Aug 26, 2019 · 54m · capital-allocators
Eric Ries – Lean Start-Ups and the Long-Term Stock Exchange (Capital Allocators, EP.107)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, host Ted Seides interviews entrepreneur and author Eric Ries to examine the foundations of the Lean Startup methodology and its practical application in building the Long-Term Stock Exchange (LTSE) to reform public market governance.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 19% of the talking time here. How this is scored →
Ted as informed peer 2.8 Guest teaching 3.8 Guest disagreement 1.6 Ted pushing back 0.3
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 33:00 Denouncing toxic executive compensation and buybacks
Eric delivers a fierce critique of public companies spending over 100% of earnings on buybacks and treating passive index holders as captive targets for excessive CEO compensation.
Hardest push from Ted ▶ 31:11 Ted presses on passive index ownershipTed challenges Eric on how major indexers like Vanguard and BlackRock fit into a long-term reward structure given that they are inherently passive rather than active stewards.
Biggest teaching moment ▶ 25:40 Explaining street name opacity and beneficial ownershipEric educates listeners on how modern public companies rely on delayed stock surveillance to guess their investor base, illustrating why direct beneficial ownership tracking is necessary.
Ted holds their own ▶ 29:00 Ted dissects the complexity of economic differentiationTed demonstrates his deep grasp of market operations by probing the technical feasibility of tracking individual holding periods and economic differentiation for dividends.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Eric Ries's Early Entrepreneurial Failures | 2 | 2 | 1 | 0 | Ted opens with broad biographical questions about Eric's origins as an entrepreneur. Eric reflects on his early failures during the dot-com bubble and how his dorm-room business plan was completely flawed. | |
| Stealth R&D and the Flawed Entrepreneurial Playbook | 2 | 3 | 1 | 0 | Ted asks how Eric applied lessons to subsequent startups, prompting Eric to explain the failures of stealth R&D and how trial and error led to continuous deployment and early customer testing. | |
| Blogging Anonymously to the Global Lean Movement | 2 | 3 | 2 | 0 | Ted prompts Eric on how he decided to write down his methodology. Eric describes anonymous blogging to avoid pushback from founders and VCs who initially thought his ideas were insane. | |
| Core Lean Principles: MVP, Feedback Loops, and Pivots | 3 | 4 | 2 | 0 | Ted asks for the core Lean principles and how the Long-Term Stock Exchange emerged. Eric explains MVPs, build-measure-learn loops, and his revelation that short-term public markets contradict long-term management theories like the Toyota Way. | |
| LTSE Mission, Structure, and Governance Pillars | 3 | 4 | 1 | 0 | Ted asks about the requirements for companies listing on the LTSE. Eric explains its regulatory standing as a full national securities exchange aimed at aligning multi-stakeholder governance and long-term capital. | |
| Beneficial Ownership Disclosure and Shareholder Rewards | 3 | 5 | 2 | 0 | Ted asks for specific criteria, and Eric explains the mechanism for revealing beneficial ownership and rewarding long-term holders like citizens rather than tourists. | |
| Sponsor Message: Ridgeline Investment Management Tech | 5 | 4 | 1 | 3 | Following the mid-roll sponsor ad, Ted raises operational skepticism about tracking beneficial ownership complexity and presses on how index/passive giants like BlackRock fit into this framework. | |
| Reforming Executive Compensation and Corporate Incentives | 3 | 5 | 3 | 0 | Ted asks about executive incentives, prompting Eric to passionately critique out-of-control executive compensation and excessive buybacks that destroy long-term corporate health. | |
| Multi-Stakeholder Governance and Non-Financial Metrics | 2 | 4 | 2 | 0 | Ted inquires about other key principles, and Eric explains how board-level fiduciary committees must publish non-financial stakeholder metrics alongside GAAP financials. | |
| Restricting Short-Term Guidance and Buyback Disclosures | 3 | 4 | 2 | 0 | Ted brings up quarterly guidance cycles, leading Eric to outline strict LTSE restrictions on quarterly guidance and requirements to report EPS net of buybacks. | |
| Direct Listings, Dual Listings, and the Public Marriage | 4 | 3 | 1 | 1 | Ted asks about direct listings and dual listings as competition and strategy. Eric uses a marriage analogy to emphasize that long-term governance matters far more than the IPO wedding day. | |
| Applying Lean Experimentation to Regulatory Ecosystems | 2 | 4 | 1 | 0 | Ted asks how Lean Startup principles apply to launching the exchange. Eric explains the immense regulatory and multi-sided marketplace hurdles, detailing how they ran prototypes like the Long Term Investor Coalition. | |
| Pivots, Failed Partnerships, and Regulatory Lessons | 3 | 5 | 2 | 0 | Ted asks about specific pivots during experimentation. Eric describes failed partnership negotiations with legacy exchanges and moving from rigid one-size-fits-all rules to flexible principles-based standards. | |
| Call to Action for Asset Managers and Allocators | 2 | 3 | 2 | 0 | Ted asks for Eric's closing ask to the audience of allocators. Eric urges managers to join the coalition and push back against status quo financial intermediaries before moving into rapid closing questions. |
Statements from this episode (21)
Eric Ries: A bubble reaching New Haven signals its tail end
“One of my new investing rules is by the time the bubble gets to New Haven, Connecticut, it's a little bit towards the tail end of things.”
