How to build a company that withstands any era | Eric Ries, Lean Startup author

0:00 All kinds of famous companies. That destroyed them was not competition. Their very success became a liability. I want to hear the Open AI versus anthropic story. The boom hadn't happened yet, ChatGPT hadn't been invented yet. I told them, look, if you don't get this right, here's what They were very determined to do something about it. They wrote into their charter Anthropic has directors on its for-profit board who are appointed by and are accountable to an outside group of trustees who are AI safety experts who do not have equity in Anthrop. Whenever you see Anthropic do the right thing, like when they refuse to release a model because they think it's too dangerous. Think about how much that's costing them. This new book, Incorruptible, is about helping you protect what you've built. What is it that you need protection from? We all know this force. I call it the force that

0:52 No one controls but everyone obeys. That tends to drag organizations down into mediocrity to the point that we lose control of that. What's a broad stroke solution to this? Harder is easier. If you're willing to be principled in your decision making. You will get these unexpected rewards. But most leaders, when asked to defend their principles, can't do it because they've been taught ROI based thinking shareholder primacy. That's the path of maximum profitability. That's enough. Today my guest is Eric Reese, author of the most influential and impactful book in startup history, The Lean Startup. Today he is back with a new book. Fifteen years later.

1:33 called incorruptible why good companies go bad and how great companies stay great. The way Eric describes the connection between these two books is that the lean startup was about helping you build a successful company, and this book is about helping you protect what you've built. Eric wrote this book because he's seen way too many founders lose control of their company. And end up being very disappointed and depressed about how things turned out. This is not something that you hear a lot about, but it's a problem that basically every successful founder will face. Eric shares a ton of powerful stories and specific tactics. and very specific advice for what you need to understand and do as a founder if you want to build something lasting.

2:12 Before we get into it, don't forget to check out Lenny'sProctPass.com. For a year free of the hottest and most well crafted AI products in the world. Авиал exclusively to Lenny's newsletter subscribers. With that, I bring you Eric Reese. Eric Reese.

2:31 Thank you so much for being here, and welcome back to the podcast. Ah, it's an honor to be back. Congrats on everything that's happened since I was here last time. Wow, thanks Eric. So for people that have been living under a rock, you Famously wrote

2:44 The lean startup. Uh fifteen years ago at this point. maybe the most impactful, successful founder. startup book out there. And it feels like over this fifteen years, if you think about it, it's it's gone through all these waves of just like this is correct the way to do it.

3:00 I no no that's completely wrong. Why would anyone build this way? This doesn't work anymore. Two Okay, this actually is right. I was actually just thinking about this as I was preparing for our chat. It feels like the way the top AI companies are building now is actually Exactly lean startup. Like I just had the head of product of Cloud Code on the podcast, Catal, yeah.

3:17 The way they operate. Okay, we're gonna ship the M VP, they don't call it that, but we're gonna ship the MVP. Research preview, get it out there, see if people care a lot all at all about this thing. We're gonna tell you it's not ready for everyone, but it's out there. And then they iterate and build. I feel like people don't give you credit for like this is actually the way AI companies are operating now. I appreciate you saying that. And and it is funny how

3:37 every wave there's like a backlash and somebody writes the article like because of this you don't need to do lean startup anymore. I remember when people wrote that about Quibi, they're like Quibi proves that you don't need lean startup. And why it's like why don't we wait till the companies are successful and then see if it proves it. But also People forget like this is not a religion. So what matters to me is not if people use the term minimum viable product or whatever. By the way, those aren't customer facing terms. So a lot of companies that use these concepts.

4:02 They don't talk about how they use it. They just use it internally. To them, it's just, you know, the obviously right way to go. And it's funny to me, one of the most important Aspects of it that I think you know, stands up really well and it's been fifteen years. Is that so many of these AI products that if leaving the models and the underlying technology aside, these specific products

4:22 That have taken the world by storm, you can really tell that the AI labs themselves did not know they were going to be as popular as they turned out to be. Obviously chat GPT, they had no idea. Claud code co work, like these were small experiments in the grand scheme of things. They wanted the company like this is our big bet, let's go. And that's that's just so classic. That that's a a universal aspect of product development.

4:43 That you do not have the ability to predict the future. And when you pretend you get yourself in trouble, if you if you hold everything like a hypothesis. You know, you get the benefits of the scientific method. It's uh it's pretty helpful. This episode is brought to you by our season's presenting sponsor, Work OS. What do OpenAI, Anthropic, Cursor, Vercell, Replit, Sierra, Clay, and hundreds of other winning companies all have in common? They are all powered by WorkOS.

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6:05 You have A new book out called Incorruptible. It's a very different, very different book from the Lean Startup. It feels very personal in a lot of ways. The way I've heard you describe the combination of the lean startup and this new book is the lean startup was about helping you build a successful company.

6:22 And incorruptible is about helping you protect what you've built. I wanna start with that second part of protecting what you've built. What is it that You need protection from what's this kind of corruption that you Talk about that.

6:35 Founders run into. Yeah, we all know this force. In the book I call it the force that no one controls but everyone obeys. That tends to drag organizations down into mediocrity. to the point that we lose control of them. Now sometimes we lose control then because we get fired. We get ousted from our own company.

6:56 Sometimes it happens because we're like Frankenstein and his monster. it starts to become malign or bureaucratic or frankly evil. And we can't figure out how to stop it. And all kinds of other ways. I've been I had a front row seat at this. I've been helping people build companies now for a long time. I've helped people create unimaginable amounts of wealth for themselves and for society. And I'm really proud of the work that they've done. I'm really proud of my the bit part that I played in so many of these companies.

7:22 And yet I've also seen this His darkness. And it's not just founders getting fired, although we're obviously we're gonna talk about that. But like the other day I was out to dinner with some friends. We were not at home. We were kind of, you know.

7:33 away from our usual uh our usual spots. And so someone said, Oh, this is restaurant. I haven't been there in a couple of years, but it's really good. Let's check it out. We go sit down to dinner. They take one bite of the food. And then they're on their phone and we're like

7:45 Dude, you're being rude like while you're on your phone. Just one sec, one sec. Yep, I thought so. turns it around, I could tell that this restaurant got taken over by private equity. I could taste it. And

7:57 I've told that story a bunch of times now and So many different people have told me, Oh yeah, I I know what restaurant you're talking about. And then they name like twelve different restaurants. So what's going on that like you can taste The ownership structure of a company in the food.

8:10 How many people had a famous brand that they love get ruined? I tell hundreds of years of these stories in the book, all kinds of famous companies where The thing that destroyed them was not competition. It was not someone else came up with a better product, no.

8:25 Their very success became a liability. Because the more gold in the goose, the greater the temptation. To butcher. Well, that's a very visceral example. I think about vital eggs.

8:38 As a great example this. It was it was in the news, I don't know on Twitter, TikTok a while ago. It's the eggs that I we've been getting forever. It's like pasturaised or can I got you in my fridge. Okay. Th I don't know if you saw this, but everyone is complaining about it gotten worse. And they're they have all like the highest level of toxins and then they're owned by BlackRock now, it turns out. No, I I was just wondering about that. Oh my okay, now that's my new favorite example. That's really funny. I didn't even know that. But yeah, like It's so it's so common. It's the point now where I was I was doing an interview with someone who was telling me about a certain natural foods brand.

9:10 And the name of the product is the name of the founder. It's like I can't remember her name now. It's just her name. That's what it that's the name of the product. And she gets ousted by investors, and he's about to tell me the story. I said let me guess. What happened next? The board pushed her out in pursuit of higher growth.

9:26 higher margins. As a result, we've seen lower quality customers are super pissed, employees are pissed, and now it's starting to shrink market share. And he was like, How did you know? I thought you said you didn't know this company. This pattern is so pervasive we don't even have a name for it. We live it every day, but we don't know what to call it. Well, I know what to call it. I know what our grandparents would have called it, they would have called this corruption.

9:47 None. legal bribery or Embezzlement, no. This is like you're building a bridge. And

9:54 If your bridge collapses And Lenny, I say you're an engineer and I say Lenny. Why did my bridge collapse? If you're like, Well,'cause of gravity. I'm gonna like dude.

10:03 Yeah. Thank you for that genius insight, right? Like I understand That that is correct in some very real way. Like we say, well, it's inevitable, it's greed. call financial gravity. Like there's this kind of like thing, you know, human nature when companies get big, when whatever Yeah, but

10:17 I wanna know why did this bridge collapse? And more importantly, how come other bridges didn't collapse? And I say, Oh, for that we need to study the load. Load factor, wind load, shearing tension. We go look up close, we say, Oh look. All the metal bowls. have been corroded.

10:31 They're rusted. No wonder it collapsed. And then if you say, Well, I want to build a new bridge, but I don't want this one to collapse, what can I do? You will say, Well Gravity, what can you do? No. You say why don't we use stainless steel next time? On the bolts. Well then I'll get corroded. Oh yeah, good idea. So This book is about what are the organizational equivalents.

10:48 Of stainless steel. And the book is kind of structured, not like a traditional business book, as you say, you picked up on that, like It's much more like a mystery, a double mystery, first of all. Why has this been going on for hundreds of years? when we all think that the market selects for value creation. So this shouldn't happen. Yet it happens all the time.

11:06 But secondly, if it's inevitable, if it's caused by greed or age or size. Why are there exceptions? You're actually gonna give us answers and solutions to like'cause it sounds like okay, this is impossible you actually have You have some answers for what founders can do. Real quick, I'll just say on the Vital X thing. I'm not exactly sure if the toxins are real. Like there's a

11:25 Hm. viral thing on it. I haven't actually looked into it super deeply. We both have homework to do now. Because I it's what you feed your kids. You care. I'm definitely worried. Definitely worried to hear that. I wanna talk about two Things that are probably in people's minds as they listen to this conversation and even think about buying your book.

11:41 One is Okay. Uh I am not gonna let this happen to my company. Like this is okay, other people they're weak, they're Maybe they are of loose values. The other is just like Do I really need to do this? There's so many companies that are killing it. I don't think I don't think they've done any of this.

11:56 Why do I even need to pay attention to this? So maybe let's start with that first one of this idea of And you this is a core thesis of your book. This is not like an ethical values thing. This is a structural element of building businesses in the US.

12:08 I'm gonna make a claim that's gonna sound radical, but is I'll back it up. If you don't get this right. Mm. No other decision you make about your company will matter for the long term. because you're not gonna be the one making it.

12:21 Yeah. According to Harvard Law School Among venture back companies. That have the standard best practices set up that you got from your lawyer. Okay. Only twenty percent of founders are still the CEO.

12:35 three years after going public. Okay, just statistically speaking, everyone's being told by their lawyers, their bankers, their VCs, everybody that you're the exception. It's not gonna happen to you. But statistically speaking, you're much more likely to be in the eighty percent than the twenty percent. I'll tell you one story in particular, a very hot company came to see me. like a year or two before their IPO. They were planning planning IPO no I build the long term stock exchange. I've done a bunch of stuff that

12:57 People come to me for advice about these things. They want an advice. How can we structure the IPO? We want to think long term. We're really a mission driven company, et cetera, et cetera. And I was going through their governance documents. I said, Oh, good. You have all the best practices, so you're totally like I was like, the good news is you're so screwed, you're gonna have to do something, right? Like you're just you this is your guaranteed to get this mess. And and I I I had all the data and just like I do in the book, like here are the examples, here are the case studies, here's the data. You need to know about this.

