Eric Ries and the Origins of the Lean Startup Theory—The Full Xconomy Interview

I spoke with Eric Ries, founder of the Lean Startup movement, on July 5, 2011, at Peet’s Coffee & Tea in San Francisco’s startup-rich SoMa neighborhood. If you’re pressed for time, a much shorter summary of our conversation is available here. But at least a few readers—the types who attend Ries’s conferences or go to Lean Startup meetups—will be interested in this full, 11,500-word writeup.

Xconomy: How did you first get interested in entrepreneurship?

Eric Ries: The idea of being an entrepreneur wasn’t really something that I grew up with or resonated with. I was excited about technology. I grew up working on computers. From as long as I can remember it’s something I’ve always done. To me, I was excited about building technology. Creating software was the most creative, most satisfying thing I did growing up. I couldn’t believe you could get paid to do it as a career. It was the best news I ever heard in my life. I was, from a very early age on the Internet, playing online games, getting involved in programming as a component, that was my introduction to this—MUDs, multi-user domains, that was heaven to me.

And so I was very precocious in terms of going on the Internet and trying to get jobs. I got my first software writing jobs through Usenet without revealing my age as a teenager. There was a bit of misdirection required in order to get people to pay you to do stuff, but on the Internet no one knows you’re a dog. That was very cool. But at that time, entrepreneurship was not a concept I was even aware of. My parents were doctors. This was outside the box. It wasn’t until I got to college and the dot-com bubble just swept through everything that the idea even occurred to me.

X: You were at Yale, right? What years?

ER: I was there from ’96 to 2000. By ’98, things were just crazy, the stuff we were reading at magazines. I did an internship at Microsoft my freshman year summer, and my relatives were asking for stock tips about whether they should buy Microsoft stock. That just was crazy. Why are you asking me, first of all? I have no idea about that. And B, why are my relatives, who have no interest in technology, all of a sudden interested in Microsoft and in tech in a way they never were before? In retrospect, it’s such a clear sign of a bubble, when people who really have no business are excited about something they don’t know.

X: That infected college campuses as well.

ER: Well, we just kept reading these magazines, and the magazine stories were like, two college kids walk into some VC’s office and say “I need $10 million,” and they get it, and a year later they have something worth $100 million. My friends and I were like, why aren’t we doing that?

X: Was the Yale Entrepreneurial Society active back then?

ER: There was no such thing. The very first clubs happened in 2000. It was the last place on earth to catch the bug. It was almost too late for us. I remember the first incubator frenzy from the bubble—I was involved with two or three incubators in New Haven, CT. I was an advisor to a VC firm. All I had at that time was a half-baked startup. But I’m skipping ahead. In 1999 I started a company at Yale that turned out to be a big disaster. It was called Catalyst Recruiting. We had this idea to have college students create online profiles for the purpose of sharing. So it sounds promising, right? Except that our idea was that you would create those profiles and share them with employers, whom we would then charge for access to the best college students. On the face of it, it was not a crazy idea. It was certainly in the vicinity of things that turned out to be really valuable later, but we had no idea what we were doing. The idea of building a company—they don’t cover that in the magazines.

X: In what way did Catalyst Recruiting fail?

ER: Entrepreneurs only fail at one speed, which is full speed into the wall, leaving a startup-shaped cutout. That was us. The proximate cause was when the dot-com bubble collapsed, we couldn’t raise more money. The kind of people who would invest in us obviously didn’t have great investment judgment. A lot of them just were killed when the NASDAQ crashed. They were completely overinvested in risky stuff. They all cut back and moved. All of a sudden those guys wouldn’t take our phone calls. They were just gone. And we had built a company, as was the trend, that had the expectation of further funding. We spent the money as fast as it came in. We didn’t have any revenue. We just didn’t know what we were doing. It was a very dot-com-style failure.

X: At that moment—not with the benefit of ten years of experience, but in that moment—what did you feel like you learned from that failure?

ER: Well, I didn’t understand until later what a good learning experience it was. At the time, it was hard, it was really depressing. I was very upset. I felt very embarrassed. I had put all of my social and political capital into this thing. I had promised all kinds of people that this was going to be a big success. My roommates were employed there. We always joke—we had the first two-thirds of The Social Network experience. It was just like the movie. But the part where anything good happens, we never had that part. But this was actually a good experience, because so much of what I work on with entrepreneurs now [is similar]. When you are on the brink of failure, it often looks just like the movies. You always expect that that customer will walk in magically, just in the nick of time, just like in the movies. But hey, you know what? They don’t. So I was embarrassed. I was very scarred from the experience. But I also had a taste of what it meant to be an entrepreneur. And it was kind of exciting.

It was kind of incredible. When I graduated, I wasn’t sure what I wanted to do next. I interviewed at startups and at big companies. I feel like I’m such an entrepreneur now, I can’t imagine even considering going to work at VA Linux or Microsoft or even, like TellMe, which at that time was maybe 1,000 employees. I didn’t yet understand what an entrepreneur was. I was in love, still, primarily, with technology.

X: You wound up at There. That was in LA at the time?

ER: No, that was here, it was in one of those disgusting warehouses along the other side of 101 in Menlo Park, where that marsh is. Now it’s going to be cool, Facebook is moving there. But Sun hadn’t even built that fancy campus yet. It was row after row of blank warehouses. I randomly had sent my resume there. I don’t remember sending my resume there, and they don’t know where they go it. It was like cosmic. Divine intervention. I was luck. Will Harvey, who had just stepped down as CEO, he was the founder, he turned on his reality distortion field and he recruited me to go join the company and have that experience. Really, it was perfect for me. I wanted to apprentice myself to professional entrepreneurs. I wanted to work for people who were off the charts smart. And at the time, this was 2001, There just seemed unstoppable.

X: What were your duties at There?

ER: I was hired as a regular software engineer. Bottom-of-the-totem-pole engineering. The company was maybe 20 or 30 people at that time. It was pretty small. Very well capitalized. It had been going for a year or a year and a half. It had enough operating history that it had been through some stuff, but had a somewhat working product, a very cool demo. And they put me in the core technology team, and I kind of earned my way into the core of the organization, because I was a good fit and they thought I was talented.

