The Lean Startup Author on What Ruins Good Companies

The Lean Startup was foundational to me when I came to Silicon Valley. I remember I went to a Lean Startup book event probably back in 2012. You spoke there, and it was very inspiring as I was starting my first company. And I took away from it just, you know, money is not infinite. Don't die. Don't burn all your money. But I mean, maybe we can start there and sort of reset, like, what are the correct lessons that you think should endure from The Lean Startup? And then we'll go into Incorruptible and sort of all of the—

of the evolution, but I'd love to sort of just say like super, super incredibly influential on my career and journey.

Really like unlocked entrepreneurship for a lot of people because it was the perfect time where like it was, you needed $20 million to be a business.

Well, yeah, for me, for me as somebody who just grew up obsessed with startups and beyond TechCrunch every day and all the startups that I thought were cool and crushing it were in TechCrunch. Every, you know, 12 months raising all this money. And it feels like out of, you know, it feels like out of reach when you're a teenager. And then you realize like, hey, yeah, the book gave everyone permission. Capital is way less of a constraint than you would think. So thank you for that.

Well, guys, thanks. And first of all, congrats to you on the success. You know, what's really held up, like a lot of the techniques and the specific tactics from Lean Startup are a little dated now. I mean, you know, Groupon is a case study. Like it's It's old now. It came out in 2011. Yeah, but I think the principles have held up really well. And especially if you think about like from a megatrends perspective, the book said that the world's going to get more and more and more uncertain. So our ability to plan and forecast is going to get worse. I think we, we think we nailed that one. And that the democratization of technology is going to mean that more and more and more people are going to be able to build faster, cheaper, better products. And so when you put those two things together, every industry that's been hit with a double whammy of those two things, Lean Startup holds up real well.

Yeah. Do you think startups are getting leaner or less lean in the modern era? And what I mean is that I will see— we have folks on the show all day, oh, $200 million seed round. It doesn't feel lean. At the same time, we hear about the mythical one person, $1 billion company. And although there's been some reporting that's been a little bit debunked on it hasn't happened yet, it feels like it is becoming more attainable. You can run leaner. Even if you're just using SaaS products, but also AI agents can do a lot of things. You can answer a lot of questions. You might have slightly lower legal bills just because you're a little bit sharper going into that negotiation. And so I'm wondering on the, the net leanness, how, how are you processing the modern era?

Well, every time we have a mania or a bubble, you know, whatever you call it, right? Yeah. The, the, the situation goes bimodal real fast. Sure. And you have people who are struggling to raise money if they're not in the favored category. And then, obviously the money is flowing ridiculous. What's funny is I've been at Lean Startup long enough that people periodically write these articles that are like, such and such company proves that Lean Startup is over.

Sure.

And they always pick a company like Quibi.

Okay.

So it's like, you know, you just never know what it's going to be the thing. I think fundamentally, like, using resources well is an eternal entrepreneurial virtue. So even the people that are overfunded, a lot of them run into trouble because now you don't have that, that reality kind of barking at you all the time to make sure that you're actually building something that people want. It becomes easier and easier to delude yourself the more money you raise.

The other kind of startup that's emerged is the lean startup that ends up raising a lot of capital, but simply because they were lean and they were really scrappy, and so they grow super quickly. I'm thinking of a TurboPuffer, right? TurboPuffer, yeah. Our friend's company, where raised very little money. At a 9-figure run rate now, but extremely attractive to capital. But his entire approach is like, how do I maintain that scrappiness even once I have a fortress balance sheet? Because that's what made the company great from the beginning. It's just like doing things that customers want, that they'll pay for, all these things.

Well, and it's so easy when you take in that level of money to lose that ethos. Sure. The thing that made it worth investing in in the first place. And I think it's interesting. Like, I know quite a few companies like what you're describing, where the fundraising was done for some other reason than for the money. In fact, I know a bunch of founders who brag to me, "We raised this money and never spent it." Yeah. Because it can, it can make sense to have a fortress balance sheet. But to me, the real question is not about like how big or small is the organization, how much money was raised, but how much control do the people who are locked into that mission actually have over what happens next? And sometimes when you raise too much money, especially too much money too early, You think, you know, you ring the gong and you're really proud. That's great. You know, like, it's okay. That's really fun. But then like, have you actually— yeah. Or you get the air horn. You guys get the sound effects. And like, sometimes, you know, this— you know, the media environment, like steadily building a product that people love day in, day out, like, it's hard. That's not the sexiest story. And so sometimes, you know, we get, we get distracted by all these other things that take us away from the one and only one thing that truly matters, which is can you build a great product, build a great company?