13:23 And the founder was really concerned. He's like, Okay, we're gonna we're gonna definitely do something about this, we're gonna fix it up. But then he called me back a few months later. He's like I said, Oh well, what are you gonna do? He's like, You know what? I talked to my bankers, talk to my lawyers, talk to my CFO, talk to my G C talk to my VCs, talk to my growth VCs. You know what they all said? They all said, Man Eric is such a downer. If he really believed in your vision. If he really saw how special you were, he wouldn't talk like that.

13:48 You're the exception. Is it okay, man? Good luck. Yes. Company went public, had a very successful IPO. A lot of people made a lot of money.

13:57 And then five months into their IPO. a a competitor gets acquired. And the whole category f everyone freaks out. Stock price collapses. And a founder is ousted.

14:09 After five months. as a public company. Now if you read stories about the company, it's people were like, Oh, he made all these mistakes, their business model sucked, the company blah blah blah. Did he make mistakes? I'm sure he did. Were there problems? I'm sure. But hey, you really earn so little grace.

14:25 And he only got five months, the same people saying that the business model is horribly flawed. They invested in the company five months ago. Has it had it really changed so much in five months? This is what's going on. These um collapses are all around us and we're being told it's normal, this is just the way it has to be, but it's not.

14:42 These are choices about the specific structures, cultural practices, the the management practices we do on the inside. And the structural the governance practices we do on the outside. On both of them we're being told to do things that are incredibly weak. And again, if you think you're gonna be the exception, like think again.

14:58 I'm excited to talk about what to do with these governance elements, but let's talk about this other critique that I imagine Is this like you know, like Okay. I need to figure out product market fit first. Yeah, yeah, I work worry about it later. Exactly. There's so much more I need to do. Like the chances of this working are so low. Why am I

15:17 I have no time for anything else. Oh, totally. You said something interesting in the lead in, which you said, like, Well, a lot of other companies seem to be killing it and they don't have these protections, so they're fine. I would actually check your math. So many times when people give me this argument, they were like, Well, such and such company, you know, like I'm someone was like Cloudflare, they are just a normal company. They don't do this stuff. I'm like Check your math, buddy. Cloudflare does.

15:37 many of the things that we talk about. They're one of the examples in the book. So I picked that on purpose. A lot of companies that you don't necessarily instantly think of as like do gooder. mission driven companies are actually very mission driven in terms of how they're structured. And they are almost always protected by at least one of the governance structures from this book. So Check your map. People used to tell me Costco was an example.

15:57 that wasn't protected so much so that like I was surprised to learn it was embodied in a governance fortress. You'll you'll be surprised if you if you do the math if you look into it. You'll be surprised. But let's talk about the product market fit thing because this one is really interesting to me.

16:11 Generally speaking, this is one of the most important ideas in the whole book. the most important question about how to protect a product. is not what protections it needs But when those protections need to be enacted. And

16:25 It's basically like that old proverb about the best time to plant a tree was forty years ago, but the next best time is now. It is always too early. Until it's too late. And I'll I'll give you like the example. Um, I've seen this.

16:38 hundreds of times myself personally. So I've like literally been in the room where this kind of stuff gets discussed. And it starts like this. You're gonna you're you're incorporating your company, you talk to your lawyer, hey, I wanna have these are called mission protective provisions in the law. I wanna have I heard I heard this guy on Lenny's podcast, and your Lord's like, Oh, not again. You know, another guy, right like How many good ideas from latest podcast are you gonna tell me about? Okay, fine. What's this one? I told me I need to have mission protective provisions. He'll be like he'll pat you on the head and be like, Oh, that's sweet, honey. That's great. Yeah.

17:04 Get product market fit. Like get some success. Success is ultimately your source of leverage. Success will protect you. Don't worry about it. You say, Okay, great. But just Thanks for letting me know. Now you raise some money, you got these V Cs on your border. say the same thing. They're like

17:18 Yeah, I totally am with you. We're on the same page. We want the same thing you want. We invested because we believe in you as the founder. There's no need to do this now. Let's just do it later. Do it when it's the more appropriate time, okay? you get you get a growth round. Now you got these bold contrarian growth VCs on your board. And they're like I don't know.

17:34 You might not want to be too different from everybody else. might make it hard to raise money. You're like, you're a bold contrarian, what? Okay. Don't worry about it now. We can always do it later. Now you're doing IPO prep.

17:45 Now you've got bankers and lawyers and you've got a G C and you got the And they're all like, Yep, yep, this is a great thing to bundle with the IPO itself. You don't need to worry about it now. First we gotta land the plane, let's get our house in order, blah, blah, blah. Anyway, I've actually been in the room where the founder sits with the CFO, and now it's like IPO planning, road show, here we go. It's go time. We're about to file the papers. The founder's like, hey, whatever happened to those mission protected provisions are like, I wanted to really make sure we had our customers could participate in our IPO and I want broadly shared prosperity and I want this thing for our employees. Oh, it's good stuff I want to do.

18:17 Do we uh Do we do any of that stuff? I don't see it in the S one. The CFO's like oh You were serious about that?

18:24 Oh sorry, man, you should have said something. Now it's too late. You're like, Wait a minute, but when I talk to you about it last year, you said it was too early. Yeah, it was. But now it's too late. Was it ever the right time? No, it is never the right time to do this.

18:38 If you put this off, you will eventually find yourself in a situation where you can no longer do it. You will have lost the leverage. Success will not protect you because success is what makes you a target. That Stroy told you about the five month CEO got fire. That company Everyone who worked on that IPO. Еврій банкер, еврій лоєр, сієфо, ериба.

18:58 They profited from all the transaction volume. that that company generated on the way up. And on the way down. They're all fine. They're all on to the next IPO. The n they're like

19:10 Uh carnivores, you know, they're on to the next thing to feed on. Meanwhile, the customers, the employees, the people that cared about their company were not so lucky. Damn. That hit me. That hit me right in the heart. Uh and it's so obvious just how

19:24 personal and importantness is to you. It's clear you've just seen this happen again and again in the Yeah, I've been in the room where it happens, yeah the proverbial room. Yeah. Okay, so let's talk about how to what people should do. And we'll poke around in different directions. What's kind of like the broad stroke solution to this? And then what are some say three things to say an early stage founder should do?

19:43 This week, next week. Yeah, yeah, yeah. Okay. So so broadly speaking, there is a blueprint. I promise like When we talk about Then Yeah.

19:51 the horrors of living in late stage capitalism. It's easy to get depressed and just be like I mean, literally part one of this book is called The Shape of the Abyss. So you know. I'm not try I'm not trying to sugarcoat it. This is quite grim and If you haven't studied these case studies, if you don't know the story of Whole Foods and what happened to it, if you don't know the story of Vectura, you know, you don't know these stories. They're really grim and it's important to grapple what happened so that So that it doesn't happen to you.

20:13 So that you're prepared. But it can feel like we're we're so helpless. But as I said, this is a double mystery, not just why does this happen? But how can there be exceptions to a rule that's inevitable? So let me just tell one more story and then we'll get really into the tactical details because I wanna really give I want some stories that we can use. It's our fact set, our data base.

20:32 To draw these principles. Oh. And so um the blueprint, I'll give you the spoiler alert, I just mentioned before, ethos plus integrity, that's our formula. Ethos meaning internal alignment character choices. Integrity meaning the structure to resist.

20:46 to keep ourselves aligned with unit flourishing. Let's go back in time a little further this time. We're gonna go to nineteen twenty Denmark. Okay. I'm talking about a m a woman named Marie Crowe. She was one of the first doctors.

20:59 to uh practice in Denmark like a credentialed doctor. She was a big advocate for women's medical education and she lived a very cool life in her own right. But she's famous today mostly because of her husband, August. Who had just won the Nobel Prize. Who's a very famous scientist. And

21:16 She unfortunately right around the same time got diagnosed with a fatal illness. An illness for which there was no known cure at that time, it was called diabetes. So she gets this death sense. right as he as he's winning the Nobel Prize and he asks her, Would she come with him to North America for his lecture tour anyway? And she says yes. So the two of them travel to North America.

21:35 He's going around talking to scientists about his Nobel Prize. And one night at dinner. Marie sitting next to a scientist who tells her, Hey, actually in Canada. There are these researchers who have figured out a new technology to isolate a substance called insulin. A potential.

21:52 For diabetes. So Reefs uh convinces her husband we shouldn't extend our trip go to Canada see this thing for themselves. They do They are both scientists, so they instantly understand the implications. This could not only save Marie's life

22:05 But millions more. So they talk to the Canadians, could we commercialize this technology? And the Canadians say they're open to it, but everyone involved has a concern. We've been talking so far about the concern of being forced out of your company or having it taken away from you. That is one danger. But there's also the temptation to harvest what others plant.

22:25 The temptation to exploit, to extract. Instead of creating new value. They were worried about that. Now Lenny Want you to imagine the scenario with me, okay? Imagine that I depend on you for a life saving cure. I have diabetes, you're the only maker of insulin in the world. In that case, I would want you to charge me a fair price.

22:44 Like very much so. It's it's a it's both morally right, fair, but also I want you to have every incentive possible to keep making the drug, otherwise I might die. But what if one day you wake up and you're like, Wait a second, I don't have to charge Eric a fair price? Or you have investors whispering in your ear, Lenny. You don't have to charge him a fair price. You can charge him.

23:03 Anything you That's what I would live in fear of. So decades before Martin Scrley actually did this as a business strategy. the Crows and the Canadian scientists, they were worried that this might happen to their new company. So when they went back to Denmark to create this company, which they call The Nordisk Insulin Laboratorium. They incorporated it using this very particular structure. It is a for profit company.

23:27 It does have outside investors. But it is owned. governed by a nonprofit foundation, a two tiered structure that's called an industrial foundation in the literature. And if Nordisc Insulin Laboratorium sounds familiar, it should. This is the predecessor company to what we today call Novo Nordisc. one of the largest companies in the world.

23:47 And what's so interesting to me About this story is this structure has endured. And protected the ethos of scientific integrity. Of Nova Nordist? For more than a hundred years.

23:59 Meanwhile, so many of the best practices that you are lawyers, your bankers, whatever advisors you have. They're gonna be pushing best practices on you that are younger than the trees in your local park. And so what I want for everyone who's listening to this founders, product managers, leaders, board members, I don't care. The next time someone comes to you pushing a best practice. And you're like, Oh, I guess I have to do it this way, because we live in an ROI dominated culture. We have to stack rank by ROI or whatever the practice is.

24:27 I want you to be like, Well, that person sounds very smart. They're very well credentialed. They went to business school or whatever, but ask yourself. Аю шу? They're smarter than a Nobel laureate? Because August and Marie worked this out a hundred years ago. And it has held.

24:41 So many attacks. In fact, I tell a story in the book and Honey I know you're gonna think I'm exaggerating. Oh no, so at least some of your listeners gonna think America's an exaggerator, I promise you. This is a one hundred percent true story. But

24:53 The trustees of the nonprofit foundation once had to intervene to protect the for profit from this exact temptation to want to sell it out. And I won't get into the whole story. They did the right thing in this case. Because they had the legal power to do so. Their intervention. Ultimately created.

