Digital Disruption

00;00;01;18 - 00;00;18;18

Eric Ries

Many of these ways of making money without creating value that we celebrate today. You know, our grandparents or great grandparents time not only would have been seen as morally dubious, they would have been crimes. That pressure to use AI as a cost cutting tool is just immense. That is how it's being sold to the public as a way to cut costs.

00;00;18;21 - 00;00;38;03

Eric Ries

I think is a huge mistake. We are building tools where the humans are aligned to the goal of getting humans out of work. You do the right thing and look at chips fall where they may. You don't always know how it's going to work out, because if you're always making an ROI calculation, then the customer instinctively understands that there might be a day where betraying you is high ROI.

00;00;38;05 - 00;00;59;28

Geoff Nielson

This is a show about the future of tech in the future of work. I'm Geoff Nielson, and today my guest is Eric Reese. He's the bestselling author of the Startup Bible, The Lean Startup, a tech entrepreneur, and an all around business guru. From advising anthropic on their governance structure to founding answers. Why Eric continues to be a powerhouse in all things tech.

00;01;00;02 - 00;01;23;12

Geoff Nielson

His recent focus, though, is on this creeping sense that the business world and maybe capitalism itself, is fundamentally broken, and we're seeing once great companies completely corrupted by greed. I want to ask him why this is happening. What it means with the rise of AI and what we can do to fix it. Let's find out.

00;01;23;15 - 00;01;48;06

Geoff Nielson

Eric, super excited to have you here today. You know, I guess to jump into it, one of the areas that you've been looking at recently is, you know, if I can be blunt about it, why and how good companies go to shit. And this is something that I think intuitively, a lot of us, you know, whether we're on the consumer side and we've seen it with companies and products that we love, whether we've seen it firsthand from being leaders or inside companies.

00;01;48;06 - 00;02;09;23

Geoff Nielson

And it's happening. And, you know, I want to take this conversation toward what's going on with AI companies in the AI space. But before we do that, let's set the table a little bit. And, you know, can you tell me a little bit about this notion of corporate corruption? You know, what you're seeing happening as a trend and what you see as some of the drivers of it?

00;02;09;26 - 00;02;28;01

Eric Ries

Yeah, I feel like we all live this reality every day and we hardly know what to call it. You know, Tory doctor wrote a whole book called him Shit ification. So picking up on your profane idea that there's something wrong, which is really about technology companies. But I feel like we recognize this all over the economy. Just to start with a funny story.

00;02;28;01 - 00;02;41;19

Eric Ries

I was at the dinner with a group of friends. We were traveling together and were on two different nights. One night we go to a to a restaurant that a friend recommend. Oh, I love this place. Really good. Have been out a few years. We sit down, we take one bite of the food and they're like, hold on one second.

00;02;41;20 - 00;02;59;06

Eric Ries

And they're like, on their phone. We're like, dude, you're being kind of rude. Just one second said, oh yeah, I thought, so. This restaurant been taken over by private equity. I could taste it. And the second night, the same thing happened at a different restaurant. We had to actually look up if it was the same private equity firm, but it wasn't.

00;02;59;08 - 00;03;17;12

Eric Ries

I was like, how is it that the owner set the capital structure of the company is edible in the food? Like this has become so pervasive. I worked with so many leaders, board members, CEOs, middle managers. I worked on the factory floor with, you know, factory foreman, everybody, if you ask them, like what is going on in your company, what is going on?

00;03;17;12 - 00;03;34;16

Eric Ries

Our economy are full of these stories. But if you ask them, why is it happening? They resort to just those stories. It'll be like, well, greed, you know, or well, when money gets involved or when things get big or once a company's a certain age, you know, this is kind of inevitable, but I just don't think that that's true.

00;03;34;17 - 00;03;56;13

Eric Ries

First of all, I've been around a lot of these companies, so I've watched it happen. And to me, it is the result of human choices and structural forces. And this is really backed up by not just the data, but also the fact that there are these outlier companies. So, for example, I was watching a lecture the other day and the person was saying, only family run companies can resist this force.

00;03;56;15 - 00;04;13;26

Eric Ries

And they were listing off the family run companies that have been able to maintain a multi-generational ethos. And there's enumerating them, you know, one after the other, the other, and then they're like, oh, and also Costco, for some reason, Costco's 40 years old and has a $400 billion valuation. It it's not family owned. It's actually had four CEOs in its life anyway.

00;04;13;26 - 00;04;29;19

Eric Ries

But it also seems to exhibit this. Anyway, moving on. And you're like, excuse me, hold on. And if you ask people the same people that tell you this force is inevitable, if they can think of any companies that they really trust and they don't feel this way about, they all can name one. I'll be like, oh, well, Patagonia, sure, but I have a Vanguard mutual fund.

00;04;29;19 - 00;04;48;13

Eric Ries

I trust them or I take a Novo Nordisk medicine or there's so many. So how can there be so many exceptions that the rule is inevitable? So that's that's really what I spent the last, a couple of years trying to figure out, like what? What is causing this corruption and what can we do about it?

00;04;48;15 - 00;05;09;20

Geoff Nielson

So just before we we talk about these exceptions to the rule, and I love the choices you picked. And I mean, you know, Costco, I, I don't mean to give them free advertising, but I just feel like nobody has a negative thing to say about Costco. It's just like such a uniformly beloved company. But you mentioned private equity in your story about restaurants and private equity.

00;05;09;20 - 00;05;38;01

Geoff Nielson

And VC are like they're well known, almost like cartoonish villains at this point. But there's it feels like there's broader forces and broader, you know, villains, if I can call them that. Because, you know, IPO's like the market as a force feels like it can erode these companies. Right. And I think for a lot of people, this just becomes a byword for all of capitalism, that capitalism itself is the problem.

00;05;38;01 - 00;05;48;27

Geoff Nielson

So, you know, can you tell me a little bit about your reaction to that? Is it capitalism itself? It's the is it the market? What are these these triggers and, you know, these forces that you talked about.

00;05;48;27 - 00;06;06;01

Eric Ries

Yeah. So let's break it down into oh like that's, that's a there's a lot to that. Capitalism is a big topic. So let's try to get more specific. First of all I've worked with a lot of big companies over the years. You know, because of Lean Startup, not only have I helped people take companies public, I've helped huge old public companies revitalize themselves.

00;06;06;01 - 00;06;24;00

Eric Ries

And I've also worked with governments and non-profits and all kinds of companies. And if you spend time inside those companies and you ask people what's wrong with this company, they will always tell you the same things short sighted, short termism. My managers want us to cancel the good projects, you know, to make the quarter like I come from the innovation space of entrepreneurship.

00;06;24;00 - 00;06;41;13

Eric Ries

So that's like the number one casualty. I just got a call yesterday from a public company C-suite executive who was like, why? We're doing cost cutting because of AI, and they want to cut all the innovation projects first. Why isn't that where we're going to get the benefits of? It makes no sense. And I was having to explain like that this this does make no sense.

00;06;41;13 - 00;06;56;07

Eric Ries

And yet it happens. So if you talk to their manager, you work your way up the hierarchy, middle manager to senior manager. You say, do you want this to happen, this bad thing. They'll be like, well, I don't want that. But my boss wants that. That's the boss. You want this bill? I don't want this. But the CFO wants it to the CFO.

00;06;56;07 - 00;07;08;23

Eric Ries

I don't want this. But the CEO told the CEO, I don't want this, but the board wants this. You talk to the board like I don't want this, but investors want this. And I've actually got a lot of time with investors. You know, I build a stock exchange. So I spend a lot of time with institutional investors. And you ask them and they're like, we don't want this.

00;07;08;25 - 00;07;33;24

Eric Ries

What are you talking about? So like, how can it be that this phenomenon exists if everybody involved will disclaim it? If you look at so now trying to tie it into capitalism, if you study the history of capitalism and you go back to all the people over the years who have attempted to defend the moral logic of capitalism, as they dig down through the layers of reasoning, they always hit what I call the moral bedrock.

00;07;33;24 - 00;07;58;06

Eric Ries

There's one argument that's like the foundation of the defense of capitalism, which is as follows. When two people voluntarily transact, meaning you and I exchange something free of any coercion and fully informed, that's always that. That's always the formula they use from, you know, from Adam Smith to Bastiat to Milton Friedman. Everyone always uses the same formulation, fully informed, voluntary, on coerced transactions.

00;07;58;09 - 00;08;19;14

Eric Ries

Then both parties after are better off than they were before, even though no material change has happened. So if I trade you a goat for a sheep and no new animals were created. But I'm wealthier and you're wealthier if you sell me an iPod for $100. No new iPods were created, only that was the material. Nothing has changed and yet more wealth is created.

00;08;19;21 - 00;08;42;02

Eric Ries

This is the magic trick of capitalism. That wealth was not stolen. It was generated. But that logic creates the asterix that we are having a huge problem with in our society today, which is what about transactions that are somewhat coerced, that are only partially informed? Do those perform the magic trick? And of course, the answer is no. They absolutely do not.

00;08;42;04 - 00;09;01;16

Eric Ries

And again, this is a really ancient form of wisdom going back to Aristotle and to many religious traditions, that there are better and worse ways to make money when we create net new value in the world, we we capture some of that for ourselves. We not only make money selfishly, but we leave the world better off than we found it.

00;09;01;18 - 00;09;25;01

Eric Ries

But there are lots of other ways to make money. And in our economy today, if you look around, you will find many, many, many ways to make money without creating value. And I think this is the root of the problem. When people say they're opposed to capitalism or they feel like there's something that's going wrong in our economy, they're putting their finger, even if they can't name it on this phenomenon so pervasive that, like I said, we don't know what to call it.

00;09;25;04 - 00;09;52;02

Eric Ries

And when I was trying to think about what to call it, I asked myself, what would our grandparents or great grandparents have called to many of these ways of making money without creating value that we celebrate today. You know, our grandparents or great grandparents time not only would have been seen as morally dubious, they would have been crimes like we've actually legalized many ways that of making money that that that in more ancient times and in even in living memory would have been seen as extremely inappropriate.

