Eric Ries: From Lean Startup to Long Term Stock Exchange

Eric Ries, creator of the Lean Startup, discusses his journey from tech CTO and startup founder to the creation of the Long Term Stock Exchange.

This is a great talk in which Eric Ries discusses the origin of the Lean Startup, it’s unexpected consequences and why it was always about long term value creation. This led to him embarking on a journey the led to him becoming the founder and CEO of the LTSE, a national securities exchange created for companies across industries with a long term vision that includes inclusive and sustainable business practices.

He discusses why he felt the LTSE was necessary, what had to change in the world for it to be possible and how he took a lean approach to building and launching a business in a highly regulated and established market.

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Transcript

Mark Littlewood 

Eric you started off as a tech CEO, or tech CTO and company founder. You pivoted and became a kind of management theorist and author coming up with and really popularizing the concept of the pivot, which became quite a misused term on many levels. Then you became co founder of Long Term Stock Exchange. It’s been a really interesting journey. How did you come from tech CEO to this thing? Let’s start with the Lean Startup. What was the origin of that?

Eric Ries 

Yeah, I guess you’re right. So yeah, I had been a tech CTO, I was always the tech co founder and the startups that I did, you know, from my dorm room and in Silicon Valley, and I was on the technical side of the house. And for whatever reason, I was involved in a series of startup failures, you know, as in I wrote about them in Lean Startup. It was very shocking to me, you know, I was a good student, I got good grades, you know, I really believed like, if you do what’s right, good things happen. And of course, you know, like, in the real world, there’s almost no correlation whatsoever between your effort and the outcome. But I didn’t understand that. And, and so this repeated experience, there clearly is the startup magic that other people are getting to experience. But when I try to use it, and when I tried to follow the best practices, and when I tried to do everything, right, it blows up in my face.

Eric Ries 

I think some people just decide they’re unlucky, somebody will just try again. But to me, I had this intellectual question of like, why? What is happening to me and why? And I’ve always been the kind of person that wants to know the answer, like, why is there a better way? If you remember from the original camel book, Larry Wall says one of the virtues of programmers are laziness, the cardinal virtue of a broad lazy, you always want to find a better way, the easier way that I’m that way, I would love Perl for that reason. And learned of its problems the hard way. So like it was the set was the same kind of thinking, to me, it was like, but there’s got to be a better way. Because we’re putting so much energy and effort of so many talented people in we’re getting such disastrous results. And I wasn’t the only one, you know, but I moved out to Silicon Valley, and I had many friends who were in startups, and many people were founding startups, joining companies. And, you know, you really got to see it all up close. And I just, I had this kind of feeling that something was missing, something wasn’t right. But I didn’t, you know, I wasn’t like planning to do anything about it. I was really just trying to answer the question for myself.

Eric Ries 

There two two related questions, one, why the things that everyone says will work? How come those things don’t work? And then how can the things that seem intuitive to me that do work, people think are crazy?

Eric Ries 

I have to admit, I was like, I noticed I was considered a complete lunatic by almost everyone I met with because I was like, we should do continuous deployment, we didn’t even have terms for it, then. I have to, like, scramble for the pivot. We should pivot! We should bring customers into the process early, we should use the scientific method to make decisions in a business context. And like, I get that some people like I was kind of expecting with those ideas that some people would agree, some people would disagree, you know, whatever. We, it’s like, you know, whether what, you know what programming language we use, or whether we don’t drink, I didn’t think it was that big a deal. And people thought I was absolutely crazy. Like, I just can’t even express to you how controversial these things were at that time compared to how things are now.

Eric Ries 

Really? hese ideas are quite well established in manufacturing, for example, right.

Eric Ries 

And that’s what’s the funniest part. To me, the thing that really blew my mind is people taught, I was taught, the manufacturing metaphor of software development. The work product of software goes to this assembly line from stage to stage to stage from, you know, business requirements to specifications. You know, we call a business design document, technical design document, implementation phase, QA, operations, deployment.

Eric Ries 

It’s a very linear process, you have the release, train, every train leaves the station at a certain time, you have a code for you. Everyone’s done this, right, like, classic waterfall Stage Gate development. Anyway, that was taught to me as the manufacturing metaphor. And when I wrote my first book about Lean Manufacturing, I was so upset, not only because I didn’t know about lean manufacturing, and it was it’s a beautiful idea, you know, apart from just like the practical consequence, I just needed like, intellectual beauty to it.

Eric Ries 

But then I was like, wait a minute. They haven’t done this in manufacturing for decades!

Eric Ries 

So the manufacturing metaphors, a lot of crap. And so it was like, wait a minute, well, what I was just like what could possibly be our excuse that in software development, the field that was just invented five minutes ago? Well, we have complete freedom. We have absolutely no inventory costs. We make physical machines, you just programme a computer, do whatever you want. We’re using this outdated weird like 1920s idea. That just was so mind blowing to me.

Eric Ries 

When I look back on it now, I didn’t have this insight at the time, but I think at when I look back on it now, I think it was a real emperor has no clothes moment to me, that like not only were all these kind of grand Pooh, Bahs, and you know, famous and rich people I was around who seemed like they had all the answers, like, not only did were they wrong, but they didn’t even care. Like they hadn’t even, they were using the manufacturing metaphor of software development without anyone having even like, googled it for one minute to go see if that was a true metaphor. Like, they just were not intellectually curious at all. And it was just accepted wisdom, and it had no basis in reality at all.

Eric Ries 

And so that was very radicalising to me, but I didn’t get I wasn’t trying to write about it. I was just like, Okay, great. When I do my next startup, we’re doing a different, you know, so help me god, that was I was I’m gonna make new mistakes in my new startup. And, you know, as I wrote about this ion the Startup Way. I was able to put a lot these ideas into practice, and I wound up having to write about them first, not even before I ever blogged about them.

Eric Ries 

I couldn’t, I had a huge problem with like, new employee orientation. Because when you’re a startup, if it’s working, you’re growing, you’re hiring people, that people are often older than you more experienced than you. They’ve seen it before. And you can imagine what it was like for people to be like, kid, this is not how software is done. This is not how startups are done. This is not right. You’ve got it all wrong.

Eric Ries 

And I mean, I remember we were hiring a new CEO for the company. I remember after a certain point where we’re getting into like, almost like a shouting match with this candidate, job candidate who wants to come work at the company thinks that we’re totally crazy. And I’m just like, I’m trying to stay calm and just explain to you why we do it this way. And what the evidence is that it works. They just did not want to hear it.

Eric Ries 

And that was the issue. No one wants to look at the evidence that something works.

Eric Ries 

They needed to understand the story of why it works. And the truth was, I didn’t know the answer to their questions. I didn’t know why it worked. It was always this has always seemed intuitive to me for whatever reason, so I had no idea. It just made sense.

Eric Ries 

Like the first time I ever read Kent Beck’s Extreme Programming slides like this is obviously right. I mean, I remember feeling that way about free software. And I’m reading like, Eric Raymond and Richard Stallman, like, well, obviously, these guys are right. I didn’t know it was controversial. It seemed obvious to me. And so like, you know, I’ve just been that kind of person where like, some things seem obvious to me. And then it takes me years or decades even, to be able to explain why. And so I got really good at explaining why I had to we couldn’t, we couldn’t retain engineers, people would quit. So like to explain why people wanted to know. So I spent years and years and years trying to explain this to people and trying to just and get the answers myself, like I can’t explain it’s like, to me, it’s always came out of a personal desire to know what the truth was. And when people will come to me with a new objection, they’d be like, well, sure, it could work here. But it could never work over there.

