Eric Ries: Building Companies That Promote Prosperity With a Purpose | EP 39

Eric Ries created the Lean Startup Method — principles that mirror martial arts: don't overcommit, test first, adapt. We discuss why success breeds failure, how "financial gravity" corrupts organizations, why companies like Costco resist it, and how his new book Incorruptible offers a blueprint for institutions that last.

Social Links

https://www.linkedin.com/in/eries/

https://x.com/ericries

https://www.instagram.com/ericriesactual/

Newsletter: https://news.theleanstartup.com/

Podcast

https://www.youtube.com/@theericriesshow

https://www.ericriesshow.com/

New Book

Incorruptible: Why Good Companies Go Bad…and How Great Companies Stay Great

Amazon listing 

Website: incorruptible.co

Mention of Dave and Adopt-a-Pet.com in Lean Startup work

https://www.startuplessonslearned.com/2018/06/a-non-profit-lean-startup-story-of.html

The Lean Startup (book)

https://www.goodreads.com/book/show/10127019-the-lean-startup

The Leader's Guide (book)

https://www.goodreads.com/book/show/29974755-the-leader-s-guide

The Startup Way (book)

https://www.goodreads.com/book/show/34267304-the-startup-way

LTSE (Long-Term Stock Exchange)

https://ltse.com/

IMVU

https://secure.imvu.com/welcome/login/

The Lean Startup Company

https://theleanstartup.com/

Adoptapet.com

https://Adoptapet.com

Abbie Moore

https://www.petage.com/docupet-pet-registration-platform-welcomes-abbie-moore-as-chief-product-officer/

Cory Doctorow / "Enshittification" book

https://www.goodreads.com/en/book/show/222376640-enshittification

Tim O'Reilly 

https://en.wikipedia.org/wiki/Tim_O%27Reilly

Seth Goldman, Honest Tea

https://en.wikipedia.org/wiki/Seth_Goldman_(businessman)

Tony's Chocolonely

https://us.tonyschocolonely.com/

Mr. Beast

https://en.wikipedia.org/wiki/MrBeast

The Marshmallow Experiment

https://en.wikipedia.org/wiki/Stanford_marshmallow_experiment

Music “Disambiguation” by Robel Borja https://open.sp

This episode was directed and presented by Dave Meyer, editor & coproducer by Ryan Turner, producer & marketing Robbie Lockie, music kindly provided by Robel Borja.

Transcript

SPEAKER_01 0:00

The profit motive and the profit engine of capitalism is one of the great human inventions of all time. It's a way to harness people's natural self-interest to larger and more important goals. But what about pollution? What if I pollute a river down the road? And let's say I get away with it. Am I profitable? If it can't see deferred liabilities, if it can't see negative externalities, if it can't understand that a human being should not be an input factor of production, like what good is it? What do you really stand for? What are you trying to maximize beyond just shareholder value? My personal belief is to maximize human flourishing. Human beings coming into their full physical, emotional, and spiritual well-being. And that everything we do in a for-profit company should be making the world have more flourishing in it as we define it.

SPEAKER_00 0:45

Welcome to the Ageless Warrior Lab. I'm BJJ Coral Belt and Dirty Dozen member Dave Meyer, here to draw wisdom from Brazilian jiu-jitsu and the martial arts and explore how it applies to success in business, relationships, your long-term health, and making the most out of your life. What you're about to hear is a conversation with my good friend Eric Reese, creator of the Lean Startup Method and the author of New York Times bestseller's The Lean Startup, The Leader's Guide, and The Startup Way. Over the last two decades, Eric Reese's ideas about continuous innovation, long-term thinking, governance, and market reform have reshaped company building and management practices. As a founder himself, he put his own ideas into practice with the Long-Term Stock Exchange, that's LTSE, Answer.ai, an AIRD lab, the Lean Startup Company, which teaches and supports the implementation of Lean Startup, Virgil, a legal services startup, and IMVU, where the ideas that became the Lean Startup Method were originally forged. Eric has served as an entrepreneur in residence at Harvard Business School and IDO. And on his podcast, The Eric Reese Show, he talks to guests including world-class technologists, thought leaders, and executives working to build profitable companies for the long-term benefit of society. Now, Eric is very accomplished, but he's not an accomplished martial artist. So why did I want to bring him to the Ageless Warrior Lab? I'm glad you asked. Let me give you a little bit of background. I've talked on this podcast about how I co-created what became adoptapet.com, which was the world's largest nonprofit homeless pet adoption website. That was built slowly over many years, starting in around 2001, and we were just animal lovers figuring things out on our own. But in 2013, we entered into negotiations to sell the website to a for-profit pet-related tech company. We ended up not selling it, but I got to see how a real tech company operated a website. And I committed to no longer running a nonprofit that runs a good website, but being a tech company that happens to be a nonprofit and that runs a great website. My right-hand woman at the time, Abby Moore, started researching what makes tech companies great, and she read and recommended to me the book, The Lean Startup. Long story short, I read it, and Abby and I then met Eric Reese, founder of Lean Startup, and he advised us, and the rest is history. The website grew wildly, saving the lives of millions of animals, and my nonprofit ended up selling it in 2021 for many times more millions of dollars than it was worth back in 2013. In a nutshell, Lean Startup methodology aligns perfectly with fighting in martial arts, and that's why it spoke to me so much. The basic concept is instead of investing a lot of effort and money into something you build, a company or a program or whatever, and only after you've done all that, then learn if what you built works and if people actually want to use it. Lean Startup has you identify your leap of faith hypotheses that must be true for your program or company to be successful, and then has you find easy ways to test them and then build the smallest version of your product you can to get feedback from actual users. This is called an MVP, a minimum viable product. Then, as users engage with your MVP, you learn exactly how they're using it, and the learnings you get then guide you as you continue to build it. In this way, you don't waste a bunch of time and money building the wrong thing. And if you discover that you have made mistakes, you pivot and build whatever people actually want and need. And this is exactly what we do in martial arts. The analogy would be instead of putting all your energy into one attack and hoping it ends up working, you spend little amounts of energy to test approaches and learn and see how your opponent reacts, and you build your efforts around those reactions. And if you don't get what you want, you pivot, you adapt, and you find a new path of attack. These principles are useful in martial arts, useful in business, and useful in life. Eric has just written a new book called Incorruptible: Why Good Companies Go Bad and How Great Companies Stay Great. Many of you out there either run or plan to run companies or organizations, and what Eric has to say is super interesting and valuable, even if you're just a consumer. So sit back and enjoy a very interesting conversation with author and company founder Eric Reese. Eric, thank you so much for taking the time out of your busy day to come visit.

SPEAKER_01 5:42

It's always great to see you.

SPEAKER_00 5:44

Am I correct that you are not personally a martial artist?

SPEAKER_01 5:46

I did Aikido as a young man, but not seriously.

SPEAKER_00 5:49

That is okay. I'm not gonna let us go too far into that, but that is so interesting because I didn't know that. In my mind, it's like you are a very interesting person. The lean startup methodology was very helpful for me in the acceleration of my nonprofit. And I found all of these interesting synergies with martial arts stuff. And I just thought it would be interesting to talk to you, which is why I reached out. Just really quickly, though, since you mentioned Aikido, how long did you do that for? And what was your impression of that?

SPEAKER_01 6:14

It was a great experience for me. I did it for a few years in my 20s when I was first moved out to Silicon Valley and I was a young engineer with no, I had no cares or commitments in the world. I had a lot of free time. And being a computer programmer and a writer, like I was a very cerebral kid. I mostly have cerebral hobbies, and that was really the first like thing I had ever done for myself that had like a physical dimension and a mind-body dimension. That was actually even for me more important than the physical aspect of it at the time. But of course, my life became so busy and I kind of never was able to really pursue it with the commitment that I would have liked to, but just that short exposure to it, I always think of that very fondly.

SPEAKER_00 6:53

Well, that is interesting, and it's not surprising to me that would appeal to someone with your intellect. I can tell you right now, whatever you do, don't step onto a Brazilian Jiu Jitsu mat because you will become addicted. Because it's smart people really like it. And they really like it.

SPEAKER_01 7:07

I've noticed that. It seems like a real hazard.

SPEAKER_00 7:10

It is. And there's a chess game, and it is physical, though. It's definitely where Aikido is more on the extension of ki. And of course, I don't know if my listeners know, Aikido is a spin-off from jujitsu, from Japanese jujitsu, just like judo is, and Brazilian jujitsu is a modern incarnation spin-off also of jujitsu. So these are all Japanese-inspired cousin arts. Yeah, arguably even Chinese at their start.

SPEAKER_01 7:36

Yeah, depending on how fat how far back you want to go. Exactly.

SPEAKER_00 7:39

So we normally talk on this podcast about wisdom drawn from the martial arts, but in this case, I'm turning around a little bit because I drew a lot of wisdom from lean startup that was useful to me in martial arts. And I just gave a little intro as to what lean startup is. And we could talk about that a little if we want, because I'm a huge advocate of the principles that you uh outlined. And so much of it in terms of not overcommitting, understanding what your key assumptions are, and then testing them and the build-measure-learn cycle and being able to pivot. It is exactly what you're doing on the mat, it's exactly what you're doing in the ring, it's exactly analogous, which just suggests to me that these are sort of eternal truths that you stumbled onto and you've formed them into something that's very useful in business. And I would also say in project development and including like nonprofit projects. It's not just limited to building a business, building a project, really any endeavor. But I'm gonna set aside martial arts. I want to talk to you about your new book that is coming out, Incorruptible. If there are connections, because there are in some places with martial arts, I'll make them, but I'm not gonna torture us because this is just so interesting on its own, just for itself. And I think we have a lot of people who are gonna be very interested in what you have to say. And I've of course read the book and read a bit about what you said about it. And I know that with Lean Startup, you were teaching people how to build something I think possibly worth protecting, and now you're trying to uh teach people how to protect it against corruption, and we're gonna talk about what you mean by all these terms, it's very interesting. I just will draw a couple of martial arts analogies. This is an issue in martial arts. The forces of the corruption are not capitalist in nature, but you have someone who for some reason starts a system is very good, and then when you come back a generation later, frequently they are not happy with what has evolved. In the case of Brazilian Jiu-Jitsu, Carlos Gracie, the founder, was very much trying to perfect martial arts. Now it's evolved into a sport, mixed martial arts, cage fighting, all that kind of stuff. I know that they would not have expected that to happen, and they might not even be super happy about it. And I know that with my nonprofit, we sold adoptapet.com. That is no longer in my control. It's in good hands, I think, with Mars Inc., certainly. But you see mission drift in nonprofits, you see focus.

SPEAKER_01 10:01

Oh, yeah.

SPEAKER_00 10:02

You said something, maybe we'll start this way. You said that success causes failure. Let's start there. And we can talk specifically about businesses and even public entities. That's fine. I'll draw the connections to martial arts and nonprofits and things like that.

