We Study Billionaires - The Investor’s Podcast Network - TIP 119 : The Lean Startup by Eric Ries (Business Podcast)

Starting point is 00:00:00 We study billionaires, and this is episode 119 of The Investors Podcast. Broadcasting from Bel Air Maryland. This is the Investors Podcast. They'll read the books and summarize the lessons. They'll test the waters and tell you when it's cold. They'll give you actionable investing strategies. Your host, Preston Pish and Stig Broderson. Hey, hey, hey, how's everybody doing out there?

Starting point is 00:00:30 this is Preston Pish and I'm your host for The Investors Podcast and as usual, I'm accompanied by my co-host Stig Broderson out in Seoul, South Korea. And today we have our very, very good friend with us. And that is James Muralski. And for anybody who doesn't know who James is, he was on one of our episodes, I don't know how many episodes ago. James, you remember 30 episodes ago? Yeah, somewhere around there. It was a long time ago. He filled in for one of our mastermind discussions.

Starting point is 00:00:59 And so if anybody does know who James is, James is really part of our close-knit circle here between Stig and myself. Because James is the core programmer who's really running our entire site. And he's also working on a lot of other things on the side. That's areas where we're trying to expand our business. And so we read a book that kind of relates to what the three of us are really trying to do with our business. And we felt like this book really related to all three of us. And so that's why we all read it together. And we wanted to come on the podcast and talk about it together.

Starting point is 00:01:33 And the name of the book is The Lean Startup. And this was by Eric Rees. And the reason we picked up this book is, I know Stig has been kind of chatting back and forth with Eric a little bit. But another reason that we wanted to read this book was simply because anyone out there ever see these Visual Capitalist website. It's a really awesome website that puts up these pictures and kind of graphically displays all these different economic charts and things like that.

Starting point is 00:02:00 One of the things that they recently did was the most cited books overall in Silicon Valley by different billionaires and CEOs. And they showed how many times these different books were referenced. And the top three books that were referenced, the first one was the hard thing about hard things. That was the first one. The next one was zero to one, which Stig and I have done a podcast on, oh boy,

Starting point is 00:02:24 it was probably like episode two. Yeah, I want to say it was the very first book we did on the podcast. The next book that was highly referenced was The Lean Startup by Eric Rees. So we picked this book up. Stig, you read it a while ago, right? Or did you just recently read it? I just recently read it. And it's one of those, you know, buswords kind of books like everyone talks about it.

Starting point is 00:02:46 And I also want to say it's because I reference the hot things about hard things as well with this one. And I really didn't like that book. So I guess that was probably why I was a bit hesitant to start reading it, but I just read it and I really enjoyed it. And it's nothing like the hot things about hot things. It's a very different book in my opinion. This book is broken down into three different segments. So as we go through this today, the first segment is part one, which is vision, part two, which is called steer, and then part three, which is called accelerate.

Starting point is 00:03:18 So Stig's going to take it away with the first part, which is vision. There's a few high points and a few concepts I would like to talk about, but I think the most important one and really the core of the lean startup, that's the concept of validated learning. And validated learning is a very powerful concept and it's a very simple concept too. It's all about learning what is it that your customer wants, because basically that is what you need to do. And the way that most of us plan our business and plan on work, that is that we have these hypothesis in terms of what is it that we think our customers would like to have. But we don't

Starting point is 00:03:55 necessarily go out and test it and ask people what they want. And there's actually a method to do that. And another thing is that it's a lot cheaper to set this up at the very beginning if you know what they want. So let me give you an example of what we're talking about here. And one of the great examples in the book that was about Sappho's. And people might remember Sapphoes from one of the episodes we did called Delivering Happiness. It was the billionaire Tony Shea, who talked about his shoe company originally was a shoe company, Sapo's. And their thesis was that people would like to buy shoes online, which was at that time was pretty out there because you really didn't have that many options in terms of that. And you have this idea that people wanted to

Starting point is 00:04:36 try the shoes on first. Why should they buy it online? And they wanted to test that because clearly they didn't want to set up like a big company online and then perhaps people wouldn't buy the shoes in the end. So actually, this was just started as one guy with a great idea. So this one guy, he started to take pictures of shoes in the stores. And the way that he made this arrangement with the owner of the stores was that if someone would buy the shoes online, he would go back to the store and buy the retail price. So you might be thinking, that sounds like a awful business model. Like he would go in and like real store and buy that shoes and then ship that to a customer somewhere in the U.S.

