Reflections on a movement | Eric Ries (creator of the Lean Startup methodology)

22:18As you go, find out what happened when people use the idea. And if it's not right, you know, even after their misunderstandings, it's still not right, then you've got to make it better and find a way to communicate it more clearly. So it's kind of an eternal challenge, but I think an important one. Along the same lines, is there a misconception of lean startup or any of the other things you put out that you just kind of really frustrate you that just as recurring misconception that people just continue to get wrong? You know, I wrote an article, God. Five or 10 years ago, I can't even remember how many years ago I got, it was like top misconceptions about lean startup.

22:54And it was like, number one, lean means cheap. So you're doing these startups means you're not raising money. It's like, that's not true. And then, you know, I can't remember what they are, what they are. It's like, they're all still prevalent. You know, like nothing's changed. I could write that same article today. It's like, lean is opposed to having a vision. You know, if you were really visionary, you wouldn't do experimentation. Experimentation leads to local maxima. And, you know, whatever. It's just like, I read it in somebody's book that they're like, that's what lean is about. And I was like, man, did I forget to write it in the book?

23:25I was so gaslighted that I went, I actually went back and cracked open a copy of the lean startup. And I was like, on what page do I address this? It was like on page nine, in the introduction. The first things in the book, I was like, okay, I did say it. So like, that's pretty common. You know, that turned the crank thing about optimization. That's pretty common. And then like Pivot's people, perennially misunderstand what a pivot is. And like, what, again, whether that's a descriptive or a prescriptive thing, you know, it's really tricky. And so, you know, like, it's like, those are, I feel like at this point, people are just being willfully ignorant.

23:56It's like, it's okay to criticize as lean startup. There's no problem. It doesn't bother me. I think it's good to do so. It's healthy to do so. But like to just trot out those same old things, you know, it doesn't. I'm like, what do you, how does that advance the state of the art? And how does that help entrepreneurs in any way? And it's like, I'm not even really sure what they're trying to accomplish by doing that. That's the thing that I've grown confused about. It's like, what is the purpose of this discourse other than just to kind of be reflexively contrary? And I don't know. Get some likes on Twitter, flash X.

24:26Maybe you're right. So along the same line, so you wrote the book 12 years ago. If you could go back and change something in the book, is there something that you would want to change? Oh man, I would change everything about it. It's why I actually, why won't let myself do it? When I was a consumer of books, I hated it when authors would come out with a second edition that would destroy what was beautiful about the first edition, including the mistakes. Because in their attempt to put disclaimers on everything and make everything more nuanced, you'd like totally lose a thrust of the argument of the thing they were trying to do.

25:02And their own, you know, like becoming famous, like really messes with you psychologically. So like, you don't want to expose your readers to that. Like, go get therapy. Don't make me go like destroy the thing that made your book amazing. So like as an author, of course, I think so many elements of it could be improved. The one that is the most glaring to me, well, I'll mention two just because they're relevant. One is, I'm a little embarrassed as a chapter in kind of towards the end of the book where I talk about the scaling of Lean Startup. So it's like, okay, you've had success now. What are the principles for which how you scale up a big enterprise now?

25:37You know, if that has many Lean Startups within it and stuff like that. And I don't think I wrote anything wrong in that section, but I really cringe to read it now because it's so blind and just like, step one, do this. Dude, do that. Like, you know, it makes it sound so easy, is so simple. And of course, like, I've subsequently written a whole book longer than Lean Startup just to illuminate those principles and explain how they work in real life. Cause I actually had the privilege of getting to go do that with companies of like really extraordinary scale. So I'm a little embarrassed now. It would be like, I made it sound so easy.

26:09I hate to, I hate to mislead any entrepreneurs into thinking any part of entrepreneurship is gonna be easy because that's just setting people up for disappointment. And the other funny bit is, you know, that meme on Reddit, the Star Wars meme where Anakin Skywalker says, I'm gonna change the world. And Patrick, like, for the better, right? And then pause. And she's like, for the better, right? I feel like that is like the meme of our time for the tech industry. Like, every company was about changing the world. And we forgot to ask for the better. I always just took it for granted that our goal was to make the world a better place.

26:43Like, that's how, that's the values I was raised with. That's what I thought we were doing. And I was railing about it for a while. I got really, I would get depressed. And I remember, don't be evil. And there's been all these moments in the tech industry where it seemed like we were gonna really do something extraordinary. And then just like the things that these companies become is so depressing. And I was like, well, I at least made it clear. And then I was like, did I? Again, I actually went back and reopened the book. And I was like, did I tell anybody that they should change the world? And if I did, you know, I assume I specified for the better.

27:11And it's actually right there in black and white. Like, it right need to actually start up one of the lights. Like a throwaway line, you know, this is the technique that will give the entrepreneurs of tomorrow the tools they need to change the world. Period. And I'm like, no, I should've said for the better. I didn't know I had to say it. I thought it was obvious. I thought we all agreed. So I kind of feel like that is also a major oversight. And you know, I'm making light of it now, but like it's had catastrophic consequences. Not really, I think I don't really clean startup as lead people in that way.

27:37I think it has much more to do, you know, with other social forces, but like what I feel bad that I missed my chance to like take a stand on something that has turned out to be quite important. So you saw me tweet a call for people to ask questions. Oh, yes, Chad. Yes, I'm really excited. So I have a few questions from the audience. The first is around the concept of MVPs. MVPs. So Kari Sarnan, who is actually on the podcast recently. Oh, great. Founder of Linear had a question around MVPs. And his question is essentially, if you still believe that MVPs essentially shipping very basic versions and it are innings the way to go given that user expectations have risen a lot in any markets, iOS apps, for example, where productivity software, things like that.

28:20Yeah, yeah, I love that question because, before I get it, I get it a lot. And also it's important for us to really understand. Like people, people think that MVP is about a specific tactic. So like an MVP is like a bare bone, stripped down, the thing that will crash your computer. But it's not. That's not anything to do with MVP. MVP is simply for whatever the hypothesis is that we're trying to test. What is the most efficient way to get the validation we need about whether hypothesis is true or not? And so part of a successful test is to understand what are the demands of customers in our market.

28:58Now the funny part is people have a real fear of failure in product. I mean, we all have this deep, deep, deep fear. So the first answer is like, what, like you think user expectations are high in the iOS app store, you should try like the purchasers of battery backup systems for data centers or like people who build deep -sea oil drilling machines or like jet engine, I've worked with companies where the standards are like actually really high and the makes iOS apps seem like pretty, pretty basic. It's like, yeah, okay, nothing blows up if people don't like your app. But like even in these really high end industries in really high stake situations, like the cost of offering someone to buy something that they don't like is really not that high.

29:41They just say no. And like a lot of MVP is just about containing the liability of making a mistake. So like yes, one of the things I really encourage people to do is like go find 10 customers, not 10 million, but like find 10 customers, get them to use the product and have them tell you what's awful. That's okay. And like I used to be so upset when I used to launch a product if customers would argue with me, like people used to be like you idiot. I can't believe you lost launch this product without features XYZ, they're so essential. And I would be like you're wrong, I did the right, I gotta get mad at them, but I like that a little smarter.

30:14I'd be like XYZ you say and I'd be like, taking notes, right? I go, interesting. Now sometimes XYZ would be the exact next three features on my roadmap. But again, I wanna argue with them is I know, I was, you know, like you just, I knew that and I eventually used to be like, oh thank you for that wise feedback. And then when we launched XYZ, they would feel a sense of ownership. Wow, I'm the one who told them to do that. He would have even done it. But of course, I think we're really afraid of those entrepreneurs. I think we're really honest. It's not that we will say you idiot, you didn't launch about XYZ, people say you idiot, you launched without APC.

30:43And you're like, how's APC? Never heard of that. That's the much more common response that I get. Like let's say, so let's grant the premise of the question that like expectations are high. And if we launch an app and it doesn't meet people's expectations, they won't like it. First of all, what really are the consequences of that? In an early part of the startup, we had to do a lot to explain to people the difference between a product launch and a marketing launch. Like, you know, you can launch the product to customers without telling anybody that you did that. It's okay, like no one's gonna find out.

31:16It's not gonna be big news. And of course, like once you're a big successful company, that's totally different issue. Where like now you have to put your corporate brand on stuff. But like if you're an actual startup, nobody cares. So like, it's okay to try it. But like the other thing that I think people don't appreciate is that MVP is very flexible. So if you tell me like, when I work with entrepreneurs and like listen, I'm sorry, our customer is the bar is here and the thing just has to be that good. I'm like, excellent. And I can't have very many features, I guess, can it? I'm like, well, what do you mean?

31:45So you just told me the bar is way up there. So we better do like just the one critical feature at that level of quality. And then if that works, we'll do the next one. And then of course, like, oh, no, no, no, I need to do all the features at all the quality. It's like, well, then what are we testing? It's like by the time you find out whether that's any good. And like if you look at the pivot stories, I'm sure you found this too. Like very often 90 % of the work in the first version is thrown away. No matter how high quality it was. And in fact, as an engineer, that was part of my like original disillusionment with the agile software movement.

32:18Then ultimately, the lead startup is that people promised me that if I followed these best practices, I would eliminate waste from my work. But if I build something that customers don't want, that's the ultimate waste. And nobody protected me from that. So I don't really care how high quality the initial MVP is because quality is defined by the customer. And if we don't know who our customer is, we literally don't know what the work quality means. So that's where I think founders really run into trouble. And everyone's like, well, I'm Steve Jobs. I'm this guy, I have the magic taste. And it's like, well, first of all, do you have the years and decades of failures and experience that from which that taste derives?

32:53Okay, if you do that, I'm like, I'll give you the benefit of the doubt. And if you don't, then like definitely don't rely on that. Definitely do some experimentation. Go get those cards. But even if you have the taste, like if you're completely right, what can it hurt to double check? Like my view was like, oh, let's have 10 customers look at it and have them throw up about how it's so horrible. That at least confirms that we're on the right track. Okay, and then we call it establishing a baseline when we talk about innovation accounting and the metrics side of the startup. Let's go find out how bad the situation is right now so that we can then know that we improve from it.

33:24Cause like the thing I actually see from people who in the name of quality will wait a long time to ship a product, is they ship it Ruth really high quality and nobody uses it. And now we don't know why. Is it because our idea of quality is wrong? Is it because the value prop is fundamentally like, I feel like building a high quality, wrong value prop is nothing to be proud of. There's no craftsmanship in that. Or is it, you know, like I once had a company that built a really beautiful product, amazing land. Everything was awesome, but there was a JavaScript error where when you clicked the download button, the sign up button, whatever, it just, it didn't click.

34:00So they launched this thing, it had 0 % sign ups and they're like, it's a good to have a trophy. We made the wrong value prop. I was like, how do you know? From one experiment you can never know. You have to be willing to do a series of experiments. And the, again, the logic of MVP is just, products take time to build. Like the best products in the world, everything takes time. I don't think it takes, tell me it takes a month, a year, you're like, AI will mean I can build any product I want instantly, but like it's not instantly, it's gonna take time. So during that time, the product is under construction.

34:29There's going to be some moment in time when you have half the product. Just logically speaking, you first have 10 % so when you have half the product, let's have customers just half the product. Well, this doesn't cost you anything extra. You had to do it. You build a natural experiment anyway. Have them use it and tell you what's only half is good. Or it's unusable, but it's so bad. Excellent. Good. But the startup literature is littered with examples of people where less is more. Where the crappy small thing they did turned out to be more valuable than the competitor. And I'll just give you one example.

35:00One of my favorites. Hi, I come from 3D graphics, you know, and avatars and metaverse stuff. Which of course, now is bad. Is it, it's one of these, goes to these hype cycles and I'm like, oh, we actually in the hype cycle or in the truck, it's a sparing hype. Are we trending up again? Okay, it's really hard for me to keep track. Even while I was working on it every few years, it was either the future or nobody wanted to do it. I bet sales of snow crash, you know, probably that's a six -mo -go thing to them. And it's hot. People read it. Otherwise not. Anyway, we built a version, our first version of IMVU, we built with 3D avatars like in a cafe or in a scene.

35:34And the avatars were all anchored in place because we didn't have the technology called in first kinematics. We didn't have the technology that would allow an avatar to stand up and walk. And when you do this 3D graph, it has to work perfectly. The feet have to actually glide along the surface. And it just, if it doesn't look right, you wind up in the uncanny valley and people find it horrible. So we're like, can't have that. So we just have to have it. And people felt the product was claustrophobic. They would always be like, the Sims, let's me move around. Why am I stuck here in the chair? I feel, it was a very common thing in feet, customer feedback.

