Wednesday, June 19, 2019

Lean Startup Conference Speaker Andy Rachleff on his 35 years in Silicon Valley, Wealthfront and telling stories

Andy Rachleff co-founded the venture capital firm Benchmark Capital in 1995. In 2005, he retired to focus on giving back, beginning by teaching technology entrepreneurship courses at Stanford, becoming a trustee at the University of Pennsylvania (which he attended undergrad), and funding cancer research with his wife. Then in 2008, he had a revelation from his experience on the Penn endowment board about how to democratize investing advice and “accidentally” founded a new company to do it. Wealthfront, which began as an automated investment management service and has since expanded into banking (it currently offers one of the highest interest rates on FDIC-insured cash accounts), now manages almost $15 billion in assets. He’s currently the CEO of the company.

Andy and I will be having a fireside chat at this year’s Lean Startup Conference in October. Meanwhile, we recently talked with him about his thoughts on 35 years in Silicon Valley, why the skill sets of venture capitalists and CEOs are so different, and why telling a good story about your product is so crucial.





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You’ve been in Silicon Valley since the early days. How has it changed and not changed over the last few decades? I’m sure you have unique perspective on that.

Probably the biggest change that I've noticed in the Valley is the transition from startups focusing on hardware, to startups built on software, and what that implies about the venture model as well.

In the old days, when companies built hardware, they were all examples of high technical risk and low market risk. If they really could build what they said they could, then you knew that people would buy the product. There were instances of, "I want to offer 10 times the performance, or 10 times the storage, or 10 times the bandwidth, or 1/10 the latency," and if you could actually deliver on that in the timeframe proposed, you could feel pretty confident that you would build a big business.

As we transitioned to a software-driven world, we moved from high technical risk, low market risk, to the opposite: low technical risk, high market risk. You knew you could build what you set out to build. The question was, did anyone want it? How would you know that someone wants a ride-hailing service? How would you know that someone wants to rent a room in your apartment? How would you know that someone wants to buy a Beanie Baby from you? It's literally impossible.


And how has that affected venture capital?

Previously, on the venture side you wanted to invest as early as possible, because the first round of financing got you to a product, and then you'd get beta-type customers, and then you'd raise a second round at a much higher price, and the business could immediately take off from there. So the venture process was all about trying to figure out whether or not people could deliver what they said they could, and you typically invested as early as possible at a $5 million pre-money valuation, hoping the company would be worth $500 million, in which case you'd make 20 to 30 times your money. It was 20 to 30, not 100, because of the dilution from the capital.

Venture capitalists know that the thing that causes their companies to go out of business is lack of a market, not poor execution. So it's a fool's errand to back a company that proposes to do a ride-hailing service or renting a room or something as crazy as that. Again--how would you know if it’s going to work? So the venture industry outsourced that market risk to the angel community. The angel community thinks they won it away from the venture community, but nothing could be further from the truth, because it's a sucker bet. It's a horrible risk/reward. The venture capitalists said, "Okay, let the angels invest at a $5 million valuation and take all of that market risk. We'll invest at a $50 million valuation. We have to pay up if it works." Now they hope the company will be worth $5 billion to make the same return as they would have in the old model. Interestingly, there now are as many companies worth $5 billion today as there were companies worth $500 million 20 years ago, which is why the returns of the premier venture capital firms have stayed the same or even gone up.


Was this happening while you were still at Benchmark?

It was starting to happen as I was retiring. It was a lot less appealing to me to be a growth equity investor, but that's not why I retired. I retired because Benchmark has an agreement that’s unusual in the venture industry. It's the only always-equal partnership, and the only way you can have an always-equal partnership, where new people join as equal partners, is for the older partners to get out of the way when they're not as productive. So we made a pact among the founders that when any of us reached the point that we weren't willing to go 110%, you had to opt out. I loved what I was doing, but I'd been successful, and I wasn't willing to work as hard. Having helped create the culture, I believed in it. I was the second partner to opt out.


So although you were not willing to work as hard, you then founded a startup, which is... arguably the exact opposite of not working so hard!
 

Yeah, but that was a total accident. That was not the plan.


How did it happen?

I had a life well beyond anything that I ever could've imagined, financially, for sure. So I wanted to give back when I retired. This has always been a theme among all the Benchmark partners. I decided to teach at my grad school alma mater. I became a trustee at my undergrad alma mater, Penn. My wife and I funded an innovative cancer research funding initiative. I was really focused on social good. One of my responsibilities as a Penn trustee was to sit on their endowment investment board, which I now chair. The premier university endowments are by far the best-managed large pools of capital in the world, and they all invest very similarly.

Well, one day I was sitting in a presentation from the investment team on how they generate their great returns, and it struck me that much of what they do is manual and spreadsheet-based, and that if you automated it in software, you could deliver an 80/20 of what they do, and thereby democratize access to sophisticated financial advice.


This wasn’t that long ago, right? Why do you think it hadn't been done yet?

I'm a big believer that people don't find great ideas, great ideas find people. Steve Blank actually wrote about this--that great technology companies are built based on inflection points in technology, which cause an authentic founder to say, "Ah, with this change, I can create this new product." Then the question becomes, who wants that product? That's the exact opposite of every entrepreneurship book that had been written prior to Steve, which said the job of an entrepreneur is to evaluate a market, try to find problems, and come up with solutions. That leads to very mundane outcomes. That's not how great companies are built in technology. Without change, there's seldom opportunity.

You couldn't do that what I had proposed to do before, because two technology changes that made it possible hadn’t happened. One was that APIs were made available by brokerage firms, and the other was the advent and popularity of the ETF--the exchange-traded fund, which is an index fund that trades like a stock. You couldn't do what we ended up doing without those two changes.

