Sunday, May 6, 2018

"The Craziest Idea In Silicon Valley"

From NewCo Shift:
The author of the New York Times bestseller The Lean Startup wants to reinvent how stock markets work. Everyone thinks he’s nuts. But we currently fund US innovation with Russian mafia money and autocratic sovereign wealth funds, so….

Equity markets are literally the beating heart of capitalism, and Eric Ries wants to reinvent them. Is he crazy, or on to something big? Read on (or watch the video) for one of the most stimulating and insight-laden sessions of this year’s Shift Forum.

John Battelle: All right. I’m really pleased that Eric Ries is coming and speaking with me. He has an idea for markets that is very important for all of us to consider. He’s well known, of course, for his book, “The Lean Startup,” and his follow-up to that book.
What we’re going to be talking about primarily is his Long-Term Stock Exchange. Please join me in welcoming Eric to “Shift Forum.”

You’ve been around the block a few times.
I guess so.

You wrote a book that sold over a million copies. As an author, I’m not at all jealous of that. Now you’ve decided you wanted to start another company. This was a company of companies in a way, right?

Tell us what the Long-Term Stock Exchange is.
Sure. Let me just say, from a lifestyle point of view, no author ever wants to start a company. This is a significant downgrade. Let me just get that clear.
I was not on the market for another company. This is an idea I first floated in The Lean Startup. If you are one of the 27 people who read all the way to the last page — which, out of a million, that’s not too bad of a ratio — one of the very last things I suggested in The Lean Startup was that somebody really ought to do a bunch of things.

That’s the best part about being an author. “You should do this. You should do that. You should reform education. You should reform public policy, government. While you’re at it, we have to think of a new better way to do capital markets.”

Because if you’re going to do a lean transformation, going all the way back to Toyota, if you study Jeff Bezos or any of the great long-term-oriented CEOs or investors, everyone understands that to do this better management system requires a philosophy of long-term thinking.

Yet at the same time, we’re telling venture-backed companies to go public, to be acquired by a public company, to enter into a corporate governance paradigm that is as short-term as it can be. We can’t reconcile those two things.

Although here in Silicon Valley, people say, “Oh, it’s Wall Street. It’s so short-term. It’s Wall Street’s fault,” investors don’t benefit from this, either. If companies are distracted from fundamental value creation, then they’re worth less money because they’re not doing the right things.

My idea was, “there ought to be a way to change the incentives of managers and investors at the same time. We would call it a Long-Term Stock Exchange or LTSE.” Somebody really ought to build that.
Of all the ideas in Lean Startup, almost every single one, somebody has run with in the intervening years. I never got the phone call from someone, “Hey, can I do the stock exchange one?”

Was that not, maybe, a signal that perhaps you shouldn’t have?
If I had a sensitivity to those signals, I certainly wouldn’t have done Lean Startup in the first place.

That’s a good point.
I’m defective in that way. For whatever reason, it was an idea that just wouldn’t leave me alone for many years. I started to investigate what would it take to build the new exchange. I spent a lot of years with people telling me that it was impossible and crazy. I said, “Oh, I remember that feeling from when I first started talking about lean startups.”

That’s like waving a red flag to a bull, to me, anyway. I wanted to understand, at least, if it’s a bad idea, why is it a bad idea? If it’s impossible, why is it impossible? The more I learned about corporate governance and about the way our capital markets work, I learned that not only is it not impossible, it’s actually, to me, seemed like a pretty reasonable idea.

Very few people are able to defend the way we currently run companies and the way that we hold them accountable in any first principle’s way other than, “This is just how we’ve done it.” My thought was that there has to be a better way.

We’ve built a company. It’s a real-honest-to-God company. We have raised money and have a petition before the SEC to get their approval to operate a new stock exchange.

Do you think a petition before the SEC to get approval to make a market that the SEC doesn’t probably want to deal with a difficult thing? It’s like you’re trying to invent a new form of nation-state.
People do look at me that way. In Silicon Valley, by the way, this is considered the craziest idea anyone is working on. I’ve had people who are working on quantum computers and immortality tell me that they think this is a crazy idea....