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15 Years After The Lean Startup, Eric Ries Explains Why Great Companies Go Bad

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  1. Intro

  2. 00:00My name is Eric Reese. Most people know
  3. 00:01me as the author of the book, The Lean
  4. 00:03Startup. I've been an entrepreneur now
  5. 00:05for something like 20 years and have
  6. 00:07been working to help people build great
  7. 00:09companies and great organizations all
  8. 00:11over the world. I've recently built a
  9. 00:13company, an AI company called Answer AI,
  10. 00:15as well as the long-term stock exchange
  11. 00:16or LTSSE. So, I'm always very active as
  12. 00:19a as a builder and as a writer, [music]
  13. 00:21always in the shared mission of trying
  14. 00:22to create an environment where people
  15. 00:24can create great companies. I feel very
  16. 00:26blessed. I've been so fortunate in my
  17. 00:28life that so many great entrepreneurs
  18. 00:30have asked me to be part of their
  19. 00:32journey in hundreds of companies and
  20. 00:34thousands of companies. I can't even
  21. 00:35count anymore. But I've also seen the
  22. 00:37dark side of [music] this business. I
  23. 00:38can see how many of those companies
  24. 00:40failed to live up to their potential.
  25. 00:42How many of them were destroyed or
  26. 00:44harmed or driven away from that vital
  27. 00:48spark that made them worth creating in
  28. 00:49the first place. And in particular,
  29. 00:51quite a few of them have been murdered
  30. 00:54in the name of profit. And if you think
  31. 00:57carefully about that, it doesn't make
  32. 00:58sense. In our [music] economic system,
  33. 01:02companies are supposed to compete to
  34. 01:03create the most value. That's how
  35. 01:06investors reap the most profit. So
  36. 01:08[music] why would we do something
  37. 01:09immensely valued destroying in the name
  38. 01:11of profit? And that has been the mystery
  39. 01:13that has driven me crazy. The book is
  40. 01:15[music] my attempt to answer this
  41. 01:17mystery.
  42. 01:20[music]

  43. Why Great Companies Get Destroyed

  44. 01:25I diagnosed long ago that having a
  45. 01:28philosophy of long-term thinking is
  46. 01:30really the foundation of company
  47. 01:33success. And when I talk about success,
  48. 01:35I mean financial success. Yes, companies
  49. 01:37do a lot of great things in the world.
  50. 01:38Yes, they are important way to solve
  51. 01:40social problems and many other wonderful
  52. 01:42things they can do. But just evaluate on
  53. 01:46a purely financial basis. Saul Price is
  54. 01:49a legendary American entrepreneur. Saul
  55. 01:52is considered by many people in this
  56. 01:54country as the father of modern retail.
  57. 01:56You know, discount American style big
  58. 01:58box retailing. He was the first to
  59. 02:01figure out the formula. So FedMart was a
  60. 02:03company he started in the 1950s [music]
  61. 02:05and before Saul Price was an
  62. 02:07entrepreneur, he was a lawyer. And when
  63. 02:09he was a lawyer, he said, "I am a
  64. 02:12fiduciary to my client." That's how I
  65. 02:14[music] was trained. Being a fiduciary
  66. 02:15means you put the client's interest
  67. 02:17before your own. So when you would shop
  68. 02:19in a FedMart, sometimes he would put up
  69. 02:21signs with his competitor's
  70. 02:23advertisements in them to let you know
  71. 02:25that you could get a certain product
  72. 02:27cheaper from somebody else. And every
  73. 02:28time he did that, people thought he was
  74. 02:30crazy. He's giving up money. He's
  75. 02:32helping a competitor. Why would he do
  76. 02:34that? He said, "Well, the most important
  77. 02:35thing is to win the trust of my
  78. 02:37customers." People really trusted him.
  79. 02:39People wanted to work there. The company
  80. 02:40grew and thrived for more than 20 years.
