Eric Ries on 'Incorruptible': why corporate governance is the most important decision a founder will make

know him from his first book, The Lean Startup, which focused on why successful successful companies drift. Uh this book is focused on why successful companies drift from their founding principles and how to prevent it. The lean startup uh was foundational to me when I came to Silicon Valley. I remember I went to a lean startup book event uh probably back in 2012. You spoke there and it was very inspiring as I was starting my first company. Uh and I took away from it just uh you know uh money is not infinite. Don't die. Don't burn all your money. But uh I mean maybe we could start there and sort of reset like what are the correct lessons that you think should endure from the lean startup and then we'll go into incorruptible and sort of uh all of the all of the evolution. But I'd love to

I would just say like super

incredibly influential on on my career and journey

really like unlocked entrepreneurship for a lot of people because totally but perfect time where like it was you needed $20 million to be a business.

Yeah. For me, for me as somebody who just grew up obsessed with startups, I'd be on TechCrunch every day. And all the startups that I thought were cool and crushing it were in Techrunch

every, you know, 12 months raising all this money. And it feels like out of, you know, it feels like

out of reach when you're a teenager and then you realize like, hey, the bookm capital is way less of a constraint than than you would think. So, thank you for that.

Well, guys, thanks you. Thanks. First of all, congrats to you uh on the success.

You know what's really held up? Like a lot of the techniques and the specific tactics from lean startup are a little dated now. I mean, you know, Groupon, it's a case study like it's it's it's old now. It came out in 2011.

But I think the principles have held up really well. And especially if you think about like from a mega trends perspective, the book said that the world's going to get more and more and more uncertain. So, our ability to plan and forecast is going to get worse. I think we we think we nailed that one. and that the democratization of technology is going to mean that more and more and more people are going to be able to build faster, cheaper, better products. And so when you put those two things together, every industry that's been hit with a double whammy with those two things, lean startup holds up real well.

Yeah. Uh do you think startups are getting leaner or less lean in the modern era? And what I mean is that uh I will see we we have folks on the show all all day. Oh, $200 million seed round doesn't feel lean. At the same time, we hear about the mythical one bill one person one billion dollar company. And although there's been some reporting that's been a little bit debunked on hasn't happened yet, it feels like it is becoming more attainable. You you can run run leaner even if you're just using SAS products, but also AI agents can do a lot of things. You can answer a lot of questions. You might have slightly lower legal bills just because you're a little bit sharper going into that negotiation. And so I'm wondering on the the net leanness, how how are you processing the modern era?

Well, every time we have a mania or a bubble, you know, whatever you call it, right? The the situation goes biodal real fast and you have people who are struggling to raise money if they're and not in the favored category and then uh obviously the money is flowing ridiculous. What's funny is I've been at Lean Startup long enough that people periodically write these articles that are like such and such company proves that lean startup is over.

Sure.

And they always pick a company like Quibby.

Okay. So it's like you know like you just never know what it's going to be the thing I I think fundamentally like using resources well is an eternal entrepreneurial virtue. So even the people that are overfunded a lot of them run into trouble because now you don't have that um that reality kind of barking at you all the time to make sure that you're actually building something that people want becomes easier and easier to delude yourself the more money you raise. The other the other kind of startup that's emerged is the is the is the lean startup that ends up raising a lot of capital but simply because they were lean and they were like really scrappy and so they grow super quickly. I'm thinking of like, you know, a turbo pumper, right? Uh our our friend's company where, you know, raised very little money. He's at a nine figure run rate right now, but extremely attractive to capital.

But but but but his entire approach is like how do I maintain that scrainess even once I have a fortress balance sheet because that's what made the company great from the beginning. It's just like doing things that customers want that they'll pay for, you know, all these things. when it's so easy when you take in that level of money to lose that ethos.

Sure.

The thing that made it worth investing in in the first place.

And I think it's interesting like I know quite a few companies that like what you're describing where the fundraising was done for some other reason than for the money. In fact, I know a bunch of founders who brag to me raised this money and never spent it.

Yeah.

