Shmula Podcast: Eric Ries Lean Startup Interview

Podcast Transcript and Show Notes

Pete Abilla: Eric, first off, thanks for taking the time to speak with us. I just wanted to give you some context before we begin. I’ve been in the lean world for awhile. I started at Toyota and I’ve worked at Amazon and eBay. And I’ve done consulting for other companies and industries. And I have to tell you, man, in my years I haven’t seen so much excitement about lean as I do about the lean startup movement. There’s lot of excitement around it. Even old timers like Art Smalley, Matt May, Michael Balle, Emiliani; they are all speaking really positively about it.

Eric: Thank you.

Pete Abilla: So nice work on that.

Eric: Thank you; and thank you for asking them about on the record. It’s been great. A lot of those guys I don’t know at all. I didn’t know what they thought of it, so it’s been really cool for me just to see all of that happening.

Pete Abilla: Yes, it’s been really neat to see their responses. They are very excited about it, and you know, in the words of Matt May, he said that the lean startup what he sees is really this true spirit of lean, where it’s not focused on tools…

Eric: Yes.

Pete Abilla: …but really on the principles, and they can be applied anywhere really, and so it’s been really cool.

Eric: Yes, it was very meaningful for me to hear that. That’s so much what we strive for in our lean startup movement and to hear that recognized by one of the old guard was really a treat, so thank you for making that happen.

Pete Abilla: You bet, awesome. Well let me jump to my questions. I want to begin by talking about FAST Works. There’s a lot of buzz around it, and I think it’s actually really, really cool. So GE has partnered with you to help them build FAST Works.

Eric: Yes.

Pete Abilla: So let me read a quote and get your reaction to it.

Eric: Okay.

Pete Abilla: This is from Mark Little, Head of GE Global Research. He said, “We’re looking at young Eric thinking how the hell is this software dude going to have anything to say to us, and yet his ideas were transformational. I went in completely skeptical about it, and I came away completely enthused.” So you pitched to the old guard; these guys are super seasoned. You pitched to GE’s CEO, Jeff Immelt. Were you freaking out?

Eric: Totally, yes, I was very nervous. And I didn’t know what this was going to become. My background isn’t software, as Mark said; it isn’t Silicon Valley. You know, I had written in my book that entrepreneurship is a kind of management, and that lean startup was a way to manage in the situations of high uncertainty that every kind of company faces, and I made this kind of relatively grandiose claim that it could be used by companies of any size, scale, industry sector, like all business authors do.

But I didn’t know whether people in those situations would actually take me seriously or not. You know, it was the deduction, it was a hypothesis that I was very confident in, but it’s one thing to be confident of it, you know, when you’re sitting down to write something. It’s quite another thing for people who are full-time practitioners whose job depends on delivering results to take it seriously.

And yes, the first time I presented to Jeff Immelt; I just told the story, it must have been to Business Week. They just did a profile about it. They were asking me the same question, was I nervous? And I said, the way you know I was nervous is I wore a suit, which in Silicon Valley you never do. But I’m being summoned to the legendary facility at GE at Crotonville.

The meeting was with Jeff and his, pretty much his top 200 managers in the world, so the most senior people in the entire company. And you know, I consulted with my wife and decided to wear a suit. Of course I show up in a suit. I’m not making this up. Jeff Immelt is making fun of me. My first interaction with him, and I was dressed more formally than he was. He wasn’t dressed nearly as formally as I was. And you know, he was teasing me, “What did you wear a suit for?” And what I got was that they’re expecting hoodie and jeans, you know, and something a little bit more flippant. So I don’t know if they took it as a sign of respect or what, but yes, I was quite nervous.

Pete Abilla: That’s awesome. Well I come from the world where you can’t dress too formally, so I think that’s awesome. Well how is Fastworks going now?

Eric: I think it’s been incredibly successful. I think certainly far beyond my expectations. And a lot of the most successful stories about it, you know, I feel like it’s not really my place to tell. As with all my clients, I want to respect their confidentiality, and that’s what gives them the safety to kind of have really candid conversations with me, so I try to follow their lead in what they say publicly.

But you know, if you look at the videos, like from the Lean Startup Conference last year, we had some people from GE there to present. (?) said that there has been a piece in Business Week, so there has been some public acknowledgement of the fact that this has had a tremendously positive impact on the company and to the point that Jeff Immelt said he wants this to be the new operating system going forward for how they do work, you know.

Pete Abilla: Wow!

Eric: For a company that has had so much experience with lean and obviously the very famous or infamous episode was Six Sigma, depending on your point of view. But one thing you can’t argue with those past episodes is that they were…….of course leaving out Workout, which is going to fall out of favor now, but was a very big deal in its day.

Pete Abilla: Yes.

Eric: One thing you can say about GE is that when they adopt a new methodology from the outside they really take it seriously; they really make it their own, and they deploy it full scale, you know. They don’t do things halfway. What I think most people don’t realize maybe about something like FAST Works is just how much work it is. It’s incredibly hard, you know, of course they bring in outside people like me, but the real work is done by the internal team. They have a full-time internal team that is driving this change inside the company. And I think what people don’t realize and should is that it’s not just for product development. We’ve done really cool things, you know, healthcare, super high-tech healthcare devices, deep sea drilling, energy, fracking. I’ve learned all about the deep, steep world of the industrial capitalism through my experience with GE; and their appliances, before they sold the division and did quite a few things with them. Lighting, you name it, they make it. We’ve done FAST Works projects on it.

But that’s only half the story. There is also the work to transform all the internal initiatives, so IT; new IT systems that are still done the old waterfall way. Changing those teams to work with the customer service mentality and really test and iterate, finance, legal, HR. They think about all the functions, the commercial functions of sales and marketing, I mean, it has been a company-wide effort.

And so it’s really engaging people all over the company. It seems like such a cliché like put up posters and say, oh, think like an entrepreneur and be more creative and whatever. I even feel silly talking about it, but the truth is we’ve had thousands of employees at the company who have felt free, I think, in some cases for the first time, to really do things in a different way, to really take the good ideas that were there before, but now actually have the freedom and opportunity to implement them. And so it’s been really an incredibly moving experience to be able to witness.

Pete Abilla: That’s awesome; nice job on that.

Eric: Thank you.

Now as you mentioned, you know, a lot of these folks are familiar with Deming and Plan-Do-Check-Act. I’m just curious, I guess, from a technical perspective, when you taught them build-measure-learn, I’m sure they were able to see some of the influence that PDCA had on your work. What were some of their reactions to that?

Eric: Yes, well Mark Little is a great example you know who we started with. He is a deeply technical person, and one of the first projects we did at GE was a very technical energy project that involved hardcore material science, hardcore engineering, hardcore supply chain and manufacturing. It was a significant, very expensive project in the context of the company.

When you have a bunch of engineers in the room, and a bunch of technical people in the room in addition to the corporate VPs and the other business big-wigs, one thing I’ve learned is you really can’t BS your way through it. You have to know what you’re talking about, and you have to be able to answer the questions that they have; namely, how does this relate to…and all kinds of things come out of their mouths. How does it relate to this concept from Six Sigma? How does it relate to the way we do supply chain, manufacturing, finance, and discovery? And to be fair, even the marketing and customer-research-type people, they have really hardcore specialty as well, and you have to really understand the connections between ideas.

And so I think that it’s a great strength for a company like GE that has that background in PDCA who understands lean. That’s a strength, and you can say, listen, this builds on a set of tools that you’re familiar with, but move them into a new domain that you’re not as familiar with, and let me draw you those connections. A manufacturing company or any company that really understands manufacturing, you know, you could say, you know, we all know that work in progress inventory is bad. We don’t want to have excess work in progress inventory, and our goal is to achieve single piece flow and to drive down buffers, and all those concepts will be familiar to people, and they’ll say great.

So now think of or visualize the hypotheses that we have about a new product, or any new initiative for that matter. Every untested hypothesis is a form of inventory.

Pete Abilla: That’s awesome.

Eric: And so if you work for two years, three years, four years; I was working with one project with five years of planning and research, and implementation before they were going to launch to customers. That means five years of massive numbers of hypotheses, just piling up. But unlike on the shop floor, the problem with intangible inventory is you don’t see it, so you don’t have that visceral feeling of this is incredibly wasteful. Where are we going to store all this inventory, all those very concrete and kind of easy to understand stories that traditional lean books are full of.

Here since you can’t see the inventory, part of the challenge is helping the company understand their own process well enough to be able to visualize what’s going on; so you can ask people who are familiar with the manufacturing metaphor to kind of do a leap of imagination, and say, look, here all these untested assumptions, all these unimplemented designs are my favorites.

People spend years designing something, but if it hasn’t yet been implemented, and they haven’t put it to the test of reality, then how do we know if the design is any good? All this inventory just piling up everywhere, and then it’s not enough to tell people that the way that they do things today is the problem. You have to, just like any lean transformation, you have to point the direction and say, we can take those same tools that you already know, you know, all the Kaizen tools, you know. Think about Kanban, and Encore, you name it, they have their analog in lean startup and we can apply that same expertise to this new domain where that will give you an advantage, if you’re willing to make the conceptual leap. And I think that’s what Mark is talking about.

I remember very well the first time he was in the audience, you know. We were working with one of his teams and he was very skeptical, and he asked very tough questions. That guy’s very smart. And you could see the light bulb go on when he’s like, “Okay, I’ve got it.” This is not just some random fad that some business person, you know, said oh hey, we should get on the bandwagon. There is some substance here. And let’s experiment to see if it will really work in our context.

And that’s the other thing I really admire about GE and a number of my clients. They are willing to do this. I would be very suspicious if someone called me in and said, you know, on day one we want to do this company wide. The CEO is going to make the official directive and we’re just going to say that everyone has to do it. We’re making everybody read your book, and of course, I’d be flattered.

I don’t think it would be effective because we haven’t actually run the experiment yet, to figure out does this work for this particular industry, for this particular business. How do we customize it; how do we use the right language to describe it? How do we connect it to the initiatives that people know and the systems that people understand? That was a lot of work that has to happen to kind of both prove, create the internal proof points, but also create that translation that makes…and that’s why we call it FAST Works. It is a special program indigenous to GE that is, you know, customized for their culture and environment.

Pete Abilla: Well it sounds like by you being able to build on a set of common beliefs that seemed to have built a lot of trust.

Eric: I think so. I mean, I come in for criticism not infrequently for calling it Lean Startup. That is not a very popular choice. As it has become more famous, you know, the criticism has more or less dried up. But every once in a while someone will say, you should have called it something different. And my response has always been the same. From the very first days when I was trying to explain this to the software people, many of them had never heard of Lean Manufacturing. The reason it’s called Lean Startup is for one and only one reason, which is that it actually does build on this conceptual machinery from the lean movement that was incredibly helpful in forming my own sense of how this was going to work.

And so, what I want is for people to be able to learn more. I think that’s kind of the obligation of anybody who’s trying to create a new set of ideas. You have to be able to give people a map that shows how your ideas connect to other ideas, and if they want to go deeper, you have to be able to point them the way. It just seems ludicrous for me to be like I came up with everything, it’s all brand new. If somebody wants to go and understand the Deming underpinnings of this whole thing, I feel like it’s my obligation to kind of give them the sign post that says, hey, that’s an important direction to take in.

Pete Abilla: Cool.

Eric: Yes, I feel like that was a very important choice, both for my own intellectual integrity, but it has had these very practical benefits as well.

Pete Abilla: No it makes a lot of sense. My colleague here, Ben, has a couple of questions for you.

Eric: Sure.

Ben: Hey, Eric, I’m a big fan. I stumbled across your book on my own, and I think I’ve gone through it three times.

Eric: Well, thank you.

Ben: ….just while road biking and stuff, and I love the examples you have, and just the concepts really motivate people to almost go into startup mode, which is pretty fun. But the question I have for you is, and I’m sure you’ve dealt with this; when you are working with a team of software engineers, and you get kind of split decisions where there is doing it quickly, and there is doing it right. The example I might give is you can hardcode the sequel statements in your code, or you can use something like sequel alchemy, or some object-oriented approach that’s maybe a standard approach. So how do you navigate something like that with a brand-new startup, and you have no product? How much rework are you willing to take to push a product out?

Eric: I appreciate getting a software question. After all this time lately in manufacturing, it’s fun to go back to it. I consider that my home. Yes, in hard coding the sequel statement; I’ve had that specific argument with people how many times in my career I can even count. It’s always tough. Everybody knows time, quality, money-pick two. I was taught that as a young engineer that the business people never seem to understand that you can’t have it all. And it was actually a revelation to me, because one of the things I loved about reading the original books I read about lean was to learn that that saying is not a law of nature. It is an artifact of a specific away of working. And if you change the system, you can change the trade-offs that are available to be able to get better ones. And the classic lean trade-off is that you really can’t trade quality for speed, because the defects slow you down. So even if you think you can make that trade, you really can’t.

The corresponding concept in the world of software, we talk about technical debt end.

Ben: Yes.

Eric: Those of your listeners or readers who are familiar with software will know all about technical debt. For those who are new to it, it’s a very simple concept that says, if you don’t do things the Right Way, and you have to imagine that capitalized R and that capitalized W, the Right Way, then what happens is over time the software gets more and more crufty, more and more difficult to change, and you have more and more bugs and problems, because you’ve been hacking and kind of kludging your way.

Picture, you know, the duct tape and the bailing wire and the whole thing. And so eventually you have to pay that debt back, so that’s why it’s an analogy to financial debt. It seems like if you borrow money, it’s like free money, I can spend a lot of money today. I can get a few extra features today, but over time if you keep borrowing money eventually interest payments are going to kill you. That’s the analogy of technical debt.

One of the big insights that I had in developing Lean Startup was something that really shocked me. Unlike financial debt, technical debt has some very strange properties. And there’s one property that is unique to the startup situation, which is that some technical debts never come due. Imagine how cool that would be, if you went to a bank and you borrowed $10,000 and you got a notice the next day that the bank has become insolvent and you never have to pay the $10,000 back. It’s your money; keep it. In the world of finance that very rarely happens.

But in the world of technical debt it happens all the time, and I’ll tell you why. Sometimes in a startup situation we build a feature that customers don’t want. And then the right thing to do is to throw it away. So if we’ve spent extra time building it the Right Way, capital R, capital W, that would have been wasted time, because it turned out we were going to throw the whole feature away.

Now that’s very strange. People are not used to taking that into account and there’s an assumption, a deep assumption in most engineering cultures is that you always know what the Right Way is, and that the thing you’re working on is always going to be valuable to customers, and therefore you never have to face this trade-off. But there’s an even worse strange thing about technical debt that is kind of unique to the startup situation. In some situations we don’t know what the Right Way is in advance. This one really bothered me.

So I’ll give you a story; I was once working in a startup, writing the software myself. I was the CTO, and it was very important to me that the software be high quality. And the way that we thought this software was going to go to market was to interoperate with 10 different third-party systems. I won’t go into the details, but we had to write an incredible amount of code to interoperate with these 10 different systems. This is before the days of clean, beautiful REST APIs and all kinds of nice interoperability standards. This was kludge and reverse engineering, and just a total nightmare to get all this code to integrate with the 10 systems.