X: What were you working on? The world itself, the artifacts, the animation?

ER: My very first job was about the coolest job you could ever have. Literally, on day one, my first assignment was to build a jet pack. I was in heaven. And so yes, I started out building objects and content but pretty soon I was helping to build the core system.

X: There lasted a long time. You left at some point. Why?

ER: It’s really a painful and sad story, for a team that had so much going for it. It’s such the classic Silicon Valley failure story. I didn’t really understand how perfect it was. Talk about a good learning experience. A ton of money, stealth R&D, years of development, an amazing product with the biggest bang launch you can imagine. It’s not even fair to call it a failure in the objective sense. It just failed to live up to the expectations that five years and $50 million of investment built. I mean the company had 200 employees by the time it launched, so it was really maladapted to the results that followed, which was a vigorous early adopter response but zero mainstream adoption.

It should have been a great thing. If you look at Second Life, which launched around the same time, they pursued a much different financial relationship with their customers and different expectations, and they had success just with early adopters. But There was geared as a mainstream thing. So early adopter success was judged to be a failure and the company was in real trouble. It had to immediately take off; it had to just grow huge.

X: Whereas Second Life’s strategy was much more geared toward early adopters, and getting other people to help them build the world.

ER: Right, it was geared toward a much more geeky audience. I remember at the time, we used to make fun of them, because we had a beautiful mainstream product, that also had a developer program, and had ways to have the users build things, but that was a much more limited part, because we didn’t want the geeks and the early adopters to overrun the place and get hostile with the mainstream customers, which is an issue that Second Life has had to grapple with. Every company has to cross the chasm. We didn’t believe in the chasm. We thought we could just start with mainstream customers. I was 22 or something; I didn’t know any better. People told me we were going to get these mainstream customers, and I said hell yeah, that makes sense.

X: You thought it would be like opening the doors of a theme park, and everyone would just stream in?

ER: Ironically, even when you open the doors of a theme park, you have to struggle. There were actually no products in history that had the kind of response we were looking for. We used to say stuff like, “We want to be the next Microsoft, the next AOL. We want to build products of their stature and caliber.” And we were building the kinds of products a mature company might build. But if you go back and look at version 1 of AOL or a Disney theme park, every product goes through its adoption phases. There is no skipping a grade. It’s just not possible. It’s not like we debated this internally, we just had these beliefs—I call them “shadow beliefs” now—that we never spoke out loud, they were just things we believed.

X: I want to come back to it later, so let’s just bookmark it, this notion of shadow beliefs and the purity of the vision. But when and why did you leave? The decline of There was very slow and drawn out.

ER: Once the launch failed, there was a series of crises and leadership transitions. It’s kind of a complicated episode that I’d rather not talk about on the record. It was a period where a bunch of us who were involved, who had kind of become disillusioned about where the product was going, left to do a spinoff to try to prove a new technical direction. So we did this. And then the company bought that thing back, and agreed to commercialize it. It was one of these things where we thought that if we did the impossible, they would be like, “Great.” Of course, real human beings don’t react that way when you prove that they’re wrong. We were just so stupid in retrospect. So they wound up buying the thing back, and never commercializing it, and that was the precipitating event for us to say this was doomed.

X: But you stayed in this general area of 3D avatars, with IMVU.

ER: The founders of IMVU had this common experience because we had all worked on this spinoff. It was basically a little mini-startup. Today I would know how to run and incubate that product. I have the theory now about how to incubate an internal startup, but we did everything wrong. It was a disaster. We really structured it the wrong way. But the five of us had had this work experience together. We knew we could do amazing things. We had done the impossible. We were really proud of what we had accomplished. So when we realized this was not going to work, we were like, “Well, we can disband, or start something from scratch.” We literally had a clean room day, we threw all the servers out, we had a complete clean start. We gave it a deadline; we had an ultimatum that we will either do this or not do this on a certain day. I remember it was April 1, 2004, April Fool’s Day, so not the most auspicious day to start a new venture.

X: But if I remember right, that’s the same day Google launched Gmail.

ER: So it has some good mojo, yeah. We just said we were going to start from scratch, and instead of deciding to build a product together we are going to build a company together. So our first meetings were not even about the product, they were about the values we wanted to live by in our new company. We had identified values conflicts as one of the fatal mistakes in the previous company. Out of those conversations came IMVU. Once we knew the type of company we wanted to build, we figured out the product we wanted to build. We felt we had learned things that were valuable in our past careers. There was my first avatar-based product, but the other four guys had done tons of avatars stuff, even before that. They’d been working in this space for years, so it was a very natural evolution.

X: But apparently you had reached some level of maturity in your career, or you had had enough bad experiences, that with IMVU you weren’t just setting out with a pure software engineering mindset—you were already thinking about cultural issues and what kind of company you wanted to build. What do you think had shifted in your mind such that that was the way you started out?

ER: Well, the nice thing about burning your hand on the stove is you become more sensitive to hot things in general. So part of it was just the level of dysfunction. There was a perfect science experiment for disproving the hypothesis that if you just have a strong enough vision, a cool enough product, and smart enough people, everything will work out. Because it didn’t. It really should have. If that theory is true, I challenge anybody to show me a company that was better poised for success than that. I really believe that today. If you look at the number of ex-There people who have gone on to start other companies and do amazing things, the total market cap of all those companies, I don’t know what it is, but it is just huge. I really still believe that we should have been successful. It was very embarrassing. That was a high profile and embarrassing failure. It freed us up to try new things, because how much worse can it get? Nothing worse can happen to you in business than that, barring an ethical scandal or something.

X: Well, there were other dot-com companies that lost a lot more money than that.

ER: It wasn’t how much money was lost. It was how stupid, in retrospect, the claims were that we were making in the press. Like, if you can cast a reality distortion field onto the press and onto the influencers to tell everyone this is the future, then they move on to a new thing if it turns out that was wrong, but you were the guy who said this was going to be the future. That’s very embarrassing. I was lucky that it wasn’t me. I was a junior man on the totem pole. I can’t take any credit or blame for the good or the bad. I was a soldier in that army. But I got a front row seat.