Because it can it can make sense to have a fortress balance sheet. To me, the real question is not about like how big or or small is the organization, how much money was they raised, but how much control do the people who are locked into that mission actually have over what happens next. And sometimes when you raise too much money, especially too much money too early, you think, you know, you ring the gong and you're really proud and that's great, you know, like it's okay, that's really fun, but then like have you actually Yeah. or you I get the air hard, you guys get the sound effects and like sometime you know this you know the media environment like steadily building a product that people love day in day out like

that's not the sexiest story and so sometimes you know we get we get distracted by all these other things that that take us away from the one and only one thing that truly matters which is can you build a great product build a great company.

Yeah. Yeah. I mean, there there are so many uh and a lot of the financial reporting sort of misses the changes of control that happen. Like there might be a company that's raised a $1 million series C and then a $5 million series A and there's two VCs on the board and one founder and then there might be five founders on the board and VCs are stuffing $und00 million checks and they can't even get a board seat because there's so much demand. And which one tells you more about the future of that company potentially the governance side? H how are you grappling with the just governance in the modern era there? I mean I feel like that's a lot of what this book is about. There's so many different paths. There's you know PBC's and and really diffuse lots of you know lots of co-founders having even stakes and then you have the the SpaceX AI immense control in a single founder. uh both can produce you know fantastic products and good financial outcomes but like how should we interpret all the different roads that are available to founders these days

it's really confusing that's actually part of the reason I wrote the book book is meant to blueprint to actually show a new better way forward like the extreme founder control has its problems you know psychologists call it hubris syndrome not to name not to name check any particular founders but you know that can cause some issues but also investor dominated companies really underperform uh precisely because we have this financial system that pull has this gravitational force that pulls companies down into mediocrity or worse. And in the book I document like over and over and over again, we we reenact the parable of the the goose that laid the golden egg and just stab it right through the heart when we by removing the thing that actually made it worth investing in in the first place. How many times have you gone to a restaurant and you like look on your phone, you're like take one bite and you're like, "Did private equity buy this restaurant?

It tastes disgusting."

No, I have the best I have the best example of this. My favorite my favorite hotel in the world was bought by private equity and one of the things that every guest would talk about didn't matter at all. It's just like barely contributed to the cost of like, you know, having a guest. There was that every night the hotel would walk around and they would leave a warm chocolate chip cookie and milk for each guest and literally and and private equity bought the hotel which only had like something like 20 something keys and they immediately removed the free chocolate chip cookie with milk at night thing. And I just it was so such a funny thing to like take out but is exactly the kind of thing when you met you transitioning from you know this like founder you know family operated business to um investorowned.

Yeah. What's sad about it is we've built an economy where people are routinely rewarded for cutting costs

but never held accountable for the downstream brand and quality consequences of that. So like on the balance sheet, getting rid of the cookie is immediate ROI positive.

Yeah. And you can justify it. You can justify it because well the cookie is still on the menu so people want the cookie.

Why do we have to get

We looked at the data. We looked at the data. A lot of people don't even eat the cookie, right? And and so it doesn't matter. And of course,

no, you got it right. Like how is it possible that the capital structure of a company has a flavor?

Like you can literally taste it and because like notice how when you said that crab egg took over your hotel, we're all ready to give you condolences, right? Like you could in theory you might be like well having those resources made it better right go that's great and now they're going to no no one ever feels that way and everywhere I go you know I've been doing this book tour in the new book people are coming up to me to be like I know that story yes that happened to me and they've named like 20 different restaurants to me hotels like so many service products where and again it's not about private equity per se it's that we've built this pervasive force that is just dragging companies down so if we're going to get now get to the governance question and I know for founders listening it's like oh god governance so boring but important

as I say in the book if you don't get the governance of a company right no other decision you make will matter in the long run because you won't be the one making it

so we have to figure out how do we create that like incredible alignment you've seen it in missiondriven companies right where everyone's on the same page and how do we protect that special thing from outside pressure and when you put those two things together we can create what I call missionont controlled companies that cannot be corrupted by this temptation

yeah uh there's a bunch of different uh things that I want to like click through to get to interrogate that. Uh the first is probably quarterly results, quarterly earnings. Uh I've seen proposals to go to uh every six months reporting and it seems like okay that would align public companies with like the CEO could think for six months instead of three months and take bigger risks and and and uh think longer term. That feels very good. At the same time, it feels like uh the the the rug that you sweep things under is potentially just getting twice as large or the the closet where you hide the bodies is getting twice as big. Um and I'm wondering is there attention there? Am I wrong to think that there's attention there? uh because a lot of a lot of like I I I I think about you know problems in the public markets with long-term value creation, long-term alignment, but then I also think about uh the the transparency that comes with being public, the regulation that comes with being public, the access to public investors, retail investors that can participate in a company before it's a trillion dollars if it's going to be a great company. So how how are you dealing with those tensions if there are tensions?