Ries: Lean Startup is about efficient use of proceeds, not low cost
“It's not about low cost. It's about efficient use of proceeds.”
Ries: Amazon's long-term orientation as a public company is a singular anomaly
“And people are like, well, Jeff Bezos thinks long-term. I'm like, ok, but then you study the history of Amazon. That's a very unusual, singular situation that's unlikely to ever be repeated in history.”
Ries: Companies not governed for the long term are worth less money
“If companies are not governed for the long term, then they're worth less money. They're distracted. People are playing the beat and raise game. They are distracted from their fundamental mission of serving customers. Therefore, they're worth less money. Theref…”
Ries: LTSE is a fully regulated national securities exchange, not an ATS
“We are a national securities exchange. We're in the same regulatory category as NYSE or NASDAQ. So this is on an alternative exchange or a venture exchange.”
Ries: Delayed IPO timelines locking retail investors out of growth is a travesty
“All growth companies, the average time to becoming public has gone way, way, way up. That means that the great public has been blocked out of the ability to invest in growth, and everyone, I'm sure your listeners know this phenomenon very well, but it's a trav…”
Ries: LTSE listings guarantee full public market liquidity
“Because we're a stock exchange, we're integrated with the financial system to such a degree that companies that list with us can be guaranteed the same access to the full liquidity of the public markets.”
Ries: Public company stock surveillance data is inaccurate and delayed 90 days
“Stock surveillance can tell you approximately who your investors probably were 90 days ago. It's time delayed. It's not very accurate. It's not what is needed.”
Ries: LTSE enables direct block transactions at 50 bps versus standard 5%
“So we have a mechanism that allows the long-term and certified long-term investors of a company to bid directly to the company, purchase stock directly from them, and we can consummate that transaction after market close for more like 50 basis points rather th…”
Ries: LTSE strips tenure rewards from investors who loan or swap shares
“But like, let's say you build a total return swap, or you loan the shares out for shorts, or you do any activity that builds a derivative out of the economic ownership of the share, that automatically deregisters you from the ledger that we maintain on behalf …”
Ries: Most passive funds will not register for LTSE tenure tracking
“In the short term, I don't expect that most passive investors will do this registration that we're talking about, because they don't care about the governance side of companies.”
LTSE restricts specific comp instruments and mandates alignment disclosure
“So we have principles around certain compensation instruments that companies can't do. And generally require companies to disclose how they've created interest alignment between executives and their long-term investors.”
Ries: LTSE Requires Boards to Track and Publish Stakeholder Metrics
“So we require companies to, at the board level, identify a committee of the board who has a fiduciary obligation to identify who the company's key stakeholders are. Identify what are the effects that you want to have on those stakeholders, then have the compan…”
Ries: LTSE will impose strict limits on earnings guidance
“We will have very strict limits on guidance.”
Ries: LTSE will require companies to disclose EPS net of share buybacks
“We also require, or we will require, companies to disclose their, for example, EPS, net of buybacks. You can still do the buybacks, but you have to disclose how much of your improvement on an earnings basis is being driven by buybacks versus actual fundamental…”
Ries: Long-term asset owners are systematically excluded from IPO roadshows
“Our allies, the people we spend the most time with, are asset owners, even more than asset managers, who are absolutely left out of the roadshow process, the IPO. I mean, I, the people we talk to, who I think are the best investors on the planet, the most long…”
Ries: LTSE supports dual listings with incumbent exchanges
“Yeah, we support dual listing, and I think that's a very sensible thing for the early adopters to do.”
Ries: Incumbent exchanges pursue listings to drive trading volume, not for fees
“The reason that incumbent exchanges want listings so badly is not actually for the listing fees, but for the extra trades that it generates on their platform.”
Eric Ries: LTSE operates as a high-margin, low-volume business
“We think of our business as a high margin, low volume business. We're happy to make money by selling services, data, technology, directly to companies and their long term investors.”
LTSE hosted 10 CIOs managing $3.5T alongside 10 private companies
“Last time we had about three and a half trillion dollars AUM in the room. 10 CIOs, 10 private companies. We have them meet each other.”
Ries: Spent five years unsuccessfully trying to give LTSE concept to incumbents
“I tried for almost five years to give this idea away for free to the incumbent exchanges. I didn't want to build a stock exchange. It's a real pain. You know, it's a lot of work. That's not what I want to do with my time, but I couldn't get any of the incumben…”