Subscribe
Share
Share
Embed
Lead The People is your guide to unlocking your true potential as an authentic leader. Hosted by Dr. Matt Poepsel—The Godfather of Talent Optimization—this podcast dives deep into the art and science of what it takes to lead at the next level. With insightful conversations and practical strategies, each episode equips executives, strategic HR pros, and aspiring leaders with the tools it takes to boost performance, inspire teams, and drive meaningful impact. Whether exploring the latest workplace trends or tackling real-world leadership challenges, Lead The People offers an enlightened approach to leadership. Embark on a rewarding journey to become the leader your people deserve—the leader you were meant to be.
Eric Ries (00:00):
Trustworthiness is the most underrated asset in all of business right now. So people hear that and they think, oh, that sounds nice. We wouldn't want to be trustworthy. But once you see that trustworthiness is an asset, you realize it's something that has value, it can compound, you can stockpile it. If your employees trust you, if your partners trust you, if your investors trust you, if your customers trust you, you get all these superpowers in business. The flip side though, it's as if your building a vault with this super valuable asset in it and there's no lock on the door.
Matt Poepsel (00:35):
My very special guest is the creator of the Lean Startup Method and the author of the New York Times bestseller, The Lean Startup, the Leader's Guide and the Startup Way. He put his own ideas into practice with the long-term stock exchange, answer.ai, the Lean Startup Co, Virgil, and IMVU, and he's the host of the podcast, the Eric Ries Show. He's the author of the new book, Incorruptible: Why Good Companies Go Bad and How Great Companies Stay Great, which was just released this week. Eric, thanks so much for being with us today. Really can't wait to have this conversation.
Eric Ries (01:02):
No, thanks for having me.
Matt Poepsel (01:04):
Well, let's start with this thing about why companies go bad. When we say that a company goes bad, I'd love you to tell us what that means or maybe the range of things that can mean. And a lot of times I think that we've historically thought if we see somebody in the headlines for the wrong reason, somebody made a bad choice because of greed or poor judgment or something, but maybe you can set the record straight for us on what is it to go bad and why does it happen?
Eric Ries (01:27):
Yeah. We live in such a polarized time that if we use language of judgment, call things good or bad, people immediately jump to the idea that if something is bad, it must be absolutely bad. It's the worst evil of all time. And if something's good, it must be absolutely good, never made a mistake, nothing like that, nothing in between. And part of what I'm trying to do in writing this book is help us reclaim a space for talking about a phenomenon that we're all very familiar with. So when I say that a company has gone bad, I'm trying to talk about a company that has lost that original spark, the thing that made it great, the reason we all love it. And pretty much all of us have had that experience in our modern life somewhere somehow. I've been telling this story for a while about the time I went to a certain restaurant and I took one bite of the food and I was like, "Does this company get bought by private equity?" And I look it up and of course it is.
(02:14):
And what's funny is I've told that story many times and so many people have come up to me like, "I know what restaurant you're talking about. " And then they name a totally different restaurant. Everyone's had the experience, but we did all different restaurants. And what's so sad about this is we've just seen company after company after company and really organization after organization, because it's not confined to the for- profit sector, just lose their way. They become big, they become greedy, they become selfish. And we've seen that they are not trustworthy and they're kind of indistinguishable. And that's really the part that bothers me the most is although they start in different industries, different countries, different decades, different founders, different ideals, they wind up in that same mediocre place. And the book is about why this happens and what we can do to prevent it.
Matt Poepsel (02:53):
I love that you're pointing out that it's not binary. It's not like we have these universals of, well, you're either good or bad, you're either on the list or you're not. Ultimately, it is a pattern though that you've seen happen over and over again.
