Welcome to AwarePreneurs, the world's longest running social entrepreneur podcast. I'm Paul Zelizer, your host. If you could take a moment and hit subscribe and do a review on your favorite podcast app, it helps our guests help more social entrepreneurs and it costs you nothing. Thank you so much. Today our guest is Eric Ries and our topic is From Lean Startup to Incorruptible Social Enterprises. Over the last two decades, Eric's ideas about continuous innovation, long term thinking, governance and market reform have reshaped company building and management practices. He is the creator of the Lean Startup Method and the author of the New York Times bestseller the Lean the Leader's Guide and the Startup Way. As a founder, he has put his own ideas into practice with the Long Term Stock Exchange, the LTSE Answer, AI, an AI research and development lab, the Lean Startup Co, where he teaches and supports the implementation of Lean Startup Virgil, a legal services startup Imbu, where the ideas that became the Lean Startup Method were forged.

On his podcast, the Eric Reese show, he talks to guests including world class technologists, thought leaders and executives working to build profitable companies for the long term benefit of society. Society. Erica served as entrepreneur in residence at the Harvard Business School and I in ido. He lives in San Francisco Bay Area with his wife and three children. Eric Reese, welcome to AwarePreneurs.

Hey, thanks for having me.

I didn't have to read that whole thing because I'm sure most of our listeners know who you are. Startup is just, it's a standard. There aren't too many people in the startup world and social entrepreneur who haven't heard of it. This pivot from Lean Startup and teaching people how to build companies. You said in the intro, I taught people how to build something worth protecting but not how to protect it right? This pivot from how to do a startup and do it right to this idea of helping to create companies that are worth protecting and how to do it. Like, when did that start to become something you're really passionate about? And even more importantly, when you.

Why? Yeah, to me it's always felt like just one thing. All I wanted to do was help people create really great companies. And what I thought was I had taught them all the best practices that they needed to know. You know, my idea with Lean Startup was to innovate in the management part of the stack, you know, to create a new management operating system for companies that can help them cope with uncertainty and do innovation. So I was like, that was really awesome. And for the other stuff, how they should be structured how they should take on investors, you know, what kind of cultural practice they should have. You know, I mostly just imported the best practices that I was taught and taught them also, because that wasn't really my area of expertise. That wasn't the thing I was trying to change.

And what I realized, to my great chagrin, watching this happen to company after company after company, is that there's a more powerful force in the universe than just management. We were up against a force that was tearing these companies apart. I have watched so many great companies become mediocre, so many mediocre companies become maligned. We. We don't even really have a word for what happens. Like, I feel like mission drift is the closest, but that sounds like a navigation error that's not. Doesn't really capture the gut punch, the heartache of watching something you love be destroyed. And I've seen so many founders who've been kicked out of their companies, social entrepreneurs whose company's been forcibly converted into something totally different than what they intended.

I've seen founders and. And board members who feel like they don't. They're not even in control of their own company anymore. It just. It's doing things that they don't understand and can't control. I could go on and on and on, on down the list. And so this started out for me as a very personal thing. Look, this was happening to my friends, my colleagues, my clients.

Like, I'm living this nightmare. I need to help them. I need to do something about it. And so I started trying to experiment with ideas in this area. And the more I did, the more I just felt like I was up against these best practices that people have, like, almost a religious devotion to that make absolutely no sense. They're not best practices. They're close to worst practices. And I didn't know at the time.

Of course, now I know they're backed by tons of research that shows how bad they are. So. So I was like. I found myself. It was almost like the early days of Lean Startup all over again, where here I was preaching a set of messages that to me seemed very intuitive and natural and to other people seemed downright crazy. So, you know, I've. I've been at this long enough to have noticed that pattern when it occurs and be like, okay, there's something interesting going on here. I better go try to figure out, you know, who's right, who's wrong.

I just wanted to know what is the truth of this? What is the best way to build organizations? And what I found really Surprised me.

In the book of page 48, for anybody who wants to go find the quote you talk about, the quote is what they didn't tell him. This is a particular founder that you are talking about in an early part of the book. According to Harvard Law School research, among venture capital backed startups without appropriate protections, only 20% of founders survive even three years as a CEO after going public. And I was reflecting on that and this is something I've seen as well. For long term AwarePreneurs listeners, I had the honor of interviewing Miyoko of Miyoko's Vegan dairy brand, one of the largest dairy brands in the world. And it was a very public situation where the company that bears her name, Miyoko, got kicked out. The company was profitable and you know, but she took some investment to scale up and go to new markets and she got kicked out of the company. There's an episode there.