36:03But we were like, we can't afford to do the expensive thing. We couldn't do it, couldn't do it. And one day, as a hack, it's like a little demo. I was like, well, I'll just change it so that when you click in the scene to a different spot, we'll just stop rendering the avatar in the first place and we'll put it in the second place. So it was like really, we didn't even do the proper cut. The camera would zoom over there. It was really ugly. I was really embarrassed about it. I was like, let me just play around with it and see what happens. And we shipped it to CUN. I was like, this is not, this is below the quality bar.

36:31This is like a, like I just like, I have people, I felt bad as the engineer. Everyone involved felt really bad, but we had like committed ourselves. We're gonna try to experiment with stuff. We're gonna see what happens before being start of existence. We didn't even have a cons with MVP. We're gonna try it and just see what happens. And we shipped it, and nothing happened. No one cared. But then we used to do these daily tracking surveys. We just sampled people and asked them what they think of the product. And in the tracking surveys, people started to say that IMV was the most advanced avatar product they had ever used.

37:01We were like, people would be like, we used to be compared to the sims, unfavorable. We were like more advanced than the sims. And I was like, what does this mean? How did we get more of like, did we improve our 3D graphics? It's just like, what, and we turned to do, I couldn't, no one can understand why they were saying that. We used to do customer interviews and finally a customer was like, oh, it's so great man. In IMV you want to go somewhere, you teleport. The sims got to wait for the guy to get up and walk around and so on and on. And we were just like, oh my God, embarrassing. And for you, I mean, we didn't do a number of kinematics for a really long time.

37:33Wow. I love that story. Yeah. Something that I'm learning as you talk about MVP is that the idea of minimum is very fluid and very context specific. And essentially the message isn't build something low quality and simple. It's figure out what is that minimum bar for your market and product. And just like the message is just build as little as possible. Whatever that is. As little as necessary for you. They're like, what, so it's fascinating. I mean, I'm John Jokner. I've worked on Jen engines and robotics and cancer therapies and all kinds. I've worked on stuff. And LTSC, which took us 10 years to build the MVP for LTSC.

38:08So it doesn't even, it doesn't necessarily mean cheap, low quality. It's just whatever your hypothesis is. Whatever you actually believe is going to work. Let's put that thing to the test. That's all I really want. When I work with companies, like, you know, first time founders especially are usually very stubborn about this and they don't want to do it. It's like, look, you tell me what you believe. I don't have to be right. And I want to just double check that you're right. What, by however we do it. And then once people actually start to turn that idea over in their mind, they often will be like, well, you know, like, you know, a classic one is like, well, we can't sell the thing till we build the physical equipment.

38:47It's like, but do people buy, is your product bought in a showroom where people see the physical equipment? No, they buy it from a brochure. So it's like, okay, well, how about we send them a brochure and ask them to pre -order it? And then it's like, what a haul, I can't do that. I can't have a crappy brochure. It's like, who's that a crappy brochure? Right? Like, we can build a really high quality brochure in a lot, like in a tiny fraction of the time it takes to build the actual machine. And then it's like, well, then what is, what are your time, but it has really good fonts and it has pretty pictures, maybe?

39:14What's your theory? Like, you tell me, what do you believe about it? Like, well, actually what matters is the quality of the specifications of the equipment in the brochures. Like, now we've got the leap of faith assumption. Let's go find out. And then like, hold on, but we don't know what those specifications are going to be yet. Like, well, I saw this 500 page plan over here. What do you want it to be? It's like, well, it'd be really great if customers would accept this set of performance characteristics. Like, well, let's go promise that. Because maybe they'll be like, that's great. And I'll just give you one example.

39:49I was mentioned data centers. This is a team that sold equipment in data centers. They had a serious data, a high -end team of PhDs working on research to make the thing way more efficient. And they're going to win like a Nobel Prize in material sciences in order to make this product a reality. And they put, and I convinced them, instead of playing three years and $18 million, so you know, make the thing, let's go take a brochure, take it to some customers. And I'll never forget they took the thing into the brochure, they took it into customers and customers like laughed them out of the room. And it was like nothing to do with anything they cared about.

40:22If we don't need to do with efficiency, where there are like, this is, we would never buy this. And they're like, but you haven't even looked to page two to see how efficient it is. They're like, we don't pay for efficiency. We build data centers. How much they cost to operate as somebody else's problem. You're like, oh my God. Right? That's the thing people don't appreciate. It's like these insights are so obvious in retrospect that everyone's convinced that they won't happen to them. When I teach students, it means start up there like, this is so dumb. They do one case after another in business school.

40:51And they're like, dummy, dummy, dummy, dummy, dummy. Right? They're like, I would never make that mistake. And I'm always like, look, you don't have to argue with me. Just call me back when you get a job. And you make, when you wake one of these mistakes, like remember we had these conversations and go read the book then. And I guess by you, by random chance, there are some people in the world that just never made a mistake. Yes. The dice, you know, you roll enough dice. Somebody had the experience that dice came up, you know, double six is every time. Okay, so there are those people and they give a lot of the advice in the world.

41:18But I don't know that it's necessarily those most of them. I don't know if the double six lock should necessarily be following it. This will be a really good segue to talk about pivots because again, a big part of your message is a lot of the work you're doing is just going to go to waste anyway why spend all this time building it. But just to kind of put a final point on this idea of MVP, because a lot of questions came in around just like, what is an MVP? Ben's a silverman, the co -founder Pinterest as his quote, he didn't ask a question in a thread, but he has his quote. A hundred percent. Yeah.

41:48And his quote is the hard part of it about MVP is that you don't know what minimum is, you don't know what viable is. And so just to give founders who are trying to figure out what that line is, some very succinct advice, how would you describe just helping them understand? Here's how far you should go with your MVP. He didn't say you also don't know what product is. That's true. I can't tell you how many times a service is turned out to be a product or vice versa. Like people embody their insight about customers in the wrong way all the time. That's super common. That's funny. No, but like all the criticisms of MVP are really just people expressing their frustration with how uncertain startups are.

42:26Yeah, it really sucks. This is not a good way to make a living if you want to retain your mental sanity. If you get, if cognitive dissonance, if you find that painful, like this is not the right job for you because it's really hard to hold in your head, I have this ambitious vision. I know what's gonna work. I'm gonna do confidence. Get everyone together. There's no substitute in this world for a human being stepping forward and just like, I am gonna make this thing happen. And if you do that, if you're putting yourself way out on a limb, it's really difficult. It's really hard to admit that and I also do not know how to make it happen.

42:57That's the truth. Whether you admit it or not, that's the truth. So we have to just, that's why I say, let's just double check. So simple, succinct advice. The first tip is right out the list of features that are necessary in your MVP, cut it in half and cut it in half again and build that. Honestly, if you just do that, that's really not that bad. The nice thing about MVP is it's one of those U -shaped curves where like, if you get even in the vicinity of optimal, you're gonna be fine. And most people's natural idea of what is necessary is so laughably wrong. People are naturally off by like usually like one or two orders of magnitude.

43:32I was very common for an immediate team that is trying to do 100 times more work than is necessary to test their assumptions. So first thing is just try the uncomfortably small in the thing that you actually make. And if you're having trouble with that, in the startup way, in the SQL tooling startup, I really go through, because it's really more for a corporate large company audience. Like I really go through like, okay, if you want to have a process for determining what to do here, like you should first brainstorm your leap of faith assumptions and you hear it and categorize them this way and select them like this.

44:03Okay, now for each assumption, brains are in the metrics you might use, select the metric you want, what is your learning metric, and then from there, brainstorm MVP, score them according to this formula, and then like use that to help people. Anyway, if people can follow that, they want. The thing I learned is that if people are having trouble coming with MVP, the problem is usually upstream in the chain of deductive reasoning from the vision down to the MVP. It's like usually people are just not super clear on what do I want to learn. And it's the most common reason is because people don't want to admit that they don't know.

44:35So it's an entrepreneur to say that we're going to test to find out what customers want is really hard. I'll give you an example from my own experience. LTSC, I said it's taken us like 10 years to get the thing approved and going. It's a really very difficult product to build. One of the early iterations of it that didn't work, we were building on partner infrastructure. It was just a very different product back then. I don't want to get into all the legal nitty gritty because it's kind of dry. But anyway, it took us six whole months. It took us time to raise the money, build the team, do all stuff, get all the lobbyists and lawyers everything in place.

45:08And then we had to go part do this partnership, agreeing the partnership agreement itself took like six months to get in place. And then we had to go to the SEC and get approval. It was like a very complicated multi -stage process. Probably took that and I just described two years in my life end to end there. And the whole time I was talking to the team about our goal with this whole thing is to learn what is actually necessary to get customers to list on our stock exchange. Our goal was learning. People are like, but our goal was to get this contract done. I thought our goal was to, it's like, we guess, but the reason we're doing those things is so that we can learn whether this is actually going to work or not.

45:40And so I remember, now they're forgetting the contract negotiations. People were like, you know, we got to take an extra week to deal with this point. I mean, we don't have an extra week. It's like, but this thing's taken two years. What's one week? And like, no, every day is soap. We have to get the learning as soon as possible. And I was like constantly haranging everybody involved. We got to go faster, faster, faster. You've got to give on this point, give people were walking all over us. We were getting just destroyed in the negotiation. I was the weakest, lamest person around. Just like, we've got to raise the money.

46:07I was anything to get speed anyway. Long story short, we get all the way to the end. We get the thing approved by the SEC staff. And then like we get ambushed. And like long story short, the SEC withdraws their approval and the whole thing is dead. The partner, you know, we have to break up the partnership agreement, everything goes to hell. And I thought the company was going to die. And it was a totally miserable time. One of the worst things that ever happened to me in my life, I was totally upset. And then you know, and in retrospect, I can laugh about it because it turns out of course, it was the worst thing that ever happened to me, but it's actually the best thing that ever happened to me as a lot of certain things are because from that, we were able to pivot into the thing that ultimately got us approved.

46:43Well, the reason I tell this story is every bit of work we did that went into that partnership agreement for almost two years turned out to be a waste of time. Because in the end, partnership agreements fell apart. So like if we had one a few extra clogged, or my margin would have to be higher if we had extracted more fees from the partner or like though, we would have had less liable to people who were like, well, I have the liability for this. And I'd be like, well, if that, and I think about all the things that this thing was hundreds and hundreds of pages long, document. That didn't matter.

47:10In the end, the partnership was never consummated. No customer, nothing ever happened. And the interesting thing that raises the story is that the people who went through that experience with me were so much faster on the next thing that we did. It was really amazing to see, because they were like, now I understand what you mean. Most people live very coddle lives that have not actually really dealt with this kind of failure in their business career. Obviously, like in their personal lives, they'll have all kinds of trauma. And you know, like they'll work to a crappy company and have a horrible experience.

47:38But they haven't experienced this specific thing where like, you are the hero of the hero's journey. You are the protagonist of the story and the thing is not just a setback, but you just die actually fails. It's so psychologically damaging that even people that have had that experience, a psychological defense mechanism is to tell themselves that that didn't happen. And like, you know it better than anybody. How many startup founders are like adamant that they didn't ever fail, they didn't pivot, everything's exactly the way they saw it, you know, at the beginning. And it's like, I've been around enough startups to know how often that is just not true.

48:09But like, we need to tell ourselves that story. But anyway, if you, the number one lesson of the scientific method is that you can't fail, you can't learn. And so if you set yourself up in a position where psychologically you can't admit that something didn't work, you can't learn. And that's like, that really is the essence of MVP. It's just like whatever the catastrophic thing that's gonna destroy your company is gonna be, you just wanna find out as soon as possible so that there's still time to do something about it. We don't just die and move on. I'm actually seeing this a lot right now. I'm an investor in a bunch of startups and so many of them are failing right now.

48:44And they've built such beautiful products, such amazing products that they spent like years, just like crafting, making so great. And then it's all, it's all for not. And there's actually been a theme on the podcast recently around the importance of craft and design. And I'm curious just to get your thoughts on just when it makes sense to invest deeply into the craft and experience of a product versus, the minimal viable product approach. Do you start very simple and then invest? And you get there. Well, I think that's a great question. People use the word craft to refer to so many different things.