So I was sitting in this meeting, and it just struck me that, God, you could do an 80/20 on the endowments, and really deliver an amazing service. This was near and dear to my heart, because over the years as a venture capitalist, I had recruited a lot of people to join my portfolio companies who went on to financial success, and they would often come to me for investment advice. I could never tell them to do what I do, because I could afford access to the premier products, which had much higher minimums. It always struck me as wrong that you needed to have money to make money.

I thought, "Oh, I'll start it as a hobby, and if it turns into something, I'll hire a CEO. I've done that my entire career, and that shouldn't be so hard." But here I am – still CEO -- eight years after Wealthfront launched.

 
You had all this time as a venture capitalist and now you’ve had all this time as a startup--you've really seen it from both sides now. I imagine it’s given you unique insights into that relationship.


The joke I like to make is that as a board member I talk a lot less, now that I've seen how the sausage is really made. Almost no skills from being a venture capitalist translate to being a CEO, and vice versa. Because venture capitalists hire people with operating backgrounds, people think that that means that they value the operating skill. That's not it at all. It's the network that came from success in an operating role that the venture capitalists are attracted to.


So what are the skillsets for each?

They're radically different. Many people have now come to me looking for advice as to which path they should pursue, operating or investment. The way that I help them is, I put an iPhone down on the table and I say, "Imagine that it's 2006, and you see this device sitting on the table. Is your first instinct to turn it over to see who makes it, and to try to figure out what it might cost, and how is it distributed, and how many people might want it? Or is your first instinct to ask, why doesn't it have a keyboard? And why did they sell it through their own store? Why didn't they sell it through other stores?” If you're the first person, you're an investor. If you're the second person, you're an operator.


Which of those would you pick if someone gave you that test?

I'm an investor. The only thing that I brought with me to Wealthfront from venture capital that helps me as a CEO, other than having been exposed to an unusually large number of very good CEOs, is that the venture capital industry is predicated on slugging percentage, not batting average. It's not the percentage of times that you succeed, it's the magnitude of the ones that succeed. It's better to be right two out of 10 times where the two are 20-times winners than it is to be right every single time and only have small wins each time.

Human nature leads us to want to be right every time. That's how we're evaluated in most everything in our lives. But without risk, you don't get reward. My joke for my students is, what do you call a venture capitalist who's never lost money? The answer is: unemployed, because I don't want them as my partner. If you don't take risks, you don't get big returns. So I apply the same thing to running the company. We're going to try a lot of different products, not all of which are going to work, and I don't care. I just care about the magnitude of the ones that do. That's really, really hard for inexperienced employees to get.


So what’s the solve for that?
 

Constantly talk about it. Employees are not entrepreneurs. And only the really great entrepreneurs get this--but there are few really great ones. Most hedge. You can't hedge.

Look at how few succeed. I don't think entrepreneurs fail because they were bad people. They fail because they didn't find the right market. But they don't understand that. Part of finding the right market means, if something isn't working, you abandon it and you move on to the next thing. When companies succeed, they revise history, because no company succeeds in its initial strategy. Literally no company. But the average consumer doesn’t want to hear that. They want to think that you've set out to build and deliver the product they wanted.

 
Why do you think that matters to the average consumer? That's a very interesting perception.


Because people, human beings, by their nature, are risk-averse. If I hear that you didn't build the product for me and that you did it accidentally, I'm going to have less confidence that buying your product is the right thing to do. Look how Apple revised history of the iPod and the iPhone. They said they were Steve Jobs's inventions. They weren't. He had nothing to do with them. The Apple marketing machine made you believe it, because it made you feel better about buying them. The true creator of the iPod was a guy named Tony Fadell, who went on to start Nest as well. He recognized the value of iTunes. There were a lot of MP3 players back then, but he realized that iTunes on the Mac, where you could rip your songs, was the ideal tool to deliver a better digital music experience, and that syncing to iTunes was the key. That's what he pitched Jobs on, and Jobs funded him to do it, like a venture capitalist. That's not the story that was told.

 
What’s is the overarching story of Wealthfront? Why does it exist? Why does it need to exist?


We're building a next-generation banking service that helps you manage both for your short-term and your long-term needs, and we do it with a complete suite of products, including one of the highest-paying FDIC-insured cash account on the market, best-in-class investment services, and free financial advice, all available to you any time via your mobile phone. Where we're going is the concept of Self-Driving Money™. We want to get to the point where you can direct deposit your paycheck with us, we'll automatically pay your bills, and we'll route the remaining money to the most appropriate place, whether inside Wealthfront or outside, based on your particular situation and goals. We can do all of that so you never have to worry about your finances again.


That sounds ideal. And almost too good to be true.


It does. That's the reaction we get from people. But we'll be able to demonstrate a lot of it by the end of this year.



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https://leanstartup.co/2019-conference/?utm_source=email&utm_medium=ER_blog&utm_campaign=LSConf2019_CTA

Friday, May 31, 2019

A conversation with Scott Kupor of Andreessen Horowitz, author and speaker at Lean Startup Conference 2019

Scott Kupor is the managing partner at Andreessen Horowitz, where he’s responsible for all operational aspects of running the firm. He's been with the firm since its inception in 2009 and has overseen its rapid growth, from three employees to 150+ and from $300 million in assets under management to more than $10 billion. He’ll be speaking at this year’s Lean Startup Conference, and also has a new book (for which I very happily wrote a short foreword) coming out next month: Secrets of Sand Hill Road: Venture Capital and How to Get It.

I caught up with him recently to talk about venture capital from both sides of the equation, investing for the long-term, missed opportunities, and how he gets good ideas.


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Let's start with something basic. What is venture capital, really? What is its ultimate purpose? And what does a venture capital firm do?

