If you’re in the startup scene, you’ve likely read his blog, seen him speak, or met him at a Lean Startup meetup. Eric Ries is one of the most prolific blog writers of entrepreneurial interests, and he’s adding to his long list of accomplishments by coming out with a book this September.
We recently interviewed Eric Ries about his upcoming keynote address at Web 2.0 Expo New York this October, the New York startup scene, and his book (which comes out September 13). In part two of our interview, we discuss how the Lean Startup movement has grown, what he’s learned, the Startup Visa Act, and the Startup America Partnership.
You can read the interview, which has been edited for length and clarity, below.
Kaitlin Pike: Since Web 2.0 Expo is taking place in New York… How is the startup scene looking in New York compared to Silicon Valley?
Eric Ries: You know, I get that question a lot and I actually just did a brief piece for “The New York Times” about it. We did a Room for Debate series where they had me and Fred Wilson and David Tisch and a bunch of people talking about what it will take for New York to rival the Valley.
But I feel like that whole paradigm is really misguided because it’s not like there’s a fixed pool of talent or really good ideas or really any other resource we’re in competition for. It’s just a question of what’s the most nurturing and conducive environment to be in. And, you know, I think what’s happening in New York is exciting.
I think there’s been a great startup renaissance, but you don’t really know with entrepreneurship because it’s such a boom and bust, summer and winter phenomenon. You know, winter is coming, and we’re in summer right now. And we won’t really know what’s real and what’s just hype until after the next winter. After the dot com bust, a lot of excitement that was happening in New York went bye-bye.
And I hope that the people who are the real proponents of this renewed scene are preparing themselves for the winter to come.
Pike: Is that a Game of Thrones reference?
Ries: It is.
Pike: That was delightfully nerdy. Thank you.
Ries: No problem. My pleasure. Any time.
Pike: As another keynote speaker we have Rachel Sterne, New York City’s Chief Digital Officer. What would you ask her – or the City of New York – to do to make it easier for entrepreneurs? Or maybe not necessarily easier, but to create a better environment?
Ries: That’s a really interesting question because as a matter of public policy I think one of the most important things that any government can be doing is nurturing entrepreneurship.
But the challenge is that entrepreneurs generally don’t need big, expensive infrastructure projects. What they need are kind of softer things that are a little bit harder to quantify and yet are really important.
So if you look at the academic research on what caused Silicon Valley to be successful in the first place and what maintains its vibrancy, the research is actually very clear. It’s not research universities and venture capital dollars, although those are of course important and New York also has an abundance.
It’s really the cultural factors. Things like having a tolerance for and embracing failure. Celebrating the risk-taking of entrepreneurship and making sure that if someone decides to take that step it doesn’t have dire personal, professional consequences. And it has to do with having a culture that celebrates a decentralized approach to company foundation.
So instead of having a few big mega-corps that we give tax breaks and infrastructure benefits to, try to keep things stable. In Silicon Valley we celebrate the fact that they’ve got a zillion little companies… people are constantly leaving one job and joining another company.
And we have the kind of legal framework that makes that doable. For example, one important difference is in California no matter what kind of employment agreement you sign, most forms of non-compete and really onerous trade secret agreements are non-enforceable in California.
So if you’re working on a cool new idea in your own time without using any company resources, your employer can’t lay claim to that same invention, and therefore you’re free to incubate something on the side and then go pursue it as a company.
In Silicon Valley we don’t tend to sue each other about that. We actually tend to see companies like Google acquiring those companies for a lot of money after their former employees do cool things. And that’s part of the way we cycle money into the system. And my understanding is that in New York that same legal structure is not in place.
So the policy things are like that: They’re small, detailed things. They don’t make the headlines. They’re not super exciting except to the actual innovators who want to take those kinds of risks.
Pike: We tend to think of New York as being home to larger companies, enterprise-size versus the startup scene. With that in mind, how can this enterprise world – larger companies – use the Lean Startup approach for their companies?
Ries: One of the exciting things that’s happening in this entrepreneurial renaissance is that for the first time, I think the first time in history, entrepreneurship is now a career that you can embark on.
So for a young person contemplating what their career is going to be, one of the things they can say is “I’d like to have a career in entrepreneurship.”
