In this episode of the Innovators Inside Podcast, Ian Bergman and Layne Fawns explore the ideas of Eric Ries, entrepreneur, startup thinker, and author of The Lean Startup and Incorruptible. Best known for shaping how founders and product teams think about experimentation, innovation, and company-building, Ries brings a broader challenge to this conversation: how organizations protect their purpose as they grow.

The discussion centers on some of the most important questions in modern business: why strong companies lose their way, how governance and incentives shape behavior, and what it takes to build organizations that stay resilient, principled, and useful over time. For founders, operators, and innovation leaders, these ideas offer a practical lens on mission drift, long-term value creation, and the systems that determine whether a company matures with integrity or slowly becomes disconnected from what made it matter in the first place.

Here are the five key takeaways from their conversation:

1. Mission drift is usually structural, not accidental

When companies lose their sense of purpose, the problem is often framed as a cultural issue or a leadership failure. But in many cases, mission drift is built into the structure of the organization itself.

A company can say the right things about its values and still be governed by incentives that push it in the opposite direction. If success is measured through narrow financial proxies, short-term wins, or external approval rather than meaningful value creation, the organization will gradually move away from its original purpose.

This is why a mission alone is not enough. Purpose has to be protected by systems. That includes governance, leadership expectations, measurement, hiring logic, and decision-making norms. Without those protections, even strong missions become vulnerable to pressure over time.

For leaders, this means the real question is not just, “What do we believe?” It is also, “What have we built that helps those beliefs survive?”

2. The metrics that shape your company

One of the most important lessons for any business is that measurement is never neutral. The metrics an organization prioritizes influence behavior, decision-making, and ultimately identity.

When companies rely too heavily on simplified financial indicators or false proxies for success, they risk optimizing for what is easy to measure rather than what actually matters. Revenue can become a substitute for usefulness. Efficiency can become a substitute for quality. Growth can become a substitute for trust. Shareholder returns can become a substitute for long-term value creation.

The danger is not that metrics are bad. The danger is that incomplete metrics become governing truths.
This matters because people build around what gets rewarded. Teams learn quickly what counts and what does not. Over time, those signals reshape the culture from the inside out. A company that claims to care about innovation, trust, or impact but rewards only short-term financial outputs will eventually become exactly what its incentives teach it to be.

The lesson is simple: if you want a better company, audit the scorecards.

3. Many best practices are designed for control, not resilience

Business language is full of “best practices,” but many of these norms are less about building enduring companies and more about creating predictability, compliance, or short-term control.

That can be useful in some contexts, but it often creates a hidden cost. Standardized practices may reduce ambiguity, but they can also suppress originality, weaken conviction, and reward decisions that look rational in the short term while making the organization more fragile over time.

Resilient companies are rarely built by copying default models without question. They are built by aligning operations, governance, and culture with a clear sense of purpose. That often requires doing things that appear unconventional at first because they are optimized for durability rather than conformity.

The deeper lesson here is that not every common practice deserves to be treated as wisdom. Some “best practices” are simply inherited habits from systems that reward short-term thinking. Leaders need the judgment to ask whether a norm is truly helping the mission or merely making the organization feel safer.

4.  Experimentation only works when principles are clear

Modern business culture often celebrates speed, iteration, and experimentation. These are useful tools, but they become dangerous when they are treated as complete philosophies rather than methods.

A company can test pricing, product features, go-to-market approaches, messaging, and workflows. But not everything should be treated as an experiment. Some questions need a principled answer before experimentation begins.

That includes questions like: What are we here to do? What are we unwilling to compromise? What kind of value do we want to create? What kind of harm are we unwilling to justify in the name of growth?
Without that foundation, experimentation can become a machine for optimization without direction. Teams can get faster at learning while becoming less clear on what they stand for. The result is often motion without coherence.

Strong companies separate what is flexible from what is fixed. Strategy can evolve. Tactics can change. But the underlying ethos needs clarity. In that sense, experimentation is strongest when it operates inside a moral and strategic frame, not outside one.

5. Long-term value comes from contributing to human flourishing

At the center of the episode is a bigger idea about the purpose of business itself. Instead of treating profit as the sole objective, this perspective sees durable business success as the result of creating real value in human terms.

That means leaving customers, employees, partners, and the broader ecosystem better off because the company exists. It means thinking beyond extraction and asking what real good the organization is making possible.

This is not a soft or abstract idea. It has strategic implications. Companies that clearly improve people’s lives, protect trust, and align around meaningful contribution often build stronger loyalty, attract more committed talent, and earn a kind of long-term credibility that cannot be manufactured through branding alone.

In practical terms, this means every company should be able to answer a hard question: what specific form of human flourishing are we helping create?

For one company, it may be access, safety, or dignity. For another, it may be creativity, efficiency, health, connection, or opportunity. But if that answer is missing, weaker substitutes tend to take over. Revenue alone becomes the mission. Growth alone becomes the logic. Efficiency alone becomes the standard.

When that happens, the company may still grow for a while, but it becomes easier to lose trust, coherence, and meaning.

Final Thoughts

The real challenge in business is not only how to build something successful. It is how to build something that stays aligned, trusted, and useful as it scales.

That requires more than vision. It requires structures that protect purpose, metrics that reflect reality, norms that reward substance over optics, and leadership that knows the difference between speed and direction.

The five big lessons are clear:

• Mission drift is often structural.

• Metrics shape culture and behavior.

• Best practices are not always built for resilience.

• Experimentation needs principled boundaries.

• Long-term value comes from advancing human flourishing.

For founders, operators, and innovation leaders, these are not abstract ideas. They are design choices. And over time, those choices determine whether a company becomes stronger, emptier, or unrecognizable.

Have a question for a future guest? Email us at innovators@alchemistaccelerator.com to get in touch! 

Timestamps

00:00 📚 Eric Ries and the legacy of The Lean Startup

02:44 🔥 Why Eric named the new book Incorruptible

05:23 💸 Making money without creating value

08:43 📉 False proxies, financial metrics, and broken incentives

11:04 ⚖️ Shareholder primacy and fiduciary duty

15:25 🏛️ How institutions drift and trust collapses

21:13 ✈️ Why short-term shareholders are like tourists

23:24 🛒 Costco, best practices, and long-term outperformance

30:12 🧬 The architecture of institutional longevity

35:00 🛡️ What makes an organization incorruptible

41:12 🧠 Power, values, and financial gravity

45:25 🚪 What founders should do when boards pressure them

51:14 ⚡ The Lean Startup vs. principled company-building

58:05 🌱 Human flourishing as the real purpose of profit

01:04:04 🔄 Can incumbent companies recover from corruption?

01:10:21 💼 Values, paywalls, and hard business tradeoffs

01:18:33 ✅ Final lessons for founders and innovation leaders

Full Transcript

00:00:51:00 - 00:00:54:17
Ian Bergman
Eric, welcome to Innovators Inside. How are you doing today?

00:00:54:19 - 00:00:56:29
Eric Ries
I'm doing great. Thanks for having me.

00:00:57:01 - 00:01:15:23
Ian Bergman
Well, we are pleased to have you. I'm not going to lie, it's not every day that I get to host, you know, one of the, luminaries mean. I don't know if that's the right word, but one of the folks who I refer to so often in my day to day life on the pod, and I'm just going to do this, isn't hero worship.

00:01:15:23 - 00:01:47:02
Ian Bergman
I'm just going to turn around. I'm going to pull your last book, a book off my shelf, and use this to set the stage, because the Lean Startup, which you wrote, what must feel like forever ago now, has become pretty foundational in how a lot of people think, not just about building companies, but think about building innovation. And I'm just excited to talk to you about what's changed since you wrote this book.

00:01:47:04 - 00:02:05:15
Eric Ries
Welcome to the pod. That's very kind of you to say. Yeah. Thank you for a friend. Thanks for having me. And. Yeah, so it's always a thrill when someone has the actual book on their actual shelf. There's something, you know, in our highly digital age, is there something very magical about these, these physical artifacts that, they get transmitted from person to person?

00:02:05:18 - 00:02:30:21
Ian Bergman
There is something very tangible, I think, about this topic, and it's very meaningful for a lot of, business leaders, a lot of product leaders. And frankly, just a lot of nerds out there. And so lain and I are just so excited to have you. And if it's okay, we want to jump right in because you have written a new book, and this book takes a fairly different, it's a different approach.

00:02:30:21 - 00:02:39:18
Ian Bergman
It's a different it's a different topic, a study from sort of the pure focus on startups. And we want to hear all about it. So you're ready to go. Should we jump in?

00:02:39:20 - 00:02:41:26
Eric Ries
Let's jump in. I'm delighted.

00:02:41:29 - 00:02:44:09
Ian Bergman
All right. Layne and take it away.

00:02:44:12 - 00:02:51:06
Layne Fawns
Awesome. So I actually just wanted to start. And if you don't mind, I'd like to read an excerpt out of that book. Is. Is that okay?

00:02:51:11 - 00:02:53:00
Eric Ries
Yeah. Yeah. Please. Please do all.

00:02:53:00 - 00:03:23:06
Layne Fawns
Right. Perfect. So the the passage is as follows. The truth is we're all one acquisition, one IPO, one board meeting away from watching something we love turned into something we hate, but we lack the vocabulary to call it what it really is. Mission drift sounds like a navigation error. Bureaucracy sounds like paperwork. Neither captures the gut punch of betrayal when something precious is corroded beyond recognition.

00:03:23:08 - 00:03:42:03
Layne Fawns
So I call it by a simple, old fashioned name corruption. So I believe the title of your upcoming book is incorruptible, and I'm wondering if you can dive in a little bit on that, on that passage and that idea behind corruption and why you chose this name for the book.

00:03:42:05 - 00:03:54:08
Eric Ries
Oh, thanks. Thanks for that. Thanks for reading that, that passage. It means a lot to me. It's weird with a new book, you're not used to people quoting it to you yet. So it's like, oh, okay. Right. Yeah. That's what it sounds like when someone reads it out loud. Thank you.

00:03:54:08 - 00:03:59:24
Layne Fawns
That's was our full staff. I mean, the whole whole forward was just woof.

00:03:59:27 - 00:04:22:25
Eric Ries
Yeah. Oh, good. I'm glad you felt that way. It was very emotional for me to write some of these parts because it is it is strange to use that word like I acknowledge that it's not common to say that these are corrupt acts. And I'll tell you a funny story. There was someone who was me. This story, that okay, this story that they were telling me about going to to dinner with a friend at the friend's favorite restaurant.

00:04:22:25 - 00:04:35:26
Eric Ries
They hadn't been to in a while, and they decided to meet up. And they go to the restaurant and they're sitting down, the friends not looking kind of uncomfortable, and there's one bite of the food, and he pulls out his phone and the person he's with is like, that's very rude, y you took his hand. Hold on a second.

