How to build a company that withstands any era | Eric Ries, Lean Startup author
Eric Ries discusses his new book, 'Incorruptible,' which explores how companies can avoid succumbing to greed and corruption as they grow. He emphasizes the importance of establishing strong governance structures and mission alignment to sustain a company's values and integrity.
Summary
In this episode, Eric Ries, the author of 'The Lean Startup,' outlines the ideas in his new book, 'Incorruptible,' which focuses on why good companies go bad and how to maintain greatness over time. Ries highlights the phenomenon where a company's success can become a liability, leading to poor decision-making rooted in financial pressures. He explains how Anthropic, a competitor to OpenAI, has implemented a unique governance structure that includes a board accountable to AI safety experts, demonstrating a commitment to ethical considerations over purely profit-driven motives. Ries argues that organizations must establish a clear purpose and integrity within their governance practices to prevent corruption and maintain their mission. He shares various historical examples to illustrate how companies have eroded their values due to pressure for growth and short-term profits. He also emphasizes the need for a 'mission guardian,' which can take various forms, such as a public benefit corporation or a nonprofit foundation, to ensure a company remains aligned with its foundational values. Ries urges founders to codify their mission and governance strategies early on to avoid pitfalls and protect against the inevitability of corruption as their companies evolve.
About this episode
<p><strong>Eric Ries</strong> is the author of <em>The Lean Startup</em>, a book that reshaped how a generation of founders think about building companies. His new book, <em>Incorruptible</em>, explains how successful companies are destroyed by failing to protect what makes them valuable, and how to change it.</p><p></p><p><strong>In our in-depth conversation, we discuss:</strong></p><p>1. Why 80% of venture-backed founders are ousted within three years of going public</p><p>2. The governance structures that protect companies like Anthropic, Costco, and Novo Nordisk</p><p>3. The simple legal filing that takes two pages and could save your company</p><p>4. Financial gravity: why successful companies predictably get corrupted into mediocrity</p><p>5. Why mission-aligned companies like Anthropic reap major benefits from protecting their mission through governance</p><p>6. Why success won’t protect you—it instead makes you a bigger target</p><p>—</p><p><strong>Brought to you by:</strong></p><p><a href="https://workos.com/lenny" target="_blank"><strong>WorkOS</strong></a>—Make your app enterprise-ready, with SSO, SCIM, RBAC, and more: <a href="https://workos.com/lenny" target="_blank">https://workos.com/lenny</a></p><p><a href="https://vanta.com/lenny" target="_blank"><strong>Vanta</strong></a>—Automate compliance, manage risk, and accelerate trust with AI: <a href="https://vanta.com/lenny" target="_blank">https://vanta.com/lenny</a></p><p>—</p><p><strong>Episode transcript:</strong> <a href="https://www.lennysnewsletter.com/p/how-to-build-a-company-that-withstands" target="_blank">https://www.lennysnewsletter.com/p/how-to-build-a-company-that-withstands</a></p><p>—</p><p><strong>Archive of all Lenny's Podcast transcripts: </strong><a href="https://www.dropbox.com/scl/fo/yxi4s2w998p1gvtpu4193/AMdNPR8AOw0lMklwtnC0TrQ?rlkey=j06x0nipoti519e0xgm23zsn9&st=ahz0fj11&dl=0" target="_blank">https://www.dropbox.com/scl/fo/yxi4s2w998p1gvtpu4193/AMdNPR8AOw0lMklwtnC0TrQ?rlkey=j06x0nipoti519e0xgm23zsn9&st=ahz0fj11&dl=0</a></p><p>—</p><p><strong>Where to find Eric Ries:</strong></p><p>• X: <a href="https://x.com/ericries" target="_blank">https://x.com/ericries</a></p><p>• LinkedIn: <a href="https://www.linkedin.com/in/eries" target="_blank">https://www.linkedin.com/in/eries</a></p><p>• Website: <a href="https://www.incorruptible.co" target="_blank">https://www.incorruptible.co</a></p><p>• Newsletter: <a href="https://news.theleanstartup.com/" target="_blank">https://news.theleanstartup.com/</a></p><p>• Podcast: <a href="https://ericriesshow.com" target="_blank">https://ericriesshow.com</a></p><p>• YouTube: <a href="https://www.youtube.com/@theericriesshow⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠" target="_blank">https://www.youtube.com/@theericriesshow</a></p><p>—</p><p><strong>Where to find Lenny:</strong></p><p>• Newsletter: <a href="https://www.lennysnewsletter.com" target="_blank">https://www.lennysnewsletter.com</a></p><p>• X: <a href="https://twitter.com/lennysan" target="_blank">https://twitter.com/lennysan</a></p><p>• LinkedIn: <a