Interviewer (4:56)

Yes. So, well, thank you for that. And it's a very, very ambitious book obviously because. And we like ambition on this channel. And as I was reading it towards the end, there's a nice phrase about all of us being part of the traffic and I was wondering who the book's for because most people aren't leading companies and yet it's a very sort of political values based book about what's gone wrong, analytical why it's gone wrong and what to do about it. And I was wondering what people should do if they're not founding a company and lead a company. But before I get onto the end, ask this question. I would encourage everyone listening to this to read the book, even if you're not particularly interested in entrepreneurship. It's a really interesting analysis and it has some memorable quotes which I'm going to come to in a moment. But if someone isn't an entrepreneur, isn't leading a business, what is impact would you want the book to have on them? So for the, let's say the general reader as opposed to the person who's a future founder.

Eric Ries (6:06)

Yeah. If you look at the book, I have the COVID proof. Here you can see the shiny, shiny cover proof and the subtitle. The subtitle is a nod to the famous book Good to Great, which has an ellipsis in it, which is not typical for subtitles anymore anyway. But I wanted to write the book for what I called the why reader and the how reader. And look, entrepreneurs obviously are in the how reader category because there's people who are in leadership positions today and need to know how to get themselves out of this mess and how to resist the corruption that is taking so many organizations down. That's an important part of the book. But for what I call the why reader, it's much more about trying to understand why things are the way they are. And then once my experience with this, it's taken me like 10 years really to come to an understanding of these, what I call the forces that underlie or shape organizations. Not the surface level criteria like surface level phenomena like culture, strategy, vision, those things seem really important. But in my experience, there's something deeper and more primeval that has this influence over organizations. Once I understood this force and could identify it and learn to reason about it, it Changed my life. Not just as a founder, not just as a leader, but as a consumer, as an investor. And it's helped me as a coach. Like I've coached so many people through career dilemmas, career transitions, all kinds of situations where people feel helpless, they feel like they have no agency. And actually once you understand how organizations work, you have tremendous power. I'll give you an example. I was once coaching someone who came to me and he said I love all this stuff. I think he come to one of my talks, maybe I love all this stuff you're talking about being values driven and all this and that, but I just need to get a job and I'm not courageous. I feel like this is late stage capitalism is too overwhelming, too inevitable and what can I do? I have no power. And I told him two things that were really effective. I think one is remember that although you may not be a founder right now, you may not have any power right now. If you read the case studies of the stories in this book, almost all of the really transformational figures, they had a pre existing ethos before they came into power. A lot of people like, well I'll go get famous, get powerful, get rich and then I'll figure out what I want to do with that power. Not realizing that power shapes you, your values change in the climb unless you have some touchstone so a mast you can tie yourself to Odysseus style in the beginning. So that was, that was one thing that gave him some comfort. But I said look, the second thing is you don't. You were complaining to me just a second ago about late stage capitalism. He was a yes, surveillance capitalism inification all these problems. He's like really complaining about a lot of the ways that the economy works today. I was like, those complaints are all valid. But my, my approach to business is to take the world as it is and then figure out how do we use the tools of the world as it is to accomplish values driven goals. I said, for example, in the age of surveillance capitalism, every single action you take, every decision you make, there's some middle manager somewhere that that's their metric for success they have. Somebody's job is to watch you obsessively and see if you will or won't do the thing for whatever the thing is. So you have more gravitational force, more power than you realize. So I said look, just do one thing for me in your next job interview. You don't have to be bold, you don't have to be courageous. Just at the end when they said you have any other questions, here's one thing I want you to do for me. Ask them if they're a mission driven organization. He's like, well, of course they're going to say yes. I was like, I know. So ask them how they know and they're going to say, well, of course we give out free T shirts and we have beer on Fridays or whatever. They're going to say we, we help the environment or we help the children or we do whatever they say. Let, let them talk. Be like, oh, that's so great. Is that also in the corporate charter? Just ask, have they committed to that legally or is it just, you know, rhetoric? It's just a question and almost certainly they're not going to know the answer to this question. Most founders, even most leaders, most board members, have never even read their corporate charter, have no idea what it commits them to. And as a result, most of them get sucked in to the really dubious ideology of shareholder primacy. But just by asking the question, I guarantee you the person you ask, she's gonna have to ask her boss. She's gonna have to ask her boss. Someone needs. This is a. If it comes up in job interviews, you can be sure they need to know the answer. It'll be in their frequently asked questions. And I've been in situations where something as simple as a question like that becomes a pebble rolling downhill. And next thing you know, we're discussing it at a board meeting because just pointing out to people in the nicest way possible, these inherent contradictions in the way that they operate sometimes can jar them into action in ways you can't possibly expect. So the book is full of ideas like that of like, simple ways that we can use these techniques to build up the power we need to make more systemic change. So yeah, I know some people hearing this and like, oh, no, another book that tries to solve climate change through recycling. Like, I hear you. I think that's nonsense too. But I think it's very important to see how. Although the book is mostly about systemic problems that require systemic solutions, systems are made of people and we are people. I know that sounds really obvious, but next time someone complains to you about being in traffic, just remind them you're not in traffic, you are traffic.

