295. Culture Club: Communicating Values That Scale

[00:00:00] Matt Abrahams: We are all entrepreneurs, and we rely on three essential tools to be successful: communication, creativity, and trust. My name is Matt Abrahams, and I teach Strategic Communication at Stanford Graduate School of Business. Welcome to Think Fast Talk Smart, the podcast. Today I look forward to speaking with Eric Ries. Eric is an entrepreneur and the creator of The Lean Startup methodology, a global movement that has fundamentally transformed how businesses approach innovation and product development. He's the author of the New York Times bestseller, The Lean Startup: The Startup Way, and his new book is Incorruptible: Why Good Companies Go Bad and Great Companies Stay Great. Well, welcome, Eric. I am excited to chat with you. Thanks for being here. 

[00:00:50] Eric Ries: I am delighted. 

[00:00:51] Matt Abrahams: Shall we get started?

[00:00:52] Eric Ries: Let's do it.

[00:00:53] Matt Abrahams: Before we get to your more recent area of focus, I'd like to discuss some of the core concepts your Lean methodology advocates for, especially around communication. Can you provide us with an overview of Lean and the minimally viable approach and where communication fits into it?

[00:01:10] Eric Ries: Sure. Okay, so just real quick to back up, I'm a tech entrepreneur from way back when, and I wrote this book called Lean Startup in 2011 that kinda changed my life. Like, at its root, most people who are trying to do something new, whether they call themselves an entrepreneur or not, have this fundamental problem, which is like, how do I communicate progress when I'm in a condition of extreme uncertainty? And if you're gonna do something fundamentally new, how are we supposed to forecast how many you're supposed to have made? Like, it's actually a huge problem that we don't think about very often because conventional management systems are all based on this twentieth-century idea of extrapolating from a stable operating history to produce an accurate forecast.

[00:01:51] So Lean Startup at its heart is to take the business plan, the fiction writing part of entrepreneurship or of any kind of business enterprise, and extract from it the hypotheses, the leap of faith assumptions that have to be true for the business to be a good idea. And then instead of just pretending like we know those are true, we try to test them using scientific methods to create what we call validated learning using a structured experimental approach we call the minimum viable product or MVP. And the most critical concept is that if we discover that some element of the plan is not working, it's not correct, then we execute a pivot. Sorry, that's probably our most overused bit of business jargon that Lean Startup has contributed to the world, but we invented that term. The pivot is a change in strategy without a change in vision.

[00:02:35] Matt Abrahams: I really appreciate you distilling it down. I wanna break down just a couple pieces of that, and I'd love as part of this for you to talk about the whole build, measure, learn loop that you talk about. You said something that might have caused some of our listeners and viewers to pause. You talked about a business plan as fiction writing. Can you break that down for us and then talk a little bit more about the build, measure, learn loop? 

[00:02:57] Eric Ries: This is something that in our normal lives, we understand this concept perfectly fine, and then for some reason in business, we are trained to forget it. So I just want you to imagine if you start telling random people you meet on the street, "I know what is going to happen in the future," they will look at you very strange. But in business, for some reason, we're supposed to pretend that we can predict the future when obviously we can't. So the plan is not a problem. It's not a problem to imagine what the future might be. If something's going wrong, you assume it's because of one of the things on your plan that you haven't done, and this is a good assumption to make if your plan is one hundred percent correct.

[00:03:33] But if you acknowledge that you can't predict the future, how do you know that you're picking the right thing to do for an entrepreneur. And to me, I conceived of entrepreneurship like an idea factory. We don't ship physical objects. We are actually trying to maximize our own learning, our own understanding of the business because it's from that understanding that business models and other business outcomes can flow. That's the one thing that general managers in an existing business have that we don't have. They actually know what their supply chain looks like. They know who their customer is. They know that they have all this history. We don't have it. We have to manufacture that history. So I called it the build-measure-learn feedback loop.

[00:04:11] How much time elapses between when we have an idea about what we think customers want, what we think is going to work, and when we have validated, we have data that shows that that idea is correct or incorrect. And you were talking about the communication side of it. The thing I found the most difficult as an entrepreneur is how do I explain to people how they should prioritize? I had the vision. I have this grand idea, so you know, I can make stuff up no problem. But a company is defined not just by what the leader decides but the thousands upon thousands of micro-decisions that people have to make left and right. And unlike in a traditional business, in a startup, you're building new process all the time. Confronting problems for the first time. Well, build, measure, learn gives us a concrete, easy to explain, easy to evaluate answer. Whatever the thing is, if it optimizes our speed through this loop, then we do that version. Otherwise, we don't do it.

