How to Build a Business Without Money | Eric Ries’ Playbook for First-Time Founders

Indian Business Podcast

In this episode, entrepreneur Eric Ries discusses how first-time founders can build successful companies using the Lean Startup methodology

Key takeaways

• The Build, Measure, Learn loop is a continuous process used to take an idea, build it into a product, and use resulting data to influence the next set of ideas.
• Dropbox validated massive demand by using a simple three-minute screen-recorded video to create a waitlist before building the actual software.

Main topics

• Lean Startup Methodology
• Product-Market Fit

Notable quotes

Validation is about measurement, not about conversation.

Conclusion

This episode serves as a practical guide for entrepreneurs to move awa

Transcript preview

Speaker 2 (0:00) When you grow up, you tend to get told that the world is the way it is. Your life is just to live your life inside the world. Try not to bash into the walls too much. But life, that's a very limited life. Speaker 1 (0:12) If you come from a middle class family and you have the burning desire to build a business, this episode is for you. Because since childhood, we all have been fed the same three lines. And every family has had one uncle who started something and it went bankrupt. And now, he's the family's permanent case study to see, But do you realize, nobody in your family ever asked why did that uncle fail? And if you go deeper, you'll realize, that he did not fail because he wasn't smart. He failed because he took his entire savings, took a huge loan and built a business on guesswork. But my question is, what if you can figure out your goldmine business idea even before you invest your savings? Well, to teach you this magical concept, we flew all the way to New York to get you Eric Ries. Eric Ries, the legendary entrepreneur and best-selling author who taught Silicon Speaker 2 (1:04) Valley how to build better startups. Speaker 1 (1:07) This book is used as a case study in the biggest B-schools in the world. It has been taught in Google and Toyota. And the CEO of General Electric said, I make all our managers read Speaker 2 (1:17) The Lean Startup. So Speaker 1 (1:19) if you're a middle-class child who has the burning desire to build a business, take a pen and a notebook because this episode is going to be life-changing. And by the way, I've also attached a detailed workbook in the description that you can check out after watching this episode to apply all the principles that Eric has taught in this podcast. Do you think a 21-year-old with less than $1,000 can lay the foundations for a large company with very little resources? People think raising money will make Speaker 2 (1:44) them strong. That's not always true. So Speaker 1 (1:46) help me understand whether my product truly has product market fit or not. Speaker 2 (1:50) I think this is a very profound framework. It's like having x-ray vision. So there's a thing in business called the... Speaker 1 (2:00) People, before we move on with the episode, I just want to take 60 seconds to thank our sponsor Odoo because without them, this episode would not have been possible. While Eric Ries talks about building great products, most founders are actually struggling to manage the chaos that comes with product development. And if you're a founder, you know exactly what this feels like. You're tracking deadlines, coordinating with your team, assigning tasks, and constantly trying to make sure that nothing falls through the cracks. And at some point, the weight of managing all of this starts slowing you down. This is exactly where Odoo can help you out. Odoo's project application gives you one clean centralized place to manage everything your team is working on. You can create projects, set up custom stages, add tasks, assign the right person, set priorities, add deadlines and even break down complex tasks into smaller subtasks so nothing gets missed. And you can view your work in whatever way makes the most sense to you. The Kanban view keeps your pipeline organized like a visual board. The Gantt view gives you a full timeline of tasks and their dependencies. And the list view shows you everything in one simple powerful screen. Collaboration also becomes far more efficient because every task has a built-in chatter where your team can send emails, add notes, tag colleagues, schedule meetings, attach files, all without leaving the platform. And the best part is you can get started with Odoo for free today. And as your business scales, you can access the full suite for just 580 rupees per user per month. So if you want to manage your projects the smart way and actually focus on building a product, click the link in the description and get started with Odoo today. And now on with the episode. Eric, what is the right way to find a gap in the market? Let's say I'm 21 years old in India and I have less than $1,000 to