The force that destroys companies from within (and how to resist it) | Eric Ries, Lean Startup

all kinds of famous companies. The thing

that destroyed them was not competition.

Their very success became a liability.

I want to hear the OpenAI versus anthropic story. Dario was a first-time

anthropic story. Dario was a first-time founder. Wasn't a hot company at all.

founder. Wasn't a hot company at all.

The boom hadn't happened yet. Chat GPD

hadn't been invented yet. Nonetheless,

they were true believers in this safety mission. And so, one of their investors

mission. And so, one of their investors suggested they come talk to me. I told

them, "Look, if you don't get this right, here's what's going to happen."

They were very determined to do something about it. They wrote into their charter. Anthropic has directors

their charter. Anthropic has directors on its for-profit board who are appointed by and are accountable to an outside group of trustees who are AI safety experts who do not have equity in Anthropic. Whenever you see Anthropic do

Anthropic. Whenever you see Anthropic do the right thing, like when they refuse to release a model because they think it's too dangerous, think about how much that's costing them.

This new book, Incorruptible, is about helping you protect what you've built.

What is it that you need protection from? We all know this force. I call it

from? We all know this force. I call it the force that no one controls but everyone obeys that tends to drag organizations down into mediocrity to the point that we lose control of them.

What's a broadstroke solution to this?

Harder is easier. If you're willing to be principled in your decision-m you will get these unexpected rewards. But

most leaders when asked to defend their principles can't do it because they've been taught ROI based thinking, shareholder primacy. That's the path of

shareholder primacy. That's the path of maximum profitability. That's nuts.

maximum profitability. That's nuts.

Today my guest is Eric Reese, author of the most influential and impactful book in startup history, the lean startup.

Today he is back with a new book 15 years later called Incorruptible: Why Good Companies Go Bad and How Great Companies Stay Great. The way Eric describes the connection between these two books is that the lean startup was

about helping you build a successful company and this book is about helping you protect what you've built. Eric

wrote this book because he's seen way too many founders lose control of their company and end up being very disappointed and depressed about how things turned out. This is not something that you hear a lot about, but it's a

problem that basically every successful founder will face. Eric shares a ton of powerful stories and specific tactics and very specific advice for what you need to understand and do as a founder

if you want to build something lasting.

Before we get into it, don't forget to check out lennisproductpass.com for a year free of the hottest and most well-crafted AI products in the world, available exclusively to Lenny's

newsletter subscribers. With that, I

newsletter subscribers. With that, I bring you Eric Reese.

Eric Ree, thank you so much for being here and welcome back to the podcast.

Ah, it's an honor to be back. Congrats

on everything that's happened since I was here last time.

Wow. Thanks, Eric. So for people that have been living under a rock, you famously wrote the lean startup uh 15

years ago at this point, maybe the most impactful, successful founder startup book out there. And it feels like over this 15 years, if you think about it, it's it's gone through all these waves

of just like this is correct the way to do it and no, this completely wrong. Why

would anyone build this way? This

doesn't work anymore to okay, this actually is right. I was actually just thinking about this as I was preparing for our chat. It feels like the way the top AI companies are building now is actually exactly lean startup. Like I

just had the head of product of cloud code in the podcast. Cass

the way they operate. Okay. We're going

to ship the MVP. They don't call it that, but we're going to ship the MVP research preview. Get it out there. See

research preview. Get it out there. See

if people care a lot at all about this thing. We're going to tell you it's not

thing. We're going to tell you it's not ready for everyone, but it's out there.

And then they iterate and build. I feel

like people don't give you credit for like this is actually the way AI companies are operating now. I

appreciate you saying that and and it is funny how every wave there's like a backlash and somebody writes the article like because of this you don't need to do lean startup anymore. I remember when people wrote that about Quibby they're like Quibby proves that you don't need

lean startup. I'm always like why don't

lean startup. I'm always like why don't we wait till the companies are successful and then see if it proves it.

But also people forget like this is not a religion. So what matters to me is not

a religion. So what matters to me is not if people use the term minimum viable product or whatever. By the way those aren't customerf facing terms. So a lot of companies that use these concepts, they don't talk about how they use it.

They just use it internally to them.

It's just, you know, the obviously right way to go. And it's funny to me, one of the most important aspects of it that I think, you know, stands up really well and it's been 15 years is that so many

of these AI products that if leaving the models and the underlying technology aside, these specific products that have taken the world by storm, you can really tell that the AI labs themselves did not

know they were going to be as popular as they turned out to be. obviously chat

GPT they had no idea claude code co-work like these were small experiments in the grand scheme of things they weren't the companies like this is our big bet let's go and that's that's just so classic

that that's a a universal aspect of product development that you do not have the ability to predict the future and when you pretend you get yourself in trouble if you hold everything like a hypothesis you know you get the benefits

of the scientific method it's uh it's pretty helpful this episode is brought to you by our season's presenting sponsor work OS s.

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you have a new book out called Incorruptible.

It's a very different, very different book from the Lean Startup. It feels

very personal in a lot of ways. The way

I've heard you describe the combination of the lean startup and this new book is the lean startup was about helping you build a successful company and incorruptible is about helping you protect what you've built. I want to

start with that second part of protecting what you've built. What is it that you need protection from? What's

this kind of corruption that you talk about that founders run into? Yeah, we

all know this force in the book. I call

it the force that no one controls but everyone obeys that tends to drag organizations down into mediocrity to the point that we lose control of them.

Now, sometimes we lose control of them because we get fired. You know, we get ousted from our own company. Sometimes

it happens because we're like Frankenstein and his monster. It starts

to become malign or bureaucratic or frankly evil and we can't figure out how to stop it. And all kinds of other ways.

I've been I've had a front row seat at this. I've been helping people build

this. I've been helping people build companies now for a long time. I've

helped people create unimaginable amounts of wealth for themselves and for society. And I'm really proud of the

society. And I'm really proud of the work that they've done. I'm proud of my the bit part that I played in so many of these companies. And yet I've also seen

these companies. And yet I've also seen this this darkness. And it's not just founders getting fired, although we want to talk about that. But like the other day, I was out to dinner with some friends. We were not at home. We were

friends. We were not at home. We were

kind of, you know, away from our usual uh our usual spots. So someone said, "Yeah, there's this restaurant. I

haven't been there in a couple years, but it's really good. Let's check it out." We go, we sit down to dinner. They

out." We go, we sit down to dinner. They

take one bite of the food and then they're on their phone and we're like, "Dude, you're being rude. Like, why are you on your phone? It's just one sec.

One sec." Yep. I thought so. He turns it around. I could tell that this

around. I could tell that this restaurant got taken over by private equity. I could taste it.

equity. I could taste it.

And I've told that story a bunch of times now, and so many different people have told me, "Oh yeah, I know what restaurant you're talking about." And

then they name like 12 different restaurants. So what's going on that

restaurants. So what's going on that like you can taste the ownership structure of a company in the food? How

many people have had a famous brand that they love get ruined? I tell hundreds of years of these stories in the book, all kinds of famous companies where the thing that destroyed them was not

competition. It was not someone else

competition. It was not someone else came up with a better product. No, their

very success became a liability because the more golden the goose, the greater the temptation to butcher.

Well, that's a very visceral example. I

think about vital eggs as a great example of this. It was it was in the news, I don't know, on Twitter, Tik Tok a while ago. It's the eggs that I we've been getting forever. This like

pasture-raised organic in my fridge.

Okay. I don't know if you saw this, but everyone was complaining of how they've gotten worse and they're they have all like the highest level of toxins and then they're owned by Black Rockck now, it turns out. No, I I was just wondering about that. Oh, okay. Now, that's my new

about that. Oh, okay. Now, that's my new favorite example. That's really fun. I

favorite example. That's really fun. I

didn't even know that. But yeah, like it's so it's so common. It's the point now where I was I was doing an interview with someone who was telling me about a certain natural foods brand and the name of the product is the name of the

founder. It's like I can't remember her

founder. It's like I can't remember her name now. It's just her name. That's

name now. It's just her name. That's

what it that's the name of the product.

And she gets ousted by investors. And

he's about to tell me the story. I said,

"Let me guess what happened next." The

board pushed her out in pursuit of higher growth, higher margins. As a

result, we've seen lower quality.

Customers are super pissed. Employees

are pissed. And now it's starting to shrink market share. And he was like, "How did you know? I thought you said you didn't know this company. This

pattern is so pervasive. We don't even have a name for it. We live it every day, but we don't know what to call it."

Well, I know what to call it. I know

what our grandparents would have called it. They would have called this

it. They would have called this corruption, not legal bribery or embezzlement. No, this is like you're

embezzlement. No, this is like you're building a bridge. And if your bridge collapses and Lenny, I say you're an engineer and I say, Lenny, why did my bridge collapse? If you're like, well,

bridge collapse? If you're like, well, because of gravity, I'm going to be like, dude, yeah, thank you for that genius insight, right? Like, I

understand that that is correct in some very real way. Like we say, well, it's inevitable. It's greed. I call it

inevitable. It's greed. I call it financial gravity. Like there's this

financial gravity. Like there's this kind of like thing, you know, human nature when companies get big, when whatever. Yeah. But I want to know why

whatever. Yeah. But I want to know why did this bridge collapse? And more

importantly, how come other bridges didn't collapse? And they say, "Oh, oh,

didn't collapse? And they say, "Oh, oh, for that we need to study the load, load factor, wind load, shearing tension."

And we go look up close. We say, "Oh, look, all the metal bolts have been corroded. They're rusted. No wonder it

corroded. They're rusted. No wonder it collapsed." And then if you say, "Well,

collapsed." And then if you say, "Well, I want to build a new bridge, but I don't want this one to collapse. What

can I do?" You won't say, "Well, gravity. What can you do?" No. You say,

gravity. What can you do?" No. You say,

"Why don't we use stainless steel next time on the bolts so they don't get corroded?" Oh, yeah. Good idea. So, this

corroded?" Oh, yeah. Good idea. So, this

book is about what are the organizational equivalents of stainless steel? And the book is kind of

steel? And the book is kind of structured not like a traditional business book, as you say, you picked up on that. Like, it's much more like a

on that. Like, it's much more like a mystery, a double mystery. First of all, why has this been going on for hundreds of years when we all think that the market selects for value creation? So,

this shouldn't happen yet. It happens

all the time. But secondly, if it's inevitable, if it's caused by greed or age or size, why are there exceptions?

You're actually going to give us answers and solutions like because it sounds like, okay, this is impossible. You

actually have you have some answers for what founders can do. Real quick, I'll just vital X thing. I'm not exactly sure if the toxins are real. Like there's a whole viral thing on it. I haven't like looked into it super deep.

We both have homework to do now because like it's what you feed your kids. You

care. I'm definitely worried. Definitely

worried to hear that. I want to talk about two things that are probably in people's minds as they listen to this conversation and even think about buying your book. One is okay uh I am not going

your book. One is okay uh I am not going to let this happen to my company like this is other people they're weak.

They're maybe they're loose values. The

other is just like do I really need to do this? There's so many companies that

do this? There's so many companies that are killing it. I don't think I don't think they've done any of this.

Why do I even need to pay attention to this? So maybe let's start with that

this? So maybe let's start with that first one of this idea of this is a core thesis of your book. This is not like an ethical values thing. This is a structural element of building businesses in the US.

I'm going to make a claim that's going to sound radical, but is I'll back it up.

If you don't get this right, no other decision you make about your company will matter for the long term because you're not going to be the one making it. Okay? According to Harvard Law

it. Okay? According to Harvard Law School, among venturebacked companies that have the standard best practices set up that you got from your lawyer, okay,

only 20% of founders are still the CEO 3 years after going public. Okay, just

statistically speaking, everyone's being told by their lawyers, their bankers, their VCs, everybody that you're the exception. It's not going to happen to

exception. It's not going to happen to you. But statistically speaking, you're

you. But statistically speaking, you're much more likely to be in the 80% than the 20%. I'll tell you one story in

the 20%. I'll tell you one story in particular. A very hot company came to

particular. A very hot company came to see me like a year or two before their IPO. They were pl pl pl pl pl pl pl pl

IPO. They were pl pl pl pl pl pl pl pl pl pl pl pl pl pl pl pl pl pl pl pl pl planning IPO. You know, I build a

planning IPO. You know, I build a long-term stock exchange. I've done a bunch of stuff that people come to me for advice about these things. They

wanted advice. How can we structure the IPO? We want to think long term. We're

IPO? We want to think long term. We're

really missiondriven company, etc., etc. And I was going through their governance documents. I said, "Oh, good. You have

documents. I said, "Oh, good. You have

all the best practices, so you're totally like I was like, the good news is you're so screwed. You're going to have to do something, right? Like just

this is you're this is you're guaranteed to get this messed." And and I I I had all the data just like I do in the book.

like here are the examples, here are the case studies, here's the data. You need

to know about this. And the founder was really concerned. He's like, "Okay,

really concerned. He's like, "Okay, we're going to we're going to definitely do something about this. We're going to fix it up." But then he called me back a few months later. He's like, I said, "Well, what are you going to do?" He's

like, "You know what? I talked to my bankers, talked to my lawyers, talked to my CFO, talked to my GC, talked to my VCs, talked to my growth VCs."

