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STEVE INSKEEP, Host:

And now let's talk about the drive to increase innovation. Some of the best business ideas supposedly come to people in the shower - or maybe not.

ERIC RIES: When we're in the shower, when we're thinking about our idea - boy, does it sound brilliant. But the reality is that most of our ideas are actually terrible.

INSKEEP: That's entrepreneur Eric Ries. He's some up with his fair share of good and bad ideas, and now he has some new ideas for how to start a business. One of them is that it's okay to put a totally unfinished product out into the market. Not only that, sometimes it's actually better than trying to get the product perfect first. Ries' new book is called "The Lean Startup," and he joined us to talk more about it.

RIES: When we start to think of all of our work as an experiment that is designed for learning, not just making more stuff, new and interesting possibilities come up. So, for example, I once spent six months building a product that customers wouldn't even download off the Internet, so it didn't really matter how buggy it was or what kind of problems it had. And what I realized is that if we had just created a single Web page to offer people a chance to download that product without having even built it, we wouldn't have even needed to build page two, where we apologize for the fact that it didn't exist yet, because nobody would even click that download button.

(SOUNDBITE OF LAUGHTER)

INSKEEP: So start small. That's another one of your suggestions, here.

RIES: It's a really paradoxical thing. We want to think big, but start small. And then scale fast. People think about trying to build the next Facebook as trying to start where Facebook is today, as a major global presence. And it's hard to remember that that started only on one college campus, and that proved that the model could work as they went from campus to campus. They didn't need massive scale at the beginning. The current management tools that worked so well in the 20th century that have to do with planning and forecasting and being able to put together a rigorous plan that you can then beat with execution, that actually gets in the way of innovation.

INSKEEP: Although, when you think about people who've been making money, even in the difficult economy of recent years, it seems like a lot of capital-intensive businesses - I mean biotech, health care, defense contractors. It's challenging to think about starting small scale in anything and going up against any of them.

RIES: It certainly is daunting. One of the things that I am really excited about in the current environment is what I call the rentership of the means of production, turning Marx's old dictum on its head. It used to be if you wanted to compete in manufacturing, you had to build a factory, which is very expensive.

INSKEEP: You had to own the means of production.

RIES: You had to own the means of production. But now you can rent them.

INSKEEP: What does that mean, exactly?

RIES: I'll give you an example from software, and then we can talk about how it would look actually in manufacturing.

INSKEEP: Sure.

RIES: If you have an idea for a new software product you want to sell on the Internet, as I did in my last company IMVU, you only need about $5 a day to get started. You need enough money to be able to put up an initial website, and then you need to be able to advertise it and get distribution to customers. Well, in the old days, that would have been expensive, too: billboards or magazine advertising.

Today, you could go with Google with their AdWords product and you can buy clicks and buy customer attention at pennies each. And so the first advertising budget we had literally was $5 a day. We were paying five cents a click, and that allowed us to get 100 clicks. And so if our product had turned out to be a complete disaster and, you know, had no chance of success, we could have found it out at a cost of five bucks instead of $5 million. That same capability is being unlocked in manufacturing. So even if you want to build a physical device, you don't necessarily have to go build a factory. You can just build a computer schematic of what you want, and there are manufacturers now who will send you a batch of, you know, say, 40 of those at a very low cost.

We profile one such company in the book, and we tell a story of them building a field array for a military contractor that was a very complicated contraption that had to be able to defuse landmines and bombs, a very technically demanding product. And in the old days, that would've taken years to develop, and we show the timeline in the book of them going from concept to 40 physical prototypes they could test in the field in just about 15 days.

INSKEEP: Rather than 15 years, which would be more common for a military contract.

RIES: And the cost of only a few thousand dollars, instead of millions.

INSKEEP: So you're trying to put a dollar value - when a company looks at the value of itself - a dollar value on the speed and nimbleness with which new ideas are tried and fielded, and then sometimes even knocked down.

RIES: That's exactly right. Right now, we're really focused on efficiency as a society. We always want to increase productivity, build stuff more efficiently. And the truth is, we actually have more stuff than we know what to do with. So, building more of it, more efficiently, actually doesn't help. We have to be focused on the efficiency with which we can test new ideas, to discover which are brilliant, and which are crazy.

INSKEEP: Eric Ries, thanks very much.

RIES: Thanks for having me.

DAVID GREENE, Host:

And Eric Ries's new book is called "The Lean Startup."

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