00;09;52;02 - 00;10;11;05

Eric Ries

You know, stock buybacks were illegal until like the 1980s. And in the 19th century, if you attempted to take over a corporation and convert it from having a beneficial purpose, like constructing a railroad to just enriching it, shareholders that would have been considered a crime and the courts would void your charter. You would get the corporate death penalty.

00;10;11;08 - 00;10;33;04

Eric Ries

So things have changed actually relatively recently in the grand scheme of things. And I just realized, oh, our grandparents would have called this corruption. This is corrupting the moral logic of capitalism. And so I think a lot of the debate we're having now, from AI governance to climate change to inequality on so many dimensions, this is the proxy war we're actually fighting about.

00;10;33;07 - 00;10;46;09

Eric Ries

Who can we hold accountable for these corporate actions, and how can we redirect all this corporate energy back into beneficial purposes, purposes that are aligned with human flourishing? It's one of the great tasks of our time.

00;10;46;11 - 00;11;12;28

Geoff Nielson

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00;11;13;00 - 00;11;43;16

Geoff Nielson

So obviously a lot to unpack there. And really, really interesting stuff. A couple of thoughts come to mind though. One of them, I guess, is the notion that in this pursuit of increasing capital, I guess if you can call it that, that there's, you know, you said something I love, which is basically that not all forms of, of making money are created equal, which I think a lot of, you know, self-proclaimed capitalists would maybe disagree with.

00;11;43;16 - 00;12;10;17

Geoff Nielson

But but I really like that statement. And I think it's just so, you know, inherently and viscerally true. And there's this distinction between, creating something of value and trying to extract value, and that it feels like in, in this most modern form of capitalism, you use the word greed earlier, but there's this kind of extractive force about how do we just how do we extract as much money or value right now?

00;12;10;17 - 00;12;45;10

Geoff Nielson

How do we, you know, I've, I've heard you use a phrase before, which is basically surgically debone companies or surgically debone products, which again, is this like has this very, you know, kind of emotionally resonant feeling, of what's going on here. Yeah. And so to come back to something else, you said there's this sort of diffuse abstraction of accountability here where if you ask any individual player in the system, in the machine, they'll say, no, well, I don't want that.

00;12;45;15 - 00;13;06;03

Geoff Nielson

And yet all of this is happening with sort of alarming regularity. So, I mean, what do you make of that? How is like what is actually going on in these machines? What do we need to know about the way that they function? And I guess, like how do you how do you short circuit that?

00;13;06;05 - 00;13;24;05

Eric Ries

Okay. Well, okay, I'm going to answer each of those questions. But we got to take them in turn because it's a lot. The first question like to me the the this is a double mystery. The first mystery is why does this happen at all? And the second mystery, if it's inevitable, how come there are exceptions and why is it getting worse?

00;13;24;07 - 00;13;52;02

Eric Ries

You know, that's really like that's people want to know is like, if this been going on for 200 years, why is it getting worse? So we can answer both of those questions by looking at what has stayed the same and what has changed over this period of time. We have been making this simple mistake for a long time, you know, very famously, if you know the story of Robert Owen, you know, a 19th century capitalist who, who discovered what we would now call enlightened capitalism, he was way ahead of his time.

00;13;52;02 - 00;14;11;10

Eric Ries

He treated his workers well. He paid above market wages. He wouldn't let you post child work. He created, housing for his employees, health care for his employees. This is all way before the rise of the modern welfare state. And he was almost instantaneously rewarded by taking a mill that was formerly bankrupt to tremendous prosperity and prosperity. That lasted for a really long time.

00;14;11;12 - 00;14;32;12

Eric Ries

But the whole time he was doing this, he thought that because he just like us, he thought the market rewards value creation. So when people see these incredible results, they'll see it like a breakthrough technology and it will spread. The market will reward and protect me. And then his his own investors tried three times to get him out of there so they could return the mill to conventional, less profitable methods.

00;14;32;19 - 00;14;54;00

Eric Ries

And on the third try, they eventually succeeded. These investors were not stupid. One of the investors involved was the great utilitarian philosopher Jeremy Bentham. So like this is not this is not a stupidity thing. It's a it's a matter of incentives and forces. So then going on a long time, I think, to see it really clearly like to see both what is happening in our modern era that has made it so much worse.

00;14;54;02 - 00;15;12;10

Eric Ries

And to see the solution, because you mentioned Costco, let me tell you a story of a of an entrepreneur named Saul Price. Now, Saul is the absolute uncontested father of modern retail, but I kind of feel like for a lot of younger audiences especially, his name has fallen out of the public lexicon. So not as many people know his story.

00;15;12;13 - 00;15;35;11

Eric Ries

But to give you a sense of how influential Saul Price was, the reason Walmart is called Walmart is because Sam Walton was paying homage to Saul's company, said Mart. So Saul was a lawyer, and when he, you know, he came to entrepreneurship late in life as a lawyer, he had been trained that he had what's called a fiduciary duty to put his client's interests ahead of his own.

00;15;35;13 - 00;15;57;10

Eric Ries

That's what we all want from our lawyer. Right. So when he became a retailer, he asked himself this simple question who is my client? My client is the customer, and I have a fiduciary duty to the customer. That was his motto. And he had a strict, fiduciary hierarchy. He said customers first, employees second, shareholders last. This is pretty much always the hierarchy.

00;15;57;10 - 00;16;19;03

Eric Ries

You see in truly great companies. The great Peter Drucker did it a little bit differently, he said. Employees first, customers second, shareholders last. The Johnson and Johnson famous. Our credo is, patients and customers and doctors and nurses first, employees, second communities, third shareholders last. Each of these great thinkers, took an approach that's the opposite of what we teach today as our best practice.

00;16;19;05 - 00;16;37;03

Eric Ries

But to give a sense of how seriously he took this ethos, this is in the 1950s, when his competitors would try to drive him out of business by selling products below their cost to drive customers out of Redmart into their store. Their theory being they could lose money today, but if they drove Saul out of business, then they could jack up prices later.

00;16;37;06 - 00;16;57;12

Eric Ries

Common strategy Saul would post their advertisements inside his own store and put up signs telling his customers, don't buy this product from me. You can get it cheaper down the street. So as a result, his customers trusted him to look after their financial interest. That's what it means to be a fiduciary to the to the customer. So fed Mark grew was a very successful private company.

00;16;57;12 - 00;17;18;21

Eric Ries

He took the company public. It was a very successful public company. But just like Robert own and just like all the entrepreneurs and managers and board members, it was he was afflicted by this hidden force. Nobody would ever come up to him and say, look, you have to abandon your ethos and raise prices. But that was the constant, relentless pressure on him and his employees.

00;17;18;24 - 00;17;37;16

Eric Ries

Higher prices, lower wages, not the reverse. Even though he had demonstrated that his approach made the retailer more profitable. To escape all this pressure, Saul figured, okay, the problem is these bad guys. You asked who were the bad guys in this story? So I was like, oh, the bad guys are these public market investors. I will take the company private.

00;17;37;18 - 00;17;59;14

Eric Ries

So he arranged for new investors to take the company private. They owned 51%. He owned 49%. You can probably guess where this is headed. The new board that he established had the same problem, even though they had even more incentive, financially speaking, to be in favor of the company's long term health. But it wasn't enough. No matter how much money he made them, they always wanted more.

00;17;59;14 - 00;18;21;09

Eric Ries

They wanted faster growth. They wanted conventional best practices. A big part of this is just the allure of these best practices that we have encoded into our financial system. Anyway, the conflict came to a head one day in 1975 after Fed Mart. If you saw the building fed for 20 years at this point, he comes into work one day and the locks on his door have been changed.

00;18;21;11 - 00;18;40;03

Eric Ries

He doesn't work there anymore. So this is a sad story for anyone. Is an entrepreneur listening? You'll be like, oh God, not another one of those stories. Thanks, Eric. What a what a bummer. But before we get to what happened to Saul, it's important to say what happened to fed. Marc. If you've ever read the parable of the goose that laid the golden egg, you can predict what's about to happen next.

00;18;40;05 - 00;19;09;08

Eric Ries

The investor got what they wanted. The for profit investors, in order to increase their own profits, got what they wanted faster growth, more conventional retail. And within seven years they had driven fed Mark directly into liquidation. They drove it bankrupt through their agreed. But Saul Price understood something that they didn't understand. They thought that afterwards that this was just a story about his charismatic leadership and that they had misjudged that.

00;19;09;10 - 00;19;29;18

Eric Ries

But now Saul understood that it had nothing to do with him. Said Mark had been powered by an engine, a system that generated the most valuable asset and the most underrated asset in all of business today. Trustworthiness. So, said Martin. It stockpiled trustworthiness, and the investors had tried to steal it from him. I think, perversely, they understood something that Saul did.

00;19;29;18 - 00;19;45;04

Eric Ries

It, that precisely because Fed Mart was trusted by its customers, they could get away with more. So that's kind of the problem. We see that someone said to me, the other day they were talking about one of their favorite brands. They said, I love this company. I'm really happy for them. I hope they I hope they're really successful.

00;19;45;04 - 00;20;02;05

Eric Ries

And they said, well, actually, no, I hope they're successful enough to make some money, but not so successful that they'll be taken over by private equity. Like, because the more successful an organization, the more valuable it is as a target. And again, I don't mean to pick on private equity in particular. Saul Price was undone by a whole different set of investors.

00;20;02;05 - 00;20;24;05

Eric Ries

It doesn't matter. The system has its own logic and the drama are just the play. Actors who are playing out their parts. So Saul, it's classic entrepreneur. Though he took two weeks off after having his life's work stolen from him, and after two weeks he was back at work. He he leased the office upstairs from Fed Mart HQ and started a new company.

00;20;24;08 - 00;20;42;29

Eric Ries

That company was called Price Club. Now again, most people have not heard of Price Club, although when I was growing up it was a local fixture, in Southern California. And the reason you haven't heard of Price Club is because it eventually merged with a different company, because one of the people who left that mark to go with Saul to Price Club was a guy named Jim Senegal.

