Darren [00:00:02]:

Hi, everyone. Welcome to another episode of One of One. I’m your host, Darren Gold, CEO of the Trium Group. My guest today is Eric Reiss, author of the Lean Startup, founder of the Long Term Stock Exchange, and now author of a terrific new book called Incorruptible: Why Good Companies Go Bad… and How Great Companies Stay Great. Eric’s central argument is that even the most mission driven companies will, over time, succumb to what he calls financial gravity and, and lose their soul. The solution, how to become incorruptible, is to design structural protections early. The good news is that there are numerous examples hiding in plain sight. We talk about Sol Price and Costco, Novo Nordisk, Eric’s work with Anthropic and what he calls a spiritual holding company. And in the last stretch, we explore Eric’s own inner journey, deeply personal and yes, deeply spiritual that sits underneath all of it. Please enjoy my wonderful conversation with Eric Ries. 

 

Eric, it’s wonderful to see you again. And I said this right before we get started, I just have to tell you how much I’ve loved reading your book. I got an advance copy of it, which I’m thrilled to have received and to have read, and I’m really eager to jump into it and give you a chance to bring to life what I think is a really big idea, an important contribution. But before doing so, I was thinking it would be helpful to go back in time a little bit and have you share kind of the origin of this idea, like the first kernel of it and then the set of experiences, personal, professional, that helped kind of shape it into the book that it’s become.

 

Eric Ries [00:01:45]:

Oh, man, what a nice way to start. And yeah, thank you for the kind words. You know, this book was such a labor of love and it took me such a long time to write that I just like, yeah, it’s so nice to be able to talk to people about it, to share it now after all this time. It’s been terrific and so, yeah, thank you. I’m so glad, so glad you liked it. Yeah. So where to, where to begin? Gosh, the origin. You got to go all the way back to the publication of Lean Startup, which is now 15 years ago, came out in 2011.

 

Darren [00:02:15]:

Amazing.

 

Eric Ries [00:02:15]:

One of the last things I wrote in that book, it was almost an afterthought at the very end. In the epilogue, not even in the main body, I said, somebody should really build a long term stock exchange or ltse. And that book became a phenomenon and so many people have read it that they like picked the carcass clean of every idea that I suggested, somebody’s tried it, someone’s been like, hey, what about this? Oh hey, what about that? And what’s interesting to me about it is that nobody ever wrote me to say, hey, what about the long term stock exchange? I think we should do that. So for many years it was my cocktail party conversation. You know, people would say like, oh hotshot, lean startup was a good idea. What’s your next good idea? You know, whatever. And I’d be like, how about this? And they’d be like, wow, that’s crazy. No joke. The Wall Street Journal wrote an article in which they. Not an editorial, a straight news story that said the lean startup guys next crazy idea. They used the word crazy like in the headline. Not ironically, like just straight up like, this is absolutely nuts. So I was just curious about it and I realized no one else was going to do it, so I did it myself. And I won’t get you the whole story. We could talk more about it if you’re interested. But for many, many, many years that was my day job to build the ltsc. To be clear, I don’t run the company anymore. It’s now run by a very capable management team.

 

Darren [00:03:36]:

For those who haven’t heard about it. Can you give us just the short description? Because it’s also another fascinating, very simple

 

Eric Ries [00:03:42]:

thing to describe, although obviously very complicated to do. We just wanted to bring long term thinking back into the public. So the idea is that we have listing standards that require companies to be held to that higher standard to show how they’re actually structured for long term value creation. And because of that then they’re able to attract more long term investors to their side. So it is a stock exchange like NYSE or nasdaq. It’s in the same regulatory category as them. We have the same, I keep saying we. Of course, I gotta get outta that habit. It has the same regulatory powers and responsibilities as nicier Nasdaq, but it has a new, a new model for how companies should be listed. They’re really the first such new model since the creation of Nasdaq in the 70s.

 

Darren [00:04:21]:

Well, you can understand why they, they put the word crazy on there, right?

 

Eric Ries [00:04:25]:

Yeah, yeah, exactly. A very, a very daunting, very difficult project. But you know, I, that’s what I, you know, if you’re an entrepreneur, that’s what you like to do.

 

Darren [00:04:32]:

Exactly.

 

Eric Ries [00:04:32]:

So I always wondered how there are actually quite a few stock exchanges in the world, more than just nice and nasdaq, although most are now owned by NYSE and nasdaq. But they all have the same rules. And I also wonder why. How come they’re all the same? Well, whenever you see something in the world that’s the same, if you ask people, why is it the same? They say, oh, competitive pressure, you know, Darwinian natural selection. That must be why the market has decided that must be the best. And I said, oh, okay, I guess so. But I didn’t think so. I was like, that can’t. It doesn’t make sense to me because these rules are terrible. We could do better. So here’s my attempt to do better. I eventually found out why everything is the same and it’s not Darwinian natural selection. Here’s what happened to me. We were on the brink of getting our SEC approval for this exchange. This is many years ago now. And all of a sudden, we got stuck in this kind of bureaucratic limbo. Even though, like, our public comment file, everybody was in favor of this idea, it’s, like, very popular. No one had a bad thing to say about it. Still, somehow the regulatory apparatus stopped turning, and we spent a lot of time. We couldn’t figure out what was going on. You know, D.C. is a complicated place. We’re making calls to figure it all out. Anyway, finally someone calls me and listen, I want to make sure you understand what’s going on here. You’re not going to be able to get this approved unless you make certain changes to the rules. We need you to make it just the same as everybody else’s rules or you will die. And I was like, I don’t really understand. Isn’t it like, this is America, okay? Like, what are you talking about? That’s not how it works. Everything we’re doing is consistent with the law. We follow these rules. We spent years working on this. We got the regulators on board, the investors. We got everybody on board. They’re like, yeah, that’s just not how it works, kid. Sorry. It’s not just that. We’ll get your. If you say no right now, not only will your application be denied, we will make sure that all your vendors stop working with you. Okay? I remember this very well because it was the middle of the night. I was, like, 5,000 miles from my team. You know, in August, I was away giving a lecture or something. I think in England, when they were all back in the US they had struck. The ambush was timed very effectively. You can’t be mad at the ambush because it was done well. It was well executed. I’ll never forget the people who were appointed, posed to us they invited me to join one of their strategy calls. They said, you can listen in and just hear directly what we’re planning to do. Like, it was just. They were very straightforward about it. And I remember getting my team on a zoom when I finally understood what the deal was, because I talked to one of our vendor. One of our vendors called me and he’s like, I’m sorry, I can’t work with you anymore unless you do what they want. We’re very clear about it. I said, look, team, you guys have followed me on this crazy quest. These were incredible employees who had given up so much money to work on this project. You know, these are people who all could be making incredible amounts of money in the financial system, chose to do this instead. What an honor.

 

Darren [00:07:18]:

How many years or how long are you into the project at this point?