I'm not telling anything out of school that I shouldn't.

Right, right, right, right.

And, and I was just reflecting on the number of times that this has happened, both to my friends, my colleagues, people I've interviewed, and, and, but that 20% survive even three years is speaking to the scale of the problem. And as I was looking through the book and reading the book, the whole first section of the book, you call it the shape of the Abyss. Right. You lay out the problem and given we're going to get to what are some of the solutions. But do you think that there's sometimes some naivete among startup founders about some of the challenges that, that founders run into when they don't do a good job of some of the recommendations? Why aren't startups talking about this more? I guess is my question.

Yeah, yeah. This is, this is crazy. Making this, this is such a common phenomenon that we all know stories like this. And I don't know what happened to the brand after she left, but like if you told me that it was not as good as when she was there, that the board betrayed her in pursuit of growth instead of focusing on product quality. Yes. I wouldn't be surprised. I'd never even heard of that company before. And I know what happened because this is incredibly common.

Now the problem is when we tell these stories, including when we as founders tell the stories, let alone when the press tells the story, we always focus on the personalities involved. It's like a drama. Who was the more savvy, the naive founder or the vicious greedy investor? And it's like, who's going to win? And instead of because we're looking at it that way. We are blind to, to the systemic forces that drive this outcome over and over and over again. I tell in the book stories of this type going back more than 200 years. It's probably going on even longer than that. But we've got really good documentary evidence that this is a recurring pattern that founders overlook how vulnerable they are. And in our modern era, the way this vulnerability shows up is we teach people that success will protect them.

So if you go to somebody and say, I'm worried about losing control of my company. I'm worried about it becoming an evil force in the world. I'm worried about being taken over by somebody. Whatever, whatever worry you have, they'll pat you on the head in a very condescending way and say, oh, honey, that's so nice that you're worried about such things. But don't worry. Just go out there and get product market fit. Just go out there and raise a lot of money. Just go out there and have a lot of success, and then you'll have the power to do things the way you want it to be done.

And that's just a lie. For a very simple reason that until I figured this out, I was shocked. No one had ever pointed it out to me. It's like so glaringly when I tell you, you're going to be shocked. No one's pointed out to you too. The more successful a company is, the more trustworthy it is, the more valuable it is as a target. So the more gold in the goose, the greater the temptation to steal it, to butcher it. And it's like so obvious.

Like, once you say that out, you're like, oh, of course. It's like, I visualize now these companies are building up what I consider to be the most underrated asset in business today. Trustworthiness. Like, it is a financial asset of immense value. You build it up and we're just like leaving it lying around on the floor everywhere. We build this huge asset, this giant pile, and then we act surprised that someone tried to steal it. Have you met humans? It's like, may I introduce you to human nature? Are you familiar with it? If you have an unguarded pile of cash, like, eventually someone will come for it. And this is not like we treat this like an inevitable or a problem that can't be solved.

It's so difficult. It's like, you know what? Actually, it's not that difficult. We have learned as a society that when you have an asset that needs to be protected, you put it in a vault, you put a door on the vault, you put a lock on the door, you put an alarm system on the lock. Like, it's not that complicated. And yet we are training entrepreneurs, and especially social entrepreneurs to just be completely blind to this fact. So that I think honestly, these practices are designed to make companies easier to steal. It serves certain people's interests very well to have these companies be frankly, weak. And I just.

Anyway, you asked how did I get into this? I just got tired of it. I'm like, why am I helping people create these companies, making all this money when so many of them wind up miserable? So what with all the compromises for like, that's what's so strange is who's it for? Meanwhile, we have these examples of outlier companies that because they violate absolutely every best practice you can imagine, don't have this problem. They are structurally strong. And I started to become really interested in this question of how do we create companies that are structurally strong. And I was trying for years, actually, I didn't really want to write a book or any of this stuff. I was just focusing on can I get actual founders to adopt these practices that we have really good evidence make their company strong and the resistance that they face is unbelievable. It's out of all proportion to the actual risk reward of the thing itself. And that was my clue that we are facing not a natural force, but an ideological one.