Yeah, yeah, I mean there are so many, and a lot of financial reporting sort of misses the changes of control that happen. Like there might be a company that's raised a $1 million series seed and then a $5 million series A, and there's 2 VCs on the board and 1 founder. And then there might be 5 founders on the board and VCs are stuffing $100 million checks and they can't even get a board seat because there's so much demand. And which one tells you more about the future of that company potentially the governance side. How are you grappling with the just governance in the modern era? I mean, I feel like that's a lot of what this book is about. There's so many different paths. There's, you know, PBCs and really diffuse, lots of, you know, lots of co-founders having even stakes. And then you have the SpaceX AI, immense control in a single founder. Both can produce fantastic products and good financial outcomes, but like, How should we interpret all the different roads that are available to founders these days?

Yeah, it's really confusing. That's actually part of the reason I wrote the book. The book is meant to be a blueprint to actually show a new, better way forward. Like the extreme founder control has its problems. You know, psychologists call it hubris syndrome. Not to name check any particular founder, but you know, that can cause some issues. But also investor-dominated companies really underperform precisely because we have this financial system that pull— has this gravitational force that pulls companies down into mediocrity or worse. And the book I document, like, over and over and over again, we reenact the parable of the goose that laid the golden egg and just stab it right through the heart when we— by removing the thing that actually made it worth investing in in the first place. How many times have you gone to a restaurant and you like look on your phone, you're like, take one bite, you're like, did private equity buy this restaurant? It tastes disgusting.

No, I have the best— I have the best example of this. My favorite, my favorite hotel in the world was bought by private equity. And one of the things that every guest would talk about— didn't matter at all, it's just like barely contributed to the cost of like, you know, having a guest there— was that every night the hotel would walk around and they would leave a warm chocolate chip cookie and milk for each guest. And private equity bought the hotel, which only had like something like 20-something keys. And they immediately removed the free chocolate chip cookie with milk at night thing. And I just— so such a funny thing to like take out, but is exactly the kind of thing when you met— you transitioning from, you know, this like founder-led, you know, family-operated business to investor-owned.

Yeah. What's sad about it is we've built an economy where people are routinely rewarded for cutting costs. But never held accountable for the downstream brand and quality consequences of that. So like on the balance sheet, getting rid of the cookie is immediate ROI positive.

Yeah.

And you can justify it. You can justify it because, well, the cookie's still on the menu. So people want the cookie.

They can get the cookie they want. Why do we have to get rid of the cookie?

We looked at the data. We looked at the data. A lot of people don't even eat the cookie.

Right.

And so it doesn't matter. Of course. No, you got it right.

Like, how is it possible that the capital structure of a company has a flavor? You can literally taste it. And because notice how when you said that Pravda took over your hotel, we're all ready to give you condolences, right? In theory, you might be like, "Well, having those resources made it better, right? That's great. Now they're going to—" No, no one ever feels that way. And everywhere I go, I've been doing this book tour on the new book, people are coming up to me to be like, "I know that story. Yes, that happened to me." And they've named 20 different restaurants to me, hotels, so many service products where And again, it's not about private equity per se. It's that we've built this pervasive force that is just dragging companies down. So if we're going to now get to the governance question, and I know for founders listening, it's like, oh, God, governance, so boring. But like— Important. —as I say in the book, if you don't get the governance of a company right, no other decision you make will matter in the long run because you won't be the one making it. So we have to figure out, how do we create that incredible alignment? You've seen it in mission-driven companies, right, where everyone's on the same page. And how do we protect that special thing from outside pressure? And when you put those two things together, we can create what I call mission-controlled companies that cannot be corrupted by this temptation. Yeah.