But the payoff was that therefore we wouldn’t have to build the systems ourselves. We could leverage all this infrastructure that was out there already. And in order to do that we had to make a lot of very important architectural trade-offs, and I was very keen that things should be done the Right Way. So everything in our system was refactored so that which transport you were using to send messages, you know, it was platform independent. And there was all of this indirection and object-oriented code that allowed you to kind of swap different systems in and out. It was very elegant, very beautiful architecture if I do say so myself.

So if you’d asked me, you know, is there a lot of technical debt in this system? I would have said no. I mean, there were other assets of the systems that had technical debt in it, but this particular system I was very proud of, and it was a very core focus of us because we knew it was going to be critical to the company. High quality was very important, very good unit test coverage, you name it.

Well two or three pivots later it turns out that the business strategy of interoperating with the other systems was a mistake. And we had to throw all that code away, because it turned out there was no alternative to building the system ourselves. So I won’t get into the details, but suffice to say, instead of interoperating with somebody else’s system we were going to build our own full stack implementation of all the transport layers ourselves.

Ben: Wow!

Eric: You know, that was pretty painful, because I had all that interoperability code that got thrown away. So that’s an example of what I was talking about before, technical debt that never comes due. Whatever technical debt was in that system was removed by the fact that it was thrown away.

But now think about the architectural choices that we had made, the ones I was really proud of, having really thought through and done the Right Way; all this indirection, and objects. Once you don’t have to interoperate with more than one system, every ounce of that indirection, all that architecture went from optimal to suboptimal. And it actually introduced all this new technical debt that we didn’t know about. And in fact engineers who were hired into the company later thought that I was a complete idiot; because they’re like, why did you build this terrible architecture? You should have done it the right way. And I’m like, you don’t understand. It was the Right Way at that time, but the use case changed. They never believed me. They said, well if I had been here I would have been able to [inaudible 00:21:02] this. I was like, yes, I’m sure you’re right.

So in a startup the calculation around technical debt is complicated by these two factors. One, some technical debts never come due. And two, sometimes the Right Way becomes the wrong way. So there’s a very counter intuitive way to solve this problem. And I advocate for a system, you know, that is based in lean startup that I think really addresses this. It’s very controversial, and a lot of engineers just don’t want to do it. The article I wrote about it originally was called, Embrace Technical Debt which I thought that was going to get me lynched by my fellow engineers.

Here’s the idea. Technical debt is not bad. The question is what do you spend the technical debt on? In the traditional formulation you spend technical debt on features. Instead of doing the beautiful Right Way sequel and direction object-oriented thing that you were describing, we give hack a sequel statement, hardcode it and that saves us, you know, a little bit of time. We use that little bit of time to build an extra next feature. Now if you keep doing that that will eventually kill you, startup or no. But what if we spent the technical debt? What if we borrowed the money and invested it in a process and infrastructure so that we could go faster? And this goes back to the production system. What if we actually spent our own resources, instead of on more throughput, on quality improvement built into the systems that we create? So what if every code deployed had the equivalent of an end-on cord on it? And any kind of problems that are created are automatically reverted? We called that system the cluster immune system at my past company.

And we built in this system called continuous deployment, and it’s an investment to be able to deploy as quickly as we could. We could do a deployment in about 10 minutes. We could do it about 50 times a day on average. When I say a full deployment, I mean literally an engineer writes a piece of code, checks it in directly to the trunk; there are no branches. That piece of code is transferred directly to production and goes through an incredible battery of tests and automation to make sure that the system is fine afterwards, including the business metrics and everything that’s important to the company. And if anything goes wrong it’s automatically reverted.

So here is the idea. Instead of building more features, build better profit, better tools because if you’re able to respond more quickly to what the market needs, to change it in use case. If you’re able to change architectures quickly and easily, then that makes you more resilient to the accumulation of debt, to unexpected debts you didn’t know you were going to have to pay. And of course, it makes it less painful when you have to throw stuff out, because you didn’t spend so much time polishing it.

To just give you one more example of this system in operation, again, think back to time, quality, money, pick two, and then think with that lens through the story I’m about to tell you. In my last startup called In View, we had a period of incredibly rapid growth when we went from thousands of customers to millions over the course of only a few months. It was a very rapid S curve and the kind of growth most startups dream about. And our technical infrastructure at the start of that surge was very primitive. I’m talking about single master database, and effectively one server ran the whole site. At the end we had a very, very hardcore horizontally partitioned sharded. This is all pre-cloud computing, so pre-AWS. We had to build servers and physically stick them in a data center kind of thing. Anyway, a very cool architecture afterwards. And here’s how we got there.

We called it Just-In-Time Scalability. Every week our product was used peak usage on the weekends in those days, so on Sunday it would peak time and the site would be on the verge of falling over from a technical point of view, on Sunday. So we’d come in Monday morning; we had an operations team that would analyze what happened over the weekend. They would look at the components of the architecture that seemed like they were about to fall over, all the bottle necks and places that were approaching red zone. And we would make a plan. We would say, how much more capacity do we have to have added to this site to survive the coming weekend. And that’s not just adding servers. In a lot of cases we had to go in and refactor the code so that, like one of my favorite examples is the user’s table. Every site has this. It’s a critical table, that’s like, who has an account in the system. It’s like core, core, deep, deep, deep in a system. Most engineers are scared to death to touch the users table, because if you make a mistake there, you could have spooky actions in the distance. Any part of the site can fail as a result of touching that deep stuff. People were usually afraid of it. But we didn’t have fear, because we had all these tools and infrastructure to support us.

So we would go in and say, okay, this week it’s time to refactor the users tables so that it no longer resides on a single master database, but it is horizontally sharded across 20 databases. And we would build, implement, and test the new architecture on Monday, Tuesday, and Wednesday. Generally we would deploy it on Thursday, and that would give us Friday to kind of make sure that it seemed like it was working okay, and we’d go into the weekend. And we would do that every week for months, just in time, figuring out what needs to be refactored, and what we can leave the same.

And the architecture at the end was of course way better than it was at the start. It looked mostly like the architecture diagram we had set out at the beginning. We did have a vision for what we wanted the architecture to look like. But a lot of the details were different. If you had asked me at the start for a site with 50 million customers, which in those days was a lot I know, everything has been inflated as the web grows bigger, what percentage of the data can live on the central master versus what percentage has to be partitioned? I would have told you 90% of the tables need to be partitioned. But as it turned out, it was only more like 20%. It’s just a way of saying that you can’t always tell what’s going to be needed unless you studied the system itself.

It goes back to the old Toyota production system saying that every defect is a treasure. That used to drive me crazy. I hated that saying for so long. It seems like such a Zen crap, you know. I hate defects. You can never convince me that they’re a treasure, but I eventually learnt of course the deep truth that is there, which is that problems that you’re having with your system, and the system is defined as the combination of technical and human components together, the whole system is trying to teach you where it needs intervention, and that’s why root cause analysis and [inaudible 00:27:32] and all that stuff is so powerful.

So anyway, that’s a very long answer to a short and simple question, but I think it’s important, because there is no simple answer to those kinds of questions, and it’s why people spend so much time and energy trapped in these false dichotomies, having these stupid debates, and I wish I could have all those hours of my life back.

Ben: I appreciate the response though; it was great. And I have one more question for you. This one will be less technical, but I think a lot of your fans will appreciate this question, because they are in startup mode. Assume you’re doing a new startup right now, a software startup. You’re putting it on Amazon or something. And you need to decide which vertical to chase. You don’t have a product; there are lots of verticals available out there. How are you going to choose a vertical? Are you going to hit all of them, or are you going to hit a few? What would that process look like and what advice would you give to your readers on finding the right vertical?

Eric: Yes, actually this is not hypothetical for me. I am in fact building a startup and I am having this very debate as we speak. So I’m struggling through this myself, and it’s always hard. It’s actually very difficult to answer this question in the abstract. So the first answer is you have to look at the specifics of any given situation, because different products have different strategies that make more sense for them.

But in general, when we have a series of verticals that we could choose, there is a customer segment that we could target, I’m a big fan of targeting narrowly at the beginning. So the first question is should I target many segments or just one. It’s very easy, especially when people try to build a platform-type product, to build a product that’s kind of like 80% good for many, many different use cases. But it’s not really 100% good for any specific use case. Call it the platform disease. That’s a situation I know a lot of tech companies find themselves in. There is actually a whole section in the great book, Crossing the Chasm, just about this. It says hey by the way, if you’re building a platform product don’t make this mistake. You have to build a product that’s useful for somebody before it can be useful for everybody. So I’m a believer in narrow targeting rather than going for more broad applications, even if your eventual goal is to build a broad platform.

Okay, I’m going to target a segment, but how do I choose which one? And there are kind of two principles that are key. The first is we have to target an early adopter first. So when we think about a segment we have to think about how urgent is the problem that we’re solving for the segment? Is it like hair on fire, critically important, or is it kind of nice to have? We want to pick some place where it’s critically important, so there’s whole literature on early adopters, like in Crossing the Chasm. Steve Blank has a great chapter on early evangelists, he called them. And there are a lot of people who have written about this, so I won’t belabor that point. So let’s start with an early adopter.

And then the second criteria is how quickly can we learn from the segment? You know, say you have three or four different early adopter potential categories. How do you pick one to go target? And that is a little bit more difficult; that requires really understanding those customers to figure out who’s going to be willing to make a decision quickly? Who has a sales cycle that I can address in a short amount of time? Where are their distribution channels that I can access, you know, the classic in a consumer company, is there are certain segments you can only reach if you have premier distribution in a really high-end store. There are some segments you can just reach online with Google AdWords. All other things being equal, I’d choose Google AdWords. So those are two criteria. How important is this problem for the segment, and how quickly can we access them?

But there’s a metapoint that’s really important. Do not succumb to analysis paralysis here. Because my guess is those of you who are listening who are actually in this situation right now, your segmentation analysis that you’re doing right this second is wrong. I bet you it’s wrong. I bet you a year from now when you look back on what you used to think was segmentation, you’re going to laugh. And it can be wrong in multiple ways. One is, it’s very common to be wrong about who the early adopters are, like I’ve made this all the time. I say, okay, the segments are laid out this way. There are teenagers and adults, and I’m going to go off to the adults, oops, it’s the teenagers or vice versa. But it’s also possible for the type of segmentation you’re doing to just be the wrong conceptual framework. Like I was working on a product that we had segmented by age when it turned out that age was not relevant. We had 40-year olds and 17-year olds that were behaviorally almost indistinguishable. The age didn’t matter at all. What mattered was a certain typographic profile. So if you study marketing and segmentation and actually dive into the literature on that, there are many ways to segment. There are many ways to carve up a hole into many different verticals.

If your whole framework for carving things up is wrong, then you can’t possibly reason about segments correctly. So this is one of these situations where you need strong opinions loosely held. We call it a leap-of-faith assumption. You have to call it an assumption because you’re going to ask as if the assumption is true in order to find out what’s really going on. So I strongly recommend you give yourself a time limited window, and I’m talking like six weeks, where you say, we are going to act in the next six weeks as if this is the correct segmentation and this is our target segment. And we’ll reconvene on a designated date, six weeks or twelve, you pick the time horizon. On a certain day we will have a pivot or persevere meeting where we will ask ourselves, now that we’ve worked really hard to achieve this segmentation and serve this segment, do we feel like we’re on track. Does it seem like our analysis is holding up? And if the answer is yes, then we’ll keep going for another six weeks. And if the answer is no, maybe we’ll reconsider a new segmentation then.

But we don’t allow ourselves ever to operate with no target, no hypothesis, and no plan. It’s much better to relentlessly and ferociously pursue a plan, even if it turns out to be wrong, because that will help you figure out what the right plan is.

Ben: That’s awesome. Cool.

Pete Abilla: Hey Eric, this has been great. I’ve got one final question.

Eric: Sure.

The Lean Startup Conference is coming up in December. Can you tell us a little bit about it and why everyone who hears this podcast or is reading this transcript should attend?

Eric: Oh, that’s very kind. Yes, we are having our premier conference; we do it every year. It’s here in San Francisco the week of December 8th. For those who are trying to make a trip out of it, or are coming from long distances, we have a whole week’s worth of programming you can attend. For those who are a little bit more local and maybe that’s not the right thing, you know, the main conference is on two days. I think it’s on the Tuesday and the Wednesday this year.

And I feel like this is a one-of-a-kind startup conference. It’s different than every other one that exists. There is no press. There are no launches, no hype. This is not a conference for rah, rah, pound your chest, launch your product, make a bunch of claims about things. It’s a conference that is by entrepreneurs for entrepreneurs. So it’s 100% focused on learning and learning not through lecture and theory, but rather through case studies. So the vast majority of our speakers are practitioners who you probably are not going to hear from at any other conference. They are not professional speakers on the circuit doing motivational speeches. We work really hard all year long to identify entrepreneurs who you may not have ever heard of, but who have a very interesting story to tell and can talk about not how I made money 10 years ago, like a lot of entrepreneurs who speak, not what worked for me in the 80s, 90s. It’s here’s what I’m working on and struggling with right now, or very recently.

So while we do have some big names, and you can check our website leanstartup.co, you can see all the big name folks who will be there. Of course, we have workshops and in-depth programming as well. I think what makes this really unique is that we have a truly diverse range of voices who are talking honestly and candidly about what entrepreneurship is really like and yes, the week of December 8th.

I think one other thing to note is it’s probably the only conference where we have both garage entrepreneurs, venture backs like Silicon Valley style entrepreneurs and corporate entrepreneurs from big companies all in the same room at the same time. You know, we take an expansive view of what entrepreneurship is; people who are dealing with situations of high uncertainty, trying to create something new. And we don’t discriminate based on who pays your bills, and what kind of health insurance you have. So anyway, that’s the Lean Startup Conference. I hope folks will join.

Pete Abilla: Awesome. Hey, again, thank you so much. This has been really helpful and instructive. We’ve learned a lot, learned a ton from you. So thank you so much.

Eric: I appreciate it. And these were great questions, and it’s really a pleasure.

Man: You’re listening to episode 36 with Eric Ries. Welcome to the podcast, the show that’s focused on helping individuals and companies achieve breakthrough results using the same continuous improvement principles leveraged by companies such as Toyota, Del Monte, and the U.S. Department of Defense. And now, here’s your host, Pete Abilla .

Pete Abilla: Hey there, this is Pete Abilla with Shmula.com. I’d like to welcome you to another episode of the podcast, as always. Thank you so much for taking time to listen to the podcast and for watching our lean and six-sigma training videos over. We definitely appreciate you. Now, today I’m excited to welcome Eric Ries to the show. Eric, as many of you likely know, is an entrepreneur and author recognized for pioneering the lean startup movement, which helps startup companies allocate their resources as efficiently as possible. Now, even if you’re not an entrepreneur or part of a new startup company, the things Eric and I discuss are directly applicable to all lean thinkers. For example, we really focus in on how to identify exactly what consumers value. Now, as you’ll hear, Eric is extremely passionate about this topic and I really enjoy talking to him. Now, show notes, which will include links to everything we talk about, can be found.

Pete Abilla: All right Eric, thanks so much for coming onto the show today. Where are you calling in from today?

Eric: I’m in San Francisco.

Pete Abilla: San Francisco, golly, whats the weather like out there today?

Eric: It is gorgeous here.

Pete Abilla: Yeah.