This system has been engineered to create this outcome and it requires our consent to operate. If we opt out as builders, we can have a different system altogether.

So just saying something about the early part of the book. There's three different parts and I, I got the book a little late because I was traveling and there's just a little. Took me a little while to get the reader's copy, advanced readers copy. And so I was like, oh, you know, I know the problem. I've had friends kicked out of companies. I've interviewed Miyoko. It's a great story. She's there in the west coast there you might really be interested in her.

And she tried to buy her company back last year and it didn't go through. Anyway, it's. It's a mess. Imagine the company with your name. That was. What was imagine there was zealous or something and like they literally, totally, absolutely. It was, it just, ah, painful situation, right? So I knew the problem, right. But I couldn't put the book down.

It was so well written. Like I want to get to the solutions and some of the things we're going to talk about in a second. But just, just the stories you tell and the power you, the, the conviction that comes through just jumps off the page. So thank you for being willing to go into hard terrain and, and I can feel your care and your compassion.

Oh, thank you. Thank you. Oh, so kind of you to say. I really appreciate that.

No, I don't. I mean, I read a lot of business books and actually I don't read that many that more because they keep saying the same thing over and over again.

Yes, I know, I know.

So just, you know, listeners, the, the, the Eric's care and conviction and it, it jumps off the page, but not in a preachy way. Just, you just tell a lot of great stories with a lot of care and kind of lay out the problem. So I do want to move on from the problem because a lot of our listeners will understand what you're talking about. But just I was, I was surprised I couldn't rush through it to get to the solution because you wrote it so well. So thanks for doing that.

No, thank you. That's really nice of you to say.

So the note I wrote down in the early part is that the corruption in companies isn't a moral failure and you hinted at that, but it's like a systems failure. We just don't have things in place to try to. First of all, a lot of us aren't talking about it, although I have seen in the past three or four years people really who are doing venture backed or investor backed companies. I definitely hearing more conversations than I heard five years ago or 20 years ago when I, I started. But the, the like outline, specifically this is kind of bridging the problem and starting to get into some of the solutions. You call them design choices. Right? Like what are some of those places where you're wanting to see good design, you're wanting to see systems in place, where we haven't yet built that culture in the startup world, like you said, especially in the social entrepreneur world. And then we're going to get into, well, what should we be doing differently?

Yeah, yeah, yeah, exactly. Well, so in order to understand the structures that we have to build, it's helpful to understand the forces that act on those structures. And this is, this is why this book took me such a long time to write. It took me a long time to work this out. We spend so much of our energy as entrepreneurs and especially social entrepreneurs focused on what are frankly surface, surface characteristics of organizations. And surface doesn't mean unimportant. They're very important strategy Business model, culture, even purpose, those are important. Those are things we have some level of control over.

But this book is about the deeper underlying forces that act on the organization whether we want them to or not. And one of those forces is what I call financial gravity, which is the like physical, like it really is like an unconscious physical pressure that companies feel, organizations of all type feel to conform to the values of the larger entities that they orbit around, including our massive and almost out of control financial system. I want to be clear that the values that are transmitted by gravity are a choice. They are not a natural law. So we happen to have a very extractive financial system right now. And so it transmits those values, but it really doesn't have to be that way. But I wanted to write a book about how to build organizations in the world as it exists today. So there's no technique in the book, not one that is like after the revolution, then we'll be able to this or after we get the rules changed or once there's a new level of consciousness.

Nothing like that. Everything is a technique that can work. Even in our very hostile environment of today's, today's world with all its surveillance capitalism and all its exploitation, we can still do this, but we have to understand the mechanism by which these values get transmitted. So once we understand what financial gravity is and how it works, we can then start to study what, why does it cause the collapse of mission driven organizations? And in the book I use this metaphor. When you watch a bridge collapse, if somebody says, why did the bridge collapse? And I say, well, because of gravity. You'd be like, you're, what's the dumbest things I've ever heard? Yeah, I mean, yes, technically that is true, but like Fassel, right, Like, yes, of course gravity made it fall.

A lot of bridges didn't collapse. Right, right, but like, but, but, but hold on.

