Why Great Companies Go Bad

But we have a real treat for you right now, uh, and before I bring, uh, the guests to the stage, I want to tell you about a little phrase we've started using at the SDSU Zip Launchpad. She doesn't even know we use this. It's called the Vidya test. It's not an official framework. It's not written down anywhere, but every founder who has worked with Vidya, a superstar advisor and product person, knows exactly what it means. Let me tell you what the Vidya test is. Before you build a product, before you write the code, before you create the pitch deck, before you raise the money, have you actually gone out and talked to a customer? Have you sat across from real people and uncovered an urgent, painful problem worth solving? If that answer is no, Vidya will politely and firmly send you back out the building. And that's because she understands something that the best founders understand: assumptions are dangerous, customers are not. Vidya Diamani is a product leader, startup investor, advisor, founder, coach, and one of the strongest advocates for customer discovery and customer-centered product development that I've ever worked with. She has helped countless founders throughout the San Diego community build products that people actually want, not just products that they think they want. And that philosophy is deeply connected to the work of our next guest. Long before the terms of minimal viable product, MVP, customer discovery, experimentation, validation ever became part of our startup playbook, one entrepreneur helped bring those ideas into the mainstream. His work has influenced founders, investors, accelerators, universities, startup ecosystems, me, so many of you. For many entrepreneurs, The Lean Startup wasn't just a book, it fundamentally changed how we build companies. And today, he continues that work through his newest book, Incorruptible, exploring how organizations can remain true to their mission as they grow in scale. So please join me in welcoming product leader, startup advisor, founder coach, Vidya Dinamani. An entrepreneur, investor, best-selling author, and one of the most influential voices in the modern entrepreneurship world, Eric Ries.

Testing, 1, 2, 3. Okay, it's working. Hi everybody.

Okay, can you hear me too? Hi everyone.

How we doing? Still going? Still going after so many speeches? Oh, thank you.

Oh my God, can you believe he's here?

Thank you.

Who knew he was from San Diego? Anyone? He's from San Diego. This is home. Welcome home.

Thank you very much. Yes, delightful to be here.

It's amazing. So I'm so excited to be here for all of you budding, working hard, building every day, scrappy entrepreneurs. For those of you who are scaling companies, for the newly minted investors and you experienced investors, this is such a timely conversation. I think we need to hear this now. I've been sort of bending Eric's ear, okay, for the last half an hour about how everyone needs to apply this. I think this time, this climate, this is the right book. This is what we all need. So Eric, thank you for being here.

Oh, thank you.

It's very nice of you to say.

Thank you so much.

You know, I've been a fan, probably like pretty much everyone, like I can't I carry this around with me. I don't— I'm not kidding.

It's—

and as much dog-eared as this is, I feel like I've got as many bookmarks in Incorruptible now that I did this over 10 years. I mean, every other page is like, this is a concept, this is incredible. I want you all to read it. I think it's so important. And I just want you to thank you for writing it.

Well, gosh, now you've set everybody up for extreme disappointment because I don't know if I can live up to that, but I'll do my very best. That's very nice of you to say.

No, it's going to be amazing. So I want to kick off with, um, a sort of a basic question about how corruption actually happens. So we're just going to go dive deep in. Nobody starts off wanting to, to build a corrupt company. Like, no one ever said that. But there's this feeling that I think everyone in this room has probably felt it. There's a term, um, it's called in shitification. If you haven't heard it, you probably instantly know what, what that means, right? Because this, this is a feeling that when you— your product has let you down, something that was built for you has let you down, at the moment you stop loving the product and you feel like something has been done to you. So, so your new book is about why that happens, but I think more importantly, and we'll get into this, to prevent it from happening. But, but as, as I said in the beginning, no one starts off this way. So how does it happen, Eric? How do we get to all of these corrupt companies?

Okay, all right, well, gosh, okay, we're going to get right into it. So hi, everybody. Yeah, so you may remember me from such movies as The Lean Startup, but I'm back. And in the years since— Lean Startup was published in 2011, if you can believe it. So it's been a little while. And as the kids say, I've seen some things. So I have gotten the chance to be around like so many extraordinary companies. And watched people make literally billions of dollars using ideas from Lean Startup, which I'm immensely proud of all that we've accomplished together as a movement to change how product development is done, how entrepreneurship is done. But I've also gotten to see the dark side of this business up close, and I really struggled for a long time, and maybe some of you have felt this too, to figure out what do we call it when a really awesome product is totally ruined? Or like when some company goes public and then it loses its soul. I've been joking with people on this book tour talking about— you can't imagine how many examples people have sent me. But I say, look, when you hear that your favorite restaurant got bought by private equity, does anyone be like, well, maybe it will get better, maybe the food will be delicious and the portion sizes will increase because they have such vast resources? Anyone ever had that happen? So far, so far, no. And actually, people have been writing me with like story after story after story. They're like, I know what company you're talking about. And I've named like 20 different companies in these emails. It's been, it's been incredible because like we're like swimming in this problem where like as companies get more successful, we expect them to get worse, not better. Yet we teach entrepreneurs that success should be our goal. Success will protect you, success will give you freedom, and the freedom will give you, make you the power to make the product the way that you want. Forgetting a simple fact that the more successful an organization becomes, the more valuable it becomes as a target. So what do we call it? I felt like mission drift sounds like a navigation error. Bureaucracy is like, it's not really a paperwork issue. Like, we don't have a word for this. But what occurred to me in working on this book, which I've been working on for many years now, occurred to me that our grandparents and our great-grandparents would have had a much easier time talking about this than we do, because they would have called it corruption, the making of money without the creating of value. Now, that makes some people uncomfortable because our modern definition of the word is a lot more narrow. But I think, I think it fits. And if you sit with it for a little while, I think you'll start to notice this more and more and more often, that there's all these people and companies and situations where we look at them and we can see that they're making money and we're not supposed to criticize. We're like, well, I guess it works. You're like, oh, that's impressive. But most people who build companies, like I'm just— the people who are presenting earlier, like, if that's— if your goal was to make money, would you go through all the pain and effort of what these companies have done? Like, no, of course. Like, there's a mission behind this. There's a goal. Because most of us share what I call the builder's intuition, the idea that the right way to make money, the best way to make money, is to create more value than you capture. How many people feel like that is what you're trying to do? Yeah, right. Yeah, everybody. Exactly. So part of the goal of this book is to say you don't have to pretend anymore. No one actually thinks that anyway, so you may as well just come out and say it, like, it's okay. So this is the pattern that I see over and over and over again, is people have an incredibly, like, really powerful mission. They have something really amazing they want to create at the beginning, but then as they raise money, as they get more successful, as they have more and more people on their board, as they get captured by our modern ideas of the so-called best practices, practices about how leadership should be done, how companies should be built, they lose their way. They fall into this corruption. It's almost like there's a gravitational force pulling them down into mediocrity or worse. And so yeah, although many people don't intend to wind up there, that's where they wind up. And the goal of the book is to both diagnose this problem so that we can all stop being so frankly naive about it, but more importantly, to lay out a blueprint, a roadmap for exactly how we're going to build organizations that can resist that corruption.

