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

Yeah, it's a little bit like

archaeology.

I was recovering lost knowledge.

And it's very strange, actually.

The book has been out for a few months now.

And I've been traveling around.

I do a lot of events with entrepreneurs.

Obviously, we could probably do hours on the specifics of that, but kind of as an overview, what are some of the things that people need to either build in, bake in, or I guess also, interestingly, shift if they're in that situation?

I

think from an intellectual point of view, if you ask people for the core concepts that make up entrepreneurship, you'll hear pivots and MVPs and stuff like that.

It's a very common part of how people analyze and understand startups.

So I think that's a real accomplishment.

But so many of the people who have built incredible companies using those techniques have nonetheless ended up miserable.

It's really, I think it's important to start with the human costs first.

And even some of them are super rich today, but like not that happy about it.

Were there any particular moments that stuck out for you in your research or something that changed your mind?

So walk me through how did you get there, and what does this mean for organizations?

Yeah.

Thanks for asking, and thanks for starting there.

A lot of business books, they're not a lot...

There's not a lot of depth to them.

It's an idea, it worked, you should do it too kind of thing.

And I really wanted to try something different with this book to make a philosophical point about the nature of business, the nature of organizations, because that has been my experience, having worked with so many companies, so many leaders, so many founders, so many boards, so many investors, nonprofits, for-profits, governments.

Well, just because it was so timely with how GLP-1s are exploding and worth like a jillion dollars.

So thanks for resurrecting his memory.

We did an event in San Diego as part of the book tour.

And I said, who here remembers Saul Price? And not even that many hands in San Diego went up.

I was like, 500 entrepreneurs in a room.

I was like, wait a second, what's happening? So who's Saul? Saul is widely considered to be the father of modern retail.

So if you're in the retail business, you would know him.

He created a company in the 1950s that he called FedMart.

How important is it for companies to attract the right investors? And how can that be a position of empowerment for them? So I think it's a fallacy

How can they set it up that it really works long-term?

So...

It's interesting.

I don't have his permission to tell the story publicly.

So I'll be a little bit vague about the CEO in question.

But I met a CEO who, he really embodies what you're talking about.

He's very mission oriented, very principled.

What must the management, what must the board or a founder do, who's responsible for that, in your opinion, to protect that mission and really make it alive and not just an artifact written somewhere and filed with a lawyer and nobody reads it anymore? Yeah.

Can you maybe take us on that journey? Like, what changed for you, at least from the outside, which looks like two very different ways of thinking about the world, right? Moving fast, breaking things, running really fast at things, and then thinking about, you know, now with Incorruptible, thinking about how do you create things to last? How do you create things that, you know, maintain their structure?

Yeah.

You know, from the outside, I know people perceive this as me doing a bunch of different things that all seem very different from each other.

But from the inside, what you have to understand is, to me, it's always been just one thing, and I don't really understand why it has played out the way that it has.

You know, I don't know how to make a master plan for these things.

I, I try to be discerning about, okay, what, what does the world need now? Okay, let's go do it.

So to me, it wasn't really that different, you know, doing startups versus writing about startups, writing code versus writing prose.

What a great way of looking at that.

What a great way of looking at that.

Yeah, well, otherwise you go crazy because you put an idea into the world, you also get a lot of vitriol and people who don't like it too.

Although I guess it helps that I look the way that I do.

I don't get as much social media hate as a lot of other people do.

So I am grateful for that undeserved though it may be.

In any event, so to me, the question was like, what is true? How do you make great companies? What does it take? And I felt like Lean Startup was like the first attempt at a general theory of entrepreneurship, like just very, very, very basic.

To me, it seemed like the beginning of something, not the end of it.

Totally.

So I, I just, I wanted to pose that to you and, like-

Yeah, you're seeing it.

No, you're, you're literally witnessing it, uh, right now.

This force is utterly pervasive.

I call it the force that no one controls but everyone obeys, and it's there in the public markets.

It's there in the tiniest startup.

It's there in nonprofits, governments, you name it.

Good counterfactuals, right?

When you heard that, what was going through your head?

I mean, the first time I heard that story, I couldn't believe it.

And I just think it, what's cool about Devoted Health, and look, it's- it's- it's started by someone I really admire, uh, uh, Todd and Ed Park, uh, brothers.

But Todd is the one I- I know well.

Uh, you know, he's had a life, uh, as a successful health entrepreneur and also, uh, in public service.

He was the, uh, uh, chief technology officer of the United States under Obama, under President Obama.

And, and so these are extraordinary people.

How do, how are most people reacting to it?

So is that one of the learnings here is that we've maybe been too short term in terms of how we've built and designed massive, maybe multinationals, global companies without thinking about the unintended consequences from the start, from the get go proactively.

Yes, that is extremely common.

But I think a lot of people frame this as if it's a mere oversight.

Founders are naive.

They don't quite think it through.