There's a bunch of different things that I want to click through to interrogate that. The first is probably quarterly results, quarterly earnings. I've seen proposals to go to every 6 months reporting. And it seems like, okay, that would align public companies with like, the CEO could think for 6 months instead of 3 months and take bigger risks. Think longer term, that feels very good. At the same time, it feels like the rug that you sweep things under is potentially just getting bigger. Twice as large. Twice as large, or the closet where you hide the bodies is getting twice as big. And I'm wondering, is there a tension there? Am I wrong to think that there's a tension there? Because a lot of, like, I think about problems in the public markets with long-term value creation, long-term alignment. But then I also think about the, the transparency that comes with being public, the regulation that comes with being public, the access to public investors, retail investors that can participate in a company before it's $1 trillion if it's going to be a great company. So how are you dealing with those tensions if there are tensions?

Yeah. Okay. First of all, the tension is completely real. Okay. And the thing you got to know is, is Long-Term Stock Exchange, the company that I founded, is the one who filed the petition last year to the SEC to switch from quarterly to semiannual. You're the one.

Okay. I said I just put that together. Obviously, I have a—

I have a strong, strong view about it. Cash. Oh, nailed it. Exactly. So, uh, and what's funny about it is, okay, so first of all, we have to understand the scale of the problem. You're not going to believe this, but we have—

by the way, sorry, sorry, before we continue, you should have named it like, you know, Eric's, Eric's Law or something like that. You're not getting enough credit. You're not getting enough credit for this.

That's— listen, the memes and everything, that's your department, okay? So, okay, but you've got to understand the magnitude of this problem is insane. Yeah. If you look at other countries, there's these natural experiments where certain countries have switched from semiannual to quarterly reporting or vice versa, and they happen to do it in such a way that not every company changed at the same time and it was random who did which. So we actually know the valuation consequences of quarterly reporting, and it's roughly a 5% loss of total equity value. Wow. Companies are 5% less valuable when they report quarterly than semiannual. So The academic research on this is pretty good, and the magnitude of the cost— we're talking about so much, so many billions of dollars of lost value. It's not because the, like, you know, effort to do a quarterly report is expensive, although it is expensive and annoying. Rather, when people report quarterly, they start to run the company for the quarterly report. So companies no longer make products. They start to view the quarterly report as the product, which means they're basically meme factories. What do I have to do to generate the report that will get me what I want. Now, getting rid of quarterly reporting just by itself, I don't think is a very good idea. And we'll see what the SEC ultimately decides to do. I think we should replace quarterly reporting with a better, like, more fulsome disclosure project where long-term investors can actually find out what the eff is going on at the companies they invest in, where today companies are strongly incentivized to give out as little information as possible. But that's kind of broken the partnership we need between long-term companies and long-term investors. That's Of course, part of why we created the exchange in the first place.

Yeah. Talk about public benefit corporations and how incentive alignment might play out in the longer term when there is, you know, when you get to a stage of a company that's a lot more like Apple than a founder-run, like Anthropic is a unique example with a set of co-founders, but like the normal Fortune 500 company has a leader at the top that might have 1% equity and a board seat, but there is a chance there's a board of directors, it's much less controlled. But in that scenario, they're reporting to shareholders and they have a fiduciary duty to shareholders. If, you know, you have a company that's, you know, broadly held and has diversified board and diversified ownership structure, but is a PBC, how does that play out? Like, what are they doing differently? Is it that the CEO has two different hats and they're mentally taking these on and off throughout as they're decision-making? Or what is— how does that actually play out?

Yeah, that would be too hard. The so-called double bottom line, triple bottom line, I think, has not worked out very well precisely because it leaves CEOs really confused. Okay, you want to be multi-stakeholder? Great. Customers want lower prices, but employees want higher wages. Now what? Yeah, so it kind of leads to compromise. Yeah. But what's interesting, PBC is actually not that new. Okay. For the vast majority of time there have been joint stock corporations on this planet, it was considered obvious by everybody that they should be incorporated to do a specific thing. When they're just trying to make money for themselves, they wind up hollowing themselves out. That's what makes them dangerous. It was only in the 1980s that the idea of so-called shareholder primacy came into effect. So if you like walk by your local park, you will see trees that are older than this idea. This is not some like pillar of ancient pillar of capitalism. And in the book, I make the case for, first of all, we got to get rid of shareholder primacy. I think it's a, it's just a terrible idea, but The question is kind of like attacking it is easy because the data is so good about all these best practices being so bad. The issue is what do we replace it with? What does mission primacy look like? And I think the key to that is to understand that being a for-profit company is actually great. Making a profit is actually about making the world a better place. That's literally the definition of it. It's like a positive margin transformation. So in the book I argue, and I feel weird doing it on the same day that like Pope Leo made this same point in way, way better fashion, you know, hundreds of pages. I only mentioned it in passing, but like literally to make a profit. Yeah. Is to maximize human flourishing. That's what it means. So now coming back to the PBC, all PBC does is give the CEO and the board the legal cover to pursue long-term value creation in the face of hostile investors. So if you go there and say, listen, I want to sell the company to Philip Morris because they're willing to pay a dollar more per share than it's worth, you need the tool to be like, no, that's ridiculous. Of course we're not doing that. And that's what PBC allows you to do. Interesting.

