Eric Ries Episode Transcript

 Eric Ries: [00:00:00] Most of the most important things that I have learned came from failure and embarrassing and punishing failure. [00:00:06][5.9]

Monte: [00:00:07] Welcome to Live Rich. Have Fun. Save the World, a podcast focused on reimagining how we define success, cohosted by myself, Monte Barnard and CEO of Expensify, David Barrett. Eric Ries, an entrepreneur, New York Times best selling author of the Lean Startup and currently the CEO of the Long Term Stock Exchange, a public market option for companies and investors who share a long term vision. Eric, thanks so much for joining us here today. [00:00:34][27.8]

Eric Ries: [00:00:35] That's my pleasure. Thanks for having me. [00:00:36][1.1]

Monte: [00:00:37] We want to talk about a couple different topics today. But to get us started, your career has been defined by challenging conventional wisdom. What's the first time you can remember feeling you were right when everyone else was wrong? [00:00:48][11.0]

Eric Ries: [00:00:49] You know, that's a funny it's a funny way to start, because I was one of those kids that grew up feeling that way all the time. So actually, my my challenge was to learn that sometimes actually other people can be right, too, and develop a little humility. And and what was shocking to me, I mean, really shocking to me was when I would you know, when I first entered into business, into programing, into software, I thought I was doing everything right, according to, you know, the way you see it on TV and in magazines about what it means to start a company, to build software, to be successful. And it was actually genuinely shocked that my life didn't follow the movie script. So, you know, like first time I started a company, pretty much everybody who I knew told me was a bad idea. And, you know, the most fun part of an entrepreneurship movie is at the end where the protagonist gets to go back to all those people and say, see, I told you so. You know, you should never have doubted me in real life if you've never had this experience. I don't know. I don't recommend it. You go back here to say, listen, you were right. I shouldn't have dropped out of school. I shouldn't have done, you know, like, sorry, you were right. OK, I guess it didn't work out and, you know, so that I had to have a quite a few of those experiences before I started to realize that life is not a movie and success is not defined in conventional terms either. So it was it was definitely a learning process, a journey for me. [00:02:06][77.0]

DB: [00:02:07] I think it's interesting that you mentioned learn that humility here at Expensify. We talk about the three core qualities we're looking for when we're hiring people. So we don't look at experience and care. Where you've worked in school, any of that. We just care is like first. Do you have talent? Like do you have the ability to learn without being taught as number one? Second would be do you have ambition? Do you actually want to do something with your life? Because if you don't do something with your life, like, then you're not going to want to run with our life as well. And so the third but in the first two of those, like the first one's pretty easy interview for like talent. And you can measure that ambition. Like we have ideas like ways to sort of tease that out of people. The third and the most important, however, is just humility, the ability to like the genuine appreciation of opinions other than your own. And that one's very hard to test for. And I think in the end, that's the most important one. The determine the longevity of an employee, the more the long term success of someone, because you can only get so far by yourself. And it's like if you are working with a group of other very talented, super ambitious people, like the key is preventing everybody's stabbing each other face all the time. And so, yeah, I think humility is a really important one. So I'm glad you mentioned it. [00:03:14][67.0]

Eric Ries: [00:03:14] No, you're totally right. And and that's creating criteria. I mean, you're you're cutting against it with your first two, right? So that's the problem. It's so much the way the world works. You know, we tell people that if you want to be ambitious, if you if you are a smart person, if you're destined for great things and it's also kind of OK or maybe even necessary to kind of be a jerk and be delusional in your thinking, because other people will make up the difference, make a pick up slack for you. And that social conditioning is really hard, really hard to throw off. And yet if you really study the companies that have met any kind of meaningful impact in the world for the better, you'll always find that unusual combination. The servant leader, the the humble but very ambitious person to search for meeting like those are set out very clearly in the research and literature on what makes a company great. [00:04:02][47.5]

DB: [00:04:02] Yeah. I mean, well, you left out the warrior philosopher. That was my personal favorite. But I don't think that humility I think it's often mistaken for meekness, as if it's basically just about sort of standing aside and being submissive. No, that's not humility. I think that's sort of that's giving up. I think humility is about appreciating other opinions, but also defending your own and want to be right. But being right doesn't mean just accepting what other people say. It means actually fighting for the truth. And I don't think people typically think of humility as from sort of it requires fighting, but it does. [00:04:36][34.0]

Eric Ries: [00:04:38] Yeah, the respect for the truth, the determination to get to the truth, this is I mean, it's the heart of the scientific method and so many of the other important intellectual breakthroughs of humanity. But but it's right there. I was I was talking to someone who worked for one of these iconic leaders, you know, who's very famous. And they were saying that the difference they had learned from that person was the difference between like some people actually try to find the right thing to do to to to be right. And other people are very focused on making sure that whatever it is they decided to do turned out to be the right thing to do. So they just change the facts to make whatever they're doing right, because they're the feeling of righteousness is the most important thing and the facts be damned. And I took a lot away from that, that that if we're going to get we're going to make progress, are going to have to have an impact on the world. We have to be able to kind of stay present and really examine what is and that's the the most important thing you can say of a great scientist. You think of the most famous scientist, you know, like a Feynman or Einstein, but that they they had a big ego for sure. They were successful. They they were very determined. Right. A lot of perseverance in there, but also a humility in the face of the fact that we don't know everything and we're trying to find out the truth. And it's what what good is it to have a famous theory that everyone adheres to that turns out to be wrong? That's actually that's that's all of our worst nightmare, at least of the right kind of person. So so I think that that if you look at the history of human affairs and what are the things that really matter, these are the few people who had that the right mix to be able to do something really important. [00:06:12][93.9]