Interviewer (11:14)

Yes, and the book is rich with examples and one that I know. One of the things that's nice about it is that it calls out bs. And there's an example from Enron where you show the. And you state, I think the chapter heading is Values on the Walls. Chaos in the halls. And Enron, which, for those listeners who don't know, Google, it was a famous corrupt company that went down and had integrity, communication, respect and excellence as their values on the wall. And clearly they weren't living it. And sometimes an example that I often give is when you ask someone for references, if I'm going to do business, I say, can you give references? No one says no. But sometimes you see that hundredth of a millisecond pause and the panic look in the eyes of someone as you ask that question. And it's almost after asking the question, you don't even need to follow up because you can see that it was a vulnerability just from the micro communication. And obviously I'm not quite sure what you do day to day. And you said your kids struggle to explain. You do a lot of consulting. But what are your BS detectors if you're. Because people tend to, you know, bad people tend to be dishonest. And so they're not going to say they don't have value. So if you're just like chatting to a client or potential client and you've got your sort of rules of thumb, let's say, and you have to be careful with rules of thumb. How do you tell if someone is. What are the sort of danger signs? Because this might be someone listening, might be able to learn from you. And obviously they're not in your shoes. They don't have your background, your status, et cetera. But what would you be looking for as a sort of sign that there might be a gap between declared values and actual behavior?

Eric Ries (13:07)

Yeah, this is really why I wanted to make the book accessible to a lot of different people. Because every, every story in the book is nominally about what somebody did. Here's. You know, think about Saul Price, who famously set up fedmart, you know, the predecessor to today's Costco. And he had these very specific rules. He called himself a fiduciary to the customer. He was a former lawyer. So it was like I had to put, if I. If you're my customer, I have to put your interests before mine. He had what are called capped margins. He paid higher than the prevailing wage, even though he didn't have to. When he said, my commitments are first to my customers, second to my employees, third to my shareholders. The absolute reverse of today's best practices. So what I tell a story like that, people say, well, I'm not Saul Price. It's like, okay, well, you don't have to be Salt Price to understand this story. If you see the Practices that someone like that does. The next time someone tells you that they're the good guys, they're mission driven, they're whatever you can ask them. Well, do you do the things that Saul Price did? It just gives you things you can ask to understand and that, you know, I don't. It's funny, I'm not, not a consultant really. People just come to me for advice. I, you know, I'm a founder myself. I just work with a lot of companies and I give them, give them advice mostly. And I started doing this myself a couple of years ago and I started to realize this people would come to me and I tell the story. One of the stories in the book, someone came to, to talk to me about building agricultural autonomous robots. And I was like, I don't really know anything about that, but you know, let's talk. And they're telling me all about the good stuff they're going to do. And I, I had this queasy feeling watching this presentation that these things could be used as weapons of war. And you know, I asked the founder like, are you sure that this isn't really dangerous? You just told me how mission driven you are. You're going to change the world for the better. You do all this stuff. But this seems like this could go horribly, horribly wrong. And he was so frustrated, he was like, ah, why does everyone keep saying that? You're like, stop trying to talk to them about agriculture. And they keep talking to me about this stuff. I'm not trying to create doomsday murder robots, I swear. And you know, and I tell the story in the book, like now that you've heard that he swears not to create doomsday murder robots, do you feel any better? Like, what is his promise worth? What is his intentions worth? Like that's not what we want to know. We want to know what concrete actions have you taken? Ideally, the actions that come at personal sacrifice to enshrine these values into the structure of the thing that you do. And the book is full of the techniques that we have to do that, to do that. You mentioned the Enron example. I think this is something that leaders are throughout history very naive about and get quite wrong. So remember Enron, Enron had an independent board and was named. The board of Enron was named one of the top five boards in America right before the collapse. Okay, so our corporate governance best practices scores, like the things we are preaching to leaders, to boards, to everybody about, like this is what makes a good company, are almost like catastrophically designed to enable this kind of corruption, no matter how well intentioned you are. So I talk about, you know, Robert Wood Johnson the second. You know, kind of the original giant of Johnson and Johnson. Actually his, his father's business. But he was the one who built it into the behemoth we know today. He, he stewarded it through the Depression like he was the kind of person who would be investing in new factories and higher wages during the Depression, let alone through other tumult. And he took the company public during World War II. This guy, you know, he's not afraid of a business challenge and he was very worried that the company would become corrupt. And he created this thing very famous, the Johnson and Johnson. Our credo. Just like Saul Price. Patients first. I can't remember the order now Neo patients, doctors and nurses, employees, communities always shareholders last. All the really great companies have a shareholders last. Not shareholders unimportant. But simply the profit is the consequence of the good things we do elsewhere in our community. He built the credo. He and when he was alive he enforced the credo as law. And he had it carved into 8 foot high stone blocks and carved into the corporate headquarters. They're still there to this day. He wanted to make sure that everyone who worked there absolutely knew that this is what we're all about. And unfortunately that's not enough because people walked by those blocks every single day and they still wound up putting asbestos in the baby powder. And a whole bunch of other scandals that have rocked Johnson and Johnson since the time that its board became enamored with the modern ideas of corporate governance. Best practices related to shareholder primacy. So what we have to do as consumers, as employees, in every role that we have, we just have to look for the concrete action. Strip away intentions. Imagine if everybody talking to you, if they all just suddenly died, would the mission be able to assert itself? Anyway, I call that being a mission controlled company. And the sad truth is that most companies say the answer is no. But there are exceptions.

Interviewer (17:43)

Okay, I, I am going to come back. You wouldn't know from my accent, but I'm a Polish citizen by choice and hosted refugees from Ukraine and there are lots of very heroic Ukrainians trying to defend their country with killer drones. And I want, can you, can you be an eth in. In your framework, can you be an ethical defense defense military technology company?