Um, uh, what, what do you think are some of the most underappreciated companies in history that you feel like had mission primacy?

Yeah, yeah, obviously these are profiled in great deal in the book. And what's really interesting is if you talk to people about corruption and say like, why does companies go to, you know, go to bleep after they get big or whatever? Most people will be like, it's inevitable. It's human nature. Companies get old, they get big. There's a lot of money involved, blah, blah, blah. But those same people, if you're like, are there any companies you trust? They're like, man, I love Costco. Yeah. It's like, interesting. Like, how come? But I thought it was inevitable. Costco's a $400 billion public company. Oh, yeah. Well, they're the exception. You're like, well, what about Patagonia? You got a Vanguard mutual fund? What about, you know, John Lewis Partnership? Or you ever eat a Hershey's chocolate bar? You ever taken a Novo Nordisk medication? Like, there's all these weird exceptions, many of which are decades or even like more than 100 years old. And what's interesting to me is if you take that whole category of companies as a data set and say, what do they have in common? Every single one of them violates pretty much all of today's so-called best practices about how companies are supposed to be structured, built, and run. So I think we actually have really good data that this is not some abstract thing. So, like, so for example, when the founders of Anthropic left OpenAI, so what is that, like, 3 or 4 OpenAI crises ago? I can't track. But anyway, it's, like, hard for me to keep track. But anyway, it's, like, it's been a rough, you know, it's been a rocky road. When they left, like, I was one of the people that they talked to setting up their governance structure. And not only— and again, I am not taking credit. Okay, don't do the meme thing. Okay, I'm not taking credit for Anthropic's success. Obviously, I played only a very big role.

They wanted to call it the Eric PBC, but you saved them.

And I had to talk them out. I was like, guys, please, please, no, no, I don't.

They were looking for an idea and you told them like, I think you should work on AI. That's what happened.

Yeah, yeah. They were like maybe thinking of pivoting out because they left open AI. They were like, maybe we should give up on AI.

They were going to do protein shakes or they were going to do an energy drink and you were like, Don't do this.

I just, I just talked to you guys, said about the Iris CEO. Don't get me in trouble here. Who's gonna clip this outta context and get me busted? Yeah. Okay. Well, listen, so I'm not, for the record, I am not taking credit for their success, nor am I trying to talk smack about OpenAI. I know you guys love them. Yeah. Yeah. The issue, but the specific thing I think is really interesting is because they were really worried about this specific issue, when I gave them my typical litany of like founder loss of control horror stories, they could see how bad that would be. Mm-hmm. And in fact, it's funny talking about the Pope. I was at an event at the Vatican last year talking about AI governance. And I was on this panel with every major AI company, OpenAI, Anthropic, Cohere, Palantir, Google, Meta, everyone on the one panel together and me for some reason. And I'm looking down this row and I'm like, oh my God, not a single one of these companies has standard governance. They all consider it to be too dangerous. Interesting. They got to have somebody playing the role of what's called the mission guardian. Yeah. Anthropic, to their great credit, I think, did not want it to be the founders personally holding that special responsibility because it's stressful, as I know many founders who are trapped in this situation. So they created something called the Long-Term Benefit Trust, which is like a multi-branch government, right? So you have the for-profit PBC, and then you have the board of directors accountable to a second entity, this outside trust. And the data shows that companies with that structure are something like 5 times more likely to live to year 50. And have way better long-term value creation metrics too. So again, I think we have the evidence that there are these better structures, yet most founders are never given this as an option. And by the time they find out about it, it's too late. They've already lost control.