00;20;43;02 - 00;21;00;05

Eric Ries

Jim Senegal had started out his career as a stock boy at Fed Mart, and had worked his way up to executive. He was one of Saul's proteges and when it was time, he left Price Club to go start his own company, and a few years after that, his company and Price Club merged to form the legal entity that is now called Costco.

00;21;00;07 - 00;21;22;22

Eric Ries

So coming back to Costco, this is the origin story of Costco. Costco today combines the two things we need if we're going to resist this force. The ethos of Saul Price, a mission, a purpose, a sense of of duty, and a sense of a framework for making principled decisions that can put others before yourself. So it is, truly a service business.

00;21;22;24 - 00;21;50;07

Eric Ries

Costco maintains those same commitments, including the 14% capped margins that's all pioneered in the 1950s are still alive. And Costco to this day, but it has something that Fed Mart never had. Jim Senegal was there the day investors betrayed Fed Mart. And so when he took Costco public in 1986, he instituted what I call a governance fortress, a series of legal protections that give Costco its structural integrity.

00;21;50;09 - 00;22;17;26

Eric Ries

So this combination, the ethos and the integrity, are the things that make an organization capable of enduring and maintaining its mission over the long term. What's interesting about it, and this goes really to the question of why are we in such a dire state? These practices are considered violations of our finance driven best practices, so much so that Costco is routinely given the lowest possible governance rating score from governance ratings agencies.

00;22;17;29 - 00;22;39;26

Eric Ries

And in fact, this is not unique to Costco. Since 2008, companies that are rated to have bad governance have outperformed companies that are rated to have good governance, even though the theory of governance that is being used to make all these determinations about best practices is literally called shareholder primacy. The idea is that all of this is meant to maximize the returns to shareholders.

00;22;39;26 - 00;23;00;12

Eric Ries

Yet what we see in practice is that these best practices are in fact value destroying. So now you ask the question, why is this happening? Well, over the last 200 years, we have taken what used to be a bug in the system of capitalism and turned it into the most dominant driving idea in the whole thing. We have financialized everything.

00;23;00;15 - 00;23;16;27

Eric Ries

At the same time, we have adopted practices, governance, best practices that are leaving organizations incredibly weak to this force that we are magnifying, and as a result, they are crumbling. We are watching institutions crumble before our very eyes.

00;23;16;29 - 00;23;50;12

Geoff Nielson

There again, a lot to unpack there, Eric, and really, really interesting, you know, answer and stories. There's sort of a grand irony here that putting your like putting your investors first is like a recipe for actually destroying value, that it seems like if you're going to build trust, whether it's employees first, whether it's customers first, investors last tends to actually produce a much better long term result for investors, which I've seen firsthand in my experience.

00;23;50;12 - 00;24;27;23

Geoff Nielson

But I think, you know, many of us have, even if it's counterintuitive, but but the point you were just making about companies with the worst governance ratings, outperforming those with better governance ratings. One of the big challenges here for business leaders, I'm sure, is that if you want to do this in practice, if you want to implement any of these, you know, kind of fortress like practices, the amount of resistance you face is immense, right from, I have to imagine, from your lawyers, from your investors, from your board.

00;24;27;26 - 00;24;49;26

Geoff Nielson

There's got to be an army of people telling you you can't do this, or you're destroying value. And like just these systemic forces pushing you to do something that is actually going to be an act of, of self-harm, you know, as an individual and also to the organization. And so, you know, I'll come back and I'll ask this broadly, and there's like a lot of room to play in here.

00;24;49;26 - 00;25;14;17

Geoff Nielson

But, you know, if you're a leader who's actually committed to building something good and of lasting value, how do you you know, you talked about ethos, you talked about the, the importance of, of, you know, I guess more unique governance practices. What are the key things you need to do to to get really good at this protective layer?

00;25;14;23 - 00;25;17;12

Geoff Nielson

And what kind of challenges can you expect?

00;25;17;15 - 00;25;37;26

Eric Ries

Yeah, I do, I do try to address all of these, obviously in the new book. And the reason I mention that is that I'll answer your question and I'll give you kind of the overview, but like this is just like if you think about anything you might have learned at business school or, you know, the most important things you've learned about how to run a business, you didn't learn them from some some guy on a podcast at 30 minutes.

00;25;37;26 - 00;26;00;11

Eric Ries

Right. Like there's there's a level of detail to this that's really important. And I see this a lot with with leaders who admire some great company or some great leader that they look up to. And it's like, imagine you went to an Olympic athlete and you said, oh, what's the secret to your success? And they're like, well, before I even got to like training to do the luge or tennis or, you know, fencing or whatever, you know, I did first get the foundations in place.

00;26;00;11 - 00;26;12;19

Eric Ries

I had to eat, right. I had to be in the gym all the time of the exercise. And imagine if you heard that and you're like, oh, okay, so after I'm an Olympic athlete, then I need to make sure to go to the gym and be like, no, man, I don't think you understand. Like, oh, I got it.

00;26;12;21 - 00;26;29;20

Eric Ries

If I go to the gym one time, then I'm going to be an Olympic athlete. So no, man, you're really not hearing me. And I'm like, oh, only if I'm an Olympic athlete. Then I have to go. That's like, no, this is the foundation of the thing you want to accomplish. I don't think we appreciate, like business, the business leaders, we really admire the outlier successes.

00;26;29;20 - 00;26;53;08

Eric Ries

They're like our Olympic athletes of of organizations. And if we want to be like them, we have to study what they do to be successful, not like the daily habits they get up at 6 a.m., but these deeper commitments, and we have to put them into practice in advance of becoming, you know, whoever we're going to be, because this is a foundation of practice you build on over time.

00;26;53;10 - 00;27;12;27

Eric Ries

So what can we do? Like it is true that we're going have a lot of resistance. And I literally wrote in the book whole sections called like how to talk to your investor about this, how to talk to your lawyer about this. Like, I really try to be extremely practical and specific. And to me, the way I look at it is I call this force that we're up against financial gravity.

00;27;12;29 - 00;27;41;07

Eric Ries

It's like the equivalent of physical gravity in that it is an unconscious automatic transmission of values. That is a function of size difference. So because our financial system is so huge, its values are being amplified or projected, we all receive this pressure. And just like physical gravity, you can say, well, I don't believe in gravity, but gravity believes in you as it proves every time you jump up in the air, you come crashing right down this resource.

00;27;41;09 - 00;28;01;13

Eric Ries

Sensitivity is deeply ingrained in the human psychology. It is a big part of our evolutionary history, and it is a reflex that you cannot turn off any more than you can stop your pupils from dilating in the dark. You can easily prove this to yourself by watching. If I have a friend who you watch, meet a celebrity for the first time, or a billionaire for the first time.

00;28;01;13 - 00;28;18;20

Eric Ries

I read a lot of rich people, so I get to see this up close. It's like so gross. People become, like, instantly obsequious and flustered. Even people who are very strong go to jello in these situations. And it's like, why would you, you know, if you ask them afterwards, why did you behave that way? They don't know. It wasn't it wasn't intentional.

00;28;18;22 - 00;28;43;18

Eric Ries

So gravity warps our behavior. And you see it in companies like people think about you can't help it. Your boss asks you to do something. You can't help but think, well, maybe this will help me get promoted, right? Like I'm pleasing this person is going to be useful to me in the future. It's why so many people like wind up being abused by their company, sometimes even without anybody intending to, because your boss wasn't saying you must work this weekend, they just said, hey, do you mind working on this?

00;28;43;18 - 00;29;01;00

Eric Ries

And we didn't even feel empowered to tell them what the human cost of it would be. We have to comply. We have to do what they want. We see that when companies go public. I asked CEOs who've taken companies public, what's the biggest, number one biggest change you noticed before and after? They always say the same thing. Everyone's looking at the stock ticker all of a sudden.

00;29;01;03 - 00;29;19;17

Eric Ries

And if you go to meetings in newly public companies, you'll often hear this phrase, well, the market might not like that. It's like there's this ghost in the meeting now called the market. And now keep in mind that the market might not like that is a might statement. That's a different from like you said, I want to have a long term partnership with investors is very healthy.

00;29;19;17 - 00;29;46;04

Eric Ries

I'm going to go interrogate them to find out what they really want. That would be healthy. That's the problem. But what the market might want is financial gravity talking. And unfortunately, this gravitational pressure locks investors into a prisoner's dilemma. The value that we're currently transmitting is actually not shareholder primacy, but extraction primacy. The financial system rewards those who squeeze value out of existing organizations.

00;29;46;06 - 00;30;13;15

Eric Ries

And so if every investor thinks every other investor is going to do that, like get in, squeeze out some value and get out, you got to you got to beat them to the punch. Otherwise they're going to steal the value for themselves. It creates this pressure that everybody feels the squeeze, squeeze, squeeze. So just like when a bridge collapses, if I ask you, your engineer, why that bridge collapse, you say to me, well, you know, gravity, I'm gonna be like, Geoff, I hear you.

00;30;13;15 - 00;30;29;18

Eric Ries

I mean, yes, that is technically true. Yes, it is true that the gravity is the ladder. That is the formal cause of why it fell to the ground. But that's not a very satisfying answer, because, first of all, why did the bridge collapse today and not yesterday? What did this bridge collapse and these hundred other bridges didn't collapse, right?

00;30;29;21 - 00;30;49;08

Eric Ries

A real engineer and someone who studies structures for a living would analyze, not gravity. They would say, well, let's look at the load load factor. Let's look at the tension on the on the machines, on the, on the on the, on the bars. Let's look at a wind shear. Hey, look at this. All the metal joints seem to be corroded.

00;30;49;10 - 00;31;10;09

Eric Ries

Oh, I have material fatigue. Oh, that's why I collapsed. And I said, well, I want to build a new bridge. You say, okay, let's build with stainless steel this time so that the corruption doesn't seep into the joints. That is the equivalent. What we're trying to do for organizations. Let's study. What are the things that make those joints secure and strong and broadly speaking, that's why I told you the fed margin Costco story.