00:04:35:29 - 00:04:58:06
Eric Ries
I just need to know if this restaurant was taken over by private equity. And the guy's like, what? And he's like, literally like, yep, I frickin knew it. And, like, shows him the phone and he's like, I could taste it. I knew from eating the food something was wrong. Like, it's just a little bit. I was like, the service was a little bit worse, that everything's just a little bit worse than it was before.

00:04:58:06 - 00:05:23:01
Eric Ries
I knew someone had taken it over. And I feel like this has become a such a common experience for all of us. Everybody I talked to has a brand that they got ruined or something that got acquired and you're like, now it's gone or it's terrible or it's just, you know, whatever. For a doctor, of course, consecrate the very profane and memorable word and shit ification and it's like the profanity is necessary because this is like it's just getting out of control.

00:05:23:01 - 00:05:46:00
Eric Ries
Like, I mean, I don't want to name specific products, but everyone knows everyone's had this experience. I've actually had that experience. I've been in a restaurant and be like, what happened to this restaurant? And look it up? And the reason I use the word corruption for this is I think we have to really understand that we, in our modern economy now have so many different ways of making money without creating any value at all.

00:05:46:02 - 00:05:59:23
Eric Ries
It has become we've become totally used to it, and we're just like it's been normalized. I hear all the time for people who are like this corrupt person, this bad person, well, you got to hand it to him. At least he got made a lot of money. And I'm like, no, you know what? We don't gotta hand it to him.

00:05:59:23 - 00:06:25:04
Eric Ries
I don't have to hand it. I don't know, we don't. Our grandparents would have found most of these ways of making money to be closer to stealing than to creating value. And most of them would have been illegal. Not in ancient Rome, but like even 50 years ago, let alone 100 years ago. So it's actually like many of these phenomena are very recent developments that we've gotten used to.

00:06:25:06 - 00:06:42:08
Eric Ries
And what I discovered, and I've worked with a lot of companies, okay. At this point, they sort of came out in 2011. Okay. So I've been doing this for like 20 years now. So I work with a lot of builders, people who build things for a living. And I'm talking about founders, of course, CEOs, obviously board members.

00:06:42:08 - 00:07:03:14
Eric Ries
But I've also worked all up and down the stack. So I've been on the factory floor. I've talked to the person who actually assembles the dishwasher, their foreman, their manager. I've worked my way all up and down. So people who build things for a living all share what I call the builders intuition that the right way to make money is to create new value and capture it for yourself, some of it for yourself.

00:07:03:14 - 00:07:27:05
Eric Ries
But. But the world is otherwise better off and we've all been told that we're supposed to pretend that we think the other ways of making money are also equally good, but nobody does. When we're alone, and we want to hold the bar after the workshop at night to be like there's no one is like, you know what's even more awesome than making things like trading a bunch of trading a bunch of stocks and like, skimming a little bit off there, like doing this little arbitrage.

00:07:27:05 - 00:07:50:27
Eric Ries
Like there's all these other ways of making money, and it's okay to say that they're not as good. And in fact, we've got it so backwards. We now have a society that glorifies these other ways of making money even more than building and making things. And so part of this is IRA, I think this is a very necessary corrective to get back to an older idea of what what it means to create value and why we've constructed a financial system.

00:07:51:00 - 00:08:16:17
Eric Ries
Whose moral logic is that voluntary, fully informed transactions create value. Like if you if you challenge any defender of capitalism for 200 years, you quote a whole bunch of them in the book. Is that everyone? Everyone retreats back to the same fundamental argument, and that the issue is that that argument is completely true. I really believe it. It's like it's the ultimate magic trick that when two people voluntarily trade, they're both better off.

00:08:16:19 - 00:08:40:20
Eric Ries
They're both wealthier than they were before, even though all they did was swap two tangible like, what an incredible miracle of, social engineering and financial engineering. What? What a genius magic trick. But it only works if you meet the preconditions. And what what? I make my lightning bolt realization that ultimately led me to write the book was that so many of ways, so many things, we allowed to de violate one of those preconditions.

00:08:40:23 - 00:08:42:21
Eric Ries
But we celebrated anyway.

00:08:42:24 - 00:09:05:08
Ian Bergman
Well, and let's talk about that, right. You talk about things like false proxies and you talk about financial metrics, and you talk about all of the scaffolding. I think you refer to the skeleton that we've kind of built up around how we celebrate success and measure success. Right? That seems, almost the polar opposite of the founders, the builders intuition.

00:09:05:12 - 00:09:26:13
Ian Bergman
Right. The intuition that says, oh, like, if I arrange this swap, we're both going to be better off. Or is is this emblematic of some of the challenges that you're talking about, or is there something more structural, like talk to me a little bit about the system that we've built that allows, you know, decisions in the modern world to be the way they are?

00:09:26:15 - 00:09:43:08
Eric Ries
Yeah, I really do try to trace the history in the book, and it took me a long time to understand it. And it's it's hard for people even to believe me when I tell them about it. That's why the book has like 750 citations, because I was like, I really I really did my homework here. And I promise you, I'm not making this up.

00:09:43:08 - 00:10:08:02
Eric Ries
But I've taught this material now to quite a lot of people over quite a lot of time. I had hundreds of people be test readers of the book, like I've done my homework. And so I know for sure the parts where people just find it hard to believe. So, for example, I give this I do this exercise with founders all the time where I ask them to imagine who the most evil company in the world is, and it's hilarious who people say, and if you tell me what age they are, I can tell you what they're going to say.

00:10:08:02 - 00:10:26:07
Eric Ries
Now, I've really got it. Interesting how it's changed, like for younger people, companies that when I was growing up we admired or now considered like not just bad, but the most evil company in the world. Like shocks me what people say. But anyway. But my father's a pulmonologist. I grew up, it's part of the anti-smoking crusades of the 80s and 90s.

00:10:26:10 - 00:10:31:19
Eric Ries
That was my childhood. So to me, always, Philip Morris international will be like, you know.

00:10:31:22 - 00:10:32:13
Layne Fawns
Yes, the.

00:10:32:13 - 00:10:48:00
Eric Ries
Number one worse. Because what could be worse than selling cigarets and children, like, seriously. Like it's just so evil. But whatever. Like I always, I say in the book, like, knowledge of your values might be different than mine. And you know, this probably somebody listening to this who's like, well, I asked my dad was a tobacco farmer and I actually think, you know, like, you talk legit.

00:10:48:00 - 00:11:03:27
Eric Ries
Absolutely everyone gets to have their own values. So rather than pick my values, you pick your own values and you imagine that person who you most would never want to work for, never want your your company or product in their hand. What if they offered you a dollar more per share to buy your company than it's currently worth?

00:11:04:01 - 00:11:13:06
Eric Ries
Would you sell it? I've never met anyone who says yes to this question. Everyone's like either no, hell no or something like truly unprintable, you know, like, right.

00:11:13:08 - 00:11:22:11
Ian Bergman
But but how often do you run right up against everything has a cost because that is, you know, you put a dollar a share, you put you you now put a financial metric on it.

00:11:22:14 - 00:11:38:21
Eric Ries
Right. Well, exactly. And and even people who are quite greedy are still like, not for a dollar per share, you know, like I've met people who are like, well, how much money are we talking? You know, like how much, how many shares outstanding are. I like people who want like like, okay, but I want you to actually consider it and I'll make them.

00:11:38:21 - 00:11:54:00
Eric Ries
I'll make the hypothetical as concrete as we need to make for the person to make a decision. I've never had anybody say yes. What's fascinating is I'm like, okay, great. Did you know that according to most governance experts, you yourself have a fiduciary duty to say yes? Yeah. And they're always like, no, no, no, that can't be right.

00:11:54:05 - 00:12:14:12
Eric Ries
You must have gotten it wrong. Surely that wouldn't be. And I'm like, well, and I joke in the book, I feel like Perry Mason, where I have to be like, is this your signature right here on this corporate charter that you yourself like, these are people often, sometimes are future entrepreneurs or students, but quite often the people who have a operating company with investors and employees and they don't know what their own documents say.

00:12:14:12 - 00:12:34:27
Eric Ries
And they're like, I've had people look at it, they're like, well, it just says here, if you read a corporate charter, most people have never have. But if you pull one up, it just says the Acme Corporation is hereby chartered to, quote, fill in the blanks. And today, almost every charter says to pursue any lawful act or purpose.

00:12:35:00 - 00:12:58:13
Eric Ries
And people say that sounds pretty open ended. What's wrong with that? And I'm like, oh, well, did you know that starting in 1986, plus or minus, the courts in not only the US but around the world, changed their mind and started to interpret that neutral charter as meaning that you are obligated to maximize shareholder returns. And this idea is called shareholder primacy.

00:12:58:15 - 00:13:15:12
Eric Ries
It is one of the most common and influential ideas in the world today. Most of us have been taught that it's like a natural law or an essential element of capitalism. But if you have a window, if you look out the window, I can see many trees at my window here that are older than this idea. Okay, this is not some bedrock principle of anything.

00:13:15:12 - 00:13:33:29
Eric Ries
This was a totally wacky idea. That was in the 60s and 70s. People start to talk about adopting and a set of judges and academics just decided that this is how it was going to be. And so now we live under this idea, and people sometimes are like, yeah, I hear you, but your dollar per share is a total exaggeration.

00:13:34:01 - 00:13:58:27
Eric Ries
Like, come on, man, that's not realistic. And so in the book, I tell the story of an actual company that was actually forcibly acquired by the actual Philip Morris. And and you're right, a dollar per share is an exaggeration. In real life, it was only $0.15. And yet the board of directors said, we have no choice. It's our fiduciary duty to sell a health care company to Philip Morris.

00:13:58:28 - 00:14:16:16
Eric Ries
It was like one of the worst ideas you've ever heard. Anyway, I will ruin the book. It's just a tragic story. I shouldn't be making a joke out of it. But that's the world that we live in. We've we've inherited this messed up set of ideas and been told that it's the only way it can be. And part of what we have to do as builders is to say, wait a second, who decided this?

00:14:16:20 - 00:14:20:13
Eric Ries
And do I really agree with it? And if the answer is no, then you have to act accordingly.

00:14:20:20 - 00:14:46:15
Ian Bergman
And I think, you know, we really do need to explore that question. But on the way to exploring that question, I think it is also a little bit important to understand how did we get there? And one of the, you know, one of the common refrains when we're talking about innovation is that, you know, the the forces that act against innovation are risk management and, you know, unwillingness to face fear and bravery.

00:14:46:17 - 00:15:17:25
Ian Bergman
And it strikes me that these, false proxies, if you will, the idea that shareholder, shareholder value is the appropriate proxy for the mission or the charter of the company in a way, is a safety net. It's a lie that we can tell ourselves that, you know, makes our jobs as managers and executives easier, but actually just makes everything worse it and defies the world.

00:15:17:28 - 00:15:25:09
Ian Bergman
You know, it can't just be a bunch of academics and judges decide some case law. What else is going on here that got us to where we are today?