SPEAKER_01 10:15

That's one where the the connections are not going to be hard to find. Yeah, exactly. This is such a common fallacy or misunderstanding of organizations. And you're right, it is not limited to for-profit companies at all. You see it in religions and in movements and in anything that attracts success. Because we live in a hyper-financialized world, finance way of thinking, the money way of thinking, influences everything. So we have become transactionalized in almost every dimension of our life, so much so that people apply these financial frameworks even to non-financial things. And there's a lot of great research on that, on the problems that happened when that was caused. But so when I talk about this from a business perspective, I really appreciate you drawing the broader connections because to me, it's important to study it at the origin of where it comes from. You have to also see how it is attaching itself to every aspect of modern life. So when we teach people how to build a business or go into business leadership, organizational leadership, we teach them this wrong idea that the more success they have, the more leverage they'll have, the stronger they'll be, and the more they'll be able to make things the way that they want. So if you talk to someone, you say, well, someone's very concerned about what this thing is going to become later. I'm worried about being corrupted, I'm worried about giving into temptation, I'm worried about future. They'll say, Don't worry about that. Too early to worry about that. You could always worry about later. Get more success, have more leverage. When you have more leverage, then you can make the world the way you want it to be. And what they don't tell people, but it's kind of obvious once you think about it. It's one of these patterns that once you see it, you'll never be able to unsee it. Is that the very thing that generates the success, the soul of the thing that you make, it is an asset. It's what makes you successful. But because it's an asset, it's incredibly valuable, it's worth stealing from you. So what happens with these organizations is as they get larger, the success attracts predators. Sometimes that happens in a really blunt force trauma way. Like we have a lot of stories in the book of outside investors, outside actors who come in and just say, Oh, hey, you got something great here. If I steal it from you, then I can extract a lot of value out of it. And the fact that it's destroyed in the process, they don't so much care about that. So it's a very extractive mindset. But there are other ways to lose control too. And I tell these stories, sometimes founders become like, as you're talking about in cases where people create something and then it kind of gets away from them, they're like Frankenstein's monster. It's like, wait, I created this thing, I should control it. Well, guess what? Creating an organization is much more like childbirth than it is like ownership. You are spawning something, putting something into the universe that has its own independent energy, its own independent will, its own North Star, its own moral compass. And although that sounds very metaphysical, and of course, people who want to interpret it in a metaphysical way go nuts, we also can understand it in a very scientific way, as is true for many of these things. We actually have good research that shows that organizations are superorganisms. They are literally alive. They're an example of what's called emergent intelligence, which is just a fancy way of saying there are properties of the organization that are not properties of any individual person in the organization. You can say that a certain organization is more or less ethical. It doesn't tell you anything about the individual personal ethics of anybody involved. In fact, we have evidence that you can measure how ethical an organization is, and that will predict the future behavior of its members in ethical situations that is not predicted by their personal ethical code. Because this is like outside of you, most of us do not understand how to protect it. We want to use ourselves and say, well, I will be the shield of this thing. I will make sure that nothing bad happens. But if you're an organization, any individual person can be replaced. Not the least of which problem is by death. If you die, then you're not going to be there to protect it. But of course, you know, many people don't even make it that far. So one of the critical ideas in the book is we have to stop being naive about the need for the protection of these things that we create. They are precious, they are beautiful, and often at the beginning, they're very idealistic, very ethical, very high integrity. And I have watched in my career so many of them for-profit, nonprofit, governments, newspapers, political parties, you name it sports leagues. It's like a huge problem in sports. You watch them kind of get surgically deboned year after year and lose what them special. And yet most of the people in them, the leaders, seem like either are unconscious of it happening or feel utterly helpless to prevent it. And that's what I really think it's time to put a stop to.

SPEAKER_00 14:36

So your book, you talked about step one is create something worth protecting. That would be the lean startup, mission-aligned human flourishing, which we'll talk about, principled, which not all things are, but some of them are. And then building it with a kind of a structural integrity, right? So that you're setting up the systems that will uh resist this corruption that can happen. You just mentioned a minute ago that maybe it's human nature. Is this kind of corruption just a structural problem in how we create things, or is it just a human nature problem? And setting up the right structure can just help us fight against this eternal human nature problem to try to extract value and be very short-sighted.

SPEAKER_01 15:16

Yeah. This is a very nuanced situation because yes, it is part of human nature, but also it's getting worse, but also there are exceptions. So every simple explanation cracks its teeth on the fact that all three of these things have to be true at the same time. So, how can it be true that it's been going on forever, but also it's getting worse, but also there are exceptions? So obviously, the fundamental force that makes organizations happen. In the book, I really tried to get underneath our current organizational reality to understand the forces, the deeper forces that act upon them, using metaphors from biology and physics. So this is like a gravitational force that seems incredibly strong. So that has been going on a really long time because human beings, it's not that human beings are greedy. Greed is actually not the issue itself. Greed is a symptom of a deeper aspect of the human condition, which is that we want things. Wanting is the root of all suffering, right? So we want things that other people have. So when we see the opportunity to change our behavior, to change what we say, how we believe, how we act, in order to increase our likelihood of getting what we want, that has really subtle and oftentimes pernicious effects. So I talk about this a lot in the book that I call it financial gravity. As the financial system has gotten larger vis-a-vis the organizations that make it up, it has exerted more and more of this gravitational force. So that's how this can be like a universal thing that's been going on a long time, but it's also getting worse as the world is becoming more financialized. And yet, if it was just a matter of human nature and financialization, there would be no exceptions. And you talk to people about this, they'll often say things like, Well, this just happens when companies get large or when they get old, or when money gets involved, or when they go public. Like they'll pick some superficial aspect of the organization and say that's in it's inevitable when that happens. Except if that was true, why are there these outliers? That it just doesn't happen too. It's incredible. Like I was watching a video the other day from an economist, and he was talking about how family-run companies, like Mars, family-run companies are the only ones in our modern economy that can keep a promise over the course of multiple generations. Everybody else falls to the temptation of the spreadsheet and the ROI. They're going through this list of naming family-run companies that have managed to do this over a long period of time. At the end of the conversation, they said, Oh, and also Costco. For some reason, Costco, which is a$400 billion public company, also can keep a promise. Well, it's not family run. It doesn't, it's like, yeah, I know. And they were like treating it like a mystery. Like there's just this outlier. Everyone knows Costco is this company that is like super high integrity. What's up with that? And in fact, most of us, when pressed, can name these unusual companies, kind of one in every industry like Costco and Retail or Patagonia in apparel, where you're like, oh, they don't seem to be corrupted. Huh. That's isn't that interesting? And so to me, the central mystery of the book is both why do we have this temptation to kill the golden goose? And yet, why is it not universal? What are the exceptions? And therefore, what can we learn about what I call the architecture of institutional longevity? What would we have to do? Like if you're like, I want to start something and have it really last, have it really stay true to itself to act with high integrity, what would that look like? And it turns out not only are there good examples we can study, there's whole bodies of research about how to do this that most people who are leaders never encounter and therefore don't know how to do.

SPEAKER_00 18:32

So, Eric, I have the benefit of having received an advanced copy of the book. And by the time a lot of people have seen this, they may not have read the book. So I want to be sure that we're being clear on what is the nature of this corruption that we're talking about? What is this force, this financial gravity? What is a company that's experiencing it? And what is a company like Costco that has somehow bolstered itself against it?

SPEAKER_01 18:53

Yeah. So let's get into it. First thing is it's really important to realize when we talk about economics and business, whatever, it can feel very abstract. Like, what are we talking about exactly? But this is something we've all had an experience of. And I want you to think about your favorite company or organization that got ruined. Like private equity bought it out, or there's Corey Doctorow has his book with the kind of a profane title of Inshidification, as these like tech products have all just gotten so much worse. Like it's like crazy. How much worse is Google search compared to what it was like 10 years ago or 15 years ago? It's like appallingly bad. So, what's going on there? And I my favorite example is like this is a visceral experience. You can literally taste it. I used to tell a story a lot in my talks about I think it was the economist John Kay who wrote about going to one of his favorite restaurants with a friend. He hadn't been there in a little while. And he's just like the food was a little bit worse and the service was bad. And he was like, something's not right here. And he pulls out his phone and he's like, literally searches for, did private equity buy this restaurant? And he turns out the answer was yes. And he chose his friend. He's like, I could literally taste the private equity in the food here. I'm never coming here again. And I've told that story a bunch of times because that I've actually had that experience. I've literally been in a restaurant and searched for, wait, did private equity buy this restaurant? And so many people I tell this story to are like, I've had that experience. Oh, yeah, I of course, like, yeah, absolutely. Like we all can recognize that like something weird is going on where these like capitalism is supposed to be about products competing by getting better over time. What is with this like getting worse thing? So to recognize this phenomenon, the reason I use the word corruption to describe it is it's not enough to just say this is like mission drift or bureaucracy or like, oh, it's just people making a mistake. Because we have built a business culture that is rooted in a philosophy of extraction and exploitation that causes this to happen over and over again. And unfortunately, we live in a time when so many of the ways that people make money today our grandparents and great-grandparents would have seen as totally corrupt.

SPEAKER_00 20:50

Unethical.

SPEAKER_01 20:54

Not that long ago. So we have really lost the plot, I think, at a like civilizational level about like what are the appropriate ways to make money, what actually adds value and what doesn't. And what's interesting is the same people that defend our economic system today and say that it's actually good despite all this corrupt behavior, if you press them on why, they will say something like, Well, look, capitalism has been a tremendously positive force in the world, it has lifted all these people out of poverty, it creates value. And you say, Well, how is it morally acceptable to have all this inequality or pollution or whatever the negative consequences of capitalism are? They always retreat to this very simple bedrock that when two people voluntarily exchange in a capitalist economy, so long as they are fully informed and it's fully voluntary, then both people are better off. This is like the true magic trick of our economic system. This wealth is generated, it's not stolen. It's incredible, actually. And when you multiply those individual transactions times the billions of people that are alive, you can see how much value can be created so long. It's voluntary and everybody's fully informed. But what we're seeing now is so many kinds of transactions that break that moral logic because the product is addictive and an addict can't consent because it's deceptive. Think about how many ways of working are fundamentally deceptive. We're not telling people what's really in the products that they eat. We're not telling people what is the consequences of the choices that they make. And think about all the different kinds of coercion that are now completely rampant in our world. Not to mention the companies who are not even trying to make money by creating new value, that are just happy to move value around from one pocket to another. And I feel like we've all been taught that when you see that behavior happening, what you're supposed to say is, well, you gotta hand it to him because look how much money he's making. What we call a rent seeker in economic terms, someone who's like a parasite on the successful work of others. And I want to be careful with this logic because there's lots of middlemen in the economy who act with high integrity and who actually provide a really valuable service. Like the fact that you can walk to a local convenience store and be 100% sure that they'll have what you need, and it's actually an amazing thing that's happening. So, like there's nothing wrong with being a middleman or a broker, but all over the economy we see opportunities for corruption. I'll give you one of my favorite examples from the book. There's this pattern that doesn't have a universal name that is an interesting kind of rent-seeking. It shows up in like radio. It was called it was a big payola scandal. Remember from a few years ago, where record labels were paying DJs to play their songs on the radio. And that was made illegal when it was discovered. But it's still, we all know it still goes on. In stock trading, it's called payment for order flow, where the people who internalize trades bribe effectively different sources of trading to send the stock trade to them rather than the one that would be best for the end customer. In grocery, it's called rebates or stocking fees, where the manufacturer pays the retailer to make sure that their product is more prominent, not the one that's best for the consumer. If you search for anything on Amazon recently, you have to page through like four or five pages of ads to find the thing that they want. There's even good research that shows that Amazon has the data when you search for something to know which product is best for you and they allow people to bribe them to not show it to you.