25:08 More than five hundred billion dollars of shareholder value. I'm not. I I didn't add an extra zero for emphasis. Five hundred billion dollars. So when people hear about these things for the first time. It's natural to feel like we're talking just about business ethics or mission. It's like some extra nice to have thing that after you do the real serious business, now you worry about this stuff. No.

25:30 This is one of the most powerful engines of value creation in the world. And for a lot of people listening, this will be the first time you're hearing about it, but just'cause it's new to you doesn't make it new. The German optics company Zeiss who make the l lenses in my glasses and yours too. They had this structure in eighteen eighty five. So

25:50 I think it's really interesting that We have enough of these examples to know that there's nothing inevitable. About this financial gravity. We actually have a data set that can be studied. There's a whole branch of academic research that has shown, for example, companies with that structure like Novo and Zeiss. They are six times more likely to live to year fifty.

26:09 Compared to their conventional counterparts. We they have superior return on invested capital, they make more money for investors, they're better in so many ways. So it's kind of a bit of an open secret. That these techniques exist. So I want us to kind of have these stories in our mind because it's it's gonna sound as we get into the technique, some of them are gonna sound radical. We wanna say, Wait a second, is this really doable for me? Yeah, I'm just a little startup.

26:30 I'm just doing, you know. I'm just trying to get the product market fit. Why are we talking about this long off stuff, hundred year old companies? No. August and Marie was just it was they were a tiny startup too once. Yeah, that company's worth hundreds of billions of dollars. So before we get into that, I just to let's remind people again why this is worth

26:46 doing'cause it's gonna sound like oh my God, this is so annoying. I have to do all these weird things that no one else is doing. I have to convince all these people this is not gonna limit us and not hurt us down the road. Let's just let's remind people again just why this is important, why this is so painful if they don't do it right. Gosh, there's so many Things to choose from.

27:05 So much pain. So much pain. Oh, I I'll tell another story. Like we've been telling kinda happy stories. Let me tell you what not very happy story. So I've been doing this exercise for many years. uh where I would ask founders um or leaders if really of any s any seniority. I'm just like, listen, before we get into the details, first tell me who you think is the most evil company in the world. And people sometimes sometimes they're like instantly know who to say. They're like, Oh, I know. But some people are like, What do you mean evil? And like the company where

27:31 There's no amount of money they could offer you that you would go work there. You just you know they're up to no good. Everybody has a company like that in their mind. I don't know if you want to say Wiz for you. May I understand if you don't want to, it's okay, but like

27:44 I'll just for the sake of us having a hypothetical that we can do, I would always tell people we we go around the room, I go on some of them on Zoom, everyone puts in the chat, right? And there'll be someone will be like Halliburton and someone else will be like increasingly like like tech companies are showing up on these lists now, which wouldn't When I was younger, that would never have been the case. But now you sometimes see tech companies there, sometimes see Monsanto or you see um You know, some or some private equity fund. Like people are like mad about something. They can name a company usually. So it's not hard to find examples. Now, my father was a pulmonologist growing up, so I was raised that Philip Morris is the most evil company in the world. So we'll just use that as our hypothetical, just for the sake of argument today.

28:19 Um If you think Philip Mars is great and you have different values, you know, whoever's listening, fine. You pick the company you really would never, ever, ever want to have to work for, no matter what. Yeah. I ask people to imagine the company they currently work at. If you're a founder, you're a company. If you're an employee, you're a company. But if you've You know, the company you hold dear.

28:36 Just imagine. Philip Morris shows up one day and says, I'd like to buy this company from you. for one dollar more per share than it's currently worth. Yes, Alan. Most people are like hell no.

28:49 Held on that sound. One person once asked me, um, Well what are they gonna use it for? Oh, sorry, to be clear, they're gonna use it to sell cigarettes to children. Now you selling? Yeah. No. No deal. Of course obviously F No. I can't actually say on your podcast the kind of things people say when they were presented with this um There might be there might be children listening, okay? People get real upset at this idea.

29:10 And and when it we talk about I'm like, Okay, well did you know that according to the legal documents you yourself signed, your company's literal charter that you have right now, and this is not some hypothetical future thing, you've already put in motion. A rule it says you have a fiduciary duty to say yes. In this situation, people are so outraged like that cannot be right. My lawyer, my guy, he would never have done that to me. I'm like, call him up.

29:41 Ask him if what I say is true and call me back and like He said it he said he was doing me a favor. By giving me the best practice documents to make it easier to raise money. Yeah. So occasionally though people will say, Eric, you are exaggerating. That is not

29:56 Yes, that can happen, but come on. Does that really happen in real life? Is that something I really need to I'm I'm trying to get product market fit? Do I have to worry about it? So before you tell me I'm exaggerating, I want you to consider this from the perspective of the founder scientists of the Vectura Corporation. Vectura Was a UK company a spin out from the University of Bath. They made inhaler therapeutics like for asthma and C O P D. You've seen inhalers, yeah. medic a medicine company.

30:21 They were really successful, they raised money, they went public on the London Stock Exchange. And one day The actual Philip Morris. tried to buy them. Okay, I only know this story because I've been using the Philip Morris example for years, and when I was researching the book.

30:36 I was like I wonder. I actually asked Claude, has anybody Has anyone ever actually been bought by Philip Morris? Like this I stashed out the hypothetical and it was like Are you asking me about Vectora? And I was like, Tell me more.

30:49 There's this company. This is what happened. Phil and Moore said they wanted to diversify beyond nicotine. And they were like, Oh, we know a lot about inhaling things, so having an inhaler company makes anyway. No normal people hearing about this were like, This doesn't make sense. Why would a I would big tobacco on a health company, that doesn't seem right. So here were the three choices that were facing the Victura board.

31:10 They had this bid from Philip Morris for a hundred and sixty five pence per share. They had a bid from an American private equity firm for one hundred and fifty five pence per share, or in door number three. they could just stay independent because there was really no problem. The company's doing fine. The public in the UK was super outraged. The pr British thoracic society begged to say no. Like every person who thought about this for five seconds could see this is going to be a massively value destroying

31:37 Error. But the only people that mattered were the people on the board of directors of the Vectura Corporation. They had I think two meetings about it. And they just said our hands are tied. We have a fiduciary duty to accept.

31:49 the highest bid, which they did. So yes, if you think I was exaggerating, I was. I said it was a dollar per share in real life, it was more like fifteen cents a share. So let's find out what happened next, shall we? Can you guess? Not great. Philip Morris spent one point one billion pounds to buy Vectora.

32:07 Uh, within three years they had taken a nine hundred million dollar write down. And disposed of the company for Peace Parts. It doesn't exist anymore to me. These are the stakes. This is what happens. And I can't tell you, I feel like Perry Mason sometimes when like people like I would never do that. I'm like, Okay, I hear you have good intentions, but can I please see your signature on the document? Oh look. Delaware charters are public record, by the way, if you ever wanna know if you have if a friend is a lawyer just You wanna know if a company has a mission?

32:35 Or they this is gonna happen to them. Just pull the charter. You can just read it. Read it for yourself. I'm like, is this your signature right here? You yourself sign this document and you don't even understand how your company works. Uh, this is the stakes I think are are significantly existential, especially now that we're entering an age, the age of wonders.

32:51 the age of technologies that are incredibly powerful that have planet scale consequences to them. You know, I think a lot of founders, a lot of product people, like they want to build a product that they can be proud of. That their grandkids will be like happy to hear that that's how the family fortune was made. And I know a lot of people that are incredibly rich and so miserable. Because the thing their baby

33:14 It got ruined, it got destroyed Why are we doing Okay. Let's talk about how to act what to actually do. And You know, this gonna be a kind of a high level overview. Obviously buy the book if you're really g wanna get serious about the stuff coming out May twenty sixth at all. May twenty sixth, yes, thank you. Anywhere you buy books.

33:31 Talk about what we should do. And I just wanna plant the seed of open AI is probably on people's minds as they hear this idea of building a nonprofit. Yeah, yeah, we'll get there and obviously in the book I tell the anthropic story where I I played a bit part. So We'll we'll get to all that. We'll get to all that. But l but let's start with the easy stuff first, because like When you like. AI is kind of like the f uh humanity's final exam, you know, you've heard that.

33:50 That joke. Okay. These issues are so amplified in AI. Of course we have to get it right. I think it's incredibly important and I've done my But I've done what I can to to set us on that proper path. But

34:02 Well, it's easier to see it, I think, in simpler businesses. Um OpenIS is insanely complicated. So let's look at it in some some simpler examples first. Let's start with the principle I call harder is easier. This is the This is the m the leadership principle that anybody can adopt. There's truly like there's nobody who's not who you tell me you have no power whatsoever, like everyone's got some influence. And if you have any influence at all. You can adopt this principle.

34:28 Like when I talk to people about business, I don't care if I'm talking to two guys in a garage, founders, you know, or or I'm talking to superboards or CEO, C suite, whatever, everyone always says to me, just what you were saying a minute ago, it's like man, Eric Business is already so hard. I I now you want me to do extra? Now I gotta worry about the Victura thing and this other stuff. Like man, I'm already just trying to get through the day. Like it's so hard. But I think this is a basically backwards way of looking at it.

34:57 Because I ask people. Could it be just consider the possibility that one of the reasons you're finding business so hard Is that nobody trusts you. If they trusted you, maybe it would be a little bit easier. Now, actually, this is not a supposition. We have really good evidence. Companies

35:14 where their employees trust them, spend way less time on employee communications. they have much better alignment. Everyone's kind of rowing in the same directions. When customers trust you, they are, of course, you have way higher loyalty, your cost of customer acquisition is lower, but also customers more likely to stick with you after you make a mistake. uh they're more likely to try your new product. Like so many people are like, God, customers are so fickle. They have no loyalty. Uh you know, they're just like they only care about the slick marketing from our competitors, but maybe Because you view these things as extra is part of the problem. So

35:47 Harder is easier is a principle that says if you're willing to do the work up front. To quality, to design, to ethics, to integrity, to safety, whatever the thing. I don't want to tell you what your values are. You tell me what they are. If you're willing to be principled in your decision making. You will get These unexpected

36:04 Rewards. Now you can't do it for the reward. Or it doesn't work. You have to do it for the thing itself. Trustworthiness is the most underrated asset in all of business. And the things that create trustworthiness. By definition, stack rank to the bottom.

36:20 If we do it by ROI. Because doing the right thing has intangible rewards but tangible costs. So let me give you another story. Because now we've been talking about like lofty stuff, and I want to talk about something super practical. And that's I mentioned Cloudflare before, so let me actually tell the Cloudflare story. I like Cloudflare because Matthew Prince.

36:39 And his co founders they like. They were really anti Consulting B S talk. Like they didn't want they've you in the early days, you know, they came out of Harvard Business School and so they were like traumatized. They were just like, No, I don't want to hear about mission statement. I don't want to hear about values, I don't just we're making a firewall and putting it in the cloud. It's not that complicated, like

36:59 We don't want to hear it. So for years They had no mission statement, and this is a critical point. Uh, as leaders, we get so focused on value statement, mission statements, we forget the mission statement is not the mission. The map is not the territory. Mission is an emergent property of the living super organism of the thing we're birthing. Okay. It's not something you can slap on with a label. You have to build it in. You wanna have a company that stands for quality, you gotta build quality in from the inside. Deming taught this in the forties. Like this is not some new idea. This is a critical idea. This is what craftsmanship really means. Okay.