49:21Like I personally find a tremendous beauty in simplicity. So like I would much rather people do one thing extraordinarily well than like 20 things have asked. You know, personally, how many products do you use? We were like, could you, there's like 92 buttons on here, of which I only ever press one. Could you have made that button like have a really nice feel? You know, I would have sacrificed all this other stuff. And I mean, I've actually worked on microwaves and refrigerators, stuff with actual physical buttons. And like even your crappy kitchen microwave that you paid $60 for a wall, more or whatever, if you've never seen one of those things manufactured, it's actually in the amount of craft that goes in behind the scenes to wire up every one of those buttons that are never pressed by a human being.

50:02It's actually really painful if you start to think about, wow, that's a lot of human energy being wasted. So the elements of craft I think are critically important. First of all, part of craft is perfection. Perfection is an attribute of quality and we have to go back to the first thing in order to know what perfection is, you have to know what the customer believes. But you have to know here, you have to be perfect for some purpose for some person. Some people will just say, well, I'm just gonna build for myself and that way I solve the problem. That's totally fine. That's true, that's you. Go nuts, you might only have a market of one, but you'll be happy, so be it.

50:32And then there are, and there are startups like that where it's like, well, I don't care how big my market is. I'll just build for all the people like me and I have a huge tribe, then I'll be hugely successful. If not, I'll just be an artist doing my thing. I have total respect for that. That's like the ends and the methods are totally aligned. Where people get into trouble, I think, is when they want to use craft as an excuse to not get any feedback. So what I tell people is, first of all, there's an element of craft that is just like, whatever you do, how are you going to go about it? Whether you're building an MVP or a fully featured whatever thing you're doing, I'm a software engineer by training.

51:06My code is a certain way. I have a certain craft in the way that I write software because I think that's the best way and that produces the best outcomes. I will never compromise that. And compromising that in the name of going fast is stupid, like the right crappy code, you spend more time firefighting than you do writing code in the future. So a certain amount of craft is just about keeping your options open. And actually, it's very much like favorable to speed using the right primitives, having the right abstraction layers, like using the right tools in the right way, and having high quality people in your team, like all those things that you go faster, not slower, and a big part of the start up is about helping teams get into that optimal configuration.

51:42By acting as a speed regulator, because there's such a thing as optimal speed, which we can get into if we want to do. But another part of craft is just an excuse for just avoiding feedback, like making things pretty, that pretty in the way that I want them to be because I want them to be that way. And even there, when I meet people like that, people are just like, sorry, my artistic ethos is this, and we have to be this way. And I'm like, excellent, and that's not one of your leap of faith assumptions that you're willing to test. So like, so be it. Don't pretend to test it, just be like, I'm not like, we're just gonna do it this way because that's how we do things, and it's fine.

52:16And I think like that's a big, like when company has a core value, like I'd rather go out of business than violate my core value, I also respect that too. But like, then that to me, that means like having a respect for craft, for design, for perfection, that increases the need for experimentation and testing, for all the other stuff. Because we've already invested a huge amount of our energy and force into this thing that we really care about, well then the other stuff, then do we also have to do this fancy press campaign? Do we also have to go put the founders base on billboards and put them up around town?

52:48Like, are those all part of your craft? Like I just feel like people use that as a catch all excuse to do all kinds of stuff. But I think the idea that craft is a signal to your customers about the things that you actually care about and that you're gonna take care of, let's think it's part of making a promise to customers that they're gonna believe. Like if that's your thesis, they're doing an MVP that lacks craft, doesn't test the thesis. So I think people want to set up an economy here that doesn't really exist. I'm totally in favor of that when people have that authentic desire, but I also mean a lot of people that are just faking it.

53:23They don't have tastes, they don't have a design ethos, they don't have, so like if you don't have that stuff, where you're gonna get it from, well good news, experimentation will get you there if you let it, because you will eventually learn the habits of mind, the patterns of the things that work, it makes sense. I really like that advice of, as a founder, build a company you want, like if you want to build, like why create a business in a company, you're not excited to be working on. And if you end up failing, like it's on you, that was a big mistake, it turned out. But at least you tried and you're not building a company you don't wanna work at.

53:53And then as a product leader, I don't know if you have as much control to build a product the way you want, but try it basically. I always tell people to just get fired for doing it the way you think is right. Like there's nothing that was a faster career accelerator than being known in the industry as the person who stands for that principle so much that you got fired over it. Like the people that magnetizes to you are gonna like, you're way happier, you're gonna be so much happier being a place that appreciates that. That was a big career accelerator for me, not that I actually got fired, but I was willing to be fired for my beliefs.

54:25And I remember sitting there, I was going to a board meeting where I was sure I was gonna be fired. And I was like, well, I just don't believe in building products the conventional way. This is like a before lean startup. So I was like, I didn't have a language for it, but like I had a strong conviction that the way I was doing it was the right way. And I was like, well, I'll just, I'll be known as the guy who got fired for that. And eventually someone will want to work with me because that's what they want to have. If nobody wants that, then I'll go find a job in a different industry. Like I don't want to be an industry that doesn't, like that's how I want it to be.

54:54And I think that people, people don't appreciate the extent to which, people act like having a startup fail is the worst thing that can happen to you. And like, man, that's not even in the top 10. Like it's bad. I mean, I've done it. It's awful, okay? It's really bad. But far worse is to be in a company that won't die, a zombie undead company that you hate, but you can't leave. Whoop. I've met people like that. And like we're having a mental health crisis among founders that's like not talked about enough. People started talking about like the downside mental health where it's obviously the stress of being a founder is hard.

55:26But like, look what's happening to the people that are so called successes. Like when you build a company and you sell it out and it becomes something that you find a parent, like, yeah, man, you get rich, but it's not good. And I mean, I just deal with the day. A friend of a friend of his who sold this company exited for like, let's say $300 million or something, made a lot of money and committed suicide. Like not that long later, people follow the Tony Shea story. I've had a new Tony. I was a horrible tragedy. Like, what's going on? So I just feel like there are worse things than having your startup fail.

56:02And so building a company you hate that becomes a malign force in the world, you know, that you have to go pretend you weren't involved with or like you feel complicit in what, like, that's way, way worse. And I wish more founders would take that more seriously early on. That is such an important point. And something I see a lot too. Just companies that founder started that are just like alive, but they were almost never gonna succeed. And they're kind of stuck. They don't want to shut it down. They don't want to give money back. What advice do you give those sorts of founders that you feel like are just stuck in a zombie company like that?

56:33It's really hard. I mean, of course, if it's gonna fail, you should shut it down. But everyone's like, but I thought it's always dark as before the dawn. And it's like, sometimes it is. It's all, you know what else is really dark? Like, when you're dead. Like, right? So like, what's the, everything comes back to, I used to tell people, the most uncomfortable laugh line in my early talks about Lean Startup. When I talked about, the people used to talk a lot about Steve Jobs and the Reality Distortion field. And I would be like, okay, in the Reality Distortion field, you're on the flat part of the hockey stick.

57:07How do you know? And the business plans, I actually lived through this once. There's a business plan. The business plan says six months after launch, we will have almost no customers and almost no revenue. And that's when the hockey stick will commence. And I remember being there in month six being like, we are on time, on budget. This plan is cheap. Everything's happening just like the plan, hockey stick to commence. I'm walking in my watch. And then we just stayed on the flat part into the far horizon. And people would laugh and I'd be like, okay, now, if you're following the start of leader, you're in the real, or you're yourself or in the reality distortion field, and you're on the flat part of the hockey stick, how do you know if it's ever gonna stick?

57:43Where you're just gonna be. And people will be like, huh, huh, huh. And that's like, that is a really scary situation. It's like we all have these moments of doubt and sometimes the right answer is to overcome the doubt and go for it. And it's actually part of the genius of the startup system. You know, the people, it's been quite just people criticized venture financing and all the problems with Silicon Valley. And of course, do it to ourselves. So it's plenty of things to criticize. Like one of the genius things about it is like, at the end of the day, you do run out of money. The thing, you're forced to declare bankruptcy.

58:15That's actually a really positive feature of the system. So a lot of founders just can't do it. But I will say like the thing I try to ask people to do is like, take, really take some time to introspect and just ask yourself, do you actually want to be here? If you could magically wave a magic wand and you were to start a new company right now, would it be this one? If it's not, just, there's no indentured servitude anymore. It's okay, you know, it's okay to move on. And then the question is like, then everything moves into a tactical conversation about shut it down, give the money back, do a really hard pivot into the new thing.

58:50You know, it depends a lot on the specific factors of the situation. But I think we do, founders of disservice, if we act like this is easy. Or is it, I mean, it's just, it's gun wrenching and it's really difficult. And like not to be too spiritual about this, but like it really goes right to the issue of ego identification for so many people, they are their company. And so for the company to die, they also must die. Like it feels like you're going to die. And I think that is like, that's part of the mental health problem. So like people, you know, as they get older, as they mature, as they have a spiritual practice, I hope they can learn to dis -identify with the company and not feel like it's so personal so that it is possible for the company to die without them dying and then they can take what they learned into the next company or into the next pivot or the next iteration of what it should be.

59:36Or sometimes what I think to do is just to step aside and let a different CEO take over. Or you know, there's so many ways you can go about it. But as with any pivot situation, the hardest part is always just to admit the facts as they are. And then you do it yourself for it's just like, what is the situation? Is it working? Can't tell you how often people just can't accept not working and you get investor updates. How many investor updates have you ever received where it's like, we're crushing it, everything's going great. And then very next investor update is we're out of business giving money back.

1:00:07It's like, well, you had no, your last investor update is that you were crushing it. It was absolutely no indication. There was any problem like, oh, of course, it was an indication, but we're just lying about it. So don't be that person. That's actually an amazing segue to where I wanted to move to, which is around pivoting. So I've done a bunch of research on consumer startups, B2B startups, and the numbers I see and I'm curious if you see similar numbers is around a fifth of consumer startups ended up pivoting to a completely different product. And almost half, like 40 % of B2B companies ended up pivoting to a completely different product.

1:00:39Does that sound right from your experience? Yeah, that does sound right, but so it's interesting. I usually do this exercise for founders where I would tell them the story of IMVU two different ways. The first way is in one in which, we got everything completely wrong and just sounds like we were to complete idiots and we had to pivot so many times. And then I would tell the same story again, but where we got everything right and we were geniuses and everything that happened vindicated. And then people wouldn't believe me. I'm like, both stories are true. Like choosing which elements of what actually happened to emphasize and where to put your weight, you can tell the story.

1:01:13So like, yes, I would say there's like the percentage of people that know that they pivoted and then there's another percentage of people that didn't admit it, but they actually did. And it's really hard to assess from the outside. I mean, just I know this from having worked with enough startups where I know the outside story and I know the inside story and they're just really different. I mean, Paul Graham used to boast about that as one of the features of Y -combinator that the founders they would get to come to the dinner would tell you the true story of what really happened and that was critical information.

1:01:42You couldn't get anywhere else except at Y -combinator. And I was like, wait a minute, he's saying that everyone just lies on stage when they tell the story publicly. I don't know if that's something to boast about. You're calling all your guest liars. And then like, I've hosted a lot of those events. I'm like, oh, yeah, people lie on stage, I see. So I think part of the problem is just like trying to find out the truth of what happened is really challenging. But there's another element that I think is interesting, which is, so you know, pivot is to find is a change in strategy without a change in vision, right?

1:02:10So we have this idea that the founder has the vision, then they try to figure out how to make a vision happen and they find a different way, but like the vision stays constant. But the truth is a little bit more complicated than that because the founder's vision also evolves. Founders discover what the vision actually is through the process of building the company. So we can not be spiritual about it, but I actually believe that building it sort of is, in large part, a process of self -discovery, you actually aren't discovering what is true about the thing that you yourself believe. And part of that's because when we fantasize about the vision that we never have to make any trade -offs, you know, the product is infinitely popular, infinitely cheap, you know, everything's good.

1:02:49It's just like there's no trade -offs to be made. Well, real like forces is to make trade -offs and then you find they're like, oh, I have to choose would I rather have a high end product only for a really rich people, or would I rather have a product for this industry or this sector or this group or that group, like it can be painful. But also founders learn to talk about the things they care about over time. So I mean, go on YouTube, if you've never watched the interview with Zach on his couch at Stanford talking about Facebook, it's remarkable, then it just, some college, some college news person was like, just happened to catch an interview with this guy, like at a critical moment in his life when he just didn't know what he was talking about yet.

