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

**Eric Ries** (00:00:00):
... all kinds of famous companies. The thing that destroyed them was not competition. Their very success became a liability.

**Lenny Rachitsky** (00:00:07):
I want to hear the OpenAI versus Anthropic story.

**Eric Ries** (00:00:09):
Dario was a first time founder. Wasn't a hot company at all. The boom hadn't happened yet. ChatGPT hadn't been invented yet. Nonetheless, they were true believers in this safety mission, and so one of their investors suggested they come talk to me. I told them, "Look, if you don't get this right, here's what's going to happen." 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 Anthropic. 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.

**Lenny Rachitsky** (00:00:43):
This new book, Incorruptible, is about helping you protect what you've built. What is it that you need protection from?

**Eric Ries** (00:00:48):
We all know this force. 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.

**Lenny Rachitsky** (00:01:00):
What's a broad stroke solution to this?

**Eric Ries** (00:01:02):
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 nuts.

**Lenny Rachitsky** (00:01:23):
Today, my guest is Eric Ries, author of the most influential and impactful book in startup history, The Lean Startup. Today he is back with a new book 15 years later 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.

**Eric Ries** (00:02:34):
Ah, it's an honor to be back. Congrats on everything that's happened since I was here last time.

**Lenny Rachitsky** (00:02:38):
Wow. Thanks, Eric. So for people that have been living under a rock, you famously wrote The Lean Startup 15 years ago at this point, maybe the most impactful, successful founder startup book out there. And it feels like over this 15 years, if you think about it, it's gone through all these waves of just like, this is correct the way to do it. And no, no. This is completely wrong. Why would anyone build this way? This doesn't work anymore, to, 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. I just had the head of product of Claude Code in the podcast, Cat.

**Eric Ries** (00:03:17):
I saw. Yeah.

**Lenny Rachitsky** (00:03:18):
The way they operate. Okay, we're going to ship the MVP. They don't call it that, but we're going to ship the MVP research preview, get it out there, see if people care at all about this thing. We're going to 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 this is actually the way AI companies are operating now.

**Eric Ries** (00:03:34):
I appreciate you saying that. And it is funny how every wave there's a backlash and somebody writes the article, "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." I was like, "Well, why don't we wait till the companies are successful and then see if it proves it?" But also, people forget 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, they don't talk about how they use it. They just use it internally. To them, it's just the obviously right way to go.

**Eric Ries** (00:04:08):
And it's funny to me, one of the most important aspects of it that I think stands up really well, and it's been 15 years, is that so many of these AI products that leaving the models and the underlying technology aside, these specific products 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 ChatGPT, they had no idea. Claude Code, Cowork. These were small experiments in the grand scheme of things. They weren't the companies like, "This is our big bet. Let's go." And that's just so classic that that's a universal aspect of product development, that you do not have the ability to predict the future. And when you pretend, you get yourself in trouble. If you hold everything like a hypothesis, you get the benefits of the scientific method. It's pretty helpful.

**Lenny Rachitsky** (00:04:55):
**Eric Ries** (00:06:37):
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 of them because we get fired. We get ousted from our own company. 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 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 the bit part that I played in so many of these companies, and yet I've also seen this darkness.

**Eric Ries** (00:07:25):
And it's not just founders getting fired, although we're obviously, we're going to talk about that. But the other day, I was out to dinner with some friends. We were not at home. We were away from our usual spots. And so someone said, "Oh, there's this restaurant. I haven't been there in a couple years, but it's really good. Let's check it out." We go, we sit down at dinner. They take one bite of the food and then they're on their phone and we're like, "Dude, you're being rude. Why are you on your phone?" "It's just one sec, one sec. Yep. I thought so." He turns it around. "I could tell that this restaurant got taken over by private equity. I could taste it." And I've told that story a bunch of times now, and so many different people have told me, "Oh yeah, I know what restaurant you're talking about." And then they name like 12 different restaurants.

**Eric Ries** (00:08:04):
So what's going on that you can taste the ownership structure of a company in the food? 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. Their very success became a liability because the more golden the goose, the greater the temptation to butcher.

**Lenny Rachitsky** (00:08:34):
Wow, that's a very visceral example. I think about vital eggs as a great example of this. It was in the news, I don't know, on Twitter, TikTok a while ago. It's the eggs that we've been getting forever. It's like pasture-raised, organic.

**Eric Ries** (00:08:46):
Sure. Sure. I have all these in my fridge.

**Lenny Rachitsky** (00:08:47):
Okay. I don't know if you saw this, but everyone's complaining of how they've gotten worse and they have all the highest level of toxins and then they're owned by BlackRock now, it turns out.

**Eric Ries** (00:08:55):
No, I was just wondering about that. Oh, okay. Now that's my new favorite example. That's really fun. I didn't even know that. But yeah, it's so common. It's the point now where I was doing an interview with someone who was telling me about a certain natural foods brand 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 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, higher margins. As a result, we've seen lower quality and 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."

**Eric Ries** (00:09:36):
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've called it. They would've called this corruption. Not legal bribery or embezzlement. No. This is like you're building a bridge. And 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, because of gravity," I'm going to be like, "Dude, yeah, thank you for that genius insight." I understand that that is correct in some very real way. We say, "Well, it's inevitable. It's greed." I call it financial gravity. "There's this thing of human nature when companies get big, whenever..." "Yeah, but I want to know why did this bridge collapse? And more importantly, how come other bridges didn't collapse?"

**Eric Ries** (00:10:21):
Then they say, "Oh, for that, we need to study the load, load factor, wind load, shearing tension." And we go look up close, we say, "Oh, look, all the metal bolts have been corroded. 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 won't say, "Well, gravity, what can you do?" No. You'll say, "Why don't we use stainless steel next time on the bolts so they don't get corroded?" "Oh yeah, good idea." So this book is about what are the organizational equivalents of stainless steel. And the book is structured, not like a traditional business book, as you say, you picked up on that. 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. But secondly, if it's inevitable, if it's caused by greed or age or size, why are there exceptions?

**Lenny Rachitsky** (00:11:13):
You're actually going to give us answers and solutions because it sounds like, okay, this is impossible. But you actually have-

**Eric Ries** (00:11:18):
I promise.

**Lenny Rachitsky** (00:11:18):
... you have some answers for what founders can do. Real quick, I'll just say on the viral X thing, I'm not exactly sure if the toxins are real. There's a whole viral thing on it. I haven't looked into it super deeply.

**Eric Ries** (00:11:29):
Okay. All right. We both have homework to do now because it's what you feed your kids. You care. I'm definitely worried. Definitely worried to hear that.

**Lenny Rachitsky** (00:11:35):
I want to talk about two things that are probably in people's minds as they listen to this conversation and even think about buying your book. One is, okay, I am not going to let this happen to my company. This is-

**Eric Ries** (00:11:45):
Oh, sure. Sure.

**Lenny Rachitsky** (00:11:46):
... oh, other people, they're weak, maybe they're 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 they've done any of this. Why do I even need to pay attention to this? So maybe let's start with that first one or this idea of, and 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.

**Eric Ries** (00:12:09):
I'm going to make a claim that's going to sound radical, but I'll back it up. If you don't get this right, no other decision you make about your company will matter for the long term because you're not going to be the one making it. According to Harvard Law School, among venture-backed companies that have the standard best practices set up that you got from your lawyer, only 20% of founders are still the CEO three years after going public. Just statistically speaking, everyone's being told by their lawyers, their bankers, their VCs, everybody that you're the exception. It's not going to happen to you, but statistically speaking, you're much more likely to be in the 80% than the 20%.