Eric Ries (03:03):
If you think about it, it's been going on a really, really long time. It's such a long time that there are whole books about the phenomenon and that give it a name. We know the stories and I call it the fallacy of enlightened capitalism following a really great book called The Enlightened Capitalist by James O'Toole. And in that book, he traces this kind of case study method, back, back, back, back, back, going all the way back to 19th century Scotland where you have these people who have figured out a way to make more money, not by inventing a new technology, but inventing a new kind of business. In some ways, it is like a technology. If you treat employees better, if you pay them more than you have to, if you invest in quality in your customers, if you are trustworthy, you do quote unquote the right thing.
(03:48):
And right thing, again, not absolutely right, but right as it relates to your own values and proclaimed beliefs, you make principled decisions, you make more money. It's that simple. You grow faster, you have better employee retention, you have better customer retention, you have higher margin. I could go on and on. There's all this evidence that this better way of working works. And because the thinking goes like this, over the generations, we have seen so many companies where the founders say, "Oh, because the logic of capitalism is competition." So if I invent a better way, everyone's going to copy me. This idea will spread. I'll be a hero. Other industrialists will be like, "Oh, this is great. Good job. You invented a new technology. This is super valuable. Of course we're going to do it. " And then they're always so surprised when that doesn't happen because if the market's selected for value creation, this would be the most dominant way of working in the world.
(04:36):
The fact that these companies are constantly consistently betrayed tells you that that isn't actually how capitalism works.
Matt Poepsel (04:46):
It's incredible too, because I think that there's this push to grow. That's the only definition of success. And I think it creates these, sometimes I refer to them as artificial acts when you're going through this situation where we're chasing the top line, you're trying to force things where they probably don't fit, but it's easy and fast to lose our way as you've pointed out here. So it can kind of be a slippery slope and pretty soon you end up so far away from why we got into this business in the first place. It can be hard to find your way back.
Eric Ries (05:13):
It is almost always irreversible once you get to a certain point. And what's sad is I tell a bunch of stories in the book of founders, leaders, board members who've kind of got themselves into this situation. And by the time it's too late, you say, "Well, they made a mistake." The final act is often a mistake. And natural, we like to tell these stories as personality driven dramas who will win the good guys, the bad guys, idealistic, but naive founder or the cynical but powerful investors or whatever. And we try to personalize the story, which makes us blind to the systemic causes and to their systemic solutions. So when we understand this as a systemic problem, then you could say, "What was the mistake?" The mistake was not the last link at the chain, but the first if a company didn't protect itself, it's as if we're teaching these companies, I say in the book that trustworthiness is the most underrated asset in all of business right now.
(06:09):
So people hear that and they think, "Oh, that sounds nice. We wouldn't want to be trustworthy." But once you see that trustworthiness is an asset, you realize it's something that it has value, it can compound, you can stockpile it. So if you look at the Enlightened Capitalist Playbook, the reason it works is because if your employees trust you, if your partners trust you, if your investors trust you, if your customers trust you, again, we have lots of documentary evidence for this, you get all these superpowers in business. It's wonderful. The flip side though, it's as if you're building a vault with this super valuable asset in it and there's no lock on the door. The more successful a company like that is, the more people are going to try to steal it from you. Of course they are. That's human nature. And to say that we're going to blame that only on the greed villain at the end of the story, I think is skipping over the fact that we built it in such a clumsy way in the first place.
(07:00):
So this book is not just complaining about capitalism. This book is about the specific, measurable, proven techniques we have to build organizations that are strong enough to resist these outside efforts to pressure them, to destroy them, to make them loose their way.
Matt Poepsel (07:14):
You have such a unique vantage point because you have a technology background. You helped so many of us when software development was kind of at a certain apex and in having built businesses, you're now using systems language, but you're equally comfortable with financial language. And I want to stick with that for just a second because you use this definition of the term profit. So most of us think about profit and it's about profit and loss, P&L. We think about that, but that's just one narrow definition. Can you talk us through a little bit about how you define profit now and how does it really relate to the leadership decisions that we make every day? I'm
Eric Ries (07:47):
Going to answer your question. I'm going to warn the listener that this is going to sound radical at first. I know. I know. It's okay. It's okay. It's actually not as radical as it sounds because the elements of our current modern definition of profit, the problems that it causes are actually already well known and well studied. And in fact, I talk about in the book, what I call the builder's intuition, most of us who make things for a living have a intuitive inner definition of profit that we carry around with us, but we also have a mental, formal definition of profit that we carry around us. And we don't notice that most of the time these two definitions are actually different. They're different in small, subtle ways that are actually quite important for our purposes in this discussion. So the builder's intuition is that the right way to make profit, the right way to make money for yourself is to create new value in the world and then capture some of that value for yourself.