Eric Ries (18:05)

Oh sure, yeah. Look, the liberal democracies are under attack. So they are know, unfortunately being attacked from without and from within. And they deserve defense in both, in both senses. I think the, the people of Ukraine have engaged in an incredibly heroic resistance that will be one of the defining conflicts of our time.

Interviewer (18:21)

Yes, okay. I was thinking of doomsday. Doomsday killer machines.

Eric Ries (18:26)

And the issue, the issue is who's in control of what happens with the technology. This is the issue is not the technology itself. Technology does not run itself, is run by human beings. And so the question is what values are encoded into the technical structures of that? And right now we live in a world where whoever can borrow the most money can decapitate and redirect any company they want. That is the meaning of shareholder primacy. So it's not even ruled by those who are the richest. It's ruled by those who can borrow the most money, which means that the values of banks and lenders ultimately dominate. Nobody voted for that. Nobody was elected on that platform. It's one of these ideas that most normal people think is completely crazy. And so I don't mind people working on dangerous technologies. I think it's necessary. All dangerous means is disruptive potential, which we need for good things too. But we have to make sure those technologies are actually governed to human values in some kind of durable way. And you can't do that if the people running the company and building the technology can't make promises they can keep because they could be replaced anytime.

Interviewer (19:28)

Absolutely. And we're going to jump around a bit in this interview because as I say, I think people who want to get the logical structure should read the book. But you talked about how the first thing that an entrepreneur should do or a business leader is create something worth protecting. And that's a fundamental stage. And that you also have a very nice quote, which is not every form of making money is equally good. If my research was correct, your first kind of entrepreneurial venture was when you were at high school, when you were writing books about computing to sell, to make money. And. But you.

Eric Ries (20:04)

Oh, you've done your homework.

Interviewer (20:05)

Yeah. But you sold them via a publishing company. So you found a publisher pretty early, which must have been quite an impressive achievement. So do you think. And then you're. And then you went through sort of classic entrepreneurial stories, successes and failures, raising money and investors. But do you think that the kind of values you're trying to project and approach, you're trying to project in your book, there's a stage at which it's a bit too early before a company's got product market fit? Because if you, if you don't have a yet a profitable business and do all these safeguards and ideas, you're Promoting, Are they sort of like premature that if you haven't yet, you haven't yet built something worth protecting?

Eric Ries (20:46)

That is the conventional wisdom. And if anyone is an entrepreneur listening, if you want to hear the conventional wisdom, simply ask anyone. Ask any investor, lawyer, banker, anyone. You know, I heard about this thing. I think I should protect my values using the structure. I think we should do this cultural practice and, and they'll all. No one will say, no, you won't find anyone. Be like, that's a bad idea. I'll just say, oh, it's too early to worry about that. Get to product market fit first, you know, then, etcetera, etcetera. And in that advice, there's two mega fallacies. The first is the assumption that you'll have more leverage later. Your success will give you more freedom, more, more options to do things, which is absolutely the reverse. In the book, there's a whole section called it's always too early until it's too late. Generally speaking, success attracts predators. So yes, success gives you more leverage, but success also makes the thing you've made more valuable for someone to take away from you, to steal from you. So if you don't build the protection, it's like someone who's like, I'm building a house. You know, I have a giant vault of treasure in it. But you know, it's too early to worry about the lock on the vault. Saying, I don't think it's ever really too early because who knows when the attack will come. But also more like, more importantly, building to that plan early just makes it less expensive and easier to do versus you have to go Jerry, rig something on afterwards. The second issue with this, though, the second mega fallacy in this conventional advice is it presupposes that your success is independent of your values. And this is simply wrong. If you study the very, very best entrepreneurs, the people I admire the most, it is precisely their values that drove them to do the contrarian thing necessary to unlock the super success. And I can tell you a bunch of these stories if you want, but. But I think if I kind of think about the huge network of founders I've worked with over the years, like the biggest trap startups fall into is not that they, like, make a bad product, it's just that they're fundamentally unremarkable. So they're just, nobody cares. People don't care to work there. People don't care to buy their product. The press doesn't want to write about it. People don't want to. It's Just like they're just a blah company doing something. Okay? And so what's funny is, I talked to founders like that. I said, look, why don't we try doing something really extraordinary here? You know, everyone knows being contrarian is the key to differentiation, to making money in venture, all these things. Let's be contrarian. Let's make a bold promise to customers. Like, we promise we'll never turn you into Soylent Green and eat you. Can we just do that? Wouldn't that be nice? Think about how many product categories where you don't trust the vendor. You. If they made a promise to you, you wouldn't believe them. But, like, what if we organize the company around this promise that we won't exploit you, we'll take care of you, we'll do this thing, and they'll be like, oh, I'm too scared to do that, or, oh, my lawyer advises me to keep all my options open and not make promises I can't keep. It's like, you want to keep the Soylent Green option open. Are you sure? Do we have to? Couldn't we take that one off the table? No. And so what happens is people take the easier path, they think, and they wind up failing. There's a chapter in the book I call Harder is easier when we take the principled path, when we enact our values in a strong way, when we boldly stand for our commitment to human flourishing, we bring people into this magnetic field of attraction that is just makes everything element. It's harder to do because being principled is a pain. Being cheap and easy and having no values and blowing with the wind. I mean, read the news, okay, people, it's way easier. And lots of people love doing that. It's like the theme of our times, bad faith arguments and unprincipled decision making. But if you're willing to buck that trend and do the harder thing, there's a lot of evidence that that will unlock these almost unbelievable superpowers. And so the superpowers that you gain are not just moral or economic or environmental or whatever. They are superpowers that help the business grow, that allow it to accomplish business outcomes that would otherwise be impossible. I give many, many of these examples in the book. And then so I think it's never too early to try to unlock those superpowers.