[00:05:03] Matt Abrahams: Having some kind of heuristic framework can be really, really helpful, and I appreciate you sharing that. And seeing entrepreneurship as idea generation, I think is really a novel way and really helps people understand the value that entrepreneurship brings. To be an entrepreneur, an idea generator, requires a healthy relationship with failure and negative feedback. How do you advise leaders to communicate their setbacks and to deal with the negativity that comes from those things?

[00:05:31] Eric Ries: This is a major communication error I see in leaders actually of all size companies, but especially of entrepreneurs. If you say that if something unexpected happens, that's a failure, you have literally created the preconditions for no learning to take place. Because the oldest lesson of the scientific method is that if you cannot fail, you cannot learn. So instead of conceiving of an unexpected result as a failure, we need to see it the way a scientist would. Understanding that learning is not a failure is a huge problem, especially in big companies where we preach the say:do ratio so religiously that we assume that anytime something unexpected happens, it must be because of incompetent planning or incompetent execution.

[00:06:12] Forgetting a third possibility, which is that the situation itself is too uncertain to forecast. And all of these Lean Startup techniques are not about celebrating failure. I actually don't like some people call it an embrace failure or celebrate failure philosophy. I don't accept that. I actually don't think that's right. That's not the issue. The issue is how do we define success and failure? And to me, if we learn what is necessary, we did it in an efficient way, in a way that was humane and scientific, that actually is a success, and it is a necessary step on our journey to building a breakthrough product. 

[00:06:43] Matt Abrahams: So it really comes down to reframing what is a failure. And a failure, if you learn from it and you do it quickly and make adjustments, it is in fact a success. And that's critical for us to understand, but also for leaders to communicate that expectation. I'd like now to switch to your new book, Incorruptible. Can you share the central thesis and why you think it's so important at this particular time?

[00:07:07] Eric Ries: The Lean Startup movement, the startup movement more broadly, I'm incredibly proud of what we've accomplished. I'm incredibly proud of my role in it. But I've also seen the dark underbelly of this thing. And as I tell in the book, it really came home to me one day when I was talking to two different entrepreneurs on the same day, one of whom was just beginning his entrepreneurial journey, and one of whom was completing it, in a way. And the new entrepreneur, who I call the professor in the book to protect his privacy, he was really confused 'cause he was trying to create this breakthrough new technology, and his investors were, like, very amoral about it. He's actually trying to recruit, like, senior researchers. They have really tough questions.

[00:07:45] They're asking him, "Okay, how do we know you're only gonna use this technology the way we intend?" He's like, "Well, I promise." "Oh, yeah? What if they fire you?" And he's like, "What am I supposed to say to that?" Meanwhile, I'm going to this event where we are commemorating a founder who had left his company, but not voluntarily. He had built billions of dollars of shareholder value, and yet his investors wanted more, and they pushed him out. Despite doing everything right, the way we teach entrepreneurs today, that success will make them strong. Success will give them power and therefore freedom. We forget to mention that the more successful your organization, the more valuable it is as a target for someone to steal from you. We take over a company, we betray its promises, we extract value from it. Ironically, the most trustworthy companies are the most valuable to do that with.

[00:08:33] Our grandparents would have called this corruption. And so I think we should bring that word back, expand its definition once again to involve any kind of economic activity that makes money without creating value. Anyway, I shared all this with the professor, and he asked me the question that launched this whole book: Is it possible to build an incorruptible company? And I was like, "Well, good news, bad news. The good news is, yes, I do believe it is possible. There are these outlier companies that have been architected with the strength to resist this corruption. But the bad news is, since you've been following all the best practices we teach entrepreneurs about how to build, structure, and govern companies, you are not on track to accomplish this incorruptible outcome." And we, in fact, did put his company on a new and better path. But I don't want to just do that for one company. I wanna do it for every company going forward. 

[00:09:21] Matt Abrahams: Very powerful mission, very important mission. So you talk about several really intriguing ideas. One that I really liked was this notion of a culture bank. Tell us about it and, and tell us how communication plays out. 

