Eric Ries, the Face of the Lean Startup Movement, on How a Once-Insane Idea Went Mainstream

7/6/11Follow @wroush

Many Internet startups these days release new code several times a day, in the belief that the faster they can iterate the sooner they’ll discover a profitable business niche. The concept, of pushing out products that aren’t necessarily ready for prime time, gathering customer feedback, revising code, and starting again, would have been considered insane just a few years ago. For starters, there was no way before the spread of Web-based software to push code to users instantaneously, much less gather or analyze their feedback in real time. But now those technologies are here, and new Internet companies commonly claim to subscribe to at least part of the theory of the “Lean Startup,” a phrase popularized—trademarked, in fact—by one Eric Ries.

Ries, a 31-year-old entrepreneur and author, says he came up with the term after reading about the “lean manufacturing” concepts refined to a high art by Japanese industrial engineers in the 1980s and 1990s. Manufacturers, that philosophy goes, should eliminate all processes except those that create value—meaning features or services that customers are willing to pay for. The slow, expensive way to find out what customers will pay for is to build a product and then try to sell it to them. The faster, cheaper way is to build something minimal and ask customers what they think. So lean startup methodology emphasizes rapid software development through such methods as agile programming, plus robust analysis of what customers actually do with the software. It’s one of the fundamental ways many Internet startups today differ from their dot-com-era ancestors. The hope, though it hasn’t been proven out yet by quantitative studies, is that the methods will help reduce the rate at which these early-stage companies fail and go out of business.

But who is Eric Ries, and how have his ideas spread so quickly through the community of startup entrepreneurs? Not so long ago, Ries was just another Silicon Valley software engineer with a list of failed to modestly-successful startups on his resume. There were tales of the unusually rapid development cycles he’d imposed on his team of software engineers at IMVU, the avatar-based social networking service he co-founded in 2004, but his talk on these methods at O’Reilly Media’s Web 2.0 Expo in the spring of 2009 was relegated to a side stage and wasn’t even recorded on video.

Since then, however, Ries’s Lean Startup concept has caught fire. It’s often boiled down to the mantra “Build, Measure, Learn,” and applied in combination with the “customer development” methodology developed half a decade earlier by entrepreneur Steve Blank. Ries himself travels almost constantly to promote his message at technology conferences—including his own, called Startup Lessons Learned—and he estimates that the Lean Startup meetups in cities around the world attract some 20,000 regular participants. Venture investors from Mike Maples to Kleiner Perkins Caufield & Byers call on him for advice, and Ries says he’s “very well compensated” for his consulting work and speaking engagements. (No wonder that at the 2010 Web 2.0 Expo, he was moved up to the main stage.) Ries’s wave of popularity has won him a book contract with Random House, which this fall will publish The Lean Startup, a $30 tome that he says is full of tactics that entrepreneurs can use to measure how close they’re getting to the nirvana of “product-market fit.”

Eager to know more about the man who launched a thousand meetups and his own history as an entrepreneur, I met with Ries yesterday at a Peet’s near his apartment in downtown San Francisco. We talked for about 75 minutes, covering everything from his early experiences of startup failure—at a small employment site he founded while still a Yale undergraduate called Catalyst Recruiting, and then at a much larger virtual-worlds startup called There—to how he’s dealing with his new fame. For lean startup junkies who want the really deep dive, I’ve typed up the full 11,500-word transcript, which you can read here. Below, I’ve distilled the most quotable parts of the conversation into something more digestible.

I wanted to know how Ries’s own experiences as a software engineer contributed to the Lean Startup theory, so we spent a lot of time on his years at Catalyst and There, a virtual-worlds startup where he first met key mentor Will Harvey. But later in the conversation, I pressed him on elements of the theory that, to me anyway, seem overly cold-blooded, practical, and market-driven. In particular, there’s a tension in Ries’s theory between the need for a strong product vision and the need for constant adjustment of that vision in response to customer feedback. The more often a startup “pivots,” to my eyes, the less likely they’ll end up building anything that corresponds to their original inspiration. Ries’s entirely reasonable rejoinder is that if parts of the original vision are crazy or superfluous, it’s better to find out early. Here’s Ries in his own words.