Interviewer (24:34)

Okay, and. And there's this nice, this. You talk about financial gravity and how the pull of the system as it is may disrupt something worth protecting. And you have a lovely quote that I noted about. I think it's the more golden the goose, the stronger the temptation to butcher it. And somehow strong value creation attracts negativity. So can you explain what you mean by financial gravity? And I'm going to move on to asking you how to protect against this. But the first thing is like just

Eric Ries (25:13)

yeah, we have to understand before we can, before we can protect.

Interviewer (25:16)

Yeah, but suppose someone's like, it's got, they started off in the direction that's let's say in line with Eric's advice, like build something really great. Good values superior returns by being like magically better. But then the, the system starts identifying this golden goose and starts thinking about how does that work? Where do the pressures come from?

Eric Ries (25:41)

So this is something I have witnessed firsthand. I actually learned about it in my own life watching people long before I realized there was a lot of academic evidence to back it up. And basically I call it financial gravity because is this universal pervasive force that emanates from status, power and financial disparities. So it's growing in its power because we have financialized everything. So our financial system globally is growing. And I noticed over time, like if you look at a whole bunch, if I tell you that some company has succumbed to big co disease, that's what we call it in Silicon Valley, like they've got an illness, illnesses, they become a big company. I've been all over the world and people know instantly what I'm talking about. They're like up. I'm like, tell me the symptoms. It's bureaucratic, it's selfish. It's in the line. I, I quoted an ex Googler and Google's a great company. But, but I wrote, I, I quoted a whole bunch of, of Google employees who wrote these blog posts after they leave Google. One of them said Google went from being a place where, where decisions were made for the benefit of the customer to then decisions were made for the benefit of Google to then decisions were made for the benefit of whoever was making the decision. And these articles, if you read these blog posts, these people are mourning the loss of something they can't quite name. It's like an unconscious force. They don't realize what's happening. So anyway, you look at 10 different companies that all started in 10 different countries, different industries, different sectors, different values, different decades. And I pulled 10 of those press releases from those 10 companies. I took off the names and asked you to identify which was which. You couldn't do it. They all put out the same bland pablum. They all do the same finger to the wind. Like unprincipled, like they're just. They become the same. And the sameness of it is the tell that something must be aligning them behind the scenes, otherwise it would be random where they wind up. Why does everybody wind up in the same place? And I started to notice people who pledge fealty to certain values, their career gets accelerated. People who pledge fealty to other values, their career gets hindered. Well, what, what are those values? And so take for example, the value of shareholder primacy. People who, who write articles in defense of shareholder primacy, who do studies, who do think tanks, who do just people who. That's your reputation. If you're a board member who has a pro investor bent in your reputation, you get all these plum assignments. If you don't, you don't. So over time, subtly, this anticipation of future transactional success shapes people's actions. And we have good evidence that shows that actions repeatedly enacted become internalized as values. What that means is if you don't do anything by default, eventually your organization will come to reflect the values of our financial system, whether you started with different values or not. And unfortunately today our financial system, it doesn't have to be this way, by the way, but it happens to be right now dominated by a set of values that are extractive, exploitative, and really about short term sucking the marrow out of things instead of building net new value. And that is not anybody's individual choice. It's not like there's people out there, Machiavellian, trying to make that. It's just that is the values that the system expresses as a whole. It's a, it's a holistic phenomenon. So by understanding it like gravity, you can say, look, you know, the moon doesn't complain about the Earth. It just like you can't do anything about it. The Earth is what it is. The moon is what it is. The size of what they are. You can't change that. But unlike physical gravity, financial gravity is, originates in human choices and therefore is influenceable by human agency. And I give the analogy, the simple analogy in, in the book, that if you saw a bridge collapse and I knew were an engineer and I said, hey, tell me why that bridge collapsed. And you said, well it collapsed due to gravity. I'd smack you. You'd be like, what kind of engineer are you? Yeah, I mean no, duh, yes, it fell down. So of course technically speaking you're correct, it fell down because of gravity. But that doesn't mean we can't build a better bridge next time. When we see a bridge collapse, we have to study, why did it collapse? Oh, it had inadequate materials. It couldn't handle the wind load. It was built in the wrong design. And then from that learning, we can then build superior, stronger bridges that don't fall down. And that's kind of. I want to bring that simple engineering practice into our study of organizations. When we see organizations collapse into this, you know, boneless jelly, we can ask ourselves, I guess gravity was the proximal cause. But better question to ask is, why was it built in such a weak way in the first place? And then what are the practices we can learn to build stronger organizations?