And why did it collapse today? Why didn't it collapse? Gravity was there yesterday, gravity's here today. And of course, yeah, as you say, why are there so many other bridges that are not collapsing? Instead we don't just say, oh, it's gravity, can't do anything about it. We study. Engineers study the wind load, they study the load bearing, they study the joints, they study the metal, the corrosion, the materials, and they figure out what was wrong with the design of this bridge such that it collapsed and how could we do better next time? So the book is kind of like, what are the equivalents of wind load, tensile strength, material fatigue? Like, what are those equivalents for Organizations. And, and how do we figure out what I call the architecture of institutional longevity? What is that structural pattern that allows organizations to survive? And once we understand that force, I think it's pretty obvious why so many of today's best practices are not sufficient to protect organizations in the face of this force of force is overwhelming. And the best practices tend to preach delay. Basically keeping your options open, you know, doing basically whatever you think in the moment will get you the most money, the most reward, the most status, the most investor attention. So yeah, that's not, that's not a great, it's not a great setup.

The good news is that for each of the problems that prevent institutional longevity, there's a well known solution. And by stitching these solutions together, we can solve the two halves of the problem. Basically, this is how I, how I think of it. There's like an inner problem and an outer problem. The first problem I call the path of ethos. How do we deal with the fact that companies fail the test of succession, that founders like, they become like Frankenstein and his monster. They lose control of the thing that they've made and they don't understand why. And the second is what I call the path of integrity.

Not just integrity in the sense of keeping a promise, but integrity in the sense of structural integrity. For an organization, those two senses are the same. An organization that can be forcibly decapitated at any time can never ever be trusted to keep a promise. So how can you ever trust such a thing? It's impossible. I mean, even the person whose name is on the tin might be removed. And yet. So like, who? So you'd be like, well, her Name's on the 10, surely her promises would be binding. Ha.

Just kidding. So these two dimensions, the inner dimension, the outer dimension, by studying the techniques of each, we can improve on an operational level. Like what is the company, how does it operate, how does it make money? We can get into those things like strategy, business model, culture, purpose. And on the structural side, we can get into questions like how and when is it safe to take outside investors into the cap table? What are the structures that can allow us to have a productive long term relationship not just with outside investors, but with our own independent board members, Things like that.

Yeah, beautiful. Eric, you talk quite a bit in the solution part of the book. It's the middle part of the book. You call it Escape Velocity. I like that. Language, ownership and governance. These are things that you've thought a lot about. And it's part of the design choices that you mentioned in Terms of things staying on the rails for a long period of times.

In terms of mission and the impact that the founder had when they formed the company, what are a couple of the most specific governance structures that you think founders should be thinking about early on if they want their company to be mission aligned for the long term?

I'm sorry, could you say it again? I missed that last bit.

Ownership and governance. What. What can founders be thinking about early on when they're starting their company if they want their company to stay mission aligned for the long term?

Okay, I will give some answers to this question, but I really want to warn your listeners. A lot of social entrepreneurs have a tendency, I call it the Leroy Jenkins effect, to like grab one tool, decide it's made them invincible, and then charge into battle. I call it the plus two. Plus two Pauldrons of invincibility, right? Like no one can stab me in the shoulder. I can never be, I can never die. And it's like, yeah, but what if the spear is aimed a little lower? What's protecting the soft middle part, right? So I will give some of these techniques, but the goal should not be to grab a technique and declare victory. Our goal should create what I call a governance fortress, a set of interlocking protections that together create that institutional longevity. By far the easiest one that I hope all of your listeners already know about is the Public Benefit Corp.

What's called the pbc. This I still encounter among social entrepreneurs a lot of confusion about this point because they also is such a thing as a B Corp certification, which is the little B with the circle in it. A PBC is something different. The B Corp is a certification. You have to get B labs to certify that you are in compliance with their standard. The PBC is something that any company can just do on its own. So if you're a Delaware C Corp, for example, PPC filing is something like a two page legal filing. Your lawyers can prepare it for you today, you can have it filed tomorrow.

And PBC is very important like root thing to do here because it returns our understanding of corporate purpose to its historical norm. The modern idea of what's called shareholder primacy is actually a very recent addition to the corporate canon. The for the vast majority of the time there have been joint stock corporations. The idea that corporations should exist only to enrich their shareholders would have been considered like dubious at best or illegal at worst. It was really only in 1986, like when many of us were alive, that Delaware adopted the child of primacy rule. In such rulings as, as, as the Revlon doctrine. So when we do a ppc, we write an actual defined benefit, a public benefit, into the corporate charter. But this is still a really important step.

