Can You Build an Incorruptible AI Company? A Conversation with Eric Ries

Why success corrupts good companies

Eric Ries: No, I don't think the purpose of a company is to make money. Until roughly 40 years ago, most people would've agreed.

Michael Krigsman: Every AI company promises to benefit humanity. Few keep that promise. Eric Ries created the lean startup method and advised Anthropic on protecting its mission. His new book is Incorruptible. Eric, you say success itself corrupts a good company. Explain.

Eric Ries: This is something that I have observed over and over and over again in my career. I start the book with a story of a founder who actually asked me for advice on this point, and he was feeling this dilemma like, "Oh, I feel trapped. On the one hand, I'm trying to get the best talent in the world to join my company, and they're asking me really tough questions about the AI. What's it going to be used for? How can I be sure that we're going to be, you know, creating long-term value and not using it to extort people or, you know, become extractive?"

And he's like, "Don't worry, I have such good intentions." And they're like, "That's not really getting it done." And on the flip side, he's talking to investors who are being totally condescending and being like, "Oh, if you have those kind of worries, I guess you're not very serious about running a for-profit company." Anyway, I'm having this conversation with him and I'm like, "Look, I got to go to this event, so let me. We'll pick up the conversation later."

And he's like, "What's the event?" I'm explaining there's another founder, a founder who's 15 years into his journey who made more money for his investors than they could spend in multiple lifetimes, and yet at the first opportunity, they ousted him because no matter how much money he made for them, it was never enough. So we're having this event. There's people streaming into the venue as I'm talking to this founder. Said, "Look, I can even see people walking into the venue who were laid off by the CEO we're here to celebrate."

And he's like, "Wow, respect. Like, that's just the kind of company I want to make." And I'm like, "My friend, you're not listening. He doesn't work there anymore. This is not a party. It's a wake. We're here to mourn the loss of the thing." And he's so confused. He's like, "What, did he die?" "No, he's fine." "Did the company die?" "No, it's fine." "Then what's the problem?"

The problem was we trusted this company, so many of us, customers, investors, employees, ex-employees, but now that we see that on a moment's notice the CEO can be replaced, what value can we place in the promises of the new CEO? And finally the founder gets. He's like, "Wait, you're saying that's going to be me someday?" I'm like, "Yes, that's what I've been trying to tell you. The more successful an organization becomes, the more valuable it becomes as a target. So unless organizations are built with a very specific kind of structural integrity, they eventually will be knocked off course away from their mission."

And of course, I promised this founder that I would help him set it up. But he asked me the question that kind of motivated this whole book. He said, "Well, I don't get it. Is it even possible to build an incorruptible company?" And that's really the book is my answer to him. Yes, it is possible, but unfortunately he had already taken a bunch of wrong steps because he'd become hypnotized by a set of best practices that we currently teach about how companies are meant to be built, operated, and governed that I think are in fact value destroying.

Michael Krigsman: When you say incorruptible company, what does that mean?

Corruption is profit without value

Eric Ries: It was hard for me. This book took a lot of time for me to figure out and to write. And the question is what do we call it when companies fall, when they lose that special spark that made them worth investing in? I mean, this has become such an epidemic that most of us have had the experience and we don't even know how to name it. You know, I was at dinner the other day with friends at a restaurant a friend had recommended we go to this restaurant.

Hadn't been there in a few years. Took one bite of the food, pulled out his phone and said, "Sorry, guys, I didn't realize this restaurant's been taken over by private equity." I could taste it. It only took one bite of food to. I got the flavor of the capital structure has a flavor. It's in the food. You can taste it. It's like unbelievable how many companies after they go public, they become bureaucratic. They start to be some self-interested, what Cory Doctorow calls enshittification.

They start to make the product steadily worse. They start to realize they could make money, more money by betraying their promises than by keeping them. What's going on? Well, I think our grandparents and great-grandparents would not have had a hard time naming this phenomenon, even though we find it baffling. They would've said this is evidence of widespread corruption. Corruption not meaning illegal crimes, but rather the making of money without the creating of value.

And so many people when they get to a certain level of success either realize or are pressured, forced to engage in this behavior where they find out that you can make more money by extracting value instead of trying to create it. So that corruption is what we're fighting against. So in order to understand where this corruption comes from, we have to get away from moralizing stories about how these are bad people, although I'm sure there are bad people.

But we have built a financial system that incentivizes and rewards this behavior. It is imbued with a sense, I call it a financial gravity, that pulls people and organizations into its orbit. And so in order to prevent this from happening, we have to recognize this gravity and we have to recognize the practices that are designed to counteract it.

Michael Krigsman: Why should we care about this? You know, you go to a restaurant, it doesn't suit you. Fine, go to a different restaurant. But a business is in business to make money, and the in- that's the intent of the investors, and certainly most, if not all founders who accept VC money accept and realize this trade-off. So what's the issue here?

Shareholder primacy is a recent invention

Eric Ries: You just stated something as if it was a law of nature or like an ancient principle of capitalism- That's actually a very recent development. So no, I don't think the purpose of a company is to make money. In fact, until roughly 40 years ago, most people would have agreed. In fact, for the hundreds of years there have been joint stock corporations on this planet, it was widely seen as obvious that these things are far too dangerous to be unleashed into the world without a defined purpose.

Corporations should exist to make a specific thing. They should have principles that they're committed to. And in fact, if you ask most people, "What is a great company?" They'll be like, "Oh, a great company is a vital living thing. It competes in the marketplace to produce high-quality products, and it profits by doing so." If you say, "Is it a great company if it finds a way to cheat people, to trick them into buying slop products?" They may guess, but people will be like, "No, that's disgusting."

