Eric Ries | The Startup Way

[Applause] so I'm sure we have a lot of people here who know Lean Startup when did the Lean Startup book come out 2011 so just over six years ago so maybe just set for the few people in here who maybe haven't read Lean Startup just give us the grounding on what are the sort of basics of Lean Startup and then let's focus on the startup way sure yes so you know my background is in software engineering I come from Silicon Valley and you know did venture-backed startups most of which failed so hi I'm a big failure if you follow me you can be a big failure too you know like I know that's how I supposed to start these things but yeah that go failure and and I had tried to after I had some success try to like talk about how do we make entrepreneurial activities more discipline more rigorous and more customer-centric more scientific and decision-making bring ideas from lean manufacturing that's where Lean Startup comes from to focus on cycle time and eventually had the realization that you know to say true to a start-ups vision you're gonna have to change strategy from time to time and it's useful to have a conceptual framework for doing that and tried to get to the moment of what we call a pivot sooner so if you feel like pivot is a piece of overused business jargon that's probably my fault so I'm sorry about that but that you know that was the concept of the Lean Startup and you know a minor part of the Lean Startup was also that we should treat entrepreneurship like a management discipline and try to get better at it over time and people got pretty psyched about the Minimum Viable Product and the other stuff that fits nicely on a bumper sticker not so much about the like boring things about management and accounting but you know I I have tried you know as a through-line in both books really to say like we got to have some rigor to this if we're gonna get better at it so like I know an improvement in practice for us as an industry as a community I think is really important so Eric and I first met just as your lean as the first book came out so it was not far from here I think it was down in Soho someone was having a book party for you and I go to meet Eric and get a copy of the book and just saying hey I at the time I was at GE we need this and everybody else was figure that out to Lean Startup started as a movement but we tried to create it as a movement inside gee maybe we can just sort of spend a little the time setting the stage and then I think that sets up the the backdrop for the startup way so I find Eric and say hey we're trying to be more entrepreneurial in GE and you go [Laughter] what's funny like I I mean you know first of all you know Beth is an amazing executive and has like must be the best like early warning radar detection for new ideas of any corporate executive I've ever met and so it was like in retrospect no surprise to me that she was there right when this was just starting to talk about she but but that was I didn't know G from any other company and I didn't know about at that time and a lot of big company people over the years would come up to me and say my company should really like to act like a start-up and I'd be like you know good luck thank you asked me if you had to wear a suit yeah exactly but can you come and talk to us and I think you really thought maybe ed we're soon yeah right exactly and I I mean I almost was kind of like it's not even really my department like I thought you're on the wrong floor of the store yeah I don't know you know I that's not that's not my thing but but Beth you know gave me the kind of nudge to be like no really let's just talk about this and I'm serious about it and the vast majority of corporate executives that come to see me and ask me to talk like that's the last I ever hear from them you know it's like they're like yeah there's like sort of interested in innovation as you know a part time thing maybe whatever you know that took it seriously and asked me to kind of come in come in to the company and we did I don't know like we did some talks and events and and you guys had a really interesting like business model innovation center yeah we had any sort of an Innovation Lab we call it an Excel yeah yeah so nobody's bringing in coaches and yeah might be a coach we didn't know you would kick off a movement inside of our company I mean either believe me it was that no master plan and I think there was just like a certain like confluence of you know the movement that was really growing and burgeoning around lean startup and you know some trends that you guys were seeing in the company and a kind of like a hunger inside the company to do something different so I know somehow it all it all came together you know better than I why did it happen then I'd actually don't know I all said a little bit of the stage so it comes with us to a big executive meeting we had a GE with like 200 people and you could see the thought bubble over many of their heads like okay software dude Eric sitting there going failure fail fast I change orders 50 times a day and you could see them going I make change orders once a year I may make complicated things but there was enough of what Eric said that they were willing to take him on and so we did a pilot project with Eric and it became really a masterful way to show change and Eric had this incredible style of saying to people I can help you get here faster better we adopted Lean Startup we of course having to brand it ourselves called it fast works it's really lean startup but we added a few other change things but I know it was it really you have a way that people listen to you it's because you're an entrepreneur perhaps I mean explain to people what does it mean to be an entrepreneur yes so I you know I got about formal definition and this is part of Lean Startup I wrote that a startup is a human institution designed to create something new under conditions of extreme uncertainty and you know just as a kind of like a matter of deductive logic I was like hey it's interesting that that definition doesn't say how big your company is and it doesn't say what sector of the economy or industry so therefore is a generally applicable framework which you know that sounded pretty good to me at the time but I didn't really know if it was really true you know it's just that was just a consequence of the theory it's just I was throwing it out there for a suggestion and so having the chance that you come in and try to put those ideas to the test I guess part of what makes you an entrepreneur is that you get used to being in highly uncertain situation so the fact that I had no idea how this was gonna work at GE like that that was not in any way unusual to me to compare to all the other things I do in my career which like I'm used to feeling like I have no idea what's gonna happen and you know it's an experiment worth running and I think it gave me an advantage which was like I can really remember that that room first of all you know it was best meeting like best little segment of the meeting to have me there which I feel like you know you were all kind of I don't know limb yourself to bring me into a meeting that's not like a lot of outsiders present which I always felt you know like I needed to like live up to this opportunity to say something but when there was this incredible skepticism of all these dudes especially you know you can imagine and they would ask me these hard questions about well how do I know this is gonna work you know in this situation and what about that I was kind of like well I don't know and I'm not here to pretend that I know that's a good question let's run the experiment let's go find out like your skepticism might be validated in which case I'll learn something or my idea could be validated and I'll learn something or maybe between us we'll come up with something new together so I was not and I think that was gave me an ability to put people not on the defensive now it helped a lot that book but we I remember as we gave our little talk Jeff ml who he knows at that time chairman CEO he's like sitting in the front row I'm way overdressed by the way I was in a suit and Jeff thought that was hysterical yeah he was golf sweater yeah he's in a golf letter and he's like why are you still looking valley dude what do you do in a suit and I had anyway breath we have our little chat just like this on stage breath says any questions there are no questions okay everyone's to see like what Jeff thanks all anyone cares around the room all eyes are on Jeff and he said I'll never forget this he says so and so he calls on one of his piano leaders by name your division only makes 500 million dollars a year how come you're not already doing