Reflections on a movement | Eric Ries (creator of the Lean Startup methodology)
Eric Ries, creator of the Lean Startup, discusses the methodology's evolution, misconceptions, and AI's impact on product development. He also shares insights on effective MVPs, strategic pivots, and building companies with values aligned to human flourishing and robust governance.
Deep Dive Analysis
11 Topic Outline
Eric Ries's Current Activities and Focus Areas
Origins and Impact of First Principles Thinking
The Current State of Lean Startup Methodology
Common Misconceptions and Potential Changes to Lean Startup
Understanding Minimum Viable Products (MVPs) and Testing
The Psychological Toll of Startup Failure vs. Zombie Companies
Practical Advice for Founders Considering a Pivot
The Impact of Artificial Intelligence on Management and Society
Building Companies with Values Aligned to Human Flourishing
Critique of Shareholder Primacy Theory and Alternative Structures
Lightning Round: Books, TV, Interview Questions, and Products
7 Key Concepts
First Principles Thinking
This approach involves breaking down complex problems into their fundamental components to understand why things work, rather than relying on analogies or 'just so stories.' It has descriptive and prescriptive components, often starting by naming existing phenomena before deducing implications.
Minimum Viable Product (MVP)
An MVP is the most efficient way to test a hypothesis about what customers want, by building only what is necessary to get validation. It is not about building something low-quality, but rather about identifying the minimum bar for quality and features required to learn effectively in a specific market context.
Pivot
A pivot is defined as a structured change in strategy without a change in the overarching vision. It's a learning process where a company adjusts its approach based on validated learning, often carrying over critical insights from previous iterations rather than a complete restart.
Zombie Company
A company that is not failing outright but is also not succeeding, often hated by its founders or employees who feel trapped. It's considered worse than a failed startup due to the prolonged mental health toll and lack of meaningful progress.
Shareholder Primacy Theory
The prevailing view that a company's primary fiduciary duty is to maximize returns for its shareholders. Eric Ries argues this theory is fundamentally flawed, even for maximizing returns, as it often leads to short-term thinking and value-destroying behaviors.
Spiritual Holding Company
A concept for structuring companies where a central entity is responsible for upholding the core values and 'soul' of an ecosystem of companies. This structure aims to embed promises and values deeply into the organization, ensuring they are maintained even if leadership changes.
Chief Engineer (Toyota)
A role in the Toyota Production System with moral authority over an entire product line (e.g., a car). This individual, often without direct reports, makes critical trade-off decisions to ensure a coherent design and product vision, fostering a strong sense of craft and quality.
7 Questions Answered
The Lean Startup methodology has transitioned from an insurgent revival to a default, almost obvious, approach in entrepreneurship. While it has lost some of its initial 'religious' energy, its core concepts are now widely adopted and taken for granted by new founders.
Common misconceptions include believing 'lean' means cheap (not raising money), that it's opposed to having a vision (leading to local maxima), and misunderstanding what a 'pivot' truly entails. These persist despite being addressed in the original book.
Founders should define their hypothesis, identify the most efficient way to get validation, and build the minimum necessary to test that hypothesis. This often means cutting the initial feature list in half, then in half again, and being uncomfortably small to learn quickly.
If a founder is asking if they should pivot, they likely already know the answer. The key is to admit the current approach isn't working and then dedicate a fixed period (e.g., six weeks) to decisively test a new direction or idea, rather than remaining stuck in diminishing returns.
AI is fundamentally a management technology that can change the span of control by excelling at summarization, potentially reducing the need for extensive human hierarchy. It also enables rapid, high-volume experimentation, but raises critical questions about organizational values and ethical alignment.
Companies can build trust by embodying their promises and values directly into their organizational structure, rather than relying on individual intentions. This involves legal designations (like public benefit corps), board mission pledges, and financial instruments that commit to a mission beyond narrow shareholder interests.