You know what they all said? They all

said, "Man, Eric is such a downer. If he

really believed in your vision, if he really saw how special you were, he wouldn't talk like that. you're the

exception. I said, "Okay, man. Good

luck." This company went public, had a very successful IPO, a lot of people made a lot of money, and then five months into their IPO, a competitor gets

acquired, and the whole category, everyone freaks out. Stock price

collapses, and the founder is ousted after five months as a public company.

Now, if you read stories about the company, it's people like, "Oh, he made all these mistakes. Their business model sucked. the company of blah. Did he make

sucked. the company of blah. Did he make mistakes? I'm sure he did. Were there

mistakes? I'm sure he did. Were there

problems? I'm sure. But had he really earned so little grace that he only got five months? The same people saying that

five months? The same people saying that the business model is horribly flawed, they invested in the company five months ago. Had it had it really changed so

ago. Had it had it really changed so much in five months. This is what's going on. These um collapses are all

going on. These um collapses are all around us and we're being told it's normal. This is just the way it has to

normal. This is just the way it has to be. But it's not. These are choices

be. But it's not. These are choices about the specific structures, cultural practices, the the management practices we do on the inside and the structural the governance practices we do on the

outside. Of both of them, we're being

outside. Of both of them, we're being told to do things that are incredibly weak. And again, if you think you're

weak. And again, if you think you're going to be the exception, like think again.

I'm excited to talk about what to do with these governance elements, but let's talk about this other critique that I imagine people have in their head of just like is this like, you know, like okay, I need to figure out product

market fit first.

Yeah. Yeah. work worry about it later.

Exactly. There's so much more I need to do. Like the chances of this working are

do. Like the chances of this working are so low. Why am I I have no time for

so low. Why am I I have no time for anything else.

Oh, totally. You said something interesting in the leadin which you said like, "Well, a lot of other companies seem to be killing it and they don't have these protections, so they're fine." I would actually check your math

fine." I would actually check your math so many times when people give me this argument. They were like, "Well, such

argument. They were like, "Well, such and such company, you know, like I'm someone was like, "Cloudflare, they are just a normal company. They don't do this stuff." I'm like, "Check your math,

this stuff." I'm like, "Check your math, buddy. Cloudflare does many of the

buddy. Cloudflare does many of the things that we talking They're one of the examples in the book, so I picked that on purpose. A lot of companies that you don't necessarily instantly think of as like dogoodter missiondriven companies are actually very

missiondriven in terms of how they're structured and they are almost always protected by at least one of the governance structures from this book. So

check your math. People used to tell me Costco was an example that wasn't protected. So much so that like I was

protected. So much so that like I was surprised to learn that it was embodied in a governance fortress. You you'll be surprised if you if you do the math, if you look into it, you'll be surprised.

But let's talk about the product market fit thing because this one is really interesting to me. Generally speaking,

this is one of the most important ideas in the whole book. The most important question about how to protect a product is not what protections it needs, but

when those protections need to be enacted. And it's basically like that

enacted. And it's basically like that old proverb about the best time to plant a tree was 40 years ago, but the next best time is now. It is always too early

until it's too late. And I'll I'll give you like the example. Um I've seen this hundreds of times myself personally. So

I've like l literally been in the room where this kind of stuff gets discussed and it starts like this. You're going to you're you're incorporating your company. You talk to your lawyer. Hey, I

company. You talk to your lawyer. Hey, I

want to have these are called mission protective provisions in the law. I want

to have I heard heard this guy on Lenny's podcast and your lawyer's like, "Oh, not again." You know, another guy, right? Like how many good ideas from

right? Like how many good ideas from Lenny's podcast are you going to tell me about? Okay, fine. What's this one? I he

about? Okay, fine. What's this one? I he

told me I need to have mission protective provisions. He'll be like

protective provisions. He'll be like he'll pat you on the head and be like, "Oh, that's sweet, honey. That's great.

Yeah. Get product market fit. Like get

some success. Success is ultimately your source of leverage. Success will protect you. Don't worry about it. You say,

you. Don't worry about it. You say,

"Okay, great. But just thanks for letting me know. Now you raise some money. You got these VCs on your board."

money. You got these VCs on your board."

Say the same thing. They're like, "Yeah, I totally am with you. We're on the same page. We want the same thing you want.

page. We want the same thing you want.

We invested because we believe in you as the founder. There's no need to do this

the founder. There's no need to do this now. Let's just do it later. Do it when

now. Let's just do it later. Do it when it's the more appropriate time." Okay.

You get you got a growth round. Now you

got these bold contrarian growth VCs on your board and they're like, "I don't know. You might not want to be too

know. You might not want to be too different from everybody else. Might

make it hard to raise money." You're

like, "I thought you were a bold contrarian. What?" Okay, don't worry

contrarian. What?" Okay, don't worry about it now. We can always do it later.

Now you're doing IPO prep. Now you got bankers and lawyers and you've got a GC and you got the and they're all like, "Yep, yep. This is a great thing to

"Yep, yep. This is a great thing to bundle with the IPO itself. You don't

need to worry about it now. First, we

got to land the plane. Let's get our house in order." Blah, blah, blah.

Anyway, I've actually been in the room where the founder sits with the CFO and now it's like IPO planning road show.

Here we go. It's go time. We're about to file the papers and the founder's like, "Hey, whatever happened to those mission protective provisions?" They're like, "I

protective provisions?" They're like, "I wanted to really make sure we had our customers could participate in our IPO and I want broadly shared prosperity and I want this thing for our employees and all this good stuff I want to do. Do we

uh do we do any of that stuff? I don't

see it in the S1." The CFO is like, "Oh, you were serious about that?" Oh, sorry, man. You should have said something. Now

man. You should have said something. Now

it's too late. You're like, "Wait a minute. When I talked to you about it

minute. When I talked to you about it last year, you said it was too early."

Yeah, it was. But now it's too late. Was

it ever the right time? No, it is never the right time to do this. If you put this off, you will eventually find yourself in a situation where you can no longer do it. You will have lost the leverage. Success will not protect you

leverage. Success will not protect you because success is what makes you a target. That story I told you about the

target. That story I told you about the five month CEO got fired. That company,

everyone who worked on that IPO, every banker, every lawyer, the CFO, everybody, they profited from all the transaction volume that that company generated on the way up and on the way

down. They're all fine. They're all on

down. They're all fine. They're all on to the next IPO. The they're like u carnivores, you know? They're on to the next thing to feed on. Meanwhile, the

customers, the employees, the people that cared about their company were not so lucky.

Damn, that hit me. That hit me right in the heart. Uh, and it's so obvious just

the heart. Uh, and it's so obvious just how personal and important this is to you. It's clear you've just seen this

you. It's clear you've just seen this happen again and again in your Oh, yeah. I've been in the room where it

Oh, yeah. I've been in the room where it happens, the proverbial room.

Okay. So, let's talk about how to what people should do and we'll poke around in different directions. what's kind of like the broadstroke solution to this and then what are some say three things say an early stage founder should do this week next week.

Yeah. Yeah. Yeah. Okay. So, so broadly speaking there is a blueprint. I promise

like when we talk about the the the horrors of living in late stage capitalism it's easy to get depressed and just be like I mean literally part one of this book is called the shape of the abyss. So you know I'm not I'm not

the abyss. So you know I'm not I'm not trying to sugarcoat it. This is quite grim and if you haven't studied these case studies, if you don't know the story of Whole Foods and what happened to it, if you don't know the story of Verura, you know, you don't know these

stories, they're really grim and it's important to grapple with what happened so that so that it doesn't happen to you, so that you're prepared, but it can feel like we're we're so helpless. But

as I said, this is a double mystery. Not

just why does this happen, but how can there be exceptions to a rule that's inevitable? So let me just tell one more

inevitable? So let me just tell one more story and then we'll get really into the tactical details because I want to really give I want some stories that we can use as our fact set our database to

draw these principles out. And so the blueprint I'll give you the spoiler alert I just mentioned before ethos plus integrity that's our formula. Ethos

meaning internal alignment character choices integrity meaning the structure to resist to keep ourselves aligned with human flourishing. Let's go back in time

human flourishing. Let's go back in time a little further. This time we're going to go to 1920 Denmark. Okay. I want to tell you about a a woman named Marie Crowe. She was one of the first doctors

Crowe. She was one of the first doctors to uh practice in Denmark, like a credentialed doctor. She was a big

credentialed doctor. She was a big advocate for women's medical education and she lived a very cool life in her own right. But she's famous today mostly

own right. But she's famous today mostly because of her husband August who had just won the Nobel Prize who's a very famous scientist. And

famous scientist. And she unfortunately right around the same time got diagnosed with a fatal illness, an illness for which there was no known cure at that time. it was called diabetes.

So she gets this death sentence right as he's weighing the Nobel Prize and he asks her would she come with him to North America for his lecture tour anyway and she says yes. So the two of them travel to North America. He's going

around talking to scientists about his Nobel Prize. And one night at dinner,

Nobel Prize. And one night at dinner, Maria is sitting next to a scientist who tells her, "Hey, actually in Canada, there are these researchers who have figured out a new technology to isolate

a substance called insulin, a potential cure for diabetes."

So Marie convinces her husband, "We should send our trip, go to Canada, see this thing for themselves." They do.

They are both scientists, so they instantly understand the implications.

this could not only save Marie's life, but millions more. So, they talked to the Canadians. Could we commercialize

the Canadians. Could we commercialize this technology? And the Canadians say

this technology? And the Canadians say they're open to it, but everyone involved has a concern. We've been

talking so far about the concern of being forced out of your company or having it taken away from you. That is

one danger. But there's also the temptation to harvest what others plant.

The temptation to exploit, to extract instead of creating new value. They were

worried about that. Now, Lenny, I want you to imagine this scenario with me, okay? Imagine that I depend on you for a

okay? Imagine that I depend on you for a life-saving cure. I have diabetes.

life-saving cure. I have diabetes.

You're the only maker of insulin in the world. In that case, I would want you to

world. In that case, I would want you to charge me a fair price. Like, very much so. It's it's a it's both morally right,

so. It's it's a it's both morally right, fair, but also I want you to have every incentive possible to keep making the drug. Otherwise, I might die. Okay. But

drug. Otherwise, I might die. Okay. But

what if one day you wake up and you're like, "Wait a second. I don't have to charge Eric a fair price." or you have investors whispering in your ear, Lenny, you don't have to charge him a fair price. You can charge him anything you

price. You can charge him anything you want. That's what I would live in fear

want. That's what I would live in fear of. So decades before Martin Skrey

of. So decades before Martin Skrey actually did this as a business strategy, the crows and the Canadian scientists, they were worried that this might happen to their new company. So

when they went back to Denmark to create this company, which they called the Nordisk Insulin Laboratorium, they incorporated it using this very particular structure. It is a for-profit

particular structure. It is a for-profit company. It does have outside investors,

company. It does have outside investors, but it is owned, governed by a nonprofit foundation, a two-tiered structure that's called an industrial foundation in the literature. And if Nordisk

Insulin Laboratorium sounds familiar, it should. This is the predecessor company

should. This is the predecessor company to what we today call Nova Nordisk, one of the largest companies in the world.

And what's so interesting to me about this story is this structure has endured and protected the ethos of scientific integrity of Nova Nordisk for more than

a hundred years. Meanwhile, so many of the best practices that your lawyers, your bankers, whoever advisers you have, they're going to be pushing best practices on you that are younger than

the trees in your local park. And so

what I want for everyone who's listening to this, founders, product managers, leaders, board members, I don't care.

The next time someone comes to you pushing a best practice and you're like, "Oh, I guess I have to do it this way because we live in an ROI dominated culture. We have to stack rank by ROI or

culture. We have to stack rank by ROI or whatever the practice is, I want you to be like, well, that person sounds very smart. They're very well credentialed.

smart. They're very well credentialed.

