See show notes for this episode: S 02 | Ep 36 Surgically Deboned: How Modern Finance Kills Great Companies.
Alex: Welcome to today's episode. We have a very special guest. Eric Ries , entrepreneur, author, arguably the most influential voice in modern startup building. He's started, the Lean Startup movement, wrote the Lean Startup book, and now he has a new book out called Incorruptible. Eric, welcome to the pod. Excited to learn everything from the first generation of your thinking to the evolution.
Eric Ries : Oh, thanks. Thanks for having me on.
Alex: Well, Eric, it's not often that we get the ideologue of modern startups who is fixing up to be an, ideology of capitalism. So let's start with the modern startup. We do try. So let's start with the Lean Startup movement, where I think you challenged, quote, unquote, best practices. And I think that is, And then now your best practices have become best practices. Some people argue whether they need to adapt. and now your new book. We'll come back to that in a little bit. It also is challenging the best practices of, larger companies and even in the early stages of building, how we think about what the company does and what its purpose is. So let's start with the initial focus on what's wrong with conventional wisdom, from impressive, successful people. And I think you and I were at the same Microsoft, event with Bill Gates when I was an intern at Microsoft where everybody was, oh, Bill shares the wisdom, the master tell us your words. Ironically, by the way, I'll shut up now. But Bill was, like, doing some weird movement where he was, like, scratching himself and waving back and forth. And that was, totally, like, antithetic to the fact that he was this fountain of wisdom. He just felt very dysfunctional. So tell us about, like, what, what your journey was to. To, to that, lean startup and then beyond.
Eric Ries : Yeah, you know, so I, I think part of my problem is that I get excited about best practices. Like, I want to learn from the best and, and I want to do things the right way. Like, I'm very hungry to know the truth of things. So, you know, when I got into entrepreneurship, I wanted to understand what, what are the best practices? When I got into Agile, I wanted to know the best practices. When I got into free software, I wanted to. Whatever. All the things I've gotten into over the course of my life, I want to understand how do you do it right? And then. But I'm very attentive when the theory breaks down against reality, you know, then I get upset. I was like, wait a second, you promised me this thing was going to work, and it didn't. So I've had that experience a bunch of times in my life where, you know, I. I've embraced ideas from others. Sometimes they work out great, in which case then I become a big booster of them, and sometimes they really don't work. And then I really want to understand why. Of course, I always start by. With the assumption that maybe I'm doing it wrong, maybe I didn't really understand. But, you know, as you get deeper and deeper, sometimes you find out that the emperor has no clothes. That was kind of my experience with a lot of what, you know, what we call best practices, about how software should be built, of how products should be built, about how startups should be built. And I remember very clearly, I would go to these events or I would go meet with a vc, and I would have a dilemma. I remember, like, going to a, very early startup conference. This would have been like 2006 maybe. And the first speaker got up and said, this is what you need to do, and here's the metrics you need, and here's the process. And they were like, very confident about what you need to do. I was like, ooh, taking notes. This is great. And the next speaker got up and said, this is what you need to do, and said the total opposite. I was like, which one? That sounds pretty good, too. In fact, I think sounds good are the two most dangerous words in entrepreneurship. Because, like, anything, anything can be made to sound plausible. And now with, you know, with LLMs, LLMs are just sounds good machines. I'll make anything sound good. So anyway, by, the. By the eighth speaker, I was spinning around, I was dizzy. And I remember talking to the organizer. I went up, I was like, listen, you confusing me more than helping me. Which of these people am I supposed to listen to? And he's like, oh, that's your problem. I did my job. I put the speakers on stage. I said, yeah, but which of them is telling the truth, right? He said, I don't know. That's. He's like, what kind of question is that? And the same thing would happen to me when I would meet with vcs. I'd be like, hey, vc, I got. I want to become a cert founder in my next company. You know, I'd always been the cto. I've been in charge of technical things. But I remember I was first thinking I'm going to be a CEO in the next company. I need you to help me understand something. Oh yeah, what's that? When do I release my product? Like, how early should I do it?
00:05:00
Eric Ries : Should I make it perfect first or should I have it be buggy? What's the deal? And they would be like, well, Steve Jobs did it this way in, you know, 1982. Like, okay, they'd be like, yeah, but Mark Benioff did it this other way. And you know, and Bill Gates, he had a totally different philosophy. And I'd be like, oh, that's great. Love that, love that. But which of these things applies to me? And I always felt like these just so stories, you know, you leave him with more questions than answers. For example, sure, that worked for Steve, but I'm not Steve. Maybe it only works for him. Sure, it worked then, but maybe it doesn't work now. Maybe it worked in that industry, but not in my industry. Worse for me was, what if we hear these stories, you hear that Steve Jobs, you know, yell at people and was cruel to his employees. Some, people think, oh, therefore that must be the way M. We all
Alex: must be Elon's and Steve's.
Eric Ries : Yeah, everyone's gotta be a jerk like Elon and Steve. But then you ask yourself, well, is it possible that he succeed in spite of that technique rather than because of it? How can we know the difference? So I got very frustrated that the problem with this kind of apprenticeship like lore based learning about what to do is it leaves, it doesn't have a theory. There's no theory of what it's actually trying to do. And it's not testable. If someone says, gives you advice, you follow it. It doesn't work. You can't come back and say, wait, it didn't work. They said, well, I never said it was going to work. I only said it worked for Steve.