Eric: Yeah, 70, clear skies, very nice.

Pete Abilla: Man, yeah we’re in Texas here and we got snow. Can you believe it?

Eric: Yeah, this is kind of our summer. We do winter in the summer and summer in the winter. It’s very confusing.

Pete Abilla: There you go, there you go. Well hey, it’s an honor to talk to you. I’ve been a big fan for a long time, so I appreciate you coming onto the show.

Eric: Thank you so much. It’s my pleasure.

Pete Abilla: Yeah, so all right. Eric, we like to start all of our shows with our guest sharing a leadership or continuous improvement quotation that inspires them. What quotation inspires you?

Eric: Gosh, you know there’s so many good ones in the world of business, but I was thinking more towards a quote from the science fiction book Dune, “Fear is the mind killer.” That has been on my mind a lot lately as we think about, you know, what does a really modern management system look like and why is it that so many of the people we talk to in business are afraid constantly, how does that affect their ability to be creative, to be innovative, to do new things. I think it’s pretty succinct. It’s a killer.

Pete Abilla: Yeah, absolutely. That’s something that maybe we’ll explore a little bit deeper during the show here. I recorded an intro and you haven’t heard that yet, Eric, but telling everybody about the lean startup. Why don’t you start with just your background and maybe how you first got exposed to these lean thinking principles that this audience is most interested in?

Eric: Sure. I had a very, I think of it as a very unusual journey, to lean because my background is not in manufacturing or really anything in the physical world. I was a computer programmer. I grew up my whole life programming computers, like since I was a kid, one of my favorite things to do. I was absolutely shocked when I found out that you can get paid to do it, like as a career.

Pete Abilla: Okay.

Eric: It was like one of the happiest days of my life, very excited. I was getting paid to play video games.

Pete Abilla: Nice.
Eric: It was truly a great thing. So I was very happy to be a programmer. I was convinced all through college and into my career that I would be a programmer my whole life. Through a roundabout series of circumstances, starting in the dot com bubble, I got involved in some software startups. Which seemed, at the time, like a great way to be able to do more and more programming on more and more stuff, and have bigger and bigger impact, because that’s just how it happens in the movies.

I kept having this bizarre experience of building absolutely amazing technology that even today nobody is using, and it happened to me over and over in my career. I really couldn’t understand it because everything I built was high quality, well factored, really in keeping with the best practices of the engineering discipline as I understood them. We were in teams and in situations where we had the total freedom to build whatever we wanted. So we really did the hard work building an outstanding business plan and really thinking about what the customer wanted, figuring it out, and making a plan that we would then hold ourselves accountable to hitting all the milestones in the plan on time, on schedule, on budget, high quality. So we kind of did everything right, and the only problem is that customers don’t read those business plans. So sometimes they don’t show up to buy your product.

Pete Abilla: Yeah, that’s a problem.

Eric: Yeah. It’s one of these minor problems that is not covered in the engineering classes that I took.

Pete Abilla: Yeah.

Eric: Nor did any of my engineering colleagues, who worked in established companies, ever have that experience.

Pete Abilla: Hmm.

Eric: Because they were working on the version ten of a product that’s been in the market for many years.

Pete Abilla: Yeah.

Eric: So the higher quality work that they did, the better the product did in the market, the more customers liked them, the more they got promoted, and I kept having a really different experience. When I was a junior engineer in teams, I always had these intuitions that I couldn’t totally explain but seemed right to me, that we should do things faster so our cycle times should generally be faster, that things should be more experimental, more scientific, and that customers should be involved earlier than what was considered normal.

Pete Abilla: Hmm.

Eric: When I was the agitator, you know, just the person going around trying to convince people to do those things, I think most people thought those ideas were relatively harmless. They would accommodate me on occasion, but mostly tell me to just do my good work and everything would turn out fine.

Pete Abilla: Yeah.

Eric: When I’d had enough failure on my resume that I was given the opportunity to try it myself, be the CTO of a startup, and really build a team the way I thought it should be built, I really took some of those ideas to an extreme. I really pushed my whole company and the team that I was building to do things the way that I thought was right. So just to give you one example, one of the practices that I advocated for, is today called “continuous deployment.” The software world didn’t even have a term at that time. It was considered too avant-garde even to be used by pretty much anybody. The idea was as soon as you write a piece of software, to put it into production so that customers can use it immediately. Instead of batching up a bunch of related changes, say ten or 20 or 100 in some teams, they batch up a whole month or even a whole year’s worth of changes and deploy them all at once.

Pete Abilla: Yes.

Eric: Now, a lot of your listeners will say, “Hey, that sounds awfully familiar.” But at the time, I had no idea why that was a good idea. It just seemed intuitively right to me and we built a whole infrastructure, including equivalence to the kind of manufacturing andon cord and the whole thing to mistake proof each change because if you’re going to check in changes for customers that quickly, you really have to make sure that you’re not introducing errors faster than you’re acquiring them.

Pete Abilla: And this is before you knew anything of lean and Toyota?

Eric: I had never heard the word lean. I didn’t know anything about lean. That was just the kind of system we were building.

Pete Abilla: Huh.

Eric: I had the serious problem. It was almost a career limiting problem, which is that I could convince my team to do these things and I could see firsthand that they worked, and worked dramatically better than the so called best practices I had been trained in myself.

Pete Abilla: Yeah.

Eric: But I could not explain to anybody why they work.

Pete Abilla: Okay.

Eric: So we would hire people older than me. You know, I am a relatively young person, and I was quite young at that time. We would hire a ten year veteran of the software industry and on their first day we would say, “Today, on day one, you are going to build and deploy a piece of software for customers by the end of the day.” Because that’s how small our batch size was and it was relatively easy. They would be really nervous and say, “Well, what if I accidently introduce an error or take down the site?” You know, in their previous job, that’s the kind of thing that would get them fired.

Pete Abilla: Yeah.

Eric: I would say, “Look, shame on us if it’s so easy to take our site down and that someone can do it on their first day.”

Pete Abilla: Yeah.

Eric: Right? So it’s all about the mentality of making a system serve the people that it’s supposed to serve, instead of us serving the system.

Pete Abilla: Yes.

Eric: So that would be okay, but the person would be pretty upset. They would be like, “Listen, kid. This is really not how it’s done, and with all due respect, you need to get with the program. Here’s a kind of more conventional way that you need to work.” I would have to say, “With all due respect, you work for me, and so we’re going to try it my way. If you don’t like it, you can try it and not like it, and then we’ll talk. But at least give it a try and see if you like it.” Luckily, that would get me by a certain amount because they work for me. Because I can take out the big stick and say, “Look, you’ve got to try it.” I could get people to work in this new way, but then we started to have outsiders who wanted to know how it worked, like investors, who would send their technical due diligence guy to stop by and see how’s our technology work. I was too stupid to understand that I was just supposed to placate that person and tell him what he wanted to hear. Again, a 25 year veteran of the industry now comes by and I show them how our system works.

I’m like, “Listen, I know it seems strange but let me show you the evidence. You can see with your own eyes that this way is better.” Of course, I was too naive to understand that a 25 year veteran, who’s being asked to do this due diligence, they’re not interested in evidence that the way that they’ve learned their whole career to work is not the best. So it was a big problem. Then I started being asked by other people in Silicon Valley to give them advice about their startups. I started trying to convince other people that they should try this crazy system that we had. And again, everyone always wanted to know, “Well, why does it work? It seems counterintuitive.”

Pete Abilla: Yeah.

Eric: I was on a desperation search for new ideas to try to make sense of what was going on. So I was reading management books, engineering books. I read Jack Welch’s, “Execution,” all kinds of crazy books.

Pete Abilla: Yeah.

Eric: Eventually, in that search, I got turned onto Taiichi Ohno’s Toyota Production System.

Pete Abilla: Okay.

Eric: How do you say this in a respectful way? It’s not the most practical book right off the bat.

Pete Abilla: Yeah.

Eric: It is philosophical.

Pete Abilla: Yeah. It’s a little hard to read.

Eric: It’s a hard book, and especially in translation. At first, I was just like, “Who is this zen master with all these aphorisms and all this ‘Every defect is a treasure,’ and automation?” I was just like, “Give me a break!” But I read his chapter. I remember reading his chapter on five Y’s and root cause analysis. That really was the start of something that I was like, “Hey, that is a problem I have everyday and here’s a very very clear solution.”

Pete Abilla: Yeah.

Eric: That got me interested. Then eventually, I read Lean Thinking, all the Womack books, and after a while The Toyota Way. That was my journey into lean. For me, it was a revelation because I said “Oh, these practices that I have been trying to get people to adopt have an intellectual basis that I didn’t understand.”

Pete Abilla: Yeah.

Eric: So I learned the concepts of work in progress, inventory, batch size, flow, and production leveling. It was really interesting. On the one hand, it was a revelation. It was super helpful to me in helping to explain these techniques that I was using, but there was always this missing piece in these books that I had a hard time translating for my teams and for the startups that I worked with. I think it’s in Lean Thinking where this whole section where it says, “You have to make a commitment to your employees that if they’re going to work with you on a lean transformation and you’re going to dramatically improve productivity, you’re going to be able to do the same amount of work you did before with dramatically less people and less equipment.” So that can’t lead to layoffs or you’re not going to get engagement.

Pete Abilla: Right.

Eric: You have to instead increase the volume of demand by introducing new products.

Pete Abilla: Yes.

Eric: I said, “Oh, thank God. Finally, the chapter about how to use lean to figure out what the new products should be.”

Pete Abilla: Yeah.

Eric: But, if you turn the page, that’s the end of the chapter.

Pete Abilla: Yeah.

Eric: In a lot of manufacturing books – in almost every one I’ve ever read – it’s assumed. It’s kind of taken for granted that the company knows what he customer wants, knows what products to make, and the only question is, “How can we get enough capacity in our production process to crank those products out?”

Pete Abilla: Yeah.

Eric: So that, to me, was the beginning of Lean Startup, is to say “Okay, in a startup situation, we have to have a systematic process for discovering what to build in the first place.”

Pete Abilla: Yeah.

Eric: It needs to be just as efficient, have just as much flow and pull to it as our production process for achieving the specification once we’ve agreed on what it is. I feel like trying to answer that question and build out the rest of that system and philosophy, that’s really what Lean Startup is about.

Pete Abilla: So let’s get into the book a little bit, for those that haven’t read it. By the way, I don’t know if you know this or not, Eric, but I’m in your book and you may not even remember it. When you’re going through all your references, you had stumbled upon – many, many years ago – the very first video that I ever made before . I was sitting at my kitchen table stuffing envelopes.

Eric: With the envelopes!

Pete Abilla: That’s me.

Eric: Thats you? The envelopes guy?

Pete Abilla: I’m the envelopes guy. That’s me.

Eric: Oh my God, I have gotten so much mileage out of that video. I have to thank you. I did not realize that.

Pete Abilla: That’s me, man. That was before . I had my wife’s digital camera. I had some Home Depot lights clipped to cabinets and I was trying not to burn my house down. I had a blog back then. I was like, “I’m going to try a video. It would be kind of cool to do a video.” So I read the famous Womack envelope thing. So I stuffed envelopes one night and made this crappy horrible video. It was before YouTube was all popular. It was actually on Google Video, man.

Eric: Totally, oh man. You’re not giving yourself enough credit. That video, that concept – I’m sure all your listeners already know the envelope story exercise – that is so counterintuitive. I’ve had so many people who simply don’t believe me.

Pete Abilla: So say, “Yeah, do it!”

Eric: I’m like, “Watch the video.”

Pete Abilla: Yeah, or just do it yourself. That’s what I say.

Eric: Yeah, yeah do it. It’s one of these things. The evidence is clear, but the theory is confusing and so people go with the theory rather than the evidence. Thank you, that was a great video.

Pete Abilla: I don’t know how I stumbled across that. I don’t know why you would ever be looking in the back of the book or anything like that, but somebody pointed it out to me. I’m like, “No way.” Then I pulled out my copy and I’m like, “Oh my gosh! It’s in there!” I took a picture of it and sent it to all my friends, “Look at that, man. I’m on Lean Startup.”

Eric: Oh, that’s great. Then I thank you, that was super helpful.

Pete Abilla: All right. Well, give an elevator speech about the book, Lean Startup, and just high level overview. You’ve talked a lot already, but let’s get into it a little bit, MVP and just some of the key principles that you touch on.

Eric: Yeah. I have spent the last – I don’t know how many years now – taking that insight we were just talking about trying to systematically figure out what is the right thing to build and try to expand that into a management system that could be the compliment to traditional lean management. So the mangement system that could work in situations of high uncertainty, so when we don’t know what’s supposed to happen in the future, we have at best a theory about it, what do we do then. I call that entrepreneurial management. The book is basically my attempt to lay out the practices of entrepreneurial management, kind of make the case that this is not a replacement for the general management that most of us have studied and mastered, but a complimentary discipline to be only used in certain situations and certain contexts, in that context of extreme uncertainty.

Pete Abilla: Yes.

Eric: If you believe that that’s what a startup is -I call it a human institution designed to create something new under conditions of extreme uncertainty- then I think that everything in the book is just a deduction from that basic premise. On the one hand, people forget sometimes that a startup is not just a small big company, it’s a special thing. It’s not just a product or an idea, it is actually a special kind of organization that has to confPete Abillat the fact that it only has, at best, a hypothesis about what’s supposed to happen. If that’s true, then the most valuable unit of progress in a startup is learning. You have to learn what’s going work in the future. I call it validated or scientific learning, because if you have unknown things that need to be learned, you may as well use science and not astrology. Because that has worked out pretty well for the human species over the last few hundred years.

Pete Abilla: Yes.

Eric: That seems pretty straightforward, most people nod their heads and say “Okay,” but then it leads to some counterintuitive, and frankly, controversial recommendations, one of which is the one you mentioned, the minimum viable product or MVP. If we’re trying to build a product to serve an unkown or uncertain future, then we’ve got to ask ourselves a different question than most of us have been trained to ask. Usually what happens, especially if you’re an engineer like me, a product manager or a business person, a designer, somebody, hands you a specification document with requirements in it. Your job as an engineer is to figure out, “How do I implement these requirements at minimum cost, with highest quality, on time, on budget?” In the engineering world, if you can come up with a way that allows you to achieve pretty much all the requirements, but at 20% lower cost or at lower time, then you’re a hero. But in the world of startups, what happens often is we spend a year, two years, heck I’ve been at startups that spent five years or more building the product. We launch it, and then customers don’t want it.

Pete Abilla: Yeah.

Eric: So we’re building the thing that customers don’t want, and we’re really proud that we did it on time, on budget, and with high quality. It’s like, “Wait a second. That’s like driving a car off a cliff, but bragging about the gas mileage.” Right?

Pete Abilla: Yes.

Eric: You have a steering problem, not an efficiency problem.

Pete Abilla: Yeah.

Eric: So if you really believe what I said before, that the goal of a startup is to learn what’s going to work, then it only makes sense to build as much of the product as is necessary to get the learning. So when handed a specification document, instead of looking at the requirements as if they were handed down by God on tablets, we say, “Well, let’s translate these requirements into hypotheses. What are we really trying to learn with this product?” And then, instead of saying, “How do I achieve the requirements with minimum effort?”, we say, “Well, how do I achieve the learning that I need, with minimum effort? What is the best experiment I could run that will help me understand what customers want?” Now, sometimes that is in fact to build a physical or virtual prototype of the actual product, try to sell it to customers, and have them use it. But a lot of other circumstances, there are other experiments that are just as valid but much cheaper, including a number of companies I’ve worked with where really the customer makes their purchase decision on the basis of a brochure.