 

Eric Ries [00:07:22]:

Several years. I mean, I probably was five years in at that point. They were. Many of them were two years in. We had been working on this for a long time. We had raised, I don’t know, $10 million or something that we had spent trying to get this regulatory approval. And I said, look, I think it’s possible that we’re going to go bankrupt unless we do what these people want. So we have to make a unanimous decision. I’m not gonna force you to do it. You know, I understand you guys have come with me a long way, and I kind of understand the logic from their point of view, from their career point of view. If we got something approved, that would be a big feather in their cap. So I understand if you wanna compromise. And I said, everyone go around the circle. We’re on Zoom. Everybody say inner. Yeah. Yes or no. Capitulate or die. And every single person said, no. And we said, no deal. And I joke in the book that, like, I wish I could tell you it was my visionary leadership that got us through, but the truth is, I was the one curled up on the bathroom floor at 3 o’ clock in the morning. Like, I can remember that feeling of just like we are going to die. And what’s so interesting about it is we didn’t die. Actually, in retrospect, I can say it’s the best thing that ever happened to us, because, of course, we rallied, we pivoted, we figured out what we needed to do. But it was a very important lesson to me in why the world is the way that it is. There’s nothing natural about this economic arrangement. It is being enforced on people. And that, for me, was like the inkling of the beginning of an Idea that started to spread in my mind that said, if that’s true, it might not be very strong. We might be able to change it more than we realize. And so, yeah, that ultimately, like, learning to call those behaviors corrupt led me to be able to then to say, okay, what would it look like to build an economy on the backs of organizations that are incorruptible? What would that look like?

 

Darren [00:09:11]:

And that’s the central idea of the book, which is titled Incorruptible. Is there more to the journey to get to where you are? Are we at a good place to jump into the book itself?

 

Eric Ries [00:09:21]:

Well, I wish I could say it was like an instantaneous bolt from the blue insight, but no. For years. I mean, really, for years, I have been like an eccentric collector of odd governance ideas. You know, companies that are structured in unusual ways, people who have found unusual solutions to common problems. And for a long time, I was like, you know, some people collect butterfly wings, some people collect marbles. This is what I collected. And I would talk to founders about it. You know, I’m the lead startup guy, so people call me for advice all the time. Hey, I want advice about starting my company. And I started to incorporate these ideas into my conversations. Hey, have you thought about trying this? And people would be like, that’s crazy. You can’t do that. I’ve never heard of that. You know, what are you talking about? That can’t be right. So it was very common for people to react with a strange way, but I kept at it. And so this book is the consequence of literal years of my life that I have spent trying to help people adopt and implement these ideas, to try to resist these incredible pressures. And I got pretty good at it. You try it every day for multiple years, you start to make progress. You start to figure some things out. And once I realized that I could get individual companies to do this, but when they would go talk to their investors, their partners, their employees, people would be like, wait, what? What is it? Huh? Explain it to me. And he would always ask me like, well, what’s been written about this? What can we read? And I’d be like, well, how about some academic papers? There’s a lot of research. They’d be like, what else you got? How about, like, a case study? There’s these great. There’s individual companies. We have great profiles up. They were like, yeah, what else you got? We have all these manifestos about the need to be purpose driven or mission driven or to. They’d be like, yeah, we’ve read Those too. But we want a book about this, about how to build an incorruptible organization. And I realized, oh, I don’t have something to recommend because nobody’s written that book. So then I was like, well, okay, now let’s get to work. Let’s do the research, let’s figure it out. And that, that was two or three years ago. The book is a result of that.

 

Darren [00:11:16]:

Yeah. Wonderful. And so you’ve talked about this word incorruptible, and the book’s purpose is how to build something that’s incorruptible.

 

Eric Ries [00:11:24]:

Yeah.

 

Darren [00:11:24]:

I think we’re getting to the central idea of the book itself and I want to give you a bit of space to articulate what that is. And I know it’s hard to reduce a book in any book, but certainly yours to like one or two lines. But the essential, the essential idea of building something to be incorruptible. What do you mean by that?

 

Eric Ries [00:11:43]:

Maybe I could illustrate with a story that I think kind of encapsulates the whole a little bit. So let’s go back in time to a guy named Saul Price. Saul is the father of modern retail. For those that don’t know, he was very famous in his day, although I think his star has kind of waned a bit as people don’t know this story. But believe me, you know the consequence of the story very well, as I will prove in a second. But just to give a sense of how influential Saul was, the fact that when Sam Walton started Walmart, the reason he named it Walmart was as a homage to Saul Price, because Saul Price’s company was called fedmark, the original big box retail store. Now Saul was an interesting entrepreneur because he was trained as a lawyer. And as a lawyer he learned, it was part of his professional training that his client, he had what was called a fiduciary duty to his client, which means you put the client’s interest before your own. That’s what we all want from our lawyer. When he became a retailer, he asked himself, who’s my client? And unlike a lot of people today, he would say the shareholder is your client. He didn’t think it that way. He said, the customer is my client. I have a fiduciary duty to the customer. I’ll do anything I can to save them money and see to their well being. So, for example, so many great Saul stories. One of my favorites is that when competitors would try the loss leader strategy on him, dumping products below cost to drive customers out of his store, he would Put up signs in his own store saying, don’t buy this product from me. It’s cheaper down the street. Because he’s a fiduciary to the customer. He’s like, I want them to get them the lowest price. I don’t care where they get it. That was the kind of person he was. There’s a famous story that one time he went to a supplier and he asked the supplier, I think they were selling women’s hosiery or something. He said, look, we have a product. We’re selling for 299. I think it’ll sell more units if the price was 199. But instead of asking the supplier to take the hit, he said, we’ll share. You give up 50 cents, we’ll give up 50 cents. Sell it for $1.99, we’ll all make more money. They did the experiment, and actually it didn’t sell any different. Customers were not price sensitive. They sold the same volume as before. Saul called his category buyer and said, listen, you got to go back to the vendor and give them their 50 cents back. Every unit we sold at 1.99. And the guy was like, you don’t have to do that. He’s like, I know, but we told him it was going to work. It didn’t work. Give him the 50 cents back. That’s the kind of person he was. So this worked really well. Customers, suppliers, employees, everyone loved fedmart. The company grew. People would drive miles out of their way to shop at fedmart. He took it public. That’s how successful it was. He made a lot of money for everybody involved. But as a public company, he felt this pressure, this corrosive pressure to, instead of having low prices and high wages, to have low wages and high prices. And he hated it. It was drove him crazy. Why were people constantly on him to break the compact he had made with his customers? Well, because the public markets increasingly were coming under the sway of this new dogma called shareholder privacy that says that an organization is not a beautiful, vital, living thing, but merely a financial instrument for the enrichment of investors. Saul was so frustrated. He would never take anything lying down. He was so frustrated that he took the company private. He arranged with new investors to buy out all the public market investors. He got a new board, new investors, new everything. But it didn’t solve the problem. This pressure is not just about public markets. All of our boards, all of our investors are being indoctrinated into this way of thinking. So what did the new board want? Well, they wanted higher Prices and lower wages. They wanted faster growth and they wanted best practices above all. Now, Saul was a 100% uncompromising person. He would not give them what they wanted, no matter how much pressure they applied to him. The whole thing came to a head one day in 1975. To be clear, Saul had been building Fedmart for more than 20 years at this point. He comes into work one day and he can’t get into the office because they’ve changed the locks on the doors. He doesn’t work there anymore. So what happened? This story is a bit of an a B test for two different visions of capitalism. In the red corner A. In corner A, you have the investors of fedmart. Now, the investors in fedmart, I think they understood something that Saul Price never did while he was alive. They understood that precisely because fedmart was so trusted by its customers and its employees, it could betray them and get away with it. That’s why they thought they could make more money. And in the short term, betrayal is very profitable. What happened to fedmart? Within seven years, these investors had driven it into liquidation. Today, fedmart is a Wikipedia footnote, a distant memory. What happened to Saul Price? Well, in the B corner, in the blue trunks, Saul was a classic entrepreneur. He took. I love this detail. He took two weeks off, then he came back to the same building where fedmart headquarters was, and he leased the office upstairs. And he started again and he built a new company he called Price Club. He thought by putting his name on the door, he’d have more control this time. See? And a bunch of people left. Fedmart came with him. And I think he understood something that the investors in fedmart never did. What he understood, when they looked at fedmart, they saw a building, a warehouse, inventory, customers, contracts, money. They saw the surface level things. But Saul understood that none of those things were fedmart. Fedmart was powered by an engine, an underlying engine made up of interlocking parts that were driven by his business philosophy. And because the results were powered by the engine, he knew he could do it again. And he did. Price Club was very successful. When I was growing up, Price Club was a local fixture. Fedmart was a distant memory. But today, Price Club is largely forgotten because of what happened next. See, one of the people that left fedmart to go with Saul to Price Club was a guy named Jim Sinegal. Jim Sinegal had worked his way up from stock boy to executive at fedmart, and he understood this engine, too. So a few years after joining Saul at Price Club, he struck out on his own, with Saul’s blessing to start his own company. And a few years later, that company and Price Club actually merged to form a company that they called Price Costco. But today we just call Costco. Today, Costco is a $400 billion just monster of a company. So the question we have to ask ourselves, the real question at the heart of this book, is why was fedmart destroyed by its investors, but Costco endures? If you talk to most normal people about, like, what do you hate about American capitalism? They can pontificate like crazy, but if you ask them, are there any exceptions? Costco is the most frequently cited company that’s like, whatever trend you think is bad, they’ll be like, well, except for Costco. Why is Costco such an exception? Well, it has the two things we need to build an incorruptible company. It has that ethos of saw price. It has the same practices from all those years ago. Fiduciary duty to the customer, capped margins of 14%. Still, it’s still the Costco policy to this day. But it has something that fedmart never had. Jim Senegal. He built Costco with what I call a governance fortress that insulates management from these outside pressures that allowed him to build a company with structural integrity. You try to bully Costco, it doesn’t work. And so that’s what we need. We need ethos plus integrity equals incorruptible.