Alex: So I wanted to be able to make empirically robust.
Eric Ries : Yeah, I wasn't.
Alex: This is not literate definition of porn. Right. Like, you know it when you see it. Right.
Eric Ries : Like it's not grounded in reality. Yeah, it's not scientific. And a lot of these values are frankly not humane. So that was really my starting point with Lean Startup was, you know, I had kind of an intuition that we could do better. And I started to develop practices that, that worked for me. And what was really interesting is my first work on Lean Startup was not designed for anybody else but me. I was only solving my own problem. And the problem was I could get people who worked for me to do the thing. I told them I'd be like, listen, we're going to release more frequently than you think possible. And they would be skeptical, but I'd be like, look, you work for me, you have to give it a try. So I could make them do it. I could even show them the evidence that it worked a lot better than what they were used to before. But evidence was not enough. They always wanted to know why. And if I couldn't explain the why, they would revert back to what they had been taught as best practices all the time. So that was really how it began. Trying to answer questions for myself and for my own team. Why did these things work? and then, you know, once we started to get the hang of it, we started to ask ourselves, well, this works. What else could work? That's, that's really when the good, the good stuff started to happen.
Alex: One of the things I found remarkable about the Lean Startup movement is that at some point it moved beyond the startup and it really got to organizations who were about as far from startup as you could get and they were championing it, trying to do something different. Some of it felt like innovation theater, some of it felt very real. What's your experience on, you know, why that took off in such a way that many organizations started doing, you know, skunk work, you know, more, more, a little bit more experimental work outside of the existing parameter of their setup. Was that just a pent up demand within, large organizations? and the, your idea just came at the right time or what? Was there pressure?
Eric Ries : Well, yeah, you know, I can't take all the credit. First of all, I wasn't the only one evangelizing. The movement was bigger than just me. Second of all, you know, this all is happening in the backdrop of the great financial crisis, so people are eager for new ideas about company building and management. Like that was a good, was good timing for sure. But I, think the credit actually has to go to people, people taking the ideas seriously who I didn't expect. So even I remember almost the very first time I ever even gave a talk about Lean Startup. I always had these slides. I used the same slides for many years. And one of the slides said, a startup is an experiment. And I said, here's what it means, you know, more in more detail. A startup is a human institution designed to create something new under conditions of extreme uncertainty. And I had a little asterisk and I said, listen, what I think is really interesting about this definition is it doesn't say anything about size of the company, sector of the economy, industry, age, nothing. So you, you, if you meet the criteria, you are an entrepreneur. I don't care what it says on your business card. Now, that was a pure deduction. I had no idea if that was really true. It just seemed true to me. You know, I was like, look, I got. I got the less, like, logical inference from first principles. And from that very first day, people would come up to me after the talk, and they say, hey, Eric, I love their talk. It was really great. I'm a general manager in a big company and I accept your challenge. And I would be like, what challenge? And they're like, well, you said, this can work for me in my big company.
Alex: Yeah, yeah.
Eric Ries : And I said, great. Good luck with that. You know, wonderful. Let me know how it goes. Like, no, no, you don't understand what I'm saying. I want you to come help me figure this out because you, know. And generally they would tell me this story. I've been given an innovation
00:10:00
Eric Ries : team. I got my. My buddy is the CEO and we've arranged a budget and whatever. And I'd be like, okay, how much time do you have? For some reason, in those early days, they'd always be like, I got 18 months to show progress. I said, well, how long has it been? Nine months. And like, how much progress have you shown? They'd be like, well, I'm on the flat part of the hockey stick. And they're like, well, how do you know it's gonna stick? And they're like, well, you said that in your talk. It got me worried. So those are the kind of people that would come to see me. Anyway, the first couple times it happened, I said, look, I kind of feel like you got off on the wrong floor of the department store. I'm a startup person. I don't know anything about corporate politics and corporate budgets and, you know, all the stuff. And they're like, you're not listening to me, man. I already told you, I'm a general manager. I eat that stuff for breakfast, Okay? I got the politics covered. I got the resource allocation covered. I got my team structured. I read the Innovators Dilemma and the Innovator Solution. I followed the instructions. I have my separate team. Once, the team was a Silicon Valley company. They had built their team in Australia to get away from corporate headquarters. So I've done all the steps. So what do you need me for? Well, what is my team supposed to do? Every day we come into work, we have all this freedom, but we don't know what to do. Will you help us figure it out? And so they had to kind of drag me to this insight to take my own ideas seriously and say, look, if these are entrepreneurs, come prove it. And so I got the privilege of getting to work with some of the world's largest companies and it was really interesting. Again for me, the intellectual side of this has always been the most important thing. I find that getting to know what the truth of the situation is just utterly fascinating.
Alex: So what, what's your conclusion? You know, how what percentage work empirically, what percentage of the organizations that tried this really adopted, you know, became part of their DNA or successful new products and where did it not take off and what's the difference between the two?