[00:09:37] Eric Ries: It's super cool because it's an idea that's very easy to explain and very hard to do. And everyone who I teach it to, the first time they always react the same way and they tell me that it's impossible. But I learned the technique from people who had built like high integrity, high culture companies. Strong culture companies is what I mean. And it's actually really simple. The problem with communicating about trustworthiness is that trustworthy actions, right actions always score as ROI negative almost by definition, because the benefit is intangible, but the costs are tangible. So what we need to do is we need to give employees a way to think about, to reason about the value of the trustworthiness asset.

[00:10:17] In order to do that, we need to think about it like an asset, like a thing you put in a bank account. Now, the culture bank idea is this. Whenever an employee makes a sacrifice on behalf of a customer or employer or any other stakeholder, they do a right action that comes with a cost. That is a deposit in the culture bank. You created an asset. When you tell a story about that, you're helping educate everyone in your company that this is the way we do things. This is what we reward. This is what we're really about. And of course, when you do the reverse action, that's a withdrawal. The great leaders, the mission-driven leaders that I really admire, they have this ethos I call harder is easier.

[00:10:57] They have these principles that they're really committed to. People who are acting with integrity, they recognize that because they have these principles, every plan, everything they do is gonna have extra difficulty that it wouldn't have otherwise had. But instead of shying away from this, as a lot of leaders do, they learn to love it because it gives them a teaching opportunity. Every time they stop and say, "Sorry, it's not good enough. Sorry, we have to do it right. Sorry, we have to do this," it gives them an opportunity to communicate a cultural value and make an extra deposit in the culture bank that turns these ideas from best, they make life harder in the short term, but in the long run they make everything else easier.

[00:11:34] So the rule I learned from Todd Park, the rule is as a leader, only make deposits, never make withdrawals from the culture bank. It sounds like an impossible standard, but actually it's not that hard. The great Clay Christensen once said that it is much harder to do the right thing a hundred percent of the time than ninety-eight percent of the time. So when in real life, it's much more valuable to have decision heuristics that you can communicate that just says, "Look, when a customer calls into the hotline and they have a problem, and we have the power to solve that problem, we don't need to do an ROI calculation. We don't need to check the fine print of the policy to see if there's some way we can get out of paying the claim. Let's just solve the problem. Let's just trust that if we always do that, in the long run, it will be beneficial to us." 

[00:12:23] Matt Abrahams: The focus, the intense focus on what the most precious asset is, and that is the trust and relationship that the companies have, is critical. I don't know if you set out to write a communication book, but you absolutely did. And everything we're talking about, I mean communication, trust, empathy, demonstration, I mean all of it, alignment, these are all communication topics, and I really appreciate how you've illuminated them. I'd like to end the way we end every one of our episodes where I ask three questions. One I'm gonna make up just for you, and two, I've been asking everybody across all these episodes. Are you up for that? 

[00:12:56] Eric Ries: I'm up for it. Sounds good. 

[00:12:58] Matt Abrahams: Excellent. In what you're doing now and what you did with Lean Startup, you were having to be a, in some cases, a singular voice advocating for things that, that at least the current environment wasn't listening to or looking for. Do you rely on certain strategies to help get your point across and at least get people to listen to you? It doesn't mean they have to agree with you, but what's your approach when you are the sole person advocating for something that's really important? 

[00:13:25] Eric Ries: By far, the hardest part is the inner part of it. Human beings are hardwired for a mimetic desire, meaning to fit in and to be part of the crowd. So when you're communicating something that is outside the Overton window of what is seen as acceptable, it is very lonely and difficult. And I can still remember very vividly when people would yell at me about Lean Startup. It was seen as, like, really outlandish and impossible, so I must be lying. But I remember, because before I was a public advocate for these ideas, I advocated for them privately. Like, I was just a person in a job, and people would ask me, "How do you think we should get a certain thing done?" And I would tell them, and they would be like, "That doesn't make sense. That's not the best practice."

[00:14:05] The key to this is to really meet people where they are while still telling them the truth. Very difficult to do, of course. So what we have to do is we have to find a point of human connection between their ideas and my ideas. What are we trying to do in common that can be a point of departure for us to go on the journey together? And then the other thing that is really important about that is you try to figure out how far on the journey are they willing to go with you. They may not be ready for everything, but can we make some progress? And we treat their morale. The most vital resource is the willingness to keep going. So it's like, how do we cultivate our sense of cohesion and morale and our desire to keep going? We see that as a resource, and then we try to go bit by bit. 