I'll tell you one story in particular. A very hot company came to see me a year or two before their IPO. They were planning IPO and I built the long-term stock exchange. I've done a bunch of stuff that people come to me for advice about these things. They wanted 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 going to have to do something. This is your [inaudible 00:13:15] guarantee to get this mess." And 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. And the founder was really concerned. He's like, "Okay, we're going to definitely do something about this. We're going to fix it up."

**Eric Ries** (00:13:28):
But then he called me back a few months later. He's like... I said, "Well, what are you going to do?" He's like, "You know what? I talked to my bankers, talked to my lawyers, talked to my CFO, talked to my GC, talked to my VCs, talked 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. You're the exception.'" I said, "Okay, man, good luck." This company went public, had a very successful IPO. A lot of people made a lot of money. And then five months into their IPO, a competitor gets acquired and the whole category, everyone freaks out. Stock price collapses and the founder is ousted after five months as a public company. Now, if you read stories about the company, people were like, "Oh, he made all these mistakes. Their business model sucked. The company..." Blah, blah, blah.

**Eric Ries** (00:14:19):
Did he make mistakes? I'm sure he did. Were there problems? I'm sure. But had he really earned so little grace that he only got five months, the same people saying that the business model is horribly flawed, they invested in the company five months ago. Had it really changed so much in five months? This is what's going on. These 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. These are choices about the specific structures, cultural practices, the management practices we do on the inside and the structural, the governance practices we do on the outside. On both of them, were being told to do things that are incredibly weak. And again, if you think you're going to be the exception, think again.

**Lenny Rachitsky** (00:14:59):
I'm excited to talk about what to do, these governance elements, but let's talk about this other critique that I imagine people have in their head of just like, is this like... Okay, I need to figure out product market fit first.

**Eric Ries** (00:15:10):
Yeah, yeah. Worry about it later.

**Lenny Rachitsky** (00:15:13):
Exactly. There's so much more I need to do. The chances of this working are so low. Why am ... I have no time for anything else.

**Eric Ries** (00:15:19):
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..." 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 many of the things that we're talking 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 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 math. People used to tell me Costco was an example that wasn't protected, so much so that I was surprised to learn that it was embodied in a governance fortress. You'll be surprised. If you do the math, if you look into it, you'll be surprised.

**Eric Ries** (00:16:07):
But let's talk about the product market fit thing because this one is really interesting to me. 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 it's basically like that old proverb about the best time to plant a tree was 40 years ago, but the next best time is now. It is always too early until it's too late. And I'll give you the example. I've seen this hundreds of times myself personally. So I've literally been in the room where this kind of stuff gets discussed and it starts like this. You're incorporating your company, you talk to your lawyer, "Hey, I want to have..." These are called mission protective provisions in the law. "I heard this guy on Lenny's podcast," and your lawyer's like, "Oh, not again. Another guy, right? How many good ideas from Lenny's podcast are you going to tell me about? Okay, fine. What's this one?"

**Eric Ries** (00:16:59):
"He told me I need to have mission protective provisions." He'll pat you on the head and be like, "Oh, that's sweet, honey. That's great. Yeah, get product market fit, 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 VCs on your board, say the same thing. They're like, "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.

**Eric Ries** (00:17:27):
You got a growth round. Now you got these bold contrarian growth VCs on your board. And they're like, "I don't know. You might not want to be too different from everybody else. Might make it hard to raise money." You're like, "I thought you were a bold contrarian. What?" "Okay, don't worry about it now. We can always do it later." Now you're doing IPO prep. Now you got bankers and lawyers and you've got a GC and you got... 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 got to 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, roadshow. Here we go. It's go time. We're about to file the papers.

**Eric Ries** (00:18:05):
And the founder's like, "Hey, whatever happened to those mission protective provisions?" You're like, "I wanted to really make sure we had our customers could participate in our IPO and I want a broadly shared prosperity and I want this thing for our employees. I have all this good stuff I want to do. Did we do any of that stuff? I don't see it in the S1." The CFO's like, "Oh, you were serious about that? Oh, sorry, man. You should have said something. Now it's too late." You're like, "Wait a minute, but when I talked to you about it last year, you said it was too early." "Yeah, it was. But now it's too late."

**Eric Ries** (00:18:34):
Was it ever the right time? No, it is never the right time to do this. 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 story I told you about the five months CEO got fired. That company, everyone who worked on that IPO, every banker, every lawyer, the CFO, everybody, 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 onto the next IPO. They're like carnivores. They're onto the next thing to feed on. Meanwhile, the customers, the employees, the people that cared about their company were not so lucky.

**Lenny Rachitsky** (00:19:19):
Damn. That hit me. That hit me right in the heart. And it's so obvious just how personal and important this is to you. It's clear you've just seen this happen again and again and you're just like-

**Eric Ries** (00:19:29):
Oh yeah. I've been in the room where it happens. Yeah. The proverbial room.

**Lenny Rachitsky** (00:19:33):
Okay. So let's talk about what people should do and we'll poke around in different directions. What's the broad stroke solution to this? And then what are some, say, three things, say an early stage founder should do this week, next week?

**Eric Ries** (00:19:45):
Yeah. Yeah. Yeah. Okay. So broadly speaking, there is a blueprint. I promise when we talk about 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 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 don't know these stories, they're really grim and it's important to grapple with what happened so that it doesn't happen to you, so that you're prepared. But it can feel like 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?

**Eric Ries** (00:25:00):
... 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 more than $500 billion of shareholder value. I didn't add an extra zero for emphasis, $500 billion.

**Eric Ries** (00:25:18):
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. This is one of the most powerful engines of value creation in the world.

**Eric Ries** (00:25:34):
And for a lot of people listening, this will be the first time you're hearing about it. But just because it's new to you, does make it new? The German optics company, ZEISS, who makes the lenses in my glasses and yours too, they had this structure in 1885.

**Eric Ries** (00:25:49):
So 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 dataset 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 50 compared to their conventional counterparts. They have superior return on invested capital. They make more money for investors. They're better in so many ways. So it's a bit of an open secret that these techniques exist.

**Eric Ries** (00:26:21):
I want us to have these stories in our mind because, as we get into the techniques, some of them are going to sound radical. We want to say, "Wait a second. Is this really doable for me? Yeah, I'm just a little startup. I'm just trying to get into product market fit. Why are we talking about this long off stuff?" Hundred-year-old companies know. August and Marie, they were a tiny startup too once. Now that company's worth hundreds of billions of dollars.

**Lenny Rachitsky** (00:26:42):
So before we get into that, let's remind people again why this is worth doing. Because it's going to 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 going to limit us and not hurt us down the road." But just let's remind people again just why this is important, why this is so painful if they don't do it right.

**Eric Ries** (00:27:02):
Gosh, there's so many things to choose from.

**Lenny Rachitsky** (00:27:05):
So much pain.

**Eric Ries** (00:27:06):
So much pain. I'll tell another story. We've been telling happy stories. Let me tell you one not very happy story.

**Eric Ries** (00:27:13):
I've been doing this exercise for many years where I would ask founders or leaders really of 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 sometimes they instantly know who to say. They're like, "Oh, I know." But some people are like, "Well, what do you mean evil?" I'm like, "The company where there's no amount of money they could offer you that you would go work there. 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 who is for you. I understand if you don't want to, it's okay.

**Eric Ries** (00:27:43):
But I'll just, for the sake of us having a hypothetical that we can do, I would always tell ... We go around the room, Some of them are on Zoom, everyone puts in the chat and someone will be like, Halliburton. And someone else will be like ... Increasingly, tech companies are showing up on these lists now, which when I was younger, that would never have been the case. But now you somehow see tech companies there. Some will see Monsanto or you see ... Or some private equity fund. People are mad about something, they can name a company usually. So it's not hard to find examples.

