Lenny's Podcast: Product | Career | Growth
00:39:34 · Eric Ries
So you're like, "What is it now?" It's like, "Well, you were saying at the board meeting that our number one driver of revenue, the thing that causes people to upgrade from our free to premium plans," this is a few years ago now, "Is web encryption, SSL encryption. You said that makes sense because SSL encryption is expensive to offer, we can't offer it for free. We have to get the certificates and pay for them. We have to do all this extra cryptographic stuff as compute ... We have scarce compute, da-da-da-da-da." "Sure." "But boss, wouldn't a better internet be an encrypted internet?" And he's like, "Yes. So what's your point?" So if it would be better, why are we giving it away for free? And so many people have heard this story. If you've ever been a middle manager in a company, okay, you know this, you're just like, "Oh my God. Every day someone walks into your office that's like, here you boss, let's give our product away for free for no reason." Your job as a middle manager is to be like, "No, we have a strategy. Get back on the strategy. Redirect. Thank you for your buy-in and your input, but we have a job to do." So everyone's expecting Matthew to react that way and would be the most normal thing in the world. This is our most profitable product and you're saying we should give it away for free, get lost. No. Matthew told me once I saw it, I couldn't unsee it. And he uttered the three keywords, he said, "Let's figure it out." Figure it out. This is the leadership principle I think is so powerful, the figure it out principle. If you're committed to something, you stand for quality or whatever, it's going to make life harder. The best leaders, the ones I really admire, they revel in it. They love the difficulty. Because every time you have one of these impossible dilemmas, it's a chance to teach what you really stand for. So Matthew insisted the whole team rally to figure out how to give encryption away for free. Now they couldn't just give it away for free. He's like, "Bankrupting the company won't achieve the mission." We had to find a way to make it sustainable. And I won't go through all the technical details of how they managed to get the cost. They had to hand roll their own software and assembly language. They had to do these complicated biz dev deals with certificate authorities.
00:41:37 · Eric Ries
They figured out how to do it and they drove their own cost down. Now, keep in mind that at any time ... First of all, I could have used the difficulty as an excuse, "Oh, it's too hard. We can't do it." Give up. Once they did it, they could have said, "Wait a minute, this is just free margin. We can make our costs lower and then we just get free money." When they shipped it, they had to report to their board on what happened. The conversion rates for premium product went down. So they could easily have bailed out at that point, but they didn't. They stuck with it because this is what we stand for. Now, of course, it's a happy ending story. The top of funnel increased by an order of magnitude. In fact, to this day, people still talk about how Cloudflare is like the reason you take for granted we have an encrypted internet. The trust that they gained is the reason why they're a $70 billion company today. But most leaders, when asked to defend their principles, can't do it. Because they've been taught ROI-based thinking, they've been taught shareholder primacy, they've been taught that that's the path of maximum profitability. To give you an easy contrast, Andrew Mason, the founder of Groupon once told me this story. Everyone remember Groupon? Maybe not now. It's kind of fallen out of public consciousness, but there was this time where Groupon was one of the fastest growing private companies in America. It was powered by a daily email with a cool deal. And the whole thing was you got one email a day from Groupon. They went public on the one email a day, that's how successful it was. And I remember he told me this story one day, his executives and employees started coming into his office and they'd be like, "You know, boss, we need to make the quarter. We need to make more money. We're a public company now. We don't want to be better than one email. Have you considered two emails?" And he was like, "No. One email a day," he's like, "That's our whole thing." But he said, over time, they ground him down and they kept saying, they were using language that sounds kind of lean start-upy. Shouldn't we do an experiment? Shouldn't we look at the data? What about the IR ... it's just like, what about the ROI? And so he's like, "All right, fine. We'll run the experiment." He ran the experiment. Two emails a day makes more money. So he couldn't say no.
00:43:42 · Eric Ries, Lenny Rachitsky
And everything was fine for several months until someone came to his office and said, "You know, boss, you know what'd be better than two email? We should send three emails." And next thing you know, they're sending eight emails. And this is not just Groupon. I have had so many CEOs tell me this exact story about email frequency. Email frequency is like, for some reason, the tip of the spear where it's like, we don't really have any way to defend doing the right thing here. So we did the wrong thing. That destroyed the whole company. But in the short term, we made a bunch of money. So if you can stick to the harder is easier principle, that is the first line of defense against losing whatever it is that makes a company special. [00:44:21] S1: Eric, you're such a wonderful storyteller. I'm just sitting here just compelled. [00:44:27] S0: Well, thank you.
