QZ&A

The Lean Startup’s Eric Ries has some advice for companies facing the coronavirus crisis

“The actions you take now will define the rest of your corporate life,” says Ries.
“The actions you take now will define the rest of your corporate life,” says Ries.
Image: Getty Images for TechCrunch/Kimberly White
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As the coronavirus pandemic and its related economic shutdowns ravage businesses across the globe, Eric Ries, the Silicon Valley entrepreneur and influential author of The Lean Startup, has been fielding calls from CEOs who are wondering what to do next.

His answers, in some ways, are similar to what he has always advised as co-founder of the Lean Startup Co. consulting firm, and as founder of the Long-Term Stock Exchange, a market predicated on the idea that companies should be able to access capital without sacrificing their mission at the altar of short-term growth.

“The things that people are urging companies to do now, when you really think about it, aren’t different from what they should have been doing all along,” Ries says. “It shouldn’t have taken a crisis to make these changes.”

We asked Ries what he sees happening as businesses react to this historic health crisis and what kind of advice he’s been offering stressed-out executives. This interview has been lightly condensed and edited for clarity.

Quartz: What is Covid-19 teaching us about long-term thinking? And what are some examples of what you think companies should have been doing all along?

Eric Ries: Instead of spending money on buybacks or financial engineering, it would be good for companies to invest in R&D and their own people. I know of so many companies that were intrigued by the idea of transformation, digital transformation, agility, but didn’t do anything about it. They just talked about it. Now many companies are being forced to dramatically pivot in huge areas of their business and they have no ability to do so. So, now what?

In many traditional companies, a new initiative takes six months just to schedule a plan, never mind to do it. And now we don’t have six months.

I just got a call today from a very big company that has five weeks [of cash] left and they have to arrange emergency financing. There’s so many things they could have done to make themselves more resilient to these kinds of unexpected disruptions, but they didn’t.

What prevented them from making those changes before the pandemic?

There are two things that are going on that seem like they’re in opposition, but they’re actually related. The first is management to the quarter, to the short term. In most companies, there’s this pervasive pressure to think only ahead to the next quarter, to the next milestone. You see it really starkly when a company goes public. You say to the CEO, “What’s different now than before?” They’ll say, “Well, everyone is on Yahoo Finance, looking at tickers.”

Let’s think about that. That’s actually irrational. What good is that information going to do? That’s the noisiest place to look for data. Yet most managers turn to that as a signal of what they’re supposed to be working on.

That same phenomenon also yields this very conservative, defensive view about what the company should do and invest in. We have this loss aversion. We can’t let the stock go down, god forbid. And that means—well, there’s this concept in the management literature called “cost of delay,” which is when you have an initiative, it’s very easy to see the benefits of delay. The benefits to delay are always that you can make something more perfect, but the costs are hidden. As a result, we don’t economically quantify the costs of delay.

The irony is that because of the cost of delay, under a short-term management cycle, everything takes forever. It’s a very confusing combination and it took me many years to try to understand the connection between the two.

I personally have a feeling of mourning for all the projects in America that will never launch, because they weren’t shipped before the crisis started—millions of them. Some people were working on projects for a month, some people for a year. Some people will have worked on projects for five years, and now, because they were supposed to launch in January and the launch day got pushed to March—because what do a few months of delay matter?—and now the company is out of cash, and it can’t invest, and it can’t this, and it can’t that.

Do you see the same connections in our public health response?

I’ve plugged myself into relief efforts for the last two weeks. Our whole mission at LTSE is to put people first, no questions asked. Our whole team is like, “How can we be helpful for things that matter?” So I got sucked into public school closures, and I got sucked into the medical PPE problems in the last five days. I’ve been, almost 24/7, trying to help people coordinate their response. There are things I learned that are so horrifying, I mean they make me sick. I wish I didn’t know what I know. And there’s short-term thinking everywhere, certainly in the national leadership as well as industry. (Editor’s note: This piece in The New Yorker further details Ries’ attempt to assist with relief efforts.)

Do you think that we’re going to see any change after this?

Well, I hope so. I mean I don’t know what lessons people will take. On the question of what is the purpose of the corporation, and therefore what should it spend its money on, I’ve seen a bunch of articles that are like, “Who cares if somebody did buybacks or not? The amount of money that was bought back, we don’t need. It would only help an airline stay open an extra month, so how would that help?”

But a month, for most companies, that’s actually a really big deal. And tell that to the people who are going to be laid off a month sooner, and lost a month’s paycheck.

I would hope that companies that were prepared, that built resiliency in, will come through stronger. That’s sort of the creative destruction hope of capitalism, that tragedies will separate the strong from the weak. But I worry about that.

When I look at the last crisis, I think: Did we take the right lessons? I don’t know that we’ve internalized the fact that this is going to be the new normal. There are going to be crises—expect that, and expect unexpected shocks. Anyone who has a plan that doesn’t involve agility and the ability to respond quickly doesn’t have a plan at all.

What happens then?

[I]f you look at the advice to CEOs given right now, a lot of it is about the need to have emergency layoffs. I can’t tell you how many people have called me about their layoff plans. And there’s a reason for that: It’s essential; dramatic action is going to be required. A lot of companies don’t have a sustainable business model.

I understand the need to act urgently and decisively, but if a company has true agility in its bones, before you lay people off, you at least look for the opportunity to create new kinds of revenue, look to those new opportunities to put them to work.

Every hospitality company has to do what Airbnb did [when] it announced they’re going have hosts offer quarantine housing for medical first responders, because if you have a family, but you work in a hospital, you can’t go home. Where do you go? So AirBnb asked: How do I provide a new service, using my existing assets and infrastructure?

Have you been inspired by any other corporate responses to the moment?

I’ve been inspired by the employees of companies. I’ve been really encouraged by the number of volunteers that are pouring out of these companies offering to help. I really wish that CEOs would match the intensity and passion and public spiritedness of their own staff.

Have you seen Helpwithcovid.com? I personally have three projects posted on there. It’s just a place for volunteers to say “I want to help.” I probably have recruited more than a hundred volunteers on the site in, like, three days. It’s astonishing, the level of civic engagement is more than I’ve ever seen in my life.

A lot of people I’m using as volunteers, they work at companies with huge balance sheets. Why are they calling me to volunteer? Why haven’t their companies mobilized and put them to work in a store? These employees are like “I work at X company and I just don’t feel like optimizing our customer service, blah, blah blah.” Because how does that feel important right now? It just doesn’t. And you don’t think they’re going to remember that their companies didn’t take action during the crisis?

What else should companies have been thinking about before this to stay relevant? Like, sustainability, purpose—

Yes, all that, the things that make companies brittle: a lack of sustainability, lack of corporate purpose, a lack of multi-stakeholder thinking. I mean, what an irony that this is happening right after all those about multi-shareholder pledges. Let’s see which of those companies have stepped up for the employees—and not just their employees, their whole community. Which technology companies are standing up for the workers on their platform who are not technically employees? Who is going to put their balance sheet to work in and invest in their communities?

I don’t see that happening yet, but I really am hopeful that people will realize this is the moment to make those investments, because the public and your employees and your suppliers, everyone’s watching you now. The actions you take now will define the rest of your corporate life. If you don’t take care of people, if you haven’t put them first, you think they’re not going to remember when the recovery comes?