00:15:25:12 - 00:15:48:09
Eric Ries
Yeah. Look, this is a, topic for historians and sociologists and economists. There are people who are way above my my pay grade. But having read a lot of their research, I think basically what has happened is, you know, Schumpeter, the economist who who was famous for creative destruction, Joseph Schumpeter, he actually wrote a passage that that blew my mind when he basically predicted a lot of this.

00:15:48:10 - 00:16:13:25
Eric Ries
He was like, look, it's the very success of capitalism that makes it vulnerable to these things because as everything becomes financialized, he didn't use this language. But if you translate his more okay approach to how we would talk about it now as financialization progresses, it hollows out the institutions that are necessary that the civic society institution that are necessary for capitalism to function and, and eventually to strike eventually will cause itself to collapse.

00:16:13:27 - 00:16:35:23
Eric Ries
And like, what's so weird is he wrote that, like, in totally neutral language, like, it's something everybody obviously knows in the when he write in the 30s, I think so like, well, it was 100 years. You read it now you're like, how did he know that this was going to happen? It's actually incredible. But I think that's what that's really what we've been seeing is people like, this is not really a business book, like don't Tell Anybody.

00:16:35:25 - 00:16:56:23
Eric Ries
But like it's a it starts out as a business book, but it doesn't end there because this is an instant the form of institutional decay that is afflicting every institution that governs our lives today. And it's an idea that's like infected so many leaders that it's causes them to, like, narrow what they consider to be their job or their responsibility.

00:16:56:23 - 00:17:19:02
Eric Ries
And it's just as responsible for, you know, like we've been selecting university presidents for their ability to raise money. Yep. And then we're like shocked that those people have no, like, no moral backbone. It's like, well, what did we select for. We we've you know, we're choosing like think about how many institutions, how many companies, how many political parties, how many like, journalistic enterprises.

00:17:19:05 - 00:17:38:06
Eric Ries
You know, like just one thing after another, unions, you name it. You know, someone who's like, coming of age as a, you know, worker today, you know, entering the workforce for the first time, that's all they've known is institutional collapse, one after the other. So if you look at the data, which shows that trust.

00:17:38:09 - 00:17:39:15
Ian Bergman
Has a dark side, I.

00:17:39:15 - 00:17:41:10
Eric Ries
Don't. What's that?

00:17:41:12 - 00:17:43:15
Ian Bergman
That's a dark sentence. Sorry to interrupt. You keep going.

00:17:43:15 - 00:18:10:11
Eric Ries
Yes. I mean, I feel like people complain about Gen Z all the time, but I'm like, well, they're the ones who should be complaining about us. What, like because people like. Well, a common observation is like people, the the faculty. I have had to say this in the book, there's just a total collapse of trust in institutions. And when I tell young people about it, what they find surprising about it is how high it used to be, because like, you know, when like in the in the dark ages of the 1970s, it wasn't uncommon for governments and health care.

00:18:10:11 - 00:18:32:07
Eric Ries
Even big companies had approval ratings and trust ratings, like sometimes in the high like 70s. Can you imagine, like people who were younger cannot imagine ever trusting any large institution under any circumstances, let alone trusting it with your life? Like, that's just seems crazy to them. Yeah, that's what we see. That's like a very, very market collapse. And at the same time, do we and people, we feel paralyzed about it.

00:18:32:07 - 00:18:58:15
Eric Ries
People like, I don't know what to do. We're just we just don't have trust anymore. We've lost our ability to kind of do big things, and we don't really know what to do about it. Meanwhile, like so many of the safeguards that were designed to protect our capitalist system from overreach and self-destruction have been removed. And so just in our lifetimes, we've seen it over and over again, where people basically take the foundations of our financial system.

00:18:58:15 - 00:19:14:25
Eric Ries
I always think of like, we basically inherited this incredible house from our grandparents. And people have been like hacking at the foundations for firewood. And every time they take out a wall for a bit, rip up a bit of the floor and burn it, nothing bad happens. So like, oh, I guess it's fine. Oh, I guess I will eventually.

00:19:14:25 - 00:19:41:12
Eric Ries
If you do that, you're like, you're like a locust to your own house. Eventually the thing collapses and now we're starting to see we're going to reap the rewards of that of that collapse. And again, this just this is a very, very wide spectrum problem that's afflicting nonprofits and NGOs and nation states and, and corporations. But I, I really think the like the essence of it is just this simple question of like, how should organizations be governed?

00:19:41:12 - 00:20:04:28
Eric Ries
What are they for? What are they essentially like? The very philosophical question that we've lost the plot, lost our ability to answer. And so part of the solution is to recover this ancient wisdom. There's a lot of like, old ideas that have to come back. And then, of course, we have to adapt that playbook and that infrastructure to our modern time, because obviously we're dealing with AI and computers and software and technology and Bios and all kind of great stuff happening now.

00:20:04:28 - 00:20:23:03
Eric Ries
So to me, the challenge for our generation is to figure out, like, how do we put those pieces back together again to start to create a, a web of institutional trust so that we would be able to raise a generation who actually believed in me. That's kind of social infrastructure. I call it the civic infrastructure in the book, that is all around the.

00:20:23:05 - 00:20:45:09
Ian Bergman
So as somebody with, you know, young children, you are you know, this is music to my ears because I do worry, as we all do, right about the infrastructure that we're, we're building. And I know, I know that the in the book you have a number of, you know, very prescriptive recommendations for everyone from organizational leaders to new hires.

00:20:45:14 - 00:21:13:00
Ian Bergman
But I want to start with one of the things that I think people might find bewildering, right. You talk about the fact that somewhere along the line, fiduciary duty became sort of paramount for all of us as business managers. And you say something really interesting. You call shareholders, tourists who should not have voting rights. And you, you know, you you have the analogy to tourists flying to France.

00:21:13:00 - 00:21:24:28
Ian Bergman
And, you know, if I fly to France, I can eat the food, I can drink the wine. I sure can't vote in the elections. Yeah. And that I think a lot of people obviously, I think a lot of people are going to hear that and be like.

00:21:25:00 - 00:21:44:16
Eric Ries
Whoa, oh yeah. It's very controversial. Yeah. To be clear, I'm talking about short term investors, not long term investors. So that's one important distinction. But still even that, you know, and again, just to give people that context, if people have not, I spent a lot of time in the financial system because I went to build this thing called a long term stock exchange, and I feel like I got to see the heart of darkness up close.

00:21:44:19 - 00:22:01:24
Eric Ries
And most people again, when I describe to people how it works, most people don't believe me. It doesn't seem possible. So I want you to imagine a political system. You describe the first half. So imagine a political system where any tourist can vote. Okay, that's just how it is. If you want to change the laws of a country, you bring a million of your friends.

00:22:01:24 - 00:22:18:19
Eric Ries
You all fly over there on the same day, on Election day, and boom, now you're in charge. But it's actually worse than that. Imagine if I could also, in addition to doing that, I could borrow as much money as I want and buy up as many passports as I want so I could buy bulk passports. And if I have, if I show up with a million passports, I get a million votes.

00:22:18:21 - 00:22:37:03
Eric Ries
Yeah, that would be rule. Not just by who's the richest, because I'm the richest person in the world, could buy the most passport, but it's actually ruled by whoever can borrow the most money. That is the political philosophy of our corporate governance system. The values of those who lend the money should win out.

00:22:37:06 - 00:22:38:13
Ian Bergman
Yeah.

00:22:38:15 - 00:23:07:20
Eric Ries
Does that strike you as saying, like most normal people can't comprehend that you would ever like. It just seems totally bonkers, to do that yet that's that's considered that's considered a best practice. That's considered the height of. Correct, correct. Governance. So much so this is where I think it's really important to understand that these ideas go from, like, a descriptive phenomenon, like we describe the way shareholders relate to companies.

00:23:07:20 - 00:23:24:11
Eric Ries
It's like they have this power. Does even like the people who talk about shareholder rights, they have a right to vote in the elections of a company. That's because that's an idea. But then it it passes from, a data driven idea into an ideology. So I'll give you one of my favorite examples, Costco talk a lot about Costco in the book.

00:23:24:11 - 00:23:41:10
Eric Ries
Costco is a great company. If you were lucky enough to invest a dollar in the, Costco IPO in 1985 when it was, you have 60 times more money than you would have had if you'd invest in the S&P 500 on that day. Okay, 60 times that 60% more. It's been like one of the most successful style.

00:23:41:12 - 00:23:47:15
Ian Bergman
Held outperformance over 30 to 40 at 40 years at this point after years and wild outperformance over 40.

00:23:47:15 - 00:24:06:19
Eric Ries
Years. And I point out in the book that you could pick any time period you want. It's 20 years to 40 years, 30 or 20 years, ten years, five years, one year doesn't matter any period. Costco's outperformed the market. It's one of the best performing stocks ever. And Costco, if you study it basically violates every best practice about how business is supposed to be run, that we teach people the best practice.

00:24:06:20 - 00:24:22:06
Eric Ries
It's like drives me crazy having them teaching people business all these years. I'm like, I'm going to teach people ideas that are derived from these outlier companies that Costco or Toyota or Patagonia, you name it. And then I'm told later, like, oh, sorry, that that's not good advice. You're violating the best practice. I'm like, well, how much better does it get than Toyota?

00:24:22:06 - 00:24:40:27
Eric Ries
How much better does it get? The guy seems pretty good. Costco is on a $400 billion market cap. Seems good enough to me, you know. How much more do you want anyway? So there was a spinoff of this episode, which at the time Costco went public. It has been under relentless and kind of periodic attacks from governance experts who think that the way that Costco is run is wrong.

00:24:40:29 - 00:24:58:19
Eric Ries
And I put some of these my favorite quotes are in the book because he's hilarious quotes like he's Wall Street analysts say things like, they say this with a straight face. This is considered actual analysis. Costco is taking money that rightfully belongs to shareholders and investing in it and improving the customer experience. That's a criticism of Costco, right?

00:24:58:19 - 00:25:20:16
Eric Ries
They're doing something wrong by doing that. So like yeah, it's it's it's completely nuts. Anyway. So one of the key ideas in modern governance theory is that, if managers are, insulated from short term pressure from investors, that's called entrenchment. And entrenchment leads to poor performance because you don't have the discipline of the market to, hold them accountable.

00:25:20:19 - 00:25:51:27
Eric Ries
Very logical sounding idea, but empirically turns out to be wrong. For example, since 2008, bad like, companies have gotten bad, governance scores have outperformed the companies. They get good governance scores. They just in terms of stock market performance, let alone their climate impacts and things like that. So anyway, Costco got this, had this like a massive campaign against them trying to, trying to destroy their governance and turn them into a conventional company on the theory that their management practices lead to entrenchment, which lead to poor performance.

00:25:51:27 - 00:26:14:28
Eric Ries
And I was like, you got to have severe mental like, what is going on in your brain that you would accuse Costco of, all the things you accuse Costco of poor performance. Like, isn't that isn't that wild? This was. But like this was considered like a really reasonable position. There's like trillions of dollars of hedge funds and institutional investors follow these recommendations.