  81. 02:42He took the company public. He became a
  82. 02:44wealthy man, but his investors were
  83. 02:47never satisfied with the level of growth
  84. 02:49that he could provide. They always
  85. 02:51wanted more. And so he was always
  86. 02:52fighting with them. Why does he pay
  87. 02:54wages higher than he has to? Why does he
  88. 02:57charge prices lower than he has to? And
  89. 02:59he says, "Well, I don't pay low wages. I
  90. 03:02pay high wages not because I have to,
  91. 03:04but because I want to. That's why my
  92. 03:06employees trust me. I believe in low
  93. 03:08prices not because I have to, but
  94. 03:10because I want to. I want to take care
  95. 03:12of my customers and their communities.
  96. 03:14And there's a lot of legendary stories
  97. 03:15about him doing [music] these kinds of
  98. 03:17things that his investors found
  99. 03:18frustrating. So one day in 1975,
  100. 03:22keep in mind he's been running the
  101. 03:23company now for more than 20 years. He
  102. 03:25comes to work and he cannot enter his
  103. 03:28office anymore because they have changed
  104. 03:30the locks on his door because he doesn't
  105. 03:32work there anymore. Saul Price has been
  106. 03:33fired [music] by his board. They wanted
  107. 03:36more profit. They got what they wanted.
  108. 03:39They were [music] able to convert
  109. 03:40FedMart to more conventional retail
  110. 03:42practices. And the net result is that by
  111. 03:441982, so we're just talking about seven
  112. 03:47years it took them to liquidate the
  113. 03:49company. It was completely destroyed.
  114. 03:51It's much easier to destroy than it is
  115. 03:53to [music] build. And FedMart was one of
  116. 03:56those casualties of this kind of greedy
  117. 03:59manipulation. But the reason why I like
  118. 04:01telling this story is because although
  119. 04:03it is quite sad what happened to
  120. 04:05FedMart, the story has a bit of a happy
  121. 04:06ending because Saul Price wasn't done
  122. 04:09when he was fired from FedMart. He got
  123. 04:11right back on [music] the horse. He got
  124. 04:12right back to work. He took a short
  125. 04:14vacation and then he started a new
  126. 04:16company. He called the Price Club, which
  127. 04:18today is not that wellknown, but that's
  128. 04:20because one of his proteges also left
  129. 04:22FedMart in protest when [music] he was
  130. 04:24fired. He started a company that when
  131. 04:26the two companies merged together, we
  132. 04:28called Price Costco, [music] which today
  133. 04:31is just called Costco. One of the
  134. 04:32largest retailers in the world, a $400
  135. 04:34billion public company. And Costco
  136. 04:37maintain [music] Saul Price's ethos, his
  137. 04:40beliefs about how customers and
  138. 04:41employees should be treated even all
  139. 04:43these years later.
  140. 04:45Why would investors destroy a company in
  141. 04:47the name of profit? There is a
  142. 04:50psychological explanation. It's a force
  143. 04:53that I call financial gravity. And
  144. 04:55unfortunately, we have built an economic
  145. 04:57system that rewards people for
  146. 04:59short-term thinking. It rewards people
  147. 05:02for cost cutting without ever holding
  148. 05:04them accountable for the consequences of
  149. 05:06those cuts to brand, to quality, to
  150. 05:08product, to the environment, what have
  151. 05:10you. So, we have built this system that
  152. 05:12has this gravitational force. It exerts
  153. 05:14itself upon people who live in
  154. 05:16organizations who want to succeed that
  155. 05:19it's their desire to succeed that our
  156. 05:21economic system latches on to to
  157. 05:23manipulate them to do what it wants. I
  158. 05:25don't think this is a very good way to
  159. 05:26build an economic system, but this is
  160. 05:28the reality of our highly financialized
  161. 05:30economy. So, there's two things I want
  162. 05:32to make super clear. The first is this
  163. 05:34is not the only way you could build a
  164. 05:36financial system. We obviously could
  165. 05:38build a financial system that
  166. 05:39transmitted different [music] values
  167. 05:41than these. We just happen to have this
  168. 05:42one. And the second thing is most people
  169. 05:45when they hear about this force for the
  170. 05:47first time or maybe they've suspected it
  171. 05:48in their own lives, you know, I meet a
  172. 05:50lot of people as I'm traveling around,
  173. 05:51people who have had a favorite brand
  174. 05:53[music] be destroyed, a company that
  175. 05:55used to be great and now it's terrible.