DB: [00:06:12] Well, so you mentioned you touched on success earlier. And so I'd be curious how you define success from an expense perspective. We talk internally about, you know, our goal, our mission here is delivering deliberately to have fun, to save the world. And it's like and I don't think kind of like humility is often mistaken for weakness. I think that business success is seen as a kind of a zero sum, like you can't have fun and be successful business. You get to choose one of the other kind of things. Yeah, and I do. It's like from like a work life balance perspective. It's not like, you know, a teeter totter. Right, to choose one or the other one subtracts for the other. I think balance is more like, you know, Maslow's hierarchy. Like if you want to achieve the top, you have to have a firm base. But anyway, I'm be curious, how do you think about success? Because it sounds like you've sort of struggled with that over time, like you went for a particular vision of it, but then changed your mind. [00:07:00][47.6]

Eric Ries: [00:07:01] Yeah, this is going to sound kind of stupid because, of course, if you study philosophy or you don't listen to anybody who's been successful in history talk, everyone says that the pursuit of money and material things does not lead to happiness. And I think like so many other I remember growing up and being like, yeah, I'm sure that sure is fine for you to say that, but it really helps you. Don't forget who it was that a famous famous actor, I think said everyone, anyone who comes out and says that they want advice about how to become rich and famous, you always tell them, why don't you try being rich first and see if that does it for you. You shouldn't necessarily have to be famous. And and all this is so much out there to find out what really matters in life. And then, of course, I was like, yeah, yeah, sure. But and then as I had more success in my career, you know, I had to have the same realization, I guess people can have, you know, since for eons now that meaning comes from the work that you get to do and the relationships that you get to forge and the whole life that you get to build and which is nice. And I certainly feel very fortunate to have had success. But most of the most important things that I have learned came from failure and like embarrassing and punishing failure. So, yes, I can think of so many things that might have gone differently in my life that might have led to more worldly success in some way. But I feel like I would be so much poorer, so, so much worse off if I had taken those those ultimate roads. [00:08:28][86.6]

DB: [00:08:29] Well, so that's an opening to some of those. What's one of those humiliating failures? [00:08:32][3.5]

Eric Ries: [00:08:34] Oh, yeah, let's talk about it, because I feel like, you know, so many people now, because of the work that I do, I sometimes get held up on this pedestal as some kind of a talking head professional expert about things. And I really subscribe to the Peter Drucker school. He said once people call me a guru because they can't spell charlatan. And so I feel like let's get into it. You know, like if you want to follow the path of successful entrepreneurs, especially, boy, you better be ready for failure and come out on stage all the time. Hi, everybody. I'm a big failure. And if you follow me, you too can be a big failure. You know who's with me? Like you're not supposed to say that. You're supposed to pretend that you know what you're talking about. You're supposed to pretend that your advice will lead to success and yet, you know, just not true. So, again, go back to respect for the truth. Yeah, I have I have had more failure than success in my life, in my career. I talked about being in school, you know, as a young person, getting into entrepreneurship during the dotcom bubble and having that experience of having a startup blow up in my face and having to tell people, you know, you were right, it didn't it didn't work out. And I'll never forget when I applied for so I thought all that was enough of that. I felt I was done with entrepreneurship and was going to now have to kind of go back to having a respectable regular job. So I was applying for jobs around and especially wanted to come to Silicon Valley because that was like the Mecca to me of technology industry. And one of the startups that got my resume, you know, took me for an interview and they said, tell me about this terrible failure. And I was like, I'm so embarrassed. And now they're like, OK, but what did you learn from the experience? And I started going on and on about all the things I would have done differently and all the things I learned. And they said, this is great. You know, now you've learned all those lessons on somebody else's dime. We didn't have to pay to educate you. Some other investor already paid. So it was like it was such a revelation to me about the Silicon Valley ethos, which, for all its flaws, still has this real appreciation of the fact that there's going to be failure in the quest for greatness. But ironically, that startup which I did go join, I was an early employee there and got to go on the rocket ship with them totally was totally destroyed by its own hubris in so many other ways and turned out also to be a really, really embarrassing failure. And now, you know, you're not supposed to take don't take investment advice for me, because the as they as the startup eventually cratered and they started to lay people off, almost all the talented people went to Google. And so the early this is pre IPO Google back in the day when I was a small company. So the earlier you got laid off, the more money you made because you've got to go to Google earlier. And I had all these friends at Google is like, listen, we can't say exactly why, but you really should come over and maybe chat with one of our recruiters about working here, because there's some pretty and I'm like, oh, you I did that for Facebook. I do that for Google, for Twitter, you name it, iconic tech company from that era. I pooh poohed it. Didn't want to go work there so. Well, yeah. If you, if you measure just by worldly success, I still have some of those offer letters. I could do the math. I want those stock options or what today. [00:11:35][181.3]

DB: [00:11:36] Well but I think it's easy to look back on, you know, the paths not taken and trim out all of the hundred times more paths that would have been even worse failures. It's like, yeah, clearly, I think you've made this comment about going up on stage. It's like follow me and be a failure like me. But like that's you know, success is like ten times more failure. And I think, like, if you're not feeling you're just not on the path to success, it's like there's just no way to get there without a tremendous amount of failure along the way. [00:12:03][26.9]