Interviewer (30:03)

Okay, and then another memorable quote that is probably my favorite and I don't think I ever heard anyone say this. Like, Frankenstein leaders are prone to losing control of their creations. And I have a feeling that

Eric Ries (30:17)

the

Interviewer (30:18)

way that, the way that reads is as if Frankenstein was the creator rather than the creation, which was rather. Which led me to wonder if I'd misread the book. But I think possibly I took it out of context. But so we've got this. I think that makes sense. There's pressure to go, like external people will push towards bigger dividends, bigger payouts, bigger pay rises, and all the things that go together with putting money creation first. So imagine we're in this situation. We've got a superior organization that you talk about creating more than profit. Human flourishing as a proper. So things are in a good shape. What are the guardrails that you would. Obviously I don't want you to just like regurgitate the book, but like, what type of guardrails should people be thinking about to put in place to protect something that's good? Like let's say you've established, we've agreed that this is actually a better type of organization or business. So what should we avoid do to avoid the Frankenstein monster emerging and being bad?

Eric Ries (31:28)

Yeah, yeah, yeah. The idea that corporations are living creatures and, and outof control living creatures is actually a really old idea. Like there was a, a famous lawyer wrote a book called Frankenstein Incorporated, like in the 1930s. So this is, this is not itself a new idea. But I think whereas when people were talking about like the original joint stock companies, like the, you know, like the East India Company being out of control monsters, they meant it in a more metaphorical way. And thanks to modern science, we now understand that this is actually a literal truth. That organism, their organizations are literally super organisms. They're a category of emergent intelligence. In the same way that an ant colony has an intelligence that no individual ant has. If any of your listeners are encountering this idea for the first time, it's quite far out. It sounds metaphysical, but I assure you it's grounded in good science. And in the book, I have a link to a video from this incredible study that was done where ants were trained to solve a certain problem and then humans were taught to do the same thing. And we had an ants versus humans intelligence showdown. And, you know, obviously an individual human is way better than an individual ant at doing the task. But as you add more ants, their efficiency at solving the problem increases. As you add more humans, the same does not happen. So, super, super interesting area of science where we have shown this. So when I say that creators lose control of their companies, this is not a metaphor. This literally happens. You. There's a really wonderful interview with Airbnb's Brian Chesky. He talks about not just losing his company to his investors, but losing control of it to his own employees. It happens because the organization has an emergent intelligence distinct from any individual person, including from the leaders. So if we want to create organizations that are going to stay true to some specific set of values, I call this the architecture of institutional longevity. We have to understand first, as you say, how to build something worth protecting. How do we install in the organization an ethos. I use that word on purpose. A character that is present even when no manager is paying attention. This is where, you know, think about all the times you've been in an organization where you call in customer service and the person's like, I'm sorry, I can't help you. And you're like, you're not sorry. I mean, you, the individual person may indeed be sorry, but this organization is not sorry. They set this thing up to do this. To me, think about having your insurance claims denied or something like that. By contrast, consider I tell a story about this grocery chain in Texas called H E B. There's a famous story about, and this is not cherry picking, they have tons of stories like this. There was an ice storm in Texas one year and the power goes out in the store and everyone there is like, groaning because they're there to stock up on winter supplies for the storm. Why are they shopping in an ice store? And that's why. And now everyone thinks they're going to have to go home empty handed. But the store manager, you know, evaluates the situation, realizes that because the power's out, they can't take money for anything. They can't operate the cash registers and just lets everybody Walk out with their full carts. Now this isn't. People hear that story like what a heroic manager. No, the manager was not going out on the limb. This is the ethos of that company. The manager understood their values, understood that this would be the thing the company would want them to do. And in fact when the power went back on, they did. Now the problem with these kind of ethos building, character building actions is that in our modern world we are obsessed with return on investment roi. Every decision, every, every employee evaluation, everybody is stack ranked by roi. The problem is that trust building actions are negative ROI by definition because the way we account for value today, the cost of doing the right thing is on the balance sheet. We see the cost of the goods that walked out the door for free that day. The return is invisible. The trustworthiness, the bond, the lifetime bond that you form with the customer when you do this. We don't have a way to track or account for it. So changing our management systems, our cultural practices, our analytics and metrics, all that stuff has to change to make trustworthiness a core goal and to establish our fiduciary priorities. That's the inner work of preventing corruption. That's half the story. But the blueprint also requires a second step which is we have to have structural protection. I really am focused in this book on building organizations that are high integrity. I use the word integrity like to mean two different things. One is when I say a person is high integrity, you say, oh, that's someone who keeps their promise. You, you have a friend who's high integrity. They say I'll be there to help you move at 4 o'. Clock, they're going to be there at 4 o'. Clock. Organizations have a really hard time doing this because of the second understanding of integrity. We also say that a bridge has structural integrity if it doesn't fall over. We when you put a little load on it. Organizations, these two definitions of integrity are actually the same. An organization that cannot, it's not strong, that can't stand up to pressure, literally cannot keep its promises. So a lot of the techniques in the book are alternative governance structures, changing board composition and board rules, changing how the relationship between companies and their investors in the wider markets, all in the service of trying to build what I call mission controlled organizations or strong enough to defend the mission even under pressure.

Interviewer (36:33)

Yes, we're going to come back to customer service because you talked about false metrics, but I wanted to ask about it is obviously maybe topical. By the way, for someone listening at some stage in the future. We're recording this in 2026. And do you think any system is resistant to a really bad leader? Like, you can build all the safeguards you like, but if you get someone who's somehow got to the top, to a position of authority, maybe by misleading people, deceiving them, maybe, maybe just by mistake, like can you build anything that's completely resistant? Or is everything vulnerable to the really bad woman or man?

