredible people to follow me on this impossible quest. They are all turning down seven figure incomes to do this and get paid peanuts with me. So I was like so grateful to them. The exchange makes an application to the SEC for approval, which we get the approval, we get the approval order from the sec and then we enter the mysterious bureaucratic limbo where like the order can't be published. It's stayed, no one's even heard, like all our, all of our lobbyists and lawyers. I, I, when I walked around D.C. in those days, I had this huge entourage that would go everywhere with me. None of them have ever heard of this before, so they had not prepared me for this possibility. And we spend months trying to figure out what's going on. Anyway, long story short, turns out there had been this coalition of kind of like a bunch of hedge funds, some like corporate governance experts and a few policy people had just decided that we were the devil and they did not want to see this happen. And they were really bold. They weren't like subtle about it. Like, they literally invited me once to one of their strategy calls to listen in. Were they plotting our destruction? So I understood how Impossible. My goal was. And they were just like, look, we object to the specific provisions in your listing standards, not because they're bad, but because they're too close to another thing that we like better. It's not that we don't think your thing won't work. We're worried that if it does work, it'll take momentum away from our thing. I was just like, well, that's what does that to do with anything. They're like. And they didn't say, you, we want you to die. They said, look, this is very simple. If you will change your listing standards to be like everybody else's, all these problems will go away and you can continue, you can proceed on your way. If you insist on stubbornly doing it your own way, we will kill you. Just like, matter of fact, very straightforward. You could choose door A or door B, whichever you prefer. Now, I'd often wondered, why are all the stock exchanges the same? I said that we're the first, but we're the first with a different model. There's a ton of stock exchanges that are all copy exactly the same as each other. I never knew why. I was like, shouldn't we have? I thought we were free markets about competition. How naive. I was like, oh, now I see there's a force behind the scenes insisting. Anyway, so we had this. They gave us this threat. Now, they were very smart with their ambush. They did it while everyone was on vacation. I was in London, my team was in the us I finally get the call. It's like a middle of the night. I had to get my team on a phone call. And I'm like, hey, everybody, pick up. Bad news. Here's the situation. I finally understand what's happening. We've been made an offer you can't refuse. So here's our choice. We can give in to these people and do what they want. Because we had been working for months at that point to get the stay lifted. And we had like, tried every normal thing you do. It's funny, there's a public comment letter, a public comment file. The SEC has a procedure for this. If you go read the public comments for our original application, it is 100% positive. We got hundreds of people to write in. And not just founders and startups and VCs, obviously, but, like, we got pensions and CIOs, and like every. We had done such a good job, nobody would go on the record opposing our application. Nobody. And yet that thing was not approved. And I said, look, here's the deal. We either have to Capitulate or I think there's a good chance that we will go out of business. So I don't want to sugarcoat it. Those are the stakes. And I was like, I'm not going to just make this decision myself. I'm the CEO. But we're a team. We do this together. I need a unanimous decision. It was really late at night. We spent a lot of time debating it, discussing it. Is there any alternative? Is there any way out of this bind? Says, look, bottom line, do we capitulate or not? Yes or no? Everyone go around. We're on Zoom. Every person. I need to hear you say yes or no. And every person, one after the other, said no. And I couldn't believe it. I was like, really? You guys are that committed, so what could I do? You know? I was like, okay, well, then we have to. Anyway, we delivered our answer. No. They, in fact, did destroy us. They didn't just destroy us. They went to all of our partners and explained that if they continued to work with us, they'd never work in this town again. Their wrath would extend to anyone who worked with us. So all of our partners, not one of our partners, stuck with us. No one had the courage to stand up to these guys. I remember the partners would call me and they'd be like, look, it's not that I dislike you, but I need them for something else that's really important to me. And they've said I have to sacrifice. Sorry. It's not personal. It's, you know, it's just business. I tell the story in the book of being on the bathroom floor curled up at 3 o' clock in the morning, because people hear these stories and they're like, wow, Eric's such a hero. It must be his heroic leadership that saved the day. No, man, I was the one who was the most upset and the most incapacitated by this. It was only because we had built a company with an ethos to stand for what's right. The company held its strength that day. I definitely couldn't have myself. And, you know, if you're a founder, if you've never felt the contrast of the heat of humiliation with the cool of the. If you've never felt the bathroom tile cool on your cheek while you are burning, if you've never felt that, then, like, I. I question whether you are, in fact, an entrepreneur, because that. I've told that story to so many people. They're like, me too, man. I've been there. I know that sensation. It feels awful. In retrospect we didn't go out of business. In fact, just like I can talk about the dot com bubble, that was one of the best things that ever happened to us because necessity provided the mothering. We need to create a new way forward for the exchange. One that was both. We had more autonomy, we weren't reliant on these other partners. And also we created what are called principles based listing standards, which obviously you can read book about, but basically a different way of doing differentiated listing standards is actually a lot better than what we had before. So our enemies actually made our success possible, although they didn't intend to. It was been quite a project to work on. It's been definitely the hardest thing I've
- [66:06]
Ilana Golan
ever attempted and I think every founder or everyone that tried to do something big and their stomach go upside down and what I call the near death experience, we all going to have it. So. But why did you write incorruptible? And basically it's like why good companies go bad and how great companies stay great. Like why? What were you trying to portray with this?
