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  • >>Thomas Sharon: Hi everyone. Thanks for coming. My name is Thomas Sharon. I'm a UX Researcher

  • here.

  • And without further ado, I would like to introduce you to Eric Ries, the founder of the Lean

  • Startup movement. And thank you for coming.

  • [applause]

  • >>Eric Ries: See, I don't know. It's hard to know when you have an audience you don't

  • know.

  • It's hard to know what to say.

  • So, some of you maybe know the blog, Startup Lessons Learned. Anybody? Quick show of hands.

  • OK, good. We have true new people. So, thank you. Thank you for coming to check it out.

  • So my name is Eric Ries. I don't really want your undivided attention. So keep your laptops

  • on. That's fine. And in fact, if everyone do me a favor and take your phones out of

  • your pockets.

  • I mean, I'm sorry. I know I'm not supposed to have this one, but if can turn them on.

  • No, I'm not joking around. Out of the pockets, please. 'Cause this is gonna be a talk. You

  • might get bored and you might wanna tweet amongst yourselves.

  • Or I don't know, whatever special internal tools you guys use. Whatever it is, please

  • feel free. All I ask is that you use the Lean Startup hash tag, at least if you're on Twitter.

  • Okay. Is that fair? I won't tell anybody. Don't worry.

  • I'm in New York because I'm writing a book. So one of things you do when you're writing

  • a book is you have to go to tell as many people as possible that this book is coming out.

  • It'll come out in the fall. I thank you in advance for preordering it. You can do so

  • at lean.st.

  • That's my life now is as a professional expert selling books, which is a far cry from how

  • I started, which is as a programmer writing code.

  • So I'm one of those people that grew up writing code. I used to write code for a living, which

  • is a job I knew really well and understood. I was pretty good at it.

  • And then, I started doing startups and I started to have to manage people who wrote code for

  • a living. I knew that slightly less well.

  • And then I was managing people who managed people who write code for a living.

  • And now, I am this professional expert. And so I advise people who manage people who manage

  • people who write code. So I've become very far removed from the actual work of product

  • development.

  • But that journey has taken me from just writing code to doing this because I actually think

  • the way that we organize new product development is basically wrong. And that most of the energy

  • that we are investing into what is called 'entrepreneurship', when it's two guys in

  • a garage, or 'disruptive innovation' or something else buzzwordy when it's done inside a big

  • company, is wasting a lot of people's time. And I think we can do something about it.

  • So that's what I wanted to talk to you guys about. Thanks for coming.

  • So anyway, and this book, of course, will be available in stores everywhere in the fall.

  • So, if you read the book, you will learn five principles of the Lean Startup. And we'll

  • go through them today.

  • And I wanna invite you to ask questions either on Twitter, if you're not feeling that courageous,

  • or interrupt me at any time or we'll have time at the end. All right?

  • So, entrepreneurs are everywhere. The first thing is, especially in an audience like this,

  • I wanna be clear, that entrepreneurship is not just about two guys in a garage eating

  • Ramen noodles. In fact, what makes you an entrepreneur is not what kind of noodles you

  • eat, but the context in which you operate.

  • And as I've been travelling around talking about Lean Startup, what I have learned is

  • that there are entrepreneurs in all kinds of places you wouldn't necessarily expect.

  • And we have a lot more in common than people realize, because entrepreneurship is management.

  • But not the kind of general management we're teaching MBAs and that we have studied for

  • the last hundred years, something fundamentally different. It is management of a kind of work

  • that is measured by validated learning, rather than just making stuff.

  • We accelerate that learning through something called the 'build-measure-learn feedback loop'.

  • And then we measure and hold entrepreneurs accountable using a new accounting system

  • called 'innovation accounting'.

  • Now, I apologize. You came to a very, I'm sure, you saw the signs up here like, "Ooh,

  • an exciting talk about entrepreneurship and startups and that's gonna be cool." And what

  • did you get?

  • You got management and accounting, which are perhaps the two most boring topics on Earth.

  • So if anybody wants to leave now, I won't be offended. It's OK.

  • Because the truth is, what do people know about entrepreneurship? I feel like -- who

  • saw 'The Social Network'? OK. Right. I feel like that's probably the best modern example

  • of the entrepreneurship story we're all used to.

  • And you see this in magazines and you see it in 'The Social Network'. I noticed last

  • night that the story, 'Ghostbusters' -- remember 'Ghostbusters', the movie? It's an entrepreneurship

  • story. They start a business. They, Dave, everything's the same. It's like the same

  • plot structure as 'The Social Network', believe it or not, except it has a Stay Puft Marshmallow

  • Man, which is awesome.

  • In these entrepreneurship stories, what happens? It's a story in three parts.

  • Act One: The plucky protagonist, his character, his character flaws and how he came up with

  • his amazing idea.

  • Act Two: What I call the photo montage. It's usually about two minutes long. It goes from

  • "they finally get the thing to work". Then they're writing on whiteboards and drinking

  • some beer, pounding on some keyboards. And then they get their first customer. And then

  • that's pretty much it. No dialogue or anything in the photo montage.