Eric Ries (37:17)

No. This is something I've changed my mind about because I was taught just like everybody else in Silicon Valley, the way they say it is, the fish rots from the head. So at the end of the day, the organization reflects the values and the priority of the leader. And if you ever, you know, succession is difficult because, you know, like, think about all the hereditary monarchies that like, are the Roman Empire, like, you know, the, the second, the second the emperor says that my son is the best qualified to do the job, we're in big trouble, right? Like we've seen that in history many, many, many times. So I would have said to your answer, no, no system can prevent that. But I'm not so sure anymore. And in the book I tell the story of, I sell some stories of or of leaders who tried to ruin an organization and failed. And if it was true that this was inevitable, ultimately bad leader can do it, this would never happen. And I'll start with the story of 3M. You know, 3M is a famous maker of post it notes and lots of other stuff also, you know, a company that's famous for its innovation over long periods of time. And they brought in this leader, you know, a little while ago now, who was one of Jack Welch's disciples, a real shareholder primacy advocate to, you know, turn the company around. Board hired him specifically because he was a Jack Welch ack. And he came in and he tried to break the organization. I say break, not as a criticism. That was how he understood his job. His job was to change the organization from a organization where innovation and science and this kind of tinkering was at the center to an organization that was tuned to the new best practices of shareholder primacy, shareholder returns, financial metrics. And he had a real hard time. The organization had a fever. People, the, the organizational ethos fought him every step of the way. Engineers engaged in acts of resistance. All of a sudden, critical metrics that the board had been monitoring to measure its health started to turn negative. There was like a power struggle basically within the organization. And he lost. He was actually let go. And you know, I say in the book, this sounds like it's a happy story because of course 3M was saved. He, a new CEO was brought in, the historic ethos was restored, innovation returned. But of course not really very happy story because his immediate next job was at Boeing where he oversaw the, you know, among other things, the creation of the 737 Max program. Because at Boeing his methods were welcomed, whereas at 3m his methods were rejected. When people hear this story, they sometimes say, well, hold on, that's a little scary to me. Shouldn't we want organizations to reflect the values and priorities of a leader? Like, you know, if you're, if you're a future leader here, that story, like, wait a minute, how do we know Those people at 3M weren't just being intransigent to change? You know, maybe they were just being curmudgeons and they should have listened to him. So the fact that organizations can resist leadership is not intrinsically good or bad. It depends on whether you think the leaders aims were worthy or not worthy. The point of telling the story is simply to say it is possible. We now have a lot of evidence that there are these structures that have resisted, actively resisted bad leadership decisions over time. Sometimes with catastrophic outcomes, you know, preventing a catastrophic outcome, but also sometimes with tremendous value creating outcomes. I tell the story of a time that the leadership of Novo Nordisk wanted to basically destroy their R and D engine and was prevented by do from doing so by the fact that Novo Nordisk happens to be governed by a nonprofit foundation. The fact that they did this act of resistance created, and I'm not making this up, more than $500 billion of shareholder value. So what's interesting about these stories is we say the fish rots from the head. We say that there's nothing you can do. You're always vulnerable to good or bad people. But we have these documented in the documentary record. We have these stories of times where the structure was able to win out. And I don't think this should be a terrible surprise. If you've read the Federalist Papers, you know that in political philosophy people have been grappling with this question for centuries, trying to figure out how can we build human institutions that nonetheless can reflect certain values in spite of active hostility from inside and from without. And I think that that institutional building instinct or that kind of idea that we can build incorruptible organizations has become almost old fashioned. Like I think it's to be where you live in a cynical and highly polarized age where no one can really even imagine people operating in enough good faith to do such a thing. But I think this is an aberration. I think we, when we get back on track, we will realize that this is a really core part of what makes our civilization function and we got attend to it more seriously.

Interviewer (41:44)

Yes. I remember back in the 90s when I was running a business, I used to do new employee onboarding and I used to say, you know, this, this is our, our mission. And by the way, I'm not in every room all of the time. If you ever see anything that's against this mission, it's not. You can tell me, you must tell me. Particularly if you can't resolve it through your line manager, try to resolve it through your line manager first. But if that doesn't work, you must come to me. But I didn't think about the issues in your book about legacy of how to preserve that after I moved on. On the other hand, we're learning people. But I think you can definitely, I would take the view that a really bad person can definitely potentially destroy something, but you can certainly reduce the change the odds radically. But anyway, this is an academic debate. I wanted to ask, I noticed you quoted Seth Godin, who I met at a couple of TED conferences and I'm a great fan of his work and I'll take the opportunity to put some links to some of his TED talks in the show notes by mentioning him. But you talk about false metrics and how despite all the tech and software going into customer service, most people listening will have experienced real discomfort talking to customer service. And do you think when you. So flagging false metrics is measuring the wrong things? And there's this nice saying that not everything that's valuable can be measured and not everything that is measured is valuable. But do you think that there's a need for leadership to sort of call out bs on the one hand, and I'm sure you're going to say yes to that, but on the other, are there metrics for everything that you think is important? Or should the culture simply accept that there's some things that we just quote, just know, even if we can't capture it in a KPI, is there a dashboard for everything in say, a company is going to get 10 out of 10 on the Eric Reese scorecard and you say this?

