Lenny's Podcast: Product | Career | Growth
00:08:55 · Eric Ries
[00:08:55] S0: No, I was just wondering about that. Oh, okay. Now that's my new favorite example. That's really fun. I didn't even know that. But yeah, it's so common. It's the point now where I was doing an interview with someone who was telling me about a certain natural foods brand and the name of the product is the name of the founder. It's like, I can't remember her name now. It's just her name. That's the name of the product. And she gets ousted by investors and he's about to tell me the story. I said, "Let me guess what happened next. The board pushed her out in pursuit of higher growth, higher margins. As a result, we've seen lower quality and customers are super pissed, employees are pissed, and now it's starting to shrink market share." And he was like, "How did you know? I thought you said you didn't know this company." This pattern is so pervasive. We don't even have a name for it. We live it every day, but we don't know what to call it. Well, I know what to call it. I know what our grandparents would've called it. They would've called this corruption. Not legal bribery or embezzlement. No. This is like you're building a bridge. And if your bridge collapses, and Lenny, I say you're an engineer and I say, "Lenny, why did my bridge collapse?" If you're like, "Well, because of gravity," I'm going to be like, "Dude, yeah, thank you for that genius insight." I understand that that is correct in some very real way. We say, "Well, it's inevitable. It's greed." I call it financial gravity. "There's this thing of human nature when companies get big, whenever..." "Yeah, but I want to know why did this bridge collapse? And more importantly, how come other bridges didn't collapse?" Then they say, "Oh, for that, we need to study the load, load factor, wind load, shearing tension." And we go look up close, we say, "Oh, look, all the metal bolts have been corroded. They're rusted. No wonder it collapsed." And then if you say, " Well, I want to build a new bridge, but I don't want this one to collapse. What can I do?" You won't say, "Well, gravity, what can you do?" No. You'll say, "Why don't we use stainless steel next time on the bolts so they don't get corroded?" "Oh yeah, good idea." So this book is about what are the organizational equivalents of stainless steel.
00:10:51 · Eric Ries, Lenny Rachitsky
And the book is structured, not like a traditional business book, as you say, you picked up on that. It's much more like a mystery, a double mystery. First of all, why has this been going on for hundreds of years when we all think that the market selects for value creation, so this shouldn't happen, yet it happens all the time. But secondly, if it's inevitable, if it's caused by greed or age or size, why are there exceptions? [00:11:13] S1: You're actually going to give us answers and solutions because it sounds like, okay, this is impossible. But you actually have- [00:11:18] S0: I promise. [00:11:18] S1: ... you have some answers for what founders can do. Real quick, I'll just say on the viral X thing, I'm not exactly sure if the toxins are real. There's a whole viral thing on it. I haven't looked into it super deeply. [00:11:29] S0: Okay. All right. We both have homework to do now because it's what you feed your kids. You care. I'm definitely worried. Definitely worried to hear that. [00:11:35] S1: I want to talk about two things that are probably in people's minds as they listen to this conversation and even think about buying your book. One is, okay, I am not going to let this happen to my company. This is- [00:11:45] S0: Oh, sure. Sure.
00:11:45 · Eric Ries, Lenny Rachitsky
[00:11:45] S0: Oh, sure. Sure. [00:11:46] S1: ... oh, other people, they're weak, maybe they're of loose values. The other is just like, do I really need to do this? There's so many companies that are killing it. I don't think they've done any of this. Why do I even need to pay attention to this? So maybe let's start with that first one or this idea of, and this is a core thesis of your book. This is not like an ethical values thing. This is a structural element of building businesses in the US.
