people act like having a startup fail is the worst thing that can happen to you and like man that's not even in the top 10 like it's it's bad I mean I've done it it's awful okay it's really bad but far worse is to be in a company that won't die a zombie Undead company that you hate but you can't leave have I met people like that and like we're having a mental health crisis among Founders that's like not talked about enough you know people started to talk about like the downside mental health risk obviously
the stress of being a Founder is heart but like look what's happening to the people that are so-called successes like when you build a company and you sell it out and it becomes something that you find a horren like yeah may may you get rich but it's it's not it's not good and so building a company you hate that that becomes a malign force in the world you know that you have to go pretend you weren't involved with or that like you feel complicit in what like that's way way worse and I wish more Founders
would take that more seriously early on today my guest is Eric Reese if you're not familiar with his work I would be shocked he is most famous for creating the Lean Startup methodology and movement and also is incredibly influential book The Lean Startup he also coined more terms and Concepts that are part of the tech culture than anyone I could think of he currently spends his time advising Founders and startups he was a former founder and CTO and currently is the founder and executive chairman of the long-term stock exchange this is now my favorite episode
of the podcast and I can't wait for you to hear it in our conversation we cover a lot of ground including the current state of the Lean Startup movement where he sees things heading what Eric would redo if he could do it over again misconceptions about the methodology that frustrate him most how AI will likely impact product development in startups how to think about MVPs correctly when to Pivot and when to stay the course also how to build a business with values that are aligned with human flourishing also tons of Amazing Stories and lessons and
there's just so much gold in this conversation and so with that I bring you Eric Reese after a short word from our sponsor sponsors this episode is brought to you by sanity your website is the heart of your growth engine for that engine to drive big results you need to be able to move super fast ship new content experiment learn and iterate but most content Management Systems just aren't Built For This your content teams wrestle with rigid interfaces as they build new pages you spend endless time copying and pasting across pages and recreating content for
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and road map updates and you're spending your days basically putting out fires a better way is possible introducing jira product Discovery the new prioritization and Road mapping tool built for product teams by atlassian with Juro product Discovery you can gather all your product ideas and insights in one place and prioritize confidently finally replacing those endless spreadsheets create and share custom product road maps with any stakeholder in seconds and it's all built on jira where your engineering team is already working so true collaboration is finally possible great products are built by great teams not just Engineers
sales support leadership even Greg from Finance anyone that you want can contribute ideas feedback and insights in Juro product Discovery for free no catch and it's only $10 a month for you say goodbye to your spreadsheets and the never- ending inline efforts the old way of doing product management is over ReDiscover what's possible with Jiro product Discovery try it for free at atlassian dcom Lenny that's atlassian [Music] for listeners to get to learn from you and my first question just what are you what are you up to these days I know you work on the
long-term Stock Exchange what else is going on in Eric Reese's life yeah you know if you can believe it The Lean Startup came out in 2011 so it's it's it's been a little while now and it's been such a crazy ride and basically every year since it came out I keep thinking all right that that's the end that surely that's enough and and just each year it gets crazier and crazier and new things come my way so yeah it's uh I definitely you know I'm building the long-term stock change uh ltsc I'm sure we'll talk
about and you know I spending a lot of time still with you know with Founders and with big companies ex you know trying to answer their questions about how to build companies in the right way obviously been sucked into a lot of AI stuff of late uh as as everybody is and one of the interesting things that actually surprised me is I spent a lot of time the last 10 years working on the is you know issues of governance and corporate governance and how companies should be structured not really with an eye towards technology in
particular but just you know with long-term ISM and and humanism really at its at its core and it turns out that those questions have just become like really acute for for AI companies so so because of my work on governance i w up meeting with and and getting to work with some of the top AI companies so it's been that's been really interesting but yeah I I feel like I just I go where the issues that on people's minds go and it it kind of pulls me into new and really interesting things all the time
amazing okay so I'm going to want to talk about all those things as we get into this something I wanted to mention is I feel like people don't give you you enough credit for how many Core Concepts of startups and product building you've either invented or popularized so what I know obviously lean methodology then there's the term MVP then there's the term pivot and then also I think AB testing customer development continuous deployment vanity metrics as a term I'm guessing there's many more and then the long-term Stock Exchange and I think the theme I get
from this is there's a lot of first principles thinking that you've done and so just a couple questions here one is did you think you'd have this much impact on Startup culture and language and then just where do you think this comes from this first principal thinking that you seem to be really good at well first of all thank you for saying all that that's that's that's that's giving me too much credit but I I like the idea that it's going to balance out the too little credit I I offensively get somewhere else that's that's
great you know no I mean to answer your question no I didn't know this was going to happen this is so embarrassing to admit now but just to give you a s of how different the world is now than at the time of the financial crisis I was so embarrassed to be blogging that I didn't put my name on the blog I published it anonymously because it's like it wasn't a thing that people did and people told me it would be career suicide and there were so few startup bloggers at that time that like the
big the top three all reached out to me personally because they saw it in their referral logs on their website That's how little traffic they got that like when a new person started writing a about their thing and linking to them they were like wrote who is this guy what's going on I like it was it was a very different it was a very different time and I had you know I just finished a startup I had left a startup that was being successful and I had this reputation among VCS that you know I could
make engineering teams be supernaturally productive I had like the magic pixie dust and so they would ask me to come in and work with their teams and I would be like no listen honestly I'm not that special it's nothing to do with me it's just you know this framework I have this these IDE that are that are helpful and a team if they adopt them and they would like Pat me on the head and be like yeah kid I'm sure that's great but can you bring bring the magic pixie dust to my company you know
anyway and I would go and have these meetings and I'm not making this up people would yell at me in the meeting I would get yell fact I would be like asked not very kindly to leave and and I be like I don't understand what are you like why you mad at me I you asked me for this meeting and they' be like what I like I'm just telling you what I witnessed with my own eyes that we at imv we we ship product 50 times a day on average at a time when people were
like lucky to be doing it monthly if they were really Advanced remember like it wasn't that long ago that we put the year the product came out in the name of the product that tells you what cycle times used to be that was considered normal and people were like that's impossible that could never work and at that time I wasn't even propounding a theory or anything I was just explaining what I had seen and people couldn't uh couldn't believe it and so I had this great idea if I write some of these stories down then
when someone asked me for these me I was doing these meetings all the time I didn't understand the way look at Valley worked at that time I didn't understand why this was happening to me having these meetings and I I'll write the story down and then I'll send people the essay and if they think it's crazy then we don't have to have the meeting and I won't get yelled at like that was really as far ahead as I was thinking at that time and then you know it basically took over my life and I was
being asked to speak up people really wanted to unmask the anonymity who is this person uh and so I came clean I I identified myself and and started writing and um speaking and working with companies and it just it became it became a whirlwind the first principles part of it I just I don't know I've always been wired that way I I feel like maybe I'm a failed scientist like I wish I wish I was actually good at chemistry or something I could have actually been a real scientist but I I always really had a
respect for the truth for scientific thinking that was a big cultural value that I was raised with my parents or doctors you know it's just definitely part of my upbringing and and I was really into reading stuff that that worked that way so it was very natural for me I felt like as I had success as an entrepreneur I wanted to know why does this work and what people give me advice you know all the advice used to be of the form you know Steve jobs once did this thing so if you do it too
you'll be like Steve Jobs and it's like well he also wore the black turtleneck is that is that also part of the like what helped me understand why does it work and is it still appropriated does it make sense for that industry or not I didn't like these Just So Stories and I realized looking back I didn't have this understanding at the time but looking back I feel like first principles thinking it really has two components that people pretend are one thing and it's more one than the other a lot of my work is just
descriptive it's not actually telling people what to do it's simply giving a name and a concept to a thing that already happen like that's the funniest part in the early wave of criticism against Lean Startup people were very angry at the idea that I was saying that a startup is an experiment like you can't treat a startup like an experiment I was like well you could treat it however you want but it is an experiment people like well I don't think it you know like people don't like the concept of pivot there still there's anti-
pivot people anti- envy people every once in a while come out of the woodwork still to complain about it it's like well I'm not telling you that you should pivot I'm just saying like that is what it's called when you change the strategy but try to have Fidelity to the vision it needs a name because we do it all the time and even when we don't do it we talk about doing it and we can't reason about it if we can't and so so that like there's this descriptive part and then that's the real work
honestly is just saying like what is like to me the big question from the beginning was like what is a startup really why is it so different from a big company why does why did none of the best practices that I learned in my career work you know it's like it wasn't was like a survival mechanism I want to know and then once you've identified what it is and laid out the the the original principles of like what you're trying to do the prescriptive parts are just a matter of deductive logic it's like well okay
given that we've made this hypothesis like what is that what are the implications of that and of course the prescriptive parts are important because that's how you learn whether your hypothesis is correct so that's the other thing I think people don't appreciate people people call me a first principles thinker which I I love that a big compliment but I feel like it conjures up for people this idea that I like sit in a cave for years and years and like conjure up the magic idea it's like no I wish people had all the outtakes of
all the concepts I've tried you is at least start up was not my first try you know the conceptual vocabulary was not the first time I got it right it came through a lot of trial and error a lot of trying to figure out what works and doesn't work first in my own career my own work then trying to give advice to other people and trying to translate what worked for me to see what would work for them and then to answer the questions that I thought were the natural ones under what circumstances does it
work and what are what when when would it not be appropriate what predictions does a theory make that we could then go see if we're true or not true and then the kind of the bigger picture thing is like what are we really doing here like what does success even look like and so like how like that I think is the thing we all really grapple with is you know it's very easy to come up with a theory or a method or a process that produces the maximum of something but then it's like what is
that is that thing good you know is that actually helping us accomplish some kind of goal and so that you know I think that first principal thinking is very helpful for for that too but yeah I don't know I guess I've but to to really answer your question the truth true answer is I don't know I was just I've just always felt like I was wired that way I I have a love of ideas and want to know why things work so to me a couple takeaways from what you just shared one is just you're
wired to think in this specific way of thinking very logically scientifically I have a similar uh feeling where someone tells me a story like the way I started writing partly is people kept asking me questions about how Airbnb did stuff because they're building their Marketplace I'm like here's what they did but who knows if that was the way to have done it yeah yeah exact exactly did they succeed because of that or in spite of that let's dig into the Lean Startup method and methodology feels like we haven't heard an update on just like how
things are going where it's going this how popular continues to be I'm curious just what's your sense of the state of the lean methodology and The Lean Startup movement oh it's an interesting question you know we used to do a Lean Startup conference every year and then I I stopped because of coid and we haven't we haven't resumed yet so it was we used to have like an annual opportunity to like bring people together assess the state of things hear the latest updates and stories and then I really feel the the lack of it I
miss it um we tried to do online versions but it just it wasn't it didn't it didn't feel right to me so part and that's partly you know it's co and the things that our world has been going through the last few years but it's also partly I didn't understand what it would be like to start a movement until I'd actually done it and I just I remember the first conferences we did the first events we did had the feeling of a religious revival people were like we've got the new thing we going to stick
it to the man and I I really thought okay my job is going to be to lead these hordes into battle I really had like a marshal metaphor I used it just a second ago combat of ideas I was ready for like the old ideas are gonna like fight us to the death and we're going to win and it's not like that at all we we charge onto the field and no other army ever came to charge us back like it just we won by default because the people who were doing it the old way
didn't really like it or want like there was very few Defenders of the old way like very few people came out and said actually no stage gate is actually still the correct product idea you've you know you've got it wrong it just it never it never happened and in fact in the like the the the fancy startup people went from dismissing it as like totally pointless to complaining that it was overhyped and over before ever passing through the intervening St stage of finding out what it was that was really interesting like I'll never forget like
Tech crunch like had an article this is years and years ago about how like Lean Startup is overhyped and I was like you haven't even talked like that's that was the first entry point to talking about it I was like would you could you at least learn to use the word pivot correctly and then then criticize it for being overed is that all possible so it went from like Insurgent Revival to just the default thing that people did even the people that disagree have to carry the meme in order to criticize it so it's it's
it's was fascinating to find myself on the other side of this thing and and you know when I would meet young Founders coming into the industry for the first time and they're like seems obvious and I'm like what was only five years ago that people thought this was like CRA so crazy they're yelling at me now you think it's obvious like it's really interesting to have something go from controversial to obvious and you know and of course like tons of people who were really opposed to it at the beginning came back you know now they
say that they knew it all along and they were my big you know just you see you see how it changes people's minds so it's hard to generate that religious energy and excitement around something that everyone views as obvious and it it it really was hard for my just like as a as an ego matter I want the validation of the winning and the this and I realized at a certain point that like the victory is not that this fancy company you know used it or whatever like the victory actually is in the stories that
people tell me about how the book was helpful to them and that's that's really that's the whole ball game we don't have to no one no one had to lose in order for us to win you know there's not people some used to I don't do this people don't do this as much anymore but occasionally someone still who wants to like make a fight between Lean Startup and agile or agile and design thinking or this and that and you know I tried really hard if you look at Lean Startup it is full of citations and
connections to Six Sigma and lean manufacturing and design thinking and customer development and devops and software craftsmanship and every everything I could find I really wanted to show how these things work together and and then then we went through a phase where people wanted want wanted me to like make it into a religion for real people used to write me and say soand so on the Internet is writing about Lean Startup and they're wrong you need to make them stop I was like what what power do you think I have to make someone stop writing