Eric Ries (43:40)

Yeah, yeah. No, no, I think. Yeah. Yeah. Okay. So. So I think that both things are true at the same time. That is that at the end of the day everything is measurable in some kind of epistemological sense because Everything we do has physical consequences, material consequences, so we may not know how to measure it or. But the issue is mostly that the consequence may come later, like so. So, you know, I would say generally speaking, if you, you can run most businesses on a relatively small number of metrics, I simply let you know whether, you know, are your customers, employees and shareholders extremely happy with the job that you're doing? Are you in fact doing things that are to their material benefit? Like if you just, if you looked at those six numbers like basically every day, you probably would be able to tell what's going on. But the issue is what happens when specific issues come up? Okay, that doesn't. Yes, that's true in the long run, but in the short term, I need to know if I make this button blue or green, should I use metrics to decide that or should I use judgment to decide that? So actually it's more of an operating philosophy question about when and how do we decide things. And the book, I try to make a really clear distinction between using metrics as like what I call fever indicators. It is using metrics to help you diagnose if there's a problem or attention or a blind spot, rather than using metrics as an automatic decision maker. So when I was talking about stack ranking by roi, ROI is not bad in itself. But when we use ROI as a decision making framework, we make a double error. First we, I mentioned before, we don't, we see, can't see the long term or intangible returns. But secondly, we also subject ourselves to Goodhart's law, which is as soon as we turn something into a metric that is an automatic decision maker, we create tremendous incentives to game that metric. In the academic literature, this whole phenomenon, what Seth Godin calls false proxies, is called surrogation. And surrogation is the tendency of human beings to mistake the metric for a thing. It becomes a surrogate for the actual thing. So when I tell you that I'm going to invest a lot of money in customer service, you say, well, how will I know it's going to improve? I say, well, we're going to improve average hold time. And you say, great, let me know how it's going. And I keep giving you reports every year how average hold time is going down. And everyone celebrates that the customer service must be getting better. But of course, anyone who's actually tried to call a customer service agent anytime in the last 20 years knows that average hold time is not the same as good customer service. It has become a surrogate. So we have gotten used to being mistreated on the phone to get us to hang up quickly because that improves the average hold time. So the issue with surrogation is not the metric itself, but rather the substituting of the metric for human judgment. Obviously, with AI, this issue is being exponentially amplified, you know, and so we have to develop new. Whole new set of techniques to make sure that we never use AI to replace human creativity. We only use it to augment human creativity. And anyway, what's funny, one of the funny things I learned in the book is that on average, customer service in the last 40 years has gotten about twice as bad. And people say, like, how can you say that? It doesn't sound. That's like a very precise thing. But no, it's actually very precise. It's very funny. In the, in the 70s, I think actually during the Nixon administration, of all times, the government commissioned a survey of American attitudes about customer service. And it was a big national scandal. I read these articles that, like, made me laugh because, of course, it was a scandal that 30% of Americans thought that customer service in general was unacceptably bad. And so that was like, spurred a lot of the investment in the professionalization of customer service as a corporate discipline that is, spurred the billions of dollars that have gone into customer service since then. There was a recent survey that replicated those findings, and now it was like 65% of Americans. I think customer service is unexpected, unexpectedly bad. So we've like, literally made it worse while spending money professionalizing it. And that's kind of if we had like a tagline, a bumper sticker for our era, it would absolutely be this, like, making things worse by. While spending money on them, trying to make them better. And I think the solution is not to, like, indiscriminately add more metrics, but to try to tackle these problems in. In a more rigorous way.

Interviewer (47:37)

And so intangibles suggest to me it can't be measured. But you said both things are true at the same time. That on the one hand, I don't like. Earlier in the interview, I asked you whether you can tell whether a company's in good shape, and you gave quite a. But I'd like to come back to that. What would be like, hallmarks of what would you be. Because I think your previous answer, you referred more to the discussion with the founder. But suppose you're wandering through, through a factory, or you're. You're in an office environment, a big insurance company, and the CEO is nowhere to be seen. You're just wandering through what. And it's a bit like sort of broken windows, dirty toilets type, type bathrooms type thing. But what would you be, what would be telltale signs that something might not be quite right?

Eric Ries (48:28)

I would just ask everybody to tell me a story about a time that they personally witnessed. Not a hearsay story, but a time that they personally witnessed the company doing the right thing at great expense when they didn't have to. That's all we need. That's all we need. I call it the Culture Bank. This is, this is an idea in one chapter of the book which is like when we self sacrifice for the sake of a customer or an employee or our values, we are making a deposit in, of, in a bank account of a deposit of trustworthiness because we do. It's like what, you know, think about when there's a crisis. Think about all the companies that did the right thing during the pandemic versus did the wrong thing. Use the pandemic to, you know, price gouge or take advantage of you. Customers remember what you did, employees remember how you treated them. So what we're looking for is evidence. Not just stories, but evidence that this company in fact believes in its own values. And when I say they did the right thing, it's not right as I define it, it's right as they defined it. So what we're looking for is evidence of principled decision making, principled action.

Interviewer (49:28)

Yeah, I know for listeners to this earlier, something I'd add to that sometimes if you don't have an opportunity to, to speak, sometimes you see it in body language, the way that colleagues are talking to each other. There are things like I noticed once going through security in an airport and I'm a British citizen as well as Polish, and the British security setup typically is pretty gloomy. It's quite often outsourced to third party contractors and you can tell that no one, they're doing the jobs. But it's definitely a job, not a purpose. And I going through Tel Aviv airport a decade or so ago, as you were lining up to be scanned, one of the. And I'm sure they were staff, not outsourced, someone came up to me and said, we're just going through everything to keep you safe. And I could see in the background like the senior officer was chatting to people and you could just see there was a real sense of purpose and pride in the job. And you could just sort of see the communication, the talk, the respect of the senior person to the people reporting to them. It was all very Visible and sometimes. And you know, maybe with AI cameras you could metro have a metric for that. But somehow as your human instinct can just tell you that something's good. Just. We're coming up to the, the close of the time for this interview. I wanted to ask you about the director's oath. You reckoned that you something you said that I've never been in a company where directors and I'm responsible for some companies as an entrepreneur. So it was. So what would, what do you mean by an oath given by a pledge by a director? And what would be the core component of a director's oath? That made sense?