SPEAKER_00 24:07

It's an interesting way of looking at it.

SPEAKER_01 24:09

These are all corrupt practices. They don't add value because they break the trust that the company should be trying to maximize with its customers. So I think our modern sense of the word corruption, meaning only bribery or fraud, is too narrow. We have to widen again to say, no, all forms of economic coercion, economic disinformation, and all forms of making money without creating value are corrupt. And so we as leaders, we as consumers, we as employees, if we don't want to become complicit in that corruption, we have to make certain choices to prevent that from happening. And what's interesting is every single one of those practices that I just mentioned was a choice that company had to make. It's so easy to be cynical about it and be like, they're all the same, everybody does that. But no, it turns out there are companies that have made the principled stand to say, we won't take that. We won't do that.

SPEAKER_00 25:00

What we're talking about is the decision to do anything you possibly can to maximize profits versus making a decision to maybe forgo something that in the short term maximizes profits because there's some other value that your company holds.

SPEAKER_01 25:14

Exactly. You got it. And I tell the story in the book of Costco's famous hot dog. Okay, so Costco started in 1986. And from the time that they started, now you're gonna hate this story for reasons I'll you'll understand in a second, but it's important. The fact that you don't like it is actually a port of the story.

SPEAKER_00 25:29

I read it and it's fine. Yeah.

SPEAKER_01 25:31

No, no, listen, because I'd say in the book, I have a really good friend who's an environmental activist and he hates this story too. Yeah. Because of course, hot dogs processed meat, it's bad for you, it's all kinds of things, bad. Okay, but put that aside for a second, because the point is not the hot dog itself, but rather what it says about the company that makes it. So Costco's been selling this hot dog and soda combo outside its store since 1986 for$1.50. At the time, McDonald's Big Mac was about$1.60 in California. Now the McDonald's Big Mac is about$7, depending on where you buy it. Costco hot dog is still a dollar fifty. And they have like relentlessly stuck to this price over all these years because they feel like it's a symbol of what they're promising to customers that we're on your side. Now, most people don't understand how unfathomably large Costco is. They sell, just put it in context, they sell 200 million of these hot dogs a year. That's more than all major league baseball stadiums combined. So the amount of money they are foregoing by refusing to raise the price on this hot dog is actually really significant. Like if it was$2.50, nobody would notice, nobody would care, and they would make$200 million more profit, like instantly, just poof, right to the bottom line. But they don't, not because, again, not because of the hot dog is an important value in itself, but rather it is a symbol of their overall company philosophy, which is to be a fiduciary to the customer. They feel like their responsibility as a retailer is to make sure the customer is getting a really good deal, getting a lower price. And so the hot dog is like the little tip of the iceberg of this whole integrated business philosophy that's about making sure that what they do is in the customer's best interest. And what's interesting about their strategy is it's so obviously working. I mean, the company is just absolutely gargantuan today. One of my favorite little factoids in the book is that if Kirkland Signature, which is their house brand of products, if that was its own company, it would be like bigger than Coca-Cola, Procter and Campbell, or United Airlines. Like it's just the scale of this operation is incredibly massive. When founders say, Oh, I want to start a new company, and they're like, I want to be like Costco, everyone tries to talk them out of it. Oh, it's hard, that's not the best practice. No, you really shouldn't do that. And that you can go to your lawyer and say, I want to set it up this way. They'll be like, nah, you should worry about that later. Don't worry about it. You should keep your options open. As if like you could ever trust someone who's like keeping open their option to like stab you in the back one day. It's crazy.

SPEAKER_00 27:44

Isn't there a case to be made though that Costco's goal is to make as much profit as possible and they are smart, and there's nothing wrong with making as much profit as possible. I think what you're saying is that's fine so long as you're doing it in a way that creates value for consumers as well.

SPEAKER_01 27:58

Oh, exactly.

SPEAKER_00 28:00

Yeah, the cynical thing would be they're holding the price of the hot dog down because that's what's causing them to make all this money and they're making all this money. But you're saying it's a win-win.

SPEAKER_01 28:08

You see this in principled companies all the time. People will sometimes be like, well, they're not really principled. They've just figured out that acting principled will make them more money. It's like, what is the difference between being principled and acting principled? Like, I hear what you're saying, but like we live in this hyper-cynical age that is also so hyper-polarizing. We only can judge companies as like absolutely good or absolutely evil. And it's funny, whenever I talk about a company, people are like, oh, you're saying that company's perfect and they've never made any mistakes and they everything they do is exactly according to your values. And then the people are like, Yeah, but you don't eat processed meat. Why are you telling why are you endorsing a company that sells processed? It's like, yeah, okay, hold on. I'm not saying that they're the greatest company that ever has lived or can live. What I'm saying specifically is they are authentic and true to their own values, which makes them trustworthy to their customers. So if you want to see that as like a cynical, clever strategy, or as just that's who they are and they get rewarded for being who they are, I don't care.

SPEAKER_00 29:04

I think the issue maybe is to understand we're not talking about an indictment of companies wanting to make profit. That's what keeps companies alive. I think what we're talking about here is the mandate to make profit at all costs, even when the consumer is losing, when you're unfairly taking advantage that a true, ideally working capitalist society is that initial thing you talked about where two people make a trade and they both come out better from it. I'm fine for a food company to make profit because I want to give them my money, because I want to get food, because I need to eat, and that's great, as long as I'm winning from it. Yeah. Yes. So I think you're talking about something that's become broken where the value is now not mutually shared. It's somehow being extracted by one party, by the company, to the detriment of some other player in the system.

SPEAKER_01 29:58

You've got it exactly right. I would say that there's nothing wrong with being a for-profit company. In fact, Tim O'Reilly calls the principle to create more value than you capture. And if you do that, then by definition, whatever money you make, you created more value in the world. You left people better off than before. I think where we have gotten corrupted is that people have started to interpret the mandate to use the mission to make money as a mandate to say, no, the mission is like window dressing, to just make as much money as possible by any means necessary. And we see this in the economy in a lot of places where companies abandon their mission, they kind of fall to this temptation. It's like the one ring from Lord of the Rings. Like you get this temptation to grab for every dollar for yourself. You actually often wind up killing the golden goose. You wind up destroying the very thing that made the company profitable in the first place.

SPEAKER_00 30:48

Yeah. And we've seen that. Look, I know Seth Goldman, who was one of the co-founders of Honest Tea. And you bought up by Coca-Cola, and a lot of people who loved that product really loved it because it was a very low sugar product. And of course, Coca-Cola buys it. And to sell more of it to a broader audience, they start putting sugar in it. And as you say, it's like the product is destroyed. And then I think they eventually just retired the whole company and they've restarted the company over again from scratch. Yeah.

SPEAKER_01 31:12

And to basically start over again with just iced tea, back to the original founding principles. No, that is such a common pattern. It happens over and over and over again. And what's sad about it is a lot of companies are unnecessarily destroyed because they think they're doing the right thing by making as much money for their investors as possible. So, like this is not a story from the book, but this is a really sad story. Electronic bookings software for medical practices, like basically software for doctors a few years ago called Practice Fusion. And they got caught up in the Purdue Health Opioids Crisis scandal and they were destroyed because Purdue Pharma had basically bribed them with a rebate with some of these stocking fees. They'd paid them a million dollars if they would push the opioids on the doctors so that the doctors would push it on the patients. And then when the litigation came out that they had done this, people were so horrified that it basically destroyed the company single-handedly. And what's so wild about this is you go back to, I always like to imagine being in the room where this was discussed. How did this happen? Because at the time, the people who made the decision, they probably didn't know that Purdue Pharma was the bad guys. But their mission was to help doctors. How did taking this million dollars help doctors at all? Like it was not in any way aligned with their mission to do this. It was harming the people that they were supposed to serve. So the only way it could possibly have happened, somebody must have been in the room and said, listen, I know this doesn't seem great, but we're a for-profit company. We have a fiduciary duty to make money for our shareholders, but we got to take this money. And I'm sure they justified it themselves. But well, we'll use the money to do more good than we would have done, whatever. Like you're just so easy in our modern business culture to talk yourself into these things. That was like a huge, thriving business that was like destroyed for one million dollars, like for not even that much money in the grand scheme of things. Like it was such a foolish act of self-destruction. And we see that all over the modern economy. And like I said, not just in for-profit companies where people just they cannot, they don't have the integrity needed to resist this temptation because we're teaching them a set of business practices that not only don't tell people not to do this, they actually make it more likely to happen by encouraging people to think in this mercenary way.

SPEAKER_00 33:16

When we talk about capitalism, if we just think that the goal of a company, a for-profit company, is to make as much money as possible, then, and you do mention this in your book, then we'll just go do a Ponzi scheme. That'll make you a ton of money. Just don't get caught. Yeah, or pollute, externalize the cost, go pollute a river. As long as you don't get caught, you're making more money. That's fine. Hey, break the law and maybe leave a little money in the bank account just to pay some fines. I mean, if the goal is to make as much money as possible, then do anything you can to make. And I don't think anybody would say that is ideal at capitalism. I mean, obviously there's some guardrails by which we think you should make money. And maybe what's happened in our society now is those guardrails have been reduced to well, just don't do anything that is overtly illegal, but everything else is fair.