Yeah. Well, okay. First of all, the tension is completely real. Okay. And the thing you got to know is is long-term stock exchange, the company that I founded,

um, is the one who filed the petition last year to the SEC to switch from quarterly to the Okay,

so obviously I have a I have a a strong strong view about it. Yeah.

Oh, nailed it.

Exactly. So, uh, and what's funny about it is, okay, so first of all, we have to understand the scale of the problem. You're not going to believe this, but we have,

by the way, sorry. Sorry. Before we continue, you should have named it like, you know, Eric's Eric's law or something like that. You're you're not getting enough credit. You're not getting enough credit for this.

That's Listen, the memes and everything, that's your department. Okay. I just I just Right.

Okay.

So, okay. But you got to understand the magnitude of this problem is insane.

Yeah. If you look at um other countries, there's these natural experiments where certain countries have have switched from semiannual to quarterly reporting or vice versa and they happen to do it in such a way that not every company changed at the same time and it was random who did which.

So we actually know the valuation consequences of quarterly reporting and it's roughly a 5% loss of total equity value.

Wow.

Companies are 5% less valuable interesting

when they report quarterly than semiannual. So the academic research on this is pretty good and the magnitude of the cost. We're talking about so much so many billions of dollars of loss value.

It's not because the the like you know effort to do a quarterly report is expensive although it is expensive and annoying. Rather when people report quarterly they start to run the company for the quarterly report. So companies no longer make products. They start to view the quarterly report as the product which means they're basically meme factories. what do I have to do to generate the report that will get me what I want? Now, getting rid of quarterly reporting just by itself, I don't think is a very good idea, and we'll see what the SEC ultimately decides to do. I think we should replace quarterly reporting with a better, like more wholesome disclosure project where long-term investors can actually find out what the f is going on at the companies they invest in, where today companies are strongly incentivized to give out as little information as possible. But that's kind of broken the partnership we need between long-term companies and long-term investors. of course part of why we we recreated the exchange in the first place.

Yeah. uh talk about uh public benefit corporations and how uh incentive alignment might play out like in in in the longer term when there is you know when you get to a stage of a company that's a lot more like Apple than a founder run like anthropic is a unique example with set of co-founders but uh that like the the normal fortune 500 company has a leader at the top that might have 1% equity uh and a board seat but there is a chairman of the board there's a board of directors it's much less controlled. But in that scenario, they are reporting to shareholders and they have a fiduciary duty to shareholders. Uh if you know you have a company that's you know broadly held and has diversified board and diversified ownership structure but is a PBC. H how does that play out? Like what are they doing differently? Is it that the CEO has two different hats and they're mentally taking these on and off throughout as they're decision-m or or what is how does that actually play out?

Yeah, that would be too hard. The so-called double bottom line, triple bottom line, I think has not worked out very well precisely because it leaves CEOs really confused. Okay, you want to be multi-holder? Great. Customers want lower prices but employees want higher wages. Now what?

So it kind of leads to compromise.

Yeah.

But what's interesting PBC is actually not that new.

Okay. For the vast majority of time, there have been joint stock corporations on this planet. It was considered obvious by everybody that they should be incorporated to do a specific thing

when they're just trying to make money for themselves. They wind up hollowing themselves out. That's what makes them dangerous. It was only in the 1980s that the idea of so-called shareholder primacy came into effect. So, if you like walk by your local park, you will see trees that are older than this idea. This is not some like pillar of ancient pillar of capitalism.