00:44:27 · Eric Ries, Lenny Rachitsky
[00:44:27] S0: Well, thank you. [00:44:28] S1: Oh, man. I am so excited to tell you about this season's supporting sponsor, Vanta. Vanta helps over 15,000 companies like Cursor, Ramp, Duolingo, Snowflake, and Atlassian earn and prove trust with their customers. Teams are building and shipping products faster than ever thanks to AI. But as a result, the amount of risk being introduced into your product and your business is higher than it's ever been. Every security leader that I talk to is feeling the increasing weight of protecting their organization, their business, and not to mention, their customer data. Because things are moving so fast, they are constantly reacting, having to guess at priorities, and having to make do with outdated solutions. Vanta automates compliance and risk management with over 35 security and privacy frameworks, including SOC 2, ISO 27001, and HIPAA. This helps companies get compliant fast and stay compliant. More than ever before, trust has the power to make or break your business. Learn more at vanta.com/lenny. And as a listener of this podcast, you get $1,000 off Vanta. That's vanta.com/lenny. I want to talk through just like, what do you do? So there's write a mission statement. Values, is that a part of this? Just define your values. Talk about the bullet points.
00:45:45 · Eric Ries
[00:45:45] S0: Well, yeah. So again, no. Writing this statement is not valuable. Okay? The statement is not what it is. The reason I use the old-fashioned word ethos. I tried to write this whole book without using any trendy consulting language at all. So I try not to use the word stakeholder. I try not to use the word culture. I tried to really go old-fashioned. That's why I started with Sol Price. Rather than talk about stakeholders and mission statement and values, I want to know who are your fiduciaries? It's like a real old-fashioned word, fiduciary. But to me, the question every leader has to answer, and this is every product has to answer this question. What is its purpose? Who would you rather die than betray? Okay? So if you tell me, I want to have a high quality product. I would rather die than ship slot. Think about how Steve Jobs was. This is a guy who would fight with people over the layout of the wires inside a computer he didn't want customers to be allowed to open and ever see. That's so classic, harder is easier, right? Just it has to be a certain way. If you know stories about Yvon Chouinard, the founder of Patagonia. Today he's more famous for his environmental activism, but he was a quality zealot. He believed that quality was an objective function and that every product had a quality level that it deserved. Most people think that's insane. That's why Patagonia is such a success. That idea is powerful. So whatever that thing is, that purpose. We have to find ways to encode it in our management system so that there's no way for us to make money by betraying the principle, whatever it is. So this can happen both at the operational level and at the governance level. Both are really important. People hearing this, I know some people are going to be like, "Purpose? Is this some ESG nonsense?" Okay. There's a very funny quote in the book, Unilever, the big food giant. We went through a phase a couple years ago where they were going to infuse purpose into all of their products. And a Wall Street investor was just like, "I've had it with this." Wrote them a nasty letter, it was like, "Look at the point that we're debating the purpose of Hellman's mayonnaise, I think you've lost the plot." And I love that quick because it's funny, but actually what's so funny about it to me is humble though it is, Hellman's mayonnaise is food.
00:47:54 · Eric Ries
Its purpose is super clear. And again, if you think it doesn't matter what the product manager who runs Hellman's mayonnaise thinks the purpose is, going back to our vital farms question, think how easy it would be when an efficiency consultant shows up and says, "I think we could save three cents on the bill of materials if you just make the thing carcinogenic." And you're like, "Oh, wouldn't that come back to bite us?" "Yeah, but long after your stock options are vested, buddy, what do you care?" If the product manager thinks their purpose is quality, that matters. If they think their purpose is extraction and exploitation, it matters. Again, if you think I'm exaggerating, the product managers at Johnson & Johnson put asbestos in the baby powder and covered it up. Because although they said their purpose, their mission statement was patient health. Their actual mission had become growth, optimization, quarterly targets. So what we want to do is that's the first most important technique is like, what is the purpose? Who would we rather die than betray? You got to write it down. You got to say, as Sol Price did, customers first, employees second, shareholders last. Or the great Peter Drucker said it with actually, he said that that's backwards. It should be employees first, customer second, shareholders last. I don't care. You tell me what you believe, you got to write it down. And then we have to do a thing I call mission drive. Companies that claim to be mission driven, most of them are just mission hopeful. Okay? It's bullshit. It's just like candy coating on top of an extractive engine. Sorry, I don't buy it. If you're serious about being mission driven, you have to show me that you cannot profit except by achieving the mission. That's the audit we have to do. We have to look at, if someone in the company got tempted to cut quality, to cut corners, to decrease performance, to deal with ... The things that tend to get cut first, safety, performance, quality, design, those are always the most vulnerable. Innovation, I guess is fifth. So that's like the five horsemen of the apocalypse is like, you can get rid of those things and nothing bad happens right away. Because the whole point of trust is I can betray you and you wouldn't even notice. So we have- ...point of trust is I can betray you and you wouldn't even notice.