**Eric Ries** (00:28:09):
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. If you think Philip Morris is great and you have different values, whoever's listening, fine. You pick the company you really would never, ever, ever want to have to work for no matter what.

**Eric Ries** (00:28:29):
Now, 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 the company you hold dear, just imagine. Philip Morris shows up one day and says, "I'd like to buy this company from you for $1 more per share than it's currently worth." You selling? Most people are like, "Hell no. Hell no, I'm not selling."

**Eric Ries** (00:28:51):
One person once asked me, "Well, what are they going to use it for?" Oh, sorry, to be clear, they're going to use it to sell cigarettes to children. Now you selling? Yeah. No. No deal. Obviously, F no, but I can't actually say on your podcast the kind of things people say when they were presented with this because there might be children listening. Okay? People get real upset at this idea.

**Eric Ries** (00:29:10):
And when 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 that says you have a fiduciary duty to say yes in this situation." People are so outraged. They're like, "That cannot be right. My lawyer, my guy, he would never have done that to me." I'm like, "Call him up, ask him if what I say is true and call me back." And they're like, "He said he was doing me a favor by giving me the best practice documents to make it easier to raise money." Yeah.

**Eric Ries** (00:29:51):
So occasionally though, people will say, Eric, you are exaggerating. Yes, that can happen, but come on, does that really happen in real life? Is that something I really need? I'm Johnny at product marketplace, do I have to worry about it?

**Eric Ries** (00:30:03):
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 COPD, you've seen inhalers. Yeah? A medicine company. 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. I only know this story because I've been using the Philip Morris example for years. And when I was researching the book, I was like, "I wonder." I actually asked Claude, "Has anyone ever actually been bought by Philip Morris?" I stretched out the hypothetical and it was like, "Are you asking me about Vectura?" And I was like, "Tell me more."

**Eric Ries** (00:30:49):
There's this company. This is what happened. Philip Morris 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, normal people hearing about this were like, "This doesn't make sense. Why would big tobacco own a health company? That doesn't seem right."

**Eric Ries** (00:31:06):
So here were the three choices that were facing the Vectura board. They had this bid from Philip Morris for 165 pence per share. They had a bid from an American private equity firm for 155 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 British Thoracic Society begged them to say no. Every person who thought about this for five seconds could see this is going to be a massively value destroying 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 the highest bid." Which they did.

**Eric Ries** (00:31:51):
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 15 cents a share. So let's find out what happened next, shall we? Can you guess?

**Lenny Rachitsky** (00:32:02):
Not great.

**Eric Ries** (00:32:02):
Philip Morris spent £1.1 billion to buy Vectura. Within three years, they had taken a $900 million write down and disposed of the company for peace parts, it doesn't exist anymore. These are the stakes, this is what happens. And I can't tell you, I feel like Perry Mason sometimes when people are 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 want to know, if a friend is a lawyer, just you want to know if a company has a mission or if this is going to 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."

**Eric Ries** (00:32:46):
The stakes I think are significantly existential, especially now that we're entering an age, the age of wonders. The age of technologies that are incredibly powerful, that have planet scale consequences to them. I think a lot of founders, a lot of product people, they want to build a product that they can be proud of. That their grandkids will be 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, it got ruined, it got destroyed. Why are we doing this?

**Lenny Rachitsky** (00:33:17):
Okay. Let's talk about what to actually do. And this is going to be a kind of a high level overview. Obviously by the book, if you really want to get serious about this stuff coming out May 26th that all [inaudible 00:33:29] -

**Eric Ries** (00:33:28):
May 26. Yes, thank you.

**Lenny Rachitsky** (00:33:29):
Anywhere you buy books. Talk about what we should do. And I just want to plant the seed of OpenAI is probably on people's minds as they hear this idea of building a nonprofit.

**Eric Ries** (00:33:36):
Yeah. Yeah. We'll get there. And obviously in the book, I tell the Anthropic story where I played a bit part. So we'll get to all that. We'll get to all that.

**Eric Ries** (00:33:43):
But let's start with the easy stuff first because AI is kind of like the humanities final exam. You've heard that joke. 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 what I can to set us on that proper path. But it's easier to see it, I think, in simpler businesses. OpenAI's business is insanely complicated. So let's look at it in some simpler examples first.

**Eric Ries** (00:34:10):
Let's start with the principle I call harder is easier. This is the leadership principle that anybody can adopt. There's nobody who's not ... You tell me you have no power whatsoever. Everyone's got some influence. And if you have any influence at all, you can adopt this principle.

**Eric Ries** (00:34:28):
When I talk to people about business, I don't care if I'm talking to two guys in a garage, founders, or I'm talking to super boards 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. Now you want me to do extra? Now I got to worry about the Vectura thing and this other stuff. Man, I'm already just trying to get through the day. It's so hard."

**Eric Ries** (00:34:53):
But I think this is a basically backwards way of looking at it. 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 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, 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. They're more likely to try your new product. So many people are like, "God, customers are so fickle. They have no loyalty. They only care about the slick marketing from our competitors." But maybe because you view these things as extra is part of the problem.

**Eric Ries** (00:35:46):
So harder is easier is a principle that says, if you're willing to do the work upfront to commit 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 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 if we do it by ROI. Because doing the right thing has intangible rewards, but tangible costs.

**Eric Ries** (00:36:28):
So let me give you another story. Because now we've been talking about lofty stuff, and I want to talk about something super practical. And I mentioned Cloudflare before. So let me actually tell the Cloudflare story. I like Cloudflare because Matthew Prince and his co-founders, they were really anti-consulting BS talk. In the early days, they came out of Harvard Business School and so they were traumatized. They were just like, "No, I don't want to hear about mission statement. I don't want to hear about values. We are making a firewall and putting it in the cloud. It's not that complicated. We don't want to hear it." So for years, they had no mission statement.

**Eric Ries** (00:37:03):
And this is a critical point. 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 superorganism 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 want to have a company that stands for quality, you got to build quality in from the inside. Deming taught this in the 40s. This is not some new idea. This is a critical idea. This is what craftsmanship really means. Okay.

**Eric Ries** (00:37:32):
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. There's a very famous example in their history where pro-democracy protesters, I want to say ... I forget what nation state they were pissing off. I better not say, in case I get it wrong. Pissing off some nation state, were having state-sponsored hackers trying to take their websites down so they couldn't coordinate their pro-democracy protests.

**Eric Ries** (00:37:59):
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 Google were just like, "I'm too scared." And so Cloudflare, the tiny startup is like, "We'll do it." These were 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.

**Eric Ries** (00:38:26):
So anyway, a couple years in, they're having lunch and one of the engineers says, "You know why I like working at this company? I just feel like it's the first place I've worked where 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?" Smack. "No, we don't have a mission statement. I know what you're talking about? No."

**Eric Ries** (00:38:46):
But it actually was. Over time, the engineers, people who worked there kept saying, "Make a better internet." 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's their mission statement to this day. They had to eventually adopt formal values. 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 be principled, which is the ultimate harder is easier move.

**Eric Ries** (00:39:14):
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. It can make your life a lot harder. That's why we call the principle harder is easier. One day, a junior engineer, not like some senior executive or anything, walks into Matthew Prince's office and he says, "Boss, isn't our mission statement to make a better internet?" When you're a CEO, any conversation that starts this way is definitely going to be extra work for you. So you're like, "What is it now?" It's like, "Well, 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 web encryption, SSL encryption. You said that makes sense because SSL encryption is expensive to offer, we can't 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 ... We have scarce compute, da-da-da-da-da." "Sure."