[00:14:47] Matt Abrahams: I really appreciate you sharing that. This idea that you really have to connect to your audience and really understand them, and then take it one step further and say, how far are they willing to go today? Doesn't mean that's where they're gonna end up, but how far are they willing to go today? Really important. So second question, who is a communicator you admire and why? 

[00:15:10] Eric Ries: I already mentioned Todd Park, but there was a time when he had left, he's a healthcare entrepreneur. He's done multiple very successful healthcare startups, but he also spent a stint in government service. He was one of those people called by the Obama administration to come out of the private sector and help make government more efficient. He served as the chief technology officer of the Department of Health and Human Services. I remember once inviting him to speak at an entrepreneurship conference, and he got up on stage, and he just started spinning this tale of the patriotic feeling that he had about serving his country in this way and the need for people of goodwill to come together to be of service and to revitalize this new generation of the government.

[00:15:50] It was just, it was utterly spellbinding. And he spoke for like forty-five minutes or an hour. He just like blew right past his time. Not a single person complained. Everyone in the audience was absolutely rapt. But what I admired about it was it was, first of all, very authentic to him. It wasn't grandiose. It was very personal, very humble, and he connected with the audience. He was speaking to them as entrepreneurs, as a fellow entrepreneur, but inviting them to imagine this other side of entrepreneurship that they would never have thought of. You know, and really that's why we wanted him to be there. So yeah, I've always admired him as a communicator.

[00:16:23] Matt Abrahams: I like that he was able to really connect in the story he told. He's able to connect and set a vision for people that people can really see. And given your history of being somebody out there early in some of these ideas, I can see why you would be drawn to him. Our final question, Eric, what are the first three ingredients that go into a successful communication recipe?

[00:16:45] Eric Ries: You have to give the communication the care that it deserves. So the truth is definitely the first thing and most important thing. And I think entrepreneurship especially, you know, but all forms of leadership, it is a truth-seeking profession at the end of the day because we can't do anything if we're out of alignment with what reality makes possible. But the second thing I was talking about is this idea of quality or craft. Like I was talking to Yvon Chouinard, the absolutist, about quality.

[00:17:10] He used to say that quality was an objective function, which everyone thought was so crazy. You're like, every product has a quality that it deserves. It's not in the eye of the beholder. It's absolute. I don't know if that's true for every product, but it's definitely true in communication. If you're communicating something that is precious to you, then it deserves a certain level of craft and attention. And the third thing is certainly authenticity. That is every communication is actually very personal, whether you pretend it isn't or not.

[00:17:39] And I feel like the way we teach writing, especially because we consume so much journalism and journalism is obsessed with the view from nowhere where we're creating like a faux objectivity, it's just so fake. It's just so hard to believe anybody who's trying to present themselves as objective. It's so much better to root yourself in your actual experience. And even if you're trying to be objective, to say so, this is my bias that I'm worried about, and this is how I correct it, to actually give people transparency into the process by which the communication was made. I think that's an essential part. Those would be my top ingredients. 

[00:18:13] Matt Abrahams: Truth, quality, and authenticity. Certainly demonstrated in the work you've done and clearly beneficial to all of us to think about. Eric, it has been a true pleasure to talk to you about both of the really important concepts that you have written about and you've dedicated your life to. Thank you so much for spending time with us today.

[00:18:31] Eric Ries: Thank you very much. Thank you for taking the time. 

[00:18:34] Matt Abrahams: Thank you for joining us for another episode of Think Fast, Talk Smart, the podcast. To learn more about lean development and communication, please listen to episode 56 with Steve Blank. To learn more about ethics, check out episode 54 as well. This episode was produced by Katherine Reed, Ryan Campos, and me, Matt Abrahams. Our music is from Floyd Wonder. With special thanks to Podium Podcast Company. Please find us on YouTube and wherever you get your podcasts. Be sure to subscribe and rate us. Also, follow us on LinkedIn, TikTok, and Instagram. And check out fastersmarter.io for deep dive videos, English language learning content, and our newsletter. Please consider joining our Think Fast, Talk Smart Learning Community at fastersmarter.io/learning. You'll get access to video lessons, learning quests, discussion boards, an AI coach, and book club opportunities. Again, that's fastersmarter.io/learning to become part of the Think Fast, Talk Smart Learning Community.