Eric Ries (51:13)

Yeah. We have tremendously good evidence that things like the Hippocratic oath are effective at changing behavior for the better. So as naturally, like in civic society, we have oaths whenever people have tremendous life like make decisions that affect people's lives and livelihoods. Think about architects, engineers, doctors, nurses. I think members of boards of directors have far more con, make far more consequential decisions than many of those people. They make far reaching decisions that can cause the life of death of millions and they should be bound by an oath of conduct. Also, I'm like at least, at least as rigorously held accountable as a nurse. Okay, Surely, surely we can agree on that, right? And I won't rehash all the research now, but in the book you can see I, I walk like walk through all the evidence we have about how such an oath should be structured. But basically because modern corporate governance law gives tremendous discretion to boards to pretty much do whatever they think is in the organization's best interest as long as they can plausibly justify it. We should give, we should have an oath where they pledge to use that discretion, use that power to advance the mission, to advance human flourishing. I think every organization can have their own custom one. I would personally insist every director of every company, if I have the choice, I would write it right into the company's charter. You must recite this oath like an oath of office. You must recite it as a precondition of joining the board. But I think we should also have something like the Hippocratic oath, A universal standard that all directors are required to cite and recite and pledge to before they're allowed to serve on a board.

Interviewer (52:45)

Fantastic. And Eric, we're coming to the end of this interview. One question that's been floating around my mind that wasn't on my original list is if you think about your future, I don't know whether you ever invest in businesses as an angel Investor or you are. So at the early stage, before a company's even founded, what are your criteria to decide whether you are going to invest and if you're not an angel investor, then what would your criteria be?

Eric Ries (53:17)

Yeah, I have a congenital defect, which is that I love entrepreneurs and I think everything sounds great. Like, I honor everybody who's making the attempt. So I'm not very discerning about my investing in the sense that I'm not trying to make a return. I am trying to learn something interesting. If I think this person is going to teach me something new in the course of helping them build the company, then I always want to get involved. That, that really is my ultimate criteria. It served me pretty well from a returns point of view, but I don't know, maybe I've just gotten lucky.

Interviewer (53:47)

Okay, so, so, but, but like you're not grilling them on their values or, or, I mean, I was wondering.

Eric Ries (53:53)

Of course, of course we talk about all this stuff again. Obviously, if I met somebody who said, if I give. If I give someone the thesis of incorruptible, and they say, I don't care, I'm just a sociopath, wants to make money, you know, we're not. I'm not making that investment and I've turned a lot of people down on that basis because what am I going to learn from that? Okay. I, you know, I'm, I'm very blessed. I'm not, I don't need more money. I'm, I don't need money made in that way. You know, I just, I don't need it in my life. I don't want anything to do with it. And in fact, I feel grateful. I have, quote, unquote, missed out on billions of dollars in opportunities, you know, some of which are just my mistake, like, oops, I really should have gone there. But there's a bunch of them where I think, gosh, if I had said yes to that, yes, I'd be a lot richer today, but I would kind of be trapped in the system, the gravitational pull of that system. And I know people who've made the other choice, and a lot of them are rich and miserable. And I just, I think it's really sad that we've built a financial system that is forcing people to make moral compromises in this for the sake of making money, and then the money doesn't even make them happy. So who's it for? Who's it for?

Interviewer (54:50)

Absolutely. And I mean, it's a point I often make when I'm discussing going to business that there are way, not all ways of making money are equal. And there are people who make bucket loads of money from high interest consumer credit persuading not very wealthy people to borrow money that they shouldn't borrow. And I just can't imagine sitting on a luxury, you know, I won't call it an Epstein island, but any kind of Caribbean island in the sunset sipping expensive wine. If that's, if that's how you made the money, what kind of, what kind of, well, is it, what kind of satisfaction do people get out of that? So what. Is there anything I didn't ask that you think is important for listeners to this? And I've already encouraged them to buy the book, so I assume they're going to do that. I assume that, yeah.

Eric Ries (55:38)

Thank you, though. Thank you for that. I, I really appreciated that you emphasized that this book is not just for founders and it has this kind of dual, dual purpose. And I'll say one last thing about that, which I, I think for me personally, the, the process of writing this book was really transformational. Like I, I both learned a lot and, and about the world and about history and I learned, you know, a lot of, a lot of research that I didn't know about, but I learned a lot about myself also in, in writing it. And so I hope people will, will use this book as a tool because every single technique in the book. Here's my promise to anyone who decides to become a reader. I promise that every technique, every suggestion is not just my personal idiosyncratic theory. Every single story, everything, every single technique is backed up by a case study where you can really see the technique in action, but also by a lot of evidence that this way of working is not just morally superior, but also economically superior. So you don't have to give anything up by going down this road. In fact, not only will you be happier, you'll sleep better at night, but you may just actually change the world.

Interviewer (56:38)

What a fantastic note on which to end. Eric Reese, thank you very much indeed.

Eric Ries (56:42)

Thanks for taking the time. I appreciate it.