  176. 05:57I mean, a lot of people have this
  177. 05:58feeling about food. A lot of food
  178. 06:00products have been taken over by private
  179. 06:02equity or taken over by a private
  180. 06:03company and then ruined again. Murdered
  181. 06:05in the name of profit. You ask them, why
  182. 06:07is this happening? They say, well, it's
  183. 06:09inevitable. It's human nature. It's
  184. 06:11greed. It's our it's capitalism,
  185. 06:13whatever. But if this force was
  186. 06:15inevitable, there would be no
  187. 06:18exceptions. And yet everywhere in the
  188. 06:20world, everywhere you look, there are
  189. 06:22these exceptional companies. And if you
  190. 06:24gather up the data set of all the
  191. 06:27companies that seem to have defied this
  192. 06:29force, just like we saw with Costco,
  193. 06:32they have something in common. And it's
  194. 06:34not what you'd expect. It's not culture.
  195. 06:36It's not strategy. It's not values. They
  196. 06:38don't come from the same c country. They
  197. 06:40don't all come from the same decade.
  198. 06:42They're quite different from each other,
  199. 06:44but they have something in common. What
  200. 06:46they have in common is they all defy the
  201. 06:49so-called best practices of how we teach
  202. 06:52entrepreneurs to build and govern
  203. 06:54companies today. And the fact that they
  204. 06:56violate these standards is the proof
  205. 06:59that our modern financed theory of
  206. 07:02business is wrong and something better
  207. 07:04is possible.

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  239. Built to Resist - Ethos + Integrity = Incorruptible

  240. 08:15So, why was FedMart destroyed while
  241. 08:17Costco endured? You have to look
  242. 08:19somewhere that most people never think
  243. 08:21to look. You have to look at the
  244. 08:22governance, [music] the founding
  245. 08:24documents, the legal boring stuff that
  246. 08:27no one ever pays attention to. Most
  247. 08:29companies are built to a very weak
  248. 08:31governing structure. But Costco was
  249. 08:34built with what I call a governance
  250. 08:35fortress, a series of provisions that
  251. 08:38prevent outside meddling, prevent
  252. 08:40investors or anybody else from bullying
  253. 08:42Costco. And that is something that all
  254. 08:44these great companies have in common.
  255. 08:46They have a way to thwart this force
  256. 08:49which is trying to undermine the [music]
  257. 08:51mission. I call them mission guardians.
  258. 08:53As a result, most of these companies are
  259. 08:55considered to have bad governance. They
  260. 08:57get criticized routinely. They are rated
  261. 09:00poorly by the ratings agencies whose job
  262. 09:02is to study these things. And yet, this
  263. 09:05is a funny fact that is in the book.
  264. 09:06Since 2008, companies that have bad
  265. 09:10governance have outperformed companies
  266. 09:12that have good governance. When I meet
  267. 09:13with entrepreneurs, coaching them,
  268. 09:15helping them start a company, especially
  269. 09:17I always ask them about their governing
  270. 09:19documents. And honestly, most of them
  271. 09:20have [music] never read it. They have no
  272. 09:21idea. They signed it, they filed it, but
  273. 09:23they didn't read it. They don't know
  274. 09:24what it means or what it says. So what I
  275. 09:26explained to them that according to the
  276. 09:28modern governance theory that we all
  277. 09:30live our lives under the theory that is
  278. 09:32called shareholder primacy. According to
  279. 09:34this theory, companies must always be
  280. 09:37sold to the highest bidder. It's the
  281. 09:38law. This is a crazy idea and it's a
  282. 09:41relatively new idea. This is a choice
  283. 09:43that [music] people inadvertently choose
  284. 09:45when they start their company. And so
  285. 09:47when I tell people that, they kind of
  286. 09:50don't believe me. They think that sounds
  287. 09:51like an exaggeration. Are you saying
  288. 09:53that if someone tried to buy my company
  289. 09:55for just a dollar per share more than
  290. 09:56it's worth, [music] I would have to sell
  291. 09:58it to them? Yes. Before you say I'm
  292. 10:00exaggerating, why don't you pay
  293. 10:02attention to this story? Vector was a uh
  294. 10:05university spinout of the University
  295. 10:07[music] of Bath in the UK. It was a
  296. 10:09company designed by scientists to create
  297. 10:11inhaler therapeutics to uh treat
  298. 10:13diseases like asthma or COPD. So, a
  299. 10:16science-driven healthc [music] care
  300. 10:17company, very successful, was publicly
  301. 10:20listed on the London Stock Exchange, was
  302. 10:21doing very well. All of a sudden, the
  303. 10:24company that you would least want to
  304. 10:26buy, an inhaler therapy healthcare
  305. 10:28company, came to try and buy them.