Pete Abilla: Yeah.

Eric: So rather than build the product and then build the brochure, we say, “Well, why don’t we build the brochure first?” Offer to customers the opportunity to pre-order the product. If no one will pre-order, then there’s no reason to build the product. We can iterate and try to improve the brochure rather than try to improve the product, which is after all, a lot easier.

Pete Abilla: Yeah.

Eric: So that’s the kind of basic thesis of the book. It’s to try to convince people that there is a system to this. It’s not just a random set of [inaudible 00:18:55]. It’s not just like the usual startup advice to go fast, be focused and whatever. There’s a system to this. It’s very detailed. It’s very rigorous. It has it’s own accounting metrics and analytics part to it, which I know a lot of people find super boring.

Pete Abilla: It’s important.

Eric: It’s very important. At the time I wrote the book, it had been used in a lot of startups, but not a lot of people were bought into the idea that this is a general theory of management. Since the book has come out, one of the nice things about writing a book and laying the case out in detail, is that I have been given a lot of opportunities to really try to put that into practice, come into companies, and say, “What are the implications of this if we want to -as I said at the very top – build a truly modern company with a modern management system? What does that look like?” Really, the book is trying to lay out that foundation, that blueprint.

Pete Abilla: So what about somebody listening to this right now? Maybe they don’t work in a startup. They’re a lean practitioner or a learn thinker or continuous improvement person in a traditional organization that’s not a startup. Can they leverage the same kind of thinking in their daily work?

Eric: Oh, yeah. Oh, very much so. In fact, I’ll give you one of my favorite manufacturing examples that I was witnessed to not long ago. I was in an appliance factory that was going through a traditional lean transformation. I had not spent a lot of time in factories. So every time I’ve had a chance to walk the factory floor, it’s just the most impressive thing to a software guy like me especially, to see the level of craft and skill that goes into producing. You know, when we talk about mass production, it seems like they just pop out of a computer like the replicator on Star Trek. It’s so easy to forget that there’s a huge amount of human effort that goes into producing, even in the tiniest and most trivial object that we consume. So I was sitting there in awe, watching a skilled craftsman do their part of wiring up the control panel on a kitchen appliance with digital buttons. You know, I just think of those buttons as if they’re a computer terminal. You just push a button and then magic happens, but of course, every wire, every connection between modules has to be hand connected at some point by a human being. When I got home from that tour, I went and I was looking at my microwave in my kitchen. I was noticing that it had a lot of buttons on it, so I went and I counted them up. There are 29 buttons on the microwave in my kitchen. Then I asked myself, “How many of these buttons have I ever pushed, even one time?” Being as generous as I can be – including the popcorn button I pushed only once to find out what it did – I believe I have pushed seven buttons. Ever. Leaving 22 buttons that were hand wired, that I have never pushed.

Pete Abilla: Yes.

Eric: I was talking to a product manager at an appliance company. I told him the story and I told him about the factory. I said, “Do you guys have data on which buttons are ever pushed on your appliances?” He said, “Well as a matter of fact we do. We have service technicians who service the thing. They collect the data from the little black box, so we have all this data.” So I said, “Well, is my experience typical or atypical?” He didn’t really want to answer, but I needled him a little bit and he said, “Okay. Yes, it’s true. The vast majority of buttons are never pushed. Ever. By any human being.” I was like, “Are we okay with this?” Is this okay that every hour of every day -this is a modern lean factory, so it is cranking out appliances, thousands a day of high quality, good price, well designed things- and that means that I don’t know how many hundreds of thousands of person hours a year are being invested in wiring up buttons that are never pushed. Is that not waste?

Pete Abilla: Yeah, no it is. Over processing.

Eric: Right. So it’s like we’re doing the work, but then we’re going function by function. Whose fault is it? We were getting angry like, “Whose fault is this?” Is it the fault of the guy in the factory floor? No, he’s doing exactly what he’s told to do with ever increasing quality. If he had a problem wiring up one of those buttons that was never pushed. He would’ve hit the andon cord, we would’ve stopped the line, and we would’ve fixed the problem. It’s not his foreman’s fault. He said, “Well, it must be the product manager’s fault. The designer’s fault, somebody involved in the design of this microwave.” But if you talk to those people, as I have, you will discover that they were told by a salesperson that that’s what the customer wants. So it’s the salesperson’s fault. But if you go talk to the salesperson, they’ll say, “Well, I was told by the category buyer at the retail stores where we sell these microwaves that that’s what customers want.” If you go talk to that person, it’s like, “Well, yeah. I don’t know, but I’ve got to sell 25 microwaves. So it’s really helpful to me to be able to line them up on a shelf by increasing complexity of something that the customer can see and have the pricing correspond to that.” So to make his life easier, we’ve added all these buttons. Microwaves are getting fancier and fancier. So it’s like everyone in this system is doing their job. Everything is being done with high quality and very efficiently. Yet, the net result is this catastrophic waste.

Pete Abilla: So how do you test it though, Eric? Do you go to Best Buy and say, “We’re going to run a split test, an AB test here, and this microwave here and this microwave there, one has three buttons and one has 28 buttons, and see which one sells more”?

Eric: Yeah, listen, in 30 seconds we’ve already identified a possible solution to this problem. The company has the ability to run that experiment.

Pete Abilla: Yeah.

Eric: I mean, it’d be very easy to do. I remember talking to this company because that is something we could do. In fact, we were doing a workshop, so we actually worked through some possibilites. There’s a number of experiments like that where you could say, “Why don’t we go prove that more buttons actually yields more sales?” That’s a very easy experiment to do. As you say, you pick two relatively matched stores that have similar traffic volume, put a high button count microwave in one and a low button count microwave in the other, and we measure not just sales. We actually had an experiment, not with microwaves but in a different category. We had members of the engineering team sitting on the sales floor of the store, with a clipboard, counting how many people came up to look at the appliance, to even just see if they were interested.

Pete Abilla: Yeah.

Eric: Because if they’re not even interested, they’re certainly not going to purchase. So we could actually diagnose customer reactions to the product. This whole experiment could be done in a month. We could know for sure if this was true or not. It’s easy to just say that, but think about the work. Who would do that experiment? Who’s responsible for it? How would we produce the item? Are we actually prepared to sell a small number of bespoke microwaves that we just made up? How do we get regulatory compliance? What are the liability issues? It raises these huge questions that most companies can’t answers because they’re simply organized to crank out more and more of the same stuff that they’ve already been doing.

Pete Abilla: Probably got have to do some wild experiment on the Internet with kids. You gotta present two different pictures of microwaves, like “Which one do you like? A or B?” Do something like that, you know.

Eric: Well, so here’s the interesting thing about that, though. Most customers don’t really know what they want. This is a classic experiment that has been replicated a lot of times. If you ask people to choose between two things and say, “Which one do you like better, A or B?”

Pete Abilla: Yeah?

Eric: Then, you do that exact same experiment but you just ask people, “Would you like A or not? Yes or no.” or “Would you like B or not?” Fifty percent of the people get A, and 50% of the people get B. In the former case, you usually get different results than in the latter case. So customers will say, “I like the fancier bigger thing. I like the brighter color.” This goes back to New Coke, for those that remember. In a taste test, “Sure, I like the new coke,” but when I actually have to decide if I want to pull it off a shelf and buy it, it’s a different story. So part of Lean Startup, the idea here is we want to conduct experiments that are valid, that really help us understand what customers actually will do, versus what they may say they do or believe that they will do.

Pete Abilla: Sure.

Eric: Although there’s some skill to that, most of the experiments that we do are not actually intrinsically that difficult. Like in this particular case, we got this company. They normally would come out with a new appliance, like major model refresh, every five to seven years. The cycle time that matters for Lean Startup, we call: build, measure, learn. How quickly can we go from an idea to validation that that idea is brilliant? So if I have an idea for a new product and it takes five years to bring it to market, then my cycle time is effectively, at best, once every five years. Using 3D printing and some advanced manufacturing techniques, they got to a point where they could produce a new version of the appliance. Not one appliance a week, but every week, they could come up with a new design, impliment that design, and show it to customers.

Pete Abilla: Yeah.

Eric: So very quickly, they got themselves into a learning rhythm where they started to discover all kinds of things about consumer preferences that they did not know before, and that really put a wrench in their plans, in terms of what they thought was going to work in the future.

Pete Abilla: Yeah, it’s certainly a fascinating discussion if you think about it. I mean, we lean thinkers talk about “value, value, value.” But to your point, how many times have you gone out and said, “How many times do you press that button called ‘whatever’ on the microwave?” Gosh, I’m going to go look at my microwave, here in our office, and say, “Huh, yeah. I think I’ve touched eight of them.”

Eric: Yeah, I did this survey once on Twitter. I think the average number of buttons was like 32, and the average number pressed was closer to three. So it’s just a colossal amount of waste. Of course, I’m using this example of the microwave because it’s just so concrete and everyone has one, and everyone knows what I’m talking about. Now multiply that times all the different kinds of products that are made in our economy.

Pete Abilla: Well, when you look at certain computer makers – I’m not big on calling companies out or anything like that – but some are very simple and elegant. They have three choices of their computer, where another has 48 variations of their computer. It’s like “Whoa, which one do you want?” I think we hunger for simplicity and elegance. I think the human person does, but sometimes we don’t realize that.

Eric: Sure, but sometimes our engineers hunger for complexity and the opportunity to show off. What’s interesting is in most the companies I meet, there’s an ongoing argument, almost a war, between the designers, the engineers, and the product managers, who are in various factions, who are having these internal debates about, “Should we simplify? Should we add features? Should we reduce cost?” All these different product strategies. They’re mostly being resolved politically through who has clout and power, rather than scientifically through experimentation that shows what is empirically correct.

Pete Abilla: Or your competitor comes out with this.

Eric: Yeah, we have to go chase what they’re doing.

Pete Abilla: Yeah. Exactly.

Eric: But of course, if the competitor is just as stupid as you are and they’re having the same internal debates, we’re all chasing our tail. It’s really quite a waste.

Pete Abilla: Hey, so I’m curious. When you talk to the traditional entrepreneur out there in the world that maybe has never heard of this lean thinking or anything that we talk about in lean manufacturing, what do most of them think? Are they like, “Oh, that’s nice” or are they genuinely curious to learn more?

Eric: It’s very interesting. Part of my job, you know, I put on conferences. We have a Lean Startup conference every year and for a couple years did a Lean Startup track at South by Southwest. A big part of my life is introducing lean concepts to a population of people that don’t know that lean comes from manufacturing. So we’ve had John Shook and Mary Poppendieck [SP] and all kinds of traditional lean, quite famous people, onstage. They usually are flabbergasted. I try and prepare them in advance for what they’re going to face. I’m like, “Listen, you got to understand the people in this audience, to them, lean is a startup thing. They don’t know anything about manufacturing. They have no idea it has any connection to manufacturing. They’ve never heard about Taiichi Ohno, have never seen an [inaudible 00:30:48].

Pete Abilla: You’d think the manufacturing guys are copying, right?

Eric: Yeah! I mean, they’ve never heard of it. They don’t know, and it’s a fascinating meeting of the minds. So I feel like part of my opportunity, what I enjoy doing is to try to bridge these communities, bridge these gaps, and say, “Look, we have a lot to learn from eachother, if we’re willing to not be defensive about it.”

Pete Abilla: Yeah.

Eric: I know when I talk to software guys about manufacturing, they’re like, “Why are we talking about manufacturing? That’s an old world boring thing. What does that have to do with me?” When we talk to folks in the lean world, I get the criticism quite often that Lean Startup has come out of nowhere and indoctrinated this whole bunch of people into lean, but I didn’t do a good enough job teaching them about real lean. It’s this kind of fake lean, this Lean Startup thing. The startup people, when they group up and the companies get bigger, they don’t adopt the full lean production system. I think it’s a totally fair concern, but the question is, “Who’s responsible to teach them the lean production system? Is it all my responsibility?” I teach them Lean Startup and also all the other stuff. Or can we, hopefully, I’d like to think, we can work together.

Pete Abilla. Yeah, for sure.

Eric: To have people graduate from one to the other and vice verse, to integrate the systems more and more, but not everbody thinks that way. So it’s been a kind of interesting journey.

Pete Abilla: So what’s the most misunderstood or misapplied aspect of what you talk about within the Lean Startup?

Eric: Sure. I think the biggest issue is once we start talking about experimentation and quick, cheap, rapid testing, there’s a lot of people who think that we’re saying that means, “Don’t have a vision, don’t have a long-term plan.” That’s a big misconception and that’s really wPete Abillag. For those that ever get a chance to read the book, part one of the book is called “Vision” for a reason. There’s no science without a good hypothesis, and a lot of confusion happens when people think that we’re doing fast, short cycle times because we’re trying to be sloppy or cut corners. I can only imagine when people first heard about single minute exchange of dyes, they had the same thought. We’re trying to improve millions of things and trying to do true mass production, and here you are messing around with how quickly we can change that. It’s like, “Who cares about that? Why is that important?” One of the things I think that all lean thinkers have in common is our understanding that the foundation of lean is a long term philosophy, and an understanding that if you want to achieve something great over the long term, you have to break it down into small enough parts, bits and pieces that you can get good at each piece.

Pete Abilla: Yeah.

Eric: So the same thing is true in a startup situation. We do experiments in order to prove that the vision is valid, not to discover what the vision should be in the first place.

Pete Abilla: Yes.

Eric: So I talk to a lot of companies and they have a five year plan for a product. Classic hockey stick shape, growth curve after five years, they’re making a ton of money, but in the early years they don’t make any money. The problem with the five year plan is only if you believe it’s going to come to pass. So if you take it as a prediction about the future, you get in trouble because you say, “Well, look. It says here, in 2022, we’re going to make this much money so I better be prepared,” instead of asking yourself “What has to be true today for that outcome, that trailing indicator, to eventually come true and how can I find out that the things that need to be true today are in fact true?” So the purpose of lean startup is to do these experiments so that we can realize that long-term vision.

Pete Abilla: Yes.

Eric: For those who are in a traditional enterprise kind of situation, those entrepreneurs, the internal entrepreneurs, this is even more important for. Because entrepreneurs here in Silicon Valley and in the enterprise, both have a really bad habit, and that habit is that they like to spend other people’s money. When you spend other people’s money, you pretty quickly have a problem which is: people wanna know what they get for their money.

Pete Abilla: Yeah.

Eric: I think a lot of entrepreneurs forget that when you’re looking for hockey stick shaped growth, the most salient part of the hockey stick is the long flat part where you don’t have any revenue yet, where nothing’s happened yet. So for months or potentially years, a new entrepreneurial venture will have the problem that by conventional accounting metrics is ROY, is negative, by definition, because we spent all this money.

Pete Abilla: You haven’t made anything.

Eric: But you don’t have anything to show for it. Yeah.

Pete Abilla: Yeah.