 

Darren [00:19:05]:

Yeah. And I think most people that have had some experience being part of a public company, particularly transitioning from a private to a public company, resonate for sure with this experience. It’s an undeniable one. And so the argument I hear you making is this combination of maybe strong founder ethos that gets preserved plus structural integrity built early, which is one of the distinctions that you make in the book. And incorruptible, maybe just to test something with you and get your take on it. Incorruptible not in the sense of ethics, although that may be part of it, but in the sense of the company’s soul. That there’s something about preserving the company’s soul. And that may be obsession with customer. It may be doing good in the world, but it’s certainly not solely shareholder primacy.

 

Eric Ries [00:19:52]:

You got it.

 

Darren [00:19:52]:

So is that a fair, fair characterization?

 

Eric Ries [00:19:55]:

Absolutely. This is a hard thing to talk about in our hyper cynical, hyper polarized age.

 

Darren [00:19:59]:

Yeah.

 

Eric Ries [00:19:59]:

Because when I say their company did the right thing, people are like, what are you saying? They’re the absolute best company that ever lived. I’m not saying that even with Costco. You know, Costco has that famous story about the $50 hot dog, you know, a symbol of their steadfastness over all these years. Some people are like, but a hot dog, that’s processed meat, that’s disgusting. Okay? Not every company has to have the same values, nor should it. The question is, does it stand for anything at all? And is that thing that it stands for aligned with its own vision of human flourishing? That’s the thing people really respect in a company. Now, the data shows that companies that are structured this way have greater longevity. They are more ethical, they tend to have better outcomes for their employees across the board, better for everybody. But they also are more profitable. And I think this is in our cynical age, the hardest thing for people to really understand is that trustworthiness is the most underrated asset in all of business today. And if you have it, you unlock literal superpowers that most companies can’t touch. You see it in Costco’s 90% membership renewal rate, but also their exceptionally low employee attrition rate. You see it in the fact that they have superior long term relationships with their suppliers, which means their cost to acquire goods is actually lower during shortages. Costco gets first choice. Why? Because in bad times, Costco doesn’t screw you over. They pay. They raise wages when other people cut wages, they support supply. So it’s an integrated system that creates not just moral and ethical outcomes that are praiseworthy, which, by the way, that’s not insignificant. People who run these kinds of companies sleep a hell of a lot better at night than people who build exploitative extractive companies. But far more importantly, not more importantly, equally importantly, they produce better economics outcomes. In fact, they have a competitive advantage over conventionally driven companies.

 

Darren [00:21:51]:

Yeah, it’s one of the many things I loved about the book is this sense that there are, and you cite them, multiple examples. I would call almost like hidden in plain sight, because they’re very notable and public companies. And so this isn’t something, a book where you’re advancing a novel argument that’s never been done before. Quite the contrary. It’s all of these examples, most of them overlooked and underappreciated. And you, I think, do a really good job of bringing that to life. This thing works.

 

Eric Ries [00:22:22]:

Oh, thank you.

 

Darren [00:22:22]:

And so I’m curious just to hear, you know, maybe another example if it’s worth doing. Because it’s not just Cosmo.

 

Eric Ries [00:22:29]:

Oh, yeah, of course, I love these examples.

 

Darren [00:22:31]:

But also, why is it given that degree of evidence that.

 

Eric Ries [00:22:36]:

Yeah, why does it have to be Hidden in plain sight. Why is that? Okay, we’re going to get to that. Okay, let me first tell one more story because I feel like there’s, like, one of these exceptions kind of in every industry. And people in that industry, like, they vaguely know that that’s the exception. But if you ask them, is such and such thing inevitable? They’re always like, yeah, it’s inevitable. Like, I hear the most common thing I hear from people is like, corruption is inevitable. It’s human nature. It’s greed. I call it financial gravity.

 

Darren [00:23:01]:

Yeah.

