Deep Dive with Eric Ries

Intro: Welcome to the Daily Bolster. Each day we welcome transformational executives to share their real world experiences and practical advice about scaling yourself, your team, and your business.

Matt Blumberg: Welcome to The Daily Bolster. I'm Matt Blumberg, co- founder and CEO of Bolster and I'm here today with Eric Ries. Eric is the founder of LTSE, the Long- Term Stock Exchange. He is also the author of the phenomenal book, The Lean Startup, which I am hoping everyone who is listening to this has read. If you have not read it, you should read it. And as he reminded me earlier today, he is the person that coined the phrase minimum viable product, which is something that I guarantee everyone who's listening to this has used. Eric, thank you for joining me today.

Eric Ries: Thanks very much. Glad to be here.

Matt Blumberg: Yes. It's great to talk to you. I love doing these Friday in deep with episodes of The Daily Bolster because I get to talk to someone in a less structured way about what their career has been like and what they've learned along the way and you have such an interesting journey. I'd love to start maybe earlier in your career and maybe more quickly than the other couple of topics with what did you do before you wrote The Lean Startup and what was the spark that got you to that book? And then we'll talk about the book and the methodology and then we can talk about what you're doing at LTSE.

Eric Ries: Boy, I sure wish I could say I had some kind of master plan and I knew it all along. The short version is that if you have your stereotype in your mind of the kid who grew up in their parents' basement programming computers instead of playing outside with the other kids, that was me. My poor parents who were doctors were very worried that I would not be able to find any kind of career doing this and actually took them quite a number of years before they realized that this in fact could be a career. Because at that time, programming was not a considered a cool way to make a career. It was a weird, bizarre thing that people in basements did. But as long as I can remember, I thought programming computers was just the most fun thing you could do, and I couldn't believe it. I remember still to this day when I was in high school and I found out you could get paid for computer programming. I thought I was set for life.

Matt Blumberg: It turns out you can actually get paid a lot.

Eric Ries: Yeah. I would've done it for minimum wage. I would've paid them for the privilege of getting to program computers. I had no idea it was a thing you could make things with that people would find useful. I just thought it was intrinsically a fun thing to do. Anyway, to fast- forward quite a number of years, I was in college getting a CS degree when the dotcom bubble hit, and if you've seen the movie, The Social Network, I had what I like to call the first half of the movie of that experience. We did all the cool stuff that kids in a fancy university trying to do a startup would do, but we did not have the second half of the movie experience. It was no need for us to sue each other because when the dotcom bubble burst, so did we. And because of that, I wound up coming out to Silicon Valley and I was like, well, I'm going to apprentice myself to real entrepreneurs, the people in the valley who know how it's really done. I did a startup out here that I was just a staff engineer for, and I watched them raise a bunch of money and set it on fire in the classic Silicon Valley stealth R& D, no customer feedback, big hyped up launch debacle. And I thought, gosh, the only difference between them and me, these supposed experts, is that they managed to burn two orders of magnitude more money doing the exact same dumb strategy I had done. So I was really disillusioned, but I was very fortunate that a couple of us who were refugees from that startup got to try it again, and we were able to do things our own way, a different way. And we just thought, well, for God's sake, let's just make some new mistakes and see if we can learn something from the experience. And ultimately the success of that startup and my work there planted the seeds for what eventually became The Lean Startup.

Matt Blumberg: And did you have a moment... And this is true of a lot of authors. This was me with Startup CEO but lots of authors where you were like, " Hey, there should be a book about this." And you're like, " Wait a minute, there's no book about this. I should write a book about this."