X: Are you saying, though, that at IMVU, you set out telling yourselves “We are not going to make this mistake again”?

ER: We said let’s just make new mistakes. If you look at the failure of Catalyst Recruiting, and the failure of There, they are very different. There was two orders of magnitude of difference in the amount of money that was lost, the size of the company, the level of technology. But in the heart of hearts, it was kind of the same mistake. It was working forward from the technology instead of working backward from the business results you’re trying to achieve. At the end of the day, you can argue about what was the root cause of the failure, but that’s my stake in the ground. So we said let’s just not do that again, let’s do something different.

At There I had been introduced in my personal reading to agile development and that was all starting right then also, so I was the one trying to bring those methodology changes into the company. And I still was thinking that if we could change the engineering methodology, we could succeed. And now I realize that is incomplete; it’s a necessary but not sufficient condition for success. So I was really primed to be thinking about new ideas. And to want to change the culture, change the values, change the system of the company. To me, what was exciting about IMVU was not just that I felt it was a great team, not just that it was a cool product, but my co-founders believed in me enough to say “We’ll put you in charge of the entire engineering team, and we’ll do it your way.” I was 25. I didn’t deserve that through my illustrious resume. It was that Will, especially, is somebody who recognizes talent, in the way entrepreneurs do. For whatever reason, he had the confidence that I could do it, and was willing to take that risk and put me in charge of a large swath of this company. Therefore I had a laboratory for trying stuff that was considered crazy. I mean, bona fide crazy.

X: You mean like agile.

ER: Agile was considered the nutty vanguard, and I wanted to push way past that. This was 2004. The agile manifesto was three or four years old. Extreme programming had been around a few years. Unit testing was just starting to enter the mainstream understanding. Continuous integration was considered as advanced as one could reasonably get. Pair programming was still considered nuts. But I wanted to do stuff like continuous deployment, which didn’t even have a name at that time, because it was considered something that only a truly crazy person would do. I wanted us to take agile into the business. I wanted us to integrate with customer development, Steve Blank’s stuff. I wanted to do stuff that was really wacky.

X: You just mentioned Steve Blank. Were you already reading his stuff? I’m not even sure it was out yet at that point.

ER: No, I was not reading his stuff. It was not out. Here’s how I remember it. Steve had been on the board at There, and was kicked out of the board. He was trying to prevent the disaster at There, and failed. I honestly don’t remember if he quit or was kicked out. I wasn’t privy to those conversations. I had heard his name. I didn’t know him. Will was the savvy one who said we should get Steve as an investor at IMVU. I was like, “We just lost him million of dollars of his money as an investor, why would he do that?” and Will understood this way better than I did, and he said, “If we do everything right, we can get Steve.” So when we did raise our first angel round, he was the real focus of our fundraising and eventually we convinced him to do it. And part of the deal was, I think that was the first year he was teaching customer development at Berkeley, at the Haas School of Business. He basically said, “Why don’t you guys audit my class.” He didn’t exactly say, “In exchange for this check of $50,000 I am going to give you.” But I understood him to be saying, “I believe in you guys, but you do have a problem that you need to fix, and if I am going to be on board here, you need to fix this thing.” So we agreed to audit his class. But even then, we hadn’t read his book. We didn’t know there was a book. He didn’t say, “Here’s my book.” I was doing my due diligence on this Steve Blank guy and I found his website, and there was the book. It was self-published. So I said, I’m going to check it out. I remember reading it and I’m like, “Oh my god, this is what we need. This is cool.”

X: I picked up part of the story in an interview with Steve Blank himself, and the way he explained it to me, he really wasn’t all that familiar with agile software development, and it was actually you, in the context of this class, who brought that to his attention and said “Steve, I love this customer development stuff, and agile is sort of the software development version of that, and it would be much more powerful if we brought them together.”

ER: I felt like I was taking a class in peanut butter, and I had learning about jelly my whole life. I was that annoying student in class who would be like, “But Professor Blank, the way you’re talking about product development offends me. That’s wrong. We don’t do it like that anymore.” My mental model had shifted already to imagining that [agile] was how product development was and should be done, and that that was obvious to everybody. But if you think about the year it was when we had that conversation, he was much more correct than I was. His notion of what constituted product development was still accurate, but it was dead to me already. I could see that it was changing. I believed 100 percent that the agile revolution would be victorious. And the frustration that he was talking about [was the frustration of] trying to be more iterative in marketing when the engineers are all linear. But the marketers in my career were the ones who were the problem. I was used to thinking that we were trying to be more agile in engineering but it’s marketing who is dragging their feet. It never occurred to me that we could have a company-wide dialogue around marketing and engineering together as peers in a more learning orientation. That inspiration came from having that confrontation in this class.

X: So, he was already saying that you need to get “out of the building,” but the whole customer development methodology wasn’t yet as focused on iteration as it is now?

ER: Yes, that’s part of it. You’ve seen the customer development diagrams with four circles. He’s been doing that diagram since the beginning. Each of those circles is an iteration. The reason they’re circles is that you iterate, you move to the next stage, you iterate. What I would say is that the circles he was talking about had no product in them at all. They were learning circles, but it was strictly about marketing, positioning. Changing the product definition or specification only happened at discrete arranged milestones. The assumption was that your colleagues in engineering are on rails with a train that’s going to leave the station at a certain time, and your job is to meet with them every quarter or twice a year to say “Either you guys are on track and keep going, or I’m going to lay down in front of the tracks and blow this up and say start over.” So there wasn’t this integrated company-wide thing. The idea that you need to get outside the building and talk to customers, that is very powerful stuff, and Steve gets all the credit for that.

X: All right. So, the next part of the history is where I’m a little fuzzy. You were still at IMVU. You’re taking this course. You’re trying to figure out how these ideas overlap. And so what happened then? How did you and Steve start working together more closely? How did your ideas evolve in response to each other? What happened with IMVU?

