Lenny's Podcast: Product | Career | Growth - Reflections on a movement | Eric Ries (creator of the Lean Startup methodology)

Starting point is 00:00:00 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 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,

Starting point is 00:00:15 but you can't leave. Who 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 have started to talk about like the downside mental 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 when you build a company and you sell it out and it becomes something that you find a porrent like yeah man maybe get rich but it's it's not it's not good and so building a company

Starting point is 00:00:44 you hate that that becomes a maligned force in the world you know that you have to go pretend you weren't involved with or 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 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 his 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 us time advising founders and startups. He was a former founder and CTO, and currently he's the founder and executive chairman of the long-term stock exchange. This is now my

Starting point is 00:01:24 favorite episode of the podcast, and I can't wait for you to hear it. In her 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 you could do it over again, misconceptions about the methodology that frustrated most, how AI will likely impact product development and startups, how to think about MVP's correctly, when to pivot and went 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,

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Starting point is 00:04:14 Sales, support, leadership, even Greg from finance. Anyone that you want can contribute ideas, feedback, and insights in Jira product discovery for free. No catch. $10 a month for you. Say goodbye to your spreadsheets and the never-ending alignment efforts. The old way of doing product management is over. Rediscover what's possible with GiroProduct discovery. Try it for free at atlassian.com slash Lenny. That's atlassian.com slash Lenny. Eric Reese, thank you so much for being here. Welcome to the podcast. Thanks for having me. This just feels very surreal to have you on the podcast. It feels like a surreal experience.

Starting point is 00:04:54 you're such a legend in product and in startups. And I'm just really excited to get to learn from you and for listeners to get to learn from you. And my first question, just, what do 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 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's the end.

Starting point is 00:05:21 Surely that's enough. And just each year it gets crazier and crazy. and new things come my way. So, yeah, I definitely, you know, I'm building the long-term stock exchange at LTSC, I'm sure we'll talk about. And, you know, I spend a lot of time still with, you know, with founders and with big company execs,

Starting point is 00:05:37 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, 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 issues of governance and corporate governance and how companies should be structured.

Starting point is 00:05:54 not really with an eye towards technology in particular, but just with long-termism and humanism really at its core. And it turns out that those questions have just become really acute for AI companies. So because of my work on governance, I wound up meeting with and get into work with some of the top AI companies. So that's been really interesting. But yeah, I feel like I go where the issues that are on people's minds go. And it kind of pulls me into new and really interesting things all the time.

Starting point is 00:06:23 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 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.

Starting point is 00:06:44 And then also, I think, A-B 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?

Starting point is 00:07:07 And then just where do you think this comes from this first principles thinking that you seem to be really good at? Well, first of all, thank you for saying all that. That's giving me too much credit. But I like the idea that it's going to balance out the too little credit I'd not expensively get somewhere else. That's great. You know, no, I mean, to answer your question, no, I didn't know this was going to happen.

Starting point is 00:07:26 This is so embarrassing to admit now, but just to give you a sense 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 I 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 referer logs on their website. That's how little traffic they got. Like when a new person started writing about their thing and linking to them, they were like, who is this guy? What's going on?

Starting point is 00:08:03 It was a very different time. And I had, you know, I had 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.

Starting point is 00:08:25 It's nothing to do with me. It's just, you know, this framework. I have these ideas that are helpful in a team if they adopt them. And they were like pat me on the head and be like, yeah, kid, I'm sure that's great. But can you praise me 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.

Starting point is 00:08:41 People would yell at me in the meeting. I would get yelled. In fact, I would be like asked not very kindly to leave. And I'd be like, I don't understand what do you yell? like, why are you mad at me? You asked me for this meeting. And they'd be like, I'm like, I'm just telling you what I witnessed with my own eyes. We at IMVU, 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

Starting point is 00:09:07 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 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 meetings all the time, I didn't understand the way Silicon Valley worked at that time. I didn't understand why this was happening to me, having these meetings. And 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

Starting point is 00:09:40 as I was thinking at that time. And then, you know, it basically took over my life. And I was being asked to speak of it. People really wanted to unmasse the anonymity. Who is this person? And so I came clean. I identified myself and started writing and 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 feel like maybe I'm a failed scientist. Like, I wish, I was actually good at chemistry or something. I could have actually been a real scientist, but 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

Starting point is 00:10:14 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 also part of the, like what helped me understand why does it work and is it still appropriate? And it doesn't make sense for that industry or not. I didn't like these just so stories. And I really. I didn't have this understanding at the time, but looking back, I feel like first principles

Starting point is 00:10:49 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 happens. 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 can't treat a startup like an experiment. It's like, well, you can treat it however you want, but it is an experiment. People are like, well, I don't think it, you know, like people don't like the concept of pivot. There's still there's anti-pivot people, anti-embit people every once in a while come out of the woodwork still to complain about it.

Starting point is 00:11:24 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. You know, we can't reason about it if we can't. And so that, like this is descriptive part. And then that's the real. work, honestly. It's just saying like, what is it? Like to me, the big question from the

Starting point is 00:11:48 beginning was like, what is a startup really? Why is it so different from a big company? Why is, why did none of the best practices that I learned in my career work? It's like it wasn't, it was like a survival mechanism I want to know. And then once you've identified what it is and laid out 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 people call me a first principles thinker which I

Starting point is 00:12:24 love that I was 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 do like I at least start up was that my first try 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

Starting point is 00:12:52 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 when would it not be appropriate? What predictions does a theory make that we could then go see if are 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 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,

Starting point is 00:13:23 is that actually helping us accomplish some kind of goal. And so that, you know, I think that first principle is thinking is very helpful for for that too. But yeah, I don't know. I guess I've, but to really answer your question, the truth, true answers, I don't know. I was just, I just always felt like I was wired that way. I have a love of ideas and want to know why things. things were. So to me, a couple of takeaways from what you just shared. One is just you're wired to think in a specific way of thinking very logically, scientifically. I have a similar 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.

Starting point is 00:13:56 I'm like, here's what they did, but who knows if that was the way to have done it. Yeah, yeah, exactly. Did they succeed because of that or in spite of all? Let's dig into the lean startup method and methodology. It feels like we haven't heard an update on just like how things are going where it's going, how popular it continues to be. I'm curious just, what's your sense of the state of the lean methodology and the lean startup movement? It's an interesting question. We used to do a lean startup conference every year and I stopped because of COVID and we haven't we haven't resumed yet. So it was like we used to have like an annual opportunity to like bring people together, assess the state of things. Here are the latest updates and stories. And I really feel the last.

Starting point is 00:14:37 of it. I miss it. 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 COVID and the thing 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're going to stick it to the man. And I really thought, okay, my job is going to be to lead these hordes into battle. I really had a like a martial metaphor. I used it just a second ago. Combat of ideas. I was ready for like the old ideas are going to like fight us to the

Starting point is 00:15:15 death and we're going to win in it. And it's not like that at all. 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 it was very few defenders of the old way. Like very people who came out and said actually no stage gate. is actually still the correct product idea. You know, you've got it wrong. It just, it never, it never happened. And in fact, in the, like the fancy startup people went from dismissing it as like totally

Starting point is 00:15:50 pointless to complaining that it was overhyped and over before ever passing through the intervening stage of finding out what it was. That was really interesting. I'll never forget, like, TechCrunch, 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 the first entry point to talking about it. I was like, could you at least learn to use the word pivot correctly and then

Starting point is 00:16:13 then criticize it for being overrhymed? 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 was fascinating to find myself on the other side of this thing. And I would meet young founders coming into the industry for the first time. And they're like, it seems obvious. And I'm like, it was only five years ago that people thought this was like so crazy.

Starting point is 00:16:45 They're yelling at me. Now you think it's obvious. It's 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.

Starting point is 00:17:06 And it really was hard for my, just like 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 really, that's the whole ball game. We don't have to do.

Starting point is 00:17:27 No one had to lose in order for us to win. You know, there's not people with something used to, I don't do this, people don't do this as much anymore. but occasionally is someone still who wants to make a fight between Lean Startup and Agile or Agile and Design Thinking or this and that. And I tried really hard. If we look at Lean Startup, it's full of citations and connections to Six Sigma and Lean Manufacturing and Design Thinking and Customer Development and DevOps and Software Craftsmanship and everything I could find.