  306. 10:30Company was Philip Morris International,
  307. 10:32the cigarette maker, and they made a bid
  308. 10:34to acquire Vectura for 165 per share. A
  309. 10:39private equity firm at the same time bid
  310. 10:42155. And so the board of directors of
  311. 10:44Vector was faced with a very simple
  312. 10:47choice. Option one, do nothing. The
  313. 10:49company did not need to be sold. There's
  314. 10:51not a business problem that this is
  315. 10:53trying to solve. Option two, sell to the
  316. 10:55private equity firm and reap 155 or sell
  317. 10:59to Philip Morris and receive 165 p per
  318. 11:02share. Everyone would have looked at
  319. 11:03this said this this is a terrible idea.
  320. 11:06We never would want to see a cigarette
  321. 11:08company owning an a lung health
  322. 11:10healthcare company. Absurd. But the
  323. 11:13board of directors of Verura didn't care
  324. 11:14about any of that. They had I think two
  325. 11:16meetings and they said look it's nothing
  326. 11:18we can do. It is our fiduciary duty to
  327. 11:21say [music] yes to Philip Morris and
  328. 11:23they did. Within 3 years the company was
  329. 11:26completely destroyed. And what's so
  330. 11:28interesting about this story is again we
  331. 11:30see that pattern of a company being
  332. 11:32murdered in the name [music] of profit.
  333. 11:34And some people did make some money. I
  334. 11:36want to be clear like they did pay a
  335. 11:38premium to buy the company. Some
  336. 11:39investors made money for sure. But was
  337. 11:41the transaction overall profitable? Was
  338. 11:44there more value in the world after than
  339. 11:47before? No. Value was destroyed. And one
  340. 11:50of my arguments in the book is [music]
  341. 11:52we have to stop calling these acts of
  342. 11:54immense value destruction profitable.
  343. 11:57They're not. There's a blueprint here.
  344. 11:59And yes, the blueprint has two
  345. 12:00dimensions. But I promise for anyone
  346. 12:02who's encountering this idea for the
  347. 12:04first time, this is not abstract. These
  348. 12:06techniques are very concrete and very
  349. 12:08specific. Ethos refers to a company's
  350. 12:12character. How often does it try to do
  351. 12:15the right thing? Is it consistent in its
  352. 12:18behaviors and does it stand for
  353. 12:20something or not? Is it aligned to human
  354. 12:23flourishing or merely to financial
  355. 12:25extraction? Every company has a culture.
  356. 12:27Every company has a business model and a
  357. 12:29strategy. But only some companies have
  358. 12:31an ethos. If you want to be one of those
  359. 12:33companies, there are specific techniques
  360. 12:34we have to adopt. We have to build a
  361. 12:36business model such that the company can
  362. 12:39only make money when it is achieving its
  363. 12:42purpose. We have to develop what I call
  364. 12:44the virtuous cycle of performance where
  365. 12:46the more successful we are at achieving
  366. 12:49our mission, the more money we make and
  367. 12:50then that gives us more money to invest
  368. 12:52in the mission and that cycle builds and
  369. 12:54builds and builds and of course we have
  370. 12:56to build a culture where every employee
  371. 12:58understands that their job is to pursue
  372. 13:01this mission even if no managers are
  373. 13:02present. So that is the path of ethos.
  374. 13:04the techniques, the managerial
  375. 13:06techniques required to create a highly
  376. 13:07aligned mission-driven company. The path
  377. 13:10of integrity is also very important.