Eric Ries: Oh, yeah. I can remember exactly because I was a voracious reader, especially then, of business books. Because when I was a founder... And I was a CTO before I was ever A CEO. But when I was a founder, I really wanted to know the answer to make sure I was doing things right. And most books that have been written about business just don't apply to the high uncertainty environment of startups. In fact, the advice they give you is the opposite of correct. And I'll never forget, I was reading... I want to say it was one of the Michael Porter classic books. I don't remember. One of the classic business books. You're like two thirds of the way through and there's this entire chapter that's like, it's important to understand that a strategy is really just a strategic hypothesis and it's very important to remember that when you put it into implementation, you need to make sure to test to make sure that it's correct. And I was like, oh, finally the part of this book that is relevant to my situation, the one thing I want to know, and it's end of chapter. On to the next point. It's like up to an exercise the reader. It's not even worth mentioning. I read every book you can name. I read the entire Peter Drucker catalog. Every book. I even found Peter Drucker's ancient out of print book about entrepreneurship because I was like, maybe the secrets are actually in this out of print book, but there's not that much in it. It's a really short book. It's perfectly fine, but it doesn't really get to the heart of the questions we have as entrepreneurs. So I started to develop my own theory. Not because I wanted to write a book, but just because as a practitioner, I was desperate to explain to people why the crazy stuff that I thought we should do worked. It verifiably worked. We did an MVP and build- measure- learn and split testing and continuous deployment at a time when that was seen as very weird. We had investors where we failed tech due diligence because the way we built our startup was too weird. That's how weird it was considered. This is not that long ago. And Lean Startup is not the first metaphor I tried. I tried a bunch of concepts on people. It was like, I need to try to explain what we're doing. I remember I had this very elaborate theory that was based on cellular respiration and the outer membrane. I was like, it's actually more like an ecosystem. I was trying to draw these metaphors from biology and everyone was just like, " What are you talking about?" It took a fourth or fifth try before I settled on lean manufacturing as the metaphor to use because conceptual vocabulary of lean was such a good fit for what we were trying to do. But even then, I didn't think I was going to write a book about it. I was content to just have the answers myself and to use them in my work. And when I started blogging, it was not considered a reputable thing for a startup CEO to do in Silicon Valley so I blogged anonymously because I was worried that it was going to ruin my reputation. You can see how much the situation has changed. And on my blog, I would write these stories down of things that I had seen work. And the reason I did that was that I was being asked to give advice to all these startups. VCs especially wanted me to come in and sprinkle my magic fairy dust of engineering productivity on startups. And I would get there and be like, " Listen, actually, I don't have magic powers. What I have is a better theory for how engineering work should be managed and structured in a startup." And they'd be like, " Well, like what?" And I'd be like, " Well, here's how we did it at this company. We would deploy to production 50 times a day on average, and we would do these different things." And people would start yelling at me and kick me out of their ... Really badly. And it got to the point where I was like, " Listen, you called me."

Matt Blumberg: By the way, that's how you're onto something.

Eric Ries: Well, I know that now, but at the time I thought I was just really bad at explaining. I was so upset. I was like, " Why am I doing this? It's just like you asked me as a favor to come give you this advice and you're yelling at me about it. That could never work." I'm like, " It's not some theory. I'm literally telling you what I witnessed with my own eyes. I'm not lying." Anyway, my brilliant idea was that I should write the stories down and then when someone asked for a meeting, I would send them the blog in advance and I'd be like, " If you hate this, you think I'm stupid, please don't have the meeting to yell at me." I'm like, please leave me alone. Don't yell. That's as much as I thought. And from the moment I wrote those ideas down, it started to go viral and just started to take over my life. And it was pretty soon people were telling me that this needed to exist in book form. So yeah, it was a very quick process from people yelling at me to all of a sudden it becoming a thing.

Matt Blumberg: And did you expect... Obviously you believed that what you were saying was right. You believed it needed to exist. You wrote it down. Did you expect ever in that process that it might end up with the following, the receptivity? It is a world- changing book.

Eric Ries: Well, thank you for saying that. No, I never imagined in a million years that it would turn out the way that it did. But on the other hand, I was very determined to win the argument. I'm a very competitive person. I like to win. As I started to understand why work was managed the way that it was and why we were wasting people's time on an industrial scale and all these other mistakes that we were making, I got pretty angry about it. So I was like, I'm determined to win this argument, but I didn't think it was going to make me famous. My idea was simply that if there's even one entrepreneur out there who I can help put on a better path so that they don't waste years of their lives the way I did, then that will have been worth it. That that's a sacrifice worth making. And so that was what I was really focused on. Now, what I thought was going to happen... My understanding of how the world worked was so naive and so foolish. I thought that when you... People talk about the marketplace of ideas and doing intellectual combat for an idea. What would happen is I would bring my idea forth and then I would do battle with other competing ideas. Like the army of stage gate would rise up and me and Six Sigma would go head- to- head and whatever. But that's not how it works at all. It just won. It didn't defeat anybody. There was a massive intellectual vacuum around these questions and people latched onto it and said, this is the answer. And people actually latched on a little too hard in the early days. People used to treat it like a religion. And I remember once someone called me and they were like, " Hey, there's somebody who's blogging something about lean and it's wrong. I need you to make them stop." I was like, " What power do you think I have to make someone stop blogging? It's the internet. It's a free country. They can write whatever crap they want." Yeah, I disagree, but what am I going to do? I'm supposed to make them stop. I can't make anybody stop. I'm not the Pope. I can't excommunicate him. And people had this idea that I was this magical person with these magic powers. And it took me a little while to really understand what is it like to be a public figure and what happens. But the most strange thing was the press and people in the real mainstream, they went from not taking it seriously and thinking it was stupid to saying that it was obvious and over hyped, and they were tired of hearing about it without ever passing through the intermediate stage of acknowledging that it was correct. It was really, really interesting. In fact, to this day, I meet people who are mad at me. They're like, " What did Eric Ries ever accomplish? We had those ideas plenty of times. Whatever. There's nothing new here." And it's like, okay, but why are you mad about it? So what? What's the problem? It's just such a classic thing where the power of giving an idea a name and helping the world adopt a new piece of conceptual vocabulary. It's a very small contribution to civilization, but I'm very proud of it. I made my little mark. I felt really good. And part of the reason that's so effective is that even the people that disagree with Lean Startup have to carry the meme forward in order to make their criticism clear. And so even in the debates that it spawns... There's certain people that are famous for thinking it's a bad idea and thinking you should do the opposite. But even that-