Starting point is 00:17:51 I really wanted to show how these things work together. And then we went through a phase where people wanted me to like make it into a religion for real. People used to write me and say so and so on the internet is writing about. about lean startup and they're wrong, you need to make them stop. It's like, what power do you think I have to make someone stop writing? I'm 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.

Starting point is 00:18:17 If someone finds a new practice, they're a heretic and need to be excommunicated. And it's like, guys, no, no, no. I wrote extensively in the book, did you read? It's a scientific theory, which means 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.

Starting point is 00:18:36 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 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 I ever did When I used to travel a lot and do a lot more public stuff.

Starting point is 00:19:07 And I think partly, again, probably the change is COVID and not, you know, conferences went away for a while. So there 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 don't throw you a parade and say the thing. And even though people who are your critics just don't grumble about it. But like at the end of the day, the new entrepreneurs who come in just take for granted that

Starting point is 00:19:28 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 better. And 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.

Starting point is 00:19:47 And people don't even think about, oh, Eric Reese 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, MVP's don't work anymore. more. 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 misconceptions are on MVP 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. It's a good idea. Like, I'm, I'm more aware of the limitations than anybody

Starting point is 00:20:22 else. And I'll tell you another thing that I think people don't appreciate it. Now, everyone wants to be a thought leader these days. It's like a disease. When Clay 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 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.

Starting point is 00:20:55 And the first part of me is, like, that's an outrageous slander on, 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 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

Starting point is 00:21:19 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. whenever someone says something where I'm like, gosh, five 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,

Starting point is 00:21:42 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? it wasn't helpful to people. And so I try,

Starting point is 00:21:58 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. To me, that's how we square the circle of our responsibility

Starting point is 00:22:16 in a highly uncertain world, as you go find out what happened when people use the idea. And if it's not right, you know, even after their misunderstandings, it's still not right, then you've got to make it better and find a way to communicate it more clearly. So it's kind of 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

Starting point is 00:22:40 that just kind of really frustrates you? That just is a recurring misconception that people just continue to get wrong. You know, I wrote an article, God, five or ten years ago, like, I can't even remember how many years ago that was like top misconceptions about lean startup. And it was like, number one, One, lean means cheap. So you're doing these startups. It means you're not raising money. It's like, that's not true.

Starting point is 00:23:01 And then, you know, I kind of remember what they are. It's like, 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 read it in somebody's book that that, that's what lien is about.

Starting point is 00:23:22 And I was like, man, did I forget to write it in the book? I was so gaslighted that I actually went back and cracked open a copy of a lean startup. I was like, on what page do I address this? It was like on page nine in the introduction. The first thing is in the book. I was like, I did say it. So like that's pretty common.

Starting point is 00:23:38 You know, that turned the crank thing about optimization. That's pretty common. And then like pivots, people perennially misunderstand what a pivot is and like what, again, whether that's a descriptive or a prescriptive thing. Like, you know,

Starting point is 00:23:49 it's like those are, I feel like at this point, people are just being will. fully ignorant. It's like, it's okay to criticize lean startup. There's no problem. It doesn't bother me. I think it's good to do so. It's healthy to do so. But like to just trot out those same old things. You know, it doesn't. I'm like, what do you, like, how does that advance the state of the art? And how does that help entrepreneurs in any way? And it's like, and I'm not even really sure what they're trying to accomplish by doing that. That's the thing that I've grown confused about.

Starting point is 00:24:17 It's 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. Flash X. 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 attempt to put disclaimers on everything and make everything more nuanced, you'd like totally

Starting point is 00:24:59 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 make me, don't 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 towards the end of the book

Starting point is 00:25:29 where I talk about the scaling of lean startup. So it's like, okay, you've had success now. What are the principles for how you scale up a big enterprise now? You know, there 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's so blithe and just like, step one, do this. Step two, do that.

Starting point is 00:25:48 Like, you know, it makes it sound so easy. It's 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 I'm a little embarrassed now to be like I made it sound so easy. I hate to mislead any entrepreneurs into thinking any part of entrepreneurship is going to be easy because that's just setting people up for disappointment.

Starting point is 00:26:16 And the other funny bit is you know that meme on Reddit, the Star Wars meme where Anakin Skywalker says I'm going to change the world. And Patmer, 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.

Starting point is 00:26:40 I always just took it for granted that our goal was to make the world a better place. Like that's how those are the values I was raised with. That's what I thought we were doing. And I was railing about it for a while. And 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

Starting point is 00:26:55 become is so depressing. And I was like, well, I at least made it clear. And then I was like, did I? Again, I 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 of these startup one of the like, it's 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 for the better. I didn't know I had to say it.

Starting point is 00:27:25 I thought it was obvious. 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 social forces. But like, what I feel bad that I missed my chance to, like, take a stand on something that has turned out to be quite important. So you saw me tweet a call for people to ask questions.

Starting point is 00:27:51 Oh, yes. Yes. Yes. I'm really excited. So I have a few questions from the audience. The first is around the concept of MVP's, MVP's. So Kari Sarnan, who is actually on the podcast recently. Oh, great.

Starting point is 00:28:02 Founder of Linear, had a question around MVP's. And his question is essentially, if you still believe that MVP is essentially shipping very basic versions of data, reading is the way to go, given that user expectations have risen a lot in many markets, iOS apps, for example, where productivity software, things like that. Yeah, yeah, yeah. I love that question because, first of all, 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 the thing that will crash your computer. But it's not, that's not anything to do with MVP. 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 a hypothesis is true or not? And so part of a successful test is to understand what are the 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.

Starting point is 00:29:06 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. engine, like, I've worked with companies where the standards are like actually really high. And it makes iOS app seem like pretty, pretty basic. You know, it's like, yeah, okay, well, nothing blows up if you don't like your app. But like, even in these really high-end industries in really high-stakes situations, like, the cost of offering someone to buy something that they don't like is really not that high.

Starting point is 00:29:41 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 launch this product without features XYZ. They're so essential. And I would be like, you're wrong. I did the right. I got mad at them. But then I got a little smarter. And I'd be like,

Starting point is 00:30:14 X, Y, Z you say. And I'd be like, taking notes, right? Like, oh, interesting. Now sometimes X, X, Y, Z would be the exact next three features of my roadmap. And again, I want to argue with them as I know I was, you know, like, I knew that. And I eventually 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, I think we're really afraid of as entrepreneurs.

Starting point is 00:30:36 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 launched without ABC. And you're like, what the hell is ABC? Never heard of that. That's how bad. That's the much more common response that I get. So let's grant the premise of the question that like expectations are high.

Starting point is 00:30:53 And if we launch an app and it doesn't meet people's expectations, they won't like it. First of all, what really are the consequences of that? In an early part of the 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 once you're going to be big news.

Starting point is 00:31:18 once you're a big successful company, that's totally different issue where like now you put your corporate brand on stuff. But like if 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. And it can't have very many features, I guess, can it? Like, well, 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 need to do all the features at all the quality it's like well then what are we testing it's like by the time you find out whether that's any good and look if you look at 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 quality it was and in fact as an engineer that was part of my like original disillusionment with the agile software movement. movement, that ultimately lean startup is that people promised me that if I follow these best

Starting point is 00:32:21 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 have the magic taste. well, first of all, do you have the years and decades of failures and experience 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.

Starting point is 00:32:59 Go get those scars. 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 call it establishing a baseline when we talk about innovation accounting in 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 see 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

Starting point is 00:33:37 our idea of quality is wrong? Is it because the value prop is fundamentally right? I feel like building a high quality wrong value prop is nothing to be proud of. There's no craftsmanship in that. is it, you know, like I once had a company that 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 didn't click. So they launched this thing. It had zero percent signups.

Starting point is 00:34:03 And they're like, it's a catastrophe. We made the wrong value products. Like, how do you know? From one experiment you can never know. You have to be willing to do a series of experiments. And again, the logic of MVP is just products take time to build. like the best products in the world. Everything takes time.

Starting point is 00:34:19 I don't know if it takes a month, a year. You're like, AI will mean 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%. So when you have half the product, let's have customers just half the product. This doesn't cost you anything extra.