And I'm so glad. I know I threw us all in the deep end because incorruptible, I mean, that word itself just carries so much, you know, like weight. And you are shocked by it because again, no one starts to be that way. And you think of corruption happening like, you know, we all do the anti, I will not be corrupt. That's not what this is. But how do you sink into that so easily? Can you share a couple of examples like about how this happens to companies that we all know?

Oh, sure. Well, because we're in San Diego and everyone here knows the legend of Saul Price, right? See, only some people do. He's kind of fallen out of the business lexicon more. Yeah, somebody does. Thank you. All right. So we're going to have— we're going to have a very quick Saul Price refresher. Should—

should be.

Well, now, just so you know, like when I was growing up, I didn't even know that the Price Club was named after a person. I just thought it was the place you went for low price. I only found out much later his name was actually Saul Price. So, so people know that Saul created FedMart in the 1950s, like the original discount retailer. For those that don't know, let's just show of hands, anyone here shopped at a FedMart in their life? Yeah, see, I'm in San Diego, this is great. We got a few people who actually can remember the real thing. He was a lawyer before he became an entrepreneur, and he had this philosophy called being a fiduciary to the customer. So whereas we teach entrepreneurs today that they have a fiduciary duty only to their shareholders, Saul was like, well, when I was a lawyer, my fiduciary duty was to my client. So if I'm a retailer, my client is the customer. So my fiduciary duty, meaning the person I have to put their interests before my own, is the customer. He believed in capped margins. We teach entrepreneurs today that you want to have as high margins as possible, though, that we also teach them Jeff Bezos's dictum that your margin is my opportunity.

Hmm.

So like, which is it? Are margins a source of strength or a liability? Sol understood that they were a liability, not a strength. Excessively high margins is a bad idea. And there's a million things like this. I can tell you lots of funny Sol stories. I always— when I'm in San Diego, I always worry about telling those stories. Someone will be like, that's not how it happened. I was there. So I don't know. Anyway, one of my favorites is that when his competitors would try the loss leader strategy on him to sell a product below cost to drive customers out of FedMart, he would put up their Sunday circulars in his own store. And put up signs saying, "Don't buy this product from me. You can get it cheaper from those bozos." Okay? So he took that seriously. And so as a result, people trusted FedMart, the one retailer you could shop at and not feel like you were being fleeced. Every product is sold at 14% markup, no more, no less. So of course the company did well, and it grew, and it thrived. And over the course of 20 years, he took it public. He became a wealthy man and a wonderful local philanthropist. And yet, no matter how much money he made for his investors, it was never enough. They always wanted more. And in particular, they wanted more of the way that the money was made. It wasn't good enough for him to say, look, I, by treating employees well, by paying above market wages, by having lower prices, like this thing is an engine. That wasn't enough. They wanted conventional retail best practices. Because I think they understood something that he never really did, which was precisely because customers trusted FedMart, FedMart could betray them and get away with it. So actually, they're like, we could make more money if we raise prices. No one would notice, right? Some of you have been in a boardroom where this kind of thing is discussed. Like, could we make the product a little worse? Will they still buy it? How about now?

Hmm.

How about now? We treat the employees a little worse. Will they quit? No. How about now? How about now? You're right. You've been— you know what I'm talking about. So that was the constant battle of FedMart's life, and he was bedeviled by it as a public company. He tried to take the company private, but it didn't matter. The play is the same even when you change out the actors, because this is a force, not a personal drama. Anyway, all this led up to the fateful day in 1975, just down the street from here, when Saul tried to come into his office and the doors had been— he couldn't open the doors because they had changed the locks on him. Because he didn't work there anymore. And so we have a kind of like really interesting A/B test of business because the FedMart investors got Saul out of the way and they promptly changed FedMart to work by conventional best practices. Anyone remember this era of FedMart? Anyone shop at the— yeah, some people actually remember.

They—

the product just got worse and worse and worse, and by 1982, within 7 years, they had driven it into bankruptcy. It had taken him more than 20 years to build what they were able to destroy in 7 years. So this is the recurring pattern. If you think it's just FedMart, you are kidding yourself. I have in the book 200 years of this story over and over and over again from, you know, Robert Owens, like Scottish Mills in 1800 to Panera Bread, which I was— someone just told me the story of the other day. Oh my God. But Saul, as a classic entrepreneur, like, he could easily have retired at that point. He was wealthy. He was humiliated. But he was just getting started. So classic entrepreneur, he took 2 weeks off after he got fired, and then he leased the office upstairs from FedMart and created a new company that he called the Price Company. That is, of course, the purveyors of the Price Club that many more of us remember from years gone by. But now when I talk to younger audiences, they don't remember the Price Club either, because of course the most important thing that happened is in this whole chain of events is a different person who was— had started at FedMart as a stock boy, worked his way up to executive, was a guy named Jim Senegal. Now more of you know where this story is going. Jim quit FedMart in protest when Saul was fired and went to work at Price Club, and then a few years after that decided he would start his own company. Because Jim and Saul understood something that the investors never understood. The investor looked at FedMart and they saw growth, money, contracts, warehouses, inventory, customers, all the surface-level things, but they could not see the engine that drove all that growth, the engine that generated the most underrated and most valuable asset in the whole world, trustworthiness. So because it's an engine, Saul and Jim understood that this was not about the personal leadership of any one leader. Rather, it was a playbook that could be replicated. They could do it again. So anyway, Jim went and started his own company a few years after that. His company and Sol's company merged to form a combined company that they called Price-Costco, but we just call Costco. So I just told you the deep cut origin story of Costco for those that don't know. Today, Costco is a $400 billion public company. To get a sense of just how freaking large Costco is, if Kirkland Signature, like the brand of all the water and granola bars and all the startups in the world, if that house brand was its own separate company outside of Costco, it would be bigger than Procter Gamble, United Airlines, or Coca-Cola. It's— Costco was very large, but for some reason Costco has not succumbed to this gravity in the way that FedMart did. And in fact, if you listen to people talk about business, I use Costco in the book kind of as a bit of a recurring character because it's the company most widely acknowledged to be the exception to every business rule. So you hear people talk about only family-run companies can be trusted to, you know, maintain their value proposition over generations, right? You ever heard someone say this, like, other kinds of companies, if they're public or they're old or they're big or they're this and that, they eventually will give in to the quarterly pressure and the ROI thinking. And I've been in lectures where people have been like, it's such and such, they're naming this family-run company and that family-run company, and they'll be like, at the end of the lecture, like right as they're about to stop, they'll be like, oh, and also Costco. For some reason they seem to be able to keep their promises. They're like, well, excuse me, wait, hold on, Costco's not a family-run company. For 40 years now, Costco has been able to maintain its integrity. And I think this is really what the book is about. Like, this is what we have to grapple with, because we all have been indoctrinated to the idea that this corruption is inevitable. And then we have these exceptions. But just think about that. If something's inevitable, how can it have exceptions? Right? So there must be something that the Costcos of the world have in common that allows them to resist this force. And so as entrepreneurs, as investors, as board members, as leaders, this is the thing we have to study. How do we build these organizations that do this seemingly impossible thing.

Before we get to how to build, I bet you everyone's out here saying, but that will never happen to me, right?

Yeah, of course not. So, it's your friend's company, they're in trouble. Maybe you can give them a tip or two, yeah.