Eric Ries : Well, among startups we have a very high hit rate. yes, but remember that startups have a low, have a high mortality rate to begin with. So it's not like we made it magically. Oh, if you following startup you instantly are successful. But me, the acid test is do the practitioners say it helped them. So if you talk to people who have a successful company, you ask them what helped you along the way. Like a, not insignificant percentage will say Lean Startup was the first book I read about startups or a VC handed it to me and it really helped me. Some people will say it helped me to articulate my ideas and some people will say it changed my ideas. And both are successes from my point of view because a huge part of the job of a book like Lean Startup is to develop what I call conceptual vocabulary. Just teaching us how to talk about these concepts makes it easier for us to reason about them, makes it easier to convince people to do it. Think about the difficulty I had getting my own employees to follow my instructions in the early days because the instruction didn't even have a name. So it was hard to explain it, hard to communicate about it, hard to feel good about it. People used to pivot and think that they were failing. And so having a word for pivot is very useful. among big companies the success rate is a lot lower. But that's mostly because most big companies are not serious about doing it. The advantage of startups is always been that the life or death stakes, you know, like you just don't have the room for the margin for error, you burned the boats. And yeah, yeah, it just has that thing. And in fact I would say of in the early days the most popular was most popular among second time founders. A m lot of first time founders would Come up to me and say, you don't understand. I have a beautiful vision. I'm the next Steve Jobs, you know, blah, blah, blah. I don't need this. And I would always say, great, call me back after you prove it wrong, and I'll. I'll learn from you. I'm so excited. And so many of those people called me back to be like, now that I'm on my new startup, I really want to do Lean Startup. I say, whatever happened to your old startup? Oh, I don't know. You know, don't worry about that. Don't. Don't ask.
Alex: Well, it's a classical thing in sales, right? Like, the, the best customers are the ones that tried it the other way, failed.
Eric Ries : The very best. Oh, yes.
Alex: They don't need you to convince them. by the way, I wanted to throw out this as a compliment as I consume, your books. And even just hearing you talk now, I think I, would say that you're a Master of Modern Business metaphor, and even the story. The story of how you got to Lean Startup, right, as in lean manufacturing. And that's one of the things that you've tried is something that's really inspiring, because I could see how you're translating, making the language of what you've done really accessible. And I think this is critical. it sounds like it's critical to your own thinking of giving people the vocabulary. But it's also why I think your new book is. Is going to do great wonders, because it's, in the. Right. In the hands of a master of communications. And I say this for all our audience that, are kind of coming from the communications angle. Just pay attention to how Eric frames, what he is, what he is. m. You know, what he's articulating. I think it's a. It's a, you know, masterclass.
Eric Ries : Oh, well, gosh, that's awfully nice of you to say. And yes, I do. I do pride myself in that again, because I just. I think it's really necessary
00:15:00
Eric Ries : in order for us to make progress. If we can't talk about something, we can't reason about it. It's. It's really very challenging. So. And if we use the wrong metaphor, yeah, it can lead us in really bad directions. So just again, one more thing on Lean Startup before we move on. When I was coming up in Silicon Valley, as an engineer, not even as a founder, but as a software engineer, I was taught what they called the manufacturer structuring metaphor of software engineering. Software is produced on an assembly line of like a virtual assembly line from specific requirements gathering to specification creation, you know, product requirements document, technical requirements document, the, the actual writing of the code, qa, operations, deployment. Right. And that you, you know, this is called the stage gate or waterfall style development where you move from stage to stage. But if you, if you read how it was taught back then, it was taught as if it was manufacturing. Now you can imagine how pissed off I was when I found out that they don't even use that system in manufacturing anymore. So we were not only teaching the wrong metaphor, it was an outdated, old, outdated, it was an old, outdated view of. And it was like so clear to me that the people who had come up with this metaphor had never been in a factory in their lives. They had no idea. You see it now. People talk about these new like software factories they're going to build with, with OpenClaw or whatever. And it's like, have you been in a factory? Do you anything about how difficult it is to manage a factory? And there's like all these details that you wrong because you're not, you're not steeped in the actual thing. So I've really tried, you know, when, when picking metaphors to get it right. But I'll confess to you, Lean Manufacturing was not my first try.
Eric Ries : So I spent years on this. Like, this is the problem is like people, we live in the age of like social media influencers and people who post every 30 minutes. When I build these systems and figure this stuff out, it takes me literal years just to understand it myself before I can even begin the writing process. That's, that's why I can't, I can't crank it out the way, you know, these influencers can. I admire what they can, but it takes me a really long time. I'm slow. So like I tried the, the very original version of Lean Startup had nothing to do with manufacturing. I tried a whole, had this whole theory and all these concepts that were drawn from biology. And I had this like idea that like a startup is like a cell membrane and it has a nucleus and these organ. And I would try it on people and they would just be like, what, did you like have a bad trip last night? Like, what are you talking about? It just, it didn't penetrate. And I had several other ideas like that that I was like, okay, here's how I'm going to explain it. Here's how I'm going to explain it. And to me, I think the, the key for me is if you spend too much time in your room by yourself, you kind of lose the plot. You have to be on the ground with people who are actually trying to do the work to see what really resonates, what they can understand, and then most importantly, what is actually helpful as a guide to decision making. So the most important allies of mine always have been founders and leaders and board members who come to me with a tactical problem. They're like, look, I need to figure this exact thing out. I tell one of the stories in the new book of someone who came to me with a, you know, with an idea for, for a startup. And I happened to be writing that chapter that week. I was like, literally in the middle of it in the book, and I was like, you have no idea how good your timing is. I was like, let's get Ruby spent two hours, three hours, I can't remember now in front of a whiteboard. And I'm just like, look, let me, let me try this on you and see if this framework makes sense to you. And in a couple of hours, we had totally rewritten his business plan. And that starts like being very successful today. I'm very proud of that. But I like, I'm like, he feels like he got a lot out of it, but I kind of feel like I got a lot out of it too. Like we both got a chance. How the ideas apply in the real world, that's always the most important. Acid test.