Starting point is 00:34:41 You had to do it. You build a natural experiment anyway. Have them use it and tell you what's only half is good. or it's unusable because it's so bad. Excellent. Good. But the startup literature 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 competitor.

Starting point is 00:34:59 And I'll just give you one example, one of my favorites. I come from 3D graphics, you know, and Avatar as a Metaverse stuff, which of course now is bad. It's one of these types of these hype cycles. And I'm like, are we actually in the hype cycle or are we in the drop? It's fair again. Are we trending up again? Are we trending up again? Okay.

Starting point is 00:35:14 It's really hard for me to keep track. even while I was working on it every few years it was either the future or nobody wanted to do it I bet sales of snow crash you'll probably have that cyclical thing to them and it's hot people read it otherwise not anyway we built a version our first version of IMVU we built with 3D avatars

Starting point is 00:35:32 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 stand up and walk and 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 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'd have the avatar to sit there and people felt the product was claustrophobic they would always be like the sims let me move around why am i stuck here in the chair i feel it it was a very common thing in 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 it's like a little demo i was like well 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.

Starting point is 00:36:19 So it was like really, 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 and see what happens. And we, we shipped it to cut. I was like, this is not. This is below the quality bar.

Starting point is 00:36:31 This is like an, like, I just like, I felt bad as the engineer. Everyone involved felt really bad. But we had like committed ourselves that we're going to try to experiment with stuff. We're going to see what happens before being start for existence. We didn't even have a concept of MVP. We're like, got to try it and just see what happens. And we shipped it and nothing happened. No one cared.

Starting point is 00:36:47 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, people would be like, we used to be compared to the Sims unfavorably. And now people were like more advanced than the Sims.

Starting point is 00:37:07 And I was like, what does this mean? How did we get more of like, did we improve our 3D graphics or something? And we started to do, No one can 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 Inview, when you want to go somewhere, you teleport. The Sims, you got to wait for the guy to get up and walk around.

Starting point is 00:37:26 It's 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

Starting point is 00:37:41 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 that is.

Starting point is 00:37:56 Yeah, as little as necessary for you. So, like, what's so, it's fascinating. I mean, I'm John joking about, I've worked on jet engines and robotics and cancer therapies and all kinds. I've worked on stuff. And LTSE, I mean, it took us 10 years to build the MVP for LTSC.

Starting point is 00:38:08 So, like, it doesn't even, it doesn't necessarily mean cheap, low-quality. 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.

Starting point is 00:38:27 I don't have to be right. And I want to just double check that you're right by however we do it. And then, you know, once people actually start to turn that idea over in their mind, they often will be like, well, you know, like, you know, a classic one is like, we can't, we can't sell the thing until 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.

Starting point is 00:38:52 So it's like, okay, well, how about we send them a brochure and ask them to pre-order it? And then it's like, but a haul, I can't do that. I can't have a crappy brochure. It's like, who's that 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 talking about it has really good fonts

Starting point is 00:39:13 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 brochures. Like, now we've got the leap of faith assumption. Let's go find out.

Starting point is 00:39:28 And then like, hold up, we don't know what those specifications are going to be yet. Like, well, what I saw this 500 page plan over here. What do you want it to be? It's like, well, it would 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.

Starting point is 00:39:50 This is a team that sold equipment in data centers. They had a serious, a high-end team of PhDs working on research to make the thing way more efficient. And they're going to win like a Nobel Prize in material sciences in order to make this product a reality. And they put, and I convinced them. instead of paying three years and $18 million so you don't 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.

Starting point is 00:40:16 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, whether they were like, this is, we would never buy this. And they're like, but you haven't even looked at 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. Right? Like, that's the thing people don't appreciate is like these insights are

Starting point is 00:40:38 so obvious in retrospect that everyone's convinced that they won't happen to them. When I teach students in Lean Startup, they're like, this is so dumb. They do one case after another in business school and they're like, dummy, dummy, dummy, dummy, right? Like they're like, I would never make that mistake.

Starting point is 00:40:56 And I'm always like, look, you don't have to argue with me. Just call me back when you get a job. When you make one of these mistakes, like remember we had these conversations and go read the book then. And I guess by random chance there are some people in the world that just never made a mistake. Just the dice, you roll enough dice. Somebody had the experience that dice came up, you know, double sixes every time.

Starting point is 00:41:15 Okay, so there are those people, and they give a lot of the advice in the world. But I don't know that necessarily those of us have the double six luck should necessarily be following. This will be a really good 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 I 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 Silberman, the co-founder of Pinterest, has this quote. He didn't ask a question in a thread, but he has this quote. And his quote is, the hard part about MVP is that you don't know what minimum is,

Starting point is 00:41:51 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 MVP? 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 no but that like all all the criticisms of mvp are really just people expressing their

Starting point is 00:42:23 frustration with how uncertain startups are 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 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. There's no substitute in this world for a human being stepping forward and just like,

Starting point is 00:42:47 I am going to 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.

Starting point is 00:43:03 So simple, succinct advice. 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?

Starting point is 00:43:32 It's very common for me to meet a team that is trying to do a hundred times. more work than it's 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 startup way, and the SQL to lean startup, I really go through, because it's really more for a corporate, large company audience. 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 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.

Starting point is 00:44:08 What is your learning metric? And then from their brainstorm MVP, score them according to this formula and then like use that to help people. Anyway, if people can follow that they want. The thing I learned is that if people are having trouble coming with MVP, the problem is usually upstream in the chain of 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 as an entrepreneur to say that we're going to test to find out what customers want is really hard.

Starting point is 00:44:40 I'll give you an example from my own experience. You know, LTSC, it's taken us like 10 years to get the thing approved and going. It's a really very difficult product to build. One of the early iterations of it, you know, that didn't work. We were building on partner infrastructure. It was just a very different product back then. I don't want to get into all the legal nitty gritty because it's kind of dry. But anyway, it took us six whole months.

Starting point is 00:45:01 It took us, you know, time 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 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. It was like a very complicated multi-stage process probably took, I think I just described two years in my life, 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 were like, but I thought our goal was to get this contract done. I thought our goal was to, it's 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 I'm like, but this thing's taking two years. What's the one week?

Starting point is 00:45:51 I'm like, no, every day is soap. We have to get the learning as soon as possible. And I was like constantly haranguing everybody involved. We've got to go faster, faster, faster. You've got to give on this point. People were walking all over us. We were getting just destroyed in the negotiation. I was like the weakest, lamest person around.

Starting point is 00:46:05 Just like, we're going to raise the money. I was anything to get speed. Anyway, long story short, we get all the way to the end. We get the thing approved by the SEC staff. And then like we get ambushed. And like long story short, the SEC withdraws their approval and the whole thing is dead. The partner, you know, we have to break up the partnership agreement. Everything goes to hell.

Starting point is 00:46:24 And I thought the company was going to die. And it was a totally miserable time. One of the worst things that ever happened to me in my life. I was totally upset. 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 never happened to me, as a lot of certain things are. Because from that, we were able to pivot into the thing that ultimately got us, got us approved. The reason I tell the 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.

Starting point is 00:46:54 So like, if we had won a few extra clog, or margins would have be higher if we'd extracted more fees from the partner or like, though we would have had less. liability, people were always like, well, we'll have the liability for this, and liability for that. I think about all the things. It was like, this thing was hundreds and hundreds of pages long, this document. It mattered. In the end, the partnership was never consummated. No, no customer, nothing ever happened. And the interesting thing, the reason is the story is that the people who went

Starting point is 00:47:17 through that experience with me were so much faster on the next thing that we did. It was really amazing to seek. 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 I've worked at a crappy company and have a horrible experience.

Starting point is 00:47:38 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 die. It actually fails. It's so psychologically damaging that even people that have had that experience, a psychological defense mechanism is to tell themselves that that didn't happen.

Starting point is 00:47:56 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,

Starting point is 00:48:06 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, the number one lesson of the scientific method is if you can't fail,

Starting point is 00:48:16 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

Starting point is 00:48:27 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.