ER: The truth is that the class was only four months long. We had already been working on IMVU for six months. We went to this course once a week. It wasn’t like we were in a continuous college seminar with Steve refining our ideas. We had no idea how to apply this. If I had any criticism of customer development as it was being taught at that time, it was that it was wildly impractical. Will and I would go to class. We were in Palo Alto and the class was in Berkeley, so we’ve got a long trip to get there. We would be arguing about whatever our problem of the day was all the way there. We would take the class. And then we would argue all the way back about how to apply what we had just learned to our problem. And five minutes after leaving Steve’s class, we already couldn’t agree on what we had just learned. It was crazy.

We weren’t like, “We’re ready to sign up for customer development.” We weren’t theoretical. The class was very theoretical. We had practical problems. So Steve’s biggest influence on IMVU was not through his work but because he was our advisor, and he was eventually on our board. So the theoretical integration happened later. We back-port it to that time, because we can understand now how we were, in building this company, also testing out a lot of new ideas, but we never talked about that. I remember the meeting like yesterday, when I was sitting in the conference room with Mike Maples at Floodgate. Steve was there, and it was the first time I had the courage to say, “Guys, let me draw you this diagram of Build, Measure, Learn, agile, customer development, and I’m going to call it Lean Startup, I think that’s what it should be called because of my knowledge of lean manufacturing.” That was 2008, years after I’d left the company. That was the first time we had a theoretical conversation about whether this was right or not.

X: But a big part of your pitch, your reputation and credibility, is that you ran IMVU along these lines, and that you learned lessons that evolved into the lessons you teach now. So can you go back and be a little more concrete about how you ran engineering at IMVU in a way that you eventually would call “lean”?

ER: Sure. The reason I want to draw this distinction is that, it was actually harder to learn how to talk about it than it was to learn how to do it. So the integration of theory and language all came very late in the process. And actually, that was a problem. That turned out to be a significant problem, which is part of what motivates me to do this. Because the idea of continuous deployment, I just intuitive felt like it was a good idea. Honestly, I don’t know where it came from, but to me it’s the most obvious thing in the whole world that you build products where the code is directly integrated into production and you basically take single-piece flow from manufacturing and you apply that to the way you do software development. Apparently other people have different intuitions. It was a shock to me that people felt it to be controversial. I just thought it was obvious. So we were doing that. We had to figure out how to make that work at IMVU, because I was a stubborn person, I wanted it to work that way, and it was my call. I was in charge. So I was like, “Listen, until you fire me, we are going to do it this way.” I’ve now worked with dozens of companies to try to get them to switch over to this system, and there’s always objections about things that might go wrong. “What about this, what about that.” Usually if I’m an outside consultant, those objections are enough to derail the whole thing. But I was in charge, and I said “We’re doing this.” So now instead of objections, let’s figure this out. What about quality issues. What about databases and schemas. We had to work out all of this stuff. There was no theory about that. There was no one we could turn to for help. But you know what? We had very smart people working for us, and they figured it out.

X: Were you also gathering customer feedback and iterating?

ER: Yes, but not at the speed it is done today. We were very clumsy. The part of Steve’s message that we were very skeptical of was this idea that you had to listen to customers. Will Harvey is a more traditional visionary. He has that power. I think he is a brilliant guy. I am not, in the way that he is. He would always say, correctly, that customers don’t know what they want, so why would you talk to them. I wanted to talk to customers, but I never had a good answer to that objection. I just knew that I didn’t want to have a There experience over again. So it was very fits and starts. We didn’t reconcile how you have a vision and talk to customers. We didn’t understand how vision, customers, and analytics go together. We had the classic divide: “We have to do analytics for our board for some reason we don’t understand, that can’t actually help us do this stuff.” I wanted us to be more scientific about our decision making, so I wanted us to do things like split-test experiments. Again, that was considered so crazy. It’s so commonplace now that it’s hard for me to explain to entrepreneurs today why they get weird looks when they talk to older people. It just was considered very strange.

X: Well, it was clumsy and difficult, for one thing. There were no tools.

ER: There were no tools. You had to build everything yourself. You had to figure out what data mattered and interpret it yourself. Just to give one example, we had to show progress to our “board,” which was basically a group of industry luminaries that Will had gotten together. Will is the guy with the stature to recruit talented people to want to be involved with us. They didn’t know me from Adam. But we wanted to show progress from the beginning. We had given ourselves revenue targets. We thought that would be a good way to kind of prevent us from going off the rails. So we had these revenue targets—really small, I mean $300 a month, $350, $400. But we had a plan and we wanted to show progress every month. So the way it worked was, the night before the board meeting, we’d run our home-grown analytics and make reports. And we’d have fancy graphs. And we’d take them to the board meeting. We expected every time that the numbers would be up and to the right, because we worked really hard the last six weeks and made the product way better and surely the numbers will reflect that. And we had several board meetings in a row where they weren’t. We were really disturbed. It’s a hard board meeting to have. You have to come in with a lot of razzle-dazzle to show progress elsewhere.

And in fact, ironically it really helped to build my stature. I was the engineering leader, and part of the razzle-dazzle was showing off cool new product features we had built. Our team was supernaturally productive, partly because of these techniques and partly because of the talent of the team. The board thought I was a magician and that I could pull features out of a hat at a crazy pace. Anyway, so, it took us a little while to realize that we should run the reports more frequently than the night before. Any entrepreneur that did not have that level of understanding today, you would just smack them around and say “Come on.” Everyone knows analytics are a core part of business. But that wasn’t the belief. So Steve was the one telling us, “Get out of the building, go talk to customers.” But if we hadn’t also been making these analytics-based decisions, we never would have done it. Because part of the disease of having too good of a vision is that you can’t fail. And if you can’t fail you can’t learn. So the analytics had to create a feeling of failure for us to take Steve’s advice. Otherwise we would have just paid lip service but not really done it.

X: Maybe we should fast-forward a little bit. How would you describe IMVU’s ultimate success or failure?

ER: Oh, I think of it as a success. I’m not there day to day. Its ultimate fate is still to be determined. It is a profitable company. It’s more than 100 employees now, doing really good work on top of the organization we created.

