The Lean Startup and the Long-Term Stock Exchange (with Eric Ries)

um before we start eric i did have to say did you intentionally pick a building with gigantic stone pillars in a marble lobby to start your stock exchange in obviously i was like what building is he talking about do we have i i'm completely blind to that stuff no i have not uh i did not weigh in on the uh on the decor of the place. Welcome to Season 5, Episode 10 of Acquired, the podcast about great technology companies and the stories behind them. I'm Ben Gilbert, and I'm the co-founder of Pioneer Square Labs, a startup studio and early-stage venture fund in Seattle. And I'm David Rosenthal, and I'm a general partner at Wave Capital, an early-stage venture firm focused on marketplaces based in San Francisco. And we are your hosts. Today, we tell the story of an incredibly ambitious undertaking,

creating a new stock exchange. A long-term stock exchange, that is. Earlier this year, the LTSE was approved by the SEC as only the fifth body with such a license. And we have with us today, none other than the founder and CEO, Eric Ries, to talk about it. Welcome, Eric. Thanks, guys. Thanks for having me on. Yeah. Yeah, yeah. Listeners, you may know Eric's name from his popular 2011 book, The Lean Startup. The LTSE was actually started from an idea that Eric had while writing the book, and there are a couple paragraphs at the end that explore it. And eight years later, here we are with the LTSE as an approved national securities exchange

and having raised $68 million from venture funds, including Andreessen Horowitz, Founders Fund, Floodgate, and many other top investors. It was super fun. I was on the plane on the way back from visiting my family for Thanksgiving, pulled out my digital copy of The Lean Startup, went through, and there it was, about a page and a half right at the end.

Right at the end, the very last idea in the book, practically. Yeah. Yeah, and I knew it was going to be polarizing from the start. When I was writing the book, so this is now go back to 2010, before the book even came out. This is when the idea hatched for me. And part of writing The Lean Startup, you can imagine I felt a lot of pressure to eat my own dog food and use the techniques of lean startup in writing the book. So it was a very iterative process. And I did a ton of testing and experimentation and AB testing.

And one of the final stages was I sent the full manuscript out to a lot of test readers from different audience archetypes of people I wanted to influence. And I'll never forget one of the test readers wrote me back. He said, the book is fine, except that there's one thing you have to take out. There's this idea at the end of the book about this stock exchange thing. And listen, you basically piss away the credibility you've carefully built up over 299 preceding pages. You just, you flush it all away in one, in one page. It's that bad. You must take it out of the manuscript. So that was, it's auspicious. It's auspicious first reaction from a test reader. So that's when I knew I was onto something.

Yeah. That reminds me of the Google story where Larry and Sergey were working out of the Rudikis garage and an investor came by, like a friend of the Rudikis to meet them. And they said, like, hey, we got this company working out of the garage. Do you want to meet? He's like, no, sneak me out the back. I don't want to talk to them. Oh, man.

Yeah. Yeah. Every once in a while, you know, the conventional wisdom really serves you very very poorly and and it's funny now because it's always been very polarizing but what people don't remember is that lean startup was very polarizing in the early years now everyone's like oh obvious of course we're gonna we'll at least pay lip service to it whether people actually do it or not as it a different conversation. Yeah. Eric, did your book coin the phrase minimum viable product? You know, I had never heard that phrase before, but in the years since, people every once in a while will dig up like an academic paper from 1984 or whatever, or somebody used it. So apparently it has been used, has been used before. But I think I'm primarily the one to

blame for the overuse of the phrase MVP. So I apologize. Anyone who's sick and tired about hearing about pivots or whatever, that's also my fault. Mostly wave portfolio companies. Yeah, so to all your portfolio companies, I apologize. Well, listeners, it's worth knowing before we dive in, the LTSE has an ambitious vision to fix many of the problems that they see in the public markets today, from short-termism, abrupt changes in governance from so-called tourist investors, and visibility into who a public company's shareholders really are.

So we're excited to explore some of the company's disruptive and, as Eric, as you pointed out, controversial ideas today and discuss sort of will it be a decade from now as widely accepted as the lean startup has. So listeners, we had an awesome LP episode with Vlad Magdalin, the founder and CEO of Webflow this past week. As with many of our LP shows, we went deep with him on the nitty gritty of company building and what he's learned on his journey from building the no code website builder that has taken the industry by storm. You can become an Acquired Limited Partner to get access by clicking the link in the show notes or going to glow.fm slash acquired.