They went to business school or whatever." But ask yourself, are you

whatever." But ask yourself, are you sure they're smarter than a Nobel laureate? Because August and Marie

laureate? Because August and Marie worked this out a hundred years ago and it has held so many attacks. In fact, I tell a story in the book, and Lonnie, I know you're going to think I'm exaggerating, or I know at least some of your listeners are going to think, "Oh,

America is an exaggerator." I promise you, this is a 100% true story. The the

trustees of the nonprofit foundation once had to intervene to protect the for-profit from this exact temptation to want to sell it out. And I won't get into the whole story. They did the right thing in this case because they had the

legal power to do so. Their intervention

ultimately created more than $500 billion dollar of shareholder value. I'm

not I didn't add an extra zero for emphasis. $500 billion. So when people

emphasis. $500 billion. So when people hear about these things for the first time, it's natural to feel like we're talking just about business ethics or mission. It's like some extra nice to

mission. It's like some extra nice to have thing that after you do the real serious business, now you worry about this stuff. No, this is one of the most

this stuff. No, this is one of the most powerful engines of value creation in the world. And for a lot of people

the world. And for a lot of people listening, this will be the first time you're hearing about it. But just

because it's new to you doesn't make it new. The German optics company, Zeiss,

new. The German optics company, Zeiss, who make the the lenses in my glasses and yours, too, they had this structure in 1885.

So I think it's really interesting that we have enough of these examples to know that there's nothing inevitable about this financial gravity. We actually have a data set. They can be studied. There's

a whole branch of academic research that has shown, for example, companies with that structure like Novo and Zeiss, they are six times more likely to live to year 50 compared to their conventional

counterparts. We they have superior

counterparts. We they have superior return on invested capital. They make

more money for investors. They're better

in so many ways. So, it's kind of a bit of an open secret that these techniques exist. So, I want us to kind of have these stories in our mind because it's it's going to sound as we get into the technique, some of them are going to sound radical. We want to

say, "Wait a second. Is this really doable for me? I'm just a little startup. I'm just doing, you know, I'm

startup. I'm just doing, you know, I'm just trying to get to product market fit. Why are we talking about this long

fit. Why are we talking about this long off stuff hundred-y old companies? No.

August and Marie was just it was they were a tiny startup two once. Now that

company's worth hundreds of billions of dollars. So before we get into that,

dollars. So before we get into that, just let's remind people again why this is worth doing because it's going to sound like oh my god, this is so annoying. I have to do all these weird

annoying. I have to do all these weird things that no one else is doing. I have

to convince all these people this is not not going to limit us and not hurt us down the road. Let just let's remind people again just why this is important.

Why this is so painful if they don't do it right.

Gosh, there's so many things to choose from.

So much pain.

So much pain. I I'll tell another story like we've been telling kind of happy stories. Let me tell you a not very

stories. Let me tell you a not very happy story. So I've been doing this

happy story. So I've been doing this exercise for many years uh where I would ask founders um or leaders of really of any any seniority. I'm just like listen before we get into the details first

tell me who you think is the most evil company in the world. And people

sometimes, sometimes they like instantly know who to say. They're like, "Oh, I know." But some people are like, "What

know." But some people are like, "What do you mean evil?" I'm like, "The company where there's no amount of money they could offer you that you would go work there. You just, you know, they're

work there. You just, you know, they're up to no good." Everybody has a company like that in their mind. I don't know if you want to say who it is for you. I

understand. If you don't want to, it's okay. But like I'll just for the sake of

okay. But like I'll just for the sake of us having a hypothetical that we can do.

I would always tell if people we go around the room. I go on some of them on Zoom. Everyone puts in the chat, right?

Zoom. Everyone puts in the chat, right?

And there'll be someone will be like Hallebertton and someone else will be like increasingly like like tech companies are showing up on these lists now which when when I was younger that would never have been the case but now you sometimes see tech companies there

some see Monsanto or you see um you know some or some private equity fund like people are like mad about something they can name a company usually so it's not hard to find examples now my father was

a pulmonologist growing up so I was raised that Philip Morris is the most evil company in the world so we'll just use that as our hypothetical just for the sake of argument today um if you think Philip Morris is great and you have different values. You know,

whoever's listening, fine. You pick the company you really would never ever ever want to have to work for no matter what.

Now, I ask people to imagine the company they currently work at. If you're a founder, you're a company. If you're an employee, your company, but if you've, you know, the company you hold dear, just imagine Philip Morris shows up one

day and says, "I'd like to buy this company from you for $1 more per share than it's currently worth. You selling?"

Most people are like, "Hell no. Hell no.

No, I'm not selling. One person once asked me, um, well, what are they going to use it for? Oh, sorry. To be clear, they're going to use it to sell cigarettes to children. Now you're

selling. Yeah. No, no deal. Of

obviously, f no, I can't actually say on your podcast the kind of things people say when they are presented with this.

Um, because there might be that might be children listening. Okay. People get

children listening. Okay. People get

real upset at this idea. And and when we talk about I'm like, "Okay, well, did you know that according to the legal documents you yourself signed, your company's literal charter that you have

right now, and this is not some hypothetical future thing, you've already put in motion, a rule that says you have a fiduciary duty to say yes in this situation."

People are so outraged. They're like,

"That cannot be right. My lawyer, my guy, he would never have done that to me. I'm like, "Call him up. Ask him if

me. I'm like, "Call him up. Ask him if what I say is true and call me back."

And they're like, "He said it. He said

he was doing me a favor by giving me the best practice documents to make it easier to raise money." Yeah. So,

occasionally though, people will say, "Eric, you are exaggerating.

That is not Yes, that can happen, but come on. Does that really happen in real

come on. Does that really happen in real life? Is that something I really need?

life? Is that something I really need?

I'm trying to get product market fit. Do

I have to worry about it?" So before you tell me I'm exaggerating, I want you to consider this from the perspective of the founder scientists of the Vector Corporation. Vector was a UK company, a

Corporation. Vector was a UK company, a spinout from the University of Bath.

They made inhaler therapeutics like for asthma and COPD. You've seen inhalers.

Yeah. Med a medicine company. They were

really successful. They raised money.

They went public on the London Stock Exchange. And one day

Exchange. And one day the actual Philip Morris tried to buy them. Okay, I only know this story

them. Okay, I only know this story because I've been using the Philip Morris example for years. And when I was researching the book, I was like, I wonder I actually asked Claude, "Has anybody

has anyone ever actually been bought by Philip Morris?" Like this. I sketched

Philip Morris?" Like this. I sketched

out the hypothetical and it was like, are you asking me about Vector? And I

was like, tell me more. There's this

company. This is what happened. Phil

Morris said they wanted to diversify beyond nicotine. And they were like, oh,

beyond nicotine. And they were like, oh, we know a lot about inhaling things, so having an inhaler company makes anyway.

No, normal people hearing about this were like, "This doesn't make sense. Why

would a why would big tobacco own a health company? That doesn't seem

health company? That doesn't seem right." So, here were the three choices

right." So, here were the three choices that were facing the Vector board. They

had this bid from Philip Morris for 165 p per share. They had a bid from an American private equity firm for 155 pair or in door number three, they could just stay independent because there was

really no problem. The company's doing fine.

The public in the UK was super outraged.

The British Thoracic Society begged them to say no. Like every person who thought about this for 5 seconds could see this is going to be a massively valued destroying error. But the only people

destroying error. But the only people that mattered were the people on the board of directors of the Vector Corporation. They had, I think, two

Corporation. They had, I think, two meetings about it and they just said, "Our hands are tied. We have a fiduciary duty to accept the highest bid." Which

they did. So yes, if you think I was exaggerating, I was. I said it was a dollar per share. In real life, it was more like 15 cents a share. So, let's

find out what happened next, shall we?

Can you guess?

Not great.

Philip Morris spent 1.1 billion pounds to buy Vectura.

Uh, within three years, they had taken a $900 million write down and disposed of the company for Peace Parts. It doesn't

exist anymore to me. These are the stakes. This is what happens. And I

stakes. This is what happens. And I

can't tell you, I feel like Perry Mason sometimes when like people are like, I would never do that. And I'm like, "Okay, I hear you have good intentions, but can I please see your signature on the document?" Oh, look. Delaware

the document?" Oh, look. Delaware

charters are public record, by the way.

If you ever want to know have a friend who's a lawyer, just you want to know if a company has a mission or if they this is going to happen to them, just pull the charter. You can just read it. Read

the charter. You can just read it. Read

it for yourself. I'm like, is this your signature right here? You yourself sign this document. You don't even understand

this document. You don't even understand how your company works.

uh this is the stakes I think are are significantly existential and especially now that we're entering an age the age of wonders the age of technologies that are incredibly powerful that have planet scale consequences to them you know I

think a lot of founders a lot of product people like they want to build a product that they can be proud of that their grandkids will be like happy to hear that that's how the family fortune was

made and I know a lot of people that are incredibly rich and so miserable because the thing their baby it got ruined and it got destroyed. Why are we doing this?

Okay, let's talk about how to act what to actually do. And you know, this is going to be a kind of a high level overview. Obviously, buy the book if

overview. Obviously, buy the book if you're really get want to get serious about this stuff coming out May 26 that all May 26. Yes. Thank you.

May 26. Yes. Thank you.

Anywhere you buy books, talk about what we should do and I just want to plant the seed of Open AI is probably on people's minds as they hear this idea of building a nonprofit.

Yeah. Yeah. We'll get there and obviously in the book I tell the anthropic story where I I played a bit part. So, we'll we'll get to all that.

part. So, we'll we'll get to all that.

We'll get to all that. But let but let's start with the easy stuff first because like when you like AI is kind of like the humanity's final exam. You know,

you've heard that that joke. Like these

issues are so amplified in AI. Of

course, we have to get it right. I think

it's incredibly important. And I've done my I've done what I can to to set us on that proper path. But but it's easier to see it I think in simpler businesses. Um

open eyes insanely complicated. So let's

look at it in some some simpler examples. First let's start with the

examples. First let's start with the principle I call harder is easier. This

is the this is the the leadership principle that anybody can adopt.

There's truly like there's nobody who's not who you tell me you have no power whatsoever. Like everyone's got some

whatsoever. Like everyone's got some influence. And if you have any influence

influence. And if you have any influence at all, you can adopt this principle.

Like when I talk to people about business, I don't care if I'm talking to two guys in a garage, founders, you know, or or I'm talking to super boards or CEO seuite, whatever. Everyone always

says to me just what you were saying a minute ago. I was like, "Man, Eric,

minute ago. I was like, "Man, Eric, business is already so hard.

I now you want me to do extra now. I got

to worry about the Vector thing and this other stuff. Like, like, man, I'm

other stuff. Like, like, man, I'm already just trying to get through the day." Like, it's so hard. But I think

day." Like, it's so hard. But I think this is a basically backwards way of looking at it because I ask people, could it be just consider the

possibility that one of the reasons you're finding business so hard is that nobody trusts you?

If they trusted you, maybe it would be a little bit easier. Now, actually, this is not a supposition. We have really good evidence. Companies where their

good evidence. Companies where their employees trust them spend way less time on employee communications. They have

much better alignment. Everyone's kind

of rowing in the same directions. When

customers trust you, they are, of course, you have way higher loyalty.

Your cost of customer acquisition is lower, but also customers more likely to stick with you after you make a mistake.

Uh they're more likely to try your new product. Like so many people are like,

product. Like so many people are like, "God, customers are so fickle. they have

no loyalty, you know, just like they only care about the slick marketing from our competitors. But maybe because you

our competitors. But maybe because you view these things as extra is part of the problem. So harder is easier is a

the problem. So harder is easier is a principle that says if you're willing to do the work upfront to commit to quality, to design, to ethics, to integrity, to safety, whatever the thing, I don't want to tell you what your values are, you tell me what they

are. If you're willing to be principled

are. If you're willing to be principled in your decision-making, you will get these unexpected rewards. Now, you can't do it for the reward or it doesn't work.

You have to do it for the thing itself.

Trustworthiness is the most underrated asset in all of business. And the things that create trustworthiness by definition stack rank to the bottom

if we do it by ROI because doing the right thing has intangible rewards but tangible costs.

So, let me give you another story because now we've been talking about like lofty stuff and I want to talk about something super practical and that's I mentioned Cloudflare before.