37:32 So We know that Cloudflare had a mission. Because quite often they would do this harder is easier stuff. And without even really knowing why, like there's a very famous example in their history where pro democracy protesters.

37:46 Must say Oh, I forget what nation state they were pissing off. I better not say it because I get it wrong. Pissing off some nation state. uh we're having their having like state sponsored hackers. try to take their websites down so they couldn't coordinate their pro democracy protests.

37:59 They were going around Silicon Valley begging big tech companies to help them. Defend. Their websites. No one would do it. All these big mega companies, even like Google, were just like, I'm too scared. And so Cloudflare, the tiny startup, is like we'll do it. There were like

38:13 free tier customers. They weren't even paying any money. And they're like, Yes, we will incur the wrath of nation state level hackers to protect you. because it's the right thing to do for no reward whatsoever. That was just the kind of company they were. So anyway, a couple of years in, they're having lunch and one of the engineers says, You know why I like working at this company?

38:31 I just feel like It's the first place I've worked where we're just we're trying to make a better internet. And everyone on the table's like, Yeah, make a better internet. Someone asked Matthew, Oh Is that our mission statement?

38:42 Ps. No. We don't have a mission statement. What are you talking about? No. But it actually was. Over time, the engineers, people who work there kept saying, make a better internet. That was that was how we talk about it. And eventually the founders had to be convinced, okay, let's adopt this as our mission statement, which they did. That is their mission statement to this day. They had to eventually adopt formal values. Like as you get bigger, these things really matter. It matters that you document those emergent properties. Otherwise, how are people supposed to know what they are? Their number one Value, by the way, is B principal.

39:11 Which is the ultimate harder is easier move. So This all sounds great. It's fun to have values. It's fun to have a mission statement when it doesn't cost you anything. But sometimes it can be very expensive. You make your life a lot harder. That's why we call the principle harder is easier.

39:25 One day an engineer a junior engineer not like some senior executive or anything, walks into Matthew Prince's office and he says, Boss Is it all right? Is in our uh mission statement to make a better internet? Uh-huh.

39:38 Yeah. When you're a CEO, any any conversation that starts this way is generally gonna be extra work for you. So you're like, what is it now? Like when you were saying at the board meeting that our number one driver of revenue The thing that causes people to upgrade from our free to premium plans. This is a few years ago now. is uh web encryption, SSL encryption. Right.

39:57 You said that makes sense because SSL encryption is expensive to offer. We can offer it for free. We have to get the certificates and pay for them. We have to do all this extra cryptographic stuff as compute. You know, we have scarce compute, da da da da. Sure. But boss Wouldn't a better internet be an encrypted internet?

40:16 And he's like, Yeah, so what's your point? So like why are but it would be better, why are we giving it away for free? And so many people heard this story. If you've ever been a middle manager in a company, okay. you know this you're just like, Oh my God, every day someone walks into your office, it's like, Hey boss Let's give our product away for free for no reason. Okay. Like your job as a middle manager is to be like no. We have a strategy get back on the strategy, right? Redirect thank you for your buy in and your input, but

40:42 We have a job to do. So everyone's expecting Matthew to react that way. And we'd be the most normal thing in the world. This is our most profitable product. And you're saying we should give it away for free, get lost. No. Matthew told me once I saw it, I couldn't unsee. And he He uttered the three key words. He said, Let's figure it out.

41:02 Figure out. This is the the leadership principle I think is so powerful, the figure it out principle. When you have if you're s committed to something, you stand for quality or whatever, it's gonna make life harder. The best leaders, the ones I really admire. They revel in it.

41:17 They love the difficulty. Because every time you have one of these impossible dilemmas, it's a chance to teach what you really stand for. So Matthew insisted the whole team rally. To figure out how to give encryption away for free. Now they couldn't just give it away for free. He's like, go bankrupting the company won't achieve the mission. We had to find a way to make it sustainable. And I won't go through all the technical details of like how they managed to get the cost. They had to hand roll their own software in assembly language. They had to do these complicated biz dev deals with certificate authorities. Like they figured out how to do it. And they drove their own cost down. Now keep in mind that at any time, first of all, they could have used the difficulty as an excuse, Oh, it's too hard, we can't do it, give up.

41:54 Once they did it, they could have said, Wait a minute, this is just free margin. We can make our costs lower and then we just get free money. When they shipped it. They had to report to their board on what happened. the conversion rates for their for premium product went down.

42:09 So they could easily have bailed out at that point, but they didn't. They stuck with it because this is what we stand for. Now, of course, it's a happy ending story. the top of funnel increased by an order of magnitude. In fact, to this day people still talk about how Cloudflare is like the reason you take for granted we have an encrypted internet. The trust that they gained is the reason why they're a seventy billion dollar company today. But most leaders

42:32 when asked to defend their principles, can't do it. Because they've been taught ROI based thinking, they've been taught shareholder primacy. They've been taught that that's the path of maximum profitability to give you like a an easy contrast. Um, Andrew Mason, the founder of Groupon, once told me this story. Everyone remember Groupon? I'm maybe not now. It's kinda fallen out of public consciousness, but there was this time when Groupon was one of the fastest growing private companies in America.

42:56 It was powered by a daily email. With a cool deal. And the whole thing was you got one email a day from Group On. They went public on the one email a day. That's how successful it was. And I remember telling me this story one day, you know, his executives and employees started coming into his office and they'd be like, You know, boss, we need to make the quarter, we need to make more money, we're a public company now. We don't be better than one email.

43:19 And you consider two emails. Yeah. And he was like, No. What you know they're like, that's our whole thing, but he said over time they ground him down and they kept saying, They were using language that sounds kinda like startup y. Shouldn't we do an experiment?

43:31 Shouldn't we look at the data? What about the IR I could just say, what about the ROI? And so he's like, All right, fine, we'll run the experiment. They ran the experiment. Two emails a day makes more money.

43:41 So he couldn't he couldn't say no. And everything was fine for several months until someone came into his office and said, You know, boss, you know it'd be better than two email. She's in three now. And next thing you know, they're sending eight emails. And this is not just group on. I have had so many CEOs tell me this exact story about email frequency. Email frequency is like for some reason the tip of the spear where it's like, we we don't really have any way to defend doing the right thing here. So we do the wrong thing. That Destroy the whole company.

44:11 But in the short term, we made a bunch of money. So If you can stick to the harder is easier principle, that is the first line of defense against losing whatever it is that makes a company special. Eric, you're such a wonderful storyteller. I'm just like sitting here just Come hell. Well,

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45:37 I want to talk through just like what do you do? So there's right emission statement. Values, is that a part of this? Just define your values, talk about like the bullet point. So again, no, writing the statement is not valuable. Okay. The statement is not what it is. The reason I would use the old fashioned word ethos. I tried to write this whole book without using any trendy consulting language at all. So I try not to use the word stakeholder. I try not to use the word culture.

46:00 I tried to really go Old fashioned. That's why I started with stall price. rather than talk about stakeholders and mission statement and values, I wanna know Who are your fiduciaries?

46:12 It's like a real old fashioned word, fiduciary. But to me the question every leader has to answer. And this is every product has to answer this question. What is its purpose? Who would you rather die? than betray.

46:26 Okay. So if you tell me I want to have a high quality product. That's what I would rather die than ship slot. Like think about how Steve Jobs was. Like he was this is a guy who would fight with people over the layout of the wires inside a computer he didn't want customers to be allowed to open and ever see. That's so classic, harder is easier, right? Just it has to be a certain way. If you know stories about Yvonne Chinard, the founder of Patagonia. Today he's more famous for his environmental activism, but he was a quality zealot.

46:54 He believed that quality was an objective function. And then every product had a quality level that it deserved. Most people think that's insane. That's why Patagonia is such a success. That idea is powerful. So whatever that thing is, that purpose, we have to find ways to encode it in our like management system so that there's no way for us to make money by betraying the principal. Whatever it is.

47:19 So this can happen both at like at the operational level and at the governance level. Both both are really important. People hearing this, I know some people are gonna be like, purpose Is this some ESG nonsense, like Okay. There's a very funny quote in the book, um, Unilever, the big food giant.

47:36 We went through a phase a couple years ago where they were going to infuse purpose into all of their products. And uh Wall Street investor was just like I've had it with this. wrote this wrote them a nasty letter was like, look at the point that we're debating the purpose of Hellman's mayonnaise. I think you've lost the plot. And I love that quick'cause it's funny, but actually what's so funny about it to me is

47:55 Humble though it is Hellman's mayonnaise is food. Its purpose is super clear. And again, if you think it doesn't matter what the product manager who runs Hellman's Manaes thinks. The purpose is going back to our vital farms question. Like think how easy it would be when an efficiency consultant shows up and says, You know, I think we could save three cents on the bill of materials if you just make the proof the thing carcinogenic.

48:18 And you're like, Well, that's wouldn't that come back to bite us? Yeah, but long after your stock options are vested, buddy, what do you care? If the product manager thinks their purpose is quality, that matters if they think their purpose is extraction and exploitation, it matters. Again, if you think I'm exaggerating, the product managers at Johnson and Johnson. Put asbestos in the baby powder. And covered it up. Because although they said their purpose, their mission statement was patient health.

48:45 Their actual mission had become Growth. Optimization quarterly targets. So what we want to do is that that's the first most important technique is like what is the purpose. Who would we rather die than betray? Like you gotta write it down. You gotta say I saw Price did customers first, employees second, shareholders last.

49:02 Or uh the great Peter Drucker said it was actually he said that that's backwards. It should be employees first, customers second, shareholders last. I don't care. You tell me what you believe. You gotta write it down. And then we have to do a a a thing I call mission drive. Companies that claim to be mission driven, most of them are just mission hopeful. Okay.

49:21 It's it's bullshit. It's just a candy coating on top of an extractive engine. Sorry. I don't buy it. If you're serious about being mission driven, you have to show me That you cannot profit. except by achieving the mission. That's the audit we have to do. We have to look at if we were to if someone in the company got tempted To cut quality.

49:41 to cut corners to to decrease performance to deal with like the the things that tend to get cut first, safety, performance, quality, design. those are always the most vulnerable. Innovation, I guess, is fit. So that's like the five the five horsemen of the apocalypse is like You can get rid of those things and nothing bad happens right away. Because the whole point of trust is I can betray you and you wouldn't even notice. So we have those are like the canary in the coal mine. Is there any way, is anyone's bonus target, is our OKR system, is there anyone in this team

50:10 And again, you could do this at the company level, of course, but you're just a team, a team of five. Is there anyone on this team who could profit? by portraying one of our principles. Is it is it possible? And I mean, it's really possible. That and this is actually why automated testing is so good, right? Like think about how many people can just like break the design, no one even notices. Well it's a test notice with with AI. We have so many new capabilities.