And in the book, I make the case for first of all, we got to get rid of shareholder primacy. I think it's a terrible idea. But the question is kind of like attacking it is easy because the data is so good about all these best practices being so bad. The issue is what do we replace it with? What is mission primacy look like? And I think the key to that is to understand that being a for-profit company is actually great.

Making a profit is actually about making the world a better place. That's literally the definition of it. It's like a positive margin transformation. So in the book I argue and I feel weird doing it in the same day that like Pope Leo made this same point in way in way better fashion you know hundreds of pages I only mentioned it in passing but like literally to make a profit

is to maximize human flourishing that's what it means.

So now coming back to the PBC all a PBC does is give the CEO and the board the legal cover to pursue long-term value creation

in the face of hostile investors. So if you go there and say, "Listen,

I want to sell the company to Philip Morris because they're willing to pay a dollar more per share than it's worth." You need the tool to be like, "No, that's ridiculous. Of course, we're not doing that." And that's what PBC allows you to do.

Interesting. Um,

uh, what what do you think are some of the most underappreciated companies in history that had that you feel like had mission primacy?

Yeah. Yeah. Obviously, these are profiled in great deal in the in the book. And what's really interesting is if you talk to people about corruption and say like why does companies go to, you know, go to bleep after they get big or whatever, most people be like, "It's inevitable. It's human nature. It's companies get old, they get big, there's a lot of money involved, blah blah blah."

But those same people, if you're like, "Are there any companies you trust?" You're like, "Man, I love Costco."

Yeah.

It's like interesting. Like, how come? But I thought it was inevitable. Costco's a $400 billion public company. Oh, yeah. Well, they're the exception. You're like, "Well, what about Patagonia? You got a Vanguard mutual fund. What about, you know, John Lewis partnership or you ever eat a Hershey's chocolate bar? You ever taken a Novaortis medication? Like there's all these weird exceptions, many of which are decades or even like more than 100 years old.

And what's interesting to me is if you take that whole category of companies as a data set and say, what do they have in common?

Every single one of them violates pretty much all of today's so-called best practices of how companies are supposed to be structured, built, and run. So I think we actually have really good data that this is not some abstract thing. So like so for example when the founders of anthropic left open AI so what is that like three or four open AI crises ago? I can't track but anyway it's like hard for me to keep track but anyways like it's been it's been a rough you know it's been a rocky road.

Um when they left like I was one of the people that they talked to setting up their governance structure and not only and again I am not taking credit okay don't do the meme thing okay I'm not taking credit for their success. Obviously, I played only a very big.

They wanted to call it the Eric PBC, but you said

I and I had to talk them out. I was like, "Guys, please, please, no, no, I don't, you know, they were looking for an idea and you told them like, I think you should work on AI." That's what happened.

Yeah. Yeah. They were like, maybe thinking of pivoting out because they left open. They're like, "Maybe we should give up on AI."

They were going to do protein shakes or they were going to do an energy drink and you were like, I

don't do this. I just I just talked to I said about Dra CEO. Don't get me in trouble here. People going to click this out of context. Give me

Okay. Well, listen. So I'm not for the record. I am not taking credit for their success, nor am I trying to talk smack about opening. I know you guys love them.

The issue, but the specific thing I think is really interesting is because they were really worried about this specific issue when I gave them my typical litany of like founder loss of control horror stories.

They could see how bad that would be.

And in fact, it's funny talking about about the about the pope. I was at a event at the Vatican last year talking about AI governance. And I was on this panel with every major AI company, OpenAI, Anthropic, Coher, Palanteer, Google, Meta, everyone on the one panel together, and me for some reason. And I'm looking down this row and I'm like, "Oh my god, not a single one of these companies has standard governance.

They all consider it to be too dangerous." Interesting.

They got to have somebody playing the role of what's called the mission guardian. Yeah. But anthropic to their great credit I think did not want it to be the founders personally holding that

uh that special responsibility because it's stressful as

know many founders who are trapped in this situation.