So I think there actually are better and worse ways to make money, and it is okay to say that, you know, that the building of companies should be about accomplishing something specific. So yes, you're right, we live in the era of what's called shareholder primacy. I always tell people now when I meet them, "You think you're building a company that is a vital living thing designed to create high-quality products to enrich your customers' lives, to bring some beauty or efficiency or to serve their interests? Sucker."

You know, joke's on you. No, according to your own legal charter, your company is nothing more or less than a financial instrument designed to enrich shareholders. But most people don't even believe me when I tell them this is the law that we live under. It seems incomprehensibly stupid, and it is. So yeah. Now, look, I wanna be super clear. I'm not against making money. I think actually because we have tipped the scales of our economy into this extraction, we are living in a time when the very idea of being a for-profit company is under attack.

You talk to younger people, and they are reflexively suspicious of every for-profit company they see. In fact, if you talk to them about the decline of trust, the crisis of trust that old people are always talking about, they can't understand it. Not because they don't understand that it's collapsed. They can't understand that it was ever high in the first place. Why would anyone trust a for-profit company? You must be crazy. But there was a time when building trustworthy companies was seen as an end in itself, as an ideal to be emulated, and we have to bring that back.

Michael Krigsman: Why do good companies go bad as they grow? And then we have some questions that are starting to come in on LinkedIn, and we'll get to them shortly. But why do companies go bad as they grow? What's the dynamic?

Sol Price, FedMart, and Costco

Eric Ries: Let me tell you a story with a happy ending, okay? And there's not that many happy endings in the book, but here's one. It starts off pretty bleak. This is a story of Sol Price, the father of modern retail. He created a company in the 1950s called FedMart that is the first real big American discount retail chain in the modern way that all the other big modern big box chains are derived from this template. It was a big box store, bare bones warehouse, membership fee, low prices.

And Sol had been a lawyer before he became an entrepreneur. As a lawyer, he was a fiduciary to his client, meaning he has to put the client's interest before his own. So when he became a retailer, he asked himself a simple question: "As a retailer, who's my client?" And what he discovered, you know, what he decided, is that the customer is my client. So he built his business on the principle of being a fiduciary to the customer, meaning you put the customer's interest before your own.

If someone had a lower price than FedMart, he would put signs up in his own store saying, "Don't buy this product from me. You can get it cheaper down the street. I'm your fiduciary. I look out for your interest." So as a result, people really trusted FedMart. It grew, it prospered. He paid above-market wages. He promoted and hired from within. He did a lot of good stuff. He was really one of those people who believe in doing business the right way.

For more than 20 years, FedMart was a rocket ship. He took the company public, and for 20 years, he had nothing but conflict with his investors about it because they couldn't understand why he was deviating from all the retail best practices. Why did he pay higher wages than he, quote, "had to"? Why did he charge such low prices when he could get away with charging higher prices? Perversely, his investors seemed to understand that precisely because customers trusted FedMart, FedMart could get away with betraying them.

So they wanted more money than Sol would deliver, even though the company was growing exceptionally fast. One day, this all came to a head in 1975. Sol comes to his office, and he can't get into his office anymore because they've changed the locks on the door. Just like that founder whose wake I was at, he doesn't work there anymore. Now, what happened? It's very important to understand not just the why, but the consequence. These destructions of companies are very often carried out in the name of profit despite being profoundly unprofitable.

And by 1982, every FedMart store had been closed. The investors, by insisting on so-called value maximization, actually killed the goose that laid the golden egg, and liquidated the entire chain. Today, there are no Fedmarts anywhere in the world. The company has long since become a distant memory. But I promised the story would have a happy ending, and that's because Sol, the classic entrepreneur that he was, took 2 weeks off, and then he leased the office upstairs from FedMart and got back to work.

To make a long story short, he created a company called The Price Club, which when I was a kid, that's where my family shopped, so that was a local institution in many places. Today, Price Club has been forgotten because of something else that happened around the same time. See, one of the people who quit FedMart in protest when Sol was fired, he himself went on to create a new company, and a few years after that, his company and Sol's company were to merge to form a combined company that they called PriceCostco.

But of course, we just call Costco. And so today, you know, for those that don't know, I've just given you the deep cut backstory of the founding of Costco. Costco today is a $400 billion public company, widely seen as the exception to every business rule because Costco has that incorruptible formula that allows it to keep and maintain its promises, you know, over the course of decades. That is not a charitable stance. Did I mention the company's worth $400 billion?

It is one of the best performing stocks in the whole S&P. It produces outstanding financial returns for its investors, but it does so by being concerned primarily with the wellbeing of its customers, employees, and communities.

Michael Krigsman: To your story about the restaurant, my wife and I recently went to a local chain, and we remember when they first started. And we had some cake or drink or something, and I tasted it, and I said pretty much the same thing. "You know, this is not very good, and these guys were bought by private equity." Same kind of deal, and you can tell. But we have some excellent questions that are coming in, and I want to encourage everybody, ask your questions.

When else will you have the chance to ask Eric Ries pretty much whatever you want? So the first question is from Arsalan Khan, who asks a really interesting question. He says, "Who defines what value, quote-unquote, is worth pursuing?"

Who decides what value matters

Eric Ries: I think it's very important that one of the true strengths of a market economy is that we don't need to have a value monoculture. Companies can and should be free to decide for themselves what values they want to have fidelity to. And so my view is a company should be required to declare transparently to their investors and everybody else what they stand for, and that every company should stand for something. But I don't think you have to agree with my values to say that, you know, you have done this, followed this blueprint.