  • And then Act Three: Now that we're on the cover of magazines, how do we divide up the

  • spoils? And who's in charge? And who's in Who's Who? And how do we deal with the EPA

  • and all that stuff? For fans of 'Ghostbusters'.

  • What I think is really interesting about these stories about entrepreneurship is that 95

  • percent of the time of the movie is spent in Acts One and Act Three, even though in

  • real life, all of the important work of entrepreneurship happens during the photo montage. But the

  • problem is, for a story-telling point of view, the photo montage, even though it has no dialogue

  • and only lasts two minutes, is it's unspeakably boring.

  • What do we do as entrepreneurs that actually makes a difference? We spend our time trying

  • to figure out which customers to listen to and who to ignore, how to product-prioritize

  • product features.

  • I mean you guys, how many product prioritization meetings do you go to? It's not exactly the

  • stuff of movies. It's unbelievably boring.

  • And how do we hold people accountable? How do we measure to figure out if we're actually

  • making progress or building something that nobody wants? See, watching somebody pretend

  • like they don't have anxiety that their vision is wrong, is not very good for movies. But

  • that's what most entrepreneurs do.

  • And so, we're gonna have to talk about stuff like management and accounting, 'cause it's

  • time to go inside the photo montage and try to figure out what can we do to make the actual

  • work of entrepreneurship more effective. So, entrepreneurs are everywhere.

  • My goal, my mission in doing this whole Lean Startup thing has been to try to put the practice

  • of entrepreneurship on a more rigorous footing. And so, I started out with a definition. Here's

  • mine: What is a startup? "A human institution designed to create something new under conditions

  • of extreme uncertainty."

  • So I think the most important part of this definition, and for our purposes today, a

  • very important part of our discussion is what it excludes. It doesn't say anything about

  • what the size of your company is. It could be five people, 5,000, or 50,000. It really

  • doesn't matter.

  • It doesn't matter what sector of the economy you work in. It really doesn't even matter

  • what industry you're in.

  • If you fundamentally are operating with extreme uncertainty about who is your customer, what

  • product do they actually want, and how do we build a sustainable business, then you

  • are an entrepreneur. And when I work with large companies, one of the things I have

  • been trying to do, is to get them to adopt entrepreneurship as a job title.

  • Entrepreneurship is a career. When you become an entrepreneur, you are no longer an engineer.

  • You are no longer a marketer. You are no longer a UX designer. Whatever it is you used to

  • do, all of a sudden now, you have a different job title and you've entered a new career

  • path.

  • But unfortunately, we don't get the memo that tells you that. So, it can be a little bit

  • confusing.

  • That's all a fancy way of saying a startup is an experiment. What I mean by "experiment"

  • is not just like let's ship it and see what happens, OK? That's not science. If you just

  • put some compounds in a beaker and heat it up, you might look like you're doing science.

  • But unless you have a hypothesis that you're trying to test, you have theory, it suggests

  • which experiments are gonna help you and then you make specific predictions, then, fundamentally,

  • you're not conducting an experiment.

  • And we mean, in a Lean Startup model, "experiment" in the scientific sense. We're trying to create

  • a science of entrepreneurship that will help us to stop waste people's time, because that's

  • what we're doing on an industrial scale.

  • And you guys know. Anyone's who's worked on new products knows that most of them are doomed

  • to failure. And when you get at the end of that product -- I mean as an engineer, I kept

  • having over and over again the experience of working on amazing technology that is today

  • sitting on a shelf or worse, that fundamentally nobody is using. And I kept looking for more

  • and more technical solutions to that problem. I thought, "If we could just get the right

  • development methodology, if we just had the right amount of unit tests or the right this

  • or the right that, then we could stop that happening."

  • But the biggest waste that product development faces today is not building things inefficiently,

  • but building things very efficiently that nobody wants. And I brought a demonstration.

  • We all know that most startups fail. Who remembers Web 2.0? Remember Web 2.0 when that was really

  • cool? At the height of Web 2.0, 2006, a graphic designer put together this graphic. Have you

  • seen this before? This was the like the logos of all the incredible Web 2.0 companies that

  • were gonna change the world.

  • And in just three years, in 2009, a different graphic designer was feeling a slightly different

  • set of emotions when they put together this graphic. Our three year report card in Web

  • 2.0. I mean, the blood red Xs, these are all companies that are just dead. I think for

  • our purposes today though, a much more important part of that chart to look at are the green

  • circles. I won't point at any of them in particular, but some of those green circles are supposed

  • to be the success stories of Web 2.0. But for this chart, what that means is there are

  • companies that were acquired by a larger company, including this one.

  • And listen, I'm all for people making money.

  • So when a company gets acquired by another company, usually investors and the founders

  • make some money and that's all good. But my question is which of these companies are actually

  • success stories? Success stories by the higher definition, not of "did anybody make money?"