Eric Ries: [00:12:04] Yeah. And some people, you know, people complain about that because, you know, in Lean Startup, we talk about that really, really forthrightly. And I remember once I had this talk where this very intimidating, very large man was standing in the back of the auditorium. This is a very technical crowd, you know, down in Cupertino kind of talk. And, you know, he just was so angry as I was talking. And I could see on his face that he was like like everyone else is sitting. He's standing with his arms crossed, like really a very angry person as I'm speaking. And I could tell he's not liking what I had to say until during the Q&A period. He raises his hand. I'm just, like dying to know what is this guy's deal. And I really want to know. And he's like, why do you talk so much about failure? Is it our goal to succeed? You know, was really emphatic and kind of like as if I was causing the failure by talking about it. And and I've got a question a lot over the years, because there's a lot of people who think that way through the power of your mind, you can create success and avoid failure. And I feel like they should go into astrology because I was like, look, if you have the power to bend the universe to your will through the power of your mind to that, you will never succeed. What are you talking to me you should be worth. You don't go out, do whatever you drive. Your dreams are going to make it happen. And listen, if you have a reliable, repeatable way to accomplish that, will you share it with me so I can tell all these other people? Because the rest of us poor slobs, you know, we don't do you know, we're not very good at this. And our success rate is pretty low. And and there are those people who have. Gone from success to success, and we all many of us, we wondered, do they have some kind of magic secret sauce that is this is there some occult ritual that you can do to prevent that? And if there is, I haven't heard about it. So, you know, I feel like I'm just going to do the best I can in the meantime. And if one day is proved that that success in business is somehow achievable with one hundred percent accuracy, if that if we find methods become obsolete, like, OK, I'll accept that. But so far, I don't feel like we're even close to that to that outcome. [00:14:05][120.7]

DB: [00:14:05] Yeah. I mean, you go to work in the bookstore and you see the business section. You see Lean Startup, a thousand other books about business. And it's basically like, well, which one do which ones. Right? Like, they all sound very respectable and all super smart and so forth. And I think if your strategy to become a business success is to read the right book, it's like, man, you're going to get it's not very good odds. There's like a thousand points. Like the likelihood of picking the right one seems very slim, but also like when raising money, it always strikes me that it seems like the advice you get from a VC is always exactly the same. And it's always like, you know, I've really thought about your specific requirements and your particular need. And I think we should do you should raise money. It's like, well, of course, we're going to say that because they sell money, it's like going to a hot dog salesperson being like, what am I what should I do in like, well, you should buy more hot dogs. It's like that's of course, what the advice is going to be. But then you take that VC advice and like, okay, so what what fraction of the companies that took that advice succeeded? And it's like they're about 10 percent. It's like, OK, so this book that you're advising me to do is like a 90 percent failure rate. But they're like, yeah, but it's higher than anyone else. It's like, oh my God, no one has any idea what they're doing here. [00:15:18][72.2]

Eric Ries: [00:15:19] Yeah. You know, I'm one of the most powerful things I learned was that when someone gives you feedback or is telling you something about yourself, it's actually not information about you, it's information about them. And this is so important because especially with with lean startup, what we're putting out in about products and we're testing ideas like it can be very difficult to get feedback from people and have people say, this sucks, I hate it. You're stupid. You know, the you know what it's like to put software into the world. Like, you get all kinds of reactions from all kinds of people and, you know, especially online, you know, you go on to I used to build products that their own online forums. And so people would spend, you know, just hundreds of hours talking about all the ways in which they absolutely hated our product. And sometimes I'd be like, well, why don't you just please leave so much of money spent so much time tormenting me about how much you hated. It's like it's actually kind of what you realize is when someone tells you they hate your product. Actually something very interesting about themselves, it's critical information. They're saying if there's something that they love in it, they're angry. But the anger is information that's really valuable. And you are not really you you're just a character in their mental drama. And you need to understand what that means. And the same is true of DC. So, yes, of course, AVC thinks that what you should do is whatever would be in their best interest. Like, no kidding. That's a very natural human thing to assume that whatever is best for me is best for everybody. Is that unique to we all do that. But if you take that away from like, oh, they're telling me what to do, what I do to fight with them and say, wait a minute, what am I just learned? You just learned something really important about the economics of that individual person and the firm that they represent, the product that they are trying to sell you. And in fact, I often tell entrepreneurs who are asking me for advice about fundraising that if the VC is not trying to convince you to do what would be best for them, they're probably not that interested. It's one of the ways you can tell if they're serious about wanting to invest in your company or not, because if they don't care, indifference I know is is bad, but indifference is a lot worse. And that same is true in products. But but with everything like you talked about screening for the right talent, if you have a really long term perspective about what you're doing with your company, your career business, whatever it is that you're doing, then you want to to you want to polarize as much as you can. You want to find out like who's going to have a reaction to this, who's going to care enough about this mission that I'm on, that they're going to be willing to persevere through the hard times. And so I used to think that like an interview that went well and there were no red flags and everything was fine, was a good sign. And then I started to realize, no, actually, like indifference is worse than someone who's, like, argues with you. And I think about some of the best people I have ever hired really were pretty passionate and like thought I was pretty stupid along the way. In some interview, they'd be like, you do things the wrong way. And they really cared. You know, they wanted to get to the right answer. And they don't like that. There's people who can be hostile and not humble about that, in which case that's not helpful. But there's people who just can't help themselves. They really care. And they're saying that there's no zealot like a convert. Some people who even now today are like the biggest lean startup advocates out there in the world. I happen to remember when they thought it was just absolute rubbish and that's OK, because we learn new things and. You have to get it right in the first go and their intellectual contributions to it make it more interesting and are part of why they're so enthusiastic and passionate about it now. So that's true for ideas and movements like the startup, but it's also true for products and in business and in hiring and in so many other aspects of life. [00:18:51][211.8]