this now there were a lot of questions in the room so I was very helpful to have that context of you know hey why aren't any and he was so smart about like his wisdom really I always admire which is he was really smart about it he didn't say all you idiots you have to do this he said why aren't we doing it like what's the reason and anyway we we did we had that conversation and it was pretty theoretical but then he had asked us to do a pilot project as an experiment so we literally I my recollection from that we went that morning from that meeting with all these senior executives to an afternoon session where they had picked one individual project it Jeff picked the project we picked the project because it was going to take five years to get it done and it was already over budget and we desperately needed this project brought new product and we needed we needed to understand why is it taking so long why are we so bureaucratic and why can't we innovate faster those were the problems we were trying to solve and that's that was a lot of burden for you to clean up well I remember Gemma's like I am tired of five year plans you know I don't want to hear it don't give me anymore five year plans so anyway this is this project was called the series X engine it's a reciprocating diesel platform ran if you know what a reciprocating Diesel platform is yeah okay excellent yeah me neither I had no idea I was like what is it you know what is it used for is it a you know is it a box isn't a machine I was like how big is it bigger than a breadbox is it bigger than a car you know this is the large piece of industrial equipment it's as far from software as you can get so I think it was very carefully chosen to be something that you know if we could work here maybe that would be indicative they could work and it involved multiple different business units oh yeah it was like stuck in like very guys like classic use case that doesn't quite line up with any existing place on the org chart and so it's being funded across two different divisions and there's some you know of all kinds of politics you can imagine you know those of you working large companies know exactly what I'm talking about so we did this workshop now this is how much would've visualized this scene so we walk you know this is it we're now a G's like very famous Croton ville facility is beautiful we're know like Harvard Business School style class room with the tiered seating me the three engineers from the series X team who have been summoned up from where they based in Houston or something Texas to be at this workshop at corporate you know I don't they've been volunteered and then there are 25 vice presidents yes all these senior executives in the back of the room just to observe so this poor guys I was like such a terrible set up for a workshop truly and so we started by having it just like a conversation was like listen I don't I don't know an engine from an anything so you teach me and like present the currently approved business case for why like what are we gonna do because I've been told this thing it's gonna cost hundreds of millions of dollars to develop or take five years and I just was like tell me why it's gonna take five years well turns out the reason to take five years is it's a very difficult engineering challenge this this one device is going to be used for you know mobile fracking and stationary drilling and marine electric and what was a distributed power generation at well I couldn't reel I was like okay on a boat on a plane by sea by land on a train like I was like dr. Seuss level to me like Oh and so it's gonna take a long time like the engineering challenge of engineering in every possible use case yeah just like think about this piece of equipment has to work like on a boat and like you know in a desert and it's like it's very difficult scenario it has to be super efficient and has to be this and it has to be that and so they were presenting this plan and then they showed the graph that I'll never forget as long as I live the revenue forecast by year for this project it was a bar chart and visualize it so bars for each year for the next was like 30 years exactly how much money we're gonna make every year and of course the first five bars on the chart are blank no customers for five years obviously while we're on our stealth R&D winning the Nobel Prize we'd solve this problem we need to do this but then the numbers were like this ridiculous hockey stick shape and like pretty soon we're making like just no even a lot of money even by G standards and I remember thinking to myself like I don't know anything about diesel engines but I know this graph very well next step into my office my friends I did I mentioned I'm from Silicon Valley we make this chart all the time we're really good at it that's our light leading export after hype and buzzwords the hockey stick shape chart so I got you covered and so I remember asking the question remember this I I said everyone raise your hand if you believe this forecast and not many people had asked that it was like it was almost an irritating or like taboo question to ask everyone raised their hand like of course kid you don't understand the brightest minds of the GE corporation and finance a vetted this thing is the basis of our people were not having a good time at this workshop like you know how dare you suggest then we whatever I was I'm so sorry my apologies I know with all due respect like and just like picked a bar at random from the chart like but seriously who here actually believes in the Year 2035 you're gonna make exactly one point three five billion dollars in revenue and everyone's like I dunno well when you put it that way of course we're not sure anyway so we had this in its workshop and over the course of a couple of hours we turned to ask ourselves like what are the leap of faith assumptions that have to be true for this project to be to be successful and what would it take to test those in a little bit less time than five so like do we have to solve all five use cases at once what would happen if we picked only one use case and what would happen if we turn to really like talk about not just the technical assumptions of what can be built here but the commercial assumptions about who's the customer and how do we you know how we're gonna reach them and how we forget the distribution strategy and all these questions that we're like buried in appendix B in tiny font you know an asterisks in the business plan like Oh after we build this thing for five years then we'll create a new distribution system from scratch like right and you're like excuse me seed to go can we talk more about that and I remember one of the engineers eventually was like well you know if you only wanted to make one engine for one customer and you were willing to pick this particular use case like that wouldn't take five years that would only take like eighteen months and I'm like ooh now we're making some progress and that was the Eureka moment yeah like that was me and it wasn't a technical challenge which it was and I remember the other engineers was like it was like I'm we were playing like name that tune was like what you could do in 18 months we'll hold on you know we already have an existing engine that's not that different from a performance point of view in this in this witness one specific use case so if you only care about stationary drilling where the weight of the physical device doesn't matter so much we could take the six one six and modify it and that would only take six months and then look guys like six months out if we you know if you were willing to set an area like as the problem domain as we D scoff the experiment down to a single customer single use case and they start to pick the easy ones cuz why not they're getting it down to like a matter of months rather than years and I remember asking in the room was okay this is sounds pretty good any of you fancy VPS here anyone have a customer who might want to buy that and one of the femurs like someone's like I got a customer comes in you know every day asking me for that exact thing like I could make that sale in a heartbeat and I was sitting there being like this is about to go so well we're gonna get this thing like think about this is an order of magnitude improvement in time to market from five years to six months and I'm gonna be a hero and this is coming here and then finally one of the VP's who was just not at all having a good time who shall remain nameless although Beth and I remember well it's just across the hall and he was like sorry I'm sorry time out what the bleep is the point of selling only one engine to one customer think about it we were talking about we were about to make