  378. 13:12What does it mean for a company to have
  379. 13:14integrity? I mean like structural
  380. 13:16integrity, the ability to make and keep
  381. 13:19a promise. And it's important to
  382. 13:21understand that to see a company is not
  383. 13:24a person. It is a huge collection of
  384. 13:26people. So if a person even the CEO of a
  385. 13:28company makes you a promise, [music] you
  386. 13:30can't rely on it because the CEO might
  387. 13:31be replaced. So promises, corporate
  388. 13:34promises, organizational promises have
  389. 13:36to be rooted in something deeper than
  390. 13:38the good intentions of any individual
  391. 13:40person. And this [music] is the
  392. 13:42dimension of things like the public
  393. 13:43benefit corporation. Changing the legal
  394. 13:45charter of a company to reject
  395. 13:47shareholder primacy. This is the
  396. 13:48dimension where we enshrine proper
  397. 13:50relationships between the investors
  398. 13:52[music] and the company itself. And this
  399. 13:54is where we establish what I mentioned
  400. 13:55before the mission guardians [music] who
  401. 13:58has the responsibility for making sure
  402. 14:00the company stays on track and to
  403. 14:02holding it accountable including its
  404. 14:03board of directors accountable [music]
  405. 14:05to achieving that goal. This is
  406. 14:07something that most founders struggle
  407. 14:09with because [music] they just tell
  408. 14:10everybody what to do. I give an example
  409. 14:11in the book of a company in Texas called
  410. 14:14[music] HEB grocery store. There's an
  411. 14:16ice storm in Texas and the power goes
  412. 14:18out and all the customers think they're
  413. 14:20going to have to go home empty-handed.
  414. 14:21But the store manager gets up on a
  415. 14:23counter and yells to everybody, "Hey,
  416. 14:24listen. I know the power is out. It's
  417. 14:25okay. Take your shopping carts and just
  418. 14:27go home." People say, "How are we going
  419. 14:29to pay you?" And the manager says,
  420. 14:30"You're not going to. It's okay." The
  421. 14:32customers were moved. They were in
  422. 14:34tears. But this was not the act of a
  423. 14:36lone rebel. This is something that the
  424. 14:38company instills and trains for. Not for
  425. 14:40ice storms in particular. That was hard
  426. 14:42to [music] forecast. but rather to see
  427. 14:43the customer as the person that they are
  428. 14:46serving. So [music] this ethos is
  429. 14:48drilled into employees in every way
  430. 14:51possible and in the book I give a lot of
  431. 14:52the techniques that require do this but
  432. 14:54they require [music] extremely
  433. 14:55consistent action at every level of the
  434. 14:58company requires the board and the CEO
  435. 15:00and the managers to be [music] insisting
  436. 15:02on this behavior and also to be
  437. 15:04rewarding this behavior. You hire people
  438. 15:07from the outside. They bring with them
  439. 15:09their past [music] beliefs, how it
  440. 15:11worked in their previous company. They
  441. 15:12bring with them workplace traumas and
  442. 15:14all kinds of emotional upset. So if you
  443. 15:17want them to understand what your
  444. 15:19company truly stands for, you have to
  445. 15:21repeatedly over and over and over and
  446. 15:24over again demonstrate that you truly
  447. 15:26believe in these principles. In the
  448. 15:28book, I call this idea harder is easier.
  449. 15:33The famous story of Steve Jobs. He once
  450. 15:35got into a fight with his engineers.
  451. 15:37Fight about the layout, the visual
  452. 15:39layout of the cables and wires inside a
  453. 15:42computer whose case Steve did not
  454. 15:44believe customers should be allowed to
  455. 15:46open. And the engineers were just Steve,
  456. 15:48what does it matter? Nobody will ever
  457. 15:50see these cables. No one will ever know
  458. 15:52if it's ugly or sloppy or twisted or no
  459. 15:56one will ever know. But Steve would say,
  460. 15:57but we will know. See, to him, design
  461. 16:00was an absolute. It wasn't something
  462. 16:02that you do when it's convenient or when
  463. 16:04you have to. It was like how Saul Price
  464. 16:06felt about being a fiduciary to the
  465. 16:07customer. So, it's important to defend
  466. 16:10these values in small ways as well as in
  467. 16:12big ways on Monday as well as on Sunday,
  468. 16:15on every day of the week, every month of
  469. 16:17the year. You have to do it over and
  470. 16:18over and over again. That is a lot of
  471. 16:20extra work. I don't want to sugarcoat
  472. 16:22it, but it makes every other problem the
  473. 16:24business will face in the future that
  474. 16:26much easier.

