Ep#70 - Eric Ries. He wrote the rules. Now he's rewriting them.

So just to put my cards on the table so everyone understands, to me, what it means to make a profit is to maximize human flourishing. That's literally what it means to make a for-profit company. Philip Morris is not profitable. I don't care how much money they make. They are basically moving value from one bucket to another. And since it's going from other people's bucket to their bucket, we call that value creation because we look only very myopically.

Welcome to Startups Decoded, the show that gets real about what it takes to build a successful startup. I'm Andy Walsh, 2 times exited founder, strategist, and your host. Each week I talk with top founders, investors, and operators to unpack the plays that drive real traction, not just headlines. If you're building something bold, this is where you'll get the honest insights to scale with clarity and confidence. Let's keep growing together. Hit subscribe and share with your community. It would mean the world to me. Hello and welcome back to Startups Decoded. My name is Andy Walsh. Today I have the privilege of helping launch a brand new book for the seminal figure in Eric Ries, Eric, welcome to the show.

Hey, thank you. Thanks for saying that.

A lot of people that get into startups, The Lean Startup, your first book, is something that still gets read and referenced a lot. And for you as an author, that must still be humbling to think about the legacy that you've created. And I'm sure at the time, anyone writing a book, you never think that's going to have the impact that it does. Reflecting on that, looking back at that moment in time, do you remember some of the things that you were thinking about as far as an operator, someone working in startups that inspired you to put that down on paper?

Yeah, you know what's funny is I was a blogger. I was like one of the very few startup bloggers in Silicon Valley at that time. So you can, you can actually read all those blog posts are still up, including the one where I'm like, hey guys, I think, I think, I think I found a name for this crazy thing that we're all talking about. I think we should call it Lean Startup and here's why. And you can read it. It's like 3 paragraphs long. It's like a short little like, hey, blah, blah. Like it was like not a big deal to me because I didn't understand what was coming. And it took me a while. Like, I was very focused. Like, my favorite blog posts from that time were all like, they were all like the engineering manager's lament, the product manager's lament. Like, I was really focused on the suffering and pain of doing things in the conventional way in startups, both the waste of people's time, the waste of resources, and just like, to me, it was inhumane to ask people to work with tools that were not well adapted to their circumstance. You know, it's like I felt like we were like dragging people down to the coal mines and like, here's a, here's a little spoon. You know, dig it out and it's like, could I have a pickaxe or something? And it's like, nope. You get a little, little silver spoon like this. And everyone's like, and then if, if somebody's like, this sucks, they were like, you don't, you don't have the right stuff. I guess you're not equipped to be an entrepreneur. 'Cause if you were, if you were tough, you know, you'd like be like a cartoon. It's just like, it was so stupid, the whole thing. And I couldn't explain it to anybody. Everyone thought I was so crazy. And, and you know, now The Lean Startup is a phenomenon. People cannot imagine. How controversial it was and how countercultural it was at the time. You know, it's only been 15 years. It's actually been remarkably fast that it passed into conventional wisdom in a lot of places. And yet at the time it was really, really, really upset. And I remember just to give you a sense of like my mindset at the time, I was being asked to come in by VCs. They would ask me to come meet with their portfolio companies and sprinkle a little of the magic pixie dust on them. 'Cause I had this reputation that I could like make engineers work really hard. That's how VCs saw it. You know, they're like, wow, these teams are super productive. I guess he really motivates them to like go to the, go to the coal mine and scoop really fast. And so I would come to these meetings and I'm like, I used to think I was so naive. I thought, oh, if I come to a meeting arranged by the VC, everyone will take me seriously. Not understanding that most of the time they'd be like, oh God, they sent a spy to like tattle on us to the VC. I did not understand at all what was going on. And so I would show up and I'd have these meetings and people would yell at me. Like full on, like they were, they went so badly. People would be like, you're lying. What you're describing could never pot, like could not work. Absolutely impossible. And I'd be like, hey, I'm not telling you a theory. I'm literally telling you what worked for me. Like this was my experience with my company. Take it or leave it. And they'd be like, don't, you're lying. This is wrong. And it doesn't make sense. It was like really, and I, and I, a lot of those meetings went so badly that they would ask me to leave. Like, I'm not, I'm not exaggerating. It went really badly. And at a certain point I was like, wait a minute, but you, you called me. I'm having this meeting for you as a fa— I'm not getting paid to do this. You asked me as a favor to come in and talk to you. I'm telling you about my lived experience and you're mad. Don't tase me, bro. Like, what, what are you talking about here? Like, what's going on? And I eventually realized that like I needed to have some kind of filtering mechanism to prevent this from happening. And so my genius idea was I'll write some of these stories down and I'll send them ahead of time and I'll be like, hey man, if you think this is stupid, can we not have the meeting? So like, that was my mindset. I was like a very practical solution to a very practical problem. And also, you know, writing is a really great way to figure out the ideas yourself. So like the other problem I was running into is people would, even for the people that believed me that I was telling the truth, All they wanted to know was, why does it work? I did not know because it didn't make sense to me either. Like, it was, it was always seemed intuitively right to me that this is how it should be. And the conventional ways always seemed intuitively wrong, but I didn't understand why. I had been trained, you know, I read the same business books everybody else read. You know, I've been trained in the same and I've been indoctrinated the same as everybody else. And inside I'm carrying around this little like inner voice. It's like, you're supposed to do things the real serious way. And it took me a long time to really figure it out, to like understand at the level of first principles and like the underlying mechanics of the situation, why we're seeing what we're seeing. And so writing was therapeutic for me to help me figure out, you know, what are the concepts, how— what do you call it, whatever. But I did not have any idea that when I started putting this into the world that it would have this kind of effect that it's had. That, that was, you know, it's been a— it's been a whirlwind, basically took over my life. So I'm flattered, I'm, I'm very honored that people have resonated with it. But yeah, it's, uh, it's a little bit surreal.

Look at that. And I was listening to your episode with Lenny recently, um, which was a couple of years ago now, but The legacy that you created, it felt like you created almost a North Star for people to have aspiration to think about. It doesn't have to be the same way that everyone else is doing it. There's another way in. And as a byproduct, a range of terms that you penned in that book have now become common language for startups of how they've been used. So from rustling feathers and being asked to leave rooms, now being a staple is quite the journey. And what I love about where you're at now with Incorruptible, your new book, which is out today, is that you've looked now at that legacy and it's a perfect timeline. It feels like as far as 15 years ago from the first book to today, and a lot of the people that would've read your book and started thinking about those principles, but now where they've landed, and I'm sure that your observation as far as the inspiration for Incorruptible has come from that lifespan that's happened in parallel in the sense of people that started something with pure purpose and have gone somewhere else. And the theme for Incorruptible is why do good companies go bad over time? That for you you through that time as you got bigger, as far as more books sold, you're invited to more rooms. In that time, was this something that had the same pattern for you in seeing what was such a pure pursuit turn into something that was a commercial beast and, and profit was the single goal? I'd love to get a sense of some of the things that were real, like elephant in the room type situation.