50:33 for auditing, for preventing, for making sure, but we have to choose to use the tools for that. That's the one so that's kinda like the general my category of things um that we can build. And so just uh just to make sure It's clear. So it's write down a your purpose, whatever

50:49 That is, and I imagine it's like a sentence is the idea. Yeah, or that'd be great. Simple as simple as better, right? Like to make a better internet is such a great such a great purpose. I tell in the story the in the book, the story of devoted health. They're a health insurance company, but their instruction to their employees is to treat every customer the way you would your own parents. Mm. I heard that one. It's just so easy and simple and clear to understand. Okay, so it's right down your

51:11 Purpose. Uh Describe your mission and more importantly. Dr the mission. What does it drive the mission or the mission? Mission drive. Mission drive. Which basically Uh

51:21 Is i is there like a structural way to do this, or is this just go through everything going on and see Is there. It it is. I mean I I talk about it in a more formal way in the book, but basically I would say that it is to identify your fiduciary commitments. Like who are the people? that you're trying to commit to

51:37 Do something good for her? what are the metrics or targets that you want to have for each of those people? And then um, what is the system, the accountability system to make sure that those commitments are as important to you as making money. So it's essentially these kind of like OKRs for your

51:54 Your stakeholder let's not call them stakeholders. Yeah, that's what I see how hard it is to do this. Yeah, but that's exactly right. It's like okay, art for the and I and I just again, people always when we start using this language, people are like, You're trying to impose your values on me. No, you tell me what you care about. And then you tell me how you're measuring the things you claim to care about. In in the book I have a section called Don't Be Evil versus the quarterly report. I I made a study of the blog posts that longtime Google employees write when they leave Google. It's like a genre.

52:23 Yes. fifty of them. They're incredible documents actually. If you've never read them are all linked in the book, you can you can read them yourself. And they all have this like very wistful, sad quality to them. because something really s and listen, for the record, Google's a great company. I'm not saying Google's bad.

52:38 But Google used to have this don't be evil ethos and it kinda got lost. Got taken off the website, then it showed up in the employee handbook. Now it's not even in the employee handbook anymore. And if at Google's been sued twice now for breaking the don't be evil pledge and they've had to settle both lawsuits, okay, that's that's how sad the situation has become at Google. And I remember talking to one of these ex Googlers, he had been there I think thirteen years. And he I said to him, look. He couldn't he was like, Why did we lose it?

53:05 When we had such good intentions. Why? I wanted to believe management. He's like I liked management. I thought they were had their heart in the right place. And yet. That's okay. Answer me this hypothetical, just real quick.

53:17 What is the probability that Google will file its next quarterly report? On time. He was like, That's a dumb question, Eric. Obviously they're gonna do it. I was like no, but give it a number. probabilities like one hundred percent. See literally one hundred point zero?

53:30 Yes, as certain as the sun will rise tomorrow. Of course. So great. Now tell me the probability that um Google might accidentally kill somebody. And cover it up. They were like, come on, man, they probably wouldn't do that. That's not fair.

53:45 Put a number on it. Is it a hundred percent? He's like, Well, like Ninety percent? Ninety five percent? I was like, and he starts you could see he was like, Well, they got sued for this. He's like, What if the self driving car hits somebody?

53:56 W he could he could already think of the way it could happen. It's okay. How can it be? That quarterly reporting is like the thing that we're sure of. And this and manslaughter, we think are human beings like confused. They love quarterly reports and they're not sure about manslaughter? No.

54:14 Come on. What is going on here? Google report its quarterly report on time because there is a massive Unbelievably expensive apparatus to make sure it happens every time. And don't be evil was just a slogan. So if someone tells you

54:30 I'm serious about something, great. Now show me the apparatus. Show me the commitments you've made to make sure that happens every time, no exceptions. And if you don't have one, then they are lying to you. No matter how good their intentions are. And this might be a good segue to kind of the second bucket of stuff. So the way you described it earlier, I think is a really helpful way of framing it. There's kind of the ethos.

54:53 Which is what we've been talking about. Values, purpose, mission. And then there's integrity. So talk about that. Sure. So why did I use the word integrity? In human languag in normal human language, not consultants speak, but like among normal people, integrity has two meanings.

55:07 One is like Lenny, you're a very high integrity person. If you say you're gonna meet me at two o'clock at a place, like I know you're gonna be there, right? Everyone's got a friend like that. Where if they say they're gonna do something, they're gonna do it. And more importantly, if they're not sure, if they're like, I think I can be there at two o'clock, they never would say. I'll see at two o'clock. They won't do it. They know that to tell the truth requires you to really make a commitment. But we also so that's kind of like the ability to keep your promise. But we also have the word structural integrity, right? I told you before, like the difference between corroded bolts and stainless steel.

55:35 Organizations, these two senses of the word become one. An organization that is weak. cannot keep its promises. Because the person making the promise won't be there. Imagine you got a promise from the founders of Vectura.

55:50 That they'll never sell cigarettes to children. Oops. Sorry, but no, that's not Integrity. So the goal of of structural integrity for an organization is to give it the power to resist temptation from the inside.

56:03 Resist betrayal at the board level and resist pressure from the outside. As I mentioned, Costco has very famously has this governance fortress. That protects it from outside pressure. And people have come for Costco. I quote. Some hilarious quotes in the book about

56:18 Um one of my favorites is Costco Takes Money. that rightfully belongs to shareholders. And instead invest it in improving the customer experience. That's meant to be a criticism. Okay, that's not what they're supposed to do. So why can they resist? Because they have the tools they need.

56:36 To fight back. Their board sees its responsibility as a bulwark against pressure rather than as an amplifier of financial gravity. So that can sound very challenging and abstract is now we're talking about board level stuff, IPOs, people a lot of people are like, Oh, I don't have the power for that. Okay, that's okay. We can start with something very simple. We started with purpose and ethos. We can start with purpose here too. I mentioned before that most founders have never read their own corporate charter. Which

57:02 If you're what if you're a founder and you're listening to this and you've never read your own corporate charter, you have a company that is operating, it is your homework, you have to do this. You have to know what it says. This is so common that the HBO show Silicon Valley makes a joke about it. One of the fo one of the investors is like upbraiding the founder to be like, You don't know how your own effing company works because he loses control of it, yeah. So like They did their homework. This really does happen.

57:24 But if you do read your charter, you probably will be more confused than you are now. Because you will read a sentence like this. It will say The Acme Corporation is hereby incorporated. To pursue any lawful act or activity. And you read that and you're like

57:41 That sounds pretty open ended. Wrong. It sounds open ended. But it's not. Unfortunately, we live in the era of what's called shareholder primacy. Meaning that

57:52 According to this theory, which is the governing theory of our lives that we live under this law today, right now. This says that an organization is not a vital, beautiful living thing. Rather, it is a financial instrument designed to enrich shareholders and nothing else. And Therefore, any lawful act or activity today means maximized shareholder returns under the law. People have been raised now, we're old enough, this idea is old enough that we now have a generation of people who've been raised as if this was a natural law.

58:20 This is how capitalism has always been, but that's wrong. For the vast majority of the time, for hundreds of years, we have had joint stock corporations. Only the last forty have we had this idea. Before the eighties. It was considered obvious. Our grandparents thought it was obvious. Our great grandparents thought it was obvious.

58:38 Like Adam Smith thought it was obvious. Everyone before thought it was obvious that corporations existed to pursue a specific thing. What's called a beneficial purpose in the law. So in the nineteenth century, for example, if you wanted to make a company, you had to make a declaration. to your state legislature.

58:56 That this thing you wanted to make would do something that is publicly beneficial. You'd be like, I want to make a railroad. They'd be like, Why? Right. You had to say it would be beneficial to the public to have a canal between this place and that place. And just to get a sense of how different our best practices are than hi the historical norms in the nineteenth century. If say you were the richest person in America.

59:17 And you're like, I wanna buy this company and change what it does because I can. First of all. The board would be authorized to fight you to the death. They didn't have to say yes. It would do.

59:27 crazy stuff in the night. These battles were legendary. There's some of them are hilarious. What would go on between these people. But the second thing, let's say you succeeded anyway. You took the company over, he said, I'm gonna change its purpose from make a railroad. to maximize shareholder value.

59:42 That would have been a crime. the courts would void your charter, you would earn the corporate death penalty for having exceeded the authority of your corporation. So This is a new idea that we live under. We think it's natural, but it's very new. So If you don't want that. Like that's what and that's what doomed Vectura and all these companies.

1:00:02 If you don't want that, you can change it. The good news for you listening right now in the year twenty twenty six is that a band of corporate governance rebels have spent the last like fifteen or twenty years fighting this. and building alternative structures that are available to you. One of them is called the Public Benefit Corporation, or PBC.

1:00:20 A lot of confusion about this out there because people have seen the little bee with a circle on it at their farmers market. It's not that. It's confusing because the same people invented that who also invented this and the word B the letter B is in both. So I get it's confusing. But no public benefit court. is the easiest thing I will tell you to do on this whole podcast. Could not be easier. It is a two page legal filing.

1:00:41 That you just sub your lawyers can submit it for you in Delaware tomorrow. You just say this is the purpose of this company. Not Any lawful act or purpose instead no. This is a company designed to advance human flourishing by creating safe and responsible AI systems. We advance human flourishing by creating high quality products and selling them. Whatever whatever you do, just write it down. It's couldn't it couldn't be any easier.

1:01:01 And most of the best companies are using this. structure, like all the major AI labs are incorporated as PBC's uh enthropic most famously of all. it doesn't guarantee that you're the good guys. Okay, just writing it down doesn't do that much. But it does solve one very specific problem, which is if someone one day sues you saying you breached your fiduciary duty to investors, you could say, nope, investors agreed. That this is our purpose to do this thing. Why is

1:01:25 Anthropic been able to resist all this pressure? This is one of several of the interlocking components of the armor. that protects anthropod from the from outside pressure. If you don't do this I can't help you, man. This is like the very minimum. You gotta do at least this. Now if you're not at the founder You probably are wondering, d have we done this at my company?

1:01:44 This is gonna sound so dumb, I know, but You can just Ask. Okay, e even if you're in a job interview, I remember someone once came to me and asked me for advice. They wanted to advocate for these ideas, but they were like, I need a job. I don't even work anywhere yet. And they were like caveat. I was about to give them some advice and before you give me your advice, you need to know that I'm not courageous.

1:02:03 Okay. So like I can't do anything scary. I'm not willing to be an activist. Like I just need a job, man. But I am willing to do something, but it ha I feel like they'd ask me for a no bake cookie recipe. You know, I was like And no courage, what can I do? And I was like, Okay, and you can do this if you're in an a job interviewer, just ask your boss.

1:02:21 Either way. And at the end of your interview. We're gonna ask if you have any other questions. You can say Is this a mission driven company?

1:02:31 They're gonna say yes. How do you know? Yeah. Like what kind of things do we do, that's mission driven? They'd be Oh, we have free beer on Fridays and we We clean up the local park on Saturdays. I don't know what they're gonna say.

1:02:43 Maybe something great, maybe something. But whatever they say, just nod and be like, Great. They just ask. Cool. Is that the legal mission? Awesome.

1:02:52 Is that in the charter? Almost certainly the person you're asking this question to is not gonna know the answer to your question. But it's a legitimate question because if you're working in a company that doesn't have this in the charter, you're gonna be betrayed eventually. You deserve to know. But more importantly

1:03:09 Just by Asking. You've now forced them to get the answer. Like you've got you know, I mean you've been in part of of hiring processes. Every hiring process at a well run company, it's somebody's job to make sure every question a candidate might ask. There's a like frequently asked questions document with the answer.