five billion dollars and now we're gonna make twenty five so I think we're gonna lose money now because the six one six too expensive so we're gonna actually lose money for the privilege of selling one engine to one customer and like why am I in this workshop again and I remember saying to him you're right if you believe this plan and it's gonna work then learning this thing is a waste of time you already know that customers want this product so this whole thing is that and he was like great if it's always the time live out of here and that absolutely would have been my last day at GE for sure except that Beth and some of her colleagues were like waited wait await a second didn't we just say a minute ago that we don't know if this plan is gonna work and we're not sure if this forecast is right and didn't we just say that there are these commercial assumptions that need testing and gosh wouldn't be nice to know if as actually as you remember turned out to be the case this customer would not buy the product to know why and would it be nice to be able to engineer to a use case that we don't like the conversation evolved from me the outside like Silicon Valley jerk telling people that they're stupid which is not a great place to start to it's not really good for change where I learned that you know earlier in my life that is not a good way and the conversation involved to the executives among themselves starting to debate what was possible and when you reframe the problem that they're trying to solve from how do we get this five billion dollar fantasy plan built to how do we start that learning process I really build the Minimum Viable Product the engineers themselves had all of the expertise we needed listen I didn't know I saw they know how to build a diesel engine at the end but they could provide that expertise that wasn't the hard part and that was the start of this incredible journey and for us it became a movement inside we did thousands of these kinds of projects everything from you know handheld ultrasound to help midwives and in India to - how do you do better ERP systems it really became a way to make make innovation happen faster but it wasn't just us I mean that's what brings us to the startup way you found this what you're doing here with the startup way is showing us how this is moved across big companies government organizations I mean tell us how how leap from small company he's too big and what are some of the learnings that you want people to get from the boss sure yeah I I grew up in Silicon Valley so I I came with the same prejudice that everybody has that big company people are you know not very creative and you know pretty boring and not too intelligent and that's why they don't make it well is that right and you know and a bunch of other stuff yeah then that's why you know if they were really creative and whatever they would have come to Silicon Valley and you know they'd be starting companies too so I think we have this just like total myopia about what it is that you need to succeed as an entrepreneur and the funny part of it is of course many people start a start-up because they hate working at big companies and I'm always like if you hate big companies so much why are you trying to create a new one and then I all might but my company's gonna be different and I'm like because why like well we're gonna build our organization to the exact same orc shark that big companies use use the exact same compensation and budgetary policies that big companies use we're going to have the exact same departments when have the same matrix management the same is saying that and but but and like but what like but we're cool and we have beanbag chairs and whatever like what's the plan structurally to make sure that you don't have this problem so so I think the distinction between big company and startup is a false distinction because no tech startups are not intentionally small you know they're they're often unintentional not for profits right like they sometimes that does they to stay small but that's not the plan that's not the idea and so what I noticed was many of the companies that had been early adopters of Lean Startup back in 2009 10 11 some of those CEOs would call me up again and say hey remember when we were talking about Minimum Viable Product like that was cool but didn't you say something about management something or other and now Mike now my company has a thousand employees could we could we have that conversation again now that I'm paying attention like until we started to have start to work again with some of the same companies I'd work with earlier but now at a much larger scale and the founders would go through this weird through the looking-glass experience where they have to start to see themselves not as the hero entrepreneur who makes all the decisions but as the leader who has to inspire the entrepreneurs that work for them to do things that they found very natural but now at a different scale so I was like this weird double life because I you know I'd be hey not with Beth in the morning and then I would be with like a totally scrappy hot startup in the afternoon and we'd be having the same conversation and like geez more than hundred years old some of these companies are less than five years old why are they having the same problems why already giving answer that built to the same old fashion blueprint that we've been using since Alfred Sloan figured it out in the 1920s in fact you lay out a vision for a modern company through this give us a sense of some of the things a modern company has has to have yeah this is actually this is inspired by something that Jeff said to me once he's like nobody wants to work in an old-fashioned company nobody wants to invest in an old-fashioned company no one wants to buy products from an old-fashioned company so how do we create like and like not just crate though like marketing for but how do we really be a truly modern company and to me the essence of a modern company is every you're like harnessing the creativity and talent of every person that works for you so if I were to like pick an employee at random in an old fashion company and I say like I get I got rolling 300,000 sided die and it pops up your employee number I say okay if you had a great idea for how to like improve this company you know innovate bring us into a new market something that we really need to do how would you get it implemented what's the plan to test out your idea and most employees are like well I guess I would ask my manager to ask her manager to ask his manager to ask the pure wise manager and a parallel function as their subordinate to ask there's like and by the time they've sketched out this plan and they're had to like forget it yeah it's not worth it right like why bother started like I'll just do my regular job right anyone you want talking about not your company but you have a friend maybe so in a modern company we have an automatic process from we have a good idea to test it it's just considered like a normal thing that we do if it's a if it's like a just a simple little idea we you know we let individual people we teach them how to do that we have a process for doing things like Minimum Viable Product and a B testing and it just it's a normal part of everything we do but if it's a worthwhile idea if it seems like it could potentially be something disruptive for us then we can put a start-up on it we call it a a in sort of way startup as an atomic unit of work it's just a tool in your management toolbox it's like you know Amazon famously has the two Pizza team a team no bigger than you can feed with two pizzas it's just there's certain problems that a start-up is the right team form to go tackle them problems with high uncertainty problems where we're building a new product or entering a new market or heck building a new IT system or you know we're partnering with a start-up anything with uncertainty attached to it then that's the right forum and so a modern company just has that as like an automatic reflex so much so that I try to advocate in the book that we should consider entrepreneurship the missing function in the corporate org chart because for most companies when I talk to them I say who's in charge of innovation who's in charge of commercializing new products most companies do not have a beth who like really understands what we're talking about most CEOs tell me either it's someone's part-time job so they've assigned innovation to the CIO who's assigned it to his deputy or something or it's you know the CTO or sometimes the head of marketing but like whoever it is this person has a very difficult day job and like put on the side they also supposed to do innovation too you're like that's