And in fact, I give examples in the book of companies like Costco, or as you mentioned, Anthropic, where on the one hand they are widely admired for their strength of character, and on the other hand, they're even admired by people who disagree with them. Now, we live in such a polarized time that I think it's actually really hard for us even to comprehend the idea. It would've been seen, again, very obvious in previous generations that you could have a company or even a person who does the right thing even if you disagree with what they did.

Because in order for something to be the right thing, it cannot be that everyone has to agree in every particular. Otherwise, we would have nothing but the war of all against all because no one would ever be able to acknowledge anybody else as having done the right thing. So this is about companies having autonomy, integrity, and coherence with their own consistent beliefs. Now, all that being said, the philosophical conundrum is doesn't that sound a bit like moral relativism?

Aren't you saying that, well, okay, a company could declare its values to be totally sociopathic and destructive, and you would have to acknowledge it as mission-driven or even doing the right thing? And the answer to that is also no. In the book I try to explain that the key here is to align the making of profit with the maximization of human flourishing, and we can distinguish between companies that pursue human flourishing and those that are indifferent to it.

And in fact, the superpowers, like the incredible alignment and coherence that is unlocked by being mission-driven, it is compatible with a wide range of value systems, but not all of them. And so there is a set of, I think, universal human longings that when we align with those things as a company, we unlock these superpowers. But that doesn't mean that I think I or anybody else should be the arbiter of who gets to decide. Ultimately, every company should choose for itself and bear those competitive consequences.

Michael Krigsman: And just to be clear, you are taking a moral position because when you talk about the flourishing of human good, I think most people would say that there is a moral dimension to that. So you are taking an assumption and going down that path as opposed to looking at it, for example, through the lens of private equity. I'm not defending private equity, but

There is no trade-off here

Eric Ries: No, no, no. Listen, it's very funny. Again, this is such a sign of the times. 'Cause it. Look, I'm not apologetic about this. It is a moral argument. I do think there are morally right and wrong ways to run a business, and I think the fact that it's morally right should be a good enough reason to do it in its own. But this is not one of those situations where we have to agree on the morality of the situation to do it because it also happens to be the case that financial performance, long-term financial performance is also aligned with these principles.

So it's funny that I think a lot of people have been encouraging me, "Don't talk so much about the moral dimension. Just talk about the financial dimension," since of course that's more palatable. We live in a time when you're supposed to minimize moral and ethical concerns and pretend to only care about financial concerns. But here's a situation where I don't think we're really asking anybody to trade things off. And in fact, a common early reader piece of feedback that I got on the manuscript, you know, I had a lot of feedback as I was developing this book.

A bunch of people would say things like, "Eric, I don't know if you're really being honest enough about the trade-offs of working this way. What are the drawbacks? What are the trade-offs? Can you be more clear about that?" So I asked a bunch of mission-driven leaders, "Hey, I'm getting this question a lot. What are the trade-offs?" And they looked at me like they couldn't even understand the question. They're like, "What do you mean trade-offs?" I was like, "Well, what are the downsides?"

And it was as if I had asked them, "What are the trade-offs between eating food and eating poison?" They're like, "Well, I guess by committing to never eat poison, I am limiting my freedom in the future." And they're like, "I guess by, like, I guess I'm giving up the ability to stab my customers in the back in the future." But is that really giving something up? Like, it was actually very funny.

But I think it reflects the fact that even those of us who want to have good values, to want to be mission-driven, who, we have a received an indoctrination, and we kind of deep down, many of us secretly believe that there is a trade-off to be made. By doing the right thing, you are ultimately sacrificing your chance at commercial success, whereas the evidence shows it's the opposite.

Michael Krigsman: Say you're starting an AI company. Doesn't have to be an AI company, but you're starting a tech company, an AI company. You're dealing with VCs who are under pressure from their limited partners, okay?

Eric Ries: Yeah.

Michael Krigsman: And the clear message is, "You need to make money." And that is what founders are signing up for.

Missionaries versus mercenaries

Eric Ries: So it's very funny. I push back here because look, I'm very critical of investors and certainly have plenty of criticisms of VCs. Okay? Don't get me started. But even among VCs who are really in the straight up commercial return space, they talk about missionaries versus mercenaries. So it's like, what does that mean? We're seeking after missionaries? What does that mean? I think it's actually kind of a loaded term. I personally would prefer if they retired it because of its historical connotations.

But anyway, what does it mean? There is an understanding that the way, the path of long-term returns is through people who are irrationally committed to some extra financial goal, a mission, in the same way that Steve Jobs was. You know, like Steve Jobs, remember Steve Jobs is the guy who famously got into a fight with his own engineers over the visual layout of cables inside the case of a computer Steve did not believe customers should be allowed to open.

And so the engineers would say, "If customers are not allowed to open the case, how will they ever see the design of the cables? If no one will ever know?" And Steve would say, "But I will know. We will know."

Michael Krigsman: So now I understand. So you're saying it's similar to Google that had as its original mission, "Don't do evil."

Eric Ries: Mm-hmm. Yeah. And,

Michael Krigsman: I,

Eric Ries: I

Michael Krigsman: Cover that

Eric Ries: Case in the book

Michael Krigsman: How has that played out?

How Google lost its way

Eric Ries: Well, right. That's the problem. If. So one of my hobbies in writing the book is I started to collect the blog posts, the essays that people who had been at Google for more than 10 years and then left wrote after they left. It's a genre. There's so many of these. A bunch are in the endnotes if you want to look them up, or you could just Google it. These essays are really sad, and again, I don't mean to pick on Google.