 

Eric Ries [00:23:02]:

This, like, pull that people, that organizations feel to our financial system to adopt the values, the extractive values of our financial system. But just like when a bridge collapses, if you say, why did it collapse? If I say gravity, you’re like, yeah, duh, no kidding. But how come this bridge collapsed but that one didn’t? Oh, well, the. The bolts have been corrosive. Corroded. Yeah. No wonder it collapsed. What can we do about it? Nothing you can do about it. Gravity is omnipresent. No. Use stainless steel next time. So what are the equivalents of stainless steel and company building? That’s kind of the question we have to. We have to answer. So let’s take an example. Here’s one that I think people. People do know, but they don’t appreciate what they already know. I’m gonna take you back in time and let’s go in the time machine to the 1920s. I’m gonna take you to Denmark. There’s a woman named Marie Crow. She’s one of the early doctors, one of the first women doctors in Denmark. Big advocate for women’s empowerment and women’s medical education. Really interesting person in her own right. But she’s mostly famous today because she was married to a Nobel Prize winner. Her husband August. Marie got a fatal diagnosis of a disease called diabetes at a time when there was no known cure for diabetes. But despite her fatal diagnosis, her husband asked her would she come with him on a lecture tour of North America. And she said, yes, she would. They go to North America together from Denmark. And while she’s at dinner one night listening to him lecture, the person at the table next to her is telling her about a breakthrough that’s happened in Canada. These Canadian researchers have for the first time, isolated insulin, a potential cure for diabetes. She’s very excited, for obvious reasons. She convinces her husband they should extend their trip to North America to go to Canada to see this miracle for themselves. They meet the scientific. They’re both scientists. They meet the Canadian scientists. They have A powwow. They see the technology, they realize its breakthrough potential and they ask the Canadians if they can license the technology and bring it back to Denmark, commercialize it, not just to save Marie’s life, but to save a thousand more lives. The Canadians agree, but there’s a provision. Everybody involved is very worried. What would it mean for a life saving drug to be owned by a for profit company? So I want you to imagine this scenario. Imagine I depend on you for a life saving drug. I can’t live without it. Well, in that case, I want you to charge me a fair price. I want you to stay in business. I want you to have every financial incentive I can think of for you to keep producing that drug that I need. But the crows and the Canadians worried about something more than that. They said, but wait a minute. Someday in the future, might that same company say, wait a second, I don’t have to just charge you a fair price. I could charge you anything I want and you’ll have to pay. They viewed that as a kind of corruption that they were afraid of. They wanted to prevent that from happening. Decades before Martin Shkreli they foresaw this illness that would affect our economy. So they agreed that they would embody this company, which they called the Nordisk Insulin Laboratorium, in a very special structure, what’s called an industrial foundation structure in the literature. It is a non profit foundation which owns a for profit subsidiary. The for profit subsidiary takes in investors. It does the normal things that you expect a for profit to do. The nonprofit has the responsibility I call mission guardianship. It is the mission guardian entity who looks after, in this case, the scientific integrity of the values of the Nordisk Insulin Laboratorium. Now a lot of people are saying that name sounds very familiar to me. This is the origin story of the company we call today Novo Nordisk. It is one of the world’s largest companies and still to this day it has this interesting structure of a nonprofit foundation which oversees a for profit subsidiary. In this case, Novo Nordisk is a publicly traded company. It trades, I think a million shares a day on the New York Stock Exchange. It’s a huge, incredibly powerful company. All the corruption, inevitability, stories you would tell about any other company, you would expect that to happen to Novo Nordisk. And yet it hasn’t. Here it is a century later, still going strong. I tell in the book a story about a time when the trustees of the foundation had to intervene in such a way that they. I know this sounds like an exaggeration, but I promise you this is 100% true. The trustees created for investors more than $500 billion of value. So this is not anti profit, this is not anti shareholders or anti shareholder value. These companies are insanely profitable. Now, this structure of Novo Nordisk is not unique to Novo Nordisk. In fact, it’s not even that new. If you ask who makes the lenses in most glasses in the world, it is an optics company in Germany called Zeiss. You’ve probably heard of them. Sure. Zeiss had this structure in 1885. And if you’ve ever eaten at Hershey’s chocolate bar, or you have ever bought a Patagonia fleece, or you have a Vanguard mutual fund, or you have ever shopped at the John Lewis partnership in the uk, I could go on and on and on and on. If you ever shopped at Ikea, if you ever, you know, you’ve ever rooted for the Green Bay packers, if you ever watch Wallace and Gromit, you could do this all day. There’s a lot of these companies that have these unusual structures. So much so that there’s data. Nothing in this book is my personal speculation, not one thing. Everything is backed by real research. So for example, companies like Novo Nordisk that have that structure, there’s enough of them in the world that we can build a data set and we can ask, how do they perform relative to pure, matched, conventionally structured competitors? Well, guess what? Companies with this structure are six times more likely to live to year 50. I’m talking about 10% versus 60% probability. They are more efficient, they do better capital deployment, they invest more in R and D. Incredible number of financial metrics, including Tobin’s Q. That made me laugh. They have superior Tobin’s Q than conventional companies. So we have the data that there’s a better way. So why has nobody heard of it now? That’s the really key question. This book is in some ways a double mystery. It’s like two Agatha Christie books in one. Mystery number one is why does this happen? Why have investors been killing the golden goose reliably over all these centuries, like it shouldn’t happen. Our ideology, our myths, we tell ourselves about capitalism says this shouldn’t happen. And yet it’s appallingly common. But then, if it’s inevitable, why are there exceptions? So to understand that, you have to start with the most common misconception about our economic system. A person actually said this to me and I put it in the book. People say if it was true that mission driven companies outcompeted conventional companies, which again, we have good evidence for. Then surely, thanks to Darwinian natural selection, the whole economy would be dominated by mission driven companies. But that’s not what we see. Remember I talked about how we have these misconceptions, we assume everything is natural because of Darwinian natural selection. The problem with that argument, it sounds so reasonable, sounds so accurate. The problem is it assumes that the market selects for value creation. But this is a myth. It could. You could design a market that selects for value creation. It is possible to make such a thing. But we don’t live in that world. Instead, we live in a world that is based on a market that is really about power politics. And just like my experience at ltsc, if things deviate from the best practices, there are people who will use the power the market gives them to rein them in, to force them to collapse to best practices. I tell stories about this, like I said, going back two centuries. I tell a story about a mill owner in Scotland in 1800 who had this experience and many, many, many, many other companies since then. So we are kind of up against this force, this incentive system that causes this collapse. Not because companies fail, but precisely because they’re successful. Because the more successful you are, the more valuable you are as a target for one of these people to try and steal. So until we fix that problem, our economy will continue to hemorrhage these exceptional companies, even though it shouldn’t.

 

Darren [00:31:00]:

Is it fair to say LTSC was an attempt at that kind of structural reform? Like institutionally, the book is a call to entrepreneurs, founders, CEOs, to build that structural reform into their companies themselves, one by one?

 

Eric Ries [00:31:17]:

Yes.

 

Darren [00:31:18]:

Okay. Yeah.

 

Eric Ries [00:31:19]:

Yes. Oh, very much. Yeah. That was, that was my original idea, was to change the world by, by doing it in the financial infrastructure. Yeah. And I couldn’t have written this book without building ltsc because I think if I had had the idea for it 10 years ago, I would have thought even to myself, that it was naive. People often are like, this sounds too good to be true. There must be some secret hidden reason why things are the way they are. And it’s until you really understand the apparatus of financialization and really understand market structure and how, like, it’s a nest. It’s like a babushka dollar. Like, you know that old myth of turtles all the way down. Every entity in this financial system is gravitationally locked to a higher one and a higher one and a higher one. So people say VCs are problem, but VCs are beholden to their LPs, many of their LPs are themselves financial intermediaries who are responsible to their LPs and their LP. And you work your way back, back, back, back, back. You often get to like a retirement fund. Well, who are they accountable to? Well, to the people who put the money, to the individual people who put their money in the thing. You go ask those individual people, would you like to live in a system where this rapacious extractive energy drives everything that people will say no. I said, but it’s your money. It’s your money being invested in this way. So there’s kind of a not in my name aspect to this, where the vast amount of intermediation that we have built in the system insulates decision makers from the consequences of their actions and that is causing a lot of value destruction.