- [66:32]
Eric Ries
Okay, I'll give you the punchline and then we'll work backwards to how we got there. The punchline is most of today's best practices that we teach people about how companies should be built, operated and governed are value destroying. Now that's a ridiculous statement. Because people are like that can't. How could that be? When the market selects for value creation, how could we have adopted. But like I got the goods to back up this statement. And there's more footnotes in this book. The citations take up almost as much as the prose. I'm not talking out of my butt here. Like I really have done the homework. Luckily we have all this academic research to rely on. You can read it for yourself. You could judge for read and judge for yourself. There's a whole chart in chapter nine. You just turn to that page called best practices destroy value and you can check the citations. Okay, I didn't. I'm not making this up, but it's kind of a monstrous statement. It's incomprehensibly bad, the state of the art. And it's kind of so bad that when I talk to normal people about it, they think I'm lying or making it up. They can't imagine that this is how the world actually works.
- [67:28]
Ilana Golan
Well, in the book you have tons of examples. Like the book is tons and tons of examples packed with examples. So just to make sure everybody understand, this is not just.
- [67:38]
Eric Ries
This is like my other way. I've Always tried to make it very, very concrete. And these are examples of things I've personally witnessed and then things that are well documented. So I wrote the book because I have been around a lot of value creation. Okay, I've helped kind of even imagine how many people start companies. But still, even after all this time, certainly a startup came about 15 years ago. And yet basically every day of my life, somebody comes to me for advice about how to start a company or somebody, how to revitalize an existing company. But like, that's my daily practice. It's the privilege of my life. I'm so grateful that people do this. So I've helped a lot of people. But I've also seen the dark side, the dark underbelly of this business. And it is dark. I have a lot of people I know personally who are incredibly wealthy and totally miserable. And I know all these companies. I've watched these companies get surgically deboned year after year. I've watched them turn to cowardly jelly when they were once so idealistic. And I was just, I was actually just doing this with somebody literally yesterday. And they said to me, this is why I got into business in the first place, because I saw business as a force for positive change. But now I feel if I say that out loud, I'm being naive. I've kind of given up. And I was like, how sad. If we're going to wind up rich and miserable and cynical and depressed, what are all these compromises for? Who are they for? And I just think we have made a civilization level wrong turn and it's not too late to reverse course. So what we need to do is diagnose how we got here. We need to understand what is wrong with what we've been taught and but most urgently and importantly, what are the new practices that should replace. So this book is not just a work of philosophy. It is a blueprint for how to identify those organizations that are sincerely committed to doing the right thing so that you can go work for them, so that you can buy from them, so you can spend your energy with people who will not betray you. But of course, ultimately, how can you build new such things? And the reason I'm so confident in this book is not just given me superpowers. Like, these ideas have helped me so much in the last 10 years. But even in the short time this book has been in existence, I've had a lot, you know, I had a lot of test readers, as you can imagine, because I'm really into feedback. So I've had this book ripped to shreds by hundreds of people. But even in that small community, I've had many people who've already reported to me that they have a new business idea that they're going to go pursue that they never would have thought of otherwise. Because a big part of the book is how do we take the blinders off? We've been indoctrinated into this very extractive, very exploitative understanding of what business is that is intentionally designed to mislead us about what ideas in fact have the possibility for market traction and where are the levers that make change possible. And when you take those blinders off, you will not just be happier, you will not just do take more ethical. And I guess, of course it has a moral and social and environmental dimension, obviously. But to me, before we get to any of that, there's simply the opportunity to create more value by discovering business opportunities that we are trained to overlook. Oof.