So they created something called the long-term benefit trust

which is like a multibranch government right? So you have the the the for-profit PPC and then you have the board of directors accountable to a second entity, this this outside trust. And the data shows that companies with that structure are something like five times more likely to live to year 50 and have like way better long-term value creation metrics too. So again, I think we have the evidence that there are these better structures. Yet most founders are never given this as an option and by the time they find out about it, it's too late. They've already lost control. I want to talk about

I think uh one interesting thing is is uh if we move to by annual reporting there's going to be a lot of work accountants lawyers are going to have less work but you're creating a new struct you know these much you know these complicated structures they can just shift their attention to working on mission

mission aligned companies

maybe maybe uh yeah sorry

that wouldn't be that bad would it I think like compared to what they're working on now I think No, no. I I I'm I'm I'm sort of joking, but at the same time, I think it would be better much better use of their time.

I I want to talk about Mandreon. Is that how you pronounce it?

Sure.

I I'd like you to introduce it though first for those who aren't familiar. And then I have some questions about uh you know, where we go, what lessons we learn from it. But first, uh how do you understand that?

See, I don't get to talk about Mandrean very often. So, I know you did your homework and I just A+.

Awesome.

Um okay. So, so it's funny. talking about the day of the pope's encyclical. So, so a Catholic priest

Yeah.

walked into the war torn Basque region uh after the Spanish Civil War. So, this is not the setup for a joke. It's not like a priest walks into a bar. He actually went there

um and instead of like preaching, you know, um just uh comforting people who are being devastated, he had this vision for a new kind of economic reality where workers would be empowered to learn a trade and to own and to control their own destiny. And to make a very long story short, he started to create this network of worker cooperatives

um where the workers themselves own the means of production and they build all kinds. They started with like industrial equipment and now make all kinds of stuff. And and if you zoom out today, Mandreon is this gigantic company that employs 90,000 people in Europe, one of Spain's largest companies, makes elevators and and they have a a grocery store chain and all kind like if you look at it from the outside, you say, "Oh, that's like a fully diversified industrial conglomerate." Makes sense. Like making a lot of money that's perfectly sensible. But if you zoom in, there's nothing about Mandreon that actually resembles a typical for-profit corporation at all. It is a network of I think 80 or 90 of these independent worker cooperatives that work together. They have like a a congress where they send representatives and they self-govern and any of the cooperatives can leave the network if they don't get benefit from the central services that it provides.

So this is an example of what I call a mission locked constellation

which is a a set of entities that when you zoom out the customer, the investor, anyone from the outside perceives it as one thing

but it's actually uh many things. Now be honest. If I pitched you this is my business plan that I was going to create 90,000 person network of 80 like if I pitched it to you wouldn't you say it was impossible?

Um well that's my question.

Should never work.

Uh yeah I

I would I would say it's not that it could never work. It would just be extremely hard to reproduce. Like I think if you got a really talented group of people and you tried to rebuild something like this, even knowing all of the mistakes and challenges that this last one had, it would still be very difficult and probably end in failure. But

right, so it's clearly possible.

Well, it's clear the fact that it exists obviously proves that it's possible, but I think most people when they're thinking about how to start a company like just have a very narrow view of what can be done. cooperives. I don't have the stat in front of me like millions of people worldwide. Like this is not some like weirdo niche thing. It's actually like it's a tool that we can use. Now in the book I try to go through all the different ways you can create mission lock and this is

did a huge Vanguard episode like REI is well known.

I guess my I guess my question with it is that uh so I I I agree with you like you got me. If if somebody came to me and pitched me that I'd be like ah that's too complicated. that doesn't pattern match to like the usual series A like I don't I don't get it. I'm out. Right. Uh but is that why we don't have an American Mandreon in the modern era? You know, like like why is there no uh why aren't there as many like you know uh Mandreon style counterparts to the monolithic traditional founder companies? Because the I I've heard people pitch this is like America would be better if we had more co-opworked like Mandreon style entities and and and and my initial push back has always been like well it's a free country. Like I don't I don't know that that's illegal. I think it's legal. I think you could just go do it if you wanted to. So is it that people don't want to or is it that like Jeff Bezos is secretly out there like killing people who want to try to start the Mandreon of Amazon and like compete with him? Like what's going on? That's a that's a really good question and like so for example so credit unions credit unions are the closest thing we have in the US that serves like I think it's like 40% of American households have an account at a credit union so they're pretty big they're all not you know they're not for-profit member owned financial institutions and the fact that they exist holds big banks accountable in really interesting ways so that's like

maybe the closest

the the point that I was trying to make in this book is not so much that we need to copy Mandreon or any particular company

but rather collectively these what are called alternative structures control something like 5% of world GDP.