Starting point is 00:05:17 But actually, it was not about profitability at all. It was about testing whether or not people would be willing to buy shoes online. And people love the idea. And this is basically what we're talking about with validated learning. Because action tells us so much more than, say, a survey. It's really like how people react when they are making a buying decision. That's really one of the keys here with validated learning. So I had a friend I was talking with recently, and he was wanting to start his own online business.

Starting point is 00:05:49 And he was running the idea, kind of the general business model passed me on how he thought he was going to implement it and how he was going to build out a site and everything. And I said, well, you know, before you invest all that time and capital really developing a site and figuring out, you know, what the customer wants, what the people that would be working for you, because he was kind of setting up this peer-to-peer model. online with the way you wanted to do it. I said, why don't you just set up a one-page site with a video that basically describes what the service would do, not that it is actually happening, but what the service would do, and figure out if there's actually an interest in clicking through and actually signing up for an account. Now, you don't even actually have to have something behind that, but just to see what kind of interest would exist. And I said, you could go on to Google and do AdSense and run it to that one pager,

Starting point is 00:06:42 because you're not going to have any traffic with something like that. But you could run traffic to it and then test out your idea and see if it works. And this is exactly what Stig's really getting at with the example that he's talking with Zappos is, before you invest all this capital up front and all this time and energy and everything else behind what maybe your ideas, maybe just run it and see what kind of customer out there. What are they looking for? Pinpoint it and do it at a really low scale that costs you almost nothing to validate the idea. And this is what he's getting at with the lean startup.

Starting point is 00:07:14 With this vision, where do you start? Yeah, I think that's a great point to kind of piggyback on what you're saying. When I first heard about this concept, I almost felt like it was maybe, I felt compromised, right, about, oh, man, we're kind of fooling the customer, right? Or we're kind of fooling in the thinking that this is available and it's not actually available. But as I understood the process more and as I thought about it more, you know, it really is a win-win for both sides, right? Because moving forward, you're not going to spend your time wasting all this time and energy, right? which you already kind of highlighted on building whatever the product they need is. And in the end, right, they're going to get what they want and you're going to spend less time building that product for them.

Starting point is 00:07:49 And who's to say that you can't have when the person would maybe click through something that they'd have an email sign up? It was like, hey, this product is not yet available, but whenever it is, we'll let you know. I mean, there's many ways you can go about this. But I think the important part is how can you optimize your time? How can you find out what the customer actually wants? and then how do you build a product or a service around that desire so that you can meet it and meet it with all the full intent that you plan on putting into it? Yeah, and one of the discussions that I really enjoy about this validated learning is that

Starting point is 00:08:23 it agrees the author of the book. He talks about how typical engineers, they would sit and debate back and forth in terms of which features they would like and then spend a lot of times building those features because that is for them, like, the better product we can create, the more we'll basically sell. And this approach is all about turning the tables and then asking, we don't necessarily want, like, the coolest features. Because what the coolest features for the engineer might be also the most complicated to apply for the user.

Starting point is 00:08:52 So it's basically, as you're saying, James, you're not fooling anyone here. You're actually tailor-made to the people who's going to use it. But I definitely also see your point, James, where you're talking about, is this really, a question about sending out a bad prototype or a product that's really lacking the adequate quality to send out to a broader market. Is that really what we're using? Is it like on the fly testing? And it's not. It's actually not at all. So as we're talking about this idea of really kind of validating the customer requirement, I just want to tell a quick story of something I learned a couple years back. So I went through Lean Six Sigma training and I got my Black Belt and Lean Six Sigma.

