Eric Ries: evaluation

Transcript context

…Oh, totally. You said something interesting in the lead in which you said like, "Well, a lot of other companies seem to be killing it and they don't have these protections, so they're fine." I would actually check your math. So many times when people give me this argument, they were like, "Well, such and such company..." Someone was like, "Cloudflare, they are just a normal company. They don't do this stuff." I'm like, "Check your math, buddy. Cloudflare does many of the things that we're talking about. They're one of the examples in the book, so I picked that on purpose." A lot of companies that you don't necessarily instantly think of as do-gooder, mission-driven companies are actually very mission-driven in terms of how they're structured, and they are almost always protected by at least one of the governance structures from this book. So check your math. People used to tell me Costco was an example that wasn't protected, so much so that I was surprised to learn that it was embodied in a governance fortress. You'll be surprised. If you do the math, if you look into it, you'll be surprised. But let's talk about the product market fit thing because this one is really interesting to me. Generally speaking, this is one of the most important ideas in the whole book. The most important question about how to protect a product is not what protections it needs, but when those protections need to be enacted. And it's basically like that old proverb about the best time to plant a tree was 40 years ago, but the next best time is now. It is always too early until it's too late. And I'll give you the example. I've seen this hundreds of times myself personally. So I've literally been in the room where this kind of stuff gets discussed and it starts like this. You're incorporating your company, you talk to your lawyer, "Hey, I want to have..." These are called mission protective provisions in the law. "I heard this guy on Lenny's podcast," and your lawyer's like, "Oh, not again. Another guy, right? How many good ideas from Lenny's podcast are you going to tell me about? Okay, fine. What's this one?" "He told me I need to have mission protective provisions." He'll pat you on the head and be like, "Oh, that's sweet, honey. That's great. Yeah, get product market fit, get some success. Success is ultimately your source of leverage. Success will protect you. Don't worry about it." You say, "Okay, great. But just thanks for letting me know." Now you raise some money. You got these VCs on your board, say the same thing. They're like, "Yeah, I totally am with you. We're on the same page. We want the same thing you want. We invested because we believe in you as the founder. There's no need to do this now. Let's just do it later. Do it when it's the more appropriate time." Okay. You got a growth round. Now you got these bold contrarian growth VCs on your board. And they're like, "I don't know. You might not want to be too different from everybody else. ppropriate time." Okay. You got a growth round. Now you got these bold contrarian growth VCs on your board. And they're like, "I don't know. You might not want to be too different from everybody else. Might make it hard to raise money." You're like, "I thought you were a bold contrarian. What?" "Okay, don't worry about it now. We can always do it later." Now you're doing IPO prep. Now you got bankers and lawyers and you've got a GC and you got... And they're all like, "Yep, yep. This is a great thing to bundle with the IPO itself. You don't need to worry about it now. First, we got to land the plane, let's get our house in order." Blah, blah, blah. Anyway, I've actually been in the room where the founder sits with the CFO and now it's like IPO planning, roadshow. Here we go. It's go time. We're about to file the papers. And the founder's like, "Hey, whatever happened to those mission protective provisions?" You're like, "I wanted to really make sure we had our customers could participate in our IPO and I want a broadly shared prosperity and I want this thing for our employees. I have all this good stuff I want to do. Did we do any of that stuff? I don't see it in the S1." The CFO's like, "Oh, you were serious about that? Oh, sorry, man. You should have said something. Now it's too late." You're like, "Wait a minute, but when I talked to you about it last year, you said it was too early." "Yeah, it was. But now it's too late." Was it ever the right time? No, it is never the right time to do this. If you put this off, you will eventually find yourself in a situation where you can no longer do it. You will have lost the leverage. Success will not protect you because success is what makes you a target. That story I told you about the five months CEO got fired. That company, everyone who worked on that IPO, every banker, every lawyer, the CFO, everybody, they profited from all the transaction volume that that company generated on the way up and on the way down. They're all fine. They're all onto the next IPO. They're like carnivores. They're onto the next thing to feed on. Meanwhile, the customers, the employees, the people that cared about their company were not so lucky. Damn. That hit me. That hit me right in the heart. And it's so obvious just how personal and important this is to you. It's clear you've just seen this happen again and again and you're just like-…

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