Eric Ries 

My first impulse, like any of us, the ego is like, what do you know, I’m right, and be like, of course, it can work over there. But like I trained myself, you know, really hard to be like, wait a minute, is that true? Do I know that it can work over there? And why do I think that and what’s the principle? And what’s the experiment? So you know, I just I developed this, this conceptual vocabulary with terms like minimum viable product and pivot and all the rest. And then, you know, it was only after doing that for a long time that I started writing about it. And then it wound up taking over my life, that was never the plan. It was quite surprising.

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Hitting Product Market Fit with the Lean Startup

Mark Littlewood 

There were a lot of people that did speaking about things, but ‘Thought Leader’ wasn’t a LinkedIn recognised professional at this stage. Right? You have a great gift for explaining, you did a lot of research, you put a lot of work into it. It was a it was a fascinating thing. I remember when the book came out, the whole the world, or the world of software, was super, I mean, super, super, super excited about it. And it really did explode. And I think it was it was brilliantly, brilliantly written. And it you know, it became one of those sort of viral ideas. Presumably, you weren’t expecting it to kind of take off in that way?

Mark Littlewood 

No!

Eric Ries 

I had some inkling that something was up like I remember the first time I ever spoke at a conference about lean startup in the early days like I was so paranoid that, that my ideas were just copycat to somebody else, that I was actually, that insecurity motivated me to do a lot more research than I otherwise would have done. I was always convinced there’s somebody else had written this book already, and I just needed to find it. And then I could read it. That will be great. I can go back and stop this whole nonsense project and go back to my old life, which I like plenty well, but also then I’ll know the answer. Like you remember, for me, this is like, I want to know the answer I’ll never forget. Peter Drucker has a book about entrepreneurship. It’s out of print, because no one cares for Peter Drucker has to say about entrepreneurship, but me, but I was like, when I found out that was this obscure out of print, Peter Drucker. I was like, ah, ha, I am going to find this secret volume, you know, I hunted it down in a used bookstore somewhere, I was like, Finally, I will find out what the master thinks about. And now I won’t have to write my book. And of course, like, you know, it didn’t.

Eric Ries 

I was perpetually disappointed with all these secret tomes that I was finding the secret knowledge. And the first time I went to talk about this, I found out years later that I was like, in a breakout session in the in Moscone West. You better be in those spaces, they configure them for like 700 people. And what then, and there was no room in the venue to get in. I physically had to crowd my way through the people standing in the aisles to talk about it. And I just thought that was normal. I didn’t know. I found out years later, the other people who had that same time slot at the conference, were super pissed at me. Because like, that was like, that was like keynote size audience for a breakout session. That’s not supposed to happen. But again, I didn’t know it was unusual. I was like, Okay, people seem really excited. And I gave my talk, and I was really nervous. And you know, it was the first time I’d had a big audience like that. And I remember, this was in the days of unconferences. So the they had arranged an unconference session immediately afterwards to answer questions about lean startup. And I remember going to the second one, so I am in the breakout, the first breakout is like a big Moscone West 700 person room. The second the unconference is in a little classroom, you know, in the bowels. Somewhere that can hold, you know, 50 people. So I’m going there and in the corridor to get to that classroom that does, it’s packed with people and I can’t get in to the room. And I was like, God, the previous speaker is being really rude. Going over time, not letting people out. And so all if you want to come see me, you’re now stuck in this court. I’m standing there being like really mad. And a friend of mine comes up to me, it’s like, What the f are you doing in the hallway? And I’m like waiting for the previous he’s like, You idiot, these people are here for you. They’re all waiting for you. There’s no previous speaker! Nobody comes to an unconference to do that. This is a very unusual thing that’s happening. And I’m like, Okay, I guess. So. Like, I had some inkling that something weird was happening, like people were excited about it. But the idea that that was going to translate into this kind of like mainstream acceptance and like global reach with I mean, millions of people read this book like I had no, I just had nothing to compare it to. I had no way of judging. It was all new and strange every year for a lot of years in a row.

Eric Ries 

Yeah, I guess Radacanu must feel a bit like that at the moment. (The day after she won the US Open)

Eric Ries 

They always talk about product market fit. You know it, when you see it, boy do you know, you see it?

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Mark Littlewood 

Yeah. So it took me by surprise. What were the unexpected consequences? I knew this was a thing as well, because when you launched the book, and we did some book launches with you in the UK, we had a venue and before we even actually opened it but the registration was live it was filled. We went in about three weeks over Christmas from a venue for 150 people, to 300 people to 750.

Eric Ries 

That was a fun event. I remember it!

Mark Littlewood

It was quite a nice stressy kind of type Christmas but it was great. It was fun.

Eric Ries 

Sorry about that!

Mark Littlewood 

No! It was great fun.

Eric Ries 

It’s a strange It’s a strange thing and the fact that it had global appeal and that people different different industries and cultures embraced it like I I have a lot of gratitude for it now to me, it’s just it’s a beautiful thing that like the truth rings out and people gravitate to it. But it’s it was very strange. It took me it took me a long time to get comfortable with it. Like being asked for my autograph. People taking selfies like that, you know just like the kind of the thing like a little bit famous I can’t imagine people who are actually famous how they deal with it. But even though that little bit I found it very unnerving and took me a while to kind of get get my bearings with it.

Mark Littlewood

I remember when we were launching in London we ended up at Downing Street. It was all quite, quite weird. People were really interested in this stuff.

Eric Ries and The Lean Startup hits 10 Downing Street

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The unexpected consequences

Mark Littlewood 

What were the unexpected consequences? What were the kind of downsides of that? Not from a personal perspective, but in terms of, you’ve been thinking about this idea. You’re quite a data science driven individual, you put a lot of thought into it, what were the what were the sort of unexpected outcomes?

Eric Ries 

Well, first was people in a really unusual variety of industries and situations want to use the ideas and wanted to talk to me about it. And at first, that really felt I was not interested, you know, big companies wanted to do it. I’m new I’ve ever noticed, we don’t do this transformation work and innovation working in big companies. Governments wanted to do it, I spent time with defence, defence departments and government stuff and weird secret labs. And just like, I’d say, it’s taken me to some very, very, very strange places.

Eric Ries 

And it raises a lot of questions about like, what’s your responsibility as the author, you know? Someone just sent me a clip from a book, a book, it was written about Juel, the terrible tobacco startup. There’s an aside in the book that they use Lean Startup to find product market fit, and they thought it was great. And I was like, Oh, that’s not what I want.

Eric Ries 

Philip Morris wanted to pay me a lot of money to come consult with them. And so like, it’s easy for you to like, No, I’m not doing Philip Morris. I wouldn’t do that. But then what do you do when the DoD called? What you do with these guys? So like, the moral questions of like, who? What, what’s your responsibility as an author for the way people use and misuse your work, like always weighs on me. I didn’t expect that.

The blame game

Eric Ries 

Then of course, the main downside of putting anything out into public is people misuse it. Then blame you for it.

Eric Ries 

So that’s, that’s the most common thing. Like it’s very, very common for someone to be like, lean startup this crap. And you’re like, why is that they’re like, because I used it to like, shoot myself in the foot, you know, with a bazooka. And you’re like, well, on What page did it say to do that? And they’re like, Oh, I never read the book. I just, you know, I just heard it about it from whatever.

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Celebrity VCs and entrepreneurs

Eric Ries 

With other famous people, certain famous VCs and other people. What I found out was very strange. People who are powerful and famous, if you get to them at the right time, you personally present it to them and explain what it’s about, then they can become your allies and get on board the bandwagon. If you get to them too early, it’s crazy. They dismiss it prematurely, and that creates a problem for them. But if you get to them too late, it’s also a problem. So a lot of Silicon Valley people, even now you still find them, they’re still around people who are very powerful in the Silicon Valley ecosystem at the time the book came out. There’s a real divide between the ones that knew me personally, and I got to talk to them and they got they got a gentle introduction to it, versus the ones who found out about it second/third hand from some entrepreneur who is saying something dumb. Then once you’ve become locked into the idea that it’s bad, that’s the problem. Once you come out against something, nobody ever goes back and says, actually, no, I changed my mind, actually, that’s thing is good. So you actually end up creating fault lines and fractures. I learned from that, and I saw that happen in Silicon Valley. I learned a lot from that.