and I like they can write whatever they want and then the other thing that people said was well Lean Startup is about this particular set of practices if someone finds a new practice they're a heretic and need to be excommunicated and it's like guys no no no we I wrote extensively in the book did you read it's a scientific theory which means that that whatever works is Lean Startup so if someone comes up something new and it works we can't be threatened and upset about it we have to adopt it well when you have that
attitude that whatever works is the thing that like the truth is what matters and like people's Quiet Moments of helpfulness like that's that's our metric of success it kind of takes the like hype and drama and you know stuff that drives like press coverage and what takes it all out of it and I don't miss it at all like I think it's I feel much happier doing that than I ever did when we when I I used to travel a lot and do a lot more uh uh public stuff and I think partly Again part
of the change is coid and not you know conferences went away for a while so it was like a quiet quiet time but I feel like it's actually been really amazing like that's what victory looks like it's not about they they don't throw you a parade and say the thing and even though people who are your critics are still Grumble about it but like at the end of the day the new entrepreneurs who come in just take for granted that this is the conceptual vocabulary of Entrepreneurship and then they do with it what they will
and I've learned to really you know appreciate that as much as my ego of course likes to get into fights with people it's like no that's actually that's that's better that's what winning looks like yeah it's so interesting that it's just you've done so well in communicating these ideas that it's just become part of the culture and people don't even think about oh Eric ree came up with all these things I also feel like people push back at you on the things they disagree with and then they never give you credit for like the things
that work great it's only like oh no MVPs don't work anymore yeah yeah people once a year at least someone still writes to me and says that they we should have used a different term for MVP that the misc the misconceptions around MVP are are driven by the choice of the term I always write them back and say like please tell me the better term and popularize it and I'll use it you know it's a great idea like I I'm I'm more aware of the limitations of than anybody else and I'll tell you another thing
that I think people don't appreciate enough everyone wants to be a thought leader these days it's like a disease when Klay Christensen died you know I knew him and admired him a great deal and you know his endorsement of my work was like one of the most important like for for me like from the old guard of management thinkers for him to say that it was worthwhile was like really a big deal to me and yet there was this big debate it's now a little bit older now about whether he's responsible for all the bad
things people have done in the name of disruption and the first part of me is like that an outrageous slander on CL like that's so unfair a bunch of tech Bros like use disruption as a code word for all kinds of dumb stuff has nothing to do with his theory has nothing to do with his work it's like have they even read the work man so so I wanted to like I was one of his Defenders you know and especially after he passed I was feeling I was very emotional about it it's not fair but
then the more that I've sat with it the more I thought gosh maybe we are a little bit responsible for the things we put into the world and it's terrifying because of course you can't control what people do you can't control like people a lot of people are willfully ignorant you whenever someone says something where I'm like gosh 5 seconds on Wikipedia and they could have found out the truth about the thing they're talking about so you know we live in an era where ignorance is optional that's cool but also a little bit scary so
like I think taking on that responsibility this is true for anyone who makes a product I think it's not actually unique to authors at all when you make something put out into the world on the one hand you don't have any control about what happens next and yet I do think we bear a certain responsibility about was it in fact net positive that was it helpful to people and so I try it's like part of what motivates me to try to really get it right and not just get it right for my own satisfaction but
get it right as evidence by what happens when people use it and that's why I mean that's why testing and experimentation is like such a big part of my life and my theory like to me that's how we we Square the circle of our responsibility in a highly uncertain world is you go find out what happened when people use the idea and if it's not right you know even even after their misunderstandings it's still not right then You' got to make it better and find a way to communicate it more clearly so it's kind of
a an eternal challenge but I think an important one along the same lines is there a misconception of Lean Startup or any of the other things you put out that just kind of really frustrates you that just is recurring misconception that people just continue to get wrong you know I wrote an article God five or 10 years ago I I can't even remember how many years ago now it was like top misconceptions about lean startups and it was like number one lean means cheap so you're doing Le startup it means you're not raising money it's
like that's that's not true and then you know can I remember what they are what they are it's like they're and they're all still prevalent you know like nothing's changed I could write that same article today it's like lean is opposed to having a vision you know if you have if you were really Visionary you wouldn't do experimentation experimentation leads to local Maxima and you know whatever it's just like I'm I I read it in somebody's book that that there like that's what lean is about and I was like man did I forget to write
it in the B I was so gaslighted that I went actually went back and cracked open a copy of the Lean Startup and I was like on what page do I address this it was like on page nine in the introduction one of the first things in the book I was like okay pH I did say it so like that's pretty common you know that turn the crank thing about optimization that's pretty common and then like pivots people perennially misunderstand what a pivot is and like whe again whether that's a descriptive or a prescriptive thing
like you know it's is is really tricky and so you know like it's like those are I feel like at this point people are just being willfully ignorant it's it's like it's okay to criticize Lean Startup that's no problem that doesn't bother me I think you it's good to do so it's healthy to do so but like to just Trot out those same old things you know doesn't like what do you like how does that Advance the state-ofthe-art and how does that help entrepreneurs in any way and it's like I'm not even really sure what
they're trying to accomplish by doing that that's the thing that I've I've grown confused about is like what is the purpose of this discourse other than just to kind of be reflexively contrarian I don't know get some likes on Twitter flashex maybe you're right so along those same lines so you wrote the book 12 years ago if you could go back and change something in the book is there something that you would want to change oh man I would I would change everything about it it's why actually why I won't let myself do it when
I when I was a consumer of books I hated it when authors would come out with a second edition that would destroy what was beautiful about the first edition including the mistakes because like in their attempt to put disclaimers on everything and make everything more nuanced you'd like totally lose the thrust of the argument of the thing they were trying to do and their own you know like becoming famous like really messes with you psychologically so like you don't you don't want to expose your readers to that like go go get therapy don't don't make
me like destroy the thing that made your book amazing so like as an author of course I think so many elements of it could be could be improved the one that is the most glaring to me well I guess there's two I'll mention two just just because they're relevant one is I'm a little embarrassed there's a chapter in kind towards the end of the book where I talk about the scaling of Lean Startup so it's like okay you've you've had success now what are the principles for which how you scale up a big Enterprise now
you know that has many lean startups within it and stuff like that and I don't think I wrote anything wrong in that section but I really cringe to read it now because it it's so blthe and just like step one do this step two do that like you know it makes it sound so easy is so simple and of course like I've subsequently written a whole book longer than Lean Startup just to illuminate those principles and explain how they work in real life because I actually had the privilege of getting to go do that with
companies of like really extraordinary scale so uh I'm a little embarrassed now to be like I I made it sound so easy I hate to I hate to mislead any entrepreneurs into thinking any part of Entrepreneurship is going to be easy because that's uh it's just setting people up for disappointment and the other funny bit is you know that Meme on Reddit the Star Wars meme where where Anakin Skywalker says I'm going to change the world and P's like for the better right and then pause and she's like for the better right I feel like
that is like the meme of our time for the tech industry like every company was about changing the world and we forgot to ask for the better I always just took it for granted that our goal was to make the world a better place like that's how those the values I was raised with that's what I thought we were doing and I was railing about it for a while I got really I would get depressed you remember don't be evil and there's been all these moments in the tech industry where it seemed like we were
going to really do something extraordinary and then just like the things that these companies become is so depressing and I was like well I I at least made it clear and then I was like did I again like I went actually went back and reopened the book and I was like did I tell anybody that they should change the world and if I did you know I assume I specified for the better and it's actually right there in black and white like right in the introduction Le startup one of like like a throwaway line you
know this is the technique that will give the entrepreneurs of Tomorrow the tools they need to change the world period and I'm like no I should have said it for the better I didn't know I had to say it I thought it was obious I thought we all agreed so I kind of feel like that is also a major oversight and you know I'm making light of it now but like it's had catastrophic consequences not really I think I don't think Lean Startup has led people in that way I think it has much more to
do you know with other with other social forces but like but I feel bad that I missed my chance to like take a stand on something that that has turned out to be quite important so you saw me tweet uh a call for people to ask questions oh yes yes I'm really excited so I have a few questions from the audience the first is around the con of MVPs MVPs um so Ki sarin who was actually on the podcast recently oh great founder of linear had a question around MVPs and his question is essentially if
you still believe that MVPs essentially shipping very basic versions and it rating is the way to go given that user expectations have risen a lot in any markets iOS apps for example web productivity software things like that yeah yeah yeah I I love that question becausefor I get I get it a lot and also it's it's important for us to really understand like people people think that mvp is about a specific tactic so like an MVP is like a bare bone stripped down thing that will crash your computer but it's not that's not anything to
do with mppp MVP is simply for whatever the hypothesis is that we're trying to test what is the most efficient way to get the validation we need about whether hypothesis is true or not and so part of a successful test is to understand what are the Dem demands of customers in our market now the funny part is people have a real fear of failure in product I mean we all have this deep deep deep fear so the first answer is like what like you think user expectations are high in the IOS app store you should
try like the purchasers of you know battery backup systems for data centers or like people who build deep sea oil drilling machines or you know like jet engine like I've worked with companies where the standards are like actually really high and it makes iOS apps seem like pretty pretty basic you just like okay nothing blows up at 50 people La you're at but like even in these really high-end Industries in really high stake situations like the cost of offering someone to buy something that they don't like is probably not that high they just say no
and like a lot of MVP is just about containing the liability of making a mistake so like yes one of the things I really encourage people to do is like go find 10 customers not 10 million but like find 10 customers get them to use the product and have them tell you what's awful that's okay and like I used to be so upset when I used to launch a product if customers would argue with me like people used to be like you idiot I can't believe you lost launched this product without features XYZ they're so
essential and I would be like you're wrong I did the right I got to get mad at them but then I got a little smarter and i' be like XYZ you say and I'd be like taking notes right like oh interesting now sometimes XYZ would be the exact next three features of my road map and again I want to argue with them as I know I was you know like you I knew that and used to be like oh thank you for that wise feedback and then when we launched XYZ they would feel a sense
of ownership wow I'm the one who told them to do that he would have even done it but of course the thing we're really afraid of as entrepreneurs I think we're really honest it's not that people say you idiot you didn't launch without XYZ people say you idiot you launch without ABC and you're like what the hell is ABC never heard of that that's how that that's the much more common response that I get like let's say so let's Grant the premise of the question that like expectations are high and if we launch an app
um and it doesn't meet people's expectations they won't like it first of all what what really are the consequences of that in in early part of startup we had to do a lot to explain to people the difference between a product launch and a marketing launch like you know you can launch the product to customers without telling anybody that you did that it's okay like no one's going to find out it's not going to be big news and of course like when once you're a big successful company that's totally different issue where like now you
you put your corporate brand on stuff but like if you're you're an actual startup nobody cares so like it's okay to try it but like the other thing that I think people don't appreciate is that mvp is very flexible so if you tell me like when I work with entrepreneurs like listen I'm sorry our customers the bar is here and the thing just has to be that good I'm like excellent then it can't have very many features I guess can it like what do you mean you just told me the bar is way up there
so we better do like just the one critical feature at that level of quality and then if that works we'll do the next one and then of course like oh no no no I I need to do all the features featur at all the quality it's like well then what are we testing it's like by the time you find out whether like that's any good and like if you look at the the pivot stories I'm sure you found this too like very often 90% of the work in the first version is thrown away no matter
how high how high quality it was in fact for as an engineer that was part of my like original disillusionment with the agile software movement that ultimately Lean Startup is that people promis me that if I follow these best practices I would eliminate waste from my work but if I build something that customers don't want that's the ultimate waste and nobody protected me from that so I don't really care how high quality the initial MVP is because quality is defined by the customer and if we don't know who our customer is we literally don't know
what the word quality means so that's where I think Founders really run into trouble and everyone's like well I'm Steve Jobs I'm this I have the magic taste and it's like well first of all do you have the years and Decades of failures and experience that that from which that taste derives okay if you do that I'm like I'll give you the benefit of the doubt and if you don't then like definitely don't rely on that definitely do some experimentation go get those cars but even if you have the taste like if you're completely right
what can it hurt to double check like my view is like oh let's have 10 customers look at it and have them throw up about how it's so horrible that at least confirms that we're on the right track okay and then we we call it establishing a baseline when we talk about Innovation accounting and the metric side of Lean Startup let's go find out how bad the situation is right now so that we can then know that we improve from it because like the thing I actually from people who in the name of quality will
wait a long time to ship a product is they ship it with really high quality and nobody uses it and now we don't know why is it because our ID of quality is wrong is it because the value prop is fundamentally like I feel like building a high quality wrong value prop is nothing to be proud of there's no craftsmanship in that or is it you know like I I once had a company that um built a really beautiful product amazing land everything was awesome but there was a JavaScript error where when you clicked the
download button the sign up button whatever it just it didn't click so they launched this thing it had 0% signups and they're like it's a catastrophe we made the wrong value Pro it's like how do you know from one experiment you can never know you have to be willing to do a series of experiments and the again the logic of MVP is just products take time to build like the best products in the world everything takes time you don't it takes tell me Tak a month a year year like AI will me I can build
any product I want and you know instantly but like it's not instantly it's going to take time so during that time that the product is under construction there's going to be some moment in time when you have half the product just logically speaking you first have 10% right so when you have half the product let's have customers use half the product well it doesn't cost you anything extra you had to do it you you build a natural experiment anyway have them use it and tell you it's only half as good or it's it's unusable because
it's so bad excellent good but the startup literature is is littered with examples of people where less is more where the crappy small thing they did turned out to be more valuable than the the competitor and I'll just give you one example one of my favorites um I come from 3D Graphics you know and and avatars and metaverse stuff which of course now is bad is it it's one of the things goes through these hype cycles and I'm like are we actually in the hype cycle or we in the trop tring up right now is