 

Darren [00:32:46]:

So I’m thinking about a number of different kinds of CEOs or maybe board members listening to this conversation and maybe the founder of the early stage startup, the company thinking about going public, the already public company CEO, a private company CEO, maybe family held. And they may be asking this question. I’m interested, how do I do that? You argue in the book the earlier the better because the financial gravity of doing it when you get later is just really hard to overcome. Although there’s some good exceptions, Patagonia being one of them. What’s the advice? What’s the practical advice or coaching you would give somebody that’s intrigued by the idea? And I imagine it might differ depending on where, what stage you’re at, but I’m curious to hear.

 

Eric Ries [00:33:33]:

Well, yeah, of course the specifics are very much stage dependent. Yeah, you know, it’s like that old proverb about the best time to plant a tree is 40 years ago and the second best time is today. That’s really how I feel about it. Of course there are certain things that are just so much easier at the beginning. Of course you do. But you have to reckon no matter what stage you’re at. I say that the one thing that all the techniques in this book have in common is that if you try to implement them, someone will try to talk you out of it. So you have to be ready for the fact that the first line of defense of the status quo will be to convince you that it’s too early to worry about that. We teach people that like, oh, just get product market fit, just have success. Once you have success, you’ll have power. Once you have power, you’ll have freedom. And it’s true, except for the thing I said before. The success also breeds the value. You actually create the value of a takeover yourself. You’re actually digging your own grave. So don’t work overtime digging your own grave instead. Stop right now, this minute, and put the protections in place. It’s always easier to do it now than it will be later. But that doesn’t mean it will be impossible. And in fact, as you say in the book, there are several where the protections were added much later. The other thing I’ll say again for getting started, every technique in the book is something that you can implement today. There’s not a single thing in there where you have to say after the revolution, then we can do it, or after we change the legislation or whatever. Everything is doable in today’s ecosystem. And some of the things are tricky for later stage companies because they involve governance, they require the consent of investors. There’s a bunch of things that require, but it doesn’t mean they can’t be done. Just are you willing to use your political capital for this? Well, what’s important to you? Most leaders, as they get captured by gravity, their values change and they start to care more about having a higher valuation than they do about having mission protection, which then of course comes back to bite them later. But a lot of the techniques are actually operational techniques. The big kind of theory idea in the book, and I don’t get to talk about this very often, so I’m actually kind of excited that you’re asking me about it. Is what I call the new governance. I think basically most leaders today don’t even know what the word governance means. They have this feeling that it’s like some kind of compliance thing. It’s like compliance and checklists and shareholder primacy and not much else. If you’ve been to a board meeting recently, they’re so boring. This is unbearably boring because all we’re doing is a compliance checklist and then asking how can we squeeze money out for shareholders? The idea that boards could be vital partners that amplify and protect the mission is getting lost as the vitality of our governance is being sucked away. So I argue that governance is a combined operational and structural discipline. Questions like how coherent are our metrics and incentives inside the organization. That’s a vital governance question. The question of whether our business model is truly aligned with the mission, such that we can’t actually make any money at all unless we accomplish the mission. Like those are governance questions. And what’s exciting about that is, first of all, it makes board meetings a lot more interesting. So if you’re the kind of person that’s go to board meetings. You have a personal stake in this coming to fruition, not just because it’s more fun, but also because then you get to be part of mission protection. That’s gonna be your legacy. But if you’re not yet at that level, one of the most important things is to use these tools to level up most organizations. The most important, like the big boy table, okay, the big kids table of organizations, is the boardroom. It’s where governance decisions are discussed and decided. And if you can’t contribute positively at that level, your career is capped forever. So one of the things I wanted to do is to bring these tools to more builders. I think a lot of boardrooms are dominated by lawyers and finance people, people who come from a very narrow set of backgrounds. Builders tend to get shut up because it sounds very arcane. Like I give in the book the pop quiz. If a company has a classified board, does this lead to more or less entrenchment? Most people have no idea what that sentence means. It’s incomprehensible. But actually it’s a very simple concept. I explain in the book what it means. There’s a lot of things like that, that as we mast these concepts, we can build a better synthesis where builders and governors can work together to build more profitable companies.

 

Darren [00:37:40]:

I think you’ve said it explicitly, but I want to ask you what has become sort of popular founder control provisions is. You’re pointing to something much more structurally enduring. Because my guess is the founder resting on one person’s commitment to an ethos despite the sole prices of the world is a much more tenuous protection than building something that can endure any one person.

 

Eric Ries [00:38:09]:

Yeah.

 

Darren [00:38:10]:

Say a little bit more about that.

 

Eric Ries [00:38:11]:

Yeah. Tying protection to the human lifespan, it’s just not that long term. I’m not that interested in protecting a company for decades. I want to protect it for centuries. Okay. That’s what I’m talking about. I want to talk about what are the companies that are truly going to endure now, not everybody has that aspiration. Okay. But even being the mission guardian yourself personally for a decade is a very stressful thing. And I think a lot of the problems we see in founder control companies have to do with what’s called hubris syndrome in the psychology literature. It’s like when you put too much power into concentrate into one or a small number of people’s hands. It’s just a fundamentally unstable setup. It’s still better than shareholder primacy. For what it’s worth, if you look at the Data founder control companies outperform shareholder controlled companies. In fact, companies since 2008 that are rated by governance ratings agencies to have bad governance have outperformed those rated to have good governance in aggregate. So a lot of our governance best practices are straight up value destroying. So they’re really bad. Founder control is definitely better, but I don’t think it’s the best. We could do a lot better. I tell the story in the book of being at this very odd conference last year at the Vatican of all places, and you know, look at me, what am I doing at the Vatican? You know, definitely a record scratch moment. Like why am I 100 yards from the, from the Last Supper having this conversation? It was cool. And I was on this kind of like Italian style panel with like eight other people on the panel. It was a huge panel and it was me. It was very odd. Me and representatives from every major AI lab were all there to discuss AI governance. And it was like literally me, Anthropic, OpenAI, Google, Cohere, Palantir. Everybody was there. And I looked down the row and I realized something. Not a single one of these companies has standard governance. They are all protected by some form of mission guardian. It’s necessary because everyone intuitively understands that even Elon Musk was like the robot uprising. Like if I’m going to build killer robots, I can’t have that just be controlled by whatever, whoever happens to have enough money to buy me out. Like no way has to be protected. So what is the best kind of mission? Guardianship is an important question. But first is like, how important is it to have a mission guardian? Very important. Yeah. But founder control I think is not really the longest term solution. It’s best seen as a bridge to what I call a more constitutional style of governance. A series of checks and balances, an institutional protection. And again, if you go back to the Novo Nordisk example that I gave before, that’s an example where the trustees of the foundation, that’s like the judicial layer separate from the executive layer. Think of it in political philosophy terms. We have multi cameral or multi branched power structure. It’s more stable. The data shows that such structures are more stable.