Matt Blumberg: You set the terms of the debate.

Eric Ries: We set the terms of the debate. So now we can have it. In fact, there are times... There's things in the book probably that aren't universally correct. There are probably times where you shouldn't follow my advice or whatever. By creating the ability to have a debate, we empowered entrepreneurs to think for themselves and to make better decisions and it was not possible before because we were just missing the vocabulary that we needed to have the conversation in an intelligent way. That's far more than all the people that have religiously followed the book and had great results, the thing I'm most proud of is that little contribution.

Matt Blumberg: It's not such a little contribution. You have written one or two other books. You wrote The Startup Way and then The Leader's Guide.

Eric Ries: Yeah. That's right. Yep. That's exactly right.

Matt Blumberg: I have not read either one of those, I'm a little embarrassed to say. Although I think I've read The Lean Startup three times so hopefully I'm-

Eric Ries: That counts.

Matt Blumberg: That counts. What's the essence of those two for people who haven't read them or might not even know about them, and how have they done? Have there been pieces of them that have caught fire the same way?

Eric Ries: Yeah. I can't expect ever in my life to replicate the lightning in a bottle of The Lean Startup, nor do I aspire to or even... It's not a realistic goal to have. What I wanted to do with The Startup Way was The Lean Startup began an intellectual argument about how management should be structured, but it didn't really carry the argument all the way through to what if you're an established company? How do these ideas apply at scale? And so I wanted to really explore that and figure it out because one of the things I got to do as a result of The Lean Startup being successful was I got to go work for massive companies that wanted to reinvigorate themselves and bring entrepreneurship and innovation back into their culture. And also, many of the early pioneers of The Lean Startup became massive public companies themselves and now they have this new problem of, okay, how do I stay entrepreneurial and stay innovative even as I scale? And so to me, there was a really important integration that needed to happen between this new emerging field of entrepreneurial management and the existing knowledge and fact base of general management. I think that although The Startup Way, it's not a movement book, it doesn't have the same kind of fervent following, among people who have that problem. It has the same impact that The Lean Startup has had. I think that people treat the bureaucratic drudgery of big companies as an inevitability, and I think we solved that problem. We haven't solved it in the world yet, but from an intellectual perspective, I think we actually were able to develop a theory that shows how companies could maintain their innovative spirit and their ability to invest in R& D and invest for the longterm and invest in their people at really tremendous scales. And we have the proof points to show that it can be done. It's not as clean as the victory we've had with The Lean Startup because it's just the first part of a multi- step process of change that is required in our capital markets, in our financial system and the broader culture. These companies don't change on a dime the way that when you start a new company, you can start it however you like. So it's not going to be the same overnight victory that we have with The Lean Startup, but I still very much believe in its intellectual foundations. When I hang out with people from that community, it's as important to them as the The Lean Startup. And especially when I spend time with CEOs who've been through that transition, that transformation, they draw on it quite a bit. And The Leader's Guide is not a traditionally published book. It is an audiobook exclusive that I did for Audible that is much more the tactical book if you're a leader who's trying to apply lean startup in a company. It's an innovative format of a book. It's partly, you hear my words and stuff that I've learned doing that, and you also hear from various CEOs directly who put those ideas into practice.

Matt Blumberg: I am always fascinated by innovation at big companies, and this is a topic there are a couple other people I'm interviewing this season that are kind of in that space. The thing that's always struck me as so difficult is if you are a $ 100 billion revenue company or even a $ 10 billion revenue company, for you to get excited about a new product, it has to be at least a billion dollars in revenue. And nothing starts that way.

Eric Ries: It's a classic trap. And in fact, what I learned in my travels is that if you tell me how much money a company makes, I can tell you exactly how big something has to be for them to care.