00;31;10;09 - 00;31;37;06

Eric Ries

Broadly speaking, these the techniques of this fall into these two vertical paths, the passive ethos that's the passive internal alignment. The problem we have in most organizations is the trustworthy action. Almost always scores. Is ROI negative because the benefit is intangible, but the costs are tangible. I could tell you hundreds of stories like this. Costco's loaded up with practices that they do that nobody else in the industry does.

00;31;37;06 - 00;32;10;19

Eric Ries

They pay suppliers faster and more fairly even. They don't have to. When they raise wages, they they don't they don't prolong the wages. They give the weight. The wage increases faster than other people. They pay more than they have to to for all kinds of stuff. They do more food safety inspections than they have to do Costco. If as as I in the book does something like 40% of all of the food inspection safety inspections in the US, did you almost as many as the US federal government, because they care about the welfare of not just their own customers, but of all the citizens?

00;32;10;25 - 00;32;31;09

Eric Ries

Most of us are protected by Costco's food shield because if you want to be a Costco supplier, you're not allowed to cherry pick. They don't inspect only the stuff you sent to them. They inspect the whole facility for everything it makes anyway. So you see these these positive externalities is what economists would call them. They are benefits that accrue to others but don't show up on our balance sheet.

00;32;31;11 - 00;33;05;18

Eric Ries

Now, in the long run, it's very obvious if you know Costco or any of these really cool companies, that these benefits do eventually come back to you, but not in the not in any kind of time period that you can measure or, or quantify. So what we have to do if we want to make trustworthiness into an asset that we try to maximize, we have to adopt practices, let to see these intangible benefits and defend these values, even in the face of the legions of people in the modern economy who are always wielding spreadsheets with their ROI based calculations being like, excuse me, couldn't we, like, make this thing slightly more carcinogenic?

00;33;05;18 - 00;33;29;24

Eric Ries

Would anyone notice, like ROI that would be really high? It's like, you know what? No, no, you're right. At first nobody will notice. Jim, Senegal's out of Costco calls. It literally likened it to taking heroin. He would explain to somebody that if Costco were to raise prices by 3% across the board, they would literally double their net income and nobody would notice.

00;33;29;27 - 00;33;47;20

Eric Ries

So it's like, why don't we do that? I, think like one of the most remarkable things about Costco is just how big it is if they're a Kirkland private brand, if it was an independent company, it would be bigger than United Airlines, Coca-Cola or Procter and Gamble. It's it's massively large. So yeah, tiny increase. No one would ever notice.

00;33;47;22 - 00;34;15;12

Eric Ries

They sell more hot dogs in the famous the famous dollar 50 hot dog. They sell their stand outside their store. They sell more hot dogs. In a year, 200 million. That's more than every Major League Baseball park combined. So if the hotdog was $2.50, that would be $200 million of free profit. Straight to the bottom line. But the reason he called it like heroin is the second you do that, you got to do it again and again and again and again because it's just so easy.

00;34;15;14 - 00;34;37;05

Eric Ries

You don't see the costs until way later. So we have to have an ethos, a system for defending that internally to really create alignment, to make sure that the company understands the organization understands at every level that the only way to prosper is by achieving its mission. And making a little extra money by betraying the mission is not profit at all.

00;34;37;07 - 00;34;54;06

Eric Ries

And then on the path of integrity, that's where we get into the structural integrity things, things like writing the purpose of the organization into its corporate charter so that, legally speaking, it's allowed to pursue that purpose instead of just maximizing shareholder value. Things like what I call the directors oath, basically like a Hippocratic oath for boards of directors, I think is really important.

00;34;54;09 - 00;35;19;19

Eric Ries

And of course, things like voting rights, board rights, the relationship between shareholders and the company, what I call mission guardianship. And I'll just float one other idea, there is a corporate structure that is different than what we teach today as a best practice that is old enough to have been well studied. The German optics company Zeiss, who probably makes your glasses lenses in mine.

00;35;19;21 - 00;35;39;10

Eric Ries

Zeiss has had this structure since 1885. So although to most people it will be new to them, I will tell them I'd be new to you, but it doesn't mean it's new. And because this structure has been studied, we have a data set of companies that are structured this way. Overall, it's a subculture of this way. Hershey chocolate is structured this way, Ikea structure this way, lots of company structured this way.

00;35;39;13 - 00;36;11;09

Eric Ries

And if you compare the companies with this structure to conventional structures, they are six times more likely to live to year 55, about 10% versus 60% probability. So it's not just better socially or ethically or morally. It's actually better economically, including for shareholders to have this structure. And we can get into the details of how it works. But just to say, like, my main message is for leaders to realize that there's more to the story than what you learned in business school or what you learned in economics class.

00;36;11;09 - 00;36;20;14

Eric Ries

There's been a suppression of this really valuable knowledge that is known in kind of academic niches, but not broadly understood in business.

00;36;20;17 - 00;36;39;24

Geoff Nielson

I'm I'm really, really tempted to delve into a bunch of that, but I'm not I'm not going to I'm going to take us down a completely different path, Eric, because I think now, you know, for anybody who's been listening this far, your mind is probably just abuzz with concepts that we've been talking through in this sort of ecosystem.

00;36;39;24 - 00;37;09;21

Geoff Nielson

I hope so, and I, I can't imagine any other, you know, any other reaction unless you, you know, weren't listening. But, I want to start applying this to what we're seeing in AI right now, the, the AI space, you know, the AI companies and, you know, you said something, you know, not in this podcast, but, you know, before that caught my attention, which is that most fears about AI are actually fears about capitalism.

00;37;09;23 - 00;37;32;28

Geoff Nielson

Yeah. And so, you know, I'm interested in hearing you sort of unpack the state of AI, but both in terms of, I guess its its promise as a technology. But but even more so looking at the structure of the handful of men in the handful of organizations that control this technology. And I guess the ecosystem, you know, kind of clamoring for it.

00;37;32;28 - 00;37;41;29

Geoff Nielson

So that's, that's a I know that's a very broad space to play in, but, you know, can you tell me about, you know, from where you're sitting, what does that look like?

00;37;42;02 - 00;37;59;22

Eric Ries

Sure. Yeah. I'm very deep into this. You know, I played a bit part in the, in the, in the governance structure of anthropic. So I've been part of that story from the beginning. And I also helped found an AI research lab called answer AI. So so this is not idle speculation, but but a big part of my daily work.

00;37;59;25 - 00;38;37;04

Eric Ries

So I think corporations are actually the first artificial intelligence that we had that humanity built on this planet. And many of the properties of what people are now calling AI, we see also in organizations, there are both instances of what are called emergent intelligence. And we can talk about the that if that is of interest. But just to say that, one of the biggest unsolved problems in AI is what they call the alignment problem, which is how do we build this technology in such a way that is aligned to human values, which, if you believe the fears about existential risk, is actually like a really urgent problem, we're already starting to see problems.

00;38;37;04 - 00;38;56;12

Eric Ries

I mean, someone asked me, like, I was on a panel yesterday where I was asked, you know, when do you think the first like, AI driven catastrophe will happen? And I just thought the question was so strange. It was like we just had AI drop a bomb on a school, like, a couple months ago. That doesn't count.

00;38;56;14 - 00;39;16;22

Eric Ries

We're like the, you know, the proverbial lobster in the pot of water, right? Like, as the temperature rises, as we see these catastrophes unfold, we just get used to them. We don't we don't really appreciate how how far we have come from a situation where we're really in control of what's happening. And I think one of the key questions in the climate is not the technical question of how do you build the software in such a way that it's aligned to some specific value?

00;39;16;22 - 00;39;40;23

Eric Ries

But who aligns the aligners, these, these organizations, these technologies are being built by for profit companies that are being shaped by this financial gravity that I was talking about before. But I do have a tiny sliver of hope that comes from this. It was a very surreal experience. I had, last year I was at the Vatican of all places, and I was at a conference about AI governance that the sponsored by the Vatican.

00;39;40;25 - 00;40;01;27

Eric Ries

And I happened to be on this panel discussion and on the panel with me were all of the leading AI labs. So representatives from anthropic, OpenAI, Google, Palantir, cohere, everybody was there. And when I looked down the row of all the people with me, I realized that not a single one of those companies has standard governance, not not one.

00;40;01;29 - 00;40;28;20

Eric Ries

And I was like, oh, that's so interesting. There's something about AI. I think it's instinctive, danger level that nobody who's developing, like none of the major researchers who work on this would say that they would feel comfortable with a typical shareholder primacy type company running it. It just seems incredibly dangerous. So although the companies have taken different approaches to what I call mission guardianship, and some of them are better, somewhat worse.

00;40;28;20 - 00;40;55;16

Eric Ries

Some of them I don't think are very good at all. But anyway. But the point that everyone's trying to find a way is really important, because if you know Conway's Law in software, this is an old finding going back many years, that the values of the organization that makes a piece of technology will show up in the technical design of that technology itself, like very famously, Conway showed that the organizational chart of the parent company will show up in the architecture diagram of the technology.

00;40;55;18 - 00;41;10;01

Eric Ries

And that's actually we're used to that, an old finding in software. So we don't think about it that often, but it's actually very remarkable. Why should these two things have anything to do with each other? It doesn't actually make technical sense at all. But of course, a political scientist or sociologist would say it makes all the sense in the world.

00;41;10;01 - 00;41;30;14

Eric Ries

What do you expect if you study power relationships between people? You will understand, but it's important. You have to see how the values of the parent warp the construction of the thing. So that's what we're seeing in AI, that the different, so-called agents are reflective of the values of their parent. And I think to me, the danger the most dangerous sign of all.

00;41;30;16 - 00;41;53;11

Eric Ries

And I and, the British adman, Rory Sutherland put this really succinctly. He said that we have built an economy where people who cut costs are rewarded without ever being held accountable for the negative consequences, the downstream consequences of those cost cutting. So we see that in, you know, in the brand collapses because costs were cut.

00;41;53;14 - 00;42;15;14

Eric Ries

The person who did the cutting got promoted and they're already long gone. You see that obviously with hedge funds and private equity, lots of ways to take costs out of a thing, and it collapses only later because of that. That pressure to see, to use AI as a cost cutting tool is just immense. So that is how it's being sold to the public as a way to cut costs, which I think is a huge mistake because fundamentally we are building tools.