(08:41):
When you do that, you do what Tim O’Reilly calls creating more value than you capture. And by definition, any money you make is making the world better than you left it. So it's an ethical, high integrity way of making money. Unfortunately, our modern world is full of ways of making money that don't create any value at all that our grandparents would have called crimes, by the way. It's not some ancient wisdom, okay? This is something that is a very recent development. So how we define profit matters a great deal. If you go to an economics class, you will learn the conventional definition of profit, which is that you ask anyone in business, it's very simple, take my revenue, try and cut my costs and take a $50 piece of wood, turn it into a $200 table, I just made $150 a profit. Easy. Okay. But then let's make it a little more complicated and let's do these exercises that again, in economics, these problems are well known.
(09:26):
What if I create a Ponzi scheme? Is it profitable? I've done this exercise with people all over the world. Nobody wants to call a Ponzi scheme profit. No, no, no, of course not. I'm like, why not? This month I made $200 from revenue and all I had to pay out $50 to the old investors. Isn't that $150 in profit? No, no, no, come on. Because you've created more than $200 in liabilities that you just haven't paid out yet. Oh, I see. So it's not just profit and loss in the current period. You have to account for what are called deferred liabilities. That makes sense. A Ponzi scheme doesn't create profit because although it seems to create value in the short term, all we're doing is we've taken our liabilities and moved them over time. So shifting value around in time does not create profit. Glad we agree about that.
(10:11):
But what about if I bury a toxic waste dump in my backyard? I'm going to have to clean that up, right? Well, is that profitable? So you instantly see how these hypotheticals have real world consequences. Let's take a second example. What if I pollute the river and the town downstream for me, everyone gets sick and their healthcare costs go up. Imagine I got away with it so nobody knew that I was the cause of this villainy. Is it profitable? Again, people will be like, no, that can't be right because all you've done is change the values, revenue minus costs. You just move the cost instead of moving them in time, you've moved them in space. So surely that's value destroying because you don't have to account for what are called the negative externalities of what's happening in the town downstream. Good point. But if that's true, what if I have a product that poisons my customers and makes them sick, makes them unhealthy, poisons their community or their environment, their information environment makes them addicted.
(11:02):
Do those externalities count? Are those companies profitable? If you think about it, it's pretty clear that the answer is no. And here's the worst one. Another critical factor of our current definition of profit is we have to account for all the input factors of production. So the $50 piece of wood I mentioned before, imagine I stole that wood from somebody else. So imagine I stole $200 worth of wood and I sold a $100 table. Imagine again that I got away with it. Is that profitable? You like, no, it's not profitable. You destroyed $200 of value in order to make $100 of value. You actually destroyed $100 of value even though it doesn't appear on your balance sheet. That's an interesting point. But what if human life is one of my input factors of production? People are like, "That's absurd. Don't be ridiculous. Nobody does that.
(11:44):
Okay, but just indulge me. What if I had a business on the dark web, cryptocurrency powered, hit man for hire.You pay me the money, you give me a name, they're murdered. Is that profitable?" People find this so offensive and rightly so. They'd be like, "That's illegal." I know it's illegal, but what if I made so much money doing it, I could lobby the government to make it legal. Now it's a profitable, but it's unethical. It's immoral. Well, what if I made so much money? I started my own religion that tells me it is moral. At the end of the day, does this create or destroy value? I think in our hearts we understand that it destroys value. Human life is so precious. Making $50 for the destruction of human life, that can't be called profitable. And what about cigarettes? Uh-oh. What about all the products we make today that we know cause death as a side effect?