Matt Blumberg: Which is what? 1% of revenue? 5% of revenue?

Eric Ries: Yeah. Yeah. It depends on the margin structure of the company. It's a little bit more complicated, but yeah, basically, right, a fraction of revenue. It has to be a reasonable non- negligible fraction. So once your size as a company grows beyond a certain threshold, there's nothing you can get excited about. It's impossible. Just as there are no overnight successes that make a billion dollars, it's not possible. So what happens then is in order to get a new product authorized, you force your internal entrepreneurs to make what I call the fantasy plan that shows how overnight they're going to make all this money. And that means that you're setting up every project for failure because every project inevitably falls short. If you don't do the fantasy plan, you can't get funded. So it's like an adverse selection problem. You only fund those people who are willing to lie to you about what the ROI is going to be and make unrealistic promises. You create a career incentive if those people are still around in that same job when the reality crashes over the fantasy plan, that would be bad for their career. So everyone learns how to build these plans where it takes long enough for reality to become evident that they can be promoted into a new job before that happens. So it's actually devastating for the culture of productivity. You're not accomplishing anything. People are just playing this political game, passing the buck. It's terrible. So if you want to solve that problem, you have to create corporate structures where the accountability is to something else rather than just gross revenue. And that's really difficult, but companies are capable of doing that. And the way you know they're capable is, I always ask people, think of your least favorite company, the public company you hate the most. You think they're evil, they're maligned, they're sloppy. I don't know. Whatever-

Matt Blumberg: Pick the telco or bank or arrow.

Eric Ries: For me, I always go to Philip Morris. Whoever. Someone genuinely evil. You choose. It doesn't matter who it is. As evil and terrible and incompetent as they are, do you believe that they will or will not file their next quarterly report on time? We know for sure that they're going to do it on time. So they are capable. No matter how incompetent they are, they are capable of doing certain things with 100% precision guaranteed to happen. Now, why? Is it because human beings in their heart have a natural love of quarterly reports? No. Because there is a massive apparatus in the company designed to produce this outcome. And I always talk to people, I go to CEOs and I'll do these talks in front of the whole company with an all hands meeting and the CEOs there, and I'll just be like, " Okay. Who among you thinks that we could just fire the CFO and instead of having a finance function, we'll all be in charge of finance? We'll do it together." They'd be like, " We'd be in prison in no time." It's like, " Excellent. Now who's in charge of entrepreneurship? Raise your hand." And it's like, "Oh, no one's raising their hand. Oh, we're all in charge. Oh, everyone's in charge of innovation. I see. In other words, it's not happening. Give me a break. So show me a person who's in charge." And they're like, " Well, we got this futurist. He's in charge." I'm like, " Well, tell me how many reports he has. Oh, nobody? He just produces documents to help us inspire. Show me an apparatus as important to you is finance to produce the outcome you want, I will show you innovation happening on a reliable clip in your company. Don't show me that apparatus, don't tell me you're serious about it. Stop putting it in your annual report. Give me a break."

Matt Blumberg: Yeah, it's not there.

Eric Ries: It's not there.

Matt Blumberg: All right, so here's my bridge question between the book and LTSE, which I want to talk about next. And you and I talked about this when we recorded our shorter podcast, which probably ran a couple weeks ago as people are listening to this. There seems something in my mind, a little contradictory between the concept of minimum viable product and thinking big. So your point in this back and forth is you're a big company, you actually do have to think big. But I would argue, and you would argue too, that even if you're an entrepreneur starting something from scratch, you have to think big. How does the concept of minimum viable product fit into the think big?