  475. Build a Company That Outlives You

  476. 16:30For the vast majority of time, I'm
  477. 16:32talking for hundreds of years, for the
  478. 16:33vast majority of time, there have been
  479. 16:35joint stock corporations on Earth, it
  480. 16:37was considered [music] quite obvious by
  481. 16:39everybody involved that corporations
  482. 16:41should exist to pursue a specific
  483. 16:44purpose and that this purpose [music]
  484. 16:46should be society beneficial. So in the
  485. 16:48United States for example in the 19th
  486. 16:50century every incorporation had to be
  487. 16:52approved by the local state legislature
  488. 16:54and the company had to say in its
  489. 16:56corporate charter the specific thing it
  490. 16:58was going to do and why that was in the
  491. 17:00public interest. [music]
  492. 17:01So that is how incorporation has been
  493. 17:03for the for a long time. And yet in the
  494. 17:06over the course of the 20th century
  495. 17:07industrialized countries especially in
  496. 17:09the United States but not only United
  497. 17:11States came under the sway of this new
  498. 17:12idea they called shareholder primacy
  499. 17:14that corporations don't exist to make
  500. 17:16[music] anything. They just exist to
  501. 17:17enrich their shareholders. It's very
  502. 17:19important for people to understand that
  503. 17:21what we now consider to be the best
  504. 17:23[music] practice of like rich people can
  505. 17:25just take over companies whenever they
  506. 17:27want and change what [music] they do
  507. 17:28just cuz they're rich. that would have
  508. 17:30been considered a crime in 19th century
  509. 17:33America. The critical date in the US for
  510. 17:36the transition [music]
  511. 17:37away from this purposeful incorporation
  512. 17:39happened in 1899. It's not really that
  513. 17:42long ago. And the shareholder of primacy
  514. 17:44didn't take root until the 1980s, very
  515. 17:46very recently. This state of affairs is
  516. 17:48not working very well. You can see in
  517. 17:50the number of companies that are
  518. 17:51betraying their promises left and right
  519. 17:52and just how many of them are frankly
  520. 17:54collapsing. What's happened is a set of
  521. 17:57reformers in many countries reformers
  522. 17:59have been trying to to restore this
  523. 18:01historical norm that companies should be
  524. 18:04allowed to declare in their corporate
  525. 18:06charter why they exist. What do they
  526. 18:09exist to pursue beyond just profits for
  527. 18:11shareholders? In the book, I lay out a
  528. 18:13goal which is to create constitutional
  529. 18:16governance, which is like taking ideas
  530. 18:17from political philosophy about checks
  531. 18:19and balances, about the appropriate role
  532. 18:21of the executive versus other branches.
  533. 18:23To create what I call mission controlled
  534. 18:25companies, that is companies that have
  535. 18:26the architecture of institutional
  536. 18:28longevity. They have the ability to stay
  537. 18:30true to some specific purpose over long
  538. 18:32periods of time. That's our goal. And
  539. 18:34I've been talking to companies about
  540. 18:35this for many years. One of them very
  541. 18:37famously is Enthropic. They came to see
  542. 18:39me shortly after the founders had left
  543. 18:41OpenAI as they were thinking about
  544. 18:42starting the company. And it's funny
  545. 18:43when I started writing this book,
  546. 18:44Anthropic was not a well-known company.
  547. 18:47The structures that we set up together
  548. 18:49have been tested [music] sorely tested
  549. 18:51and so far it's early but so far have
  550. 18:53stood the test of time. When we say that
  551. 18:54a company is structured for longevity,
  552. 18:57it doesn't necessarily mean that you
  553. 18:58agree with everything that it does. It
  554. 19:00means that you can respect them for
  555. 19:02being consistent with their own values.
  556. 19:04when they are pressured to betray those
  557. 19:06values, they often choose to defy
  558. 19:09entities as powerful as the United
  559. 19:11States federal government. And that's
  560. 19:12unusual for a for-profit company. It's
  561. 19:14enabled by this structure [music] that
  562. 19:16they have. Now, in addition to being a
  563. 19:18public benefit corp, like we've talked
  564. 19:20about, in addition to enshrining a
  565. 19:22defined public benefit into their
  566. 19:24corporate charter and and therefore
  567. 19:25their AI safety mission [music] is
  568. 19:27infused into everything that they do,
  569. 19:29they also are protected by a mission
  570. 19:31guardian entity, what they call the
  571. 19:33long-term benefit trust or [music] LTBT.