Eric: A huge part, to me, of Lean Startup is developing a set of metrics and techniques for demonstrating progress that is scientifically valid, even to finance, even to people who want to know, “What am I getting for my money?”

Pete Abilla: Yeah.

Eric: That translation from the language of learning, creativity and innovation – which frankly gets innovators and educators excited – but finance people do not like to hear about it. We can translate from that into the world of dollars and cents that gets even finance pretty excited. Therefore, we have the tools necessary to sustain the political capital, enthusiasm, and engagement necessary to realize a long-term vision.

Pete Abilla: What’s your thoughts on bootstrapping a business versus getting funds from another party?

Eric: I think they’re both good. You know, I think there are situations where both are great. The thing people don’t realize about bootstrapping is even the bootstrappers are spending somebody else’s money. They tend to be spending their family’s savings. Literally, the conversation being a bootstrapper and their spouse is almost verbatim the same conversation between a corporate entrepreneur and their CFO.

Pete Abilla: Yeah. You’re pitching your wife, right?

Eric: What’s that?

Pete Abilla: You’re pitching your wife, versus some investor.

Eric: Right. It’s like no man is an island. To do entrepreneurship is to forgo tremendous opportunity cost to the benefit that you could have somewhere else, to bear that opportunity cost. Whoever is supporting you in doing that, needs to understand that you’re making progress and doing a good job. Depending on the kind of situation that you’re in, some projects, the amount of money required to even build the minimum viable product is in the tens or hundreds of millions of dollars. Of course for those – unless you’re quite wealthy – you’re really going to need to finance them outside. A lot of projects really don’t require anything but sweat equity, and so funding is really not a limiting factor. So I think if I could wave a magic wand, I would wish we could get entrepreneurs more focused on the product and how to serve customers, and a little less focused on funding and fundraising. The tech press and the startup press is so obsessed with fundraising. It’s such an interesting thing to talk about and it kind of consumes all the oxygen.

Pete Abilla: Yeah, I’ve never understood why people celebrate after they’ve got funding or something, like celebrate with a party. To me, it’d be like, “Oh my gosh! This guy just gave me a million bucks. What do I gotta do now? I gotta do something!” To me, it’d be a tremendous amount of stress.

Eric: Right, it’s like the clock is ticking. Your startup has a very fixed lifetime. It’s like, you achieve the next milestone before you run out of money, or you die. Which is really not true before you’ve raised money. I don’t want to make a morbid analogy, but a party is not the first thing that would pop into my head for that kind of situation.

Pete Abilla: Yeah, exactly. So what’s next for Eric? Do you got any plans to write another book or what do you have going on?

Eric: I’m so busy. I am starting to think about it. The Lean Start came out in 2011 and since that time, I’ve really had the chance to build some very large scale deployments of Lean Startup. Both with super high growth startups, that have kind of passed out of the incubation phase and into the hundreds and thousands of employees, as well as with some of the world’s largest companies.

Pete Abilla: GE, right? I mean, I know you’ve worked with GE.

Eric: Including GE, we built this program for GE that has trained all of their top managers, thousands of them, every one of their businesses in lean startup. I have personally worked with dozens of projects there now, ranging from healthcare to energy drilling. You name it, I have worked on it in the past couple years.

Pete Abilla: Well done.

Eric: So there is a lot of detail to flesh out. I’ve been talking about, “What does that modern management system look like?” I feel like I have a lot to say now on that topic.

Pete Abilla: Yeah.

Eric: So I’m trying to figure out, “Is that book worthy?” That is definitely on my mind.

Pete Abilla: Well, time to get an MVP, some blog articles, and something like that and see.

Eric: Yeah, I’ve got to figure that out. One of the nice things about blogging when I was first starting out, is no one knew who I was and no one cared what I wrote. So I didn’t inadvertently make news every time I opened my big mouth. Now it’s a little bit different. I feel like I have to be a little bit more careful. I’m trying to figure that out. It’s really on my mind.

Pete Abilla: So the last few questions I have for you, Eric, here are what we call a quick fire section. So these are really just going to be really more focused on you and kind of what you think about very specific questions here. So the first one I have is “What does respect for people mean to you?”

Eric: Oh, I’m not good at quick fire. I like to think about things.

Pete Abilla: Yeah.

Eric: What it means is that every person has an inherent right to have the work that they do every day matter to somebody and not just their boss because they told them to. It actually mattered to the world. It mattered to their customer. It mattered, really, to feel that they’re making the world a better place through their work, and to know it for sure, not wonder about it. They know it for sure. I don’t see very many companies living up to that standard.

Pete Abilla: What’s the best advice you’ve ever received?

Eric: I’ve been lucky to have a lot of good advice over the years.

Pete Abilla: It could be your grandpa, sister, anything.

Eric: Yeah, I’ve had some great personal advice. As I mentioned, I was a very young computer programmer. That’s all I really wanted to do. I got admitted, as a child, to a program that’s run out of Johns Hopkins University. It’s called “The Center for Talented Youth.” It’s like the summer camp for precocious nerds.

Pete Abilla: Okay.

Eric: When I got admitted to that thing, it was like the greatest thing that ever happened to me at that time. It was so awesome to get to spend a couple of weeks with other super smart kids and not be bullied, you know?

Pete Abilla: Yeah.

Eric: What a great experience. It was organized like a college campus, as you did it at college campuses. So you could choose what courses you were going to take and you had to kind of pick a topic you were going to go learn about for the summer. Of course, I was very excited to do computers or math or anything like that. My grandmother, bless her soul, was the one who said, “Nope, he’s going to take creative writing.” At the time, I was so angry. I was like, “What?! My chance to geek out on math all summer and you’re going to make me take this writing class? I’m going to learn about semiotics, gender studies, fiction writing, and all this stuff?” I was really upset about it, but in retrospect, it was very wise advice because learning to communicate your ideas is a truly powerful gift. Plus, I turned out to really like writing.

Pete Abilla: Well yeah, and little did grandma know you were going to go on to write an incredibly popular book.

Eric: You know what? I think that’s exactly what she had in mind.

Pete Abilla: Yeah.

Eric: I don’t think she would be surprised at all. She thought the world of her grandkids. She thought we would be infinitely successful. So yeah, she knew what was what.

Pete Abilla: Love it. Do you have a personal productivity habit that others might benefit from?

Eric: I am the anti-productivity habit. I don’t do any of the things that you’re supposed to do to be productive. I don’t know why. None of those things have ever worked for me, but if there’s anyone out there listening who’s like me, I guess all I can say is “I guess it’s okay.” I don’t keep a to-do list. I cannot keep track of what I’m supposed to do on a daily basis. I don’t keep a regular schedule. I don’t write on any kind of plan. When I was writing the Lean Startup, I would have days go by where I would get up in the morning, have the whole day blocked for writing, and be just accomplishing nothing for like eight straight hours; watching TV, eating junk food, wandering around feeling miserable. At like 4:38 p.m., sit down and write a chapter, write like a huge amount of work that I had no idea I was even thinking about. I would just vomit it out all of a sudden, and then go back to feeling miserable the next day. Nobody should take productivity advice from me. It doesn’t conform to any books or best practices I’m aware of. Yet, somehow it turns out okay for me.

Pete Abilla: All right. So aside from The Lean Startup, if you could recommend one other book related to continuous improvement or leadership, what would it be and why?

Eric: Gosh. Well, I already mentioned Taiichi Ohno’s book (Toyota Production System). That was so formative for me, but your readers already will know it. Steve Blank, who is another person associated with Lean Startup, he was a mentor of mine and an investor in my early startups. He wrote a book called The Four Steps to the Epiphany, which has been recently re-issued. It’s not a book to be read cover-to-cover. It’s not that kind of book. It’s almost like a reference volume, full of incredibly useful tips if anyone is actually thinking about starting a startup. That is a truly great book.

Pete Abilla: Say the name of it again.

Eric: It’s called The Four Steps To The Epiphany.

Pete Abilla: Got it, got it.

Eric: This is totally unrelated but the fiction book of the year, from my point of view, is a book called Ancillary Justice, which is a science fiction book

Pete Abilla: Nice, nice.

Eric: Since I started with science fiction, I thought I should end with a truly original book, unlike anything I’d ever read before.

Pete Abilla: It’s totally off topic, but I’m totally addicted to this podcast. Have you heard about Series? Have you heard about that yet?

Eric: You know, I’ve heard about it. I have not yet checked it out.

Pete Abilla: Oh my gosh.

Eric: It sounds like it’s really good.

Pete Abilla: It’s not science fiction, unfortunately.

Eric: I know you wish that it was.

Pete Abilla: There’s some tip out there, totally unrelated, but you were just talking about what you’re into. It’s like Series, but listen to that and you’ll be hooked. All right. So the last question I’ve got for you, Eric, is kind of a hypothetical situation. So you’ve decided that you want to throw your hat into the ring and really practicing these lean thinking principles. Running a more – let’s call it a more traditional type company – not a startup. You’re the general manager. You’re the boss. The CEO that hired you, has given you complete operational and penile controls. So it’s your ship to drive however you want. Unfortunately, the company is a bit of a mess. Their processes are all out of whack, moral’s low, quality is bad. It needs a lot of tender loving care.

Eric: Yeah.

Pete Abilla: Unfortunately, even more unfortunately, – lots of bad news so far – but all of the leadership team that you’ve inherited, well, they’re not really enthused. They’ve heard about you, this lean startup guy or whatever, and all this lean thinking. They’re not into it. They don’t want to hear about it. They’re just totally turned off. They’ve got a job to do. So my question is it’s a Monday, you’ve just come in for your first day of work, and you’ve got your week planned out – maybe you’re not going to plan it – but you’re there, what are you going to do? And why?

Eric: I know it’s a hypothetical, but I feel like I have lived that scenario more than once. Everytime I come in, as a consultant when I work with companies, it feels like that. Everything’s on fire and, “Who is this hotshot guy coming in from the outside to tell us what to do?” I don’t consider myself an expert in leadership or management by a longshot. All I really know is in a situation like that, you’re going to get killed by the things you don’t even know you don’t know. So to me, my goal would be to just learn as much as possible about what’s happening. The two things I’d be trying to understand is one: what is the company’s current production process actually? Not what does it say on paper, not what is it supposed to be, not how does it appear on our financials, but what is actually happening in our company day to day? How is it that we produce products and get them to customers?

Pete Abilla: Yeah.

Eric: The second thing I’d want to spend my time on is “Who are our customers and what do they really care about?” The nice thing about this, compared to a true startup situation, is you already have a product presumably. You’re making some money. You already have some customers.

Pete Abilla: Sure.

Eric: You don’t have to go to the really difficult and agonizing decision of trying to figure out “Who will our customer’s be?” and “How do I find them?” We can go talk to them now. So I think about some of the projects I’ve worked with coming in as an outsider, that I’m using as an analogy here.

Pete Abilla: Yeah.

Eric: Especially like a lot of projects I’ve done at GE, where there is high science involved, material science, nuclear sicence, all kinds of crazy stuff happening. The team that works on those products, they’re not used to talking to an outsider. So they have an incredible amount of implicite knowledge about the business, about the product, about the science that as an outsider, it’s very hard to get. I think the single most important thing that I was able to do in working with those teams is I would first say, “Look, sit me down and for as long as it takes, explain to me how this thing works. Before I say a word, I need to understand who are you people and what do you make. How does it work?” I was working on an MRI machine in a hospital setting and I was like, “Well, what is magnetic resonance and how does it work?” Because you can’t understand the economics of a business, you can’t understand the levers that you can pull as a leader, you can’t understand anything unless you understand what is it that you make.

Pete Abilla: Yeah.

Eric: And how is it produced, and what are the degrees of freedom? What is it that we do as a company? You’ve given me this example of something that is truly screwed up, but what I would want to know is “What are we really good at?”

Pete Abilla: Yeah.

Eric: A modern company that exists, that hasn’t gone out of business yet, is compared to the best companies that ever existed 100 years ago, is probably better than any company could’ve been in 1910. Because just the basics of complying with the rules of modern capitalism is so intense. So I want to understand what are we really good at. What are the opportunities that we see? What is it that our people are doing? Once I really understand that, and once I really understand who are our customers, and what to they really want then, maybe, I’d be in a position to suggest, “Hey, here is an experiment that we could do.”

Pete Abilla: Very good.

Eric: Because I’m a startup guy, I would look for “Hey, instead of changing the whole company all at once, could I borrow five people from five different functions and put them all together on a cross-functional team and start a startup?”

Pete Abilla: Then you’d go to the break-room and start looking at their microwaves, right? Start counting buttons?

Eric: Yeah, exactly right. It depends on what it is. I feel like most of the companies I talk to are drowning in wisdom.

Pete Abilla: Yeah.

Eric: There is wisdom on the factory floor, in the sales people, in the engineers. There is incredible knowledge and great ideas everywhere. The question is just, “How do we harness those ideas and how do we put them into practice?” That’s, to me, the leadership challenge, so that’s where my head would be on a day one, on a situation like that.

Pete Abilla: Awesome. All right. Well, let’s wrap up the show, Eric. Why don’t you share some final words of wisdom and then why don’t you tell people how they can connect with you on social media or any other outlet?

Eric: Okay. Yeah. Sure. You know, to me, it all goes back to thinking scientifically. This is an old theme trope, you know, but I think it’s really true. If you’re in a startup situation, a situation of high uncertainty, then everything you do, whether you admit it or not, is an experiment. So you have a choice. It’s not “Do an experiment or don’t do an experiment.” The choice is “Do a scientific experiment or do a non-scientific experiment.” Think about it. In olden times, there were people who claimed they could predict the future. Those were not scientists. But if you look at a modern business plan, what is considered state-of-the-art in most companies, you need to be able to predict the future. Like, write down on a piece of paper what is going to happen in the future and then make it happen through determination, will, and perseverance.

Pete Abilla: Yeah.

Eric: That’s not science. That’s astrology. So if we’re going to be doing experiments anyway, why not make them scientific? Why not be clear about our hypothesis? Make it a falsifiable hypothesis, make it a rigorous experiment, and then use that, extrapolate from facts instead of from fantasy. That, to me, is at the heart of our challenge.

Pete Abilla: Fantastic.

Eric: What was the second question? I’m sorry.

Pete Abilla: How can people connect with you? Yeah.

Eric: Oh, excellent. I’m very easy to get ahold of. My website is theleanstartup. Every year, we put on the Lean Startup Conference. The next one is coming up in December, the week of December 8.

Pete Abilla: Where is that going to be?

Eric: It’s in San Francisco.

Pete Abilla: Okay.

Eric: It’s at leanstartup.co and I’m Eric Ries E-R-I-C, R-I-E-S on Twitter. People are always welcome to get in touch with me any way.

Pete Abilla: Fantastic. Lean Startup is available anywhere books are sold, I guess.

Eric: That’s right, and my publisher would want me to add “anywhere books are sold.” You can get The Lean Startup. You can get it for Kindle, in paperback. You can get it for something like 25 different translations now.

Pete Abilla: Be sure to flip to the back of the book when you first get it and look for the reference.

Eric: That’s true. I endorse that. If anyone hasn’t seen the letter stuffing video, you gotta watch it.

Pete Abilla: It’s painful. We’re a lot better at making videos now, right? That was our MVP right there, really it was.

Eric: It really did it. You really did it. Listen, you gotta produce and do HD like high quality.