Eric Ries: Yeah, it's actually very subtle and it's easy to go wrong and that's because our terms are ill- defined. So first of all, what is an MVP? Let's just be clear. Minimum viable product is a version of the product designed to test a hypothesis that relates to our vision inexpensively and with minimum cost. So it doesn't actually mean small by objective standards. If what you're trying to do is really big, sometimes the MVP is also pretty big and it depends on the thing. If you're going to build a combined cycle power plant, your MVP is going to look really different than you're building a dating app. It's going to be context specific. That's important. But the second thing is where does the hypothesis come from? This is the thing, the difference between minimum viable product and minimal product is that if you already know what you're going to do and it's small enough that you can completely understand it, you don't need MVP, you don't need pivots, you don't need startup at all, just go build it. If it's that easy, just go build it. We only need MVP when the hypothesis is bigger than one iteration cycle can produce. So if something can be built in a month, just go build it. If it takes 10 years, you don't want to wait 10 years to find out if you're on the right track. So first thing that tactically speaking, MVP is a strategy for getting ourselves to the right destination in discreet chunks. A simple metaphor is you go get in your car and you're like, today I feel like driving from California to Manhattan just for fun. That's my job. So you put in the destination, I want to go to New York. And it's like, okay, it's going to take you quite a while to make this journey, but here's the first step. You take the road. Now imagine you're driving along and your first time it says turn right, and that road is blocked. You can't turn right. Here's two things you don't do. You don't be like, " Well, I guess I can't go to New York. The road is blocked. I couldn't follow the instruction. I'm giving up and going home." Like, no, I don't do that. We don't stubbornly be like, " I don't care. It says turn right. I'm turning right. I'm going right through." We don't do that. But the other thing we don't do is we don't turn to the GPS and say, " Robot, where should I go today instead of New York?" It's like, no, no, no, no, no. The job of the robot is to help us find a different route to the same destination. And that's what Lean Startup is really about at its heart. Pivots are a change in strategy without a change in vision. We realize that some part of the plan is blocked, so we find a new way to accomplish the thing we want to accomplish. Now, in real life, it's not as simple as the destination of New York. Sometimes the vision has to evolve because we learn more about what the vision really is when reality forces us to choose between competing values. So I don't want to make it sound simplistic, but the other thing that's really important about this is has to do with the language. So that's kind of on the MVP side. MVP is a tactic to accomplish a goal. The goal needs to be large for it to justify the extra cost of doing the MVP. Second thing is when we say we want something big, what do we mean? See, people in business have been really trained that size is a function of the trailing metrics. The exhaust coming out the end of the engine. So sticking with my car analogy, companies that want a billion dollars in revenue are like, " Wow. This engine I have running over here, my existing business, it spews out a ton of exhaust because it's going so fast. Therefore the more exhaust the better." And it's like no. Exhaust is just a side effect. The revenue is a side effect of something else. Well, what is this something else? And if you don't explicitly understand this, people will put wood chips in their engine to create more exhaust to fool you. Why do VCs and corporate CFOs alike invest in this nonsense stuff from time to time? Sometimes people really get really good at gaming the system, making it seem like they're on track. So what is the thing that needs to be big? The vision of a working business is its own organism. It's actually alive. I personally believe it's biologically alive in the same way that you and I are alive. It's literally a super organism that takes in inputs and produces outputs and has its own destiny, its own moral compass and all kinds of other attributes which we can get into. But for our purposes for this, when we create such a thing, what makes it large is its impact on the world. The transformational effect it has on all of its stakeholders. So in fact, MVP can be large, not in cost, but in impact. That's why at Lean Startup, we are obsessed with per customer metrics. Metrics that could be the same at a small scale as at a large scale. So you tell me, " I want to make a billion dollars." I'm like, " Okay. Are you trying to make a dollar each from a billion people or 500 million each from two people?" You tell me what you're trying to accomplish. Well now, okay, great. You said you want to make a product with this margin structure, with this kind of impact. Okay. Let's go see if we can make that work in miniature, not because we're afraid of something bigger, but because we think that anything that we can make work small, we can then double, double, double, double. And it's not that many doublings before pretty soon you have pretty awesome trailing indicators. So I'll just give you one example. This is one of my favorites from a big company. I was working, I was in a situation where whenever I go to talk to a CEO and they're a big company and then I got all their executives, whatever, if at all possible, I'll try to arrange it so in the morning, I work with individual teams and then I work with the executives in the afternoons. I got to start my day with people who work for a living, and then I'll talk to executives afterwards. And the reason that's so important is on the morning I'll meet a team like this. Team had this concept. I won't get into what it was because it'll be too easy to identify the company, but they wanted to open a certain number of locations of this new concept, and they did a great pilot, really classic MVP. They opened 12 locations at a cost of$2, 000 per location, and the revenue, the impact, everything was really off the charts. NPS scores were really high. It was really working. And I was like, " Great." I was like, " Congratulations you guys. You made a really awesome MVP. What happened next?" And they're like, " What do you mean what happened next?" I said, " Well, that's the first part of your story. How long did that take? That took six weeks. Okay, great. What you working on now?" They're like, " Well, we're waiting for funding." I was like, " Excuse me? How long have you been waiting?" " It's been 18 months." So they found a genuine entrepreneurial opportunity, unlocked it, proved that it could work, and I say, " Why are you waiting for 18 months? How much money do you possibly need?" They say, "Well, we put in a request for... We had 12 locations at 2000 each so for our first MVP cost$ 24,000. We put in a request for$100, 000 to do five times as much." I was like, " Okay, great. That sounds like a really good request. What happened?" They said, " Well, finance came back and said, gosh, with$ 100,000, how much money are we going to make here? It doesn't seem too big. What's the size of the opportunity?" We said, " Oh man, we could have a thousand locations or 10,000 locations across the country. We could make it a ..." And they said, " Okay, great. So$ 2, 000 per location, 10, 000... I see." Somehow finance had convinced themselves that they needed like$ 200 million in funding. So of course, the executive team got a debate 200. That's a big commitment. In the meantime, while we're debating the team can't get any work done because they... So anyway, it was classic misunderstanding of what does it mean to be big? I sat with the CEO and all their lieutenants, and I told the story in front of everybody, and the CEO, of course was horrified. And he's like, " How can that be true? Whose team is... I want this fixed." I'm like, " Look, if you just give this team$24, 000, I'd go open 12 more locations. You could be taking market share from your competitors right now." And blah, blah, blah, blah, blah. The CEOs, blah, blah, blah. Anyway, here's a punchline, funny part. After the meeting, four or five different executives came up to me afterwards really mad. They're like, " How could you do that to me?" And I was like, " What do you mean?" He's like, " I know what team you're talking about now. You embarrassed me in front of the CEO." But I was like, " But four different people did it from four different divisions so I have four different teams. It wasn't one team." I'm like, " I don't think I'm the one with the problem here. I don't think what I did was wrong. How about we don't run a company where we jerk people around like this?" So once you have the proper understanding of, well, it sounds very abstract, but the proper understanding of this allows us to find and fix those problems. I think it's really important.