DB: [00:18:52] So going back to this concept of success, I think you mentioned you kind of hinted about the serial entrepreneur. People have had success multiple times. And is there any sort of formula to it or is just living heads a few times in a row? Who knows? But I've always been struck by the idea of like this this cult in Silicon Valley of the silicon entrepreneur, sorry, the serial entrepreneur, as if that's the dream. And yeah. Whereas I think if you know, like if I said, like, I'm a serial parent, what I do is I start a family and then I leave and I go find someone else, start a new family, raise it, love it, and then I leave again. I don't like seven times in a row. I like your fucking pastoral metaphor. Yeah, but but still, I think is like, oh, it's so great. You build this company of wonderful employees to care about that you really do all this and then you sell them to someone else again and again. And it's like, how can you how have you failed to make a company seven times in a row that you didn't want to work for? Again, it's like this seems crazy. And so I think that's I don't know. I've always been struck by this idea of success and the misalignment of success in Silicon Valley or maybe absolutely the ethos of Reddit. I'd be curious for you know, I've been through the wringer a bunch of times and you've talked with billions of companies about this. And like what? What do you tell people about the idea of sort of serial entrepreneurialism? And it's how it relates to success. [00:20:15][82.8]

Eric Ries: [00:20:16] Yeah, it's just interesting that we picked the word serial, which is a word you only use for serial killer, and it is what you're doing. I mean, it is actually kind of grim if you think about it. Even the word exit is very existential. You know, it's like why are we why would you celebrate an exit? You know, I get what they're going for, the investors got to exit, so it's great for them, but I can't tell you how many I know a lot of entrepreneurs value entrepreneurs who have sold a company and made unbelievable amounts of money and have just have terrible regret about it and feel like, yes, they made all this money, but it was by a blood sacrifice. And so people who think that's great and want to do it over and over again, I've got questions. And I think it all goes back to this question of like, what does it mean to pursue something for the long term, to really have the ambition to change the world and have it not be a cliche or a joke, but something that you take really seriously. And to me, to be focused on the exit or the outcome or the destination is kind of to miss the magic of the wonder of what is possible with these companies when they're truly great. And I try to use that as a personal filter for like, who do I want to be in business with and what do I want to spend my time, energy with it, that we're all on this Earth for a short time and our efforts are precious. And so where do I want to work? Where who don't invest in? What companies do I want to advise or to to partner with? You know, we're looking for those rare special people who really are passionately committed to the thing that they're doing. Now, I will say, though, that there is a subtle but I think important distinction, because while the the image of the serial entrepreneur that you have raised is kind of grim, there is something new in the twenty first century that I think is really cool, which is the possibility of pursuing entrepreneurship as a career. And that's not that is not that is a very recent development, if you read the stories of famous entrepreneurs from the 20th century or before, it's a very bizarre set of circumstances that allow them to have their one shot. And generally, they came from very privileged backgrounds. They met the society's dominant idea of how a successful person should look. They often had family money or connections that they could fall back on even if they weren't super wealthy to begin with. And that was considered kind of OK, like it just like this is something that needs to happen is an aberration. It should happen rarely. And if it does happen, like it to be tolerated, but not especially welcome. And so it wasn't a discipline that could be studied in its own right. You couldn't get a degree in it. You couldn't be certified to do it. And people didn't tend to do it over and over again unless they were working on basically the same company multiple times, like Henry Ford. Whereas now we really see the emergence of entrepreneurship as a relatively low risk career path compared to other career paths, which I think is very counterintuitive and very cool. It dramatically diversifies the set of people who can pursue entrepreneurship, and it recognizes the fact that you might be a serial entrepreneur involuntarily. That is to say, your company may fail and you may have to try again. That's not the same as this kind of rinse and repeat bill that flip it, build it again behavior. And I do think that that is really cool. In fact, now we're starting to see entrepreneurs who go in and out of big companies, which is even more strange to Henry Ford would have found this quite bizarre. But I know a lot of people now who have started a company, maybe they sold it, maybe it failed. Maybe they moved on because it outgrew them or their company got acquired. They went to work for a big company or they just got hired to be an innovation director or kind of what we call corporate entrepreneur in the context of an existing company, or they get a call to public service and they get entrepreneurial type work at a federal agency or in a city government. And then maybe they start another company and maybe they do it again. And the skills that they've developed, this ability to grapple with the unknown, the respect for truth that we were talking about, the ability to lead people into dangerous and uncertain waters, that that skill set is actually very valuable. And especially in certain fields, it's become a more stable career than the so-called safe careers, which I find really fascinating. The people who I know, a lot of people who went into journalism or law or big company consulting or just any kind of big company job on the idea that that was a safe and steady job and find themselves at the mercy of this completely capricious and random bureaucracy who can fire you whenever it feels like that has no care for your welfare and it doesn't really doesn't share the economic rewards until you win the tournament at the end of your career and a bunch of other stuff. And so I think this is all kind of reshaping a twenty first century idea of what is safe and what is risky from from a career point of view. And then, of course, it really if you measure by just financial terms, you know, there's some question there is the variance makes it hard to calculate what's right for each person, individual circumstance. But if we ask ourselves what is the more meaningful work? Then it really starts to slide on on the side of starting a company, but also going to work for a startup, going to work for the upstart, going to try to change the world. As you said earlier in our conversation, I think that's a very new, very exciting possibility. [00:25:19][303.5]

DB: [00:25:21] And that idea that starting your own company is the safe choice is such a is such a kind of radical and novel thing, is that sort of a consequence, however, of new opportunity, or is it just a reflection of how volatile the times are? And in the past, we might you could count on a career like you could be a lifetime employee of a factory, and that was a valid choice. And so now those options have just been kind of stripped away. And so is it a reaction to a loss of something or is it enabling a new opportunity? [00:25:53][32.6]