Yeah.

So, I don't try to convince anybody to do anything. But for founders that want to attempt something like this, most of them have never been given the permission to even try. Like you talk to most lawyers, bankers, like, and you just say, "I'm thinking about doing this." They're always like, "Oh, honey, that's so sweet that you're concerned about mission."

How about a Delaware CRP with a safe?

Why don't you worry about getting your first customer?

Yeah.

Yeah. Right. Exactly. Just go focus on this other stuff. But one of the most important ideas in the book is this principle I call it's always too early until it's too late.

So what happens is you talk to all these advisers and like oh it's too early. Oh, they're so condescending about it too. Like don't worry about that. Just get and then one day I've actually been in the room where the CEO is like talking to their CFO and bankers and GC and everybody there and being like hey whatever happened to that like mission protective provision thing that Eric was talking about. Did we ever get around to doing that? And they're like oh you were serious about that?

Yeah I told you to do it. You said it was too early. like, "Yeah, now it's too late.

It's too late.

When was it the right time?" Like,

that's wild.

Yeah, you should have said something, man. Like, I did say. So, I just feel like that has become the way that this is done. And it's why so many founders lose control.

Mhm.

Japanese katsus alternative? Do they fit in the category of alternative structures? Are they good? Are they bad? Like, I only know about them from the very highest level. Tell me. I imagine you've interrogated them more. Uh, do they fit in? And and is big tech emerging into a katu? Like Google owns Anthropic and SpaceX and and Microsoft owns Open AI like we're sort of maybe walking. Yeah, we're maybe walking our way into a Katu. I don't know. Uh but

let's see. Let's see after the financial engineering recedes.

Yeah.

Yeah. I I got into I originally got into all this from studying Toyota. Remember lean startup comes from lean manufacturing.

Yep.

And it's really funny. Yeah, I can remember when I first was going around just like when we met in 2012 talking about lean startup, people would sometimes be like, "Hey, you're telling us to create the next Toyota, but you're also taking telling us to build a ventureback company and take it public."

Yeah.

Like WTF, like I thought public markets are super short-term, but if you read any books about Toyota, they're super long-term. So, I actually like spent a lot of time on that question of like, have we just grandfathered Toyota into the modern economy? But even when I was in Japan, I remember people talking to me about how we don't even create them anymore.

Yeah. like we have these legacy companies that have this really unique cool structure

that are kind of a hybrid of public and family run. Like it's a little bit in between both. I think if you look at the data, these structures only work if the company in question has a really strong ethos to accomplish something other than making money.

That really is like that's what you see like but that's what unites everybody from like these like really progressive companies we've been talking about to Elon to everybody. If you have a larger vision that is long-term in nature that is like trying to to whether whether it's something really lofty like I want to fix climate change or I want to go multilanetary or something really simple like I just want to create highquality products. No matter what it is if you have that vision you are a business revolutionary whether you know it or not whether you admit it or not because the economic system we have has been designed to destroy these companies to to suck the marrow out of them because they're too weak to stand up for themselves. So if you look at the historical examples where they're talking about Mandreon or the Caretsu or all these different structures like they're only good if the thing they're protecting is good.

So the question for me is like as founders as investors as leaders as board members like how can we create more and more and more of these companies that have a real long-term mission that are what I call mission driven not just like mission hopeful.

And when you do that you see this like really counterintuitive economic benefits that you get. So it's like you also get moral and and ethical benefits too, you know, like but that's not even really the reason to do it. You can do it just on the basis of the economic argument alone.

Do you think that AI will force companies where it was otherwise maybe too late to maybe over time, you know, sort of massively sort of rework any of any of their corporate structures. I mean the example I'm thinking of that is notable recently is Samsung had 48,000 workers basically say like give us a much greater share of you know AIdriven profits or we're not going to work anymore and started a you know pretty big negotiation. I could see over time that happening at at more companies specifically um ones that are you know you know facing uh disruption due to due to artificial intelligence.