00;42;15;14 - 00;42;34;09

Eric Ries

Now, this goes back to the alignment question. We are building tools where the humans are aligned to the goal of getting humans out of work. That is, using AI as a replacement for human creativity. I really think that's wrong, like both morally wrong. But I think it's also like a big mistake in terms of how the technology is being sold, and also in terms of how effective the technology ultimately will be.

00;42;34;11 - 00;42;58;28

Eric Ries

To me, the biggest exciting thing about this technology is it can be an amplifier of human creativity, helping us compensate for the weaknesses that individual humans and groups of humans have. You know, because we offer all our creative skill, we have a lot of a lot of imperfections like this can be used to help, augment. So to me, I'm excited about the technology as a, as a source of creativity augmentation, but never as a, as a, creativity replacement.

00;42;58;28 - 00;43;22;00

Eric Ries

And you watch the people who are the heaviest power users of this technology because it's been architected in this way that's really designed to get you to get humans out of the loop, you starting people trying to develop what they call agent psychosis or psychosis, where the technology is warping their own sense of what they're capable of. And what's interesting is it's like a Dunning-Kruger machine.

00;43;22;02 - 00;43;42;08

Eric Ries

It's it's causing people to become more overconfident in their own skills while actually causing those same skills to atrophy. So we're seeing this big divergence in terms of the the heaviest users of AI. You know, what they think they've accomplished and what they've actually accomplished. And because we live in the social media era, a lot of people are embarrassing themselves on social media every day bragging about their, their.

00;43;42;08 - 00;44;04;18

Eric Ries

And it's like their incredible accomplishments. And then you go and look and you're like, what? What happened to you, man? Like, this is not this is not a do not having a very measured reaction to the thing you've actually produced. So anyway, so I think the most important thing, if I could impart one lesson to people who are grappling with AI, LMS are incredible teaching machines if you use them properly because they are trained on all human knowledge.

00;44;04;18 - 00;44;17;07

Eric Ries

So they're very good at helping you fill in the gaps in your own knowledge. They're very helpful. They're very good for helping you develop skills. So if you use it, if you see AI as a box, a black box that will make an artifact for you, think about how many people are excited about this. Hey, I can make it.

00;44;17;07 - 00;44;38;17

Eric Ries

How to make me a website. You're in trouble these over time. What you'll notice for the people that are doing this the most, the AI starts to subtly shift their own goals for the project itself, and next thing you know, you're not really in charge of this project anymore. It's become a zombie. Instead, asks the AI to help you learn how to create the artifact and improve your own skill.

00;44;38;17 - 00;44;56;00

Eric Ries

Add it, help it, help you go deeper into what you're making, and you'll still get great artifacts that way, but you'll have to kind of go a little bit slower at first. But over time you will find your own capabilities increase and your sense of agency increases. And that's using, AI in a way that I think is aligned with with human flourishing.

00;44;56;00 - 00;44;59;27

Eric Ries

The way we're teaching people right now, I think is very much not.

00;44;59;29 - 00;45;35;06

Geoff Nielson

So, again, obviously a lot there. And, you know, I'm just still processing it. I agree with you about the concerns around AI and using it the wrong way and just using it to try and either optimize the hell out of everything, remove people, or, you know, remove creativity entirely. Yeah, the the use case and the argument for using AI to augment, using it to teach, using it to build our own muscles and get better at our craft.

00;45;35;09 - 00;46;01;13

Geoff Nielson

You know, to tie this back to an earlier theme, none of that feels like it has its own gravitational pull right now. At least you know the way I'm seeing it, it feels like it takes. I don't know if it's fair to call it an act of courage, but like a deliberate, you know, a deliberate act on the part of individuals, on the part of, you know, business leaders to say this, this is how we're going to use it and how we're going to get the most return from it.

00;46;01;16 - 00;46;34;11

Geoff Nielson

So, you know, with that in mind, can you give some examples, I guess, of organizations that are using it really well, you know, how it ties into, I guess, broader cultures, credos ethos and, you know, I guess what some of the just to take it one level deeper on that, you know, education piece and on that augmentative piece, what are some of the best use cases for really using it to, to to drive your mission forward?

00;46;34;14 - 00;47;07;00

Eric Ries

Yeah. Well, I'll, I'll give a personal example first to start because, at an answer, I, we, I have the I have the advantage of having a completely custom ai rig. You know that is based on the rig that we use for our own research and has improved our own productivity immensely. We take the idea of augmentation so seriously that we, you know, Jeremy Howard, who's the founder of answer AI, he has said that he wants to cap the total number of employees that will ever have a 12, forcing us to not to do less, but to be more dramatically more productive with each of those 12 people.

00;47;07;00 - 00;47;22;05

Eric Ries

And it's been really amazing to watch that happen when you don't have the release valve of being able to hire more people to handle demand, you have to force forces yourself. You have to use this augmentation. So when I was I was working on the book, I was really worried about AI writing, you know, and I was like, I can't, I can't write.

00;47;22;05 - 00;47;42;05

Eric Ries

Well, I hope everyone knows that. Don't please don't send me. I written material that you can always tell. If it's AI written, it has a certain certain smell, a certain distinctive taste to it. And so I was really worried about that. But I but I wanted to take advantage of it as a productivity tools. And so I was able to do a lot of stuff that I think just would have been completely impossible in the past, you know, because I'm lucky, I benefit.

00;47;42;05 - 00;48;00;20

Eric Ries

I have editors, I have human researchers. I have like a whole team that helps me, you know, on the writing side. So I'm very blessed. But even so, there's just it was so useful to be able to, while I was writing, to be able to have access, instant access to a huge amount of context and to have, a partner who would help me, like, stay on track.

00;48;00;20 - 00;48;17;19

Eric Ries

You know, the biggest the hardest part about writing, it's the saddest, loneliest job in the world, you know, it's just you and the blank page, and you have to you have to grapple with it. And for me, for my brain, just the overwhelm of like, I have 24 tasks to accomplish today. Which one of my on again, what do I have to do next?

00;48;17;22 - 00;48;30;21

Eric Ries

How do I get started? I just have someone there to say, this is you're on task seven. You know, if I get interrupted like a if I'm writing on someone, interrupt my flow, it's really difficult to get back in the flow. But this was so much easier. So, you know, I have a partner is like, hey, you were on task number seven.

00;48;30;21 - 00;48;42;22

Eric Ries

We were halfway done. Let's keep going. Or if I had trouble getting started, hey, why don't you try getting started this way? And I was like, that's horrible. Oh, but the human brain, when it sees a horrible thing, it can be like, oh, that's no good. Now throw that out. We need to do this other thing. So it was very stimulating to me.

00;48;42;22 - 00;49;02;19

Eric Ries

I found it very helpful. But another thing, we did an experiment. We did an arts where I, we were doing a course to learn about about deep learning. It learns you can still access it. I think, on our website called solve It. And we had a thousand students and we gave them access to the manuscript of the book when it was still in its draft form.

00;49;02;21 - 00;49;25;05

Eric Ries

And instead of just saying, we'll read this and see what you think, we taught them how to do AI assisted close reading. So close reading is one of the like most ancient academic skills there is. And for people who are really good at it, you know, think about like the PhD level people who teach literature, when they do close reading, they are pulling on a vast context of Western literature and history and everything you would want to know to understand, like why did the author make this choice?

00;49;25;05 - 00;49;47;01

Eric Ries

Was it a reference to, you know, what's happening? What what how? Harold Bloom calls the anxiety of influence, right? Like, how are they in dialog and in relation to these other figures in their own life? So most normal people cannot do that. Certainly a thousand software engineers can have struggle with that. But by using the AI as a reading companion, they were able to do that.

00;49;47;01 - 00;50;04;28

Eric Ries

They were able to go through the book, you know, section by section and then ask their questions. What does that word mean? Why would he choose that? What's happening as a matter of craft here and a bunch of the students shared their dialogs with me so I could actually watch them go through. And I both as an artist myself, seeing other people grapple with the material in this new way was super interesting.

00;50;04;28 - 00;50;22;22

Eric Ries

So informative, you know, to see what they were learning, what they struggle with, what they understood in, what they did understand. And a lot of them reported that it was like one of the most satisfying reading experiences they'd ever had. So if you compare that, the level of collaboration that we were having in those readers, I assisted on both ends.

00;50;22;25 - 00;50;37;09

Eric Ries

Compare that to the way people are using AI for writing today, like I did with two. I was did a lecture the other day with like a couple other people in the room and I said, everyone, raise your hand if you've ever taken three bullet points and had Claude turn that into a proposal for you that you've emailed to someone and everyone, every single person raise their hand.

00;50;37;09 - 00;50;50;25

Eric Ries

Everyone's done it. It's just it's so tempting, right? Like I need to write a 20 page paper. Here's the three bullet points. Write it for me. It will do it. I said, okay, how many people have received a proposal from someone and asked Claude to summarize it down to three bullet points and everyone raise their hand? I was like, so look at what we're doing.

00;50;51;03 - 00;51;16;24

Eric Ries

I write three bullet points. I waste millions upon millions of tokens and all that electricity, and I burn out GPUs and I use all this water. I consume all these resources to produce this bullshit report which I send to you, and you burn even more millions of tokens to condense it back down to the three bullet points. So to me, that is, you know, and of course, people are eager to get the humans out of the loop and just have agents sending bogus proposals to each other with no human oversight at all.

00;51;16;27 - 00;51;35;16

Eric Ries

To me, that's a really impoverished view of what we could be doing when we could be using the technology in this much more rich augmentative way. So I'm I'm really excited to be part of that contrarian view. But I grant your premise that everybody at work is feeling tremendous pressure, this gravitational pressure, to conform to the other view of AI.

00;51;35;19 - 00;51;44;26

Eric Ries

And, you know, I think the there is power in resisting. So for those who want to be contrarian, you know, I give you I hereby give you permission to do so.

00;51;44;28 - 00;51;53;16

Geoff Nielson

Now that's great. And it's, it's a really cool use case. And, I made a mental note that if I ever try to read Ulysses again, I should bring AI along for the ride.