Eric Ries: [00:25:55] Well, as it is all tech enabled disruption, there's obviously both elements at play. But I think I think this is more positive than people realize because the so-called stability of careers of the past, you know, you just have to just read Death of a Salesman or any fiction from earlier periods or just study the battle for workers rights, like the idea of stable employment was very limited to a pretty narrow class of people who they would not have considered themselves aristocrats. But if you look at the totality of human society, these were people in the very upper echelons of economic stability, and that stability was bought at the price of a lot of negative consequences and negative externalities that they didn't have to deal with. But all that being said, I think there's also something genuinely new and exciting going on right now, which is the democratization of the tools of entrepreneurship. I kind of sometimes tongue in cheek, called it the renter ship of the means of production, turning Karl Marx, his famous phrase, on its head, because we have made it more and more and more possible through all kinds of financing instruments and microloans, that revenue based financing, and especially if you look at the international scene, all kinds of public private partnerships and just a just Cambrian explosion of new ideas about how new ideas should be funded. But then also the tools, the actual intellectual tools of how to run a startup, how to build a startup, how to raise money, how all this stuff I mean, can you imagine listening to this podcast, you know, when we were coming up in our careers in the early days and how how unbelievable it would have been to have this information? It was very rare. There weren't that many books about entrepreneurship written. There wasn't a lot of media coverage of Silicon Valley from the inside. It was a very curated, very limited perspective. You wanted to know, like how Microsoft was started or Apple it started wasn't that information was not widely available. And then to your point, the selection bias of coverage was such that you didn't hear about the failures, you only heard about the glossy successes as told by corporate comms departments. So the advent of the Internet and social media and the kind of the cult of personality around founders for better, for worse. And I like to think that the books have played some role here, but I think that that's just one piece of bringing this information out into the world. And then on top of that, you have the academic literature that is now shown really conclusively without any shadow of a doubt that entrepreneurship is the driver of economic development pretty much in all regions, all countries, all times. This is where net new job growth comes from. It's where well, anyway, I don't have to recap it that literature you can you can peruse at anyone who like or, you know, go read by Richard Florida or ADX Indianness. There's amazing research being done on this on this question. So there's is like all these like serious people and policymakers and, you know, like have developed an interest in entrepreneurship as this kind of quirky, strange thing that seems to have this like alchemy that can produce economic growth. And so all these pieces coming together is pretty well. I say one more one they'll story. The other thing that's incredible is the development of like an international cosmopolitan entrepreneurial class. That has very similar habits and common values across time and space, to a degree I really can't fathom, and I didn't I didn't appreciate this at all until the early days of traveling for the lean startup as it started to become a phenomenon. I had really I was very American based. I didn't travel very much. I never traveled for work before that. It was a very parochial view of the world. But I was I was asked to give a talk in Paris. And so I was I got in a cab and I give the Parisian surly cab driver the address and they dropped me off like vaguely in the vicinity of where I'm supposed to go because it's the event venue is in one of these big mega blocks of what they're called in French. Now, they make a four or five, six, eight block radius, you know, combined RTG also just know where you're going. No, dresses just don't matter. It's just, you know, so I'm wandering around this huge complex, this huge almost like a city within the city trying to figure out where to go. And I see someone dressed like a Silicon Valley entrepreneur, like a tech guy with a ponytail and a I can't remember what geeky T-shirt on [00:30:09][254.4]

Monte: [00:30:10] Patagonia vest maybe. [00:30:10][0.4]

Eric Ries: [00:30:11] Yeah. And I'm like, I'm a fall. That guy. See where he's going? And I just as I'm following him, more such people up here. And there's like a guy in a Pink Floyd T-shirt and then there's a guy that's like it was a very male dominated crowd, unfortunately. But like I was like I this looks very fresh. I walk in and I'm like trying to with my eyes is like, what? Where are you going? They're like, oh, we're here for the Eric recently and startup that I like. That's me right this year. And it was incredible. These people speak perfect. You know, they're all speaking French to each other. They don't they never been to the United Other. But that single one of them is that for the Silicon Valley, as far as I could tell. But they got the memo and then I had an almost eerily identical experience in Japan, of all places, you know, and I've had I've had this all over the world where there's this there's new I think it's the right way to think about it. It's a class consciousness around long term thinking and prosperity and boldness and the willingness to embrace being different. It's like like bohemian artists movements of the past, except with an economic development agenda. And I kind of normcore esthetic. It's pretty it's pretty interesting. [00:31:16][64.6]

DB: [00:31:17] So how did all of that kind of contribute to long term stock exchange change? Like where did that idea come from and how does this help promote that, huh. [00:31:23][6.6]