I want to talk about—

I think one interesting thing is if we move to biannual reporting, there's going to be a lot of work. Accountants, lawyers are going to have less work, but you're creating a new structure, these much these complicated structures, they can just shift their attention to working on mission-aligned companies. Maybe, maybe.

Yeah, sorry. That wouldn't be that bad, would it? No. I think, compared to what they're working on now, I think that—

No, no, I'm sort of joking, but at the same time, I think it would be much better use of their time.

I want to talk about Mondragon. Is that how you pronounce it? Sure. Yeah. I'd like you to introduce it though first for those who aren't familiar. And then I have some questions about you know, where we go, what lessons we learn from it. But first, how do you understand that?

See, I don't get to talk about Mondragón very often, so I know you did your homework and I just— A+. Awesome. Okay, so it's funny talking about the day of the Pope's encyclical. So a Catholic priest walked into the war-torn Basque region after the Spanish Civil War. So it's not the setup for a joke. It's not like a priest walks into a bar. He actually went there. Okay. And Instead of like preaching, you know, just comforting people who are being devastated, he had this vision for a new kind of economic reality where workers would be empowered to learn a trade and to own and to control their own destiny. And to make a very long story short, he started to create this network of worker cooperatives where the workers themselves own the means of production and they build all kinds— it started with like industrial equipment and now make all kinds of stuff. And If you zoom out today, Mondragon is this gigantic company that employs 90,000 people in Europe, one of Spain's largest companies, makes elevators and have a grocery store chain and all kinds— if you look at it from the outside, you say, oh, that's like a fully diversified industrial conglomerate. Makes sense. Making a lot of money, that's perfectly sensible. But if you zoom in, there's nothing about Mondragon that actually resembles a typical for-profit corporation at all. It is a network of, I think, 80 or 90 of these independent worker cooperatives that work together They have like a Congress where they send representatives, and they self-govern. And any of the cooperatives can leave the network if they don't get benefit from the central services that it provides. So this is an example of what I call a mission-locked constellation, which is a set of entities that when you zoom out, the customer, the investor, anyone from the outside perceives it as one thing, but it's actually many things. Now, be honest. If I pitched you this as my business plan, that I was going to create a 90,000-person network of 80— if I pitched it to you, wouldn't you say it was impossible?

Well, that's my question. Like, that should never work.

Yeah. I would say it's not that it could never work. It would just be extremely hard to reproduce. I think if you got a really talented group of people and you tried to rebuild something like this, even knowing all of the mistakes and challenges that this last one had, it would still be very difficult and probably end in failure. But right, so, but it's clearly possible.

Well, the fact that it exists obviously proves that it's possible. But I think most people, when they're thinking about how to start a company, like, just have a very narrow view of what can be done. Cooperatives employ— I don't have the stat in front of me— like millions of people worldwide. Like, it's not some like weirdo niche thing. It's actually like, it's a tool that we can use. Now, in the book, I try to go through all the different ways you can create mission lock.

This is one of them.

Yeah, you guys will be— "Acquires" is a huge Vanguard episode, like REI as well know.

I guess my question with it is that— so I agree with you. Like, you got me. If somebody came to me and pitched me that, I'd be like, ah, that's too complicated. That doesn't pattern match to like the usual Series A. Like, I don't get it. I'm out, right? But is that why we don't have an American Mondragon in the modern era? You know, like, why is there no— why aren't there as many like Mondragon-style counterparts to the monolithic traditional founder-led companies? Because I've heard people pitch this as like, America would be better if we had more co-op networked, like Mondragon-style entities. And my initial pushback has always been like, well, it's a free country. Like, I don't know that that's illegal. I think it's legal. I think you could just go do it if you wanted to. So is it that people don't want to, or is it that like Jeff Bezos is secretly out there like killing people who wanna try to start the Mondragon of Amazon and like compete with him?