So, let me actually tell the Cloudflare story. I like Cloudflare because Matthew

story. I like Cloudflare because Matthew Prince and his co-founders they like they were really anti- consulting BS talk like they didn't want if you in the

early days you know they came out of Harvard Business School and so they were like traumatized. They were like no I

like traumatized. They were like no I don't want to hear about mission statement. I don't want to hear about

statement. I don't want to hear about values. I don't just we making a

values. I don't just we making a firewall and putting it in the cloud.

it's not that complicated like we don't want to hear it. So for years they had no mission statement and this is a critical point. Uh as leaders we get so

critical point. Uh as leaders we get so focused on value statement mission statements we forget the mission statement is not the mission. The map is not the territory. Mission is an emergent property of the living

superorganism of the thing we're birthing. Okay? It's not something you

birthing. Okay? It's not something you can slap on with a label. You have to build it in. You want to have a company that stands for quality. You got to build quality in from the inside. Deming

taught this in the 40s like this is not some new idea. This is a critical idea.

This is what craftsmanship really means.

Okay. So, we know that Cloudflare had a mission because quite often they would do this harder is easier stuff and without even really knowing why. Like

there's a very famous example in their history where pro-democracy protesters want to say, oh, I forget what nation state they were pissing off. I better

not say in case I get it wrong. Pissing

off some nation state were having their having like state sponsored hackers try to take their websites down so they couldn't coordinate their pro-democracy protests. They were going around Silicon

protests. They were going around Silicon Valley begging big tech companies to help them defend their websites. No one

would do it. All these big mega companies, even like Google, were just like, I'm too scared. And so Cloudflare, the tiny startup, is like we'll do it.

These were like free tier customers.

They weren't even paying any money. and

they're like, "Yes, we will incur the wrath of nation state level hackers to protect you because it's the right thing to do for no reward whatsoever." That

was just the kind of company they were.

So anyway, a couple years in, they're having lunch and one of the engineers says, "You know why I like working at this company? I just feel like it's the

this company? I just feel like it's the first place I've worked where we're just we're trying to make a better internet."

And everyone at the table's like, "Yeah, make a better internet." Someone asked Matthew, "Oh, is that our mission statement?" Matt, no. We don't have a

statement?" Matt, no. We don't have a mission statement. What are you talking

mission statement. What are you talking about? note but it actually was over

about? note but it actually was over time the engineers people worked there kept saying make a better internet that was that was how we talk about it and eventually the founders had to be convinced okay let's adopt this as our mission statement which they did that is

their mission statement to this day they had to eventually adopt formal values like as you get bigger these things really matter it matters that you document those emergent properties otherwise how are people supposed to know what they are their number one

value by the way is be principled which is the ultimate harder is easier move so this all sounds great It's fun to have values. It's fun to have a mission

values. It's fun to have a mission statement when it doesn't cost you anything. But sometimes it can be very

anything. But sometimes it can be very expensive. Can make your life a lot

expensive. Can make your life a lot harder. That's why we call the principal

harder. That's why we call the principal harder is easier. One day, an engineer, a junior engineer, not like some senior executive or anything, walks into Matthew Prince's office and he says,

"Boss, isn't our isn't our uh mission statement to make a better internet?"

Uhhuh. When you're a CEO, any any conversation that starts this way is generally going to be extra work for you. So, you're like, "What is it now?"

you. So, you're like, "What is it now?"

It's like, well, you were saying at the board meeting that our number one driver of revenue, the thing that causes people to upgrade from our free to premium plans, this is a few years ago now, is

uh web encryption, SSL encryption, right? You said that makes sense because

right? You said that makes sense because SSL encryption is expensive to offer. We

can't offer it for free. We have to get the certificates and pay for them. We

have to do all this extra cryptographic stuff. It has compute, you know, we have

stuff. It has compute, you know, we have scarce comput.

What boss?

Wouldn't a better internet be an encrypted internet?

And he's like, "Yes." So what's your point? So like why? But if it would be

point? So like why? But if it would be better, why are we giving it away for free? And so many people have heard this

free? And so many people have heard this story. If you've ever been a middle

story. If you've ever been a middle manager in a company, okay, you know this. You're just like, "Oh my god."

this. You're just like, "Oh my god."

Every day someone walks into your office, it's like, "Hey boss, let's give our product away for free for no reason." Okay? Like your job as a middle

reason." Okay? Like your job as a middle manager is to be like, "No, we have a strategy. Get back on the strategy."

strategy. Get back on the strategy."

Right? redirect. Hey, thank you for your buy in and your input, but we have a job to do. So, everyone's expecting Matthew

to do. So, everyone's expecting Matthew to react that way and we be the most normal thing in the world. This is our most profitable product and you're saying we should give it away for free,

get lost. No. Matthew told me once I saw

get lost. No. Matthew told me once I saw it, I couldn't unsee it.

And he he uttered the three key words.

He said, "Let's figure it out. Figure it

out." This is the the leadership principle I think is so powerful. The

figure it out principle. When you have if you're committed to something, you stand for quality or whatever, it is going to make life harder. The best

leaders, the ones I really admire, they revel in it. They love the difficulty because every time you have one of these impossible dilemmas, it's a chance to teach what you really stand for. So,

Matthew insisted the whole team rally to figure out how to give encryption away for free. Now, they couldn't just give

for free. Now, they couldn't just give it away for free. He's like, go bankrupting the company won't achieve the mission. We had to find a way to

the mission. We had to find a way to make it sustainable. And I won't go through all the technical details of like how they managed to get the cost.

They had to hand roll their own software and assembly language. They had to do these complicated bisdev deals with certificate authorities. Like they

certificate authorities. Like they figured out how to do it and they drove their own cost down. Now keep in mind that at any time, first of all, they could have used the difficulty as an excuse. Oh, it's too hard. We can't do

excuse. Oh, it's too hard. We can't do it. Give up. Once they did it, they

it. Give up. Once they did it, they could have said, "Wait a minute. This is

just free margin. We can make our costs lower and then we just get free money."

when they shipped it, they had to report to their board on what happened. The

conversion rates for their for premium product went down. So, they could easily have bailed out at that point, but they didn't. They stuck with it because this

didn't. They stuck with it because this is what we stand for. Now, of course, it's a happy ending story. The top of funnel increased by an order of magnitude. In fact, to this day, people

magnitude. In fact, to this day, people still talk about how Cloudflare is like the reason you take for granted we have an encrypted internet. The trust that they gained is the reason why they're a 70 billion dollar company today.

But most leaders when asked to defend their principles can't do it because they've been taught ROI based thinking.

They've been taught shareholder primacy.

They've been taught that that's the path of maximum profitability. To give you like an easy contrast, um Andrew Mason, the founder of Groupon, once told me this story. Everyone remember Groupon?

this story. Everyone remember Groupon?

Maybe not now. It's kind of fallen out of public consciousness, but there was this time when Groupon was one of the fastest growing private companies in America. It was powered by a daily email

America. It was powered by a daily email with a cool deal. And the whole thing was you got one email a day from Groupon. They went public on the one

Groupon. They went public on the one email a day. That's how successful it was. And I remember he told me the story

was. And I remember he told me the story one day, you know, his executives and employees started coming into his office. And they'd be like, you know,

office. And they'd be like, you know, boss, we need to make the quarter. We

need to make more money. We're public

company now.

We don't want to be better than one email.

Have you considered two emails? And he

was like, no, one email a day is like that's our whole thing. But he said over time they ground him down and they kept saying they were using language that sounds kind of lean startupy shouldn't we do an experiment shouldn't we look at the data what about the IR like it's

just like what about the ROI and so he was like all right fine we'll run the experiment he ran the experiment two emails a day makes more money so he couldn't he couldn't say no and everything was fine for several months until someone came into his office and

said you know boss you know it would be better than two email you should send three emails and next thing you know they're sending eight emails and this is not just group on I have had so many CEOs tell me this exact

story about email frequency. Email

frequency is like for some reason the tip of the spear where it's like we we don't really have any way to defend doing the right thing here. So we do the

wrong thing that destroyed the whole company. But in the short term we made a

company. But in the short term we made a bunch of money. So if you can stick to the harder is easier principle that is the first line of defense against losing whatever it is that makes a company special.

Eric, you're such a wonderful storyteller. I'm just like sitting here

storyteller. I'm just like sitting here just compelled.

Well, thank you.

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I want to talk through just like what do you do? So there's write a mission

you do? So there's write a mission statement. Values is that a part of this

statement. Values is that a part of this just define your values. Talk about like the bullet point. So again, no writing the

bullet point. So again, no writing the statement is not valuable. Okay. The

statement is not what it is. The reason

I would use the oldfashioned word ethos.

I tried to write this whole book without using any trendy consulting language at all. So I try not to use the word

all. So I try not to use the word stakeholder. I try not to use the word

stakeholder. I try not to use the word culture. I tried to really go

culture. I tried to really go old-fashioned. That's why I started with

old-fashioned. That's why I started with Saul Price. Rather than talk about

Saul Price. Rather than talk about stakeholders and mission statement and values, I want to know who are your fiduciaries.

It's like a real oldfashioned word fiduciary. But to me, the question every

fiduciary. But to me, the question every leader has to answer and this is every product has to answer this question.

What is its purpose? Who would you rather die than betray?

Okay. So if you tell me I want to have a high quality product, that's what I would rather die than ship slot. Like

think about how Steve Jobs was like he was this is a guy who would fight with people over the layout of the wires inside a computer he didn't want customers to be allowed to open and ever see. That's so classic. Harder is

see. That's so classic. Harder is

easier, right? Just it has to be a certain way. If you know stories about

certain way. If you know stories about Ivon Shannard, the founder of Patagonia today, he's more famous for his environmental activism, but he was a quality zealot. He believed that quality

quality zealot. He believed that quality was an objective function and that every product had a quality level that it deserved. Most people think that's

deserved. Most people think that's insane.

That's why Patagonia is such a success.

That idea is powerful. So whatever that thing is, that purpose, we have to find ways to encode it in our like management system so that there's no way for us to

make money by betraying the principle, whatever it is. So this can happen both like at the operational level and at the governance level. Both both are really

governance level. Both both are really important. people hearing this, I know

important. people hearing this, I know some people are going to be like, "Purpose? Is this some ESG nonsense?"

"Purpose? Is this some ESG nonsense?"

Like, okay, there's a very funny quote in the book. Um, Unilver, the big food giant, we went through a phase a couple years ago where they were going to infuse purpose into all of their products. And a Wall Street investor was

products. And a Wall Street investor was just like, I've had it with this, wrote this wrote them a nasty letter was like, look at the point that we're debating the purpose of Helman's mayonnaise, I think you've lost the plot. And I love

that quote because it's funny, but actually what's so funny about it to me is humble though it is, Helman's mayonnaise is food. Its purpose is super clear. And again, if you think it

clear. And again, if you think it doesn't matter what the product manager who runs Helman's Manise thinks the purpose is, going back to our Vital Farms question, like think how easy it would be when an efficiency consultant shows up and says, you know, I think we

could save 3 cents on the bill of materials if you just make the pro the thing carcinogenic.

And you're like, "Oh, that's wouldn't that come back to bite us?" Yeah, but long after your stock options are vested, buddy. What do you care? If the

vested, buddy. What do you care? If the

product manager thinks their purpose is quality, that matters. If they think their purpose is extraction and exploitation, it matters. Again, if you think I'm exaggerating, the product managers at Johnson and Johnson put

asbestos in the baby powder and covered it up because although they said their purpose, their mission statement was patient health, their actual mission had

become growth, optimization, quarterly targets. So, what we want to do is

targets. So, what we want to do is that's the first most important technique is like what is the purpose?

Who would we rather die than betray?

Like you got to write it down. You got

to say, as Saul Price did, customers first, employees second, shareholders last. Or uh the great Peter Ducker said

last. Or uh the great Peter Ducker said it would actually he said that that's backwards. It should be employees first,

backwards. It should be employees first, customers second, shareholders last. I

don't care. You tell me what you believe. You got to write it down. And

believe. You got to write it down. And

then we have to do a a thing I call mission drive. Companies that claim to

mission drive. Companies that claim to be missiondriven, most of them are just mission hopeful. Okay? It's it's

mission hopeful. Okay? It's it's

It's just a candy coating on top of an extractive engine. Sorry, I

don't buy it. If you're serious about being missiondriven, you have to show me that you cannot profit except by achieving the mission. That's the audit we have to do. We have to look at if we

were if someone in the company got tempted to cut quality, to cut corners, to to decrease performance, to deal with like the things that tend to get cut first safety performance quality

design, those are always the most vulnerable. Innovation, I guess, is

vulnerable. Innovation, I guess, is fifth. So that's like the fi the five

fifth. So that's like the fi the five horsemen of the apocalypse is like you can get rid of those things and nothing bad happens right away because the whole point of trust is I can betray you and

you wouldn't even notice. So we have those are like the canary in the coal mine. Is there any way is anyone's bonus

mine. Is there any way is anyone's bonus target is our OKR system. Is there

anyone on this team and again you could do this at the company level of course but you're just a team a team of five.

