How the Lean Startup idea went from idiotic to overhyped
I've spent a lot of time rolling my eyes at the words "lean startup" because-- like "pivot"-- they've become so bastardized.
Eric Ries and his philosophies of rapid iteration, testing hypotheses and turning entrepreneurship into a science went from something that was considered crazy to something that was considered overhyped. There was almost no time in the middle where it was simply something that people considered and universally understood.
Blame the misleading name of it. But also blame-- in part-- tech bloggers who don't have time to read his book.
Well, as part of our Art of Starting Up Series, we're here to be part of the solution too. If you think the lean startup has anything to do with how much money you raise or how many people you employ, read the Q&A with Ries below.
Sarah Lacy: How did this all start?
Eric Ries: It started out of failure. I was not the most successful entrepreneur in history-- far from it. I grew up as a technologist. I was the kid in my parents' basement on the computer who didn't have enough friends.
When I started doing this professionally, I was building what I thought was this really awesome technology that no one was using. It was really painful and really embarrassing. I kept thinking I'd come up with the next new greatest thing and that wasn't my experience at all.
Finally when we founded IMVU, I wanted to do things differently. I didn't want to spend years and years in stealth mode then launch and have people not use what I'd built. My intuition was if we had a much faster cycle time, if we could iterate quickly and release more often, we could bring customers into the process much earlier.
Talking to customers doesn't mean doing what they said. This is not asking opinions or focus groups.
And it worked. Not that IMVU was the greatest company of all time, but it was a very profitable company.
People did not have a clue what I was talking about when I would explain how I was building this company. When you pitched VCs, they'd bring in the grey hair tech veteran guy to vet you. I was 25 when I started the company, so I'm this young guy who's the CTO and they'd bring in their tech due diligence guy. I'd explain that we do this thing called continuous deployment where we ship every 20 minutes and he'd say, "Listen kid, this is not how it's done…" I would be too stupid to know all I had to do was say "yes sir" and cash the check. I was so stupid. I was like, "No let me show you the evidence…"
We failed tech due diligence! That's tech 101 not to fail a VC's tech due diligence. I'm surprised my cofounders didn't kill me.
SL: Or at least fire you. Killing might have been a little extreme.
ER: We all identified so much with the company, I would have had a hard time knowing the difference.
We had this reaction all the time. We'd hire experienced technologists and their first day of work, we'd make employees find a bug and fix it and ship code. They were used to a company that would ship code every 18 months. They would have a panic attack. "This is not how it's done. Let me help you develop a more mature process," they'd say. And I'd be like, "No, you work for me."
My job became being the explainer. People would bring me in to companies to advise them and people would get into screaming matches with me saying what I was describing could never possibly work.
SL: What year was this? Because what you are describing seems so common place now.
ER: It was 2004. I coined the phrase "Lean Startup" in the fall of 2008, so not even five years ago. At the time people thought I was a total lunatic. So many people really thought I was unhinged. It became commonplace much more quickly than I could have imagined.
We are so fad oriented. We go from something is stupid to we're tired of using it without ever going through intervening stage of what it was. That's how I felt. I went from one day it was the stupidest thing to being overhyped.
This is where you get so many misconceptions. People will ask "What is it?" and they'll say, "I don't know, but I'm tired of it."
A lot of the challenge with the lean startup methodology is it's very nuanced. You can't pivot all the time or you will just run around in circles. It's about how do you know when to pivot? How do you know you are making progress?
Entrepreneurship is frankly complicated and full of general questions that we don't have great answers to. People work off of natural gut instinct, but we think there's an opportunity to develop a science of doing this better.
SL: For every rule someone states-- such as you should raise as little money as possible-- you can find an example of someone who only survived because they raised as much money as they could. There are people who swear by brining in experienced management, and people who say it will kill a company. Right now it's popular to say you should focus on revenue from day one, but there are plenty of companies who would have died doing that. Can there be a science to something that's so individual and specific?
ER: I think there actually is an answer to these questions, if we are careful about working through the first principals. There is no such thing as you should always do X. It's all about what's contextually appropriate. There is a time and a place to raise money time and a time and place to focus on design. People will say, "I want to do what Steve Jobs did." Well, you might not be in the same position as Steve Jobs. You have to figure out in the situation that you yourself happen to be in, what might work for you?