  572. 19:35And this is a two entity structure where
  573. 19:37where a set of outside trustees have the
  574. 19:40role of appointing directors to the
  575. 19:41for-profit company's board. This is not
  576. 19:43a new idea that Anthropic invented. By
  577. 19:46the way, you know, Patagonia has the
  578. 19:48same structure, very similar structure
  579. 19:49has existed for [music] for a very long
  580. 19:51time. The German optics company Zeiss
  581. 19:53had this structure in 1887. So, this is
  582. 19:56not that new. It's actually so old that
  583. 19:58there's a whole branch of academic study
  584. 20:01devoted to these kinds of companies,
  585. 20:03these companies that have this mission
  586. 20:04guardian entity. And in one study,
  587. 20:07companies that had the structure were
  588. 20:08found to live on average five times
  589. 20:10longer than companies with a
  590. 20:11conventional structure.
  591. 20:13So far, we've been talking about
  592. 20:15institutional structures. And some
  593. 20:18people listening to this are going to
  594. 20:19say that what does that have to do with
  595. 20:20me? I'm not a CEO. I don't sit on any
  596. 20:23boards. I'm not an investor. This seems
  597. 20:25like someone else's problem. But that's
  598. 20:27wrong. This is something that every one
  599. 20:29of us needs to master and understand.
  600. 20:30[music]
  601. 20:31First of all, because we're all going to
  602. 20:32have careers in which we will come into
  603. 20:34positions of power one day, and we will
  604. 20:35be tested to see if we can maintain our
  605. 20:38integrity or not. But even more
  606. 20:40importantly, all of us interact with
  607. 20:42these institutions every day as
  608. 20:43citizens, as consumers, as employees, as
  609. 20:47investors, as members of our community.
  610. 20:49And we have to learn to wield the power
  611. 20:52that we all have to shape the values of
  612. 20:55these companies. This is the biggest and
  613. 20:57most important lesson of the book is
  614. 20:58that this gravitational force that draws
  615. 21:01companies towards other values, we are
  616. 21:04the generators of this [music] force. We
  617. 21:07the public, not the fancy CEOs and the
  618. 21:09board. They seem like they're in control
  619. 21:11of everything, but they actually operate
  620. 21:13at the mercy of what the public requires
  621. 21:16and demands. So, we have to learn to
  622. 21:18wield that power for good and not for
  623. 21:20evil.

  624. Rethinking the Lean Startup

  625. 21:25You know it's been 15 years since I
  626. 21:27wrote the lean startup. In every
  627. 21:29generation founders have approached me
  628. 21:31to ask how build measure learn changes.
  629. 21:34Number one thing they say to me is like
  630. 21:35look because of a new technology because
  631. 21:37of a new outsourcing ability because of
  632. 21:38a new culture because something has
  633. 21:40happened. We can build so much faster.
  634. 21:42Does that mean that entrepreneurship can
  635. 21:44go faster? And the answer is not
  636. 21:46necessarily because although building
  637. 21:49and measuring can be dramatically
  638. 21:50accelerated through new technology and
  639. 21:52especially through AI learning, we still
  640. 21:55have the same old wetwware between the
  641. 21:57ears of the people doing the learning.