Starting point is 00:48:44 And they've built such beautiful products, such amazing products that they spent years, just like crafting, making so great. And then 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,

Starting point is 00:49:08 the minimal viable product approach. Do you start very simple and then invest any time's 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 simplicity. So, like, I would much rather people do one thing extraordinarily well than like 20 things half-assed, you know, personally. And like how many products do you use? We're like, God, could you, like, there's like 92 buttons on here of which I only ever press one. Could you have made that button, like, have a really nice feel. I could, I would have sacrificed all this other stuff. And I mean, I've actually worked on microwaves and refrigerators and stuff with actual physical buttons.

Starting point is 00:49:48 And like, even your crappy kitchen microwave that you paid $16 for at Walmart or whatever, if you've never seen one of those things, um, manufactured, it's actually, 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 being, it's actually really painful if you start to think about, wow, that's a lot of human energy being wasted. So 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, you have 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. true. If that's you, go nuts. You might only have a market of one, but you'll be happy. So be it. And there are startups like that where it's like, well, I don't care how big my market is.

Starting point is 00:50:36 I'll just build for all the people like me. And we'll, 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 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, like, first of all, there's an element of crap 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 a fully featured, whatever thing you're doing, like, you know, I'm a software engineer by training.

Starting point is 00:51:06 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 will never compromise that. And compromising that in the name of going fast is stupid, right? Like 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.

Starting point is 00:51:24 keeping your options open. And actually it's very much like favorable to speed using like the right primitives, having the right abstraction layers, like using the right tools in the right way, having high quality people on your team, like all those things that you go faster, 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 get into if people are 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 them to be because I want them to be that way. And even there, when I meet people like that, people are just like, sorry, my artistic ethos

Starting point is 00:52:02 is this and it has to be this way. And I'm like, excellent. And that's not one of your leap of faith assumptions that you're willing to test. So like, so be it. Don't pretend to test it. Just be like, I'm not. Like, we're just going to do it this way because that's how we do things. And it's fine.

Starting point is 00:52:16 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. 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. Well 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 founder's base 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

Starting point is 00:52:52 as a catch-all 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 you're going to take care of, it's part of making a promise to a customer, like, that 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 think people want to set up a dichotomy here that doesn't really exist.

Starting point is 00:53:16 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 are 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. It makes sense. I really like that advice of as a founder, build a 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.

Starting point is 00:53:49 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 try it, basically. I always tell people to just get fired for doing it the way you think is right. Like there's nothing that was 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, you're way happy.

Starting point is 00:54:16 You're going to be so much happier being a place that appreciates that. That was a big career accelerator for me, not that I actually got fired, but I was willing to be fired 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 lean startup. So I was like, I didn't even have a language for it.

Starting point is 00:54:36 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 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 at a different industry. I don't want to be in an industry that doesn't, that's how I want it to be. And I think that people, people don't appreciate the extent to which 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 bad.

Starting point is 00:55:06 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. Who have I met people like that? And like, we're having a mental health crisis among founders that's like not talked about enough. People started talking about like the downside mental health risk.

Starting point is 00:55:24 Obviously the stress of being a founder is hard. 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 abhorrent, like, yeah, maybe you get rich, but 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, I'd say 300 million. million dollars or something made a lot of money and committed suicide like not that long later people follow the tony shay story i knew tony i was a horrible tragedy like what's going on so i just feel like there are worse things than 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 like you feel complicit in what like that's way way worse and i wish more founders would take that more seriously early on

Starting point is 00:56:15 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 going to succeed and they're kind of stuck they don't want to shut it down they don't want to give money back what advice to 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 going to fail you should shut it down but everyone's like but I thought it's always darkest before the dawn and it's like sometimes it is you know what else is really dark like when you're dead right so like what's the I mean, everything comes back to.

Starting point is 00:56:49 I used to tell people, the most uncomfortable laugh line in my early talks about Lean Startup was when I talked about, 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 plans? I actually lived through this once. There's a business plan.

Starting point is 00:57:11 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 cheap. Everything's happening just like the plan. Hockey stick to commence. I'm walking at my watch.

Starting point is 00:57:27 And then we just stayed on the flat part into the far horizon. And people would laugh and I'd be like, okay, now, if you're following a startup leader, or you're yourself 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 going to be? and people will be like ha ha ha ha ha and that's like that is a really scary situation

Starting point is 00:57:51 it's like we all have these moments of doubt and 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 people criticize venture financing and all the problems

Starting point is 00:58:03 with the Silicon 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 and the thing

Starting point is 00:58:13 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 try to ask people to do is, like, take them, really take some time to introspect and just ask yourself, do you actually want to be here? If you could magically wave a magic wand 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.

Starting point is 00:58:39 It's okay. You know, it's okay to move on. And 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 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 fact 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 it really goes right to the issue of ego identification for so many people they are their

Starting point is 00:59:10 company and so for the company to die they also must have 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're going to take it or they can take it 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 you do it yourself first, just like, what is the situation? Is it working? Can't tell you how often people just can't accept it's not working. And you get investor updates. 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 update is that you were crushing it. It was absolutely no indication there was any problem. Like, no, of

Starting point is 01:00:13 Of course, it was an indication, but we're just lying about it. So 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 it's interesting. I used to do this exercise for founders where I would tell them the story of IMVU two different ways.

Starting point is 01:00:50 The first way is one in which, you know, we got everything completely wrong and just sounds like we were to 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. Like both stories are true. Like choosing which elements of what actually happened to emphasize and where to put your way, you can tell the story. 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

Starting point is 01:01:25 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 White 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?

Starting point is 01:01:49 I don't know if that's something to boast about. Like, you're calling all your guest liars? And then like, I've hosted a lot of those events. I'm like, oh, yeah, people, people lie on stage. I see. 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,

Starting point is 01:02:05 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 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.

Starting point is 01:02:23 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, in large part, 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 great. It's just like, there's no trade-offs to be made,

Starting point is 01:02:51 where real life forces is 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 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

Starting point is 01:03:15 on his couch at Stanford talking about Facebook, it's a remarkable thing. Some college 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.

Starting point is 01:03:33 And now Facebook's vision is this really ambitious thing. And people are very at pains to say that he always had that vision from the beginning and he talks about it. 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 relatively early on

Starting point is 01:03:51 because 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 spec'd out what we would now call the MVP as well as the longer term vision for the company. And we had this whiteboard. All of us debated what features should be in and out or what should be on the whiteboard. and I can remember writing down.

Starting point is 01:04:15 I have my physical memory of writing down the things that were going to be necessary for the company to succeed in being right. And my co-founder is arguing with me about not having their perspective, they're being wrong. And I'm like, good thing. And I'm like, I can, I can, one of the things

Starting point is 01:04:30 I remember telling the 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 just happened to have got shoved in the closet. Someone pulls out like, what's this? And I looked at it.

Starting point is 01:04:49 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. I mean, it's recognizably in my own handwriting.

Starting point is 01:05:08 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 learn 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

Starting point is 01:05:50 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 hypotheses down, and we subject our things to tell. Like, we do that because human psychology is so buggy. And people who are fighting with their, like, generative AI, you know, chatbots and stuff are starting to see, like, those are nothing but a reflection of human theory of mind.

Starting point is 01:06:23 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've got to put in place a structure to get around them or they're going to destroy it. That is an incredible story. It makes me think about just not like, I think it's exactly what you said.

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Starting point is 01:08:21 So you talked about pivoting, 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?

Starting point is 01:08:37 if they don't keep the vision consistent. So Segment started as a university classroom lecture tool. Loom, which just sold for a lot of money to Atlassian, 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 on Facebook. And Retool started as Venmo for the UK. Oh, that one I didn't know.

Starting point is 01:09:04 I found that out through Twitter, where one of the YC partners replied and shared that story 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.

Starting point is 01:09:18 I think it was a quick pivot. They 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 oftentimes there is a thread of connectivity that from the inside makes sense why we went from this thing to that thing. And it's often something unusual. Like it'll be something like, well,

Starting point is 01:09:37 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 are like, well, I thought your vision was to build a game.

Starting point is 01:09:54 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,

Starting point is 01:10:09 really weird. And part of it is also that 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 they just blew up. Yeah. Or sometimes it blows up so much. You're like, wow, that's amazing.