1:03:24 So she's gonna have to ask her boss. Who's gonna have to ask out her boss and her boss like I've been in boardrooms where this kind of thing comes up. where someone's like we're getting this really irritating question from candidates and we don't know how to answer it. Now maybe just by asking

1:03:40 The CEO also listens to Lenny,'cause everyone listens to Lenny. CEO's also been thinking about doing it too, but it was like I don't know if I have the support of the board. I'm not really that courageous to bring it up. Now you've created an excuse. A we gotta do it'cause I mean it's the thing that everyone's doing it.

1:03:55 Employees are even starting to ask about it. Like if you read these post mortems and some of these like crazy things that are going on in the AI wars. A surprising percentage of the motivation of leadership is like we want to keep our employees happy. So be an be an unhappy employee who wants to know what's our mission. Is it the real is it the real thing. So of course that's not the only thing you can do, but that is the beginning, the easiest one. On the integrity side.

1:04:19 And again, a company that hasn't done it is very much at risk. Of eventually being betrayed. Are there any downsides to filing this charter? No, because the one thing that has no trade truly no trade offs at all. Okay. Maybe you'll meet an investor who's like suspicious about her, doesn't like it.

1:04:36 But again. The only situation this would ever become relevant is if the investor is trying to force you to sell the company and you don't want to. So like You could just tell them, Are you telling me that in that situation you believe you should get to decide instead of me? Just

1:04:50 Can is that what you're saying? And then you can ask yourself, is this really the right partner for you? Someone who would say yes to that. Like what are we doing here? All these VCs are like I'm founder friendly. I believe in your vision. Do you? Do you or like what is this what's going on here? So that's really important. Yeah, the other downside. I the the main downside of almost every technique in this book is that people will waste your time trying to talk you out of it. That's really like you have to be ready for that. The book actually has a whole section called How to Talk to Your Investors and a whole separate section about how to talk to your lawyers, like detailed exactly what to say.

1:05:19 what are the questions you're likely to get because in the years I wanted for years. I have been writing down all the objective I've heard from all the companies I've helped. I was telling me if someone objects, please call me and tell me what they said. I just wrote'em all down. So I all the answers are there. But you if you talk to your lawyers and you they'll say something like Well, you know, you might want to just keep your options open. You don't want to prematurely commit to your purpose. And I've never hear that, I'm like, really? Keep my options open? That's how you get maximum value.

1:05:44 What about the option to convert my customers into soilent green? And eat them. Do I have to keep that option open? L you asked your lawyers this question, they will say something like You never know.

1:05:58 what you might need to do. And then we're like, why does nobody trust me? Well, cause you won't even take that off the table. Come on, man. No, this one has no downside. Absolutely, absolutely no brainer. This sounds like a A great single takeaway. If there's anything you take away from this conversation, you should do this. The fact that Anthropic did this is such a huge deal because

1:06:17 I think a criticism of all of this That people probably hear is This is gonna limit our growth. This is gonna hurt our potential. Yeah, yeah, yeah. Like we're trying to like Capitalism has worked in creating a lot of very successful Companies and value and

1:06:33 Innovation. Catapulism has worked in many ways. Uh Why would we need to do this? And anthropic being. The fastest growing company of all time. Just like

1:06:43 Absurd, breaking all records. is uh public benefits corporation. Should make you feel okay about doing this. Oh yeah. It entropic has helped so much because they do many of the things in the book, including This uh what they have for the thing we're gonna talk about the long term benefit trust.

1:06:58 They have that two tiered governance structure that we were talking about before. But like It's so funny, even now, even with Anthropic having such success, people still say stuff like this, like oh, I'm worried that I'm not gonna be able to raise money. I'm like Anthropic's been able to raise some money. That has not been an obstacle. In fact If you ask people why is anthropic winning. They will often cite some surface characteristic, like Anthropic very famously has lower inference costs than their competitors.

1:07:25 the you know, they have faster product velocity. Than their competitors. They have um You know, what do I hear? Sometimes they say that they they have more focus, better focus than their competitors. Those are the most common ones I hear. And for each of those, if you say, Well why? Like, Well, they have lower inference costs if they have better technical infrastructure. Why?

1:07:41 Well,'cause they had some kind of internal breakthrough. Why? If if you keep asking why, eventually some like Well because they have the best talent. Why? 'Cause people want to work there. Why? And you read that because people people like very much want to work. They want to work for the good guys. They think this is these people they have the the mission to save the world.

1:07:59 Why do they have that mission? Because that was the ethos. But why have they been able to protect it? Because they pair the ethos with the integrity. This is at the heart. of almost every like breakthrough success story you've ever heard. you will find this lurking there as the as the thing that gave them the competitive advantage to drive that differentiation. It's funny you say that. So I just had Cat, the head of product on claw code and

1:08:22 I asked her just how are you able to ship so fast? They're shipping a massive product or feature every week, essentially. They were going through a period of every day. And a big part of her answer was exactly what you're describing, which is we are so mission aligned. It is so easy for us to decide this is something we will do or not. That is the thing. Remember how we talked about how people say business is hard? Most people have never worked in a mission aligned company.

1:08:46 It is the organizational equivalent of being in the flow state. as an individual person. It's a great feeling. And it It just makes everything easier. Like you don't like you don't have to have meetings about stuff. You don't have mission misalignment. Like in most organizations, you have people who I call the torchbearers. Which are like the rare person in an organization who's simply committed to doing the right thing, no matter what. Steve Jobs very famously would host have skip level meetings. He wanted to meet not with his

1:09:11 Just direct subordinates, he didn't care. He wanted to meet with the torch bearers throughout the organization. He did those are the people that are gonna drive us forward. And if you're a torch bearer, you're just like think about like the designer who simply won't s ship slop no matter what. the engineer who will like not sacrifice quality or performance, right? That they just you meet these people every once in a while, product manager who just They are prioritizing the right things, even if people complain. In a m traditional company, if you have that job, if people listening, if you've ever had this job

1:09:39 Man, life sucks. Every frickin' day someone's in your office with a spreadsheet being like, but what as the ROI I'm doing the right thing? And you're just like, I don't know. It's just the right thing. In a mission aligned company, this doesn't happen two different ways. There's two different like antibodies that protect against this. First of all, since everyone's mission aligned, no one's bothering to make the spreadsheet. There's no need. The late great Clay Christiansen once said that it's easier to do the right thing a hundred percent of the time than ninety eight percent of the time. Just like'cause now you don't have to have a meeting about it. We just

1:10:09 You don't have like an enterprise, someone's like, Oh, I came up with this crazy unsafe thing that will make us an extra dollar. We don't have to have a meeting about it. I already can tell you we're not going to do it. We already know. So it's just incredibly you know, everyone's incredibly aligned. But the second thing that I think is less appreciated. is a practice I call the culture bank.

1:10:28 Which is When you start to see trustworthiness as an asset, you start to realize that certain actions build that asset and others take it away. So let me teach you a rule I learned from from one of the one of my favorite founders, Todd Park. He created Devoted Health, the health insurance company I was mentioning before. Um, but but he learned it from Howard Schultz, who built Starbucks. Like if you see in strong culture companies, you always see this pattern where you've taught people that whenever you do the right thing, that is, you do something in defense of the company's values that has a sacrifice to it. saying the values, enchanting them, you know, making a song out of them, that's not it.

1:11:03 But If you do something, you know, I tell a story about this grocery store in Texas called H E B. where there was a where the power went out, it was an ice storm and the manager let all the customers just take their groceries home. No charge'cause they the point of sale system wasn't working. People say, Oh what a what a courageous manager. No.

1:11:21 That's what they train people in at H E B. that you're making a deposit in the culture bank when you do the right thing. So deposits, you make a sacrifice. A withdrawal is the opposite. You do something greedy, self interested for the organization. The Todd Park rule, as I call it.

1:11:35 Everyone who hears this rule, the first time they hear it, tells me it's impossible and you can't do it. It doesn't make sense. But This is the rule. It's really simple. Only make deposits. Never make withdrawals.

1:11:49 That's it. 'Cause you're gonna make withdrawals by accident sometimes'cause you're gonna make mistakes. But you never intentionally make a withdrawal. And that I think is the true power. Like when you hear someone who's living that flow like Kat, you you were talking about anthropic. that has been internalized in the organization. uh it's what what the pioneering uh management theorist Mary Parker Follett called the invisible leader.

1:12:11 the person, the thing that people follow, even when no manager is present. So no one has to be in the room to remind you to do it. You just do it because you've internalized that this is what we're all about. And when everyone around you is doing that same thing. the whole velocity of the whole organization increases exponentially. I wanna hear the uh kind of the open AI versus anthropic. Story because uh you've mentioned a part of the structural pieces this nonprofit.

1:12:36 So talk about just like what happened there and how that relates to what you talked about versus anthropic. And then I actually want to hear a little bit about just the actual structure, like what is this two tier thing? What's the nonprofit piece? Open AI is a really hard case study to learn from because it's such a bizarre story and has involves like mega personalities like Elon and Sam like dueling to the death. So it's complicated. Um, but we can get into it if you want. But I entered the story. The funny part is like I have this very I played a very bit role in all this. Okay, so I'm not an important actor in this story at all. I take no credit for anthropic success, all the credit to Dario and Danielle on the whole team.

1:13:08 Uh but when they left Open AI, this is two or three open AI crises ago, depending on how you count. They left and they wanted to start Anthropic. Now today people are like, oh, sure it works for Anthropic. They're a world beating company, but like Dario was a first time founder. I was there. Okay. He was impressive, but like in the way that a technical founder for the first time is impressive, you know? And he had investors who were excited to back him, but they were like Effective altruism like true believers. wasn't the top venture funds. None of the top venture funds wanted to participate in this round.

1:13:38 Wasn't a hot company at all. by modern standards. And generative AI, the boom hadn't happened yet. Chat GPT hadn't been invented yet. So the Mass psychotic mass psychosis we're all living through had not occurred yet. Nonetheless, they were true believers in the safety mission. And so one of their investors suggested they come talk to me.

1:13:56 I was like um Everyone knew I was like a a eccentric collector of weird ideas, you know, like I some people collect butterfly wings or whatever, I collected alternative governance ideas. So when they came to me, I I was walking them through the same horror story I'm telling you today. I told them, Look, if you don't get this right, here's what's gonna happen and they were very determined to do something about it.

1:14:16 And so we talked about what we should do and I and I advise a little again a very little bit. I don't I don't take the credit for what happened next. But they wrote into their charter. If they were to do this, they were a P P C from the very beginning. And they wrote into their charter that they had the right to enact these additional reforms. Which they had to defend. All credit to them.

1:14:33 For taking it seriously. for convincing their investors and they had to defend it for like two years. 'Cause they didn't actually implement the what's called the now the long term benefit trust. Until they're serious. But they had the right and the intention to do it in all their legal documents from inception. That was a really important, uh important choice. And so even today, Anthropic has directors on its for profit board.

1:14:55 who are appointed by and are accountable to an outside group of trustees who are AI safety experts who do not have equity in anthropic. So they do not have a financial incentive. in its growth, they have an incentive to see it done properly. So whenever you see anthropic do the right thing, like when they refuse to release a model because they think it's too dangerous. Think about how much that's costing them.