Google's a great company in a lot of ways, but this ethos that drew so many people to work there got lost over this course of time, and the people describe not just a creeping ethical lapse, but also a creeping mediocrity that affected all aspects of their business performance. One person put it this way. They said, "Over the time I was there, decisions went from being made in the interest of customers to being made in the interest of Google to finally being made in the interest of whoever was making the decision."

And that mediocrity, yes, it has caused ethical problems. Google has been sued and had to settle all kinds of lawsuits over all kinds of malfeasance, but also a loss of product execution that has cost the company literally trillions of dollars. Don't forget, the transformer architecture that powers all modern generative AI was invented at Google, and every single co-author of that paper left. What would it. How much would it be worth if it had been commercialized there instead?

So again, I don't buy the idea that the ethics and the performance are somehow separable issues. They are one and the same.

Michael Krigsman: Let's jump to some questions. This is from Swami Vaidyanathan who says, "Is there a specific structure, public for-profit or nonprofit or long-term benefit trust or a nonprofit parent with capped subsidiary that keeps it incorruptible, or is it more dependent on the board?"

Structures that protect a mission

Eric Ries: I promise for all the depressing stories in the book, the book is fundamentally optimistic about our future, and it's not so much because I have a bold new idea. It's because we have a lot of evidence to support what I call the architecture of institutional longevity. We know what to do. We just don't teach it anymore. But it's not like a secret. It's actually hidden in plain sight. So the questioner has mentioned many of the structural solutions that are well-studied.

I would just say I'll, I'll answer this question in brief, and then if people have follow-up questions, I'm happy to get into more detail, or of course you can read the book. The blueprint requires a new idea about governance, and I would kind of put it in 3 categories: purpose, coherence, integrity. That's our formula. So purpose, we have to find a way to legally and operationally bind the organization to the maximization of human flourishing. Legally speaking, in the US, you can do that with a very simple filing in the state of Delaware called a PBC filing.

A similar thing is available, I think, in 44 states last time I checked. This is by far the easiest thing in the book that you can do, although there are other ways to do it. But either way, you have to figure out who do we serve? What kind of extra financial commitments do we have here? Is it to quality? Is it to customers, to community, to the employees, to the environment? I'm not here to tell you what it should be.

If you tell me it's nothing but shareholders, I say good luck to you, okay? Call me on your next company. But most people start a company because they have some purpose in mind. That's the purpose pillar. The second pillar I call coherence. Once we say, "All right. I wanna make employees' and customers' lives better," now we have to figure out how do we turn that into an operating commitment. I call it a fiduciary commitment after Sol Price.

Who are you willing to say, "I will put their interests before my own"? Who would you rather die than betray? And once we've identified those commitments, then we have to figure out how to create a business model that's 100% aligned to that outcome, so we cannot ever make money by betraying the mission, and then we have to figure out how to create a culture so that employees know how they're meant to behave even if no manager is present.

That's all covered in the blueprint section on coherence. And then the questioner is really asking about the integrity bit, structural integrity. Now, here's a crazy factoid, okay? Most people who hear this for the first time cannot believe it is true, but this is, like I said, there's a whole academic discipline of people who study this for a living. Guys like Steve Thompson have figured this out. For companies that have the industrial foundation structure, this is companies like Novo Nordisk or Hershey Chocolate, where a nonprofit foundation serves as the mission guardian overseeing a for-profit subsidiary.

Companies with that structure are something like 5 or 6 times more likely to live to year 50 compared to companies with a conventional structure. And they have superior performance across a wide range of financial dimensions. Now, that's just one of the structures to create mission guardianship. In the book, I explain quite a few. Costco has a very distinctive what I call a governance fortress. You have all kinds of variations on trusts that can act as the mission guardian employee ownership trusts, ESOPs, what's called a perpetual purpose trust.

That's a relatively new one that, you know, is something that governs Patagonia, for example. And then obviously a whole variety of cooperatives like Mondragon in Spain, like Vanguard, if you have a Vanguard mutual fund, or if you've ever shopped in an REI. These companies are name brand global titans that have these alternative structures, and if you look at the companies as a class that I just mentioned, and quite a few others that are in the book, and ask what's the one thing they have in common?

It's not any particular structure, 'cause they have a variety of structures. It's not their industry or culture or brand aesthetic. Think about the difference between Patagonia and Costco from a brand positioning and values perspective. No. The one thing they have in common is that they violate today's so-called best practices about how companies are meant to be governed. Most of these companies routinely get or would get the worst possible governance score from governance ratings agencies.

And I think we as founders, as leaders, as board members, as customers, as employees, we have to grapple with the fact that we've been taught a set of best practices that actually are not that good.

Michael Krigsman: Those best practices serve the investors or management at a particular time for a relatively constrained duration. So they may not be that good in the long term, but they accomplish the goals at the time.

Eric Ries: They were sold and taught that way, then they would collapse in a minute because it's like, wait a second, these are supposed to be the universal best practices, they say they're only good for particular people- over very short durations, only for particular goals? It's pretty weak. I think investors have been hoodwinked as much as anybody here, and I go to great lengths in the book to explain why this system is not that good for investors either.

I give story after story after story where the value destruction that was done in the name of profit was quite value destroying. So yeah, even though this thing is, it, you know, it's nominally called shareholder primacy, and it's meant to put shareholders at the top of the hierarchy of corporate stakeholders. If you talk to most long-term investors, like we use the word investor interchangeably for like quantitative traders, hedge funds, you know, sovereign wealth funds, endowments. Like, those are not the same, okay?