Andy Walsh: Oh, look. Because Lean Startup was such a success, I was really privileged to get to have two really interesting parallel experiences. First of all, many people who started out as Lean Startup, like garage super fans, built massive companies and, you know, took them public. And you can still see, like, we used to post, we used to do a Lean Startup conference before the pandemic, and you could just watch those videos. You know, it's like so many people that are now name brand entrepreneurs, like we got 'em early 'cause they're like, hey, yeah, this is pretty cool. And that was amazing, except a lot of those companies, like, they lost something really special as they grew. And I felt like I was kind of the only one noticing it. Like, I felt like one of those, like, crazy people that, like, everyone else is, is like fist bumping and being like, this is awesome. And I'm walking around being like, is it awesome? Like, I get that everyone's getting super rich, but you know, I'm like, at a certain point, don't you have enough money? What do you want more money for? Like, why are you compromising in these gross ways? And on the other hand, I got to, I got invited to do a lot of corporate consulting, which I had never done before in my life, but it turned out to be very interesting. And I, I actually wrote a whole other book for people from like a corporate, the corporate, like innovation people know me actually more for this other book than for The Lean Startup. And, and that was really fascinating. I got to help a bunch of really, like some of the world's largest companies revitalize themselves. And I happened to have a front row seat not just like, I got to learn like what are the obstacles to those companies kind of turning good again. But even when we would start to make progress, we would be up against this other force. And it's kind of hard to explain. Like I used to think that technology was the most powerful force in the universe. And eventually I realized, no, human beings make technology. So actually management is the most powerful force of the— and like when I finally mastered the science of management, I, I thought that was gonna be like a lifelong project, but I got to a point where I was like, oh, I think I have mastery of these concepts now and I can really apply them even at the scale of hundreds of thousands of employees. And I felt like I was up against a more powerful force and I couldn't quite name it. You know, I don't know if anyone remembers, everyone's actually read Lord of the Rings. There's a moment where Gandalf, like before he sees the Balrog, he's like up against this other force thwarting him and he can't figure out why. It really reminded me of that moment. Like I would do things and then this like mystery force would undo them. So for example, we would build like a really exceptional, you know, management system where teams are like free to pursue longer-term, more innovative projects out of a quarterly cadence. And then like something would press the company to like cut costs or to reorganize. And those projects would always be the victim of that process, even though they're the cheapest product, like projects around. So like these other projects that are like epic death march nightmare disasters that are like 10x over budget and have been going on forever are safe. But my little dinky friend trying to do like this, it's just like, ah, that's the place to save money. And you're like, what? Really? Of all the things you could do, like you wasted more money debating whether to cancel this project or not than the project itself cost. Or like, I remember another time I was doing a project that was at a company that was under a relentless activist campaign. And you know, the project had done an MVP and they were a huge success. Like it really succeeded and they had spent like, I don't know, couple thousand dollars on the MVP. And, and I was like, so what's next? And like, well, we're waiting for our budget to be approved. I'm like, budget for what? What do you mean? And I was like, well, we need more money to do more experiments. I'm like, how long you've been waiting? Like 7 months. Like, you already proved that the thing works 7 months. And I was like, how much did the, the first thing cost? You know, $10,000. Like, how much do you need? They're like, well, we asked for $20,000 so we could do it again. But like finance did this process where they had to do this rigorous analysis and whatever. And you could just see that like as the request went up the flagpole, it was transformed into this request for like $200 million because someone had done the math to be like, if this this thing really works out, how much is it gonna cost to commercialize it worldwide? And so now, like, now it's wedged, you know, the process. And just like the whole thing was completely insane. Meanwhile, I'm like watching executives go on boondoggles that cost hundreds of thousands of dollars, millions of dollars, like no problem. There's like endless money for waste, fraud, you know, abuse, but also for stock buybacks and all kinds of other shenanigans. Like unlimited money for that super ill-informed M&A. We got immense money for that, no problem. And I eventually learned that like, There's a reason each of those symptoms has a reason. It has to do with the way we govern companies. The budget, the like quote unquote budget for M&A is a different accounting category than the budget of things we do internally. And I started to feel like there was this force. I started to describe it in physics terms that there was this like force grabbing onto the company and dragging it in this very particular direction. And then the other thing that was really bizarre, having these two parallel lives, Everyone winds up in the same place. So I used to imagine, I, at first I was like, this is, it seems like random stochastic action. That was my first theory that just like basically when you get to a certain size, the coordination overhead of being big causes you to lose coherence and you start to act randomly. 'Cause it seemed like a lot of these decisions are just so random and everyone knows what I'm talking about. Think about like your favorite company, except for the, like the really exceptional ones, but just like leaving the true, the outliers aside, just think about like an ordinary company where you love the product and like How often when they come up with a new version are you like psyched? You're like, nah, that's just what I wanted. Like, they seem like they really know what they're doing. Like, there's so many times when you're like, what? Really? Okay, like, I guess, but like, can you just make the thing I really like, like a little better? You know, it's like that part, you know, whatever, a little cheaper, a little bit. Like, why are you coming out with this other weird thing? Why are you pivoting into blockchain or whatever crazy thing you're doing? Like, what is that really not? Anyway, so I thought it was random, but the, but the funny thing was I'd watch these little startups go public and become huge. And meanwhile, I'm helping these existing public companies transform, and they're all winding up in the same place, like very similar. If I take out, if you take a press release from a public company today and I strip out the name of the company and just showed you the language, you would not be able to tell me what press release, what company it was from. You'd have literally no idea. You, this could be a hundred different companies that are like apologizing, like, sorry, we're screwing over our customers. Like, you know, oops, our bad. But like, just like it's all very anodyne and it would be like dressed up. And I just watched, I just read one yesterday that was like, it was like an utter disaster of a, a really unethical bad product launch. They're being forced under pressure to remove. And the press release is like, thanks to the, like, superior feedback of our customers, we have, like, learned that this product, you know, we're going to— it's just like you would have no idea that something bad happened from the language unless you knew what the scandal was. And of course, then they're getting pilloried a second time. Like, now they're being like, they betrayed the trust of their customers the first time. Now they're getting pilloried for lying about it, basically trying to cover it up. But just, just to say you're sorry, just say it was bad. Like, just, they can't speak the truth anymore. So I was starting to be like, it If it was random, it would be different, but it's not random. Everyone's winding up in the same place. So there must be a force aligning these magnet files behind the scenes. So to me, it felt like the discovery of a scientific law that was like an invisible force that is shaping our lives. And so I became obsessed with what is this? What is this force? What causes it? And then, you know, just like with Lean Startup, what can we do about it? That's ultimately the seed of the idea that led to the book.