Yeah. There's two things I think that that are are pushing in that direction. The first is the data on employee ownership creating commercial advantage is actually really strong.

So I didn't know this. I I was always a big, you know, everyone in Silicon Valley like we're into employee ownership, but I didn't know it was like an ideological thing. I thought it was just good good practice, especially we have really good data. There was a big meta study of like 55,000 companies with various levels of um employee ownership and they found that employee ownership exhibits dose response like 10% ownership is better than zero, 50% is better than 10, 100% is better than 50. Not just in terms of employee welfare, but in terms of commercial success of the company, revenue growth, stuff like that. The second thing is I really think AI is going to make collective action problems like very different very different than it was before. So for example an old Toyota production system piece of wisdom was that if you're doing a lean transformation taking cost out of a business it's not ethical nor is it effective to ask the workers themselves to contribute to their own firing. Like nobody wants that. So so they're going to sabotage the effort but also it's just not right. You're it's just fundamentally not right. should take the savings you're getting from whatever the thing is and use it to grow the business. Like if the all these CEOs who are like like I'm getting a hard on for laying people off using AI, like if they were serious about how powerful they think AI is, they'd be trying to use it to gain competitive advantage. Like I I call BS on that whole thing.

So I think you're going to see a lot of a lot of companies who who actually sincerely believe in this possibility realize that we have to enlist our employees in it. This is existential for our business. We're going out of business if we don't do it. We need to be allies with labor to get it done together. I think that alliance is going to be far more powerful than what we currently teach the way we teach leadership today, which is this very zero- sum game thing. What was called shareholder primacy is really the idea that companies should treat their employees and their customers like a resource to be mined.

Yeah.

One of my favorite quotes in the book is, if you'll indulge me, there's a Wall Street analyst that was criticizing Costco. He said something like Costco takes money that rightfully belongs to shareholders and instead invests it in improving the customer experience. Like that's supposed to be a criticism. Like what are we doing here?

That's how you get dollar.

My favorite my favorite uh bit in here from Costco is I I'd heard this quote before. I thought it was just a meme, but uh from Costco CEO Jim uh is it Sagal? Sol. Yeah,

Sagal. If you if you raise the effing hot dog price, I will kill you. Figure it out to then CEO Craig Gelanick in in 2008. I always I've seen that quote before. I thought it was just a joke, but I guess he actually said it, which is remarkable.

No, he actually said it. And in fact, he said that and another quote, which is he said that um if if Costco raised the price of a of a dollar bottle of ketchup by 3 cents, they would sell the exact same number of ketchup, right? Like no one would notice.

They did that across the whole store. 3% across the board raising prices. They would increase their net income by 50%.

And not lose any sales.

Yeah.

So why don't they? He says it's like the business equivalent of taking heroin.

You do it once and then you got to do it again and again and again. Next thing you know, you're not the low price leader. Low price are the are the easy way. that quote and the hot dog quote hard to store.

Yeah,

there are memes online and I was like so worried that I was going to quote him incorrectly that I actually contacted Costco PR and they put me on the phone with I was so nice of them. They put me on the phone with him. I was like is it did is this really true? Did this really happen? Confirmed it to me.

He confirmed it to me personally. So yeah, I think this like very distinctive countercultural way that they have run that company now for 40 years. the $150 hot dog and everything. Like what's interesting to me is when I tell people that story about the hot dog, nobody ever says like, "How come the COO was trying to raise the price?" Cuz of course he was. Like we've all been trained that you can you if you can get away with screwing people over, you always do it no matter what. You raise margins. Margins are a source of strength. But Costco is I think built on a very different philosophy which is that margins can be a source of weakness.

Jeff Bezos understood it. He used to always say your margin is my opportunity. So when you are too you're making too much money when you are being too extractive you're actually harming your competitive position in the long run. And the fact that we're consistently incentivizing that all across our economy is I think a bit of a travesty. Uh there was a recent story Everlane was acquired by Sheen. Everlane you know darling of Silicon Valley you know raised a bunch of venture very strong mission ultimately to get swallowed up by the beast that it sought to displace. Uh Michael uh the founder is buddy of mine I he seems very fired up. There was a leak earlier today that he's working on something new in apparel. How would what what is your what is your kind of general advice to somebody that wants a mission a company to have mission primacy? Like what is what is kind of the there's no Stripe Atlas equivalent today? You can't just go press a button and make one of these. But how does somebody get started?