Eric Ries: [00:31:24] Thanks for asking. So yeah. So, so long. Stock Exchange is a National Securities Exchange, same regulatory category as NYSE or NASDAQ, if you've heard of those. And our goal is for the next generation of companies, you know, the people building Capitalism 2.0 to give them the financial infrastructure they need to survive and thrive as public companies. Today, the way we have built our capital markets and our public markets kind of drags companies down into mediocrity. And it's a sad thing. And I got into this kind of an unusual way. My background, you know, as we've been talking about, is in software development and product development and startups, not in finance. But when I used to give talks about lean startup, people would ask me about the intellectual origins of Lean Startup. And I always tell them about Toyota production system and, you know, the kind of the legendary 20th century antecedence and Warren Buffett and Jeff Bezos and especially Toyota, which has the philosophy of long term thinking. It's a really expressed cultural commitment of the company. And the people who have researched this have really shown the literature is really clear on this. If you don't have that long term philosophy, you will not have economic growth over any sustained period of time. It's just you will descend into mediocrity and you will have regression to the mean. So people will say, listen, hot shot, if you're trying to tell us to build the next Toyota and have a long term perspective, how come you're also telling us to build venture backed companies and make them public? And I try to all the kind of handwaving answers you give as an expert or you don't know the answer. Like, you know, I'm sure there's some way that this can be resolved. I I'm like, oh, let me get right back to you. And I would go I started reading everything. I get my hands like I need to know the answer to this question. I'm sure someone has a good answer. I'm sure that the way that our capital markets was designed, it this is a solved problem. I just am too ignorant to know about it. And to me, that was like going down the rabbit hole. That isn't to solve a problem, in fact, it's a known unsolvable problem that is destroying capitalism from the inside and everyone who's really in the belly of the beast knows it. And just it's like there's nothing there's nothing you can do about it. There's no point to do anything about. It's like gravity. You don't complain about gravity. You just stay on the ground. And yet if you look at the companies that have succeeded, not because of but in spite of these constraints, including, of course, famously Toyota, you find these very strange circumstances like Toyota has is very, by modern standards, very unusual old Japanese correcto style governance structure that we don't make new ones of these anymore. They've been grandfathered into the modern era. If you study the Amazon story, like how is it that Jeff Bezos came to have this level of control and influence over the company? It's a very strange set of circumstances that had to do the exact timing of when they raised money in the crazy dotcom bubble and crash. So so you find these exceptions, these outliers. But if you are an entrepreneur saying, well, I want to follow in those footsteps, it's not really clear. You can't really count on those same exceptional circumstances applying to you. And I just thought that can't be right. We have to be able to do better. So I had the idea. I mean, it was literally I was on a plane over the years, the two years before it was published in 2011, I was on trial, was traveling nonstop workshops, speeches, working with companies. I mean, I was testing and refining the ideas all the time. And then, like on the plane, I would be reading business books and then working on the manuscript that was like my whole life. I just ate and breathed business books. And mainly it was, to your point, about humility. I was terrified that I didn't have anything new to say. And therefore, if I read enough business books, I would eventually find like some old out of print and Peter Drucker book that said everything that I was trying to say already. And then I'd be like, well, great, I just need to get this book back in print. I'm relieved of my obligation to write this book at all. I remember that Peter Drucker, in fact, has an out of print entrepreneurships book that I couldn't get my hands on the wheel to track down a used copy of it. And I remember thinking, boy, I'm so terrified that if I read this, this is it. My fledgling career as an expert is over. But if you've read that book, you'll understand it's not it's not the solution. But anyway, so I was I was reading these books about Toyota. I was writing about the need to for long term thinking. And I just had this epiphany. One day I was literally just sitting in an airplane seat saying, wait a minute. If it's true that long term oriented companies are more successful, they serve customers better, that means they're going to make more money. And most of the money in our capital market system comes from very long term people, namely people who are saving for retirement. So why would Wall Street, who's supposed to be investing these people's money for retirement? Why would it be pressuring companies to make less money? It's like the opposite of a caricature you have, and it just hit me, I was like, oh, got it. We have wedged ourselves into this situation where the incentives of all these intermediaries drive towards short term decision making, short term pressure. But that is not actually right from first principles. And therefore, you don't just need a new law to solve this problem. You can make money solving it. This is actually an entrepreneurial opportunity. And of course, I wasn't thinking something I would have to do. Somebody I wrote this in the book, Go grab your old beat up copy of the Lean Startup. If anyone listening you have one is on the last page of the book right there in The Epilog is Right, says somebody should really build a long term stock exchange. And I sketched out from first principles how it should happen. And then it didn't it didn't happen. And I kind of understand why now. It's like not exactly the most fun, [00:36:46][322.4]

DB: [00:36:48] you know, Dealing with the SEC sounds like a blast. So what would you say distinguishes sort of your eventual designs, long term stock change from the current design of the New York Stock Exchange or NASDAQ? [00:37:00][12.7]

Eric Ries: [00:37:02] Yeah. So there's something wrong with the incumbent exchanges per. It's just a business model alignment issue. Most of the money that is made by the financial system today comes from stock trading, which is an inherently short term activity. So if you list your company on a conventional stock exchange, you're not really the customer, you're the product. Just like if you use Google for free, you're not the customer. People who pay the money are the customer and still the traders are the customer. So if you look at our markets, we have built the most unbelievably efficient market in history, in the history of mankind for trading and share lots in microseconds, so small, lots fast trading like we are unparalleled at it. But how does that actually benefit the companies who are what are called the issuers of the security in the system? Like actually all that volatility, all that activity is damaging to companies more than it's helpful. Now, companies want to be able to access the liquidity of public markets and that is really important. But that this God, this is synthetic liquidity, this like fake liquidity of the same shares being traded back and forth very rapidly. That's not really helping companies think pursue greatness. So I thought let's build an exchange that has its incentives aligned properly so that its goal is to have to build more and better great companies and then let us have the listing. Standards of the exchange require companies to comply with the things that we know generate those good outcomes. So ultimately, our view, we're not we're not trying to blow up the system. We are integrating in the system. We're reformers, not not radicals. The listing on LTC, you still get complete access to the liquidity of our American capital markets. You can even do list. You can listen Nasdaq or Nici and have the secondary exchange, like we've really gone out of our way. And it's why it's taken so many freaking years to bring it to market, to be completely compliant with all the appropriate regulations to win over all the different stakeholders, including traders who we're not opposed to or are angry at. It's just they have a different role to play in in the system than than companies and the long term investors. And so if you if you're a company and you want to prove to the world that you actually stand for something good, that you are a purpose driven company, that you are going to care about sustainability and you're going to care about diversity and quality, and you're going to treat your employees, your communities, your stakeholders. With respect, how do you make promises that the public can believe? How do you win the public's trust? If you if your commitments are not binding, this is the thing I don't get like people signing these pledges and they're all these letters and manifestos and things, and it's like but those just rely on your good intentions. And the public has become increasingly skeptical of those good intentions because so many companies that started out with lofty goals through these bad incentives have been reduced to pretty malign actors. So I think this next generation really wants and can accomplish something different and start at the beginning. We want to be the financial infrastructure that can support that. [00:40:06][184.0]