It's an interesting look. I look macro from a global perspective. And some of the trends. And there's, uh, Johann Hari, beautiful book, Stolen Focus. I heard him on a podcast talking about a longitudinal study of kids, and I think they might have been 10 to 15-year-olds, and they were talking about the things in their life that were most important in the future. 20, 30 years ago, it used to be that having a great group of friends would be number one by far. It's a more genuine, wholesome life. Fast forward today, and then number one and two are fame and money. So if you think about the impact that it has where people feel like that that's the barometer for success, right? Where everyone expects you to make money and you're always trying to grow, be more profitable. And what you just described from a press release situation, it feels like that mirrors what's happening in the press holistically as well, in that it's this spin that happens out there as well that's headline grabbing but actually doesn't own it. And there's a great anecdote you talk about with Johnson Johnson with baby powder in the book. And the way that it was managed by the CEO that was in at the time versus how it would've been 20, 30 years before that, polarizingly different. So in that phase of wealth and fame for a founder, it's hard to do it. But what I'd love to look at first and foremost, you touched on it there a little bit, is the, the cultural element of it is one thing, but then there's the role. Like as a founder, you go in, you have a small team. As you grow, you get investment, you start to scale, you have thousands of employees, you become a CEO. And in that time, a lot of founders aren't built to be CEO. And I, I see a founder and a CEO as very different roles. In that growth, investment is obviously a milestone. Founders chase after it, allows you to scale, but then the power dynamic shifts. Can you talk us through from your observations as far as that founder to CEO journey? What are some of the things that start to impact what happens to a founder where all of a sudden profit seems to become the, the number one thing that is the focus?

Yeah. Yeah. We'll come back to the definition of profit in a second, 'cause of course that's like one of the biggest issues here is people don't even know what the word profit means and they misunderstand it. But, but before we get to that, the specific issue is, um, you start out and you're like, okay, I wanna make the world a better place. And I don't know if anyone knows, any of your listeners will be familiar with the Reddit meme of Anakin and Padmé. For those who aren't, you could just, could just Google it. It's worth looking at. It's very simple. 4-panel cartoon, just screenshots. And it's Anakin's like, I wanna change the world. The world, Padmé's like, for the better, right? And then he just smiles. He doesn't say anything. And then she's like, for the better, right? And I really feel like I used to find that joke so funny. And then a couple years ago, it stopped being funny to me. I was just like, uh-oh, this is kind of the joke of our times. Because like so many of these companies, the idea was to make the world a better place, to do this really high concept thing. And you get going and you actually are successful with it. It often works and you're making it work, but then like Every pitch meeting, every employee you hire, like every crisis, everything that comes up, you're constantly being asked to defend why are we doing it this weird way? Couldn't we just make a buck doing this other thing? And so even you don't even say most, I think most founders are not even aware of it. They just slowly start to be like, life will be a lot easier if I just like, we just say that our goal is to make money for shareholders by changing the world. And then it's like, by changing the world for the better. And it's like, by changing the world, period. And then it's like, nah, just, we're just gonna make money for shareholders. And if you ask for advice, I mean, I just, I've been around this business a long time. You ask people for advice, even though they say they're very into mission, purpose, whatever, the actual advice that we get, the best practices that we teach people are very financial in their motivation. And we basically are teaching people this philosophy that is about using the startup as a financial instrument to enrich its shareholders. Like, that's its essential purpose. That's what it does. And we teach people that if you do this well, you show obeisance to this idea, from that you will gain leverage. Leverage you can use to achieve the mission or whatever else you want to do. You'll have the leverage to have the governance you want, the leverage to build the kind of culture— you'll be in control, you'll have all the power, you'll have the leverage. So like, leverage is this like really interesting idea. And so we teach people that success will protect what they care about, not also teaching them that success is the very thing that attracts predators to you. Because if something is valuable, then something is worth stealing. Like, that is really one of the most fundamental ideas in the book. It's like, if you build something that is worth protecting, it will need protection. And yes, of course, sometimes the bad actor is an investor or a private equity firm. Someone shows up and tries to literally take it away from you. And we talk about that a lot in the book. That happens all the time, much more than founders realize. But there's a second kind of loss, which is like people come to work for you under the philosophy that they're going to get a lot and to get rich. And now you start to surround yourself with people who, that's what they're thinking about all the time. And I've talked to a lot of founders, but I've also talked to a lot of executives and middle managers and board members. I, I've been all up and down the stack. And you go to a lot of so-called mission-driven companies and it's very simple. You have this founder who's still preaching the mission because they've been, they, from their point of view, they've been mission-driven this whole time. I call these people mission hopeful. Okay, they think they're mission-driven, but if I talk to their executives, The executives have basically learned, they're like, yeah, I can pretty much do whatever I want as long as I dress it up in the fake language of mission and he'll go for it. And like, they're really explicit about this. This is not some like secret. They'll just straight up tell me, like I, I built this thing called the Long Term Stock Exchange. I spent a lot of time working with pre-IPO Silicon Valley companies trying to get them to go public in a different way on, on the superior exchange to be focused on long-term value creation. And so many of these companies, the founder was like gung-ho to do it. And the mercenary executives that they brought in to help them run the company are like, over my dead body, we're obviously not doing that. I literally have CFOs be like, yeah, but what's in it for me? And I'm like, you know, you're going to have a mission-driven, long-term oriented company. It'll be worth more money. He's like, yeah, I know, but what's in it for me? Or literally like, yeah, but what can I show our board that the first couple quarters after we go public will be better? It's like, you're literally asking the guy from the long-term stock exchange to help you get a boost next quarter? He's like, yeah. And they're like, look, the boss said he wants to do this. They're like, yeah, come on. Yeah, he says stuff like that, but like, well, you know, we're not gonna let that happen. And, and I'd go tell the founder, listen, your team is opposed to this. He's like, oh, well, go get my team on board and then I'll do it. I'm like, I thought it's your company. Aren't you? I thought if you had all the leverage, you'd be in charge one day. And what happens is people become dependent on these people to do anything. And then they don't run the— like, you're nominally the CEO, but you're not in charge. This thing has its own life and it's becoming really gross. And I won't name specific names, but I've been through this with several companies, some very, very famous companies that are name brands today that used to be— when I told people I was working with that company or helping them, people would be like, that's so— and there was one company in particular I had to take them out of the book because test readers, every time I named that company, they'd be like, those assholes. You're telling me those guys are good? Like, it just, readers didn't believe it. They're just like, I'm like, no, they really are. I know this guy. They really mean well. I know they're really, they're like, they're not the good guys anymore. And then, you know, I feel bad for them. Like these founders, they don't understand it. They feel like the world turned against them for no reason. It feels mysterious to them, but they turned against them for a good reason. And that's because they've actually lost control. The thing's become a zombie that they're just sitting on top of rather than they're actually leading. And every founder who hears me tell this story is like, Eric's such a downer. Eric's such a downer, man. That's rough. Like, and so they go ask their boards, their VCs, investment bankers, lawyers, like, is that true? Is that going to happen to me one day? And every person in this ecosystem has been trained to tell every founder the following. I've literally been in the room when they've said this to them. Eric's such a downer. If he really believed in your vision, he would know that you're the exception. That's not going to happen to you. And I tell the story in the book of several of these companies who people said that to. They're like, Eric, thanks very much. What a downer you are. Blah, blah, blah. And like some of them were deposed from being CEO like within 6 months. I mean, like not even like they didn't even get like a chance to run their company once they took it public. They're just, they're completely gone. And if you interview those people, and I've gone back to a bunch of those people, they'd be like, hey man, what'd you, what'd you learn from this experience? Here's what the really critical thing for every founder listening to understand. They always blame themselves. The point of this system is to fuck you over and then make you think it's your call so that you don't become radicalized for reform. You just make the same mistake again. So I'm like, listen, let me help you with your next company. We'll make sure that doesn't happen to you again. And a lot of founders learn their lesson and they're like, yeah, okay, let's, we're doing it differently next time. But a lot of them, including very successful ones, I was sitting with one the other day and he was like, I was like, look, you're starting a new company. You got completely and royally screwed in this like awful, it's one of the most horrible stories I know. We don't need to make sure that never happens to you again. What governance changes are you considering in the new company? And he literally looked at me like, like what? Like what? Like, is to me, this is the most important thing in the planet that we make sure this never happens again. And he's like, yeah, I just need to like find better people this time. I shouldn't have trusted that guy. He like, he only blamed himself and therefore, and this is why people advise this way. This magical thinking makes the founder into the superhero who can fix every problem. You know, in Marvel movies, that's how it works. Founder, the superhero learns their lesson and then they beat the bad guy because of what they— you never, like, you never hear someone be like, now we have to argue for structural reform, then before we have the next superhero fight, right? It's just, that's not how it works. So founder as superhero, I think it really encourages a kind of egomania that causes the very thing it claims it's trying to prevent. So anyway, my, my view is we have structural problems in the way that we're training people to build their companies that require structural solutions.

