 Now next to the stage we have the privilege of hearing from Eric Reese and Anne Mae Chang. The pair worked together about 15 years ago at a startup. In 2011 Eric published Lean Startup, a book that became a staple in the libraries of young students of entrepreneurship all the way to global leaders. Over the last few years, Reese has implemented the strategies outlined in the book across sectors all around the world. And I'm proud to share that we utilize some of these strategies in my studio. During the same period, Anne Mae has been a leader in implementing lean ideology in the global poverty impact space. When Chang left USA this past year, she called up Eric and said, how about a book called Lean Impact? Well, it comes out next week, but there are early released copies of the book at the bookstore that you're going to want to check out. The two of them envision a world in which everyone cares as much about impact as they do fiscal value and growth. To get there, they argue that Lean causes us to challenge our assumptions and to optimize the metrics that matter so we can deliver the maximum impact possible. Let's hear it from the experts. Please welcome Anne Mae Chang and Eric Reese. Thanks everybody. It's a pleasure to be here, and I'm very honored to share the stage with Anne Mae and kick off what I think would be a very lengthy and exciting book tour for this new book. I'm Eric Reese, and I did write this book, The Lean Startup, and this is a very unusual situation for me. I didn't think, you know, when we were working together 15 years ago that one day we would be on stage talking about this, but I come at this, you know, I was a computer programmer for many years. I worked in the traditional venture capital, business, building technology companies, and then my life took a kind of a strange detour when I couldn't figure out over many years how come the so-called best practices of 20th century style management, they didn't really work for me, they didn't work for the startups that I was involved in. The world did not unfold like it's supposed to in the movies, and you know, if you've seen the social network it's not really like that, and I could understand why, and that sent me to make a long story short on a long odyssey to try to understand what's gone wrong with the way that we build institutions, and that eventually led me to this theory called Lean Startup that we're going to talk about. But I'm especially excited because, you know, Emma and I, we worked together many years ago and then our careers kind of went on this divergent paths, and it's really fun to be coming back together again. So, Emma, why don't you tell a little bit about your story and what you've been up to recently, and how it came to the book? Yeah, sure, it's really a pleasure to be on stage with you also, Eric. It's fun that our paths have crossed again after all these years. Like Eric, I studied as a software engineer in college, and after that I worked for over 20 years in Silicon Valley at tech companies like Google, Apple, and Intuit, as well as a startup with Eric, and then about seven years ago, I decided to make a pivot and spend the second half of my career working for social good. And, you know, I found myself in a completely new world that where the problems were just as big, if not bigger, yet the way organizations worked was, you know, there was a tendency to avoid risk and focus on predictability. And I thought, this is really not the best way if you're trying to tackle long-standing, intractable problems in the world that don't have a clear solution. It's almost like you were trying to get utility companies to drive transformative change. Not something that's very likely to happen. It brought me back to my early days of dollop-length software, where we were building shrink-wrap software, and we were planned for years in advance for these massive releases and hope for the best. And what was exciting more recently is that with the advent of the web, with cloud computing, with the principles from Lean Startup, this has unleashed this massive pace of progress that we've seen affect all our lives over the last few years. I think for those of us who really care about purpose and not just profits, you know, we need to figure out ways to bring this same agility and entrepreneurial spirit, an appetite for risk, to social impact that we have to business. And so before we get too far, I want to ask Eric, can you share a little bit about, you know, for those of you in the audience who may not already be familiar with Lean Startup, what is Lean Startup all about? Thanks, yeah. I'm happy to do it. And I feel bad because I feel like in the modern world, is there any bigger cliche or like source of BS than that you should think like a startup? Anyone sick and tired of being told to think like a startup right now? It's like, we are right, and innovate this and innovate that. It's total garbage. So I feel bad being like, hi, I want to help you think like a startup. But what we don't need is like manifestos and posters and like rah-rah innovation. What we need to figure out are the really mechanics, the details of how you do that. So I started kind of from a theoretical place to say what makes something a startup? Like, is it just two guys in a garage eating ramen noodles or what? Like that's what it is in the press, but what makes you a startup? And I started with this definition that a startup is a human institution designed to create something new under conditions of extreme uncertainty. So that very simple definition immediately excludes so much of the way the popular press talks about it doesn't matter what demographic you're from, but what kind of product you're building, what industry for profit. It just says that you fundamentally don't know what you're trying to build in advance. And so all of the concepts from