So, how does it start? I mean, I'm curious about this is it compounds and you find yourself in that place. So, SoulPride, I mean, with all the great intentions still got kicked out. Yeah, tell us like what to look for in that journey. Like, what signs should I be looking for? Because no one again starts out to want to end that way.

Yeah. So according to Harvard Law School, among venture-backed companies with standard governance, only 20% of founders will still be CEO even 3 years after an IPO. Okay, so I understand that you're the exception. But statistically speaking, actually, your odds are not that good. And this is, of course, a data set of successful companies. This is the best we can hope for. And I just think that's really sad. I think that we are teaching people a set of practices that is leading— that's leading them to self-destruct. And even the ones who use this system to make a lot of money often wind up super miserable. I don't know how many of them you know, but I know quite a few. And if you've ever wondered why— why are all these billionaires having a mental health crisis for us all to see on social media every day?

This is why I promise you it's going to get better, right? We're going to, we're going to wallow in this a little bit.

We have to listen. It's— I'm not going to make any apologies for it. The first part of the book is called The Shape of the Abyss. Okay, so you can see where my mindset was as I was writing this. So if you don't want that, don't read the book. It's okay. But like, we have got to stop being naive about this. It's incredibly important. And part of the reason why Jim Sinegal has been able to protect Costco is because he was there the day Saul Price was betrayed. So he saw the worst of this up close and personal. And so must all of we if we're going to avoid this having it happen to us. So what are the signs? From a very early age, startups, just, we have success. And then we are constantly having people in our ear all the time, like wormtongue, telling us to compromise just this once. Just a little bit. You ever been in a meeting where people say, but what would the investors like? What would VCs like? Would this help us rate? Like, it's like before we were only focused on customers and product and quality, and now we have this like extra ghost in every meeting that's like, what would the market want? Are you sure? Like, right? Have you ever experienced this? Yes. So those little compromises begin from a very early stage, and they don't cause any problems at first. We have little bits of misalignment. This department and that department don't quite agree about what the company is actually trying to do. We have another very classic sign is we start to prioritize based on ROI. We're taught that as a best practice. I was literally taught that this is like a sign of maturity as a manager. You learn to stack rank everything by ROI. Who's been told to stack rank by ROI in their life? Anybody? Still a best practice. Few people have done that.

Yeah.

So if you stack rank by ROI, the most important things you'll need to do, the ones that generate trust, will always stack rank to the bottom because their returns are intangible, but their costs are tangible. So that's the number one thing that I see. People start to say things like, well, like, should we raise prices or lower them? Instead of saying like, what would actually be best? For this product, like what is right for it. People say more like, well, what could we get away with? Like, well, that— well, let's just measure the conversion rate. And I'll tell you a story. Andrew Mason, the founder of Groupon, told me this story. Groupon— you remember Groupon? Was like the one daily— that, like, the whole thing of Groupon was we send you one email a day with a cool deal that you can join or not join. And the idea was so powerful and so strong, they took the company public on the power of one email a day. And he said once they were public though, people started to come into his office pretty regularly and say, you know, boss, we need to grow the metrics, grow the revenue. And it's like making the product better is a lot of work. You know, it'll be better than one email a day. Why don't we try two emails a day? And he'd be like, no, no, no, our whole thing is one email a day. Like, yeah, but don't you want to know what the ROI would be? Surely we should experiment and test. And he couldn't say no. He eventually got talked into it. They ran the experiment. And would you be shocked to learn that two emails a day makes more money than one email? Of course it does. So he's like, okay, well, I guess we got to do it. And that was fine for a little while. And then they came into his office and said, boss, you know what's better than 2 emails a day? And we— you laugh, but I could tell you multiple companies that have collapsed under this very simple logic. They eventually had so many emails per day that customers started to unsubscribe because it got really annoying. Remember that? So in the name of profit, Saul Price was fired. In the name of profit, Groupon was destroyed and so many other companies. And I think it's really interesting that we need to grapple with this fact that this value destruction is being done in the name of profit, even though it's profoundly unprofitable.

It's so interesting. And I think when you talked about the first signs, the first set of questions, and that's so easy to ignore because it becomes part of your typical lexicon, like part of the conversations with your leadership team and your investors. I'm gonna move us into hope because he does give us the answer, and it's a really powerful one. But I wanna start in terms of Lean Startup, going back to your original, really gave us all the playbook for iterating, for going fast, right? For moving quickly, making experiments fail, get there. It's almost as if what you're talking about, there's a tension here. With Incorruptible, it feels— and I think for the founders, when you read this book, it's going to feel like, now I've got to go slow. So, so how do we reconcile that tension?

Yeah, so I thought this was very clear in Lean Startup, but very clearly it was not. So I'm glad to have the chance to clarify because I have gotten this question a lot in the years since I wrote it. In order to go fast, you have to have some immutable principles. So those you can't go fast with because they have to be your first principles. So for example, if you say like, we're going to use the scientific method— a huge part of Lean Startup is just let's use the scientific method to make business decisions instead of using astrology. Why not? A lot of business is just astrology. Like, I use the power of my mind to manifest this thing that's going to happen in the future. And that's— you want to do that, that's fine. But if you commit yourself to say, no, we're going to use scientific method, then you actually now have something you're committed to that is not subject to experimentation. Because if we do an experiment and the experiment shows that customers prefer this or they prefer that, you can say, well, that's not— that's not the thing we really wanted to be. You could say, like, I don't care. Or you could say, well, actually, you know, we know better than what— like, well, you could say anything you want, but what you can't say is it's not true that this is what the customers want. You have now the evidence. You've pre-agreed that this is what we're going to do.. And it turns out that there are a bunch of these commitments that have to be made on a, on a more personal basis. I call it having an ethos, a character, a determination to align making money with the maximization of human flourishing. That's how I define profit in the book. To me, to make a profit is to create this surplus of human flourishing in the world and then capture some of it for yourself. So our current definition, nonprofit, for-profit, all those distinctions actually make a lot less sense than you think. You have to be willing to think long-term and be committed to long-term value creation. Like, so much of the enshittification story, all these private equity stories, is simply people coming in and say, look, we could make money by doing a thing. And if that is tempting to you, or more importantly, to your team, to your organization as you grow, then it's already game over. So in order to prevent that, we have to be willing to say, look, there are certain things that we are a priori committed to that we're not willing to give up. And because we have those commitments, that's why customers can trust us. We're not going to betray the second the ROI calculation changes. I think a lot about Steve Jobs. Um, one of my favorite Steve Jobs stories is about a fight he got into with his engineers over the layout of the wires inside the old beige Mac Plus. And for those that don't know, the beige Mac Plus was a computer case that Steve did not believe customers should be allowed to open. So the engineers are like, what does it matter, the design of the layout of the wires inside a case that no one will ever see? You know, no one will ever know. And Steve would say, but we'll know. And so if someone behaves that way, you're like, God, that is really difficult. What a difficult person. You ever had a founder you feel that way about? Yeah, it is very difficult. But because you know he's committed to the little things, it makes you— gives you confidence he'll be committed to the big things. That are aligned with his ethos. In the book, I call this principle "harder is easier." If you're willing to have these upfront commitments, it makes many of the other problems that seem to bedevil everybody else much, much, much easier. The problem of alignment, the problem of fundraising, the problem of talent acquisition and retention, and the problem of customer loyalty. So although there is this gravitational force that drags us down, if we build a trustworthy organization, we activate a counterforce. A force of magnetic alignment that allows us to resist that gravitational pressure even as we scale, even as lots of money gets involved, even as lots of people are involved. And obviously with AI, you know, this acceleration is happening much faster. So the stakes are a lot higher.