**Eric Ries** (00:40:08):
"But boss, wouldn't a better internet be an encrypted internet?" And he's like, "Yes. So what's your point?" So if it would be better, why are we giving it away for free? And so many people have 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 that's like, here you boss, let's give our product away for free for no reason." Your job as a middle manager is to be like, "No, we have a strategy. Get back on the strategy. Redirect. Thank you for your buy-in and your input, but we have a job to do."

**Eric Ries** (00:40:44):
So everyone's expecting Matthew to react that way and would 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 it. And he uttered the three keywords, he said, "Let's figure it out." Figure it out. This is the leadership principle I think is so powerful, the figure it out principle.

**Eric Ries** (00:41:08):
If you're committed to something, you stand for quality or whatever, it's going to make life harder. The best leaders, the ones I really admire, they revel in it. 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, "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 how they managed to get the cost. They had to hand roll their own software and assembly language. They had to do these complicated biz dev deals with certificate authorities. They figured out how to do it and they drove their own cost down.

**Eric Ries** (00:41:48):
Now, keep in mind that at any time ... First of all, I could have used the difficulty as an excuse, "Oh, it's too hard. We can't do it." Give up. 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 premium product went down. 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.

**Eric Ries** (00:42:15):
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 $70 billion company today. But most leaders, 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.

**Eric Ries** (00:42:43):
To give you an easy contrast, Andrew Mason, the founder of Groupon once told me this story. Everyone remember Groupon? Maybe not now. It's kind of fallen out of public consciousness, but there was this time where Groupon was one of the fastest growing private companies in America. It was powered by a daily email with a cool deal. And the whole thing was you got one email a day from Groupon. They went public on the one email a day, that's how successful it was.

**Eric Ries** (00:43:06):
And I remember he told me this story one day, 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 want to be better than one email. Have you considered two emails?" And he was like, "No. One email a day," he's 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 kind of lean start-upy. Shouldn't we do an experiment? Shouldn't we look at the data? What about the IR ... it's just like, what about the ROI? And so he's like, "All right, fine. We'll run the experiment."

**Eric Ries** (00:43:38):
He ran the experiment. Two emails a day makes more money. So he couldn't say no. And everything was fine for several months until someone came to his office and said, "You know, boss, you know what'd be better than two email? We should send three emails." And next thing you know, they're sending eight emails. And this is not just Groupon. 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 don't really have any way to defend doing the right thing here. So we did the wrong thing. That destroyed the whole company. But in the short term, we made a bunch of money.

**Eric Ries** (00:44:13):
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.

**Lenny Rachitsky** (00:44:21):
Eric, you're such a wonderful storyteller. I'm just sitting here just compelled.

**Eric Ries** (00:44:27):
Well, thank you.

**Lenny Rachitsky** (00:44:28):
Oh, man.

**Lenny Rachitsky** (00:44:29):
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**Lenny Rachitsky** (00:45:37):
I want to talk through just like, what do you do? So there's write a mission statement. Values, is that a part of this? Just define your values. Talk about the bullet points.

**Eric Ries** (00:45:45):
Well, yeah. So again, no. Writing this statement is not valuable. Okay? The statement is not what it is. The reason I 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. I tried to really go old-fashioned.

**Eric Ries** (00:46:03):
That's why I started with Stall Price. Rather than talk about stakeholders and mission statement and values, I want to know who are your fiduciaries? 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? Okay?

**Eric Ries** (00:46:27):
So if you tell me, I want to have a high quality product. I would rather die than ship slot. Think about how Steve Jobs 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 Yvon Chouinard, the founder of Patagonia. Today he's more famous for his environmental activism, but he was a quality zealot. He believed that quality was an objective function and that 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.

**Eric Ries** (00:47:06):
So whatever that thing is, that purpose. We have to find ways to encode it in our management system so that there's no way for us to make money by betraying the principle, whatever it is. So this can happen both at the operational level and at the governance level. Both are really important. People hearing this, I know some people are going to be like, "Purpose? Is this some ESG nonsense?" Okay.

**Eric Ries** (00:47:32):
There's a very funny quote in the book, Unilever, the big food giant. We went through a phase a couple years ago where they were going to infuse purpose into all of their products. And a Wall Street investor was just like, "I've had it with this." Wrote them a nasty letter, it 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 because it's funny, but actually what's so funny about it to me is humble though it is, Hellman's mayonnaise is food. Its purpose is super clear.

**Eric Ries** (00:48:01):
And again, if you think it doesn't matter what the product manager who runs Hellman's mayonnaise thinks the purpose is, going back to our vital farms question, think how easy it would be when an efficiency consultant shows up and says, "I think we could save three cents on the bill of materials if you just make the thing carcinogenic." And you're like, "Oh, wouldn't that come back to bite us?" "Yeah, but long after your stock options are vested, buddy, what do you care?"

**Eric Ries** (00:48:25):
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 & Johnson put asbestos in the baby powder and covered it up. Because although they said their purpose, their mission statement was patient health. Their actual mission had become growth, optimization, quarterly targets.

**Eric Ries** (00:48:51):
So what we want to do is that's the first most important technique is like, what is the purpose? Who would we rather die than betray? You got to write it down. You got to say, as Saul Price did, customers first, employees second, shareholders last. Or the great Peter Drucker said it with actually, he said that that's backwards. It should be employees first, customer second, shareholders last. I don't care. You tell me what you believe, you got to write it down.

**Eric Ries** (00:49:13):
And then we have to do a thing I call mission drive. Companies that claim to be mission driven, most of them are just mission hopeful. Okay? It's bullshit. It's just like 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 someone in the company got tempted to cut quality, to cut corners, to decrease performance, to deal with ... The things that tend to get cut first, safety, performance, quality, design, those are always the most vulnerable. Innovation, I guess is fifth. So that's like 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.

**Eric Ries** (00:50:03):
So we have-

**Eric Ries** (00:50:00):
...point of trust is I can betray you and you wouldn't even notice. So those are like the canary in the coal mine. Is anyone's bonus target? Is our OKR system? Is there anyone in this team? 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 possible? And it's really possible. And this is actually why automated testing is so good. Think about how many people can just break the design no one even notices. Well, it's a test notice. With AI, we have so many new capabilities for auditing, for preventing, for making sure, but we have to choose to use the tools for that. That's one. So that's the general category of things that we can build.

**Lenny Rachitsky** (00:50:44):
And so just to make sure it's clear, so it's write down your purpose, whatever that is. And I imagine it's like a sentence is the idea.

**Eric Ries** (00:50:52):
Yeah, that'd be great.

**Lenny Rachitsky** (00:50:53):
As simple as better.

**Eric Ries** (00:50:54):
To make a better internet is such a great purpose. I tell in the story, 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.

**Lenny Rachitsky** (00:51:05):
I've heard that one.

**Eric Ries** (00:51:06):
It's just so easy and simple and clear to understand.

**Lenny Rachitsky** (00:51:09):
Okay. So it's write down your purpose. Describe your mission and more importantly, the mission. What does it drive the mission? The mission-

**Eric Ries** (00:51:17):
Mission drive, mission drive.

**Lenny Rachitsky** (00:51:18):
Mission drive, which basically... Is there a structural way to do this or is this just go through everything going on and see is there-

**Eric Ries** (00:51:26):
Yeah. It is. I mean, 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. Who are the people that you're trying to commit to do something good for? What are the metrics or targets that you want to have for each of those people? And then what is the system, the accountability system to make sure that those commitments are as important to you as making money?

**Lenny Rachitsky** (00:51:51):
So it's essentially these kind of like OKRs for your stakeholder. Let's not call them stakeholders.

