He believed in a principle he called being

a fiduciary to the customer.

meaning you put the customer's interest before your own.

He believed in capped margins.

He thought margin was a weakness, not a strength.

So he would only mark up an item 14%, no more, no less.

If a competitor tried to sell a product for less than he could sell it for, dumping it on the market as it were, he would put up signs inside his own store saying, don't buy this from me.

So can you talk the listeners through what this high-level blueprint does look like for them?

Was, was there a key moment you realized that really innovation is not enough? That company can really be brilliantly innovative and still drift morally, uh, Of course, even that word morally, ethically, we use it interchangeably as

well.

Yeah, so this is, we do not, so yeah, fair trigger warning for your listeners, okay? We do not have good language for talking about this in our society right now.

We are so confused.

And we can either morally judge people as good or bad, which gets into this huge, opens this massive can of worms about like, if you call somebody good, you're saying they're good in every respect for all time, never make a mistake.

Satan calls them bad.

Are they evil? They're like the reincarnation of Satan.

So can you can you unpack that a little bit for us? What kind of structures quietly corrupt even the best intentions?

And obviously, we won't be able to survey them exhaustively, but could you maybe summarize a bit what are some of those that you feel like are most compelling and really real world tested as well?

Yeah.

Yeah.

In the book, I lay out what I call the new governance.

So today, I mean, honestly, most board meetings are really boring.

I've been on quite a few boards, okay? I think we could do a lot better as an industry.

The way we're teaching board governance, the way we're teaching people what is the purpose of a corporation, there's not that much to it.

You tell us a little bit what you mean by civic infrastructure, how you came to that as a concept and why you're excited about it and think it's important.

So can you can you unpack that a little bit for us? What kind of structures quietly corrupt even the best intentions?

So in order to understand why this happens, you have to understand what organizations are in a deeper way than we tend to.

And I know this is going to be hard for some people and they hear it for the first time, but the science of this is super well studied and well established.

So this is not a theory or some kind of flight of fancy.

I'm talking about literal scientific physical truths.

Organizations are what are called emergent intelligences.

It's interesting.

Like this as a creative act, that's really fascinating.

Is it just financial sort of that causes this to happen to companies, or what are the other factors?

Yeah, so when we talk about business, we have a tendency to spend our time and energy on the surface-level things.

Which don't get me wrong, those are the fun things.

Product, strategy, business model, org chart, culture, values, even vision.

Like that stuff is fun because you can touch and taste and interact with it.

You can control it.

But one of my realizations over these many years is that organizations are also shaped by underlying forces, almost like physical forces that warp them.

Where did it come from?

My name is Eric Ries.

Most people know me as the author of the book, "The Lean Startup." I've been an entrepreneur now for something like 20 years, and have been working to help people build great companies and great organizations all over the world.

I've recently built a company, an AI company, called Answer AI, as well as the Long-Term Stock Exchange, or LTSE.

So I'm always very active as a, as a builder and as a writer, uh, always on the shared mission of trying to create an environment where people can create great companies.

I feel very blessed.

I've been so fortunate in my life that so many great entrepreneurs have asked me to be part of their journey in hundreds of companies, in thousands of companies, I can't even count anymore.

New users get 100% off their first month at the link in the description.

So why was FedMart destroyed while Costco endured? You have to look somewhere that most people never think to look.

So how do we take this message from a kind of obvious privilege to a practicality that everybody can?

Yeah, yeah, OK.

So I'm going to take this question piece by piece.

And I want to be really honest.

The goal of this book is not to convince anybody to do anything.

If you notice, the book does not say what you should do.

I don't know.

good at that.

Why do so many of these companies get destroyed? And what are some of those characteristics that you've observed over, you know, your, your decades of working with founders?

Let's start with a story because this can all seem very abstract.

We're talking about powers and forces and destruction and corruption.

It's complicated.

But it's actually very tangible.

And I would say the main difference between modern companies and the ones we have in the historical record is just that we are speed running this process now, but it's the same underlying dynamic.

So in the book, I have case studies of this phenomenon going back to eighteen hundred.

What it-- what-- like, what actually is a mission in today, today's environment? How should you just think about the ethos and the structure, simplest way?

So can you, can you unpack that a little bit for us? What, what kind of structures quietly corrupt even the best, uh, intentions?

Yeah.

So in order to understand- So in order to understand why this happens, you, you have to understand what organizations are in a deeper way than we tend to.

And I, and I know this is gonna be hard for some people when they hear it for the first time, but the science of this is super well-studied and well-established.