1:03:31And like now he's really ambitious. And now Facebook's vision is this really ambitious thing and people are very at pains to say that he always had that vision from the beginning and he talks about, I don't know, then like, that may be true, but you put the documentary evidence exists and I'll just give you one of my own stories about that. One of my companies we moved offices relatively early on because we started on a really, really crappy small office and we moved to a larger space. And I remember sitting in that office when there was just five of us and we sat down and we had a meeting where we spec'd out what we would now call the MVP as well as the longer term vision for the company.

1:04:07And we had this whiteboard, we, all of us debated what features should be in and out or what should be on the whiteboard. And I can remember writing down, I have the physical memory of writing down, the things that we're gonna be necessary for the company to succeed in being right. And my co -founders arguing with me about not having their perspective there being wrong. And I'm like, good thing. And I'm like, I can, I can, I can, one of the things I remember telling the story. Anyway, we moved offices shortly after that time and that whiteboard was lost. And then years later, we moved offices again and someone was cleaning out an old storage closet and that whiteboard was just happened to have got shoved in the closet.

1:04:46Someone pulls it out like, what's this? And I looked at it, I'm like, oh, that's the whiteboard we used to hang in our main conference room. And it still had the notes from that meeting are sitting there on the whiteboard. I was like, this is so cool. Historical moment, I'm taking a picture and then I'm like, wait a minute, this is weird. It's in my hands, I'm like, it's recognizably in my own handwriting. But many of the things that I'm writing there are horrible ideas. I'm like, that's not what I thought back then. I was on the other side of my throat. That's why co -founders' bad idea, that's not my idea.

1:05:19And I had this realization that like, it's not just that I learned something through the course of building this company about strategy. My own understanding of the vision of what we were doing was different. But I don't, like the thing that's so critical to understand is I, given to this day, have no psychological memory of having changed my mind about it. I still have the original memory of writing those things on the whiteboard. And I thought, I really thought someone was playing a trick on me at first. Because what I could witness with my own eyes on the whiteboard contradicts my actual memory of the thing.

1:05:53And I was like, which of us is right? And of course, I had to admit, the physical evidence, you've got to win out. But I think it's important also to understand how much that is true. And that's like, again, go back to like, why science is so important? Like, why do we write all the elementary things about science? We write our hypotheses down. We subject our things to tell, like we do that because human psychology is so buggy. And people who are fighting with their like, generative AI, you know, chat bots and stuff are starting to see like, those are nothing but a reflection of human theory of mind.

1:06:23So like we're trying to see it in an alien creature that like, wow, our intelligence has all these weird behaviors and gaps and things. And of course, we want our robots to be perfect. But it's like, well, first look in the mirror and realize that you yourself carry all those cognitive biases and you've got to put in place a structure to get around them or they're going to destroy you. That is an incredible story. It makes me think about just not like, I think it's exactly what you said, not only are the stories you hear often intentionally, not accurate, they're true. And they're kind of a myth that they've been created.

1:06:54But also you forget exactly what happened. And you tell a story that didn't really happen. That's wild. Imagine a place where you can find all your potential customers and get your message in front of them in a cost efficient way. If you're a B2B business, that place exists. And it's called LinkedIn. LinkedIn ads allows you to build the right relationships, drive results, and reach your customers in a respectful environment. Two of my portfolio companies, Webflow and Census, are LinkedIn success stories. Census had a 10X increase in pipeline with a LinkedIn startup team. For Webflow, after ramping up on LinkedIn in Q4, they had the highest marketing source revenue quarter to date.

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1:08:11Just go to LinkedIn .com slash pod Lenny to claim your credit. That's LinkedIn .com slash pod Lenny. Terms and conditions apply. You see, you talked about pivoting, and I never knew this about the term pivot is that you keep the vision the same. And I actually have this list of companies, B2B companies, in this case, that pivoted. And in their cases, it was very different. And let me go through them real quick, and I'm curious, what do you call it? They don't keep the vision consistent. So segment started as a university classroom lecture tool. Lume, which just sold for a lot of money. It's at last the end start as a marketplace for companies to hire subject matter experts.

1:08:51Slack famously started as a game called glitch. Box apparently started as a box to put photos and content on Facebook. And retool started as Venmo for the UK. And my that one I didn't know. I heard I found that out through Twitter where one of the YC partners replied and share that story because I also didn't know. And I think that's a good example. Where no one ever tells you that. That's kind of an important part of the story to know, yeah, exactly. I think it was a question of it. They think they got to YC and they're like, no, let's do something else. This is why it's so hard to evaluate from the outside because oftentimes there is a thread of connectivity that from the inside makes sense why we went from this thing to that thing.

1:09:34And it's often something unusual. Like it'll be something like, well, while we were building the game, we had to do this thing first because our values were like, you can't build a game without this thing. And then this thing turns to be more valuable than the game. And then you're like, oh, why are we building this game? This is the thing we actually really care about. So people like, well, I thought your vision was to build a game. I was like, well, maybe. But why did they build that thing first? Other people build games without building that thing. So like that's why I say it's a process of self discovery.

1:10:03Oftentimes the vision is discovered more than chosen in these stories. And from the outside, it can seem really, really weird. And part of it is also that some people really need the failure of the first thing to appreciate what is great about the second thing. I think segment is a good example where they tried a bunch of stuff and then they posted this random thing on hacker news and they just blew up. Yeah. Sometimes it blows up so much. You're like, wow, that's amazing. But oftentimes like the new thing will get like 100 signups. And if you'd started with that as your first thing, you would be like, yeah, 100 signups.

1:10:38If you've done 20 things in a row with zero signups, man, you're like, God, somebody likes this thing. Like, you know, it's somebody's first time sometimes not. And again, not to go back to Facebook all the time, but it's such a famous story that people know it. You know, in the movie, there's that famous scene where they live in the house in Palo Alto and they run into a Sean Parker and you know, those things. Like, apparently that's real. And they really were living in that house. They really were working on fake. But like the thing that gets missed from the story is that Facebook's already started at that point.

1:11:05It's already being successful. And they're on the break between semesters on the summer. And Dustin Moskovitz and Mark Zuckerberg and Adam D 'Angelo and I forget who else were living in this house together. And I remember learning, someone told me this story about what they were actually working on at that time. What's it Facebook? They like, Zuck and D 'Angelo had already moved on from Facebook and decided it wasn't successful enough and they were like, I forget, one of them was working on like a system where you could like use gestural controls on your webcam to program computers because they wouldn't get carpal tell.

1:11:35They were sitting on Facebook and it was like the story, I think I should ask Dustin, this is true. I didn't believe Dustin Moskovitz taught himself to program so that he could like keep up with the demand of people who wanted to open Facebook at new schools because the virality was like so insane. And I was like, wow, you can be even building Facebook and not know. And it's like people are like, well, if I told you that story without telling you the name or the foundry, you'd be like, that's no visionary. I'm like, no, it's Mark Stockton. No one has ever accused him of having a lack of vision but somehow, this is true.

1:12:12So I feel like part of this is about just admitting the complexity of these stories is a little bit more, there's more to the story than you really realize. These are imperfect people and the pivot is really about like learning, right? That's to me, like the thing that matters, you know, the original idea of the pivot was like, one foot anchored in the thing, one other foot moving like from basketball, right? So like anchored in what you've learned and yet connected. So like it was truly a complete shutdown start over again. Nobody and nothing in common, I would be like, that is not a pivot. But that is just actually quite rare.

1:12:40Usually there's some critical insight or element of the first thing that is carried over into the second thing. And if you were there, if you know the story, you'll be like, oh wow, that makes sense in retrospect. And again, I think this cuts against our whole idea, like the thing we think it's like to be a visionary, is you just, you know all the answers, you're like a biblical prophet who sees the future. But that's not what it's like. It's really much more about having the courage to see the world as you think it ought to be. And then dance with that wherever it takes you. And so I think it's a much more an element of courage than of intelligence or anything else.

1:13:17You're so full of amazing stories, Eric Rees. I never knew this Facebook story. I'm thinking about a founder who is maybe going through a period of considering a pivot. There's a lot of startups right now just not struggling. Not struggling, but struggling. The 2021 vintage is having a rough time. Exactly. And so I'm curious just what advice you have for founders that are trying to decide is this time to pivot? Should we give up? Should we stay the course? Just any tactical pro tips? So first of all, if you're asking whether you should pivot or not, you probably know the answer already. That's the first thing to just straight up say, people call me sometimes, they're like, I want to know if I have product market fit.

1:13:58Well, the fact that you have time to call me and ask me this question already tells me the answer. If you had product market fit, you would not have time for this. There's no time for like when it's working, there's no time for naval gazing, there's no time for, if you've never lived through a company going through product market fit, it's such a rush, it's such an insane thing. The whirlwind of it is so amazing and so horrible at the same time. There's just no time for anything else. So if you're not sure, you're sure. So that's the first thing. It's just can you admit it to yourself? Can you do it?

1:14:26The thing, then it's like shut down. If you admit that it's not working, then like what do we do? And like I really, what I really ask people to do in these situations is like give yourself a fixed period of time to take some decisive action and see if it feels bad. So like classic thing, if you can't agree that it's not working, then like can we take six weeks to try to make it work? It's like we have this assumption, we're gonna try to test it and we're gonna like instead of working on the 29 other things that we have to do in the future, can we just spend all of our time 100 % on the one and only one thing that matters right now and just like go head down on that for a fixed period of time and see can we move, is it possible to move the needle in that thing?

1:15:06Because one of the things that is true about startups when it's not working is that they're stuck in this kind of law of diminishing returns. We're like you just, you can test yourself, you do everything you try, it doesn't work. There's nothing worse. It's like Thomas Kuhn in his theory of scientific paradigms. One of my favorite things that he talks about is like when an old paradigm is replaced with a new paradigm, it's usually only because the old people die out and the new people replace them. But he's, but he gets, when a lot of research into like why does that happen? It's not that the new people are like magically smart than the old people, it's just the old paradigm gets to the point where there's no more experiments to run that are fruitful and young ambitious people want to run productive experiments and the new paradigm gives them a thing where like every experiment reveals something really amazing and they just naturally gravitate.

1:15:50It's not actually a formal process of abandoning the old and going to the new. And that's true here too. Most people are not consciously able to let it go. They can't do it. So okay, find yourself a paradigm where the experiments are productive. Like I can't tell you how many startups I've been where they're like it's up to the right. I'm like a really? It's like yeah. At first it was 10 % now, it's 10 .5%, then it was 10 .6%, then it was 10 .65%, then it was 10 .65%, 7%. You're like, guys, yes, it's up into the right, but it's not what you need it to be for this to work. It's just so trying it yourself.

1:16:22So give yourself a fixed amount of time on the current thing if you have to. Then if you can't do it once you say, okay, the thing's not working. Do we have enough time for something new? Could you give yourself six weeks to try the new thing? And it's like, you know, if you're a bigger company but like, okay, maybe you can't have a whole company work on it. But like can we have a team or can we do something where we just somebody, at least one whole human being, not a part -time committee. Somebody is full -time heads down trying to make the new thing work on a deadline. And if you're a small team, you're just only three of you.

1:16:53Can you just put the old thing on pause for a minute and give yourself a fixed amount? If it was one weekend, it would be better than nothing. Any amount of what can you actually afford? I suppose six weeks, but if it's only one week out, like no problem, whatever, like what is the new thing you wanna do? And just now that you've agreed among yourselves that you're going to do that for a fixed period of time, everyone go around the room and say, if I could start this company over again, the thing I wish we were doing was. And no one wants to go first, but since everyone's gonna have to do it, you're like, okay, I kind of wish we were doing this other thing.

1:17:27Why? Well, everyone say, I'm like, sometimes the first person goes and everyone's like, I've been wanting to say that same thing for months. And it's like, wait, we all actually secretly want to do this other thing, but we all are afraid to let the others down. It's like, that's actually great, new, well good. Don't mourn the 18 months of your life, you just wasted. Be excited about the fact that you actually are on the same page about the new thing. Anyway, everyone says the new thing, see if one of them stands out to you, do that one. If you all agree, do that one. If you have three things that you're equally excited about, do them in order.

1:17:58Everyone gets one month. We've got three months of runway left. Well, first month we'll do the first thing, second one we'll do, and we'll just see if anything sticks. And then sometimes we'll do that and they're like, I'm just exhausted. I just wanna die. If everyone goes around and says, does that just give the money back? It's okay, don't die. Let the company die, it's all right. And when you raise too much money and you got your cap tables all messed up, and I feel like for our 2021 vintage brothers, like, and sisters, sometimes you just, you need to try again with the right capital structure.