So it's really tempting, I think, then to say, yep, I'll do that.

Right. Oh, perfect.

Get to that.

Right.

Yeah. Yeah.

Yeah. I'll just do it later. But right now I'm good. I'll do that a little bit later because there's something that you need to do. And you had this term called, it's too early until it's too late. So talk to us about what that means.

Yeah, this is by far the most important idea in the book for founders. Because if you, if you leave this lecture, or maybe if you even read the book, and you call your co-founders or your board members or investors or even your lawyer and say, Eric, I heard this thing, he was saying that we need to have what are called mission protective provisions. That's what it's called in the law. In my incorporation in my corporate governance? You'll get a response that's kind of like this. They'll be like, oh, oh sweetheart, that's lovely that you think that's important. I'm sure that will be very important, but you don't need that right now. It's too early to worry about that. Why don't you just go get product-market fit first, and then we'll come back and revisit? You're like, okay, got it. Get product-market fit first. Okay, so you go get product-market fit, you raise some money, you have like this awesome Series A investor on your board, and you're like, hey, remember the mission protective provisions, and they'll be like, well, but we're so aligned. What do we need that for? That's to protect us from future other investors who won't get it. Let's just do it like we'll do it later. Okay, fine. Now you have the growth investors on your board and you've had a lot of success, and these bold contrarians on your board are like, well, you know, you don't want to be too different from everybody else because that might make it hard to raise money or something. And listen, we think it's fine, but it's maybe other investors that don't get it. So let's do it later. And then now it's IPO prep time and you tell your CFO, I want to make sure we do this. Yes, sir, absolutely. But not too early. Let's like do it as part of the IPO filing itself. Anyway, I've actually been in the room where the CEO is like about to go launch an IPO and turns to their CFO and said, hey, whatever happened to that thing, Mission Protective thing, or we wanted to have that like community endowment to make sure that— and they're like, oh, oh, you were serious about that. Yeah, I told you to do it. Yeah, you did. If you were serious, you should have told me. Why? Well, now it's too late. The IPO is already scheduled. We already filed the thing. If we change it now, the bankers aren't going to like it. This person and the CEO is always so pissed off. Like, wait a minute. Last year you told me it was too early. Yeah, it was. But now it's too late. Uh-huh. When was it the right time? It never is the right time. So if you want to do any of the things in this book, You know, you need to be prepared for the fact that it will never be the right time. You have to be prepared to do it much earlier than conventional wisdom suggests.

Can we, can we dive into the product-market fit and the mission-driven? So it's like, like chicken and egg, like which comes first? Like, how do we think about that? Because, you know, we talk a lot about product-market fit, and once you have that, they're so intertwined in some ways because you have to know what it is that you're doing and then what is it you're true to. And it changes even if you're mission-aligned as you get product-market fit, that changes. So which is first? How should I go about this as a founder?

You know, I actually think mission, vision, these kind of like big picture concepts we talk about entrepreneurship, they're more discovered than chosen. That's really the truth because like when you first start a company, you have what I call the fantasy plan in your mind. And in the fantasy plan, there were no trade-offs to be made. Everyone loves your product. You don't have to choose a customer segment because all the segments love your product. You don't have to get early adopters because everybody loves your product. You don't have to worry about cost because the product is both infinitely cheap and it performs infinitely well. You know what I'm talking about? It's just everything's great. Marketing's easy. Your every post goes viral. Your cost of acquisition is basically nothing. You know, Oprah calls you and puts you on the show as soon as she hears about it. Like, it's just Everything's easy. And then real life intervenes. And you think about like the logic of pivots. Every pivot is actually a choice about what to prioritize. You find out that you can't have it both ways. Like, I can think of so many companies where it's like, look, you can, you can be a low-cost product and not make any money and have no money to grow, or you can be a high-cost product and have the money you need to grow, but then you can only service extremely rich people. Those choices, most founders say that they think there's only one right answer to that question, but actually most of them have multiple valid choices. Like, you could go either direction when you pivot, but to most founders, only one seems right because they're actually discovering what their actual vision and values really are. So for example, in the book, I tell the story of Cloudflare. You all know Cloudflare, the firewall in the cloud. I like that story a lot because the founders were very anti-consultant speak. So they were like, at the beginning, they're like, we don't have corporate values, we don't have a mission, that's a bunch of BS. Like, we don't want to hear about that. If customers were like, if employees were like, what's our mission? They just like, smack, it's a firewall in the cloud, it's not that complicated, you know. But as they got bigger, they kept finding themselves in these situations where they were doing what they thought was the right thing, even though other people didn't seem to care. So like one very famous episode, they, a bunch of pro-democracy protesters, I forget in what country, were like getting, getting hacked by like state-sponsored DDoS agencies. And they were like begging different Silicon Valley companies, will you please help us keep our website online so we can do this pro-democracy protest? And one Titan-level company after another was too chicken to do it. And we're just like, no, we won't help you. No, we won't help you. And so like, it fell to Cloudflare, this tiny startup. They're like, yeah, we'll do it. And from an ROI perspective, this made no sense. These democracy protesters were on the free tier of the product. They weren't even paying customers. Where they're like, yes, we will incur the wrath of nation-state-level hackers so to keep you online. Why did they do that? At the time, they were like, it's just the right thing to do. But as the company grew, they started to notice this pattern about themselves. They discovered that they were committed to some higher principle. And in fact, they were having lunch one day when one of the engineers said, you know, the reason I like working here is this is the first job I've ever had where we're really making a better internet. I remember Matthew Prince told me this story. He was like, someone asked him, oh, is that our mission statement? He was like, no, we don't have a mission. It's a firewall in the cloud. But people kept saying it over and over again. And eventually he was like, oh, I guess that is our mission. So they adopted that as their formal mission. They actually do have formal values, the first of which is actually be principled. And this came back to bite him like not that long afterwards, where one of his engineers came into his office and he was like, boss, remember when you were telling at the board meeting recently that the number one feature that causes customers to upgrade from a free plan to a paid plan is web encryption? He's like, yeah, I remember that. It's like, well, here's the thing though. Isn't our mission to make a better internet? Uh-huh. Well, wouldn't an encrypted internet be a better internet? Where are you going with this, buddy? Shouldn't we give it away for free? Would that make a better internet? And like, Almost any CEO you pitch this to at almost any company would be like, we're obviously not giving away our number one best paid feature for free for no reason, right? But no, he was like, oh, well, once he's— the way he described to me, he's like, once I saw it, I couldn't unsee it. And so the company went to outrageous lengths. I won't get to all the technical details, they're in the book if you're interested. Like outrageous lengths to figure out how to drive the cost of web encryption down cheap enough that they could give it away for free. And I tell you this story because you have to understand that at every stage of this process, they could easily have bailed out and no one would have thought any less of them. First of all, CEO could have been like, it's our number one paying product, we can't afford to do that. Or once they like got into it and realized how hard it was, they could have just been like, this is too hard. Why do all this extra work for the privilege of giving our own product away for free? No, of course we're not going to do it. Or they could have said, once they actually figured it out, They could have just pocketed those savings and had higher margins. Remember, margins are a source of strength, right? Right. But no. Then their board was like, wait a minute, if we do this, won't our conversion rates go down? And they were like, oh yeah, they definitely will. They could easily have bailed out at that point. They shipped it and the conversion rates did go down and they could have bailed out at that point. But they didn't. They carried it all the way through. The conversion rates did go down. But of course, it's a happy story. Because the trust that this action engendered led to an order of magnitude increase in their total customer base. So that's why the company's worth $70 billion today, because people trust them with something far more important than like the minor things that we tend to argue about when we're doing product development. So having this kind of mission, I think a lot of us, even though we say we're mission-driven, are much more like mission-hopeful. Like we're like, gosh, wouldn't it be nice to have a mission or something? Like board members, a lot of investors are trained Even though they invest on the basis of the mission, when you become a board member, you're supposed to treat mission like the nice dessert you get to have after you eat your vegetables of being a serious business person. You know what I'm talking about? But the mission is the vital source of energy that creates product-market fit in the first place. So I think, uh, it is the thing that makes all the other good things we want to have happen in startups possible. But I want to be really clear about this. A mission is an emergent property of the organization itself. A mission statement is often just a bunch of bullshit. So we're not talking about having a mission statement, we're talking about actually embodying a real mission deep in the bones of the thing we make.