Lean startup that you've probably heard of like minimum viable product and pivot and build, measure, learn all that jargon is really just saying we need to have a management toolkit for what do we do if we can't make an accurate forecast of what's supposed to happen? How do we figure out what experiments to run? How do we take some scientific rigor to these problems? And I feel like if you're working on something that's important to you or important to the world, then it's too important to just do it like a faith-based initiative. We want to bring some science and some rigor to it. So that's Lean startup in a nutshell, and I feel bad giving you the summary because of course it takes hundreds of pages to get into the details because just if you take nothing else away from this, the details really do matter. But I think it's been really interesting, except we started Lean startup, we started talking about it in the context of tech innovation and venture-backed startups. And then over time it's expanded into a lot of other industries and a lot of interesting domains. And of course the idea of Lean impact, I think, is especially interesting because it's one of the most challenging environments in which to do this more entrepreneurial side of working. So maybe Emma, you can talk a little bit about what makes it so hard and what to do about it. Yeah, I mean, so talk about uncertainty, right? The challenges that we're working on, whether it's inequality or injustice or environmental degradation, these are really tough challenges and there's a lot of uncertainty about how to solve them. And so I think Lean principles are just as important for social good. But to be honest, it's a lot harder and we have to recognize that. I've talked to so many social entrepreneurs who want to apply Lean approaches, who read Eric's book and get excited about it, and then they feel stymied because the system works against them. And one of the biggest factors that works against them is funding. The nature of funding, if you end up taking grant funding in particular, you're required to create what I think of as a grandmaster plan up front in your proposal. You put down all the details, how many dollars you're going to spend, what exactly you're going to do for the next three years, and then you're expected to execute to that plan, sort of like the opposite of Lean. And you're forced to do this. And so the structure really makes it hard. On top of that, in business, typically your customer is also the same person who buys your product or service. So you have this great feedback loop built in that if your customer doesn't buy your product or service, you know pretty quickly you're not on the mark. Whereas in the social sector, a lot of times your customer or beneficiary is different than your funder. And so your feedback loop becomes a lot more complicated. And there's a lot of other things that I think make it more difficult. Impact is just a lot harder to measure and can take a lot longer to realize than e-commerce transactions, for example. And when we talk about experimentation, when you're working with vulnerable populations, you have to be a lot more thoughtful about experimentation. You can't just move fast and break things. And so there's a lot of these things that make it harder to apply Lean approaches to social good. And so what I did with the book was I interviewed over 200 organizations in writing the book around the world and in very diverse sectors. And try to learn from them, you know, try to explore what are the ways that they've created space for experimentation and for innovation, despite these structures. And how do they create a new mindset that moves from mentality of planning within constraints to a mentality of looking at the need in the world and setting audacious goals that are relevant for the need so that we're really moving the needle. And finally, looking at all these, you know, approaches that Eric has brought together in the Lean startup and looking at how can we adapt these approaches for the unique context that we're working with in social good. And so one of those tools that I think has been popularized by the Lean startup is something called an MVP. So maybe Eric, you can tell us what an MVP is. Sure, sure. I feel like I'm Mr. Jargon today. So MVP is the minimum viable product and the critical concept to minimum viable product is to work backwards from what are we really trying to learn in order to figure out what do we really need to build. And in case people feel like, I feel like I meet people who are in a state of despair all the time that, you know, in their section and their sector, you know, it's gonna be impossible to change, but we have seen incredible change just in the for-profit sector, just on this issue, just in the last 15 years. So when we were working together 15 years ago, the common wisdom, we built a product where you get a team of geniuses together and you take tens of millions of dollars and you build this. I mean, it really was a revolutionary and incredible product. Some of the smartest people ever assembled built this thing. And by the time we launched it to customers, we had something on the order of 200 employees. We did it in top secret, of course, because God forbid anyone should find out about our super secret brilliant plan. And we were completely convinced that customers were gonna use the product. In fact, we had a really beautifully written business plan. Every copy was numbered. You had to sign them out of the vault and sign them back. That's how secret it was. And in the back of the business plan, there was this beautiful hockey stick-shaped growth curve. Like you've seen this before. And the whole idea from 20th century management, you make a plan and then you stick to the plan. So if you're on time, on budget with the plan, then you're doing a good