Matt Blumberg: All right. Let's talk for a couple minutes about LTSE. When did you start the company?

Eric Ries: Gosh, it's been almost 10 years, I think.

Matt Blumberg: 10 years, right?

Eric Ries: Yeah. A really long time. Yeah. We put long- term right in the name of the company so people wouldn't be confused about how easy this was going to be.

Matt Blumberg: What was the vision on day one? What's the vision today? Has it changed? And where are you on the journey?

Eric Ries: Yeah. If you want to learn the true origin of the story, you actually can go pick up your beat up old copy of The Lean Startup. If you turn to the very last pages of the very last chapter, I have some ideas for future directions of how we should improve our industry and ecosystem and this is one of the ideas that I threw out there. And what's funny about it is in the years since Lean Startup became such a phenomenon, almost every idea in that book has been picked over. Someone's gone and tried it. With one exception. No one ever tried the long- term stock exchange. It was too crazy, too ambitious, too difficult. And now having done it, I understand why. I'm not saying they were wrong. It's really quite painful. And I just felt like I had to at least give it a try myself. So the original vision was let's bring long- term oriented companies together with long- term oriented investors and restructure corporate governance and investment rules to incentivize long- term thinking. That's a pretty unsophisticated way of talking about it because I didn't know anything at that time. So if you go read the book, that's what you'll see. It has some ideas about how that could work. Now, I think I have a much more sophisticated understanding of it. It's more complicated than what I laid out, but the vision is still basically the same, which is that we have to restore the primacy of long- term thinking as a virtue in our culture. Especially in our business culture, especially in the capital markets. This short- term behavior is destroying companies. And because they're so big, it takes a while for the damage to be evident, but it's very clear in the evidence, corporate tenure is going down. CEO tenure is going down, executive compensation is way up. Activist investor AUM is going way up. It's a mess. People who profit by transaction volume love it, but none of our other stakeholders do. If you look at the world around us, it's a mess and part of the reason is our public companies are mismanaged. And it's probably costing the US economy at least a trillion dollars, if not more. It is a very, very serious problem of lost opportunity. So the idea of long- term stock exchange is simply to have an exchange where those corporate governance principles are embodied as listing standards so that companies that actually care about this stuff can make those commitments in a way that investors can believe and therefore incorporate into their investment thesis.

Matt Blumberg: And vision today, same as vision on day one?

Eric Ries: Well, if you notice, I described the same thing two different ways, and so there's some elements of that are the same. Others are a little bit different. I think overall I would say the core of it is the same, but the way we get there is a little different.

Matt Blumberg: What is MVP for an audacious... A stock exchange?

Eric Ries: Yeah. No. I really-

Matt Blumberg: Stock exchange only works if there's a ton of liquidity, which means there are tons of buyers and tons of sellers.