**Eric Ries** (00:51:56):
Yeah, exactly. I see how hard it is to do this. Yeah, that's exactly right. It's like OKRs for the... 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 the book, I have a section called Don't Be Evil versus the Quarterly Report. I made a study of the blog posts that longtime Google employees write when they leave Google. It's like a genre. There's 50 of them. They're incredible documents actually. If you've never read them, they're all linked in the book. You can read them yourself. And they all have this very wistful, sad quality to them because something really...

**Eric Ries** (00:52:36):
And listen, for the record, Google's a great company. I'm not saying Google's bad, but Google used to have this don't be evil ethos, and it got lost. It got taken off the website. Then it showed up in the employee handbook. Now it's not even in the employee handbook anymore. And in fact, Google's been sued twice now for breaking the don't be evil pledge, and they've had to settle both lawsuits. That's how sad the situation has become at Google.

**Eric Ries** (00:52:56):
And I remember talking to one of these ex Googlers, he'd been there I think 13 years. And I said to him, look, he was like, "Why did we lose it when we had such good intentions? Why? I wanted to believe management." He's like, "I liked management. I thought they had their heart in the right place." And yet, I said, "Okay, answer me this hypothetical just real quick. 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 going to do it." I was like, "No, but give it a number, probability." He's like, 100%. Is it literally 100.0? Yes. As certain as the sun will rise tomorrow? Of course. I said, great.

**Eric Ries** (00:53:34):
Now tell me the probability that Google might accidentally kill somebody and cover it up. And he was like, "Come on, man. They probably wouldn't do that. That's not fair. Put a number on it. Is it 100%?" He's like, "Well, 90%, 95%." And you could see he was like, "Well, they got sued for this." He's like, "What if the self-driving car hit somebody?" He could already think of the way it could happen. I said, "Okay, how can it be that quarterly reporting is the thing that we're sure of?" And manslaughter, we think are human beings confused. They love quarterly reports and they're not sure about manslaughter?

**Eric Ries** (00:54:13):
No, come on. What is going on here? Google report, it's 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, "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.

**Lenny Rachitsky** (00:54:46):
And this might be a good segue to the second bucket of stuff. So the way you described it earlier, I think is a really helpful way of framing it. There's the ethos, which is what we've been talking about, values, purpose, mission, and then there's integrity. So talk about that.

**Eric Ries** (00:54:59):
Sure. So why did I use the word integrity? In normal human language, not consultant speak, but among normal people, integrity has two meanings. One is like, Lenny, you're a very high integrity person. If you say you're going to meet me at two o'clock at a place, I know you're going to be there. Everyone's got a friend like that where if they say they're going to do something, they're going to 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 you at two o'clock." They won't do it. They know that to tell the truth requires you to really make a commitment. So that's the ability to keep your promise. But we also have the word structural integrity. I told them before, the difference between corroded bolts and stainless steel.

**Eric Ries** (00:55:36):
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 that they'll never sell cigarettes to children. Oops, sorry. No, that's not integrity. So the goal of structural integrity for an organization is to give it the power to resist temptation from the inside, resist betrayal at the board level and resist pressure from the outside.

**Eric Ries** (00:56:07):
As I mentioned, Costco 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 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. That's not what they're supposed to do. So why can they resist? Because they have the tools they need to fight back. Their board seeds its responsibility as a bulwark against pressure rather than as an amplifier of financial gravity.

So that can sound very challenging and abstract as 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 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 where one of the investors is upgrading the founder to be like, "You don't know how your own effing company works?" Because he loses control of it. So they did their homework. This really does happen. 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:

**Eric Ries** (00:57:32):
"The Acme Corporation is hereby incorporated to pursue any lawful act or activity." And you read that and you're like, "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 according to this theory, which is the governing theory of our lives, 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 maximize 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. 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 40 have we had this idea.

**Eric Ries** (00:58:31):
Before the '80s, it was considered obvious. Our grandparents thought it was obvious. Our great-grandparents thought it was obvious. 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 19th century, for example, if you wanted to make a company, you had to make a declaration to your state legislature 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?" 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 the historical norms in the 19th century, let's say you were the richest person in America and you're like, "I want to buy this company and change what it does because I can."

**Eric Ries** (00:59:20):
First of all, the board would be authorized to fight you to the death. They didn't have to say yes. They would do crazy stuff in the night. These battles were legendary. 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 and you said, "I'm going to change its purpose from make a railroad to maximize shareholder value." 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, and that's what doomed Vectura and all these companies, if you don't want that, you can change it. The good news for you listening right now in the year 2026 is that a band of corporate governance rebels have spent the last 15 or 20 years fighting this and building alternative structures that are available to you.

**Eric Ries** (01:00:16):
One of them is called the Public Benefit Corporation or PBC. A lot of confusion about this out there because people have seen the little B with a circle on it at their farmer's 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 Corp is the easiest thing I will tell you to do on this whole podcast. It could not be easier. It is a two-page legal filing that you just submit. 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." And said, "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 couldn't be any easier.

**Eric Ries** (01:01:01):
And most of the best companies today are using this structure, like all the major AI labs are incorporated as PBCs, Anthropic 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 has Anthropic been able to resist all this pressure? This is one of several of the interlocking components of the armor that protects Anthropic from outside pressure. If you don't do this, I can't help you, man. This is the very minimum. You got to do at least this. Now, if you're not at the founder, you probably are wondering, have we done this at my company?

**Eric Ries** (01:01:45):
This is going to sound so dumb, I know, but you can just ask. 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. So I can't do anything scary. I'm not willing to be an activist. I just need a job, man, but I am willing to do something. But I felt like they'd asked me for a no bake cookie recipe. It's like a no courage. What can I do? And I was like, "Okay." And you can do this if you're in a job interview or just ask your boss either way.

**Eric Ries** (01:02:23):
Then at the end of your interview, we're going to ask you, do you have any other questions? You can say, "Is this a mission driven company?" They're going to say yes. Okay, but how do you know? What kind of things do we do that are mission driven? They'd be, "Oh, we have free beer on Fridays and we clean up the local park on Saturday." I don't know what they're going to say. Maybe something great, maybe something... But whatever they say, just nod and be like, "Great." And just ask. Cool. Is that the legal mission also? Is that in the charter? Almost certainly the person you're asking this question to is not going to 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 going to be betrayed eventually. You deserve to know.

**Eric Ries** (01:03:07):
But more importantly, just by asking, you've now forced them to get the answer. I mean, you've been part 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 frequently asked questions document with the answer. So she's going to have to ask her boss, who's going to have to ask her boss and her boss. 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 the CEO also listens to Lenny, because everyone listens to Lenny. The CEO's also been thinking about doing it too, but he was like, "I don't know if I have the support of the board. I'm not really that courageous to bring it up."

**Eric Ries** (01:03:50):
Now you've created an excuse. A, we got to do it because I mean, it's the thing that everyone's doing it. Employees are even starting to ask about it." If you read these postmortems of some of these 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 unhappy employee who wants to know what's our mission. 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. And again, a company that hasn't done it is very much at risk of eventually being betrayed.

**Lenny Rachitsky** (01:04:24):
Are there any downsides to filing this charter?

**Eric Ries** (01:04:27):
No. This is the one thing that has no trade, truly no trade-offs at all. I mean, maybe you'll meet an investor who's suspicious about or doesn't like it. But again, the only situation that would ever become relevant is if the investor is trying to force you to sell the company and you don't want to. So you could just tell them, "Are you telling me that in that situation you believe you should get to decide instead of me?" 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, "What are we doing here?" All these feces are like, "I'm founder friendly. I believe in your vision." Do you? Do you? Or what's going on here? So that's really important. The other downside, the main downside of almost every technique in this book is that people will waste your time trying to talk you out of it. You have to be ready for that.