Going on? So that's a really good question. And like, so for example, so credit unions, credit unions are the closest thing we have in the US that serves like, I think it's like 40% of American households have an account at a credit union. So they're pretty big. They're all not, you know, they're not-for-profit member-owned financial institutions. And the fact that they exist holds big banks accountable in really interesting ways. So that's like maybe the closest. The point that I was trying to make in this book is not so much that we need to copy Mondragon or any particular company, but rather Collectively, these are called alternative structures. Yes. Control something like 5% of world GDP. Yeah. So I don't want to convince anybody to do anything, but for founders that want to attempt something like this, most of them have never been given the permission to even try. If you talk to most lawyers, bankers, you just say, I'm thinking about doing this. They're always like, oh, honey, that's so sweet that you're concerned about mission.

How about a Delaware C corp with a safe?

Why don't you worry about getting your first customer? Yeah. Yeah, right.

Exactly. Just go focus on this other stuff. But one of the most important ideas in the book is this principle. Call, it's always too early until it's too late. So what happens is you talk to all these advisors and like, oh, it's too early. Oh, they're so condescending about it too. Like, don't worry about that. Just get— and then one day I've actually been in the room where the CEO is like talking to their CFO and bankers and GC and everybody there and being like, hey, whatever happened to that like mission protective provision thing that Eric was talking about? Did we ever get around to doing that? And they're like, oh, you were serious about that? Yeah, I told you to do it. You said it was too early. Like, yeah, now it's too late. When was it the right time? That's wild. Yeah, you should have said something, man. Like I did say, so I just feel like that has become the way that this is done and it's why so many founders lose control. Japanese keiretsus.

Alternative. Do they fit in the category of alternative structures? Are they good? Are they bad? Like, I only know about them from the very highest level. Tell me. I imagine you've interrogated them more. Do they fit in? And is big tech emerging into keiretsu? Like Google owns Anthropic and SpaceX, and Microsoft owns OpenAI. Like, we're sort of maybe walking—

Nvidia owns a piece of everything.

Yeah, we're maybe walking our way into a keiretsu. I don't know.

Let's see after the financial engineering recedes.

Yeah, yeah, yeah. Who owns what? The accountants will all feel that one.

Yeah, I got into— I originally got into all this from studying Toyota. Remember, Lean Startup comes from lean manufacturing. Yep. And it's really funny. I can remember for that when it first was going around, just like when we met in 2012, talking about Lean Startup, people would sometimes be like, "Hey, you're telling us to create the next Toyota, but you're also telling us to build a venture-backed company and take it public?" Yeah. Like, WTF? Like, I thought the public markets are super short-term, but if you read any books about Toyota, they're super long-term. So, I actually like spent a lot of time on that question of like, have we just grandfathered Toyota into the modern economy? But even when I was in Japan, I remember people talking to me about how we don't even create them anymore. Yeah. Like, we have these legacy companies that have this really unique, cool structure. That are kind of a hybrid of public and family-run, like it's a little bit in between both. I think if you look at the data, these structures only work if the company in question has a really strong ethos to accomplish something other than making money. That really is like— that's what you see, like, that's what unites everybody from like these like really progressive companies we've been talking about to Elon, to everybody. If you have a larger vision that is long-term in nature, that is like trying to whether it's something really lofty like I want to fix climate change or I want to go multi-planetary or something really simple like I just want to create high-quality products, no matter what it is, if you have that vision, you are a business revolutionary whether you know it or not, whether you admit it or not because the economic system we have has been designed to destroy these companies, to suck the marrow out of them because they're too weak to stand up for themselves. So, if you look at the historical examples where they're talking about Mondragon or the koretsu or all these different structures, they're only good if the thing they're protecting is good. So the question for me is like, as founders, as investors, as leaders, as board members, like, how can we create more and more and more of these companies that have a real long-term mission, that are what I call mission-driven, not just like mission-hopeful? And when you do that, you see this like really counterintuitive economic benefits that you get. So it's like, you also get moral and ethical benefits too, you know, like, but that's not even really the reason to do it. You can do it just on the basis of the economic argument alone.

Do you think that AI will force companies where it was otherwise maybe too late to maybe over time, you know, sort of massively sort of rework any of, any of their corporate structures? I mean, the example I'm thinking of that is notable recently is Samsung had 48,000 workers basically say like, give us a much greater share of, you know, AI-driven profits or we're not going to work anymore and started a pretty big negotiation. I could see over time that happening at more companies, specifically ones that are facing disruption due to artificial intelligence.