So this is not a theory or some kind of flight of fancy.

I'm talking about literal scientific physical truths.

Organizations are what are called emergent intelligences.

[laughs]

What can you put in place to keep you on that path to think long term and mission

oriented? Let me answer by way of a story.

Our conversation has been very theoretical so far.

Who knows the legend of the great Saul Price? Man, this is sad.

One person in a room full of so many entrepreneurs.

Sol Price is one of the GOAT entrepreneurs, and you should all know his story, and you're going to, whether you like it or not.

I'm on a one-man mission to restore the knowledge of Sol Price.

This story has a happy

It's been really exciting and also a little bit strange.

Because you gotta understand, when I tell people in San Francisco where I live that I am an entrepreneur in residence at the Harvard Business School, it's always the Harvard Business School, you gotta see the look on their face when I tell them that.

They think it's a very strange way to spend one's time.

Because as you know, in Silicon Valley, we have a bit of an anti-MBA bias.

And we tell all kinds of jokes when the MBAs are not in the room.

So apologies.

We do do that.

Find your perfect match at Walmart.com or at a store near you.

What is the governance diff- difference there? And, um, my fav- one of my favorite lines in the book is how you define profit in this section.

Sure, yeah.

Okay, so yes, the...

Part one of the book is called The Shape of the Abyss, so you can say where my head, head was as I was writing this thing.

And, and I promise I, I was like, "I'm not gonna sugarcoat this for anybody." I have been to the belly of the beast, and this, this system that we're all complicit in has these, like, terrible moral failings.

And for most of us, it's psychologically comfortable to think that this is inevitable because then we don't have to reckon with the fact that we have complicity with it.

And I just wanna put that out in the open and recognize that for most of us, that is a deeply uncomfortable conversation, me too.

How can teams like th- like, like many of the people here thrive within an organization that may not have the same kind of coherence? Is that, is that even possible?

And I just wonder now how an entrepreneur watching, listening to this is keen to learn from you how that's changed and what you might have changed about anything you've written previously and how that landscape's changed.

Yeah, this is a very hot topic.

And I think many of the hot takes about it are quite wrongheaded, but, you know, are worth a lot of money to a lot of people, including friends of mine, you know, who are very invested in these narratives.

So I feel like I always have to be a little careful what I say, because we have both a, you know, burgeoning, almost tech oligarchy that's being built around this technology and a massive public backlash to it.

So much so that I have to really check myself, like what environment am I in? What's safe to say and what's not? What's conventional wisdom and what's not? It's very tricky.

So let's begin with one thing.

When I'm with young people these days, if I give a lecture or something, I invariably get the question, is this new AI, is it a transformational technology or is it a massive financial bubble bordering on a scam? And I always have to say, like the old meme on the internet, why not both? Both things can be true at the same time.

Listen,

What were the experiences, the, the successes, failures that first made you interested in not just building companies, but really in the, the systems, the architecture, the structure that shape how they behave?

Yeah.

You know, that's always been of, of great interest to me.

But really I came at it from a technology perspective.

So once upon a time, I thought technology was the most powerful force in the universe because I, you know, I grew up programming computers in my parents' basement.

Like, that was one of my first, you know, most exciting passions.

And I didn't know you could get paid for it, like it could be a job.

So can you, can you unpack that a little bit for us? What, what kind of structures quietly corrupt even the best, uh, intentions?

of organizational

being.

I don't always want to talk about their morality, because morality is important, but I also want to be able to talk about how authentic are they, how trustworthy are they, how consistent are they, what kind of character do they have.

And just like with human beings, we all know people who we have disagreements with, but we still think are more or less fundamentally good people.

but they don't make the same lifestyle choices that we make, but they have a person of strong character.

And conversely, there's a lot of people who we agree with them politically, morally.

They're in our same religion.

So can you can you unpack that a little bit for us? What kind of structures quietly corrupt even the best intentions?

So can you can you unpack that a little bit for us? What kind of structures quietly corrupt even the best intentions?

So in order to understand why this happens, you have to understand what organizations are in a deeper way than we tend to.

And I know this is going to be hard for some people and they hear it for the first time, but the science of this is super well studied and well established.

So this is not a theory or some kind of flight of fancy.

I'm talking about literal scientific physical truths.

Organizations are what are called emergent intelligences.

It's interesting.

in this dimension.

So can you can you unpack that a little bit for us? What kind of structures quietly corrupt even the best intentions?

So in order to understand why this happens, you have to understand what organizations are in a deeper way than we tend to.