Quick word from our friends at Deel. Founders, if you're hiring, whether that's your first person or your 50th, you've probably already hit the moment where the best candidate isn't even in your city, let alone your country. That used to mean so much paperwork. Deel removes all of that. One platform that lets you hire in days. They handle payroll, compliance, contracts, and benefits. Plus they're across 150 countries. Don't lose good people because logistics were too hard. Deel solves that problem.

Check it out.

startupsdecoded.com/deel. That's D-E-E-L startupsdecoded.com/deel. Couple of things to dig in there. The one that I just read in, in March, a report from Carter around typical ownership effects. Founders and people really need to understand that it, it ran it right through to Series E and the average ownership that a founder has at Series E is 13%. And just practical brain, you're a founder, you're a smart person. 13% means that you don't have much say anymore sitting around a boardroom table. It's just practical. So going back to the start, from a governance perspective, which you touched on there, the ability to put in things that play the long game, that allow you to have purpose. And you talked about different levels of profit and profit, to your point, the default is people think about money, but from a longevity perspective and cultural perspective, profit actually is much broader than that. And there's some, a theme that you talked about, which I loved and resonated with in the book, which is around structured collision points. Can you give us a little bit of color as far as what that means and then how it plays a role to potentially mitigate some of those changes that you see through that growth of a company?

Andy Walsh: Ooh, that's one of my favorite and underappreciated topics in the book, so I'm glad to have a chance to talk about it. And in order to understand structured collision points, you have to understand why being principled gets you into collisions all the time. So I gotta rewind. I'll give you the short version because there's several things that we teach people that are just wrong. You mentioned like, what is profit? So just to put my cards on the table so everyone understands, to me, what it means to make a profit is to maximize human flourishing.

Flourishing.