Pete Abilla: Oh, we did. We’ve got it. I’ll send you a link to it.

Eric: Okay, I’ll start making people watch the good one.

Pete Abilla: Yeah, for sure.

Eric: All right.

Pete Abilla: All right.

Eric: It’s a pleasure. Thank you for your time.

Pete Abilla: All right, Eric. Take care.

And More…

Pete Abilla: You’re listening to episode 36 with Eric Ries. Welcome to the Podcast, the show that’s focused on helping individuals and companies achieve breakthrough results using the same continuous improvement principles leveraged by companies such as Toyota, Del Monte, and the U.S. Department of Defense. And now, here’s your host, Pete Abilla .

Hey there! This is Pete Abilla with . And I’d like to welcome you to another episode of the Podcast. As always, thank you so much for taking the time to listen to the podcast and for watching our Lean and Six Sigma training videos over at shmula.com. We definitely appreciate you. Now today, I’m excited to welcome Eric Ries to the show.

Eric, as many of you likely know, is an entrepreneur and author recognized for pioneering the lean startup movement, which helps startup companies allocate their resources as efficiently as possible. Even if you’re not an entrepreneur or part of a new startup company, the things Eric and I discuss are directly applicable to all lean thinkers.

For example, we really focus in on how to identify exactly what consumers value. Now, as you’ll hear, Eric is extremely passionate about this topic, and I really enjoy talking to him. Now, show notes, which will include links to everything we talk about can be found over at GembaPodcast.com/36, and that’s three-six for 36. So that’s GembaPodcast.com/36. Okay, enough for me. Let’s get to the show.

All right Eric, thanks so much for coming onto the show today. Where are you calling in from today?

Eric: I’m in San Francisco.

Pete Abilla: San Francisco. Golly. What’s the weather like out there today?

Eric: It is gorgeous here.

Pete Abilla: Yeah?

Eric: Yeah. Seventy. Clear skies. Very nice.

Pete Abilla: Man, we’re in Texas here and we got snow, can you believe it?

Eric: Yeah, this is kind of our summer. We do winter in the summer and summer in the winter. It’s very confusing.

Pete Abilla: There you go. Well, hey, it’s an honor to talk to you. I’ve been a big fan for a long time. So I appreciate you coming onto the show.

Eric: Thank you so much. It’s my pleasure.

Pete Abilla: Yeah. All right. So Eric, we’d like to start all of our shows with a guest sharing a leadership or continuous improvement quotation that inspires them. So what quotation inspires you?

Eric: Gosh, there’s so many good ones in the world of business. But I was thinking more towards a quote from the science fiction book Dune, that “Fear is the mind-killer.” That has been on my mind a lot lately. As we think about, you know, what does a really modern management system look like? Why is it that so many people we talk to in business are afraid constantly, and how does that affect their ability to be creative, to be innovative, to do new things? And I think it’s pretty succinct. It’s a killer.

Pete Abilla: Yeah. Absolutely. That’s something that I maybe will explore a little bit deeper during the show here. So the first question I have is… I recorded an intro and you haven’t heard that yet, Eric, but telling everybody about “The Lean Startup.” But why don’t you just start with just your background and maybe how you first got exposed to these lean thinking principles that this audience is most interested in?

Eric: Sure. I had a very, I think of it as a very unusual journey to lean, because my background is not in manufacturing or really anything in the physical world. I was a computer programmer. And I grew up my whole life programming computers, like since I was a kid. One of my favorite things to do. I was absolutely shocked when I found out that you could get paid to do it as a career. It was one of the happiest days of my life. Very, very excited. It was like getting paid to play video games. It was truly a great thing.

So I was very happy to be a programmer. I was convinced all through college and into my career that I would be a programmer my whole life. And through a roundabout series of circumstances starting in the dotcom bubble, I got involved in some software startups, which seemed at the time like a great way to be able to do more and more programming on more and more stuff and have bigger and bigger impact, because that’s just how it happens in the movies, you know.

And I kept having this bizarre experience of building absolutely amazing technology, that even today, nobody is using. And it happened to me over and over to me in my career. And I couldn’t understand it because everything I built was high-quality, well-factored, really in keeping with the best practices of the engineering discipline, as I understood them. We were in teams and in situations where we had the total freedom to build whatever we wanted. So we really did the hard work of building an outstanding business plan and really thinking about what the customer wanted and figuring it out and making a plan that we would then hold ourselves accountable to hitting all the milestones in the plan on time, on schedule, on budget, high-quality. So we kind of did everything right, and the only problem is that customers don’t read those business plans. And so sometimes they don’t show up to buy your product.

Pete Abilla: Yeah, that’s a problem.

Eric: Yeah. It’s one of these minor problems that is not covered in the engineering classes that I took. Nor did any of my engineering colleagues who worked in established companies ever have that experience. Because they were working on version 10 of a product that’s been in the market for many years, and so the higher quality work that they did, the better the product did in the market, the more customers like them, the more they got promoted. And I kept having a really different experience.

And when I was a junior engineer in teams, you know, I always had these intuitions that I couldn’t totally explain but it seemed right to me that we should do things faster. So our cycle time should generally be faster, that things should be more experimental, more scientific, and that customers should be involved earlier than was considered normal.

And when I was the agitator, you know, just the person going around trying to convince people to do those things, I think most people thought those ideas were relatively harmless. And you know, they would accommodate me on occasion, but mostly just tell me to do my good work and everything would turn out fine.

But when I had enough failure on my resume, that I was given the opportunity to try it myself and be the C.T.O. of a startup and really build a team the way I thought it should be built, I really took some of those ideas to an extreme, and really pushed my whole company and the team that I was building, to do things the way that I thought was right.

So just to give you one example, one of the practices that I advocate for today is called continuous deployment. In the software world, it didn’t even have a term at that time. It was considered to avant-garde or even to be used by pretty much anybody. The idea was, as soon as you write a piece of software, to put it into production so the customers can use it immediately, instead of batching up a bunch of related changes, say, 10 or 20 or 100… In some teams, they batch up a whole month or even a whole years’ worth of changes and deploy them all at once.

Now, a lot of your listeners will say, hey, that sounds awfully familiar. But at the time, I had no idea why that was a good idea. It just seemed intuitively right to me. And we built a whole infrastructure, including equivalents to the manufacturing end-on cord and the whole thing, to mistake-proof each change. Because if you’re going to check end changes for customers that quickly, you really have to make sure that you’re not introducing errors faster than you’re improving.

Pete Abilla: And this is before you knew anything of lean or Toyota?

Eric: I had never heard the word lean, I didn’t know anything about lean. That was the kind of system we were building. And I had this serious problem, it was almost like a career-limiting problem, which is that I could convince my team to do these things, and I could see first-hand that they worked, and worked dramatically better than the so-called best practices I had been trained in myself. But I could not explain to anybody why they worked.

So we would hire people older than me. I’m a relatively young person, and I was quite young at that time. We would hire a ten-year veteran of the software industry. And on their first day we would say, today, on day one, you are going to build and deploy a piece of software for customers by the end of the day. Because that’s how small our batch size was and it was relatively easy. And they would be really nervous, well, what if I accidentally introduce an error or take down the site? You know, in their previous job, that’s the kind of thing that would get them fired.

And I would say, “Look, shame on us. If it’s so easy to take our site down, then someone could do it on their first day.” Right? So it’s all about the mentality of making the system serve the people that it’s supposed to serve instead of us serving the system. That would be okay, but the person would be pretty upset. They would be like, “Listen, kid, this is really not how it’s done. With all due respect you need to get with the program, and here’s the more conventional way we need to work.”

And I would have to say, you know, “With all due respect, you work for me. And so we’re going to try it my way. And if you don’t like it, you can try it and not like it, and then we’ll talk. But at least give it a try and see if you like it.” And luckily, that would get me by a certain amount of people because, you know, they work for me, because I could take out the big stick and say, look, you’ve got to try it. I could get people to work in this new way.

But then we started having outsiders who want to know why it worked, like investors, who would send their technical due diligence guy to would stop by and see how’s our technology work. And I was too stupid to understand that I was just supposed to placate that person and tell him what he wanted to hear. Again, a 25-year-veteran of the industry now comes by, and I show them how our system works. And I’m like, listen, I know it seems strange, but let me show you the evidence. You can see with your own eyes that this way is better. And of course, I was too naïve to understand a 25-year-veteran who’s being asked to do this due diligence. They’re not interested in evidence, that the way that they’ve learned their whole career to work is not the best.

So it was a big problem. And then I started being asked by other people in Silicon Valey to give them advice about their startups. And I started trying to convince other people that they should try this crazy system that we had. And again, everyone always wanted to know, well, why does it work? It seems counterintuitive. So I was on a desperation search for new ideas to try to make sense of what was going on. So I was reading management books, engineering books. I read Jack Welch’s “Execution” and all kinds of crazy books. And eventually in that search, I got turned onto Taiichi Ohno’s “Toyota Production System.” And at that time, that book is not… How do you say this in a respectful way? It’s not the most practical book right off the bat. You know, it is philosophical.

Pete Abilla: Yeah. It’s a little hard to read.

Eric: It’s a hard book, especially in translation. And at first I was like, who is this Zen master? All these aphorisms, you know, “every defect is a treasure,” and autonomation. And I’m just like, give me a break! But I remember reading his section on “5 Whys” and root cause analysis, and that really was the start of something that I was like, hey, that is a problem I have every day, and here’s a very, very clear solution.

That got me interested. And then eventually, I read “Lean Thinking” and all the Womack books and after a while “The Toyota Way” and that was my journey into lean. And for me, it was a revelation because I said, oh, these practices that I’ve been trying to get people to adopt have an intellectual basis that I didn’t understand. And so I learned the concepts of work and progress inventory, and batch size, and flow and production leveling.

It was really interesting. On the one hand, it was a revelation. It was super helpful to me in helping to explain these techniques that I was using. But there was always this missing piece in these books that I had a hard time translating for my teams and for the startups that I worked with. Like you know, I think it’s in “Lean Thinking” where there’s a whole section where it says, you have to make a commitment to your employees. If they’re going to work on your lean transformation and you’re going to dramatically improve productivity, you’re going to be able to do the same amount of work you did before with dramatically less people and less equipment. So that can’t lead to layoffs or you’re not going to get engagements. Instead, increase the volume of demand by introducing new products. And I said, “Oh, thank god. Finally the chapter about how to use lean to figure out what the new products should be.”

But if you turn the page, that’s the end of the chapter. A lot of manufacturing books, almost everyone I’ve ever read, it’s assumed, it’s kind of taken for granted, that the company knows what the customer wants, and knows what products to make and the only question is, how can we get enough capacity in our production process to crank those products out?

So that, to me, was the beginning of “The Lean Startup,” is to say, okay, in a startup situation we have to have a systematic process for discovering what to build in the first place. It needs to be just as efficient, have just as much flow and pull to it as our production process for achieving the specification once we’ve agreed on what it is. And that is, I feel like trying to answer that question and build out the rest of that system and philosophy, that’s really what “The Lean Startup” is about.

Pete Abilla: So let’s get into the book a little bit for those that haven’t read it. And by the way, I don’t know if know this or not, Eric, but I’m in your book, and you may not even remember in. When you’re going through all of your references, you had stumbled upon many, many years ago, the very first video that I ever made, before . I was sitting at my kitchen table stuffing envelopes.

Eric: With the envelopes!

Pete Abilla: That’s me!

Eric: You’re the envelopes guy?!

Pete Abilla: I’m the envelopes guy! That’s me!

Eric: Oh my god! I have gotten so much mileage out of that video! I have to thank you. I did not realize that. Oh my goodness.

Pete Abilla: That’s me, man! That was before . I had my wife’s digital camera, I had Home Depot lights clipped to cabinets and I was trying not to burn my house down. I had a blog back then, and I was like, I’m gonna try a video. It would be kind of cool to do a video! So I read the famous Womack envelope thing, and so I stuffed envelopes one night and made this crappy, horrible video. It was even before YouTube got popular. So it was on Google Video, man!

Eric: Oh, man. You’re not giving yourself enough credit! That video, that concept, I’m sure your listeners already understand and know the envelope story and exercise, but that is so counterintuitive.

Pete Abilla: Yeah. Oh, I know.

Eric: I’ve had so many people who simply don’t believe me. I’m like, watch the video!

Pete Abilla: Yeah. Just do it yourself!

Eric: It’s one of these things. The evidence is clear but the theory is confusing. So people go with the theory rather than the evidence. Well, thank you! That was a great video.

Pete Abilla: I don’t know how I stumbled across that. Why would you ever be looking in the back of the book or anything like that? But somebody pointed it out to me and I’m like, no way! And then I pulled out my copy and, oh my gosh! It’s in there! I took a picture of it and sent it to all my friends. Look at that man, I’m in “The Lean Startup!”

Eric: Oh, that’s great! Then I thank you. That was super helpful.

Pete Abilla: Give an elevator speech about the book, “The Lean Startup,” and just a high-level overview of. I mean, you’ve talked a lot already, but let’s get into it a little bit. M.V.P. and just some of the key principles that you touch on.

Eric: Yeah. I have spent the last, I don’t know how many years now, taking that insight we were just talking about, about systematically trying to figure out what is the right thing to build, and try to expand that into a management system that could be the complement to traditional lean management. So the management system that could work in situations of high uncertainty. So when we don’t know what’s supposed to happen in the future, we have, at best, a theory about it. What do we do, what do we do then? So I call that entrepreneurial management. And the book is basically my attempt to lay out the practices of entrepreneurial management, kind of make the case that this is not a replacement for the general management that most of us have studied and mastered, but a complementary discipline to be used only in certain situations and certain contexts. Namely, that context of extreme uncertainty.

And if you believe that that’s what a startup is, I call it “a human institution designed to create something new under conditions of extreme uncertainty,” then I think everything in the book is just a deduction from that basic premise. That on the one hand, people forget sometimes that a startup is not just a small big company. It’s a special thing. It’s not just a product or an idea. It is actually a special kind of organization that has to confPete Abillat the fact that it only has, at best, a hypothesis about what’s supposed to happen.

So if that’s true, then the most valuable kind of unit of progress in a startup is learning. You have to learn what’s going to work in the future. I call it validated or scientific learning. Because if you have unknown things that need to be learned, you may as well use science and not astrology, you know, because that’s worked out pretty well for the human specials over the last few hundred years.

And that seems pretty straightforward. Most people nod their heads and say, okay. But then it leads to some counterintuitive, and frankly, controversial recommendations. One of which is the one you mentioned, the minimum viable product or M.V.P. If we’re trying to build a product to serve an unknown or uncertain future, then we’ve got to ask ourselves a different question than most of us have been trained to ask.

Usually what happens is, especially if you’re an engineer like me, a product manager or a business person, a designer, somebody hands you a specification document with requirements in it. And your job, as engineer, is to figure out, how do I implement these requirements at minimum cost, you know, with highest quality, on time, on budget? And in the engineering world, if you can come up with a way that allows you to achieve pretty much all the requirements but at 20% lower cost or at lower time, then you’re a hero.