If you separate out whose money is being invested, you have basically investing middlemen, and then you have people who actually have to hold capital for some kind of multi-generational purpose. The vast majority of capital in the world is held by these long-term institutions. The people who run those institutions are just as pissed off about our financial system as any or all the rest of us. It's really the financial intermediaries who benefit the most from this structure.

And so, yeah, we could do a lot better, even for investors.

Michael Krigsman: A couple of things here. Heather Roberts says shareholder primacy was a psychological operation. That's a pretty interesting point of view. And Bob Dylan beat you to it because he wrote a song called "Who Do You Serve?"

Eric Ries: Mm-hmm. That

Michael Krigsman: More or less encapsulates a lot of what you're saying. But closer to home, we have a question from Josh McHugh on LinkedIn, who says: "What's the current most effective values X-ray that people can apply to companies while deciding whether to do business with or to invest in them?"

Financial gravity and your power

Eric Ries: This is a very important concern of mine in the book. It comes up in the later chapters especially. And the question is, this gravitational force that companies feel that drags them down, where does it come from? Who generates it? In the book, I explain the psychology of it, the laws by which it disseminates because, you know, it's basically, it happens whenever we have massive resource disparities. It's one of the reasons why inequality is so, so toxic to democratic societies.

But it's not just inequality of wealth, it's also inequality of status and power, too. But that doesn't really answer the question because, of course, money by itself does not exert force. Money is inert. The force is generated by human beings, and in fact, by you who are listening to this right now.

Where you choose to give your attention, who you choose to buy products from, where you choose to invest your money, where you choose to work, these choices generate gravitational fields, and it's why the people who are trying to move our economy in such a malignant way spend so much money trying to influence those choices, and in particular, to convince you that things are the way they are for some inevitable reason. You don't have any agency. Your choices don't matter, so you may as well just buy from whoever has the slickest marketing.

You know? It doesn't matter. People who say that it does matter are squares, you know? But if it doesn't matter, why do they spend so much time trying to convince you that it doesn't matter? Isn't that strange? If all reforms are doomed to fail, why do people spend so much time trying to attack and destroy reformers? I think it's almost like deep down, secretly, they are afraid maybe it would work. Yeah. So we all have a responsibility and a power to exert this gravitational force.

Now, I get some people find this distressing because they're like, "Wait a minute, I thought this was going to be a book about how structural problems require structural solutions. Now you're telling me I can, you know, solve climate change by recycling?" No, it's not like that. But you do have power, and you must choose to wield it, not in defense of my values, but in defense of your own. In the book, I explain how most modern companies are addicts.

You can't imagine how addicted they are to your behavior. They so crave, 'cause they need their quarterly returns. They need their dopamine hits as much as any, you know, any cigarette smoker. And Jim Sinegal, the founder of Costco, called it the business equivalent of taking heroin. Like, that's how they operate. Which means there is no decision, no matter how small, even if you make the decision completely privately and never tell anybody about it, nonetheless, there is some middle manager out there where it's their OKR to get you to do that or to prevent you from doing it.

Probably many different middle managers are responsible for making sure you do that thing.

Michael Krigsman: Well, if you think about predictive analytics, marketing analytics- sure CRM systems-

Eric Ries: Mm-hmm

Michael Krigsman: Personalization through AI, the whole point is tracking on the web in the thousand different ways- It's

Eric Ries: Called surveillance capitalism for a reason.

Michael Krigsman: Yes.

Eric Ries: And look, the way I decided to write this book, and it was hard, I wanted to write this book for the world as it exists today. So these are tools people can use to achieve their goals in our very fallen world, in the era of stakeholder primacy, of shareholder primacy and surveillance capitalism. Okay? Which means we have to use those tools as weapons. We can't just ignore them or pretend they're not happening, nor did I want to write a book that was like, well, after the revolution then.

No. We have to use these, the powers that have been granted to us, and one of those powers is to choose where to give your time, attention, and money. So let me give a concrete example because I think this is very important. You don't really appreciate, unless you've been in the C-suite or in boardrooms, how obsessed companies are with what you will do. Okay? I know so many companies that are like, "Can we, we made the product a little bit worse. Will they still buy it? How about now? How about now? How about now? Oh, can we treat our employees a little bit worse? Will they quit? Will they quit now? How about now? How about now? How about now?"

So when you say, "No, I refuse," you are creating gravity. So anyway, I had an example. A young person came to me who read the book and asked for advice. They're like, "I really want to do this. I want to make sure I'm doing my part, just like you suggest. Can you give me some advice on how to do that?" And I said, "No problem." They said, "But before you give me the advice, I want you to know that I'm not a courageous person. So can you give me a no- I need a job. What's a no-courage way I can be an advocate for this?"

I said, "It's no problem. Here's an example." Okay? In my life, having an understanding that. The understanding that is in this book has given me, myself, all kinds of superpowers to do things that other people find difficult or strange. So here was a question that most people would find difficult to answer. I found it easy to answer. I said, "Here's what you're going to do. You're going to have a job interview. At the end of the interview, they're going to say, 'Any questions for us?' You're going to say, 'Yes.' 'What's your question?' 'My question is, is this a mission-driven company?' They're going to say yes. Of course they are. What they- Of course they're going to say that. You say, 'Great. How do you know?' And they're going to say a bunch of great stuff, lofty-sounding stuff about the mission. 'We put customers first. We put employees first. We do this, we do that.' 'Great. Cool.' Then you're going to ask this follow-up question, not as a criticism. You're not going to jump on the table and yell about it. You're going to ask in the spirit of open curiosity, 'That's so cool. Is that what it says in the corporate charter? Is that our legal mission, too?' And most likely, the person you ask this question to is not going to know."