not very serious or they say it's everybody's job there's no function for that everyone's supposed to think like an entrepreneur innovator and like can you imagine if we put up with that BS in any other function marketing is everybody's job we don't need a CMO we don't need a global standard for what exactly like it's ridiculous oh we don't need finance we don't need a CFO its finances everybody's job it's true you all go to prison if you screw it up so like so we don't need you know we don't need to have standards of financial accountability we don't need to have audit like it's everybody's job like we would find that ridiculous but entrepreneurship we're like it's do we don't have any process for it so therefore we can never get good at it so that to me entrepreneur central is about you you mentioned when you started out is about tolerance for failure a tolerance for ambiguity let's talk a little bit about failure I don't know who here likes to fail okay but a modern company an entrepreneur has to be okay with failure how how have you learned through lean startup in the startup way to legislate that to lead to lead through failure yeah well in most organizations it's not people don't fear failure they fear punished okay let's be honest right like human beings do not have some kind of like intrinsic inability to experiment and learn but like if you get hit with the electric shock every time or you believe that's what's gonna happen then you know I talk to a lot of executives were like I wish we punished people more for failing I wish people will get fired for failure like we never fire anyone around here but also still people are afraid of failure and I think the concept that's really helpful is the concept I call career equity because that's truly a most organizational context that the compensation that matters not what your salary and bonus are this year but what are your expectations of future career prospects and what are the behaviors you think you do will do to be promoted to get to that job that you aspire to one day have control over the resources or maybe even over the direction of the organization and career equity is just as valid in a start-up big company nonprofit government agency like everybody has a career aspiration and they have a perception of their probability of success at that and in most organizations if you are perceived to have failed that's damaging to your career equity and that's the problem we have to fix we have to celebrate not the failure itself but to say if someone takes a smart experiment even if it doesn't work out just the way they expected that's actually a productive failure and if somebody pretends that they never fail that person is lying so let's just say that like I've been trying to get people to put in their performance reviews how many productive failures did you have this year if it's a trick yeah it's like a very simple metric just talk to me about that and of course immediately begs the question well what counts as a productive failure so ok great now we can talk about that now we can admit that we are what's happens you're also suggesting that leaders have to ask questions differently maybe you should you can share with people you have some great questions that come out of lean startup of course I ask you when you're doing what can leaders do to ask the right questions and encourage the conversation the foundation of this whole thing is how do we hold people accountable and do we we do we reward and honor people who pretend to be super like very predictable and always do the same thing or are we willing to focus on learning and discovery and experimentation not as the only cultural value but as an important cultural value and my favorite questions for leaders are what did you learn and how do you know the best VCS I know those are the questions that they on a skateboard meetings like that is really the question that can unlock not what did you fail at but what did you learn if we can show that a failure was productive that we figure out a new strategy that worked better than the one we had before that's ultimately saving the company a lot of money so you remember this project we had a cheat it was a new health care product that one of the teams wanted to to build and they had requested a million dollar budget and there was you know budgetary politics or should we spend a million dollars enter this new market and somebody said hey why don't we just do an MVP because it was early on it felt like why don't we just do a hundred thousand dollar experiment to figure out if this is actually a good idea so they built a prototype the non-functional prototype 18 you know it's on a medical device you could sell so they took it around to some customers and sort of gauge their interest and they came back after a few months and said you know what there's no business here this was a bad idea and I think they were kind of expecting the traditional response which was you just wasted a hundred thousand dollars of the company's money but the faster works the team were saying they didn't hold on we just saved the nine hundred thousand dollars that we didn't have to spend on this bad product and that change in mindset and what happened is people come back now and they say I don't need all this money because I have a better idea or a better way I want to go forward so people are willingly sort of owning that and trying to get more more opportunity out of it yeah and that's that that's what really like startup efficiency right like people sometimes say like how does Lean Startup if it's lean it's muscle save me money or I would make it more efficient it's not about you know you have cheaper desk furniture or you know you know don't have good health benefits or whatever like it's fundamentally about getting more learning per dollar that we spend more more swings of the bat more opportunities to try a different strategy until we get it right and that it's a it's a really profound savings when you can start to do that at a high scale because not only are you just eliminating a lot of unproductive work I mean think about how many corporate reviews you've ever sat it in your life where for the 10 people in the meeting we had to have 10 pre meetings you know I'm talking about to make sure that we knew what each executive also liked the meeting itself is a complete waste of time because we've already had the meeting and made the decision in advance but we can admit that so it's like it's both ten times more expensive and worthless you just you eliminate all that right so just like stop doing that and then on top of that every once in a while one of your innovations really pays off and then you have this positive variation in all its you know productivity unlocking so it's it's really it's a fun like really energizing management principle because you both get productivity and savings and growth at the same time it's not like you cut a bunch of jobs and have a bunch of layoffs like you unlock new sources of growth at the same time you're eliminating all this bureaucratic nonsense so we're gonna go to some questions here in a minute talk about how you used how you put the process together for this book it was unusual you actually took your your tool kit to work you created a minimally Viable Product you went to Kickstarter walk us through that I think one it's a fresh approach to public thank you it's community building would you learn would you kick starter backers in the audience yes oh thank you so much see that's like that's exactly the ratio like right not not everybody had to be part of the MVP but just enough to be representative so I'm very grateful yeah so this is and supposed to my publisher are here so so I say this we are with them present and I'm very grateful to them for allowing this experiment which is not by no means the norm I became obsessed absolutely startup was published with what is the author's moral responsibility for the things that people misunderstand about your writing because you know that was like a whole controversy remember recently about people criticizing clay Christensen because idiots in Silicon Valley cannot use the word disruption properly and that's somehow his fall and I was like farter he's like come on man this is like greatest management theorist of our time you're giving me a hard time about these doofuses who like they never read his book for sure right I didn't even bother googling it even one time so like if you got on Wikipedia for 10 seconds you can find out what his theory is it's very popular no but people using it wrong but it it like so I'm defensive on other author's behalf but when people misunderstand my work I was really like when I'm sitting there as a consultant or an