But in the world of startups, what happens often is we spend a year, two years, heck, I’ve known startups that spent five years or more building the product. You launch it and then customers don’t want it. So we’re building the thing that the customers don’t want, and we’re really proud that we did it on time, on budget, and with high quality. And you say, wait a second. That’s like driving a car off a cliff but bragging about the gas mileage. It’s like you have a steering problem, not an efficiency problem.

So if you really believe what I said before, that the goal of a startup is to learn what’s going to work, then it only makes sense to build as much of the product as is necessary to get the learning. So when handed a specification document, instead of looking at the requirements as if they were handed down by god on tablets, say, well, let’s translate these requirements into hypotheses. What are we really trying to learn with this product?

And then, instead of saying, “How do I achieve the requirements with minimum effort?” We say, “How do I achieve the learning that I need with minimum effort? What’s the best experiment I could run that will help me understand what the customers want?” Now sometimes, that is in fact to build a physical or a virtual prototype of the product and try to sell it to customers and have them use it. But a lot of other circumstances, there are other experiments that are just as valid but much, much, much cheaper. Including a number of companies I work with where, really, the customer makes their purchase decision on the basis of a brochure.

So rather than build the product and then build the brochure, we say, “Well, why don’t we build the brochure first?” Offer to customers the opportunity to preorder the product, and if no one will preorder, there’s no reason to build the product. We can iterate and try to improve the brochure, rather than trying to improve the product, which is, after all, a lot easier. So that’s the kind of basic thesis of the book, is to try to convince people that there is a system to this. It’s not just the usual startup advice to go fast and be focused and whatever. There’s a system to this, it’s very detailed, it’s very rigorous, it has its own accounting, and metrics, analytics part to it, which I know a lot of people find super boring, but it’s very important.

At the time I wrote the book, it had been used in a lot of startups, but not a lot of people were bought into the idea that this is a general theory of management. But since the book has come out, one of the things about writing a book and laying the case out in detail, is I’ve been given a lot of opportunities to really try to put that into practice and come into companies and say, “What are the implications of this if we want to…” as I said at the very top, “…run and build a truly modern company with a modern management system? What does that look like?” And really, that’s the book is trying to lay out that foundation, that blueprint.

Pete Abilla: For somebody listening to us right now, maybe they don’t work in a startup. They’re a lean practitioner, or lean thinker, or continuous improvement person, you know, in a traditional organization that’s not a startup. Can they leverage the same kind of thinking in their daily work?

Eric: Oh, yeah. Oh, very much so. In fact, I’ll give you one of my favorite manufacturing examples that I was witness to not that long ago. I was in an appliance factory that was going through a traditional lean transformation. So I have not spent a lot of time in factories. So every time I’ve had a chance to walk the factory floor, it’s just the most impressive thing to a software guy like me, especially, to see the level of craft and skill that goes into producing. When we talk about mass production, it seems like they just pop out of a computer like a replicator on Star Trek. It’s so easy to forget that there’s a huge amount of human effort that goes into producing even the tiniest and most trivial object that we consume.

So I was sitting there in awe, watching a skilled craftsman do their part of wiring up the control panel on a kitchen appliance with the digital buttons. I just think of those buttons as if they’re a computer terminal. So you push the button and magic happens. But of course, every wire, every connection between modules has to be hand-connected at some point by a human being.

And when I got home from that tour, and I was looking at my microwave in my kitchen, and I was noticing that it had a lot of buttons on it. So I went and I counted them up. And there are 29 buttons on the microwave in my kitchen. And then I asked myself, how many of these buttons have I ever pushed even one time? And being as generous as I can be, including the popcorn button I pushed only once to find out what it did, I believe I have pushed seven buttons ever, leaving 22 buttons, that were hand-wired, that I have never pushed.

And I was talking to a product manager at an appliance company, and I told him this story, and I told him about the factory and I said, “Do you guys have data on which buttons are ever pushed on your appliances?” He says, “As a matter of fact, we do. We have service technicians, they collect the data from the little black box. So we have all this data.” I said, “Well, is my experience typical or atypical?” and he didn’t really want to answer. But I needled him a little bit and he said, “Okay. Yes, it’s true. The vast majority of buttons are never pushed. Ever. By any human being.”

And I was like, “Are we okay with this? Is this okay that every day, every hour of every day… This is a modern, lean factory. So it is cranking out appliances, thousands a day, of high quality, good priced, well designed things, and that means that… I don’t know how many hundreds of thousands of person hours a year are being invested in wiring up buttons that are never pushed? Is that not waste?”

Pete Abilla: Yeah. No, it is. Over-processing.

Eric: Right. We’re doing the work, but then we’re kind of going function-by-function. Whose fault is it? We were getting angry. Whose fault is this? Is it the fault on the guy on the factory floor? No. He’s doing exactly what he’s told to do, with ever-increasing quality. If he had a problem wiring up one of those buttons that was never pushed, he would hit the end-on cord and he would stop the line and he would fix the problem. It’s not his foreman’s fault. He said, “Well, it must be the product manager’s fault. The designer. The designer’s fault. Somebody involved in the design of this microwave.” But if you talk to those people, as I have, you’ll discover that they were told by a salesperson that that’s what the customer wants.

So it’s the salespersons’ fault. But if you go talk to the salesperson, they’ll say, “Well, I was told by the category buyer at the retail stores where we sell these microwaves, that that’s what customers want.” If you go talk to that person, it’s like, “Well, yeah. I don’t know. But I’ve got to sell 25 microwaves. So it’s really helpful to me to be able to line them up on a shelf by increasing complexity, of something the customer can see and have the pricing correspond to that.” So to make his life easier, we’ve added all these buttons. So you know, microwaves are getting fancier and fancier. So it’s like, everyone in the system is doing the job. Everything is being done with high-quality and very efficiently, and yet the net result is this catastrophic waste.

Pete Abilla: So how do you test it though, Eric? Do you go to Best Buy and say, “We’re going to run a split test, AB test here, and this microwave is here, and this microwave is here. One has there buttons, one has 28 buttons,” and see which one sells more?

Eric: I mean, yeah. Listen, in 30 seconds we’ve already identified a possible solution to this problem. Like, the company has the ability to run that experiment. I mean, it would be very easy to do. I remember talking to this company. I said, “Listen. Because that’s something we could do.” And in fact, we were doing a workshop, so we actually worked through some possibilities and, yeah, there’s a number of experiments like that where you could say, “Why don’t we go prove that more buttons actually yield more sales?” That’s a very easy experiment to do. I’d say you pick two relatively matched stores that have similar traffic volume, you put a high button-count microwave in one, and a low button-count microwave in the other and we measure not just sales but you can measure…

We actually did an experiment not with microwaves but a different category. We had members of the engineering team sitting on the sales floor of the store with a clipboard, counting how many people came up to look at the appliance, to even just see if they were interested. Because if they’re not interested, they’re not going to purchase. So we could actually diagnose customer reactions to the product. You know, this whole experiment could be done in a month. We could know for sure if this was true or not.

But it’s easy to just say that. But think about the work. Who would do that experiment? Who’s responsible for it? How would we produce the item? Are we actually prepared to sell a small number of bespoke microwaves that we just made up? How do we get regulatory compliance? What are the liability issues? It raises these huge questions that most companies can’t answer because they’re simply organized to crank out more and more of the same stuff that they’ve already been doing.

Pete Abilla: Probably got to do some wild experiment on the internet with kids, when you’ve got to present two different pictures of microwaves. “Which one do you like, A or B?” Do something like that, you know?

Eric: Here’s the interesting thing about that though. Most customers don’t really know what they want. So if you ask people, like, this is a classic experiment that has been replicated a lot of times, if you ask people to choose between two things and say, “Which one do you like better – A or B?” And then you do that exact same experiment but you just ask people, “Would you like A or not? Yes or no.” Or “Would you like B or not?” And 50% of the people get A, and 50% of the people get B.

In the former case, you usually get different results than in the latter case. So customers will say, “I like the fancier bigger thing. I like the brighter color.” This kind of goes back to new Coke, for those that remember. Like in a taste test, “Sure, I like the new Coke,” but when I actually have to decide if I want to pull it off the shelf and buy it, it’s a different story.

So part of “The Lean Startup,” the idea is we want to conduct experiments that are valid, that really help us understand what customers actually will do, versus what they may say they do or believe that they will do. And although there’s some skill to that, most of the experiments that we do are not actually intrinsically that difficult.

Like in this particular case, we got this company, they normally would come out with a new appliance, like major model refresh, every 5-7 years. So their cycle time… You know, the cycle time that matters for the lean startup we call build-measure-learn. How quickly can we go from an idea to validation of that idea as brilliant? So if I have an idea for a product and it takes five years to bring it to the market, then my cycle time is effectively, at best, once every five years.

Using 3D printing and some advanced manufacturing techniques, they got to a point where they could produce a new version of the appliance, not one appliance a week, but every week they could come up with a new design, implement that design, and show it to customers. And very quickly, they got themselves into a learning rhythm where they started to discover all kinds of things about consumer preferences that they did not know before and that really put a wrench in their plans in terms of what they thought was going to work in the future.

Pete Abilla: Yeah. This is certainly a fascinating discussion, if you think about it. We lean thinkers talk about value, value, value. But to your point, how many times have you gone out and said, “How many times have you pressed that button called whatever on the microwave?” And gosh, I’m going to go look at my microwave here at our office and say, “Huh! Yeah, I think I’ve touched eight of them.”

Eric: Yeah. I did the survey once on Twitter. I think the average number of buttons was like 32, and the average number pressed was closer to 3. So it’s just a colossal amount of waste, and of course, I’m using this example of a microwave because it’s so concrete and everyone has one and everyone knows what I’m talking about. But now, multiply that times all the different kinds of products that are made by whatever company.

Pete Abilla: When you look at it, like, certain computer makers, I’m not big on calling companies out or anything like that, but some of them are very simple and elegant. They have three choices of their computer, where another has 48 variations of their computer. And it’s like, whoa, which one do you want? I think we hunger for simplicity and elegance. I think the human person does but sometimes we don’t realize that.

Eric: Sure. But sometimes our engineers hunger for complexity and the opportunity to show off.

Pete Abilla: Yeah. Exactly.

Eric: And what’s interesting is, most of the companies I meet, there’s an ongoing argument, almost a war between the designers and the engineers and the product managers who are in various factions, who are having these eternal debates about, should we simplify? Or should we add features? Should we reduce cost? Like all these different possible product strategies. And they’re mostly being resolved politically, through who has clout and power, rather than scientifically through experimentation that shows what is empirically correct.

Pete Abilla: Or your competitor comes out with this and so you feel…

Eric: Yeah, we have to go chase what they’re doing.

Pete Abilla: Yeah, exactly.

Eric: Of course, if the competitor’s just as stupid as you are, and they’re having the same eternal political debates, then we’re all chasing our tails. It’s really quite a waste.

Pete Abilla: Yeah. So I’m curious, when you talk to the traditional entrepreneur out there in the world that maybe has never heard of lean thinking or anything that we talk about, lean manufacturing, what do most of them think? Are they like, oh, that’s nice? Or are they genuinely curious to learn more?

Eric: It’s very interesting. You know, I put on conferences, we have a lean startup conference every year, and I’ve done for a couple of years a Lean Startup track at South by Southwest. So a big part of my life is introducing lean concepts to a population of people that don’t know that lean comes from manufacturing.

We’ve had John Shook and Mary Poppendieck and all kinds of traditional lean, quite famous people on stage and they usually are flabbergasted because I try to prepare them in advance for what they’re going to face. I’m like, “Listen, you’ve got to understand, the people in this audience, to them lean is a startup thing. They don’t know anything about manufacturing. They have no idea that any connection to manufacturing, they’ve never heard of Taiichi Ono, they never seen and ad for…”

Pete Abilla: They think the manufacturing guys are copying, right?

Eric: Yeah. I mean, really, they’ve never heard of it! They don’t know! And it’s a fascinating meeting of the minds. So I feel part of my opportunity, what I enjoy doing is to try to bridge these communities and bridge these gaps and say, “Look, we have a lot to learn from each other if we’re willing to not be defensive about it.” And I think on both sides, I know I talk to software guys about manufacturing, they’re like, why are we talking about manufacturing? That’s like an old world boring thing. What does that have to do with me?

And when we talk to folks in the lean world, I get the criticism quite often that “The Lean Startup” has come out of nowhere and indoctrinated this whole bunch of people into lean, but I didn’t do a good enough job of teaching them about real lean. It’s kind of a fake lean, being a startup thing, and those startup people, when they grow up, when the company gets bigger, they don’t adopt the full lean production system. I think it’s a totally fair concern. But the question is, who’s responsible to teach them the lean production system? Is it all my responsibility to teach them lean startup and also all the other stuff? Or can we hopefully, you know, I’d like to think we can work together to have people graduate from one to the other and vice versa to integrate the systems more and more. But not everybody thinks that way. So it’s been kind of an interesting journey.

Pete Abilla: So what’s the most misunderstood or maybe misapplied aspect of what you talk about within the lean startup?

Eric: Sure. I would think the biggest issue is once we start talking about experimentation and quick, cheap, rapid testing, there’s a lot of people who think that we’re saying, “Oh, that means don’t have a vision, don’t have a long term plan.” And that’s a big misconception and it’s really wPete Abillag. For those that have actually ever got the chance to actually read the book, part one of the book is called “Vision” for a reason.

There’s no science without a good hypothesis. And a lot of confusion happens when people think we’re doing fast, short cycle times because we’re trying to be sloppy or cut corners. And I can only imagine when people first heard about Single-Minute Exchange of Die, they had the same thought. It’s like you know, we’re trying to produce millions of things, and we’re trying to do true mass production and here you are messing around with how quickly we can change it. And I was like, who cares about that? Why is that important?

One of the things I think all lean thinkers have in common is our understanding that the foundation of lean is a long-term philosophy, and an understanding that if you want to achieve something great over the long-term, you have to break it down into small enough parts and bits and pieces that you can get good at each piece. So the same thing is true in a startup situation. We do experiments in order to prove that the vision is valid, not to discover what the vision should be in the first place.

I talk to a lot of companies, and they have a five-year plan for a product. You know, classic hockey stick-shaped growth curve. After five years, they’re making a ton of money, but in the early years they don’t make any money. And the problem with the five-year plan is only if you believe it’s going to come to pass. So if you take it as a prediction about the future, you get in trouble. Because you’d say, “Look, it says here in 2022, we’re going to make this much money so I better be prepared,” instead of asking yourself, “What has to be true today for that outcome, that trailing indicator to eventually come true? And how can I find out if things that are true today are in fact true?”

So the purpose of lean startup is to do these experiments so that we can realize that long-term vision. And for those who are in a traditional enterprise kind of situation, those entrepreneurs, the internal entrepreneurs, this is even more important for. Because entrepreneurs here in silicon valley and in the enterprise both have a really bad habit and that habit is that they like to spend other peoples’ money.

And when you spend other people’s money, you pretty quickly have a problem, which is, people want to know what do they get for their money? And I think a lot of entrepreneurs forget that when you’re looking for hockey stick-shaped growth, the most salient part of the hockey stick is the long flat part, where you don’t have any revenue yet, right? Nothing’s happened yet. So for months or potentially years, a new entrepreneurial venture will have the problem that, by conventional accounting methods, its R.O.I. is negative by definition, because we spent all this money, but we don’t have anything to show for it.