Alex: Well, that, that lights up, another track that we may want to bring in because we're speaking in 2026. Everybody's got open claw, you know, cranking, and now open claw is going dead. And this, you know, back to Claude. and everybody's got these conversations going on with AI, but not was the real audience, was real customers. What, what gives you heartburn? Given what you've just said about kind of where AI application is going, it must be a lot.
Eric Ries : Well, we got, I mean, every generation has to relearn the same lessons. So yeah, during a hype driven bubble, you could just make a fortune off a cool demo. Just so much money or on a product that like kind of sort of does something, but like everyone's using it because everyone else is using it. And there's just all these ways to kind of like cash in on the wave without doing the hard work of actually figuring out how to turn it into a real product. And a lot of the like, vibe coding story is really about that. So I think we're going to have some problems. Well, you know, as we, as we purge our way through all this nonsense. On the other hand, I think there is something really cool, going on, you know, under the hood. And look, doing this, this kind of like doing these interviews, in the last couple months has been really interesting because people have asked me questions like, do I feel vindicated by what I wrote in Lean Startup in light of what's happening with AI? And the first time I had that question I was like, what do you mean? And they quoted my own words back to me like, well, you made these predictions 15 years ago about how
00:20:00
Eric Ries : technology would evolve. And I was like, I didn't predict generative AI or LLMs or anything. They said no. But you said that it would be these underlying megatrends that would continue and accelerate. One, that the cycle time would increase, we would get faster, speed of development would get faster, it'd be more democratized. More and more people will have the ability to compete on a first party basis with incumbents. And secondly, you predicted that the level of uncertainty would go up M and that's always been the sweet spot for Lean Startup. If you have rapid acceleration combined with high uncertainty, you need the scientific method, you need minimum viable product and pivot. You need that stuff to cope with the fact that our traditional management tools, our 20th century management tools can't really hold people accountable if they can't make a forecast about what's supposed to happen. So, so we use our cycle time advantage and our learning advantage to disrupt. Like that is really the, the, the key to the whole thing. So yeah, I feel like we're seeing that in spades now. I mean people are really like, the speed at which you can build an MVP of course is much greater, but the speed at which human beings learn things has not really changed that much. So we have this incredible individual basis.
Alex: Right. Let's talk about organ. Like I think there's like a drag, an unimaginable drag that you could imagine, right? Like in so.
Eric Ries : Oh yes, oh yes.
Alex: So what are you, what are you, what is your prediction having? M let's come back to the corporate folks trying to do Lean Startup. Yeah, they had a crisis, right? Let's say there's now going to be another crisis. So there's perfect storm. Yeah, Technology, opportunity. what do you think is going to happen with the corporate adoption of AI?
Eric Ries : Well, eventually we'll get there. Like this is the funny thing about this and I work with bigcomers, I always tell them the same. Look, from my point of view, it doesn't really matter. One way or the other 10 years from now, the incumbent in your space will be using these new techniques. I don't really care if it's you or a replacement, right? Like you're either you're going to do it or you're going to be disrupted by someone who's going to do it. We, like, we know that for sure and you know, we can quibble about which techniques are going to win. Obviously there's a certain amount of uncertainty, but it's not going to be the same. And especially in companies where the employees hate working there and the customers hate buying from them. And just like they're really a pain. Like those companies are really ripe for disruption. The companies that are charging excessively high margins, the companies that sought after and became monopolies, those companies are in trouble. And so, yeah, I think that's, that they'll, they'll have to figure it out. But I do think there's going to be a lot of carnage along the way. And especially because we are living in an era where CEOs especially, they have, they have like almost a ghoulish glee at the potential of using this technology to lay people off. This is an old Toyota production system lesson from lean manufacturing days. If you, if you think you can get workers excited about training their own replacements and doing transformation they know will ultimately evolve them, losing their jobs, you're in big trouble. they're not really ever going to do it. So I feel like these people who are complaining about how their teams are so slow, they're having trouble getting them to, you know, to use AI. They're having to do the token maxing strategy of like holding them accountable to how many tokens they burn. Like that is those, those leaders are all telling on themselves. And again, going back to lean the, the solution always, if you read any of that literature, they always say you have to commit that if you're going to get efficiency gains, you have to use them for growth, not for layoffs. So the first companies that figure out that this is an incredible growth accelerator are gonna, are gonna have an incredible revenue.
Alex: Revenue and growth.