X: And the product concept is one that you feel found its market?

ER: Yeah. Look, I have big big hopes for the level of mainstream adoption it could have. We’ve created tens of millions of avatars. I hope one day it will be hundreds of millions. I think the current team really has their eyes on the prize. It’s very good, but it could be bigger. But what I’m proud of is I feel like I left a legacy there of it being a value-creating, well-run organization. That’s the management thing I’m most proud of.

X: Was it a straight line from IMVU to your current life? What happened in between?

ER: I have no idea.

X: You didn’t really go out on the lecture circuit until 2009.

ER: Listen, I am an introvert. So public speaking does not come that naturally to me. Being in the public eye like this, I never sought that out. I had a very low profile, even by Silicon Valley profile standards, when I left IMVU. But I had enough of a profile that I was being asked to sit on advisory boards and work with VCs. Mike Maples had this thing and I worked with him. There was the Kleiner Perkins thing. I was getting the opportunity to work with very prestigious organizations and do cool stuff. But everywhere I went, I was telling the story about IMVU, and how we were doing this stuff that sounds crazy but it worked out great. The fact that it worked out great didn’t mitigate the fact that it was crazy. So it was a real struggle to get people to take my advice.

And this goes back to the idea that the language is critical. The connection that was really important to me was, I had really struggled as IMVU scaled, as we brought more employees, more executives, more investors on board, every single one of them would have to be indoctrinated into this insane way of working. It was exhausting to be constantly saying, “No, it really is okay. This really does work.” I knew that it worked, but I didn’t know why it worked. So when people would ask me about any hypothetical situation that I hadn’t actually encountered, it was difficult for me to answer. Lack of intellectual consistency makes me very frustrated, if I’m telling people to do something but I don’t know why.

I had just started in the later years at IMVU to read about lean manufacturing and these other theories, and had just started to formulate a set of ideas that could explain why the techniques were working, and how to extend them to new domains and new situations we had never actually encountered. I built these new employee orientation decks. I had just an inkling of understanding. I could not articulate it well. If we had had this language and theory at IMVU, it would have been a lot better and smoother. I feel like we wasted a lot of time debating stuff that I feel has a clear, objective, right answer now. And I wish I could go back in time and say, “It’s okay, don’t stress, here’s what to do.” New employee orientation is one thing, but when I’m meeting with the CEO of a new startup and I didn’t want them to make the same mistakes, that was when I said “Wait a minute, this is a paradigm problem, not just that I hired these guys who don’t get it.” It’s one thing for engineers to say, “Wait, what? Why do I care about better business results?” That’s part of the agile bargain. I don’t care, you just tell me what to do and we follow this system and these rules and the business people figure that stuff out and it works out great. Except it doesn’t work out. But when CEOs weren’t interested in better business results, I knew something was going horribly, horribly wrong.

X: So were you doing a lot of consulting and advisory work after your left IMVU.

ER: Consulting no, advisory work yes. I was doing it as a hobby, so I would have something to do while I thought about what to do next. I assumed I would become a CEO and start a company. That was my plan.

X: But here we are three or four years later.

ER: I know! This thing took over my life. It’s so hard to explain. I started writing a blog because I wanted to have something to show people so that if they think I’m crazy, they won’t call me. It was that simple. I would have these meetings where I’d get all dressed up, shlep over to some startup office, give them my shtick, and they’d want to argue with me and say it’ll never work, that’s stupid. I’m like “You called me!” Life’s too short. So I said, I’ll write this stuff down. And Steve was encouraging me to blog and write. A lot of people were encouraging me to do it. So I said all right, let’s try this out.

But not only was I not seeking the limelight. I was so embarrassed to be writing a blog that I didn’t even put my name on it. It just said “Startup Lessons Learned.” It didn’t say by who. It was just blank. Blogging is cool now but it was not cool then. I didn’t want people to be listening to what I said because I worked with Kleiner Perkins and had whatever fancy title. I wanted people to listen because of the ideas. And also, if they thought it was really really dumb, I wanted to be able to walk away from it without too much consequence. And it’s only because I have to follow my own advice. As excited as I am now to have tens of thousands of subscribers, I was way more excited to have five. The first five subscribers I had, I was like “Wow this is amazing.” I remember writing a blog post asking “Who are you people, why are you reading, what do you want?” And the feedback was very consistent, it was “Who are you? We need to know your story.” It was very clear that if I wanted to have the blog be successful, I had to come clean and speak publicly. And it just started snowballing. That was 2009. And I don’t know, it’s like a big blur.

X: How did this meeting at Floodgate come about? It wasn’t actually called Floodgate then.

ER: I had been working with Mike as a consultant. Part of my story is being the story of being recruited by these people who have an eye for upstarts, I don’t know what it is about Will and Mike, but they saw me as a young person to be cultivated, and Mike had been very supportive. And we used to have meetings at his office to help him look at deals. I don’t know what the topic was. I think he might have asked Steve and me to present at his LP meeting one year. I don’t remember the specifics.

X: And that was really the first time you came up with a formal melding of the Lean Startup idea?

ER: It was the first time I had the courage to say it out loud. It had been brewing a long time, and I had been thinking about it, and I had been using the framework in my advising. I remember very clearly, I went from having arguments with people that I lost to having arguments with people that I won. That was how I knew I was on the right track. I was trying to change people’s behavior, and if you can’t answer questions like “How do you know it will work for me in my enterprise software business, maybe it’s only for consumer Internet?,” if you can’t answer that question with facts, with truth, then no one is ever going to take you seriously. No one is going to change their behavior on a whim. But once I started to be able to walk people from first principles to here’s why it’s going to work for you, I could feel the difference, and I had a real sense the advice I was giving people was true.

X: You’ve said several times, though, that the ideas still sounded crazy to most people. So where did you turn for the evidence, the analytics needed to convince people this was going to work?