The Law of Sustainable Growth describes situations where new customers are acquired as a natural side effect of the actions of past customers. This includes viral loops, paid acquisition engines, and sticky engines of growth, which focus on how people return to a product.
56 Actionable Insights
1. Prioritize Company Values Early
Take seriously early on the risk of building a company you hate or that becomes a malign force, as this is far worse than a startup failing.
2. Explicitly Define “For the Better”
When aiming to “change the world,” explicitly define what “for the better” means for your company’s vision, as this crucial aspect is often overlooked.
3. Embed Promises in Org Structure
To build a truly trustworthy organization, embed its promises (e.g., ethical conduct, mission alignment) into its fundamental structure, ensuring they are upheld even if individual leaders change.
4. Act Early on Governance
Implement governance structures (e.g., public benefit corp, mission pledge) early in your company’s life, as delaying until later stages often makes it impossible due to resistance.
5. Review Fiduciary Duties for Ethics
Understand your company’s fiduciary duties under standard incorporation documents, and if they obligate you to sell to an unethical buyer, take steps to change this.
6. Proactively Implement Governance Protections
Proactively ask your lawyer about specific governance mechanisms (e.g., founder preferred shares, mission pledges) to protect your company’s soul, insisting on implementation despite potential investor resistance.
7. Build Perpetual Ethical Alignment
Understand that maintaining an ethical, mission-driven company is a relentless, perpetual process, requiring continuous alignment between governance, management, and culture.
8. Reject Shareholder Primacy for Value
Reject the shareholder primacy theory, as it can be detrimental even to long-term shareholder returns, often leading to short-sighted decisions that “kill the goose that laid the golden egg.”
9. Intentionally Design Mission-Driven Structures
Don’t wait for idiosyncratic circumstances to build a mission-driven company; intentionally design governance structures to align with your values from the start.
10. Leverage Collective Power for Ethics
Recognize the collective power of founders to set the terms for how new companies operate, insisting on ethical preconditions and resisting system demands that compromise values.
11. Align Company to Human Flourishing
Design your company’s purpose and operations around promoting human flourishing, fostering an environment where every employee feels a fiduciary duty to this goal.
12. Cultivate a Customer-Centric Ethos
Cultivate an ethos of genuinely loving your customers and treating them like family, as this creates strong loyalty, high retention, and a significant competitive advantage.
13. Build a Company You Want
Prioritize building a company that genuinely excites you and aligns with your desires, as it’s better to fail pursuing your passion than to succeed in a “zombie” company you hate.
14. Stand Firm on Principles
Be willing to be fired for upholding your core principles and doing what you believe is right, as this can accelerate your career by attracting like-minded opportunities.
15. Disassociate Ego from Company
To preserve mental health and enable learning, disassociate your ego from your company’s fate, allowing the company to die or pivot without feeling like a personal death.
16. Honestly Assess if Company Works
The most difficult step is honestly admitting whether your company or product is truly working, as founders often struggle to accept this reality.
17. Introspect on Desire to Continue
If leading a “zombie” company, deeply introspect if you genuinely want to be there; if you could start fresh, would you choose this company? It’s okay to move on if the answer is no.
18. Be Honest in Investor Updates
Avoid misleading investor updates by falsely claiming success when the company is struggling, as this prevents timely intervention and honest assessment.
19. Seek First Principles Understanding
Don’t blindly follow anecdotal advice or “just so stories.” Instead, strive to understand why something works and if it’s applicable to your specific context.
20. Embrace Failure for Learning
Recognize that the inability to admit failure psychologically prevents learning; embrace the scientific method’s premise that you must be able to fail to learn.
21. Identify Catastrophic Risks Early
Proactively identify and test for potential catastrophic failures that could destroy your company, aiming to discover them as early as possible to allow for corrective action.
22. Define MVP by Learning Efficiency
An MVP is the most efficient way to validate a hypothesis, not necessarily a bare-bones or low-quality product; its “minimum” is determined by what’s needed to learn.