(12:34):
Are they profitable? So as you do this next exercise, again, an economist would be like, "Yeah, this is all well known.What's the big deal?" Most builders, most normal people have not really done this odd exercise. In economics class, they'll often say, "Yeah, it has all these problems anyway." We still use it anyway because it's the best definition we have. I think it's time to let that go. And to realize that even today because of these complexities, every company has to define profit for itself. That's already true. If you read financial statements from any company, they've had to make all kinds of judgments, technical and economic and moral judgment about how profit should be accounted. So given that we're having to do that anyway, I think we should do a good job of it and we should try to reconcile our formal definition of profit with our more intuitive sense.
(13:15):
My suggestion to work is that we use the definition of profit, the maximization of human flourishing. Very simple. Are all the human beings we touch better or worse off because of what we did? And when you do that, it actually makes life much, much simpler and it makes it much more likely that someone's going to trust you because you're not eager for negative externalities, you're not eager to hide your deferred liabilities. You're actually proactively trying to measure and account for all your human impacts.
Matt Poepsel (13:43):
And I think that it's one of those things that I love how you've described that it's a concept, even human flourishing itself. Well, how do you define that? What is it that these inputs, these outputs, because a lot of people might say, "Well, our product or our service contributes to human flourishing. Here's how." And then it's up to the customer to decide, is that my version of human flourishing? Maybe I want to be physically fit or whatever that means to me, but it's a lot more out in the open in that way, but that is classic systems awareness that you're describing. And a lot of times people collapse. They think, "It's too complex. I'm just going to focus on making money. I'm going to cut some corners, create problems for future generations. I don't know what you want from me. " You're holding us to a higher standard when you describe it in this way, but one that I think that haven't we earned our way to know enough about business and technology and financial systems to say, "This is within reach.
(14:31):
It seems possible." I
Eric Ries (14:33):
Think it's actually very straightforward. We have the evidence that this is a better way forward. So this is not Eric's pet theory, but everything I'm saying is backed up by a lot of research. I think what's interesting is when people first think about embracing this way of working, they're like, "Oh man, yeah, it's going to be so complicated. It'll be a lot easier to cut corners." And yeah, you say it's future generations that'll pay the price. But I'm always like, "Well, before we get to future generations, let's talk about future you. Have you noticed how your past self is always getting you into these jams that you find extremely difficult?" Yeah, your past self is such a schmuck, but your future self is infinitely capable. That's why you're in the mess that you're in. So many businesses talk to me about this and they're like, "What you're asking me to do is too hard, too complicated, too.
(15:16):
Well, business is already so hard." And I push back and say, "Look, have you considered the possibility that the reason why business is so hard for you is that nobody trusts you? Maybe if they trusted you, your life would be easier." And I go through in the book all the different ways in which this way of working is an example of a principle like all harder is easier. If you make the principal choice upfront, if you commit yourself to do the right thing, again, right as you define it. So I'm not to follow my values, follow your own values. If you are a predictable counterparty, people are like, "I know what you stand for. I know what you're going to do. " If your organization has architected in such a way that it has long-term commitment to those principles, it reaps these unexpected benefits that solve for most businesses.
(16:00):
What other companies say are the hardest problems in business, like talent acquisition, like alignment, like morale and customer retention, customer loyalty. And so that's my question is, would you be willing to endure some short-term pain for long-term gain? And just like if you're in like, "I want to be physically fit. I want to be bodybuilders think well, you going to adjust your diet and you go to the gym?" No, that's too hard. Well then, okay, then you're not going to get the outcome, but then also don't complain to me about how weak you are. What'd you expect?