it are we trending up again okay it's really hard for me to keep track um even while I was working on it every few years it was either the future or nobody wanted to do it yeah um I I bet I bet sales of uh of um uh snow crash you probably have that cyclical thing to them then it's hot people read it otherwise not anyway we built a version our first version of IMVU we built with 3D avatars like in a cafe or in a scene and the avatars were all anchored in place because
we didn't have the technology called inverse kinematics we didn't have the technology that would allow an avatar to like stand up and walk you know when you do this 3D grab it has to work perfectly the feet have to like actually Glide along the surface and it just if it doesn't look right you wind up in The Uncanny Valley and people find it horrible so we're like can't have that so we just had the Avatar to sit there and people felt that the product was claustrophobic they would always be like The Sims lets me move
around why am I stuck here in the chair I feel it was a very common thing in feed customer feedback but we were like we can't afford to do the expensive thing we couldn't do it couldn't do it and one day like as a hack as like a little demo I was like well I'll just change it so that when you click in the scene to a different spot we'll just stop rendering the Avatar in the first place and we'll put it in the second place so it was like really ug we didn't even do
the proper cut the camera would zoom over there it was really ugly I was really embarrassed about it I was like let me just like play around with it see what happens and we we shipped it to C I was like this is not this is below the quality bar this is like an abor like I just like I people I felt bad as the engineer everyone involved felt really bad but we had like committed ourselves that we're GNA try to experiment with stuff we're going to see what happens before Lean Startup existence we didn't
have a concept of MVP we got to try it and just see what happens and we shipped it and nothing happened no one cared I was like but then we used to do these daily tracking surveys we just sample people and ask them what they think of the product and in the tracking surveys people started to say that imbu was the most advanced Avatar product they'd ever used we were like it people would be like we used to be compared to the Sims unfavorably now people like more advanced than the Sims and I was like
what does this mean how do we get more like did we improve our 3D Graphics or something like what and and we start to do couldn't no one could understand why they were saying that we used to do customer interviews and finally a customer was like oh oh it's so great man in mvw when you want to go somewhere you teleport The Sims you got to wait for the guy to get up and walk around it so annoying and we were just like oh my God how embarrassing and for you I mean we didn't do
Universe kinematics for a really long time wow I love that story yeah something that I'm learning as you talk about MVP is that the idea of minimum is very fluid and very context specific and essentially the message isn't build something low quality and simple it's figure out what is that minimum bar for your market and product and just like the message is just build as little as possible whatever as little as necessary for you so like what's so it's fascinating I'm joh joking about worked on jet engines and Robotics and cancer therapies and all kind
I've worked on stuff any and ltsc I me took took us 10 years to build the MVP for ltsc so like it doesn't even it doesn't necessarily mean cheap low qual like it's just whatever your hypothesis is whatever you actually believe is going to work let's put that thing to the test that's all I really want when I work with companies like you know first-time Founders especially are usually very stubborn about this and they don't want to do it it's like look you tell me what you believe I don't have to be right and I
want to just double check that you're right what by however we do it and then you know once people actually start to to turn that idea over in their mind they often will be like well you know like you know classic one is like we we can't we can't sell the thing till we build the physical equipment it's like but do people buy is your product bought in a showroom where people see the physical equipment no they buy it from a brochure so it's like okay well how about we send them a brochure and and
ask them to pre-order it and then then it's like but but H I can't do that my I can't have a crappy brochure it's like who said a crappy brochure right like we can build a really high quality brochure in a lot like in a tiny fraction of the time it takes to build the actual machine and then it's like well then what is what are you're talking about it has really good fonts and it has pretty pictures maybe what's your theory right like you tell me what do you believe about like well actually what
matters is the quality of the specifications of the equipment in the brochure it's like now we've got the leap of faith assumption let's go find out and then like but hold on we don't know what those specifications are going to be yet like oh but I thought this 500 page plan over here what do you want it to be it's like well it' be really great if customers would accept this set of performance characteristics like well let's go promise that because maybe they'll be like that's great and I'll just I'll give you one example I
was mentioning data centers it's a team that sold equipment in data centers and we they had a serious high-end team of phds working on Research to make the thing way more efficient and they're going to win like a a Nobel Prize in Material Sciences in order to make this product a reality and they put and I and I convinced them instead of paying three years and $18 million to you know make the thing let's go take a brochure take it to some customers and I'll never forget they took the thing into the brochure they took
it into customers and customers like laughed them out of the room and it was like nothing to do with anything they cared about it was nothing to do with efficiency or like this is we would never buy this and they're like but you haven't even looked to page two to see how efficient it is they're like we don't pay for efficiency we build data centers how much they cost to operate to somebody else's problem you're like oh my God right like that's the thing people don't appreciate is like these insights are so obvious in retrospect
that everyone's convinced that they won't it won't happen to them when I teach students in Lean Startup they're like this is so dumb they do they do one case after another in business school and they're like dummy dummy dummy dummy dummy right like they're like I would never make that mistake and I'm always like look you don't have to argue with me just call me back when you get a job and you make when you make one of these mistakes like remember we had these conversations and go read the book then and I guess by
by random chance there are some people in the world that just never made a mistake just the dice you know you roll enough dice somebody had the experience that dice came up you know double sixes every time okay so there are those people and they they give a lot of the advice in the world but I don't know that it's necessarily those of us who have don't have the double six luck should necessarily be following it this will be a really get segue to talk about pivots because again a big part of your message is
a lot of the work you're doing is just going to go to waste anyway why spent all this time building it but just to kind of put a final point on this idea of MVP because a lot of questions came in around just like what is an MVP Ben uh Silberman the co-founder of Pinterest has this quote he didn't ask a question in a thread but he has this quote makes sense yeah and his quote is the hard part of about MVP is that you don't know what minimum is you don't know what viable is
and so just to give Founders who are trying to figure out what that line is some very succinct advice how would you describe just helping them understand here's how far you should go with your M he didn't he didn't say you also don't know what product is but that's true I can't tell you how many times a service has turned out to be a product or vice versa like people embody their insight about customers in the wrong way all the time that's super common that's funny oh but that like all all the criticisms of MVP
are really just people expressing their frustration with how un certain startups are like yeah it really sucks this is not a good way to make a living if you want to retain your mental sanity if you can't if cognitive dissonance if you find that painful like this is not the right job for you because it's really hard to hold in your head I have this ambitious Vision I know what's going to work you got to do confidence get everyone together like there's no substitute in this world for a human being stepping forward and just saying
I am gonna make this thing happen and if you do that you're putting yourself way out on a limb it's really difficult it's really hard to admit that and I also do not know how to make it happen that's the truth whether you admit it or not that's the truth so we have to just that's why I say let's just double check so so simple succinct advice first the first tip is write out the list of features that are necessary in your MVP cut it in half and cut it in half again and build that
honestly if you just do that that's really not that bad the nice thing about MVP is it's one of those u-shaped curves where like if you get even in the vicinity of optimal you're going to be fine and most people's natural idea of what is necessary is so laughably wrong people are naturally off by like usually like one or two orders of magnitude right very common for me to meet a team that is trying to do a hundred times more work than is necessary to test their assumption so first thing is just try being uncomfortably
small in the thing that you actually make and if you're having trouble with that in the in the startup way in the SQL Lean Startup I really go through because it's really for more for a corporate large company audience like I really go through like okay if you want to have a process for determining what to do here like you should first brainstorm your leap of faith assumptions and here and categorize them this way and select them like this okay now for each assumption brainstorm the metrics you might use you know select the metric you
want what is your learning metric and then from there brainstorm MVP score them according to this formula and then like use that to to help people anyway it people can can follow that they want the the thing I learned is that if people are having trouble coming with MVP the problem is usually Upstream in the chain deductive reasoning from the vision down to the MVP it's like usually people are just not super clear on what do I want to learn and it's the most common reason is because people don't want to admit that they don't
know so to say as an entrepreneur to say that we're going to to test to find out what customers want is really hard I'll give you an example from my own experience you know ltsc I said it's taken us like 10 years to get the the thing approved and going it's a really very difficult product to build one of the early iterations of it um you know that didn't work we were building on partner infrastructure it was just it was a very different product back then I don't want to get into all the legal nitty-gritty
because it's kind it's kind of dry but anyway it took us six whole months took us you know time to we had to raise the money build the team do all stuff you know get all the lobbyists and lawyers everything in place and then we had to go part do this partnership agreement the partnership agreement itself took like six months to get in place and then we had to go to the SEC and get approval and so it was like a very complicated multi-stage process probably took I think I just described two years of my
life uh you know end to end there and the whole time I was talking to the team about our goal with this whole thing is to learn what is actually necessary to get customers to list on our Stock Exchange our goal is learning people like but I thought our goal was to get this contract done I thought our goal was to like well yes but the reason we're doing those things is so that we can learn whether this is actually going to work or not and so I remember now never forget during the contract negotiations
people were like you know we got to take an extra week to deal with this point and we don't have an extra week it's like but this thing's taking two years what's a one week I'm like no every day is soap we have to get the learning as soon as possible and I was like constantly hanging everybody involved we got to go faster faster faster you've got to give on this point get people were walking all over us we were getting just destroyed in the negotiation I was like the weakest lamest person right just like
we got to raise the money I was anything to to get speed anyway long story short we get all the way to the end we get the get the thing approved by the SEC staff and then like we get ambushed and like long story short uh the SEC withdraws their approval and the whole thing is dead the partner uh you we have to break up the partnership agreement everything goes to hell and and I thought the company was going to die and it was a it was a totally miserable time one of the worst things
that ever happened to me in my life I was I was totally upset and you know and in retrospect I can laugh about it because it turns out of course it was the worst thing that ever happened to me but it's actually the best thing that ever happened to me as a lot of stup things are because from that we were able to Pivot into the thing that ultimately got us got us approved well the reason I tell this story is every bit of work we did that went into that partnership agreement for almost two
years turned out to be a waste of time because in the end partnership agreement fell apart so so like if we had won a few extra clle my margins would have be higher if we had extracted more fees from the partner like we would have had less liability like we'll have the liability for this liability for that who's I think about all the things it's like this thing was hundreds and hundreds of pages long this document none of it mattered in the end the partnership was never consummated no no customer nothing ever happened and the
the interesting thing Reas the story is that the people who went through that experience with me were so much faster on the next thing that we did it was really amazing to seeks they were like now I understand what you mean most people live very coddled lives that have not actually really dealt with this kind of failure in their business career obviously like in their personal lives they'll have all kinds of trauma and you know like they'll worked at a crappy company and have a horrible experience but they haven't experienced this specific thing where like
you are the hero of the hero's journey you are the protagonist of the story and the thing is not just a setback but you just you die it actually fails it's so psychologically damaging that even people that have had that experience a psychological defense mechanism is to to tell themselves that that didn't happen and like you know it better than anybody how many startup Founders are like adamant that they didn't ever fail they didn't pivot everything's exactly the way they saw it you know at the beginning and it's like I've been around enough startups to
know how often that is just not true but like we need to tell ourselves that story but anyway if you the the number one lesson of the scientific method is if you can't fail you can't learn and so if you set yourself up in a position where psychologically you can't admit that something didn't work you can't learn and that's like that really is the essence of MVP it's just like whatever the catastrophic thing that's going to destroy your company is going to be you just want to find out as soon as possible so that there's
still time to do something about it we don't just die and move on I'm actually seeing this a lot right now I'm an investor in a bunch of startups and so many of them are failing right now and they built such beautiful products such amazing products that they spent so like years just like crafting making so great and then it's all it's all for not and there's actually been a theme on the podcast recently around the importance of craft and design and I'm curious just to get your thoughts on just when it makes sense to
invest deeply into the craft and experience of a product versus you know the minimal viable product approach do you start very simple and then invest any there well that's I think that's a great question people use the word craft to refer to so many different things like I personally find a tremendous Beauty in simp so like I would much rather people do one thing extraordinarily well than like 20 things half ass you know personal and like how many products do you use you're like kind could you have like there's like 92 buttons on here of
which I only ever press one could you have made that button like like have a really nice feel you know I could I I would have sacrificed all this other stuff and I mean i' I've actually worked on microwaves and refrigerators and stuff with actual physical buttons and like even your crappy kitchen microwave that you paid $60 for at Walmart or whatever if you've never seen one of those things things um manufactured it's actually incred the amount of craft that goes in behind the scenes to wire up every one of those buttons that are never
pressed by a human being it's actually really painful if you start to think about wow that's a lot of human energy being wasted so the the elements of craft I think are critically important first of all part of craft is perfection Perfection is an attribute of quality and we have to go back to the first thing in order to know what Perfection is you have to know what the customer believes you have to know who you have to has to be perfect for some purpose for some person some people will just say well I'm just
going to build for myself and that way I solve the problem that's totally fine that's true if that's you go nuts you might only have a market of one but you'll be happy so be it and I think there are and there are startups like that where it's like well I don't care how big my market is I'll just build for all the people like me and we'll and I have a huge tribe then I'll be hugely successful if not I'll just be an artist doing my thing I have total respect for that that's like
the ends and the methods are totally totally aligned where people get into trouble I think is when they want to use craft as an excuse to not get any feedback so what I tell people is is like first first of all there's an element of craft that is just like whatever you do how are you going to go about it you know like whether you're building an MVP or uh fully featured whatever thing you're like you know I'm I'm a software engineer by training like my code is a certain way you know I have a