That's literally what it means to make a for-profit company. Philip Morris is not profitable. I don't care how much money they make. They are basically moving value from one bucket to another. And since it's going from other people's bucket to their bucket, we call that value creation because we look only very myopically. So first of all, you like, I don't know any founder that is like, oh, I'm super excited to steal money from other people. I can make it work myself. Like people start company, you want to do that. There's other professions that are just way better at this than becoming a founder. Like you want to be a founder, like generally because you want to accomplish or build a thing. I call this the builder's intuition. Notion that the best way to make money for yourself is to create more value than you capture. That's an old Tim O'Reilly saying. And so for such a founder, it's very natural. You build a company to do a specific thing. That thing leaves the world better off. Some of that value accrues back to you. You reinvest that in doing it more. Most people think, like, if you're talking to most normal people, that's what they think business is. And that's why so many modern businesses, they're confused about, because many ways of making money today are not value creating at all. In fact, Many ways of making money that we celebrate today in our grandparents' day would've been seen as very unethical or even actual crimes. Okay. Many ways we make money today would literally have been illegal not that long ago. Okay. So we've, we are in a very maligned business environment to begin with. So if you imagine that, like I'm a founder who really has this builder's intuition already, you're guaranteed to be having conflicts because you're gonna want to do things that are right and other people are gonna be like, hey man, Hey man, we could just make an extra quick dollar by, you know, being a little bit more deceptive here. Do you mind if we do that? And you're gonna constantly have to be like, no, no, I never, I'll never forget Andrew Mason, CEO of Groupon, told me this story once about they used to, Groupon, the whole thing was we send you one email a day with a great deal. And his team was constantly coming to him and being like, why don't we send two emails a day? And he was just like, no, one email a day. That's our thing. That's our promise to customers, whatever, whatever. But you know, he took the company public. There was all this financial pressure and eventually the team was just like, hey man, I think it was his board actually. He's like, look, let's just test it and see. And he was a first-time founder. He was a little bit naive. He's like, okay, let's run the experiment. And lo and behold, if you send 2 emails a day, you make more money. And you see where this is headed. He's like, okay, fine. 2, 2, and that's it. But then someone's like, you know, what if we send 3 emails a day? And this is the problem. The more emails you send, the more money you make until the trust that you've earned with your customers is zeroed out and the whole thing collapses. That's in fact what happened. And it's so, everyone hears this story, they're like, I wouldn't be stupid like that. I can't believe he's so dumb. He's a really good entrepreneur. Okay. And his new company is killing it. Like, it's not that he's stupid, it's just you're being worn down all the time by this pressure. I call it financial gravity. It's just pulling on you all the time. It's exhausting. The second problem is, is this principle I call harder is easier. Being principled makes, it's just, it's more, it seems like it's more work to be trustworthy. And everyone's like, why don't we just make the quick buck? You're like, no, I refuse. We're gonna do the other thing. But it's like, it'd be so, so as long as you're thinking in terms of ROI, efficiency, short-term stuff. Stuff, the more principled, the more ambitious, the more like, we're really going to solve this problem in a deep way, that everyone's like, oh, it's exhausting to do this extra, extra work. But what's funny is, although it seems like it's a lot harder, it actually makes the rest of your life much, much easier. Most companies I know, everyone's CEO is complaining to me about alignment and they can't get everyone to do what they want to do. And like, think about all the CEOs that are trying to get their employees to like use AI, but their employees don't trust them. So they're like, I think you're going to use this to lay me off, so I don't want to do it. And everyone's dragging their feet and it's just the departments are at war with each other and there's all this friction. And you know, anyone who's listening to this has been company knows exactly what I'm talking about. Like, it's miserable, it's hard, it's political, it's nasty. And I'm like, could it be that the reason business is so hard is that nobody trusts you? Maybe if you'd taken the harder path to begin with, you'd have the trust that would allow you to do these far more important things. So let's bring this up, because that is why being a mission-driven founder— and, and when people hear mission-driven, something they think, I mean, like solving climate change or inequality or whatever, like, and there are those founders, and that is great, but Like, what I mean is simply that you think your company exists to do any specific thing other than enrich your shareholders. Like, it exists to make a high-quality product. You are a revolutionary, okay? You don't even realize it. You think your job is to make customers' lives better. Well, you are a revolutionary. You didn't realize it. It's just like, no matter what you— I wanna improve customer health. I wanna, I wanna save people time. I wanna do any specific thing. You are already at odds with our dominant business culture. So if you're in that situation, What will happen is you're gonna have conflict all the time, left, right, and center with people trying to do it a different way, especially as you hire, as you get bigger, you start hiring people from the outside. They were, even if you have a really great culture, they come from a really malign culture from some other place, right? So you're gonna have these conflicts. What we have to do to maintain an ethos, a character over time, is instead of shying away, the problem is that people get exhausted and they're kind of conflict averse and like, I don't really wanna fight about it. And so they kind of like hide from the conflict. And in a lot of companies, like two different, the way you solve the conflict is Department A just does it one way and Department B does it a different way. Now we just do both, right? Instead of solving it, that doesn't work. You want to have an ethos, you want to prove that you're trustworthy, you have to channel that conflict into productive tension and deal with it all the time. I tell a story about Patagonia, obviously very famous mission-driven company. They have a 4-way veto system where the social environmental responsibility team, the like quality team, the sourcing team, and the business team, when they want to add a new supplier, all 4 have to agree to do do it. All 4 have a complete 100% independent veto to be like, nope, doesn't meet our standards, we're not doing it. And everyone hears that, they're like, that would be a formula for gridlock. Because if you imagine a company you work at today, you're like, I can't, those gatekeepers are impossible to work with. I can't give them a veto. That'd be even worse. But again, harder is easier by just making it super clean. We never, ever, ever betray our principle. You make a lot of these meetings really easy. Clay Christensen, the late great Clay Christensen, Andy Walsh said in his last book, he wrote, um, it's easier to do the right thing 100% of the time than 98% of the time. Because like, if you have to argue about it, it's exhausting. But if you have the structured collision points, you don't have to argue. It's just like, look, this is what we do. This is our standards. This is how we do it. And if you, if you want us to do it, you have to meet our standard. That's just an ironclad rule. Most people have never worked in a company like that, that whose principles are explicit and clear. It's actually a relief. It's like, so you have so much less BS to have to deal with. And over time, what I've noticed that these, the very best leaders who I admire the most, I realize that they don't, they're not afraid of conflict. They love it. Not because they like the drama, but because every time there's one of these conflicts, they get to say 3 magic words: figure it out. You tell me that I wanna have, you know, our principal say we have to do A, but the business says we have to do B, so I have to choose A or B. No, I won't figure out a way where I can have A and B. And I tell a bunch of these stories in the book of companies where they found a breakthrough solution that they would never have even dreamed of attempting in the first place, except the leader said, no, we're gonna figure it out. And you can't say that like one time and put your toe in the water. Like, people have to know that every time they bring you a problem, you're always gonna do this. That's, that's your whole thing. I tell a story about Yvon Chouinard from, from Patagonia that he would teach these classes inside the company about the nature of quality. He would like put a bag of Peet's coffee beans on the table and he'd be like, is this a high quality product? And everyone would look at each other like, I don't know. Like, yeah, it tastes good. He'd be like, you know, is it? And he'd just press them for an answer. And someone would finally say, well, okay, I guess if you really like coffee, it's quality to you. And he'd be like, no, wrong. Quality is an objective standard. Standard. If this product is built to the quality that it deserves, then it's high quality. And people would be like, that's an insane standard. Quality is objective. It's just like such an extreme belief. And I'm not saying he's right or he's wrong. That doesn't matter. He was very consistent about it. And then they would have like a big fight about, he'd like be like, tell me the highest quality piece of clothing in the world. And someone would be like, an Italian dress shirt. He'd be like, oh yeah, what if I put it in the washing machine? Right? Like, and then it's not high quality anymore. So like, so, and so he was willing to have those fights inside the company all the time. So like, you know, I tell a story in the book that was like a certain product they made where the buttons would fall off, like not like every minute of every time, but like, you know, whatever. Like the buttons just didn't last as long as he wanted them to last. And he didn't have to tell anybody like, we're going to spend the extra money on fixing these buttons. Everyone understood if you bring him a question like this, there's nothing— you're not going to talk about it. You're not going to be You're like, well, I guess it's okay this time. It's never gonna be okay. Nothing is ever good enough. And so like that, tell a story, like a guy, there's a guy who was like, we need to go find these special button lock stitching machines and they cost way more and they are way slower and they interrupt the pro— like that was like, it was terrible in every single way except the buttons don't fall off. And Patagonia's whole thing is they want you to buy clothes that last forever so you don't have to repurchase, so they don't, you know, harm the environment. Like they have this very specific ethos and because they know what they stand for. So some people listening to this are like, I would never, that sounds awful. I would never wanna work work there. Cool, man. If, like, if hand forging your own carabiners so that you can go rock climbing doesn't get you all excited, this is not the right company for you. And this is the key. It's not about being good guys or bad guys, right or wrong. It's about being authentic to the actual values that make sense for that company. And when you do that, it creates magnetic attraction. The employees for whom that's the greatest thing they've ever heard, they want to go work there. It's the greatest job they've ever had. The customers that want to believe, who really believe in that thing, are just like, that's where they want to go. And It doesn't have to be for everybody, just has to be for the people that authentically, um, that thing makes sense for. I'll mention one last thing. For years, Patagonia had this policy called Let My People Go Surfing. And the idea was just, if the waves are up and you want to go surfing, go surfing. Don't sit in— like, just, it makes sense. You don't have this like outdoor living company and everyone's like sitting in this cubicle not seeing the natural sunlight. Like, it makes no sense. Now, a lot of business people hear that story and they're like, but someone I— a critical person I need for a meeting, I can't have the meeting with them because they went surfing. Yeah, it sounds terrible. Again, if that's the kind of way you react to that story, this is not the right place for you. But the, for the right kind of person who's like, obviously that's way more important than our stupid meeting. Think about the kind of company that is going to create. And so you multiply those little decisions, we call 'em structured collision points, cuz you're architecting the organization to create and resolve these kinds of breakthroughs all the time, hundreds of times a day. And of course at the beginning it's gonna be about founder mode, right? Like the founder's there to like, you know, the fir— you I can imagine the early years, Ivan had to do that so many times. You're like, no, I'm serious. No, I'm serious. Yes, I'm willing to do the extra work to do the thing. But over time, people start to internalize that this is how we do things. And then it happens automatically. And that's when the magic happens.