build a company. Do you think a 21-year-old with less than $1,000 can lay the foundations for a large company with very little resources? Speaker 2 (3:42) Okay. So in Lean Startup, we have a very simple idea that was invented to answer this question. It's called the Build, Measure, Learn feedback loop. So here's what Build, Measure, Learn is. It is a continuous process by which we take an idea, we build it into a product. When customers interact with that product, we measure what happens, generating data. That data allows us to learn and influence our next set of ideas. And we go around and around and around. Any money we spend in a startup that accelerates time through this loop is good money to spend. Everything else is a waste of time. Speaker 1 (4:15) People always hear that. They say, oh, that sounds good. Sure. Speaker 2 (4:17) Oh, yeah? How come you're spending money on your branding campaign? Why are you talking to the press? How come you're out there in the street hosting a party? Why are you trying to get everyone to talk? Is that really helping you learn what you need to learn? Why are you on social media all the time? Are your customers on social media? Why are you trying to win awards and pitch competitions? There's so much BS. Why are you both in an office? Why are you fancy furniture? Why are you employing all these people? Are they really helping you go faster to the learning? And a lot of entrepreneurship is just about distraction. People get convinced they have to do this thing because they've heard that that's a thing you have to do. But is it really, really necessary? When you strip out all the unnecessary BS, businesses are often much simpler than we make them out to be. You can compete with any company in the world directly from your couch with your laptop. Amazing. With less than $1,000? Of course. Yeah, because there's so many products that don't require any capital at all. You can rent what you need. And now we live in the age of AI. So if you have $1,000, you can pay for a lot of AI. You can get access to coding tools, to deployment tools that I would have given any amount of money 25 years ago to have access to. Now it's basically free. You can get it so easily. So the other advantage you have if you're a young person is you're not encumbered with legacy ways of thinking. The advantage of being a young person is you have no preconceptions about how the world should be run. every company in the world will be AI native. The ones, they'll either have made the pivot or they'll be dead, right? So every company in the world will just, it will be considered obvious. The idea that like a human being has to go to your catalog and browse through to find the thing that they want. No, come on, absurd. Now you'll just tell your agent what you want. They'll go talk to the seller's agent and they'll work it out. Come back to you and say, this is what it is. So there's going to be so many business processes that are going to be completely reinvented in the next few years. It reminds me a lot of the first years of mobile when all these things we were doing on the desktop web, people were like. No taxi cab company in the world invented Uber and required someone to look at the problem fresh. Same thing was true with a personal computer. Same thing was true with so many technological disruptions. The same thing was true with electricity. So many procedures had to be reinvented from scratch now that we had a new capability. So because you are an outsider, because you're only 21, because if you had too much money, I'd be worried for you. Yeah. Yeah. The richest, do you think the richest people in the world are greatest, are awesome entrepreneurs? Look, look at the evidence. Yes, we have a couple superstar entrepreneurs who are wealthy and powerful, but like most people. Once they become wealthy, they become lazy. They become incapable of becoming an entrepreneur. They don't have the drive. They don't have the hunger. And they don't have the vision. If you're a younger person, if you're an outsider, you can see the injustice in the world. You can see the problems in the world. Those become your opportunities. Here's a problem that nobody's even trying to fix because the customers, they're not important enough to be worth helping. You know what? Here's a customer. Here's a situation where people don't even know about it. I think if I'm 21. You've grown up your whole life with social media. What a toxic mess that is, right? Those of us who didn't grow up with social media, we can't imagine what it was like to be a teenager on Instagram and how horrible that was, right? So you see problems that older people are ignoring. They don't even understand. They don't have the first clue about. You'll see them in entertainment. You'll see them in commerce. You'll see them at school. So many places. So with $1,000, pick one. Go build an MVP. Speaker 1 (7:44) People, let's go a little