 

Darren [00:40:48]:

Yeah, you’ve used a pretty evocative and I think very powerful term spiritual holding company to describe part of this structure. I’d love you to say more. And also I think because of the moment we’re in, the work that you did directly with Anthropic around this idea, if you could share a little bit about that, because you just did mention the frontier model companies.

 

Eric Ries [00:41:12]:

Oh, yeah, yeah, yeah. I’m very proud of that work. And again, for the record, though, I do not take any special credit for anthropic success. They’re going to be one of the most successful companies in history, not because of me, but because of their incredible, incredible talent that wants to work there. The better question is why does the incredible talent all want to work there? That’s the key question. So when they left OpenAI, yes, they did come to see me and ask my advice about this exact question. And I gave them the same argument I’m giving you. I mean, it was very. Our conversation was very similar to this conversation. I was a little less polished because it’s a few years ago. But we talked about the need to create a better control mechanism for the company than founder control. They didn’t want to do founder control, they wanted to do something better. And we talked about this concept I call the Spiritual Holding Company shc. The idea of an SHC is that we don’t actually have anywhere in the literature today an omnibus term for whatever that separate entity is that does the mission protection. I talked about industrial foundations like Novo Nordisk, but actually there’s like 20 variations of that theme. You know, Alibaba is protected by an employee voting trust. Vanguard and REI have a cooperative structure. Mondragon in Spain is a network of separate cooperatives. John Lewis Partnership is an employee ownership trust. Taylor Guitars, my favorite guitar brand is an esop. It’s protected by an esop, but again by employee ownership. And there’s a bunch more. Beyond all of these are these kind of multi branch checks and balances type corporate structures. So we need one, we need a term for that. I call it the Spiritual Holding Company. It’s not a religious term. I just mean the holding company that has the responsibility of holding the spirit or animating essence of the hold. In a traditional holding company like a Berkshire Hathaway, that structure is very effective at mission protection as long as you’re rich enough to be able to wholly own all the subsidiaries. The magic of the Novo Nordisk is that the foundation doesn’t have to be the sole owner. We can share that ownership with investors without losing control, losing that spark, losing the soul. I think it’s the path to creating what I call genuinely soulful organizations. Now back to anthropic. They eventually enacted what they called the Long Term Benefit Trust, which is a separate entity. It is technically a perpetual purpose trust under Delaware law. Yet another variation of how this is done that has outside Trustees who have the ability to appoint directors to the for profit company’s board. And that is a structure that’s well studied. It has worked very well for Anthropic. And it’s part of why Anthropic is an unusually courageous company, as AI companies go, because although they have raised unbelievable amounts of money, even though they have incredible amounts of revenue, a growth rate like that has never been seen before in history. And even though the technology is. Is insanely dangerous, they can credibly say that they are the AI safety lab. And that turns out to really matter. It matters to customers, it matters to enterprises, it matters to regulators, but most importantly, it matters to employees. If you ask people, why is Anthropic ahead in the race as we record this, they’ll say things like, well, Anthropic has superior inference costs, so they have better economics for the same models than other people. But why? Why do they have superior inference costs? Do they have more gpu? They have more. Some vital resource. You ask why, why, why? You always come back to, like, the superior talent. The best people want to work there, but why? Why do they want to work there? Well, people want to be the good guys. That actually really matters, especially in a talent war like this. So, yeah, you know, each of the, each of the supposed reasons why they’re having success always comes back to this thing. Because the ethos is so strong, because it’s structurally protected, it has allowed them to speak out when others might not be willing to do. So they’ve been able to do. Saul Price called this the intelligent loss of sales. They’ve been able to turn money down when that is reflective of their ethos. And look, it’s very early. Most of the examples I give in the book are like, decades old. Anthropic is a very young company. I can’t promise that they’ll never make a mistake. I can think of several mistakes they’ve made already. Okay, they’re not perfect, but this structure does seem to be working. And more importantly, because when you adopt structures like this, people could always tell you, well, you’re not going to be able to raise money with that structure. Now we have this wonderful counterexample. It’s like, well, that seems to have worked out okay for Anthropic. Oh, and last thing I should say, you asked about stage appropriateness. Yeah, this is a really important thing. When we built the structure for Anthropic, we started out not by building a nonprofit or a purpose trust or anything. We started out just writing into the Charter that the company reserved the right to do these things and wrote it into the term sheets. Every term sheet that we did, I remember doing this review with them. We made sure that the language and the term sheet specified that Anthropic has the unilateral option to adopt this structure. So it was disclosed. Every investor knew what they were getting into.

 

Darren [00:45:58]:

Smart.

 

Eric Ries [00:45:59]:

It actually took two years. They didn’t actually enact the LTBT until the series C. So it took a long time, but they bought themselves the time to do that because they had written into the documents their right to do so. And that’s definitely the early stage move here is to write what you need into the charter and then use that as a springboard to enact the structures as you get staged, appropriately sized to do so.

 

Darren [00:46:22]:

That’s really smart. Yeah. Okay. I have to talk about the last chapter of your book, which is You are Traffic. That’s the name of it. And for me, it represented the intellectual and spiritual completion of the book. Because here you are writing a book where you’re basically making the argument that it’s all structural. And I think you run the risk had you not written that last chapter of giving people individual out. I don’t have agency to make change in the world. Everything’s dependent on things outside of me. Structural reform. And you write this beautifully powerful chapter that argues for we each have enormous agency that’s underappreciated and under activated.

 

I want to. Is my read right? And I want to understand, like, what inspired you to write it and bring it to life in a way that obviously doesn’t spoil it for the reader.

 

Eric Ries [00:47:17]:

But, yes, I’m so glad you asked me that question. I can’t tell you how many people who advised me on this book told me to take this out.

 

Darren [00:47:25]:

Oh, they were wrong.

 

Eric Ries [00:47:26]:

But. But yeah, I really felt strongly that this is not really a business book. So it begins as a business book, but it does not end as a business book. In fact, my aspiration for the book was that slowly, over time, maybe slowly enough that the reader on the first read doesn’t notice, we start to break the conventions of the form and almost change genres. And I wanted to do that because so much of the book is about these hidden truths. So it’s like we have to address. Like, we have to make sure that the reader is really paying attention and being conscious and aware of their own experience. And this book is, in some ways, like, just a practice. This is just training wheels. Okay. The real work is not to find my secret meetings and stuff like that, but to do this in the real world, to understand what’s actually happening right in front of you. So I was a little bit nervous about it because at the end of the book, yeah, I can’t have a book that’s 15 chapters about structural problems, require structural solutions, and then be like, but actually, you are the solution. Solution. I just feel like a lot of books end that way. And it’s like, what. What a betrayal. You’re saying, now I can solve climate change through recycling. Like, f you. You know, I really hate that. So I wanted to be very careful about it. But I also did want to address this question because I meant, I kind of hinted at it a moment ago, like, who’s in charge of our financial system? You. All these powerful people that you think, like, are unaccountable if you trace, where does their money come from, often comes from you. So I wanted to address our individual agency in this age. And in order to do so, we have to take the world the way that it actually is. This is one of my writing principles, is we don’t write about a future fantasy world. We write about the world as it is today with all its flaws. We take that seriously, we learn about it, and we figure out how can we jujitsu. How do we find power when we are overwhelmed, when we are the inferior opponent? And so one of the things that people hate about modern economy is surveillance capitalism. That everything we do is surveilled and tracked to a degree that makes privacy almost a lost art. I think this is something we should reverse course on. Would I like people to have stronger privacy rights and protections? I would, but I don’t write as if they do, because they don’t. Instead, we have to ask, what is the power that surveillance capitalism gives you? And here’s one. Every decision you make, every single one, without exception, even if you never tell anybody about it, is nonetheless some middle manager out there’s bonus target. It’s their okr to make sure you do the thing or you don’t do the thing. In fact, there might be 20 different managers in adversarial jobs. Someone’s supposed to get you to do the thing. Someone’s supposed to get you to resist. That means that whenever you do something, you are causing a gravitational ripple, whether you want to or not. So you don’t have to be like, oh, it’s virtue signaling or whatever. You don’t have to do any signaling at all. If you behave in a virtuous way, you are enacting your values and as a result, I think most people do not appreciate how obsessed organizations are with what you do. They are addicts. Many of them are addicts creating other addicts. You know, that’s ultimately a very sad state of affairs. I have been in these rooms. I’ve been in a lot of decisions. I’ve been in boardrooms, I’ve been in product manager meetings rooms. I’ve been in middle. I’ve been with middle managers. I’ve been in these rooms. Okay, I’ve seen it. It. They have a debate that goes by the very anodyne sounding phrase willingness to pay. Here’s how it goes. We’re thinking about replacing a part that would cost $0.03 more. It’ll add $0.03 to the bill of materials. It will make the product last longer, be higher quality, be less carcinogenic, make it, you know, whatever it is. But will the customer pay? And they bring the charts and the data and the market research and we have all these like. All comes down to answering this very simple question. What will you do? Every time you’re given the opportunity to choose the superior thing and you decline to do so because you’re lazy, you’re busy, you’re tired, whatever that is being received as a signal somewhere to make more of the things you hate and less of the things you love. And conversely, if you stand up and do the right thing, you never know what the consequences of that might be. This is true for being a customer, it’s true for being an employee. You can’t imagine how many beatings modern companies have about what they can get away with. If we treat the employees a little bit worse, will they quit? What about now? Will they quit? What about now? Will they quit? Oh, oh, too much. Back off. That’s the reality where you choose to work, where you interview. All these questions matter a great deal. So I want to give an example that happened to me the other day. One of the test readers actually of the book came to me and said, I need your help finding a job. I want to work at an incorruptible company. I said, no problem, I’m there. What do you need? He’s like, well, I want you to help me master these job interviews. What do I ask in an interview? What do I do to use my power, as you say, to influence companies to be more incorruptible? He’s like, but caveat. I’m not courageous, so I need you to give me things I can do that require zero courage. I felt like someone asked me for a no. Bake cookie recipe. No. Courage, social revolutionary. And at first I was like, come on, that’s absurd. But the more I thought about it, the more I said, actually, no, I do have an idea for you. Here’s what I want you to do. When you’re in your next job interview, I want you to wait till the end where they say, do you have any other questions for us? They always do that. And you’re going to ask this question. You’re going to say, are you a mission driven company? And you know what they’re going to say? They’re going to say yes. Everyone says yes. You’ll be great. Oh, cool. That’s amazing. Just be curious, don’t shout, don’t judge, just ask. How do you know? Oh, well, we do a lot of good stuff. We all volunteer on Sundays and we, oh yeah, we have free beer on Fridays. We give out free swag. Whatever they say, you know, it might be a great answer. It might be a horrible answer. Whatever they say, you’d be like, that’s amazing. You know they’re going to tell you their mission statement. Our mission statement is to do this thing. Okay, cool. Here’s your question. Is that written in the corporate charter or not? I’m just curious. I guarantee you no one’s asked them that question before. And you’re going to get a question answer like, I don’t know. Let me get back to you about that. Now here’s the thing you don’t understand. All you’ve done is ask a question and you could be like, oh, no problem. Good to know. Now first of all, it’s an important question to know. If you work for a company that has a mission statement, but whose legal purpose is maximize shareholder value, you will be betrayed. So you deserve to know the answer to this question. Okay. If they have not done it in the charter, it’s not real. Don’t be fooled. But more importantly, I can guarantee you that in every modern company there is somebody whose job is to make sure that every question that a candidate asked in an interview gets answered. Every question, they have to make a little guide. You’ve been in the hiring process, you know, there’s gotta be a little guide. Here’s the questions you’re likely to get, here’s all the official answers. So that’s, that person’s going to have to ask her boss, what is the answer to this question? He’s not going to know. He’s going to have to ask his boss. She’s not going to know. I have actually been in boardrooms where this kind of thing comes up. Hey, we’re getting these questions from candidates. We need to figure out an answer to it. And maybe, you never know, maybe the CEO has been sitting there being like, you know, I really do want to write the mission to the charter, but no one’s on my side. Maybe you’ve just given him the ammunition, or her the ammunition. She needs to say, look, guys, even if you don’t want to do it, it’s starting to come up in interviews. That’s from one person asking, what if two people asked? What if 10 people asked? You have no idea how much power you hold. So I want to say one last thing about this, and this may be. This is not in the book, but I’ve been thinking about this a lot lately, because, of course, we were living through a time of tremendous tumult and change, and there’s become all these things you can’t say anymore. You know, all this pressure to conform. It’s very different than it was in earlier decades, I think. And I was reading Vaclav Havel. He has this wonderful essay called To Live Within Truth. He tells the story about people pretending fidelity to the Communist Party, living under the occupation of communism. And like, you put the placard in your shopkeeper’s window that says, you know, some Marxist phrase, you say, well, that’s just to avoid any hassle. If I don’t put it up, there might be friction and turbulence. This just makes my life easier. But by doing that, you create the false sense of inevitability around this idea. So he called it to Live Within Truth. Don’t ever endorse or pretend something you don’t truly believe. So just, you don’t have to be a revolutionary, but take the placard down. Everyone that walks by your store and sees it’s down is gonna be like, oh, maybe I’m not alone. I bring this up because one of the most important ideas in the book, I’ve been referencing it in our conversation obliquely, is this idea called shareholder primacy. And this is one of the most all encompassing and most powerful ideas in the world today. That, as I said before, an organization is not alive. It is a financial instrument to enrich shareholders. And this idea has metastasized out of capital markets and into every aspect of modern life. It’s affecting, as I have the data at the show in the book, journalism and sports teams and medical errors and every kind of thing you can imagine. People feel this fiduciary duty only to shareholders so where does this idea come from? What gives it its power? It’s unusual among modern laws and that it has never been passed by any kind of legislation.

 

Darren [00:56:23]:

Yeah.

 

Eric Ries [00:56:24]:

It’s never been subject to any popular referendum. And it’s an idea.