SPEAKER_01 34:02

It's worse than that if you can believe it. Because, okay, here's the thing that nobody wants to believe, but I swear to you is true. Among normal people, okay, like pretty much everyone listening to this podcast is like, yeah, obviously there should be some guardrails. Obviously, it shouldn't be everything go like of like of course, if you can kill someone and get away with it, that's bad. Okay. But amongst the governance class of our society, there's the people who write, set the rules for like what should board of directors be doing, what should managers be doing, what should be taught in business and law schools. Like, there's a class of people that have their own specialized knowledge and concepts. They actually think and they write this down. I'm not like giving you some secret knowledge. You can just go read it. I quote a bunch of them in the book. Like, they think it's very straightforward that a company should only care about the welfare of anyone it touches insofar as that helps enrich its shareholders. So if you can, there's literally, I quote this in the book, there's a very famous article in governance history where people say managers not only can, but should break the rules if it is profitable for them to do so. And remember, we live in a world where corporations are allowed to donate almost limitless amounts of money into politics. It's actually viewed as a governance best practice. I'm not, I swear I'm not exaggerating this. That not only should you try to break the rules if you can get away with it, but you should also lobby to have the rules weakened. People would say not only is that like a good business practice, it's practically your fiduciary duty. If you don't do that, you're not really maximizing returns for shareholders. So the people who run that system, they can't understand why the pitchforks are always out for them. Like ordinary people, whenever they hear about this, are furious. They're like, this can't possibly be the way our companies work. And here's the even craziest part about it. This idea that I'm talking about, it's called shareholder primacy. It's basically an idea that originates in the 60s and 70s, but didn't really come into effect until the 80s, which is that the purpose, the literal purpose of a for-profit company is to make as much money as possible and to enrich its shareholders as possible. So the idea we were talking about before that we birth organizations, they're these sacred, beautiful things, this is the antithesis of that idea. This is saying, no, a corporation is just a financial instrument to enrich its shareholders. You have to understand how recent this idea is. Anyone who's listening to this right now, I have a window in this room. If you have a window in your room right now, I want you to look out that window. And if you can see a tree, I'm willing to bet you any amount of money that tree is older than this idea. Okay, this is not ancient wisdom. This is not like an essential bedrock of capitalism. This is a very recent invention that is totally bonkers, in my humble opinion. What's interesting about this idea is if you ask, where did it come from? Like why do we live under this rule? Was it enacted by the Congress? No. Was it subject to some popular referendum? No. In the history of the world, this idea has never once ever been enacted in a democratically legitimate way. It was an idea that was enacted by a very small number of judges, academics, policymakers, and economists who just decided that this is what it was going to be going forward. And they took over the world. Everyone was like, oh, I guess that's right. Investors love this idea. They're like, ooh, this is gonna be really great. We're all gonna make a lot more money. And there wasn't really anybody to push back. So we went from a world for the majority of the history that there have been corporations, corporations were founded to pursue some specific purpose. And for most of that time, there had to be a beneficial public purpose. You had to like go say, when you go to a foreign company, say, like, why is the world better off because you're making this thing in order to form? We've gone from that world to a world where corporations are these like really sociopathic, extractive things, and we never voted for it. It was never approved. So like I feel like it's a bit of a mass delusion that we're living under that we absolutely have the power to reject.

SPEAKER_00 37:50

So I just want to look at this a little closer because when you take things as true, it can be hard to look at it and say, wait a minute, that doesn't need to be that way. And that's I think what you're trying to get us to open our eyes to right now. You use the word sociopath. I agree that it's good for me to go out and accumulate wealth, but I'm not gonna steal. I'm not gonna beat people up. I could do that, I could think of lots of great, harmful ways to create wealth. There's an assumption, an understanding that, yeah, it's good for me to get wealthier, but there's also other values that I have, like, yeah, I want to be a good person. I don't want to get wealthier by stealing money out of the back pocket of some kid or something like that. That's very immoral. I would not do that. That's not the world I want to live in. And yet, corporations, if we reduce it to, as we have in our society, the whole purpose of the corporation is to get as much money as possible for its shareholders. Then that is by definition saying if polluting a river does that, or if creating a car that explodes or an unsafe product is the best way to do that when you factor in maybe some lawsuits, then that is exactly what you should be doing, which is what you're saying. And that would be the definition of a sociopath, of someone who is just completely indifferent to the other bad outcomes of what they're doing because they're just focused on the one thing they want.

SPEAKER_01 39:04

It's funny because we're having this discourse right now about AI. And if you read the discourse about AI, people are very worried about autonomous AI agents. The thought experiment is the paperclip maximizer, right? You tell an AI, go make as many paper clips as you can, and it starts taking over the world and deconstructing all the atoms in the entire universe, trying to make literally it takes it too seriously and goes crazy, right? And we're so worried about AI run amuck. But I think the smartest things that have been written about AI is that actually our fears about AI are really fears about corporations because we're already living with artificial intelligences. They're just powered by legal documents rather than by GPUs. And we're seeing the results of having these corporations be untethered from human values. And I just think it's been like a civilization level experiment that we've run. We've run it long enough to have the data on how well it's worked. And I think the answer is it has not worked very well at all. I think this has basically been a disaster of an idea. And so it's time to make a civilization U-turn and just say, you know what, we don't have to do this anymore. And most people who build things for a living, most people actually work a real job where they actually like trying to create things, find this very intuitive to be like, yeah, of course we should try to encourage people to make things and profit by making the world better off. Like that's the most natural, normal, like human idea there is. And the fact that we've been indoctrinated into this more sociopathic version, I think is a really sad state of affairs and something I hope we can reverse.

SPEAKER_00 40:27

Yeah. Well, first of all, in looking at your book, where I got from it was it's really a book for founders to say if you're going to build a company that you want to be proud of, you need to be sure. And we're going to talk in a moment about what are the controls you could put in, what is the methodology for not letting your company just get ground up into this profit maximizing machine that may ultimately destroy the company itself and certainly will diminish consumers' experience. So in that case, the founder is the loser because you thought you were creating a company and now it's not doing in the world what you want. But of course, as we we talked about with honesty or the restaurant or whatever, like the consumers are the losers. And of course, if the company ends up failing, the investors in the long term become losers too. So who is it in your mind we're trying to protect here? And what methods are you thinking of how we can change this? And what could someone could do on the company level to protect against this?

SPEAKER_01 41:21

So we have exceptionally good evidence that when people break with this governance orthodoxy in a couple different ways, everybody's better off. So the company is more competitive, it makes more money, consumers are better off, they get a better product at a better price, employees are better off, they have higher morale, they have higher health outcomes. When people are mistreated at work, like the collateral consequences of that are incredible. The research shows like it causes all kinds of problems in their communities. We have good evidence that when people are mistreated at work, the civic infrastructure, the like level of political participation around the place where they're mistreated goes down, all kinds of stuff. So employees are way better off. Obviously, communities are better off. And in the long run, investors are better off too. Any investor that's investing for the long term, which includes any individual person investing for their retirement, anyone who has institutional reason to care about what happens more than the coming quarter, is also benefited. So I think we have really good evidence. So let me give you one example, like a really simple example. Employee ownership. So some companies have no employee ownership. It's just strictly owned by private equity or owned by the owner or whoever. Some have partial employee ownership. A lot of tech companies have stock options they give to employees. But some companies are fully owned by the employees. The actual employees literally own the entire thing. And some companies that are quite large, Mondragon in Spain, John Lewis Partnership in the UK, these are employee-owned companies. Taylor Guitars, one of my favorite companies in California, is employee-owned. And generally speaking, like the Taylor conversion, they converted to employee ownership, not because they were trying to make a statement about capitalism, but because they wanted to make sure they could protect the craftsmanship of the guitars. Because ultimately, like, why is that an iconic brand? It's an iconic brand because the guitars are awesome. I know because I have two in my living room. But if you want to promise people that it will be that way, think how easy it would be for them to just subtly change manufacturing just a little bit to make them slightly worse. No one would notice. They could get away with tons of stuff until eventually their reputation collapsed. So they didn't want that to happen. So they put in place this employee ownership structure. So employee ownership is just one of the alternative structures that's out there. Let me give you a sense of what the evidence shows about employee ownership. First of all, employees are more resilient, they do better in downturns, they generally grow faster and they're more profitable in general. Employees have higher morale, all the stuff you'd expect. They're more loyal, they have lower employee turnover, therefore their employment costs are lower. But here's the crazy thing there's so much evidence about this. It's been so studied. There was this incredible meta analysis that was done where a bunch of studies were combined. They built a data set of 54,000 companies. So this is not some small, like, oh, my friend has a company, it looks good. No, they looked at 54,000 companies and found that employee ownership exhibits a dose. Response that is the less employee ownership, the worse. The more employee ownership, the better. So having 5% ownership compared to 10% owners, better to have 10% owner, better to have 50%. Like the more employee ownership there is, the more buy-in to the whole enterprise the employees themselves have. And again, for normal people, this is like pretty obvious. You're like, yeah, I don't have to have some like schmuck of a boss who tells me what to do. I'm an owner of the I get to have a like, of course, it's intuitively natural. And yet, most organizations, if you float the idea that we're going to do it as an employee-owned co-op, most professionals will be like, no, that's not serious. That's not the real, that's not the way it's supposed to be done. Now, employee ownership is not the only alternative. There are also what are called foundation-owned or foundation-controlled companies. Hershey Chocolate is an example, Nova Nordisk is an example, Patagonia is an example. There are other structures too. I'm there's a lot in the building.

SPEAKER_00 44:48

And so that's a non a nonprofit foundation that is charged with owning the majority share or otherwise running the company. Exactly.

SPEAKER_01 44:55

Yeah, yeah, exactly. And again, for people who are hearing this for the first time, it must sound really crazy because our modern financial theory would say without the discipline of the market, without the profit motive at the highest level, without shareholder primacy, such companies will be bloated, inefficient, virtue signaling, not focused on the mission. They will like they'll be outcompeted. They'll basically be at a competitive disadvantage compared to their efficient for-profit competitors. And yet we have good data on this point that none of those things are true. These companies outperform, they're more stable, they can invest counter-cyclically, they have better employee retention. When there's an economic crisis and everyone's getting laid off, these companies hire people. They raise wages instead of cutting them. And as a result, when the crisis passes, they're better equipped to take advantage of the fact that everybody else was cutting back. So I bring up these examples not so much that I want anyone listening to be like, okay, I'm going to run out and start a foundation control company right now. Although please do if you want, by all means. But more to say that the way we've been taught to think about business and organizations has been artificially constrained. And we have to start to realize that reality is broader than we previously thought. And that therefore all of the things we complain about polarization, inequality, crap products, bad customer service, you name the thing, like if you have a thing you like to go on a rant about, not a single one of those things is inevitable. They are all choices. And therefore, we could, as a society, choose differently.

SPEAKER_00 46:20

Now I saw the samples in the book of companies that are doing very well and yet are not holding pure profit above all else, that of course they need to be profitable, but they clearly have company values. Is there a possibility that we've got a survivor bias going on? We have some very famous companies that are that way. And so we look at them and we're not seeing the 5,500 companies that started off that way. And because of that, they just weren't able to maximize profits and compete. Is there any sense of that?