23. Radically Reduce MVP Features
To define your MVP, list all necessary features, then cut that list in half, and then in half again, aiming for an uncomfortably small initial product.
24. Clarify Learning Goals for MVP
If struggling to define your MVP, clarify your specific learning goals and admit what you don’t know, as unclear objectives often stem from a reluctance to acknowledge uncertainty.
25. Focus on One High-Quality Feature
If your market demands high quality, build an MVP with only one critical feature at that high-quality level, rather than many features at lower quality.
26. Quality is Customer-Defined
Understand that “quality” is defined by the customer, and without knowing your customer, you cannot truly define or achieve product quality.
27. Conduct a Series of Experiments
Avoid drawing definitive conclusions from a single experiment; instead, commit to a series of experiments to gain comprehensive understanding.
28. Test In-Progress Product with Customers
During product development, when you have a partial product (e.g., half-built), let customers use it to gather early feedback on its usability and perceived quality.
29. Seek Early, Direct Customer Feedback
Find a small group of customers (e.g., 10) to use your product and openly tell you what’s wrong or missing, as this feedback is crucial for early learning.
30. Establish a Baseline for Learning
Even if confident, test your product with a small group to establish a baseline of current performance and customer reaction, allowing you to measure future improvements.
31. Separate Product from Marketing Launch
For early-stage startups, launch your product to a small customer base without a public marketing announcement, allowing for private iteration without brand risk.
32. Develop Craft Through Experimentation
If you lack inherent taste or design ethos, use experimentation to learn what works and develop the “habits of mind” and patterns that lead to effective craft.
33. Use Craft to Enable Speed
Invest in craft (e.g., quality code, right tools, skilled team) not as a delay, but as a means to maintain options, increase speed, and avoid future firefighting.
34. Align Craft with Customer Perfection
Define “perfection” in your craft by understanding what your customer values, ensuring your efforts align with their perception of quality for a specific purpose.
35. Trust Your Intuition on Pivoting
If you’re questioning whether to pivot, your intuition likely already knows the answer; true product-market fit leaves no time for such doubts.
36. Dedicate Fixed Time to Test
If unsure about pivoting, dedicate a fixed period (e.g., six weeks) with 100% focus on one critical assumption or new direction to see if it moves the needle.
37. Assign Dedicated Resources to Initiatives
When exploring new directions, ensure at least one full-time individual (not a part-time committee) is dedicated to making the new initiative work within a set deadline.
38. Facilitate Open Discussion on Direction
In a team setting, ask everyone what they wish they were building if starting over. This can uncover shared, unexpressed desires and align the team on a new direction.
39. Test Multiple Pivot Ideas Sequentially
If you have multiple promising pivot ideas, test them sequentially for fixed periods (e.g., one month each) to see which gains traction, especially when runway is limited.
40. Accept Company Closure if Exhausted
If the team is collectively exhausted and wants to return money, accept that closing the company is an acceptable outcome, rather than prolonging a painful situation.
41. Tactically Address Zombie Company Exit
Once you decide to move on from a zombie company, engage in tactical discussions about shutting down, returning money, or executing a hard pivot, based on your specific situation.
42. Take Ethically Robust Actions Now
Given the high uncertainty of AI’s future, prioritize actions today that make ethical sense across a wide range of possible future scenarios.
43. Advocate for Transparency and Leadership
Regardless of future AI scenarios, advocate for increased transparency, stronger state capacity, more competent leaders, and companies committed to explicit values.
44. Prepare for AI-Saturated Communication
Anticipate a future where communication channels are saturated with AI-generated content, and consider developing or using AI tools to filter and summarize information.
45. Leverage AI for Fairer Information
Utilize AI agents to define and apply fair procurement policies or information filters, allowing credible proposals to reach you based on merit, rather than traditional advertising or personal connections.
46. Earn Trust by Moral Responsibility
To earn public trust, companies building powerful, invasive technologies must take moral responsibility for their impact, moving beyond rhetoric about “changing the world” to actual accountability.