At its most basic form, venture capital is a source of funding for companies that are too risky to be ideal candidates for other forms of funding, like a bank loan. It’s meant to support and grow a business until an “exit” in the form of an IPO, a merger or acquisition, or in less than ideal scenarios, a company shutdown. It’s also important to say that while many successful technology companies have been venture-backed--Apple, Amazon, Google and Facebook come to mind-- it’s not solely a funding method for technology companies. Many very successful, non-technology companies have also been products of venture capital, including Home Depot, Starbucks, and Staples.

Traditionally, the role of a venture capital firm was to write a check to a company, and stay up-to-date on its progress at quarterly board meetings. The reality today is that capital is more available than ever and entrepreneurs have become more sophisticated, so founders are looking for more than just cash from their venture backers. They’re looking for guidance on building the company, the ability to tap into a VC’s network, and help with potential business opportunities.


You've seen how venture capital works from both sides--as an entrepreneur and a venture capitalist. How did your perspective change when you changed roles?

One stark difference for me is how you measure success and outcomes. When you’re in a startup, it’s very easy to measure progress in 90 day increments - what milestones does the company need to hit each quarter? If you’re managing the company effectively, you have a clear set of objectives and the ability to determine if you are on or off track from accomplishing those: did we hit our sales numbers, did we ship the product, etc.? Of course, hitting your objectives alone doesn’t guarantee success--you might have set the wrong objectives or the market needs may shift over time--but it’s a reasonable proxy for measuring interim success. And, if you’re a public company, you get daily real-time feedback on at least the perception of your progress, as measured by the stock price.

In contrast, in VC, not only are there very few near-term guideposts to inform how you are doing, but often times doing nothing may in fact be the right thing to do. For example, you may be tempted to think that making investments on a regular basis is a reasonable objective, but there may be 90-day cycles in which the right thing to do is to make no investments. Coming from an operating role in a company, that can feel odd - that doing nothing is in fact accomplishing your objective - so that takes some getting used to. Similarly, our time horizons are so much longer in venture capital that you have to adjust to not getting that near-instant feedback. We’re making investments today that may not ultimately go public or be acquired for 8-10+ years, so you have to think in very long time frames. And while it can often be the case that “lemons ripen early” (meaning that the unsuccessful companies fail early in a fund’s lifecycle), the harvest cycle for the winners in the portfolio can take what sometimes feels like an eternity. 


Your new book, Secrets of Sandhill Road, is literally subtitled Venture Capital and How to Get It? Why did you decide to write a manual like this, especially right now?

Having been through the company-building process myself and after a decade in VC working with thousands of companies and negotiating hundreds of term sheets, I wrote this book to help demystify the process. I’ve found consistently over the years that the appetite for learning more about the VC and entrepreneurship worlds far outstrips the available resources. If you live in a major hub of VC - e.g., Bay Area, Boston, NYC, LA - it’s easier to tap into your local resources to help augment your understanding, but there are a lot of smart people with great ideas in other parts of this country and globally for whom access to information is just not as available. We want, and in all honesty we need, more entrepreneurship - if laying out how the business works encourages that, then I think this book has done its job.

More generally, broader and more diverse access to technology, entrepreneurship and capital (whether or not that capital comes from VC alone) is a critically important thing for sustained job and economic growth - not just here in the U.S., but globally. New company formation is the biggest driver of job creation and, particularly in a world where access to those jobs is highly localized to a few select geographies, I believe we can and should do better.

I’ve seen many founders not fully grasp how the venture capital business works and what incentives investors have. Unless you have the whole picture, it’s hard to know what motivates a venture capitalist, and understand what their expectations will be for founders they invest in. Learning everything you can about VC first is important for that reason, but also to ensure it’s the right form of financing for your business. It doesn’t make your business idea a bad one if you conclude that VC isn’t right for you. In fact, it’s quite the opposite - making sure you have the same goals as your financing partner is probably the best thing you can do as an entrepreneur to maximize your chances for success.


I'd love to hear your thoughts on what's happened in the capital markets over the last 20 years--the good and the bad?


Let’s start with the venture side of the equation, where we’ve seen two major shifts. First, the introduction of seed money as an institutional form of capital. Before the mid-2000s, we mostly had individual angels writing small checks from their personal capital, but over the last 10-15 years we’ve seen hundreds of new institutional seed funds formed. And while the total dollars are still small in the context of the overall size of the VC ecosystem - seed is probably 5-6% of total VC dollars - these new firms have significantly increased the number of new startups and the amount of experimentation for new ideas with minimal capital investment - both of which are very positive for the ecosystem.

The second shift has occurred in the complete other end of the financing spectrum - the very significant amount of dollars that are coming into the late-stage private market. You have this very interesting dynamic in the market: on the one hand, it’s cheaper and easier than ever, in terms of access to capital, to start a company. But at the same time it’s more expensive than ever to scale a company. The latter is a function of the growing global market size that many of these companies are going after and the investor world has responded by being willing to fund these late-stage dollars. In fact, last year something like two-thirds of all venture capital dollars invested went into rounds of $100 million or more.


What about in the public markets?


We’ve seen an overall decline in the number of IPOs, the virtual disappearance of small cap IPOs (sub-$1b market cap) and a significant increase in the time it takes for startups to go public. It used to be that startups went public about 6-7 years from founding; that number is now 10-12 years. While this may be good for private investors in the short term - since most of the appreciation of these companies accrues to them - I believe it’s a terrible thing for the long-term competitiveness of the U.S. financial markets and economic growth. We’re basically taking investment opportunities that used to be available to the broader retail segment of the market through IPOs and now making those available only to those with the means to invest in private assets. We’ve been active within the regulatory community - as have you of course - to try to address this; I think it’s a critical issue to get right.


As one of the first partners at Andreessen Horowitz, have you seen the role or mission of the firm change in response to changes in the markets? What do you look for now as opposed to then--if it's anything different.