And that career doesn’t mean that you’ll always be founding small companies. In fact, many of the best entrepreneur’s today are working inside big companies and I think that if enterprises want to take advantage of that capacity, they don’t have to go scouting out to find the best entrepreneurial talent.
They probably have a lot those people already working for them, who are currently being stifled in their efforts to do something innovative inside companies. So I think in today’s economic climate, entrepreneur should be considered a job title that you can have on your business card. That’s something that you can do whether you’re working in a three person startup or a three person team inside a larger company.
And if companies want to support that, it’ll require more than just business cards. They have to create a supporting infrastructure to give those internal entrepreneurs what we call platforms for experimentation.
So one is the concept that I talk a lot about in the book … which is to see it as the job of senior management to create the tools that employees used to run experiments, to test new ideas, to discover what customers actually want instead of pushing that responsibility down onto employees themselves.
Image: Lean Startup Feedback Loop
Pike: As you had just mentioned, you’re coming out with a book. You already have a very successful blog and speaking engagements, so why a book?
Ries: That’s a great question. I’ve asked myself that question many times over the past two years. My mission as I’ve come to understand it in doing this Lean Startup thing is to stop this incredible waste of people’s time, energy, passion and talent. Here’s what I mean. If you ask most people who work, almost any job, especially jobs in some of the world’s largest companies, ask them whether they really believe that the project that their currently working on is actually going make a difference to anybody except their boss… my experience has been a surprising number of people answer with a clear “no.” Yet somehow deep down in their heart they know that the project they’re working on is either doomed from the start. They’re building something that nobody wants. They’re doing a project using the wrong method. They’re going to be spending years developing something and then hoping for the best.
Or… they will admit they have absolutely no idea if what they’re working on makes any sense at all. And we’ve kind of taken that for granted. That’s kind of what it means be living in uncertain times: That we face a very risky business climate. And there’s basically nothing we can do about it.
And I think that that belief is fundamentally wrong. That if we’re willing to change our mindset about how we approach innovation, we can make those projects much more likely to succeed.
The problem is not the kind of people who read entrepreneurship blogs – the really scrappy entrepreneur in Silicon Valley or in New York, people who are building this new startup scene. Those are people who have been hungry for new ideas about entrepreneurship and have been really rabid, early adopters of this idea and many others.
The problem is in people who don’t even think of themselves as entrepreneurs. They are people who are managers of big companies, but also managers of startups outside of the really hot innovation hub.
Some of the fiercest critics that I’ve encountered in my travels are people who run what you think of as traditional small businesses. They still fundamentally believe in the power of a good business plan to lead to success, despite all the evidence of the contrary. But we still have this deep belief as humans, that if we just plan well… we can stay in control of our future.
So there’s all those people. And then there are the people who hold them accountable. All the investors from private equity firms, VC firms, but also corporate CFO’s and frankly thousands of investors and entrepreneurs, all of whom are trying to figure out is this new, bold, visionary, crazy or brilliant? Is this thing on the brink of incredible success or hopelessly doomed?
And right now we don’t have good tools as a management culture for figuring out if the entrepreneurs are actually making progress or just stuck in the mud. And so I believe that the Lean Startup movement has something to say to all of those questions, that we actually can create what I think of as a new accounting paradigm to figure out whether new ventures are making process or not and do what we call the pivot if we discover that we’re not making progress.
If I want to get those ideas into the heads of the people who are causing the problem, who need that information most, blogging is not going to get it done because like I said, those people are not reading entrepreneurship blogs. And still today we live in a media environment where the way you change scenarios, the way you introduce a new idea into that mainstream culture, is still through books.
Pike: How did you use the Lean Startup approach to write your book? Or did you?
Ries: Oh, I certainly did. And it made many people in publishing deeply uncomfortable. It led to some quite hysterical moments.
Let me just say that publishing is going through its own set of disruptions. I think the people who are in the trenches trying to figure it out are really dealing with a very difficult situation. You know, there were two strands to using the Lean Startup method for the book and I wanted to use both of them.
The first is figuring out not just how the book should be marketed, but really at a deep level how it should be positioned. So what is it about the book that people will find resonant? And that includes everything from how much the book should cost to what it should be titled, subtitled, what the cover should look like, what the marketing method should look like, what my author photo should look like.