I love that story. That's so good. So, so we're in a university, um, Istak is teaching. So I want to get really practical.

Yeah, thank you. Yeah, it's like a little abstract.

Yeah, no, it's lovely stories. I bet you most of the founders in this room, and maybe some of the more established companies, have probably never read their own corporate governance.

Probably not, right?

And these documents, I mean, often they're drafted to raise a round, and they're not really there to protect what you call the company's soul, which I love the way you describe that. So if a founder walked out of here today and they want to pressure test, they want to know, what do I have what is it that you would tell them to go look for?

Okay, so the blueprint in this book has two components. One is what I call ethos. We're talking about before, things like being a fiduciary to the customer, um, built— like making that commitment operationally. Who would you rather die than betray? I mean, I think about some of the companies that presented today, like the congenital heart thing for kids. It's like, don't you care a lot that that technology is going to be used to help children? And there won't be some day when some investor will be like, you know, since they die without the technology, can't we charge them whatever we want? Or like, this is a real story. A very elite Silicon Valley VC told me this story. He was being— he was talking to an entrepreneur who was building on an implantable medical device that cures some illness. And the guy couldn't raise any money because the device was too effective. Once you implant it, the disease is cured and you're done. And he literally had investor after investor would look at this thing and be like, you know, maybe we should introduce like a plastic part or something in there that degrades over time because then it'll have to be replaced and then you'll be able to have recurring revenue. And he was like, I don't want to raise money on that basis. Like, that's, that's like, that's a horror, right? So what, like, who would you rather die than betray? When you encode that operationally, then you can build a company that people trust, but that has to be paired with structural integrity. The reason why Costco endured when FedMart didn't is not just because it's so big, but because it has a governance fortress in its legal documents that protects the mission from outside interference. So most people— like, how many— just, we're gonna just do this, okay? How many people have an incorporated company right now? Show of hands. Okay. How many of you have read your own incorporation papers and know what they say? If people raising your hand right now, if I pop quiz you and ask you what the first sentence of your charter is, where it says what the purpose of your company is, can Can you answer me? Oh, someone in the back. Okay, good. I won't, I won't make you do it. That's okay. I actually know what it says because we— this is a formula we use now. All modern incorporation papers all look the same with very rare exceptions. It says something like the ACME Corporation is hereby incorporated to pursue, and it's like a Mad Lib. There's a blank line and we're taught to fill in any lawful act or activity. Is that what yours says? Yeah, I told you. Any lawful act or activity, which people are like, well, that sounds pretty open-ended. But of course, we live in the era of shareholder primacy. And this is going to sound a little bit crazy to some of you who are hearing this for the first time. But according to governance experts now, any lawful act or activity actually means maximize shareholder value. Did you know that? This is a wild and relatively young idea that has gone very, very badly. And I just was thinking about a company that's in the book when I was listening to some of these companies present today, because everyone's like, this isn't going to happen to me. But I thought it'd be good for you to know that this does happen in real life. So I always ask people, like, if someone tried to buy your company from you, someone you hated, someone you viewed as totally evil, and they said, we'll pay you $1 more per share than the company's worth, like, who's psyched to sell under those circumstances? Everyone always says no. Hell no, I would never do that. Okay. But when they talk to me about it, they often say, Eric, you're exaggerating. That's not real. Come on, a dollar per share. That's absurd. So before you think I'm exaggerating, I want you to consider this story from the point of view of the Vectura Corporation. Anyone know Vectura? Well, not remembered today. Vectura was a university lab spin-out that made inhaler therapeutics. And what's funny is, is when I ask people to think about like, who do they think is the most evil company in the world? You know, I won't make you do it now because we have a lot of people here and we're recording and whatever. But like, you know, people, people generally have a pretty good idea of who should be on that list. My father's a pulmonologist. So for me, the most evil company in the world, I was raised that it's Philip Morris. But, but your values could be different than mine. So you can substitute a different company in mind. Anyway, the Vectura company made inhalers for like COPD or asthma, like therapies, a healthcare company. They were publicly listed on the London Stock Exchange. And one day, I kid you not, the actual Philip Morris International tried to buy them. And you can kind of guess where this is going. Here's, here's how it went. Some consultant had convinced Philip Morris that they should diversify beyond nicotine or something. And they were like, well, we have a core competency in people inhaling things. And so does this. So we— anyway, so that was like a great idea. We're gonna buy this company. They went and they bid 165 pence per share on the open market to acquire Vectura. At the same time, a private equity fund had bid 155 pence per share. And so the board of Vectura had a very simple 3-part choice to make. Option A, do nothing. This company does not need to be sold. There's no problem that is needed to be solved. Just do nothing. Option B, sell to private equity, gain 155, or Philip Morris, 165. Can you want to guess what happened? You already know what happened, of course. They didn't even need to deliberate. They had a unanimous board vote to sell to Philip Morris, saying, look, we have no choice, it's our fiduciary duty. So yeah, when I said before, you know, people say, well, you're exaggerating, I was exaggerating. I said it would be a dollar per share. This was only 10 pence. That's about 15 cents US. What happened next, would you like to know? Sure, I'll tell you. Philip Morris paid £1.1 billion to acquire Vectura. Within 3 years, they had utterly destroyed it. They took a $650 million write-down and sold it for parts. It was an immense act of value destruction done in the name of profit. What are we doing? So if we don't want that to happen, if you don't want that to happen to you, then you have to do by far the easiest thing in the whole book. You have to do a 2-page legal filing in Delaware called a Public Benefit Corp conversion, PBC. So just everyone write down the 3 letters PBC. This is not the B with a circle in it. That you've seen at the farmer's market. That's different. It's similar in name, but this is different. All PBC does is allows you to write into your charter what the actual mission of the company is. So if you have a company where you say, my mission is to cure a childhood illness, or my mission is something simple, like I just want to make a high-quality product, or my mission is to bring a little beauty into my customers' lives, or whatever you tell me your mission is, if your legal documents say the purpose of the corporation is to maximize shareholder value, then you are lying. You are lying to your employees. You are lying to your customers. You are lying to yourself about what this company actually does. So this 2-page legal filing is so easy, your lawyers can do it for you. You could have it done by Monday. It's an extremely easy, low-cost thing you should do. For sure, you should do that. So for thinking like, just checklist, okay? Like, I know people are like, well, what's the takeaway? Checklist. One, who would you rather die than betray, right? Who are your fiduciary commitments? 2, do the PBC filing. And then the third thing is you have to find a way to bind your board of directors to the mission. So in the book, of course, I give a bunch of the specific techniques to do that. For example, you know, doctors have to take a Hippocratic oath. Why don't directors have to take an oath? Directors can just do whatever they want. Directors can cause far more human harm than any doctor, yet we hold them to a lower standard of behavior than your average nurse. So how about a director's oath? That's one way you can do it. Or of course, even better, you can have the directors be accountable to a set of outside trustees. We can talk about that if there's time. But in any event, those are the kinds of things you got to do if you want to take this seriously.