Our objectives haven’t changed - we’ve always aspired to back great entrepreneurs who are applying innovative applications of software to try to build enduring, important and independent companies. As you probably know, we’ve been investing against a consistent theme - Marc Andreesseen’s “software is eating the world” - and always at multiple stages of a company’s growth - from seed to later-stage venture.

But, along the way, as entrepreneurs enter new markets, we continue to leave ourselves open-minded about whether the intersection of software with these new markets makes for interesting investment opportunities. For example, when we started the firm, we didn’t contemplate a dedicated investment effort at the intersection of computer science and life sciences, but beginning in 2013 we organically started to see more talented entrepreneurs building companies in this area, leading us to raise our first dedicated Bio fund in 2015. Similarly, we’ve been investing in crypto-related assets going back to our original Coinbase investment in 2013, but it wasn’t until after the Ethereum launch in 2015 that we started to see a critical mass of entrepreneurs entering the broader crypto startup world. We followed that closely and ultimately made the decision in early 2018 that there was enough of a market opportunity there to raise a dedicated fund to this effort.

The other evolution we’ve seen - and I alluded to it in the previous question - is the nature of funding rounds. We’ve always invested across different stages - in fact, one of our very first investments as a firm in 2009 was in the Skype spin-out from eBay - but until very recently, we’ve always done so out of a single fund structure and with the same teams that are focused on our early-stage investment activities. As we’ve continued to see the growing opportunity for later-stage opportunities as a complement to our early-stage efforts, we just this year decided to raise a dedicated fund to focus on later-stage investments. Along with that, we’re building out a dedicated team of investment professionals with expertise in this area to help us increase our coverage efforts.


Does the market pressure to produce profits immediately affect venture capital's relationship to companies?

This question is one of the reasons why I wrote the book, and I think it’s an often misunderstood area. Venture capitalists seek to invest in companies that can be important, enduring and stand-alone businesses in their respective domains. Nearly every entrepreneur that I’ve met seeks the same - they’re dedicating a significant portion of their lives to doing something that is incredibly difficult because they believe in the long-term potential of the business opportunity.

I think things can go awry is when the objectives are not aligned. For example, an entrepreneur might have a great business idea that just may not be in a market big enough to sustain a large, stand-alone company. There’s nothing wrong with that - in fact, it can still allow an entrepreneur to achieve her professional and financial goals. But, taking on venture capital dollars for it probably doesn’t make sense. This is why it’s so important to have a deep understanding of VC so that you can avoid this misalignment.

Specific to the pressure to produce profits, again I don’t think that often becomes a point of contention between VCs and entrepreneurs. As long as everyone believes in the market opportunity and the ultimate objectives, VCs recognize that their money is intended to enable companies to go after that growth, even if it means producing financial losses in the short term. That’s not a license to spend profligately - the unit economics need to work and the market size needs to be big enough to support the growth - but as long as those elements are there, the incentives between VCs and entrepreneurs are aligned.


Can you think of a memorable pitch that you didn't end up investing in?

We were fortunate enough to see the pitch for the Series A round of Square; unfortunately we decided not to invest. Square’s then-CEO and co-founder, Jim McKelvey, had a great organic origin story. The Square dongle was derived from a personal experience of hardship - Jim was a professional glassblower and was frustrated with his inability to use credit cards as a method to sell his wares at local fairs . And while this was a positive signal for us, we unfortunately didn’t have enough time to get to know Jim and evaluate his skills as a CEO. Jack Dorsey at the time was serving as Chairman, but hadn’t committed to playing a full-time executive role in the company. So we passed on the A round.

In this situation, we failed to appreciate two things. The first was that Jack would realize that the best way to maximize the success of the business was for him to become the CEO, which he eventually did - just a few months after that financing round closed. The second was that the Jack’s star power could provide the company with an unfair advantage in the marketplace. For example, Jack told us in the pitch that - just as Ev Williams had done with Twitter - he might be able to use his network of relationships to go on The Oprah Winfrey Show and use that as a way to tell the company story to a massive, broad audience, for no marketing spend. He also had great relationships with financial services luminaries such as Jamie Dimon that might enable him to pitch a partnership to bundle the Square dongle with the J.P. Morgan credit card business to acquire tons of Square customers at a very low cost. These things of course wouldn’t guarantee success for the business, but they were unique potential avenues of distribution that might be available only to someone of Jack’s professional stature - in a startup, every potential advantage can indeed matter. 


What's a startup you wish someone would try to build (and we'll leave whether or not you'd invest in it out of the equation!)?

I’m pretty sure this is not a fundable idea, but here goes!

I’ve long been interested in health and, in particular, the role of food choices in determining health. I also believe that if people understood what was in fact healthy - not an easy task given the difficulty in producing scientifically rigorous studies on nutrition - and if they had the luxury of time to prepare healthy meals, they would in fact do so. We’ve certainly made progress over the last twenty or so years in addressing some of these challenges - there are more restaurants that do more to cater to the health-informed and of course we have the plethora of ingredient and meal home delivery services.

But what I think is missing is the perfect substitute for a home cooked meal that caters precisely to the ingredients/nutritional needs of the individual. I’d love to be able to order a meal that incorporates the precise ingredients I want and is made from the precise recipe I provide - just as I would do if I had the time (and patience) to do it on my own. This of course is probably why this will never work as a business - I’m not sure mass customization works economically. But, I am fascinated by the new “cloud kitchens” type models that are being formed and am hopeful that maybe they will crack the code on this.


Have you seen companies that you thought would make it burn out because they didn't have enough time or funding to get their business model right? No need to name names.

Sure - as you know, probably 40-50% of what we invest in at the early stage never makes it to a successful outcome. That is the nature of this business - starting a company is incredibly hard. You have to be able to “willfully suspend disbelief” and be an eternal optimist to take on the task of being an entrepreneur.