DB: [00:40:07] So you said it ultimately came down to a lack of business model elements of the exchange with the traders. How how is the business model in terms of change different? [00:40:15][8.6]

Eric Ries: [00:40:17] Oh, this is great. We make our money by charging companies money for services that they want to buy. That's what is it. It's real simple. That's like that's how you make money. How many times have I had this conversation with the CEO? You make money because your service is valuable to your customers. They voluntarily pay you money for it. And we have that same crazy idea. We're going to make software and products that you will choose to buy from us because they are worth something. And because of the quirk of the fact that we get to build a new exchange from scratch using modern technology, our cost structure is dramatically better than than what's come before. So we don't need to make all this money from trading in order to be a viable business. We just need companies to grow with us. [00:40:59][42.1]

DB: [00:41:00] Yeah, that makes sense. I think you're saying that if you're not the customer, the product sort of thing, and you're saying, oh, I talked to CEOs and you sell products to customers, but going back to what we talked about earlier, that's not really the case for most CEOs. They're preparing one sale, the sale of their company, the sale of their family and their children basically to someone else. And so I'd be curious, actually, we've talked about there's no proven success model for like an entrepreneur to achieve success. But when it comes to employees, how reliable is the strategy of joining a startup to get rich like the people who what fraction of people who start down that path actually end up with that pot of gold? [00:41:44][44.4]

Eric Ries: [00:41:45] Yeah, I don't know if you know the history of the World Series of poker, but Burchard Poker is like a massive international poker event on camera that cost ten thousand dollars to buy it. And now it's a huge event, thousands of players flying all over the world. Anyway, it was one of the early, like kind of card table type sports that was televised on ESPN. It became a big phenomenon anyway. I can't know what year, but there was a certain year where a guy whose name was his actual name is Chris Moneymaker, an amateur player, won the tournament live on ESPN and won however many millions of dollars was the prize of the next year. Ten thousand want to be Chris Moneymaker were in the tournament every year. And here's the crazy thing about this is I think so good that we have these sports analogies that we can look to to see how some of our kind of ideas about this this kind of silly. So poker is a game of skill and there are professional poker players who are so much better than an amateur that they can they can support themselves making a lot of money just by playing poker all the time. And and yet, you know, for many, many, many years, no professional player won the World Series of Poker after the influx of amateurs from Chris moneymakers, then I haven't kept up with it. So I don't know if the streak is still unbroken, but I think it was a very long time ago. No professional player won the tournament and it was often these random amateurs who would win. And so you could look at that and say, see, it's not really a game of skill or he's had all these books you read and all the skill you develop, it won't add value. Or if you have a slightly more sophisticated understanding of probability, you would say, gosh, the odds, the probability of winning this tournament with such a wide field, with the amount of variance that is involved in poker is just extremely low. And so the best game, what they call game theory, optimal playoff poker can improve your winning percentage and magnitude by a few percentage points now over a long period of time. That's the difference between becoming extremely wealthy and busting out. But on any given day, in any particular hand and in any particular tournament, it's not enough to overcome the natural variance of the cards. And if you think poker has high variance, you should try entrepreneurship. OK, like we're talking about one of the highest variance activities that Eddie was known to mankind. It is unbelievable because sometimes you start a company and you make a hundred billion dollars. In most of the time you don't get anything at all. You just languish in mediocrity and then it dies, know? And so the odds are really, really stacked against you. But the rewards are potentially tantalizingly crazy. So I think if your goal is to make money is not a good career path. I really think there are better, more secure ways to to make money, go be a corporate lawyer or investment banker or something like a certain career path to just have a much more practically guaranteed income stream attached to them. But entrepreneurship is a is unique and that it does offer these rewards. I mean, it is it is not quite like playing the lottery. And here's why. Yes, it has the same economic payout structure as the lottery. That is small amounts invested can yield disproportionate returns, but only to the lucky few. But playing in the lottery is not a valuable activity in itself. It's actually a waste of time. It's not intellectually stimulating and you can't get any kind of meaning out of it, but you can get that out of entrepreneurship. It's actually extremely meaningful kind of work. And you asked me kind of how I judge my own personal success now that I've had a little more time to think about it since when I was younger. And to me, I really try to ask myself, what is something I would like to work on? Or even if we fail, it'll have been worth it. I'll sleep easy at night, you know, on one day. I have young kids now, so I really think a lot about when they're old enough to understand what I did for a living during this time. What do I want to tell them I was working on? And optimization, you know, tricking people into clicking banner ads slightly better than the other guy, like no disrespect, but no, I don't want to tell them that. I want to be able to say I was working on something that really mattered. That, as you said, was something I would try to change the world for the better. And so if you use that standard and ask yourself, what's the career path that's going to give you most exposure to that kind of work? You know, I do think there are some there are other career paths to consider, but most of the ones that kind of have wealth and fame attached to them don't really. So it's an unusual combination of like it's still business. There's still opportunities for financial reward. And you can you can tackle problems that require financial systems to be engaged and reformed in order to achieve your goals, which makes it distinct from political activism or nonprofit work is as valuable and important, as meaningful as that kind of work is. Here you have this very unusual combination that like it can be meaningful and rewarding. And the work you do, even in failure, can make a big difference. [00:46:37][291.6]

DB: [00:46:39] So speaking of long term, one last question, what's your take on the singularity and how do you prepare for it? [00:46:44][5.3]

