Eric Ries: evaluation

Transcript context

…o worked there kept saying, "Make a better internet." That was how we talk about it. And eventually the founders had to be convinced, "Okay, let's adopt this as our mission statement," which they did. That's their mission statement to this day. They had to eventually adopt formal values. As you get bigger, these things really matter. It matters that you document those emergent properties, otherwise how are people supposed to know what they are? Their number one value, by the way, is be principled, which is the ultimate harder is easier move. So this all sounds great. It's fun to have values. It's fun to have a mission statement when it doesn't cost you anything. But sometimes it can be very expensive. It can make your life a lot harder. That's why we call the principle harder is easier. One day, a junior engineer, not like some senior executive or anything, walks into Matthew Prince's office and he says, "Boss, isn't our mission statement to make a better internet?" When you're a CEO, any conversation that starts this way is definitely going to be extra work for you. So you're like, "What is it now?" It's like, "Well, you were saying at the board meeting that our number one driver of revenue, the thing that causes people to upgrade from our free to premium plans," this is a few years ago now, "Is web encryption, SSL encryption. You said that makes sense because SSL encryption is expensive to offer, we can't offer it for free. We have to get the certificates and pay for them. We have to do all this extra cryptographic stuff as compute ... We have scarce compute, da-da-da-da-da." "Sure." "But boss, wouldn't a better internet be an encrypted internet?" And he's like, "Yes. So what's your point?" So if it would be better, why are we giving it away for free? And so many people have heard this story. If you've ever been a middle manager in a company, okay, you know this, you're just like, "Oh my God. Every day someone walks into your office that's like, here you boss, let's give our product away for free for no reason." Your job as a middle manager is to be like, "No, we have a strategy. Get back on the strategy. Redirect. Thank you for your buy-in and your input, but we have a job to do." So everyone's expecting Matthew to react that way and would be the most normal thing in the world. This is our most profitable product and you're saying we should give it away for free, get lost. No. Matthew told me once I saw it, I couldn't unsee it. And he uttered the three keywords, he said, "Let's figure it out." Figure it out. This is the leadership principle I think is so powerful, the figure it out principle. If you're committed to something, you stand for quality or whatever, it's going to make life harder. The best leaders, the ones I really admire, they revel in it. They love the difficulty. Because every time you have one of these impossible dilemmas, it's a chance to teach what you really stand for. So Matthew insisted the whole team rally to figure out how to give encryption away for free. Now they couldn't just give it away for free. He's like, "Bankrupting the company won't achieve the mission." We had to find a way to make it sustainable. ure out how to give encryption away for free. Now they couldn't just give it away for free. He's like, "Bankrupting the company won't achieve the mission." We had to find a way to make it sustainable. And I won't go through all the technical details of how they managed to get the cost. They had to hand roll their own software and assembly language. They had to do these complicated biz dev deals with certificate authorities. They figured out how to do it and they drove their own cost down. Now, keep in mind that at any time ... First of all, I could have used the difficulty as an excuse, "Oh, it's too hard. We can't do it." Give up. Once they did it, they could have said, "Wait a minute, this is just free margin. We can make our costs lower and then we just get free money." When they shipped it, they had to report to their board on what happened. The conversion rates for premium product went down. So they could easily have bailed out at that point, but they didn't. They stuck with it because this is what we stand for. Now, of course, it's a happy ending story. The top of funnel increased by an order of magnitude. In fact, to this day, people still talk about how Cloudflare is like the reason you take for granted we have an encrypted internet. The trust that they gained is the reason why they're a $70 billion company today. But most leaders, when asked to defend their principles, can't do it. Because they've been taught ROI-based thinking, they've been taught shareholder primacy, they've been taught that that's the path of maximum profitability. To give you an easy contrast, Andrew Mason, the founder of Groupon once told me this story. Everyone remember Groupon? Maybe not now. It's kind of fallen out of public consciousness, but there was this time where Groupon was one of the fastest growing private companies in America. It was powered by a daily email with a cool deal. And the whole thing was you got one email a day from Groupon. They went public on the one email a day, that's how successful it was. And I remember he told me this story one day, his executives and employees started coming into his office and they'd be like, "You know, boss, we need to make the quarter. We need to make more money. We're a public company now. We don't want to be better than one email. Have you considered two emails?" And he was like, "No. One email a day," he's like, "That's our whole thing." But he said, over time, they ground him down and they kept saying, they were using language that sounds kind of lean start-upy. Shouldn't we do an experiment? Shouldn't we look at the data? What about the IR ... it's just like, what about the ROI? And so he's like, "All right, fine. We'll run the experiment." He ran the experiment. Two emails a day makes more money. So he couldn't say no. And everything was fine for several months until someone came to his office and said, "You know, boss, you know what'd be better than two email? We should send three emails." And next thing you know, they're sending eight emails. And this is not just Groupon. I have had so many CEOs tell me this exact story about email frequency. an two email? We should send three emails." And next thing you know, they're sending eight emails. And this is not just Groupon. I have had so many CEOs tell me this exact story about email frequency. Email frequency is like, for some reason, the tip of the spear where it's like, we don't really have any way to defend doing the right thing here. So we did the wrong thing. That destroyed the whole company. But in the short term, we made a bunch of money. So if you can stick to the harder is easier principle, that is the first line of defense against losing whatever it is that makes a company special.…

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