1:18:30It's not possible. So either recap, make the structural changes, you actually have to make to give yourself a chance to do something you care about. You don't have that. What are we doing here? Life's too precious for that. That is awesome advice. Very tactical, very real. On the point you just asked of what would we be doing? Like, what would you wanna be working on? I imagine many people today would be answering AI related products. And this is a good segue to where my next question is just, how are you seeing AI change the lean approach, product development, the way teams are run? What are things trends and changes you're seeing and all of the stuff that we've been talking about?

1:19:09And we were entering into a really interesting phase of humanity and technology and civilization and to know the right answers to those questions requires empirical knowledge that nobody has. That's what's exciting about it. And also, of course, some people find it terrifying. I think that what I'm seeing so far is that, first of all, people are afraid of AI, but that really afraid of AI, they're afraid of corporations with AI. Like, AI doesn't do anything by itself. It has to be embodied and deployed by humans who have bad alignment. And so everyone's talking about AI alignment. I'd be a little more sanguine about AI alignment if the company's doing the aligning we're better at aligning their human intelligences.

1:19:47Because, you know, I'm blanking on who's law is. I don't know his name, laws. So the idea that your software comes to reflect the organization that produces it is somebody's law, onway's law, maybe. You know what's called a Reese's law? No. Please don't. I forget who's law. Anyway, that is gonna be true on steroids in AI where we're training in machine intelligence and we're transmitting values to it. Those are gonna be our organizational values. And tech has severely under invested and neglected in creating governance and alignment structures to have those values be explicitly like embodied in the organization, which is why so many of our companies have become disappointments.

1:20:24And so many people feel betrayed by the companies they themselves help build, it's actually kind of sad. So AI is gonna force us to take those issues seriously no matter what. The other thing that's interesting you ask about how it affects the need to start up, at the end of the AI is a management technology. The thing it does is manage intelligence and other intelligences. And if you watch people struggle to make AI agents work, it's been really interesting to me how often I've played with a lot of those tools myself. It's amazing how often you program the agent and it will be like, okay, the job, you give it a task, like go take over the world or whatever, go make up really, it says, well, ice cream stand.

1:21:01Or you give it any task you want and it'll be like whatever, these AI's our programs to never say no. So whatever you say is like, you don't problem. And it'll be okay. First step, write a business plan for taking over the world and I'll spawn a new agent with a new AI and be like, okay, your job is to go write this business plan. And sometimes it will like, you know, go try to write the business plan. But oftentimes it'll like, it'll spawn, it'll be like the new, the sub task will be like, oh, first thing I need to do is spawn an AI agent that knows how to take over the world and have it write the business plan.

1:21:28And it'll just, everyone will just pass the buck to somebody else or it'll be like, it'll go into an infinite regress which was like, first thing you need to do is research this and then like the thing that goes back and now we've learned to research that we need to research 10 more things. And each of those 10 things require researching 10 more. That's like so many ways to go wrong. And anyone who's been a middle manager who reads these transcripts will be like, tell me about it, buddy. Right, I know I was doing the AI agent. I wanted to write me a 30 day course, 30 day on a transcript or a 30 day course for teaching people lean startup.

1:21:56So what it asked me to do that. And I was like, great, I'll have the AI do it for me. And it was amazing. It was like, okay, no problem. Day one, what is lean startup, how does it work? Day two topic, you know, what is an MVP? How's it work? Dot, dot, dot, continue like this for 30 more days. You'll have a 30 day course. I was like, yes, is I know that what could you please fill out the other 30 days? It was like no problem. And it spawned a new sub agent. It was like, given these two as an example, please fill out the other 30 days. And it was like, got it. And it was like, how to do a task in 30 days?

1:22:26Well, first look at these two tasks, then like create similar things for 28 more days, then return the results. It's like, no, no, I'm asking you to do that. If you ever want the money, if I thought no, can't guard him if he's a guard skit, it's like that. You're just like, no, it's like, we're talking past each other. So yeah, I think there's like, it's really interesting to see how AI, as we learn to understand it, we will be able to develop different, it will like, really change management a lot because it will change as the individual span of control. Quite a lot. It solves one of the most hard problems in management is that in order to touch a lot of things, we need a lot of hierarchy because just the expansion factor of each one has this many reports, has this many reports, this many reports.

1:23:09Like that's what's required in order for us to like summarize a large amount of information. You know, if you have 100 ,000 employees, they're having 100 ,000, doing 100 ,000 things to see, you don't need to know what's going on. That's really difficult. You need to, so there's this massive amount of human labor required just to summarize and understand what's happening. Well, AI is really good at summarization. It's actually one of its main strengths. So it's actually really easy, you know, not to just in the future, it'll be very easy for someone to just be like, summarize for me, everything my company is doing.

1:23:36And you won't need like tons of mental managers to that for you, you'll just know. That's, we don't even know what it would like to build organizations where those kinds of powers are available to everybody. And I think the last thing is, people are very focused on whether this is going to lead us to Utopia or dystopia. And most people have a very firm conviction about what's going to happen. And therefore, what needs to happen now to prevent something bad from happening. So you have the people who are like, we have to stop, pause, blow up the data centers because it's going to lead this bad thing.

1:24:07People are like, we have to have government intervention to prevent research on the thing or to ban open source. But like for every one of the things somebody wants to do, somebody else is saying, that is actually the thing that leads to the dystopia. Right, banning open source is what leads us into like a corporately controlled, you know, autocracy that's even worse than the thing that you were afraid of. So a very common question I've been getting from people in the industry who are having like an existential crisis about what should they do with their life in the face of this AI. And as you say, people whose startups are failing like I want to be working on AI.

1:24:37Okay, for everyone who's got a grasses greener kind of attitude about that, the people that are actually like doing it and quitting their job and going to work on AI, the first thing they can find is like, what should I do that will have a positive effect? It's like, it's actually really difficult to find out some, everything I propose doing, someone's telling me that that's actually the evil thing to do and vice versa. So the other thing I think is really important is like, big part of Lean Startup has been for me, it's been just about learning how to deal with uncertainty in my life. So like, how do you deal from a business perspective?

1:25:08How do you deal with situations of uncertainty and you'd be scientific, you'd be experimental, how do we just like, all these different values that are about coping with uncertainty. And so the question people are asking me is basically, how do you take ethical action in the face of high uncertainty? And so the framework that I've been using, I've found very helpful and I hope other people will get something out of it is, the aperture of possible futures that AI makes possible is so incredibly wide. And like I said, predicting it requires a really deep understanding of a bunch of empirical questions as far as I can tell, nobody knows the answers to right now.

1:25:42So given that it's not knowable what's going to happen, like it's not just you're not an expert enough, but it's as far as I can tell, nobody knows. And the people who are most expert are actively doing the research to try to find out the thing that will help us predict. So you, you know, you can do about that. You got to wait for someone to go find that thing out. The thing that makes sense is to pick actions today that make ethical sense in a wide variety of future scenarios. And do those. And what's really interesting is that takes people out of total paralysis about it into like, there's actually some very clear things that we should do.

1:26:14So like, whatever your, whatever your doomsday scenario is, we need more transparency right now. That's critically important. We need more state capacity. We need more competent leaders. We need companies who are committed to certain values. Like it just, it changes the way that we think about these technologies in relation to ourselves as individuals. And that's really my goal, my work here is just like, how do we get people off the sidelines and into the fight? Like doing things that are actually likely to be worthwhile? And you know, as I'm talking to you, I'm like, oh, it sounds a lot like the idea that most of the work you do in a startup is going to be thrown away after you pivot.

1:26:48So don't do that work. It's like it's, it's not really a special unique insight. It's just taking the same approach to coping with the uncertainty of entrepreneurship and now applying it much more broadly because everything's about to change. It sounds like this connects a lot with the work you're doing now around governance and long -term stock exchange. And I want to get into that. But before I do, I'm curious if personally you're finding AI to be useful in some part of your life using a tool. Or if there's a more interesting example of a company using a Lean Startup approach with AI integrated.

1:27:19Is there anything comes to mind of just like something that you've seen to be practically valuable with some of the AI tooling? When GPT -4 was first launched, I saw a friend of a friend just was posting a friend of theirs, you know, like a story about someone who was using it for cold sales outbound right when it first came out. And they had like downloaded a list of, you know, 10 ,000 Shopify stores with metadata, which I Google, you can buy that for like 100 bucks. And then they just told GPT -4, a little Python script for each store. GPT -4, please pitch this store owner something that my like outsourcing company could build for them and be really creative about it.

1:27:58And then it just, he didn't even read the emails, he just sent them one after the other. And when the person would reply, he would look in the email to see what he had pitched them and then talk to get the person on the phone. And it was like, the things that it pitched were like so wildly creative and cool. It was like really, it was like really interesting. They were in the tone of the store. They were like really like they used clever puns. And then he was showing, showing me screenshots of like the person writing back being like, you had me at, you know, blah, blah, blah. It was very, it was very good sales prospecting.

1:28:29So, okay. So obviously like our, that's like an incredible story about experimentation at a super high rate. Like just like nothing, we could never have done anything like that even five minutes ago. And now it's gonna become completely routine. But it's also a story about how all of our communication channels are about to be super saturated with AI generated experimentation, you know, like whether we want it to or not. And so if you think, if you just extrapolate a little bit, if this technology holds the way we think it will, it's pretty clear that every company is going to be sending just huge volumes of AI generated email such that people are going to need AI generated email clients to read the email for them and summarize it for them.

1:29:05And someone was joking, we were going to joke about like, I'm gonna write three bullet points by AI, I will turn that into an email, send it to you. Your email will redact it back to the three bullet points. Couldn't we have just exchanged three bullet points in the first place? We were like wasting a lot of silicon, a lot of GPUs were burned to move these three bullet points from point A to point B. But I don't think that's as silly a story as it sounds. I actually am kind of excited about the possibility of AI -powered marketplaces to be far more fair than the way we do it today. And if you think about that story, the problem fundamentally is that you have a massive number of people who could create things for star owners.

1:29:42And if all of those people emailed every store owner on the planet every day, what they could do, it would be an overwhelming amount of information. So neither side is really capable of doing that. But like AI is capable of doing that. So like imagine a world in which everybody is required, and it's also, but it's also really easy to do to define like a procurement policy. Like what am I interested in buying right? And what problems do I want to solve? What am I interested in buying? And what information do I want to have? And my agent reads my inbox for me with this filter and applies the filter completely fairly.

1:30:16It doesn't matter if I played golf with so and so last week or whatever, just if the proposal comes in and it's credible and the AI is really diligent about making sure it's not spam, then it will bring the thing to my attention. But it won't show me the email. I will be tricked by its clever, you know, al -ree style positioning nonsense. And it will give me the essential information that hey, did you know that there's this thing that could actually save you a bunch of money? Oh, okay, great. Like that is so much better than advertising could ever be. And it's also way more fair. We could then say, okay, actually, we would like every conceivable vendor to send me every, as many emails as they want at any time, just blow me away with all the things you're thinking to do.

1:30:54Let your AI go crazy, trying to convince my AI that your thing is actually good. Like that's not wasted time. That actually create a lot more fairness in the world. And like create a really even playing field for procurement for information. Think about like journalists and pitches and you just see like so many situations where we've established hierarchical gatekeeping structures because that was the only way to manage the volume of information that had to be processed for that thing to happen. When those limits are removed, it's could be terrible, but it could be really awesome. I love your optimistic bent on all the things we're talking about.

1:31:29I really respect that. And that might be a good segue. It's the final thing I wanted to chat about, which is just the stuff you're working on now. So you talked about you're working a lot on helping companies with their governance. Also, I think you work on company culture and helping companies make money and profit and build real businesses. And then that obviously connects to long -term stock exchange. So you just talk about what it is. You're spending your time on there and where you see big opportunities. Yeah, sure. I mean, I think it's one of the big, big, big issues that we're grappling with.

1:31:57Like if I compare the questions I get asked by founders today versus 10 years ago, like these issues are so much more in people's minds than they were back then. And I often now, when I work with, when I meet, when I work with a founder for the first time, we'll often do a thought exercise. It's kind of like, okay, we've talked about culture, we've talked about the company, it's like, okay, great. Why should anybody trust you? No, I really like it. Like you're asking your, and companies are building, like we're talking about companies now, building stuff that is so invasive into people's lives, like so much more powerful than people it was before.