**Eric Ries** (01:05:13):
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, detailed exactly what to say, what are the questions you're likely to get because in the years I've been... I worked in the book for years. I have been writing down all the objections I've heard from all the companies I've helped. I always tell me, if someone objects, please call me and tell me what they said. I just wrote them all down. So all the answers are there. But if you talk to your lawyers, they'll say something like, "Well, you might want to just keep your options open. You don't want to prematurely commit to your purpose." And I remember if I hear that, I'm like, "Really? Keep my options open? That's how you get maximum value?

**Eric Ries** (01:05:44):
What about the option to convert my customers into Soylent Green and eat them? Do I have to keep that option open?" You ask your lawyers this question, they will say something like, "You never know what you might need to do." And then we're like, "Why does nobody trust me?" Well, because you won't even take that off the table. Come on, man. No, if this one has no downside, absolutely, absolute no-brainer.

**Lenny Rachitsky** (01:06:08):
This sounds like a great single takeaway. If there's anything you take away with this conversation, you should do this. The fact that Anthropic did this is such a huge deal because I think a criticism of all of this that people probably hear is this is going to limit our growth, this is going to hurt our potential. We want to be this touchy-feely business. Capitalism has worked in creating a lot of very successful companies and value and innovation. Capitalism has worked in many ways. Why would we need to do this? And Anthropic being the fastest growing company of all time, just like absurd, breaking all records is a Public Benefits Corporation should make you feel okay about doing this.

**Eric Ries** (01:06:49):
Oh, yeah. Anthropic has helped so much because they do many of the things in the book, including this, what they have. We can talk about the long-term benefit trust. They had that two-tiered governance structure that we were talking about before. But 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 going to 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. Anthropic very famously has lower inference costs than their competitors. They have faster product velocity than their competitors. What do I hear? Sometimes they say that 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?" Well, they have lower inference costs. They have better technical infrastructure. Why? Well, because they had some kind of internal breakthrough. Why?

If you keep asking why eventually something like, "Well, because they have the best talent." Why? Because people want to work there. Why? And you [inaudible 01:07:52] because people very much want to work. They want to work for the good guys. They think these people, they have the mission to save the world. Why do they have that mission? Because that was the ethos. But why have they been able to protect it? Because they paired the ethos with the integrity. This is at the heart of almost every breakthrough success story you've ever heard. You will find this lurking there as the thing that gave them the competitive advantage to drive that differentiation.

**Lenny Rachitsky** (01:08:18):
It's funny you say that. So I just had Kat, the head of product and Claude code, and 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 force every day. And a big part of our 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.

**Eric Ries** (01:08:39):
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. It is the organizational equivalent of being in the flow state as an individual person. It's a great feeling. And it just makes everything easier. You don't have to have meetings about stuff. You don't have mission misalignment. 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 have skip level meetings. He wanted to meet not with his direct subordinates. He didn't care. He wanted to meet with the torchbearers throughout the organization. Those are the people that are going to drive us forward. And if you're a torchbearer, you're just like, think about the designer who simply won't ship slop no matter what. The engineer who will not sacrifice quality or performance. You meet these people every once in a while, product manager who just... They are prioritizing the right things, even if people complain.

**Eric Ries** (01:09:35):
In a traditional company, if you have that job, if people listening, if you've ever had this job, man, life sucks. Every fricking day, someone's in your office with a spreadsheet being like, "But what is the ROI of 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 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 Clayton Christensen once said that it's easier to do the right thing 100% of the time than 98% of the time. Just like because now you don't have to have a meeting about it.

**Eric Ries** (01:10:08):
At Anthropic people, 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 tell you we're not going to do it. We already know. So everyone's incredibly aligned. But the second thing that I think is less appreciated is a practice I call the culture bank, 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 one of my favorite founders, Todd Park. He created Devoted Health, the health insurance company I was mentioning before. But he learned it from Howard Schultz who built Starbucks. 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.

**Eric Ries** (01:10:58):
Saying the values, enchanting them, making a song out of them, that's not it. But if you do something, I tell a story about this grocery store in Texas called H-E-B, where the power went out, there was an ice storm, and the manager let all the customers just take their groceries home. No charge, because the point of sale system wasn't working. People say, "Oh, what a courageous manager." No. 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, 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, is really simple.

**Eric Ries** (01:11:45):
Only make deposits, never make withdrawals. That's it. Because you're going to make withdrawals by accident sometimes because you can make mistakes, but you never intentionally make a withdrawal. And that I think is the true power. When you hear someone who's living that flow, like Kat, you were talking about in Anthropic, that has been internalized in the organization. It's what the pioneering management theorist, Mary Parker Follett called the invisible leader. 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.

**Lenny Rachitsky** (01:12:29):
I want to hear the OpenAI versus Anthropic story because you've mentioned a part of the structural pieces of this nonprofit. So talk about just what happened there and how that relates to what you talk about versus Anthropic. And then I actually want to hear a little bit about just the actual structure. What is this two-tier thing? What's the nonprofit piece?

**Eric Ries** (01:12:46):
OpenAI is a really hard case study to learn from because it's such a bizarre story and it involves mega personalities like Elon and Sam dueling to the death, so it's complicated. But we can get into it if you want. But I entered the story. The funny part is like, I played a very bit role in all this. 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 Daniella and the whole team. But when they left OpenAI, this is two or three OpenAI 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 Dario was a first time founder. I was there. He was impressive, but in the way that a technical founder for the first time is impressive.

**Eric Ries** (01:13:28):
And he had investors who were excited to back him, but they were like effective altruism, like true believers. It wasn't the top venture fund. None of the top venture funds wanted to participate in this round. It wasn't a hot company at all by modern standards. And generative AI, the boom hadn't happened yet. ChatGPT hadn't been invented yet. So the mass psychosis we're all living through had not occurred yet. Nonetheless, they were true believers in this safety mission and so one of their investors suggested they come talk to me.

**Eric Ries** (01:13:58):
Everyone knew I was like a eccentric collector of weird ideas. Some people collect butterfly wings or whatever. I collected alternative governance ideas. So when they came to me, 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 going to happen." And they were very determined to do something about it. And so we talked about what we should do. And I advised, again, a very little bit. I don't take the credit for what happened next, but they wrote into their charter that they were going to do this. They were a PBC 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 for taking it seriously, for convincing their investors. And they had to defend it for two years because they didn't actually implement what's called now the long-term benefit trust until their series C, but they had the right and the intention to do it in all their legal documents from inception. That was a really important choice.

**Eric Ries** (01:14:51):
And so even today, 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 Anthropic. So they do not have a fund-

**Eric Ries** (01:15:00):
The 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. People say, "Well, they do it for the publicity," but 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.

**Eric Ries** (01:15:23):
Okay? That's really nice. People say that 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 and they were an impossible situation. Even people who say they did the wrong things, when you're an impossible situation, what are you going to do? It's the Kobayashi Maru. What are you going to do? You're in an impossible situation. There's no right answer. But even people who think they did the wrong thing, tactically speaking, admire them because we live in a time when it's so rare for companies to turn down money ever.

**Eric Ries** (01:15:53):
And here they turn down... Say what you want about them, but they turned down a $200 million contract and bore the wrath of the world's largest army 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 on a moment's notice. I think the structure, frankly, is better than founder control. Dario does not have dual class shares the way that Mark Zuckerberg or Larry and Sergey had. It's more institutional in its nature.

**Eric Ries** (01:16:21):
But to kind of answer your question, the critical thing we need, if we're going to 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. 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 the long-term benefit trust. OpenAI very famously had the nonprofit foundation, although now they've converted to a public benefit corp structure.