It's powerful in the sense of, as a founder, if you get to that point where you've got that many stakeholders, it's a, it's a level of willpower in that so many things come at you so quickly that feel so consequential that making them go away in a quick period of time feels like you're making progress, but you're just buying time ultimately because the problem doesn't go away. You just kick that can down the road a little bit. So the harder is easier is that tough conversation. If you've got a pack of wolves at you, trying to get rid of them feels like you've had success, but stopping, pausing, leaning in and problem solving, it sounds like is long-term a way that you can retain it because that culture of collaboration to your— is what I'm hearing there is that is sometimes bigger than the problem that you're solving because all of a sudden that permeates out across the whole company and everyone is then on board with, okay, we can face the tough problems.

Yeah, this is something that most founders I think are very naive about and really get wrong. And it's why I tried to write this whole book without using the— without— I can't say I succeeded 100%, but I tried my very best not to use the word stakeholder and not to use the word culture, because I feel like so many people hear those words and they're like, oh, it's some kind of hippie lame thing, right? Like, no. So I use the word ethos, meaning like, what is the underlying character of this organization? What does it stand for? And instead of stakeholder, I use the word fiduciary. Who would you rather die than betray? Okay. That's what I want to know. And once you make those, those commitments clear, it just, all these decisions get way easier and you start to realize the stakes for the culture, the values, or for the purp— like the stakes of any given decision are way higher than you previously realized. And so the compromises that people get talked into are just, they're just such a bad trade. You get this like temporary dopamine boost of, oh, we did this thing, but you're gonna be paying for it forever. It's not worth it. I mean, you know, the, the most famous story, of course, in the book I tell is the Costco $1.50 hot dog. For those that don't know, Costco's been around for 40 years. They've been selling this hot dog and soda combo outside their stores since the very beginning. Started in San Diego in, in 1986. The combo cost $1.50 at the time. A Big Mac was about $1.60. Today, a Big Mac in California costs about $7. A combo, still $1.50. And people hear this story and, and there's this very famous story about a time that the COO of the company came to Jim Sinegal, the founder and CEO. This is a few years ago. The COO eventually became CEO. CEO of the company, goes to Senegal and he's like, hey man, we're losing money on these hot dogs. We gotta raise the price. And Jim Senegal very famously said, if you raise the price of the hot dog, I will effing kill you. So figure it out. That's where the figure it out thing comes from. I love this story so much because it's just like, it's like such a small thing. Who cares? Like, honestly, who cares about the price of the hot dog, right? And yet they have stuck to this price all this time. It's still a dollar. You go to Costco right now, you can get this hot dog and soda and soda for $1.50. And people hear that story and it's a funny story. You know, it's a very famous story now in business circles. There's like, you can buy viral t-shirts, memes, and so there's so many stuff. There's like, you can buy gear that with the, with the, I'll fucking kill you, figure it out quote on them. What's interesting about the story is people always ask meat, like, well, do they lose? Is it a loss leader? What's the strategy? Like, there's all these questions people have, like, well, how, you know, what, what about the environmental effect, costs of processed meat or whatever? I got all kinds of questions about it. The question nobody ever asks is, why did the COO try to raise the price? Because of course he did. We all like, it's just like that. We just assume, of course, if you can get away with raising the price and, and Senegal said this in interview, I, I talked to about this. He was like, look, if you raise the price on the hot dog and every other product in the store by 3%, just add 3 cents to every product, you could increase, you could double our net income, double it overnight, and nobody would notice. It's like heroin. Once you start, you're not gonna be able to stop. So by making a big deal about the hot dog, like he's turned this hot dog into like the best piece of Costco marketing that has ever existed. Existed. And it has, it's been a lot of work. They had to, they had to vertically integrate their whole supply chain around this hot dog. They own and operate their own hot dog manufacturing plants. Like it's actually been exceptionally hard to keep this price where it is, cuz they don't, they don't wanna lose money on it. They, their whole, the whole thing they're trying to do is, is be basically the, the almost at-cost retailer. And so cheating you, lying about the price would also be bad anyway. They've gone through a lot of work to, to keep this simple promise and they've gotten all these benefits out of it. And there's like a million trillion stories like like that where they just, they're intransigent and refuse to budge on these things that everybody else would do the opposite thing. And what happens is the benefits of doing that compound and compound and compound and compound until it becomes unthinkable to do the wrong thing. So, you know, obviously people who follow the news, Costco's one of the very few companies that has, you know, conducted itself with integrity at a time when most companies have been acting in a low-integrity way, right? Like just, and there's like a hundred little, like you look around, just Google Costco did the right thing news stories. You, everyone thinks I know the one I'm talking about, but there's like 20 of 'em just from the last couple years. Like, I know, I know so many stories. So like, and they're not like virtue signaling, putting out press releases about how great they are to their stakeholders and all this BS. No, they just, they know what the right thing to do is and they always do it. They don't make any exceptions. They just, you know, they just do it. And so, so many of the laws of nature of business that we tell people like, oh yeah, as you, your brand gets diluted as you get bigger. Companies become cowardly as they become public, blah, blah, blah, blah, blah. Oh, except for Costco. I was watching an interview with a, with a, with a business economist and he was like talking about how only family-run businesses can think truly long-term. And he was like just doing all this research about fam— only family-run businesses do X, Y, Z, A, B, C. And at the end of the video he is like, oh, and also Costco. For some reason I was just like, I don't know. I don't know why, but they're also this exception to this rule. And like, that is so fascinating to me because in every industry, history, there's a Costco. Like, just usually just one. Like, like, think about financial services. There's Vanguard. Who else? You know, there's REI. And who else? There's Patagonia. And who else? There's Novo Nordisk. And who else? There's, you know, like, anyway, so like, we know at some level that these exceptions exist. But now to take it back to your founder question, when we teach founders to build companies, we don't tell them to become an exception like that. All the bold contrarian giving advice to founders are like, well, you don't wanna be too different from a corporate structure point of view. That would be risky. And it's like, wait a second, what's going on? I think, I think it's, it's not an exaggeration to say that the, the collective set of best practices we are currently teaching founders about how they should build and run their company are value destroying. They're not, they're like worst practices. Like we have really good evidence that they're terrible. So first of all, as founders, we have to stop listening to this bad advice. We have to stop accepting accepting that we should just blindly follow the best practices and we need to develop our own new set of practices that can protect companies and allow them to stay value creating even as they get bigger.