investor you know working with someone if they misunderstand I can be like that's not what I said like pay attention but when I hand someone a book that's it if if people on average misconstrue what I say that that I have some responsibility for that so I really ought to try to figure out how to prevent that from happening so I took a lot of it like in the course of doing work with G and a number of my other consulting clients I had built up this library of kind of exercises and workshop material and case studies that I would use to help people adopt Lean Startup in these different contexts and so I had this idea to build a Kickstarter campaign around a book which I called the leaders guide which was designed explicitly as an MVP so it we did exactly one print run of it you know we only made it available to Kickstarter backers weak-hearted started a community site for my friends at mighty Bell who create like a private site where we could you know test ideas from the book with them and kind of go on the journey with them and the idea was everyone who backed the campaign also also gets this book although we've had some ebook delivery problems so stop sending me angry emails please we're working on it I promise and you know Kickstarter's a real pain and there's all kind of difficulty to it but to me that was so worth it because so many of the ideas you know got any chance to put them in print and see how actual customers actually respond to them allow me to figure out a lot more about what works and what doesn't and all that learning you know you're all the kind of fishy airs about learning in the new book so give some advice to everybody here if they were to pick up the book tonight or if they already have it they finish reading it and they go to work Monday what would be a couple of tips on how to how to work and think the startup way you'll remember when we did so when we did the GE fast works Roadshow I mean this was like a crazy six months of my life where we trained every CEO of every GE business and all of their direct reports and everybody at what G calls the executive band and above that's what like five thousand people so it was just an incredible amount of work to socialize this walk broadly within the company what we call phase two of the transformation deployment if you read the book you'll get to read about all the three phases they're they're scintillating act by promise and we would end each of those workshop training sessions with really urging the executives to put this into practice like soon before they forgot and before they kind of lost the inspiration that you would get from having like really immerse yourself in it we would always say listen on Monday whatever next Monday is we want you to run an experiment on Monday like not plan it on Monday or like have a meeting about it on Monday like start complete learn all in one day so pick something small enough that you can do that because look I do not want to be your guru okay I really don't and I'm over the Peter Drucker school of gurus he famously said people call me a guru because they can't spell charlatan okay so I do not want to be a guru this is not you've been pretty consistent throughout you you were like I am NOT a consultant I'm not a consult I do not run a consulting company I don't have a hundred associates to send to tell you all that you can't live without me or whatever like my view is a hundred percent that you have to make these ideas your own or it's not going to work so don't take my word for it take whatever your enthusiasm or your skepticism and just run an experiment to reveal that the theory is correct or not that's that's all we can do and if we're gonna claim as a movement to be a scientific theory we can't be like but take that on faith like come on man that's not right so and everyone says they're gonna do this and then they don't do it they're like well yeah I get the theory of it of course I get the concept of it but I you know I so like my real advice to you honest to god is like what work day of the week is that I should have no idea okay so Monday's so much time I sometimes do these workshops on a Friday so like you got extra you have two extra days like pick an accountability partner if you came here with a friend like just make a little pact with each other or if you have someone just talk to him afterwards be like listen just call me at the end of the day I'm Fri I'm Monday and ask me what I learned from my experiment and then if it was interesting maybe do it again on Tuesday like get yourself into a build measure learn cadence measured in days and hours not weeks and months and just that little bit of internal transformation as you start to live this yourself like can be the start of a sea that can eventually grow into you're trying to teach it to others and like don't let it be somebody else's problem like as much as my publisher would love for me to tell you make buy one for your whole company and make everybody read it like don't do that first do it later but like do to eventually buy a million copies of course but but more importantly like do the transformation you self test it out see if it he's not gonna magically change the knife overnight okay it's not gonna help you lose weight and you know make you live forever and make you beautiful like it's it's not an instantaneous cure for anything but what it can do the theory makes very specific predictions about what should happen if you do this kind of experimentation so see see if I'm right and if I'm not right and you learn something new like I'll come to your event in a few years so tell me about it please I look forward to learning from you great so we would love to take some questions now we've got Kaylin with a microphone we're gonna start on this side here Thank You Alyssa Ness it's wonderful to be here I was a billion years ago when the Lean Startup had just come out in DC and I have forever called you startup Jesus you will continue to be uh Mike would you know that you're called that no I just know you're not helping me with my Lean Startup is not a religion you cannot be excommunicated okay so my question is how so it's a little bit of a two-part question one how does lean methodology or Lean Startup methodology intersect with design thinking and this whole design thinking movement that's also overtaking business and then how do we confront people who have just such a fixed mindset that the idea of experimenting and the value of experimenting is not even worth considering I may be throw in there agile and some of the other thing oh sure yeah a lot of okay I'll let you in on a secret sometimes when I do corporate meetings they're functionally segregated so I'll have like a room full of designers or a room full of Engineers or like you know it's just a supply chain people just to find it so like whatever it is if I do such an event I always get your exact question except about whatever their functional thing is because every function by now has its own highly iterative process that someone's figured out to do it's not like saint rocket science like people feel like oh it would be better to do this in a circle instead of in a straight line like I mean I did not invent that okay and I would say that I'd likes to end and I won't always answer the same way which is like listen just between us designers okay because they always like isn't just just Design Thinking rebranded for those other dumb functions who are smart as US and I was like it is okay but do me a favor don't tell the engineers think how they would feel that like they got tricked into doing a designer thing when they don't you know that wouldn't like that and if I walked down the hall do that same event for engineers like this is this just agile rebranded but for the business that pointy-haired bosses I'm like it's so is but tell the business people and then I go isn't this just customer development isn't it just lean manufacturing isn't this just dev I have heard every variation of this isn't it just a scientific method somebody has a blog post someone sent me once it was like this is just a distinction between human lock and there's nothing new here in the last 300 years I was like I can't help you man like okay yes you're right there is truly nothing new Under the Sun but I do feel like a few other things had to get figured out since Humes day even still right so like who cares like I don't care who gets the credit for I don't care whose idea is it what matters is are we doing that iteration at an enterprise-wide level and the answer in all these organizations is no we are not in fact if you take the God's eye view of most corporations and like zoom out way out visualize the silos of the company as if they were like