Starting point is 00:09:30 We've talked about it a little bit on the show with Jack Welch and that, but you're really trying to optimize a process and you're trying to cut all the variance out of the process. But one of the most fundamental and core things that you learn in this process is all about reaching the customer requirements. So let me tell you how I experience this firsthand. So they have a scenario that they put all these people through that go through this Lean Six Sigma training. And what they do is they take all the people in the class and they line them all up. And then let's just say there's 10 people in this example. And each person has a task that they're supposed to do. And for one of the examples of one of the times I ran this exercise, we were building

Starting point is 00:10:09 paper houses. I know this sounds crazy, but listen to the whole story here. So we were building paper houses. And the first person's job was they had to cut the piece of paper in half. And they had to do it within a certain specification. They had to cut in between a line. There was two lines. You had to cut in between them.

Starting point is 00:10:25 The next person had to fold it, tape it, put it together. But at the end of this assembly line, each person had a little part. And at the end of the assembly line, you'd have like this paper house that you would then hand to a customer. And then the customer had a pre-written script that they had to go by. And they had to inspect it based off of their own specifications. And if the house wasn't within their specifications, they had to decline it or accept it. And so there was this defect rate that we were producing in this scenario, of this process.

Starting point is 00:10:55 And what we learned, after we went through it, you know, the one time I did it, we had like half of the houses were defects, the other half were accepted. But what we learned and what the teacher taught us, which is something I'll never forget, because this is so vital. He said, okay, so what are the requirements that you're supposed to have? What is the customer accepting this by? And so as the people who were making these houses, we said, oh, well, it probably has to be in between the lines. When we cut it, it has to be this. And we had all these ideas of what we thought the requirements were. But at the end of the day, we didn't know until we actually asked the customer.

Starting point is 00:11:31 And we said, well, what is it that you're looking for in order to accept it or decline it? And the person who is acting as the customer, they said, well, I'm not even looking whether you cut in between the lines. The only thing I'm looking at with this respect is whether this tape was lined up correctly. And I know that this scenario might sound like it is not really important. But when you take this and you apply it to real life, there are people out there that don't require your product to do certain things. There is a service people are paying for where they don't require you to do certain things. And what you have to do is a person who's making a new product. You have to figure out what is it that they want and what is it that they don't want?

Starting point is 00:12:12 Because when you know that, now you can optimize things. You can cut things out, which saves you cost because you're doing these things that cost money. When you cut those out and you only give the customer exactly what it is that they want, you pinpoint it, you reduce the cost and you optimize your profits. And that was a lesson that I will never forget. And it is so vital, you have to know what your customer wants. Let's take a quick break and hear from today's sponsors. All right.

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Starting point is 00:16:48 You know, the whole, I've seen products that have been built, and I've seen months and months and months of development time thrown into that. And then the product's out there. It's launched for three or four months, and it doesn't really get any traction. So it's just kind of scrapped, right? And you see all this development time put into that. And it's a really, really sad thing to see. So I'd like that this framework really gives some justification to adjusting that mindset

Starting point is 00:17:13 and really starting to get people to think a little bit differently. Yeah, and Eric actually comes up with a really interesting way of approaching this. He's saying that if something is working out, it's typically like the product development department that would say, oh, it's because we have all these cool features. And then the marketing department would say, well, it's probably because we were launching it really well. Whereas if things didn't pan out, it was who was to blame now, right? So the marketing department didn't do as good a job communicating the product, or

Starting point is 00:17:43 they would tell the engineers you didn't have all the right features. instead of basically just starting and asking the customer at the very beginning, saying what is it actually that you want? And it's just really, really hard to do when the product is already developed. And it's actually quite simple because you're already anchoring people's mind to what kind of product that they want whenever you have made a full product launch. Instead of just starting with that instead. So I think it's a really good point that you have there, James. And I think everyone can probably testify that they have falling into that trap. Yeah, it's easier to sell something, somebody that they want, right, than it is to try to convince them that they want it.