job. Everyone familiar? So we launched this product and we were doing the hockey stick. And we're like, wow, we have almost no customers and almost no revenue. We're right on plan. You know, hockey stick to commence any minute now. And of course, if you or maybe at your friend's company, you have this question about, hey, am I actually on a hockey stick or just the long, flat part indefinitely? We got the latter, unfortunately, not like in the movies. And in retrospect, you really dig into like what was the problem? It wasn't, like we spent all our time on the scalability engineering and the like 50th hour of the consumer experience, all this other stuff. But like at the core, the issue was that customers would not download and run the software. And so if you go and you say, gosh, did that really need, did you have to take five years to find that out? Could we have found that out like just a little bit sooner? Like what if we had just created a landing page where we offered people the chance to pre-order the software? Would anyone have even clicked the button to do it? Well, since we know that they didn't download it, we also know they wouldn't have clicked that button. So we could have found the same learning in dramatically less time. I'm talking about 25% less time or save a few days here or there. We're talking about five years of work we could have learned about this critical mistake like in a matter of days or months. And it's that kind of really radical savings that a more traditional engineering approach, which is about, as I may talk about optimizing within a defined specification, where we've all been conditioned and trained to do that, save 10% here, save a day here, save a day there. But this different way of looking at the problem can say what is the absolute minimum that is needed in order to discover whether, for example, customers will want this product or whether the intervention we're doing will have the effects that we anticipate. And knowing those facts early then allows us to adjust as we go. So that's what it looked like in the for-profit sector and that was considered like epically radical even just 15 years ago. Now it's considered practically common sense and people are tired of hearing about it not that they necessarily do it consistently but at least we've made a huge amount of progress. So maybe maybe you can talk a little bit about what that same idea would look like in a social sector context. It's funny listening to you talk about our startup experience I think it's, I feel like it's our PTSD from there that caused us to write these books. You can tell from the people in the audience who's lived through this before but you can just see the look on their face they're getting a little pale. My heart goes out to you, I've been there. So a lot of people say, okay, yeah, I understand how you build an MVP if you're building software. It's a lot easier to do that, right? So what does it look like if you're trying to have social impact instead and maybe you're not building in an online world? So one company in Kenya called Copia Global set out with this goal of looking at how they could provide a much more diverse access to a much more diverse set of consumer goods to low income families living in rural Africa. And so the standard thing would have been to build a bunch of warehouses, build a bunch of transportation infrastructure, create an online catalog, all this kind of stuff and hope that people come. But instead they did realize that there was a lot of uncertainty they had to learn. And so what they did was the CEO, Crispin, went to the local sort of Walmart equivalent, took a bunch of pictures of different products in the store that he thought people might want, pasted together a handful of catalogs, brought them out to some villages and recruited some agents to see if they could sell things from the catalog. And when somebody would buy something from the catalog, the agent would call him up, he would run to the store, grab the product, bring it out to the village and fulfill the order. And certainly this is not a scalable way to do business, but it's a way to learn very quickly, like in the order of a week rather than months or years. And what they learned is one, that people would order from these catalogs. So they proved that part of the business. They also learned what kinds of products people were most interested in. So it helped them focus their business. And they also had a surprise. They originally thought that the best agents would be the people who were running these kiosks or like your corner store, if you will, they're already selling kind of staples. But it turned out those folks were much more interested in moving their inventory that they had already had in their stores and they weren't really promoting things from the catalog. And the people who made much better agents were people who ran complementary businesses like a hair salon where people were sitting around waiting for their hair to get cut and they could flip to the catalog orders and stuff and generate another stream of revenue for the business owner. And so those ended up being the best agents. So just within the course of a couple of weeks, they were able to learn all these lessons that helped them better direct the efforts in building the business. So here's, oh, I was just to say, now here's the problem. Everyone who just heard that story is like, well, obviously, of course they are the better agents, right, because everything in this world is obvious once you know the answer. So you gotta resist that temptation. You can read business case study, case study, case study, case study, and you're always like, well, I wouldn't have made that mistake, but it's easy from the outside to see those mistakes. The purpose of this is to actually find out, like through empirical testing, to find those blind