Starting point is 01:10:30 But oftentimes, like, the new thing will get like 100 signups. and if you'd started with that as your first thing, you would be like, 100 signups, but if you've done 20 things in a row with zero signouts, man, you're like, God,

Starting point is 01:10:41 somebody likes this thing. Like, you know, sometimes it's like, you know, to go back to Facebook all the time, but that's such a famous story that people know it. You know,

Starting point is 01:10:50 in the movie, there's that famous scene where they live in the house in Palo Alto and they run into Sean Parker and he, you know, like,

Starting point is 01:10:56 apparently that's real. And they really were living in that house. They really were working on Facebook. But like, the thing that gets missed from the story is that Facebook, Facebook's already started at that point. It's already being successful,

Starting point is 01:11:06 and they're on the break between semesters on the summer. And Dustin Moscovitz and Mark Zuckerberg and Adam DeAngelo 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 DeAngelo had already moved on from Facebook and decided it wasn't successful enough.

Starting point is 01:11:28 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 he wouldn't get carpal tele it was like they like they were sitting on Facebook and it was like the story I think is I hope I actually asked us that this is true I didn't believe Dustin Moscovett 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 like so insane and was like wow you can be even building Facebook and not know and it's like people like well if I told you that

Starting point is 01:12:01 story without telling you the name of the founder, you'd be like, that's no visionary. I'm like, no, it's Marks talking about. No one has ever accused him of having a lack of vision, but somehow, like, this is true. 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 so connected.

Starting point is 01:12:33 So like if it 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, 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.

Starting point is 01:13:02 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 a much more element of courage than of intelligence or anything else. You're so full of amazing stories, Eric Greece. I never knew this Facebook story. I'm 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.

Starting point is 01:13:32 Not struggling, but struggling. The 2021 vintage is having a rough time. 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.

Starting point is 01:13:48 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 call me sometimes. I want to know if I have product market fit. 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 for like when it's working.

Starting point is 01:14:05 There's no time for navel gazing. There's no time for any. You just, 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.

Starting point is 01:14:23 It's just can you admit it to yourself? Can you do it? The thing, 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, now, okay, can we take six weeks to try to make it work? It's like, we have this assumption. We're going to try to test it.

Starting point is 01:14:51 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 or like you just you can test yourself to do everything you try doesn't work then nothing works it's like Thomas Coon and his is 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

Starting point is 01:15:27 out and the new people replace them. 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.

Starting point is 01:15:50 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 10.65%, then it was 10.65%, then it was 10.657%. 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. So try to get yourself. So you'll give yourself a fixed amount of time on the

Starting point is 01:16:24 current thing if you have to, then if you can't, once you say, okay, the thing's not working, do we have enough time for something new? Can you give yourself six weeks to try the new thing? And it's like, you know, if you're a bigger company, like, okay, 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, or trying to make the new thing work on a deadline. And if you're a small team, I mean, there's only three of you. Can you just put the old thing on pause for a minute and give yourself a fix.

Starting point is 01:16:57 If it was one weekend, it would be better than nothing. Any amount of what can you actually afford? I suppose it was 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.

Starting point is 01:17:27 Why? Well, everyone say, I'm 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 are 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.

Starting point is 01:17:48 Anyway, everyone says the 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 an order. Everyone gets one month. We've got three months of runway left. Well, first month, we'll do the first thing.

Starting point is 01:18:02 Second one will do it. And we'll just see if anything sticks. And then sometimes we'll do that and they're like, I'm just exhausted. I just want to die. If everyone goes around and says, I'll just give the money back. It's okay. Don't die. Let the company die.

Starting point is 01:18:15 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, 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, you know, like, make the structural changes you actually have to make to give yourself a chance to do something you care about. 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,

Starting point is 01:18:49 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 and 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, of course, some people find it terrifying. I think that what I'm seeing so far is that, first of all, people are afraid of AI,

Starting point is 01:19:30 but 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 so everyone's talking about AI alignment. I'd be a little more sanguine about AI alignment if the company's doing the aligning were better at aligning their human intelligences. Because, you know, I'm blanking on whose law it is.

Starting point is 01:19:50 I don't always named laws. So the idea that your software comes to reflect the organization that produces it is somebody's law. Hanway's law maybe. Let's call it Risa's law. No, please don't. I forget who's law. Anyway, that is going to be true on steroids in AI where we're training in machine intelligence and we're transmitting values to it.

Starting point is 01:20:10 Those are 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. 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 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 it affects a startup. At the end of the day, AI is a management technology. The thing it does is manage intelligence and other intelligences. And if you watch,

Starting point is 01:20:43 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 you program the agent and it will be like, okay, the job, you know, you give it a task like 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, these AIs are programmed to never say no. So whatever you say is like, no problem. It'll be, okay, first step, write a business plan for taking over the world.

Starting point is 01:21:11 And I will spawn a new agent with a new AI. 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 oftentimes it'll like, it'll spot, it'll be like the new, the subtask would be like, oh, first thing I need to do is spawn an AI agent that knows how to take over the world

Starting point is 01:21:26 and have it write the business plan. And it'll just, everyone will just 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 comes back,

Starting point is 01:21:37 now that we've learned to research that we need to research 10 more things. Each of those 10 things require researching 10 more. It's like so many ways to go wrong. And anyone who's been a middle manager who reads these transcripts will be like, tell me about it, buddy. Right. I know I was doing an AI agent. I wanted to write me a 30 day course, 30 day on transcript or a 30 day course for teaching people lean startup. Someone had asked me 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 has it work. Dot, dot, dot, continue like this for 30 more days. And you'll have a 30 day course. I was like, yes, because I know that. But could you please fill out the other 30 days? It was like, no problem.

Starting point is 01:22:17 it spawned a new sub-agent. It was like, given these two as an example, please 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 result. It's like, no, no, no, I'm asking you to do that. You know, if you ever watch the Monty Python, no, can't guard him if he's a guard skit.

Starting point is 01:22:38 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, it will, like, really change management a lot because it changes the individual span of control quite a lot. It solves 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, has this many reports,

Starting point is 01:23:08 has this many reports. Like, that's what's required in a way for us to, like, summarize a large amount of information. You know, if you have 100,000 employees, they're having 100,000, doing 100,000 things. The CEO needs to know what's going on. That's really difficult. You need, 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 really easy, you know, 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 that for you. You'll just know. We don't even know what we would like to build

Starting point is 01:23:43 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 who are like, we have to have government intervention to prevent research on this thing or to ban open source. But like for every one of the things somebody, somebody, wants to do. Somebody else is saying that is actually the thing that leads to the dystopian,

Starting point is 01:24:17 right? Banning open source is what leads us into like a corporately controlled, you know, autocracy that's even worse than the thing that you were afraid of. So 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 the people whose startups are failing, like, I want to be working on AI. Okay. For everyone who's got a grass is 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 confirmed it's like,

Starting point is 01:24:46 what should I do that will have a positive effect? It's like, it's actually really difficult to find out something, you know, like 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 a lean startup has been,

Starting point is 01:25:02 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 upon uncertainty? And you'd be scientific, it'd be experimental, it'd be, you know,

Starting point is 01:25:12 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, how do you take ethical action in the face of high uncertainty? And so the framework that I've been using, I found very helpful and I hope other people will get something out of it, is the aperture of possible futures that AI makes possible is so incredibly wide. And like I said, predicting it requires a really deep understanding

Starting point is 01:25:38 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 it's 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 do that you can do about that.

Starting point is 01:25:56 You've got to wait for someone to go find that thing out. The thing that makes 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? That's critically important. We need more state capacity. We need more competent leaders. We need companies who are committed to certain values. Like it just, it changes the way that we think about these technologies

Starting point is 01:26:30 in relation to ourselves as individuals. And that's really my goal, my work here. It's 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 like the idea that most of the work you do in a startup is going to be thrown away after you pivot, so don't do that work. It's like it's not really a special, unique insight. It's 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,

Starting point is 01:27:05 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 a 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 GPT4 was first launched, 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.

Starting point is 01:27:38 And they had like downloaded a list of, you know, 10. 10,000 Shopify stores with metadata, which I Googled. You can buy that for like $100. And then they just told GPT4, the role of Python script for each store. GPT4, please pitch this store owner, something that my like outsourcing company could build for them and be really creative about it.