It's not enough by itself, doesn't magically make companies mission driven, but it solves one very critical problem, which is that for most companies that claim to be mission driven, there is, as they grow, a yawning chasm between their stated mission and their legal purpose. So they say their mission is to make the improve the health of their customers or to improve the health of the planet, of an ecosystem, or just, just something as simple as to build a high quality product that tastes great. That people like any mission becomes at odds with their actual legal purpose, which is just to maximize shareholder value by any means necessary. And that dissonance, it breaks a lot of companies. So that's a, that's a really easy thing we can do. Another really easy thing we can do is insist that boards of directors take an oath. I call it the director's oath, the equivalent of the Hippocratic oath for doctors, we should have for directors. In some ways, the decisions that corporate directors make are far more consequential and dangerous than any doctor.

And yet we require less of them from a commitment perspective than we do from nurses. It's absurd. So I, in the book, I lay out what the director's oath should look like. But in short, we should play. We should make directors pledge that they're going to use their vast discretion under the law to support the mission of the company. And people hear that and they're like, isn't that their job already?

No.

That's what's so unbelievable. If you study the current governance best practices, mission doesn't even appear in the guidelines. It is seen as an absolutely secondary over. Like it's the nice dessert you have after you've eaten your vegetables of compliance and shareholder maximization. Now, the fact that that idea is absurd doesn't mean it's not the absolutely dominant rule under which we live. So a big part for builders, people who like, have not spent time on this topic, who like to build things for a living, who share in what I call the builder's intuition that you should create more value than you capture. As Tim O'Reilly put it, they just can't believe that this is how it is. Like when I describe just what is considered to be obvious simple governance truths to members of the governance class, to most builders, they think I'm exaggerating or making it up.

So director's Oath is one example of just doing something that we all think is common sense and obvious. Any company could do this. You can write it directly into the corporate charter that in order to be a member of the Board of Directors you have to take this oath. Very simple.

So listeners, here's what I want you not to do. Please don't just go run out and do a PBC and a Director's Oath. I want you to buy the book. I'm not somebody who usually would say this, but again, it's well written and you do. Eric, you go much more in depth into the solutions in a comprehensive and holistic way and these are great suggestions. The thing I like about for instance the PBC is getting certified as a B Corp can be really great for a company. It takes time. I don't even think you can do it if you haven't been existence for two years.

You can be on track but you don't get the certificate and it's expensive. Whereas like you said, a PPC is fast and relatively easy. So you've got some great solutions here. But listeners, please don't just take these in isolation. This is a book you're going to want on your bookshelf, so please do get it. In a minute I want to come back and talk a little bit more. In the third part of the book, Eric, you talk about how to transmit this culture and things like ethical standards in your supply chains, not just in your own company. There's other layers.

I want to come back and circle around that. But first I just want to take a quick break and hear a word from our sponsor. Are you facing one or more important decisions in your impact business and you'd like an experienced thought partner to develop a plan about how to proceed in the complex times we're living. But you don't feel the need for an extended coaching or consulting contract that's going to cost you many thousands of dollars. You're looking for an affordable, targeted and time efficient type of Support. Through Paul Zellazer.com, i offer a strategy session package. These packages are ideal for entrepreneurs who are facing one to three immediate decisions like how to increase your positive impact. Fine tune your marketing strategies to get more results for less effort.

Launch a new product or service successfully, or refine your pricing structure so it's both inclusive and provides you with a great quality of life. You can find out more by clicking below. And thank you so much for listening to this podcast. Welcome back everybody. I am here with Eric Riese and we're talking about his new book, Incorruptible. And our topic title is From Lean Startup to Incorruptible Social Enterprises. And right before the break, Eric, we were talking about the second part of the book, Design Solutions and anything you want to add there before we start talking about how you transmit this culture through time and also go beyond the boundaries of your own companies to some of your supply chain. I was super excited about that part of the book.

But anything else in things, you know, the middle section of the book has chapters like the Blueprint, Mission Drive, the Spiritual Holding Company. I love that language. Oh, yeah, we missed in sort of the design.

Well, so much. I mean, this is the problem with writing a book with so much in it is that you want to give listeners a taste of what is in there. But, like, it's important. I always tell people, like, if you've gone to business school or something, you didn't learn, like finance or cost accounting or something from some guy in a podcast in 30 minutes, okay. Like, you. You have to study the actual techniques. So there's a lot to these techniques, I would say, kind of. If I had to give kind of an overview of the techniques.