href="https://www.linkedin.com/in/lennyrachitsky/" target="_blank">https://www.linkedin.com/in/lennyrachitsky/</a></p><p>—</p><p><strong>In this episode, we cover:</strong></p><p>(00:00) Introduction to Eric Ries</p><p>(02:26) Introducing <em>Incorruptible</em></p><p>(06:26) Protecting what you’ve built</p><p>(11:35) Why founders get ousted</p><p>(14:58) Too early, too late</p><p>(19:32) The blueprint: ethos plus integrity</p><p>(20:49) Novo Nordisk’s 100-year governance fortress</p><p>(26:41) The Vectura Group and Philip Morris</p><p>(33:16) The “harder is easier” principle</p><p>(37:22) Cloudflare’s mission emergence story</p><p>(42:43) Groupon’s email frequency death spiral</p><p>(45:37) How to define your purpose</p><p>(51:09) Mission-driven vs. mission-hopeful companies</p><p>(54:46) Integrity: structural and personal</p><p>(57:47) Shareholder primacy: the 40-year-old “natural law”</p><p>(01:00:04) Public benefit corporations: the easiest protection</p><p>(01:04:24) Downsides and objections</p><p>(01:06:08) The Anthropic example: fastest-growing company ever</p><p>(01:08:39) The torchbearers in every organization</p><p>(01:10:37) The culture bank: deposits and withdrawals</p><p>(01:12:28) OpenAI and Anthropic governance</p><p>(01:16:21) Mission guardians explained</p><p>(01:18:29) Spiritual holding companies</p><p>(01:21:53) The founder control trap</p><p>(01:25:25) Three things to do this week</p><p>(01:30:10) AI alignment and human alignment</p><p>(01:34:00) Conway’s law: org charts in architecture</p><p>(01:37:31) Book resources and farewell</p><p>—</p><p><strong>References: </strong><a href="https://www.lennysnewsletter.com/p/how-to-build-a-company-that-withstands" target="_blank">https://www.lennysnewsletter.com/p/how-to-build-a-company-that-withstands</a></p><p>—</p><p>Production and marketing by <a href="https://penname.co/" target="_blank">https://penname.co/</a>. For inquiries about sponsoring the podcast, email <a href="mailto:[email protected]" target="_blank">[email protected]</a>.</p><p><em>Lenny may be an investor in the companies discussed.</em></p> <br /><br />To hear more, visit <a href="https://www.lennysnewsletter.com?utm_medium=podcast&utm_campaign=show-notes-no-free-preview-language">www.lennysnewsletter.com</a>
Key Insights
- Ries claims that many successful companies fail not due to competition but because their success leads to complacency and corruption.
- He presents Anthropic as a case study for how a start-up can safeguard its mission through innovative governance structures that resist financial pressure.
- Ries argues that establishing a public benefit corporation from inception can provide long-term protection for a company's mission.
- He explains that many founders are unaware that most governance documents prioritize shareholder primacy, which can undermine their mission.
- Ries emphasizes the role of a 'mission guardian' to protect a company from internal and external pressures that could compromise its values.
- He notes that companies offering subpar quality after being acquired typically went through changes that corrupted their initial missions.
- Ries cites that only 20% of venture-backed companies retain their founders as CEOs three years after going public, highlighting the risk of losing mission control.
- He discusses how organizational structures influence decision-making and the survival of a company's core purposes.
- Ries mentions that the longer a company exists, the more likely it is to succumb to greed and lose its ethical grounding without protective strategies.
- He advocates for including mission-protective provisions in a company's charter to ensure alignment with values over time.
- Ries highlights the historical context of corporate governance, explaining how past norms required companies to focus on beneficial purposes rather than just profit maximization.
- He observes that employee trust is a significant asset in business, and fostering it leads to a more efficient, engaged workforce.
Topics
Transcript
All kinds of famous companies. The thing that destroyed them was not competition. Their very success became a liability. I wanna hear the OpenAI versus Anthropic story. Dario was a first-time founder. Wasn't a hot company at all. The boom hadn't happened yet. ChatGPT hadn't been invented yet. Nonetheless, they were true believers in this safety mission. And so one of their investors suggested they come talk to me. I told them, look, if you don't get this right, here's what's gonna happen. They were very determined to do something about it. They wrote into their charter. Anthropic has directors on its for-profit board who are appointed by and are accountable to an outside group of trustees who are AI…
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