certain craft in the way that I write software because I think that's the best way and that produces the best outcomes I won't I would never compromise that and compromising that in the name of going fast is stupid right like you write crappy code you spend more time firefighting than you do writing code in the future so a certain amount of craft is just about keeping your options open and actually it's it's very much like favorable to speed using like like the right the right Primitives having the right abstraction layers like using the right tools
in the right way you having high quality people on your team like all those things let you go faster um not slower and a big part of Lean Startup is about helping teams get into that optimal configuration by acting as a speed regulator because there's such a thing as optimal speed which we can we can get into if people interested but another part of craft is just an excuse for just avoiding feedback like making things pretty that you know pretty in the way that I want want them to be because I want them to be
that way and even there if I when I meet people like that people are just like sorry my artistic ethos is this and it has to be this way then I'm like excellent then that's not one of your leap of faith assumptions that you're willing to test so like so be it don't don't pretend to test it just be like I'm not like we're just gonna do it this way because that's how we do things and it's fine and I think like that's a big like when company has like a core value like I'd rather
go out of business than violate my core value I also respect that too but like then that to me that means like having a respect for craft for design for Perfection that increases the need for experimentation and testing for all the other stuff because we've already invested a huge amount of our energy and force into this thing that we really care about then the other stuff you know like then do we also have to do like this fancy press campaign do we also have to you know go put the founders face on billboards and put
them up around town like is that are those all part of your craft like I just feel like people use that as a as a as a catchall excuse to do all kinds of stuff but I think you know the idea that like craft is a signal to your customers about the things that you actually care about and that that you're going to take care of it's like it's part of making a promise to customer like they're going to believe like if that's your thesis that doing an MVP that lacks craft doesn't test the thesis
so I I I I think people want to set up a a a dichotomy here that doesn't really exist I'm I'm totally in favor of that when people have that authentic desire but I also meet a lot of people that are just faking it they don't have taste they don't have a design ethos they don't have so like if you don't have that stuff where you going to get it from well good news experimentation will get you there if you let it because you will eventually learn the habits of mind the patterns of the things
that work that make sense I really like that advice of as a Founder build the company you want like if you want to build like why create a business and a company you're not excited to be working on and if you end up failing like it's on you that was a big mistake it turned out but at least you tried and you're not building a company you don't want to work at and then as a product leader I don't know if you have as much control to build a product the way you want but but
try basically I always tell people just get fired for doing it the way you think is right like there's nothing there a faster career accelerator than being known in the industry as the person who stands for that principle so much that you got fired over it like the people that that magnetizes to you are going to like be way happier you're going to be so much happier being a place that appreciates that that was a big that was a big career accelerator for me not that I actually got fired but I was willing to be
fired for for the for my beliefs and I remember sitting there I was going to a board meeting where I was sure I was going to be fired and I was like well I just don't believe in Building Products the conventional way this is again before Le startup so I was like I didn't even have a language for it but like I had a strong conviction that the way I was doing it was the right way and I was like well I'll just I'll be known as the guy who that got fired for that and
eventually someone will want to work with me because that's what they want if nobody wants that then I'll go go find a job in a different industry you like I don't want to be an industry that doesn't like that's how I want it to be and I think that people um people don't appreciate the extent to which like people act like having a startup fail is the worst thing that can happen to you and like man that's not even in the top 10 like it's it's bad I mean I've done it it's awful okay it's
really bad but far worse is to be in a company that won't die a zombie Undead company that you hate but you can't leave have I met people like that and like we're having a mental health crisis among Founders that's like not talked about enough you know people started to talk about like the downside health risk obviously the stress of being a Founder is hard but like look what's happening to the people that are so-called successes like I when you build a company and you sell it out and it becomes something that you find up
horren like yeah may may you get rich but it's it's not it's not good and I mean I just the other day a friend was telling me about a friend of his who sold this company exited for like say $300 million or something made a lot of money and committed suicide like not that long later people follow the Tony Shay story I had a new Tony that was a horrible tragedy like what's going on so I just feel like there are worse things in having your startup fail and so building a company you hate that
that becomes a malign force in the world you know that you have to go pretend you weren't involved with or that like you feel complicit in what like that's way way worse and I wish more Founders would take that more seriously early on that is such an important point and something I see a lot too just companies the founder started that are just like alive but they were almost never are going to succeed and they're kind of stuck they they they don't want to shut it down they don't want to give money back what advice
do you give those sorts of Founders that you feel like are just stuck in a zombie company like that it's it's really hard I mean of course if it's gonna fail you should shut it down but everyone's like but I I thought It's always darkest before the dawn and it's like sometimes it is it's you know when else is really dark like when you're dead like right so like what's the everything comes back to I used to tell people the the most uncomfortable laugh line in my early talks about Lean Startup was when I talked
about the people used to talk a lot about Steve Jobs in the reality Distortion field and I would be like okay you're in the reality Distortion field you're on the flat part of the hockey stick how do you know the business PL I actually live through this once there's a business plan business plan says six months after launch we will have almost no customers and almost no revenue and that's when the hockey stick will commence and I remember being there in month six being like we are on time on budget this plan is Gen everything's
happening just like the plan hockey stick to commence I'm walking at my watch and then we just stayed on the flat part into the far Horizon and people would laugh and i' be like okay now if you're following a startup leader you're in the real or you're yourself are in the reality Distortion field and you're on the flat part of the hockey stick how do you know if it's ever going to stick or you're just GNA be and people will be like H and that's like that is a really scary situation it's like we all
have these moments of doubt and some sometimes the right answer is to overcome the doubt and go for it and it's actually part of the genius of the startup system you know the people much as people criticize Venture financing and all the problems with the celon valley and of course do it to ourselves so there's plenty of things to criticize like one of the genius things about it is like at the end of the day you do run out of money the thing you're forced to declare bankruptcy that's actually a really positive feature of the
system so a lot of Founders just can't do it but I will say like the thing I I try to ask people to do is like take them take really take some time to introspect and just ask yourself do you actually want to be here if you if you could magically wave a magic one and you were to start a new company right now would it be this one if it's not just there's no indentured servitude anymore it's okay you know it's okay to to move on and then then the question is like then there's
like everything moves into a tactical conversation about shut it down give the money back do a a really hard pivot into the new thing you know it depends a lot on the specific factors of the situation but it's I think we do founders a disservice if we act like this is easy or is I mean it's it's just it's gut-wrenching and it's really difficult and like not to be too spiritual about this but like it it really goes right to the issue of ego identification for so many people they are their company and so for
the company to die they also must die like it feels like you're going to die and I think that is like that's part of the mental health problem so like people you know as they get older as they mature as they have a spiritual practice I hope they can learn to disidentify with the company and not feel like it's so personal so that it is possible for the company to die without them dying and then they can take what they learned into the next company or or into the next pivot or the next iteration of
what it should be or sometimes the right thing to do is just to step aside and let a different CEO take over or you know there's so many ways you can go about it but as with any pivot situation the hardest part is always just to admit the facts as they are and then and then you do it yourself first just like what is the situation is it working can't tell you how often I people just can't accept it's not working and you get investor updates I how many investor updates have you ever received where
it's like we're crushing it everything's going great and the very next investor update is we're out of business giving money back it's like well you had no your last investor up they said you were crushing it there was absolutely no indication there was any problem like no of course it was an indication but you were just lying about it so don't don't be that person that's actually an amazing segue to where I wanted to move to which is around pivoting so I've done a bunch of research on consumer startups B2B startups and the numbers I
see and I'm curious if you see similar numbers is around a fifth of consumer startups ended up pivoting to a completely different product and almost half like 40% of B2B companies ended up pivoting to a completely different product does that sound right from your experience yeah that does sound right so so it's interesting um I used to do this exercise for Founders where I would tell them the story of IMVU two different ways the first way is is one in which you know we got everything completely wrong wrong and just sounds like we were complete
idiots and we had to Pivot so many times then I would tell the same story again but where we got everything right and we were Geniuses and everything that happened Vindicated and then people wouldn't believe me I like both stories are true like like choosing which elements of what actually happened to emphasize and where to put your weight you can tell the story so like yes I would say there's like the percentage of people that know that they pivoted and then there's another percentage of people that didn't admit it but they actually did and it's
really hard to assess from the outside I mean just I know this from having worked with enough startups where I know the outside story and I know the inside story and they're just really different I mean Paul Graham used to boast about that as one of the features of why combinator that the founders they would get to come to the dinners would tell you the true story of what really happened and that was critical information you couldn't get anywhere else except at White combinator and I was like wait a minute is he saying that everyone
just lies on stage when they tell the story publicly I don't know if that's something to boast about like you're calling all your guest liars and then like I've I've hosted a lot of those events I'm like oh yeah people people lie on stage I see like so I think part of the problem is just like trying to find out the truth of what happened is really challenging but there's another element that I think is interesting which is so you know pivot is defined as a change in strategy without a change in Vision right so
we have this idea that the founder has the vision then they try to figure out how to make the vision happen and they find a different way but like the vision stays constant but the truth is a little bit more complicated than that because the Founder's Vision also evolves Founders discover what the vision actually is through the process of building the company so again not to be spiritual about it but I actually believe that building a startup is is in large part A a process of self-discovery you actually are discovering what is true about the
thing that you yourself believe and part of that's because when we fantasize about the vision that we never have to make any trade-offs you know the product is infinitely popular infinitely cheap you know everything's it's just like there no no trade-offs to be made but real life forces to make trade-offs and then you find they're like oh I have to choose would I rather have a high-end product only for really rich people or would I rather have a product for this industry or this sector or this group or that group like it can be it
can be painful but also Founders learn to talk about the things they care about over time so I mean go on YouTube if you've never watched the interview with Zuck on his couch at Stanford talking about Facebook it's it's remarkable V just some college C some news person was like just happened to catch an interview with this guy like at a critical moment in his life when he just didn't know what he was talking about yet and like now he's really ambitious you now Facebook's vision is this really ambitious thing and people are very at
pain to say that he always had that vision from the beginning and he talks about all and like that may be true but you but the documentary evidence exists and I'll just give you one of my own stories about that in one of my companies we moved offices um relatively early on because we we started on a really really crappy small office then we moved to a larger space and I remember sitting in that office when there was just five of us and we sat down and we had a meeting where we specked out what
we would Now call the MVP as well as a longer term vision for the company and we had this whiteboard we we all of us debated what what features should be in and out and what should be on the Whiteboard and and I can remember writing down I have a my viseral me I have the physical memory of writing down the things that were going to be necessary for the company to succeed and being right and my Prof is arguing with me about not having their perspective they're being wrong and I'm like good thing and
I'm I'm like I can I can I can one of the things I remember telling this story anyway we moved offices shortly after that time and that whiteboard was lost and then years later we moved offices again and someone was cleaning out an old storage closet and that whiteboard was just happened to have gotten shoved in the closet someone pulls it like what's this and I looked at I'm like oh that's the Whiteboard we used to hang in our main conference room and it still had the notes from that meeting are sitting there on the
Whiteboard I was like this is so cool historical moment I'm taking a picture and then I'm like wait a minute this is weird it's in my hand it's recognizably in my own handwriting but many of the things that I'm writing there are horrible ideas I'm like that's not what I thought back then I was on the other that's my co-founder's bad idea that's not my idea and I had this realization that like it's not just that I learned something through the course of building this company about strategy my own understanding of the vision of what
we were doing was different but I don't like the thing that's so critical to understand is I even to this day have no psychological memory of having changed my mind about it I still have the original memory of writing those things on the Whiteboard and I thought I really thought someone was playing a trick on me at first because what I could witness with my own eyes on the Whiteboard contradicts my actual memory of the thing and I was like which of us is right and of course I had to admit the physical evidence got
to win out but I think it's important also to understand how much that is true and that's like again go back to like why science is so important like why do we write our like all the elementary things about science we write our hypothesis down we subject our things to tell like we do that because human psychology is so buggy and and people who are fighting with their like generative AI you know chat Bots and stuff are starting to see like those are nothing but a reflection of human theory of mind so like we're starting
to see it in an alien creature that like wow our intelligence has all these weird behaviors and gaps and things and of course we want our robots to be perfect but it's like well first look in the mirror and realize that you yourself carry all those cognitive biases and you got to put in place a structure to get around them or they're going to destroy you that is an incredible story it makes me think about just not like I think it's exactly what you said not only are the stories you hear often intentionally not accurate
they're true and they're kind of a myth that they've that have been created but also you forget exactly what happened and you tell a story that didn't really happen that's wild imagine a place where you can find all your potential customers and get your message in front of them in a cost efficient way if you're a B2B business that place exists and it's called LinkedIn LinkedIn ads allows you to build the right relationships Drive results and reach your customers in a respectful environment two of my portfolio companies webflow and census are LinkedIn success stories census
had a 10x increase in Pipeline with a LinkedIn startup team for webflow after ramping up on LinkedIn in Q4 they had the highest marketing Source Revenue quarter to dat with LinkedIn ads you'll have direct access to and can build relationships with decisionmakers including 950 million members 180 million senior execs and over 10 million sea level Executives you'll be able to drive results with targeting and measurement tools built specifically for B2B in Tech LinkedIn generated a 2 to 5x higher return on ad spend than any other social media platforms audiences on LinkedIn have two times the