They start. They go inside out as the book progresses. So we start with the things that are most completely under our control. What is our. What is our intended purpose of the company for? If we ever even get to PPCs and like, legal purpose. But, like, what are we. What are we actually trying to do? How do we define what it means to make a profit? I think the very best organizations have at their core commitment to maximize human flourishing. That's a really critical concept.

In the book, we talk about the purpose. What kind of fiduciary commitments are we willing to make? If you say that your fiduciary commitment is only to shareholders, then you're not trustworthy by definition. But if you're willing to make fiduciary commitments to customers and employees and communities, to the planet, whoever, whoever you genuinely feel like you would rather die than betray. This is very important. We talk about the invisible leader, the cultural intuition that employees develop at an organization that causes them to lead when no manager is present. If we don't instill that ethos in them, we can't expect to build something worth protecting. And then in the later chapters, we talk about these more structural things. How to deal with boards.

How do we deal with the fact that independent directors routinely betray the mission? How do we deal with outside activists and investors? How do we deal with the fact that next time Every time someone talks to you about, like, good governance, you know, you're having a board meeting and someone's like, we need to do such and such thing because it's a best practice. I need you. I need the hairs on the back of your neck to go up. Here's a great stat from the book. I uncovered this in my research. Since 2008, okay? Companies that have been publicly rated by governance agency to have bad governance have outperformed the ones who are rated to have good governance. Okay? This is not an insignificant data set. Now, the best practices are not actually in performance, maximizing, and they're not even good for investors.

So you're like, then who are they good for? Why are we doing this? So anyway, I have a whole chart in the book called Best Practices Destroy Value. You can see all the different. All the evidence we have that this is true. And as you say in the later chapters, we start to talk about what kind of goes into the anodyne term today of alternative governance forms. But one thing that I really hate about the business monoculture that we have now is that I think we've kind of deprived people of their human right. Like, the human experience is full of people experimenting with different political forms. Like going back to the ancient Greek polis and beyond. We have always had different polities embody different ideas about how human power should be shared.

And that's what corporations, that's what organizations are. They're like a little mini bubble of utopia, as somebody defined it. And so we need to learn to protect that diversity, to embrace it, and in particular, to study the forms that work better than the best practices of today. And so I introduced this term in the later chapters called the spiritual holding company, for a particular way that the spirit, the animating essence of an organization can be permanently and soulfully protected.

Beautiful. One of the other frames that I got a lot out of was the reservoir of trust. You talk about that. Talk to us about trust as an asset, why it's so important in the kinds of incorruptible companies you're talking about. And again, how to protect it, either structurally or relationally.

Sorry, say that one more time.

Trust doesn't ask that. How do. Yeah, right. How do we. How do we either. How do we protect it, build it, and protect it both structurally and relationally?

If we could just take. If people took one thing away from this, it was like, trustworthiness is an asset that can be built and can, and therefore needs to be protected. That would be. That would be enough. So where does trust come from? If you ask people like where does trust come from? They'll often say something like consistency. So if someone behavior is consistent and predictable, then you can come to trust them. But I think this is a wrong simplification. That is not true.

And the reason is think about if you've ever had a loved one or a friend or you know, someone who's fallen to the tragedy of drug addiction, their behavior is very consistent. That's kind of the problem. They will do anything to get what they perceive to be their needs met. Modern companies, a lot of them, Jim Senegal, the founder of Costco, in the book he describes their behavior to taking heroin. Like the first time you do it, the first time you raise prices because you can get away with it. The first time you exploit a customer because you can get away with it. You make you get a temporary short term boost to the stock price and next thing you know you got to keep doing it because you can't bear for it to go down. So consistency is not enough.

We have to also see that that consistency is aligned with human flourishing. When we see consistent sacrificial behavior aligned with human flourishing, that's the thing that clues us in that this is a potentially trustworthy company. Give an example from a grocery store in Texas called H E B. And it's a really simple example. H E B is one of these companies that people tell lots of stories like this about. So I'm going to tell this one. But there's a hundred more stories just like this. There was an ice storm in Texas one year and the power went out in a certain H E B grocery store and people in the store were in there stocking up on supplies.