Now, first of all, it's a legit question. You have a right to know because if it's not in the corporate charter, most likely that company will betray you eventually if you go work there. Okay? So you may get an answer or you may not, but let's say you don't get an answer. You say, "Well, what was the point of that?" Here is the point. Every company these days has a hiring process where it's somebody's job to make sure that any question a candidate might ask in the interview, there is an answer.

Someone has the answer for the next manager, right? So you, by asking this question, you've made it somebody's job to ask her boss, "Hey, what is the answer to this question anyway?" And she's not going to know, and she's going to have to ask her boss, and he's not going to know, and he's going to have to ask his boss. And I've actually been in boardrooms where this comes up. "Hey, candidates are asking this question. What is our answer to this question? Does anyone know what we're supposed to say?"

You have just created an opportunity for a CEO maybe who's been wanting to do this but never quite had the courage before. They're like, "Oh, hey, guys, we're going to have to do this 'cause look, it's coming up in interviews." That's if one person asks the question. Well, what if 2 people asked? What if 10 people asked? That could be you. You could be the one who incites such a change. You never know where those ripples might take you.

Michael Krigsman: Now would be an excellent time to subscribe to the CXOTalk newsletter. So go to cxotalk.com and subscribe so you can join this community, and we can notify you about the incredible shows that we have coming up. So Yaw on LinkedIn asks the question that you just answered, but in addition, she says her daughter just graduated and now works for Costco, so it really hit home.

Eric Ries: Hmm. That's great.

Michael Krigsman: But in addition, she says, "What governance or business model red flags should young people look for as they are approaching companies?"

Red flags when vetting a company

Eric Ries: So the red flags, what we're looking for is divergence between the mission statement and the actual mission of the company. That-- Those are all the red flags. So here, like some examples. We want to look for opportunities to make money without supporting the mission, right? So there's a lot of situations where the company, like, has some small, like just a small little thing. You know, when cust- when someone calls into customer service and says, "I have a problem," is the customer service agent trained to say, "Well, according to the terms of service, we don't have any obligation to help you"?

Or do they say, "You know what? We may not have an obligation to help you, but we want to help. Let me find a way." I give a lot of examples like that in the book. We want to look for things like the employees. Like when you get the employees away from their managers and ask them what it's like to work there, you know, are they, like, giving that cynical laugh like, "Yeah, it's a really great place. We're trying to change the world," or do they seem to sincerely believe it?

And of course, you know, I think everyone should do their homework. Do people, like- in the wider world, do people actually think this company's. Again, not do we agree with every decision it's made, but does it seem to reflect its own principles? Like I, you know, when people tell me about a company, they're like, "Hey, here's a company that, got taken over by somebody else." Doesn't always have to be private equity. I was just. I, this is like almost a daily thing now, people tell me these stories.

I just heard about a tortilla company that got acquired by PepsiCo, okay? And I was like, "Oh, I wonder how it's going." I went on the, I went on Reddit. Just Reddit search, name of the company. Every thread is about how the tortillas are bad now, and that the food has gotten. It's just like so clearly. And the data's just available to anybody who wants to see it. So yeah, I think the red flags are about promises kept versus promises broken.

And if you do that same search and you do that same diligence on, you know, a company like Costco or a company like Patagonia, you'll see, you'll see the difference. And you know, not everybody has to work at Patagonia. Of course, there's plenty of companies to work at. But you know, all things being equal, choose the company that seems to have some kind of profound mission. I think you'll do better. For example, like someone just sent me this story.

A person wrote to a Costco, like the customer service complaint line in a Costco, I think it was in Tennessee, and they said, "I was really upset because the food court for your famous $1.50 hot dog was out of ketchup." And they got an email back from the CEO of Costco apologizing. You know? Are there stories like that about the CEO you want to go work for? If not, want to find out why.

Michael Krigsman: You know, I once sent an email to Tim Cook, CEO of Apple, because my parents, my elderly parents were not treated right in an Apple store. And I got some very senior, very quickly I got some very senior person in touch with me. I mean, I was actually astonished.

Eric Ries: What's crazy about these stories, 'cause you're like, "Well, maybe they're just cherry-picking," but if, like if you just think logically about this, these companies are too big. If they were being deluged with emails like that, they couldn't possibly respond to all of them. So the story tells you both that the company is sincerely committed to the thing, and also that these complaints must be rare because they must be doing everything in their power to prevent them from happening so that they don't be deluged with, you know, with things that they would then have to respond to.

Again, it's just you're looking for these indications of that alignment of all the people involved around some common purpose.

Michael Krigsman: And this is from Chris Petersen on Twitter, X, who says, "Is it too late when a company goes public and sets bylaws that make profit-taking their North Star, or can they come back with enough work and leadership?"

Eric Ries: One of the principles in the book is called It's Always Too Early Until It's Too Late. So for every company, I do think there is some event horizon after which it is just practically speaking too difficult to make the kind of changes we're talking about. And generally speaking, the changes get more difficult the longer you go, in the same way that a lot of progressive diseases are simply much less painful to treat, much, well, much better to prevent than to treat, much easier to treat early than late, et cetera.

But I'm very hesitant to say that there's a specific time that is too late for any given company. Obviously, I run a stock exchange called the Long Term Stock Exchange. Well, I don't run it anymore. I founded it. Where, you know, we try to help companies who are going public, who are already public still nonetheless make these kinds of commitments, and we've been able to do that even for companies that are already public.