Eric Ries : Yeah, revenue and growth services delivered. Like for example, you know, so everyone's using cloud code, right? So, so cloud code is an awesome product. It's really great. those products that have an open source entry point into them, either a really good command line tool or an MCP or just an open API good SDK, like the people who've been maintaining those entry points into their product. Claude Code loves those products. So those Companies are growing like crazy as Claude Code gets more and more customers to discover your product like cl, like these tools are solving growth problems that used to be intractable. Right. Customer discovery was always so difficult. Well, now you don't have to advertise. If Claude Code is natively thinks that your product is the best, it's just going to start using it. And if you have the tool. But like most legacy products, the people are like busy trying to lay everybody off. I'm like, why aren't you busy trying to capture the demand coming out of these products? You know, And I've used a lot of these products. You know, I've used most companies that, most my companies that are my vendors, to me, I've used their mcp, I've used their API. It's horrible. It doesn't work. It requires zillions of tokens. It's just like it is clearly these are people who are not eating their own dog food. They're not actually trying to be of service to their customers. They're just trying to catch the wave. They're just trying to get the hype. They're just trying to get whatever. and I think, yeah, ah, it's, it's sad. Now the flip side of it is we live in the gravitational field of a financial
00:25:00
Eric Ries : system that consistently rewards cost cutting without holding people accountable for the consequences of those cost cuts. So like when Jack Dorsey laid off 40% of block, I can't remember how much the stock went up, but like he personally made. I don't remember the number now, like $3 billion or something from that choice. So you think all these other executives didn't see that and be like, wait a minute, free money for me? Right? So we have to also grapple with the fact that part of the dysfunction we're seeing in these big companies especially is really about the gravitational pressure they feel to conform to the same things that everybody else is doing.
Alex: That's a beautiful introduction to your new book. I am, on a personal note, Eagerly looking for ways to reinforce my intrinsic desire to build a meaningful company that really, you know, wants to serve the customer. Serve, industries that have been underserved have a mission, which is kind of relates to that relational thing that you were discussing. Imagine you could have real deep interactions with, with, authors and creators who are not even in the room with you around topics that are not fluffy, but in depth. And, and so there's a lot of, excitement for me for having a more strong philosophical foundation for how to build a Company like that that could still generate financial returns, but not be the slave to those returns as the, you know, end all, be all, that I think our, Silicon Valley ecosystem, you know, ends up defaulting to. So tell us about the book and why it's the most important book that somebody should read in 2026.
Eric Ries : So, I had a lot of test readers for this book and I was just thinking about, you were saying about the, the values of the valley. The, the one I was most nervous to send the book to was Andy Radcliffe. So Andy's an old friend, he's one of the OGs of Silicon Valley, and he's a founder of Benchmark Capital, founded Wealthfront, longtime lecturer at Stanford Business School. you know, just, just an all around, person that he, he coined the term product market fit. Okay, so he's been around a long time. And have you ever heard VC tell you that you need to be non consensus and. Right. That's an Andy. Andyism. Anyway, I was worried because the book is about how companies can protect their mission in the face of hostile outer forces. And one of those forces is investors who get in the way, who kill the golden goose. I give a lot of examples in the book. And I really wanted to write a book for founders who don't want to lose control of their company, who don't want the company to become an unrecognizable gross thing, even if they make a lot of money that are in it for some particular reason. They want, they want to build a high quality product. They want to build, you know, want to help people, they want to be of service, they want to improve health outcomes. Not people who are like, I'm eager to steal as much money as possible for as many people as possible and then get out. So anyway, that's who the book is for. But I sent it to Andy. I wanted to want your feedback. And I didn't hear back from him for a long time. And then on the exact day I had to return the manuscript, the final manuscript to my publisher, the last day I could make changes to it, like maybe three hours before the deadline, he calls me out of the blue. And I was like, oh no, he's going to tell me he hates it on the day I can't make any changes to it. Like, what's going to happen? I was really nervous, but he was actually incredibly generous and he said he loved the book and it was, I was really surprised by what he said. He was talking about that mission driven. That was always his own ethos in building companies like Wealthfront. But that's also what he was always drive to invest in. And he felt like that used to be what the Valley was all about. We used to always talk about missionaries
Alex: versus mission driven versus missionaries versus mercenaries.
Eric Ries : And he was, he was telling me like, he just feels like the Valley has been overrun by mercenaries. And he said something that I thought was so powerful. He said, these people are undermining the very values that made Silicon Valley great in the first place. They're like, they're like hollowing it out. And I just, oh my God. The same force that is, you know, making it so that your favorite restaurant tastes disgusting after private equity takes it over. The same force is like ruining brands after they go. Like, same thing is coming for Silicon Valley itself. It's an all encompassing force and nobody can escape it. So why should people read the book? Book this force is coming for you. I don't care what your job title is. I don't care what, what your aspiration is, what your values are. This thing is not your friend. You need to understand how it works. But most importantly, you need to know how to protect yourself and the thing you're making from it. And the book is not just a manifesto about the evils of our modern economic system. The book is a blueprint for exactly how to build organizations that can last, that can endure under these exact circumstances.
Alex: Are you sure? Are you saying that you're sharing new best practices? Is that, is that what.