  • But rather, which of these companies succeeded in living up to the aspirations, dreams, time,

  • talent, and energy of the founders and their investors? And more importantly, their employees.

  • See, look, we all know that when big companies buy startups, at least half the time, they

  • die afterwards. So we buy something for hundreds of millions of dollars. And then we wind up

  • selling it three years later for tens of millions of dollars.

  • That's not supposed to happen. In general management, that doesn't happen. When you

  • buy an asset, it depreciates in a predictable way. But when big companies buy startups,

  • it doesn't happen exactly like it's supposed to.

  • And I think the problems that corp-dev departments have when deciding how to buy startups and

  • which startups to buy and then how to integrate them into the parent company, are the exact

  • same problems that internal innovators who are trying to create brand new startups inside

  • big companies have. And they're the exact same problems that venture-backed entrepreneurs

  • have with their investors.

  • All of us lack a theory of entrepreneurship to guide our behavior and so we're falling

  • back on tools and methods that are not appropriate to entrepreneurship. That's my belief. So,

  • I don't think it has to be this way.

  • See, it's one thing if startups were failing because they were taking too much risk. If

  • one of these companies was working on teleportation and then it turned out to be too hard -- we

  • couldn't quite get the technology for quantum entanglement like we thought -- I accept that

  • kind of failure; that happens.

  • But I chose Web 2.0 for my demonstration, especially for you guys. You know. There's

  • not a single company on this chart where you would say, "Boy, I wonder if that can be built."

  • Right? "Geez, I wonder if that new social network -- is it possible to build it?" We

  • all know. Software companies, we can build anything we can imagine. Think about that

  • for a second.

  • The dominant question of our time is not can it be built, but should it be built. And the

  • issue is can we build a sustainable business around a particular product? So, the future

  • of our society, our economic growth in the future, the GDP growth of industrialized countries

  • in the future is going to be dependent on the quality and character of our collective

  • imaginations, which I think is a very strange place to be.

  • That is really different than the kinds of economic problems that general management

  • was designed to solve in the 20th Century. Now, most of my startups have failed. So I

  • know that's not how you're supposed start one of these talks, like, "Hi. I'm a professional

  • expert and I have had more failures than successes. So you can be just like me if you'll follow

  • my advice."

  • So, I'm sorry about that. But those of you who spend any time around entrepreneurship

  • know the truth that where there's startups, there's a lot of failure. And it has to be

  • somebody's fault in a talk like this and obviously it shouldn't be my fault 'cause I'm the expert.

  • And preferably, it should be the fault of someone who's dead so that they can't argue.

  • So I chose this guy.

  • [laughter]

  • This is Frederick Winslow Taylor. He died in 1915, which is very handy for the purpose

  • of this talk because it means he can't talk back. So, sorry, Fred.

  • Fred Taylor invented something called "scientific management" in the early 20th Century, which

  • today, we call "management". See, people don't really remember Fred Taylor.

  • And those who've studied scientific management in school probably remember him for some of

  • his outdated and really ridiculous ideas, like time and motion studies or the idea that

  • a worker is basically just an automaton and should be told what to do. The reason we don't

  • give Fred Taylor the credit he deserves is because he invented things that to us are

  • so obvious, we can't imagine them ever having been invented. It doesn't make sense.

  • Like, everybody knows that work should be done as efficiently as possible, right? And

  • that we should treat work like a system and that we should have managers organize that

  • system. That's just plain common sense.

  • And my favorite, Fred Taylor, invented something called "The Task and Bonus System", which

  • we just call "tasks". The idea was if you want to do a large project, the best thing

  • to do is decompose that project into a series of individual tasks, assign those tasks to

  • functional specialists. And everyone just does their part knowing that if everybody

  • does their part well and everybody else does their part, the whole will actually work out

  • like the manager said.

  • And here's the best part. If you do your task particularly well, better than expected, you

  • should be paid a bonus rather than being penalized. What could be more obvious? Except in the

  • 19th Century, the way work was organized is that if you did your task better than expected,

  • you were penalized.

  • [pause]

  • Why? Because that showed a lack of integrity. You obviously could have done it better before.

  • But you didn't. So that proves that you're a liar.

  • It gets worse. Not only are you a liar, but what about all your compatriots, your coworkers,

  • who do the same task the old, slow way? They're liars, too. All of you have been lying this

  • whole time and you should all be penalized.

  • Imagine working in a factory where if you can come up with a better way to do your repetitive

  • job, not only would you be penalized, so would all your coworkers. Can you imagine the culture

  • that would grow up around such a thing? That everybody is working really hard to make sure

  • that nobody ever does anything in any way better because then we'll all be in trouble.

  • That phenomenon was so widespread in the 19th Century, they had a name for it. They called

  • it "soldiering". That all the workers were intentionally soldiering on, trying to do

  • work as slow as possible so that nobody would get in trouble. Now, we laugh when we think

  • about that kind of thing happening in a factory. Because to us, the way that we manage physical

  • products, and just all regular general management, is light years beyond what was possible in

  • Fred Taylor's day.