I'm working on it. I'm working on it obviously.

Yeah.

Check out the book. The book has a QR code actually has a really detailed implementation guide and we have like an incorruptible term sheet. all kinds of doc like legal docs the whole thing if you want to uh for those that want to do that but but for for your friend and for so many people who've been through this I've personally counseledled I can't tell you how many missiondriven founders who get betrayed the company gets destroyed they get ousted whatever and then you talk to them afterwards I I just had this conversation with Whole Foods John Mackey uh I I tell a bunch of stories in the book of people who've been through this and you ask them about it and they really take it personally they're like I failed this happened to me. I should have I didn't trust the right people. I tell I tell tell a story in the book of a founder who who on their deathbed was like I just didn't trust the right people. Put the wrong people on my board. We personalize it which means we keep the structural causes invisible. We don't see how it's not personal. This is a force that is dragging us down. So I tell the story even of a really close friend of mine, great entrepreneur who was just tragically ousted by his employees onto a new mission-driven company. I remember asking him, "Dude, on the new company, what are you doing differently by way of governance?" And he was like, like what? It didn't even occur to him that there was like any possible any possibility that the new company could have a different outcome. So for your friend, there's two things we got to do. Okay, just two. One is what I call the path of ethos. We have to build the company operationally to stand for something. The great Saul Price, the father of modern retail, the the progenitor behind Costco, he called this being a fiduciary to the customer. Who would you rather die than betray? Write it down. Make that the operating system of the company in its management structure, in its business model, and its culture. The second thing we have to do is what I call the path of integrity. We have to create companies that are capable of making and keeping promises like that have structural integrity. So they don't give in to inner temptation. They cannot be bullied from the outside. You try to buy them, they can say, "F you." If you try to uh incentivize them to do some bad things, they have the structural strength to resist. And that's where things like PPC, board mission pledge, the long-term benefit trust, like that's where many of the kind of so-called governance structural best practices that we currently are taught have to go by the wayside. When you have that special formula of ethos plus integrity, you have a company that is, wait for it, incorruptible.

No, this is great. This is great timing. I was

I was uh I was talking to a founder yesterday. I was giving them advice and uh they're they're with a with an idea that a lot of people have raised venture to do and the same way Bezos talks about your margin is is it's uh my opportunity. I was telling this founder like your competitors raising venture is your opportunity because they're going to have to do a bunch of things that aren't really aligned to what would make the product great for customers or what would make the the product that you really want. And what I like about this approach is setting things up in a way that uh a lot of the problems that you're talking about are problems where you have other shareholders and there's other people that have a stake in what you're doing. And that's most businesses will end up that way over time. But if you can find a way to create a corporate structure that mimics the found this insane mission-driven founder and allow that that that you know the the entity to maintain that even after the founder is gone. this sort of permanent structure. I think it will be incredibly powerful. So, thank you for coming on.

No, thank you. Thank you for saying that. I will say, you know, obviously you've heard I believe in feedback. I I really like it. It's kind of my thing. Anyway, so I had a lot of people test read the book. You know, maybe 600 people generated something like 10,000 comments. So, like I really I eat my own dog food. Yeah.

Yeah. A lot.

And the thing I'm the most proud of of that set of people is I'm I think we're up to five or six of them now. You know, it's like well coming up on 1% of the people who read the book so far have reached out to me to say that they had a new business idea

that they wouldn't have even considered before

because they were able to use this framework to see new opportunities to make a profit that they they just were blind to before. And a bunch of them have that just the thing you were talking about a second ago like that there's some category where everybody hates all the vendors

cuz they're all like they're all a-holes you know they're all extractive jur what if we had a c what if we had a company in that cate that competed by being trustworthy to companies you're seeing that obviously in AI but you see that in so many categories where it's like oh

that's actually very simple to make a business like that if you take this idea seriously from the beginning so anyway very excited to be here on launch day with you guys. What else? What else you