SPEAKER_01 46:49

Yeah, yeah, yeah. That's a very common question I get. And in fact, I had a bunch of test readers read the book, business school students and professors and economists and all kinds of people read the book. And it was a very common question. So in my research, I spent a lot of time trying to find examples. Because I was gonna like, I'll be fair and I'll show the failed examples, but there hardly are any. It's actually really interesting. The data is so overwhelming, like it almost seems too good to be true. So I get that the suspicion. And the best thing about it, the reason I'm so confident in it as a prescription is that we have these academics who have studied this stuff for decades. So, for example, one of my favorite studies looked at a set of peer-matched, foundation controlled versus conventionally controlled competitors. Like when I found a bunch of these companies and they looked at how they perform compared to their peers who don't have the structure, and then looked at over time what happened. My favorite stat in the whole book, companies that have this alternative structure are six times more likely to last 50 years compared to companies that don't. It's basically for conventional companies, it's about 10% and for the foundation controlled companies, it's about 60%. So yeah, that means 40% still fail. I mean, of course, companies do fail, it happens. But when you're managing for the long term, you're just you're much, much more resilient against the typical things that destroy for-profit companies. So I think the data is pretty strong that this is not just survivor bias. But even if it was, even if I grant the premise of the question, companies, when they companies get into a crisis, if they ever have to change what they do, they can. Like people kind of misunderstand because we only want to say what is this good or bad. I talk about maximizing human flourishing. Well, what are you saying you can never do layoffs? No, of course not. Sometimes it's necessary. The best companies in the world, Patagonia very famously had what they called Black Wednesday, where they had to lay 20% of their staff off. They still talk about it years later because they reckoned with the human cost of it. But yeah, sometimes you have to do it. Sometimes it's necessary to make compromises or do things that are different. But what I'll say is this when I talk to mission-driven leaders of these companies, and I've interviewed a lot of them over the years now, because I wanted to really understand this. Because readers always ask me, well, what are the trade-offs? You know, what am I getting? People are so suspicious these days. What am I giving up by doing the right thing? So I'm like, okay, I'll ask. So I ask these guys, what is what are the trade-offs in working this way? And they always look at me like in the most confused look on their face. Like, trade-offs, what do you mean? To them, it's like I was asking now, what are the trade-offs between eating food and eating poison? Because you're saying I'm not going to eat poison anymore. So what am I giving up by doing that? And they're like, it's not a trade, like you can choose not to do it, okay? These guys are not very evangelical as a class. They're always like, we do it our way, you do it however seems right to you. We don't understand why you want the option to be an asshole. Like just take that off the table. Just commit to do the right thing and let the chips fall where they may. And when you make that kind of commitment, it's a commitment of character. The fact that you get rewarded for it shouldn't be the reason you do it. But it does happen to have all these rewards that come with it.

SPEAKER_00 49:37

In Lean Startup, you talked about innovation accounting, which just for our watchers and our listeners was when you start a new company, it's often going to be a long time, sometimes many years before you're going to have any revenue at all, let alone profit. And so if you're defining the success of your company by how much money did you bring in this month, well, you're not going to get a chance to even answer that question for a long time because no money's coming in, or how much profit? And so innovation accounting, instead saying, yes, but did we learn? Did we get information that's going to allow us to get better, that's going to bring us closer to when we become profitable or whatever? And that becomes your sort of sales target is how much innovation you are talking about human flourishing, right? So what is the capital that you're talking about now for companies? How would a company define success other than by measuring its quarterly profits? Is there another measure they can be using? And what do you mean by human flourishing? Sure.

SPEAKER_01 50:35

Yeah. First of all, again, nothing wrong with making a profit, okay? I think that the profit motive and the profit engine of capitalism is one of the like great human inventions of all time. It's a way to harness people's natural self-interest to these, to larger and more important goals. Excellent. Good. We have to define profit properly. And the way people have been trained to do it has all these problems. In the book, I go through them kind of one at a time. We already talked about a Ponzi scheme, like things that look profitable on paper but really aren't. Ponzi scheme looks profitable, but we all know it's not. And so I always ask people who make things for a living, do you think a Ponzi scheme is profitable? And they always say no, but if I say why, they struggle to explain why. Because what's happening is in our hearts, all of us who make things for a living have an intuitive understanding of profit. I call it the builder's intuition, right? We've been talking about this that the way to make money is to create new value and capture some of that value for yourself. If you hog it all to yourself, you ultimately kill the golden goose. So we all understand like not to do that. But we also carry in our heads this formal definition that we've been trained in. It's supposed to be the serious one for real business. And that's like, so I pay what's making my profit? Well, it's the money that's left over after I pay for my expenses. So I take$50 of wood, I turn it into a hundred and fifty dollar table, I have a hundred dollars of profit. Okay. But then all of these examples, like, well, what's wrong with a Ponzi scheme? You're like, well, Ponzi scheme, the costs are in the future and the revenue is in the present. We call that a deferred liability in economics. So, okay, I guess it's not profitable because I just cheated by moving the liabilities out into the future. So you're like, oh, okay, good. So time horizon obviously should be one element of profit. Cheating by moving the liabilities elsewhere doesn't really count. Okay. But as you say, what about pollution? What if I pollute a river down the road? Pollute the river and then the town next door, they get those people get sick and die. They have huge healthcare costs. I don't get caught. And let's say I get away with it. Does that am I profitable? And most people are like, no, I don't think so, because instead of moving your costs in time, you moved your costs in space. You moved the cost onto these other people. The fact that you got away with it doesn't actually make it profitable. And then the one that really gets people is like, okay, but what if my actual business involved killing people? Like that was actually the business model. Like used the kind of half-joking example of a hitman for hire. But we all know businesses that profit from the death of their customers, like think about tobacco or something like that. So in that case, I make money and the only thing on my liabilities is human lives. Am I profitable? People really struggle with this because, like, again, in their heart, they're like, no. Uh-uh. A human being should never be considered an input factor of production. But in their head, they've been trained revenue minus costs. That's all that matters. So what we have to do is recognize that the way we've been taught to think about profit has these major problems with it. If it can't see deferred liabilities, if it can't see negative externalities, if it can't understand that a human being should not be an input factor of production, like what good is it? Why is this definition so great? I don't think it's that good. I think it's extremely weak. So we should come up with our own. Now, I think every organization should be required to do this itself. What do you really stand for? What are you trying to maximize beyond just shareholder value? My personal belief is the best one is to maximize human flourishing. And I use the phrase human flourishing to not to just say happiness, not to just say like sustainability or something like that, because I feel like each of those other words you might choose, like it has a little bit of a limitation to it. Whereas flourishing, I think we all understand it means human beings coming into their full physical, emotional, and spiritual well-being. And that everything we do at a for-profit company should be making the world have more flourishing in it as we define it. And when we do that, it's such a liberating choice to not have to worry about all this spreadsheet crap anymore.

SPEAKER_00 54:14

At first blush, it sounds very idealistic, but if you say, well, hang on a second, who are the humans we're talking about? Let's first talk about our customers. Can we agree that if we can maximize the flourishing of our customers, that's a really good business because they're probably gonna reward us with their business? Well, yeah, sure. Absolutely. Now let's talk about the humans that work for the company. Can we agree that if we maximize the flourishment of our staff, uh, our company, that's good for the company? Well, of course, then they're not gonna quit and we're not gonna have to pay to hire new people and retrain them and all that kind of stuff. No one would disagree with that, I don't think. So then the only thing you're adding on to this by this sort of definition is to say, okay, well, if we're taking care of our customers and if we're taking care of the flourishing of our staff, what about the flourishing of the world? And what's the argument against doing that? I can't think of one so long as it's not, so long as it doesn't, I don't know, kill your company or something like that. To be a good corporate.

SPEAKER_01 55:09

And it's and it just what it's interesting is people are like, well, you can't be responsible for every person on earth. And it's first of all, well, says who? First of all, a lot of products touch billions of people. So those companies, yeah, they better figure it out. But like, yeah, but not every company. Some companies have much more local and specific effects. Okay. Every company should have to think about who are the human beings that we touch? Who do we care about? And I call this like who do you want to be a fiduciary to? Whose well-being do you want to take responsibility for? The very best companies in history have generally had this very clear fiduciary hierarchy. I give a bunch of examples in the book. Very famously, Saul Price, so one of the pioneers of modern retail, he just says very simple he's like, My job is to be a fiduciary to the customer. So my priorities are customers first, employees second, shareholders third. The total opposite of how we're all trained to do business. And yet that you see this pattern over and over and over again. I mean, people put the work, the product, the quality, the things that they really care about at the top of the pyramid, profits tend to flow in a sustainable way from that. So it's interesting when people complain about how many people are affected by the definition, in some ways they're telling on themselves. Because when these that's funny, when these companies are raising money, they're always like, rah, rah, rah. I'm a world beater. I'm gonna change the world. I'm gonna rewire the whole world, blah, blah, blah. And then you're like, oh, you're gonna rewire the whole world? Do you have some kind of moral or ethical responsibility? And they're like, oh, I'm just a little database company. I don't have to do anything. Which is it, buddy? You're a world beater empire, in which case, yeah, man up and like take responsibility for the consequences of what you do. Like, think how different our world would be today if Facebook had decided when they first got the evidence many years ago that their products caused depression and mental anxiety and all these other problems. Like if they had just taken that research seriously versus buried it, like if they it's the first time they'd been involved in a genocide, if they decided they were going to do something about it instead of allowing misinformation to flourish, like the perception by consumers and employees and everybody of like what does it mean if you worked at Facebook? Think how different it is now than how it could have been if they had really stuck to that ethos over time. Think about Google's don't be evil and the loss of that ethos. Like the claiming ignorance of these effects has does corrosive damage, not just to the brand of the company, but to the souls of the people that work there. Psychologists call it moral injury when you realize that you've become complicit in doing harm to people you care about. Very famously, I tell the story in the book of the Boeing 737 Max crashes. There's all these engineers who they knew it was gonna crash, but they couldn't get the company to care. And they went through tremendous anguish. And we have their internal emails because, of course, there was litigation. So you can like read the torture that these people are going through. So it's like, yes, of course, the quote unquote real victims of the Boeing apps were the people that died in the crash. Okay, we should obviously be not be ever be confused about that. But who benefited from that? Like the employees who were forced to do that suffered a great deal. Obviously, Boeing's reputation and brand took a fatal blow. Like the company's still around, but it's just never going to be the same as it was before. Yes, some investors made some money, but was more value created than destroyed by financializing Boeing? I don't think so.

SPEAKER_00 58:14

As an idealist myself, there's that very famous, I guess, Margaret Mead. Never doubt that a small group of people can change the world. They're the only ones who ever have. I think I'm paraphrasing it. But I think my point is sometimes great things happen, and they only happen when someone says this thing that seems really weird, think about it for a second, because it's actually possible. Let's make it happen. I'm thinking of like Bhutan, and we have our gross national product, and it's all very financial, and how much did we import and how much did we export and all that kind of stuff. And then you've got this little country that has this gross national happiness where they're actually not just measuring the economics, they're actually trying to measure, yeah, but are people happy? And that's an interesting question to ask in the United States. Like, yeah, we might be having more jobs or more exports or whatever, but are people actually happier? And if that's the test you're teaching to, you might take different actions as a company, which is what we're talking about. You might take different actions as a government if what you actually care about is happiness or well-being.

SPEAKER_01 59:09

It's a surprisingly practical framework, even though it sounds so idealistic. And I have to get people to like get out of the cynicism that we've all been trained in to actually pay attention. Because what's interesting is we have these examples of companies that have used this simple insight as a superpower to create billions and billions of dollars of value for themselves and for the communities around them. So like I know people who today are like independently wealthy beyond your wildest dreams simply because they embraced this principle and used it. And when they get told that this is impractical or idealistic, they're always like, okay, man, like good luck to you. I'm just gonna go enjoy all this wealth and success that I'm having. And more importantly, oh well, I know a lot of rich people. I mean, yeah, you do too, but like we know a lot of billionaires, right? Not all of them sleep very well at night. Let me just put it that way. Okay. But these guys do, because they really feel like the work that they have done, the wealth that they have created came not at the expense of the people around them, but in amplification of their well-being. So not only do you make more money, not only are your employees happy, not only are your customers happy, like you also feel better yourself about the work that you did. It's to me like a really no-brainer to embrace this framework compared to the one we've all been taught.