1:32:28And really honestly, this is just about taking seriously the rhetoric about changing the world. In fact, so many tech companies, when they're raising money, are gonna change the world in fundamental ways and when they're being asked to take moral responsibility, are like, I'm just a long database, I'm just like, can't have it both ways, buddy, are you? You're like a superman who's reordering the whole world to your whim, like, well, you have moral responsibility for the outcomes. And you know, that's like a hotly debated point right now, but I feel like it's actually super, people have already made it clear in their rhetoric where they stand there, just trying to evade that responsibility.

1:33:01So the next gen of founders are, don't find this complicated at all, we both feel a real sense of responsibility to make the world a better place, like for the real things. Okay, great. So you're asking people, you know, like I was, you were like, I was, well, we're gonna have so many companies that are like straight out of science fiction. I mean, like a company that does, you know, travel from San Francisco to Tokyo in one hour. They're like, it's unbelievable. You know, actual weather changing, like, like the real thing where you're like, we're gonna change the amount of habitable land on the planet and solve famine and drought forever.

1:33:31Obviously, AI, there's these incredible possibilities and, you know, in nanomaterials and quantum computing, I just go on, I just so many cool things going on. But they all have really dire consequences. I mean, so I can do it. It really advanced biological AI company, where like, imagine having an LLM, imagine like chat GPT, but for biological compounds, we'd be like, AI, could you just synthesize for me a molecule that has these properties, just described in natural language and it's like, sure. You're like, that could be incredible. Like, think about the cures and the diseases. And I just like, that's gonna be an amazing transformational technology, but it has such obvious risk and downside that we have to take it really seriously, like why should anyone trust you with this power?

1:34:13And people always say the same thing, well, I'm a really good guy. And, you know, I'm your bro, man, I'm a good intention. It's like, well, because crap about that, you could die. You could be replaced. Some investor could like sweep you. Like, I tell you how many stories I can tell you about startups where the investors change management, involuntarily. And so the fundamental problem is that no individual person can ever make promises on behalf of an organization. It's not possible. It's a category error. You're replaceable. And the reason is because organizations are actually alive. They are super organisms with their own soul and their own life.

1:34:50We are their cells and organs when we make them. Founders don't create them with birth. And that's different. We don't own them. They're not slaves. We nurture them. That's different. So if you want to make promises, if you want your organization to be trustworthy, the promise is it makes. If you want to win the public's trust by making promises they can believe, you have to embody those promises in the structure of the organization itself. So that even if you weren't there, the promise would be kept. And people act like that's impossible, but there are lots of examples. I mean, think about the code of medical ethics and the HIPAA product, oh, think about in the US, you want to do healthcare.

1:35:28You have to have a care delivery organization that is like staffed and run by doctors, not by private equity, you know, guys. And there's all these things where we know how to build structures that are organized around some purpose. So what should that purpose be? I was talking to a former Googler. I hate to pick on Google because, you know, that I've also done a lot of good things in the world, but they're like, I think the locus of a lot of tech people's disappointment in the world. And so this is nothing unique to Google, but I just happened to be talking to an ex -googleer. And he was talking about the values in the company and his disappointment and what had happened in the many years that he'd been there, the good and the bad.

1:36:00And I said, okay, I asked him this question. I'm asking you two different things. And for each thing I want you to tell me, what is your assessment of the probability that this thing will happen in the future? So thing number one, what do you believe is the probability that Google will file its next quarterly report on time? He was like 100%. He was like, how 100 %? You've like as certain as the sun will rise, bet your life on it. He's like, as certain as the sun will rise, 100%. I agree. Now, second question, what is the odds that Google would be complicit in something that would make them money, but at the expense of murdering somebody?

1:36:31He's like, all they probably wouldn't do that. He's like, probably 100 % as certain as the sun will rise. He's like, well, no. He's like, oh really, what would he have? I was like, well, come on. What if the world is self -driving cars? I kill somebody and they cover it up. What if the real social media product and it's complicit in a genocide, like Facebook, we went through that. It's like, I don't think they would do that on purpose, but it looks like such, like the difference between the thing that is certain and the thing that we don't know. I was like, okay, why is that? We treat that like normal.

1:37:00Like of course, companies file their reports on time. But is it because in the human heart of fidelity to finance rules is like hard coded, but care for other humans in their life is not? Like people don't give a crap about quarterly reports. We have built a massive apparatus in these organizations to make sure that certain things happen. Companies are really good at things that they care about. And therefore, we can learn something interesting about the things that they care about by what they choose to be good at, what they perennially are not good at. And so my view is that what it means to be a for -profit company, like we've gotten it wrong.

1:37:34So we're basically incorrect. Making a profit is actually about maximizing human flourishing. That's what it means to be for -profit. So like our current category says that Philip Morris is a for -profit company and the Smithsonian is a not -for -profit, but this is backwards. Smithsonian does a lot more good in the world than the merchants of death at Philip Morris. So I think we've just gotten confused that all forms of making money are the same, but we all know that that's not true. There's exploitative, extractive ways of making money and then there's truly additive ways of making money that actually create net new value.

1:38:07And so if companies are dedicated to human flourishing and they want to be the kind of company that will create net new value and they don't want to become a bureaucratic nightmare, they don't want to become a rent -seeking blob of discriminant math. Like if we don't want that to happen, we have to encode those promises into the company in a deep way. And I think that's really what governance is about. Like the whole ESG movement, and all the discussion about this has gone totally off the rails. Philip Morris has actually great ESG scores. It's absurd. So how can that possibly be right? We have to find a better way forward.

1:38:41And so once you, again, going back to Lean Startup in First Principles, once you go back to that First Principle and say, what would it look like? If every person in a company felt the fiduciary duty to promote human flourishing, how would you do it? And what would be different? And I've just started to meet founders who are building companies like that. And it's almost unrecognizably different. And I've been framing this, of course, in terms of the big things. Like you think about the weather control startup. Like that needs to be right, not just because of a supervillain got their hands on it.

1:39:11It would be really horrible, but also because you can easily imagine that I got bought by some private equity firm who was like, this is awesome. We can now put every town in a zero -sum competition with their neighbor for the good weather and extort them both from that. That would be just as horrible. We don't need supervillainty for this. None of us should want our technology to be used in that way. So we need to prevent that from happening. But what, so when we put that in that ethos, we make that part of every decision. Like we finally can create the environment that people really want to work in.

1:39:42Like just to make great products. I feel like most people I meet just want to work on something awesome. And we act like giving, that's just like, just happens. But I've worked with so many companies now, even the ones that are really truly great. You go meet a team, which is around, we had the island of freedom. We had the fully, we were able to do it exactly right. That's one of those satisfying experiences in my career. You ask people, why was it, how was it made? They're like, how was the product made? No, how was the island of freedom that you lived on made? You're like, I don't know, ask my boss.

1:40:13And I've done this exercise. I've asked the boss and the boss's boss and the boss's boss, all I've got all of it. And like sometimes I'll go all the way up and I'll be like, well, actually the founder of the company who's still around, I made it so. But sometimes no one knows. You're like, who's in charge here? The board isn't charged. They're like, I don't know, CEO asked me to serve on the board. It's like, who chooses the company chosen its own board? The board chooses the seat. It's all self -referential and it's like, where did it come from? So right now I kind of review it as like an accident, just happens sometimes.

1:40:43But that's because we're not engineering these beings to create the outcomes that we really want. And I just think like it's like a blind spot as company builders. We're so focused on the product, I'm not nearly focused enough on the organization. And we tend to say at the surface level stuff like culture, we don't get into the deeper stuff. So yeah, I think as builders, as an industry, we need a new movement to say like, we're going to build companies where human flourishing is the thing at the beating heart. And we're going to wield that as a competitive advantage to like not only change the world for the better, but also make a lot more money.

1:41:16That's the crazy thing about it. These companies are worth a lot more than their competitors. Because if you're working, like if you're, without naming the company, I talk about a company that is an incredible ethos of love. And just like it actually loves their customers. It's amazing. And that's like the whole, everything cascades down from that central premise, including the instruct like every CEO I meet is like so frustrated all the time. Like I can't get people on the same page. I tell them what to do, but they don't listen. It's like maybe part of the reason you're having trouble with this is the strategy you're communicating does not actually make sense to people.

1:41:50Well, this one really makes sense. It's like treat your customer like you treat your own parents. People are like, oh, that's actually really easy and clear. Like I understand exactly what that means. And so their customer loyalty is unbelievable. You imagine what their retention is like if you actually felt you call customer service and it's like you're reaching your guardian angel rather than some board customer service rep. It's a main like, so their competitors are like, this is not fair. We have to come, it's like unfair to compete with this. It's like a monster. But like when you're going to a customer like, hi, would you rather work with a company that's owned by some private equity Schmack or a company where some of the prosperity you help me generate is reinvested in you and your community?

1:42:29Like it's a competitive advantage to do the right thing. So I feel like that, like we're going to have a new wave of founders who take that seriously. Who are going to just, they're going to steamroll. It's going to be really awesome to watch. I can see how you started a movement maybe accidentally. I am mesmerized. I am sold. If people listening are also sold and want to build a company this way, what do you, what can they do? Is it work with the long term stock exchange? Is there something they could do to help move with their company and product team and business in this direction? I feel like there will come a time when there's a lot of resources about how to do this and there aren't a lot right now.

1:43:03So it's a bit, it's a bit, I'm working on it. But we're still trying to figure out the right way. But I am hoping to start doing some events and some things like to talk about the stuff. So people should feel free to reach out or follow me on the usual places. If people want to do it themselves, talk to your lawyer. This is like, they're like, when he's talked to your lawyer moments. I've worked with enough companies. I've actually been around long enough that I've worked with multiple companies that have gone from zero to IPO and beyond. So I have personal friends who've taken a company public who are now extremely wealthy and who sometimes even call me and were like, hey, I run this massive multinational company.

1:43:40Can we talk about this very specific situation that's come up at work? I still am involved in those companies. I still get to hear sometimes what it's like to actually do it. And one of my main takeaways of that entire process is that it's always too early until it's too late. So what happens is people hear something like what I'm saying, like, oh yeah, we need to make sure, you know, like, here's some things you can do. Obviously you can become a public benefit corporate or a social, what's it called in California, social purpose corporation. I mean, it's like there's legal designations you can take.

1:44:08That's fine. You could talk to a company that the day that, because their start up involves building a technology out of something that comes out of indigenous cultures, they took 10 % of their company and they put it in a foundation. The trustees of whom are tribal leaders from the cultures that they are active. And those people that has like an economic role in a role in governance, you can establish like a foundation like that. You can do what's called a board mission pledge where people on your board are required as a condition of being on your board to pledge that they'll use their business judgment under Delaware law to support the mission, not just the narrow interests of shareholders.

1:44:42You can build, we call it an LT SPV, which is basically a financing instrument that operates like a regular SPV, but every LP in the SPV has to sign a contract to say that they will support the mission of the company if you ever wanna do something like a V -Corporate version or if there's ever a situation where it's unclear whether they're in favor of you doing the thing that's right by your stakeholders long term, they're pre -committed to that. And we assign trustees to oversee those shares rather than just the narrow interests of the share. So like, so I can go on and on. There's like all this stuff you can do.

1:45:11But I get, so I get companies, I get founders excited, I've been getting founders excited about this for a long time. I've now been long enough at this that like founder will go to their lawyer and the lawyer will say, listen, it sounds great. But like, you don't need to do that right now. You can always do it later. I'm like, okay, okay. And then the company's going bigger and they'll do some financing around, each financing around, it's like, is this the time? That's fine, we keep just doing it. And then it's like 18 months from the IPO. They've hired a CFO and there's like a bankers and the whole thing's on rails and the CEO's like, hey, did we ever establish that foundation thing for our non -employees stakeholders?

1:45:41And they're like, huh? The thing remember we talked about, you said it was too early. Oh yeah, I remember that. If we done it, oh no, it's too late. Is it too late? The thing's on rails, shareholders wouldn't like it. The bankers are like, oh, you don't want to put that in your IPO perspective. And it's like, wait a minute. Well, when was the right time? You're telling me that like 18 months ago, July 3rd through 7th, there was a 4 -8 window and it was the right time. It's never the right time. Why is it never the right time? And I've seen founder after founder after founder gets steamrolled. We want to be only exceptions I know as a mutual friend of ours who like actually stopped the IPO process was like, no, I won't file the paper.