Specific to your question, though, I would have guessed coming into this business ten years ago that most failure would be a function of bad product/market fit or, as you mentioned, time and money. But my experience has been that organizational/scaling challenges tend to be more relevant to success or failure. We’ve had examples of where we thought something was a good idea that turned out not to be, or the market just didn’t develop in the way we expected-- those are just part of the risks of being in this business. But the more challenging and disappointing ones are where the product is there and the market is there, but the team just doesn’t coalesce in the way you would hope to really take advantage of the opportunity in front of you. Getting a hire wrong is certainly painful, but waiting too long to get the right person in the seat can be equally damaging. On the positive side, we’ve also seen great cases where executing perfectly on the team buildout and scaling make a huge different in the success of the business.

So, I would turn your question around a little bit in that often not having enough time or money is systematic of something not firing on all cylinders in the business. It’s often more an effect than a cause. Granted there are times where the market opportunity just develops more slowly despite your best efforts and in those cases access to capital alone can indeed be determinative. But, other than a big macro shock that causes all financing to dry up, I think those situations are in the minority. 


And last, a question about how you manage all of the above. Do you have a go-to stress relief method?

I have been a runner for as long as I can remember and have always believed in the physical and mental health benefits of running. I love the solitude of it, and I love the fact that it’s the one place I can go where nobody can call or email me for at least a 45 minutes (on a good day). I don’t run to solve business problems, but I do often find that I come up with new ideas or ways to address some existing challenge when I’ve got nothing else to focus on during a run. By the way, airplanes in the pre-WiFi days used to provide similar solace; I’m not sure that I’d wish to not be connected on flights now, but it sure was a mixed bag for me when that technology was deployed!

Thursday, April 25, 2019

The Leaders Guide audio book from Audible is available today





Back in March of 2015, I launched a Kickstarter campaign with these words:

“Hi, my name is Eric Ries. I’m an entrepreneur and the author of The Lean Startup.

Since writing The Lean Startup, I’ve traveled around the world, helping companies of every size adopt the Lean Startup approach. In just five years, the Lean Startup movement has grown and transformed in ways I never could have imagined. I’ve worked with founders developing new apps, entrepreneurs at hypergrowth pre-IPO tech startups, and managers at the largest, slowest, most heavily-regulated and bureaucratic organizations in the world.

For all of the enthusiasm I’ve witnessed, though, I’ve seen a lot of people who immediately “got” it then struggle after experiencing the challenges that come when trying to build a new company or transform an existing one using this methodology. My work lately has revolved around helping people overcome those obstacles and set up systems, team structures and ways of working that support continuous innovation and sustainable growth.

And now, I want to share what I've learned with you.”

Almost before I knew what had happened, nearly 10,000 people backed the campaign, far exceeding the number I expected and the amount they would entrust me with to bring this project to life. That was when my work on what became The Leaders Guide began. Filled with stories from the trenches, tips, and tools for getting started and then scaling up innovation, it was available to Kickstarter backers only. It also ended up being the MVP for my next book, The Startup Way, which put many of the ideas and tools into greater context in a more narrative form.

But The Leaders Guide, which has a wholly practical approach to implementing Lean Startup, has continued to get passed around as more and more people have realized that innovation and starting small aren’t just for startups any more. It’s a manual for change, and change is the only thing we can be certain of in today’s world, no matter what the organization. It busts the many myths and misperceptions about why Lean Startup can’t work in large organizations, and answers questions about things like how to convince the reluctant among your colleagues, get executive leadership on board, test new products and processes, and make sure you’re building a system that will be sustainable, rather than a flashy new initiative that burns out quickly.

That’s why I’m so excited that as of today, you can buy the updated audio version of The Leaders Guide from Audible.

Like the original version, this new edition is filled with stories and tips and tools for leaders in large organizations to use as they start to introduce lean methodology to their colleagues. And by leaders, I really mean anyone, at any level, who wants to bring change in the service of making their company a more flexible, continuously innovative place to work. A lot of the material comes directly from the workshops and sessions I do with companies and will help you really dig into the process.

In addition, I've updated and streamlined the book based on all the learning I've done since it first came out. It covers topics from the basics of Lean Startup all the way through deep dives on MVPs and pivoting, customer discovery, how to use what I call Innovation Accounting to measure progress in the days before whatever you’re building can be looked at in terms of ROI, how to use Lean Startup to change the internal workings and culture of an organization that are hindering change, like HR and Legal, and finally, how to scale it all up throughout an entire company to create a cycle of continuous innovation through entrepreneurial management.

It also includes a new feature I’m particularly happy about: a fascinating series of conversations I had with change leaders at large companies talking about their experiences. There's one at the end of each chapter, and the topics range from the early days of testing these methods to what it's like to scale them up in a large company. Each of these leaders speaks extensively about his or her experiences using these methods at big companies, and offers pragmatic advice along the way. They include Dustin Moskovitz, CEO and founder of Asana; Chris Boeckerman, Director of Innovation at Procter & Gamble; Maxwell Salzburg, CEO and founder of BackerKit; Cindy Alvarez, Principal Product Manager Lead at Microsoft; Jeffrey C. Smith, CEO and co-founder of musical social network Smule; and Jeff Lawson, co-founder and CEO of Twilio; Janice Fraser, Chief Product Officer of Bionic; and David Binetti, creator of the Innovation Options valuation framework for accounting.


I'm so glad to be able to bring their voices--and many others--to you. 


Thursday, April 11, 2019

The Leaders Guide audio book is now available for pre-order from Audible

Four years ago, I launched a Kickstarter project called The Leaders Guide. I wanted to pull together a book based on the work I'd been doing with large companies who wanted to implement Lean Startup in order to become more innovative, and Kickstarter seemed like the right place to test the idea. The project was fully funded on its first day, and my work on The Leaders Guide began.