spots. And I guess a lot of people I talk to, there's been like a fad towards prototyping and a lot of organizations experiment is kind of like a negative word because it means like we don't really have the conviction to do this for real. We just dip our toe in the water and like placate you with a little experiment over here and then we won't really pursue it. So minimum viable product by itself is not enough to do Lean Startup. We have to build it into a continuous feedback loop. And the reason it's called Lean Startup goes all the way back to the manufacturing and total production system that having this kind of continuous improvement mindset is the key. In Lean Startup, we call it the build, measure, learn feedback loop where we measure the time it takes to go from an idea, not to implementation of the physical product or the service delivery, but rather through all the way through measuring the impact and then validating if that's the right idea or not so that we learn to influence the next set of ideas. So it's a heuristic for really rapid iteration. And as soon as people start to understand this concept of build, measure, learn, they immediately run up against, well, in my industry, in my sector, in my space, we don't have permission to do that. We have long lead time, cycle time. We can't do it. And one of my favorite examples from the book is a woman named Diane Taverner who runs a charter school called Summit here in the Bay Area. And I remember talking to her about the like, everyone knows in education, you have to set the curriculum once a year and so you can't iterate faster even than once a year. And so I would really love to hear and tell a story about how they found a way to apply this build, measure, learn concept even in a situation where you would normally consider to be a lot of constraints. Yeah, and in the Lean Startup, Eric talks about this build, measure, learn cycle and that we need to really test hypotheses like the value hypothesis and the growth hypothesis. And when it comes to social impact, in the Lean Impact book, I talk about a third which is the value hypothesis, which is ultimately does it work? Does it actually have the social benefit that you're aiming for? And as Eric said, educational attainment is one of those types of impact that takes a long time to realize. Summit Public Schools, their goal was to have 100% of their students graduate from college. That takes eight years to find out. And Summit Public Schools originally, when they started, they started with a charter school. They applied the best practices for education and eight years later, when their first cohort graduated college, they did much better than average, right? So they beat the odds, people were all excited about them, they wanted them to scale and Diane actually was smart enough to step back and say, yes, we're doing better but we could do better than that yet even. We haven't yet hit our goal. But she also realized that couldn't wait another eight years to figure out a different plan. Rather than coming up with a plan, she decided to look at how they could build iteration and experimentation into the culture of the organization. I think that's when she called up Eric. And so what they ended up doing was running 57 week-long experiments with 400 students and each week trying to vary the mix of teacher lectures, group projects, online self-paced learning, tutoring and mixing the quantity of each of these things or order these things and so forth and just trying to figure out what would work and they would measure that by looking at student learning assessments and teacher evaluations and focus groups and so forth and gather all this data and then learn from that and then iterate again. And they drove this like rapid pace of learning that's led them to this transformative approach to personalized learning that has now been adopted by 300 schools across the country. It's so cool. So I want to turn Eric to one other concept from Lean Startup, which is all of this BuildMeasure Learn MVP stuff is what people love to talk about. But I think you and I really know that where it comes down to is something called innovation accounting, which is an unsexy thing that drives all this. I know people are gonna start walking out now because they're like, we don't need to talk about accounting, that's not. We were promised a session about exciting innovation, whatever, whatever. And look, I think there is a real tendency with these business ideas to want to jump on the stuff that fits on a bumper sticker nicely and it's really exciting, but the accounting stuff, the boring stuff, the management stuff, that really is the heart of it. And just like you didn't learn cost accounting, if any of you had to sit through a cost accounting class sometime in your life, I'm so sorry, but you didn't learn it from hearing two people on a stage for two minutes talk about it. Like there's a lot of math and detail to this. So please don't try this at home unless you study the actual math of it. But the basic simple idea is that for any outcome that you ever would want to achieve, there's a leading indicator that tells you whether you're on track to achieve that outcome. And for every leading indicator, there's a leading indicator that predicts that through a chain of causality back to something that we can control immediately. And entrepreneurs, we have a really bad habit, and I'm told this is true even in the social sector. We have a really bad habit of spending other people's money. Anyone notice that? And then those people often have the really bad habit of wanting to know what they got for their money and did it match up with the thing that we promised? But in order to get the money, we had to propose a fantasy plan of the best possible version of it that we could... So we actually create our situation where reality is