1:46:17They tried to steamroll them and file the paper without them. And like he said, no, until I see this thing in there, we're not doing it. And it was a very contentious thing to a tremendous amount of political capital. I admire him immensely for doing it. But most founders don't, most founders just go along and the thing never gets done. So the most important thing is to sit down with your lawyer and just take them through a few hypothetical situations and ask them, are you properly protected against this specific thing? For example, if tomorrow, Philip Morris shows up, pick your favorite evil.

1:46:46I use Philip Morris because my dad's a pulmonologist. So I grew up as Philip Morris as the ultimate of evil corporations, but pick your favorite evil core. If they show up tomorrow and they offer you one dollar per share more than your company is currently worth to buy it from you and your investors in order to use it to sell cigarettes to children. Do you have a fiduciary due to dissay? Yes, or a fiduciary due to dissay? No. Believe it or not, if you went to a fancy law firm and they filed for you the standard articles of incorporation that are used in Silicon Valley, most governance experts upon reading those documents would say, you have a fiduciary due to dissay?

1:47:24If that doesn't horrify you and make you want to jump out of window, I can't help you at all. If the end, if you don't care, fine, I got nothing to say to you. You don't care, you don't care. There are really sociopathic people in this world and they build sociopathic companies that I can't help you. But if you do care, sit down with your lawyer and just be like, hey, is this true? Could this happen to me? And they'll be like, yeah, obviously. And you're like, if I like to prevent that, what could I do? And I'm like, well, your investors might not like it. Investors like it this way because it maximizes their returns.

1:47:53And you're like, yeah, but I don't, that's not what I ask you. And your lawyer, your lawyer is good enough to know the answer to this question. What can you do? And if they can't go back and rewind the video that Lenny I just had, I just named a bunch of things. You can have two founders, preferred shares, you can do it, all this stuff. Just ask them about some of that stuff. And don't ask them, should I do it? Ask them, tell me for each thing just be like, can you give me the pros and cons of doing it? And I really like the pros are, you know, it might actually allow you to save your company's soul in a dire situation like this.

1:48:21The cons are investors might not like it too much. And you just be like, just sit there and be like, I like to do it. That sounds good. Thank you for advising me on the pros and cons. You work for me, you're my lawyer, like I'd like to implement this thing. And just honestly, just pick a few of them to get started with. And over time, what you need to do, last piece of advice, every founder wants the one weird trick. This is how we start up to start it too. We were like, can you just tell me the one weird trick to keep my company innovative forever? I was like, there's no one weird trick. You wanna do the right thing?

1:48:49It is a relentless and constant process. We need to build a structure of the company so that at every level, at every moment, every decision the company makes, somebody in the room making that decision feels like they have a fiduciary duty to do the right thing. If that's the outcome you want, then this is going to be a perpetual process of constantly trying to find ways to create the alignment that is needed between the governance, the management structure and the actual operations and culture of the company. Those are not separate things. They're actually only one thing because it's just one being.

1:49:21You have a skeletal system, a muscular system, and a circulatory system, but those things are not separate. They work together to produce you the being and the same thing is true for these governance structures. So I think most founders are under -indexed under -invested in that and that's why we get to these horrible outcomes. To Defender is a little ammo in doing this because as you said, investors are not gonna be excited to sacrifice profits. Employees may not be, are there companies that you can share that have done this and have implemented some of these things that are public? And if not, what confidence can you give founders to be like many, many amazing companies have done this and it's actually not that hard?

1:49:57I don't like to name specific company names in venues like this because then people always say, well, but what about this? It's just people like to do the what about is something too much. And also I like to let companies speak for themselves. You know, I weigh too much confidential information and I just have to be really careful about it. But nothing I'm describing here is hypothetical or unreal, I have witnessed this many, many, many times myself and every story I tell, it's like it's a real company that you can meet, you know, there are real people that are out there. And they're not always the loudest, you know, the loud voices in our industry tend to be the ones that, you know, have something to sell.

1:50:30And these companies are like just quietly doing the right thing. They don't really need to tell you about it because they're doing it. So there's like an inverse proportion to the loudness and controversy and meme -ness of the thing and how likely it is to be accurate, unfortunately. What I will say is this is kind of an open secret in the world. So here's the thing that really surprised me. I thought the way that we build companies, like the standard corporate governance practices that we all do are like must be well -established in research, they must be well backed up, like it must be the only invest way.

1:51:07But when you start studying these things, like you find the exceptions really fast, I got into this because of Toyota. Only because I called the thing Lean Start -ups, I wanted to borrow stuff from the manufacturing, I studied Toyota, well Toyota has a really weird corporate governance system. Which is like part of the old Japanese Koretsu system where the Toyota family is intertwined in its ownership with their supply. It's like by modern standards, it's a terrible rat nest of disaster as corporate governance practices. But if you look at the literature, every everybody who studies Toyota is like, well the reason they're able to do this awesome stuff is because they have a philosophy of long -term thinking.

1:51:39I used to be like, well, having a philosophy of long -term thinking if you're subject to quarterly returns and they'd be like, oh, they don't pay attention to that stuff because they have this other structure. I'm like, oh, that's weird. So for a while, I was like, oh, I guess it's just Toyota, we should build more Toyota's. But then like, there's always family run companies out there where the family has produced this outcome. And then I started to meet foundation controlled companies. You know, it's actually, it's funny open AI is like the hottest new thing. I open AI is a nonprofit foundation with a wholly owned for -profit subsidiary.

1:52:06I thought that was like, wow, open AI. So that's actually very common. There are a lot of companies like that in the world. In certain European countries, it's actually like 20 or 25 % of the companies, like public companies are all structured that way. So it's actually like, where we normal, I did a talk for one of those companies a few years ago. And it blew my mind because when I would go there and talk to them, I was talking to their CEO and their leadership and I was like, oh, what's it like to deal with the public markets in court and they're like, oh, we don't do that. I was like, oh, is that a major source of competitive disadvantage?

1:52:37You guys are not profit and they're like, are you kidding me? We crush our competitors because they have to waste time on all that stuff. We'd always time on it. I was like, oh, and then like, anyone ever heard of Warren Buffett? And why did his companies have a competitor? Like he would always like, oh, if you're giving up profit, your investors might not like it. I'm like, these companies are just our world destroyers. What are we giving up? Like that's why I go start with the wrong definition of profit. We're actually make a ton more money if we do it this way. And like Amazon for all of its flaws, like the long term thinking, the customer centricity, like that's a major source of competitive advantage.

1:53:11And I've worked with many of Amazon. I've worked with Amazon. I've worked with many of their competitors. And like the funny part with the competitors sitting there, they're like, oh man, Amazon's entering our market. We need to do XYZ. And I'm always like, do you think Amazon's doing XYZ? And they're like, oh no, they don't have to do that stuff. We had to all this bullshit that our investors require and the activists and whatever. And I'm like, it's like, well, if you're competing against them and they don't have to do that crap, maybe you should try doing it their way. And they're like, oh, our investors wouldn't like that.

1:53:35I was like, your investors want you to get your butt kicked by Amazon, are you sure? So I actually think like one of my realizations here is that like the investor centric view of corporations was called the shareholder primacy theory corporation. It's just wrong. It's wrong even if all you care about is maximizing returns for shareholders. Shareholders have this propensity to be the person who killed the goose that laid the golden egg. And it's like been going on for 150 years. In these case studies go back to the 19th century. It's as an old, old, old idea. And the solutions are actually all hidden in plain sight.

1:54:04So I was reading a research paper the only day that studied some of these, I think it was in Denmark. Foundation controlled companies versus level matched public companies that are not foundation controlled. And they found the foundation control companies outperformed from a financial performance perspective. And I was like, how is this not the most incendiary result ever? This, if this is true, so much of the dock of the indoctrination we've all received about what it means to be a for -profit company just wrong. Because like those companies should be riddled with slowness and agency problems.

1:54:33And I can go, I can tell you, I know the theory so well. I can tell you all the things that ought to be true. If those things are not true, what's up? And then I was like, wait a minute. I've been to, I've been to these foundation control companies. I've been to Hershey which is controlled by the founder donated the shares to a foundation that runs a school. Like, I just like, I've been to, I've seen it with my own eyes. And even having seen it with my own eyes, it took me a while to realize, wait a minute, this is an open secret. So I was kind of horrified to find out that this is well known and yet was never offered to me.

1:55:01You know how can no one ever offered me the chance to build a company this way? And if you study even open AI or any of these companies that are now structured with this, it's always very idiosyncratic. They were on the standard path and then something happened that allowed them to do something unusual. And I was like, well, I don't understand why we have to wait for it to be idiosyncratic. Why don't we do it on purpose? And so I started to conceive of this idea. I call it the spiritual holding company, basically. The thing at the center that is responsible for the soul of the overall ecosystem of companies that the enterprise, and you can see that, you know, obviously in the opening example, if anyone is to study the anthropic long term benefit trust, not coincidentally structured that way.

1:55:42But you see lots of examples where that's what's done. And I started just pitching it to founders and said, look, let me try to show you what the benefit of this would be. And I've been amazed how many founders break down. And founders like, start crying with me where they're like, this is what I always really wanted to do, but I never felt like, no one would talk to me about I didn't think it was possible. I want to put, you know, there's a critical stakeholder, I want to put at the center and everything I'm doing, or there's some reason why we're doing this. And I want that to be the thing. I was like, what startup was trying to get?

1:56:12And again, it's not like a Kumbaya thing, you know, do good or whatever, virtue signaling bullshit. Like, it's a competitive issue. There's a company that is working to recruit academic researchers to leave their lab and come work for the startup full time. It's one of the most difficult recruiting challenges there is because you're talking, you know, it's not talking about like kids out of some schools. It's like tenured professors who are leaving behind a very good life to go do this thing. They would only do it if they profoundly believed in your mission, but they're not naive. And the first question every one of those people asks is like, how do I know those technologies that could be used for you?

1:56:45Cause I like, I have a complete academic freedom. I'm gonna give that up for you, make me believe that this is the real thing. And if you're like, well, you know, we believed in some manifesto and we're good people and we got money from some investor who's promised he was gonna be a good guy. Like, that is not gonna cut it. And so they're having to do the whole thing. Like, this is down there, Lord, what do I have to do to make this promise real for these people to make them want to join? And I've just seen that over and over again. If we have the courage to do it, it can solve what are really today considered insoluble business problems.

1:57:20So it's cool, but I think it's scary to really feel like they're doing something different. And so I think over time we'll get more of these stories on the record, we'll get more people will have, you know, there'll be more precedent for it. But I gotta say, just to not to hark him back to lean start up too much, but I'll never forget sitting with early people who are like, what's the proof? What big company is doing this? And I'll be like, just wait, you know? If you don't want the competitive advantage now, you can get it later. And like, many of the people, you know, look back on who was profiled in those book.

1:57:48Like, many of the early lean start -up adopters are like very successful people today because they didn't feel like they had to wait. They were able to think for themselves and apply the principles in their own life. And I don't ask anyone to take this on faith. This is not like, you have to do what I say. It's more just like, think for yourself. Like if this makes sense to you and no one can explain to you why it's a bad idea in ways that you find compelling, give yourself permission to at least try it and see what happens. What a beautiful example of first principles thinking, looping back to our very first question.

1:58:18I think it was gonna be the longest episode we've done yet, which is amazing. Also, I think it might be my new favorite episode. So that's a good conversation. With that, we reached our very exciting lightning round. We'll see what lightning, what sort of lightning we find. Are you ready? I'm ready. What are two or three books you've recommended most to other people? There's a book called The Enlightened Capitalists that is just a hundred years of people trying to fix this problem and failing and like the detailed case studies. And like no founders should ever read it end to end. It's too depressing.

1:58:51But it's important to know some of these stories of founders that like they're willing to talk about their regrets on their deathbed that they like wish they had done differently. And it's just for those who think there's one weird trick that will help disobey you of that notion, but it's helpful to understand the mistakes that they made before so we can do better at going forward. On a happier note, I really want more people to read Ken Luz the Dandelion Dynasty. It's a silk punk fantasy series, but it's written by, he's a wonderful writer. And it's like, if you wanna see what like real optimism about engineering and the ability of engineers to change the world, like but transformed into a totally different environment.

1:59:28It's just such a great read. The audiobook is really good also. And I've been kind of plugging that lately. And then if you want just something that's like pure fun, you know, it's not really the season for summer read, but like, and also a really good audiobook is the Murderbot Diaries by Martha Wells. She's just such a great writer. And I know it's a very frivolous thing on the surface but there's actually a lot in there. And I won't ruin it for, I think I'd say it would be a spoiler, but there's actually like a surprising amount of depth for what is really just a fun action adventure kind of read.