Eric Ries : Well, who are you talking to? What'd you expect? No, I thought I was done with that. Honestly, I really
00:30:00
Eric Ries : thought I was done. And I realized in the course of my work building the long term stock exchange and helping so many companies, you know, go public, have all this success, I watched over and over again as these companies would be surgically deboned, like losing the strength and the spark that made them special. And I, I eventually realized part of the problem is I thought all my job was, was to change the best practices about product and business model and strategy. You know, like though I thought that was the most important thing, the management system, that layer of, the organization. But I was still promulgating the best practices that I got taught about how investors, our relationship with investors should be, how the board should be structured, how we should handle culture and like the other stuff, incentive alignment, etc. And I realized like, no, it turns out many of those best practices are even more destructive than anything I had done battle with before because they have a lot more money behind them. And so, yeah, I think we have to acknowledge, and it's not just my opinion. Good news is this book is backed up by a lot of research and a lot of evidence. So we have a lot of data that shows that modern best practices about how companies should be built, structured and governed are actually value destroying.
Alex: What part of this is also linked to just the broader numbness that we are developing M in the media heavy world, which is just dumping, you know, let's say startup best practices on us and you'll say consumer values, which takes you a little bit maybe away from being customer centric and more to. Yeah, let's make, let's make the quick buck to the the whole buzz about AI kind of what you described which is like this is the best, you know, gold rush opportunity since, since original gold rush and everybody is going in there. So there's this ton of voices that I would argue are the opposite of long term, the opposite of deeply fulfilling from a human flourishing perspective, personal connection to your mission perspective. And then there was your voice, you know, and you're going to do a great job as I predict, in kind of articulating it. But why, why do you think yours is like a lonely voice that's coming out with this right now? Like why has the sounds, some of the ideas that you're describing, they make a lot of sense, right? They're contrarian to degree, but they make a lot of sense. If you've been paying attention. Why, why does it take you to do this?
Eric Ries : Okay, well let's take this, let's take your question piece by piece because it's kind of, it's complicated and there's, there's different things going on at the same time. The first question I think is the most important one. We have a belief, most of us, that the way things are is for a good reason. So if you ask people like why, why are these business best practices what they are? Why do companies all behave exactly the same way? People just naively assume that that's because the market has spoken. So I even, I quote this in the book. I had someone once tell me, look, if it was really true that mission driven companies, out compete conventional companies, then just by Darwinian natural selection, that's what we would see. We would mostly see mission driven companies. Yet that's not what we see, therefore must not be true. But of course there's a fallacy in there. It sounds so reasonable. You're like, oh, that's a really good argument. Sounds clean, has the kind of scientific rigor, of natural selection. The only problem is it assumes that the market selects for value creation. But m. It doesn't. So a big part of the reason we have, we feel so alone when we advocate for these ideas is we have all been indoctrinated into a mythology, about how the market works and what it does. Now, you could build a market that built, that selects for value creation if you wanted to. It is possible. But that is not what we have now. Absolutely not. And I got, I got the data to prove it. So given that this other thing is going on, we have to be willing to widen our aperture of possible beliefs. We have to realize that the things that we see don't necessarily reflect a consensus. For example, I don't know if you've been on Instagram recently. Instagram has a feature where you can launch a test video. So you make a video, you put it on Instagram, and it comes back and it tells you how the video did. And you can have multiple videos you can test to find out what gets traction. And so, you know, if you, if you spend any time on Instagram, you instantly start to realize you do a video, you're like, oh, people don't want that. You do another video. Oh, people don't want that. You start to conform your ideas to what people want. But of course, what people want is more, much more, a, function of the algorithm than of any actual real data that's out there. So if you kind of watch these videos on any influencer platform, you realize, gosh, they're all the same. Why are they all the same? Is it because the audience,
00:35:00
Eric Ries : this is what the audience wants? Maybe. But there's also the hidden hand of an algorithm that doesn't allow things that don't conform to its preferences to get traction. If you want to know that this is true, just go watch videos about how to succeed on Instagram or any of these platforms. People have worked it out. They're like, the algorithm only wants this kind of content. Don't say this, say this. Don't say everything that's in it. The algorithm wants everything that it says. Don't say this becomes something that can't be said. So the sense of inevitability or universal belief in a thing is often fake. It is being manufactured. It's not real. Second thing, though, is I don't think it's true, actually, that I'm a lonely voice. So this is going to be surprising to you and to many of your listeners. That's okay. There are Actually hundreds and hundreds of allied groups working on various reforms. I've met them all and most people will have heard of one of them. So some people will be like, is this related to like B Corp or something? Yeah, it is related to that. But if you press them on like, what is a B Corp? They'll be like, I'm not exactly sure. I've heard of it, but I'm not sure. Meanwhile, there's like, there's like huge conferences where thousands of B Corps hang out and talk about the future. And there are other things like the Purpose Pledge, like, like the Evergreen certification. There's all these people who are like, actually our thing is better than the B Corp thing. There's actually like, not only is the thing you.
Alex: There's infighting was.