Eric Ries 

I spent a lot of time when, people in the design community were starting to pay attention to it. I was at South by Southwest one year and I have a friend who’s a designer. I just said, listen, who’s the number one influencer for designers who are going to pay attention to us who do I need to go talk to? And they’re like, You got to talk to Jared Spool. Who’s that? Don’t matter who he is. He’s the guy you gotta go talk to. Was he at South by Southwest? Yes! My life became about getting a meeting with him to sit down and talk about it. I started to do that with the outreach to other communities and I was successful in some places unsuccessful in others. I had no clue that that was how ideas diffuse that was important to the creation of an intellectual movement. I had a very naive view of how the truth stands. So that was that was a pretty interesting downside.

Viral Ideas

Eric Ries 

Let’s talk about the Long Term Stock Exchange and long term value. I remember, possibly even in the Speaker’s dinner in Boston in 2010. You were talking about this kind of longer term value thing and it wasn’t called Long Term Stock Exchange. It possibly was by 2012 when we’re in London. People know a lot more about viruses and what they’re about now, just because they’ve been in the news, but that’s kind of Lean Startup thing is the perfect virus. It’s really small. The ideas encapsulated in a few little words. So it spreads. The other really, really insidious thing about viruses is they mutate. And so every time you’d pass them somewhere else, everyone’s talking about this same thing, the Lean Startup, and it meant so many different things to different different people. Did you ever decide, I need to push back against this and fight it? Or did you just want to drive forward?

Eric Ries 

Yeah, I have mixed feelings about it. I come, you know, because I mentioned being really into open source and free software. So I never wanted to have it be like a – I didn’t want to create like a consulting company. That’s the official consulting company of Lean Startup. And like, now we have a cult and our own thing, and our certifications, and black belts and all that stuff. Like when, when big consulting company started to co opt it. And companies were like, do I need to create my own version of this? Or can I use the like, I really wanted it to be open and have it have a community feel to it. So I tried really hard to cultivate that ethos. But I did learn something a number of the original agile people who became my mentors all said, it was a huge mistake not to trademark these terms. And, and we had a community became overrun by scammers, and we had no way to defend ourselves. So I adopted a policy of very liberal licencing as long as people use the terms correctly. So you know, if people are willing to like actually do the real thing, like I will meet them more than halfway and support what they’re doing, and I don’t need to own it. So it’s totally okay. And in fact that people have made a lot of money off Lean Startup. And that’s fine with me. Like, I think that’s good. But I really always wanted to push for intellectual coherence.

Eric Ries 

The flip side of it is, the positive part of all that variation is a lot of good ideas get generated. So like, yeah, a lot of bad ideas. And a lot of good ideas get generated. Lean Startup today is way more intelligent than what I wrote in the book 10 years ago. And we have far more practice and far like shooting lots and lots and lots of new ideas. So I also wanted to like encourage people to not define the movement narrowly around a doctrinaire attachment to specific tactics or even specific principles. But to really define it in a data driven way to say like, whatever works to accomplish these goals is lean startup, even if that means a precious things have to be superseded. And boy, do people not like that. That is not how human beings are wired.

Eric Ries 

I’ll never forget the first time someone called me and said, So and so other person in the movement is writing wrong things. You need to make them stop. And I’m like, what power? Do you think I have to stop someone on the internet from writing whatever they want, like, you know, like, we you have to make it stop, they viewed me as having a responsibility to excommunicate the heretic. And the fact that I have no such power was not satisfying to them. They actually became really upset and burned out. And we’re like, Lean Startup is bad, and you’re bad. And whatever it because you want excommunicate this person, it was like, I was like, Oh, now I see why there’s political infighting between factions, like to the point that’s a joke. I understand it much better now. And it’s like, so like, do you just you’re dealing with a lot of human drama that is not really, you know, strictly necessary.

Eric Ries 

Imagine! Imagine having that. I mean, having that power would actually probably be more of a PITA.

Eric Ries 

Anyway, I mean, who do you think, do you think I think I am, you know! Yeah, but people…!

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The Lean Startup and long term value

Mark Littlewood

There’s always been this idea you’ve had about long term value. I remember when we were in London, talking about different ways of valuing companies and thinking about long term value and you sort of remember saying at the time, this gonna happen, but it just can’t happen now because of blah, blah, blah. But you’ve kept going on. Tell us about that. Where that interest came from. How it’s evolved. Or how the idea evolved. And then what’s changed so it might work now?

Eric Ries 

Yeah, listen, just as I never thought I would become a management, whatever I did, whatever it is, I was doing, I don’t even know what to call that job. I hate the term thought leaders. I’m kind of from the Peter Drucker School he said people call me a guru because they can’t spell charlatan. I’ve always believed in that. So I don’t I don’t want to be a management guru. Please, please. No. But that’s what I told. So that was a pretty fun gig that I never thought I would ever get. And then yeah, how did I go from that become to becoming a financial services CEO? That’s a major downgrade!

Eric Ries 

What happened? What happened was my interest in long term thinking as a separate concept came out of studying Toyota, actually, because it’s a very, very clear in the research about Toyota. In company value creation in general, having a philosophy of long term thinking, is a prerequisite to creating institutions have lasting value. No one even remembers this now. But like, 10-15 years ago, there was a bit of a debate in the startup community about are we building thing? Is it built to flip? Or are you trying to like have an exit? Or are you trying to do something else? And there was this kind of like, there was actually like, an ethos of like, have an exit, quick flip, you know, make money sell your company to Google, like have life generation or what? Like, I’m not who might say that, like, blame someone who’s like, I wasn’t, I want to have $10 million? Like, I get it, I wouldn’t. But but that was like a thing. And for whatever reason I always really felt. I felt like no, that shouldn’t be our goal here. Our goal should be institution building.

Eric Ries 

Even if you read the Lean Startup, there’s a lot of long term stuff in there – the end of the introduction is about management, second century, and building institutions with generational impact. I thought that seemed like a worthy objective for the use of these energies and talents and ideas, not just, whatever, quick flips to Google Plus. Most companies that exit, the ‘thing’ is destroyed in the process of the exit. So it’s not even good! You make a lot of money, but you did it by killing your baby. It’s actually kind of a sad thing. And so I had that interest. It’s very clear in the research, if you spent five minutes with the academic literature on what creates value, like long term thinking is, is very well established as a critical prerequisite. And again, people thought it was a bit crazy. It’s funny, even after Lean Startup started to become popular. There were a lot of people were like, This is great. It’s all about being short term. MVP! Pivot! Fast! Fast! Fast! You fail fast, I hate the phrase fail fast! Like I’m gonna want to fail fast.

Eric Ries 

It’s a confusion about what is the input and what is the output, right? People are celebrating the exhaust that comes out the tailpipe, rather than how fast the vehicle is going. And so people get really confused about it.

Eric Ries 

So anyway, so I was like, no, if you want to be able to go fast, it only makes sense to use Lean Startup in the context of a long term plan. Like if you don’t have a scientific theory, no experiments don’t do you any good. You have to be able to make falsifiable hypotheses and also talk to me, it just seemed like a natural extension. And anyway, remember, I said that when people would ask me questions, I didn’t know the answer to my first instinct was to hand wave them away. And you know, tell them they’re wrong. But then like, afterwards, I would be like, Hmm, I better find out the answer that question.