2:00:05I can't wait if I hope it is someday made into a movie it'll be, if they do adjust us, it will be really terrific. What's a favorite recent movie or TV show? I really have been, I don't have time and YV Young Kids, so my media consumption days are extremely, extremely limited. But I have been kind of forcing myself to slog through a bunch of the Disney Plus Star Wars series which have been almost universally disappointing with the exception of Andor. For those that have not seen Andor, it really is very good. You're not good for a Disney Plus Star Wars show, it's like actually good for television, which I couldn't believe what I saw the premise of.

2:00:40Also a huge fan of Andor, and I've recommended it many times. And I feel like now every new Star Wars series, I'm just comparing it to that bar and it's not. That's the problem, it's just like, if they would just make that creative team or they would just let them make shows, it would be okay, it would redeem all the rest of their failures. They were just keeping their eyes open. I'll watch them all. What is a favorite interview question you'd like to ask people when you're interviewing them? My favorite interview question of all time is to ask people to describe a best practice that they learned in their career and to really get into it.

2:01:10Like tell me the story of how you learned the best practice, like how you know, what are, and you let them go on and then you'd be great. Tell me a situation where that best practice would not be applicable. Most people can't do it. It's so interesting. What is a favorite product you've recently discovered that you really like, whether it's an amp or something physical? I was just singing the praises of a product to a friend. It's the most boring and stupid product ever. It's just a humidifier. And you'd be like, how can you mess up a humidifier? But like, actually, it's actually very difficult to get it exactly right.

2:01:45It's like, you know, this is all these little attention to detail craft. This is a group of time out craft. It was on my mind. It's like a very humble appliance. And it's actually like, I've gone through like 10 different models, trying to find something that doesn't drive me crazy. Like, you want to run it at night. If it has a light, it's on all night. That's really annoying. If it makes a noise, that's no good. It's over. All these things where you're like, boy, if anyone had used the jobs to be done framework for one minute on what this physical device is supposed to be, this is the product they would have built.

2:02:11And I can't believe it's like such a, it's so interesting in modern capitalism. There's so many categories where there just, there isn't a product like that. Or there's just one. Like, how come every product is not like that? And the forces we've been talking about are the reason why. It's funny to see it like, you know, a represented such a humble object. What is the actual humidifier that you found? It's the Levoit 300S Ultrasonic Humidifier. Levoit 300S. It's like, it's just a really well made $60 appliance. You know, it's nothing special, but in their bets, yes, spike in sales. Go Levoit. I, somewhere somehow there was a product management meeting where they talked about how to make this thing.

2:02:54And so I just, I can picture it right now. Somebody was like, look, the way we make these things sucks. Like, he please let me just like put the thing that's normally on the bottom. Let me put it on the top and let me put this in there and put that in there. And someone was like, oh, okay, that's gonna add three sets to the cost of a Ridershorn margins by what I would add. And someone was like, no, really think we should do it right. So I would like to reward people like that. Yeah, this is gonna take us off topic potentially, but I've just thinking, I've been thinking more recently about how most often the best stuff comes from just like one person singular control over how to do that thing, over and over and over.

2:03:26Yeah, there's actually, if you study Toyota production system, they had this job that's called the chief engineer. I wish more founders knew about this because like when you become large, it's important to be able to empower the founders that work for you and I just only see yourself as the founder. So the chief engineer is the person with the moral authority over an entire line, like a car from start to finish. And I don't know if this is still true, but back in the days when people were writing a lot about Toyota, inside the company, the car is not called a Toyota Camry. It is called So and So Sons Car.

2:03:57And the thing about the chief engineer is they have no report. Nobody works for them. They just have like, they have what's called the big room if you've studied that whole thing. Like there's like a place where they are and they have a small staff, but like they have the design and the car. And like any, but as the number of people who work on a car, you know, it swells up and then it comes down because you have a design phase and then you go into production and you eventually like never go back down. The most important thing you have to do in a product is make trade off decisions. And if you just let people make their own trade off decisions, it's totally different.

2:04:28It's really difficult to have any kind of coherent design like thrust. And so the idea is like, this is the person who makes those two, if there's a fight between two departments about how much the things should cost. Or if someone has a question like, what's the like improved the aerodynamics of the thing by this much, but it will cost this much and it will be we have to take this button and turn it from metal to plastic. You have someone who can actually be like, no, that button has to be metal. Like we made a promise that this is gonna be like, or it doesn't matter. Like you just need someone who knows that thing.

2:04:55It has to be that you can keep it in somebody's head. So yeah, call the chief engineer. Just when I thought we were done with Golden Nuggets in this episode, that is so interesting. I think that makes so much sense. And I also agree that should happen more often in companies. Wow. Yeah, it's very much missing in those examples. Yeah. All right. Two more questions. Do you have a favorite live motto that you'd like to repeat to yourself, share with folks, something that you come back to often that helps you do the right sorts of things? Well, I won't get into the whole explanation. The motto is that nothing real can be threatened and nothing unreal exists.

2:05:29Although a whole other episode just unpacking that. Amazing. Final question. You invented a lot of terms, a lot of concepts. Is there one that you don't think caught fire in that kind of spread as much as you thought it should? Oh, yeah. Yeah, I got tons. I got tons. Oh, man, the cutting room floor is full of so many things. I went through a really extended period of trying to use but was before lean startup, I tried to use the cell biology as the metaphor for a startup. It should have been, I wanted to do more biological, less mechanical. I never got one person to understand what I was talking about, did not work.

2:06:05But I'll take the one that surprised me the most. This is such a small one. But I really thought that this would take off and people would be way into it. I did a lot of writing about it and then couldn't get the stick. So everyone knows viral loops. There's also engagement loops. And I was like, oh, just like we have viral loops which is about how come by our products grow. We should also have engagement loops which is about how people stick. And there's a science to stickiness. And people have written about that from the point of view like how do you make your product more addictive. But that's not really what this is about.

2:06:35This is about being able to model the dynamics of how customers flow through. And a version of that is in the lead startup, we have what I call the law of sustainable growth which is a situation where new customers come as a natural side effect of the actions of past customers. And so that is obviously true of the viral loop. Everyone knows the paid engine of acquisition where you have, you know, where your marginal profit per customer drives your ability to invest in customer acquisition. But there's also what I call the sticky engine of growth which is kind of like the vestige of this idea that made it into the lead startup.

2:07:08But I actually think that's a whole really interesting thing where like if you think about, the way to think about it is like, if someone is living their life having a happy time, then for some reason they use your product. Why did they use your product? What made them come back to your product? And it's actually there's not that many things it can be. Like it might be because you gave them a synthetic notification. Like, hey, please come back to my product and they did. It could be because some kind of organic notification took place like that is like they got an email from a friend on your platform that was like, they got a notification that was driven by like there, you know, the one of the most successful customers emails of all time is PayPal's You've Got Money.

2:07:46Click here to take the money. It's like, as a very high click the rate, maybe second only to Facebook, someone has tagged you in a photo. But we're not gonna tell you which photo it was. So you better click, right? Like, so something happened. If it's not one of those two things, then it's gotta be because of positioning. Something in your brain on its own told you to use that product. Like, why did you go start playing World of Warcraft? Did someone have to get a notification to remind you that you like playing? You know what had to tell you like doing it? Or something happened in your life that made you neither you're hungry.

2:08:22So you went to the thing to get the food. Like, because those are the only ways by which people come back to a product, those are all can be measured, studied, to the same level of precision as we have with viral loops. I can't feel the life of me understand why viral loops gets all the attention and no one is remotely interested in the science of engagement. So I thought, I thought I was a time when I thought engagement loops would make me way more famous and we'd start up ever would. I was very, very wrong. This also reminds me that you also, I think we're the first person to talk about growth as loops and these specific loops and growth engine.

2:08:55Yeah, people talk about that. Why not? Yeah, so while we discovered another one, I imagine there's many more Eric. This was incredible. I definitely think this is my new favorite episode. Thank you so much for being here. Two final questions working folks, fine your line if they want to reach out potentially and then how can listeners be useful to you? You still find me at theleansstartup .com. I'm at Eric Reese, ERIC, RIS on all the usual places, although I really don't do a lot of social anymore. So like joining my mailing list at the lean startup .com is probably the best way to keep track of like, the major things that I do in my life and then you try to get on some social from sometimes to make some announcements.

2:09:32And if you want to reach out, I'm just Eric at theleansstartup .com. How can listeners be useful to you? That's really sweet. You know, honestly, people need to just take these ideas and do something with them. And then you learn something from it and then tell me what happens. That's all I want in exchange. Just tell me what happened. Even if you, like the people I've learned the most from are the people that tried to use my ideas. I thought they were like the stupidest thing they ever heard of and like, doesn't work and they're mad and whatever. Like tell me I want to know all about it because really my job, like the way I see myself is like my job is just to try to understand these things.

2:10:02I just want to know the truth. If I'm wrong, like, I don't like being wrong, I'm as attached to my ideas as anybody else, but like I try really hard to find out what is true. So if you discover something new, please tell me. That's all I ask. Just let me know. And if you don't try, then how are you ever gonna discover anything new? So just, you know, do you like cleansed? If you like, you know, every day I meet people who are like, who just heard about Lean Startup for the first time. I, for me, it's so old that like every day that people read the book for the first time and they're like, they have a question about, so like, that's where you're at.

2:10:31You just discovered it. Like, excellent, you know, I've written a couple books. You can go read them, like, please, put those ideas. If you're someone who's like jaded and they're like, oh, I'm so tired of hearing it, Lean Startup, like I mentioned a few new ideas in this conversation. Like, go try one of those. And like, even if it doesn't work, or if you does work, or you know, like, even the people I've learned a lot from are people who they tried it. And in the process of it not working, they had another even better idea. And then they went and did that. We'll go do that. Oh, I asked you to tell me what happened.

2:11:01I want to learn from people who make this happen. And like, you know, I hope as we come together as not just as a Lean Startup movement, but as a startup, like, as like, Google people who fundamentally believe that we can make the world a better place through the building of organizations from scratch. Like, we have that as our belief. Like that, that the future is not scary. Nunez is not something to be feared or opposed. But there is a like a responsible, methodical value creating way to make positive change to the world. Like that, that's an ethos that is not universally shared. And that if someone's listening to your podcast, my assumption is you're in our tribe.

2:11:37So like, we as we have a collective responsibility to think about like, what do we want? What do we stand for? Beyond just my company, my founder, my story, my, but like, what do we as a group what are our shared and collective values? And how do we make those manifest in the world? Let's leave you with one last idea. We collectively have so much power. It's crazy because the system, the way it works out, what I've learned about our current, you know, the complete stage capitalism, like, financialized engine of capitalism is that it is value -destroying in so many ways. And although markets discipline companies, and they require them to create more value than it's destroyed to stay alive, new companies, the ones that we built are so valuable.

2:12:20Like the core insight that makes it think is so valuable that the being that you built can withstand so much damage before it collapses. And yet, if you look at the average tenure of companies and public companies, they just look at average CEO tenure, like any, all the metrics you look at are really grim here. Like we're destroying companies faster than we create them such that like the total net number of public companies in America is down more than half from a peak that was in our lifetime. It's not like, I'm going to go. What's going on? Well, the system requires a steady supply of fresh meat to replenish that which it destroys.

2:12:53And if you're listening to this podcast, you probably are one of the peddlers. So you're the manufacturer of the thing that the system requires for its basic survival. And so as a matter of fact, we as a group, we get to set the terms by which this is done. And so if we want to stop selling our beings, our babies, our children for money, we don't have to do that. If we want them to have a certain ethos themselves in the world, we want them to be trustworthy counterparties and do something for the people we care about. We can insist that that is the precondition upon which we will give our everything to.

2:13:25And so I don't want to say that I know all the answers or that my values are the ones that should win out. But I do think that we do have a certain shared value set of values that we ought to be more ardent in defending. And I hope your listeners will take that time. And beautiful and empowering with endless Eric Rees. So thank you so much for being here. My pleasure. Bye, everyone. Thank you so much for listening. If you found this valuable, you can subscribe to the show on Apple Podcasts Spotify or your favorite podcast app. Also, please consider giving us a rating or a leaving review as that really helps other listeners find the podcast.

2:14:02You can find all past episodes or learn more about the show at Lenny'sPodcast .com. See you in the next episode.