Is there anyone on this team who could profit by portraying one of our principles? Is it is it possible? And

principles? Is it is it possible? And

you mean it's really possible that and this is actually why automated testing is so good, right? Like think about how many people can just like break the design. No one even notices. Well, it's

design. No one even notices. Well, it's

a test notice. With with AI, we have so many new capabilities for auditing, for preventing, for making sure, but we have to choose to use the tools for that.

That's one. So that's kind of like the general like category of things um that we can build.

And so just to just to make sure it's clear. So it's write down your purpose,

clear. So it's write down your purpose, whatever that is. And I imagine it's like a sentence is the idea.

Yeah, that'd be great. As simple as better, right? Like to make a better

better, right? Like to make a better internet is such a great such a great purpose. I tell in the story in the book

purpose. I tell in the story in the book the story of devoted health. They're a

health insurance company, but their instruction to their employees is to treat every customer the way you would your own parents.

I've heard that one.

It's just so easy and simple and clear to understand.

Okay. So, let's write down your purpose.

Uh describe your mission and more importantly the mission. What is it? Drive the

the mission. What is it? Drive the

mission or the mission.

Mission drive. Mission drive.

which basically uh is is there like a structural way to do this or is this just go through everything going on and see is there it is I mean I I talk about it in a more formal way in the book but basically I

would say that it is to identify your fiduciary commitments like who are the people that you're trying to commit to do something good for what are the metrics or targets that you want to have

for each of those people and then um what is the system the accountability system to make sure that those commitments are as important to you as making money.

So, it's essentially these kind of like OKRs for your your stake. Let's not call them stakeholders.

Yeah, that's what I see how hard it is to do this. Yeah, that's exactly right.

It's like OKRs for the And I and I just again people always when we start using this language, people are like, you're trying to impose your values on me. No,

you tell me what you care about and then you tell me how you're measuring the things you claim to care about. In in

the book, I have a section called don't be evil versus the quarterly report. I I

made a study of the blog posts that longtime Google employees write when they leave Google. It's like a genre.

There's 50 of them. They're incredible

documents actually. If you've never read them or all linked in the book, you can you can read them yourself. And they all have this like very wistful sad quality to them because something really listen for the record, Google's a great

company. I'm not saying Google's bad,

company. I'm not saying Google's bad, but Google used to have this don't be evil ethos and it kind of got lost. Got

taken off the website. Then it showed up in the employee handbook. Now, it's not even in the employee handbook anymore.

And in fact, Google's been sued twice now for breaking the don't be evil pledge. And they've had to settle both

pledge. And they've had to settle both lawsuits. Okay? That that's how sad the

lawsuits. Okay? That that's how sad the situation has become at Google. And I

remember talking to one of these ex-goolers. He'd been there, I think, 13

ex-goolers. He'd been there, I think, 13 years. And I said to him, look, he could

years. And I said to him, look, he could not, he was like, why did we lose it when we had such good intentions? Why? I

wanted to believe management. He's like,

I liked management. I thought they were had their heart in the right place. And

yet I said, "Okay, answer me this hypothetical just real quick. What is

the probability that Google will file its next quarterly report on time?" He

was like, "That's a dumb question, Eric.

Obviously, they're going to do it." I

was like, "No, but give it a number probability." He's like, "Literally

probability." He's like, "Literally 100.0." Yes. As certain as the sun will

100.0." Yes. As certain as the sun will rise tomorrow, of course. I said,

"Great. Now tell me the probability that um Google might accidentally kill somebody and cover it up." And he was like, "Come on, man. They probably

wouldn't do that. That's not fair.

Put a number on it. Is it 100%. He's

like, "Well, like 90%." 95%. I was like, and he start You could He was like, "Well, they got sued for this." He's

like, "What if the self-driving car hit somebody?" He could He could already

somebody?" He could He could already think of the way it could happen. I

said, "Okay, how can it be that quarterly reporting is like the thing that we're sure of?" And this and manslaughter. We think our human beings

manslaughter. We think our human beings like confused. They love quarterly

like confused. They love quarterly reports and they're not sure about manslaughter. No. Come on. What is going

manslaughter. No. Come on. What is going on here? Google will report its

on here? Google will report its quarterly report on time because there is a massive, unbelievably expensive apparatus to make sure it happens every

time. And don't be evil was just a

time. And don't be evil was just a slogan. So if someone tells you, I'm

slogan. So if someone tells you, I'm serious about something, great. Now show

me the apparatus. Show me the commitments you've made to make sure that happens every time. No exceptions.

And if you don't have one, then they are lying to you no matter how good their intentions are.

And this might be a good segue to kind of the second bucket of stuff. So the

way you described it earlier, I think is a really helpful way of framing it.

There's kind of the ethos, which is what we've been talking about, values, purpose, mission, and then there's integrity. So talk about that. Sure. So

integrity. So talk about that. Sure. So

why did I use the word integrity? In

human lang in normal human language, not consultant speak, but like among normal people, integrity has two meanings. One

is like Lenny, you're a very high integrity person. If you say you're

integrity person. If you say you're going to meet me at 2 o'clock at a place, like I know you're going to be there, right? Everyone's got a friend

there, right? Everyone's got a friend like that where if they say they're going to do something, they're going to do it. And more importantly, if they're

do it. And more importantly, if they're not sure, if they're like, I think I can be there at 2 o'clock. They never would say, I'll see you at 2:00. They won't do it. They know that to tell the truth

it. They know that to tell the truth requires you to really make a commitment. But we also, so that's kind

commitment. But we also, so that's kind of like the ability to keep your promise. But we also have the word

promise. But we also have the word structural integrity, right? I told him before like the difference between corroded bolts and stainless steel organizations these two senses of the

word become one. An organization that is weak cannot keep its promises because the person making the promise won't be there. Imagine you got a promise from

there. Imagine you got a promise from the founders of Vectura that they'll never sell cigarettes to children. Oops.

Sorry. Right. No, that's not integrity.

So the goal of of structural integrity for an organization is to give it the power to resist temptation from the inside, resist betrayal at the board level and resist pressure from the outside. As I mentioned, Costco has very

outside. As I mentioned, Costco has very famously has this governance fortress that protects it from outside pressure.

And people have come for Costco. I quote

some hilarious quotes in the book about um one of my favorites is Costco takes money that rightfully belongs to shareholders and instead invest it in

improving the customer experience.

That's meant to be a criticism. Okay,

that's not what they're supposed to do.

So why can they resist? Because they

have the tools they need to fight back.

Their board sees its responsibility as a bull work against pressure rather than as an amplifier of financial gravity. So

that can sound very challenging and abstract and now we're talking about board level stuff, IPOs. People a lot of people are like, I don't have the power for that. Okay, that's okay. We can

for that. Okay, that's okay. We can

start with something very simple. We

started with purpose and ethos. We can

start with purpose here too. I mentioned

before that most founders have never read their own corporate charter, which if you're if you're a founder and you're listening to this and you've never read your own corporate charter, you have a company that is operating, it is your homework. You have to do this.

You have to know what it says. This is

so common that the HBO show Silicon Valley makes a joke about it where one of the found one of the investors is like upgrading the founder to be like you don't know how your own effing company works because he loses control of it in so like they did their

homework. This really does happen. But

homework. This really does happen. But

if you do read your charter, you probably will be more confused than you are now because you will read a sentence like this. It will say the Acme

like this. It will say the Acme Corporation is hereby incorporated to pursue any lawful act or activity.

And you read that and you're like, "That sounds pretty open-ended." Wrong.

It sounds open-ended, but it's not.

Unfortunately, we live in the era of what's called shareholder primacy.

Meaning that according to this theory, which is the governing theory of our lives that we live under this law today, right now, this says that an organization is not a vital living

thing. Rather, it is a financial

thing. Rather, it is a financial instrument designed to enrich shareholders and nothing else. And

therefore, any lawful act or activity today means maximize shareholder returns under the law.

People have been raised, now we're old enough, this idea is old enough that we now have a generation of people who have been raised as if this was a natural law. This is how capitalism has always

law. This is how capitalism has always been. But that's wrong.

been. But that's wrong.

For the vast majority of the time, for hundreds of years, we have had joint stock corporations. Only the last 40

stock corporations. Only the last 40 have we had this idea. Before the 80s, it was considered obvious. Our

grandparents thought it was obvious. Our

great-grandparents thought it was obvious. Like Adam Smith thought it was

obvious. Like Adam Smith thought it was obvious. Everyone before thought it was

obvious. Everyone before thought it was obvious that corporations existed to pursue a specific thing, what's called a beneficial purpose in the law. So in the 19th century, for example, if you wanted

to make a company, you had to make a declaration to your state legislature that this thing you wanted to make would do something that is publicly beneficial. You'd be like, I want to

beneficial. You'd be like, I want to make a railroad. They'd be like, why?

Right? And you had to say it would be beneficial to the public to have a canal between this place and that place. And

just to get a sense of how different our best practices are than the historical norms in the 19th century, if say you were the richest person in America and you're like, I want to buy this company and change what it does because I can.

First of all, the board would be authorized to fight you to the death.

They didn't have to say yes. They would

do crazy stuff in the night. These

battles were legendary. Some of them are hilarious what would go on between these people. But the second thing, let's say

people. But the second thing, let's say you succeeded anyway. You took the company over and you said, "I'm going to change its purpose from make a railroad to maximize shareholder value." That

would have been a crime.

The courts would void your charter. You

would earn the corporate death penalty for having exceeded the authority of your corporation. So, this is a new idea

your corporation. So, this is a new idea that we live under. We think it's natural, but it's very new. So, if you don't want that, like that's what and that's what doomed Vector and all these

companies. If you don't want that, you

companies. If you don't want that, you can change it. The good news for you listening right now in the year 2026 is that a band of corporate governance rebels have spent the last like 15 or 20 years fighting this and building

alternative structures that are available to you. One of them is called the public benefit corporation or PBC. A

lot of confusion about this out there because people have seen the little B with a circle on it at their farmers market. It's not that. It's confusing

market. It's not that. It's confusing

because the same people invented that who also invented this and the word B, the letter B is in both. So, I get it's confusing, but no, public benefit court is the easiest thing I will tell you to

do on this whole podcast. Could not be easier. It is a two-page legal filing

easier. It is a two-page legal filing that you just sub your lawyers can submit it for you in Delaware tomorrow.

You just say, "This is the purpose of this company, not any lawful act or purpose." Instead, no, this is a company

purpose." Instead, no, this is a company designed to advance human flourishing by creating safe and responsible AI systems. We advance human flourishing by creating high quality products and selling them. Whatever Whatever you do,

selling them. Whatever Whatever you do, just write it down. It's couldn't it couldn't be any easier. And most of the best companies today are using this structure. Like all the major AI labs

structure. Like all the major AI labs are incorporated as BBC's. Anthropic

most famously of all. It doesn't

guarantee that you're the good guys.

Okay? Just writing it down doesn't do that much. But it does solve one very

that much. But it does solve one very specific problem, which is if someone one day sues you saying you breached your fiduciary duty to investors, you could say, "Nope, investors agreed that this is our purpose to do this thing.

Why has Anthropic been able to resist all this pressure? This is one of several of the interlocking components of the armor that protects anthropic from the from outside pressure. If you

don't do this, I can't help you, man.

This is like the very minimum. You got

to do at least this. Now, if you're not at the founder, you probably are wondering, have we done this at my company?

This is going to sound so dumb, I know, but you can just ask.

Okay? Even if you're in a job interview.

I remember someone once came to me and asked me for advice. They wanted to advocate for these ideas, but they were like, I need a job. I don't even work anywhere yet. And they were like caveat.

anywhere yet. And they were like caveat.

I was about to give them some advice and before you give me your advice, you need to know that I'm not courageous.

Okay. So, like I can't do anything scary. I'm not willing to be an

scary. I'm not willing to be an activist. Like I just need a job, man.

activist. Like I just need a job, man.

But I am willing to do something. But I

felt like they'd asked me for a no bake cookie recipe, you know? I was like a no courage. What can I do? And I was like,

courage. What can I do? And I was like, okay. And you can do this if you're in a

okay. And you can do this if you're in a job interview or just ask your boss.