The final product, which went out exclusively to the Kickstarter backers, was a book filled with stories and tools for leaders in large organizations to use as they started to introduce lean methodology to their organizations. And by leaders, I really mean anyone, at any level, who wants to bring change in the service of making their company a more flexible, continuously innovative place to work. A lot of the material came directly from the work I do with companies, and it was meant to be used as a manual for change. The book served as an MVP for my next book, The Startup Way, but has continued to have a thriving life of its own, too.

Now, I'm thrilled to announce that a new audio version of The Leaders Guide is available to everyone for pre-order. I've been working with Audible to record and update it, and the new edition includes all the original tips and tools in the physical book and a lot more, too. One of the additions I enjoyed most was doing a series of interviews with change leaders at large companies talking about their experiences. There's one at the end of each chapter, and they range from the early days of testing these methods to what it's like to scale them up in a large company.




Monday, March 25, 2019

Lean Startup Conference 2019

I’m excited to share the news that this year’s Lean Startup Conference has a time and place: October 23-25 at San Francisco’s Palace of Fine Arts.

I always get so much from from spending time with Lean Startup practitioners of every kind, and I love how the conference has grown from its early days. We now welcome everyone from people at startups to big companies, government, and non-profits, in all stages of finding out how Lean Startup helps them thrive in the work they do. Listening to them talk about those discoveries with everyone in attendance is always a great chance for me to learn about all the exciting--and still somehow surprising!--ways Lean Startup is diversifying more and more every year.

As always, there will be talks and panels with amazing speakers and workshops including breakout sessions with people who can guide you through all the aspects of Lean Startup. They’ll all share their unique experiences and techniques, adding to the ever-growing catalog of what Lean Startup looks like in the real world. I’ll be speaking, too--details on that still to come.

I’ll share more about the program in the coming months, including the incredible new lineup of speakers who have signed on. Meanwhile, you can get tickets here at the lowest rate we’ll offer if you register before April 30th.

I’m looking forward to welcoming all of you in October!

Eric

Saturday, December 22, 2018

Lean Startup in New Places: The Lean Startup Conference 2018




So much happened when the Lean Startup Community came together in Las Vegas last month for this year’s conference that I’m still processing it all. The high levels of learning, great conversations, and most of all camaraderie between entrepreneurs of all kinds was amazing to be a part of. It was great to see so many of you there, and in particular to talk with so many different kinds of Lean Startup practitioners. 700 people joined us in Downtown Las Vegas for our sold out events, and another 2500 participated by livestream from more than 50 countries all over the world (a special shout-out to people in places where the time difference was off-putting but didn’t deter you!).

Las Vegas was a new home for the conference this year, thanks to a partnership with Zappos and Tony Hsieh, with whom I talked as part of the program. (Here’s a shot of us backstage before our fireside chat, in which we answered questions from the audience, and another from during the talk.) The change in location not only gave us all opportunities to see and do new things, but emphasized the reality that entrepreneurship is not about Silicon Valley, or even tech. It’s not about London, or New York, or any of the places we think of as traditional tech hubs. Entrepreneurs are doing incredible things all over the country and all over the world, and in a huge variety of fields and situations. The Lean Startup is ten years old this year--something I never could have imagined back when I was first testing out the idea and getting grief at parties about how bad it was! Its spread is entirely because of the incredible, inspiring work entrepreneurs are doing. The conference panel on Lean Startup Where You Least Expect It was just one of the many events that focused on that. It was made up of people working in medical technology, air purification, and education, as well as the founder of a VC fund investing in nuclear fusion to combat climate change

Hearing about this huge range of projects, with all the gory details included, is what the conference was all about. There were no corporate-approved messages, no perfectly crafted narratives about how easily everything worked out--just real details about problems being solved in all kinds of places. Ann Mei Chang spoke to us about Revolutionizing Social Good with the Lean Startup and her new book Lean Impact, and the challenges and successes to date of using the method in the non-profit space to tackle some of the world’s most pressing issues. We also heard from people at the Department of Defense, and a diverse assortment of hugely successful startups like Kabam, Eventbrite, and The Muse. This great storytelling was accompanied by a whole roster of practical panels and workshops, which covered things like A/B testing, customer discovery, and scaling. You can check out Dave Binetti’s presentation A New Approach to Measuring Product/Market Fit here.

None of it, of course, would have been possible without the people who attended. I’m always gratified (and curious) to read their thoughts and reactions after each year’s conference, and to know more about what captured their attention. Here are two great posts on Day One’s Mastering Experiment Design workshop and Day Two’s Innovation Accounting workshop. And here are a few more general overviews: Top 11 Lean Startup Co. Conference Takeaways and Key Takeaways from the Lean Startup Vegas Conference 2018.

As we head into the new year, I want to thank everyone who helps make Lean Startup a force for change and good in the world. We’re living in a time when legacy institutions of all kinds--political, educational, medical, journalistic--are being attacked. It’s our job to come together to build new ones that more accurately reflect and support the way our world works. I believe Lean Startup is one way to identify and create these new institutions.

Tuesday, November 13, 2018

An interview with founder, author, and Lean Startup Conference 2018 speaker Aaron Dignan

Aaron Dignan--who has described himself as "obsessed with organizational adaptivity"--is one of the speakers at this year’s Lean Startup Conference in Las Vegas, where he’ll be talking about How to Reinvent Your Organization.
 
I recently spoke with Aaron about everything from his work to his forthcoming book, Brave New Work, his personal theory about why best practices aren't usually the best, and how he uses lean startup at the drugstore.


*****


What is work in the 21st century? And how does the company you founded, The Ready, support it?