Eric Ries: Yep. I spent years of my life trying to solve that problem because I wouldn't do the company if I couldn't find a path to do it right. I had find the path to the MVP. And it took me probably four or five years. I mean, just not to undersell it, it took me a really long time just to figure out intellectually how what we were talking about was even possible. And I eventually discovered that the way that stock exchanges work today, they are interlinked through something called the national market system, which means that stocks that are listed on one exchange actually can trade on other exchanges and vice versa. So we were able to find a way to create an MVP market that allows the companies that list with us to access the full depth of public market liquidity without having that chicken and egg dynamic. But the cost of doing that was we had to really figure out how to build a proposal that would fit within the regulatory framework of the national market system, which was not that obvious. But I'll never forget, I was meeting with a lawyer who finally explained this to me and I was like-

Matt Blumberg: You probably met with more lawyers than-

Eric Ries: Well, I've met with more lawyers than you could possibly imagine. Yeah, that's true. But one conversation sticks out in my mind because I was asking people at this time, this is six, seven years ago now, how do you start a new stock exchange? No one really knew how to do it. It doesn't happen very often. It's kind of a rare occurrence. And finally I met a lawyer who was knowledgeable enough to be like, " Oh, you've got to fill out form one." And I'm like, " I don't understand what you mean. What's a form one?" He's like, "You got to fill out form one application." It's like, " I don't follow." He's like, " You understand how government form are all numbered?" I'm like, " Yeah." He's like, " Well, SEC form number 001 is the application to establish a national securities exchange. It's just a form." And I was like, " I could just fill out a form?" Yeah, no, it's 400 pages long. It's a really complicated and difficult form. Took me years of my life to fill out this form, but it's not magic. It's a form. It's a piece of paper. People treat our markets and all of our civic infrastructure in this country as if it was handed down by Moses on stone tablets, but it's not. It's run by human beings. It can be changed when appropriate. So once I understood that there was this path to do it, then it was just a question of how do we assemble the resources and the team necessary to build the MVP of the thing that could pass this bar? And listen, the first thing I tried didn't work. I mean, I took several tries. So yeah, we learned a ton from those initial MVPs.

Matt Blumberg: And where is it today?

Eric Ries: Two years ago we got the SEC approval to operate as an exchange, and we did our first listings just over a year ago. Our investors call it a two miracle company. Not just one, but two impossible things had to happen to make it work. So we were able to do both those things. We raised our series C last year, so we're finally well capitalized in finance to actually go try to make it into a real business, but it's a real operating thing. We can list companies. We have trading volume. It's actually happening. It's pretty exciting.

Matt Blumberg: How many companies or how do you measure the size of it?

Eric Ries: We have two companies that are listed at this time, which compared to the incumbents who have thousands, it's not very many, but compared to how many people thought we would be able to list is actually quite a bit. So we're not yet operating at high volumes, but this is more of a proof of concept and we now have to build out the infrastructure to be able to show that this is a better way. But I will say again, to the theme of MVP, the most important thing is to look at what has been the experience of those first companies. Listing with us has made a material impact on their customer perceptions, their employee perceptions. And most importantly to me, we have a scoring mechanism, an algorithm that scores how long- term is the ownership of a company. The evidence is really strong that you can shift your cap table ownership from more short- term to more long- term investors that has really material impacts on your stock price and a bunch of other good things down the road. So we've been able to show... I don't think this data has been published yet, so I got to be a little careful what I say, but the preliminary data is looking really positive that this has had a materially positive impact on these companies.

Matt Blumberg: Yeah, that's not hard to believe. I mean, the venture capital world produces a lot of value over a long period of time because it tends to be very patient capital.

Eric Ries: It has to be.

Matt Blumberg: The private equity world has usually a much narrower box. They're willing to hold a company for three years or four years, which is not flipping it overnight, but it's also a shorter term view. And then hedge funds will own something for a millisecond. And it'd be interesting to look at a curve of true long- term value creation, not just EBITDA creation, but long- term value creation.

Eric Ries: The research I've seen is pretty compelling that if you extend the horizon out, it's a source of real strategic advantage. The companies and the investors that have that philosophy they can outperform if you're willing to extend your time horizon out to look at those rewards. And unfortunately, there's so many ways to make money without having that long- term accountability that there's plenty of people that make plenty of money doing it the other way. But if you change the question from who's making money to who's really creating value, I think it's unequivocally clear what's going on.

Matt Blumberg: All right. One final question for you. You wrote the book before you started the company, right? So you were already lean startup guy, minimum viable product guy, but now you've lived it for 10 years as founder. What do you know now that you wish you had known at the beginning of the company? Maybe you wish you had put it in the book too, but what do you know now from a decade of toil that you wish you had already experienced or known?