So go look at your documents, and when you see any lawful activity, it's the PBC. It's as simple as that.

It's as simple as that. Such an easy thing to do.

Simple as that. Okay, so let's turn our attention— we've got a whole bunch of newly minted investors in the room right now. Oh, great. They're freshly trained out of ESTAC. They are ready to deploy capital, and I'm sure they genuinely want to do it right, right? For sure. So give them some advice about how to back a company. Like, when they're coming in to talk to these founders, what should they say?

Okay, it's very difficult from the investor point of view to realize, like, just how god-awful fundraising is. For founders. Okay. You can't imagine how soul-destroying it is. It's just an awful experience because you pitch in person after person after person your life's work and they're like, eh, it's okay. Be better if it made some more money or something. You know, it's just like, oh, it's so frustrating. And then they very rarely say no. So they're like, okay, well, like, you know, Sounds terrible to me, but if you turn into the next rock star, please call me back so I can invest. It's like, well, why would I do that? If I turn into that, why would you get to invest? Right. So, so just by caring at all about the human beings that you touch, you already elevate yourself into the, like, top 1% of all investors that a founder will ever meet. Honestly, you can't— you have no idea how low the bar is here. And You will never find out. Founders will never give you honest feedback about your behavior. Okay, I don't know if you have— you've seen the psychology research about power differentials, like people who interact with a power differential, like it warps your behavior. There's a lot of this research is in the book. Like one of my favorite studies, they measure— they gave people, just have them sit like this in a waiting room and gave them each cookies. And then they measured how like the radius of the cookie crumbs splattered out from their seat. And you can predict exactly the radius if you know the relative wealth or status of the two people involved. Will you be shocked to learn that it's the high-status person who's a lot messier? Yeah, of course. We all know that. We've all lived it. This is actually what financial gravity is. So when you start to deploy money, you have to understand that this financial gravity is warping and changing the people around you. You can treat them incredibly badly and they won't say a damn thing about it. So it means you won't even know that you're doing it. You see this in a lot of the discussion about bias versus meritocracy in investing. There's— the evidence about this is super clear. If you don't know how awful the bias is in our investing industry, it's like, it's horrifically bad. And yet most investors feel really offended or shocked, like they're being accused of something inappropriate, because they're like, well, I'm never biased. Yeah, as far as you know. But the whole point is you don't know. You can't imagine the effect you're having on the people around you. So If you're going to be a good investor and if you want to be a next-gen investor, like, I think we're entering into an era now where founders are becoming much, much, much more focused on mission, purpose, long-term, high-integrity businesses. So you just— if you want to differentiate yourself, if you want to be aligned with that thing, if you want to bond with the founder such that you will always get the preferred allocation in their round, actually showing that you are committed to this, that like, instead of being like, I'm willing to allow you to do the mission protective provisions, Try this. Try being like, I insist. I'm so founder-friendly that I insist as a condition of my investment, you have to do that stuff. Otherwise, I'm not interested because you said you were mission-driven, but that you don't do it. You're— that's a bunch of bullshit, right? Can you imagine the founders in the room? Can you imagine what that would be like if an investor said that to you? And I'll give you one last little hack that is immensely powerful. We live in such a financially driven culture and economy that Doing the right thing for the wrong reasons is like widely seen as like praiseworthy, which I think is very funny. So I'll give you an example of a company that I set up the proper governance for. One of the first investors was like a prominent wealthy person, and he was like, look, you set it up however you want, I don't care. I was like, no, don't say that. Promise me that if anyone calls you, you'll tell them that the way it's set up was a condition of your investment. Promise. He's like, sure, okay, whatever. I was like, no one called him. But every other investor I talked to, every single one, would be like, this is great, love this company, love the founder, we're so founder-friendly, we just have a few red lines on these documents. And all the red lines would be like, we need the ability to fire this founder at will at any time, you know. And instead of having— normally I fight that battle on the basis of data, the evidence, like, listen, mission-driven companies outperform, this founder is a genius, you know. I fight it on the basis of, you know, whatever. It's so difficult. But I could just be like, oh, you want me to go ask such-and-such person for an exception just for you? He said that's how it has to be. I'm so sorry. Every single person folded like that. Like, oh no, no, no, please don't call him and tell him that I was the problem person. You could be that person. You could do that for every one of your founders. You'd be like, yeah, sorry. Can't do it because she's just a really good investor and she said that's the condition. Otherwise we won't get the money. Would that be awesome for the founders in the room? Wouldn't that be awesome? Yes. Wouldn't you love that from every investor?

Yeah.

So do that. That's my tip for you.

Amazing. Okay, I want to talk about AI, but before I do that, I'm going to be the mean facilitator who says to the people in the back of the room, oh yeah, I talk about AI, everyone shuts up. Amazing. If you're going to have a conversation, please leave. Because we can actually hear you.

So, um, yeah, the acoustics in this room are very funny. Yeah, we can hear the people in the back.

So yeah, we can hear you in the back, um, absolutely fine, but just if you can, if you help everyone else be able to hear properly. Okay, let's talk AI. So let's talk about what's happening right now in our industry. Okay, um, we're watching companies— I, I literally feel like every day they're shedding people. Um, it's often framed as efficiency, Yeah, it's all powered by AI. And at the same time, we've got these AI companies that are moving at a speed that I wonder about the governance and I wonder about what's happening there. So are we sort of going to get this wave of corruption at scale? Is it going to be worse?

Oh, yeah. Everyone knows that, right?

Yeah.

Yeah. This is going to be really bad.

Give us your take.

Oh, yeah. Yeah, it's going to be really bad. Everyone knows that, right?

Neal Bloom.