SPEAKER_00 1:00:23

So, one of the things you talk about in the book that I thought was interesting, you have so many great examples of so many different things, but mission transmission, where if your a company starts operating in a certain way, that can not only affect that company, but that can affect maybe the environment, in some cases, even the global environment. Talk to me a little bit about mission transmission. You told the story of Volvo, you talked about Tony's Chocolonal. Anyways, but tell me a little bit about how can the activities of one company actually change what's going on in the broader environment? What examples of that?

SPEAKER_01 1:00:58

Yeah, there's so much chocolate in this book. I didn't intend to write a book about confectionery and chocolate, but there's like several, there's like three chocolate companies at least, and four, I think, and like two or three baking companies. Like I don't know why. I was like, must have been very hungry while I was writing it. I didn't notice it until the end. I was like, wait, why is there all this chocolate in my book? Yeah, Tony's chocolate only is an incredible story. So, first of all, let's define mission transmission and then get into some examples of it. The idea is that the choices that organizations make radiate beyond their own walls. And I mentioned it before very briefly that like how you treat employees has what are called spillover effects into their local communities. There's also what are called economic multiplier effects, the money you invest in a community, when you pay people well in a community, they then spend that money with other local businesses and that can become a prosperity engine. So what's interesting is that some companies like really explicitly see mission transmission as like part of their job and actually sometimes even define themselves that like that's a core part of what they're doing, and they get these remarkable benefits out of it. So the founder of Tony's Chocolonly, he was in the Netherlands and he he was a TV journalist and he had done an expose on child slavery in the cacao supply chain. Like a lot of chocolate is made by out of beans that are harvested by people doing child labor and sometimes even forced child labor. So it's like a really nasty underbelly of the modern economy. And he did this expose. He felt like the public didn't care. They eat a lot of chocolate there. He eats chocolate every day and he was really upset. So he tried to get himself arrested. He went to the local authorities and said, Listen, I'm uh I'm complicit in child slavery. I fund child slavery. I want that's a crime. I want you to arrest me. Now, of course, they didn't. He couldn't get himself arrested for eating chocolate. If the authorities started arresting people for eating chocolate, like we'd have a significant problem on our hands. But he was like so frustrated that nobody was doing anything about it. And when he asked people, why is there such indifference to this horror? Everyone's like, Well, the public doesn't care. If the public care, did it be changed? And he's like, I just don't believe that. I simply don't believe it. So to prove everybody wrong, he did an MVP. It was like classic lead startup. Once they were gonna manufacture, I can't remember the numbers offhand. I think they said they're gonna manufacture 5,000 fair trade, ethical chocolate bars with no child slavery in them. And they instantly sold like 15,000. And they're like, oh, okay, the public seems to have some interest in this. So they started to start a company. The company is called Tony's Chocolate Only. Now that I've told you this story, by the way, you're gonna start seeing this in stores everywhere. Like they're actually like, it's a brand that people don't know that they know, but when you start looking for it, you're gonna start seeing it. And the bars are a little bit bigger than their competitors' bars. They're delicious, by the way. They have this really cool pattern. It's everything about it is this very cool company. But it's cool because the whole thing is about eradicating child slavery. So they see their mission not as just making chocolate, but as trying to cause consumer behavior and supply chain behavior to change so that the conditions on the ground, especially in Africa, are changed. So they are a purpose-driven company. They have what's called Tony's mission lock that prevents investors from knocking them off. Of course, they do a lot of the stuff that we've been talking about, but they also take it much, much further. So, for example, the YouTube star Mr. Beast, who that is? Yeah. So my kids taught me about Mr. Beast. I didn't know who he was, but Mr. Beast has a line of chocolate called feastables that like a lot of people have tried. Well, it turns out Mr. Beast uses Tony's chocolate chocolate in his products because they have something called Tony's open chain, which is like anybody who wants to make a chocolate product in an ethical way can access their whole supply chain, even though they're a third party. And yet the rule is if you want to do that, you have to convert all your chocolate to ethical chocolate principles. So in order to access their superior product, you have to adopt their principles. So it's just a way of broadcasting their principles through the supply chain. And like every year they find and rescue like tons and tons of kids who are working in these extremely grim circumstances. So you could say, well, they're cynically exploiting the issue of child labor to sell chocolate, or maybe they actually honestly think that this is the best way to drive this change into the supply chain. They very quickly became the number one chocolate brand in the Netherlands. They're like, they're rising the global chocolate producers leaderboard as we speak, because consumers, and you see them in the US, their US expansion is going very well. Consumers and employees, everybody who hears the story is just drawn to it. It has this magnetic appeal to it, and that gives them the power to then radiate that mission out across continents.

SPEAKER_00 1:05:25

So now it's not just their company that's selling their chocolate bars that are produced without child slavery, but they're enabling other companies who are competitors of theirs to do the exact same thing. And so their mission is spreading it.

SPEAKER_01 1:05:37

When we think about that, next time you're in a grocery store that has Mr. Beast chocolate in it, if you look on the packaging, it doesn't say Tony's chocolonly on it. It just touts the benefits. It just says it's ethical chocolate made without slavery or whatever. So like they don't even require people to put their logo on the things that they help them create. That's how committed they are to the mission because they don't want any competitor to be like, well, I'm not going to advertise my competitor. Like, they want the Competitor to reap all the benefits of it and not take any for themselves. And that's that generous philosophy that we see time and time again with the best companies.

SPEAKER_00 1:06:09

You also, and this is just a quick example, you gave the example of Volvo and their seat belts, right? Which is something their patent on a three-point seat belt, which makes it much safer for drivers. They could have kept that to themselves and just made themselves the safest car ever, but they didn't do that.

SPEAKER_01 1:06:24

Yeah, that's such a classic case. And it's a story that is taught in business schools. If you went to business school, you'll learn this story about Volvo doing this thing. But we teach it as an example of like corporate social responsibility, or just we teach it as this like quirky one-off thing that they did. And so I always ask people when I teach this story, don't look at this from the consumer's point of view. Because obviously, for consumers, the fact that they gave the seatbelt patent away for free, it saved millions of lives. So it's obviously very good for the world that they did this. But I want you to visualize here's this situation. I want you to visualize the board of directors of the Volvo Corporation. I want you to think of the story from the investors' perspective. The investors had brought in this new guy, Gunnar Anlao, to be the CEO of Volvo. Today the story is told often that like one of his engineers randomly in his lab came up with this idea, but no, they hired him specifically because he was really like he had a focus on auto safety. He had actually had a, I think his sister-in-law had died in an auto accident. So he was like very because of an inadequate seats belt. So he was like very personally interested in this. And he hired an engineer to be the first like safety engineer at an auto company. He hired someone from the aviation industry where pilots wear the three-point seat belt. That was where it came from. And he figured out a way to make that economic to put in cars. So the company had gone out of its way to spend money on RD to create this breakthrough. They proved that it worked. It was something that customers really liked. They filed for a patent on it. And I want you to visualize what the scene must have been like as you're like, hi, board, guess what? Our new business strategy to invent this new technology, it paid off. It works. We have now the patent, exclusive patent to this really powerful technology that's going to take over the world. And my plan is to give it away for free. Right? And if people, if you can't imagine this happens, it happened in Sweden many years ago, right? So, like, maybe that's hard for you to imagine, but imagine doing it today. Just imagine you go, if you work in a company, I want you to imagine having a meeting with your board of directors. If you don't have a company today, I want you to imagine to pitch this to an investor, going on Shark Tank or whatever, and watch the guy sit and you're like, we've got this patent on this awesome thing, and we're gonna give it away for free. Are they gonna be like, oh, good job? They'll be like, no, but why not just charge a licensing fee? I think you could make a couple bucks for every car that's like there's so many other things you could do with it that I think our standard way we teach business today would make almost guaranteed to have you like, yeah, of course, we made the investment, we deserve to have a return from it. But volunteer, they gave it away completely for free. And here's what happened. It started what I call a prosperity cascade. Because they gave the belts away for free, other manufacturers who had resisted putting the three-point safety belt in kind of found it irresistible. They're like, well, it's free. Well, how can we not do it? So a bunch of them, not everybody by the way, American companies especially were very stubborn about it. But other photo companies, they put the seat belts in. As a result, the insurance industry started to notice that their claims costs for customers who are in a three-point safety belt were lower than they were for people in a regular seatbelt. So they started to make adjustments to how much they would charge for insurance. Once they started making those adjustments, customers are like, wait a minute, if I don't have a three-point safety belt, my insurance rates are going to be higher. So all of a sudden, the total cost of owning a car that was unsafe went up. And so manufacturers were all of a sudden under this tremendous pressure to add the three-point safety belt to cars. And next thing it becomes a universal standard. First, it was an auto industry standard, then it was an insurance industry standard, and eventually mostly every developed country enacted it as a law that both you have to install the belts and you have to wear them when you drive. So that sequence of like starting this cascade has saved literally millions of lives. But it's also meant that Volvo is the only regional automaker from that time that's still around. The Volvo brand became cemented in consumers' mind as being synonymous with safety. That's true today. I still drive my kids around in a Volvo because I want the safest car for them. Of course, I do. My parents drove me around in a Volvo when I was a kid. It's become a permanent attribute of their brand. A recent study was looking at like how valuable is the safety attribute of Volvo's brand. They estimated the value of that association as roughly 10 billion euros. So giving this thing away for free created just untold billions in value, only because they saw the decision through the lens of mission transmission rather than through the selfish lens of how much money could we make as soon as possible.

SPEAKER_00 1:10:33

I'm also reminded of Jonas Salk. I'm actually good friends with Dr. Pia Salk, who is his niece, the scientist who came out with the first polio vaccine, which credited with, of course, saving millions of lives and how he refused to patent it. He said something to the effect of you can't patent the sun. He just felt it was a scientific discovery. It belongs to all humanity. I just can't imagine that. He would have been a billionaire back in the 50s when it didn't.

SPEAKER_01 1:10:59

But there's so many things like that. There's so many stories like that, like a Norman Borlog with the dwarf wheat. I tell the story in the book of the invention of the container ship. That was also a set of patents given away for free. Like it's actually in open source, in software, we see this all the time. Think about so many open source companies gave away everything for free and yet made billions doing it. But what's interesting to me is we see this pattern. Like everybody knows at least one story like this of somebody who did something generous or gave something away and then it came back to them tenfold or a billion fold. And yet, whenever we're in that situation, like, okay, it's time to put on my being a serious businessman hat, we're like, oh, that that's just for kids. I can't do that. Oh, as a result, I we were talking before about how the current definition of profit, it's blind to negative externalities. The much bigger disaster, actually, in terms of like dollars lost, never mind, lives saved, is that it's also blind to positive externalities. When we give something away, when we treat people with respect, when we do the right thing, we create a lot more value in the world. And it's just only natural that some of that value will come back to us. So when I said before that changing our definition of profit is a practical choice, not just a philosophy thing, this is what I'm talking about. It actually makes it possible to invent whole new categories of business that can create trillions of dollars of value.