ER: There was no evidence. I mean, look, evidence requires academic study. To truly know that this thing works—we are still years away from that, to be honest. There is a difference between scientific knowledge and folk wisdom. Almost all of entrepreneurship right now is run on folk wisdom. Not to dis folk wisdom. For thousands of years humanity has relied on folk wisdom to get by, and there’s a lot of knowledge that accumulates in folk wisdom. But the reason we do science is that we know a lot of crap gets accumulated in folk wisdom too.

So at the beginning, I had really well told stories. People told me I had well told stories. And I felt like I was speaking to a lot of real challenges and dilemmas that a lot of entrepreneurs faced that nobody else was talking about. But let’s not kid ourselves, it was a story, it was a good story. And it was enough to tell people “You should try this yourself and see what happens.” There is a recording of the very first time I gave this talk, and you can go back and listen to it. I’m telling people not to go nuts. I’m saying just think of one specific thing you could do along these lines and go and test it out for yourself. Because if this is a scientific theory you should be able test it out scientifically.

So people then took me up on this offer, and they became the evidence that it works. Because then we started to have the phenomenon of these meetups starting to organize. I’m not the evangelist. It’s the entrepreneurs who did this and told people about it and organized, they are the unheralded people who really made this happen. I started being ask to speak everywhere. I’ve traveled more in the last two years than in the rest of my life combined. I started getting invited to go to all kinds of obscure places and by the time I got there, there was an entrepreneur who had arranged talks and meetups and conferences. I mean they had my itinerary blanketed. They did the hard work of figuring out who would be willing to listen to me and I just showed up and talked.

X: The enterprise software example is an interesting one. When people would ask that question, would you try to find commonalities between enterprise software development and startup software development and try to say it’s not that different?

ER: No. I tried that. It didn’t work. What worked, the best thing I could come up with, was to tell people you can’t translate tactics situationally. They are just too different. We could argue about it all day. Who’s to say is enterprise software similar enough. I got questions about bioscience, cleantech, clothing stores. I got everything. So my solution was, let’s abstract out the principles behind this and show deductively that those principles are universal within a certain context.

I have a definition of entrepreneurship. That definition is that within a certain zone of work, our primary mission is to deal with uncertainty. That is what it means to be an entrepreneur. So I would ask people, “Do you feel like you have high uncertainty in your business?” “Oh, why yes I do.” “Okay, well do you see how these techniques are fundamentally about uncertainty and not about engineering?” And if I could make that conceptual link, then I could say, “Okay good, do you see how reducing cycle time helps you cope with uncertainty faster?” “Yes.” “Okay, what’s your cycle time? And let’s talk about how we might reduce it.” Then we get away from an argument about “Can I ship 50 times a day like IMVU does,” which everyone always thinks the answer is no (though often the answer is yes, but we could argue about it all day long) but now I can say, “Let’s talk about your business and let’s reason about it using this theory and then let’s test it.” I thought that was the key that unlocked everything that happened later.

X: So how long did it take between that first formalization of the idea, the first diagram in the meeting at Mike Maples’ office, and you getting all these speaking invitations? Less than a year, right?

ER: It was very fast. Which is all about the Internet.

X: But it also seems like there was very fertile ground for the ideas.

ER: The timing could not have been better. To be talking about something called Lean Startup right when the financial crisis was happening—I mean, very good timing. I wish I could say I thought about that, but I was very lucky.

X: But it wasn’t just the financial crisis. There was something else about this moment in the evolution of entrepreneurship.

ER: The way I experienced it at the time, it was that people had an almost unlimited appetite for new ideas about entrepreneurship. Fundamentally, our discourse about entrepreneurship had become completely stale. And that the old model was discredited but there was no new model. There was just this vacuum that I accidentally walked into and then got pulled in a million directions.

I mean, the first big talk I gave was at the Web 2.0 Expo in 2009. That was only two years ago. I was on the junior stage, the unrecorded stage. And the number of people who showed up at that talk blew my mind. That was when I knew I was on to something. That was April 2009. And then by a year later I had gone from nobody to the main stage, that was a big deal, and in the meantime I had traveled, I think that fall I was on the road full time. It was very fast.

X: What’s it like being a guru?

ER: I don’t like that word.

X: Then how would you describe your current role?

ER: I used to know what I did extremely well. I used to program computers. I was good at it. I used to manage people. I was really good at that. What the hell do I do know? I don’t know. Ironically, becoming an author solves the cocktail party problem a little bit. Now I just say “I’m an author, I’m writing a book.” The truth is that anybody who makes their living as an author, consultant, or public speaker really does all three together. That is kind of the holy trinity of this industry. So that’s what I do.

X: For your income, just to be nuts and bolts about it, you charge for your conferences; you are writing a book that will have a price tag on it; and you have speaking engagements for which you get paid fees.

ER: I am very well compensated. I have no complaints. People have been incredibly generous. And last year, I built and then shut down a whole consulting business around this. I made a lot of money as a consultant, then I decided I don’t like consulting. I don’t enjoy that job as my primary source of income, lucrative though it is. In order to do consulting at scale you have to build a consulting company, and organizational politics give me a headache. I can take a certain amount but I can’t do that full time.

X: In one talk I just watched, the second Web 2.0 Expo talk in April or May 2010, the last slide you showed was the Gartner Hype Cycle. Already, at that point, I think you were saying that Lean Startup was past the Peak of Inflated Expectations and was somewhere around the Trough of Disillusionment. Where do you think you are now?

ER: Could I have seemed any more naïve? Listen, I don’t even know. This thing has grown so much bigger than I could ever have imagined. We had a very specific backlash that I was thinking about at that time. I thought that was the trough of disillusionment. The truth is that the Gartner Hype Cycle is not real. These things happen in waves. We keep going, and you reach new audiences, and then they become disillusioned. There was the whole Fat Startup thing. It was almost like an officially organized backlash. And we won. I felt like we had an existential challenge and we came through it successfully. I thought that would be the end of it. But now the hype has grown much bigger than that. I’m allergic to hype. I don’t like it when companies pound their chests. So this is a very strange position to be in.