Eric Ries : There's 10 more people who've gone beyond that. The people that advocate for employee ownership are distinct from the people that advocate for nonprofit ownership for industrial foundations, for purpose trusts. There's actually a lot of this stuff going on. And here's the even crazier part. When I tell people about some of the ideas from the book, like for example, I'll say, hey, you should consider having an industrial foundation. Meaning instead of just being a one for profit company, you should have a for profit company that can like go public and take investment, but you should have a second entity that's like a, nonprofit, that governs the for profit. That particular structure is called the industrial foundation structure. It's one of many that are in the book. Most people will be like, that sounds crazy. That's weird. I never heard of that. I can't do that. Or if they have heard of it, they'll be like, yeah, I've heard that Novo Nordisk has that. But that's like an old fashioned old thing. Or isn't that what made open AI have problems or something? And it's like, no, man, just because this is new to you doesn't make it new. Okay? The German optics company Zeiss had this structure in 1885. So why haven't you heard of it? How come it's, how come it seems surprising to you that it exists? I'm going to surprise you even more. Every single one of these techniques has data that's of the people who have studied it. There's actually a whole academic discipline for each. So for example, companies with the structure I just mentioned, they are six times more likely to live to year 50 compared to a conventional company. We're talking about 10% versus 60%. So how can it be that we have the case studies, we have the data, we know that these structures are superior. How come you haven't heard of them?
Alex: I'll let you know. The one example that I've heard of, of a hundred year company is Evernote. Right. Because that's sort of the, that was, you know, and again, great well intentioned founder and obviously the company wasn't performing, ended up getting, you know, bought by A P, you know, holding. I haven't heard it much about it, you know, since. Hopefully it will last, you know, at least the brand 100 years. Right. But, but it, it's interesting that I think I, I, like, as I was thinking about it in a similar way, I will tell you, I, I, the moment I brought up a Hundred year company because I was kind of like, that's great. Like that. That sounds like the investor feedback was like, well, well, well, we need an exit. So I was immediately a bit taken aback at, Because what, what Sounded pretty obvious to me, Reagan. And of course there's multiple ways to get, you know, some, some investors exited. If you're building a really successful.
Eric Ries : Oh, oh, yeah, yeah. What's, what's, what's happening here is that investors are not knowledgeable about this. So of course they're worried. You know, investors really want everything to be just the way that they've been told. And investors believe in their own gravitational field because they've been taught these best practices. They, they have LPS that they're accountable to. They don't want to look foolish in front of their lps. Anyway, in the book I have section called how to talk to investors about these ideas and a whole section about how to talk to lawyers about it.
Alex: yeah, yeah, yeah.
Eric Ries : Like, don't worry, I got, I got you covered. Because. No, look, while I was writing this book, this book took me years to write. I, I helped a lot of companies.
Alex: You mean you didn't use Claude to write it?
Eric Ries : Is this, Are you kidding me? Give me break to come out this
Alex: year that didn't use Claude. I love it.
Eric Ries : Yo, come on, give me a break. Yeah, Claude is good for a lot of things and was very helpful to me in writing this book. But not for the writing. Not for the writing. So if you, how do I say this in the nicest possible way? most investors are not immoral. Okay. Most investors are amoral, meaning that they don't have a particularly strong point
00:40:00
Eric Ries : of view about these mission questions. They are generally founder friendly. They generally think mission is good. Like they're they're generally on board, but they've been taught a. An ideology. It's called shareholder primacy. The idea that companies, are not like vital living organisms, but rather companies are financial instruments designed to enhance returns for investors. Like, that's their purpose.
Alex: An asset class. It's just an asset.
Eric Ries : Just an asset class. So once you're in the grip of that idea, it will lead you to all kinds of destructive practices of many of which I document in the book. But people haven't really thought about it that much and actually, like, if you press them on that point, like, people like Andy even will be like, no, that's not really what I'm all about. I got into this business for a. For a reason. I'm not just an asset manager. I'm not just a banker. I, I believe we're stewarding these things, these beautiful things. So I think there's actually a lot more room to carve out space for this kind of entrepreneurship, especially because the evidence shows investors make more money. So since we're going to make people a lot more money, can they give us a little rope to show that this can work? And again, not to pick on Evernote or any particular company, most companies out there that are talking about being a 100-year-old company or they're talking about being mission driven, they're lying. Okay? They're just lying. And people feel like I'm being very harsh with this word. But, if you are not structured to keep those promises, then you, you shouldn't be making them. And so most of these companies are what I call mission hopeful. They have a standard structure with lofty rhetoric. And when that, when the. Their legal purpose diverges from their mission statement, you know, we know which one wins. And, and then we see these betrayals. So the pattern of betrayal, I think, is. Is evidence that a lot of people are not really serious about this. But I think, again, they haven't been educated. They don't really know what their options are. They've been told that this is the only way. And part of my job with this book is to help all of us as entrepreneurs and leaders and board members and customers and employees, we can reclaim our birthright. It's our birthright to be able to think about these different structures, to not live in a business monoculture, but to have a diverse set of values enacted in a diverse style of companies. I think that will make the economy much more dynamic, much more resilient.