 

Darren [00:56:27]:

Article in the Wall street journal in the 1970s by Milton Friedman. If I’m remembering – 

 

Eric Ries [00:56:33]:

Right, it was a good idea that some people got real excited about, and a cadre of judges, lawyers, academics, board members, just decided that this is how it is. As you say, Milton Friedman was one of those advocates. And most of the court cases that established the modern doctrine, things like the Revlon Doctrine, date to the 1980s. Okay. They’re within living memory. This was a new idea. I bring it up now at the end because people ask, how are we going to break this idea? It’s kind of hard to figure out what to do. It seems so powerful. But if you read the legal literature on shareholder primacy, which I enjoy doing as part of the research for this, they have to go through these very complicated gyrations in order to justify why, even though this is not a law, it is still the law, which is weird. So they say things like this. They say, well, at this point, shareholder primacy has become a normative consensus. Normative meaning not just a descriptive consensus about what companies do, but a normative consensus about how companies ought to behave. And I started asking people last couple years, just sometimes in conversation, hey, are you part of this normative consensus? Everyone, Every builder I ever talked to is like, no, no. Are you kidding me? This is a dumb idea. I’m like, cool. Until just now when we had this conversation, had you ever told another living human being that you’re not part of this normative consensus?

 

Darren [00:57:52]:

Me?

 

Eric Ries [00:57:53]:

I’ll be like, yeah, most people. Most people never have. Most people are like, well, I can’t. I don’t know. Everyone else thinks it’s a good idea, so I can’t say anything. And it’s like, what would Vaclav Pavel say? I think this idea is a total paper tiger. I think if we want it gone, it can be eradicated in a very short time. And all you have to do, I know it sounds crazy, but I think all we have to do, and I give people this homework now, just tomorrow, I want you to tell one person, just say, hey, hey, Darren, good to see you. Just so you know, I’m not part of the normative consensus in favor of shareholder primacy. You’ll be shocked how often the person you’re talking to is like, oh, really? Me neither. And now there’s two of you. Well, what if there was 10? What if there was a hundred? This is an idea that we can replace just by changing the story, the frame of our lives, what we do. And of course it’s not enough to just say it, we have to live it in our actions. And that’s why I bring it up here at the end. If we want these major, major, major structures that dominate our lives, if we want them to be different, it can be so. But it requires having the courage to say it out loud, to live within truth.

 

Darren [00:59:00]:

There’s probably another book or two to be written about just a couple of the topics we’ve talked about in the last 10 minutes. And I do want to bring us to a close. I know you’ve been respectful of your time and I wanted to bring us to a close by talking a little bit about you. And what I suspect not knowing as I read the book was there’s a personal, perhaps even spiritual journey underneath the kind of intellectual journey. And I’m just curious, like your own inner story over the last, call it, couple decades. And does it. How has it shaped your writing, your thinking, who you are in the world?

 

Eric Ries [00:59:40]:

No, you picked up on something real. You had me dead to rights. Some people think this is so crazy to say, but I really believe this. I really feel like for me, okay, I’m not saying for anybody else, but for me, business entrepreneurship has been a spiritual journey. Like, it is part of what has helped me to deepen my relationship with the universe and feel a sense of connection to all things. I wouldn’t have expected that. If you told me that when I was 25, one day I’d be saying this, I would have said, what are you talking about? I’m just trying to make a buck. What, what are you talking about? But no, I think entrepreneurship is one of those truth seeking professions. It’s like it’s up there with being a scientist or an artist. People who do entrepreneurs to make money are nuts. It’s such a stressful way to make money. There’s so many better ways and many of the elements that if you read all kinds of spiritual traditions, the preconditions that we need, you know, for wisdom, entrepreneurship tends to accelerate those kinds of suffering, you know, because we can’t help it. It’s just so natural to have ego identification with the thing you make. I remember the first time when I was a young engineer, people would say, your product sucks. And I’d be like, oh yeah. As if they had attacked. I Felt personally attacked. Like they said. I suc. Said whatever the. I couldn’t differentiate between them and me. You ask. You know, people sometimes are like, they hear the story about. Told about ltsc. Why were you on the bathroom floor? I’m like, oh, you’re not an entrepreneur, are you? If you’ve never had the experience, it’s actually very strange. It’s like, okay, so what? Okay, so your business goes out of business. Okay, how bad is that really? Oh, no, man. My body thought I was going to die because my company was going to die. It could no longer tell the difference. So, yeah, absolutely. That has been my experience. And I think if we embrace and acknowledge the richness that leadership, that business and entrepreneurship can give us the level of introspection and reflection. And I said, and the commitment to the truth. I think it makes us more effective as leaders, of course, but far more important than that. It helps us deepen and grow as human beings. I’m very grateful for that aspect of it.

 

Darren [01:01:43]:

Yeah, you use the term the art of organizational soulcraft in the book, which was the one phrase that really, really caught my attention. And just as a teaser for people and you have to buy and read this book, the epilogue. I’m just gonna say, wow. And not say anything else.

 

Eric Ries [01:02:00]:

No spoilers.

 

Darren [01:02:00]:

No spoilers. So I wanna bring us to a close. It’s been such an incredibly rich and rewarding and valuable conversation. Anything that you wanna add that you haven’t already said or maybe put a finer point on that we may have already discussed before we wrap?

 

Eric Ries [01:02:15]:

Well, just thank you so much for being such a reflective and serious reader of the book.

 

Darren [01:02:20]:

Book.

 

Eric Ries [01:02:20]:

A lot of business books are terrible. Okay, I understand. You know, and. And a lot of them are. They’re not really conceived of as artistic projects. They’re just a utilitarian means to an end. And we see that with AI Generated slop is getting so much worse. So to me, this book was a. Was really a labor of love. And I really conceived it as a literary project, as pretentious as that sounds like I really wanted to create something that the dedicated serious reader would get something more out of than spending time on Netflix or whatever else they could have been doing with their time. So I took that responsibility really seriously. And I wanted to make something that is the kind of book I would want to read. And so whenever I meet somebody who took it seriously, who did that, who was able to go deeper into it than the surface level, I appreciate that so much. So I just wanted to say thank you for that.

 

Darren [01:03:04]:

No, you’re very welcome. And I think you overachieved that objective for sure.

 

Eric Ries [01:03:09]:

Thank you so much. Thank you. Thank you.

 

Darren [01:03:10]:

It’s been an absolute pleasure to be in the conversation. Thank you for. For being in it with me and for the extraordinary gift and contribution that you’re giving. I hope everybody takes a chance to read it. And I really appreciated our time.

 

Eric Ries [01:03:25]:

Thank you so much. I can’t say enough how valuable that is. And, yeah, to everybody who’s listening, make sure to like and subscribe, you know.

 

Darren [01:03:32]:

Thank you.

 

Eric Ries [01:03:33]:

This is an important resource, too. So, yeah, thanks for having me on.

 

Darren [01:03:35]:

Wonderful. Thanks, Eric. 

 

What a wonderful conversation. What stays with me is the importance of building a company with a soul and doing everything you can as early as you can to protect that soul from the financial gravity that will otherwise corrupt and destroy it. Eric calls this the art of organizational soulcraft. It is a beautiful phrase and a serious one. I look forward to being with you on the next episode of One of One. Until then, I hope you live and lead with courage, wisdom, and above all, with love.