Obviously Google and Facebook are protected by founder control. The founder is the mission guardian. Those are the structures. And 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 am I doing at the Vatican? But it was cool. [inaudible 01:17:06] had convened a conference on AI governance and they invited me to speak. So I was on this panel at the Vatican with every other AI company and me. It was weird. It was actually strange.

**Eric Ries** (01:17:17):
It was like me, literally me. I go down. I was looking down the row. Me, Anthropic, OpenAI, Google, Cohere, Palantir, everyone on this panel together. And I looked on 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 yes, standard governance, that's fine. I'm sure that..." It's just too dangerous. But they of course take different approaches to mission guardianship, some of which are better and some are worse. Like founder control I think actually has a lot of downsides to it.

**Lenny Rachitsky** (01:17:45):
So and when you say standard governance, every one of these AI companies is not doing it the way every other startup was doing? They understood they needed to do something different to protect-

**Eric Ries** (01:17:54):
Yeah.

**Lenny Rachitsky** (01:17:54):
... humanity essentially from AI? Okay.

**Eric Ries** (01:17:56):
Yeah. Yeah, exactly. Because otherwise it's just this technology is so valuable. If you say that shareholders should run it, then you're saying literally whoever can borrow the most money should be able to control this technology. It's just, that's nuts. That can't be how it works. No way. I don't think any company should be governed that way, but certainly not AI companies. Certainly not.

**Lenny Rachitsky** (01:18:18):
Okay. So just to kind of plant these things in people's heads as they, okay, we need to really think about this stuff. There's a nonprofit approach to this, there's... What are the terms that people should just think about?

**Eric Ries** (01:18:30):
So we talked about we need a mission guardian. So first question, is the mission guardian a person or a thing? That's our kind of first decision point. So yeah, some, I think for early stage companies, founder control is fine as a good bridge, a temporary bridge to a more permanent structure. And some companies get really far with founder 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 social media basically every day. Because you become like Atlas, you can't even shrug. It's you holding back the abyss.

**Eric Ries** (01:19:01):
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 every time they lose one of the structures, every once in a while when an attack 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.

**Eric Ries** (01:19:26):
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 set of people. So some people accomplish that by what's called an employee ownership trust. So the employees are the mission guardians, like the John Lewis Partnership in the UK is a famous example. Obviously cooperatives have this... This can work in a cooperative at scale. Mondragon, for example, in Spain has like 80,000 employees. It's a huge company, but they're all employee cooperatives. You can do it through an employee voting trust.

**Eric Ries** (01:19:58):
That's how Alibaba is protected, where the employees vote for the board members rather than the reverse. But those are much more complicated compared 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. And Perpetual Purpose Trust is a non-economic entity. So whereas the Novo Nordisk Foundation is the largest charitable foundation in the world because it owns a big chunk of Novo Nordisk and that's worked out pretty well.

**Eric Ries** (01:20:28):
The Anthropic long-term benefit trust has no economic dimension to it at all. It only has the mission, oversight, responsibility. And what's nice about a Perpetual Purpose Trust, as in the case of Patagonia is governed with a purpose trust also, is you have the trustees, but then you also have someone whose job is actually to sue the trustees if they ever deviate from the mission. So you actually have what's called the purpose protector who's an extra person who can get in there and say, "If things go wrong." So to me, it's like you have checks and balances like in a government.

**Eric Ries** (01:20:57):
It's more stable. It's a more stable structure. To me though, I use the omnibus term spiritual holding company to describe this category of things. Because I said before, we have a lot of infighting. The people who advocate for each of these things thinks their version is the best. I didn't even mention the Evergreen, the Tugboat Foundation. They don't believe in having investors at all. So there's people who think the solution to this is no investors involved, that makes the problem a lot easier.

**Eric Ries** (01:21:22):
So anyway, there's a lot of different ways this can be done. I don't think I even mentioned ESOPs. There'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 it's 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.

**Lenny Rachitsky** (01:21:53):
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 talked a lot about just what is it you were trying to avoid and the pain.

**Eric Ries** (01:22:02):
Yes. That's the thing. It's like, you know what's really a drag? I'll tell you a story. 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 to celebrate, including employees he laid off came to this party. It must have been a 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 got to go to this party." And he was like, "Okay." I'm describing to him and he was just like, "Wow, what respect.

**Eric Ries** (01:22:34):
That founder sounds invested. Just the kind of company I want to create." I'm like, "Dude, you have not been listening to anything I'm saying. He doesn't work there anymore." He's like, "Sol Price. This is not a party. This is awake." And 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, "Is the new CEO an asshole or something?"

**Eric Ries** (01:22:58):
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. All the promises that this company had made over its 15-year life, nobody believes them anymore." The new CEO is going out and making new promises, but we're like, "An activist investor owning 0.5% of the company can oust you at any time. Why should I believe anything you say?"

**Eric Ries** (01:23:27):
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 it sounds 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. That sucks. And that's a founder who made literally billions of dollars for his investors, but it wasn't enough. It's never enough.

**Lenny Rachitsky** (01:23:54):
And hearing these from you is important and powerful because you see so many founders. 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 this is not an easy place you're in, trying to convince people to do these very annoying things.

**Eric Ries** (01:24:11):
It's very annoying. I know. I do agree. Yeah.

**Lenny Rachitsky** (01:24:13):
And so it just says a lot that you're putting yourself out there this much. For you guys, pay attention. Even though it feels weird now, the idea is should not. This should be-

**Eric Ries** (01:24:22):
Be Our grandkids will think this is the most obvious thing they've ever heard about. So yeah. You can get ahead of it now. When I first started talking about Lean Startup, people thought it was so weird. As weird as you think this is, people thought Lean Startup was a lot weirder. So I've been through this before. And when I write, I don't write very many books. Okay> I'm not like an influencer. I don't tweet every 30 minutes. I'm not that kind of person. It takes me years to put these things together.

**Eric Ries** (01:24:48):
And I only do it when I have figured something out that 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 it takes a lot of experimentation, a lot of testing. This is the work of hundreds and hundreds of companies who I have worked, 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, this is not some hypothetical thing. 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 epidemic of value destruction that we're seeing all over our economy.

**Lenny Rachitsky** (01:25:25):
So maybe it's just a final tactic. Say an early stage founders listening to this, they're like, "Oh, shit I got to really do something here." What are say three things they should do in the next week or two?

**Eric Ries** (01:25:35):
Okay, here, let's just do the really easiest things. First of all, if you haven't raised money yet or you've only raised 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-IPU, the founders that you envy that are ahead of you, it's more of a pain for them. They got to go get investors on board. They got to go... They need to do it. Okay.

**Eric Ries** (01:26:03):
I told you 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. Because here are the basic things I think are really easy to do that are super low cost. Be a public benefit corps, do the file. But 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 try to brainstorm with your co-founder.

**Eric Ries** (01:26:26):
You don't need to spend like 10 weeks on this, 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 in that scenario? If you'd be sad, write it into the thing. 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.

**Eric Ries** (01:26:52):
This came up obviously because there's this big fight going on between Anthropic and Figma and a reporter I text just got reported, reported on the idea. Because it was like, "What are our responsibilities in these weird situations?" It's actually really tricky. Every company's calling me being like, "Are you saying I can't have an AI person on my board? Because having an AI person on my board seems really dangerous." But I'm just like, "You know what's really dangerous? Not having an AI person on your board." So yeah, everyone's kind of stuck.

**Eric Ries** (01:27:19):
What do we do? It's impossible situation. We need to have, just like we have doctors that have a Hippocratic oath, first do no harm. Why don't we have that for directors? It's insane to me. Directors control, make far more consequential decisions than nurses. So why do we hold nurses to a higher standard than directors? No. So we can wait for us to standardize on an oath for everybody, but you could implement one right now. You could just write it into your corporate charter, "Everyone has to do this. It's a precondition of being on the board."