00;51;53;16 - 00;52;03;11

Eric Ries

Oh, it would be much easier. And again, if people. Okay, I'll tell one more funny story, if you don't mind. All right. Just a.

00;52;03;13 - 00;52;22;15

Eric Ries

I think about what exactly I can say and not say about the story, Yeah. I think it's okay. This has happened to me twice now. You know, it must be very common. I've been sending out. You know, I, I'm a big believer in feedback, so I had a lot of test readers for the book, as I mentioned, not just the students, but a lot of people, you know, early reviewers and academics, all kinds of people.

00;52;22;17 - 00;52;49;16

Eric Ries

I wanted to see how how different people in different walks of life would respond to the book. As a result, two different people admitted to me that they had accidentally read an I summary of the book when they intended to read the actual book, which, like this, is unbelievable where we're at now. I tell them, like someone I must have set up a PDF and they must have been like asking Claudio, like, help me read this PDF and it somehow, somehow trick them into thinking the summary was the thing itself.

00;52;49;16 - 00;53;02;05

Eric Ries

It was they were sending me this kind of embarrassed email being like, I'm really sorry. I realized I love this book. It's incredible. But actually I realize I've only read the summary of it. I can, you know, I was like, it was a weird is a really weird name. I was like, why are you even telling me what I think people are, like, really getting into trouble.

00;53;02;05 - 00;53;27;09

Eric Ries

Another person, they didn't give it the PDF who they meant to, but instead Claude just fully hallucinated a whole book based on nothing but what the title of the book is and what it knew about me from its training data. So here's the book it thought I would have written, and the person was asking me all these follow up questions, and I was like, some of these questions make sense, but some of these questions really don't make sense.

00;53;27;09 - 00;53;47;14

Eric Ries

And I had to be like, I finally was like, listen, sorry. Just once I did you did dope and I the chat to write this summary for you. He's like, how did you know? It's like, this is not the book, right? So people are losing like losing their ability to keep track of reality in a way that I think is really, is is really scary.

00;53;47;16 - 00;54;15;26

Geoff Nielson

It's it's terrifying. And, I don't know, like to me, this could be a much longer discussion and it probably doesn't have to be, but it like I as someone who is in the business of content creation, both, you know, podcast but also written to me, it really shines a light on quality and I don't know, like, I guess quality and sort of the Zen and the art of motorcycle maintenance, you know, definition of quality.

00;54;15;26 - 00;54;38;26

Geoff Nielson

But if something is is truly worth consuming and is done with quality in mind, like an I summary is just destroying that. But it forces you if something is not there, then who cares, right? Like like I don't know. To me to to use the point about the like three bullet points out to a novel back down to three bullet points.

00;54;38;26 - 00;54;58;14

Geoff Nielson

Like I feel like there's this world of, of slop out there, whether it's AI generated or whether it's human generated, going back and forth between AI that I don't know is worth distinguishing and to me, just makes that ultimately quality content even more of a valuable resource.

00;54;58;16 - 00;55;19;20

Eric Ries

I actually think people are sleeping on what's going to happen next, like the idea that that that this is going to put artists and engineers and people out of work, I think is totally backwards. I think it is going to skyrocket the value of having artisanal skill in these things. First of all, because, actual like we're going to obviously have to develop standards for labeling things as AI versus human generated.

00;55;19;20 - 00;55;40;13

Eric Ries

Like there was a study that was done recently. If you give people writing AI generated writing a human generated running on average, they prefer the AI generated writing until you tell them it was ad generated and they really hate it. So right now we had this like, superficial enthusiasm for all these artifacts that like AI, will not be long before people just hate, hate, hate, hate getting one of these AI generated artifacts.

00;55;40;13 - 00;56;09;17

Eric Ries

So I verified human generated product is going to be like a super premium, item. And, you know, it's called Jevons Paradox that the cheaper you make something, the more demand there is for it. So yes, it's possible that the like piece rate of certain kinds of creative work is going to go down. But the demand for software, the demand for writing, the demand for cultural artifacts is just going to absolutely explode, because we're going to make the tools of the means of production accessible to more people.

00;56;09;19 - 00;56;20;14

Eric Ries

So I think that's a really genuinely positive outcome. But there's going to be a lot of pain along the way before we get from here to there. So I think our responsibility as leaders is to try to mitigate that pain as best we can.

00;56;20;17 - 00;56;40;07

Geoff Nielson

I think that makes sense, and I think you and I probably have a similar view of just kind of the economic impact we're in. You know, any domain that AI touches, you know, the bottom, I don't know, 80 or 90% are going to have to adapt to this world where, you know, the cost of this stuff is driven close to zero with this tool.

00;56;40;14 - 00;56;58;22

Geoff Nielson

But the top, you know, 1% or point 1% are going to be if it's artisanal and they're really masters of their craft. You know, we may be in a world where they can charge ten X for what they were doing before because it stands out so dramatically in, in this new, you know, economic shape.

00;56;58;24 - 00;57;19;26

Eric Ries

I guess. Yeah. Yeah. We're kind of like we're really in a worst of both worlds, like intermediate moment right now where like, you know, it's almost impossible to get the word out about new work, like all of our channels of distribution are being completely monopolized by outrage bait and things that really only reward celebrities. So, like I didn't understand in when I was younger, why is everyone so desperate to become a celebrity?

00;57;19;26 - 00;57;49;11

Eric Ries

But now I really understand that. It's like if you we live in an attention economy and the non celebrities really have a hard time getting recognized for anything, so what a mess. But that will have to get sorted out. I really think that that we're not we're not in a stable equilibrium right now. And so, you know, you could imagine, you know, when people are have ready access to high quality agents that hopefully are aligned to their flourishing, that we don't we're not there yet even close these, these, these chat bots are being aligned to their own maximizing engagement like a social media algorithm.

00;57;49;11 - 00;58;16;24

Eric Ries

So their illness producing machines, you know, anything to do with that. But we'll get past it. I think people will demand and I think it will start to be seen as like a right that you are able to have access to an agent that is aligned to your actual well-being, then I think we'll be able to do all kinds of new platforms of discovery, because then it's like, okay, of all today, if you ask the question of all the people producing content on the planet today, who would be best for me to consume, that's a too difficult problem.

00;58;16;24 - 00;58;41;04

Eric Ries

There's too much content being pushed by too many people. No, no, you. Even if you're the richest person on earth, you could pay a whole staff of Ted to scour the internet. It's just too much. But, you know, synthesizing, summarizing, analyzing this kind of context is some of the technology is really good at. So I think we could imagine a world in which discovery gets a lot easier, where creators are able to connect with their fans more directly and don't need all the social media intermediation.

00;58;41;07 - 00;58;45;09

Eric Ries

So hopefully some people listening or working on that, they'll get in touch, tell me all about it.

00;58;45;12 - 00;59;12;24

Geoff Nielson

There's an optimistic assumption there that I want to tie back to our earlier discussion, which is that we will get past all this kind of, you know, engagement, you know, in engagement prone behavior. And, you know, I think about it as that same metaphor of heroin, that, that, you know, Costco was talking about, I mean, I'm personally worried, but by asking that question, will we get past that?

00;59;12;26 - 00;59;33;09

Geoff Nielson

And do we have, I guess, the the structures in place and the ability to defy this financial gravity to do that? Because, I mean, you know, it's toxic, right? We've we've seen it in social media. It feels like we're starting to see it seep into these AI tools. You know, I, I often joke that it feels like it's just a matter of time.

00;59;33;09 - 00;59;44;13

Geoff Nielson

But before, you know, you ask Claude or ChatGPT a question and, you know, at the end, you know, recommends a nice cold glass of Coca-Cola or something, right? Like, like the fact that actually be.

00;59;44;16 - 01;00;03;27

Eric Ries

Doing that they're they're experimenting with that. They they made I can't bear the revenue numbers recently recently reported how much money they're making already from that. It's it's, it's crazy. Yeah. Listen, the founders and a lot of the early employees of Instagram are employed by these labs. Like, they're not being subtle about it. They really want that engagement powerhouse growth hacking stuff.

01;00;03;27 - 01;00;21;24

Eric Ries

I, I think it's time for what I call an AI bill of rights. And when I talk about this, people say, oh, you driving in for government, government action or whatever. It's like, well, hold on, before we even get to like, who should develop the who should enact the right? First we have to talk about like, what is the affirmative thing that humans should be entitled to have.

01;00;21;27 - 01;00;42;24

Eric Ries

So for example, there was a judge made ruling the other day that, if you use an AI to give you legal counsel, your chats are not privileged. So if you're in a lawsuit, the government or your opponent can subpoena your chat bot records, no matter how intimate or personal they are, because you don't have what's called, quote, an expectation of privacy.

01;00;42;26 - 01;01;02;20

Eric Ries

That is news to most people. They assume they do have an expectation of privacy. And that is a really bad situation. Because now you're saying that this right is not is only going to be available to those who can afford the artisanal, handcrafted human lawyer and the infinitely accessible and ever tempting robo lawyer that everyone's gonna have access to.

01;01;02;23 - 01;01;21;03

Eric Ries

You know, now those people have to have their privacy be violated. So obviously, we should have a right to privacy in our interactions with these laws. Well, what other rights should we have there? I think we should have a right to be free of the kind of algorithmic manipulation we see in social media that is leading to addiction and or negative habit formation, depending on your point of view.

01;01;21;05 - 01;01;45;24

Eric Ries

I think we have certain, a bunch of harms, you know, AI driven discrimination, obviously autonomous weapons, like there's a lot of things today that are like already illegal that we're struggling with that are exacerbating, making a lot worse. I think we could have articulate affirmative human rights in each of those domains. And, you know, and again, before we jump to government regulation as the way to implement that, first we have to agree what should we be trying to accomplish?

01;01;45;24 - 01;02;08;23

Eric Ries

And then I think a lot of these AI labs are trying to compete to show that they're the more trustworthy steward. So I'm hope I think in some ways, like they're the ones really who should be embracing these rights to say proactively, here's what we promise to do or not do. And it gets to this deeper question about what does it mean when we say that an organization did the right thing?