Eric Ries 

One of the questions I used to get all the time in those days was, hey, hotshot, you’re saying that we should try to build the next Toyota, or be the next Jeff Bezos or Warren Buffett. But then why are you also telling us to build venture backed companies and take them public? Everyone knows that taking a company public, you’re taking it into the most short term governance structure in the history of mankind. So it’s impossible to do what you say? And say it was a gotcha question like, Haha, gotcha.

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Public markets and short term value, the gotcha moment

Eric Ries 

My first answer was, I never told anyone to build a venture backed company and take it public. Like, like, hold on, man. I have no idea if that’s a good idea for you. Like don’t Don’t, don’t project your nonsense onto me. And that answer did not work at all. No one wanted to hear that.

Eric Ries 

I tried a lot of other hand wavy answers to that just like I found them really unsatisfying. And then I was like, you know, it’s actually a good question. There must be a wrong premise in this question. Surely, the public markets do not destroy companies? I can’t be right! With this built in assumption, I must be wrong, I better go learn more about it. And all you have to do is research the public markets for five minutes to find out that that’s actually the premise embedded in the question is correct. And my advice was, in fact. I was so upset, I was like, Wait, what are you talking about? This is not my department. The world’s supposed to work? You know, I just assumed that our institutions are like functional. The more I learned about it, the more I was like, this is horrifying. We’ve made a fundamental error somewhere along the way.

Eric Ries 

And then I was like, well, that’s okay. I’ll just go look up how Toyota does it. And then I’ll recommend people do it like Toyota. That was my like, go to solution to a lot of things back then you don’t like I’m borrowing from lean manufacturing, it will go all the way. So I go and I look up like what’s Toyota is corporate governance and like Toyota has the old Japanese Keiretsu system of co-ownership as like this like, corporate governance nightmare of like co-ownership between their vendors and their suppliers. And if you’ve ever studied it, it’s like, nobody, nobody does that anymore. It is an antique that has been grandfathered into the world economy because it’s Toyota. Even in Japan, they don’t create new ones of these anymore. Everyone knows this is bad. And then I was really upset. And I’m like, Well, how did Jeff Bezos do it?

Eric Ries 

Jeff Bezos. His story, it’s like, we’ll do this very bizarro set of circumstances including this massive transaction. They did like five minutes before the.com bubble burst, he had it completely free and you’re like, Oh, well, that’s not replicable. So I was looking around, like, is there a replicable model that I can point people to to say, here’s how you build long term value in spite of the there isn’t one. And I just, it hit me like a you know that like a bolt of lightning or you know that people have those those metaphors for the like, it really hit me like I can remember I was sitting in a specific place at a specific time it hit you know, this is messed up. I can’t leave this book open ended and leave this question unaddressed. I have to say something about this.

Eric Ries 

The only solution that I could think of from like, obviously no need to reason from first principles that like I said, my go to is borrow after borrowing fails, like the last resort is Think for yourself, and be like, I have to think for myself. All right, what is it? And I was like, what are the principles here that matter? And I, you know, I started to work it out from first principles, well, we need a way for those companies. And those investors who genuinely are long term in their orientation to come together for mutual benefit, we need to enforce a new social contract among those participants. We’re going to need an institution to act as the mediator and regulator of that behaviour. And I was like, so what could that be? It’s not a union. It’s not a library, you’re just by process of elimination, what could it be?

Eric Ries 

Well, it has to be a stock exchange. That’s the institution of our society that regulates this behaviour. That’s what it’s for. I didn’t know anything about finance or stock exchanges at the time that I made this deduction, nothing. And I figured, well, I’ll just put it in the book as an idea. And see what happens.

Eric Ries 

The best part about being an author is you get to write that final chapter where you tell other people what they should do. And that’s really fun. You just like somebody should really do this And someone should do that! Someone should fix education and government and fix this. And I was like, while I’m at it. Fix capital markets to why not? So anyway, so I put in the book. And I’ll never forget this.

One page to destroy your credibility with VCs!

Eric Ries 

You remember how obsessive I was about putting test copies in the hands of test readers, you got to pre release copyright? Yeah. I wanted feedback to see if I was on the right track, I was really ended eating my own dog food and MVP. So every aspect of the book was tested, and AB tested and feed focus grouped and surveyed and dislike to death. And so I’ll never forget, one of the test readers I gave it to was a prominent venture capitalist. And he writes me back and he says his books pretty good, except I’m like, Oh, God, what’s it going to be? He’s like the first, you know, 299 pages are pretty good. But on the last page, you have this idea about the long term stock exchange. That idea is so bad, that in one page, you systematically destroy all the credibility you built up over the preceding 199 pages. You have to take it out. That’s how bad it is. And I was like, that’s, that’s strange. It was fascinating!

Eric Ries 

Thanks Marc! (Marc Andreessen! Not me!) That’s interesting!

Eric Ries 

I didn’t say who it was! And what was amazing about it is that is exactly how people respond to lean startup. If you remember my original story, people thought it was off the wall bonkers, crazy. And that’s what people thought about this idea. And I think because of that, I didn’t take it out. I was like, this is fascinating that he cares so much about it. Like how interesting. So anyway, most people didn’t care. He you know, it was only one test rater. And listen, if you’re gonna ask people for feedback, you have to be prepared to ignore it. Otherwise, you’re just gonna wind up design by committee, right? We all know that. So I was like, I kind of filed that away. It’s like, that’s interesting. And I just published the book with the idea in and then he was not the only one who felt that way. I mean, it is it still is, to this day, a very controversial idea.

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Is capitalism inherently flawed or am I missing something?

Eric Ries 

I remember the Wall Street Journal wrote a profile of me when the book became a thing last year, I had to write about it. And that they actually literally wrote an article, You won’t believe this guy’s crazy idea. And it’s like, he’s got this crazy idea for a long term Stock Exchange, ha ha ha, the craziest in the title of losing the headline was like, wow, the Wall Street Journal really feels that strongly about it. I was and I thought, you know, surely reforming education and all this other stuff would be way more controversial. Like, no, there is nothing more controversial than like fixing this bedrock problem with capitalism. So it just I didn’t think I was going to do anything about it. It was just an idea. But it was an idea that would not leave me alone. And the more people told me I was crazy, and the more it was very polarising, some people thought it was awesome. Some people thought it was lunacy. And I just, I was curious. And again, I wanted to know the answer.

Eric Ries 

You know what? People think like the criticisms people would make would range from like, this is immoral and anti American, you know, ranging down to this is just impossible. Sounds good, but it’s actually impossible. And I was like, and that’s a pretty wide range. There’s a lot in there, you know? And I was like, I’m now I started to like, you know, what’s the answer? I was I was just like, well, just, I’d like to understand why. If it’s impossible, why, if it’s a bad idea why and that I felt like I went down the rabbit hole with this, you know, over years and years of research and trying to understand it. I was waiting just like I did with Lean Startup, I was waiting for someone to take me aside and say listen, kid, you don’t understand this can’t be done because of some obscure thing you don’t know about. And then they would explain it to me. And I’d be like, relieved, like, Oh, good. I can go back to my old life. And leave them this will leave me alone. Now that I know that it can’t be done. It will leave me alone. But that never happened. Not because people didn’t try to take me aside, but because the things they would take me aside and say made no sense. They made less than no sense, they were just ridiculous. Just So Stories about how the world is perfect and can’t be changed. So you shouldn’t try. And once I started hearing that, that’s like waving a red that’s like a red flag to a bull. You know, I just I had to know. And here I am.

Mark Littlewood

So what happened? Because I think when you first had this idea, I mean, it’s fair to say it would have been difficult for you to conjure it out the air. Some things have changed. What’s changed in the markets? Why? How Has it become something that’s real?

The Lean Startup approach to fixing public markets

Eric Ries 

Yeah, so I’ve been working on now for about 10 years. And if you divide that time, roughly in half, it’s five years of wandering in the wilderness, trying to answer the question of like, how do you even get started with such a thing? What would you even do? What’s the first step?