deeper over here. Build, measure, learn is one of the most powerful ways to test your business idea. So let me help you understand the depth of this concept better. In 2007, a 24-year-old kid forgot his USB at home. And he was like, bro, if I only had a tool to access the data in my USB from my computer, that will be fantastic. That is how he came up with the idea of Dropbox. Now, the first instinct of a founder today would be to quit the job, hire engineers, get investors and build the product or maybe even go to Shark Tank to market the product. But you know what this guy did? He said, I need this product that is fine, but will millions of other people also need this product and pay for this product? So he made a three minute screen recorded video of Dropbox and that too without making anything. It was almost like a fake product demo. This is what the demo looks like. Do you realize how crude that demo is? And through this demo, he asked people to join a waitlist if they wanted the product. And guess what? Overnight, 75,000 people signed up. So he built a demo and learned that the demand is real and that too without building the product. And then he said, let's measure how much does it cost to get real customers? Because if I build the product and then take it to the market and eventually realize that the customer acquisition cost is very high, the business will end up in a failure. And that's when he thought. a lot of people want this product that is fine. But let's measure how much does it cost to get real paying customers because only then the business model will be considered successful. So he ran ads that cost him $233 to $388 to acquire one customer who only paid $99 a year. So his learning was that ads won't scale his product. If this is clear, let's move on. Let me give you another problem statement. Let's say I'm a 21 year old and I want to start a coffee brand. Speaker 1 (9:34) Using lean startup principles, how do I even validate whether this idea is worth pursuing or not? Speaker 2 (9:40) What is the thesis here? What do you really believe about customers? So you have a high-end coffee brand. Okay. You're going to tell me that the reason you're going to win is because the coffee tastes better than other coffee. Okay. I believe you. I'm going to take it for granted. What else is true? We have bettered our logo as a fancier design. Okay. Speaker 1 (9:57) What Speaker 2 (9:58) else are you going to do? We're going to use, you know, we're going to use arcane weird nut milks that nobody else has access to. You know, you tell me. I don't know what it is. You tell me, right? So you have a bunch of assumptions. Great. I ask you, how's it going? What's your plan? Well, I'm going to go get a, I got to learn how to roast the beans. I got to buy a factory. I got to buy the this. I got to buy the that. It's like, forget it. Okay. That's not going to help. What I want to know is how many people have you given coffee to? How many coffees have you sold? You're like, well, how can I sell any coffee? I don't have a factory. I didn't say how many millions of coffee. You can't sell one. Now, here's the thing. You say the coffee's better. Speaker 2 (10:33) What does it mean for coffee to be better? You're like, well, I like how it tastes better. What does that matter? Do your customers think it's better? I don't know. I haven't served it to them. Well, okay. So first question, can I produce coffee that's better? So how am I going to do that? I'm going to go in my kitchen. I'm going to learn to roast beans. I'm going to make a cup of coffee. I'm going to sell it to somebody. Now the customer, you serve it to someone, the customer, while they're in your kitchen, says it tastes great. Well, no kidding. But would they buy that coffee instead of what they get at Starbucks? Well. Will they? You can't ask. You got to find out. So there's like a series of things that you have to find out. Is this product actually 10 times better or not? Is there something interesting or better about it? And oftentimes what makes a consumer brand is some weird quirk or detail that is not obvious at the beginning. It might have nothing to do with the flavor of the coffee at all. A lot of consumer brands. There's an element of design, an element of quirkiness, an element of the thesis. So like there's a chocolate brand in the Netherlands called Tony's Chocolonely. Tony's Chocolonely. Tony's Chocolonely. It's one of my favorite chocolate brands. The chocolate's delicious. But the reason I love the brand is because their mission is to eradicate child slavery. This is a lot of child labor, forced child labor in the production of cacao beans all over the world. Speaker 2 (11:56) They were able, the MVP of Tony's Chocolate Lonely, they produced 5,000 fair trade chocolate bars. Speaker 1 (12:03) That's it. Speaker 2 (12:04) Now, the key to this is they announced that they were going to produce 5,000. They didn't even