The Costco story, I want to go a little bit deeper into to build on that. For those who don't know, I'd love you to set it up a little bit here, but Costco is a legacy of a previous company in the sense of like the next generation ultimately carrying the torch. And the philosophy was anchored around employees first, customers second, shareholders third. And that as a philosophy feels completely counterintuitive. If you were to say that to a founder today who had a large corporation, that that's how they need to act, like they would melt in front of you, right? They wouldn't know how to deal with it. Can you, can you give us a little bit of color to that story? I love this in the sense of how you—

I mean, this is, listen, you're, you're really, this is one of my favorite bits of business history. And I have a little bit of a personal connection to it because all this stuff happened in San Diego and I grew up there. When I was growing up as a kid, um, there was this company called Price Club that if you didn't grow up at a certain age in a certain place, you'd have never heard of this company. Um, but Price Club was started by a guy named Saul Price. Hilariously, his name, his actual name is Price. So I didn't even know this growing up. I had no idea that Price Club was like made by a guy named Price. I just thought it was a discount superstore. Price Club was actually his second try. The first company he created was called FedMart, and FedMart is one of the most influential companies in history in the retail retail sector. People sometimes ask me like, why did Sam Walton call Walmart Walmart? He called it Walmart because he was inspired by FedMart. This is like, it was a very— so Saul Price was a very influential person and he was actually a late-in-life entrepreneur. He was actually like, already had a very successful career as a lawyer. And then for whatever reason, he, one of his clients was setting up a retail thing. He got really interested in retail and he had this idea that you could make a discount for members-only retail experience. And his insight was when you're a lawyer, You are what's called a fiduciary to your client. You are required— people who think the word fiduciary today means something financial because you only ever hear it now in the context of the fiduciary duty to shareholders. But fiduciary actually just means you are like a steward, trustee, someone who takes care of another person and is required to put their interests before your own. That's what it means to be a fiduciary. And he was like, if I'm going to be a retailer, who am I a fiduciary to. I'm a fiduciary to the customer. It's my job to get them a good deal. So that was his ethos. He was like, our, our order of priority is customers first, employees second, shareholders third. As you say, if you— that is such heresy today that like, if you— most people I'd say that to are like, you can't say that kind of thing out loud. You'll be pilloried, right? Like, well, actually it's not uncommon. Some of the very best companies in history had this ethos. I tell a bunch of stories in the book. Don't worry. And so he built this company from nothing. It was very successful right from the beginning. Customers just absolutely loved it. And he would do these things. He was so, he was just incredible. Talk about harder is easier. He was incredibly obstinate. There's this famous story that like he once convinced a manufacturer that they should, you know, they should take a product that costs $3 down to $2 and he would eat the 50 cent discount if the manufacturer would eat the other 50 cents. So each, we each give up 50 cents of margin, but we make the product cheaper. And he's like, but we'll make it up in volume. They didn't make it up in volume. It turns out customers didn't care. And Saul made the category buyer go back to the manufacturer and give them their 50 cents back. And everyone's like, you can't do that. I said, what do you say? He's like, that's, we, it didn't work. We promised them it would work and it didn't work. Give them the money back. And everyone's like, you can't, that's insane. One of my favorite stories about Saul, there was a time when the local gro— he got into grocery stuff later, and the local grocery stores kept trying to put him out of business. Business by doing the typical, like the classic strategy, which is like you just drop prices on certain key items as a loss leader. You, you lower prices in order to drive the competitor out of business, right? Everyone knows that this happens in business. So they would like take the price of eggs down by half and, you know, they run all these ads about the eggs and Saul Price would put up signs in his own store telling people, you really shouldn't buy the eggs from me. You should go down the street because they're cheaper at the place. Okay? 'Cause he's a fiduciary to the customer. He's like, if eggs are cheaper, if I can't have the lowest price, then I won't sell the product. He would like, he would refuse to sell it if he wasn't the lowest price. He believed in what are called capped margins. Even to this day, Costco, his successor, still follows this rule that on their own products, on Kirkland Signature products, they'll take a 15% margin. All other products, they take a 14% margin. And it's funny, everyone knows the famous Jeff Bezos saying that your margin is my opportunity. And yet they don't really think this through. We're trained to think that high margins are a source of strength. No, high margins are a source of weakness. It means you're putting yourself before your customer and you're making yourself vulnerable to competitors. The reason why nobody can displace Costco is 'cause there's no margin room to do it. So anyway, so he had this, he had this very specific ethos. There's so many fun stories about Sol. So he took that company public. FedMart went public. He hated being a public company. The public shareholders were constantly on him to raise prices, to abandon the ethos, to make extra money. He thought it was really annoying, so he arranged arranged to take the company private again with a set of investors who bought out all the private, all the public investors and took it private. But he lost control of the company. He, the, the new owners were 51% owners. He was a 49% owner. The, we're now, now up to like 1975. So he's been doing this for like 20 years. I think, I think he started FedMart like 1954. So, so it's going great. Like everything's going great except investors the whole time, investors are always frustrated with him that they don't make as much money as they could. So they're, so, so they're fighting with him all the time. Can we raise, just why do you have to be so stubborn about it? Just raise prices a little. Just do that. And he just, Sal is one of those people that just, I never met him. Okay. I only know him from these legends and stories. He was a legendary figure when I was growing up in San Diego. Incredibly stubborn person who's like, nope, sorry, this is what we do. So his investors fired him. Obviously, right? Board members just voted him out. They didn't even have a meeting about it or anything. They literally, he shows up to work one day and the locks are changed on the door and he can't come in. By the way, he sued them for wrongful termination. He actually did win the lawsuit in the end, but didn't matter. He was gone. And here's the remarkable thing about this story. First of all, the investors got what they wanted. They got him out and they immediately returned FedMart to its conventional practices. Anyone want to guess how long before the company was back bankrupt. It took only 7 years. It took them 7 years to drive the company directly into bankruptcy just by betraying the trust that he had made. Now, in the meantime, they made a lot of money, you know, like, so they sucked the marrow out of the bones, but the thing collapsed. The company was completely liquidated. Interestingly, the reason why Target is so successful today is that Target bought up a bunch of the remainder assets of this. That was like Target's entry into Southern California. That's a different, whole different story to the story. Anyway, Saul Price was not the kind of person you could do this to and get away with it. So it took him, he licked his wounds for one week and then this is the kind of person he was. He realized that the same building where FedMart headquarters had been this whole time, they had office space on the floor above vacant. So he called his same landlord that he had originally, he's like, I want to, I would like to rent a new office from you. And he started the Price Club one week later, uh, and he just did it I could do it again. Now people hear this story and they're like, oh, it makes sense. FedMart, you know, FedMart collapsed because they couldn't survive without its charismatic leader. But that's not really the right way to look at this. You have to understand that Saul understood something about business that most of us don't know, which is that this is an engine, the engine of trustworthiness. These pieces work together. So it wasn't that he like thought maybe he could do it again. He knew he could do it again because it was a, this thing is a machine. So he did it again. Price Club became successful. And his, uh, and Jim Sinegal, who I was mentioning before, started Costco, had been a stock boy at FedMart and worked his way up to be an executive. He left FedMart with Saul Price. He, you know, he, all the good executives quit FedMart in protest. They all went to go work for Saul at Price Club and they built this thing. And he eventually left Price Club to form Costco. And in the happy ending of the whole thing, eventually Costco and Price Club were to merge. That's actually what formed the modern, the modern Costco. So Costco today is the embodiment of this Saul Price ethos that he worked out in the 1950s. It's not like some kind of deep secret, and yet very few companies are willing to do this extremely simple, extremely effective formula.