SPEAKER_00 1:12:19

So just as a thought experiment, do you think there could be a way that we could or a company could measure dollars that there could be different kinds of dollars, like the dollars that are earned by just doing the yeah, transactional stuff, not doing anything, those are worth a little bit less. But if you've got dollars that come in because you've done something that has a social value, that's like a 10x dollar or something like that to build into a system so it's not just a feel-good thing, but there's actual cash reward somehow. I don't know. I was just trying to think through how do you build this into an economic system.

SPEAKER_01 1:12:56

No, I actually think that in the future, this will seem very primitive, the way we do things now, where all forms of money making are scored on a common ledger. And you see it, it causes so many problems today in larger organizations because, like, so for example, the money you spend in an organization to build a product is generally categorized as an expense. But if you do MA and you buy a company that makes a product, that's generally not considered an expense in the same way because you acquired an asset from an accounting perspective. So it creates all these bizarre incentives to like do a bunch of MA rather than actually do the work yourself because you get rewarded for it by the currencies effectively being separate. And of course, the biggest conflation of all is that today money can be used to run a business or it would also be used to buy the shares of a business. And so I actually think that doesn't make sense either. I think in the future we'll actually have a real bifurcation of the ways in which money is allowed to flow in and out of organizations, such that to just to minimize the very common corrupting influence that money has. I remember I once wrote a science fiction story about a future where the idea that you could pay money for shares was like considered crazy. That's a different currency and you can't just exchange the currencies willy-nilly. Because like the truth is that would allow whoever can borrow the most money can own any company they want. So it is like not just rule by the richest, which is oligarchy. This is rule by bancocracy because it's not who is the richest, it's who will the banks loan the most money to, is who can acquire any asset they want. And I'm glad they're banks, I think banks are fine. But like, do I think that like the values of those who run banks are the highest values in society and they should be making the decisions? Like, I think that's a pretty bad idea, right?

SPEAKER_00 1:14:34

Well, you know, that idea came to me looking at the book because you had said, I think you said not all profit is equal, right? So, well, if not all profit is equal, it's similar to innovation accounting in lean startup, like that's a form of profit. It just doesn't happen to be a dollar bill you can go to the store with, but it is a form of profit if you've learned something and it's very valuable, and it can certainly lead to more dollar bills. And so, yeah, just maybe there's some way we have to open up our thinking in terms of yeah.

SPEAKER_01 1:15:03

I'm a big believer in trying to find ways to calculate and make tangible the net present value of intangible assets. So, like the reason I invented innovation accounting was to teach people how to make learning valuable in financial terms. Let me explain what I mean. It's not that people don't know that learning is valuable. Everyone says they know that learning is valuable. But when confronted with a spreadsheet that says, well, I can either make money this way or that way, I have to calculate the ROI. So I need to be able to calculate the return on investment, which means I have to know what it costs to get it and what it's worth when I do get it. If learning is purely intangible, then it's always negative ROI by definition, because the learning is a zero on the spreadsheet, but the investment is non-zero. That's true for so many things. That's true for all these open source examples that we're talking about. But really, almost any time you do the right thing, the cost of doing the right thing shows up on the ledger, but the returns don't. So in Lean Startup and in the startup way, I was very concerned with how do we make learning the net present value of things that are learned, how do we make that tangible. In this book, I have a similar argument and a similar concern with the question of trust, because I think trustworthiness is the most underrated asset in the world today, bar none. And in fact, many of our modern business practices, the thing that they're the reason they fail is because they don't see trust as an asset that can be gained or lost. And so the equivalent of innovation accounting for this book is something I call the culture bank, which is to start to see trustworthiness as an asset that you can either make deposits against or take withdrawals on. So to understand the problem with this, I want you to think about I don't know how many of your listeners will know that our modern, like the way things work at work at almost every company today, is driven by this idea called OKRs, objectives and key results. The idea of OKRs is that when you have a big organizational goal, like, okay, we want to grow the company 25% this year, job of the manager is to decompose this high-level goal into the infinitely small sub-goals. And your goal is to try to assign an individual goal with a numeric target to each individual employee so that then at the end of the year you can see if they did a good job. So although our overall goal might be to grow 25%, you, Mr. Maringing Person, your job is to change the cost per click of our ads from X to Y. Miss Customer Support Rep, you are supposed to reduce average hold time from three minutes to two minutes. So everyone gets these goals that are written down and turn into quantitative targets. This has a huge problem with it, which is at any given time, any person in the organization can literally borrow against the company's trustworthiness bank account and spend down our trust in order to boost my personal metric. How can I do that? Well, you want to make your ads a lot more effective, just promise attributes that the product doesn't have. Customers might not notice right away. So probably you'll get a huge boost. If you just lie about what the product does, you'll get a lot more clicks. Yeah. You want to make your average hold time go down in customer service, super easy, just be impossible to reach and make your customers furious, they'll stop calling. The problem may not get solved, but the metric will improve. So each of those choices makes the individual person look like a genius. It gets them promoted, they get rewarded. And the cost of doing that is this like subtle degradation of the company's trustworthiness, which generally companies don't even notice that this has happened until years later when the company suddenly has a big crisis because now nobody trusts us. Now it's worse even than what I just described, though. Most businesses operate in a competitive compensation environment. So it's not just that if I do better in my metric, I get rewarded. We generally do stack ranking. So if I do the best of all my colleagues, I get the most rewarded. And reward is not proportional to result because oftentimes if I'm the best, I get promoted to a new job. And now I get ranked against those people. So it's like a tournament system. Being first is very valuable. So can you see where this is going? If I end down the company's trust and you don't, then I will get ahead of you. You being locked in a game theory prisoner's dilemma with me will be like, uh-oh, if he's gonna do that, I better do it too. And next thing you the whole company is trying to spend down the company's trust as much as possible. And then you wonder why why I said before, why is customer service like collapsing everywhere? Because this is what's going on at company after company. So if we want to prevent that, we have to be able to make the value of trust tangible so that we can understand that when someone proposes doing one of these high ROI but bad activities, they are proposing the liquidation of a critical asset. And we have to learn to tell them where they can shove it.

SPEAKER_00 1:19:36

I'm gonna just bring back a couple of martial arts things really quick for those of us who remember that it is the Angels Warrior Lab. One is, and we didn't talk about it very much, but a part of that, going back to the original concept you spoke about of the gravity, that financial gravity, there's pressure to make profit, and it's just gonna cause you to change what you thought you were doing. You may not even realize you're doing it, but it can lead to it, you called it, I think, a temptation to harvest. Is that what you called it?

SPEAKER_01 1:20:04

Yeah, yeah, exactly.

SPEAKER_00 1:20:05

Right. Let's get the value we can right now instead of the long term. Let's just grab the value we can right now. Very much a thing to be fought against in Brazilian Jiu-Jitsu. Like you see, you think you can grab a finishing hold and it's really not the right time yet, and you haven't set it up properly, but man, there's a chance you're gonna get it. But if you keep doing that, you're gonna end up losing your position, you're gonna end up getting hurt. I mean, there's all kinds of little martial arts analogies I can sort of spot in these things that we're talking about. And the reason I was just thinking about it now, when you're talking about spending down trust, people do that in their, and this is very common, in their attempt to have athletic prowess, and it's not just martial arts, they're spending down their health. They're going to take steroids now in order to be really good and strong now, but that's gonna have long-term health benefits on them. Or they are gonna work really hard in the weight room to have really big muscles, but they're wearing down their shoulders, and now in five years from now, they're gonna have like shoulder issues or knee issues. It is a human feature, I guess. It's this sort of short-term versus long-term thinking. I forget what the my my wife is an economist, but I think that is part of the problem in all of this. Like you're saying, probably someone who's trying to excel in their company, if they're doing something that's gonna ultimately destroy the company, then well, that's not gonna be good for them, but they're not thinking of it that way because in the short term, they are actually benefiting. And so having that ability to quantify the cost is, I think, very important. And in the sports, we do it by, well, wait a second, are you feeling more pain than you should be? I tell people it's a shame to die with any cartilage that's just fun you didn't have, but don't spend it down too quickly. So I'm just I'm just seeing this concept as really a human trait that we want to do what seems to have the short-term benefit, and we're not good at seeing the bigger picture. If we don't create systems that support us and give us a way to reward us for seeing that bigger picture, totally.

SPEAKER_01 1:21:59

I would even to extend the metaphor further, Jim Sinegal, the founder of Costco, I have this great quote that he told me in the book, which he compares it to doing heroin, which if you know someone who's fallen to drug addiction, it's not funny. But like these organizations, they're addicted, they're basically addicts. And it's interesting, as individuals, we have come, I think we've because of there's been like a big public health education about the dangers of drug addiction, we've become like aware of certain kinds of addiction are bad and know that they have this dangerous feature. But it's not the compound that's dangerous, it's the thing that you just described, the human tendency to want to take the shortcut to get the quick win to do the thing, and then to be heedless of the long-term consequences. What I think is really interesting is anytime you see that temptation, whether it's in business or in life or any other place, it always begs the question, why are we doing this again? Because it's like, okay, you take the steroid, ruin the customer service, you do the thing to quote unquote win. But to win what? Like, I think it really forces people to say, like, wait, why am I in business in the first place? Am I just trying to quote unquote win? If I dupe somebody and I win one over on them, if I cheat, is that satisfactory to me? And I think a lot of people enter whatever activity, whatever domain of life, from their hobbies to their profession to their family. People often enter with really like clear ideals. Be like, no, of course I would never do that. And yet, in the stress and pressure of reality, and especially when guided by these some of these wrongheaded ideas, what is the purpose of their life? They nonetheless fall to this temptation. And we have to start seeing it with compassion as like a pitiable, sad outcome. That's as true for someone who falls to drug addiction as someone who takes steroids, as someone who sets up an organization that like celebrates the kind of the sociopathic behavior. Like the whole thing, it's a human tragedy whenever it happens and at whatever scale it happens at.

SPEAKER_00 1:23:53

The economic term is hyperbolic preferences that I remember. Just we're not good at gauging, we want what we want now. It's like they experiment with the kids who do you want like one piece of candy now or do you want two pieces of candy in half an hour? Like, will you wait? And some people are just naturally more, I want my candy now.

SPEAKER_01 1:24:10

That marshmallow experiment is a famous study. And actually, I saw this incredible study, uh, follow-up where they reanalyzed the data and they realized that although people tell that story about it being about individuals' character, they also filtered by socioeconomic status of the participants. And it turned out the poorer kids were hungrier. Oh of course they did worse than the challenge. Like, of course, like it's both, it is of course, it is true. Like some people have that character defect, but also like there are other factors at play that sometimes we overlook. So I just I love the fact that study is still being re-re-studied and reinterpreted even more.