Starting point is 00:18:22 Unless you're Steve Jobs, right? There's a few of those guys out there. But a really great discussion, guys. It really takes us to the second part of the book. And the second part of the book is called Steer. And the intention of this part is to figure it out so what is really that we should be focusing on. So the first part that was more about the vision, more in terms of laying the foundation, now that you have someone of an idea of what your customer wants, how do you steer your organization

Starting point is 00:18:49 into the right direction? And I think the main concept really to understand from this segment is the build, measure, learn feedback loop, this is called, let's just call it the feedback loop. But it's all about getting to that feedback loop. So how can we learn the fastest way so we can improve our product? That's basically what this is about. Yeah, Stig, that was a great point. when we're really talking about this build, measure, and learn feedback cycle, it's really important to get through that as quickly as possible. And I think it's also really important to highlight, how do you determine what these three pieces are? That's definitely one of the things that they

Starting point is 00:19:27 discussed in the book. And you kind of have to tackle it backwards. So you start with a learning piece and you say, okay, well, what metrics can we add to our solution to be able to track and answer these questions that we have. And then once you figure out what those metrics are, there's a couple different categories, which they talk about, they talk about actionable metrics, right,

Starting point is 00:19:51 versus vanity metrics. And I think those are very important components. But once you define what those actionable metrics are, then you can understand, hey, what do we need to build in order to be able to collect these metrics, right? What do we need in our solution that will enable us to measure the metrics, right?

Starting point is 00:20:08 Which then answer the questions that we were trying to answer, in the first place. So the thing that I really took away from this section and just from my background with doing this in different projects is part of the culture with this is that you should never, it's not like you go through this cycle and then you complete it and then you're kind of done with it and you never look at it again. The culture is that you continuously are constantly looking at new ways to improve the process,

Starting point is 00:20:38 new ways to update it, new ways to measure. it. And it really is a cycle that should never end. And it should be built into the mindset of everyone who's working on your team that just because you fix something and you feel like you have an optimal solution, that it doesn't stop right there. So I'm going to go back to the paper house scenario. So in that story, you know, the first time that we built one of these little paper houses, you know, it took 15 minutes or 20 minutes to go through the whole process. And then after the scenario was done, you know, the instructor would say, okay, now let's see how we could optimize this process. Where was your value added steps? Where were your nod value added steps?

Starting point is 00:21:19 How can you cut these in? How can you add more things? How can you realign your workforce so that you can actually produce more at a faster pace? And you come up with what you think will be a better scenario. And then you run it. Then you run it again. And so at the end of this, you take something that was literally taking you 15 minutes to do one paper house and you're able to turn that around to a 45 second task with zero defects because you went through this iterative process and you came to the solution. And the one thing I really remember from my master black belt that taught me, you know, after we got this down to like 45 seconds, I went up to him, I said, that has to be the

Starting point is 00:21:56 fastest you've ever seen anybody do it. And he looked at me, he says, are you kidding me? He's like, if I gave you guys another five tries, you could probably get it down to 15 seconds. And in my mind, I'm thinking, that's impossible. That's physically impossible. but he was dead serious. And so that's the culture and that's the mindset.

Starting point is 00:22:12 And I think that that's really important for people to understand that when you're going through this and you're optimizing a process around customer specifications and you're trying to optimize that, you should feel like the job is never done. And I think that's a really important takeaway. Something else that I wanted to highlight is your idea on measuring. A lot of people, when they start going through this, especially when you get around qualitative type things, the initial. Initial inclination of a person to say, oh, well, that's impossible to measure.

Starting point is 00:22:41 So let's just go on the next thing. What could we possibly measure? If it doesn't have some output from the computer, then we obviously can't measure anything is how a lot of people think. And you have to get out of that mindset. You have to come to the idea that you can literally measure anything. That might mean you go to customers with surveys. That might mean you go to employees with surveys. I don't know.