And there are those people, of course.

But I think there's something a lot more insidious going on because I have helped many companies, I mean, hundreds of companies at this point get started.

Given this moment where we're still debating how to build the guardrails, how to regulate and still move at a pace and figure out the power and potential of this technology, where do you fall on the whole debate of how helpful or harmful is AI in this moment?

No.

You're thinking about a product that got worse.

What Cory Doctorow calls inshittification in the technology sector, but it's not unique to technology.

Like I said, you see it in lots of private equity dominated fields.

You see it in hospitals.

You see it in restaurants.

You see it in physical products and governmental services and non-profits even what's happening is people have figured out that they can make money by extracting the value out of the engine of these companies so whereas when you ask most people what's a great company you're like ah great company a great company is a vital beautiful living thing that rewards its employees that competes on the basis of quality that delights its customers whose products are always getting better and who stands for something in the world, quality or efficiency or beauty or whatever it is true to itself.

So what is the difference that good companies you mentioned and the great companies, that's what something people are wondering.

I wonder if you could unpack what you learned in that timeframe between Lean Startup and your new book that changes your perspective.

I've learned a ton.

Now, I don't think it's so much conflicting messages as I've learned how to talk about this a lot better than I when I was younger, as we all get smarter at this kind of thing.

So first of all, speed itself is not a problem.

Speed is not the source of corruption.

What happens is we learn some business principle.

For example, we've all learned that a healthy, thriving company will see its stock price grow.

[laughs]

So should everybody consider doing this? Are there people who shouldn't adopt this?

I think it's kind of a no-brainer.

And in fact, I'll tell you one of my favorite stories about the development of this structure.

It goes back to 1920 when a woman named Marie Krogh was living in Denmark.

She was one of the first Danish doctors, actually, very interesting, uh, woman in her own right.

But she contracted diabetes, which at that time had no known cure, so it was a fatal disease.

But her husband, August, had just received the Nobel Prize, and so he asked her, in spite of her illness, would she accompany him on a lecture tour of North America? She said yes, and they came to North America, uh, to, you know, travel around and meet other scientists and have his lectures.

So how did you structure it properly so that it's incorruptible? What were the specific decisions you made?

Not Harvard.

The economic doctrine of this comes from the Chicago School of Economics.

But interestingly, even Milton Friedman and the economics people took it for granted that – although, yes, they were very – they would have hated ESG, hated stakeholder capital.

They hated all that stuff.

But they still were very much into long-term value creation.

And they really believe that this theory would be beneficial to shareholders because it would free companies to become more efficient, more long-term value-creating in the long term.

That is absolutely not what has happened.

How do we get rid of these barnacles?

Can we come to the term financial gravity in inverted commas, Eric? Why gravity and not temptation or ambition or greed? Why does the physics metaphor, what is it right that a moral one would not translate?

Yeah.

This was very tricky to figure out how to write about this because on the one hand, it's a thing that we've all experienced pretty much every day.

And yet we have a tendency to personalize it and want to make it somebody's fault, not realizing that there is something intrinsic to our situation that causes this behavior.

So I was grasping for the right metaphor.

And like the investors in FedMart, when we talk about companies, we talk about leadership, we talk about organizations.

Me too, okay? I'm not criticizing anybody.

Yeah.

But why do companies go bad as they grow? What's the dynamic here?

Let me tell you a story with a happy ending, okay? And there's not that many happy endings in the book, but here's one.

It starts off pretty bleak.

This is a story of Saul Price, the father of modern retail.

He created a company in the 1950s called FedMart that is like the first real big American discount retail chain in the modern way that all the other big modern big box chains are derived from this template.

It was a big box store, bare bones, warehouse, membership fee, low prices.

And Saul had been a lawyer before he became an entrepreneur.

This is from Swami Vaidyanathan who says, is there a specific structure, public for-profit or non-profit or long-term benefit trust or non-profit parent with capped subsidiary that keeps it incorruptible or is it more dependent on the board?

Yeah [laughs]

... as it demonstrates every time you jump up in the air.

So I think what's going on is these, these, um, the, the psychological effects that you're describing are predictable.

They're not even really a choice.

They are mostly done unconsciously.

I, I get phone calls from founders trying to grow an extraordinary organization, like basically every day of my life.

So I've been with people going through this.

Yeah.

Can you tell us a story highlighting a critical lesson that has changed how you lead?

So Lou Craperata or Lieutenant General Retired Lou Craperata, he was a Marine Corps general.

He was an advisor to me for a long time before becoming a, a, a board member here.

In the early days of the company, I was not in good health.

There was a year where I traveled, uh, over two hundred and fifty nights.

I tried really hard to get, uh, a lot of exercise.

Um, I tried really hard to make it work out, but, like, th-th-there's only so much of that you can do, and some of that was self-imposed and in hindsight, not totally necessary.

[chuckles]