Eric Ries: [00:46:46] OK, I have I have kind of an unusual take here because, of course, I don't know the singularity argument. The idea is that we could we could we could first of all, we could be living a simulation right now. You wouldn't. You would know. And the reason it's practically inevitable that we will be is that if you follow the exponential increase of computing computational power that we have at our disposal, pretty soon we should be able to we should get to a point where the new machines that we build can themselves build new machines better than the machines that we can, faster than we can. And so the acceleration of technology will happen so fast that like human human consciousness will be left behind in some form. And it's like a singularity because it's like a discrete event apart beyond which we cannot see the future that unfolds. And so the problem with the singularity argument is, is kind of like all ontological arguments and philosophy that like it seems kind of untestable. It's like, you know, if we were if this was an illusion, if we're actually asleep right now and this is not we're not alive or if you're living and if you're living in the Matrix and no one else is real but you like, how would you be able to know and how would that affect your behavior in any way, even if you did know that that was to kind of fatalistic, but. The if you buy into the singularity thesis and therefore buy into the simulation hypothesis, then and just go no, like if you if the singularity is real, then it's likely that some, you know, some percentage of singularity, enhanced AI powered civilizations would want to do what they call ancestor emulation simulation. So they want to know what happened in the past with great precision. So they would simulate with all their infinite computational power, they would simulate all the consciousnesses that have ever lived that would include you and me. We are their ancestors, probably. And so just probabilistically, if you look at all the multiple possible paths of the future, we're probably living in a simulation right now. But I don't think it's a purely ontological argument. And here's why. If it's true that we are living a simulation right now, then I bet you there are bugs and glitches in the code that was written. And so I think it's actually should be considered a branch of physics simulation or physics where we try to break the simulation to find out are like because like you think about like wave particle duality and like all these Planck limits and there's all these weird rules and subatomic physics that are like, are those engineering optimizations? Because this is kind of weird, some weird stuff. So I gave my very personal take is like that. If someone really is serious about it, that they should go investigate to try to figure out what what what kind of hardware are we running on and otherwise, just live your life. [00:49:18][152.5]

DB: [00:49:19] Yeah, because I'm excited to do an escalation attack on that and see what's on the other side. Would you want to know? [00:49:23][4.4]

Monte: [00:49:25] I just got deja vu anyway. Oh, matrix joke for you for you there. [00:49:30][4.8]

Eric Ries: [00:49:31] That's good, that's good, is he the one? [00:49:32][1.3]

Monte: [00:49:34] Eric, thanks again for taking the time to join us today on our podcast. A couple of quick other things to cover before we let you go. The name of the podcast, as David mentioned earlier, is Live Rich. Have Fun, Save the World. We view our success not only as a business, but in our personal lives here at Expensify through the lens of those three concepts and kind of a tradition on this podcast, we like talking to the guest, asking the guest what those three concepts mean to you. How do you live, Rich? How do you have fun and how do you foresee yourself ultimately saving the world? [00:50:07][33.0]

Eric Ries: [00:50:11] You know, I feel incredibly lucky and blessed to get to do what I do. I mean, it's it's it's ridiculous and. You know, if I had been born into almost any other era in history, I'd probably be dead, you know, like I have I have my skills would not be valued or useful. I certainly would not be. I mean, it's just it's such a miracle of the accident of birth and genetic endowment and timing and everything. So I, I, I feel like getting to do this work at all is its own reward. And the fact that on top of that, it also has led to materials. I mean, just come on board. And I just I'm very grateful to everybody who has had a hand in making that happen. And yet. I'm kind of dissatisfied with the state of our world, and especially recently, it's just been it's just been awful and I think. I think there's actually something really dark in the fact that kind of saving the world has become a cliche or a joke or a throwaway line, I don't know. I feel like there used to be a much more serious idea that this is like the honorable work. This is what virtue requires. And in fact, those to whom most is given most is expected to have that responsibility as the kind of elite of the world to take care of it, to hold it in trust for future generations and know maybe it's because I became a parent, maybe because this has been a particularly awful time of late in world affairs. For whatever reason, I feel like we are a generation of elite leaders is just fallen down on the job and have been for a little while of really trying to take care of the civilization that we have inherited. And so I really hope, like the reason I am so passionate about LTC and all the work that I do is not just that I hope it succeeds on its face because I hope the lean startup movement is successful in transforming business. I hope LTC is successful as a business and and does all this stuff. But I also want to kind of show people that change is possible in the civic fabric of our society itself. Our major institutions that govern our lives need to be reinvented. We can't just rerun the playbook that our grandparents figured out after they went through some pretty dark times because the world is different in the last hundred years. But the the parallels, the rhymes are a little bit disturbing. And I mean, we're about to enter the real roaring 20s, I think. And we all know what happened after that last time. So I just I think we got to get ready and start to get more serious about the fact that saving the world is not a joke. If we don't if we don't make some major changes, we're headed for dystopia and ecological collapse and so many other problems that are going to make 20th century look like a like a walk in the park. So I hope that more and more people will take on the mantle of entrepreneurship, not just as a business proposition, but as a civic proposition, and that this new generation of leaders will be able to stem the tide and steer steer our civilization in a better direction. [00:53:13][181.9]

Monte: [00:53:14] Well said. Well said, Eric. We'll leave it there. That's a great note to leave off on. Let the people know where they can find you and where they can follow along with the work that you're doing. [00:53:22][8.0]

Eric Ries: [00:53:23] Sure, LTSE is highly regulated, so to get the details, you should go to LTC Dotcom where you can you can see all of our regulatory disclaimers as well as keep up to date on our progress. I'm you can find me on Twitter. I'm Eric RISC or the lean startup dot com. [00:53:41][17.8]

Monte: [00:53:42] Live Rich, Have fun. Save the World is brought to you by Expensify, posted by David Berrett and Monte Barnard engineered and produced by Monty Renart theme song by D.J Mick. Please rate review and subscribe to Live Rich. Have Fun. Save the World on Apple podcast Stitcher or however you happen to be listening to Expensify Dotcom to sign up for a free trial and see just how easy it is to automate your entire pre accounting process. Expensify. Easy money. [00:53:42][0.0]

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