Okay, just, just checking. Yeah. Okay. I just don't know if I'm bursting the bubble or if like everybody knows, like people are booing AI at commencements, like for a reason. They're not wrong. I get asked a lot when I speak to students, is AI like a big financial bubble, corrupt Ponzi scheme, or is it a transformational technology? And as the meme says, why not both? It could be both and it is both. So there's a lot of bad stuff going on and it's an incredible technology, both, both of at the same time. Um, you know, I played a very big part in the setting up of Anthropic, and I tell that story in the book. Now, when I started writing this book, Anthropic was not that famous of a company, and you might have heard they've raised a little money since then. So, so the story hits very different now knowing what happened in the years since the book was written. So it's actually been pretty funny, but I've actually been very pleased because Anthropic is really built around this blueprint of trying to build an internal culture that is like focused on safety, uh, and being a trustworthy counterparty. And it has a structure— for those who don't know, Anthropic is not just a public benefit corp, but it has something called the Long-Term Benefit Trust. How many people have heard of the Long-Term Benefit Trust? Does anyone know about this? Yeah, so this is not that well known, but the reason— like, if you wonder why Anthropic seems to be the only courageous company in this sector, right, turning down hundreds of millions of dollars from the government over red lines, like just doing a bunch of stuff that makes sense— they even— they just announced today Today I just saw there was— it was leaked that, you know, all these companies are setting up token leaderboards and doing token maxing to see who can spend the most money on AI. So someone internally at Anthropic proposed that they should do that too. And the manager had a big fight about it. And management was like, just to know, this practice is permanently banned inside Anthropic. No one is allowed to do this because they've heard of Goodhart's Law and they're not stupid. And like, if you start rewarding people for how many tokens they burn, This is like a Soviet factory. It's going to be ridiculous. So of course they're not doing that. So there's all these things that differentiate them from their competitors. I think it's very much powered by this structure. So the Long-Term Benefit Trust is that thing I was mentioning before, a set of outside trustees who literally have the power to appoint directors to the Anthropic for-profit board. It's a two-entity structure, like a checks and balances system. I think we've heard about the idea that checks and balances could maybe be useful in certain circumstances. This is one of those circumstances. I won't comment on any other circumstances when that might be useful. And when I helped them set that up, a lot of people were like, what is this newfangled weird thing? You know, is this some crazy new idea? And what's really interesting about this— and again, not people are going to— some people are not going to believe me, but this is not a new idea. The German optics company Zeiss, who makes my and probably most of your glasses lenses in this room, they had this structure in 1887. And it's actually very common. Like, have you ever eaten a Hershey chocolate bar? You ever shopped at IKEA? You've taken a Novo Nordisk medication? You've had a Patagonia fleece? You have a Vanguard mutual fund? Like, this structure exists, and there's enough companies that have this structure that we have a data set to study how they perform. And would you believe that companies with this structure are 5 times more likely to live to year 50 than companies with our so-called best practice structure? And there's a lot more of that data in the book. So, so I do think that's like very hopeful. Now, Anthropic is under more gravitational pressure than any company in the history of private companies, as far as I could tell. So is this— is the structure strong enough to resist even that? Like, I honestly don't know. Nobody knows. You know, we'll have to see. But that is something that gives me some hope. The other thing I'll say about AI, and I think this is very important for both the investors and the founders in the room, people are using this technology not in the way that it is good. Like, that's not the way that it— not for the thing it's good for. So the early research on vibe coding and, uh, you know, it's like AI-mediated artifact production shows that the, the way that we've built these AI tools, they are Dunning-Kruger factories. They simultaneously convince you that you're better at your job than you actually are while causing your underlying skills to atrophy. There was a METER study, if you know the METER study, where they asked— they did a randomized controlled trial where some software engineers were asked to do a feature by hand, some were asked to do it with AI. They asked everybody, how much more productive did AI make you? On average, everybody said 20%, 20% productivity improvement. But then they actually measured their actual productivity, and the people with AI were 20% less productive. So they were both less productive and convinced themselves that they were being more productive.

Deceptive.

If you wondered why all these executives are out there making fools of themselves saying completely idiotic things about how their AI stack thing, agent, claw, whatever, is producing 150,000 lines of code per day and they're such a genius, and you're like, that doesn't sound that good to me, you understand why. Like, it is a deceptive thing. So be very careful with this technology. In particular, this technology is not a substitute for human creativity. Okay, it's just not good at that. It's not very creative, creative, because it's an extrapolation. It's like fundamentally it has a— like, it can do things that are in the training data, and creativity is about going outside the distribution. What it is really good at is enhancing or augmenting human creativity. So put humans in the loop, use it as an augmenter. And if you want to use it yourself, number one piece of advice I can give you is do not ever ask the AI to make an artifact for you, because the data shows you will not be able to judge whether that artifact is any good or not. And of course then you'll be like, well, I'll just ask the AI if it's any good and it will tell you that it's great and it will convince you. It's like very convincing. So instead of asking it to make the artifact for you, ask it to teach you how to make the artifact and then improve your own skills and get better and better and better at making artifacts and become superpowered. So yeah, I think this is a very dangerous moment where our— I don't want to— we— it's just so much negative, so I don't want to keep being negative today. But like, yeah, we're going to see some pretty epic disasters before it gets better. Sorry about that.

I, I'm, I'm, I promised you I'm gonna turn it to positive. Um, so this, this is where this gets really good and this is one of my favorite parts of your book.

Oh, thank you.

And this word love is used as a literal operational framework. This is gonna warm your heart, everybody. And, um, you know, there was a, there's a part where you are making really tough business decisions based on questions like, would you treat your mom this way? So can you share that story with us? This is like— this can make everyone feel good, I promise.

Not right now. It's not making them feel good. They're like, oh, Jesus Christ, love? Are you serious? Like, I get it. Like, you're like, oh, it's gonna be like one of those CEOs. It's like, everyone here is like family while he like ruthlessly lays them off. Yeah, okay, I understand that you're skeptical. It's okay. It's all right. I'm not offended. But this is a story of a founder called Todd Park. Anyone know Todd Park? He's not known here. He has this company called Devoted Health, which is one of the fastest-growing private companies in the country that's not doing AI stuff. And they're a health insurance company. And most of us cannot even conceive of what it would be like for your health insurance company to love you. Because what do you think your health insurance company is for? It's there to deny your claims. That's what it does. If it hires doctors, it's hiring doctors to evaluate which claims they can get away with denying. So it doesn't give a bleep about your health. It's not trying to help you. It is trying to squeeze money out of you because in the era of shareholder primacy, customers, employees, communities are viewed as a resource to be mined, not as vital partners.

Yeah?