Why were they in there stocking up on supplies? Because there's an ice storm going on. They're all stocking up to survive the storm. The power goes out and they realize that the payment infrastructure, all the cash registers are fused, closed, nobody can pay for anything. And there's like a collective groan that goes up in the store. Can you imagine being in this situation? Like, oh no, I just spent an hour shopping and now I got. And the store manager just gets up in front of everybody, says, listen, everybody, just take your carts and go home, take all your stuff. People like, how are we supposed to pay you? Like, don't worry about it. Just, you know, it's a storm, go take care of your family.

And people burst into tears. Like, when was the last time people like cried tears of joy at the actions of a corporation? It's so weird. And what's so cool about that story? Okay, so you think about, you know, some, some finance person shows up with a spreadsheet. I would like to discuss the ROI of this action. Well, what were the costs? The costs were very tangible. All this stuff, all this inventory walked out the door with no payment, no way to even track who owed what, nothing. And the returns are completely intangible. The customers that had that experience are lifetime loyal HB shoppers.

And they're going to. You may imagine how many times they've told that story, right? Like this is advertising and brand building. Money can't buy, but it's not measurable, it's not tangible in the way most organizations think about it. So the most trust building activities tend to be ROI negative by definition. So what we have to do if we want to learn to build trust is to build a management system that makes trust an explicit goal, that finds ways to make it legible and gives people clear guidelines for behavior. This store manager is not actually the hero of the story. They did the right thing. Yes.

So that's praiseworthy, but they did the right thing. Not because they were like a cowboy being like, well, I'm just gonna, I'll get fired, but I'm gonna do the right thing anyway. No, they understood that this was absolutely company wanted them to do because this company spends a lot of time and energy training all of its employees on a concept I call the culture Bank. This idea that when you do the right thing for customers, you do the right thing for employees. You just do the right thing as your company defines it. You are building up this asset of trustworthiness. And the late, great Clay Christensen had this great line in his last book. He said, doing the right thing 100% of the time is actually easier than doing it 98% of the time.

So by making these decisions exempt from our roi, stack, ranking, efficiency, obsession, we actually make everyone's life easier. We just say, look, there are certain principles that are, from our point of view, non negotiable. And they're going to be different for different companies. Is it quality? Is it brand? Is it taste? Is it, you know, like so many things it could be, but whatever it is, those are our immutable principles that we're committed to. And organizations that have the strength to articulate, operationalize and defend those principles are the ones that are worthy of trust. Beautiful.

So again, you walk people through how to build these kind of systems. In the book, Eric, there are certain moments that are really poignant in a journey of a startup. Call them pressure moments. Right. A downturn, a leadership transition, an ipo. Right. Like are there certain moments on that journey when it's particularly important to take a deep breath and say, do we have things in place to help us be incorruptible? You know what I'm asking?

Yes. It's tricky because the, you know that old saying that the best time to plant a tree is 40 years ago. The next best time is today.

It's today, right?

It's a little bit like that. So you meet people and they're like, oh no, is it too late? It's like, well, where are you at? And I've heard people tell me it's too late. At the seed stage series A, B, C, D, IPO, post IPO, I'd be, well like 50 years in be like, it's too late. I gave. And if you study the stories in the book, I tried to be very careful about this. There's kind of every kind of story. You can imagine people embracing these principles at many different stages of the company's life. You know, Johnson and Johnson very famously went public in the 1940s.

During World War II, they did their IPO. Robert Wood Johnson, the second, who was the like iron willed chairman of JJ at that time, was very worried about the effect the public markets would have on the company. So he developed this thing called the J and J Hour credo. It's very famous in corporate social responsibility circles. Unfortunately not as famous outside. And he, and the credo basically goes like this. He said, look, we need to establish a, what I would call a fiduciary hierarchy. What are our priorities? Our first priority is to patients, then to doctors and nurses, then to communities.

Anyway, shareholders last. Whenever someone does this exercise, it's always some combination of customers, employees first, shareholders last. The exact opposite of what we teach now is the best practice in corporate governance. Unfortunately, he was worried that people would forget about this, so he had it carved into 10 foot high limestone blocks and displayed in the, in the headquarters of jj. They're still there to this day. These very impressive like you know, Moses level tablets. Because he was like, look, people are going to have to walk to work every single day and they're going to have to see the credo on the wall. But unfortunately that's not enough.