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by clicking the link in the show notes or going to servicenow.com slash AI dash agents. And now onto the long-term stock exchange. But before that, before the lean startup, you worked at a couple pretty fat startups. Oh, yeah. Much has been written and said, of course, about your history and how the lean startup movement got started. But when you studied CS at Yale, right. And then you graduated and you joined a startup, uh, at the time called there.com, which was an early virtual world. Oh yeah. And I believe I'm good if I'm getting my history right, operated for three or four years without launching a product, just hiring tons of people,

raising tons of cash, and then burst out into the world? Like, how did you, you know, you're a senior at Yale. How did you decide, oh, I'm going to go join this crazy thing? So, first of all, you got to go back in your time machine. I was originally in the class of 2000. So the dot-com bubble swept through the world while I was an undergrad. But New Haven, Connecticut was like basically the last stop on the train before the whole thing imploded. So I did it. I dropped out of school and I did a startup

from my dorm room, which, you know, could have, would have, should have been Facebook, but we didn't exactly know what we were doing. So we had kind of like the first half of the movie, the social network experience. Was it actually a social network? Was that? I'll tell you our idea. I'll tell you you think this is a good idea. We thought that college students from top universities, Ivy League universities, should create online profiles for the purpose of sharing. Sounds like a terrible idea. That wasn't so bad. What was so funny about it, I mean, now I can joke about it. Of course, at the time, this was horrible.

But we thought that they should use those profiles for something serious, a real business. So we thought they should create profiles for getting a job. And we should create a resume database and share the profiles with employers who wanted to hire them. So we were very focused on- Sort of like an evergreenmonster.com type work. Well, it wasn't job postings, but resume database.

It was weird, like in some ways it was not, like it's really not a crazy idea. Like we could then do analytics to match the right people to the right jobs. And, you know, like there was certain like sensibleness to it but first of all if we had actually understood the concept of a pivot and if someone had even suggested to us the idea that we could pivot into being facebook we would have been totally dismissive because we were like no no we're trying to build a real business yeah we didn't really understand what a real business was so we

had no concept like the idea that there's like the idea of a digital marketplace or that you know then attention-based product would be valuable. We had none of that, none of that insight. And, you know, it was very, very much of a moment when people were building digital technology without a clear purpose as to why. We just saw that everyone was doing it and it's just, that's what we wanted to do. And so we did it. This is a total aside, but it fits right into that. Were you at Yale at the same time as Matt Cohler?

I was, yeah. I remember when he was a McKinsey consultant. We had coffee one day. He's like, do you think I should join the technology industry? And he was thinking about some things he could work on. So yeah, it's a small club of people from that world who went on to do good things. And Matt would, of course, be one of the first employees at LinkedIn and then first employees at facebook yeah one of the most important facebook early employees on the business side really uh and it's a great vc now yeah um but anyway that's that's

so funny you were building a social network for college students focused on recruitment and he would go to linkedin yeah yeah exactly right we could if we'd had any sense at all we would have called yeah what should we, what should we do? What should we do? But yeah, I remember when he went to work, when he first went to work at LinkedIn too and I was like,

what's, and I was like, well, I already know about social networks and it's never going to be anything, right? Like the biggest problem

in entrepreneurship is you learn what's not going to work. That's not something that can ever be learned. Because just because it didn't work before doesn't necessarily mean

it won't work the next time and that's what drives us all. It's the hardest thing in venture investing too. That drives us all crazy. You overfit on the data that you have access to. Anyway, long story short, I went back and the startup failed. So unlike the Facebook founders, I went back to school and finished my degree. If you've ever watched one of those movies about entrepreneurship where like the plucky protagonist goes back to the people who said it would never

work and they were like, you were wrong. I was right. You know, rah, rah, rah. In real life, you get to be the one to go back and be like, remember when you said I should not drop out of school because something will ever come of it? You were right. I'm back. Thanks for that advice. It's my homework. Yeah, it's a totally brutal and awful experience. But I love the process of being able to translate ideas into products like so quickly in the

rapid pace and duration of a startup. So when I graduated, I was thinking about what to do next. And I was just applying to jobs. I didn't know if I would do a startup or I would go to a big company. I looked at a lot of stuff. And my resume came across the desk of this crazy virtual reality startup in Menlo Park. And they flew me out. And we'd all read Snow Crash and the same sci-fi books.

It's coming. It's coming next year for sure. It's been coming for a long time. And they sold me on this incredible vision. It was a pretty small company at the time that I joined. They had really high quality venture capital backers. And I wanted to apprentice myself to the best entrepreneurs I could find. So I was like, this is an incredible management team. These people really know what they're talking about. You're going to learn exactly what to do. I'm going to learn exactly what to do. All the things I did wrong,

I'm going to learn how to do it right. And what's quaint about the story now is that by modern standards, it wasn't even that big of a disaster. We raised so much more money now

for startups. The company actually chugged along for like 15 years, right? Yeah, it didn't die right away, but I remember I used to tell people when I first talked about a lean startup, I'd be like, the joke of there.com is that it raised $50 million with no customers. And people would be like, ooh.

And now it's like, what was that, the seed round? Right? Like, oh, is that a lot? I talk to students now, and they're like, they don't get the joke. They're just like, right. Then what happened? I'm like, no, that's the lot of money that we set on and they're like what so you know it's a very different era but unlike today we did not have any of the vocabulary or lean startup so we had no concept of minimum about