- [70:27]
Ilana Golan
That's powerful. And I think there's like a lot of the measurements of how do we see success have to change in order to not chase the wrong things. But. So, Eric, first of all, let's tell us where. I mean, we'll have the book in the show notes and all the things. And it's. I don't remember when this show is coming, but it's going to be there.
- [70:47]
Eric Ries
Oh, yes, exactly. The book. The book comes out May 26th. So if you've. If it's after May 26th when you read this, the book is out right now. And if it's before May 26, you can pre order the book right now at Incorruptible.
- [70:58]
Ilana Golan
Co. Yeah, I love it. Eric, one last thing. What would you wish somebody told you way back when you were in one of those really dark moments?
- [71:09]
Eric Ries
Okay, first of all, with the caveat that I was not very good at listening to advice, as I mentioned as a young person. So if, like, if someone had had in fact shown to me and helped me understand that this is the best thing that I would have been like, f off, old man, I don't want to hear from you. So I absolutely get it. And I remember being that way. There's a piece of advice I got late in life that I wish I had known earlier. And it's actually a very simple idea and it's super powerful. And it's just this. When someone gives you feedback about yourself, about your product, about your feedback is always a statement about the person giving it, not the person receiving it. So if someone says you're Ugly, they're telling you about what they find attractive. If someone tells you your product sucks, they're telling you about what kind of product they want. If someone says your product is too expensive, they're telling you about their budget. If someone tells you your product is great, this is the greatest product I've ever seen in my life. They're telling you about their own standards, right? So every. Every feedback statement, although it is nominally about you, is really about the person giving it, which means feedback is never an attack. It is always a confession. And if only I had known that so many times in my life, I'd be like, this person's being a raging lunatic and yelling whatever. I'd be like, oh, this is a person in pain. This is a person who's suffering from a delusion. How good to know. Then I can be compassionate about it. But, oh, I'm so sorry for you. Oh, that does sound really hard. And the same is true for someone who irrationally is like, loves my product a little too much. Now they're stalking me and doing all this other stuff. It's like, oh, okay. Like, someone who's suing. I've been sued plenty of times. Like, this is a person who's having a problem, and they've made their problem my problem. So I need to figure out what to do about it. But it's not personal. And so many people are afraid of feedback, and so we don't find it. Because I'd like. I don't want to, like, if my product. If my baby's ugly, I don't want to know. But. No, but you do want to know, because it's a subjective judgment. You need to know. It's like, you want people to do things. So this is the thing that's so funny about this. This is the true difference between entrepreneurship and the pure art. The pure artist does the art for its own sake and does not care what anybody else thinks about it. There are actually very few true artists in this world. Most people think they're doing art or actually just seeking fame and attention. But the true artist, they make the art for themselves. They might have to wait till not only they're dead, but they're many generations from now to be appreciated. I mean, remember people threw boxed music out. The Brandenburg Concertos were, like, rescued from the trash after he died. Okay? Like, a lot of great artists are not appreciated in their lifetime. People say they want immortality, but I'm like, do you really? Are you prepared to be that kind of, like, are you really sure the True artist doesn't care. But an entrepreneur, by definition, is not trying to do that. They want something from people. I want them to buy my product. I want them to do something for me. So in order to do that, I need to understand who they are and what they want. If a customer is not willing to buy my product doesn't mean my product is bad. It means that it's not suitable for them and their own perceived needs. And once you have that insight, it turns every obstacle into an opportunity for learning. This is, of course, the big inside of Lean Startup. The most important inside of Lean Startup is that the progress is determined by learning, not by artifacts. Which is even more important in this age of AI when people are obsessed with artifacts and causing all kinds of mental problems as a result. But the simple idea that feedback is a confession. I wish someone had told me that.
- [74:21]
Ilana Golan
Oh my God, Eric, I can probably grill you for five more hours, but I. Eric, thank you, thank you, thank you, thank you for being on the show. Thank you for sharing all this wisdom. Thank you for everything you've done across the world. So thank you Eric.
- [74:39]
Eric Ries
Well, thank you for saying that. I appreciate it. And congratulations on what you've been able to build here. It's very exciting.
- [74:57]
Ilana Golan
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