buying power of the average web audience and you'll work with a partner who respects the B2B world you operate in make B2B marketing everything it can be and get $100 credit on your next campaign just go to linkedin.com slod Lenny to claim your credit that's linkedin.com pod Lenny terms and conditions apply so you talked about pivoting and and I never knew this about the term pivot is that you keep the vision the same and I actually have this list of companies B2B companies in this case that pivoted and in their cases it was very different
and let me go through them real quick and I'm curious what do you call it if they don't keep the vision consistent so segment started as a university classroom lecture tool Loom which just sold for lot of money to at lassan started as a Marketplace for companies to hire subject matter experts slack famously started as a game called glitch box apparently started as a box to put photos and content in on Facebook and retool started as Veno for the UK oh that one I didn't know I heard I I found that out through Twitter where
one of the YC Partners replied and Shar that story with me because I also didn't know and I think that's a good example where no one ever tells you that fact right that's kind of an important part of the story to know yeah exactly exactly yeah I think it was a quick pivot I think they got to YC and they're like no let's do something else this is why it's so hard to evaluate from the outside because often times there is a thread of connectivity that that from the inside makes sense why we went from
this thing to that thing it and it's often something unusual like it'll be something like well while we were building the game we had to do this thing first because our values were like you can't build a game without this thing and then this thing turns out to be more valuable than the game and then you're like oh why are we building this game this is the thing we actually really care about so people like well I thought your vision was to build a game I was like well maybe but why did they build that
thing first other people build games without building that thing so like that's why I say it's a process of self-discovery oftentimes the vision is discovered more than chosen in these stories and from the outside it can seem really really weird and and part of it is also that some some people really need the failure of the first thing to appreciate what is great about the second thing I think segment is a good example where they tried a bunch of stuff and then they posted this random thing on Hacker News and it just blew up yeah
so sometimes it blows up so much you're like wow that's amazing but often times like the new thing will get like a 100 signups and if you'd started with that as your first thing you would like ah 100 signups care but if you've done 20 things in a row with zero signups man you're like God somebody likes this thing like so like you know sometimes it's your first try sometimes not and again not to go back to to Facebook all the time but it's such a famous story that people know it you know in the
movie there's that that famous scene where they live in the house house in in Palo Alto and they run into Sean Parker and he you know does like that apparently that's that's real and they really were living in that house they really were working on fa but like the thing that gets missed from the story is that Facebook's already started at that point it's already being successful and they're on the break between semesters on the summer and Dustin movitz and Mark Zuckerberg and Adam D'Angelo and I forget who else are living in this house together
and I remember learning someone told me the story about what they were actually working on at that time was it Facebook they like Zuck and D'Angelo had already moved on from Facebook and decided it wasn't successful enough and they were like I forget one of them was working on like a system where you could like use gestural controls on your webcam to program computers because we wouldn't get carpal was they like they were sitting on Facebook and it was like the story I think is I actually asked Dustin if this is true they believe Dustin
mov taught himself to program so that he could like keep up with the demand of people who wanted to open Facebook at new schools because the virality was was like so insane and I was like wow you can be even building Facebook and not know and it's like people were like well if I told you that story without telling you the name of the founder be like that's no Visionary I'm like no it's Mark no one has ever accused him of having a lack of vision but somehow like this is true like so I feel
like part of this is about just admitting the complexity of these stories is a little bit more there's more to the story than you really realize these are imperfect people and the pivot is really about like learning right that's to me like the thing that matters you know the original idea of the pivot was like one foot anchored in the thing one other foot moving like from basketball right so like Anchored In what you've learned and yet con so connected so like if you was truly a complete shutdown start over again nobody and nothing in
common I would like that is not a pivot but that's just actually quite rare usually there's some critical Insight or element of the first thing that is carried over into the second thing and if you were there if you know the story you'll be like oh wow that makes sense in retrospect and again again I think this Cuts against our whole idea like the thing we think it's like to be a Visionary is you just you know all the answers you're like a Biblical Prophet who sees the future but that's not what it's like it's
really much more about having the courage to see the world as you think it ought to be and then dance with that wherever it takes you and so I think it's much more an element of Courage than of intelligence or anything else you're so full of Amazing Stories Eric Reese I never knew this Facebook story I thinking about a Founder who is maybe going through a period of considering a pivot there's a lot of startups right now just not struggling uh not not struggling but struggling the 2021 vintage is having a rough time yeah exactly
and so I'm curious just what advice you have for Founders that are trying to decide is this time to Pivot should we give up should we stay the course just any tactical Pro tips so first of all if you're asking whether you should pivot or not you probably know the answer already that's the first thing to just like straight up say people people call me sometimes they're like I I want to know if I have product Market fit like well the fact that you have time to call me and ask me this question already tells
me the answer if you had product Market fit you would not have time for this there's no time like when it's working there's no time for Naval gazing there's no time for Ang you just it's it's if you've never lived through a company going through product Market fit it's such a rush it's such an insane thing the Whirlwind of it is so amazing and so horrible at the same time like there's just no time for anything else so if you're not sure you're sure so that's the first thing it's just can you admit it to
yourself can you do it the thing then then it's like shut down if you admit that it's not working then like what do we do and like I really what I really ask people to do in these situations is like give yourself a fixed period of time to take some decisive action and see if it feels better so like classic thing if you can't agree that it's not working then like okay can you can we take six weeks to try to make it work it's like we we have this assumption we're going to try to
test it and we're going to like instead of working on the 29 other things that we have to do in the future can we just spend all of our time 100% on the one and only one thing that matters right now and just like go heads down on that for a fixed period of time and see can we move is it possible to move the needle in that thing because one of the things that is true about startups when it's not working is that they're stuck in this in this kind of law of diminishing returns
where like you just you can test yourself to you do everything you try doesn't work nothing works it's like uh uh Thomas in his his theory of scientific paradigms one of my favorite things that he talks about is like when an old Paradigm is replaced with a new paradigm it's usually only because the old people die out and the new people replace them but he's but he did a lot of research into like why does that happen it's not that the new people are like magically smarter than the old people it's just the old Paradigm
gets to the point where there's no more experiments to run that are fruitful and young ambitious people want to run productive experiments and the new paradigm gives them a thing where like every experiment reveals something really amazing and they just naturally gravitate it's not actually a formal process of abandoning the old and going to the new and that's true here too most people are not consciously able to let it go they can't do it so okay find yourself a paradigm where the the experiments are productive like I can't tell you how many startups I've been
where they're like it's up to the right I'm like oh really it's like yeah at first it was 10% now it's 10.5% then it was 10.6% then it was 10.65% then it was 10.65 7% you're like guys yes it's up and to the right but it's not what you need it to be for this to worry it's just so try to get yourself so so give yourself a fixed amount of time on the current thing if you have to then if you can't once you say Okay thing's not working do we have enough time for
something new could you give yourself six weeks to try the new thing and it's like you know if you're a bigger company like okay we're maybe you can't have a whole company work on it but like can we have a team or can we do something where we just somebody at least one whole human being not a part-time committee somebody is full-time heads down trying to make the new thing work on a deadline and if you're a small team mean there's only three of you can you just put the old thing on pause for a
minute and give yourself a fixed if it was one weekend it would be better than nothing any amount of what what can you actually afford be nice to six weeks but if it's only one weekend like no problem whatever like what is the new thing you want to do and just now that you've agreed among yourselves that you're going to do that for a fixed period of time everyone go around the room and say if I could start this company over again the thing I wish we were doing was and no one wants to go
first but since everyone's going to have to do it you're like okay I kind of wish we were doing this other thing why well everyone say and like sometimes the first person goes and everyone's like I've been wanting to say that same thing for months and it's like wait we all actually secretly want to do this other thing but we all afraid to let the others down it's like that's actually great new well good don't mourn that 18 months of your life you just wasted be excited about the fact that you actually are on the
same page about the new thing anyway everyone says a new thing see if one of them stands out to you do that one if you all agree do that one if you have three things that you're equally excited about do them do them in order everyone gets one month we've got three months of Runway left well first month we'll do the first thing second month we'll do and we'll just see if anything sticks and then sometimes people do that and they're like I'm just exhausted I just want to die if everyone goes around and says
I just give the money back it's okay don't die let the company die it's all right and like when you raise when you raise too much money and you got your cap tables all messed up and you you know I feel like for our 2021 vintage Brothers like and sisters sometimes you just you need to try again with the right capital structure it's not possible so like either recap like make the structural changes you actually have to make to give yourself a chance to do something you care about if you don't have that what are
we doing here life's too precious for that that is awesome advice very tactical very real on the point you just asked of what would we be doing like what would you want to be working on I imagine many people today would be answering AI related products and this is a good segue to where my next question is just how are you seeing AI change the lean approach product development the way teams are run what are things Trends and changes you're seeing in all of the stuff that we've been talking about I mean we're entering into
a really interesting phase of humanity and technology and civilization and to know the right answers to those questions requires empirical knowledge that nobody has that's what's exciting about it and also you know of course people will find it terrifying I think that what I'm seeing so far is that first of all people are afraid of AI but they're not really afraid of AI they're afraid of Corporations with AI like AI doesn't do anything by itself it has to be embodied and deployed by humans who have bad alignment and and so everyone's talking about AI alignment
I'd be a little more sanguin about AI alignment if the companies doing the aligning were better at aligning their human intelligences because you know I'm blanking on Whose law it is I don't all these named laws the idea that that your software comes to reflect the organization that produces it is somebody's law Conway's law maybe we let's call it rea's law no please don't I forget who law anyway that is going to be true on steroids in uh in AI where we're training in machine intelligence and we're transmitting values to it those going to be
our organizational values and Tech has severely underinvested and neglected in creating governance and Alignment structures to have those values be explicitly like embodied in the organization which is why so many of our companies have become disappointments and so many people feel betrayed by the companies they themselves help build it's it's actually kind of sad so AI is going to force us to take those issues seriously no matter what the other thing that's interesting you ask about how to affects Le startup at the end of the day AI is a management technology it like the thing
it does is manage intelligence and other intelligences and if you watch like watch people struggle to make AI agents work it's been really interesting to me how often I've played with a lot of those tools myself it's amazing how often often you program the agent and it will be like okay U the job you know you give it a task like uh go take over the world or whatever go make a really successful ice cream stand or you give it any task you want it'll be like whatever like these AI are programmed to never say
no so whatever you say is like no problem it'll be okay first step uh write a business plan for taking over the world and I will spawn a new agent with a new AI be like okay your job is to go write this business plan and sometimes it will like you know go try to write the business plan but often times It'll like it'll Spa it'll be like the the new the task will be like oh first thing I need to do is spawn an AI agent that knows how to take over the world and
have it write the business plan and it'll just everyone will just SP pass the buck to somebody else or it'll be like it'll go into an infinite regress it's like first thing we need to do is research this and then like the thing that goes back now that we've learned to research that we need to research 10 more things and each of those 10 things require researching 10 more that's like so many ways to go wrong and anyone who's been a middle manager who reads these transcripts would be like tell me about it buddy right
I know I once was doing an AI agent I wanted to write me a 30-day course 30-day a transcript or a 30-day course for teaching people Lean Startup someone had asked me to to do that and I was like great I'll have the AI do it for me and it was amazing it was like okay no problem day one what is Lean Startup how does it work day two topic you know what is an MVP how does it work dot dot dot continue like this for 30 more days and you'll have a 30-day course I
was like yes yes I know that but could you please fill out the other 30 days it was like no problem and it spawned a new sub agent it was like given these two as an example fill out the other 30 days and it was like got it it was like how to do a task in 30 days well first look at these two tasks then like create similar things for 28 more days then return the results it's like no no no I'm asking you to do that thing if you ever watch the Monty Python
no can't guard him if he's a guard skit it's like that you're just like no one it's like we're not we're talking past each other so yeah I think there's like it's really interesting to see how AI as we learn to understand it we will be able to develop different man it will like really change management a lot because it it changes the individual span of control quite a lot it solves um one of the most hard problems in management is that in order to touch a lot of things we need a lot of hierarchy
because just the expansion factor of each one has this many reports as this many reports as many reports like that's what's required in order for us to like summarize a large amount of information you know if you have 100,000 employees they're having 100 doing 100,00 things the CEO needs to know what's going on that's really difficult you need to so there's this massive amount of human labor required just to summarize and understand what's happening well AI is really good at summarization it's actually one of its main strengths so it's actually be really easy you know
not in the not to distant future it'll be very easy for someone to just be like summarize for me everything my company is doing and you won't need like tons of middle managers to do that for you it'll just you'll just know that's we don't even know what we would like to build organizations where those kinds of powers are available to everybody and I think the last thing is people are very focused on whether this is going to lead us to Utopia or dystopia and most people have a very firm conviction about what's going to
happen and therefore what needs to happen now to prevent something bad from happening so you have the people who are like we have to stop pause blow up the data centers because it's going to leave this bad thing people are like we have to have government intervention to prevent research on this thing to ban open source but like for every one of the things somebody wants to do somebody else is saying that is actually the thing that leads to the dystopia right Banning open source is what leads us into like a corporately controlled uh you
know autocracy that's even worse than the thing that you were afraid of so a a very common question I've been getting from people in the industry who are having like an existential crisis about what should they do with their life in the face of this Ai and as you say all people whose startups are failing like I want to be working on AI okay for everyone who's got a grass's Greener kind of attitude about that the people that are actually like doing it and quitting their job and going to work on AI the first thing
they confront is like what should I do that will have a positive effect it's like it's actually really difficult to find out some you know like everything I everything I propose doing someone's telling me that that's actually the evil thing to do and vice versa so the other thing I think is really important is like big part of of Lean Startup has been for me it's been just about learning how to deal with uncertainty in my life right so like how do you deal from a business perspective how do you deal with situations of high