1:15:16 People say well they do it for the publicity. But like Publicity's nice, but you know what would be really nice is having the number one top model that everyone has to pay you to use. Okay, that's really nice. They people say that like they got into this fight with the Pentagon. And to be clear, I don't think that they're even the primary actor in that story. Okay. This is a story of government overreached. They were in an impossible situation. Even people who say they did the wrong things, when you're in an impossible situation, what are you gonna do? It's the Kobeashi Maru, like What are you gonna do? It's you're an impossible situation. There's no right answer. But like even people who think they did the wrong thing, like

1:15:46 tactically speaking, admire them. Because we live in a time when It's so rare for companies to turn down money ever. And here they turn down say what you want about them, but they turned down a two hundred million dollar contract and bore the wrath. of the world's largest army.

1:16:01 and government. Okay, that took a lot of courage. Part of that courage is enabled by the fact that they have this structure and investors can't just oust Dario at a moment's notice. I think the structure, frankly, is better than founder control. Dardo does not have dual class shares the way that Mark Zuckerberg or or Larry Sergey had.

1:16:18 Um it's more institutional in its nature. But to kind of answer your question, the critical thing we need If we're gonna really resist outside pressure, we need what I call a mission guardian. It has to be somebody or some entity's job. to make sure that the thing remains mission locked or mission aligned.

1:16:36 That does not happen by accident because gravity is such a powerful force. So Anthropic's solution to that is to have a mission guardian in the form of a long term benefit trust. Um, OpenAI over very famously had the non private foundation, although now they've converted to a public benefit corp structure. Obviously Google and and Facebook are protected by founder control. The founder is the mission guardian. Those are the structures. And I I tell the story in the book, a very weird experience I had. I was literally at the Vatican of all places. I mean look at me. What do I do at the Vatican? No.

1:17:05 But it was cool. I had convened a conference on AI governance. And they invited me to speak. So I was on this panel. The Vatican. With Every other AI company.

1:17:15 And me. It was weird. It was actually strange. It was like me, literally me. I go now. I was looking down the row, me, Anthropic, Open AI, Google, Cohere, uh, Palantir, everyone on this on this panel together. And I looked down the panel. And I realized Not a single one of these companies has standard governance. That's how bad it is. Nobody making this technology would say, Oh yeah, standard governance, that's fine. I'm sure that

1:17:36 It's just too dangerous. But They of course take different approaches to mission guardianship, some of which are better, some of which are worse, like founder control, I think actually has a lot of downsides to it. So and when you say standard government, like every one of these AI companies is not doing it the way every other startup is doing. They understood they needed to do something different to protect

1:17:54 Humanity essentially from AI. Yeah, yeah, exactly. It's just This technology is so valuable, if you say that shareholders should run it. Then you're saying literally

1:18:04 Whoever can borrow the most money. should be able to control this technology. It's just That's nuts. That can't be how that's can't be how it works. No way.

1:18:13 I don't think any company should be governed that way, but certainly not AI companies. Certainly not. Okay, so just just to kinda plant these things in people's heads as they okay, we need to really think about this stuff. There's like this uh There's a nonprofit approach to this. There's what are the kind of the terms that people should just think about? So so we talked about we need a mission guardian. So first question, is the mission guardian a person or a thing?

1:18:35 That's our kind of first decision point. So yes, I'm I I think for for early stage companies, founder control is fine. As like a good bridge, a temporary bridge. to a more permanent structure. And some companies get really far with fouter control. That's okay. But A lot of founders who have founder control wind up really miserable, as you can see by the fact they're having a mental health breakdown right in front of us, all of us on on social media basically every day, because like you become like Atlas, you can't even shrug.

1:18:59 It's you holding back the abyss. It's a lot. So I think a better, more permanent solution is to encode the protection into the structure. Now that can be done with a single entity like Costco. Costco just has the rules written right into the structure itself. But that means that um every time they lose one of the structures, every once in a while one of Tack chips off a little bit of it, they don't have any way to grow them back. So it's like you've built this fortress, but you don't have a way to renew it.

1:19:25 The better way, I think, according to the evidence, is to have some Stakeholder, somebody be the steward. of the mission. And have a way to renew that person. that that set of people. So some people accomplish that by what's called an employee ownership trust.

1:19:40 So the employees of the mission guardians. Um, like the John Lewis partnership in the UK is a famous example. Obviously cooperatives have this. Um This can work in a cooperative at at scale. Mondragon, for example, in Spain has like eighty thousand employees.

1:19:54 Huge company, but they're all employee cooperatives. You can do it through an employee voting trust. That's how Alibaba is protected. Where the employees vote for the board members rather than the reverse? But those are comp like much more complicated compared to the to me the two simplest solutions. are either a nonprofit foundation, as in the Novo Nordisk example, or in the case of what's called the perpetual purpose trust or PPT.

1:20:16 And perpetual purpose trust. is a non economic entity. So whereas like the Nova Nordis Foundation is the largest charitable foundation in the world. because it owns it owns a big chunk of Nova Nordisk and that's worked out pretty well. Um, the anthropic long term benefit trust is has no economic dimension to it at all. It only has the mission oversight responsibility.

1:20:35 And what's nice about a perpetu perpetual purpose trust, um, as in the case of Patagonia is governed with a a purpose trust also. Is you you have the trustees Then you also have someone whose job is is actually to sue the trustees if they ever deviate from the mission. So you actually What's called the purpose protector. He's like an extra person who can get in there and say, like if things go wrong. So you have kind of I to me it's like you have checks and balances like in a government.

1:20:57 Um it's more stable, uh it's a more stable structure. To me though, I use the omnibus term spiritual holding company. to describe this category of things. The people who advocate for each of these things think their version is the best. I didn't even mention the Evergreen, the Tugboat Foundation. They don't believe in having investors at all.

1:21:18 So there's like people who think the solution to this is no investors involved. That makes the problem a lot easier. So anyway, there's a lot of different ways this can be done. I don't think I even mentioned ESOPs. It's just so many. So we need to have an omnibus term. I call it the spiritual holding company, the holding company, like the Berkshire Hathaway. But rather than having everything be wholly owned. It's the holding company for the spirit, the animating essence. of the whole. And

1:21:40 I have a lot of evidence in the book. A lot. that this structure is more stable, more durable, more likely to invest in quality and R D and the things we really care about. And better for shareholders. than the conventional structure. If this all sounds like a huge drag and a lot of work and really annoying, I'd say go back an hour when we

1:21:58 talked a lot about just what is it you were trying to avoid and the pain. Yes. That's the thing. It's like well, you know what's really a drag? I'll tell you a story. Th a friend of mine got ousted by his investors. Okay, and I was going to this party to celebrate him. And it was like People had flown in from all over the country.

1:22:16 to sell including like employees he laid off. came to this party. It must have had thousand people there. It was amazing. And I was describing to a new founder, like I'm sorry I can't help you with your company right now. I gotta go to this party. And he was like

1:22:30 Okay, I he I'm describing to him and he was just like wow, what respect. that founder sounds on that's the just the kind of company I wanna create. I'm like, dude, you have not been listening to anything I'm saying. He doesn't work there anymore. He's like Saul Price. This is not a party, this is a wake.

1:22:48 He was like, What, did he die? No man, he didn't die. Did the company go bankrupt? No, the company's fine. That's not the problem. The new and he was like, Do you do is the new CEO an asshole or something? I was like, No, I like the new CEO. He's a friend of mine also. Perfectly fine. The problem is he's like, What's the problem? The problem is if a company can be decapitated at any time. You can no longer trust it.

1:23:11 All the promises that this company had made over its fifteen year life, nobody believes them anymore. The new CEOs like going out and making new promises. But we're like An activist investor owning point five percent of the company can oust you at any time. Why should I believe anything you say?

1:23:27 And then we're like, Why is trust collapsing in our institutions across the board? We are Teaching a leadership philosophy that is antitrust. Anti trustworthy. So yeah, if if it sounds like If you sound like this sounds like a bummer to have to worry about this stuff, you know what's really a bummer? Come to that party with me.

1:23:44 That sucks. Mm. And that's a founder who made Literally billions of dollars for his investors. But it wasn't enough. It's never enough.

1:23:54 And hearing hearing these from you is so is Important and powerful because you You see so many founders. Like I don't there's few people in the world that see the number of founders, meet with the number of founders, work with as many startups as you. And like this is not an easy place you're in. Trying to convince people to do.

1:24:09 These very annoying things. It's very annoying. I know. I do agree. And so it just says a lot that you're putting yourself out there this much for you guys pay attention. This is Even though it feels weird now. the ideas this should not there should be our grandkids will think this is the most the most obvious thing they've ever heard about. So yeah. You can you can get it you can get ahead of it now. You know, people when I first started talking about lean startup, people thought it was so weird. As weird as you think this is, people thought Lee Startup was a lot weirder. So like

1:24:36 I've been through this before. And When I when I write I don't write very many books, okay. I'm not like an influencer. I don't I don't tweet every thirty minutes, like I'm not that kind of person. It takes me years to put these things together. And I only do it

1:24:50 when I have figured something out that like I have personally lived myself and found useful in my own work. And I've helped lots of other people do it. So it takes me a long time because I takes a lot of experimentation, a lot of testing, like This is the work of hundreds and hundreds of companies who have who I have work had the chance to work with and seen what works and what doesn't work. So the pain that I'm describing to you is like

1:25:12 This is not some hypothetical thing. I'm not I'm not trying to trick you into something. I have nothing to sell you. This is just What the data shows can prevent. This like epidemic. of value destruction that we're seeing all over our economy.

1:25:25 Maybe it's just a final uh tactic. Say an early stage founders listening to this and like, Oh shit, I gotta really do something here. What are say three things they should do in the next week or two? Okay, here it's just let's just let's just do the really easiest things. First of all, if you haven't raised money yet.

1:25:41 Or you've only done raise money on safes. Okay. You can do absolutely whatever you want. So do not waste this moment. Everyone's in such a rush to get big, such a rush for the next thing, but you have a precious, precious moment here. The founders who have already raised their series A or they're in pre-IP, like pro the founders that you envy that are ahead of you. It's more of a pain for them. They gotta go get investors on board. They gotta go they they they need to do it

1:26:03 Okay, I told you the the next best time to plant a tree is today. So they still have to do it, but you have an incredible privilege. Just please, please, please do it. Cause the basic things I think are really easy to do that are super low cost. Um be a public benefit court. Do the file. But that that's so easy. And write a mission there that is something you really will feel good about. And the way the test for if you wrote the right thing is

1:26:24 try to brainstorm with your co founder. Not for like you don't need to spend like ten weeks on this, like spend an hour. And just adversarial prompting, okay? Can you think of any way you could make money while violating this? Statement. And if you can, would you be happy or sad?

1:26:40 In that scenario. If you be sad. Write it. Right. Don't let yours don't ever be a situation where you're rich and miserable. Write it down. Okay, easy. Second thing that's super easy. We didn't get a chance to talk about. I call it the director's oath. This came up obviously because of this big fight going on between uh Anthropic and Figma.

