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