00:26:15:00 - 00:26:37:21
Eric Ries
And yet, you know, in the book, I give the example of Kroger. Kroger is a perfectly fine company. I'm nothing against Kroger, that perfectly fine grocery store. But at the same time that that Costco was resisting these attacks, Kroger gave in to them and adopted corporate best practices in like 2006, 2008. Now, who wants to guess which stock has dramatically outperformed the other since 2006 2008?

00:26:37:21 - 00:26:58:09
Eric Ries
Yeah, well, I got you guys. I found an analyst who was writing an article about the about the 20 year performance through companies, and they called Kroger, like Costco in reverse. So so here we had this case of like best practices versus worst practices. Which one is better for shareholders? I remember no, I haven't said a word about mission purpose climate at like employees.

00:26:58:09 - 00:27:19:14
Eric Ries
Like there's all these other externalities. But I'm just I'm about simply on the basis of investor performance who's outperformed. Obviously it's Costco. I wouldn't have given you the example and so on. I talk to founders now, and I'll take it back to your question about founders. We are awash. If you go to any board meeting in any size company, I'm talking about two guys in a garage, two girls in a garage up to like multinationals.

00:27:19:16 - 00:27:38:11
Eric Ries
If you have a if you have a big enough to have a board meeting, you will be big enough to have someone say the phrase best practice do. So. I'm like trying to train founders. When someone says, best practice to you, you. I want you to translate in your brain to Kroger practice. Okay, this is someone who thinks that you should be more like Kroger and less like Costco, if that's what you want.

00:27:38:13 - 00:27:50:23
Eric Ries
God bless you. But let's be honest about what we're talking about. If we're going to build these truly great companies, we have to learn from and adopt the actual best practices that actually drive the outperformance that we all crave.

00:27:50:25 - 00:27:58:29
Ian Bergman
And are these best practices, or are they simply like sort of reversion to the mean, like, is some of this just an outlier issue?

00:27:59:02 - 00:28:13:06
Eric Ries
I don't think so. That's a that's a that's a really good question. And of course, you know that it's it's tricky when you do studies of outliers. You know, like I wouldn't write a book like this if all I was doing was looking at, statistical inferences like I have, I have actually built companies using these different practices.

00:28:13:07 - 00:28:35:24
Eric Ries
I have a lot of, like a lot of non have actual real experience doing this that have given me a lot of confidence that this is right. But the problem with the outlier theories, there's too many of them and it's very easy to prove it, which is really that's the one thing I find most fascinating is that basically in every industry there's like one of these outlier companies that we all know.

00:28:35:27 - 00:28:56:00
Eric Ries
We know that they do things differently, and we kind of don't remark on the fact it's just like, oh, okay. So like everyone, I mean, any of you have a Vanguard, you know, ETF or mutual fund in your portfolio? Like, I know everyone knows Vanguard. Yup. Vanguard is one of these, like really wacky companies with extremely unusual governance structure.

00:28:56:03 - 00:29:20:19
Eric Ries
They just celebrated their 50th anniversary. And I was talking to there was a general counsel, senior person at Vanguard, and he was telling me this crazy story. I didn't know the story when John Bogle was starting Vanguard, he had to get his his idea of how it should be done was that the investors, the customers of Vanguard, should own, should have a governance rights over the funds that they manage, so that fees would be maximally small because the excess fees are returned back to the members.

00:29:20:19 - 00:29:43:12
Eric Ries
It's a basically a cooperative. Yeah. It's an incredible it's incredible model. That was such an unusual model. They had to get special permission from the SEC to form the company, and luckily nobody thought it would work, so no one bothered to oppose them. This is 1975 when nobody cared. Yeah. And I asked him. I was like, what's so interesting in the 50 years since, how many other people have applied for that same exemption from the SEC?

00:29:43:15 - 00:29:48:05
Eric Ries
No one, no one's even tried to copy Vanguard.

00:29:48:08 - 00:29:54:05
Ian Bergman
And how has Vanguard performed relative to them? I mean, everybody knows that they're doing everything.

00:29:54:05 - 00:30:12:04
Eric Ries
They do pretty good. I don't have the stats in front of me, but they they have an incredible amount of assets under management. And there's all these other companies. So like think about Patagonia and retail. We already talked about Costco, tell a story of Novo Nordisk or yeah, in the book where you have these companies that have just received tremendous outlier performance.

00:30:12:07 - 00:30:26:25
Eric Ries
And yes, maybe you can for any individual one of those companies, you could say, well, they got lucky, okay. It was a great founder or whatever. But the thing my claim is not these companies are not special because of how much money they made, because of course, there's plenty companies that made a lot of money and then collapsed.

00:30:26:28 - 00:30:44:13
Eric Ries
What's really distinctive about them is longevity. Yeah. So most people, if you ask them what causes corruption, if they if they're not, if some people deny that there is any corruption, but people who, you know, who've ever tasted private equity and their favorite restaurant. Well, no, I will not say that anymore. They'll be like you say, what causes it?

00:30:44:15 - 00:31:05:03
Eric Ries
They will say either, human greed. So it's just humans are greedy. And so what can you do? Of course, it's been greedy investors since time immemorial than you do about it. Or if they're a little bit more sophisticated, they'll say it's caused by scale. Fundamentally, as organizations grow, they lose that special spark of what they used to be, so they can't stay true to their mission because they're too big.

00:31:05:05 - 00:31:31:19
Eric Ries
And those are interesting theories. But both of them I this is what I find so fascinating. Both theories would say there really couldn't be exceptions, right? Because if you have a right to staff my organization with non greedy people, where am I going to find them? And if scale causes the disease, then all large companies should succumb. And yet we have these exceptions, these companies that don't seem to feel the ill effects of scale.

00:31:31:19 - 00:31:36:05
Eric Ries
They don't act in a greedy way, even though they're staffed with regular old people.

00:31:36:08 - 00:31:52:22
Ian Bergman
And have generational survival. Right. We had a moment recently of sort of founder mode, right? The return of the of the leader of the entrepreneur. But I think you're making a point that, you know, they have figured out how to systematize this beyond a single individual.

00:31:52:25 - 00:32:16:27
Eric Ries
Yeah, yeah, I call it the in the architecture of institutional longevity. And it it's it by definition, cannot be accomplished by a founder mode because founders die and I tell several stories in the book of, of founders and people who carved their values on the walls of the lobby of the building. You know, Johnson Johnson, like, very famously carved the Johnson and the credo is like an eight foot limestone wall, the headquarters.

00:32:16:29 - 00:32:35:21
Eric Ries
So people have tried various things to, like, try to make this succession thing work, but it doesn't work unless the commitment to the ethos is woven into the DNA of the organization in a very particular way. That's, you know, that I get into that in the book, and we have lots and lots of examples of people failing to do it.

00:32:35:29 - 00:33:03:27
Eric Ries
So again, to go back to your question about outliers, though, what's really incredible to me is that these quote unquote alternative structures are already running, like depending on how you count between 5 and 10% of world GDP. Okay, these are not small stuff. They're not small things. Right. So for example, one of the one of my favorite studies by an academic named Stephen Thompson that looked at companies that are overseen by a nonprofit foundation.

00:33:03:27 - 00:33:07:08
Eric Ries
So it's called like the Industrial Foundation is like, no.

00:33:07:10 - 00:33:13:13
Ian Bergman
I went down the rabbit hole, by the way, after you called this out, because I didn't believe it. But but go ahead, because this was.

00:33:13:13 - 00:33:30:17
Eric Ries
I think the data here is at is literally unbelievable. And yet we have all, you know, anyone who's taken Ozempic has interacted with one of these structures. If you've ever eaten a Hershey candy bar or a tiny shop, honey, this book is loaded with chocolate. People like chocolate and confectionery. You're going to love this book because there's tons of examples from I don't know why chocolate.

00:33:30:19 - 00:33:42:10
Eric Ries
Maybe. I was very hungry during the two years I was working on it. So you have these companies Ikea. If you ever shopped at an Ikea, has that structure. Patagonia has that structure Hershey talked about. Anyway, there's a lot of companies with this structure is not that uncommon.

00:33:42:12 - 00:33:44:27
Ian Bergman
And that structure is to be very clear or to be.

00:33:44:28 - 00:34:08:24
Eric Ries
Super clear, this is a specific structure of a nonprofit foundation overseeing or owning a for profit subsidiary. So like take Carl Zeiss if you have glasses like these are Iceland. Everyone has Zeiss lenses. A company, who started in the 1850s. It's a very old company in Germany. They they have a nonprofit foundation that owns a holding company.

00:34:08:24 - 00:34:25:04
Eric Ries
The holding company owns a series of for profit, some of those for profits or public. Some of them are private. And the for profit ones can have outside investors. So it's like Novo Nordisk is traded on the new York Stock Exchange. It has millions of investors. That's like, you know, one of the things companies the world. So it's it's a structure that's been studied a lot.

00:34:25:05 - 00:34:49:14
Eric Ries
There's a lot of examples of it. So we have this like data set companies with this structure. And one of the most striking findings of that data is that, company with that structure are six times more likely to live to age 50 than companies with a conventional structure. We're talking about 60% versus 10%. And remember, in order to study this, we have to study companies who were started like 50 years ago and more.

00:34:49:16 - 00:35:00:26
Eric Ries
It's getting much worse now. Like as as this study continues to be repeated, the divergence will grow because corporate average corporate life cycles are collapsing. As we teach people this very self-destructive business playbook.

00:35:00:28 - 00:35:26:20
Ian Bergman
Yeah. Okay. So you you know, you talk about how the corporate governance lessons, the best practices that we understand are actually wildly destructive in many ways and lead to corruption in, these organizations, which makes total sense. But your book is incorruptible, which implies that there is a way to set things up to resist the corruption. And you have some really interesting concepts.

00:35:26:24 - 00:35:37:00
Ian Bergman
I mean, we need to get to human flourishing in a bit, but let's let's just start at, at ground level. What makes an organization incorruptible in your mind?

00:35:37:03 - 00:35:52:26
Eric Ries
Yeah. So I chose that word deliberately because I do believe it is possible to build organizations, not that resist corruption or are less likely to be corrupted, but that are actually indivisible. Like qualitatively different is.

00:35:53:03 - 00:35:54:17
Ian Bergman
A hell of a claim. Yeah, okay.

00:35:54:17 - 00:36:16:26
Eric Ries
Yeah. It's a wild claim that it's hard to believe, and it takes me 11 chapters to get there. So I, you know, we're not going to be able to summarize it. So it is it is quite out there. But I, I work it through in in great detail. But what's important is that every step of the way, like this thing is built like a layer cake or a series of babushka dots, you know, like we're like each component is connected.

00:36:16:26 - 00:36:44:10
Eric Ries
The one before my promise to the reader at the beginning is that every practice is useful in itself and also part of this broader tapestry. So even people that that are don't want to are not able to walk all the way to the end, can still make their likelihood of falling to corruption dramatically less. And the book is structured in a very particular way, where we start with the things that are most under leadership, control and then we we move outwards.