big water silos like a big Pringles can you're gonna pop the top off and look what's going on they're like oh look the designers doing they're highly iterative thing oh look agile engineers are in there highly inert or think customer development but how does workflow between the functions like what is the output of the design thinking process in a lot of very well-run companies after all the experimentation and learning is done in the design silo we print out a binder full of specification documents and we linearly hand it to the engineers and say implement this all the learning has been done for you already and the engineers like they get to page five and like well excuse me it says here that this has to be both infinitely fast and infinitely cheap but I can only do one of those two things because of the laws of physics so which of them is it they're like sorry dude that's your problem now that's an implementation detail you figure it out so they're like oh now we got start all over again are-- and there you go those I like so like and then they're like okay we're completely done let us I've worked on agile teams on a sort of God where you print the gold master CD and hand it to the operations team to boy so the first time they ever see it is when it's completely done all the learning is done they're like excellent but like how does this thing operate in the real world like that's your problem dude that's an employment issue right so like the work flows from function to function in a totally linear Waterfall way so this is just about saying we need to have a common vocabulary and it was a way to bring these functions Britt let's break the silos down unite the clans you know like I've got to stop treating each other like we're the enemy we had to work together build cross-functional teams and denominator are progress not in functional jargon that nobody cares about like with all due respect can you get a business person to care about burn down charts anyone ever had any luck at that you can't do it the lean manufacturing people are constant like why can I not get business people to understand you know how we do Kanban and I get them to capacity constraint and why they won't read Theory of Constraints and it sucks it's like right everyone has theirs they're their local version of progress we need a global version of progress which obviously has to be denominated in the only common language of business which is money so like it has to be denominated how we translate our incremental learning iterative progress into some kind of financial system and they start turns we call it innovation accounting other G finance guys rose like please add this disclaimer not innovative accounting that you go to prison for so like you do note Asterix not innovative accounting that's not what I'd like there's a whole discipline to that anyway that's that's that's the answer great hi there my name is Gabby Weinberg startup rabbi as my handle thanks for the like today oh yeah Thank You rabbi so my question actually is from the angle of a non profit world kind of segue beautifully it from your question from your answer that money is a very useful metric that everybody understands in the for-profit world yeah and you see translations of this yeah in the nonprofit world you mean the intentional not-for-profit world yes that's an important distinction and actually that joke points at the answer to your question which is you've got to remember that the vast majority of startups have no profits for the vast majority of their like truly startup life like even after they go through the product market fit they tend to lose massive amounts of money and like a lot of them keep on losing massive amounts of money through the IPO and and beyond Amazon it's not clear that ever gonna make any money ever from a financial accounting point of view so how do we think about progress when the money that things are denominated in is negative or zero and the first answer is that well first of all the universal language of business unfortunately is not money earned it's money spent we all do that very well every organization spends resources nonprofit government week we're excellent that entrepreneurs are very good at spending other people's money are we not so the problem comes in with you spend other people's money they sometimes want to know what did they get for their money what was my return on investment and of course during the flat part of the hockey stick no matter what we're doing return on investment is negative by definition so I try to argue in the book that the right way to think about progress in any startup situation for profit or non profit is actually impact not cashflow and it's not today's impact its future impact so that's easy to see in a non profit says you like look what well the purpose of raising money for this thing is eventually we're gonna change the world to solve this very important social problem but that's actually the same thing in a for-profit startup however many customers we have right now is nothing more than evidence or proof of future impact and that proof of future impact is an immensely valuable resource right now because it can be redeemed for resources at the grand Universe's resource store no matter what kind of thing that you are now if you're a startup it's really easy to see start-up valuations are a combination of the asset value of the company's built your customer relationships the money you have you know your business model plus the probability of a future impact so it's three terms the asset value plus the probability of future success times the magnitude of future success so if you have a one percent chance to be a billion dollar company that's worth roughly 1 billion dollars right now it's a very valuable lottery ticket that's where startup valuations come from but if you have a formula that can provably deliver a socially valuable outcome that can scale that is not quantifiable in the same way through start-up equity but you can take that ticket to a Foundation and say hey I got an outcome for you to fund like let me catch it in my chips and then alig as' process that happens in government so so yeah I think we we actually have much more in common than we think in that hey I'm not started rabbi or startup Jesus I'm 16 years old and I barely read and I don't think any of my friends do but the lean startup was insane and how how have you thought about making the lean startup not in book form so all my friends and everyone I hang out with all of my generation can learn about kids these days you know I I'm gonna ask you this question I have no idea I like I'm so not a visual learner like I can't even they had to like twist my arm to get some diagrams into this book okay like I've done some videos related to this yeah yeah like I've tried really hard to do some videos and to try to get in some short form but like I stuck at it okay like if I could summarize these ideas in short form I would have had to write this like 400 pages like this is the shortest I could make it truly if I have more time I've tried to make it shorter but I this is the best I could do so I'd actually like there's a number of people who have done like some pretty cool like you guys know actually some pretty cool animations that were kind of like sketch animations short versions of it I've seen I got asked on Quora the other day are there lean startup songs the answer is yes you go on YouTube they're all lean startup songs you sing can you sing any I do not know any of the songs because I this is my missus my medium but I'm told that they're they're fine there's a bunch of like comedy routines and stuff on you to do you go find some pretty cool stuff on YouTube but like I would turn it around to you I would say if you think that's something that makes sense like run the experiment make it happen do thanks man awesome thank you yeah so my question is in me there's nothing new Under the Sun category yeah so I reload the mic up a little I can hear okay I wrote a blog post recently arguing that the Lean Startup or the ideas behind the Lean Startup are basically what happened when immigrants got off the boat came to America with no money in their pocket and they had to innovate as quickly as possible they had to get in front of customers as quickly as possible and figure out product market fit before they ran out of money yeah and that into a significant degree what makes what allows people to kind of focus on product and making the best product in the entire world so that eventually the world will see their genius is the fact that they do have the comfort of you know friends and family rounds or investment funding yeah so and so bootstrapping to some extent is you know maybe