For me, work is all human endeavor—the things we choose to make real in the world. But overall, work has increasingly become focused on solving complex problems or creating complex solutions. The mechanical things that are simple, or even complicated, are automated or getting automated, and getting farmed away in different ways. What's left are these complex problem and creation spaces. What we do is try to help make sure that the way of working—the operating system, the culture, the organization's design—is well-matched to that challenge. Because right now we mostly operate on a factory model from a hundred years ago, which is all about the linear. What we do at The Ready about adapting to the non-linear.
 
What are the differences between The Ready and responsive.org.? How do they complement each other?

Responsive.org was a side project that started when I was running another company. I co-founded it with a bunch of like-minded people. The idea was: could we get an informal network of people together that believed the way we work is broken and had to change, and could that be a gathering place and galvanizing brand? And to a certain extent it was and it is. It's been interesting to see the conference and meetups around the world happen. At the same time, I felt like weak ties meant that people didn't actually collaborate all that much. They popped in and out. But there weren't a variety of meaningful collaborations happening. I was much more interested in creating a network with more sharing and a faster learning cycle. 

So, I created The Ready. The Ready is about strong ties.  It’s for people who are doing this work day in and day out, and who want to be part of an organization that's trying to do that globally and accelerate the pattern of change.


There’s section in the responsive.org manifesto that I want to ask you about. It’s focused on the relationship between profit and purpose and how it’s evolving. The growing consent is that profit is not the be all and end all, and a lot of that is coming from customers. More people are saying, “If your company does things that we think are bad, or if we don't support your mission, we’re not going to go with you.”

There are plenty of shitty things about advanced capitalism. But one of the good things about it is that customers move from simply meeting their needs to thinking about the relationship they have with what they buy, own, and consume. So not only do I want local bread because I need to eat, but now I have the privilege, as someone who operates in a mature economy, to say, "I would like the bread company to serve the community, to be organic, and to be connected to values that are meaningful to me." Because we're so consumerist as a culture, we increasingly build our identity around the meaning behind the things we buy—not just the thing itself, but the story it tells about us. I think that has been driving and accelerating what you're talking about. I also think there's been this recognition that, looking at the last 100 years, we’ve played out the very simple economic logic of, "If everyone just pursues profit, the world's going to turn out great." The environment would beg to differ. The political system would beg to differ. And so would legions of employees. So there's a lot of data that something is off. I’m fond of the Peter Drucker quote, "Profit for a company is like oxygen for a person. If you don't have enough of it you're out of the game. But if you think your life is about breathing you're really missing something." Breathing's great, but it's not the whole game. I think both of those realizations have manifested at the same time and people want more.
 
What’s an area you think could use innovation transformation that no one has tried yet? Go as far as you want.

I have a silly regressive answer and I have a serious answer. My silly answer is I think that all the American auto manufacturers should just bring back their designs from the '30s, '40s, '50s, and '60s, but with all electric drive. Wouldn't you want to drive a '66 Lincoln Continental?? I’d love to see the innovation of returning to the source, returning to the inspiration for things. It's the same reason that people like Mexican Coke—back to sugar, back to what’s pure.

My serious answer is that nobody has built an organization at Fortune 500 scale that isn't just completely beholden to shareholders and analysts. I would love to see a truly cooperative, truly participatory organization at a global scale that exists expressly for the purpose of making the world a better place. The shareholders, most of whom would be employees and customers, would buy into that from day one. Platform co-ops are really interesting to me. A platform co-op version of Uber, or Lyft, or DoorDash would be very, very interesting. What if we could all just say, "You know what? Facebook isn't really serving us all that well as a society. Why don't we create a platform co-op version with the skills and deep pockets that don’t usually show up for public service? Everybody pays their fair share, and we’ll do our best to save ourselves from ourselves. The venture fund would be called “Better Angels” (of our nature)."


What’s your go-to stress relief method? 
I have a very unsophisticated answer, which is that I watch Netflix. I watch a movie or immersive TV series to get out of my head. And then I can relax my body and mind a little bit. I'm equal opportunity in this sphere. I love it all. My favorite recent show is probably Succession on HBO. That one is just so good, so dramatic, and so related to all the nonsense that goes on in the world of business.


What’s the best practice that you've seen completely fail at a company?  

I like to say that “best practices” are, by definition, average practices. If everybody thinks it's a good idea, then it's average, and everybody's doing it. So, a best practice leads you to have neutral, normal, expected results. I'm generally skeptical of that. Then, if you start to talk about complexity and the nature of the world we work in now, best practices don’t really apply. There's only emerging practice. You can't say, "This is it, and it's guaranteed to work next time and the time after that.”

So, I think the best practices that go wrong most often are the ones that are extremely specific and detailed and dogmatic. If you see a checklist for something that you know intuitively is complex and dynamic, run. For example, I think most best practices around performance management right now suck. Talent development, training, all of it. We spend billions and billions of dollars on training every year and it's all wrong. It's all sages on stages and regurgitation, when we actually learn best by doing--and failing--in the real world.


Is there something unconventional that you’ve been surprised to see work?

Actually, what I continue to be surprised by is the power of transparency to drive appropriate behavior. So, for example, you hear, "Oh, we're spending too much on travel and we really want to lock it down." The normal move is to put a travel freeze in place and install a review and approval process, get strategic partners, and set up a platform that everybody has to go through. But several times I’ve seen cases where an unconventional leader just says, "What if we simply publish what everybody spends on travel every week in a place where everyone can see it?"

And what happens is, people spend money a lot more intelligently because they don't want to look like an idiot or an ass in front of their peers. People notice that their colleagues have tips, and tricks, and hacks, and places they go to book travel, and they get smarter as a system. So, sometimes I think just shining a light is the solution to 95% of our problems. Make it transparent and let things emerge.