Eric Ries: Yeah, I should probably write a whole nother book, which is guy who thinks he's a startup expert goes back into the startup seat and hilarity ensues. Because of course the problem with all books and especially business books is you make it sound easy. And I tried really hard not to do this with Lean Startup. I tried. It was full of passages where I was trying to write about how difficult it is. But the whole point of writing a book is to summarize human lived experience and make it exciting and fun to read and the more you make it a good book, the more you are, in some ways... You're losing a certain quality of the real pain of doing entrepreneurship. So going back into it after writing the book has been really terrible. I mean, you realize, yeah, it's so easy to say these things. They're really hard to do. And I would say it's not like it's missing from the book, but if the book actually tried to explain how relentless you have to be to get these things, the book would be boring. It'd be boring and negative and bitter. And people are like, what's wrong with you? It's like no one would read it. No one wants to read about how hard this is. No one wants to apply. I can't remember who. Someone's got the quote about entrepreneurship that it's like chewing glass and your reward is that eventually you learn to like the taste of your own blood. It's just like you learn to endure the pain. That's part of what it is. And it's why it's only worth doing if you're trying to accomplish something big and long- term. I just always tell people, if your goal is to make money, there's just better ways to do it. If that's what your goal, you're not going to be able to endure the anxiety and the stress and the difficulty of it. And I'll mention one other thing, which I really didn't have an appreciation for at all when I wrote The Lean Startup. And in fact, that is one thing where I might write it differently if I was writing it today. It probably wouldn't be as good, but I would want to temper this one thing. There's a real genuine mental health crisis in the entrepreneurial community and among investors too for that matter that we don't talk about very much. And there started to be some discussion about it around the idea that it's stressful to be running a company that might fail. That is the source of one of the mental health problems is just, it's very stressful and not everyone has the right coping mechanisms and the right support system to handle that stress and we don't talk about that enough. But there's another aspect of the mental health problem that you're starting to see with people who've been successful as entrepreneurs. You ever wonder, why are our tech overlords, why have some of them started to just act crazy? The ones that you can observe that are acting crazy, at least they have some outlet for the mental health problem. There's a darker side to this, which is there are entrepreneurs... Someone was just telling me the story of someone who recently, in the last five- ish years I think, sold their company, made hundreds of millions of dollars and committed suicide just a few years later. It's a serious problem. And I think that it's hard to get people to be sympathetic to people who are so rich. So that's part of the problem. But I think there's aspects to this that we're not talking about that we ought to be. One is most people who make money as an entrepreneur, they did it by selling their baby. Either by literally selling it to a public company or losing its soul in the process of taking it public. And it's actually a very difficult thing to be rich because you sold your baby. That is not easy for people to do and there's a lot of folks who are quite miserable. In fact, some people who even still running their company totally miserable because they feel like they're not actually in charge anymore. The company is not what they had in mind. They can't even imagine working there anymore. It's a pretty good gig to be the founder, CEO, God, king of the whole thing. But they would never be able to work in a different... It's actually become a nightmare. And then you also have the phenomenon that is, I think, a little bit more hard to talk about, which is just the unfairness of it. We distribute rewards. This is a tournament system where the rewards are distributed very unequally and not always really strictly according to merit. And I think people are struggling to figure out, how do I make sense of the fact that I've been given this incredible gift and all this money and all these resources but now what? And we've kind of lost the idea, an older idea from previous generations of character and virtue as an important thing to cultivate, especially among the rich and powerful for them to attend to their obligations to others and stuff like that. So as a result, the feeling of happiness is short- lived. Only so many private planes and fancy boats and stuff you can buy until there's a certain vapidity that kicks in. And so I think you're seeing in some of these crazy people the need to try to find significance in a very unjust situation. And it's much easier to turn that negative eye on other people and retreat into criticizing others and doing all this incendiary stuff instead of turning the eye inwards to say, wait a minute, what role have I played? And I think for a lot of these folks, it's going to end badly. So I think we've got to be a little more serious about just... I call it institutionalizing your intentions. Why did we get into this in the first place? And how do we make sure that that super organism, this beautiful thing that we give birth to, that we're a good parent to it? We allow it to grow and thrive the way it ought to. And I still think that when we do that, when we do that right, we'll still make lots of money for all our stakeholders, but we'll do it in a way that is far more just and will allow us to sleep a lot better at night.

Matt Blumberg: And look, extend the parent metaphor. When you send your kid off to college and then when your kid graduates from college, what you hope is that you have done a good job of creating something that can live without you.

Eric Ries: Bingo.

Matt Blumberg: Eric Ries, author of The Lean Startup, founder of LTSE, thank you so much for being with me today.

Eric Ries: It's my pleasure. It was a great conversation and glad you're doing this new show.