Mark Littlewood 

Presumably, you would have used a lean approach? πŸ™‚

Eric Ries 

Right? Right. So but like, you have a lean approach, you have to at least have a hypothesis that you can then experiment with. And it’s like, when you talk to people about this, it’s kind of like people react as if you were saying, You know what I’m going to do? I’m gonna build and launch a new moon. And they look at you like, first of all, we already got one. Like, we already have a moon we don’t need a new moon. I also mortal humans don’t create celestial bodies. Like it’s a category error. That’s just not something people do. It’s it’s a crazy thing to talk about. It’s like complaining about gravity, there’s just things are the way they are you don’t there’s not something that you change, change other things, but not this. So it makes it really hard to formulate an experiment like what do you just what do you do?

Eric Ries 

So it took me five years just to answer the question like, how would you even go about this? If you wanted to do it? What kind of team would you need? What kind of lawyers do you need? Who and what do you know? And until about five years.

Eric Ries 

Then it’s taken five years from that point to build the company raise money, you know, we got the regulatory approval, we just did our first listings, you know, I’m sure people who are interested have followed on the news. So it that that like, pivot point to go from this is a crazy idea to like, actually, no, there’s something that can be done here took a lot, a lot of work.

Eric Ries 

It also required wider changes as you said. The world has changed quite a bit to like, now especially, you have the rise of ESG investing, you have much more employee activism, you have much more social consciousness among founders and investors, you have the kind of demise of some of the first and second generation tech companies that seemed like they were very idealistic and doing, you know, going to save the world and it turned into malign monsters like, you know, like, there’s that stuff like but even even just the change in like how companies raise money and the demystification of Wall Street, though kind of rise of California has a power centre in its own right, there’s just a lot.

Eric Ries 

The ethos is very different now. There’s a real recognition. And you’ll see if we have another .com collapse tomorrow, this may change. But right now, we’re in a moment where people really are increasingly recognising that the companies serving their customers is the source of the value that the rest of the system trades. So like that the founders and the employees that stake stakeholders of the company, they’re the ones with the real power here.

Eric Ries 

It’s a reversal of the way that our society tends to treat the like rich and powerful, you know, the Wall Street traders and the private equity guys. As capital has become commodified, it’s become less and less and less of a big deal to raise money for things. That’s a pretty cool, that’s a pretty cool moment.

A breakthrough moment. Fill out a form!

Eric Ries 

I think that that has helped that it’s helped a lot. And then just what the like, we’ll just say one funny story about a catalysing event. I remember so one of the problems with starting something like this is it requires a tremendous amount of insider knowledge of how the system works, just from a legal regulatory technical point of view, but the vast majority I’m talking about, like 99% of people who have that insider knowledge are currently profiting immensely from having that very, very profitable knowledge and you’re like, why would you help me change the system by which you yourself profit immensely? Most people are like, Why No. Why? Why No, thanks for asking. I won’t be helping you with that. So anyway. Yeah, all right. Yeah, exactly. I have literally been, like ejected from conference rooms over this idea. It’s all bad and, and I finally found a lawyer who’s like, for whatever reason was like not such an insider. So he’s like, Oh, that’s not that hard. Like, you know, it’s after years of people telling me it’s impossible. It’s like, No, you just need to file a Form One application. And I’m just like, cannot parse your sentence like, what does that mean? And he’s like, it’s a form, like a what? He’s like, you know, how government forms are all numbered, you’re looking at government form, and as a whole number at the top, and like, yeah, it’s okay. This is literally SEC form number 001. The application to establish a national securities exchange, there’s a legal and regulatory application form.

Eric Ries 

It’s the number one most important form in the SEC system, it is the foundation of all other forms that it is the most important form. It’s called form one.

Eric Ries 

I was like, it’s a form, what are you talking about? He was like, yeah, now it’s a pay the form is 400 pages long. Like, it’s not an easy form to fill out by any means. But like, to me, that was like a shattering realisation after like, people were telling me for years, this can’t be done. And meanwhile, there’s a form that no one’s told me about. What does that tell you about the system, right? Like, that’s very, very revealing about what’s going on here. And so, you know, it was just years and years and years of realisations like that, that like this is not the system was not handed down by any divine authority, Moses did not inscribe it on a tablets.

Eric Ries 

Most of the things that are causing the most destruction in our world right now are relatively recent innovations. A bunch of them were illegal, like 25 years ago. So if you have any kind of scope of history, you’re like, wait a second, what have we done? Like the tail is wagging the dog? We’ve built this system that optimises for the wrong things. And once you see the world through this lens, you will start to see this problem everywhere. Because then you’re like, oh, environmental degradation. Why is that happening? Like I know why it’s happening. But let me look at the compensation alignment of the people making those decisions. Oh, look, right. Like, why are we having huge problems with diversity inclusion? Why are we at someone put regulatory capture in the chat? Yeah, like, why is the you name a massive problem that is like tearing this world apart, including, like, the new Rise of the new fascism and anti democratic forces, like, you name me a problem, I can show you how this is related to that, and that you’re like, wow, we have a chin. And it’s like, that was terrifying to me. But then it was also like, you’re telling me we’re like this generation has a chance to inject a new consciousness about capitalism, right into the heart of the system. And all it takes is some 10s of millions of dollars. And some years of people are lying, like it was like, a pretty good deal if we could make it work.

Eric Ries 

Once I found out that it could be done, and then I was like, Well, I have to at least try. I’ll never forgive myself five years from now, I’ll live with this regret forever. So I’ve got to at least find out, you know, can it be done? And can we are? So far, so good.

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Milestones along the way

Mark Littlewood 

So it’s gonna say, what, what are the milestones? So I’m going to part from discovering that form number ones. Yeah, what were the what were the milestones you’ve celebrated?

Eric Ries 

Yeah, that was a really important milestone.

Eric Ries 

Figuring out how to put the team together like this is a very difficult team to assemble.

Eric Ries 

Figure out how to raise money for it.

Eric Ries 

Those were obviously very difficult challenges in the early days, especially because you’re like, hi, I want to raise money for this thing that like, even if it works, and has long term right in the name, so the IRR is gonna be terrible here. Like, it’s gonna take a generation to come to fruition. But on the other hand, like, if it works, we’ll solve a trillion dollar problem and the nature of capitalism itself. So we’ll probably make some money, but you know, probability of success low. So recruiting people and recruiting people to a project like that a suicide mission like that is not the easiest. But I think a big milestone was we, we discovered a call it took about pivots, we discovered the hard way many things that are not going to work. So this is also a bit of like chiselling out the correct thing by through process of elimination. So like, we went through a whole prior event with this, where we tried to get this thing approved in Washington, DC and failed. And I won’t get into what happened. It was like ugly and backdoor nasty stuff. And just whatever, whatever stereotype you have about what life politics is, like in Washington, DC, like I assure you, you’re far, far too optimistic and naive about it. It’s far worse, so bad.

Eric Ries 

By going through that process, I thought that was going to be the death of the company. You know, I thought, wow, we’ve been ambushed. We’ve been killed like this is the end. But in retrospect, and this is such a classic entrepreneurial situation, the world forced us into a pivot, that turned out to be the best thing that ever happened to us.

Eric Ries 

I won’t get into all the details on people curious about it. But like it put us in a much stronger position. It allowed us to come back with a better application with a better theory of change, a better technology platform like really strengthened us in every way. And it also it was a great learning experience for the whole team around the importance of Lean Startup. Because what happened was, we spent like six months, we had this plan to get to market faster. So we had this MVP, we spent like months and months and months designing, then we had to spend like six months and like a million dollars negotiating with different vendors. And we got the vendors to figure it out. And then we had to get then we had to negotiate with the SEC, it was like this multi month, it’s probably 18 month project, by the end of it. And we got it as close to the it’s like you marched down the endzone, and we got as close to the goal as you can get with while still failing.