X: I want to ask you a few questions that are probably among the backlash type questions you got but I think they’re still relevant. And one of them has to do with the question I wanted to bookmark earlier, about vision. You said that the problem with vision is once you have one you can’t fail. I’m still personally more on Will Harvey’s side, meaning I’m of the view that customers don’t know what they want, so the only way to build an amazing new product is to divine what customers will want once you’ve shown it to them. Arguably this is the way that Steve Jobs has become a tech messiah.

ER: You got it. I am on Will Harvey’s side too. The most emotionally satisfying part of this has been that Will and I are no longer adversaries. We came out of this really good friends. We learned how to find a synthesis here that is actually more productive than the positions that either of us had before. I don’t want to put words in his mouth, but I believe he’s on board. He was right. Customers do not know what they want. No startup has ever had any success at all without vision. In fact my new belief, is that a true visionary like Will is much too precious a commodity to waste.

And I didn’t understand what that meant. I really didn’t. I signed up to be Will’s deputy because I believed in where he wanted to take us. I wanted to see it realized and I viewed my job as to make it happen. The reason we had so much conflict was, Will thought that testing his vision would be a way to destroy it. Which it kind of was. I know a lot of people like that. Data has a really bad name in managerial circles. A lot of people use data to puncture a vision. But we found a way to say, “Let’s use data to discover which parts of the vision are correct and which parts are crazy and discard the crazy ones.” I wish we had done it better at IMVU, but now we are really on the same page about what that means and now I can talk to visionaries in a way that makes them feel really heard. And convince them to do this thing, in addition.

X: Okay, so what’s your definition of crazy, and how do you discover what parts are crazy?

ER: In the book, I draw this simple pyramid. If somebody had shown me this 10 years ago, the last 10 years would have gone really differently. It’s so simple. Vision, strategy, product. The foundation is vision. Vision is where you want to go. It’s the destination you program into your GPS. Strategy is the route; let’s do this combination of actions and that will get us there. The product is the pointy edge of the spear where you say to customers, “Here, be part of my strategy.”

Changing the product is like what you do every day. It’s optimization. It’s just driving. Sometimes, when you change the product, you will discover an obstacle. Oops, customers won’t download the damn thing, like we learned at There the hard way. That could just be a speed bump. You don’t give up, you just go around. But when you try to go around, sometimes it says No Left Turn. Uh oh. And sometimes you find out that you were just wrong about the whole strategy, and you can’t get there by car, you have to go by boat.

Changing your strategy is a pivot. Still, the vision hasn’t changed. The vision is we are still going to get to New York City. We are just going to go by a different mode of transport. That simple framework is, to me, what this is all about. That it’s okay to discard strategies occasionally, and of course you discard the product every day, when you change it. That is a normal, natural thing.

X: But if you pivot enough times, if you change the strategy enough times, you might find out that not only are you going by boat instead of car, but you are going to a totally different destination that has nothing to do with the original vision.

ER: That’s right. And that can be a good thing or a bad thing. Usually it’s a bad thing. When entrepreneurs seek me out now for advice, I would say 30 or 40 percent of the time, my questions are all vision-related questions. Oftentimes what will happen if people set off in a certain direction, and they find out they can’t make any money, so they say “Oh look over here, it’s some free money, let’s go over there.” If you look at the Groupon story—I don’t know it all that well, but there are some pretty significant pivots in there, and I think they have really gotten in touch with the vision of where they are headed now. At the end of the day, their vision is fundamentally about this collective action. There is a certain thread that connects it. It wasn’t just “Let’s go make a quick buck and to hell with it.” And so sometimes you discover what your vision really is through difficulty.

Here is what I love about entrepreneurship. It is actually a process of self-discovery. Because when you write your vision down for the first time, you think you know everything about it. But when push comes to shove, when life makes you choose between different elements of the vision, you actually discover something you didn’t know before, which is that actually not all the parts are equally important. Certain things are just part of the strategy and you don’t actually care about them at all. At IMVU we used to talk about people hanging out with their friends online. That was part of our mission statement. When it came out that customers did not want to do that behavior—that what they wanted to do was make new friends online—we could have gone one of two ways. We could have said, “No. We don’t care about that. We are about the online hangout. So if the avatars are getting in the way of the online hangout, to hell with the avatars. We are going to go create Google+. Or some new thing.” But when we actually had that experience, we realized that we don’t care. Hanging out with other people online seemed like a good way to describe the benefits of avatars. Avatars are mediated communication. If customers think this other thing is better, okay, we’re happy to make that pivot. We realized that certain things we used to think were essential were just tactical choices. We could let go.

It’s hard to know where in the pyramid your ideas are until you test it. That’s the cool part about it.

X: Okay, I get that. But I wonder whether you think people learn as strongly from small failures and pivots as they do from bigger failures. Part of your methodology seems to be about helping people to fail in small ways. That’s what a pivot is, right? You figure out that this direction wasn’t working so you try an adjacent direction and see if that works. But wouldn’t they potentially learn more if they took the risk of a more substantial failure?

ER: I’m hesitant to embrace that idea. Large and small are relative terms. A lot of people just get stuck in an optimization trap. They test a lot of small stuff but they are not really putting their fundamental beliefs to the test and therefore they can never pivot. In the book, the thing I’m most proud of is that I think we have been able to put the concept of product-market fit on a quantitative basis. And we can give people not a formula, but a quantitative framework for figuring out when to pivot and when not to pivot. I feel like that is a real contribution to the understanding of entrepreneurship that this book is going to provide.

X: Let me ask the question one more time, because I think it’s a really important question. With the idea of product-market fit-and the etymology of that probably has more to do with Marc Andreessen—the premise there is that there is a pre-existing thing called a market, and the assumption is that the product must evolve to fit the market. And I guess what I’m saying is that the best products create a market. If that’s the direction things go, how do you apply any of these methodologies?

ER: That’s not only the direction, that’s the truth. I don’t want to speak for Marc at all, but the way I use product-market fit, it is a retrospective analysis. Whenever an entrepreneur asks me, “Do I have product-market fit?” the answer is no. If you have product-market fit, you just know it. When it happens, you’re like, “Holy shit.”