00:36:44:10 - 00:37:04:17
Eric Ries
So I think of it like the innermost intention moving outwards to eventually encompass employees and investors and boards and all these other forces of, of society, eventually into political forces and things like that. And so the critical thing that I think a lot of founders miss is they're always looking for the one weird trick, but just tell me what I have to do.

00:37:04:19 - 00:37:19:25
Eric Ries
Is there a box I can check? Is there a template? You know, it's a very common request I get. And so yes, there are specific things you can do. You can become a public benefit corp like it's it takes a two page filing. It takes two minutes. If there's a if you're a founder listening to me right now and you have a Delaware C Corp and you have not made this two page filing, you're crazy.

00:37:20:02 - 00:37:35:25
Eric Ries
So tell your lawyer you want to do it. There's really easy things like that. We need to have a board mission pledge to make sure that directors of corporations use their discretion under the what's called a business judgment rule, to be supportive of mission. And then there's a bunch of operational things that are just management practices.

00:37:35:25 - 00:37:59:06
Eric Ries
You mentioned false proxies, like using the right measurement systems, using the right kind of metrics. A lot about culture in the book and how to, develop high, high performance, strong culture companies. So each of those practices is like, think of it like a sheet of plate mail, armor, where we're we're identifying a vector of corruption and finding a way to block it.

00:37:59:08 - 00:38:15:04
Eric Ries
And we can do that piecemeal, which is important because not all of us are the owner, operator, founder, and, you know, sole owner, sole proprietor of a four Bravo corporation. Right? Some of us are just employees. Some of us are future founders, some of us are future employees. Some of us are just consumers wanting to know who to buy from.

00:38:15:07 - 00:38:35:23
Eric Ries
And so I wrote the book in this way because I want everybody, not just founders, to be able to identify companies that are likely to become corrupt in the future, and avoid them like this, like people who go to work at a company that has this kind of collapse, like it's really bad for your career. And think about how many people have bought products from companies that failed the corruption.

00:38:35:23 - 00:38:52:21
Eric Ries
And like, sometimes you just feel bad about yourself, like, oh man, like I can tell you on busy with, you know, how to put like a really like a political bumper sticker basically on their Tesla to avoid saying that they endorse what the guy like, like it's like I'm a huge I was like a major source of identity crisis for people who didn't know what he was going to turn into.

00:38:52:24 - 00:39:18:25
Eric Ries
But we also have lots of examples of it becoming like a real health issue, because this is something that I think is very unappreciated. When you swallow a pill or you bought a plane, you are literally putting your life in the hands of a whole web of institutions, most of whom you can't even name. And in the olden days, the bad old times, this was governed by a principle called caveat emptor.

00:39:18:25 - 00:39:45:00
Eric Ries
Right? Let the buyer beware. Sure. And in modern times, we have developed a whole series of systems that have shifted liability and responsibility from the buyer to the seller, called caveat vendor tours. But the vendor has to be aware to make sure what they're selling you is safe. And and most of us have grown up about almost every person alive has grown up under this shield, and doesn't even realize how amazing it is and how grateful we ought to be for it.

00:39:45:02 - 00:40:12:27
Eric Ries
Because as shareholder primacy has evolved, it has only one ineluctable like inevitable conclusion that it must reach, logically speaking, which is if a company is considering the safety of its customers, it must only consider that factor insofar as that is beneficial to its shareholders. So one way to do that, of course, is to be extra safe, spend a lot of money on safety.

00:40:12:29 - 00:40:36:17
Eric Ries
But another way to do that is to spend that same money on lobbying to get the penalties for being unsafe, changed, or hiding what you've done. And if you do the ROI calculation in many situation, it is cheaper to cheat, lie and steal than it is to do the right thing. And we have built an economic system that is encouraging people to do that again.

00:40:36:17 - 00:41:03:23
Eric Ries
Everyone who hears this for the first time, who's like a governance civilian, is like, he's exaggerating. There's no way. But I, like I can cite you chapter and verse on law review articles for the last 40 years that say this very, very directly. Like people, if you talk about governance person about that, they're like, yeah, obviously, of course, what do you but most normal people are like, you're what, like I my life only has value insofar as it might lead to shareholder returns.

00:41:03:23 - 00:41:07:18
Eric Ries
Are you insane? What are you talking about? Well, this is this is.

00:41:07:20 - 00:41:12:12
Ian Bergman
You know, this is the fodder of all kinds of dystopian sci fi and other things.

00:41:12:15 - 00:41:14:26
Eric Ries
Are there where.

00:41:14:29 - 00:42:05:29
Layne Fawns
This actually reminds me of one of my favorite sayings, or one of the best things that I've ever heard an essayist say. And that's the power doesn't corrupt, power reveals. And so my question for you, is there an inherent sort of personality or a set of values, that find themselves in positions of power? And that's sort of what's making these wheels and these gears turn in the first place and kind of on the other side, how how do you encourage founders who have a different value set to forge through that break those gears, break the wheel, if you will, but still maintain the integrity of their value set without sacrificing jobs, at

00:42:05:29 - 00:42:07:13
Layne Fawns
their company. Right.

00:42:07:15 - 00:42:24:10
Eric Ries
This is this is hard stuff. And I try I really try hard in the book not to shy away from these moral dilemmas, but just like, really confront it head on because, yeah, again, outside of Silicon Valley, I know this one of the things that nobody believes me, but it's really true. The vast majority of founders that I work with start out very idealistic.

00:42:24:12 - 00:42:44:09
Eric Ries
Yeah, including many of the ones who you whose names, you know, and you're like, not that guy. But actually, actually, I know a lot of these people before they were rich and powerful and like, I'm pretty idealistic. It's actually not as uncommon as you would think from what we see on TV today. Yeah. And what happens is, I call it financial gravity in the book.

00:42:44:09 - 00:43:10:09
Eric Ries
Like, it's a physical force that money accumulations of of power, money status, it has, gravitational influence on the people around it. And one of the effects that it has is to transmit values unconsciously. So we reward the sociopathic behavior all up and down our economy today. And then we're shocked that we have sociopaths in positions of power.

00:43:10:14 - 00:43:32:15
Eric Ries
And, what would you expect? Right. So that's bad. But the worse and much more, corrosive effect of bad is when you get trapped in these hierarchies yourself, your own values start to change in ways that make you eventually unrecognizable, even to yourself. And that's a very underappreciated aspect of the founder mental health crisis that we're seeing.

00:43:32:17 - 00:43:52:05
Eric Ries
And you wonder, like, why are all these rich, successful people having a mental breakdown in public on social media every day? My personal view is that, they have become rich and powerful and they have to be the hero of their own story, psychologically speaking. But they're not actually a hero. They're not going to be remembered as heroes.

00:43:52:05 - 00:44:16:22
Eric Ries
They've done really villainous stuff, and they can't read like they can't reconcile it because they were taught that if they followed this path, this good stuff would happen. And so it has to be somebody else's fault. They're getting all this criticism. And I think that's really sad. Like, I honestly think, what is this all for? Like if even the people who are the quote unquote winners of this system are so manifestly miserable, what were the compromises for?

00:44:16:24 - 00:44:31:23
Eric Ries
And I think that's one of the things that we've been telling ourselves. It's like, well, it's okay because the compromises are necessary. But the second you admit that their choices and they're not necessary at all. And a big part of my goal in writing this book is to simply say, I'm not trying to tell anybody what they ought to do, okay?

00:44:31:23 - 00:44:49:08
Eric Ries
I'm not telling anyone to do it. Everyone do what you want. My goal is that if what you want to do is the right thing. I will arm you with all of the arguments and data you will need for the rest of your life, to fend off the millions of people that will try to talk to you about it, because people talk you out of it like you're a soft hearted compromiser and you're not serious about business.

00:44:49:08 - 00:45:03:05
Eric Ries
But actually the thing you are protecting is quantifiably like proven to be a source of competitive advantage. So you have to learn to say that out loud and you have to learn to defend it. You have to learn to be like, no, sorry, I don't want to calculate the ROI of it. I'm not interested.

00:45:03:08 - 00:45:09:15
Layne Fawns
So what if it's like a situation where you've got,

00:45:09:18 - 00:45:22:24
Layne Fawns
The boards threatening to pull you and no longer you're no longer going to be the CEO. And, you know that whoever replaces you, you know, might end up.

00:45:22:26 - 00:45:23:28
Eric Ries
Yeah. Let's get into it.

00:45:24:00 - 00:45:25:06
Layne Fawns
Betraying the mission.

00:45:25:07 - 00:45:53:08
Eric Ries
No, no, no. That's it, that's it. Exactly. So first thing first, and I tell us quite a few of these betrayal stories in the book. If you interview people who've been betrayed in that exact way and you ask them what went wrong, they almost always locate the problem in the wrong place. They don't learn from their experience. So here's for example, I was talking to somebody who went through, I'm going to identify this person because they're they're awesome, and I don't want them to feel bad.

00:45:53:11 - 00:46:08:06
Eric Ries
But they had build a company, made a lot of money for their investors, did a great job. And then like, no matter how much money they made for their investors, it was never enough. And eventually they got deposed, kicked out of their own company. And the company's not as good as it was. Just like a very sad story, actually.

00:46:08:08 - 00:46:22:25
Eric Ries
And, you know, they they like their wounds and they, you know, had to deal with it as a, as a personal matter. Like, that's a very hard trauma to live through. But they got back off the mat. I admire them tremendously for they're building a new company. And I remember chatting with them and I was like, what lessons did you learn from this experience?

00:46:22:25 - 00:46:39:10
Eric Ries
And they were like, very clear. Well, I trusted the wrong people. I put the wrong people on my board, I didn't blah blah, blah, blah, blah, blah, blah. I was like, okay, but now they're starting a new company. What governance changes are you considering for the new company compared to the old company? And he looked at me completely blank and been like.

00:46:39:10 - 00:46:58:26
Eric Ries
Like what? Have you read any like read any press story about this? I tell the story about John Mackey and Whole Foods in the book. You read the press coverage of the hedge fund activists that deposed him and got the company sold to Amazon. Every single story is written as this, like clash of the Titans personality conflict.

00:46:58:26 - 00:47:23:15
Eric Ries
Who will win the greedy bastards or the conscious capitalism like hippie guy? And like, we have a big fight. Somebody wins, and whoever won is the more savvy person. So I guess in this case, the hedge fund is the winner. But like, again, that locates the agency and the decisions in like the end of the process. Because the real question when you're asked about the board thing is what happened years before.

00:47:23:15 - 00:47:38:11
Eric Ries
Why did we set up such a flimsy structure in the first place that the board has this power? But anyway. But even when we screw it up, this is what I want to say. I've actually left the exact scenario you're describing. I'll tell you what it was like. I'll give it to you. From the founder's perspective, I was preparing for a board meeting.

00:47:38:11 - 00:48:03:11
Eric Ries
I remember it clear as day a long time ago. Now, and I was very much sure I was going to be fired. Everyone was pissed off at me. The board was sick and tired of this, like I was doing lean Startup stuff before. It was cool and people were quite sick of it. And they're like, listen, you need to come to this board meeting and you need to tell them you're going to do things the conventional way, okay?