Eric Ries 

It like failed at the last literally the last possible moment through shenanigans that are quite, quite unfortunate. So now the whole time, I didn’t know that was gonna happen. I thought it was gonna work. But the whole time I was obsessed with speed. Everyone. I was like, look, we’ve got to get this milestone done as fast as possible. And I remember like, tonnes and tonnes of time, we were like, look, we almost got this negotiation to the freaking point where a few last sticking points. We got to just wait a few more weeks to get it done. I’m like, No, we’re just going to concede that point. I was like, why why are we such a rush? We got time we got money. I was like, No, we are in a rush. Because the purpose of this experiment is an MVP, we are trying to learn what will be necessary to get all the stakeholders we need to Yes. And the sooner we learn that for the good or ill, the better off you’ll be. And so I was I was like, you know, to do this kind of project to hire a lot of people have never worked in a startup before. So like the majority of people that we’ve employed for LTAC. I’ve never been in a startup before. And so they have no idea about MVPs. And this has all new thinking to them. And so I was constantly at odds with the team about this and constantly I’m many of you are entrepreneurs, you know what I’m talking about, like you’re constantly trying to evangelise and push and be like, we’ve got to do it.

Mark Littlewood 

Like Ross going ‘Pivot’ in Friends!

Eric Ries 

Yeah! Yeah, that’s me, I just, I’m just that guy. So you get to this point where the team’s like, Oh, now I get it. Every piece of work that we did for the last 18 months is all being thrown away. So the extra month I spent polishing it up was waste. We are now and I remember that in the meeting where people were like, I am never letting this happen to me again. It’s a horrible feeling. Right? You never you like where we’re at. And the next the next iteration of it. I wasn’t the only one being like we’re cutting offs. People are like, throw in scope overboard. You know, like, there’s no tomorrow and the people who went through that experience, you know, they come out transform. And that’s really the power of the method. It’s not, it’s not when it goes, well. It’s when it goes bad that you can try, you can channel you can transmute those failures into successes. Because you have your eye on the correct prize, the physical thing you’re making is not the price of the Enlightenment, the internal experience and understanding learning. The truth is what is the that is the benefit.

Eric Ries 

So yeah, we had a number of milestones like that, that were pretty important.

Eric Ries 

Just to give you the chronology of it. So we first raised money in 2016. We got our formal approval in 2019. We started trading stocks right in the middle of the pandemic last year, q4 last year. We just did our first two listings last month. So each of those milestones was something that the vast majority of people we’d ever talked to about it said were impossible.

A two miracle business

Eric Ries 

It’s funny, even if you achieve one impossible, like our investors call this a two miracle business. You have the miracle of getting this thing approved. And you also have the second miracle of getting people to list on it.

Eric Ries 

That’s never gonna happen. What’s funny about the world we live in, and this is important for any of you who want to do any kind of reform anytime, is that after you do something impossible, I always thought doesn’t the fact that we did an impossible thing, number one, change your priors about the probability of us being able to do impossible thing number two? And the answer to that is no. And in fact, not only does it not change people’s priors about whether or not you can do impossible thing number two, it doesn’t even change their priors about whether or not you did impossible thing number one. So I even to this day, get people who deny that we have accomplished the things that we’ve accomplished. Because everyone knows it’s impossible. So how could we have accomplished it? And it’s like, I feel like it has been a fascinating opportunity to learn about our collective unconscious beliefs. And just like how, how we really operate in the world, how these systems are really fueled by these shared agreements that don’t actually have their basis. In reality, they have their bases in a kind of a shared delusion. It’s been, it’s been very mind expanding for me.

Mark Littlewood 

Fascinating. So I’m going to come back to be impossible in miracles in a minute, but the schtick for the exchange? Is it we find people that invest for the long term, not the nasty hedge funds stuff. So the people that are investing here are in it for the long term. We want companies that are in this for the long term. You’ve got some stuff you do to check that. Broadly speaking, so that when you raise money, as a company, you can spend time talking to investors who are more likely to understand your long term value proposition as an organisation?

Eric Ries 

Yes & no. So the ethos of what you’ve just said is completely correct. The mechanics of how it is implemented, I now run a regulated business. So I’m hypersensitive to the regulatory details of what we say. So like some of the mechanics of what you’ve said are not 100% accurate nor would you have had any way of knowing how to make them accurate. So just to say that I don’t endorse the mechanics that you just suggested, either, because, of course, I know what the answer is. But broadly speaking, you’re right, you’re more right than wrong.

Eric Ries 

Yes, at the end of the day, if you’re a company, who do you want on your cap table? You want people who share your vision. We have the data that shows that just the fact of having longer term investors on your stock, translates into lower volatility, less short interest and better returns, on average for companies and companies that have longer term compensation systems, same deal, better board alignment, same deal. So we’ve taken those best practices, and we’ve formulated them into listing standards.

Eric Ries 

We also provide technology that facilitates that alignment of interest and engagement with those long term stakeholders. So, you know, in the boring world of corporate governance, this goes under the heading of multi stakeholder capitalism, which I know sounds very dry and dull. But but it’s actually it’s very important, we’re talking about aligning the interests that govern the corporation, that’s, that’s a super powerful lever for change. And then that’s like the what of it, the why, or the benefit of it is like not only do you get these practical financial benefits, which are real, you also get this really important positioning benefit, because the most important thing a company needs is for the public to want them to exist.

Eric Ries 

So having the public’s trust is incredibly important. And so we talked about this as winning the public’s trust by making promises that people can believe. Because a lot of companies try to whitewash their own behaviour and it by just being like we intend for this to happen. It’s like, well, good, what are your intentions? What okay, what your intention is, the whole point of a corporation is you could be replaced at anytime. I need to know what are the corporations, structures that cause good things to happen? What are the commitments that you’re prepared to make, to show that you are in fact doing the things you say you’re doing, and especially for companies that have world changing ambition, I spent a lot of time now with purpose driven private companies that want to go public. And, you know, they’re in health care, they’re in education, they’re in climate mitigation, they’re, you know, they’re they’re doing things that where they literally have people’s health and well being in the palm of their hands. And I always ask them this question like a substantively, what are you doing to make sure that you are treating that responsibility appropriately with respect? And usually the answer is what do you mean? I have good intentions. So aka zero, nothing. And then second, even if you even if you were doing good stuff. Second question, why should anyone believe you? I think companies really have a blind spot about this. They just assume that their customers, their employees, and their investors will naively believe that they’re trying to do the right thing at all times. And that is not that was not a bad belief, pre social media, pre internet pre the information revolution, because we used to live in a world where most people had no access to information about most things. But that is not the world we live in anymore. People complain about virtue, signalling all the time. Oh, it’s virtue signalling. Like, guys, if you do anything in these days, you’re signalling, you can’t do anything good. Privacy is dead. You can’t do anything without it being a signal. So virtue signalling is just being virtuous? Well, that’s not bad. That’s good. So like, stop complaining about virtue signalling, start saying like, yeah, firstly, lot better than what a lot of people were doing, which is the opposite!

Mark Littlewood 

Evil signalling?

Eric Ries 

Yeah, and just like we live in a time when people like really being confused about these basic things. But if you look at the next generation of employees, the next generation of founders, the next generation of investors look at the rise of ESG investing. It’s like 25 30%, of all capital flowing into capital markets these days is going through ESG denominated funds, like the next generation has very clear values about these things. If you look at the survey data and the polling, in this next generation, there is a very clear expectation that companies stand up and do the right thing, or be held accountable. People do not want to work at companies that don’t do the right thing. People do not want to invest in old fashion companies, people do not want to buy products from old fashion companies. So that that is a permanent generational level tectonic shift in what human beings expect from capitalism. And it’s what I think personally, it’s what we should have been expecting all along. And it’s actually more of a return to an older idea kind of expunging a new and worse vision of this. But anyway, regardless, this is where we’re going. So, you know, for companies to kind of get ahead of this trend instead of being swept up in the back in the wake. I think is pretty, pretty smart.