  642. 21:59Learning is a hard thing to outsource. I
  643. 22:01use [music] the tools quite a bit in the
  644. 22:03research and editing of my book. I
  645. 22:05didn't use AI to write my book, okay,
  646. 22:06just to be super clear, but I use it a
  647. 22:08lot to help me accomplish my goals
  648. 22:10better. When deep research first was
  649. 22:12invented, first by OpenAI and then by
  650. 22:14Google, deep research was the ability to
  651. 22:16go and have a AI agent go out into the
  652. 22:18world and grab information for you. I
  653. 22:20thought that was going to solve all my
  654. 22:21research problems. [music]
  655. 22:22But of course, it didn't because first
  656. 22:24of all, you get inaccuracies. But more
  657. 22:26importantly, like even if it didn't make
  658. 22:28any mistakes, just because I had a
  659. 22:3010-page research report about something
  660. 22:32didn't mean that I myself understood
  661. 22:34what the research showed. So when I
  662. 22:36switched over to using this the tool we
  663. 22:38call solve it uh at answerai where I
  664. 22:41could load that research into a context
  665. 22:43[music] where I could take a piece of my
  666. 22:45writing I would take a chapter or a
  667. 22:47story or a section and I would tell the
  668. 22:48AI here are my goals to improve this
  669. 22:50section here's the research I have
  670. 22:52available let's brainstorm together and
  671. 22:54I would use the tool to help me
  672. 22:56understand what the research says help
  673. 22:58me understand what is available to be
  674. 23:01incorporated into that section of text
  675. 23:02and then we would work on it together
  676. 23:04ultimately I would have the final
  677. 23:05control over how that flowed into that
  678. 23:07section which we would then commit back
  679. 23:09to the larger project. So instead of
  680. 23:11sending agents [music] out to do the
  681. 23:12work on mass, it was more like taking a
  682. 23:15large project like a book and
  683. 23:16decomposing it down into human scale
  684. 23:19subtasks that I could do with the
  685. 23:21assistant really outstanding editorial
  686. 23:23and research assistant. [music] Not make
  687. 23:25me a website but teach me how to make a
  688. 23:27website. Not make me a product but teach
  689. 23:29me how to make a product. Not measure
  690. 23:30what customers think but help me figure
  691. 23:32out what customers think. Once we learn
  692. 23:34to make this shift, we're able to see AI
  693. 23:36tools that are really designed to
  694. 23:38accelerate the rate at which we achieve
  695. 23:40validated learning. But in the meantime,
  696. 23:42I think people need to be careful and
  697. 23:43and maybe would be better served by
  698. 23:45using the old [music] methods that they
  699. 23:47understand better.

  700. Advice for Founders

  701. 23:50So for founders in particular, I would
  702. 23:53just try to pick one thing to get
  703. 23:54started. So building an incorruptible
  704. 23:57company is not something you do
  705. 23:58overnight like ha tada. No, focus on
  706. 24:02make yourself a checklist and work on
  707. 24:03that checklist over time.
  708. 24:07You can't just say, "Well, I ate a
  709. 24:08healthy meal today. Now I'll never get
  710. 24:10sick. Now I'm fit." No, that's not how
  711. 24:12it works. You can't say, "I went to the
  712. 24:14gym one time. Now I can be an Olympic
  713. 24:15athlete." No. If you want to achieve
  714. 24:18greatness, you have to train. You have
  715. 24:20to work at it. One thing I would ask
  716. 24:21founders to do, have [music] like a
  717. 24:23quarterly meeting or every couple of
  718. 24:24months, doesn't have to be every day,
  719. 24:26where you sit down with your
  720. 24:27co-founders, with your board, with your
  721. 24:29executive team, whoever the right people
  722. 24:30are, and ask yourself, is our ethos
  723. 24:33intact? Survey your employees. Ask them,
  724. 24:35do you know what we stand for? What do
  725. 24:37you think the mission of this company
  726. 24:38is? What do you think its values are?
  727. 24:40Are our governance protections adequate
  728. 24:43to what we're facing now? Or can we
  729. 24:44start to see cracks in the structure
  730. 24:46forming? And most importantly, look
  731. 24:49ahead. Are there new threats on the
  732. 24:51horizon? Are there tiny inconsistencies?
  733. 24:53Think of it like micro fractures in a
  734. 24:55bridge or in a submarine's hull before
  735. 24:58it collapses. There sometimes will be
  736. 25:01the indication [music] of stress
  737. 25:02fractures that we could observe. So do
  738. 25:05that as a regular practice. Get outside
  739. 25:07support if you need it. I've helped
  740. 25:09start some companies that are trying to
  741. 25:11help and support startups in this in
  742. 25:12this brave new world. But whether you
  743. 25:14get the support from me or anybody, but
  744. 25:16find somebody who can be your partner in
  745. 25:18helping you think through these issues
  746. 25:20because I don't want your company to be
  747. 25:22on the new edition of this book on our
  748. 25:24list of the graveyard of good
  749. 25:25intentions.