Either way. that at the end of your interview, we're going to ask you, do you have any other questions? You can

say, "Is this a mission-driven company?"

They're going to say, "Yes."

Okay, fine. How do you know? Like, like,

"What kind of things do we do that's mission driven?" They be, "Oh, we have

mission driven?" They be, "Oh, we have free beer on Fridays and we we clean up the local park on Saturdays." I don't know what they're going to say. Maybe

something great. Maybe something

whatever they say, just just nod and be like, "Great." And just ask, "Cool. Is

like, "Great." And just ask, "Cool. Is

that the legal mission?" Also, is that in the charter?

Almost certainly the person you're asking this question to is not going to know the answer to your question. But

it's a legitimate question because if you're working at a company that doesn't have this in the charter, you're going to be betrayed eventually. You deserve

to know. But more importantly, just by asking, you've now forced them to get the answer. Like you, you know, I mean,

the answer. Like you, you know, I mean, you've been in part of of hiring processes. Every hiring process at a

processes. Every hiring process at a well-run company, it's somebody's job to make sure every question a candidate might ask, there's a like frequently asked questions document with the answer. So, she's going to have to ask

answer. So, she's going to have to ask her boss, who's going to have to ask out her boss and her boss, like I've been in boardrooms where this kind of thing comes up where someone's like, "We're getting this really irritating question

from candidates and we don't know how to answer it." Now, maybe just by asking,

answer it." Now, maybe just by asking, the CEO also listens to Lenny because everyone listens to Lenny. The CEO's

also been thinking about doing it too.

But he was like, I don't know if I have the support of the board. I'm not really that courageous to bring it up. Now

you've created an excuse. A we got to do it because I mean it's the thing that everyone's doing it. Employees are even starting to ask about it. Like if you read these postmortems of some of these like crazy things that are going on in

the AI wars, a surprising percentage of the motivation of leadership is like we want to keep our employees happy.

So be an be an unhappy employee who wants to know what's our mission. Is it

the real is it the real thing? So, of

course, that's not the only thing you can do, but that is the beginning, the easiest one on the integrity side. And

again, a company that hasn't done it is very much at risk of eventually being betrayed.

Are there any downsides to filing this charter?

No, this is the one thing that has no tra tr truly no trade-offs at all.

Okay. Okay. Um, I mean, maybe you'll meet an investor who's like suspicious about or doesn't like it. But again, the only situation this would ever become relevant is if the investor is trying to force you to sell the company and you

don't want to. So like you could just tell them, are you telling me that in that situation you believe you should get to decide instead of me? Just can is that what you're saying? And then you can ask yourself, is this really the

right partner for you? Someone who would say yes to that. Like what are we doing here? All these VCs are like, I'm

here? All these VCs are like, I'm founder friendly. I believe in your

founder friendly. I believe in your vision. Do you do you or like what is

vision. Do you do you or like what is what's going on here? So that's really important. Uh the other downside the

important. Uh the other downside the main downside of almost every technique in this book is that people will waste your time trying to talk you out of it.

Okay, that's really like you have to be ready for that. The book actually has a whole section called how to talk to your investors and a whole separate section about how to talk to your lawyers. Like

detailed exactly what to say, what are the questions you're likely to get because in the years I've been I work in the book for years. I have been writing down all the objections I've heard from all the companies I've helped. I always

tell me if someone objects please call me and tell me what they said. I just

wrote them all down so I all the answers are there. But if you talk to your

are there. But if you talk to your lawyers, they'll say something like,"Well, you know, you might want to just keep your options open. You don't

want to prematurely commit to your purpose." And if I hear that, I'm like,

purpose." And if I hear that, I'm like, "Really? Keep my options open? That's

"Really? Keep my options open? That's

how you get maximum value. What about

the option to convert my customers into soilent green and eat them?

Do I have to keep that option open?"

Lawyer, you ask your lawyers this question. They will say something like,

question. They will say something like, "You never know what you might need to do." And then we're like, "Why does

do." And then we're like, "Why does nobody trust me?" Well, cuz you won't even take that off the table. Come on,

man. No. This one has no downside.

Absolutely. Absolute no-brainer. This

sounds like a a great single takeaway.

If there's anything you take away from this conversation, you should do this.

The fact that Anthropic did this is such a huge deal because I think a criticism of all of this that people probably hear is this is going to limit our growth.

It's going to hurt our potential. You

know what I mean? like touchyfey

business like we're trying to like capitalism has worked in creating a lot of very successful companies and value and innovation.

Capitalism has worked in many ways. Uh

why would we need to do this? And

anthropic being the fastest growing company of all time just like absurd breaking all records is uh public benefits corporation should make you feel okay about doing this.

Oh yeah. Enthropic has helped so much because they do many of the things in the book including this uh what they have we can talk about the long-term benefit trust. They have that two-tiered

benefit trust. They have that two-tiered governance structure that we were talking about before. But like it's so funny even now even with Anthropic having such success people still say stuff like this like oh I'm worried that I'm not going to be able to raise money.

I'm like anthropic's been able to raise some money. That has not been an

some money. That has not been an obstacle. In fact if you ask people why

obstacle. In fact if you ask people why is Anthropic winning? They will often cite some surface characteristic like Enthropic Frey famously has lower inference costs than their competitors.

The you know they have faster product velocity than their competitors. They

have um you know what what do I hear?

Sometimes they say that they they have more focus better focus than their competitors. Those are the most common

competitors. Those are the most common ones I hear. And for each of those if you say well why you're like well they have lower infra cost. They have better technical infrastructure. Why? Well

technical infrastructure. Why? Well

because they had some kind of internal breakthrough. Why? If if you keep asking

breakthrough. Why? If if you keep asking why eventually like well because they have the best talent. Why? Because

people want to work there. Why? And you

read because people people like very much want to work. They want to work for the good guys. They think this is these people. They have the the mission to

people. They have the the mission to save the world. Why do they have that mission? Because that was the ethos. But

mission? Because that was the ethos. But

why have they been able to protect it?

Because they paired the ethos with the integrity. This is at the heart of

integrity. This is at the heart of almost every like breakthrough success story you've ever heard. you will find this lurking there as the as the thing that gave them the competitive advantage to drive that differentiation.

It's funny you say that. So I just had cat the head of product on clock code and I asked her just how are you able to ship so fast? They're shipping a massive product or feature every week essentially. They were going through a

essentially. They were going through a period of every day and a big part of her answer was exactly what you're describing which is we are so missional aligned. It is so easy for us to decide

aligned. It is so easy for us to decide this is something we will do or not.

That is the thing. Remember how we talked about how people say business is hard? Most people have never worked in a

hard? Most people have never worked in a mission aligned company. It is the organizational equivalent of being in the flow state as an individual person.

It's a great feeling and it it just makes everything easier. Like you don't like you don't have to have meetings about stuff. You don't have mission

about stuff. You don't have mission misalignment. Like in most organizations

misalignment. Like in most organizations you have people who I call the torchbearers which are like the rare person in an organization who's simply committed to doing the right thing no matter what.

Steve Jobs very famously would host have skip level meetings. He wanted to meet not with his his direct subordinates. He

didn't care. He wanted to meet with the torchbears throughout the organization.

He those are the people that are going to drive us forward. And and if you're a torchbearer, you're just like think about like the designer who simply won't ship slop no matter what. The engineer

who will like not sacrifice quality or performance, right? That they just you

performance, right? That they just you meet these people every once in a while, product manager who just they are prioritizing the right things even if people complain. In a traditional

people complain. In a traditional company, if you have that job, if people listening, if you've ever had this job, man, life sucks. Every freaking day, someone's in your office with a spreadsheet being like, "But what is the

ROI of doing the right thing?" And

you're just like, "I don't know. It's

just the right thing."

In a mission aligned company, this doesn't happen two different way.

There's two different like antibodies that protect against this. First of all, since everyone's mission align, no one's bothering to make the spreadsheet.

There's no need. The late great Clay Christensen once said that it's easier to do the right thing 100% of the time than 98% of the time. Just like because now you don't have to have a meeting about it. We just you don't have like at

about it. We just you don't have like at an like oh I came up with this crazy unsafe thing that will make us an extra dollar. We don't have to have a meeting

dollar. We don't have to have a meeting about it. I already can tell you we're

about it. I already can tell you we're not going to do it. We already know. So

it's just incredibly you know everyone's incredibly aligned. But the second thing

incredibly aligned. But the second thing that I think is less appreciated is a practice I call the culture bank, which is when you start to see

trustworthiness as an asset, you start to realize that certain actions build that asset and others take it away. So,

let me teach you a rule I learned from from one of the one of my favorite founders, Todd Park. He created Devoted Health, the health insurance company I was mentioning before. Um, but but he learned it from Howard Schultz, who built Starbucks. Like if you see in

built Starbucks. Like if you see in strong culture companies you always see this pattern where you've taught people that whenever you do the right thing that is you do something in defense of the company's values that has a

sacrifice to it saying the values enchanting them you know making a song out of them that's not it but if you do something you know I tell a story about this grocery store in Texas called HB

where there was a the power went out there was an ice storm and the manager let all the customers just take their groceries home no charge because the point of sale system wasn't People say, "Oh, what a what a courageous manager."

No, that's what they train people in at HB that you're making a deposit in the culture bank when you do the right thing. So deposits, you make a

thing. So deposits, you make a sacrifice. A withdrawal is the opposite.

sacrifice. A withdrawal is the opposite.

You do something greedy, self-interested for the organization. The Todd Park rule, as I call it, everyone who hears this rule, the first time they hear it tells me it's impossible and you can't do it. It doesn't make sense. But this

do it. It doesn't make sense. But this

is the rule is really simple.

only make deposits.

Never make withdrawals.

That's it. Because you're going to make withdrawals by accident sometimes because you're gonna make mistakes, but you never intentionally make a withdrawal. And that I think is the true

withdrawal. And that I think is the true power. Like when you hear someone who's

power. Like when you hear someone who's living that flow like cat you were talking about anthropic that has been internalized in the organization. Uh

it's what what the pioneering management theorist Mary Parker followed the invisible leader. the person, the thing

invisible leader. the person, the thing that people follow. Even when no manager is present, so no one has to be in the room to remind you to do it, you just do it because you've internalized that this is what we're all about. And when

everyone around you is doing that same thing, the whole velocity of the whole organization increases exponentially. I

want to hear the uh kind of the OpenAI versus anthropic story because uh you've mentioned a part of the structural pieces this nonprofit. So talk about just like what happened there and how that relates to what you talk about

versus anthropic and then I actually want to hear a little bit about just actual structure like what is this two-tier thing? What's the nonprofit

two-tier thing? What's the nonprofit piece? OpenAI is a really hard case

piece? OpenAI is a really hard case study to learn from because it's such a bizarre story and has involves like mega personalities like Elon and Sam like dueling to the death. So it's

complicated. Um but we can get into it if you want. But I entered the story.

The funny part is like I have this very I played a very big role in all this.

Okay? So I'm not an important actor in this story at all. I take no credit for anthropic success. All the credit to

anthropic success. All the credit to Daario and Daniellea and the whole team.

Uh but when they left OpenAI, this is two or three OpenAI crises ago, depending on how you count. They left

and they wanted to start Anthropic. Now

today, people are like, "Oh, sure it works for Anthropic. They're a

worldbeating company." But like Dario was a first-time founder. I was there, okay? He was impressive, but like in the

okay? He was impressive, but like in the way that a technical founder for the first time is impressive, you know? And

he had investors who were excited to back him, but they were like effective altruism like true believers. wasn't the

top venture fund. None of the top venture funds wanted to participate in this round. It wasn't a hot company at

this round. It wasn't a hot company at all by modern standards. And Generative

AI, the boom, hadn't happened yet. Chad

GPT hadn't been invented yet. So the

mass psycho this mass psychosis we're all living through had not occurred yet.

Nonetheless, they were true believers in this safety mission. And so one of their investors suggested they come talk to me.

I was like um everyone knew I was like an eccentric collector of weird ideas, you know, like some people collect butterfly wings or whatever. I collected

alternative governance ideas. So when

they came to me, I I was walking them through the same horror story I'm telling you today. I told them, look, if you don't get this right, here's what's going to happen. And they were very determined to do something about it. And

so we talked about what we should do.