So, you know, and in the book, I tell examples of companies that started out with this ethos from the beginning and also stories of companies that had to convert to it, you know, much later in their life. What I can say is that if anyone's listening to this, if you have the power to do this now, do not delay. That's really the important thing. And if you meet a company that seems like they are struggling with this, you know, be aware that it might be, the reason might be that it's too late, and maybe find a place where it's not too late.

But I just think for those, a lot of people who are stuck in situations, or they already work at a company, or they just want to work at a company and they say, "Well, I want to at least give it a shot," have-- Like give it a shot. You won't really ultimately know until you try.

Michael Krigsman: We have a question from Dr. Sanjay Prakash Sahu, who says, "What is the trade-off between bias and truth?" How do you, how do you balance bias and truth when the exact science is. You, you're not dealing with empirical science. You're dealing with judgment.

Eric Ries: Well, we're always dealing with judgment. Even empirical science is a judgment about what method are we going to use to evaluate what the truth is. So yeah, I do give examples in the book of companies that, like I think, companies that have scientific research or some kind of like scientific integrity at their heart have a special obligation to adopt these practices to protect that, you know, over long periods of time. But I also feel like in general, every company, just unless you specifically set it up to avoid this, you'll eventually start lying to yourself.

Think about what it means when we say that a certain company, the culture is very political. Like that is the ultimate insult because it means we know, we know for sure that decisions are no longer being made according to some kind of empirical truth. They're being made based on, you know, who's most persuasive or what, you know, what people find most convenient to do. So yeah, I think, I think take it seriously and you can solve this problem.

Michael Krigsman: Very interesting question from Tom F. on LinkedIn. Likely no company begins with an intention to be corrupt. So have you uncovered any common life cycle stage or set of circumstances where corruption becomes inevitable?

When does corruption become inevitable

Eric Ries: When you jump up in the air, at what point does it become inevitable that you will fall to the ground? You know? From the very moment you conceived the idea of jumping up in the air, right? Like we see your trajectory turns negative at the apogee of your flight, but you were being pulled by gravity the whole time. On the other hand, if you're flying an airplane, at what point does it become inevitable? Like, not really.

If, and if you've, if you're in a rocket ship, it is literally no longer inevitable, for you can achieve escape velocity. So, that's really my question, is not so much, what is the moment, but rather what is the vehicle? What kind of thing are you in? And is it architected to handle the pressures that you will inevitably face?

Why Eric Ries is optimistic

Michael Krigsman: You are an optimist. You're a clear optimist, as I get it-

Eric Ries: Yeah

Michael Krigsman: With strong pessimistic, or let's say realistic streaks. How's that?

Eric Ries: I'm optimistic, not based on any information, you know, in my daily life. Like if read the newspaper, we live like I feel, I feel bad making light of this, but we live in very dark times, and I don't think this should be sugar-coated. You know, we are now reaping the whirlwind of choices where like as a society we had all kinds of problems that we could have chosen to prevent or fix. The early symptoms we saw, and we chose to turn away.

Now we bear the consequences of that, as our grandparents did. So this is not like the first time anything like this has happened before, the rise of fascism. Now, you know, we've had multiple historical periods where this has been the challenge. And yet the reason I am optimistic is not so much because I see the solution in front of us or think a brighter day is about to dawn. I think we have a lot of work to do now to excise this cancer from our society.

But because I take inspiration from the fact that in other generations they faced dark times, or much darker even than these, and somehow they maintained their integrity, they maintained their will to rebuild or maybe build anew after the darkness passed. And so if you look at the like massive spree of institution building that accompanied the end of the last, our grandparents' time of darkness, we have to do that again. We have to figure out, find that common purpose and that sense of constructive energy and unleash it for the sake of our grandchildren.

Whether that will happen, you know, in the near term or even in our lifetime, I don't know. But I do think inevitably that is where we will go.

Michael Krigsman: Greg Walter said, "So why should a company have principles?" He says on LinkedIn.

Eric Ries: They'll be more successful.

Michael Krigsman: Do concepts in the lean startup approach feed into this? Is there is so please explain.

Eric Ries: Lean startup is about applying a scientific theory to business, and what's interesting to me is how many people seem to struggle with the fact that in order to go fast, in order to have rapid experimentation, in order to be able to pivot and do the dynamism of innovation that we want, this requires a container constructed of immutable principles. So if you say, "I'm going to apply the scientific method," that rules out certain kinds of experiments, certain non-scientific experiments, certain non-scientific ways of knowing the truth about a thing.

And I think that interplay between kind of our first principles, our, the container, the long-term commitments that we make, and our shorter term, more tactical decisions and processes and strategies, that's something that people have been struggling with for a long time. If you, if you read books about the Toyota Production System, about lean manufacturing, they always say that a philosophy of long-term thinking is the foundation. That's the container in which these other things play out, and the same thing is true for lean startup and for this.

Michael Krigsman: Sean McPhillips says, "How do you discern between a missional, mission-oriented founder with society po- with society positive purpose who needs to protect their vision with governance protections versus the company for whom corruption is inevitable and those same governance protections will prevent accountability?"

Eric Ries: The accountability it comes via these mechanisms is so overrated. I just think it's ludicrous. You know, if you look at the most villainous people who people say, "Oh gosh, so and so person is emperor for life. If only he was subject to shareholder accountability." If you compare those companies to the companies that are subject to shareholder accountability, I don't see that you see any superior ethics or morals on either side of that divide. So yeah, I just don't buy into this idea that the right mechanism for accountability is through this kind of governance action.