Starting point is 00:23:03 But you have to figure out a way to somehow quantify things so that you can collect as much. much information as possible, because that's going to give you the clues and the tools to go about fixing it and optimizing it in the future. Yeah, and I definitely think that the entire discussion about how to measure things and with metrics to measure in the first place, that's really interesting because it agrees introduces the concept of innovation accounting, which seems pretty much out there the first time you hear that, but basically he has a great point because he's saying that if you look at traditional financial statement metrics, you might coming up short. And he came up an example for a company

Starting point is 00:23:43 that he was consulting. And he said that the company simply couldn't understand why their top line wouldn't grow. And this was a software company. And he said, so which metrics are you looking at? Well, you know, they were looking at the total amount of users. And then they were talking about, like, the price. And they have the same amount of users and they have the same price. So therefore they have the same top line. And then Eric Gris was asking them, why don't you measure how many new signups you get per month and how many people that leaves? And it actually turned out that 39% of the users were new users, but they were typically

Starting point is 00:24:19 be leaving without a month, even though they were paying customers. So just by measuring that, two good questions came up. Well, the first one was that why is it that we get so many new signums? What is it that we're doing right? How can we perhaps improve that even so? And why are we doing it right? And then the other was, why are people leaving again? Are we not making our product sticky enough so they will stay with us so we can actually

Starting point is 00:24:44 grow? And that's just an example of when you have the right data, you can make the right decisions. And the feedback loop is about setting up the processes so you can have the right data to make the right decisions. And that was really something that really resonated whenever I heard that. I mean, thinking outside of the box in terms of accounting actually really pays off. So a very, very interesting discussion. James, is anything you would like to talk about in particular about Section 2?

Starting point is 00:25:13 Yeah, one of the concepts that they introduce is, there's a couple of things, right? One of them is the MVP, right, which is this minimum viable product, which a lot of you probably definitely heard about before. And as you're developing your MVP, Preston mentioned earlier, right, it's really important to try to get feedback based on a really really. truly a minimum product, right? It may not even be developing something that users can interact with. It may be just drawing something on a piece of paper, right, and getting that feedback. And ultimately, the reason that you're doing all of those things so that you can have a discussion

Starting point is 00:25:43 at some point in the future about it's time to, you know, what they would call pivot or persevere. And, you know, pivot is when you take the product that you're working with, you're analyzing the data that you've gathered, and you have to come to maybe some heard conclusions or things that are difficult to swallow. If you've gathered the data and it's just not working well for you, then you may have to take your application and maybe kind of pivot the application to a solution that consumers do want. So it may not be your initial vision, your initial leap of faith that you've defined. There may be another direction that you can kind of head. And that's what the whole pivot meeting and discussion is about. Or maybe the data that you're gathering really provides you

Starting point is 00:26:22 the insight that says, hey, you know what, we're on the right track. We're going to keep going down this path, and that's where you kind of go down the perseverance path. And the whole concept about pivot something, it's really fundamental. And I think it's important to stress that because you're really testing a fundamental hypothesis for your entire business. And it's really, really hard to do because you already invested so much time and energy in doing what you're doing. And one of the examples that was in this book was the company Wealthfront.

Starting point is 00:26:51 And I don't know how many people that know with Wealthfront. They're in asset management. But there was not how they started out. It actually started out as a computer game. And I know this might sound weird, but they had this underlying thesis that they would attract a lot of different gamers to play this game. And then based on that, they will find the best asset allocators. And also they had this idea that when people figured out that they probably didn't make

Starting point is 00:27:17 that much money in the financial markets, they will probably allow the better players in this game to allocate the capital. That was the fundamental hypothesis for this business. And to begin with, Wolfrand really got a head start. They had more than 400,000 players. And it was all free game, but they was really thinking, like, yes, I really figured out how to break into this. Now, the problem was that they needed to turn into a paid model one way or the other.

Starting point is 00:27:46 So they were asking, well, how many people would like the best players of the game to allocate their capital for them? And it turned out that of the 400,000 players, only 14 of them were willing to be paid members, which clear was way less than expected. And another thing was only seven people in this game out of 400,000 was actually skilled enough to actually handle other people's money. And they didn't even know if they were actually interested in doing that. So basically, they decided to pivot. They decided to start all over.

Starting point is 00:28:19 The thing they realized was that they had developed really great tools of, identifying the best managers or the best capital allocators. I mean, that was really still what they know how to do. But the entire setup in terms of how to attract customers, which has been extremely costly for them, they needed to scratch all that, simply because they were testing the fundamental hypothesis. So let's go ahead and transition to the third part of the book, which was accelerate. So in this section, one of the things that he talks about to really kind of allow your company to break through and start to accelerate, is this idea of the five, why? So the example that he gives in the book, he says, let's say that a company was receiving complaints about a new version of their product and a feature was missing.