have the chocolate bars yet, and already they sold 15,000. Because consumers, they were so excited about the promise of what these bars would be, that gave them the validation they needed to go after it. Figuring out what is that element that makes your product truly unique and different. It's not something you can figure out in your cave by yourself. This is not meditation. This is not philosophy. This is a truth-seeking enterprise where you have to be in the world testing to find out what's really true. Speaker 1 (12:37) Beautiful. So don't treat your startup as a large venture. Treat it as a hypothesis that needs to be tested. Speaker 2 (12:45) You got it. A Speaker 1 (12:46) hypothesis is a function of assumptions. So whenever you come up with a hypothesis, you will have assumptions coming along with it. Of course. In case of a coffee brand, in our case, we made an assumption that the coffee tastes better, the low is fancier, and we're using some weird nut milk. Speaker 2 (13:02) Yeah. That is maybe available Speaker 1 (13:03) in Caribbean. Speaker 2 (13:04) Yeah. To Speaker 1 (13:05) make the coffee amazing. But our definition of amazing may not necessarily be the customer's definition of amazing. Just because we believe coffee is amazing doesn't mean the customers will feel it's amazing. And more importantly, just because you would pay for it and people in your kitchen would pay for it, or they say. They say they would pay for it. Speaker 2 (13:26) I've told many times in my life, someone's like, I would gladly pay for it. You say, great. Can I get your credit card? Oh, I can't find my wallet. I'll get back to you about that. It's like, okay, yeah, you said you would pay. But we have to get them to actually pay for it, of course. So our focus on making things quote unquote perfect. is preventing us from actually creating the experience that the early adopters want. And it's only through early adopters that we can get the feedback we need to make something perfect. Perfection is a process, not an end state. Speaker 1 (13:52) Eric, walk me through the process of validating an idea after a few customers have bought it. How do I, are there benchmarks that I must monitor to check whether the idea is worth pushing or not? You'll know it when you see Speaker 2 (14:04) it. Okay, so this is one of these things that's tricky. The phrase is called product market fit. Speaker 2 (14:11) Sometimes entrepreneurs call me. They say, I want your advice. I'm trying to figure out if I have product market fit or not. And I always tell them the same thing. The fact that you're calling me tells me already that you don't have it. If you have product market fit, you will be too busy to call me. If you've never seen it, product market fit is like a tornado. It's like all of the sudden. Think about what AI is doing right now. I have a lot of friends at Anthropic. They don't have time. for phone calls anymore. They're just trying to get the compute out the door. They're just trying to get the new model. It's all consuming. So that will be you one day. But the question is, how do you know if you're getting close to that or not? And so that's where it's very important. That's why we call it minimum viable product. It's very important to no matter what else you're doing, do not lose sight of making the product better, selling it to customers, like making sure that you actually know what you're talking about so that you're not building a fantasy plan, but it's based in reality. Speaker 1 (15:05) Eric, I know you're very close to Dario. Speaker 1 (15:09) Do you happen to know a story about how Anthropic, the legendary company that we know today, built a minimum viable product and eventually found product market fit? Speaker 2 (15:18) Well, that's a very extraordinary company. And today they're seen as this inevitable juggernaut. But of course, when they started out, they were just first-time founders, technical founders. Speaker 1 (15:27) First-time founders. Speaker 2 (15:28) Yeah, they had never done it before. They left OpenAI after a dispute with the founders there. And they really wanted to build a company that was rooted in safety. And their thesis was, it's better to be right than first. So they, like most founders are rushing to get a product out the door. They had to do something different. They had to figure out what is safe. They were very focused on that. Like we think having people trust us with safety is the most important thing. So when ChatGPT launched, Anthropic could have launched that same product. They had the same technology effectively as... but they felt like it wasn't safe to do so. They wanted to wait and get it right. So their challenges were unusual in that way. But the fact that they were willing to be committed to safety from the beginning, even doing things that customers understood to be a sacrifice. I think people respected that they were being consistent with their own