advantageous in an ironic kind of way totally so any thoughts on that absolutely well two things first of all a lot of those immigrant voyages were financed like strike what we like the like you can read some of these older accounts of like the starting of like really famous exploratory voyages and like the biography is like full of all it's like fundraising crap that these grant explorers had to do like the fundraising was really irritating it took forever and I'm like oh yeah I don't understand anything else about this book but like that sounds very familiar to me like I know that prod all the like asses you have to kiss and all the promises you have to make and the projections you know Christopher Columbus and it's crazy projections and you know the the plot you didn't even watch that TV show black sails like a pirate like swashbuckling pirate show and I listen to be excellent escapism and then one of the plot lines in one of the seasons a like colonial governor is coming to like subdue the Bahamas and his creditors are on him to like deliver a certain return a certain I was like wait a minute is too close to home I hear about this and like they know the Spanish are gonna come like raises whole thing to the ground if he doesn't deliver on the like financial projections that he's promised his creditors so like first of all I think that like the idea of cooperative financing of ventures and risks you knows respirating like that's an old and important idea that's like a foundational civilizational concept we're very grateful for but there's also something about how over funding can be as lethal as under funding we see that in corporate settings name honey project we've over funded over the years you see it people hate that but the reality is they do things with a lot less money so and you be much by the scarcity mindset that entrepreneurship breeds is actually super powerful and as speaking as a founder myself it's actually a gift to somebody it took me a lot of years to understand being able to say to your team we can't afford that it's super important to get everyone focused on what really matters and when you're over funded you just don't have any moral authority to say like you we can't afford that means I don't want to do it well fui well I do want to do it and why are you any more important to me just because I work for you like screw you so like it breeds resentment whereas the true like true scarcity we are in this together says we all want to spend as little money as possible and and you know it's like my you too can be like Steph Curry you know you can't had a 35 foot jump shot but you can like be dramatically overpaid for the good of the team like that's important like that's you only you only do that if you believe in the mid anyway so like the scarcities is is very important and I hear often from immigrant communities and from people in developing countries who've read lean startup has been translating all these crazy languages sometimes they feel like they their culture their place has an advantage because they have that natural scarcity and we Silicon Valley people are in for some disruption because we've gotten fat dumb and happy and your book is about just celebrating entrepreneur ISM everywhere I mean you you're hearing from people around the world who it's not just Silicon Valley where entrepreneur ISM lives no and in fact I think the book lately thought may have been more impactful in in other non Silicon Valley startup hugs because it's more necessary I'm a software in general work for a big carpet which I'm not going to name and as you know I feel it's a lot bureaucratic and things like that so how do I if I go tell my manager management saying that hey we might need to start thinking this type of way it might give me some looks right so what do you suggest me that I can do from my end in convincing them or influencing them that maybe we that's a great way to think about innovation well my only question is how bad would it be if you get fired seriously like I think this question 100% seriously no joke if you can't be fired it's a different conversation than if you can be fired and if you're a software engineer then you probably find like you fired from this you there's like 100 days where a war for 10 so like not every but not everybody has that privilege and listen I know a lot of people who feel like I need this job and I can't cause waves and I have to be diligent are they really gonna get fired or they just fear they're gonna get well that's my question so my feeling is in most cut like I hear the executive perspective is that we never fire anybody and I wish we didn't fire some of these people right so like I hear it from people who feel like what do you have to lose just go to the most senior person you have any kind of relationship with and say listen I work at this company and I think we could do better at blah blah blah and I'll tell you a story I guess I shouldn't name the company but I think I know the story under a nondisclosure agreement so I'll just say it generically you would you know this company and you'd be you'd be excited to know this happen at this company but I shouldn't name it an engineer they told me this story they were reading one of my blog posts about continuous deployment and they took it to their manager and said I think we should do this and they were like you know just like I don't think it was I gonna win they get summoned a few weeks later to meet the executive committee of the company and the CEO global CEO is there and they're like I heard you think this is a good idea tell me why Nick talked me said anyone who doesn't think this is a good idea shouldn't work at this company he says to all of his staff assembled and they're like oh okay so everyone thinks is like you're in charge so I want to see a pilot program of this implemented with two teams you know by such and such date and they're like there's like okay and so he did it and then he came back and then they're like that's pretty good let me try you know they scaled it up a little bit and I remember that this is a seasonal business and he's like yeah but this was kind of these were easy projects I want you to try one of our like you know like mission-critical crazy crazy projects that like you know during the peak season like super Friday it's like show me that they went I did a bunch of projects around that and then he's like I want every team doing this by such and such date and like this poor guy just had this idea that you mentioned his manager was I mean quite a fortunate guy I mean well mr. Naumann turned out good for him but like he was pretty stressed like a turn is very like yeah like very cushy like easy job that became like super stressful like and that's it to me that's a true entrepreneur he he went through the s-curve they they completely transform that company's engineering organization the whole thing I think it took two years from waterfall development to continuous deployment like the real actual honest-to-god thing every person I met at that company before that would have said that's absolutely impossible we could never do that blah blah blah blah blah two years I was completely done and all it took was a CEO saying anyone who doesn't this is a good idea shouldn't work here so don't try this at home unless you're ready for the full range of outcomes sure you could be fired but this could happen to you too and I don't know that I necessarily would wish that on you I don't know you that well so so do be careful I hope most companies wouldn't fire you for asking that I mean I think you'd have to try it a lot for somebody to say hey we do that and the reason I talk about being fired is not because I think you actually will be it's that you have you have to get over the fear of being fired and I know I found that out in one company I worked at this is years ago I remember having this moment where I was like people are getting pissed at me because I used to advocate for this stuff when like there was no book written about it and people thought it was stupid so like I be constantly we gotta you know I gotta more times a day I mean I get more customers and that people just be like shut oh don't want to hear about that anymore like we're trying to do our plan like why are you constantly talking about that so like I was very irritating and I remember there was one moment where I was like I think that I might have pushed it too far and I am in fact gonna get fired and I was sitting there being like okay if I get fired what do I want to be remembered for like it doesn't matter what like what did I stand for in that moment and I was like you know what if I get fired for this that's okay like I'll sleep really well at night because