Introduction to entrepreneurship during the dot-com era:

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. I couldn’t believe you could get paid to do it as a career. 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. It wasn’t until I got to college and the dot-com bubble just swept through everything that the idea even occurred to me.

I was [at Yale] from ’96 to 2000. By ’98, things were just crazy, the stuff we were reading at magazines. 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?

The failure of Catalyst Recruiting, and the lessons learned:

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. 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. All of a sudden [our investors] wouldn’t take our phone calls. They were just gone. And we had built a company that had the expectation of further funding. We didn’t have any revenue. We just didn’t know what we were doing. It was a very dot-com-style failure.

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. 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.

Ries’s years at There, founded by Will Harvey in 1998 to build 3D social virtual worlds:

I was hired as a regular software engineer. 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. I started out building objects and content but pretty soon I was helping to build the core system. But [There] is such the classic Silicon Valley failure story. A ton of money, stealth R&D, years of development, an amazing product with the biggest-bang launch you can imagine. 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. Early adopter success was judged to be a failure and the company was in real trouble.

Every company has to cross the chasm. We didn’t believe in the chasm. We thought we could just start with mainstream customers. 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.” 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, every product goes through its adoption phases. There is no skipping a grade. 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.

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. That was a high profile and embarrassing failure. 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.

The founding of IMVU, and the first inklings of the Lean Startup method:

If you look at the failure of Catalyst Recruiting and the failure of There, they are very different. There were 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. So we said let’s just not do that again, let’s do something different.

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. 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.” For whatever reason, [co-founder Will Harvey] 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.

This was 2004. The agile [software] 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.

Ries’s first encounters with Steve Blank:

Steve had been on the board at There, and was kicked out. He was trying to prevent the disaster at There, and failed. 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.

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. 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. That inspiration came from having that confrontation in this class.

[But] we had no idea how to apply this. We weren’t like, “We’re ready to sign up for customer development.” 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.

The first Lean Startup diagram:

I remember the meeting like yesterday, when I was sitting in the conference room with Mike Maples [the early stage Internet investor who would later rename his firm Floodgate Fund]. 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.

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… 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.

I started writing a blog because I wanted to have something to show people. I would have these meetings where I’d get all dressed up, schlep 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. So I said all right, let’s try this out.

I remember very clearly [when] 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.

On Ries’s sudden rise to fame in the startup world:

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

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.

On the importance of vision in a startup:

The most emotionally satisfying part of this has been that Will [Harvey] and I are no longer adversaries. 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. I signed up to be Will’s deputy [at IMVU] 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.

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 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. It’s okay to discard strategies occasionally. That is a normal, natural thing.

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

On the dangers of giving birth to a new orthodoxy:

There was a phase where entrepreneurs would show up with these same old crappy pitches, but now they’d say “lean,” “pivot,” “MVP,” and all the jargon and they’d 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 contributing editor at Xconomy. Follow @wroush

By posting a comment, you agree to our terms and conditions.

  • Pingback: Eric Ries, the Face of the Lean Startup Movement, on How a Once-Insane Idea …

  • Concerned Reader

    Sick of this guy those who can’t do….teach.

  • http://www.xconomy.com/author/wroush/ Wade Roush

    @Concerned Reader — Ries may be overexposed, but I don’t think you can write him off as a practicing entrepreneur so easily. IMVU is a pretty successful company, with $22 million in revenues last I checked. Ries has constructed a *very* successful one-man business around his speaking, writing, and consulting work. And he surely will be able to raise as much venture funding as he wants, once he decides to get back in the game. I’d say it’s important for those who *can* to stop *doing* occasionally and share what they’ve learned.

  • http://www.chasminnovations.com Robert DiLoreto

    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?

    Possibly a single point of potential failure to rely only on this strategy?…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?

  • Pingback: From Yalie ‘disaster’ to startup guru « 06520

  • Pingback: Steve Blank Hands A New Owner’s Manual to Startup Founders | Xconomy

  • Pingback: Lean Startup | Stephen Darori Early Stage Threshold Curve Model

  • Sam J

    Arm yourself with decades of business wisdom within 2 daysChk out http://www.TheBillionairesBrain.com