01;02;08;25 - 01;02;23;22

Eric Ries

We are so confused about this. Like we live in this hyper polarized time where if I sit, I as an author, I run in this problem all the time. If I cite a case study about a company, people come up to me now and say, you're saying that that company is perfect and they're the they're God's gift to humanity.

01;02;23;22 - 01;02;40;16

Eric Ries

Well, I know something bad they did. Therefore your thesis is wrong. And I'm like, hey, man, I just pointed out this one thing. Or if I criticize a company who, like you're saying, they're the devil, the worst company on the planet. No, I'm just saying they did this specific thing. We we have to be able to learn from case studies as an illustration of a specific point, not as a moral judgment.

01;02;40;18 - 01;02;59;23

Eric Ries

So we're hyper judgmental and hyper cynical at the same time, which is a really bad combination. So when you say, for example, you know, an anthropic had that kerfuffle with the Pentagon, you know, did people want to say, do they do the right thing or the wrong thing? You know, people like, they jump immediately to this, like moral value judgment of like, well, who should make such this?

01;02;59;26 - 01;03;21;17

Eric Ries

Who or who's anthropic to say they should get to make this decision, which is the first of all, like government contractors have been saying what their technology can't be used for since time immemorial. The idea that that's like some violation of the democratic process is a brand new argument invented just for anthropic. Give me a break. But leaving aside what they should have done, quote unquote, we can still say that they did the right thing in this three with a three part test.

01;03;21;17 - 01;03;49;05

Eric Ries

I think first, do they have values that are aligned to human flourishing? Two, are they consistent in those values? And three, are they being strong? Do they have the strength to resist outside pressure to deviate from those values? I know a lot of people, normal people especially, they are capable of trusting or even praising an organization for doing something consistent with the organization's values.

01;03;49;07 - 01;04;11;09

Eric Ries

If they see that it's a point of consistency and if they can understand the linkage to human flourishing. So I know a lot of people who gave anthropic props who don't actually think they did the right thing because like, really, they were in an impossible situation. It's like it's a Kobayashi Maru situation. Like there's no there's no right answer when you're in a David and Goliath fight with the world's largest military, like as a as a private company, like it's actually a very dangerous situation to be in.

01;04;11;11 - 01;04;40;22

Eric Ries

So one of the things I think we have to look for is who who is capable of just having any consistent value over time, who is able to say no to outside pressure, who is able to say like we embody some specific set of values going back to Costco, they've been kind of like a recurring character in our conversation last year or the year before, Costco had this big kerfuffle where a bunch of activists were pressuring Costco to abandon their Dei programs.

01;04;40;24 - 01;05;03;26

Eric Ries

At the moment when Dei went from very popular to a very unpopular target, gleefully did it, and Costco refused. It's really interesting if you look at the stock price or the financial performance of those two companies since that moment, it's like Costco has been rewarded by customers. Target was severely punished. And it's interesting to me, even people who disagree about Dei felt contempt for target and supported Costco.

01;05;03;26 - 01;05;22;26

Eric Ries

Costco did a shareholder vote. There's an activist that forced a shareholder vote at Costco about their Dei program, and something like 98% of people voted in favor of it. And now, keep in mind that Costco has millions upon millions of retail shareholders that live all over the country. They people try at Costco in every kind of political climate market city.

01;05;22;28 - 01;05;43;10

Eric Ries

It is a very popular brand. And you're telling me that 98% of Costco's customers are woke? Now? Obviously not. What happened is even people who are not super keen on I can respect that. Costco was doing Dei back when it was unpopular. When it became popular, their programs didn't change, and when it became unpopular again, that programs didn't change.

01;05;43;13 - 01;06;00;21

Eric Ries

The board was very business. They said, we do what we think is in our best interests, and we don't need your advice. Thanks very much. We do what we do. And so I think that constancy of purpose is extremely important. I can attribute to cultivate, not just for ourselves as leaders in our organization, but when we think about who should we reward as vendors?

01;06;00;23 - 01;06;24;24

Eric Ries

What product are you going to use after after, anthropic took that stand. Someone sent me a video that night. I think it was the next day. Someone had chalked up their sidewalk all around their headquarters in San Francisco, thanking them for taking a brave stand. And I was like, wow, when you hear that, San Francisco based tech company has had their sidewalk chalk, this is not believe me, this is not the typical way that people respond.

01;06;24;24 - 01;06;40;06

Eric Ries

Klawe jumped in number one on the App Store like it had. Doing the right thing has these very concrete business benefits, so much so that people sometimes say, well, they were just virtue signaling. They're not really doing the right thing. They just wanted to go to number one on the App Store, and it's like you're telling me they could have foreseen that outcome?

01;06;40;06 - 01;07;06;18

Eric Ries

No, of course not. The point of building a trustworthy organization at the point of rewarding such organizations is that you do the right thing and let the chips fall where they may. You don't always know how it's going to work out, but you do the right thing anyway. That's what customers crave to see. Because if you're always making an ROI calculation, the way we teach in our business best practices today, then the customer instinctively understands that there might be a day where betraying you is high ROI and they'll do it.

01;07;06;21 - 01;07;12;28

Eric Ries

But we want to work with companies that will never betray us. That should be our goal.

01;07;13;00 - 01;07;33;19

Geoff Nielson

I've been, I've been sort of chuckling throughout that answer because I think, the way you framed it up, makes it very clear to me that you're even more of an Aristotelian than you let on without, you know, a lot of your logic and, you know, a lot of your language. And so if we're if we're talking about virtue and how we can behave virtuously and how we can kind of enable human flourishing.

01;07;33;21 - 01;07;55;01

Geoff Nielson

Yeah. You know, to bring it back to the regulation of AI and whether that's with these handful of companies and handful of people that control this technology, whether that's, you know, the market kind of clamoring for a piece of this, whether this is governance, regulation, you know, government regulation.

01;07;55;03 - 01;08;23;22

Geoff Nielson

What is the right path there? And I like I'm asking kind of an intractable question here, but if we, you know, acknowledge that we want to make sure that the decisions made are as virtuous as possible, how do we do that? And one of the pieces that's coming to mind, by the way, is one of the analogies I've like more about AI recently is that people mistake it for a tool, but it's actually a utility, and it has more in common with electricity than it does.

01;08;23;22 - 01;08;51;14

Geoff Nielson

Yeah, yeah. You know, with a hammer or a traditional piece of software. And to me, it sort of begs the question that often goes unasked of while should it be regulated like a utility if it's going to be a utility? And so I'm curious, when you think about this space, like given the promise of this technology, how do we ensure that it's that it's own governance and its own development is as virtuous as possible?

01;08;51;17 - 01;09;16;13

Eric Ries

Yeah, this is a deep question. And yes, there is a certain there's like, this is this book in my work recently has a kind of a very old fashioned throwback quality to it. And I tried really hard in writing the book to avoid trendy, modern, business language consultant driven speak like mission statements and stakeholders and culture. Even I was just like, no, I want to really use these old, old fashioned concepts because we have to kind of we do have to restore a certain idea of virtue ethics into our body politic.

01;09;16;13 - 01;09;48;06

Eric Ries

Like that's that's an old project and a little renewal from time to time. That's good. This I'm going to give you a kind of a seeming paradox that, to me is the answer to your question. And I grapple with this a lot in the writing of the book because on the one hand, the value, the true strength of a market driven democratic society is that we don't have to have one totalitarian, unified set of values that we all embrace.

01;09;48;08 - 01;10;12;09

Eric Ries

The very diversity of values is our strength. And that includes in organizations. One of the things I hate the most about the era of shareholder primacy is its attempt to enforce a business monoculture with these very rigid best practices, this extractive philosophy and its willingness to just destroy anybody who deviates in order to create uniformity of compliance with these gravitational pressures.

01;10;12;11 - 01;10;34;09

Eric Ries

I think that's actually like a real loss of our human birthright. You know, human beings have been experimenting with their social and political forms for as long as there have been human beings. And I think it's a real shame that, we kind of lost that in our ideas about business. There are so many alternative forms out there that the evidence shows are better than what we're being taught, is the only and best way.

01;10;34;12 - 01;11;01;15

Eric Ries

So I think that's exciting. So anyway, because we have this diversity, I really advocate that every organization should be free to declare. I do think they should have to declare, but I think they should be free to declare what slice of human flourishing they are committed to pursue, and how their structure allows them to do that with integrity, and then let the chips fall where they may reap the competitive consequences of doing that.

01;11;01;17 - 01;11;37;03

Eric Ries

Some people read that and they feel like it's a I'm giving my blessing to moral relativism. It's like, well, wait a minute, you're saying that any values are equally good, anyone can have any values. And of course, no, I don't really believe that because I secretly think there are best set of values. And I try in the book to give the evidence that there are there is a universal current that runs through us all, a longing for a work that we find meaningful, that is of service to humanity and to advancing the flourishing of those we love.

01;11;37;06 - 01;12;00;02

Eric Ries

Right? To be of service to others. Like there's there's actually like a deep human longing there. So part of the reason why some of these outlier companies have this massive advantage is because they're tapping into that universal kind. So when I say let the competitive consequences be what they will, I think I know what they will. But unfortunately today we're not playing on a level playing field.

01;12;00;05 - 01;12;17;28

Eric Ries

So, you know, I even write about this in the book of somebody said this to me. He said, look, if what you were saying was true, if mission driven, purpose driven companies really do outperform, then we would think just by natural selection, by Darwinian natural selection, the economy would be full of those companies and everything else would be driven out of business.

01;12;18;00 - 01;12;46;15

Eric Ries

And that argument sounds so right, sounds so clinical and true. That's like the the clean logic of natural selection. But of course it has at its root the fallacy that the market as currently constructed rewards value creation. But it doesn't. It just doesn't. And again, I have to I get all the data to prove it. Now, if we were to build a more just economy where the market did reward and these other forms of corruption were minimized or even eliminated, I do think that's what we would see.

01;12;46;17 - 01;13;10;15

Eric Ries

And the utopia of that future is what I hope for our children and grandchildren, and for those that feel that that sounds like, an impossible dream, you know, to bowl too big, too much. I hear you, but just think how unrecognizable different our economy is to the economy of our grandparents. So surely it's at least theoretically possible that our grandchildren's economy will be as unrecognizable, different as to us.