Mark Littlewood 

I’m gonna leave you with one last question, which answer as shortly as you can because I’m very conscious that you’ve got time and I really would love to get some people in on this? What’s your biggest concern about the future of the Long Term Stock Exchange in the long term?

Eric Ries 

I’ve lived for a decade with the question of whether we would ever get listings or not. Like that’s been like an existential existential dread in my life for almost as long as I can remember now, and so being on the other side of that actually don’t really have concerns anymore. Because I think we have rolled this boulder down the hill, and we’re already seeing the signs that like the companies want to be in this club, like this isn’t like we’ve got credit, that we’ve catalysed the conditions for people to want to do this. And it’s a very natural and obvious thing. You know, if you care about what your employees think about you care about your public reputation, you care about, you know, any kind of long term sense of purpose for your company, like, it’s a pretty obvious thing. And the hardest thing was always to convince people that it existed.

Eric Ries 

Now, I kind of have the opposite, worried, like, I worry more now about, are we ourselves going to be able to live up to the opportunity that we are being given? Because now we’re going to be thrust into the spotlight, we’re going to be under scrutiny. We’re gonna talk, we’ve talked so much about injecting this new consciousness into the heart of capitalism itself. We’ve spent more time talking about the injection vehicle than what is the new consciousness. So actually feel like now the challenge is, how do we think bigger? And how do we make sure that we have that new conceptual vocabulary, kind of like we did with Lean Startup? How do we make sure that the movement is not satisfied with small gains and like incremental steps, but that we understand that these are just the first steps of a potentially decades or centuries long project to undo into expunge the ghost in the machine to like to correct this defect that is baked so deeply into our capital markets and institutions?

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Questions!

Mark Littlewood 

Amazing. Thank you so much. There’s some questions coming in. And I really, really love this one, Mary Lauran, are you there? Are you going to talk or should I read this?

Mary Lauran Hendrix 

Yeah, I’m here. I can speak to it. I feel like this has a really obvious answer. Maybe I just needed addressed head on. But like when you talk about the relationship between in a public market and like destroying value of companies, because there’s an emphasis on short termism, and then creating a bunch of externalities in the process, like negative climate outcomes, human rights violations, whatever. Like, what can you speak more about the relationship between those? And then specifically, how focusing on long term value and baking in investment incentives that are associated with long term value? How you think that eliminate some of the externalities like is it about the purpose focus? Is it about like, recognising that existing in the long term involves like not wrecking the planet?

Eric Ries 

Oh, man? Yeah. Boy, that is such a good question. And you’re right, that it has an obvious answer. But it is literally in the optical blind spot that we all have when we think about corporations and their and their purpose, like why they exist. And so I’ll give you the let me give you the socially acceptable, simple, but wrong answer first, and then I’ll give you the good I think to be the true answer. Just because it this is considered too esoteric for most people.

Eric Ries 

The simple answer is yeah, if you just change the time horizon, many these problems go away, because like, you just if you actually would try, if you if your life depended on the value of your stock, 100 years from today, you would not be in fossil fuels, you would not be in you know, diamond mining is like a whole bunch of things, you just obviously figured out that these negative externalities will eventually be internalised one way or the other. And if they’re not, then our civilization itself is at risk. And so like I what am I going to have stopped and the burning ruins of the remnants of our civilization, the post apocalyptic future will have a value is that so yeah, a lot of the problems can be solved through just just simple time horizon. And then you know, and we, of course, we use that language, but we also do a lot of multistakeholder stuff. So if you have true and if you have true incentive alignment, if you see your stakeholders or shareholders if you share the wealth of the people that you affect, if you have your communities involved in your governance and share the wealth with them, like obviously, these these extra, these negative externality practices become relatively less attractive.

Eric Ries 

That’s the like superficial and simple answer that people find satisfying, but it’s not really the true answer.

Eric Ries 

The true answer lives in the definition of the word profit. What does it mean for a company to be profitable? We have a deep, deep, deep confusion on this point, that encapsulates the two errors you’ve asked about and brings them together.

Eric Ries 

One, if I create money, I’m gonna say make profit if I make money in the short term, but I create massive negative liabilities out into the indefinite future that I will eventually have to pay that dwarfs the money I made in the short term. There’s no sense in which this enterprise is profitable. This is just a Ponzi scheme. We’re just temporarily making it seem like we make money while we dump our externalities on other parties, either the future or other stakeholders, right. So it’s, I just think it’s like straight up wrong to call that profitable on this Same way you should never call a Ponzi scheme profitable, right? Like what Ponzi to get some people, if you use our kind of contemporary of net profit, you’d have to actually say, a Ponzi scheme is profitable until it’s not profitable anymore. It’s like no, at no time, was it profitable? Because at no time did it create surplus value. It’s just an accounting trick. The whole thing is that accounting for that’s like one way in which profit is wrongly defined in our world today. But there’s a second way in which is wrongly defined, which is probably supposed to be about surplus value, that you take inputs, and you transform them in a marginal way to make them more valuable, right. But what if I destroy inputs in order to create the appearance of profit? You know, if I take something that is worth $1, and I set it on fire, I make it worth 10 cents, but I got it for free for because I stole it. Did I? Is that profitable? Nope. Me Like don’t when it’s not profitable. That’s just an accounting trickery. Okay.

Eric Ries 

But what if I profit by the destruction of a human life? Is that profitable? What is the value of a human life? We don’t account for that in our current, like, pathetic attempt at accounting today. So if I create environmental destruction, if I create addiction, unhealthy behaviours, if I destroy the communities that people live in, like, how am I really any different from like a sugar plantation that turned slave labour into a human resource that is destroyed for my benefit?

Eric Ries 

Is that profitable? I say, No. Profit is the creation of surplus human flourishing, that would not have otherwise existed. If we account for profit properly, it’d be impossible to criticise a company for putting profit over people. That’s not possible. It’s not profitable, if it’s disruptive. And so if you really think about that, you start to realise that like, there is this very, very basic error in our contemporary culture, where I don’t think capitalism is bad. But this error allows it to become maligned. Like this is the cancer at the heart of the whole thing. And what’s powerful about it, to me is that it’s such a simple conceptual error, it actually is a relatively simple fix the number of people that you’re going to have to convince to change their view of what profit is, if it numbered 100,000. I’d be surprised when I call the governance class of our society, like all the lawyers and accountants and board members, and exactly like how many of those people even live? How many schools are they trained that like the change is not that difficult, from just like, here’s a simple idea that needs to be transplanted into the heads of a relatively small number of people. So to me, although this is a like catastrophicly bad error that has been made, and the effects are depressing, and you see if you watch the news all day, I mean, it just you got to stop watching the news. It’s just very painful.

Eric Ries 

The flip side of it is, to me it’s a very hopeful message. It says that we can fix this problem. If we can find, as I said, the injection vehicles, if we can find a way to bring this new consciousness into existence, in the heart of the system, it could be radically transformed in a short time.

Mary Lauran Hendrix 

Thanks, that’s a lot to chew on. It’s awesome. Thank you.

Eric Ries 

Thank you. Love that question.

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Mark Littlewood 

That’s great. I’m, I’m going to suggest that we don’t dive down into the crypto wormhole. Six minutes, maybe we’ve got together. It’s really interesting, this thing about long term value? What are the what are the companies that you’re most excited about bringing into this type of exchange?