Matt Poepsel (16:29):
It's exactly what's showing up today because it seems like every year there's something new that we have to adjust to, disruptions happening everywhere. The entry of AI is probably one of the most dramatic right now because it's just so universal and it's happening so quickly. But back to your point about being trustworthy, I think a lot of times CEOs are frustrated because their organizations aren't adopting some of these new technologies in the face of uncertainty. And I always say to them, "You haven't earned the right to be as agile as you think you want to be because you don't have that trust." And I think we've not seen a situation in my recent memory where trust in leadership and trust in organizations generally is as low as it is now. So you're raising the bar and focusing on trust at a time when trust is really depleted.
(17:13):
So I could see where the excuse making is going to kind of kick into overdrive.
Eric Ries (17:17):
I like these stats in the book because they're kind of staggering. Trust is utterly collapsing everywhere in the world over the course of really our lifetime. And it's so low now that when younger people especially hear stories of what life was like in the dark ages of like 1980 or 1950, they can't understand the story. It's actually really hard to imagine. I can remember feeling that way myself too growing up. I remember the first time I was old enough to understand that there was like a newspaper article about a wave of corporate layoffs from some company that had acted in a soulless way betraying all its employees and just laying them off for no good reason. And now that's like routine, even talk about it before. That was still at a time when people felt like that was a breaking of some kind of social covenant.
(18:00):
So the press coverage was very negative. People acted like it was a betrayal. I was like, "What did they expect?" I was already young enough to be like, "Why would they ever think that a for- profit company would do anything but stab them in the back? Why would you give your loyalty to a company?" So it's hard to imagine there was a time our grandparents understood that first of all, they had not lived through the financialization of everything we have. So they still had separate spheres of influence and power, social spheres, political spheres, civic spheres that were distinct from the sphere of business and they had an understanding of trustworthiness as a value. So if people acted in an untrustworthy way, they would act to curb, curtail, regulate, and certainly not do business with such a person. Now we celebrate them. I hate my least favorite thing people say to me is about some bill and you got to hand it to them or at least it works.
(18:50):
No, I don't got to hand it to them. The fact that it works is what makes it dangerous. Yeah, you suck the marrow out of a society, of course that quote unquote works. Yeah. If you cut down all the trees, that is one way to monetize a forest today, but what about next year? What about 10 years from now? What about generations from now? So I think we've kind of taken a civilization scale long term where we've stopped being able to differentiate between extractive value destroying ways of making money and value creating ways of money. And once we cure ourselves with that blindness, it's not just a moral improvement we will see. It's also a business strategy. It allows us to see business opportunities that the conventional tools that we've been taught keep us blind to. I'll give one example that comes up again and again in the book.
(19:37):
We've been talking about how the current definition of profit leaves us blind to negative externalities, which is very bad, but an even worse effect is it leaves us blind to positive externalities, which are things that are benefits that accrue to others as a result side effect of transactions that we do. Think about if I create an open source project, if I invest in my community, if I do something trustworthy, the costs of doing that right thing show up on my balance sheet, but the benefits are invisible. And in a world where we have substituted human judgment for stack ranking by ROI, the right thing is always ROI negative by definition because the returns cannot be measured, but the investments can't be. Now a big part of the book is about how to solve that problem of bringing the measurements and visualization and analytics to bear that we can start to see the value of positive externalities.
(20:30):
But I think the much harder part is the conceptual blindness we have that we are blind to these activities so that if you suggest to someone, "Hey, I think you should do this right thing, we just can't see how that could possibly be okay to do in our modern world. And as a result, we don't build kinds of things our grandparents built. We are like watching our civic infrastructure decay and collapse because those are categories of institutions that can only be built for positive externality thinking. And so by blinding ourselves with these opportunities, we're literally missing out on trillions of dollars of value creation on top of all the social consequences that that would solve.