Starting point is 01:27:58 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 email to see what he had pitched 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 they were in the tone of the store they were like really like they used

Starting point is 01:28:19 clever puns and the issue he was showing so many screenshots of like the person writing back being like you had me it you know blah it was it was very good sales prospecting so okay so obviously like that's like an incredible story about experimentation at a super high rate right like just like 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

Starting point is 01:28:58 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, you know, we've got to make 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

Starting point is 01:29:22 A to 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. If you think about that story, the problem. The problem fundamentally is that you have a massive number of people who could create things for star 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.

Starting point is 01:29:49 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? And 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 the filter completely fairly.

Starting point is 01:30:16 It doesn't matter if I played golf with so-and-so last week or whatever. Just if the proposal comes in and it's credible and the AI is, like, really diligent about making sure it's not spam. Like, then it will bring the thing to my attention. But it won't show me the email. I will be tricked by its clever, you know, Al-Ree-style positioning nonsense. And it will 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.

Starting point is 01:30:39 Like, that is so much better than advertising could ever be. And it's also way more fair. We could 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 wasted time. That actually create a lot more fairness in the world. and like create a really even playing field

Starting point is 01:31:05 for procurement for information. Think about like journalists and pitches. And you just see like so many situations where we've established hierarchical gatekeeping 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 limits are removed, it could be terrible,

Starting point is 01:31:24 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. Wait, so 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 money and profit and build real businesses. And then that obviously connects to long-term stock exchange. So you just talk about

Starting point is 01:31:49 what it is. You're spending your time on there and where you see big opportunities. Yeah, sure. I mean, I think 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 work with the 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.

Starting point is 01:32:17 Why should anybody trust you? What do you mean? Like, you're asking your, and companies are built, 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 to take moral responsibility, are like, I'm just a little database. It's like, can't have it both ways. Money are you?

Starting point is 01:32:44 You like a Superman who's reordering the whole world to your whim? Like, well, you have moral responsibility for the outcomes. And, you know, that's like a hotly debated point right now. But I feel like It's actually super. People have already made it clear in their rhetoric where they stand there. They're just trying to evade that responsibility. So the next gen of founders don't find this complicated at all. We'll feel a real sense of responsibility to make the world a better place. Like the real things.

Starting point is 01:33:07 Okay, great. So you're asking people, you know, like I was, you were 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. You're like, it's unbelievable. You know, actual weather changing. Like the real thing where you're like, we're like, we're going to change the amount of habitable land on the planet and solve famine and drought forever.

Starting point is 01:33:31 Obviously, AI, there's these incredible possibilities and, you know, in nanomaterials and quantum computing. I just go on. There's just so many cool things going on. But they all have really dire consequences. I mean, I'm talking to a really advanced biological AI company where, like, imagine having an LLM, imagine like chat GPT, but for biological compounds. We'd be like, AI, could you just synthesize for me a molecule that has these

Starting point is 01:33:55 properties just described in natural language and it's like sure like that could be incredible like think about the cures and the diseases and 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 your bro man you i've got good intention it's like well what's crap about that you could die you could be replaced some investor could like sweep you. Like I tell you how many stories can I tell you about startups where the investors

Starting point is 01:34:29 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.

Starting point is 01:34:43 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. 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

Starting point is 01:35:12 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 Hippocratic oath. think about, you know, in the U.S., you want to do health care, 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 things where, like, we know how to build structures that are, you know, organized around some purpose. So what should that purpose be?

Starting point is 01:35:42 I was talking to a former Googler. I hate to pick on Google because, you know, that I've always done a lot of good things in the world. But they're like, I think the locus of a lot of tech people's disappointment in the world. And so this is nothing unique to Google, but I just happen to be talking to an ex-goaler. 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, answer me this question.

Starting point is 01:36:02 I'm asking two different things. And 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. What do you believe is the probability that Google will file its next quarterly report on time? He was like 100%. He was like, how 100%. You'd like, as certain as the sun will rise, bet your life on it.

Starting point is 01:36:19 He's like, as certain as the sun will rise, 100%. I agree. Now, second. 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 they probably 100 percent as certain as the sun will rise he's like well no I was like oh really what what do you have it I'm like well come on what if the self-driving cars like 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 we went through that's like I don't think they 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 know. I was like, okay, why is that? We treat that like normal.

Starting point is 01:37:00 Like, of course companies file our reports on something like. But is it because in the human heart of fidelity to finance rules is like hard-coded, but care for other humans in their life is not. Like, 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.

Starting point is 01:37:29 And so my view is that what it means to be a for-profit company, like we've gotten it wrong. So we're 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. Sposonian does a lot more good in the world than the merchants of death at Philip Morris.

Starting point is 01:37:53 So I think we've just gotten confused that making money, 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 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 discriminate math. 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.

Starting point is 01:38:30 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 that possibly be right? We have to find a better way forward. And so like once you, you know, again, going back to a lean startup and first principles, like once you go back to that first principle, say, what would it look like? If every person in a company felt a fiduciary duty,

Starting point is 01:38:51 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,

Starting point is 01:39:02 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, of a supervillain got their hands on it, it would be really horrible,

Starting point is 01:39:11 but also because like, you can easily imagine that 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-sum competition with their neighbor

Starting point is 01:39:21 for the good weather and extort them both for math like that would be just as horrible 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. Like even the ones that are really truly great, you go meet a team.

Starting point is 01:39:57 We had we had the island of freedom. We had the fully full, 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? I don't know.

Starting point is 01:40:12 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'll have 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. I 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. It's like, who chooses the company chose its own board? The board chooses the seat. Like it's all self-referential. And it's like, where did it come from? So right now, we view it as like an accident. It just happens sometimes. But that's because we're not engineering these beings to create the out. that we really want. And I just think that it's like 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 an industry, we need a new movement to say like we are going to build companies where human

Starting point is 01:41:06 flourishing is the thing at the beating heart. And 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 worth a lot more than their competitors because if you're working like if you're without naming the company I talk about a company that is an incredible ethos of love and just like it actually loves their customers it's amazing and that's like 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

Starting point is 01:41:46 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 treat your own parents. People are like, oh, that's actually really easy and clear.

Starting point is 01:41:57 Like, I understand exactly what that means. And so their customer loyalty is unbelievable. You imagine what their retention is like and you actually felt you call customer service and it's like you're reaching your guardian angel rather than some board customer service for up. It's amazing. Like,

Starting point is 01:42:08 so their competitors are like, this is not fair. We have to, it's like unfair to compete with this. This is like a, this like a thing 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 or a company where some of the prosperity you help me generate is reinvested in you and your community? Like, it's a competitive advantage to do the right thing.

Starting point is 01:42:32 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 am mesmerized. I am sold. if people listening are also sold and want to build a company this way. What do you, what can they do?

Starting point is 01:42:51 Is it work with the long-term stock exchange? 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, it's a bit thin. I'm working on it. But we're still trying to figure out the right way. But I am hoping to start doing some events and some things like to talk about this stuff.

Starting point is 01:43:13 so people should feel free to reach out or follow me 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've worked with enough companies. I've actually been around long enough that I've worked with multiple companies that have gone from zero to IPO and beyond. So I 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 we're like, hey, I run this massive

Starting point is 01:43:39 multinational company. Can we like, can we talk about this like very specific situation that's come up? the work. 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 when I'm saying, like, oh yeah, we need to make sure, you know, like here's some things you can do. Obviously, you can become a public benefit corp or a social, what's it called in California, a social purpose corporation. It's like there's legal designations you could take. That's fine. You could talk to a company

Starting point is 01:44:09 of the day that because their startup involves building a technology out of something that comes out of indigenous cultures, they took 10% of their company and they put it in a foundation, the trustees of whom are tribal leaders from the cultures that they erect with. And those people that has like an economic role in 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.

Starting point is 01:44:42 You can build, we call it an LTSPV, 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 V-Corpon version or you ever, if there's ever a situation where it's unclear whether they're in favor of you doing the thing that's right by your stakeholders long term, they're pre-committed to that. And we assign trustees to oversee those shares rather than just the narrow interest of the So like, so I can go on and on. There's like all this stuff you can do.