1:26:57 And a and a reporter I just just got reported, um, you know, reported on the idea'cause like what what are our responsibilities in these weird situations? It's actually really tricky. Every company's calling me being like Is it are you saying I can't have an AI person on my board? 'Cause having an AI person on my board seems really dangerous. But I was like, You know what's really dangerous? Not having an AI person on your board.

1:27:17 So yeah, like everyone's kind of stuck. What do we do? It's impossible situation. We need to have like just like we have doctors have a Hippocratic oath. First to no harm. Why don't we have that for directors? It's insane to me. The directors control like f have far more con make far more consequential decisions than nurses.

1:27:32 So why do we hold nurses to a higher standard than directors? No. So you we can wait for us to standardize on an oath for everybody, but you could implement one right now. You can just write it into your corporate charter. Everyone has to do this. It's a precondition of being on the board. And then the third thing is I'm gonna presume again for founders, we'll talk about non founders in a second, but for founder, I'm gonna presume you've already got what are called founders preferred shares. If you don't know what that is, you need to

1:27:57 Ask an L M to explain it to you. And just say Eric said Founders preferred shares. could potentially make me like personally an extra billion dollars someday.

1:28:07 So can you explain to me why? Type that prompt and read what it says. You need to understand the economics of what are called founders' preferers. So I'm gonna assume that you understand that and you've already done it. If you haven't, that don't that doesn't count on my bill of extra things you needed to do'cause you needed to do that anyway for personal reasons. But

1:28:21 If you have that, then that's the logical place to do things like founder control. Extra votes. board votes for board control stuff like that. So so talk to your lawyer about Um about what are called mission protected provisions. If your lawyer's kind of being a drag or you don't like having to pay them by the hour, I actually helped start a law firm.

1:28:41 Just because this drives me crazy. So there's a law firm called Virgil. They'll be happy to help you and they don't charge you by that hour. Um, this is not the main thing that they do. They mostly do AI assisted back office acceleration, uh, which is also very cool. But anyway. Make sure you have somebody you can talk to about it. Okay. And then after you figure out which of those things you want to do. Then

1:29:00 Put yourself imagine yourself in the seat of an investor saying, It sounds like you're a greedy SOB. you're all this power for yourself. You're like a power hungry emperor. Why do you want to be emperor for life? So you don't want to be emperor for life. Right now we kind of have this dichotomy between what I call investor controlled companies. And

1:29:18 founder controlled companies. And everyone's like, You gotta pick one or the other. But neither alternative is very good. What we want to create are what I call mission controlled companies. So a mission controlled company is one where the mission itself has sovereignty. And so if you're feeling a little greedy about grabbing all this power for yourself, that's the time to do something like the anthropic L T B T. It's very easy to implement at the early stages because you don't need a nonprofit. Like let's say you don't want to be novel nordist.

1:29:43 You don't actually have to boot up the nonprofit right now. All you have to do is write it into the charter the way Anthropic did. Just say Ten percent of the equity is hereby pledged to a nonprofit foundation and one percent of future revenue. the foundation gets a board seat or whatever you want to say. Like those things are really easy. Just write them into your charter. Fire and forget. And then boot it up later. But make sure you have the right to do it. Now those are the bare minimum easiest things in the book to do.

1:30:08 Um Uh a total piece of cake. It's interesting how so much of this is similar to Not similar, but uh to AGI alignment. Finding a way to align AI, finding way to align your

1:30:18 Your business is not a coincidence. Okay. There's a deep philosophical reason why this comes up. I'll give you the simple version and then we'll do the complicated version. The simple version is who aligns the aligners. Mm-hmm. This is the number one unsolved problem in AI. It's not the technique we're making great progress on the technical alignment problem.

1:30:36 But we haven't made Jack. progress on the human alignment problem. Which is that we've known since the development of Conway's laws deck Conway's law decades ago, that software products the organizational imprint of the humans who make the software shows up in the technical architecture of the software. Like it's really weird actually. We don't think about it that much, but like the org chart.

1:30:57 is visible in the architecture diagram. Why? 'cause human values flow from the parent to the child. So that's one reason we have to make sure that that that if you're trying to solve the alignment problem, but you can't agree on what the human values are to align to, you're already cooked. But the deeper and more interesting problem I don't know, I don't know if your listeners will be familiar with this or not.

1:31:15 There's this concept in the scientific literature called emergent intelligence. And I write about it in the book because Corporations, organizations are the oldest form of artificial intelligence on the planet. They are An example of this emergent intelligence, the same scientific principle that makes trend the transformer architecture work.

1:31:35 And appear intelligent. That same principle is at work in organizations. Organizations are literally super organisms. They're alive. In the same way that

1:31:47 These models. are emergent. intelligences. And if you don't know what this is, it can sound very metaphysical and weird and spooky. So if you want a physical demonstration, I promise no metaphysics required. One of my favorite demonstrations of emergent intelligence. I don't know maybe Lenny, maybe you can link the video. Um I I have it in the book too. There's a video where researchers create this thing they called the piano movers puzzle.

1:32:08 Remember that famous clip that I don't know if you have the meme of friends where they're trying to get the couch down the stairwell and he's like pivot, pivot, pivot. People send it to me all the time for obvious reasons. Um They created a version of that puzzle. That they had ants solve. So visualizers like two slits, two walls with a gap in each wall, and a big I beam shaped uh irregular object. And if you watch a human solve the puzzle, it goes like this. They like try one thing, they think about it, they rearrange, you you go back, you back. You know, you've ever done do a puzzle like that.

1:32:37 You can just tell watching the video that an intelligent person is trying to solve this puzzle because they try logical things that don't work. And then they learn. If you give one ant this puzzle, he cannot solve it, obviously. But put a thousand ants in there. And they can solve the puzzle.

1:32:54 And if you watch the video of the ant colony solving this puzzle, you will swear you can see an intelligence at work. Because it does just like a human, it tries something. It pauses to consider It re reorients, tries something different. It's spooky. And the researchers found this is what we have to understand for humans.

1:33:13 The more ants you put in the puzzle, the faster the solution. But the more humans you add. The worst. Unless the humans are very carefully aligned. This is the key lesson for organizational design.

1:33:29 We are birthing these things left and right. And if we don't tend to them properly, they develop emergent characteristics that we don't like. We don't want that to be like that. And no amount of founder mode is gonna clean that up. because you're talking about something that's deep in the

1:33:44 in the DNA of the thing you made. Beware. What I'm hearing here is we should be packing more ants for our organizations. Uh. Yeah.

1:33:54 Eric, we've given people a lot to think about. I think there's a lot of just like, Oh wow, I should really think about this and take this seriously. What's the final thought, final Nugget, final lesson you wanna leave listeners with before we get out of here. Let's talk about Mary Parker Follett. I mentioned her in passing, and I feel like you know what? I bet a bunch of people have never heard of her. So let me let me give you one more one more blast from the past. Most people have heard of someone named Frederick Winslow Taylor.

1:34:18 Fred Taylor is a good friend of mine, you know, one of the pioneering original management theorists. You know, he wrote the principles of scientific management in nineteen eleven. And Taylorism was one of the most popular management fads of all time. If you think we have fad now, you should see tailorism. It was like debated at the Supreme Court. It was front page news. in the nineteen teens. Taylor, they made movies about him. He was an incredibly famous person. But one of his contemporaries was a woman, her name was Mary Parker Fallon. And

1:34:43 Sh her work is so far ahead of its time. That if you read it today you would think you were This person lived in twenty twenty six. She would write things like Um we need to focus on power with, not power over.

1:34:57 She said the superior and the subordinate together obey the law of the situation. Meaning we work together to figure out what the situation requires. We don't just tell the subordinate what to do. She said the job of a leader, the the the hallmark of a leader is can they create more leaders. So like if someone said that to you right now, you'd be like, Oh, that's going on TikTok right the second, like

1:35:18 Twitter. That's awesome. What podcast was that on? No, she wrote that in nineteen twenty. Um Now unfortunately, for reasons you probably can guess. She was utterly erased from history. Like her work was utterly lost. Nobody studied it at all for most of the twentieth century. And then it was totally rediscovered and she and and it was republished in the nineteen nineties.

1:35:36 The great Peter Drucker called her the prophet of management. Okay. So one of her most important concepts is what she called the invisible leader. And I just love this. She Just imagine someone a woman in nineteen twenty going around saying this to people, how it would blow their minds.

1:35:52 She would say. Mr. Round Tree. The owner. of the round tree chocolate factory. Is not

1:36:00 The leader. of the round tree chocolate factory. And people be like Lady What are you talking about? His name is on the door. His family has owned this thing. Like what how if he's not the leader who is, she'd be like glad you asked.

1:36:13 Mr. Round Tree is an excellent leader because he's very good at instilling in his people The sense of common purpose. of what this factory is about. and the common purpose rather than Mr Round Tree himself is their invisible leader. And this is maybe the most powerful concept if you if you want to manage something like as a leader.

1:36:33 You have to understand that the most consequential decisions that will affect any organization's life are almost by definition made when no manager is present. You think you made the decision when you told everybody we're gonna build a high quality product. Our vision is this, our plan is this. But you're not there. When the product managers and the designers and the engineers make the actual trade offs, right? Somebody sitting there with the code.

1:37:00 And being like rounded corners or straight corners. Skeumorphism or not. When push and clicks this button Do we double check do we understand what they meant, or do we just erase their hard drive, right? Like thousands upon thousands of these tiny little decisions get made. Only the invisible leader.

1:37:17 is present. So if you don't cultivate that sense of common purpose, you have no control over what's going to happen. Again Your promises are Worthless. So if you want a little homework, read Mary Parker, follow it. Uh she will she will enlighten you.

1:37:32 If any of this is at all interesting to you, if you want to explore this, if you want to implement it by Eric's book, Incorruptible. Is there a website to look at, or is it just Google and find any of the things that you can do? Yes, yes, of course you can find it anywhere books are sold. Um, but yes, we do have a website, incorruptible.co. Please join the mailing list. We have tons of bonus content, especially for those who are implementers. We have implementation guides and advanced implementation guides and readers' guides, lots of extra content, uh, including a secret chapter that got cut from the original manuscript. tried to make it really worth your while to go to the website for your order. And sign up for the mailing list. Um but

1:38:04 You don't have to buy it from me. You can buy the book anywhere books are sold. It's in hardcover, it's in uh audiobook and ebook. If you want to. One of my favorite things about the website, we have a list of I have more than a hundred last time I counted. of local independent bookstores that are carrying the book and where you could order online. So if you want to

1:38:23 Not only could you do me a favor and buy a copy or ten or twenty or however many you want and give'em away, but if you'd like to make the day. of your local independent bookstore. You want to support a local community. Like a pillar of your community. And be their favorite customer. You call up and say, I have this book coming out.

1:38:39 I'd like a bunch of copies to give away. Can I get'em on launch day? You or your friends will thank you. Bookstar will thank you. And I will thank you. A great pitch.

1:38:48 Incorruptible, why good companies go bad and how great companies stay great. Eric Reese, thank you so much for being here. Thank you, Lenny. Appreciate it. Appreciate you giving the chance to to talk about it and congrats on all you're doing. Thanks, Eric. Bye, everyone. Thank you so much for listening. If you found this valuable, you can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. Also, please consider giving us a rating or leaving a review, as that really helps other listeners find the podcast. You can find all past episodes or learn more about the show at lennyspodcast.com. See you in the next episode.

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