00:48:03:11 - 00:48:21:05
Eric Ries
I was like, people give me advice like, yeah, this is what you need to do this year. Otherwise it'll be your last board meeting. And so I remember sitting there, I was prepping for the meeting. I got a sleepless night. I woke up that morning. I remember going to like, gigantic, you know, Starbucks for full caffeine, you know, for sugar.

00:48:21:12 - 00:48:41:09
Eric Ries
I got some, like, rocket fuel. And I'm like, I'm going in this meeting to, like, meet my doom. You know, I was like, this will be the end. And I and I had this, like, moment of realization. I was like, wait a second. If I go in there and give them what they want, it's true that they might not fire me, but they're not going to be satisfied, because the thing that they want me to do is not going to work.

00:48:41:13 - 00:49:01:04
Eric Ries
I know it's not going to work. So all I have to do is make myself complicit in something that I abhor, and then they're going to blame me for it anyway, and my integrity will be shattered. Conversely, if I go in there and tell them what I stand for and they fire me, from then on, everyone who knows will know that I'm the guy who stands for X.

00:49:01:06 - 00:49:18:21
Eric Ries
I was willing to be fired for acts, and I was sitting there like, you know what? Someday or one of those people is going to be like, you know what we really need in this company? We finally someone who believes X, right. Like, because a lot of investors are not especially principled, you know, like they're not they're not like committed to some set of ideas.

00:49:18:21 - 00:49:35:23
Eric Ries
They just want to x want to make money. You want to make returns. Yeah. And so like if it's convenient to fire someone like they'll fire someone and then invest in them. Same person. You know like because the circumstances change, their views change. So I was like, I would rather be known as the person who had high integrity, who stands for X, then keep my job.

00:49:35:25 - 00:49:50:29
Eric Ries
Yeah. And I went into that meeting and I was like, with all respect, I was the youngest person in the room by far. You know, it was like took a lot of hits. But I can't believe I did it. And I look back at it now, it's like, with all respect, this is wrong and I'm not doing it so you can get someone else to do it if you want, but I don't think it's going to work.

00:49:50:29 - 00:50:14:10
Eric Ries
Here's what I think is going to work instead. And I was shocked that they were like, okay, you know, they were like, okay, that's a good point. I was like, well argued, good point. And I was like, that was the end of it. I was stunned. I thought for sure I would be fired. So that's the other thing that the element to this story I want people to take away is, first of all, you often convince yourself that you must do something or else, and there is no or else like it's often a hallucination.

00:50:14:12 - 00:50:19:08
Eric Ries
And also like there are far worse things in this world than being fired for what you play well.

00:50:19:10 - 00:50:41:21
Ian Bergman
And hey, I'm glad to hear you say that, because I think there's a certain amount of like, you know, principle that's required in the world. But to to me, that story that you just told is the story of somebody not letting themselves get drawn into the system that is destructive. And you know, that is that's actually quite important.

00:50:41:27 - 00:51:14:15
Ian Bergman
And I want to now challenge you just a little bit on, I want to I want to connect some of these concepts and incorruptible to the lean Startup. And I want, I want to actually explore a tension there that maybe doesn't exist. But let's, let's just even so, it is really easy to without thinking these days, think about speed and experimentation as the ultimate competitive advantage and just let go of all, you know, steering and just kind of subsume yourself into some of these concepts taught in the Lean Startup.

00:51:14:18 - 00:51:39:10
Ian Bergman
Yeah. The interesting thing is, I feel like an incorruptible you're actually really telling people to slow down, be planful, and ensure that there are certain aspects of your organization that stay extraordinarily principled and structured so that they can be resilient to corruption. Square that circle. For me, those actually feel like two very different things. Respond to market with iteration.

00:51:39:10 - 00:51:40:13
Ian Bergman
First, I.

00:51:40:15 - 00:51:58:24
Eric Ries
Really like that question because I screwed this up, major, when I first discovered and started when I when I first took over the startup, I thought it meant that I had removed human judgment and principles from business altogether, and I turned the business into a crank that you turn. And I was like, this is this is the greatest thing ever.

00:51:58:24 - 00:52:18:02
Eric Ries
And I feel really bad now because I counsel to a bunch of the earliest people who I ever gave it, who asked me to give them startup advice. I gave them pretty bad advice. And I remember there's one company that like, they basically wound up selling pornography because they started out or something like that made sense. And they were.

00:52:18:02 - 00:52:28:27
Eric Ries
This was the early days of, Facebook, Facebook platform. And it was just like, what do I have to do? Do anything to make the Facebook algorithm make number go up? Yeah. And like.

00:52:28:29 - 00:52:30:04
Ian Bergman
You turns out you're.

00:52:30:04 - 00:52:52:11
Eric Ries
It's the dark times actually like I there was 111 less I got that wrong. So first thing is it took me a long time to understand that that experimentation has to happen within a framework of principles. You have to decide was negotiable and what's not. In in particular, you can't experiment with the question of what kind of evidence you consider to be valid experimental evidence.

00:52:52:14 - 00:53:11:07
Eric Ries
Right? Like as soon as you say, I'm going to do Lean Startup, you've already made a nonscientific commitment. Yes. In the same way that if you decide you're going to do science, you made an extra scientific commitment to the scientific method itself. You're making a philosophical commitment. I could never have used those words at that time, but I understand it now.

00:53:11:13 - 00:53:29:20
Eric Ries
The the great Stanford, engineering and management professor, Bob Sutton, talked to me this way because there was a big fad number. Holacracy, which is going to have, businesses with no hierarchy in them. He was like, it's wrong to say that a whole ocracy has no hierarchy, that you misunderstand because there's at least two levels.

00:53:29:22 - 00:53:52:13
Eric Ries
There's the guy who said, we're going to be a holacracy and everybody else. Yeah. And I was like, oh, right. So. So the first thing is Lean Startup is already an extra evidentiary system that now because it's a business idea, an institutional idea, we have scientific evidence that it works. So it's kind of confusing. But the evidence comes from outside the system, not from within.

00:53:52:13 - 00:54:06:13
Eric Ries
When you're within it as a company, you have to make the decision to adopt this management system. And you have to say that like, I'm not going to like, I'm not interested in experimenting with whether to do it or not. I'm going to decide to do it. The second element you're talking about, about slowing down and being principal.

00:54:06:18 - 00:54:20:04
Eric Ries
And this I tried to be extremely clear in this book about this because I struggle with this a lot. I tried in the book as much as possible not to use the word culture, and I try not to use the word stakeholder was actually very hard to write this book. I've got a I've got a.

00:54:20:04 - 00:54:23:04
Ian Bergman
Whole presentation that's like 50% those two words, by the way.

00:54:23:04 - 00:54:41:24
Eric Ries
Yeah. So they're very, very important powerful words. But they have they have themselves become so, co-opted by people who have like contradictory and vague meanings that for a lot of people, as soon as you start using those words, they're like, well, now I don't know what to do anymore. Right? So I was like, no, I'm only going to write about things that are highly actionable that I know people can do.

00:54:41:24 - 00:55:07:02
Eric Ries
So I use the word ethos, not culture, to represent this kind of like character, the set of principled commitments that an organization has. And those are not subject to experimentation. So they can't be like, my product spec can't be in the ethos, because of course, that is you're going to learn from the market about that. And what and what I would say now is that the commitment to Lean Startup is really two commitments.

00:55:07:05 - 00:55:34:16
Eric Ries
There is a, a question of like, what are we going to do? We are going to make like certain managerial commitments. We're going to use evidence, data metrics. We're going to do hypothesis testing. Right. But there's also a separate, much more deep commitment to the truth itself. Yeah. We're going to try to find out what the truth of our situation actually is, or to do that in a principled way.

00:55:34:18 - 00:55:48:01
Eric Ries
And I didn't when I proposed that, or I couldn't have written the Lean Startup with this language in it, because I myself couldn't even see how radical that is, because to me, that seems so obvious. Well, what what else could what else? I also going to make decisions. What else could you be most committed to then? The truth.

00:55:48:03 - 00:56:05:13
Eric Ries
I thought that was like sacred and obvious. And now, you know, look around. I was quite, quite naive about it. In fact, there's that very famous Reddit meme. I'm sure you guys have seen Anakin Skywalker and Padmé are sitting in a field, and he says, I'm going to kind of change the world. And she says, for the better, right?

00:56:05:15 - 00:56:07:19
Eric Ries
He just smiled. Yeah. She's like, for the better, right?

00:56:07:21 - 00:56:11:02
Layne Fawns
Right. Yeah. You know exactly the know that job.

00:56:11:03 - 00:56:28:11
Eric Ries
I'm talking about, I used to like. I think that was such a funny joke. I don't find it funny at all anymore. That's just a description of the world we live in. Like, it's so embarrassing. And. And since you have the book in front of you, I'll tell you, this is so embarrassing to me because I remember the first time I saw it, I'm like, I never made that mistake.

00:56:28:11 - 00:56:45:17
Eric Ries
I always, I always specified for the better. But actually, if you go read the Lean Startup, then right there in the introduction, at the very end of the introduction, it says we're going to do blah, blah, blah, blah blah so that the next generation of of of entrepreneurs will have the tools they need to change the world. Yeah, you.

00:56:45:19 - 00:56:54:25
Eric Ries
Period. I wasn't safe, I just assumed, doesn't everybody want to make the world a better place? Well, turns out actually, we probably should have specified. Well, okay.

00:56:54:27 - 00:57:29:07
Ian Bergman
And and, you know, it is really interesting because as an aside, I have a lot of conversations with entrepreneurs, founders, but also corporate innovators about the idea that, you know, innovation implies adopted change and adopted change is not necessarily for the better. And it is a really interesting system shock. But I want to but I want to get your comment on one aspect of this, because, you know, there's a lot of ideas, there's a lot of case there's a lot of citations in the book, but I'm kind of a simple person.

00:57:29:10 - 00:58:05:06
Ian Bergman
And when I step back and, you know, reflect on what I learned from the book in bullet point form, and I'm really curious to see if you're like, Ian, you're an idiot. But what I took away is basically that this concept of human flourishing, as in, what are you doing something good for people that they're going to want to work with you, is actually the only thing to be thinking about, and everything else is how you set up a structure to protect a focus on whatever bit of human flourishing your particular company does.

00:58:05:08 - 00:58:19:24
Ian Bergman
I found that really interesting, and it forced me to ask in my company, what is the human flourishing that we're driving? And we'll all go down that rabbit hole another time. But, I mean, do I have it right? Am I missing something?

00:58:19:24 - 00:58:27:12
Eric Ries
Because that that's actually it's very interesting you say that because the chapter on human flourishing used to be chapter one is to be the first thing in the book.

00:58:27:14 - 00:58:29:03
Ian Bergman
And now it's like a third of the way in.