Some people try to launch a product into an existing market and take market share away from somebody else. But most startups create a new market or explode an existing market and fragment it and then own one of the fragments. So we’re describing what it’s supposed to look like when the engine of growth is firing on all cylinders.

The problem with that concept is exactly what you said: it’s not prescriptive at all. It can’t tell you one thing about what to do. All it can tell you is, “You suck, because you don’t have product-market fit.” I think in the book, I can offer people specific guidance now. I can help you evaluate how close to product-market fit you are. If you are setting out to create a market, how do you know if you’ve been successful at doing that? We can answer that question. Then let’s say I’ve been working on something for six months. Have I gotten closer to product-market fit over these six months or not? If the answer is no, you’re in the wrong business. This doesn’t lend itself to sound bites, the way the more famous parts of the model do, but I think it’s actually the most important part of the book.

X: Do you apply all this stuff to your own content, your own talks? How often do you iterate? Is it possible that at this point your whole framework has become a vision that is so dear to you that you can’t pivot, can’t afford to let it fail? How do you iterate on something you have said in front of thousand of people?

ER: The truth of entrepreneurship is that it just keeps getting harder because the stakes just keep going up. I think that I credit the model with the success that I have had. Because I am under such pressure not to be a hypocrite, I feel obliged to do things that I find unpleasant—to actually test and be responsive to different kinds of feedback. Take like that very first talk I gave at the Web 2.0 Expo. I did the full model on that talk. I had a customer advisory board to help me refine the content. I did a lot of marketing tests to figure out how to get people to come and what topics were important to cover and the description of why you ought to come to this talk. I did a number of test talks including one at Stanford for a 25-person group. I did a lot of stuff behind the scenes to really refine and hone and get it right, so that A, people would be in the room, and B, I would have a message they wanted to here. That was the ignition moment for me. So many good things came out of that experience. And it wouldn’t have happened if I had just followed the standard way that you do these things. It would have been the first time I was delivering the talk, and it wouldn’t have gone over as well as it did. Did I enjoy having a customer advisory board just for a talk? No way. That was not fun at all. It was excruciatingly painful. But do you want to have a good time or do you want to be successful?

X: But now you have written down all of these ideas in the form of a book that’s coming out, on paper. So do you still feel like you have room to keep evolving your message?

ER: I hope so. If five years from now I can point to 10 things from the book that are wrong, I will be really excited, because it will mean that I have actually learned something from this process. I say in the book a lot of times-what we know now is the tip of the iceberg. So the idea that we have finished this process is insane.

X: But at the same time, you are giving advice to startups that presumably you are hoping they will implement now, in the present.

ER: Yes. If you look at the meetup groups around the world and all the people that have gone to them, it’s tens of thousands of people. Like 20,000 or something now. It’s not Facebook, but it’s a very significant number of entrepreneurs who have put these ideas to the test. That is the best data set we have to say, something about this is right. It is more right than it is wrong. And it is certainly better than the crappy models we had before. So I feel very good. I think if people follow this advice, they will be more successful. But I think that we will have even better advice to give them in the future. Because the more people try it, and the more they share their experience.

The meetup groups are so important to me personally, because it’s an avenue for sharing what really works and what really doesn’t—the better we get at this. When I first talked about this stuff, design, how do you integrate this with design and design thinking, I didn’t have a clue. I’m not a designer. That’s turned out to be a very important area of active work that has come out of the meetups and the collisions that result. This thing has become a steamroller and it has encountered resistance in all kinds of places, first from the hardcore programmers. Resistance has been the name of the game. Venture backed CEOs. VCs themselves. A lot of resistance from the traditional agile community. Incredible resistance from the design community. You go through the functions of modern work and everyone is going to have their moment of reckoning. And I think what’s exciting about it is we have come out of all of those encounters stronger. I know more about design today than I did when I started. And now I understand. When people ask me how to integrate design I can give them answers.

X: Do you ever worry that now, you are the new orthodoxy, and that if a startup comes along and they don’t have all these checkboxes—“We are agile, we are lean, we iterate, we do customer development”—that an angel or venture firm might say, “Why should I fund you?”

ER: Well, if any VC or angel did that they’d be really stupid. Actually, the reverse is the problem. Most VCs I know are begging me to make it stop. There was a phase where entrepreneurs would show up with these same old crappy pitches, but now it says “lean,” “pivot,” “MVP,” and all the jargon and they think they should get credit for that. I’ve been saying for the last six months, nine months, “Please stop doing this.” That’s stupid. The results are what matter, not the jargon. Any entrepreneur that’s pitching anything but results is totally confused. And any VC that is looking for anything other than results is totally confused.

Now, when VCs are asked for advice, do I hope that they’ll give this advice instead of the old advice? I sure do. If I was raising money for an idea today, would I be willing to raise money from a strictly traditional VC who didn’t understand this? Hell no. But the framework is not the thing. The map is not the territory. You are not an explorer because you can draw lines on a map. You are an explorer because you go somewhere new.

There is no shame in using a map. If somebody has a natural talent and gets there without the map, amen. I have no complaints. But when they have to scale up and teach their organization how to get there, are they going to want a map? They sure are. So I feel both good about what we are offering and very cognizant of the fact that there is way more work to be done.

Wade Roush is a freelance science and technology journalist and the producer and host of the podcast Soonish. Follow @soonishpodcast

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2 responses to “Eric Ries and the Origins of the Lean Startup Theory—The Full Xconomy Interview”

  1. Wait…now that we built it leveraging Lean Start-up principles…”THEY WILL COME?” I understand the “Customer Development” component of Lean Start-up…but am still missing ideal strategies to generate new customers and users, especially for B2B startups providing a “disruptive technology/solution”

    It sounds like all you now need to do next is implement a sales/marketing 2.0 tool, add a “PRICING AND PLANS” section on your website and hire some internal telemarketers?

    Sounds like a single point of potential failure to me…Should these start-up’s also target big company “C-Suites” and communicate their value prop towards “C-Suite” sponsored initiatives? Should a “top down” sales approach be ignored? “Bottoms up” / viral approach only?