Is there a common factor that connects all types of organizations that have the desire to transform? What’s the difference between companies that still have their heads in the sand and say, "What do you mean we're not doing assembly line production system anymore?" and the ones who say, "Okay, we’ve got to get with the program here."? Where does that drive come from, no matter how poorly executed.

I don't run into companies that don't want to transform anymore. Literally every company I talk to is like, "Help us, we're too bureaucratic," or, "We're stuck," or, "Something needs to change." What I think separates the companies that actually succeed is that they make time for it. They kill projects, take meetings off the schedule, and make it okay to slip on some of their goals in order to make time for change. It's the same as going to the gym when you hire a personal trainer. You can be so excited about it, but if you never go, you don't get six-pack abs. And if you fail for lack of showing up, you definitely don’t yell at the trainer, right? In that scenario, you know you're to blame. For some reason, in corporate transformation people always ask, "Why aren't we changing?" Well, if you can't make an hour a week for a retrospective, if you can't make an hour a week to check in with your peers, if you can't make an hour a week to learn new practices, you're going to fail. I think the common success factor is that winning teams sweat the change they seek, and they make it a priority that’s held sacred.


Let’s discuss innovation transformation techniques applied to the everyday life of Aaron Dignan.

I feel like I do Lean Startup when I'm picking toothpaste. Standing in the aisle, I’m thinking: Okay, so what do I value? What are my assumptions? How long is this experiment going last? Thirty minutes later--in the midst of my sprint plan--my wife demands that I pick something and leave. That test-and-learn ethos is deeply ingrained in my family. It’s about maintaining a fitness landscape of different bets and different approaches, seeing what works, and then tweaking it. I do a weekly meeting with my family where we talk about what's working, what's not, and what do we want to try? We recently got a  piece of advice from my son’s school about the role of diet in behavior. Your gut biome influences your neurotransmitters and mental health in innumerable ways, and we really underestimate this in Western society. So, my wife and I decided to try an experiment. We decided to treat our child like a diabetic for a weekend. From Friday to Monday we did no sugar and no refined carbs—substituting fruit, protein, whole grains, all the stuff you think kids won’t eat. His blood sugar was our steering metric and his behavior was our feedback loop. And guess what? He was an angel. It was bonkers. My wife and I kept looking at each other with saucer eyes like, "Are you seeing what I’m seeing right now?" And then sure enough there was a birthday party a couple days later. Out came the candy and everything flipped like a switch. The data told a story.


So no pivot?

Yeah, exactly! Well I think the question becomes how do you make that sustainable, right? So, you have a pattern that's positive. Can it last for a week? What are the disruptors that are going to pull that train off the tracks, and what are your counter-measures?


Your upcoming book, Brave New Work, is all about how and why we need to change the way we work. You’ve clearly spent a lot of time thinking about that, but is there something surprising you discovered doing your research for it? Something that turned out to be really different from what you thought the trajectory of your research was going to show?

Brave New Work has three parts. The first one explains the history of how we got here—tracing the line from Frederick Winslow Taylor's 1911 book The Principles of Scientific Management to the present bureaucratic nightmare. The second part of the book looks at the organizational operating system and the practices and principles that make up how we work. The third part is about how to change that system. If you buy into the story I’m telling in the beginning and you want do it, what does that journey look like when change management as usual won’t work?

The fact is, that between agile, lean, open-source, teal, and dozens of other philosophies of work out there, there are a lot of principles floating around--a lot of wisdom and aphorisms and ways of thinking and mindsets. I thought I was going to have to explore fourteen different ways to think just to set the stage for the book.

What blew me away as I started to really build a mental map of all that stuff, was that it all stemmed from just two mindsets. When you put them together, they explain all the thinking and new development that I've been seeing for years.
 
The first is what I call being people positive, which is basically self-determination theory with a dose of humanism. People are inherently good, inherently capable of taking responsibility, and naturally wired to develop and grow. We seek out learning opportunities and ways to self-actualize. And, people are chameleons, so if you put us in an environment that treats us like criminals we will act like criminals (for the most part). And if you put us in an environment that treats us like scholars we will act like scholars (for the most part). On the whole, you get what you expect to get—what you hold space for.

The second mindset is complexity conscious, which simply means the world is not one dimensional anymore. It's a changing, dynamic system—interconnected and super scaled. So you need to be conscious of the context you're operating in. When you look at a problem space, is it complex? Is it complicated? Is it chaotic? Is it disordered? Is it simple? We need to be aware of our context and then bring the right tools to the job. That's where the whole movement surrounding Agile and Lean fits into this. How do you make sense of a world where things are changing rapidly? You test and learn, and you start sensing a lot more often.

The analogy I like to use is a chest of gold in the middle of the room. If the lights are on and you simply need to get it out, you just create a little assembly line, and work like lemmings to get it from point A to point B. It’ll work like a charm. But if I turn the lights off and start moving the gold around silently, then how might you operate? That's the context we live and work in now. What you would do is make small, careful, measured movements. You would over-communicate—sounding out to other people in the room, "I'm feeling this, I'm seeing this, Did you hear that?" And then when you got a little bit of action you'd seize it. A complexity conscious mindset is about evaluating the room and choosing the right approach.

The truly complexity conscious person might be a little unfeeling in their desire to do experiments and find out what wins and what works. But the people positive person would be concerned with the human-centricity of our approach. We have to honor the sanctity of what it is to be a human being, to be part of a community, and to be in membership with each other. Hold both these mindsets in your head and they tug on each other, saying “Learn as fast as you can without compromising your humanity and the impact of your actions.” It’s critical that we hear both voices because we face enormous challenges and opportunities that call us to be our best—to create a future of work (and of culture) that we can thrive in.
 
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Lean Startup Conference 2018 is sold out, but you can still register for the livestream. I hope you’ll join us that way.