Matt Poepsel (21:02):
It's hard to do new math with an old calculator in some ways. I think that's what you're suggesting to us is saying, see the world for what it is. And I find it so ironic that the fact that we're in a system has never been more clear in many ways, yet we've retreated to this kind of old school, economic only, single way of looking at the engine of capitalism in some ways. And I don't know if that's because we're overwhelmed or if it's just easier, if it's shorthand. I don't know that it's a values collapse so much, but it's striking to see the difference between we're hyper connected, but we're going to act like we're not.
Eric Ries (21:37):
Our grandparents understood this much better than we do. Again, not my opinion. I just name the different best practices that we've all been taught are the best. Here's the academic evidence that this is value destroying. And the scale of the value destruction, if you add up all the things, we're talking about trillions and trillions of dollars in lost value every year. These practices are very expensive and yet we don't even talk about them because we've been taught that not only are they the best practice, they're like natural laws. They're just like an essential part of our financial system, an essential part of capitalism. And I have to remind people most of these ideas are younger than the trees in your neighborhood park. This is a very recent wrong turn that we have taken towards these destructive best practices. So understanding where we are in history, understanding the opportunities that are ahead of us, I actually think, at least me with a lot of optimism, because the good news is almost everyone I know who works for a living, who makes things for a living already shares an instinctive understanding of these ideas.
(22:28):
And in fact, they are generally horrified. If I just quote them actual governance experts talking about what they think the rules are and should be, you hear often that there's a normative consensus of all managers that the only appropriate way for business to operate is to care about its externalities only in so far as that benefits profits and shareholders. And I'm always like, " That's your words that they're talking about. That's your welfare, your life. They're saying basically if they can kill you and get away with it, not only is that okay for them to do, they should do it. It is morally right for them to do it. I am not exaggerating. That's literally how they talk. And what's so interesting about that is notice the phrase normative consensus because if it was really a natural law, you'd think by now it would've been encoded as an actionable law.
(23:17):
Surely they'd be like, oh, you hear about the people that live in the era of shareholder primacy and you're like, well, according to what law. Well, there's no statute. There is no referendum. There's no idea with any democratic legitimacy has pushed us into this set of beliefs. And yet it is the law because starting in the 1960s through the 1980s, a relatively small cabal of judges, lawyers, board members, and academics, they created this normative consensus. We then get taught, this is how it's always been. This is an ancient and critical pillar of capitalism. But no, it is a relatively recent idea. It is, like I said, a civilization scale experiment. I think data is in now that this experiment has been a failure. In fact, I would go further. I would say that in fact, the era of shareholder primacy has actually already ended. We just haven't noticed yet.
Matt Poepsel (24:03):
Yeah. It takes a while to sort of rub our eyes and wake up from the haze and see the world for what it is. I think that a lot of the conversation we've been having today is not what is discussed in a Monday morning meeting, right? It's certainly not a level down leader who's thinking, "Okay, yeah, I'm busy. I've got a lot of work to do here, et cetera." But I think there is a term that you return to in the book over and over again, which is around mission. And assuming that we've defined our mission in line with these principles you're teaching us this new way of ... And the right way of looking at things, when you think about mission, how is it that the challenges we face day-to-day give us this opportunity to either honor or strengthen or align with the mission?
(24:45):
How do I hold that tension in my head, Eric?
Eric Ries (24:48):
Yeah, I think it's really sad. Most investors invest in companies because of the mission. That's what makes an organization vital and worth investing in in the first place. But they've been trained that once you become a board member, mission is kind of like a nice to have. It's like the dessert you get to talk about after you've eaten your vegetables. It's no longer seen as vital. And so unfortunately, most boards don't see mission protection as part of their job. And certainly if it is part of their job, it's far secondary to things like compliance and maximizing return for shareholders, which I think is really sad. We have tremendous evidence that mission-driven companies outperform, purpose-driven companies out compete. They get all these incredible benefits. Most people who start companies and who lead organizations, for- profit, non-profit, universities, governments, you name it, like most people who go into this line of work are mission driven.