SPEAKER_00 1:24:43

Well, that and that just goes to show you if you're going to really design a good study, you really want to have a good control group and understand what could be the what could be the confounding variables. I had just one more thing I wanted to ask you, Ben. If it's too big of a topic, we don't have to go into it because we've been talking for a while, but I really appreciate the generosity of your time. In the book, you talked about Grapes of Wrath by Steinbeck and that quote about the bank being a monster, and it's talking about how we create an institution that is like taking on this life of its own and it's not even controlled by the people who run it. And I think that that certainly could be an issue when a company gets really big. It's like now it's just this company. Like, is there anybody running? Is there even a human who is running this thing, or it's just running life of its own? And it connects up to the bigger fear that we're having now with AI itself, which is like perhaps going to be the best example ever of us creating something that then takes on a life of its own and the humans are no longer a part of it. So I just curious your thoughts both on the company level about how to keep a company from just becoming this behemoth that has no humans anymore. It's just doing its own thing. And if you have any personal opinions on AI headed in that direction as well.

SPEAKER_01 1:25:50

Oh, yeah, yeah. I do a lot of work in AI and I help run an AI research lab. So yeah, I got a lot of opinions about it, no problem. But since we're making the connection, just interesting, I maybe just because of the order you ask the questions, this is where my mind goes. To me, these like lumbering old beasts that we make, these like companies that are in this kind of like reflex, nobody at home. We know it when we see it. Steinbeck's tenant farmers are like, who is the bank? Like, okay, we're I understand that our land is being taken from us, but it's the dust bowl. None of these farms are being productive. Why are you seizing all of our land? Like, who's doing this? And the people coming to seize the land are like, well, we don't want to do it. We're like, Well, who does? And the people say in Steinbeck's language, like very colorful, it may be that every man in the bank hates what the bank does, yet they do it anyway. And the tenant farmers are like, but a bank is only made of men. And they're like, oh no, you're quite wrong there. The bank is not a man. The bank is a creature that breathes profits. And yet it's easy to criticize these unconscious beasts. But I ask the question in our own lives, how conscious are we in our day-to-day life? I think the reason that this persists, part of it, is that a lot of us have been programmed to live our life on autopilot and to like time kind of passes and we don't even realize what's going on. Like, I think there's a deep similarity here that in order for any organization to have that alive feeling, people need to be awake and paying attention to the things that they're doing, asking these kinds of questions, like we're talking about. And I encourage people in the book not just to see this as a book only for founders or leaders or board members or fancy people. Like everybody has a role to play in asking the kinds of questions that can snap people out of it. And you see it sometimes, like obviously with AI, you see it a lot because the AI companies are constantly being dragged into circumstances that are like, they would seem like in a previous generation, if I had said we're gonna have these like business debates about the nature of language, even like it seems very hypothetical, but it's like this is not hypothetical. Like when the AI agent convinces someone to commit suicide, who is responsible?

SPEAKER_00 1:27:50

Yeah.

SPEAKER_01 1:27:50

Right. And you see people periodically at these AI labs, for example, they'll quit in protest. Like there was just the other day someone quit in protest from OpenAI's robotics division. Because of decisions that they've made about autonomous control of weapons. And it's interesting. It's like people were pillaring this guy online. I saw so many quotes and tweets and people being like, where did you think you were working this whole time? And like all of a sudden, today you realized like this is a really dangerous technology that needs to be handled differently. Like, and I was like, that I thought that was so deeply unfair. You wake up when you wake up, it happens. And I think a big part of the challenge, like if we really want to see this new future come to fruition where organizations are routinely built to maximize human flourishing, I think that's something we all could get excited about. We have to realize how much power we have in our day-to-day lives to make that happen. And a lot of people who've been read the book already have come to me for advice on this point. It's actually a very common question I get. It's like if I'm an employee in an organization or if I'm thinking about taking a job, what can I do? I'm not the boss, I'm not the CEO. What can I do to see this happen? And I gave this example the other day. I was working with a group of students who were all about to enter the workforce for the first time. I said, okay, look, you all want to work in a mission-driven company. Every person raised their hand. Like, of course they do. When you're interviewing for the job, here's what I want you to do. And they were saying to me, a lot of them were like, look, in this economy, I don't feel courageous. I don't want to miss out on the job. I don't want to be perceived, God forbid, as an activist. I'm like, you know, first of all, there are worse things in this world. But okay, okay. Here's my zero courage required plan. Here's what you're gonna do. In the meeting, you're gonna ask them, Are we a mission-driven company? Just ask. It's a perfectly fine question to ask. No, no harm in that, right? And the person will say, Oh yeah, we're totally mission-driven. You'd be like, Great, how do you know? What do you mean? I I work here. It's like, okay, but tell me what it what does it mean to you to be a mission? The cruppers will blah blah blah, how great it is, we do the right things. And just ask a simple question like this. Be like, oh, interesting. Is that the purpose of this corporation, legally speaking? And the person will be like, huh, what? Like, have you is that mission that you just told me all about, is that written in the corporate charter? And the person's gonna say one of three things. Either, of course it is, in which case you'll be like, oh great, can I see it? Can I see? Now, well, you don't have to tell them in the interview, is that Delaware corporate charters are a matter of public record. So if they don't show it to you, just have call a friend who's a lawyer and ask them to pull it for you and go see. If the charter doesn't say what the mission is, if it just says this company exists to pursue any lawful purpose, and this is not a mission-driven company, this is just a mission hopeful company. The person might say, I don't know. Actually, that's a good question. You can be like, Well, would you mind asking for me? Could you find out? You never know. Maybe they'll ask their boss. Maybe their boss will ask his boss. Maybe next thing you know, someone's having a board meeting and they're like, Gosh, employees are asking us if we're really mission-driven or not. You never know what the consequences of that might be. Or they'll be like, Oh, yeah, no, we're just a regular corporation, but it's fine. And now you know not to work there. Congratulations. You just saved yourself a lot of heartache. No matter what answer you get, just asking that question is immensely powerful and requires absolutely no courage. Because you're not criticizing, you're not saying I want you to be, you're not even telling them what to do. You're just asking a simple question. Well, that's to me what it means to be awake in an organizational context. When you see something that's wrong, when you see something that doesn't make sense to you, when you just like are going along with stuff and all of a sudden you have this moment of recognition, like, wait a minute, what we're doing what? Do you have the courage? At least, you know, before you you build up the muscle, before you become a black belt, and now you can do like really complicated stuff. Like, first, can you just take one first step? Can you ask the question, be like, why is this happening? Is this in fact consistent with our mission? Does this reflect our values? Just ask the question. And that simple act, first of all, the more you do it, the stronger you get, the more you can learn other more advanced skills. So that's good in itself. But even if you never advance beyond that step, you're still helping build the world we want to see just by doing that.

SPEAKER_00 1:31:31

I think it would be nice for people to understand, because I've been working in the nonprofit space for a long time. So I feel that I have dedicated my life to a mission. I'm very proud of that, and I've done the best I can. And that mission began as ending animal suffering or mitigating animal suffering, and it's broadened to environmental health because I see the connections and human health and all these things are quite connected. But I talk to a lot of people who say, Oh, I admire you, you work for a cause you believe in. And obviously, not everybody's going to work for a nonprofit organization. Everybody could donate. I mean, everybody could certainly could donate everybody could volunteer if they got a little time. But any company is doing good in the world. I mean, if you're pumping gas for somebody, that's wonderful. You're helping them out. And if you're a bank teller for somebody, you're helping them have a good day. Obviously, everybody can bring good in the world, regardless of what organization they're working for. They don't have to be working for some world-changing save the children or save the animals nonprofit. But I do think to your point, it starts with being awake and understanding what is your moral compass, what is the impact you want to have on the world, whether that's the impact you're having at the car dealership you work at, or at the software company you work at, or at the nonprofit you work at. I do something, and I've talked about it in some of the earlier episodes of this podcast that people can refer back to. First of all, had a whole series of episodes saying you have probably have less time left to live than you think, because I didn't think that's just in fact true. Most people assume they're going to live to an old age, and some of us sadly are not. And certainly in terms of the productive time you have left, because there are going to be illnesses that are going to take our focus away. So you have less time left than you think, and living a life of meaning is a choice that you have. I do this thing every three months religiously called mission days, in which I take myself offline and I have a journal that I've been writing in for years, and I review a series of questions. And it's very hard to do. Everyone says they should do it, but they don't. But when people do it, and I've had a few people do it, and it doesn't have to be that. I go off for four days. It could just be an afternoon, but it does help to just give yourself a little time away, create a little boredom in our overly stimulated world and ask yourself, and even if you do it like once a year, it's a check-in, a course correction to just say, am I happy with what I'm doing in life? And you can ask yourself about your health, you can ask yourself about your choice of jobs, about your spouse, whatever it is, I think it's very helpful to stop and examine your life sometimes and really think for a moment. Am I just on that autopilot that you talked about? Which is understandable because we all have to do it to get through the day. But every once in a while, turn the autopilot off and take a look out, not just in the headlights, but look out in the distance and say, is this the direction I want to be going? Am I living the life I want to live? And I think if more people would do that, they would find, they would live more awake, they would be happier, they would certainly understand and clarify what are the values that I want to live into in my business and in my work and in my purchases. And am I living into those? And if not, maybe it's time to make a course correction. So that's what I'll leave our listeners with now is go listen to those early episodes because they're good.

SPEAKER_01 1:34:38

No, that's great. That's great advice. And actually, for those that do decide they want to go out and read the book, the book is actually designed so that it can be read backwards. Most people don't usually read a book all the way to the end. But for those who actually are interested in this question of what is our role as individuals, what can we do as consumers, as employees, like that those topics come up at the end of the book. And for people who don't see themselves as necessarily a company founder, you could actually begin with those chapters, which will help you understand how to reinterpret all these founder stories to see the power that you may not realize that you have, to see your values enacted in the world. So encourage people to check out the end of the book for those who are interested.

SPEAKER_00 1:35:14

Yes, that was very interesting. The book is incorruptible. And we will have, of course, links to it in the show notes, along with your other books, including Lean Startup, of course. We will include links to your podcast, your social media. I'll be sure that we have all that. I just can't thank you enough for being so generous with your time. You're always such a pleasure to talk to and such a breath of fresh air in your ability to both explain things and to see deeply into interesting concepts and explain them. And you're just clearly such a good person. So I'm glad to know you and thank you for your time.

SPEAKER_01 1:35:48

You've been such a positive force in my life, and I really appreciate your compassion and your generosity and the way in which you have been both like a fierce advocate for things that you think are right, and also just, yeah, a very soulful and generous person about it. So thank you.

SPEAKER_00 1:36:03

Thank you, and we'll talk soon.

SPEAKER_01 1:36:04

I look forward to it.

SPEAKER_00 1:36:05

I hope you enjoyed my conversation with Eric Reese. You can see more of his materials on his website, theleanstartup.com. And you can check out his podcast at ericreeshow.com. And you can buy his new book, Incorruptible, Why Good Companies Go Bad and How Great Companies Stay Great, wherever you buy or download books. If you're watching on YouTube, please do leave a comment and let me know what you think. Was having a non martial artist on the show interesting to you? If so, clicking like and sharing is always appreciated. I'll be back next week with more lessons from the lab. And until then, keep developing your strength, your wisdom, and go out and do good in the world.