Starting point is 00:29:03 So the first why you'd say is, well, why is the feature missing? And the answer might be because the server had failed. And so then if you go to the second why, you might say, well, why did the server fail? And then the person might say because an obscure subsystem was used in the wrong way. So then you'd say, well, why was it used it in the wrong way? Then the person might say, the engineer that used it didn't know how to use it properly. Then you'd ask the fourth time, well, why didn't they know how to use it properly? Then they'd say, well, because he was never trained.

Starting point is 00:29:32 And then you'd say, well, why was he never trained? And then because managers don't believe in training new employees because he and his team are too busy. So when you start digging down the path and you start digging down this hole, you can see that maybe the issue is a training issue. and that may be because the company doesn't have a policy or a training program part of the company, that that might be the root cause of why it failed. And so the person who doesn't go this deep, they might just go and replace the server or upgrade something that isn't necessarily the root cause of what's going on. But when you go five wise deep, what you're actually getting at is the root cause

Starting point is 00:30:13 and you're able to stop the issues that are causing those failures of whatever it might be. And I think that this was something that is really important for people to apply in anything that they're doing with their business is they're trying to hit that accelerator in the direction that they're trying to go. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform. So whether you're prepping for a SOC 2 or running an enterprise

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Starting point is 00:33:42 and other information can be found in the income funds prospectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. And one of the key things here is that it's actually very difficult to implement. I mean, this probably all made a lot of sense whenever we're just talking about. You should just ask why.

Starting point is 00:34:03 But if you think about it, asking the question why is actually, it can almost feel like you are provoking that person. So let's say that Preston would say, let's do a podcast about this stock X by C. And I would just ask, you know, why? And Preston would mind ask, I think it's really interesting because this and this happened. Why? You can always really feel that someone would get really mad at each other pretty soon. So it's about having a culture where it's okay to say why.

Starting point is 00:34:34 And the way that this is explained in the book is that you should have what he calls a five-wife master. So basically you should have a person on the team that has the authority to ask why. And it should always be taken the best possible way. I think from this like an overall level, it seems like really interesting. But I think I would challenge everyone to sit at the meeting and keep asking why. And I think you probably experience a lot of friction. Especially coming from a corporate culture, right? It has to be acceptable and it has to be okay to challenge problems and address issues.

Starting point is 00:35:06 Not just from one person, right, but from everybody that's in the room. but you really have to have that one leader, right, that's driving that conversation. Make sure that everybody doesn't get sidetracked and start going down these tangents about this problem or that problem. I have to stay focused and really say, okay, so why did this happen? Why did that happen? I think it was a great example thing. So one of the stories in the book that I really like was about batching. So he provides this example where two people were licking envelopes and putting stamps on them and basically like assembling a letter to mail.

Starting point is 00:35:39 And he said, you have a dad and maybe a son will call it. And the dad is going to race his son in basically putting these envelopes together and then mailing them. So the dad was going to take 50 and then the son was going to take 50. And in the story, the son says, I'm going to fold all the envelopes first, all 50. Then I'm going to stuff them all in, all 50 of them. Then I'm going to lick the envelope all 50. And then I'm going to put 50 stamps on. And the dad said, well, I'm going to just, you know, assemble one at a time where I'm going to fold the letter.

Starting point is 00:36:11 I'm going to put it in. I'm going to lick it and then put the stamp on. And so the question is, well, who's going to finish faster? Is it going to be the dad who's doing them one by one or is it going to be the son who does the batch where he's doing one task, but he's doing it 50 times and then doing the next task 50 times? I'm real curious when you guys were listening to us, do you guys already know the answer? I kind of had an assumption just because the story was being told. I kind of thought where it was kind of headed. Yeah, well, I definitely fell into the tribe.

Starting point is 00:36:40 I was like, of course you should just bulk task. I mean, everyone knows that's a lot faster. And James was probably right. I should probably have thought about, why would he bring up this example when it's so obvious that the kid was so much faster, which he wasn't, by the way. Well, yeah, so for anyone who's listening to this, the kid who's doing it batched is going much slower than the father.