I'm glad that you closed it out there because for me it was one of the most impactful stories. What you tell from start to finish in the book, I feel like is encapsulated perfectly in that linear journey of a way of operating where you do the right thing by people, you're transparent, and you can build such a huge company. And Costco now is a behemoth. And they've navigated a lot of challenges through the way, but still stayed true to what they're doing. And on such a simple model, they haven't tried to complicate it with any tricks. The $1.50 hot dog is such a positive, like, mantra. It's not about the price. It's not about a loss leader, as you say. It actually represents who they are and, and what they stand for. And it's bigger than any of those things. One of the things that I also want to talk about is impact on community. Is Costco versus the Walmart effect as far as, yeah, if each of those two companies were going to a, a regional town somewhere in America, America, what actually happens. And it's, it's really fascinating to sort of look at the case study on the impact of corporate culture on a wider community.

Yeah, yeah, yeah. Thanks for, thanks for asking. Yeah. So one of the reasons why most founders have never heard of any of this research, because it is siloed in academia. It's a big issue in academia right now with the, is the academic silos. So in economics, we talk about multiplier effects, but in sociology, we study something called spillover ripple effects. Like there's, there's different, there's all these different people who study this phenomenon that the way you treat people at work has these ripple effects through a local community. And what we don't appreciate as managers is that, that the, those effects are a choice. So I wanna talk about Costco. Costco in this book, Costco's like a recurring character. Like we do the big Costco story and then he kind of like, it just pops up again and again. Like every once in a while we telling some story that's like, oh, actually like, oh, little, another little Costco nugget for you. Because I, you know, I wanna have some company that you could always come back to as we go through. And also because Costco is big enough to be well studied, so we know a lot about it. And it's interesting. So I grew up, most relatively well-educated liberal people when I was growing up in the '90s, we all knew that big box retail was bad. I was like, you go on a college campus, I don't know if it is now, but certainly when I was in college, people would be like, big box retail is bad. Why is big box retail bad? Because it has these negative effects on the community. And turns out there's a whole branch of study just on the Walmart Walmart effect. So it was actually these incredible studies of just like what happens on average to a community when Walmart enters. And it's not all bad. Okay. Like I'm not here to bash Walmart, but it does have very specific predictable results. Like literally if you go block by block from a supercenter opening, there are more business closures the closer the businesses are to the Walmart. You can watch, you can see a map. It like radiates business destruction out. Average wages go down, like has all these effects on the local community, some of which are positive, but a lot culture bad. And I was taught that that's an inevitable consequence of big box retail, except as you pointed out, there's this thing called the Costco effect where when Costco goes into a community, the community flourishes, but they're both discount retailers. How can this be? Well, you know, I'll go— won't go through all the evidence. You can read the book. But for example, Costco always pays higher than the average prevailing wage everywhere they go. So they force local businesses to raise their wages. Wages to compensate for that, but also they're pumping money into the local community. So when the local community is richer, all the businesses in the local community profit. But at the same time, they're not trying to destroy local business. They actually want local businesses to thrive. So they actually have a whole business, which is being a great vendor to the local businesses. So what happens is, although local businesses have to raise their wages to compete with Costco, on the other hand, their costs of supplies go Goes down. So anyway, it's just, it's just you, you start to realize when you study this thing that the effects that companies have on the world are not inevitable. They are a choice and companies are free to make a different choice. And what's so amazing to me is we teach people that this is like a nice to have, oh, mission's like, oh, if you're, you know, it's like a, it's like extra bonus sundae, you know, the cherry on the top of the sundae. Instead of realizing that these effects are fundamental. Essential to the strategy. So if you realize that, then you realize that anyone who's telling you to kind of be, be a sociopath, like, not only is, are they giving you bad business advice, they're literally advising you to liquidate a critical resource. So having the right language— this goes back to what we're talking about with The Lean Startup— having the right language to know what to call something is very empowering, I think, especially for founders, especially for first-time founders who are dealing with it for the first time. So my goal with this book is people read it and it's like, now you have a new superpower. And when someone tells you to do one of these exploitative things, you won't have to be like, "Oh, I guess I have to compromise or should—" You'll know what they're doing. You'll be like, "I see you. And like, I'm not gonna fall for that." Like, so I just, I hope it will help people be a little bit less naive as they navigate these issues.

Such a purpose-driven human being, and so much of it resonated with me and stories that not being an American that I didn't know. So the history lesson was fantastic. Eric released this Eric, this has been such a treat. I value your time. Thanks for joining today.

It's really my pleasure. Yeah, thanks for a really great interview and thank you for really engaging deeply with the ideas. As an author, that's what you hope for when you write a book like this. So I really appreciate it.

Incorruptible: Why Do Good Companies Go Bad Over Time? It's out today. Eric Ries, thank you again.

Oh yeah, I appreciate it. Thanks, Eric. Take care. Thanks and good luck, everybody.

Thanks for listening to Startups Decoded. If today's conversation helped you think differently, share it with a founder in your network. And don't forget to subscribe for real-world startup insights every week. We really value your support. If you're interested in partnering with us, email hello@startupsdecoded.com. I'm Andy Walsh. I'll see you next week.