47. Consult Legal Counsel on Governance
Consult with your lawyer about implementing governance structures to protect your company’s mission and values, especially regarding long-term commitments.
48. Avoid Oversimplifying Complex Processes
Be wary of advice that makes entrepreneurship or scaling sound too easy with simple step-by-step instructions, as this can mislead and set people up for disappointment.
49. Document Ideas to Filter Engagement
Write down your core ideas and stories, then share them as a pre-read before meetings. This filters out those who disagree fundamentally, saving time and avoiding unproductive conflict.
50. Embrace New Effective Practices
Adopt new practices that prove effective, rather than being threatened or upset by them, as the core principle is that “whatever works is lean startup.”
51. Iterate on Communication of Ideas
If your ideas are misunderstood or misused, take responsibility to improve your communication and make them clearer, rather than blaming the audience.
52. Question Best Practices’ Applicability
When evaluating a “best practice,” always question the specific situations where it might not be applicable, as true understanding requires knowing its limitations.
53. Study Engagement Loops for Stickiness
Beyond viral loops, deeply study “engagement loops” to understand the dynamics of how customers return to a product, as this science of stickiness is often overlooked.
54. Appoint a Chief Engineer for Vision
In larger organizations, appoint a “chief engineer” with moral authority over an entire product line to make critical trade-off decisions and maintain a coherent design vision.
55. Seek Quietly Ethical Companies
Look for models in companies quietly doing the “right thing” rather than those with loud, controversial public profiles, as true ethical practice often correlates inversely with public fanfare.
56. Experiment with New Ideas, Share
Experiment with new ideas, even if they seem unconventional, and share your findings (whether success or failure) with the community to contribute to collective learning.
6 Key Quotes
Far worse is to be in a company that won't die, a zombie undead company that you hate but you can't leave.
Eric Ries
If you can't fail, you can't learn.
Eric Ries
Nothing real can be threatened and nothing unreal exists.
Eric Ries
I always tell people to just get fired for doing it the way you think is right.
Eric Ries
Building a high quality wrong value prop is nothing to be proud of.
Eric Ries
The problem fundamentally is that you have a massive number of people who could create things for store owners and if all of those people emailed every store owner on the planet every day what they could do it would be an overwhelming amount of information.
Eric Ries
2 Protocols
Deciding Whether to Pivot
Eric Ries- Admit to yourself if the current approach is not working; if you're asking, you probably know the answer.
- Give yourself a fixed period of time (e.g., six weeks) to take decisive action on the current thing to see if it improves.
- If the current thing isn't moving the needle, consider if you have enough time for something new.
- Dedicate at least one full-time person or a small team to work on a new idea for a fixed period (e.g., one weekend to six weeks).
- Have everyone on the team brainstorm what they wish they were doing if they could start the company over again.
- If a new idea stands out or is collectively agreed upon, pursue it within the fixed timeframe.
- If exhaustion or lack of viable new ideas prevails, consider returning money to investors and shutting down the company.
Building an Ethical and Mission-Driven Company
Eric Ries- Engage with your lawyer early to discuss structural protections for your company's mission and values.
- Consider legal designations like Public Benefit Corporation (PBC) or Social Purpose Corporation (SPC).
- Explore establishing a foundation, potentially with trustees from key stakeholder groups (e.g., indigenous leaders for cultural tech).
- Implement a Board Mission Pledge, requiring board members to use business judgment to support the mission, not just narrow shareholder interests.
- Utilize financing instruments like an LT-SPV (Long-Term Special Purpose Vehicle) where LPs commit to supporting the company's mission.
- Ask your lawyer about hypothetical situations (e.g., an 'evil' company offering to buy you out) to understand your current fiduciary duties and how to protect against undesired outcomes.
- Continuously work to align governance, management structure, and company culture so that every decision reflects the desired ethos of human flourishing.