00:58:29:05 - 00:58:29:27
Eric Ries
Yeah. Now.

00:58:30:00 - 00:58:37:20
Layne Fawns
Sorry, sorry to interject, but for our listeners, can we maybe just expand on what human flourishing or anyone who has not read the book?

00:58:37:23 - 00:59:02:21
Eric Ries
Yeah, yeah. Thank you, thank you. So and to answer your question, yes, you got it right. And it's it's actually quite controversial because my perspective is that what it means to make a profit? Like, literally what it means to be a for profit company is to maximize human flourishing, to leave all the people that IT organization touches better off than if you had not existed.

00:59:02:23 - 00:59:27:10
Eric Ries
And and some people hear that and they're just like, that is so radical. That's so out of the bounds of possibility. You know, it's almost painful, but it's really just a restatement of what we were talking about a moment ago before, about the moral logic of capitalism. If that's what making a profit is, then the system works. And any other definition actually like causes this institutional collapse.

00:59:27:10 - 00:59:51:03
Eric Ries
So it's a really a foundational choice. And what's interesting is when I, I've talked a lot of people about this, students, academics, whenever people love to debate this kind of thing. But when I talk to builders practitioners, they're always like, oh yeah, obviously. What do you think it was? But if you challenged him on this point, I'd be like, okay, you say your your thing is maximizing human flourishing, but is that actually the definition of profit?

00:59:51:03 - 01:00:23:07
Eric Ries
You yourself have operationalized? I'll give you a funny story. There was one person I was who who hated ESG stuff. Very anti stakeholder, was like, I'm not woke. You know, whatever is a very successful founder starting a new company. And he was like, look, I'm just trying to make money from my investors okay? Best way to do that is we're going to make a great product in fact, like my my ambition with this new company is to create a company that is like for every engineer who comes to work here, this will be the greatest environment they've ever worked in.

01:00:23:09 - 01:00:38:28
Eric Ries
A product for innovation, for engineering. This is and I was like, oh, interesting. So is that your experience in your life that this happens naturally? That's what organizations he's like. No, of course not. The reason I had to create this new company because my last two companies now suck, even though they were so great, like, I want to.

01:00:38:29 - 01:00:51:24
Eric Ries
This is my principle. I'm going to stick to this. I'm gonna do everything possible. Do this. I would do anything for my employer. So he hates the word stakeholder, but he'll do it. He would literally die for his employees. I'm like, okay, cool, okay. I was like, okay, so hypothetically, you said before, you just want to make money for your investors.

01:00:51:27 - 01:01:11:03
Eric Ries
What if someone came to you with an idea? They say, listen, boss, I just realized we could save $0.03 a unit if we reduce the quality of it by making the engineering a little bit worse, no one would even notice. Would you be okay? And he's like, I would never. I was like, screaming at me and so angry that this idea make him.

01:01:11:03 - 01:01:29:19
Eric Ries
I was like, but I thought you said you wanted to make money by any means necessary. He's like, well, not like that. Yeah. So it's like, listen, I know you're not woke. I know you don't like ESG, and I know you hate the word stakeholder, but you actually are revolutionary. You are proposing a very radical change to our economic system.

01:01:29:19 - 01:02:06:23
Eric Ries
It's like, what are you talking about? Just trying to make money. It's like, I know it sounds crazy, but the simple idea that you want to make money through product quality and you're not willing to make money other ways, already puts you at odds with our whole modern sense of what business is all about. And so that's basically been my experience that, every person who's, like, sincerely committed to some principle that they're starting a company not just to make money, but to accomplish any other purpose, is basically what they're saying is I am slicing off some piece of human flourishing.

01:02:06:23 - 01:02:34:24
Eric Ries
That's my piece to care about. So some people are, of course, focus on your bio on the environmental, but focus on efficiency. Some people focus on beauty and art. There's human flourishing. It is a vast tapestry that can support quite a lot of different missions and visions. But everyone's got a slice off some piece. And the counterintuitive finding of in my research and in my experience, is that if you do what you just described, you make that declaration consciously and you take the steps to protect it.

01:02:34:24 - 01:03:18:00
Eric Ries
This crazy, almost unimaginable power is unleashed. Yeah, that I call it the power of magnetic attraction that causes like, causes all kinds of possible things to become possible. And I have witnessed it in my own companies, and I've seen it in other companies of people I really admire. And it's heart and I've data, data coming out of every orifice to show that this is not just like an anecdote, but we see this, you know, like in, in in space that when people trust you for they really believe that what you're doing is aligned with their deepest longing, like so many problems in business, magically dissolve, and so, like, people sometimes feel like human flourishing.

01:03:18:00 - 01:03:24:09
Eric Ries
It sounds kind of soft. It's like, is it so serious about business? I'm like, no, this is this is as ruthless as it gets, actually. Yeah.

01:03:24:11 - 01:03:42:15
Ian Bergman
Well, it's it's a it's a fundamental focus. And, you know, not for nothing. I'm going to take that whole last sentence, starting with data out of every orifice, put it in nano banana and see what comes out. But, no, it's it's it's it's okay. We have, we're we just have a little bit more time here.

01:03:42:15 - 01:04:04:16
Ian Bergman
We've got a few more topics we want to touch on because we could we could talk forever. But really, what you need to do is go pick up. But I do want to ask, I want to ask about incumbents. I want to ask about the companies that have already fallen into the trap of corruption. And I want to ask, is there a path out?

01:04:04:18 - 01:04:25:17
Ian Bergman
Is there a path out for the multinational, you know, airline that has maybe lost the last vestiges of trust or you know, pick your industry? Or is this or is this actually just yet another, you know, reason that we all need to be paying attention to the next generation of companies?

01:04:25:19 - 01:04:48:26
Eric Ries
Yeah. A key idea in the book is that it's always too early until it's too late. And the first implication of that is that most founders put these decisions off, but they get a lot harder later. So the earlier you can tackle this problem the easier it will be to tackle. So I always encourage people it's like that famous proverb about the best time to plant a tree.

01:04:48:28 - 01:05:08:29
Eric Ries
Of course 40 years ago would be option number one. But now option two is do it today. Don't put it off. That's really important. But a second implication of that idea that I think people often miss is that it's always better to start today than to wait. And that's true whether your company is one day old or a year old, 50 years old public company, been public for 50 years.

01:05:08:29 - 01:05:33:12
Eric Ries
Whatever. Multinational doesn't make any difference. You either are always getting this problem better or you're making it worse. So I in the book, I really try hard to give examples and try to, encourage people who are maybe not the ultimate decision maker to nonetheless put these ideas into practice. And, one way that I think is really powerful is by learning about governance.

01:05:33:15 - 01:05:57:02
Eric Ries
Most executives give themselves a chance to, like, be part of the board bubble conversation. So actually that can be a career accelerator if you know what you're doing to say. Actually, I think there's something really powerful we need to do differently here. And what's interesting about it is it seems so difficult changing culture change. It seems so hard and yet we do have these occasional turnaround stories where all of a sudden you have a company that used to be really exploitative.

01:05:57:02 - 01:06:17:24
Eric Ries
If, like, what would happen if we actually started treating people fairly and like the magic start like it's a magic that starts immediately. The second you start doing it, it starts being real. So think about like, I don't know, like I tell the story very, very briefly in the book about Blockbuster Video. But we tell that story is like a disruption story disrupted by Netflix.

01:06:17:27 - 01:06:34:12
Eric Ries
But what that's really a subrogation and false proxy story, because what happened is they became addicted to late fees, even though customers hated late fees. It made them all this money. And they had a new they brought a new CEO to eliminate late fees and try to like do the do the turnaround. And their own investors like basically fired him.

01:06:34:12 - 01:06:52:12
Eric Ries
They were like, no, we want them. We want the late fees back. So like, will it ultimately succeed? Not if you don't make governance reforms, but who decides the government's forms like at the end of the day, most of these decisions are made by a very small group of people. Like there's generally like a relatively small board of directors who can just decide.

01:06:52:15 - 01:07:12:29
Eric Ries
And so you never know when the opportunity might present itself to sit down with the board and say, guys, I think we really need to make a change here. Let's do it again. Will it work? Will always be successful. I can't promise you anything. But by proving the elements of it, step by step, by step by step, you might be able to build up the credibility to, define success.

01:07:12:29 - 01:07:37:20
Eric Ries
And I'll give you one other tip. People don't like this one, but it's the truth. Oh, most people make too much money. Not in the not in the world at large. Obviously, we have a lot of people who are struggling to support themselves. Okay. But among the kind of people that we're talking about who are had the luxury to talk about management and innovation and governance and whatever, a lot of us make too much money.

01:07:37:25 - 01:08:00:12
Eric Ries
Now, I don't mean too much money in an absolute sense. I'm not against people being wealthy. That's fine. The question is, is the money you're making coming from human flourishing, or is it coming from extraction or exploitation, or do you not really know most people in one of those three categories, if you're in category 2 or 3, if you know for sure that you work for a crappy company or you're not sure you have a problem, you have a moral problem.

01:08:00:14 - 01:08:20:07
Eric Ries
But it's worth trying to fix. And I've worked with so many people who over the years who have come to me being like, I don't recognize myself anymore. Like my, my, this company used to. I thought it was going to be so great. Now it's corrupt or, you know, whatever. Like people have these crises of confidence sometimes and we always start the same way, which is like, well, why don't you just start with the control you do have right now?

01:08:20:10 - 01:08:38:08
Eric Ries
Start standing up for what's right. Just do it today. Like just try it out. What's the worst that can happen then? Like what could be fired like, is that so bad? Yeah. Like I understand being fired is unpleasant experience, but, like, is it really so is it. It's much better than waking up one day and being like, what have I become?

01:08:38:08 - 01:08:58:17
Eric Ries
Or even like now your kids won't talk to you because you're repellent to them. Like, I know people who are unfathomably rich and they have this same, this alienation of their lives like it's any amount of money that's worth it. On the flip side, if you speak up, first of all, you're you might have impact, your organization might change, as in response to your speaking up.

01:08:58:17 - 01:09:16:09
Eric Ries
Most employees do not realize even close to how much power they have. It's one of the last and most important ideas in the book is although we talk about this phenomenon from the perspective of the organization itself, because I'm a company builder at heart, of course, that's my perspective. The stories and the powers all work both ways.

01:09:16:11 - 01:09:33:26
Eric Ries
We say that there's this magnetic attraction company customers love your product because you're trustworthy. Well, that's that's caused by the customer's perception of things. So if you're a customer, you have this power wielded. If you're an employee or a future employee, you can't imagine how much time your boss spends thinking about what they can get away with. Right?

01:09:33:26 - 01:09:51:09
Eric Ries
Like what? What? What can I do or not do? What will my employees revolt about? Well, you have the choice to revolt. It's your choice. Just. You can be a pain in the butt about the wrong thing. And you never know what might happen. So, yes, you might have change, in which case you'll feel better about yourself. Or you might get fired, or not even get fired.

01:09:51:11 - 01:09:55:22
Eric Ries
Have it revealed to you that the organization you work for sucks sometimes.