And I and I advise a again a very little bit. I don't I don't take the credit for

bit. I don't I don't take the credit for what happened next, but they wrote into their charter that they were going to do this. They were a PPC from the very

this. They were a PPC from the very beginning and they wrote into their charter that they had the right to enact these additional reforms which they had to defend all credit to them for taking it seriously for convincing their

investors and they had to defend it for like two years because they didn't actually implement what's called now the long-term benefit trust until their series C. But they had the right and the

series C. But they had the right and the intention to do it in all their legal documents from inception. That was a really important uh important choice.

And so even today, Anthropic has directors on its for-profit board who are appointed by and are accountable to an outside group of trustees who are AI safety experts who do not have equity in

Anthropic. So they do not have a

Anthropic. So they do not have a financial incentive in its growth, they have an incentive to see it done properly. So whenever you see Anthropic

properly. So whenever you see Anthropic do the right thing, like when they refuse to release a model because they think it's too dangerous, think about how much that's costing them. People

say, "Well, they do it for the publicity." But like publicity is nice,

publicity." But like publicity is nice, but you know what would be really nice is having the number one top model that everyone has to pay you to use. Okay,

that's really nice. They people say that like they got into this fight with the Pentagon. And to be clear, I don't think

Pentagon. And to be clear, I don't think that they're even the primary actor in that story. Okay, this is a story of

that story. Okay, this is a story of government overreach. They were an

government overreach. They were an impossible situation. Even people who

impossible situation. Even people who say they did the wrong thing, when you're in an impossible situation, what are you going to do? It's the Kobashi Maru. Like, what are you going to do?

Maru. Like, what are you going to do?

You're in an impossible situation.

There's no right answer. But like even people who think they did the wrong thing, like tactically speaking, admire them because we live in a time when it's so rare for companies to turn down money ever. And here they turned down, say

ever. And here they turned down, say what you want about them, but they turned down a $200 million contract and bore the wrath of the world's largest army and government. Okay, that took a

lot of courage. Part of that courage is enabled by the fact that they have this structure and investors can't just oust Daario on a moment's notice. I think the structure frankly is better than founder control. Daio does not have dual class

control. Daio does not have dual class shares the way that Mark Zuckerberg or or Larry and Sergey had. Um it's more institutional in its nature. But to kind of answer your question, the critical

thing we need if we're going to really resist outside pressure, we need what I call a mission guardian. It has to be somebody or some entity's job to make sure that the thing remains mission

locked or mission aligned. That does not happen by accident because gravity is such a powerful force. So Anthropic's

solution to that is to have a mission guardian in the form of the long-term benefit trust. Um OpenAI very famously

benefit trust. Um OpenAI very famously had the nonprofit foundation although now they've converted to a public benefit corp structure. Obviously Google

and and Facebook are protected by founder control. The founder is the

founder control. The founder is the mission guardian. Those are the

mission guardian. Those are the structures and I I tell the story in the book a very weird experience I had. I

was literally at the Vatican of all places. I mean look at me. What am I

places. I mean look at me. What am I doing at the Vatican? No. But it was cool. Vag had convened a conference on

cool. Vag had convened a conference on AI governance and they invited me to speak. So I was on this panel at the Vatican with every other AI company and me. It was weird.

It was actually strange. It was like me literally me. I go down. I was looking

literally me. I go down. I was looking down the row. Me, Anthropic, OpenAI, Google Coher uh Palanteer everyone on this found this panel together. And I

looked down the panel and I realized not a single one of these companies has standard governance. That's how bad it

standard governance. That's how bad it is. Nobody making this technology would

is. Nobody making this technology would say, "Oh, yeah, standard governance.

That's fine. I'm sure that it's just too dangerous.

But they of course take different approaches to mission guardianship. Some

of which are better, some of worse. Like

founder control, I think actually has a lot of downsides to it. So, and when you say standard govern, like every one of these AI companies is not doing it the way every other startup is doing. They

understood they needed to do something different to protect humanity essentially from AI. Okay.

Yeah. Yeah. Exactly. Because otherwise,

it's just this technology is so valuable. If you say that shareholders

valuable. If you say that shareholders should run it, then you're saying literally whoever can borrow the most money should be able to control this technology, it's just that's nuts. That

can't be how that can't be how it works.

No way. I don't think any company should be governed that way, but certainly not AI companies. Certainly not. Okay. So,

AI companies. Certainly not. Okay. So,

just just to kind of plant these things in people's heads as they Okay, we need to really think about this stuff.

There's like this uh there's a nonprofit approach to this. There's what are the kind of the terms that people should just think about? So, so we talked about we need a mission guardian. So, first

question is the mission guardian a person or a thing. That's our kind of first decision point. So, yeah, some I I think for for early stage companies, founder control is fine as like a good bridge, a temporary bridge to a more

permanent structure. And some companies

permanent structure. And some companies get really far with founder control.

That's okay. But a lot of founders who have founder control wind up really miserable as you can see by the fact they're having a mental health breakdown right in front of us, all of us on on social media basically every day because like you become like Atlas. You can't

even shrug.

It's you holding back the abyss. It's a

lot. So I think a better, more permanent solution is to encode the protection into the structure. Now that can be done with a single entity like Costco. Costco

just has the rules written right into the structure itself. But that means that um every time they lose one of the structures, every once in a while want an attack chips off a little bit of it.

They don't have any way to grow them back. So it's like you've built this

back. So it's like you've built this fortress but you don't have a way to renew it. The better way I think

renew it. The better way I think according to the evidence is to have some stakeholder somebody be the steward of the mission and have a way to renew

that person that that set of people. So

some people accomplish that by what's called an employee ownership trust. So

the employees of the mission guardians um like the John Lewis partnership in the UK is a famous example. Obviously

cooperatives have this um like this can work in a cooperative at scale. Mandreon

for example in Spain has like 80,000 employees. It's a huge company, but

employees. It's a huge company, but they're all employee cooperatives. You

can do it through an employee voting trust. That's how Alibaba is protected

trust. That's how Alibaba is protected where the employees vote for the board members rather than the reverse. But

those are complicated compared to to me the two simplest solutions are either a nonprofit foundation as in the Nova Nordisk example or in the case of what's called

the perpetual purpose trust or PPT. And

perpetual purpose trust is a non-economic entity. So whereas like the

non-economic entity. So whereas like the Nova Nordisk Foundation is the largest charitable foundation in the world because it owns it owns a big chunk of Nova Nordisk and that's worked out pretty well. Um the anthropic long-term

pretty well. Um the anthropic long-term benefit trust is has no economic dimension to it at all. It only has the mission oversight responsibility. And

what's nice about a perpetual purpose trust um as in the case of Patagonia is governed with a a purpose trust also is you you have the trustees but then you also have someone whose job is is actually to sue the trustees if they

ever deviate from the mission. So you

actually what's called the purpose protector is like an extra person who can get in there and say like if things go wrong. So you have kind of to me it's

go wrong. So you have kind of to me it's like you have checks and balances like in a government. Um it's more stable uh it's a more stable structure. To me

though I use the omnibus term spiritual holding company to describe this category of things because I said before we have a lot of infighting. The people

who advocate for each of these things thinks their version is the best. And I

didn't even mention the evergreen the tugboat foundation. They don't believe

tugboat foundation. They don't believe in having investors at all.

So there's people who think the solution to this is no investors involved. That

makes the problem a lot easier. So

anyway, there's a lot of different ways this can be done. I don't think I even mentioned ESOPS. There just so many. So

mentioned ESOPS. There just so many. So

we need to have an omnibus term. I call

it the spiritual holding company. The

holding company like the Bergkshire Hathaway, but rather than having everything be wholly owned. It's the

holding company for the spirit, the animating essence of the whole. And I

has a lot of evidence in the book, a lot that this structure is more stable, more durable, more likely to invest in quality in R&D and the things we really care about and better for shareholders

than the conventional structure.

If this all sounds like a huge drag and a lot of work and really annoying, I'd say go back an hour when we talked a lot about just what is it you were trying to avoid and the pain.

Yes, that's the thing. It's like, well, you know what's really a drag? I'll tell

you a story. The a friend of mine got ousted by his investors. Okay. And I was going to this party to celebrate him.

And it was like people had flown in from all over the country to celebrities he laid off came to this party. It must

have been a thousand people there. It

was amazing. And I was describing to a new founder like I'm sorry I can't help you with your company right now. I got

to go to this party. And he was like okay. I'm describing to him and he was

okay. I'm describing to him and he was just like wow what respect that founder sounds. That's just the kind of company

sounds. That's just the kind of company I want to create. I'm like, "Dude, you have not been listening to anything I'm saying. He doesn't work there anymore.

saying. He doesn't work there anymore.

He's like Saul Price. This is not a party. This is awake." He was like,

party. This is awake." He was like, "What? Did he die?" "No, man. He didn't

"What? Did he die?" "No, man. He didn't

die. Did the company go bankrupt?" "No,

the company's fine." That's not the problem. The new And he was like, "Do

problem. The new And he was like, "Do you is the new CEO an or something?" I was like, "No, I like the

something?" I was like, "No, I like the new CEO. He's a friend of mine also.

new CEO. He's a friend of mine also.

Perfectly fine. The problem is" He's like, "What's the problem? The problem

is if a company can be decapitated at any time, you can no longer trust it.

All the promises that this company had made over its 15year life, nobody believes them anymore. The new CEO is like going around making new promises, but we're like, an activist investor

owning.5% of the company can oust you at

owning.5% of the company can oust you at any time. Why should I believe anything

any time. Why should I believe anything you say? And then we're like, why is

you say? And then we're like, why is trust collapsing in our institutions across the board? We are teaching a leadership philosophy that is antirust, antirustworthy.

So yeah, if it sounds like if it sounds like this sounds like a bummer to have to worry about this stuff, you know what's really a bummer? Come to that party with me. That sucks.

And that's a founder who made literally billions of dollars for his investors, but it wasn't enough. It's never enough.

and hearing hearing these from you is so is important and powerful because you you see so many founders like I don't there's few people in the world that see the number of founders meet with the number of founders work with as many

startups as you and like this is not an easy place you're in trying to convince people to do these very annoying things it's very annoying I know I do agree and so it just says a lot that you're putting yourself out there this much for

you guys pay attention this is even though it feels weird now the ideas this should not this should be our grandkids will think this is the was the most obvious thing they've ever heard about. So yeah, you can you can

heard about. So yeah, you can you can get you can get ahead of it now. You

know, people when I first started talking about lean startup, people thought it was so weird.

As weird as you think this is, people thought lean startup was a lot weirder.

So like I've been through this before.

And when I when I write, I don't write very many books, okay? I'm not like an influencer. I don't I don't tweet every

influencer. I don't I don't tweet every 30 minutes. Like I'm not that kind of

30 minutes. Like I'm not that kind of person. It takes me years to put these

person. It takes me years to put these things together. And I only do it when I

things together. And I only do it when I have figured something out that like I have personally lived myself and found useful in my own work and I've helped lots of other people do it. So it takes

me a long time because I it takes a lot of experimentation, a lot of testing.

Like this is the work of hundreds and hundreds of companies who have who I have worked had a chance to work with and seen what works and what doesn't work. So the pain that I'm describing to

work. So the pain that I'm describing to you is like this is not some hypothetical thing. I'm not I'm not

hypothetical thing. I'm not I'm not trying to trick you into something. I

have nothing to sell you. This is just what the data shows can prevent this like epidemic of value destruction that we're seeing all over our economy.

So maybe it's just a final uh tactic say an early stage founder is listening to this and like oh I got to really do some here. What are say three things

some here. What are say three things they should do in the next week or two?

Okay, here just let's just let's just do the really easiest things. First of all, if you haven't raised money yet or you've only done raised money on safes,

okay? You can do absolutely whatever you

okay? You can do absolutely whatever you want. So, do not waste this moment.

want. So, do not waste this moment.

Everyone's in such a rush to get big, such a rush for the next thing, but you have a precious, precious moment here.

The founders who have already raised their series A or they're in preip like the founders that you envy, they're ahead of you. It's more of a pain for them. They got to go get investors on

them. They got to go get investors on board. They got to go, they they need to

board. They got to go, they they need to do it. Okay, I told you the next best

do it. Okay, I told you the next best time to plant a tree is today. Okay, so

they still have to do it, but you have an incredible privilege.