Yeah, there's two things I think that are pushing in that direction. The first is the data on employee ownership creating commercial advantage is actually really strong. So I didn't know this. I was always a big— you know, everyone in Silicon Valley, like, we're into employee ownership, but I didn't know it was like an ideological thing. I thought it was just good, good practice. Actually, we have really good data. There was a big meta study of like 55,000 companies with various levels of employee ownership, and they found that employee ownership exhibits dose response. Like, 10% ownership is better than zero, 50% is better than 10%, 100% is better than 50%. Not just in terms of employee welfare, but in terms of commercial success of the company, revenue growth, stuff like that. That. The second thing is I really think AI is going to make collective action problems, like, very different, very different than it was before. So, for example, an old Toyota Production System piece of wisdom was that if you're doing a lean transformation, taking cost out of a business, it's not ethical, nor is it effective, to ask the workers themselves to contribute to their own firing. Like, nobody wants that. So, so they're going to sabotage the effort, but also it's just not right. You're— it's just fundamentally not right. You should take the savings you're getting from whatever the thing is and use it to grow the business. Like, if all these CEOs who are like, like, I'm getting a hard-on for laying people off using AI, like, if they were serious about how powerful they think AI is, they'd be trying to use it to gain competitive advantage. Like, I call BS on that whole thing. So I think you're going to see a lot of companies who actually sincerely believe in this possibility realize that we have to enlist our employees in it. This is existential for our business. We're going out of business if we don't do it. We need to be allies with labor to get it done together. I think that alliance is going to be far more powerful than what we currently teach, the way we teach leadership today, which is this very zero-sum game thing. What was called shareholder primacy is really the idea that companies should treat their employees and their customers like a resource to be mined. One of my favorite quotes in the book is, if you'll indulge me, there's a Wall Street analyst that was criticizing Costco. He said something like, Costco takes money that rightfully belongs to shareholders and instead invested in improving the customer experience? That's supposed to be a criticism. Like, WTF? What are we doing here?

That's how you get $1.50 hot dogs.

My favorite bit in here from Costco is— I'd heard this quote before. I thought it was just a meme, but from Costco CEO Jim— is it Senegal? Senegal. Yeah. Senegal. If you raise the effing hot dog price, I will kill you. Figure it out. To then CEO Craig Jelinek. In 2008. I always, I seen that quote before. I thought it was just a joke, but I guess he actually said it, which is remarkable.

No, he actually said it. And in fact, he said that and another quote, which is he said that if Costco raised the price of a dollar bottle of ketchup by 3 cents, they would sell the exact same number of ketchup, right? Like no one would notice. Yeah. They did that across the whole store, 3% across the board, raising prices. They would increase their net income by 50%. and not lose any sales. Yeah. So why don't they? He says it's like the business equivalent of taking heroin. Mm. You do it once and then you gotta do it again and again and again. Next thing you know, you're not the no price leader. Low prices are the, are the easy way. Now that quote and the hot dog quote, hard to source.

Yeah.

There are memes online and I was like so worried that I was gonna quote him incorrectly that I actually contacted Costco PR. Oh, and they put me on the phone with, I was so nice to them. They put me on the phone with them. I was like, is this Is this really true?

Did this really happen? He confirmed it to me.

He confirmed it to me personally. So yeah, I think this very distinctive countercultural way that they have run that company now for 40 years, the $1.50 hot dog and everything. What's interesting to me is when I tell people that story about the hot dog, nobody ever says, how come the COO was trying to raise the price? Because of course he was. We've all been trained that if you can get away with screwing people over, you always do it no matter what. You raise margins. Margins are a source of strength. Amazon and Costco is, I think, built on a very different philosophy, which is that margins can be a source of weakness. Jeff Bezos understood it. He used to always say, your margin is my opportunity. So, when you are making too much money, when you are being too extractive, you're actually harming your competitive position in the long run. And the fact that we're consistently incentivizing that all across our economy is, I think, a bit of a travesty.

There was a recent story. Everlane was acquired by Shein. Everlane, darling of Silicon Valley, raised a bunch of venture. Very strong mission, ultimately to get swallowed up by the beast that it sought to displace. Michael, the founder, is a buddy of mine. He seems very fired up. There was a leak earlier today that he's working on something new in apparel. How would— what is your— what is your kind of general advice to somebody that wants a mission a company to have mission primacy? Like, what is kind of the— there's no Stripe Atlas equivalent today. You can't just go press a button and make one of these. But how does somebody get started? I'm working on it.