You've experienced that? Devoted Health is not like that. They are a simultaneous health insurance company and a care delivery company and a technology company. They built 3 companies in 1. It's where I learned the harder is easier principle. And their directive to their employees is like, when, when evaluating whether to do something for a customer, picture the face of someone in your family that you love. Imagine it was that person asking you and do that. That's it. That's your whole instruction. And people hear that for the first time and they're like, that sounds very squishy or vague. But like, think for a second, is it vague? It's actually very easy for most normal people to apply this principle. It's very straightforward. So for example, I tell a bunch of stories in the book, and all the stories about Devoted are sourced to actual customers where you can go watch the video of them giving the interview, telling the story themselves. Because I was like, no one is ever going to believe any of these stories. I've been telling these stories for years. I was like, no one will believe me. They're too unbelievable. But you could go see yourself. So Duane is one of the customers who calls into the customer service hotline one day, and they have this, like, recurring medical problem that's being caused by toxic mold in their apartment. And their previous health insurance situation was just treating them for the symptom every time they came in, because the toxic mold in the house is not really their problem. So they call in customer service, and they weren't even there. They weren't calling in about the toxic mold. They were just calling in to schedule their next appointment. And the customer service agent is like, I'm looking at your file here, and it just seems like you're constantly being treated for this thing. She's like, yeah, it's because there's toxic mold in my apartment. She's like, well, wouldn't it be better if you lived in a different apartment? She's like, yeah, but I can't afford a different apartment. She's like, okay, but if we found you a different apartment, would you move? She's like, well, yeah, of course, sure. And like, that's what they did. They like figured out how to get Duane into a different housing situation where there's no toxic mold. And you can watch the video of her being like, the customer service agents at Devoted Health are guardian angels. Most companies see customer service as a cost center to be minimized, but Devoted sees it as an asset. Guardian angels. Now, okay, some people even still hear that story. It's like, okay, whatever, but I got to be do serious business. You know, I'm a businessman. Okay, but I want you to view this situation from the point of view of a Devoted Health competitor. Imagine I'm a private equity dude. I'm like, you know what I'm going to do? I'm gonna do a roll-up. You wanna do a roll-up with me? We're gonna roll up a bunch of health insurance companies all around Devoted Health. We're gonna undercut them on price, drive them out of business, and then once they're gone, we're gonna jack those rates right up, right? You know, anyone heard that strategy? Happens in private equity sometimes. Okay, so imagine you try that with Devoted Health and you call Duane. You're like, Duane, would you like to hear about our great news that we can save you a little money on your premium? She's like, you want me to switch away from my guardian angel? Like, she won't even take your call. So wait, was this the soft-hearted love thing, or is this the most ruthless business strategy on the planet? When you create a bond of unbreakable loyalty with a customer, you literally shrink the total available market available to your competitors by one. Every person is now permanently off the market for anyone to compete with. This is the same reason why you don't want to have margins that are too high. You don't create an opportunity for someone to come and to be with you. It is a source of strength, not a liability, to build a company that is, that is driven by those most fundamental forces of love and trust.

I love that story. Isn't it amazing? So good.

Thank you. All credit to Todd, not to me. I'm just telling the story.

So I want to end with a personal question.

Okay, sure.

So, so you've written all of this, you've given us advice, you've given us all of these stories, but you've lived one as well. Like, you've put this into practice yourself, and it wasn't easy. All those principles you talked about, they— you felt them, you lived them, and that's the long-term stock exchange.

Oh, sure.

Yeah.

So, so would you tell us about that? Because that really takes us through the arc of what did it feel like? Not— you weren't advising, you were— this was happening to you?

Yeah, yeah, yeah. A friend of mine, a really close friend of mine, after The Lean Startup became a thing, he came over for dinner one night and he was like, man, it's too bad, you know, that you're so successful as a startup expert now. I was like, why is it too bad? He's like, well, because you could never really do another company. Because if you do a company and it fails, people will say like, well, see, what kind of expert is that if his company failed? And I don't know what occurred to me, like why I just like instantly rattled off, I was like, well, that's That's true unless the company is so crazy everyone knows it's doomed to fail from the beginning. And he was like, you got one of those? I was like, you know, as a matter of fact, so if you pull out your old— you have your copy of The Lean Startup. Anyone else has their old beat-up copy of The Lean Startup here? If you open it to the last page of the main text, all my books have an epilogue. That's how I like to write. And what I loved about the epilogue for The Lean Startup, this was my favorite part of the book to write because as an entrepreneur, Every time you want to do something, you're like slogging through mud to do it. Okay, how am I going to convince people to do it? Get my team to do it? I got to raise money. When you're an author, you could just write stuff and be like, you know what, someone should really do this. My, my work here is done. So if you read the end of this book, it is like you can just feel the acceleration, as the exhilaration that I'm feeling as I'm like riding towards the end of this book, being like, you know what, we got to change how investment is done, we got to change how education is done, we got to change— I was like, this is This is really fun. I get to say that someone else does the work and I move on. The last thing I suggested in the book is somebody should really create a long-term stock exchange. Because, and this was very simple to me, if you study Toyota Production System or any of the antecedent ideas of Lean Startup, we all will learn that having a philosophy of long-term thinking causes companies to outperform financially. Yet when you talk to any middle manager, board member, leader in most companies and say, why are you behaving in this terrible short-term way? They're like, that's what Wall Street wants. That's what the investors want. And you're like, what? The investors want you to lose money? That can't be right. So I was like, we should— if that's true, if we people have that impression, we should just get the long-term investors and the long-term companies together for mutual gain. So am I— sounds like a stock exchange, right? Right. Anyway, it seemed good to me, good enough to put it in the book. And I said somebody should really do it. Now, the book became a big success, as you've heard, and every single idea in this book, I mean, without any exceptions, Someone's tried to do it, except one. No one ever called me to be like, hey, can I do the stock exchange one? Because it's kind of a crazy thing. Like, and so I was like, okay, well, I'll— I couldn't really understand why it was a bad idea. Like, everyone told me it was a bad idea. Everyone told me it was impossible. It made no sense. It can't be done. It's illegal, whatever. But I couldn't understand why. Seemed very straightforward to me. Like, we're just gonna make more money if we do it this way. So I made it my, like, hobby project for a while. I was like, I was like, well, I'll just put one foot in front of the other and just try to make it happen. And I would ask everyone who I would meet, hey, I have this idea, can you teach me about it? Do you know anybody who knows anything about public markets? And I spent the last 10 years of my life building this thing. And some of you who are doing really audacious startups in this room will recognize this phenomenon I call the two moons look. You pitch someone, you're like, I want to create a new stock exchange. And it's as if you said to them, I want to create a new moon. They give this look that's like, okay, did I hear you right? And their first reaction is like, we already got one, you know, like, what do we need another one for? That's weird. But also, it's a celestial object. Who do you think you are to make a new one? Any of you ever had this experience, right? So you just go through years and years and years of this, but I'm very stubborn and I couldn't understand why it was a bad idea. And so I persevered. Persevered and did it. And it was very, very difficult, but we did eventually get it done. So LTSE is a current operating stock exchange. It's the same regulatory category as NYSE and NASDAQ. It lists and trades stocks every day. And last year, it actually made some money, which is a strange experience for its many first years of its life when it really didn't. And much of what I know about corporate governance and about finance, many of the setbacks and challenges that I experienced during LTSE, like I poured into the new book. So if you want to know more about the details of it, you can see there. But yes, I have tried to practice what I preach and not ask anybody else to do something in their company that I haven't already made the attempt to do with my own.

What I've tried to do is take you through a little bit of the arc of the book, and Eric's touched upon some stories. It's so rich in terms of the examples of like what's not working and why we should care so much especially now, and what's amazing is that he gives us a blueprint, he gives us the documents, he's giving us the access to do this very differently. I, again, it's, it's so timely, it's an incredible book. Thank you so much, Eric, thank you for being here, thank you for sharing, thank you for writing this.

Thank you all so much, appreciate it. Thank you.