never quite living up to the fantasy plan and that's always causing a problem because 20th century management is so... We have this ingrained reflex to hold people accountable by, did you hit the forecast? But those of us who've been entrepreneurs understand that the forecast was often generated at 11 p.m. the night before the fundraising meeting. You know, I pulled out of nowhere because you had to do Excel for some reason that the funder required in some bizarre format. See, some people are laughing. You've done this too. It's okay. Let's just admit it. With those forecasts, like how could you possibly know? Think about the examples we're talking about. A radical transformative effect approach to education. You know, a completely new economic development program in a developing country. How could you possibly know in advance that in year 17, the average impact will be 2.7%? I mean, just like, we're making stuff up and we don't know. So when people hear that, they then assume, oh, I guess accountability is impossible with entrepreneurship, so I may as well take my money and put it into more conventional means. And it's our obligation as entrepreneurs to say, no, that's not right. We have to figure out how do we have really strong accountability? How can we answer the question of what did I get for my money, but we have to do it in a new way? So there's a new accounting discipline. We call it innovation accounting for building those forecasts. And you know, obviously, if people are interested, you can, we can talk more about it later. But the most important thing you could do to learn about it is to read this awesome new book that just came out, which doesn't, I really, I get pitched to do a lot of books and put my name on things. This book is really terrific. And they did not print nearly enough copies for SoCAP. Right now, SoCAP is the only place on planet Earth where you can get a physical copy of this book. It doesn't come out until next week. And they did not print enough, so don't be late. Okay, anyway, where were we? Yes, so we were talking about that from a social good. We were talking about vanity metrics and innovation accounting. And you know, if you think about, when you look at mission-driven organizations, nonprofits, social enterprises, and so forth, and you look at, you know, how do they tout their success? Almost all organizations I see talk about the number of people we reach, the number of people we touch, the number of people whose lives we improved. All of these are meaningless. You know, it's what Eric called vanity metrics, because how do you know, like, if any of that was any good? Right. And even if it did some good, like, could another organization have done better? And so, you know, I think what's really important for us to do is to focus on what we call, you know, actionable metrics or innovation metrics. Metrics that matter. And so an organization that I talk about in the book called Harambe Youth Accelerator, they're working on this crisis of youth unemployment in South Africa and training youth to help them get their first formal sector job. And, you know, they certainly count the number of youth they train, which is what most organizations do, but they really focus on retention, because ultimately that's what matters. Like, if they get a job and then they stay in the job, that matters much more than whether they went through a training course. And so this causes them to make some different choices. So one thing they noticed was that when they were training youth to take retail jobs, that there was a high level of attrition. And when they dug into it, what they learned is that it was because the youth weren't accustomed to standing all day. And so their pivot was they started running their classes so that the youth had to stand during the classes. So they get used to it for a couple of weeks before they went to the job, and they weren't so surprised by it. But then they dug into their data more, because they're still seeing attrition. And they found was that, by analyzing their data, was that the highest attrition was happening when youth had to travel too far to their jobs, but it was cost, the transportation fare was dwarfing their actual income. And so they made that the number one priority in terms of matching youth to jobs as a sort of location. And so it's really taking the rigor to look at metrics that matter, that help Harambe, who's now placed over 50,000 people youth in their first jobs, and not only placed them in their jobs, but kept them in those jobs that really matter. So it was a running out of time, Erica, I wanted to turn to what you're doing today. So it's, because I think it's very relevant to people here at Socap, and talk a little bit about your new startup. Sure, so I have a company called the Long Term Stock Exchange, or LTSE. And my conclusion from working in the industry for a number of years is that most of the really grievous problems in our world, you can trace them back to the total lack of sustainability in the capital markets, and the fact that companies are run purely for the short term benefit of a very small number of stakeholders. And that's like a root cause problem like a cancer spreads throughout our society. So what's so strange about that is that this kind of short term thinking is not actually good for companies because it distracts them from serving their customers, as we all know. So therefore it's not even really good for their investors either. So the idea of LTSE is to create a new regulated stock exchange we would compete directly with NYSE and NASDAQ. So not some alternative or side thing, but go right at the heart of the problem, create a new social contract between companies and all of their stakeholders to say that we should be incentivized for mutual engagement and long-term thinking. So that's gonna take a little