(25:38):
And so I've been trying to teach people that if you say your organization is mission driven, my first question is going to be, how do you know? Because I'm mission driven. I said, "But you said your organization is mission driven. What does that mean?" Well, we're the good guys. We try to make the right ... People fumble with that question all the time and say, "Okay, is it written in your corporate charter or is it seen as optional? Is it how you do reward performance? Is it how you award contracts through your procurement? And here's the most important one. Is your business model aligned with your mission such that you cannot make money except by accomplishing your mission?" The answer to those questions most organizations, even if supposedly mission driven ones is no. They'll be like, "But we have our values carved and stone in our lobby." So, oh, good for you.
(26:20):
But people don't take their direction from decorations. I'm sorry. I need to see that it is embedded into the structure, the governance and operational structure of your company, or I say your just mission hopeful. And I'll tell you a sad story. This is a startup from a couple years ago. I didn't know the founders myself. I read about this story afterwards. It's called Practice Fusion and they were like a booking software and EHR software for doctors and they got caught up in the Purdue Pharma opioid crisis. Somebody on the team thought this was a good idea. Purdue Pharma came to them and offered them $1 million if they would promote opioids to the doctors to promote to their patients and they said yes and they took the money and we all know about it now because when the Purdue Pharma scandal broke and there was litigation and all that stuff, the documents came out and doctors felt so betrayed the company collapsed.
(27:09):
And what's so interesting to me about it is even if they had gotten away with it, how would taking this million dollars have really advanced their mission? There must have been a meeting before everyone knew that Purdue Pharma were the bad guys. This random company wants us to spend a million dollars to promote opioids. Should we do it? And the only reason you would ever say yes is if you think the purpose of business is to make money by whatever means necessary. Nobody who said our mission is to help doctors would ever have been like, "Yeah, sure, good idea. That was great." And I tell a lot of stories like this in the book where companies have made a decision that they thought they had to make because they're part of this normative consensus that ultimately was killing the golden goose. And I think most leaders are hopelessly naive on this point that the more golden the goose, the stronger the temptation will be to butcher.
(27:58):
So the very success that our mission creates often is what attracts the predators who wind up dismantling it. So if we don't protect ourselves, we don't protect our organizations, this will be our fate generation after generation. And
Matt Poepsel (28:11):
It's a tale as old as time, right? So now you're starting to see this play out at the really high stakes when it comes to the AI world and you're like, "Well, where are we going to cut some corners? What compromises we're going to make to stay competitive because everyone's growing so fast and it's so pervasive and there's such a land grab right now." The temptation to act in a normative way and come down to the level of your competitors is quite high. I think that in your example that you just described, it sometimes comes down to competing incentives. So we could say we're mission driven on the one hand, but if it's not just as you taught us, directly linked to how we make money, then we have two different ways we're keeping score. We're keeping two sets of books.
Eric Ries (28:48):
It's actually a form of fraud. That's why I use the word corruption. People find that hard because they're like, wait a minute, I though corruption is just embezzlement and bribery, which it is. But no, I think any kind of transaction that breaks the moral logic of capitalism is a corrupt transaction. So if we're keeping two sets of books, that is a kind of fraud. And in particular, you see organizations whose stated mission, the one they've carved on the wall and their legally mandated mission or purpose, they diverge.
Matt Poepsel (29:14):
I'm sure you've even seen founders who've kind of felt that the train is leaving the station, so to speak, or it's getting away from them, but they don't know how to reconcile the divergence between the financial realities and this kind of unwritten mission versus why they started the company in the first place. It sounds like that can carry a lot of tension as things drift apart and you're trying to hold it all together.
Eric Ries (29:35):
It causes tremendous strain. I mean, I can speak from experience as a founder how stressful this is and I've seen it drive really good people out of companies altogether. Sometimes it's just too much. I tell this story in the book about a really good friend of mine who created a company and they were trying to use a very early AI company, try to use AI to improve health outcomes for patients and that is very expansive vision. And the first experiment meant they did the first technology they created worked really well for a very particular kind of diagnostics. And he was like, "This is great. We're going to do this for every kind of thing. This is going to be the platform that will be our springboard to truly transforming medicine all over the world." And everyone else around the table was like, "This is great.