01;13;10;18 - 01;13;24;27

Eric Ries

So that's a pretty short time. Pretty dramatic change can happen. Many of the best practices were best practices. We're fighting against our younger than the trees in your local park, so take heart. It's not too late.

01;13;24;29 - 01;13;54;23

Geoff Nielson

It's it's a really interesting perspective to put it that that time horizon on it. And, you know, to your point, so much of of what you're saying and, you know, your sort of gospel is, you know, it's resonant with me. And I have to imagine it's emotionally resonant on a very human level with a lot of people. But it's still, again, just in relation to this, you know, what we broadly call this kind of capitalist geist that it's heretical, right?

01;13;54;23 - 01;14;20;13

Geoff Nielson

It's heretical to say that, you know, not all forms of making money are equal or that we should be, you know, building trust or doing things for the long term. And it's very easy for me listening to it and, you know, reading your book to to have an image of you being kind of like, laughed out of boardrooms or dismissed as like this kind of like hippie dippy, kumbaya guy.

01;14;20;15 - 01;14;42;13

Geoff Nielson

And you're not, you know, you've been able to really establish yourself for a long time as, you know, not just somebody who's optimistic, but who's able to, you know, kind of effect change here. And so I guess, I'll ask next, you know, how do you do that? How do you how do you fight that current?

01;14;42;13 - 01;15;05;06

Geoff Nielson

How do you fight that gravity on a moment to moment basis with business leaders? And what advice would you give to business leaders who, I guess, feel morally that they have an obligation to do that or are being asked to do the wrong thing, and they're concerned about not speaking up because of this unspoken pressure.

01;15;05;08 - 01;15;18;23

Eric Ries

Yeah, I listen, I have been in that situation many, many times and I've been afraid. I mean, I've built up I've spent a whole career building up the credibility to speak on these issues and so, you know, so I speak at the boardroom. I don't get laughed out of the room, but I worry about it all the time.

01;15;18;23 - 01;15;39;20

Eric Ries

And I, I first started talking about this, I was very worried. What's interesting is let me give you just a little bit of mini, a little mini history lesson, and then I will answer your question. The idea of shareholder primacy is a relatively new one. So so first thing you have, it's really important for people to understand for the vast majority of the time there have been joint stock corporations on this planet.

01;15;39;20 - 01;16;08;12

Eric Ries

It was seen as completely obvious that corporations should be incorporated only to do a specific thing. So the idea that that corporations are just financial instruments, like that's a very new idea. Our grandparents great parents are like, what are you talking about? No they're not. So it's a new idea. The the more holistic understanding of corporations, the one that has been true for most of human history, that has had them on the planet, is that they should not only be chartered to do a specific thing with that thing must have a beneficial purpose.

01;16;08;14 - 01;16;31;27

Eric Ries

And so when we when we fought the battle in the 19th century over what was called general incorporation, the idea that, you shouldn't have to go to the state legislature to get special permission to form a company, but anyone should be able to do it. We didn't immediately give up the idea of purposeful incorporation. In fact, if you read the statute like the Delaware statute from 1899 when Delaware switched to general incorporation, it actually says, you know, you need here the requirements to form a company.

01;16;31;27 - 01;16;55;28

Eric Ries

You need three people. You need a director, an office, the treasurer of this. You know, you got to fill out this form. You got to do this. You have to file with the government. What is the purpose of this company? So they still they understood that purpose was still paramount. And then over the course of the 20th century, with the rise of financialization, people started to write into the purpose field on the form, any lawful act or purpose.

01;16;56;00 - 01;17;17;05

Eric Ries

And that's like there was a legitimate maximum optionality or very or open ended. And then after a while, a cabal of judges, academics, legal experts decided that any lawful act or purpose actually means maximize shoulder brands. And that didn't really become the law in Delaware until a series of court cases in like 1986. So this is not like ancient wisdom.

01;17;17;05 - 01;17;51;11

Eric Ries

This is this is more, Depeche Mode than Mozart. Okay, so it's very recent. But what's interesting to me is that that act to switch over from purposeful incorporation to shareholder primacy has never been ratified by any popular referendum or legislative action, ever. It is an idea that that rules the world today. It has zero democratic legitimacy. So if you read the legal literature on shareholder primacy, you will notice this very funny fact they have to grapple with why is this the law when it's not really the law?

01;17;51;14 - 01;18;05;27

Eric Ries

And they have all kinds of theories. One of my favorite papers, said that, well, you see, the thing you have to understand is that show the primacy is not a legal duty, but it is a legal obligation. Like, oh, good. Thanks for clearing that up now. Super clear. Like, so like in the law, they've created these gyrations and contortions.

01;18;05;27 - 01;18;24;03

Eric Ries

Anyway, if you if you read through all this insane writing, you will eventually come to like the basic conclusion that they've drawn is that after a certain number of that of time has gone by, whether or not you agree shareholder primacy is what's called a normative consensus, meaning not that it is a that a descriptive consensus would be.

01;18;24;03 - 01;18;45;16

Eric Ries

Everyone agrees that this is what companies do do, but a normative consensus is the idea that everyone is agreed. We've just all decided that this is what corporations ought to do. This is what they should do. So, for example, in that writing, they will say things like A corporation is only permitted to care about externalities, aka your health and well-being insofar as it enriches their shareholders to do it.

01;18;45;19 - 01;19;06;15

Eric Ries

Meaning that under this view, they literally I quote this in the book that literally a corporation should be expected to break the rules if it's profitable to do so, and of course, to lobby to have the rules changed if it's profitable to do so. So although today they might feel like keeping you alive is worth it, who knows, tomorrow they might lobby to have the rules changed so that they can kill you and make money from it.

01;19;06;17 - 01;19;23;15

Eric Ries

Most people find that quite shocking and they always assume I'm exaggerating. That's why I have all the quotes and footnotes in the book. I was really careful about that. So what do we do about this normative consensus? The most important question I ask in the book actually isn't a footnote. It's simply are you the reader? You, the listener?

01;19;23;15 - 01;19;49;28

Eric Ries

You, Geoff? Are you part of this normative consensus? Almost everyone I've asked that question to privately will say, no, I'm not. This seems nuts to me, my great. But I say, have you ever actually told anybody that you're not part of this normative consensus? Most people have never said it out loud, like I'd be afraid to, because everyone else thinks I'm the only one who thinks this way.

01;19;50;00 - 01;20;12;24

Eric Ries

And Vaclav Havel, you know, wrote the famous essay about living in truth. He called it that when you are in an authoritarian situation, which is really what our financial system is, you, you perform obeisance to the values of the system. That's what gravity really is in order to protect your interests. It's it's convenient that you could get rewarded for doing so.

01;20;12;24 - 01;20;36;08

Eric Ries

If you don't do so, it creates turbulence in your life there. You know, if you ever want to study solidarity, don't study union, study banks, okay? They understand solidarity. They they have class class cohesion. And they can close ranks like nobody, nobody, nobody's business. So what's interesting to me is what Vaclav Havel said is that when you first start speaking the truth, you don't have to go protest and jump on the table.

01;20;36;08 - 01;21;05;26

Eric Ries

The first day, he gives the example of someone taking the Communist Party's placard down from their store window. Just used to be there, but since they don't really believe they take it down and probably nothing happens. But maybe someone walking by notices and says, oh, I'm gonna take mine down too. So I've been asking people when I give talks to the audience, I say, look, just can you tell one person tomorrow that you're not part of this normative consensus?

01;21;05;26 - 01;21;21;10

Eric Ries

Can you just say it out? Just pick a friend girlfriend and say, hi, my name is Eric. I'm not part of the normative consensus of general. The primacy. Your friend might be like, what do you talk like? Well, what? That's odd, but like, your friend might be like, oh, yeah, me neither. And oh, isn't that interesting? Now we both know that.

01;21;21;10 - 01;21;47;13

Eric Ries

We both think this way. Who knows how many people might actually secretly believe this whole regime is insane. And I think this is going to sound so wild, but I actually think the era of shareholder primacy is already over. This is an idea that has caused its own intellectual collapse, and we're kind of like, this is a bit of an emperor has no clothes moment where we all secretly think this, and we haven't figured out how to coordinate to say it out loud and to do it.

01;21;47;13 - 01;22;03;28

Eric Ries

So I'm hoping that, as people hear this, especially people who build things for a living, who have that thing, I call that builder's intuition, that there are better and worse ways of making money. I hope those people will start to talk to each other and just say, yeah, we don't really want to live under this regime anymore, and we can talk about what comes next.

01;22;03;28 - 01;22;21;28

Eric Ries

But the first step is simply to say, I am not part of the normative consensus. And what's amazing about that? We don't have to change any laws. We just have to break the consensus and then shareholder primacy. Poof! Its legitimacy will be erased.

01;22;22;01 - 01;23;02;02

Geoff Nielson

Eric, I love that. I love the positivity of it. I love the sentiment of it. It's again, like, deeply resonant with me as someone who doesn't find myself, you know, you know, in alignment with the normative consensus. And it's inspiring to hear that, you know, there's probably more people out there, you know, like me, that are openly admitting it and frankly, making me reflect how much of, you know, my non consensus comes out versus is stifled in some way by these kind of you know, oppressive power structures where you only feel that you can, you know, share so much truth before you're kind of, you know, beaten down.

01;23;02;04 - 01;23;16;10

Geoff Nielson

I want to be conscious of your time here. I could very easily spend many more hours talking with you about this stuff we did. We'll do it again sometimes. It been fun. Yeah, yeah. You know, I'd love to talk at some point about, you know, AI and its impact on lean startups and all that good stuff. I wanted to say such a big thank you for coming on.

01;23;16;10 - 01;23;20;26

Geoff Nielson

This has been so much fun, so interesting, and I've really appreciated your insights and your conversation.

01;23;20;29 - 01;23;23;26

Eric Ries

Well, thank you for the answer. I really appreciate that.

01;23;23;29 - 01;23;49;10

Geoff Nielson

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