Starting point is 00:37:02 And whenever you think about it, it. The argument that I like the most, and I find myself in the situation a lot, especially whenever I was young and building cheap furniture, is I always would batch things, and then I would mess up on one of the mistakes where I'd put the screw in wrong, only to find out that I've put the screw in wrong on three chairs or four chairs or whatever before I realized that there was a mistake. And that's one of the main things with batching is if you do, let's say you folded 50 envelopes and you folded them all wrong, you're going to find out, and it's going to be a painful lesson to be learned opposed to the person who does one unit completely from head to

Starting point is 00:37:41 toe from start to finish and they maybe learn the mistake right then and there. So that's one thing. Stig, what was the other reasoning of why the single flow is faster? Well, I think that you might already have touched upon it, but it's simply easier to pivot. That was like the main thesis. Because as you said, Preston, if you fold it wrong, you know, you only need to refold one envelope, not 100 or 50 or 100 or 100. So, yeah, that was why. And it's, so this is time, but

Starting point is 00:38:09 you know, time is money. So it's really about mitigating costs. That's basically the point of this. All right, guys. So in general, I mean, this was a fantastic book. I think it's really important for anybody that's in operations. If you're an operational kind of person or you're getting ready to have a job in operations, this book is an absolute must read. Just a great book to read, easy to read, well written. And before we conclude this, we want to to go around the horn real fast and capture everyone's number one takeaway. So I'm going to throw it over to stick first, and then we'll go to James. Well, I think my number one takeaway was that you need to ask the customers, but it's not enough just to ask them. They really need to put the money

Starting point is 00:38:49 where the mouth is. And I think that was probably something that I haven't thought too much about. Like, yeah, I heard all this about surveys, asking customers, but really requiring people to pay for whatever it was first to see how do they really act. Not only like how would they say they would react, but if they really need to purchase this product, how are they going to react? And I think that was probably my number one takeaway. Getting back to that loop again and again and again and then finding the best product for the customer. All right, James, your thoughts? Yeah, I think maybe one of the biggest lessons I learned from the book or the biggest takeaway was about accountability, right? And blame. It's easy to develop a product.

Starting point is 00:39:30 and deliver that to a consumer and, you know, you spend all this time in engineering and then it's, it's not successful. It's easy to blame the consumers, all right? It's like saying, you know, that just wasn't the right product for them. They just didn't want this. We went to the wrong demographic. It's hard to accept that accountability. What this framework does is kind of shifts that accountability back where it belongs. Another great takeaway revolves around this concept of redefining what productivity is. The lean startup challenges the reader to feel accomplished at the end the day based on value that they've given to the people using a product as opposed to, you know, maybe the more traditional feeling of accomplishment around, you know, how many boxes

Starting point is 00:40:05 did you check off it on your task list at the end of the day? Yeah. So mine would be, well, Stig stole mine, so I can't do that one, which was about the customer. But I'd say my second one would be that the lean mindset at the start of the company, if you're starting a new company and you really kind of take these ideals. and you breed them into your culture, I think that that has the ability to really have a huge impact in the long run. And it can be really beneficial for a company.

Starting point is 00:40:39 You know, Amazon comes to mind for me. This is a company that is all about lean manufacturing. And I would like to believe that that started on day one with the way Jeff Bezos founded the company. And it was really indoctrinated into the culture there that, You run around with this lean mindset and this improvement process that is constantly taking place. How can we optimize? How can we focus on the customer and give them exactly what they want? And I think because they started out thinking that way, when they became a multi-billion dollar company,

Starting point is 00:41:13 it was that much easier to keep those values in place as they move forward. So if you're getting ready to start a company or you're wanting to grow it, even if you want to keep it small, I think maybe reading a book like this and really think about it from that context would be really beneficial for you in the long run. Did you guys, I got a quick question for you guys, did you get the feeling after reading the book that you could almost create any product based off any idea, right? And at the end, it would be successful. That's really how I felt after reading the book. I was like, this is a really good framework. And it's not, maybe not 100% of a blueprint, right? Like A, B,

Starting point is 00:41:48 C, D. But it really does give you that feeling. I think if you're talking about an online business, yes, I did feel like that. I felt like that. I felt like, like, you know, you could bring me an idea and I really felt like I would have some of the tools or at least the incentive to be able to start on something that was an online business. But if it was a brick and mortar, I think that you'd have a much harder time kind of taking the framework that he's talking about because a lot of the book is about online business. Yeah, I agree with that 100%. I think you said it right, James. It's really a framework that we're talking about. It's not a blueprint at all. It's really like how to look at cutting costs, how to look at collecting information.