uncertainty and you'd be scientific you'd be experimental You' be you know how do you just like all these different values that are about coping with uncertainty and so the question people are asking me is basically like how do you take ethical action in the face of high uncertainty and so the framework that I been using I found very helpful and I hope other people will get something out of it is the apperture of possible Futures that AI makes possible is so incredibly wide and like I said it it predicting it requires a really deep understanding
of a bunch of empirical questions as far as I can tell nobody knows the answers to right now so given that it's not knowable what's going to happen like it's not just you don't you're not an expert enough but as far as I can tell nobody knows and the people who are most expert are actively doing the research to try to find out the thing that will help us predict so you there's nothing you can do about that you got to wait for someone to go find that thing out the thing that Mak sense is
to pick actions today that make ethical sense in a wide variety of future scenarios and do those and what's really interesting is that takes people out of total paralysis about it into like there's actually some very clear things that we should do so like whatever your whatever your doomsday scenario is we need more transparency right now right like that's critically important we need more capacity we need more competent leaders we need companies who are committed to certain values like it just it it changes the way that we um think about these Technologies in relation to
ourselves as individuals and that's really my goal uh my work here is just like how do we get people off the sidelines and into the fight like doing things that are actually likely to be worthwhile and you know as I'm talking to you I'm like oh it sounds a lot like the idea that most of the work you do and a startup is going to be thrown away after you pivot so don't do that work it's like it's it's not really a special unique inside is just taking the same approach to coping with the uncertainty
of Entrepreneurship and now applying it much more broadly because everything's about to change it sounds like this connects a lot with the work you're doing now around governance and long-term Stock Exchange and I want to get into that but before I do I'm curious if personally you're finding AI to be useful in some part of your life using a tool or if there's a more interesting example of a company using the Lean Startup approach with AI integrated is there anything that comes to mind of just like something that you've seen to be practically valuable with
some of the AI tooling when gp4 was first launched um I saw a friend of a friend just was posting a friend of theirs you know like a story about someone who was using it for cold sales outbound right when it first came out and they they had like downloaded a list of you know 10,000 Shopify stores with metadata which I I Googled you can like buy that for like 100 bucks and then they just told gbd4 they roll python script for each store gbd4 please pitch this store owner something that my like Outsourcing company
could build for them and be really creative about it and then it just he didn't even read the emails he just sent them one after the other and when the person would reply he would look in the in the email to see what he had pitch them and then talk to get the person on the phone and it was like why the things that it pitched were like so wildly creative and cool it was like really it was like really interesting they were in the tone of the store they were like really like they used
clever puns and it was and so he was showing show me screenshots of like the person writing back being like you had me it you know blah it was very it was very good sales prospecting so okay so obviously like our our that's like an incredible story about experimentation at a super high rate right like just like nothing we could never have done anything like that even five minutes ago and now it's going to become completely routine but it's also a story about how all of our communication channels are about to be super saturated with
AI generated experimentation you know like whether we want it to or not and so if you think if you just extrapolate a little bit if this technology holds the way we think it will it's pretty clear that every company is going to be sending just huge volumes of AI generated email such that people are going to need AI generated email clients to read the email for them and summarize it for them and someone was joking people jokes about like I'm going to write three bullet points my AI will turn that into an email send it
to you your email will redact it back to the three bullet points couldn't we have just exchanged three bullet points in the first place we were like wasting a lot of silicon you know a lot of gpus were burned to to you know move these three bullet points from point A to point B but I don't think that's as silly a story as it sounds I actually am kind of excited about the possibility of AI powered marketplaces to be far more fair than the way we do it today because if you think about that story
the problem fundamentally is that like you have a massive number of people who could create things for store owners and if all of those people emailed every store owner on the planet every day what they could do it would be an overwhelming amount of information and not so neither side is really capable of doing that but like AI is capable of doing that so like imagine a world in which everybody is required and it's also but it's also really easy to do to Define like a procurement policy like what am I interested in buying right
what what problems do I want to solve what am I interested in buying and what like what information do I want to have and my agent reads my inbox for me with this filter and applies to filter completely fairly doesn't matter if I played golf with so and so last week or whatever just if the proposal comes in and credible and the AI is like really diligent about making sure it's not spammed like then it will bring the thing to my attention but it won't show me the email I won't be tricked by its clever
you know alri style positioning nonsense and it'll just like it will give me the essential information that hey did you know that there's this thing that could actually save you a bunch of money like oh okay great like that is so much better than advertising could ever be and it's also way more fair we can then say okay actually we would like every conceivable vendor to send me every as many emails as they want at any time just blow me away with all the things your thing could do let your AI go crazy trying to
convince my AI that your thing is actually good like that's not that's not wasted time that actually create a lot more fairness in the world and like create a really even playing field for procurement for information think about like journalists and pitches and you you just see like so many situations where we've established hierarchical gatekeeping s like structures because that was the only way to manage the volume of information that had to be processed for that thing to happen when those when those uh liit are removed it's could it could be terrible but it could
be really awesome I love your optimistic bent on all the things we're talking about I really respect that and that might be a good segue to the final thing I wanted to chat about which is just the stuff you're working on now so you talked about you're working a lot on helping companies with their governance also I think you work on company culture and helping companies make make money and profit and build real businesses and then that obviously connects to long-term Stock Exchange so you just talk about what it is you're spending your time on
there and where you see big opportunities yeah sure I mean I think this a it's one of the big big big issues that we're grappling with like if I compare the questions I get asked by Founders today versus 10 years ago like these issues are so much more in people's minds than they were back then you know and I often now when I work with when I meet when I work with a Founder for the first time we'll often do a thought exercise that's kind of like okay we've talked about culture we've talked about the
company it's like okay great why should anybody trust you they're like what do you mean like you're asking your and companies are build like we're talking about companies now building stuff that is so invasive into people's lives like so much more powerful than what was before and really honestly this is just about taking seriously the rhetoric about changing the world in fact so many tech companies when they're raising money are going to change the world in fundamental ways and when they're being asked like moral responsibility are like I'm just a little database F it's like
can't have it both ways what you you like a the Superman who's reordering the whole world to your whim like well then you have moral responsibility for the outcomes and you know uh that's like a a hotly debated point right now but I feel like it's actually super but people have already made it clear in their Ric where they stand there they're just trying to evade that responsibility so the nextg of Founders are don't find this complicated at all people feel a real sense of responsibility to make the world the better place like really real
things okay great so you're asking people you know like I was you were you're like I'm working on so many companies that are like straight out of Science Fiction I mean like a company that does you know travel from San Francisco to Tokyo in one hour they're like it's unbelievable um you know actual weather changing like like the real thing where you're like we're going to change the amount of habitable land on the planet and solve famine and drought forever obviously AI there's these incred just incredible uh possibilities and you know in nanomaterials and Quantum
Computing I just go on there's so many cool things going on okay but they all have really dire consequences I mean talking to really Advanced biological AI company where like imagine having an llm imagine like chat GPT but for biological compounds we like AI could you just synthesize for me a molecule that has these properties just described in natural language and it's like sure like that could be incredible like think about the cures and the diseases just like that's going to be an amazing transformational technology but it has such obvious risk and downside that we
have to take it really seriously like why should anyone trust you with this power and people always say the same thing well I'm a really good guy and you know I'm I'm I'm your bro man you I'm I got good intentions it's like well kiss a crap about that you could die you could be replaced some investor could like sweep you like I tell you how many stories I can tell you about startups where the investors change management you know involuntarily and so the fundamental problem is that no individual person can ever make promises on
behalf of an organization it's not possible it's a category error you're replaceable and the reason is because organizations are actually alive they are super organisms with their own soul and their own life we are their cells and organs when we make them Founders don't create them we birth them and that's different we don't own them they're not slaves we nurture them it's different so if you want to make promise if you want your organization to be trustworthy the promises it makes if you want to win the Public's trust by making promises they can believe you
have to embody those promises in the structure of the organization itself so that even if you weren't there the promise would be kept and people act like that's impossible but there are lots of examples I mean like think about like the code of medical ethics and the hypocritic oath think about you know in the US you want to do healthare you have to have a care delivery organization that is like staffed and run by doctors not by private Equity you know guys like there's all these there's all these things where like we know how to
build structures that are you know organized around some purpose so what should that purpose be I was talking to a former googler and I hate to pick on Google because you know they always done a lot of good things in the world but but they're they're like I think the locus of a lot of tech people's disappoint appointment in the world and so this is nothing unique to Google but I just happened to be talking to an exg googler and he was talking about the values and the company and his disappointment and what had happened
in the many years that he'd been there the good and the bad I said okay ask answer me this question I'm ask you two different things for each thing I want you to tell me what is your assessment of the probability that this thing will happen in the future thing number one uh what do you believe is the probability that Google will file its next quarterly report on time he was like 100% I was like how 100% you like as certain as the sun will rise Bet Your Life on it he's like as certain as
the sun will rise 100% nextcell I agree now second uh second question what is the odds that Google would be complicit in something that would make them money but at the expense of murdering somebody he's like oh they probably wouldn't do that he's like probably 100% as certain as a sun will rise he's like well no like really what do you have I like well come on what if the one the self-driving cars I kill somebody and they cover it up what if uh they will a social media product and it's complicit in a genocide
like Facebook went through that like I don't think they would would do that on purpose but it was like such like the difference between the thing that is certain and the thing that we don't I was like okay why is that we just we treat that like normal like of course companies file that reports on like but is it because in the human heart uh Fidelity to finance rules is like hard-coded but care for other humans in their life is not like no come on people don't give a crap about quarterly reports we have built
a massive apparatus in these organizations to make sure that certain things happen companies are really good at the things that they care about and therefore we can learn something interesting about the things that they care about by what they choose to be good at and what they perennially are not good at and so my view is that what it means to be a for-profit company like we've gotten it wrong we basically incorrect making a profit is actually about maximizing human flourishing that's what it means to be for-profit so like our current category says that Philip
Morris is a for-profit company and the Smithsonian is a not for-profit but that's just backwards Smith does a lot more good in the world than the merchants of death at Philip Morris so I think we've just gotten confused that making all forms of making money are the same but we all know that that's not true there's exploitative extractive ways of making money and then there's truly additive ways of making money that that actually create net new value and so if companies are dedicated to human flourishing and they want to be the kind of company that
will create net new value and they don't want to become a bureaucratic nightmare you know like they don't want to become a rent seeking you know blob of IND discriminate math like we don't want that to happen we have to encode those promises into the company in a deep way and I think that's really what governance is about like the whole ESG movement all the discussion about this has gone totally off the rails like Philip Morris has actually great ESG scores it's absurd so how can how can that possibly be right we have to find
a Better Way Forward and so like once you you know again going back to Le startup in first principles like once you go back to that first principle say what would it look like if a if every person in a company felt the fiduciary duty to promote human flourishing like how would you do it and what would be different and I've just I've started to meet Founders who are building companies like that and it's almost unrecognizably different and I've been talk I've been framing this of course in terms of the big things like you know
obviously like you think about the weather control startup like that needs to be right not just because like if a super villain got their hands on it it would be really horrible but also because like you can easily imagine they got bought by some private Equity Firm who's like this is awesome we can now like put every town in you know in a zero some competition with their neighbor for the good weather and extort them both from like that would be just as horrible that's we don't need Super villainy for this like none of us
should want our technology to be used in that way so we need to prevent that from happening but what so when we put that in that ethos we make that part of every decision like we finally can create the environment that like people really want to work in like just just to make great products I feel like most people I meet just want to work on something awesome and we act like giving like that that's just like just happens but I've worked with so many companies now even the ones that are really truly great you
go meet a team who says w we had we had the island of Freedom we had the fully full we just we were able to do it exactly right that's one of those satisfying experiences in my career you ask people why was it how was it made they're like how was the product made no how was the island of Freedom that you lived on made they're like I don't know ask my boss and I've been I've done this exercise I've asked the boss and the boss's boss and the boss's boss I've gone all and like
sometimes I'll go all the way up and it'll be like well actually the founder of the company who's still around that made it so but sometimes no one knows you're like who's in charge here the board is in charge they're like I don't know CEO asked me to serve on the board like who chooses the the company chose its own board the board choos of the SE like it's all self-referential and it's like where did it come from so right now I kind of we view it as like an accident it just happens sometimes but
that's because we're not engineering these beings to create the outcomes that we really want and I just think like it's like like a a a blind spot as company Builders we're so focused on the product and not nearly focused enough on the organization and we we tend to say at the surface level stuff like culture we don't get into the deeper stuff so yeah I think as Builders as a as an industry we need a new movement to say like we are going to build companies where human flourishing is the thing at the beating heart
and we're GNA we're going to wield that as a competitive advantage to like not only change the world for the better but also make a lot more money that's the crazy thing about it is these companies are are worth a lot more than their their competitors because if you're working like if you're without naming the company I talk about a company that um is an incredible ethos of love and just like it actually loves their customers it's amazing and that's like the the whole everything Cascades down from that Central premise including the instruct like every