And I know this is going to be hard for some people and they hear it for the first time, but the science of this is super well studied and well established.

So this is not a theory or some kind of flight of fancy.

I'm talking about literal scientific physical truths.

Organizations are what are called emergent intelligences.

It's interesting.

Like this as a creative act, that's really fascinating.

But

of course not.

They were perpetually dissatisfied with...

It's fascinating to read these stories because we're so used to this.

It's like, well, of course they wanted as much money as possible, but why? The engine of this company was creating an asset so valuable.

I think it's the most underrated asset in the world today.

I call it trustworthiness.

One example of the Americans following the Brits, because it's normally the other way around, isn't it?

So can you can you unpack that a little bit for us? What kind of structures quietly corrupt even the best intentions?

So in order to understand why this happens, you have to understand what organizations are in a deeper way than we tend to.

And I know this is going to be hard for some people and they hear it for the first time, but the science of this is super well studied and well established.

So this is not a theory or some kind of flight of fancy.

I'm talking about literal scientific physical truths.

Organizations are what are called emergent intelligences.

It's interesting.

in this dimension.

Maybe before we talk about lessons learned all this time that's passed, could you just distill down what was the key message of Lean Startup?

Sure, yeah.

So much of how we used to teach entrepreneurship really was based on 20th century general management principles.

Principles that every one of us has learned if we've had any kind of a job, right? You do better than expected, you're doing a good job.

You do worse than expected, you're doing a bad job, which requires you to have a manager.

Your manager has to know what's supposed to happen.

And then you could be judged based on how what you did compares to what you were supposed to do.

Eric, could you just give us a quick version of the thinking, the main vision behind the book?

Agreeing with the difficulty, is this an argument for stakeholder versus shareholder capitalism?

No, no, no, I'm not into that stuff.

In fact, I tried really hard to write the whole book without using the word stakeholder, which was very difficult because, of course, that is the way we currently talk about this.

But the problem is, we'll get into the problem of stakeholder capitalism before, but let me answer your question about how do we derive this properly? Because everything I'm saying, deferred liabilities, negative externalities, You'll learn this in an econ class.

This is not like some new thing that nobody knows.

If you take econ, they'll walk you through all these problems with our current definition of value.

And then if you say, well, should we change the definition? They'll be like, no, that's just the one we've used for this all the time.

Give the audience, if you would, a case study of, you know, where they focused on the customer to the upside and where they – extracted value without any value to the customer and it led to perhaps bankruptcy.

So what is the right way to talk to customers and validate the idea?

Yeah.

So you've actually named two different things.

Talking to customers is really good for generating ideas.

If you don't know what to do and you're stuck, like I often, I remember being in a situation once where conversion rate, I was working on a product that was very conversion rate sensitive, and our conversion rate was stuck at a certain number and we couldn't get it up, couldn't figure out how to make it higher.

And we tried everything we could think of.

And after months we started to think, "You know, we better talk to some customers 'cause we obviously don't understand." And as soon as we started talking to customers, we had lots of new ideas, lots of new hypotheses.

Can you give an example that could be understood by non-coders?

Why would they? Why?

Why? This has been going on for more than 200 years and probably a lot longer than that, but we have really good documentary evidence back to 200 years.

The oldest story like this in the book happened in 1800 to a guy named Robert Owen.

And he had done this thing I call the paradox of enlightened capitalism.

He took over a bankrupt textile mill in Scotland in 1800 and had this very radical philosophy of business.

He was so far ahead of his time, it's crazy.

He eliminated corporal punishment.

Why? Why do they want to change the person if that person is doing them a solid? What is that perversion? Yeah,

Scare us with how things

could go bad for a great company.

I've got the spooky stories for you.

For the entrepreneurs in the room, I got you covered.

Yeah, the book has a lot of dark stories in it.

Okay, well, certainly one of my favorite stories in the – in the book because it takes place in San Diego where I grew up.

So I had kind of a front row seat to elements of this, you know, as a consumer.

or 30%

But if you raise $1 of venture capital or you take any outside money or you need to sort of have this forcing function to have an exit, can you really build a company like that? Or is it different flavors? So I tell a story in the book of a...

A university professor who's starting a really, really advanced AI biotech company comes to see me for advice.

He asked me this exact question because he wants to build a 100-year company.

He has this tremendous aspiration, but he needs money.

He has to raise money.

It's an incredibly expensive technology to develop.

And he also has to recruit the top scientists in the world in his field to join him.

What are the three or four things that I should do to set it off on the right path to overcoming these deeply rooted kind of values and sort of motivations, wrong