Just please, please, please do because here are the basic things I think are really easy to do that are super low cost. Um, be a public benefit corp. Do

cost. Um, be a public benefit corp. Do

the file, but that's so easy. And write

a mission there that is something you really will feel good about. And the way the test for if you wrote the right thing is try to brainstorm with your co-founder, not for like you don't need to spend like 10 weeks on this, like spend an hour and just adversarial

prompting. Okay? Can you think of any

prompting. Okay? Can you think of any way you could make money while violating this statement? And if you can, would

this statement? And if you can, would you be happy or sad in that scenario? If

you'd be sad, write it. Write it into the thing. Don't let your don't ever be

the thing. Don't let your don't ever be a situation where you're rich and miserable. Write it down. Okay, easy.

miserable. Write it down. Okay, easy.

Second thing that's super easy. We

didn't get a chance to talk about I call it the director's oath. This came up obviously because there's this big fight going on between uh Anthropic and Figma and and a reporter just just got reported um you know reported on the

idea because it was like what what are our responsibilities in these weird situations? It's actually really tricky.

situations? It's actually really tricky.

Every company's calling me being like is it are you saying I can't have an AI person on my board because having an AI person on my board seems really dangerous. But I was like you know

dangerous. But I was like you know what's really dangerous? Not having an AI person on your board. So yeah like everyone's kind of stuck. What do we do?

It's impossible situation. We need to have like just like we have doctors have a hypocratic oath first do no harm. Why

don't we have that for directors? It's

insane to me. Directors control like have far more make far more consequential decisions than nurses. So

why do we hold nurses to a higher standard than directors? No. So you we can wait for us to standardize on an oath for everybody, but you could implement one right now. You could just write it into your corporate charter.

Everyone has to do this. It's a

precondition of being on the board. And

then the third thing is I'm going to presume again for founders, we'll talk about non-founders in a second, but for founders, I'm going to presume you've already got what are called founders preferred shares. If you don't know what

preferred shares. If you don't know what that is, you need to ask an LLM to explain it to you. And just say, Eric said founders preferred shares could potentially make me like personally an

extra billion dollars someday. So, can

you explain to me why? Type that prompt and read what it says. You need to understand the economics of what are called founders preferring. So, I'm

going to assume that you understand that and you've already done it. If you

haven't, that don't that doesn't count on my bill of extra things you needed to do because you needed to do that anyway for personal reasons. But if you have that, then that's the logical place to

do things like founder control, extra votes, board votes for board control, stuff like that. So, so talk to your lawyer about um about what are called mission protected provisions. If your

lawyer is kind of being a drag or you don't like having to pay them by the hour, I actually helped start a law firm just because this drives me crazy. So,

there's a law firm called Virgil.

They'll be happy to help you and they don't charge you by the hour. Um, this

is not the main thing that they do. They

mostly do AI assisted back office acceleration, which is also very cool.

But anyway, you make sure you have somebody you can talk to about it. Okay?

And then after you figured out which of those things you want to do, then put yourself, imagine yourself in the seat of an investor saying, "It sounds like you're a greedy sob. You're all this power for yourself. You're like a power-

hungry emperor. Why do you want to be

hungry emperor. Why do you want to be emperor for life?" So, you don't want to be emperor for life. Right now, we kind of have this dichotomy between what I call investor controlled companies and founder controlled companies. And

everyone's like, "You got to pick one or the other." But neither alternative is

the other." But neither alternative is very good. What we want to create are

very good. What we want to create are what I call mission controlled companies. So a mission controlled

companies. So a mission controlled company is one where the mission itself has sovereignty.

And so if you're feeling a little greedy about grabbing all this power for yourself, that's the time to do something like the anthropic LTBT. It's

very easy to implement in the early stages because you don't need a nonprofit. Like let's say you don't want

nonprofit. Like let's say you don't want to be Nova Nordisk. You don't actually have to boot up the nonprofit right now.

All you have to do is write it into the charter the way Anthropic did. Just say

10% of the equity is hereby pledged to a nonprofit foundation and 1% of future revenue. the foundation gets a board

revenue. the foundation gets a board seat or whatever you want to say. Like

those things are really easy. Just write

them into your charter, fire and forget and then boot it up later, but make sure you have the right to do it now. Those

are the bare minimum easiest things in the book to do. Um a total piece of cake.

It's interesting how so much of this is similar to not similar but uh to AGI alignment, finding a way to align AI, finding a way to align your your business.

It's not a coincidence. Okay, there's a deep philosophical reason why this comes up.

I'll give you the simple version and then we'll do the complicated version.

The simple version is who aligns the aligners.

This is the number one unsolved problem in AI. It's not the tech. We're making

in AI. It's not the tech. We're making

great progress on the technical alignment problem. But we haven't made

alignment problem. But we haven't made jack progress on the human alignment problem which is that we've known since the development of Conway's laws Conway's law decades ago that software

products the organizational imprint of the humans who make the software shows up in the technical architecture of the software like it's really weird actually we don't think about it that much but like the org chart is visible in the

architecture diagram why because human values flow from the parent to the child so that's one reason we have to make sure that that that If you're trying to solve the alignment problem, but you can't agree on what the human values are

to align to, you're already cooked. But

the deeper and more interesting problem, I don't know, I don't know if your listeners will be familiar with this or not. There's this concept in the

not. There's this concept in the scientific literature called emergent intelligence. And I write about it in

intelligence. And I write about it in the book because corporations, organizations are the oldest form of artificial intelligence on the planet.

They are an example of this emergent intelligence. The same scientific

intelligence. The same scientific principle that makes the transformer architecture work. and appear

architecture work. and appear intelligent. That same principle is at

intelligent. That same principle is at work in organizations. Organizations are

literally super organisms. They are alive in the same way that these models are emergent intelligences. And if you don't know what this is, it can sound very metaphysical and weird and spooky.

So if you want a physical demonstration, I promise no metaphysics required. One

of my favorite demonstrations of emergent intelligence, I don't know, maybe Lenny, maybe you can link the video. Um I have it in the book, too.

video. Um I have it in the book, too.

There's a video where researchers created this thing they called the piano movers puzzle. You remember that famous

movers puzzle. You remember that famous clip that I don't know if you know the meme of friends where they're trying to get the couch down the stairwell and he's like pivot pivot pivot. People send

it to me all the time for obvious reasons.

Um they created a version of that puzzle that they had ants solve. So visualize

there's like two slits, two walls with a gap in each wall and a big Ibeam shaped irregular object. And if you watch a

irregular object. And if you watch a human solve the puzzle, it goes like this. They like try one thing. They

this. They like try one thing. They

think about it, they rearrange you. You

go back, you back. You know, you've ever got to do a puzzle like that. You can

just tell watching the video that an intelligent person is trying to solve this puzzle because they try logical things that don't work and then they learn. If you give one ant this puzzle,

learn. If you give one ant this puzzle, he cannot solve it obviously. But put a thousand ants in there and they can solve the puzzle. And if you watch the

video of the ant colony solving this puzzle, you will swear you can see an intelligence at work because it does just like a human. It tries something,

it pauses to consider, it re reorients, tries something different. It's spooky.

And the researchers found this is what we have to understand for humans. The

more ants you put in the puzzle, the faster the solution.

But the more humans you add, the worse.

Unless the humans are very carefully aligned, this is the key lesson for organizational design. We are birthing

organizational design. We are birthing these things left and right. And if we don't tend to them properly, they develop emergent characteristics that we don't like. We don't want that to be

don't like. We don't want that to be like that. And no amount of founder mode

like that. And no amount of founder mode is going to clean that up because you're talking about something that's deep in the in the DNA of the thing you made.

Beware. What I'm hearing here is we should be hiring more ants for our organizations.

Um, Eric, we've given people a lot to think about. I think there's a lot of just

about. I think there's a lot of just like, "Oh, wow. I should really think about this and take this seriously.

What's a final thought, final nugget, final lesson you want to leave listeners with before we get out of here?" Let's

talk about Mary Parker Flet. I mentioned

her in passing and I feel like, you know what? I bet a bunch of people have never

what? I bet a bunch of people have never heard of her. So, let me let me give you one more one more blast from the past.

Most people have heard of someone named Frederick Winsow Taylor. Fred Taylor is a good friend of mine. You know, one of the pioneering original management theorists. You know, he wrote the

theorists. You know, he wrote the principles of scientific management in 1911. And tailorism was one of the most

1911. And tailorism was one of the most popular management fads of all time. If

you think we have fads now, you should see Taylorism. It was like debated at

see Taylorism. It was like debated at the Supreme Court. It was front page news in the 19s. Taylor, they made movies about him. He was an incredibly famous person. But one of his

famous person. But one of his contemporaries was a woman, her name was Mary Parker Flet. and her work is so far ahead of its time that if you read it

today, you would think you were this person lived in 2026. She would write things like um we need to focus on power with not power over. She said the

superior and the subordinate together obey the law of the situation. Meaning

we work together to figure out what the situation requires. We don't just tell

situation requires. We don't just tell the subordinate what to do. She said the job of a leader, the the the hallmark of a leader is can they create more leaders. So like if someone said that to

leaders. So like if someone said that to you right now, you'd be like, "Oh, that's going on TikTok right the second." Like Twitter, that's awesome.

second." Like Twitter, that's awesome.

What podcast was that on? No, she wrote that in 1920. Um now, unfortunately, for reasons you probably can guess, she was utterly erased from history. Like her

work was utterly lost. Nobody studied it at all for most of the 20th century. And

then it was totally rediscovered and she and and was republished in the 1990s.

The great Peter Ducker called her the prophet of management. Okay, so one of her most important concepts is what she called the invisible leader. And I just love this. She just imagine someone a

love this. She just imagine someone a woman in 1920 going around saying this to people how it would blow their minds.

She would say, "Mr. Roundtree, the owner of the Roundtree Chocolate Factory, is not the leader of the Roundtree Chocolate Factory."

And people be like, "Lady, what are you talking about? His name is on the door.

talking about? His name is on the door.

His family has owned this thing. Like,

what? How? If he's not the leader, who is?" She'd be like, "Glad you asked."

is?" She'd be like, "Glad you asked."

Mr. Roundtree is an excellent leader because he's very good at instilling in his people the sense of common purpose of what this factory is about. And the

common purpose rather than Mr. Roundtree himself is their invisible leader. And

this is maybe the most powerful concept.

If you if you want to manage something like as a leader, you have to understand that the most consequential decisions that will affect any organization's life are almost by definition made when no

manager is present.

You think you made the decision when you told everybody, "We're going to build a high-quality product. Our vision is

high-quality product. Our vision is this. Our plan is this." But you're not

this. Our plan is this." But you're not there when the product managers and the designers and the engineers make the actual tradeoffs, right? somebody

sitting there with the code and being like rounded corners or straight corners, skuorphism or not. When person

clicks this button, do we double check?

Do we understand what they meant or do we just erase their hard drive? Right?

Like thousands upon thousands of these tiny little decisions get made. Only the

invisible leader is present. So if you don't cultivate that sense of common purpose, you have no control over what's going to happen. Again, your promises are worthless. So if you want found want

are worthless. So if you want found want a little homework, read Mary Parker, follow it. Uh she will she will

follow it. Uh she will she will enlighten you.

If any of this is at all interesting to you, if you want to explore this, if you want to implement it, buy Eric's book, Incorruptible, is there a website to look at or just Google and find it?

Yes. Yes, of course. You can find it anywhere books are sold. Um but yes, we do have a website, incorruptible.co.

Please join the mailing list. We have

tons of bonus content, especially for those who are impleers. We have

implementation guides and advanced implementation guides and readers guides. Lots of extra content, uh,

guides. Lots of extra content, uh, including a secret chapter that got cut from the original manuscript. Tried to

make it really worth your while to go to the website, pre-order, and sign up for the mailing list. Um, but you don't have to buy it from me. You can buy the book anywhere books are sold. It's in hard coverver. It's in uh audiobook and ebook

coverver. It's in uh audiobook and ebook if you want to. One of my favorite things about the website, we have a list of I more than hundred last time I counted of local independent bookstores that are carrying the book and where you

could order online. So, if you want to, not only could you do me a favor and buy a copy or 10 or 20 or however many you want and give them away, but if you'd like to make the day of your local independent bookstore, you want to

support a local community like a pillar of your community and be their favorite customer, you call them up and say, "I have this book coming out. I'd like a bunch of copies to give away. Can I get them on launch day?" You your friends

will thank you. The bookstore will thank you. And I will thank you.

you. And I will thank you.

A great pitch. Incorruptible. Why good

companies go bad and how great companies stay great. Eric Ree, thank you so much

stay great. Eric Ree, thank you so much for being here.

Hey, thank you, Lenny. Appreciate

Appreciate you giving the chance to to talk about it and congrats on all you're doing.

Thanks, Eric. Bye, everyone.

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