Starting point is 00:42:26 from the customers. And I think that they're really just timeless principles. So I don't think I was as optimistic as you, probably because I'm not as good with computers as you are. But I was really positive about starting new projects because I got this feeling that I could scrap it without putting too much time and money into it, I guess. That was really a huge takeaway from me. Preston, you got a background around handling some projects, right? What were your thoughts around the whole, it's called an agile framework, right, but from a more of a less traditional waterfall project management type perspectives, do you have any thoughts around that? You know, from my experience in the project management realm, it's all about the critical path.

Starting point is 00:43:07 It's all about knowing what that critical path is and what it is not and knowing what's in parallel, what's in series when you're trying to develop something that has a lot of things going on all at the same time. So if you're a project manager, then you got events and milestones that are tied from one to the next and you can't figure out which one has to proceed the other, that's where you get yourself in a lot of trouble. And your assumptions are so important when you're dealing with a really large project because sometimes you'll make assumptions and you don't think that something's on your critical path and it just added a month to, you know, maybe your burn rate per day is like $300,000, you know, and it might be a really high number. And if you add 30 days of

Starting point is 00:43:52 something that you weren't prepared for, I mean, you just got throttled. So I think it's really, really important for somebody who's handling a large project to know what those milestones are, really understand what is a serial or parallel task, and then knowing what your critical path is, and then making really good estimates on what those cost implications might be. All right, guys, So if you enjoyed our conversation on the Lean Startup by Eric Rees, we send out all of the books that we read. We write an executive summary for all these books. So I'm looking at our executive summary for this one. It's five pages long.

Starting point is 00:44:27 And it really kind of captures and summarizes each chapter in the book. So if you'd like to get that, go to our website at the investors podcast.com and you can see a subscribe button at the top of the page in our navigation. And if you click on that, you can go right down to our email, a subscription list. You sign up there. We don't send out any advertising or spam. It's just our summaries. And we'd love to have you guys on the list to go there and sign up. So before we wrap up, I would like to circle back to the beginning of the episode.

Starting point is 00:44:54 We started briefly mentioning that Preston and I were working with James on a new project. Actually, the project with this financial platform has been 18 months or so in the making, and we are soon ready to launch it for a test audience. So the easiest way to explain this is to compare. to Morningstar, Yahoo Finance, Amazon Money, in terms of providing data on individual stocks, like key ratios and financial statements on US stocks. But it has a lot of additional cool features like international equity ETFs, automated intrinsic value calculations, a real-time perspective on the macro situation, and a cool new feature

Starting point is 00:45:35 which we call the Buffett filter, where we automatically filtering the cheaper stocks based on a number of back-tested inputs. We're super excited to show you what we have, and we would love your help. James Preston and I are opening up for the first 50 people to test up the new finance platform called tpmoney.com, and it's simply going to be on a first-come-first-serve basis. So you're interested in being one of our testers.

Starting point is 00:46:02 Go to tipmoney.com and sign up, and soon we'll send you an invite. Okay, guys, that was all that we have for this week's episode of The Amherstas Podcast. We'll see each other again next week. Thanks for listening to The Investors Podcast. To listen to more shows or access to the tools discussed on the show, be sure to visit www.com.

Starting point is 00:46:23 Submit your questions or request a guest appearance to The Investors Podcast by going to www.com. If your question is answered during the show, you will receive a free autographed copy of the Warren Buffett Accounting Book. This podcast is for entertainment, purposes only. This material is copyrighted by the TIP network and must have written approval before a commercial application.

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