01:09:55:22 - 01:09:57:09
Layne Fawns
Can I inject?

01:09:57:11 - 01:09:58:04
Eric Ries
Yeah, please.

01:09:58:04 - 01:10:21:14
Layne Fawns
Sorry, I don't mean to, but I want to inject just a little bit of pushback here, because I recently talked to someone who was a founder of the, of a company, and it wasn't making as much money as they wanted to simply to provide a very good living for the people that work for them. Right. So you have 25 employees, and let's say each of them has a family of 2 or 3, right?

01:10:21:14 - 01:11:00:23
Layne Fawns
So every job lost affects a ripple of people. Yeah. And and so inherently let's, let's say that like for the sake of this argument that people are inherently good. Right. So on one hand, this person has the choice to put certain aspects of their software behind a paywall so that they can give a better life to the people that work for them, or they adhere to a set of principled values and they get fired, or the company just completely goes under because they hear that, oh.

01:11:00:25 - 01:11:25:10
Eric Ries
I'm really but thank you for asking this question. It's very important, and it's really easy for what I'm saying to sound like kind of idealistic and unrealistic. So without the pushback, it's really important. So let's let's unpack that scenario because that's a very real scenario. And we I tell several stories of that type in the book. A very famous one is at Cloudflare company today is hugely successful.

01:11:25:13 - 01:11:51:09
Eric Ries
You know, it security company worth like $70 billion, something a crazy success. And they had a moment where they gave like they had a product that actually they did the reverse of what you describe. It was behind a paywall and they decided to give it away for free. And I mean, I'll just tell you, the story is I think it's important to to understand the difference between having an ethos, and feeling committed to make money by whatever means possible, like it's very, very important to see this distinction.

01:11:51:11 - 01:12:11:24
Eric Ries
So here's, here's what happened. Founders of Cloudflare, Matthew and Michelle, there, they they were not into vision mission stuff. Okay. Like you'd asked them in the early days, like, do you have a mission or a vision? They'd be like, blah, blah. That's just marketing speak. We don't care about that. So they were very practical. They would think it was a firewall in the cloud, and that's what it did.

01:12:11:24 - 01:12:36:22
Eric Ries
It was this like technical product engineer, engineering driven culture. And if you asked if they had a vision mission, they would have had. No. And then they were having, dinner, you know, one day just hanging out with, with a young their company was a relatively small and one of the, engineers. It's like, you know, what I really like about this company is I feel like every day I'm working to make a better internet, and everyone's like, yeah, this is the first job I've ever had where I feel like I'm making the internet better every day.

01:12:36:25 - 01:12:48:26
Eric Ries
They're like, everyone's like, yeah, make it better. Anyway. So people kept saying that phrase over and over again, and one day they sat there and someone was like, you know, is that our mission to make a better internet? At first they were like, no, that's just marketing speak. But after a while they were like, oh no, maybe it is.

01:12:48:26 - 01:13:06:03
Eric Ries
So like the first thing to understand is that vision mission. These things are discovered, not chosen. Okay. You don't, you know, just, you know, just decide. It's something that emerges. It's an emergent property of the collective intelligence of the media. It. So anyway, one day now, fast forward a few years later, it was a this is the early days of, of encryption on the internet.

01:13:06:05 - 01:13:20:04
Eric Ries
And Cloudflare had a premium product. It was free. You get the firewall for free, but if you want an encryption, you pay. Those are paying. I was like the number one reason people converted from free to paid. And their freemium business model. That made a lot of sense to everybody because first of all, encryption cost money to implement.

01:13:20:11 - 01:13:36:06
Eric Ries
You have to buy a certificate from a certification authority. And it was quite like it was like technically difficult to part, like server bandwidth and space processing power. For the the mathematics of the encryption, this is a little bit dated. Now, this is we don't have these issues quite the same as we do. No format for the premium feature.

01:13:36:06 - 01:13:55:14
Eric Ries
So one day a French engineer was talking to Matthew and he said, you know, I thought our mission was to make a better internet yet. And you said that, like, I, I look at our corporate values, corporate value number one is to be principle. So is it an encrypted internet, a better internet.

01:13:55:16 - 01:14:12:14
Eric Ries
So how can we charge people money for now, almost any CEO in any company in the world, when confronted with a statement like this from a junior person, would basically give them the rhetorical equivalent of a smack on the face or a pat on the head and be like, well, that's nice. But anyway, yeah, that's where we make our money.

01:14:12:14 - 01:14:26:15
Eric Ries
So go back to school plain, okay. Yeah, I think what I really value your perspective anyway. But I Matthew Prince, he told me this story blew my mind. He was like he said he was like, oh no, I guess you're right.

01:14:26:18 - 01:14:54:19
Eric Ries
And they had like a code red. They were like, we need to give this away. Now the key to this story is they weren't just like, okay, we're gonna start losing money. He talks about how, it's not mission or business model. It's got to be mission and business model integrated. So they actually worked incredibly hard for weeks or I think was even months of like, relentless engineering effort to try to figure out how they could give this thing away for free and still survive.

01:14:54:21 - 01:15:08:16
Eric Ries
So they did get this principle in the book. Like harder is easier. You do the harder work to make your life easier down the road. And they had to make they had like a technical breakthrough that allowed them to solve the technical issue of being able to scale up the number of certificates that they host, and they had a much more difficult dev challenge.

01:15:08:16 - 01:15:24:24
Eric Ries
They had to convince the certification authorities to give them the certificates for free. And they did this very complicated, very clever thing called a contra deal, where they took on the bandwidth costs of the provider. Anyway, it was very, very, very clever, bit of business and technical engineering to accomplish this goal. And they gave the thing away for free.

01:15:24:24 - 01:15:41:03
Eric Ries
And it's like a seminal moment in the history of the internet, because like today, almost all websites are SSL encrypted. We did that for granted. But a big part of the reason why is because CloudFront made this choice. Now, here's what's really interesting about it. Matthew described to me the board meeting was like, hi everybody. Our top premium feature.

01:15:41:05 - 01:15:57:14
Eric Ries
That is the reason people convert to paying. We're going to give it away for free. And the board was like, what? Like, excuse me? What? Like why are you doing that? It's like because it's the right thing to do. And they were like, well, do you know that this is going to work out? It's like, no, we don't, but it's the right thing to do.

01:15:57:14 - 01:16:17:07
Eric Ries
And let me show you this spreadsheet. We've worked it out. We figured out how to drive the cost down so it's not going to bankrupt us. But we don't know. That will necessarily make us more money. Now, in retrospect, it did make them a lot more money. Spoiler alert they made way, way more money because although their conversion rates went down a lot, the top of the funnel grew exponentially, and so that more than offset them for their goal.

01:16:17:07 - 01:16:35:06
Eric Ries
Now we don't know. You know, they didn't know. But the key is they didn't know at that time that it would turn out that way. So I think that that is really what I'm talking about. It's not just like Reddit. You get the paywall example. I wouldn't say it's automatically obvious from the outside that it's better or worse to have a paywall, right?

01:16:35:06 - 01:16:48:24
Eric Ries
Like, well, you got to tell me what your mission is, your mission to make a better internet at the paywall, making the internet better or worse. Right? Like you have to actually be clear about what is it, what what what are we doing? And that's why I that's actually why I tried to avoid the word stakeholder so much.

01:16:48:24 - 01:17:08:18
Eric Ries
Stakeholder discourse is about compromise, right. It's like who are my stake? Like a lot of companies like my stakeholders are employees and customers. It's like, okay, what happens if what IT customers want and what employees want are at odds? And it's like, I don't know, right. Well, you don't know if you if you don't know then you haven't made any kind of commitment.

01:17:08:22 - 01:17:26:15
Eric Ries
This is actually we call them stakeholders. That's not real. You've got to tell me who's more important and under what. So who gets compromised for what and under? Fortunately, we live in a world today where basically, no matter what anybody says they actually want of sacrificing everybody for shareholder shareholders, the only fiduciary commitment, but they have a different commitment.

01:17:26:15 - 01:17:43:02
Eric Ries
You can make it it just it requires you to do this hard work to figure out, okay, like what actually is maximizing human flourishing. Is it better not to pay well or not have to pay well? Like if we get money from people, what do we spend the money on? I think it forces a whole different, kind of conversation about business.

01:17:43:02 - 01:18:13:27
Eric Ries
But in my experience, those constraints are what create breakthroughs. And so the leaders I admire the most are really high integrity leaders that I have come to really like, learn from. They love that their ethos causes this problem all the time, like the difficulty of it is a feature, not a bug. Because the more you encounter these constraints, the more opportunities you have to find the non-linear breakthrough that everyone else overlooks.

01:18:14:00 - 01:18:33:01
Eric Ries
And you see that in all the really great companies, the Costcos and the Patagonia and the Cloudflare, is that, you know, so many more that are in the book. They'll be these these like relentless difficulties that lead to breakthroughs that you can't get any other way. That's that's ultimately why this way of working is more profitable.

01:18:33:03 - 01:18:59:20
Ian Bergman
Well, I mean, this is a lot to think about. And, Eric, I'm not gonna lie, I've been on an emotional journey for the last little while has been doing this because we started, you know, basically being slow boiled into a dystopian sci fi world of infinite ification. But, you know, my takeaway from incorruptible is that there are some principles and a bit of a blueprint that founders, leaders and everyone the most.

01:18:59:20 - 01:19:23:06
Ian Bergman
You know, junior staff getting hired into an organization can follow. And it's something that I think, look, I think we're all going to internalize and I do I, you know, having sat with some of these concepts for a little while and having had this conversation, I can't say I have confidence, you know, 100% that this is going to take the business world by storm in the way Lean Startup did, but I hope it does.

01:19:23:08 - 01:19:26:06
Eric Ries
I genuinely hope, 60%.

01:19:26:08 - 01:19:45:17
Ian Bergman
And so, you know, I want to say thank you. For sharing your ideas. And thank you for coming on Innovators Inside. It's been an absolute pleasure. And for all of our listeners that want to learn more and want to follow your work, I assume go pick up the book. But, you know, where else should they find you?

01:19:45:19 - 01:20:04:22
Eric Ries
Yes, as they say, wherever books are sold, you can find incorruptible in the ultimate AI hardcover, in audiobook, and of course, in e-book. If you want to follow me, the best way is, to like my newsletter, which you can access on incorruptible AE. We also have tons of other resources there readers, guides, implementation guides, all kinds of stuff.

01:20:04:22 - 01:20:16:01
Eric Ries
So, really try hard to make this as practical, as we can, and I guess. Yeah, if you want to follow me on social media, mainly, I would recommend you get off social media. I am on blue Sky at every incredible.

01:20:16:08 - 01:20:22:04
Ian Bergman
Well, Eric Reese, author of incorruptible, thank you for joining us on The Innovators Inside and have a wonderful rest of your day.

01:20:22:06 - 01:20:23:03
Eric Ries
Thanks so much. Appreciate it.