I'm working on it. And obviously, yeah, check out the book. The book has a QR code actually that has a really detailed implementation guide. And we have like an incorruptible term sheet, all kinds of like legal docs, the whole thing if you want to, for those that want to do that. But for your friend and for so many people who've been through this, I've personally counseled— I can't tell you how many mission-driven founders who get betrayed. The company gets destroyed. They get ousted, whatever. And you talk to them afterwards. I just had this conversation with Whole Foods' John Mackey. I tell a bunch of stories in the book of people who've been through this. And you ask them about it and they really take it personally. They're like, "I failed. This happened to me. I should have tried— I didn't trust the right people." I tell a story in the book of a founder who on their deathbed was like, "I just didn't trust the right people." I have the wrong people on my board. We personalize it, which means we keep the structural causes invisible. We don't see how it's not personal. This is a force that is dragging us down. So, I tell the story even of a really close friend of mine, great entrepreneur who was just tragically ousted by his employees onto a new mission-driven company. I remember asking him, "Dude, on the new company, what are you doing differently by way of governance?" And he was like, "Like what?" He didn't even occur to him that there was any possibility that the new company could have a different outcome. So, for your friend, there's two things we got to do, okay? Just two. One is what I call the path of ethos. We have to build the company operationally to stand for something. The great Sol Price, the father of modern retail, the progenitor behind Costco, he called this being a fiduciary to the customer. Who would you rather die than betray? Write it down. Make that the operating system of the company in its management structure, in its business model, in its culture. The second thing we have to do is what I call the path of integrity. We have to create companies that are capable of making and keeping promises, like that have structural integrity, so they don't give in to inner temptation. They cannot be bullied from the outside. You're trying to buy them, they can say, "F you." If you try to incentivize them to do some bad thing, they have the structural strength to resist. And that's where things like PPC, board mission pledge, the long-term benefit trust. That's where many of the so-called governance structural best practices that we currently are taught have to go by the wayside. When you have that special formula of ethos plus integrity, you have a company that is— wait for it— incorruptible. Woo! So good. I'll let you go.

Thank you. This is great stuff. That's what I love. I was talking to a founder yesterday. I was giving them advice, and they're with an idea that a lot of people have raised venture to do in the same way Bezos talks about your margin is, is, is my opportunity. I was telling this founder, like, your competitors raising venture is your opportunity because they're gonna have to do a bunch of things that aren't really aligned to what would make the product great for customers or what would make the product that you really want. And what I like about this approach is setting things up in a way that a lot of the problems that you're talking about are problems where you have other shareholders and there's other people that have a stake in what you're doing. And that's— most businesses will end up that way over time. But if you can find a way to create a corporate structure that mimics the found— that this insane mission-driven founder and allow that, that, that, uh, you know, the, the entity to maintain that even after the founder is gone, this sort of permanent structure, I think it will be be incredibly powerful. So thank you for coming on. Oh, thank you.

Thank you for saying that. And I will say, you know, obviously you've heard I believe in feedback. I really like it. It's kind of my thing. Yeah. Anyway, so I had a lot of people test read the book, you know, maybe 600 people generated something like 10,000 comments. It's like, I really— I eat my own dog food. Yes. And the thing I'm the most proud of, of that set of people is I'm— I think we're up to 5 or 6 of them now, you know, it's like, well, coming up on 1% of the people who read the book so far have reached out to me to say that they had a new business idea that they wouldn't have even considered before because they were able to use this framework to see new opportunities to make a profit that they just were blind to before. And a bunch of them have that, just the thing you were talking about a second ago, like that there's some category where everybody hates all the vendors because they're all like, they're all assholes, you know, they're all extractive jerks. Yeah, yeah. What if we had a category, what if we had a company in that category that competed by being trustworthy to companies? You're seeing that obviously in AI, but you see that in so many categories where it's like, oh, So that's actually very simple to make a business like that if you take this idea seriously from the beginning. So anyway, very excited to be here on launch day with you guys. What else, what else can you but TVM to get the word out about?

Congratulations. Super, super exciting.

Hopefully we can talk soon. We'll see you.

Goodbye.