I think it's just better for companies to be autonomous in themselves, and then the accountability should come from customers and from employees and from investors choosing not to invest. That's what's so wild to me, especially about public companies, is that we have this massive debate about how shareholders need to be in charge, but shareholders can also sell their position at any time. If you don't like it, just don't buy it. I don't understand why we think that that has to be the mechanism of disciplining value-oriented founders.

I think that if you do that, you eventually live in that business model culture where the values of investors dominate everything. I don't see why that is in any way beneficial.

Michael Krigsman: Josh Maurer, PhD, says, "Given that Friedman's shareholder primacy worldview and the broader greed is good mentality has been so deeply taught in MBA programs and echoed in politics, what would actually create meaningful change? How might ordinary people and institutions that do not personally embrace that ideology, for example, teacher pension funds, change the system? The average person likely doesn't believe in Friedman's ethical views."

How real change actually happens

Eric Ries: Not only is that true, normal people can't believe it when I tell them these stories. They think I've gotten it wrong. That can't possibly be the rule that we follow. So 2 things have to happen here, and they both can seem impossible. But so would Friedman's ideas have seemed impossible before they were implemented. The two things that have to happen, one is we do need people, we need to build gravitational support around a new set of ideas.

So we need an intellectual framework, a post-Friedman economic framework to replace shareholder primacy. I recommend mission primacy, but, you know, we'll see. I laid it out as best I could in this book, but, you know, we'll see ultimately what is the rallying cry people choose to rally around. And that is very important for pension funds and stuff like that. But also, we as individuals, as builders, as founders, as board members, as employees, as customers, we all have to get comfortable saying, "I am not part of this normative consensus."

Because a huge part of why it works is everyone believes this is what everyone believes, and by voicing our disbelief, we make the inevitability of it seem less likely.

Michael Krigsman: Think about movements. Movements gravitate people around a particular urgent situation or event oftentimes.

Eric Ries: Yeah.

Michael Krigsman: This is more diffuse and longer term.

Eric Ries: Look, I. Obviously, there are often catalyzing events that cause a movement to form. But again, if you study how Milton Friedman's ideas were enacted and spread, it didn't require, it wasn't like there was some kind of mass mobilization in favor of it. It required a consensus among a relatively small group of people. And here I think the consensus orientation, the population that matters here are fundamentally the builders, those who want to create new things.

The system requires a steady supply of new innovations, new companies, new organizations, new institutions, and I just think, I don't understand why those people couldn't form a consensus around some new set of ideas. Why. Maybe they won't, but I don't concede that it's somehow intrinsically difficult or impossible. I think it's just a question of do they actually want it? Do you, who are listening to this, is this what you want? If so, make it so.

Michael Krigsman: What advice do you have for AI founders who believe, who have a mission? Look, every AI company these days says they have a mission to change the world, make the world a better place. But for those founders who really believe it and deeply believe it and want to take investment and grow their companies while maintaining that mission and vision, what do you suggest?

Advice for AI founders and Anthropic

Eric Ries: Yeah, I mean, I wrote a whole book about it. I don't think it's anything particular about AI except it's more obvious to people that AI companies, AI technologies are dangerous. And look, I mean, I tell. You know, if you wanna look in the book, I tell a couple AI stories, including the founding story of Anthropic, you know, not because I played an important role in the founding, for the record. I mean, I played a very bit part.

I'm taking no credit for their exceptional success. All credit to them. But credit to them for taking these issues seriously. They foresaw that if this technology worked, it would be worth trillions, and that both public companies and nation states alike would have an eagerness to control it, and they just thought it was a moral horror to imagine this technology being sold to the highest bidder. I think that's right.

I think that fundamentally they got that right, and I think the reason why they've been able to gain so many sources of competitive advantage comes from this ethos and from the fact this ethos is embodied in a structure protected by the public benefit corp, protected by what they call the long-term benefit trust, that 2 entity, 2-tiered structure. So will it be enough? Will they be able to maintain their integrity in the face of an unprecedented pressure campaign, the likes of which we've never seen directed at a private company before?

You know, time will tell. But I think the early returns are pretty positive, and I just don't see why any other AI founder would look at that and say, "Oh, I don't want, I don't want a piece of that too." I would think everybody would want the same, those same protections for themselves.

Michael Krigsman: Any final thoughts or advice that you have for founders or for enterprise buyers on this topic?

Eric Ries: All I would say is take it seriously. Obviously, I hope you'll read the book. You can go to incorruptible.co and see all the, you know, endorsements and people who've given the book accolades and hopefully give you some inspiration to read it. You can see all the events that we've done and podcasts and videos and awards and all kinds of things, bestseller lists and stuff, at howisincorruptiblegoing.com. But more importantly to me, it's just really defend your own values.

If you're a founder and you stand for something, encode that into the structure of what you build. And if you're a buyer and you care about something, just ask the vendors if they can give you evidence that they are also aligned to that value. And I, you know, go into this, we call this phenomenon mission transmission, using your power as a buyer, through procurement, through who you hire, through who you align with, through which standards you join.

All these actions you take, just have a mechanism for asking, "Is that an opportunity for me to amplify my own mission by supporting those who are allied to my values?" And if so, make sure you actually take steps.

Michael Krigsman: Okay, and with that, Eric Ries, thank you so much for taking time to be with us today. I'm very grateful to you.

Eric Ries: Take care. Thanks, everybody.

Michael Krigsman: And thank you to everybody who watched. You guys really are awesome. Before you go, subscribe to the CXOTalk newsletter. Go to cxotalk.com and check out our upcoming shows, and we'll see you again next time. Have a great day, everybody. Take care.