Starting point is 01:45:11 But I get, so I get companies, I get founders excited. I've been getting as founders excited about this for a long time. I've now been long enough at this that like the 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 then the company's going bigger and they'll, you know, they'll do some financing round.

Starting point is 01:45:27 Each financing around, it's like, is this a time? That's fine. It can just do it there. And then it's like 18 months from the IPO. They fired a CFO and there's like a bankers and the whole thing's 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?

Starting point is 01:45:42 The thing, remember we talked about? You said it was too early? Oh, yeah, I remember that. If we done it? Oh, no, it's too late. It's too late. The thing's on a railway. The shareholders wouldn't like it.

Starting point is 01:45:52 The bankers like, oh, you don't want to put that in your IPO perspective. 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 when 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.

Starting point is 01:46:08 One of the only exceptions I know is a mutual friend of ours who actually stopped the IPO process. It was like, no, I won't file the paper. They tried to steamroll them and file the paperwork without him. And like he said, no, until I see this thing in there, we're not doing it. And it was a very contentious thing. It took a tremendous amount of political capital. I admire him immensely for doing it. But most founders don't.

Starting point is 01:46:30 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 pulmonologist, so I grew up as Philip Morris is the ultimate of evil corporations. But pick your favorite evil corporation. 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.

Starting point is 01:47:09 Believe it or not, 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.

Starting point is 01:47:24 If that doesn't horrify you and make you want to jump out of window, I can't help you at all. And if you don't care, fine, I got nothing to say to you. You don't care, you don't care. There are really sociopathic people in this world

Starting point is 01:47:35 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,

Starting point is 01:47:44 yeah, obviously. And you're like, if I like to prevent that, what could I do? And I'm like, well, your investors might not like it. Investors like it this way because it maximizes their returns.

Starting point is 01:47:53 And you're like, yeah, but I don't, that's not what I asked you. And your lawyer, your lawyer is good enough to know the answer to this question. What can you do?

Starting point is 01:48:02 And if they can't go back and rewind the video that Lenny I just had, I just named a bunch of, of things. You can have two founders preferred shares. You can do all this stuff. Just ask them about some of that stuff. And don't ask them, 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'll be like, the pros are, you know, it might actually like to save your company's soul in a dire situation like this.

Starting point is 01:48:21 The cons are investors. Might not like it too much. And you just be like, just sit there and be like, hmm, 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 mean startup started to. We were like, can you just tell me the one weird trick to keep my company innovative forever? I was like, there's no one weird trick.

Starting point is 01:48:48 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,

Starting point is 01:49:15 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 work together to produce you the being, and the same thing is true for these governance structures.

Starting point is 01:49:31 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 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 say, like, well, but what about this? It's just people like to do the what

Starting point is 01:50:03 about is something too much. And also, I like to let company speak for themselves. You know, I, I, I, I'm way too much confidential information and I just have to be really careful about it. But nothing I'm describing here is hypothetical or unreal. Like, I have witnessed this many, many, many times myself. And every story I tell, it's like, it's a real company 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, 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.

Starting point is 01:50:37 So there's like an inverse proportion to the loudness and controversy and meamness 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 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 governance system, which is

Starting point is 01:51:20 part of the old Japanese Koretsu system where the Toyota family is interwinded 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, everybody who's studies to 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. And like, oh, that's weird. So for a while, I was like, oh, I guess it's just Toyota. We should build more Toyota's. But then like,

Starting point is 01:51:50 there's always 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 hottest new thing. Open AI is a nonprofit foundation. with a wholly owned for-profit subsidiary. I thought that was like, wow, open-ass-over-like, that's actually very common. There are a lot of companies like that in the world. In certain European countries, it's actually like 20 or 25% of the companies, like public companies are all structured that way.

Starting point is 01:52:18 So it's actually like to where we normal. And I did a talk for one of those companies a few years ago. And it like blew my mind because, you know, when I would go there and talk to them, I was 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, well, we don't do that. I was like, oh, is that a major source of competitive disadvantage? You know, you guys are a nonprofit?

Starting point is 01:52:38 And they're like, are you kidding me? We crush our competitors because they have to waste time on all that stuff. We'd always time on it. I was like, oh. And then like, anyone ever heard of Warren Buffett? And why did his companies have a competitor? Like, he was always like, oh, if you're giving up profit, your investors, I like it. I'm like, these companies are just, are world destroyers.

Starting point is 01:52:57 What are we giving up? That's why I go start with the wrong definition of profit. But we're 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 worked with many of Amazon. I've worked with Amazon. I've worked with many of their competitors.

Starting point is 01:53:15 And like the funny part where the competitors sitting there, they're like, oh, man, Amazon's entering our market. We need to do X, Y, Z? And I'm always like, do you think Amazon's doing X, Y, Z? And they're like, oh, no, they don't have to do that stuff. We have to do all this bullshit that our investors require and the activists and whatever. And I'm like, it's like, well, if you're competing against them, they don't have to do that crap, maybe you should try doing it their way and be like,

Starting point is 01:53:34 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 primacy 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.

Starting point is 01:53:55 And it's like been going on for 150 years. And these case studies go back to the 19th century. is an old, old, old idea. And the solutions are actually all hidden in plain sight. So I was reading a research paper the other day that studied some of these, I think it was in Denmark, foundation controlled companies versus level matched public companies that are not foundation control. And the foundation controlled companies outperformed from a financial performance perspective.

Starting point is 01:54:18 And I was like, how is this not the most incendiary result ever? If this is true, so much of the indoctrination we've all received about what it means to be a four profit company, just wrong. because those companies should be riddled with slowness and agency problems. And I can tell you, 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 these foundation control companies.

Starting point is 01:54:42 I've been to Hershey, which is controlled by the founder donated the shares to a foundation that runs a school. Like, I've been to the, 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 well known. And yet was never offered to me. How come no one ever offered me the chance to build a company this way? And if you study even OpenAI or any of these companies that are now structured this way, it's always very idiosyncratic.

Starting point is 01:55:09 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 thing at the center that is responsible for the soul of the overall ecosystem of companies that is the enterprise. And you can see that, you know, obviously in the Open A example, if anyone has studied the anthropic long-term benefit trust, it is not coincidentally structured that way.

Starting point is 01:55:42 But you see lots of examples where 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. And founders like start crying with me where they're like, this is what I always. 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

Starting point is 01:56:08 this. And I want that to be the thing. I was saying to a startup who's trying to get, and again, it's not like a kumbaya thing, you know, do good or whatever virtue signaling bullshit. Like, 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 one of the most difficult recruiting challenges there is because you're talking about kids out of some school. It's 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 ask is like, how do I know this technology is not going to

Starting point is 01:56:43 be used for you? Because I like, 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 who'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 this sit down with their lawyers. What do I have to do to make this promise real for these people to make them want to join? And 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 insoluble business problems. So it's it's cool, but I think it's scary to feel like they're doing something different.

Starting point is 01:57:23 And so I think over time we'll get more of these stories on the record. We'll get more people will have, you know, there'll be more precedent for it. But I got to say, just to not to harken back to lean 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'd 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 know, look back on who was profiled in those books. Like many of the early lean startup adopters are like very successful people today because they didn't feel like they had to.

Starting point is 01:57:53 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 bad idea in way 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 it was going to be the longest episode we've done yet, which is amazing.

Starting point is 01:58:22 also I think it might be my new favorite episode. So that's a good conversation. With that, we reached our very exciting lightning round. We'll see what lightning, what sort of lightning we find. 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.

Starting point is 01:58:41 That is just a hundred years of people trying to fix this problem and failing and like the detailed case studies. And like no founders 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 willing to talk about their regrets on their deathbed that they, like, wish they had done differently. And it just, for those who think there's one weird trick that will help disabuse you of that notion, but it's, it's helpful to understand the mistakes that been made before so that we

Starting point is 01:59:08 can do better going forward. On a happier note, I really want more people to read Ken Luz, 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 into a totally different environment it's just such a great such a great read the audiobook is really good um also and i've been kind of plugging that plugging that lately and then if you want just something that's like pure fun you know it's not really this season for summer read but like and also a really good audio book is the murder bot

Starting point is 01:59:45 diaries by martha wells she's just such a great writer and um I know 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 think I would say it would be a spoiler. But there's actually like a surprising amount of depth for what is really just a fun action adventure, kind of read. I can't wait if I hope it is someday made into a movie. It will be, if they do it justice, it will be really terrific. What's a favorite recent movie or TV show? I really have been, I don't have time anymore.