**Eric Ries** (01:27:44):
And then the third thing is I'm going to presume, again, for founders, we'll talk about non-founders in a second, but for founder, I'm going to presume you've already got what are called founders preferred shares. If you don't know what that is, you need to ask an LLM to explain it to you. And just say, " Eric said founders preferred shares could potentially make me personally an extra billion dollars someday. 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 preferred shares.

**Eric Ries** (01:28:13):
So I'm going to assume that you understand that and you've already done it. If you haven't, that doesn't count on my bill of extra things you needed to do because you need to do that anyway for personal reasons. But 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 talk to your lawyer 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 just because this drives me crazy.

**Eric Ries** (01:28:43):
So there's a law firm called Virgil. They'll be happy to help you and they don't charge you by the hour. This is not the main thing that they do. They mostly do AI assisted back office acceleration, which is also very cool. But anyway, make sure you have somebody you can talk to about it. Okay? And then after you've figured out which of those things you want to do, then imagine yourself in the seat of an investor saying, "It sounds like you're a greedy SOB. You have 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.

**Eric Ries** (01:29:12):
Right now we kind of have this dichotomy between what I call investor controlled companies and founder controlled companies. And everyone's like, "You got to 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 LTBT. It's very easy to implement at the early stages because you don't need a nonprofit.

**Eric Ries** (01:29:41):
Let's say you're a want to be Novo Nordisk, 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, "10% of the equity is hereby pledged to a nonprofit foundation and 1% of future revenue. The foundation gets a board seat," or whatever you want to say. 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. A total piece of cake.

**Lenny Rachitsky** (01:30:10):
It's interesting how so much of this is similar to, not similar, but to AGI alignment, finding a way to align AI, finding a way to align your business.

**Eric Ries** (01:30:19):
It 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.

**Lenny Rachitsky** (01:30:27):
Okay.

**Eric Ries** (01:30:27):
The simple version is who aligns the aligners? This is the number one unsolved problem in AI. It's not the technical. We're making great progress on the technical alignment problem, but we haven't made jack progress on the human alignment problem, which is that we've known since the development of 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.

**Eric Ries** (01:30:54):
It's really weird actually. We don't think about it that much, but the org chart is visible in the architecture diagram. Why? Because human values flow from the parent to the child. So that's one reason. We have to make sure 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 if your listeners will be familiar with this or not. There's this concept in the scientific literature called emergent intelligence.

**Eric Ries** (01:31:19):
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 the transformer architecture work and appear intelligent, that same principle is at work in organizations. Organizations are literally super organisms. They're alive in the same way that these models are emergent intelligences. And if you don't know what this is, it can sound very metaphysical and weird and spooky.

**Eric Ries** (01:31:53):
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. I have it in the book too. There's a video where researchers created this thing they called the Piano Movers puzzle. You remember that famous clip? 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.

**Eric Ries** (01:32:17):
They created a version of that puzzle that they had ants solve. So visualizes like two slits, two walls with a gap in each wall and a big eye beam shaped irregular object. And if you watch a human solve the puzzle, it goes like this. They try one thing, they think about it, they rearrange, you go back, you back. You've ever got to do a puzzle like that? 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.

**Eric Ries** (01:32:46):
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. 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 reorients, tries something different, it's spooky. And the researchers found this is what we have to understand for humans.

**Eric Ries** (01:33:14):
The more ants you put in the puzzle, the faster the solution. But the more humans you add, the worse, unless the humans are very carefully aligned. This is the key lesson for organizational design. 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 going to clean that up because you're talking about something that is deep in the DNA of the thing you made. Beware.

**Lenny Rachitsky** (01:33:48):
What I'm hearing here is we should be hiring more ants for our organizations.

**Eric Ries** (01:33:52):
Well...

**Lenny Rachitsky** (01:33:54):
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 a final thought, final nugget, final lesson you want to leave listeners with before we get out of here?

**Eric Ries** (01:34:07):
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 give you one more blast from the past. Most people have heard of someone named Frederick Winslow Taylor. Fred Taylor's good friend of mine with a pioneering original management theorist. He wrote The Principles of Scientific Management in 1911, and Taylorism was one of the most popular management fads of all time.

**Eric Ries** (01:34:29):
If you think we have fads now, you should see Taylorism. It was like debated at the Supreme Court. It was front page news in the 19 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 Follett. And her work is so far ahead of its time that if you read it today, you would think this person lived in 2026.

**Eric Ries** (01:34:52):
She would write things like, "We need to focus on power with, not power over." 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 hallmark of a leader is, can they create more leaders?" So if someone said that to you right now, you'd be like, "Oh, that's going on TikTok right this second."

**Lenny Rachitsky** (01:35:18):
Twitter.

**Eric Ries** (01:35:18):
Like, "That's awesome. What podcast was that on?" No, she wrote that in 1920. Now, unfortunately, for reasons you probably can guess, she was utterly erased from history. Her work was utterly lost. Nobody studied it at all for most of the 20th century. And then it was totally rediscovered and it was republished in the 1990s. The great Peter Drucker called her the "Prophet of management." So one of her most important concepts is what she called the invisible leader. And I just love this.

**Eric Ries** (01:35:47):
Just imagine someone, a woman in 1920 going around saying this to people, how it would blow their minds. She would say, "Mr. Rowntree, the owner of the Rowntree Chocolate Factory is not the leader of the Rowntree Chocolate Factory." And people would be like, "Lady, what are you talking about? His name is on the door. His family has owned this thing. What? How? If he's not the leader, who he is? She'd be like, "Glad you asked. Mr. Rowntree 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.

**Eric Ries** (01:36:23):
And the common purpose rather than Mr. Rowntree himself is their invisible leader." And this is maybe the most powerful concept. If you want to manage something as a leader, 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 going to 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?

**Eric Ries** (01:36:58):
Somebody sitting there with the code and being like, "Rounded corners or straight corners, skeuomorphism or not?" When person clicks this button, do we double check? Do we understand what they meant or do we just erase their hard drive? Thousands upon thousands of these tiny little decisions get made. Only the invisible leader 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 Follett. She will enlighten you.

**Lenny Rachitsky** (01:37:32):
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 just Google and find it?

**Eric Ries** (01:37:42):
Yes, of course you can find it anywhere books are sold. 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, including a secret chapter that got cut from the original manuscript. Tried to make it really worth your while to go to the website pre-order and sign up for the mailing list.

**Eric Ries** (01:38:04):
But you don't have to buy it from me. You could buy the book anywhere books are sold. It's in hardcover. It's in audiobook and eBook. If you want to. One of my favorite things about the website, we have a list of, more than a hundred last time I counted of local independent bookstores that are carrying the book and where you could order online.

**Eric Ries** (01:38:21):
So if you want to, not only could you do me a favor and buy a copy or 10 or 20 or however many you want and give them 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 them up and say, "I heard this book coming out. I'd like a bunch of copies to give away. Can I get them on launch day?" Your friends will thank you, the bookstore will thank you and I will thank you.

**Lenny Rachitsky** (01:38:46):
A great pitch. Incorruptible: Why Good Companies Go Bad... and How Great Companies Stay Great. Eric Ries, thank you so much for being here.

**Eric Ries** (01:38:53):
Hey, thank you, Lenny. Appreciate it. Appreciate you giving the chance to talk about it and congrats on all you're doing.

**Lenny Rachitsky** (01:38:57):
Thanks, Eric. Bye, everyone. Thank you so much for listening. If you found this valuable, you can subscribe to the show on Apple Podcast, 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.