I mean, every detail about how the book is presented to an audience are things that can be empirically tested. So unlike the standards for publishing, this book comes out this coming September, and we have been pre-selling copies since last September. So for more than a year, this book has been available for preorder, way before the book was on Amazon, way before we even knew how much the book is going to cost.
We have had early adopters buying copies knowing that they’re probably overpaying dramatically for what the cost should be and trying to figure out ways to make it worth people’s wallet to preorder, not just as a way of selling copies, although that’s something great, but to give us a data set of people who we can then run experiments on. And of course, part of the deal I have with my early adopters is… everyone who preorders gets to go behind the curtain and see all the experiments we’ve run and see what experiments we’re running on them at the time that they bought. So that’s been one strand. And then the second strand is really about the content itself. So, test readers and surveys and workshopping the material and getting a lot of feedback.
Once we make the right pitch to people to get them to give us a try, how can we fine tune the content to really make sure that people understand it, can digest it, and more importantly make the change in their own behavior that we’re trying to get towards?
Pike: What trends are you noticing that you think are most interesting about these pre-orders?
Ries: I’m an engineer by training so marketing is not something that comes naturally to me. And when I think about ways to market the book, I have a natural engineer’s inclination to think that if some is good, more is better. And so bigger is better, more, more, more, add features, add features, add features.
And that’s a classic mistake that a lot of engineers make. Well I made the same. I had the same preconception coming in for the marketing of the book. I thought if we’re going to get people to preorder we need to give them really exciting incentives to do so. And so we’ve done two really big bundle preorders where basically if you buy the book you get tons of other goodies all at the same time.
You get a huge bundle of stuff all for one low price. And the first one we did was very successful. It sold thousands of copies. And it’s basically, you buy the book… [and you get] maybe five hundred dollars or one thousand dollars worth of stuff that we had gotten from partners who were all excited to be part of the book launch. We thought, “Boy if that was successful, let’s do something even bigger.”
And so at South by Southwest this year we went absolutely nuts. We had a full day track at South by. We had a complete conference that we put on all day. And then we had this huge bundle that if you bought it you got five thousand, six thousand dollars worth of services and products all included in the bundle for one price.
And then that purchase entry was your entry into a contest so you could build something with all those tools in order to try to win this contest and the contest had incredible prizes including more than $100,000 of investment from different VCs who were all excited to be part of it, but who also got thousands of dollars in hosting credits. I remember we gave away a Microsoft Xbox Connect and just every kind of prize you can possibly imagine.
People got to come out to Silicon Valley and get spots in different incubators. Get time with mentors, I mean, it was just a huge project to do this massive thing. All because here I am saying that bigger is better. It was way more work than the first bundle, and I’m sad to report it sold the exact same number of copies as the first one.
It was probably ten times more work and a hundred times more value in terms of the total prizes. I mean we’re giving away more than $100,000 worth of stuff. I was really shocked by it. I was just so sure that that was going to work because I thought that in order to get people to promote it what we really needed to do is make it worth their while, sweeten the deal.
And I completely missed what I learned in the wake of that especially talking to a lot of people about it and trying some other experiments. That we had actually neglected to do the really simple thing, of just asking people to be part of this movement and have a chance to preorder the book and explain why we wanted them to preorder the book.
And so we did a third experiment which cost us exactly zero dollars, which really just makes the case to the people who’ve been in the movement, who have been the fervent supporters of this from the beginning, saying “Listen, if you pre-order this book you will help it debut as a best seller. You will help it get into the hands of those very people I was talking about a minute ago who really need this message.”
And we did that experiment about a month ago and the book went to number three on Amazon overall just behind two SKUs of course from George R. R. Martin because his book was about to come out at the time.
It was so interesting because if you look at those three experiments, one was much cheaper, much easier, much more effective than the other two, and yet it took us doing all that experimentation to figure it out. If we had just had blog posts at the beginning, I don’t think we would have been able to pitch it right, and so I think it would have been a big failure.
Pike: I feel like I should do a follow up blog called the Fat Marketing Approach and talk about your situation.
Ries: That’s right.
Part 2 of our interview with Eric Ries is now live. Thanks for reading!