Starting point is 02:00:16 I have a young kid. So my media consumption days are extremely, 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 good for a Disney Plus Star Wars show. It's like actually good for television, 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

Starting point is 02:00:45 comparing it to that bar. And that's the problem. It's just like, if they would just make that, creative team or they would just let them make shows, it would be okay. It would redeem all the rest of their failures. They would just keep making equals. 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 to really get into it. Like tell me the story of how you learned the best practice.

Starting point is 02:01:12 Like how, you know, whatever. And you just let them go on. And then you'd 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've recently discovered that you really like, whether it's an app or something physical?

Starting point is 02:01:29 I was just singing the praises of a product to a friend. It's the most boring and stupid product ever. It's just a humidifier. And you'd 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's all these little attention to detail crowd. we're talking about craft. It was on my mind. It's like a very humble appliance. And it's actually like, I've gone through like 10 different models trying to find something that doesn't drive me.

Starting point is 02:01:57 But you're like, you want to run it at night. If it has a light that's on all night, that's really annoying. If it makes a noise, that's no good. If it over. 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, so interesting in modern capitalism. There's so many categories where there just, there isn't a product like that or there's just one. You're like, how come every product is not like that?

Starting point is 02:02:23 And, you know, the forces we've been talking about are the reason why. It's funny to see it like, you know, it represented in such a humble object. What is the actual humidifier that you found? It's the Levoit 300 S, ultrasonic humidifier.

Starting point is 02:02:36 Levoit 300 S. It's like, it's just a really well-made $60 appliance, you know? It's nothing special, but they're about to see a spike in sales. Good. avoid. Somewhere, somehow there was a product management meeting where they talked about how to make this thing. And so 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

Starting point is 02:03:01 bottom? Let me put it on the top and let me put this in there and put that in there. And someone was like, oh, who cares? That's going to add three cents to the cost and reduce our margins. And someone was like, no, really think we should do it right. So we'd like to reward people. Yeah, and this is going to take us off topic potentially. But I've just thinking, I've been thinking more recently about how most often in the best stuff comes from just like one person's singular control over how to do that thing over and over and over. Yeah, there's actually, if you study Twitter production system, they had this job that's called the chief engineer.

Starting point is 02:03:31 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 I 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 the days when people were writing a lot about Toyota,

Starting point is 02:03:49 inside the company, the car is not called a Toyota Camry. It is called so-and-so-sans car. And the thing about the industry of engineer is they have no reports. Nobody works for them. They just have like the, they have what's called the big room,

Starting point is 02:04:04 if you've studied that whole thing. Like there's like a place where they are and they have a small staff, but like they have the design and the car. And like anybody, 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 eventually like there were people goes back down.

Starting point is 02:04:20 The most important thing you have to do in a product is make tradeoff decisions. And if you just let people make their own tradeoff decisions, it's totally different. 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 aerodynamics of the thing by this much, but it will cost this much. and it will 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.

Starting point is 02:04:54 Like you just need someone who knows that thing. It has to be that you can keep it in somebody's head. So yeah, call the chief engineer. Just when I 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. Yeah, it's very much missing in most company structures.

Starting point is 02:05:10 All right. Two more questions. Do you have a favorite life monies? that you like to repeat to yourself, share with folks, something that you come back to often that helps you do the right sorts of things. Well, I won't get into the whole explanation. The motto is that nothing real can be threatened and nothing unreal exists. Although the whole other episode, just unpacking that.

Starting point is 02:05:33 Amazing. Final question, you invented a lot of terms, a lot of concepts. Is there one that you don't think caught fire and that kind of spread as much as you thought it should. Oh yeah, yeah. I got tons. I got tons. I mean, the cutting room floor is full of so many things. I went through a really extended period of trying to use, but it was before Lean Startup, I tried to use the cell biology as the metaphor for a startup. 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 work. But I'll take the one that surprised me the most.

Starting point is 02:06:06 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, I couldn't get the stick. So everyone knows viral loops. There's also engagement loops. And I was like, oh, just like we have viral loops, which is about 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 you, 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 flow through. And a version that is in the lean startup, we have what I call the law of sustainable growth, which is a

Starting point is 02:06:46 situation where new customers come 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 engine of acquisition where you have, you know, where your marginal profit per customer drives your ability to invest in customer acquisition. But there's also what I called the sticky engine of growth, which is kind of like the vestige of this idea that made it into the lean startup. But I actually think that that's a whole really interesting thing where like if you think about it, 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,

Starting point is 02:07:23 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 PayPal's you've got money click here to take the money it's like has a very high click through 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 something happened if it's not one of those two things then it's got

Starting point is 02:08:01 to be because of positioning something in your brain on its own told you to to use that product. 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 don't know what had to tell you like doing it. Or something happened in your life that like made you need. You're hungry.

Starting point is 02:08:22 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 thought I was a time when I thought engagement loops would make me way more famous and lean startup ever would.

Starting point is 02:08:45 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. Yeah, yeah, yeah. Yeah, so wow, we discovered another one. I imagine there's many more. Eric, this was incredible. I definitely think this is my new favorite episode.

Starting point is 02:09:05 Thank you so much for being here. Two final questions, where can folks find your line if they want to reach out potentially? And then how can listeners be useful to you? You still find me at the lean startup.com. I'm at Eric Reese, E-R-I-C-R-I-E-S on all the usual places, although I really don't do a lot of social anymore. So like joining my mailing list at the Lean Startup.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 social from sometimes to make some announcements. And if you want to reach out, I'm just Eric at the Lean Startup.com.

Starting point is 02:09:34 How can listeners be useful to you? Oh, that's really sweet. 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 happens. 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.

Starting point is 02:09:50 I thought they were like the stupidest thing they ever heard of and like doesn't work and they're mad and whatever. 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, 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 answers.

Starting point is 02:10:15 Let me know. And, and if you don't try, then how you're going to discover anything new. So just, you know, every day I meet people who are like, who just heard about Lean Startup for the first time. For me, it's so old that like every day that people read the book for the first time and they're like, they have a question about it. So like, that's where you're at. And you just discovered it. Like, excellent. You know, I've, I read a couple books. You can go read them like please for those ideas if you're someone who's like jaded and they're like oh i'm so tired of hearing all at 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 you does work or you know like

Starting point is 02:10:49 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 ask is you tell me what happened i want to learn 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 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,

Starting point is 02:11:18 like 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 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.

Starting point is 02:11:36 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 that, but like what do we as a group? What are our shared and collective values?

Starting point is 02:11:48 And how do we make those manifest in the world? Let's leave you with one last idea. We collectively have so much power. It's crazy because the system, the way it works down, what I've learned about our current, you know, what they call late stage capitalism,

Starting point is 02:12:02 financialized engine of capitalism is that it is value destroying in so many ways. And although markets discipline companies and they require them to create more value than it's destroyed to stay alive, new companies, the ones that we built are so valuable. Like the core insight that makes a thing 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 companies, public companies, they just look at average CEO tenure. Like, any, all the metrics you look at are really grim here.

Starting point is 02:12:36 Like, we're destroying companies faster than we create them. Such as the, 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? 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. So 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.

Starting point is 02:13:06 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 I might. values are the ones that should win out, but I do think that we do have a certain shared set of values that we ought to be more ardent in defending. And I hope your listeners will take that to our. And beautiful and empowering way to end this. Eric Reese, thank you so much for being here.

Starting point is 02:13:45 My pleasure. Bye, everyone. Thank you so much for listening. If you found this valuable, you can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. Also, please consider giving us a rating or leaving a review, as that really helps other listeners. listeners find the podcast. You can find all past episodes or learn more about the show at lenniespodcast.com. See you in the next episode.

Lenny's Podcast: Product | Career | Growth - Reflections on a movement | Eric Ries (creator of the Lean Startup methodology)

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