CEO I meet is like so frustrated all the time like I can't get people on the same page I tell them what to do but they don't listen it's like maybe part of the reason you're having trouble with this is the strategy you're communicating does not actually make sense to people well this one really makes sense like treat your customer like you would treat your own parents people are like oh that's actually really easy and clear like I understand exactly what that means and so their customer loyalty is unbelievable can you imagine what their retention
is like if you actually felt you call customer service and it's like you're reaching your guardian angel rather than some board customer service rep it's amaz like so their competitors are like this is not fair we get to it's like unfair to compete with this this like think is a monster but like when you're going to a customer like hi would you rather work with a company that's owned by some private Equity schmuck or a company where some of the prosperity you help me generate gets reinvested in you and your community like it's a competitive
advantage to do the right thing so I feel like that like we're going to have a new wave of Founders who take that seriously who are going to just they're going to steamroll it's going to be really awesome to watch I can see how you started a movement maybe accidentally I mesmerized I am sold if people listening are also sold and want to build a company this way what do do you what can they do is it work with the long-term Stock Exchange is it is there something they could do to help move their company
and product team and business in this direction I feel like there will come a time when there's a lot of resources about how to do this and there aren't a lot right now so it's a bit um it's a bit thin I'm I'm I'm working on it but you know we're still trying to figure out the right the right way but I I am hoping to start doing some events and some some things like to talk about this stuff so people should uh should feel free to reach out or follow me in my on the
usual places if people want to do it themselves talk to your lawyer this is like definitely one of these talk to your lawyer moments I I've worked with enough companies I've actually like been around long enough that I've worked with multiple companies that have gone from zero to IPO and Beyond so like I have personal friends who've like taken their company public who are like now extremely wealthy and who like sometimes even call me and like hey I run this massive multinational company can we like can we talk about this like very specific situation that's
come up at work you know like I still am involved in those companies I still get to hear sometimes what it's like to actually do it and one of my main takeaways of that entire process is that it's always too early until it's too late so what happens is people hear something like what I'm saying like oh yeah we need to make sure you know like here are some things you can do obious you become like a public benefit Corp or a social uh what's it called in California social purpose Corporation there like there's legal
designations you could take it's fine you could talk to a company the the day that because their Tech their startup involves um um building a technology out of uh something that comes out of indigenous cultures they took 10% their company and they put it in a foundation the trustees of whom are tribal leaders from the cultures that they interact with and those people that that has like an economic role and a role in governance you can establish like a foundation like that you can do What's called the board Mission pledge where people on your board
are required as a condition of being on your board to pledge that they'll use their business judgment under Delaware law to support the mission not just the narrow interest of shareholders you can build we call it an ltsv which is basically a financing instrument that operates like a regular SPV but every LP in the SPV has to sign a contract to say that they will support the mission of the company if you ever want to do something like a b Corp conversion or you ever if there's ever a situation where it's unclear whether they're in
favor of you doing thing that's right by your stakeholders long term they're pre-committed to that and we assigned trustees to oversee those shares rather than just the narrow interest of the shareholders so like so I can go I can go on and on there's like all this stuff you can do but I get so I get companies I get Founders excited I've been getting Founders excited about this for a long time I've now been long enough at this that like founder will go to their lawyer and the lawyer will say listen sounds great but like
you don't need to do that right now you can always do it later and they're like okay just do it later and then the companies go bigger and they you know they'll do some financing R each financing round it's like is this a time it's fine we could just do it thereat and then it's like 18 months from the IPO they've hired a CFO and there's like a bankers and the whole thing on Rails and the CEO's like now hey did we ever establish that Foundation thing for our non-employee stakeholders and they're like huh the
thing remember we talked about you said it was too early oh yeah I remember that have we done it oh no it's too late like it's too late the thing's on rail shareholders wouldn't like it the banker like you don't want to put that in your IPO perspectus it's like wait a minute when was the right time you're telling me that like 18 months ago July 3rd through 7th there was a four-day window and it was the right time it's never the right time why is it never the right time and I've seen founder after
founder after founder get steamrolled one of the only exceptions I know is a is a mutual friend of ours who like actually stopped the IPO process and was like no I won't file the paperwork they they tried to steamroll them and file the paperwork with about him and like he said no until I see this thing in there we're not doing it and like it was a very contentious thing took a tremendous amount of political capital I admire him IM immensely for doing it but most Founders don't most Founders just go along and the thing
never gets done so the most important thing is to sit down with your lawyer and just take them through a few hypothetical situations and ask them are you properly protected against this specific thing for example if tomorrow Philip Morris shows up pick your favorite evil I use Philip Morris because my dad's a a pulmonologist so I grew up as Philip Morris is the ultimate of evil corporations but pick your favorite evil Corp if they show up tomorrow and they offer you $1 per share more than your company is currently Worth to buy it from you
and your investors in order to use it to sell cigarettes to children do you have a fiduciary duty to say yes or a fiduciary duty to say no believe it or not if you got if you went to a fancy law firm and they filed for you the standard Articles of Incorporation that are used in Silicon Valley most governance experts upon reading those documents would say you have a fiduciary duty to say yes if that doesn't horrify you and make you want to jump out of window I got I can't help you at all and
if you don't care fine I got nothing to say to you if you don't care you don't care there are really sociopathic people in this world and they build sociopathic companies I can't help you but if you do care sit down with your lawyer and just be like hey is this true could this happen to me and they'll be like yeah obviously and you like um if I like to prevent that what could I do and they like well your investors might not like it investors like it this way because it maximizes their returns and
you're like yeah but I don't that's not what I asked you and your lawyer all your lawyer is good enough to know the answer to this question what can you do and if they can't go back and Rewind the video that Lenny I just had I just named a bunch of things you can have do founders preferred shares you can do you know all this stuff just ask him about some of that stuff and don't ask him should I do it ask them tell me for each thing just be like can you give me the
pros and cons of doing it and they like the pros are you know it might actually to save your company's soul in a dire situation like this the K are investors might not like it too much and you just be like so sit there and be like hm I'd like to do it that sounds good like thank you for advising me on the pros and cons you work for me you're my lawyer like I'd like to implement this thing and just honestly just pick a few of them to get started with and over time what
you need to do last piece of advice every founder wants the one weird trick this is how Lean Startup started too people were like can you just tell me the one weird trick to keep my company Innovative forever it's like there's no one weird trick you want to do the right thing it is a Relentless and constant process we need to build a structure of the company so that at every level at every moment every decision the company makes somebody in the room making that decision feels like they have a fiduciary duty to do the
right thing if that's the outcome you want then this is going to be a Perpetual process of constantly trying to find ways to create the alignment that is needed between the governance the management structure and the actual operations and culture of the company those are not separate things they're actually only one thing because it's just one being you have a skeletal system a muscular system and a circulatory system but those things are not separate they they work together to produce you the being and the same thing is true for these governance structures so I think
most Founders are under indexed underinvested in that and that's why we get to these horrible outcomes to give Founders a little ammo in doing this because as you said investors are not going to be excited to sacrifice profits employees may not be are there companies that you can share that have done this and have implemented Ed some of these things that are public and if not what confidence can you give Founders to be like many many amazing companies have done this and it's actually not that hard I don't like to name specific company names in
venues like this because then people always are like well but what about it's just people like to do the whataboutism thing too much and also I like to let company speak for themselves you know I have way too much confidential information and I just have to be really careful about it the nothing I'm describing here is hypothetical or unreal like I I have witnessed this many many many times myself and every story I it's like it's a real company that that you can meet you know they're real people that are out there and they don't
they're not always the loudest you know the loud voices in our industry tend to be the ones that um you know have something to sell and these companies are like just quietly doing the right thing they don't really need to tell you about it because they're doing it so um there's like an inverse proportion to to the loudness and controversy and memess of the thing and How likely it is to be accurate unfortunately what I will say is this is kind of an Open Secret in the world so here's the thing that really surprised me
I thought the way that we build companies like the the standard corporate governance practices that we all do are like must be well established in research they must be well backed up like it must be the only and best way but when you start studying these things like you find the exceptions really fast I got into this because of Toyota only because I called the thing lean startups I wanted to borrow stuff from lean manufacturing I studied Toyota well Toyota has a really weird corporate government system which like part of the old Japanese ketsu system
where the Toyota family is interwinding in its ownership with their supply it's like by modern standards it's a terrible Rat's Nest of disastrous corporate governance practices but if you look at the literature every everybody who studies Toyota is like well the reason they're able to do this awesome stuff is because they have a philosophy of long-term thinking I used to be like well how can you have a philosophy of long-term thinking if you're subject to quarterly returns and they'd be like oh they don't pay attention to that stuff because they have this other structure like
oh that's weird so for a while I was like I guess it's just Toyota we should build more Toyotas but then like there's all these family run companies out there where the family has produced this outcome and then I started to meet Foundation controlled companies you know it's actually it's funny open AI is like the hot hottest new thing open AI is a nonprofit foundation with a wholly owned for-profit subsidiary I thought that was like Wow open I eyes so like that's actually very common there are a lot of companies like that in the world
in in certain uh European countries it's actually like 20 or 25% of the companies like public companies are all structured that way so it's actually like totally normal and I I did a talk for one of those companies uh a few years ago and it like blew my mind because you know when I would go there and talk to them I was you know talking to their CEO and their leadership and I was like oh what's it like to deal with the public markets and quarter and they're like we don't do that I was like
oh is that a major source of competitive disadvantage you know you guys are nonprofit and they're like are you kidding me we Crush our competitors because they have to waste time on all that stuff we' don't always time on it I was like oh and then like anyone ever heard of Warren Buffett why do his companies have a competitor like he always like oh if you're you're giving up profit your investors might not like it I'm like these companies are just are World destroyers what are we giving up and that's why I go start with
the wrong definition of profit we actually make a ton more money if we do it this way and like Amazon for all of its flaws like the long-term thinking the customer centricity like that's a major source of competitive advantage and I've I've worked with many of am I've worked with Amazon I've worked with many of their competitors and like the funny part with the competitors sitting there they're like oh man Amazon's inter our Market we need to do XYZ and I'm always like do you think Amazon's doing XYZ and they're like oh no they don't
have to do that stuff we have to do all this that our investors require and the activists and whatever I'm like it's like well if you're competing against them and they don't have to do that crap maybe you should try doing it their way and be like Oh Our investors wouldn't like that I was like your investors want you to get your butt kicked by Amazon are you sure so I actually think like one of my realizations here is that like the investor Centric view of Corporations What's called the shareholder privacy theory of Corporations it's
just wrong it's wrong even if all you care about is maximizing returns for shareholders shareholders have this propensity to be the person who killed the goose that laid the golden egg and it's like been going on for 150 years these case studies go back to the 19th century it's is an old old old idea and the solutions are actually all hidden in plain sight so I was reading a research paper at the end of the day that studied some of these I think it was in Denmark Foundation controlled companies versus uh level matched public companies
that are not foundation controll and the found the foundation controlled companies outperformed from a financial performance perspective and I was like how is this not the most incendiary result ever this if this is true so much of the do of the indoctrination we've all received about what it means to be a for-profit company just wrong because like those companies should be riddled with slowness and Agency problems and I I can go I tell you I I know the theory so well I can tell you all the things that ought to be true if those things
are not true what's up and then I was like wait a minute I've been to I've been to these Foundation control companies I've been to Hershey it's just controlled by you know the founder donated the shares to a foundation that like runs a school like you're I've been to I've seen it with my own eyes and even having seen it with my own eyes it took me a while to realize wait a minute this is an Open Secret so I was kind of horrified to find out that this is welln and yet was never offered
to me you how come no one ever offered me the chance to build a company this way and if you study even open AI or any of these companies that are now structured this way there it's always very idiosyncratic like they were on the standard path and then something happened that allowed them to do something unusual and I was like well I don't understand why we have to wait for it to be idiosyncratic why don't we do it on purpose and so I started to conceive of this idea I call it the spiritual holding company
basically the the the thing at the center that is responsible for the sole of the overall uh ecosystem of companies that this that the enter that is the Enterprise and you can see that you know obviously in the opena example you if anyone has studied the anthropic long-term benefit trust it is um not not coincidentally structured that way but you you see you see lots of examples where where that's that's what's done and I started just pitching it to Founders and said look let me try to show you what the benefit of this would be
and I've been amazed how many Founders like break down Founders like start crying with me where they're like this is what I always really wanted to do but I never felt like no one would talk to me about I didn't think it was possible I want to put you know there's a critical stakeholder I want to put at the center of everything I'm doing or there's there's some reason why we're doing this and I want that to be the thing I was goinging to a startup who was trying to get and again it's not like
a Kumbaya thing you know do good or whatever virtue signaling like here it's a competitive issue there's a company that is working to recruit academic researchers to leave their lab and come work for the startup full-time it's a it's one of the most difficult recruiting challenges there is because you're talking you're not it's not talking about like kids out of some school it's is like tenured professors who are leaving behind a very good life to go do this thing they would only do it if they profoundly believed in your mission but they're not naive and
the first question every one of those people asks is like how do I know this technology is not going to be used for evil like I I I have complete academic freedom I'm going to give that up for you make me believe that this is the real thing and if you're like well you know we we believed in some Manifesto and we're good people and we got money from some investor who's promised you's going to be a good guy like that is not going to cut it and so they're having to do the whole thing
like they sit down there L what do I have to do to make this promise real for these people to make them want to join and I just I I've just seen that over and over again if we have the courage to do it it can solve what are really today considered in soluble business problems so it's it's it's cool but I think it's scary for people to feel like they're doing something different and so I you know I think over time we'll get more of these stories on the record we'll get more people will