while, but we're working on it. Yeah, I think it's very exciting. Thank you, thank you. You can learn more at LTSE.com but for a different take, yeah. And I think there's a lot of talk here at Socap about doing well while doing good. I think this is the big theme in the world these days is everyone's trying to do both. But I just wanna sort of plant a little dose of reality in there, which is that there is a real trade-off between returns and depth of impact. And I think we just need to recognize that. A company that we funded from USAID called Off-Grid Electric in Tanzania, which provides home solar systems using a pay-as-you-go business model through mobile money, it really illustrates this. Like the early stage risk of experimenting with this new business model was funded through grant funding. And then later on when they're trying to raise working capital at a scale they didn't have enough of a track record to be able to get loans from traditional banks. And so we gave them a larger grant that actually served us versus lost debt to de-risk some of the lenders and allowed them to draw in more funding. And finally, even impact investors can tend to push companies up market. So in the case in Tanzania there's an area called the lake zone which is highly impoverished and it took DFID, which is another foreign aid agency to offer incentives to have Off-Grid and other companies actually serve those markets. So I think that while there are cases while you can get both impact and returns there are also many, many cases where you can get more impact by having some level of financial concession by taking lower returns or by blending financing. I think we also need to look at those sets of tools as well. Hey, and just I want to make sure everyone really got that three-part framework you were offering before value. Hypo, this is growth, Hypo. You just walk them through that one more time. Make sure that we leave people with that framework. Okay, so... Three key hypotheses for a social impact. Yeah, so if you want to deliver social impact there's three things I think you really need to deliver on value, which is this is something people want and will demand and come back for. Impact is does it work? Does it deliver social benefit? And three, growth. Does it actually have an engine to accelerate growth over time and reach the scale they need? So just to wrap up, do you want to give a quick update on where the lean start moving stance today? Sure, yeah. Now listen, no one's more surprised than I am that this thing turned into a movement. I mean, when I started writing about lean startup 10 years ago, you know, I was just writing really for myself and my friends and it's other people who've had the vision to turn it into a really global network. Wherever you are in the world, there is a lean startup meetup near you. There's hundreds of them now in all the major cities and startup hubs so people can reach out to those communities to join. We do a lean startup conference every year. It's actually coming up in a couple of weeks and May is leading an entire lean impact track at the conference. So if you want to get hands on and do workshops and really get into some of these materials with the world's experts, she will be there. You can learn more at leanstartup.co. There's a special nonprofit rate you should come. And then in terms of kind of what's next for the movement, you know, I wrote this new book, The Startup Way last year, which was really trying to say beyond just the getting started phase, what is the template for a truly modern organization? What should our institutions look like? And try to take a little bit of a bigger picture view. I think we all are aware that we're living in a time when like our civic institutions are under threat and under attack and are being systematically dismantled. And so on the one hand, some people say, well, we just need to go back to what worked in the past. But I think we also have to acknowledge that we live in times of great change where things are different. And so we really, our generation is called to pioneer a new way forward. So we need to bring the best from all sectors, from all kinds of thinking for all kinds of organizations together to make that happen. And then May, I think it's really important that you get the final word here. So just talk a little bit about what your hopes are for Lean Impact and why you wrote the book and just what do you want people to take away? Yeah, so, you know, what my hope is, you know, and I think we're already on this path is for Impact to become something that's essential for every organization. You know, I think we're in a day and age where we all care about the world and making sure that we're being responsible. So Impact shouldn't be just relegated to the nonprofit sector. It should be something that's essential in all companies. And I would go further to say that today, I think still too many organizations actually reach their guilt by delivering some impact, right? Like we are actually pointed in the right direction. We're doing some good. We helped someone. We should be patted on the back. And I think what we want to do is shift that mentality. Not some impact isn't good enough, but we need to maximize impact. We need to deliver the absolute maximum impact possible, just like companies are expected to and have the structures and incentives and regulations to maximize shareholder value. We should all have the same edict to maximize impact. Awesome. Well, congratulations on the book. It really is terrific. You should all make sure you get a copy. Yeah, and I'll be signing books at 11.30. Eric actually has to leave, but he signed all of them already. They're pre-signed. They're all pre-signed. So we'll do it. So yeah, thank you all very much. Please join us at the bookstore. Thank you. Appreciate it. Thanks all very much.