There's a lot of boring math and accounting to it. We're really making this into a management science; this isn't a bumper sticker like saying "minimum viable product." It's about what is the experiment what are we trying to learn? Finding metrics to make sure we are really learning the right things.
If you look back at lean manufacturing, I think that's the closest analog to what we're doing right now. People didn't know how to do things efficiently. It was very primitive. It was all about great man and trusting your gut. There's something similar going on here.
SL: What's the end goal here? Do people study this and get the equivalent of an MBA? How can you stop to do all this "boring math and accounting" when you are busy putting out fires and building a company?
ER: It's not like getting an MBA. Entrepreneurship is an applied science, you have to learn it by doing it. I like what you said earlier-- about how continuous deployment is obvious now.
Today lean manufacturing seems so obvious that it's boring and dumb. Iteration and rapid testing is obvious that it's no longer controversial. You would no longer study it, because it's so obvious. You just accept it as the way things are. The idea that work should be done as efficiently as possible used to be a controversial statement. Today we'd never argue about it.
I hope we reach that level of impact.
SL: What's the biggest misconception about your work?
ER: The most common misconception is that it's about money. It has nothing to do with how much money you raise or how much you spend. In fact all of companies that we study raised a ton of money. I have no idea where that came from.
SL: I think it comes from the name! To me, "lean" implies that your company isn't "fat" or "bloated."
ER: Well, fair point, but I took it from lean manufacturing. Funnily enough, I've talked to some of the old lean manufacturing guys, and they said they had that problem too. People thought lean manufacturing meant laying off people and no capital spending.
SL: How has your work changed as these practices have become more common place?
ER: I used to think what we were doing was helping venture backed companies not totally crater. But it's much broader that that. It's not about can we help companies survive, but what kind of companies are we trying to create? I think we can create a new company that can be good at innovation as part of its DNA.
Amazon is the closest to that, they take it to an extreme. When you see them do these crazy land grabs at once, people don't realize that a lot of those have been in the works for a long time. They put a two pizza team on it five years ago. They didn't over fund it; they treated it like a startup.
A couple well run companies in this world do this but they shouldn't be the rare exceptions. It should be as a matter of course. Just like we don't have companies with bad supply chains anymore; that's solved. It should be like that.
SL: How do you know when something isn't working? There's a lot of hope that things just suddenly turn around, but at one of our events with Kevin Systrom of Instagram he talked about how hockey stick growth never comes out of nowhere.
ER: It's 100% true. I love that we use the phrase "hockey stick growth" to mean rapid success when the flat part where nothing is happening is the long part. In every case I know of the interesting things happening during the flat part of the hockey stick and those are not visible in vanity metrics.
Look at early Facebook-- back when it raised money from Peter Thiel and it had no money, no revenue and thousands of users. Back then, people were upset that Facebook had no business model, but it showed a willful disregard of the evidence to say nothing was going on during that time. Fifty percent of the audience was using it everyday. That's a very unusual circumstance. They'd go onto a new campus and take it over in two weeks. It was outrageous to suggest it was a company with no business model when they could acquire that much attention for free in large quantities. That's like saying I have a diamond mine but until I've sold the diamonds, I don't know how valuable they are. I know exactly how much they are worth.
Now because Facebook is so famous everyone thinks it's so obvious. But I always want to say to big companies, "Can we have an honest conversation about whether you would have invested in the first rounds of Facebook? I guarantee you wouldn't have. Mark Zuckerberg could have been here creating Facebook on your campus and you would have fired him."
SL: So in turning entrepreneurship into a science, are you removing the emphasis on listing to your gut?
ER: It's about trust your gut, but verify. People get upset that this is taking the creativity out of entrepreneurship. One person told me entrepreneurship can't be a science because if it was a science anyone could do it. That's stupid because science is a science and not everyone can do it. There's still an element of where the hypothesis come from? Where did Jeff Bezos get the idea to do Amazon and create this kind of company? That's all still very mysterious.