Alex: One of the values that's super important to us, our audience Is the role of trust in, of war in a world where there's just so much AI generated noise you don't know the authenticity of sources. What do you see what do you see for the. As the opportunity for rebuilding trust in the society as a whole in the way the businesses are seen? If you're, if more, more folks will do what you're advocating advocating, will we overcome the, the kind of, the lack of trust that we're seeing across all, all pretty much parameters of our society? Is this the place to start rebuilding the trust?
Eric Ries : I think so. Okay, so a couple things and then I have to run because I I got a hard time because you've got enough.
Alex: You're in the role here.
Eric Ries : I know, I'm sorry. I'm very sorry. Hopefully you can edit out me, me saying that it. So here's the thing.
Alex: We, we want the world to know that this idea is going to be is going to be out there. We want.
Eric Ries : Yeah, it's going to be out there. You're going to hear, you're going to hear about it a couple times if I have anything to say about it. So trust is by far the most underrated asset in all of business and yet most organizations don't like protect it, they don't treat it like an asset. The problem is that when you do the right thing, that's what's necessary to get trust. The, the returns are intangible but the costs are tangible. So when you stack rank by roi, you often talk yourselves out of doing the thing that would make you trustworthy. And if you look at the data, yeah, trust in institutions is collapsing because organizations are being run as if their customers and employees are resources to be mined for the benefit of shareholders. And, and this is not just for profit companies. You can see the same thing happening in governments. Non profits all over the, all over the map. Universities, even unions, journalisms collapsing. the collapse is being driven by this finance thinking that just sees organizations as extractive by their very nature even if they don't have shareholders. You know, you see them, you see university presidents talking about their fiduciary duties and stuff like that. So if you talk to younger people, this is all they've ever known. In the book I have all the data from about the trust of Collab. Like if you look at any surveying from the 20th century, almost trust in X for all X, whether they're talking about doctors or priests or big companies or anything, is half or less than it was 50 years ago. And yet when I talk to young people about it, they can't even imagine that it was ever high. Like, really, people used to trust big business.
00:45:00
Eric Ries : They used to trust their, their government. Really? Like how naive and stupid were they? Like, they can't imagine it because we have taught people, we have a whole generation of leadership who's been taught an untrustworthy playbook as the so called best practice. So yes, the, the solution, I think, to the trust crisis is to learn to build trustworthy organizations. Organizations that have three things. One, they are consistently able to stand up for their own values and beliefs. Okay, it's not about a monoculture. I'm not saying they have to have Eric's beliefs, but they, they stand up for their own beliefs. Those values are aligned to human flourishing and they have the strength to resist if someone tries to bully or pressure them to kick them off course.
Alex: Eric, as we wrap up, what's the one thing a like minded individual that's inspired by your, your, your vision? Other than buying your book, which is coming soon, what can they do today that will help them advance the world as you want to see?
Eric Ries : Well, definitely read the book because this is not something you learn in five minutes on a podcast. As much as I've enjoyed this conversation, like, remember that there's a lot of details to this that we have to get right, but I would say there's broadly speaking, two things we have to do. If you really, if you're like, I want to build a trustworthy organization, I don't want people to see me as a, as a, you know, someone who's going to just suck the value out of them, but I want to be their long term partner. You need to have two things. You need to have ethos and integrity. This is what I want you to remember. These are the two key words. Ethos. Ethos means character. You want to build an organization that stands for something specific and where that standing for something is not tied to your personal leadership, but is part of its very structure, its internal rewards, its internal alignment. The board, investors, everyone aligned around those emergent properties. And then that, if you do that, you will stockpile this incredibly valuable asset called trustworthiness. But here's the thing. If you stockpile a really valuable asset, people are going to try to steal it from you. What do you think, man? You think you could just have this asset? All this success will give you freedom? No, we teach that, but that's so wrong. The more successful an organization, the more valuable it is as a target. So, yes, if you want to avoid that, we have to have integrity, meaning structural integrity, the strength needed to resist those who would take what we have created. And if you have those two things, ethos and integrity, you can build an organization that is incorruptible.
Alex: Mic drop, Eric Rees. Where, Eric, where can people find, access to the book? Book?
Eric Ries : Yes, please, please, please go to Incorruptible Co to find out all the places the book is being sold, which is basically of, ah, every place you can get a book. Starting May 26th in the US May 28th in most, other English speaking territories around the world. You can pre order it if you're seeing this early, at, you know, all the major retailers, but also at your local indie bookstore. Alex, if you want to do me a big favor, okay? If you want to make my day and you make the day of someone in your local community, all you got to do, call up your local bookstore and just say, hey, I want to really make sure I can buy 25 copies of this on launch day. Make sure they have them. They'll give you a discount. They'll be so excited. You'll be their favorite customer, and you'll be my favorite podcast host too. So that's everyone listening. That's what I want you to do, like make sure you actually get the book and put it in people's hands. Because if you believe in these ideas, you can't just wait for someone else to make them famous. If you think like the, the traditional media is going to go apart tape for this, like, I think you got it wrong. This is a book for, for, for, for you. It's not for them. So if you believe in it, you like it.
Alex: To the good company. You can make a difference. Everyone. Eric, thank you for the, for the challenge. Thank you.
Eric Ries : I really appreciate it. Thanks, Alex. I appreciate, the chance to talk about the book and thanks for the thoughtful questions.
Alex: All right.