have you know be more precedent for it but I gotta say I just to not to hearken back to Le startup too much but I'll never forget sitting with early people who are like what's the proof what big company is doing this and I'll be like just wait you know if you don't want the competitive Advantage now you can get it later and like many of the people you look back on who was profiled in those book like many of the early Lean Startup adopters are like very successful people today because they didn't feel like
they had to wait they were able to think for themselves and apply the principles in their own life and I don't ask anyone to take this on faith this is not like you have to do what I say it's more just like think for yourself like if this makes sense to you and no one can explain to you why it's a bad idea in ways that you find compelling give yourself permission to at least try it and see what happens what a beautiful example of first principles thinking looping back to our very first question I
think this is going to be the longest episode we've done yet which is amazing also I think it might be my new favorite episode so that's a good combination with that we reached our very exciting lightning round we'll see what lightning what sort of lightning we find uh are you ready I'm ready what are two or three books you've recommended most to other people there's a book called the enlightened capitalists that is just a hundred years of people trying to fix this problem at failing and like the detailed case studies and like no founder should
ever read it end to end it's too depressing but it's important to know some of these stories of Founders that like they're they're willing to talk about their regrets on their deathbed that they like wish they had done differently and it's just a for those who think there's one weird trick that's will help disabuse you of that notion but it's um it's it's helpful to understand the mistakes that been made before so that we can do better going forward on a happier note I really want more people to read Ken L the dandelion Dynasty it's
a it's a silk Punk fantasy series but it's written by he's a wonderful writer and it's it's like if you want to see what like real optimism about engineering and the ability of Engineers to change the world like but transformed in a totally different environment it's just such a great such a great read the audiobook is really good um also I've I've been kind of plugging that plugging that lately and then if you want to something that's like pure fun you know it's not really the season for summer read but like and also a really
good audio book is the murderbot Diaries by Martha Wells she's just such a great writer and um I I know it's it's it's a very frivolous thing on the surface but there's actually a lot in there and it's I won't I won't ruin it for I nothing I say would be a spoiler but there's actually like a surprising amount of depth for what is really just a fun action adventure uh kind of read I can't wait if I hope it is Someday made into a movie it'll be if they do it justice it will be
really terrific what's a favorite recent movie or TV show I really have been try I don't have time anymore I have a young kids so my my media assumption days are extremely extremely limited but I have been I've been kind of forcing myself to slog through a bunch of the Disney plus Star Wars series which have been almost universally disappointing with the exception of Andor for those that have not seen Andor it really is very good not not good for a Disney plus Star Wars show it's like actually good uh for television uh which I
couldn't believe when I saw the premise of it also a huge fan of Andor and I've recommended it many times and I feel like now every new Star Wars series I'm just comparing it to that bar and that's the problem is it's like if they would just make that that creative team where they would just let them make shows it would be okay it would redeem all the rest of their failures yeah just keep making I'll watch them all what is a favorite interview question you like to ask people when you're interviewing them my favorite
interview question of all time is to ask people to describe a best practice that they learned in their career and and to really get into it like tell me the story of how you learned the best practice like how you know what what and you just let them go on and then you be like great tell me a situation where that best practice would not be applicable most people can't do it so interesting what is the favorite product you recently discovered that you really like whether it's an app or something physical I was just singing
the Praises of a product to a friend it's the most boring and stupid product ever uh it's just a humidifier and you'll be like okay how can you mess up a humidifier but like actually it's actually very difficult to get it exactly right it's like you know what like there always little attention to detail CRA I was talking about craft it was on my mind it's like a very humble Appliance and it's actually like I I've gone through like 10 different models trying to find something that doesn't drive me GRE you like you want to
run it at night has a light that's on all night that's really annoying if it makes a noise that's no good if it over like there's like all these things where you're like boy if anyone had used the jobs to be done framework for one minute on what this physical device is supposed to be this is the product they would have built and I can't believe it's like such a so interesting in in modern capitalism there's so many categories where there just there isn't a like that or there's just one like how come every product
is not like that and you know the forces we've been talking about are the reason why it's funny to see it like you know represented in such a humble object what is the actual humidifier that you found it's the levoit 300s ultrasonic humidifier Lavo 300s uh it's it's like it's just a really well-made $60 Appliance you know it's nothing nothing special but they're about to see a spike in sales go la Vo I somewhere some somehow there was a product management meeting where they talked about how to make this thing and so I I just
I can picture it right now somebody was like look the way we make these things sucks like can you please let me just like put the thing that's normally on the bottom let me put it on the top and let me put this in there and put that in there and someone was like who cares that's GNA add three cents to the cost and reduce our margins by what and someone was like no really think we should do it right so I like to reward people like that yeah this is going to take us off
topic potentially but I'm just thinking I've been thinking more recently about how most often the best stuff comes from just like one person singular control over how to do that thing over and over and over yeah there's actually if you study TOA production system they have this job that's called the chief engineer I I wish more Founders knew about this because like when you become large it's important to be able to empower the founders that work for you and not just only see yourself as the founder so the chief engineer is the person with the
moral authority over an entire line like a car from start to finish and I don't know if this is still true but back in in the days when people were writing a lot about Toyota inside the company the car is not called a Toyota Camry it is called so and so son's car and the thing about the in engineer is they have no reports nobody works for them they just have like the they have What's called the big room if you've studied that that whole thing like there's like a place where they are and they
have the they have a small staff but like they have the design and the car and like anybody as as the number of people who work on a car you know it swells up and then it comes down because you have the design phase and then you go into production and you eventually the number of people go goes back down the most important thing you have to do in a product is make trade-off decisions and if you just let people make their own trade-off decisions it's totally diff it's really difficult to have any kind of
coherent design like thrust so the idea is like this is the person who makes those two if there's a fight between two departments about how much the thing should cost or if someone has a question like listen I can improve the the aerodynamics of The Thing by this much but it will cost this much and it would mean we have to take this button and turn it from metal to plastic you have someone who can actually be like no that button has to be metal like we made a promise that this is going to be
like or button doesn't matter like you just need someone who knows that thing it has to be that you can keep it in somebody's head so yeah called the chief engineer just when they thought we were done with golden nuggets in this episode that is so interesting I think that makes so much sense and I also agree that should happen more often at companies wow it's very much missing compy structures yeah all right two more questions do you have a favorite life motto that you like to repeat to yourself share with folks something that you
come back to to often that helps you do the right sorts of things well I won't I won't get into the whole explanation the the the motto is that nothing real can be threatened and nothing unreal exists well the whole other episode just unpacking that amazing final question you invented a lot of terms a lot of Concepts is there one that you don't think CAU fire and that kind of spread as much as you thought it should oh yeah yeah I got tons I got tons oh man the The Cutting Room floor is full of
so many many things I I was I went through a really extended period of trying to to use it was before lean Lean Startup I tried to use the cell biology as the metaphor for a for a startup uh I it should have been I wanted something more biological and less mechanical I never got one person to understand what I was talking about it did not not work but I'll say you the one that surprised me the most this is such a small one but I really thought that this would like take off and people
would be way into it I did a lot of writing about it and then like couldn't get couldn't get this stick so everyone knows viral Loop Loops there's also engagement loops and I was like oh just like we have viral Loops which is about how how products grow we should also have engagement Loops which is about how people stick and like there's a science to stickiness and like people have written about that like from the point of view like how do you make your product more addictive but that's not really what this is about this
is about being able to model the Dynamics of how customers um flow through and and I a version of that is in the Lean Startup we have what what I call the law of sustainable growth which is a situation where new customers come as as a natural side effect of the actions of past customers and so that is obviously true of the viral Loop everyone knows the paid you know engine of of acquisition where you have um you know your marginal profit per customer drives your ability to invest in customer acquisition but there's also what
I call the sticky engine of growth which is kind of like the vestage of this idea that made it into the Lean Startup but but I actually think that that's a whole really interesting thing where like if you think about the way to think about it is like if someone is living their life having a happy time then for some reason they use your product why did they use your product what made them come back to your product and it's actually there's not that many things it can be like it might be because you gave
them a synthetic notification like hey please come back to my product and they did it could be because some kind of organic notification took place like that is like they got an email from a friend on your platform that was like they got a notification that was driven by like their you know one of the most successful customer emails of all time is paypals you've got money click here to take the money has a very high clickthrough rate maybe second only to Facebook someone has tagged you in a photo but we're not going to tell
you which photo it was so you better click right like so like so something happened if it's not one of those two things then it's got to be because of positioning something in your brain on its own told you to use that product right like why did you go start playing World of Warcraft did someone have to did you have to get a notification to remind you like you like playing you know had to tell you like doing it or like or something happened in your life that like made you need you're hungry so you
went to the thing to get the food like because those are the only Ways by which people come back to a product those are all those all can be measured studied and understood to the same level of precision as we have With viral Loops I can't for the life of me understand why viral Loops gets all the attention and no one is remotely interested in the science of Engagement so I thought I I thought I was a time when I thought engagement Loops would make me way more famous than Lean Startup ever would I was
very very wrong this also reminds me that you also I think we're the first person to talk about growth as loops and these specific loops and a growth engine mind yeah so wow we've discovered another one I imagine there's many more Eric this was incredible I definitely think this is my new favorite episode thank you so much for being here two final questions where can folks find you online if they want to reach out potentially and then how can listeners be useful to you you still find me at thean startup.com I'm Eric Reese e r
i c r i s on all the usual places although I I really don't do a lot of social anymore so like joining my mailing list at at the.com is probably the best way to keep track of like the major things that I do in my life and then yeah I do try to get on some some social from sometimes to make some uh some announcements and if people want to reach out I'm just Eric at theen startup.com how can listeners be useful to you oh that's really sweet um you know honestly people need to
just take these ideas and do something with them and then you learn something from it and then tell me what happened that's all I want in exchange just tell me what happened even if you like the people I've learned the most from are the people that tried to use my ideas thought they were like the stupidest thing they ever heard of and like doesn't work and they're mad and what like tell me I want to know all about it because really my job like the way I see myself is like my job is just to
try to understand these things I just want to know the truth if I'm wrong like I don't like being wrong I'm not I'm as attached to my ideas as anybody else but like I try really hard to find out what is true so if you discover something new please tell me that's all I ask just let me know and and if you don't try then how you ever going to discover anything new so just you know you like lean if like you know every day I meet people who are like who just heard about Lean
Startup for the first time I for me it's so old but like they're every day the people who read the book for the first time and they're like they have a question about what so like if that's where you're at and you just discovered it like excellent you know I have I written a couple books you can go read them like please for those ideas if you're someone who's like jaded and like oh I'm so tired of hearing all Lean Startup like I I mentioned a few new ideas in this uh in this conversation like
go try one of those and like even if even if it doesn't work or if he does work or you know like even the the people I've learned a lot from are people who they tried it and in the process of it not working they had another even better idea and then they went and did that well go do that all I asked is he tell me what happened I want to learn from from from people who who making this happen and like you know I hope as we come together as a not just as
a Lean Startup movement but as a startup movement like as a group of people who fundamentally believe that we can make the world a better place through the building of organizations from scratch like we have that as our belief like that that the future is not scary newness is not something to be feared or opposed but there is a like a responsible methodical value creating way to to make positive change in the world like that that's an ethos that is not universally shared and that if someone's listening to your podcast my assumption is you're in
our tribe so like we as we have a collective responsibility to think about like what do we want to what do we stand for Beyond just my company my founder my story my but like what do we as a group of our shared and Collective values and how do we make those manifest in the world I'll just leave you with one last idea we collectively have so much power it's crazy because the system the way it works now what I've learned about our current you know what they call late stage capitalism right like financialized engine
of capitalism is that it is value destroying in so many ways and although Mar markets discipline companies and they require them to create more value than is destroyed to stay alive new companies the ones that we buil are so valuable like the core Insight that makes the is so valuable that the being that you've built can withstand so much damage before it collapses and yet if you look at the average tenure of companies and public companies they just look at average CEO tenure like any all the metrics you look at are really Grim here like
we're destroying companies faster than we create them such that like the total net number of public companies in America is down more than half from a peak that was in our lifetime it's not that long ago what's going on on well the system requires a steady supply of fresh meat to replenish that which it destroys and if you're listening to this podcast you probably are one of the Peddlers you're the manufacturer of the thing that the system requires for its basic survival and so as a matter of fact we as a group we get to
set the terms by which this is done and so if we want to stop selling our beings our babies our children for money we don't have to do that if we want them to have a certain ethos themselves in the world we want them to be trustworthy counterparties and do something for the people we care about we can insist that that is the precondition upon which we will give our everything to and so you know I don't want to say that I know all the answers or that my values are the ones that should win
out but I do think that we do have a certain Share value set of values that we ought to be more Ardent in defending and I hope I hope your listeners will take that to heart and beautiful and empowering way to end this Eric ree thank you so much for being here my pleasure bye everyone thank you so much for listening if you found this valuable you can subscribe to the show on Apple podcast Spotify or your favorite podcast app also please consider giving us a rating or leaving a review as that really helps other
listeners find the podcast you can find all past episodes or learn more about the show at Lenny podcast.com see you in the next [Music] episode