Eric Ries 

I’m actually not allowed to name names. It’s illegal. So I can’t give you the I can’t give you the answer except broadly speaking, I’ll tell you two things that I’ve learned.

Eric Ries 

To my great surprise in this situation. This is kind of obvious, but it’s actually profound if you think about this, as I might, like, everybody knows, but we don’t think about too often. Younger companies are far more idealistic than older companies. Why is that? You know, like, if you think about it, like people who face extremely long odds who probably are going to die who have a much worse quality of life, who were like, you know, they compared to like, you know, you make it if your startup is successful, like a certain point, you live like an aristocratic life of like, complete freedom and leisure. It’s like, it’s, I mean, it’s not that it’s not a hard job, but like, it’s amazing, okay, you’re like you have generational wealth. Everyone you ever meet tells you, you’re awesome. Yeah. And you can do whatever you want. And those people are less idealistic than the people come like, Huh, what’s up with the system? And of course, we know why the system corrupts. Makes people lose track of their ideals that forces them to compromise on their deepest, most profound beliefs which creates Well we all I don’t get into psychology and the spiritual side of it, but like creates an internal kind of psychic injury that leads to this, this wounding to leads to cynicism. So that’s no good.

Eric Ries 

But secondly, so we want to catch people before that’s happened as early as possible. And, and it’s relative, some people come through that process relatively unscathed. And some people come through a deeply cynical, so we try to find the powerful companies that, you know, have the success, that really have positive impact on the world, but still have that sense of idealism and just, you know, basically want to make the world a better place. They don’t think that’s a joke. And secondly, the other thing I’ve learned is, when you’re the founder of these companies, you want to do the right thing. You’ve talked to your staff about it, you talk to your lawyers about it, you talk to your VCs about it, you talk to your bankers about it, it’s always too early, until it’s too late. It’s never the right time for reform ever. It’s always too early or too late. It’s like a shell game, that the system plays with idealists to keep them going preventing them from making the promise if you say to someone, listen, I really think you should establish corporate governance that protects the purpose of the corporation. Now, they’ll be like, they’ll be like, oh, yeah, good idea. They’ll go talk to their team about it. And we’ll talk to the lawyers about it. They’ll be like, That’s a great idea. 100% agree. We just, it’s too early. We’re not going public anytime soon. Let’s just we’ll do that later, when it’s the right time. Okay, great. I have been in the meeting more than once now, where the CEO is like, hey, remember that thing we said, we’re going to do? I think now might be the right time and people like, what? If you wanted to do that you need to do that two years ago, we’re already going we’re on the IPO show. Whether they like it, it’s too late for that No, too late. Who said before it was too early? And like I didn’t say that? Right? It’s like it’s the right time for like five seconds, you know, over the better get it on that exact date. It’s absurd. It’s like ridiculous, shocking. So if we can find companies that were the CEO, or the founders were the top executives are the board members, the investors who are genuinely willing to kind of push through that nonsense, and say, Wait a minute, we’re gonna protect this company and its culture, and its purpose, and we’re gonna, we’re willing to take the action. Those are the companies we pursue and try to bring into the platform.

Eric Ries 

So I’m very conscious of time here. This is a really interesting one. What’s the smallest company, you imagine being listed on the exchange?

Eric Ries 

Yeah, that’s a great question. In the short term, there will be no difference, like we in order to be compatible with the existing system, we actually we use the base listing standards of the incumbent exchanges. So the cost basis, and the kind of compliance costs and everything of becoming a public company, are the same with us, as with the incumbents, so we still are fundamentally a platform for large companies.

Eric Ries 

I think that trend of companies going public later, only being able to be public at larger sizes like that, that entire phenomenon has been negative for our society. And so I do think it’s something that we will be able to have a hand in reversing eventually, because there’s no real logical reason for it. And even again, 20-25 years ago, it was very, very different. I mean, not to use the .com bubble as like, the apex of goodness, but like Amazon went public after three years of existence. Three years! If you bought if you’re a normal person, and you bought Amazon at its IPO, and you had the cojones to hold it till now you have any idea how much money you would have made? Now, you know, who have who among us had that kind of foresight, but I’m just saying the opportunity existed, whereas there’s no comparable opportunity for any of the contemporary companies that are reshaping the world. And if you ask people in tech, they’re like, God, we’re so upset. It just seems like the public has turned against us. And they feel like they’re being left behind. And you’re what, what’s going on? Why are why are we the bad guys, all of a sudden, it’s like, well, they actually literally have been left behind. Like, literally, we have made it illegal for normal people to benefit from the upside of these changes, even though they still have to deal with the downside. So like, that was happening to you, would you be happy about it? No, obviously, you wouldn’t.

Mark Littlewood 

Any books you would recommend for more reading?

Eric Ries 

I’ll give you a negative book recommendation, not in the sense that it’s a bad book, but that you will read it and be depressed. But it’s important. I think of anyone who cares about this stuff, especially the stuff we talked about the end here about purpose and reforming capitalism, whatever.

Eric Ries 

You need to read a book called The Enlightened capitalists. It’s a long, heavy, difficult book written by a business school professor. I think it’s basically case studies of 150 years of people trying to do well by doing good Uh, and failing.

Eric Ries 

Okay, there’s not one happy story in the whole book. It’s everybody sounds exactly like me being like, we got to find this next generation of capitalism. They’re going to reform society and they’re gonna and we’re and the reason it’s such an easy reform is if you do the right thing you make more money. So surely, fellow my fellow capitalists will embrace me for having this insight that if we do the right thing, we will make more money, right? Every one of those people died unhappy and alone.

Eric Ries 

They were, in story after story, they were despised by fellow capitalists, other companies viewed it as a criticism and no one likes to be told they’re doing things wrong and in company after company, 150 years have been going on. Eventually the investors step in, kick out the founder kick out the guy who had the insight, go back to the old methods read bankrupt the company that they had and bankrupted by doing the right thing. Like it’s unbelievable how repetitive it is. And it’s like, what’s going on here? What is the ideology of capitalism? I thought it was to make money above all other things. But here you’re telling me for 150 years, we systematically destroy the people who make money by doing the right thing. Hmm. Perhaps there is a different ideology at work, a shadow ideology that dare not speak its name. Now, this book is depressing, because he offers no solutions and does not think this problem is solvable is straight up like you think you can solve this problem. You’re wrong. I’m reading this book being like, well, thanks, buddy. As real inspiring. But I think any one of us who’s takes wants to do something serious here, we have to grapple with these past failures, we have to understand that we are not up against a naive system that just is trying to make money and is doing bad by accident. That is not the ideology of capitalism, there’s something far worse at work here that we have to defeat if we’re going to do something proper here. So obviously, I think I have some solutions in mind. But more importantly, is for all of us who care about this too, just to join that movement and do the intellectual work to figure it out.

Mark Littlewood 

Eric, thanks so much. That was absolutely fascinating.

Eric Ries 

Thank you! That was really, really great. Loved the questions from the group. Yeah! Great questions. Great group. Well, it’s a pleasure to be back and I hope the rest of the event goes well and everyone, please be in touch if I can ever be helpful.

Mark Littlewood 

Brilliant. Thanks so much. Take care. Take care. Bye bye, everybody.


Eric Ries
Eric Ries

Eric Ries

Founder & CEO, Long Term Stock Exchange

Eric is a computer scientist, CTO, entrepreneur and author of The Lean Startup. The Lean Startup methodology has been adopted by countless startups and companies across the world. The term, β€˜pivot’, a key concept, entered mainstream culture.

The Lean Startup was also the inspiration behind LTSE.

Eric founded the LTSE in 2012 in order to offer a route to capital for companies that prioritize the well-being of customers, employees and others stakeholders that encourage and sustain innovation.

He spoke at Business of Software Conference before he’d even written his first book.

More from Eric.


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