(30:17):
Now we have our cash cow." And slowly over time, all anyone wanted to do was just squeeze more and more revenue out of that cash cow. And you described basically leaving the company in despair because nobody else seemed to want to do the mission anymore, even though the mission was the thing that made it worth investing. He told me the story of being at the IPO, the company went public and he was like, "This company is a public company. It still only does that one thing." The pain of this is not just the loss of the founder's personal ego or whatever. I get that people aren't that sympathetic to founders and unfair, but it's the opportunity cost of all the therapies uninvented, all the jobs that could have been created, all the patients that could have been served. If you multiply that lack of ambition, that cash cow thing across hundreds or even thousands of companies, it's a devastating loss across our entire economy.
Matt Poepsel (31:08):
It's a whole different calculus at that point. Holy cow, Eric. Powerful stuff, powerful stuff. I cannot believe it. Whatever level of leadership you're at, understanding the system, seeing it for what it is, using your opportunities to restore focus on mission at irrespective level. Certainly if you're an executive driving the business, not losing your way. I can't wait for people to get their hands on this book and just tell us how they're absorbing it and what they're doing. I just want to fast forward to that part. It's unbelievable. It's unbelievable. I'm going to do something real quick and shift yours on us a little bit and take us to a quick trivia question. I know that your first book, The Lean Startup, incredible. That's how I first came to learn about you when I was cutting my teeth as a young software product manager. So I'm going to get us a question about startups.
(31:52):
Let's see how we do with this one. Again, it's multiple choice here. It says, "In the venture capital world, what's the specific name given to a privately held startup company with a current valuation of over a billion dollars? Is it A, centaur, B, a unicorn, or C, a Phoenix?"
Eric Ries (32:05):
Ah, it's a unicorn. That's too easy.
Matt Poepsel (32:07):
That one was too easy. Yes,
Eric Ries (32:08):
Let's get some trivia, man. Come on. The question should be, who coined the term unicorn? And that's the great Aileen Lee at Cowboy Ventures. Well,
Matt Poepsel (32:16):
This one does go on, thanks to AI, of course, it has to give us even more information, even bigger titles like Decacorns at 10 billion or Hectocorns at 100 billion. You ever heard that? Who's doing that? It's ridiculous. That's going to be a hallucination, I think. Well, I have a much better question for Eric. Where can my listeners go to learn more about you in your new booking?
Eric Ries (32:33):
Oh, thank you for asking. Yes, you can follow me obviously on all social media, just @EricRies. And if you want to know more about the book and join my newsletter, we're going to have a lot of cool stuff coming. You can do so at incorruptible.co. Incorruptibleco, very simple. You can buy the book absolutely anywhere books are sold in hardcover in eBook and in audiobook. I actually just finished recording the audio book myself. It includes a bunch of cool bonus content, so check that out if you want. And my favorite thing on the website, first of all, if you come to incorruptible.co, you can get all kinds of bonus content. After you've ordered, you can get a secret chapter that was cut from the original manuscript. I think people are going to like implementation guides, of courses. You can join our community. A lot of core stuff you can do there.
(33:10):
But you can also find a list of tons of independent local bookstores that are carrying the book. And if you feel like it, maybe support a local independent bookstore, an important part of your own community. Give them some support while you buy the book too. And if you do, please take selfie with the book in the store and give everyone some promo. That would be very cool. I
Matt Poepsel (33:28):
Love it. I love it. Eric, thanks so much. Listeners, I'm going to have those links for you in the show notes. You're only one click away from getting over to those great resources and Eric's amazing new book. Thanks again, Eric, for being with us. Really appreciate it.
Eric Ries (33:39):
Really, my pleasure. Thanks for the conversation.
Matt Poepsel (33:41):
All right listeners, until next time, don't just manage the business when you can lead the people.