And so a huge part, to me, of lean startup is developing a set of metrics and techniques for demonstrating progress that is scientifically valid even to finance, even to people who want to know what am I getting for my money? And that translation from the language of learning and creativity and innovation, which frankly gets innovators and educators excited, but finance people do not like to hear about it. We can translate from that into the world of dollars and cents that gets even finance pretty excited. And therefore, we have the tools necessary to sustain the political capital and the enthusiasm and the engagement necessary to realize a long-term vision.

Pete Abilla: What’s your thoughts on bootstrapping a business versus getting funds from another party?

Eric: I think they’re both good. You know, I think there are situations where both are great. The thing people don’t realize about bootstrapping is even the bootstrappers are spending somebody else’s money. They tend to be spending their family’s’ savings. I mean, literally the conversation between a bootstrapper and their spouse is almost verbatim, the same conversation between a corporate entrepreneur and their C.F.O. It’s all about, hey…

Pete Abilla: You’re pitching your wife versus some investor, right?

Eric: Right. No man is an island. To do entrepreneurship is to forego tremendous opportunity cost, the benefit that you could have somewhere else. So bear that opportunity cost. So whoever is supporting you in doing that needs to understand that you’re making progress and doing a good job. So depending on the kind of situation that you’re in, you know, in some projects, the amount of money required to even build the minimum viable product is in the tens or hundreds of millions of dollars. And unless you’re quite wealthy, you’re really going to need to finance them outside. And a lot of projects really don’t require anything but sweat equity and so the funding is really not a limiting factor.

So I think if I could wave a magic wand, I wish we could get entrepreneurs more focused on the product and how to serve customers and a little bit less focus on funding and fundraising because the tech press and the startup press is so obsessed with fundraising and it’s such an interesting thing to talk about and it consumes all the oxygen.

Pete Abilla: Yeah. I’ve never understood why people celebrate after they’ve got funded, funding or something. They celebrate and party. And to me it would be like, “Oh my gosh! This guy just gave me a million bucks! What do I got to do now? I got to do something!” You know? To me, it’s a tremendous amount of stress.

Eric: Right. Now, you’re like the boss. The clock is ticking this way now that you raised money. Your startup has a very fixed lifetime. It’s like you achieve the next milestone before you run out of money or you die, which is really not true before you raise money. It’s like, it’s a little bit like, I don’t want to make a morbid analogy, but party is not the first thing that would pop into my head for that kind of situation.

Pete Abilla: Yeah, exactly. So what’s next for Eric? Do you got any plans to write another book? What do you have going on?

Eric: Oh, I am so busy. Yeah, I am starting to think about it. You know, “The Lean Startup” came out in 2011 and since that time, I’ve really had the chance to build some very large-scale deployments of lean startup, both with super high-growth startups that have kind of passed out of the, like, incubation phase and into the hundreds and thousands of employees, as well as with some of the world’s largest companies.

Pete Abilla: G.E., right? I know you worked for G.E.

Eric: Including G.E., yeah. We built this program for G.E. that has trained all of their top managers, thousands of them, every one of their businesses in lean startup. And I have personally worked with dozens of projects there now, you know, ranging from healthcare to energy drilling. You know, you name it, I have worked on it in the past couple of years. So there’s a lot of details to flesh out in terms of… So I’ve been talking about what does that modern management system look like? I feel like there’s a lot to say now on that topic. So trying to figure out, is that book worthy? You know, that is definitely on my mind.

Pete Abilla: Well, time to get an M.V.P., some blog articles pr something like that and see.

Eric: Yeah, I’ve got to figure that out. You know, one of the nice things about blogging when I was first starting out is that no one knew who I was and no one cared what I wrote. So I didn’t inadvertently make news every time I opened my big mouth. Now, it’s a little bit different. I have to be a little bit more careful. Trying to figure that out is really on my mind.

Pete Abilla: So the last few questions I have for you Eric, here, are what I call a quick-fire section. So these are really just going to be really more focused on you and what you think about very specific questions here. So the first one I have is, what does respect for people mean to you?

Eric: I’m not good at quick-fire. I like to think about things. I think that what it means is that every person has an inherent right to have the work they do every day matter to somebody, and not just their boss because they told them to. Actually matter to the world, matter to their customer, matter, really, to feel that they are making the world a better place through their work and to know it for sure, not wonder about it. They know it for sure. And I don’t see very many companies living up to that standard.

Pete Abilla: What’s the best advice you’ve ever received?

Eric: I’ve been lucky to have a lot of good advice over the years.

Pete Abilla: Could be a grandpa, sister, anything.

Eric: Yeah. I’ve had some great personal advice. You know, like I mentioned, I was a very young computer programmer. That’s all I really wanted to do. And I got admitted as a child to a program that’s run out of Johns Hopkins University. It’s called the Center for Talented Youth. It’s like summer camp for precocious nerds. And when I get admitted to that thing, it was like the greatest thing that ever happened to me at that time. It was so awesome. You know, I got to spend a couple weeks with other super smart kids and not be bullied, you know? What a great experience. It was organized like a college campus because you did it at college campuses. So you could choose what courses you were going to take and you had to pick a topic you were going to go learn about for the summer.

Of course, I was very excited to do computers or math or anything like that. And my grandmother, bless her soul, was the one who said, “No, he’s going to take creative writing.” And at the time I was so angry, you know. I was like, what?! My chance to geek out on math all summer and you’re going to make me do this writing class and I’m going to learn about semiotics, and gender studies, and fiction writing and all this stuff! And I was really upset about it. But in retrospect, it was very wise advice because learning to communicate your ideas is a truly powerful gift. Plus, I turned out to really like writing.

Pete Abilla: Yeah, little did grandma know you were going to write an incredibly popular book.

Eric: You know what, I think that’s exactly what she had in mind. I don’t think she would be surprised at all. She thought the world of her grandkids. She thought we were going to be infinitely successful. So she knew what was what.

Pete Abilla: Love it. Do you have a personal productivity habit that others might benefit from?

Eric: I am the anti-productivity habit. I don’t do any of the things that you’re supposed to do to be productive. I don’t know why none of those things ever work for me. But if there’s anyone out there listening who’s like me, I guess all I can say is, “I guess it’s okay.” I don’t need to do lists, I cannot keep track of what I’m supposed to do on a daily basis, I don’t keep a regular schedule, I don’t write on any kind of plan.

When I was writing “The Lean Startup,” days go by where I would get up in the morning, have the whole day blocked for writing, and be just accomplishing nothing for eight straight hours, watching TV, eating junk food, wandering around feeling miserable. And like at 4:38 p.m., sit down and write a chapter. Like, write a huge amount of work that I had no idea I was even thinking about, which I just vomited out all of a sudden and then go back to feeling miserable the next day. So nobody should take productivity advice from me. It doesn’t conform to any books or best practices that I’m aware of, and yet somehow, it turns out okay for me.

Pete Abilla: All right. So aside from “The Lean Startup,” if you could recommend one other book related to continuous improvement or leadership, what would it be and why?

Eric: Gosh. Well, I already mentioned Taiichi Ohno’s book. That was so formative for me, but your readers already will know it. You know, Steve Blank, who is another person associated with lean startup, he was a mentor of mine and an investor in my early startups, he wrote a book called “The Four Steps to the Epiphany,” which has been recently re-issued. It’s not a book to be read cover to cover, it’s not that kind of book. It’s almost like a reference volume full of incredibly useful tips. If anyone is actually thinking about starting a startup, that is a truly, truly great book.

Pete Abilla: Say the name of it again.

Eric: That’s called “The Four Steps to the Epiphany.”

Pete Abilla: Got it.

Eric: And this is totally unrelated, but the fiction book of the year, from my point of view, is a book called “Ancillary Justice,” which is a science fiction book, for those who are aware of that. Since I started with science fiction, I thought I should end a truly original book, unlike anything I’d ever read before.

Pete Abilla: I’m addicted, it’s totally off-topic, but I’m addicted to this podcast, have you heard about “Series”? Have you heard about that yet?

Eric: You know, I have heard about it and I have not yet checked it out, but it sounds like it’s really good.

Pete Abilla: Oh my gosh. It’s not science fiction, unfortunately. There’s some tip out there, it’s totally unrelated, but you were just talking about what you’re into, so I was like, “Series.” But listen to that and you’ll be hooked.

Eric: Yeah, I’ll do that.

Pete Abilla: All right. So the last question I’ve got for you, Eric, is kind of a hypothetical situation. So you’ve decided that you want to throw your hat into the ring and really practicing these lean thinking principles, running a more traditional type company, not a startup, and you’re the general manager. You’re the boss. The C.E.O. that hired you is giving you complete operational and penal control, so it’s your ship to drive however you want. Unfortunately, the company’s at a bit of a mess. Their processes are all out of whack, morale’s low, quality’s bad. It needs a lot of tender loving care.

Eric: Yeah.

Pete Abilla: Unfortunately, even more unfortunately, lots of bad news so far, but all the leadership team that you’ve inherited, well, they’re not really enthused. They’ve heard about this lean startup guy or whatever and all this lean thinking. They’re not into it. They don’t want to hear about it. They’re just totally turned off. They’ve got a job to do. So my question is, it’s Monday and you’ve just come in for your first day of work, and you’ve got your week planned out… Well, maybe you’re not going to plan it, but you’re there. What are you going to do and why?

Eric: Yeah. I mean, I know it’s a hypothetical but I feel have lived that scenario more than once. And every time I come in as a consultant when I work with companies, it feels like that. You know, everything’s on fire and who’s this hotshot guy coming in from the outside to tell us what to do? You know, I don’t consider myself an expert in leadership or in management by a long shot. All I really know is in a situation like that, you’re going to get killed by the things you don’t even know you don’t know. So to me, my goal would be to just learn as much as possible about what’s happening.

And the two things I would be trying to understand is, one, what is the company’s current production process actually? Not what does it say on paper, not what is it supposed to be, not how does it appear on financials. But what is actually happening in our company day to day? How is it that we produce products and get them to customers? And the second thing I would want to spend time on is, who are our customers and what do they really care about?

The nice thing about this compared to a true startup situation is you already have a product, presumably. You’re making some money, you already have some customers. You don’t have to go through the really difficult and agonizing decision of trying to figure out who will our customers going to be, and how do I find them and whatever? I mean, we can go talk to them now.

You know, some of the projects I’ve worked with coming in as an outsider that I’m using as an analogy here where, and especially like a lot of projects I’ve done at G.E., where there’s high science involved, material science, nuclear science, all kinds of crazy stuff happening. And the team that works in those products, they’re not used to talking to an outsider. So they have an incredible amount of implicit knowledge about the business, about the product, about the science that, you know, as an outsider is very hard to get.

And I think the single most important thing that I was able to do in working with those teams is I would first say, look, sit me down and for as long as it takes, explain to me how this thing works. Before I say a word, I need to understand who are you people? What do you make? How does it work? I was looking at an M.R.I. machine, you know, at a hospital setting. I was like, well, what is magnetic resonance and how does it work?

You can’t understand the economics of a business, you can’t understand the levers that you can pull as a leader, you can’t understand anything unless you understand, what is it that you make, and how is it produced, and what are the degrees of freedom, and what is it that we do as a company? Like, you’ve given me this example as something that’s truly screwed up, but what I would want to know is, what are we really good at?

A modern company that exists, that hasn’t gone out of business yet, is compared to the best companies that ever existed a hundred years ago, is probably better than any company could have been in 1910. Because just the basics of just complying with the rules of modern capitalism is so intense. So I want to understand, what are we really good at? What are the opportunities that we see? What is it that our people are doing? And then once I really understand that, and once I really understand who are our customers and what do they really want, then maybe, I’ll be in a position to suggest, hey, here’s an experiment that we could do. And then I would look, because I’m a startup guy, I would look for, hey, instead of changing the whole company all at once, could I borrow five people from five different functions, put them together on a cross-functional team and start a startup?

Pete Abilla: And then you’d go to the break room and start looking at their microwaves and start counting buttons.

Eric: Hey yeah, exactly. Right. It depends on what it is but I feel like most of the companies I talk to are drowning in wisdom. There is wisdom on the factory floor, in the salespeople, in the engineers. Like, there is incredible knowledge and great ideas everywhere. And the question is just, how do we harness those ideas, and how do we put them into practice? That’s, to me, the leadership challenge. So that’s where my head would be on day one of a situation like that.

Pete Abilla: Awesome. All right. Well, let’s wrap up this show, Eric, with you. Will you share some final words of wisdom? And why don’t you tell people how they can connect with you on social media or any other outlet?

Eric: Okay. Yeah. Sure. You know, to me it all goes back to thinking scientifically. This is an old lean trope, you know, but I think it’s really true. If you’re in a startup situation, if you’re in a situation of high uncertainty, then everything you do, whether you admit it or not, is an experiment. So you have a choice. It’s not do an experiment or don’t do an experiment. The choice is do a scientific experiment or do a non-scientific experiment, right? Go do astrology and you know…

Think about it. In olden times, there were people who claimed that they could predict the future. Those are not scientists. But if you look at a modern business plan, and what is considered state-of-the-art in most companies, it’s like you need to be able to predict the future. It’s like write down on a piece of paper what is going to happen in the future and then make it happen through determination, will, and perseverance. That’s not science. That’s astrology.

So if we’re going to be doing experiments anyway, why not make them scientific? Why not be clear about our hypothesis? Make it a falsifiable hypothesis, you know? Make it a rigorous experiment and then use that, extrapolate from facts instead of from fantasy. That to me is the heart of our challenge.

Pete Abilla: Fantastic.

Eric: What was the second question? I’m sorry.

Pete Abilla: How can people connect with you?

Eric: Oh, excellent. I’m very easy to get ahold of. My website is TheLeanStartup.com. Every year we put up a lean startup conference. The next one is coming up in December, the week of December 8th.

Pete Abilla: Where is that going to be?

Eric: It’s in San Francisco. It’s at LeanStartup.co, and I’m Eric Ries, E-R-I-C-R-I-E-S, on Twitter. And people are always welcome to get in touch with me in any way.

Pete Abilla: Fantastic. And “The Lean Startup” is available anywhere books are sold, I guess.

Eric: That’s right! My publisher would want me to add, anywhere books are sold, yes, you can get “The Lean Startup.” And you can get for Kindle, in paperback, you can get it in something like 25 different translations now.

Pete Abilla: And be sure to flip to the back of the book when you first get it and look for the reference to the…

Eric: That’s true! I’ll endorse that. If anyone hasn’t seen the letter-stuffing video, you’ve got to watch it.

Pete Abilla: It’s painful! We’re a lot better at making videos now, right? That was our M.V.P. right there. Really, it was.

Eric: You really did it! You’ve got to produce a new H.D., like high-quality…

Pete Abilla: Oh, we did. We’ve got it. I’ll send you a link to it and you can update it.

Eric: Okay. I’ll start making people watch the good one.

Pete Abilla: Yeah, for sure.

Eric: All right. It’s a pleasure. Thank you for your time.

Pete Abilla: All right, Eric. Take care. Thanks for listening to the Podcast. Now it’s time to take a free, no strings attached, fully functional test-drive of School of Lean and Six Sigma over at Shmula.com. Gain immediate access to more than 500 Lean and Six Sigma training videos, free of charge, at Shmula.com.