I was fighting the good fight and my reputation will be the guy who thinks we should iterate to fast that's gonna like ultimately that's gonna attract the kind of job that I want to me so I was like you know what I will get fired for that and then I was like I'm gonna try to get fired for that forget it like I'm gonna just I'm gonna stand for the things that I believe as strong as I possibly can and not be rude about it but also not compromise like I'm this is how I think in my discretionary area of authority I want to do things this way if you don't want me to do it that way like please find somebody else to do it and that you know that worked okay for me I don't know guarantees I don't know the company so I don't guarantee this will go well for you but I hope it I hope it does this will be our last question of the evening okay hey Eric congratulations on the book thanks man I'm curious I run a self-development business and you have such a rich sense of data of taking these ideas to executives and then watching them deploy it I'm curious if you could share some predictors you found of success in implementing these ideas and and really building it into the culture and also some predictors of failure when you can kind of just tell that it's not gonna work I love that question you're being you're being very modest this guy's a pretty successful entrepreneur under his own right so I used two thoughts a what I used to think and then I'll tell you what I learned I used to think that a sloppy kind of loosey-goosey like anything goes kind of company culture would be the easiest one to change because there wouldn't be that much inertia or you know I was over like a top-down rigid hierarchical there's like on tremendous activation energy to get started and under one company I did this with the exact top executives everyone was super excited I would coach some teams and like they just they really took to it like instantly and I was like this is gonna be one of the greatest transformations I ever did I was so excited about it and I came back a few months later checking I was going and they had done exactly nothing that we had talked about that day and I was like how come they're like well you came in that day and told us to like do all this stuff you know that was awesome but then like the next day someone else came in told us something else and let me started doing that thing I was like oh man like whoever they talked to most recently that's what they did and they could not stick to it so I actually become a real fan of the highly disciplined really top-down like organized companies because it's more difficult to get started but when they say they're gonna do something that's something I really admired about GE there was never any question that if this worked they could adopt it company-wide like they've done Six Sigma and work out like this like it's a play in the playbook to say you know what everybody this is they were all moving this new direction and you know there was a big question about is it worth it is it the right thing do we have the political will to do it but like there was never any question that we're gonna like if we decide to do this we're gonna do it and there was never any question that we're gonna do it wouldn't do it all the way so like when we first started talking I was like you're gonna have to change HR policies and the corporate values and compensation and promotion I remember several meetings where folks were just like that's never gonna happen come on man like those are the third rails you can't touch that stuff and like all that stuff happened they really picked apart the difficult difficult deep systems of the company so so that's certainly one lesson I see and the second indicator I look for is are the leaders willing to change their own behavior or do they only want to change other people's behavior so I often taught say to executives look in the mirror if you don't have you're not happy with the innovation result you're getting a company look in the mirror now you're looking at the problem that's usually the last meeting I ever have with the car most people are just like well screw you kid like what do you know about whatever and I'm like nothing just you but you asked me to this meeting to give you my advice about innovation I'm telling you that the way you act and the pay you hold people accountable that drives behavior change and the leadership teams and I you know I count Beth and Jeff in this category absolutely who said like we're not offended by that suggestion but said okay like let's let's find out if that's really if that's really right and I just I mean a lot of executives who are just too full of themselves who they know everything and like they're interested in innovation sort of but like just we're interested in being right they're more interesting being right it's it's entertaining to them to have this fight with me about whether they need to innovate or not like that they debts like corporate enjoyment you know like it's it subsonic dinner entertainment at their meeting it's not they're not serious about it they're not really willing to to change their own behavior and I don't blame them I really don't these are people in a lot of cases who have had multi-decade careers being very successful doing a certain thing and Here I am saying I never spent one day I didn't pay my dues I'm just some kid and you have to change she was not fair like human beings are not good at this okay that's not like that's a hard hard thing for people to do to admit that the thing I made my professional identity on I had to change so I really look for that introspection and kind of willingness to to try things personally that that really makes a difference so Eric and wrapping us up you've taken the startup way quite seriously you're fighting for the future talk to us about what's next and the long term stock exchange there's a way to wrap up oh oh sure yeah just I know I have a have a day job now apart from just being a professional expert actually and if you read the Lean Startup if you if you're one of the like six people in the world who read all the way to the last page which I understand most most people don't but the black one of the very last suggestions I made and Lean Startup was that if we're gonna emulate Toyota and Jeff Bezos and Warren Buffett and these kind of titans of long-term thinking and build new companies then its it doesn't make sense to build a venture ecosystem where the end result is we quote unquote exit our companies into a capital market system that is like infected with this incredible short-termism like this doesn't makes no sense and since whatever the capital markets want we in Silicon Valley want to because we want to build desirable attractive products for that system and that system is value destroying like the number of public companies is on the decline over the last twenty years it's a system that eats its young and it requires a steady supply of fresh meat to keep going and we're the dealer if we keep we prop this whole thing up while work simultaneously complaining about it why because we get rich doing it but then like how does that make us any different than you know all the people we claim to be morally superior to my own name so I was like we got it if we're gonna do this we got to do it all the way at the level of ecosystem design and incentives and for most companies no matter how good your management system is there's this malign gravitational force that emanates from the capital markets that warps decision making to short-termism I meet managers constantly they even know what's wrong while they're doing it they're like I'm being asked to eat the seed corn and cannibal the innovation projects you know to make the quarter and I know it's the wrong thing to do and I do it anyway so like I don't know we in business take this totally for granted there's like a fact of life that that's what it means but like these systems were created by human beings they were not card on stone tablets and they're not laws of nature we can do something different so a couple years ago I started a company we called the long-term stock exchange or LT se it's a new way for companies to be public and new governance paradigm a new way for companies we offer companies the same level of liquidity that you can get from today's capital markets but without the short-term pressure and we were just we just announced in the Wall Street Journal that we're gonna be an operation next year sometime so great so thank you very much thank you all so much for the question thank you [Applause]

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Id: 7JIobihdqfI

Length: 62min 29sec (3749 seconds)

Published: Fri Oct 20 2017