00:12:09 · Eric Ries
[00:12:09] S0: I'm going to make a claim that's going to sound radical, but I'll back it up. If you don't get this right, no other decision you make about your company will matter for the long term because you're not going to be the one making it. According to Harvard Law School, among venture-backed companies that have the standard best practices set up that you got from your lawyer, only 20% of founders are still the CEO three years after going public. Just statistically speaking, everyone's being told by their lawyers, their bankers, their VCs, everybody that you're the exception. It's not going to happen to you, but statistically speaking, you're much more likely to be in the 80% than the 20%. I'll tell you one story in particular. A very hot company came to see me a year or two before their IPO. They were planning IPO and I built the long-term stock exchange. I've done a bunch of stuff that people come to me for advice about these things. They wanted advice. How can we structure the IPO? We want to think long-term, we're really a mission-driven company, et cetera, et cetera. And I was going through their governance documents. I said, "Oh, good. You have all the best practices. So you're totally like..." I was like, "The good news is you're so screwed you're going to have to do something. This is your [inaudible 00:13:15] guarantee to get this mess." And I had all the data and just like I do in the book, like, here are the examples, here are the case studies, here's the data, you need to know about this. And the founder was really concerned. He's like, "Okay, we're going to definitely do something about this. We're going to fix it up." But then he called me back a few months later. He's like... I said, "Well, what are you going to do?" He's like, "You know what? I talked to my bankers, talked to my lawyers, talked to my CFO, talked to my GC, talked to my VCs, talked my growth VCs. You know what they all said? They all said, 'Man, Eric is such a downer. If he really believed in your vision, if he really saw how special you were, he wouldn't talk like that. You're the exception.'" I said, "Okay, man, good luck." This company went public, had a very successful IPO. A lot of people made a lot of money. And then five months into their IPO, a competitor gets acquired and the whole category, everyone freaks out.
00:14:07 · Eric Ries, Lenny Rachitsky
Stock price collapses and the founder is ousted after five months as a public company. Now, if you read stories about the company, people were like, "Oh, he made all these mistakes. Their business model sucked. The company..." Blah, blah, blah. Did he make mistakes? I'm sure he did. Were there problems? I'm sure. But had he really earned so little grace that he only got five months, the same people saying that the business model is horribly flawed, they invested in the company five months ago. Had it really changed so much in five months? This is what's going on. These collapses are all around us and we're being told it's normal. This is just the way it has to be, but it's not. These are choices about the specific structures, cultural practices, the management practices we do on the inside and the structural, the governance practices we do on the outside. On both of them, were being told to do things that are incredibly weak. And again, if you think you're going to be the exception, think again. [00:14:59] S1: I'm excited to talk about what to do, these governance elements, but let's talk about this other critique that I imagine people have in their head of just like, is this like... Okay, I need to figure out product market fit first. [00:15:10] S0: Yeah, yeah. Worry about it later. [00:15:13] S1: Exactly. There's so much more I need to do. The chances of this working are so low. Why am ... I have no time for anything else.
00:15:19 · Eric Ries
[00:15:19] S0: Oh, totally. You said something interesting in the lead in which you said like, "Well, a lot of other companies seem to be killing it and they don't have these protections, so they're fine." I would actually check your math. So many times when people give me this argument, they were like, "Well, such and such company..." Someone was like, "Cloudflare, they are just a normal company. They don't do this stuff." I'm like, "Check your math, buddy. Cloudflare does many of the things that we're talking about. They're one of the examples in the book, so I picked that on purpose." A lot of companies that you don't necessarily instantly think of as do-gooder, mission-driven companies are actually very mission-driven in terms of how they're structured, and they are almost always protected by at least one of the governance structures from this book. So check your math. People used to tell me Costco was an example that wasn't protected, so much so that I was surprised to learn that it was embodied in a governance fortress. You'll be surprised. If you do the math, if you look into it, you'll be surprised. But let's talk about the product market fit thing because this one is really interesting to me. Generally speaking, this is one of the most important ideas in the whole book. The most important question about how to protect a product is not what protections it needs, but when those protections need to be enacted. And it's basically like that old proverb about the best time to plant a tree was 40 years ago, but the next best time is now. It is always too early until it's too late. And I'll give you the example. I've seen this hundreds of times myself personally. So I've literally been in the room where this kind of stuff gets discussed and it starts like this. You're incorporating your company, you talk to your lawyer, "Hey, I want to have..." These are called mission protective provisions in the law. "I heard this guy on Lenny's podcast," and your lawyer's like, "Oh, not again. Another guy, right? How many good ideas from Lenny's podcast are you going to tell me about? Okay, fine. What's this one?" "He told me I need to have mission protective provisions." He'll pat you on the head and be like, "Oh, that's sweet, honey. That's great. Yeah, get product market fit, get some success. Success is ultimately your source of leverage. Success will protect you.