So this is kind of like the tragedy of so many of these companies is the people who like if you know the story of how eventually JJ put asbestos in the baby powder and covered it up, right, it's like a tragedy of corporate failure. The people who put the asbestos in the baby powder walked by the credo every day on their way into work. They saw the commandment to put patients first, and then, unfortunately, they got sucked into the metrics and into the, you know, the best practices and all this other nonsense to convince them that actually it was okay to cover up this information. So I think focusing on, like, when's the right time? I think is actually like, kind of abstraction. What we need to do is just say, look as early as possible whenever you have the opportunity and the leverage. Add a brick to this wall. Add a piece of armor. Add a plate to this plate.

You know, plate mail, right? Like, put in the provisions when you do it. And the metaphor I use for a lot of people who are like, okay, you know, gosh, it seems very intimidating. It sounds very difficult to do all this work, you know, can I just do it later? What should I do? Right? Like, I feel a little intimidated by it. I'm like, okay, imagine that you saw an Olympic athlete, okay? If you're fit, like, I don't care if you're talking about figure skating or bodybuilding or marathon running, whatever.

You.

Some athlete you tremendously admire who's world class. And you go to them, if you say, look, I want advice. I want to be world class at this. And they say, well, you say, what are you? Some of the things you do, they say, well, I go to the gym every day. I eat really healthy. And you'd be like, oh, that's too hard. Yeah, I'm sure when I'm already an Olympic athlete, of course I'll eat healthy. But today, you know, I'm still gonna have a Big Mac.

It's like, okay, well, then you're not really serious about being world class. And. And in business, for some reason, when we admire a really successful company like a Patagonia or a Costco or any. Admire any famous person who's gotten rich in business, you're admiring an Olympic athlete. That's how rare it is. So if you're not willing to do the things that are necessary to get there, you're not really serious about it. But the good news is many of the things you need to do are just. They're like daily practices.

They're the equivalent of going to the gym and eating healthy food. You don't have to. Like, it's not actually some act of heroic sacrifice. It's just a regular practice of looking at the things you're doing and asking yourself, is this, in fact, in line with my Values. Is this in fact consistent with my mission? And most importantly, does it exhibit the property I call Mission drive? Is it part of a system where the only way I and the others around me can profit is through mission attainment? Anything else is just mission hopeful. It's not really mission driven. It's not the real thing. So by having that be kind of a daily, quarterly, monthly practice that you and your leaders and your board are actively engaged in, from that central commitment, you can figure out all the practices and do it in a stage appropriate way.

So with Lean Startup, you wrote this book, there's a lot of great information in there and some people said, oh, I'm need a little help to implement this. Right? I, I can imagine having a similar experience. Somebody reads the book, they read in Corruptible and they say, this is all great, but I'm needing a little bit of a helping hand. With Lean Startup, you built infrastructure and cohorts where people could get help implementing Lean Startup methodology in their startups and in their companies. Do you see something similar potentially happening here?

Yeah, we're going to need, we're going to need a lot of tools like that here for sure and interesting to me. One of the things I'm most proud of with the book is that, you know, I had a bunch of people be test readers of it because I'm obviously a big believer in feedback and iteration. Duh. And of those people that have read the early copies, like quite a few of them had the had wrote to me and say, hey, listen, I've had a business idea that I wouldn't have otherwise had except that these tools, I had these tools in mind and some of those are simple, transformative businesses out in the world. You know, someone was like, hey, we should apply the Costco model to banking. Someone was like, we should apply that, this model to online dating. Everyone hates online dating apps. Let's build one that's actually ethical and good for you.

So like, very, very straightforward applications of the principles, but again, that they wouldn't have otherwise thought of. But a bunch of other people have said, hey, I can see a way that we should build new financial products aligned with this thesis. I think we can build community organizations, I think we can bring people together, we can do training. So much stuff is already starting to bubble up out of people who've read the early book. So I guess I hope a lot of entrepreneurs will make these ideas their own and find ways to help others implement them.

Yeah, well, one of the structures you put a lot of time and energy into is a long term stock exchange. I know we're mostly here to talk about the book, but I'm fascinated about that. Tell us a little bit about what that is and how that's working towards long termism in business.

Yes, well, that has been one of the most difficult projects I've ever undertaken. But imagine. Yeah, it's really been been extraordinarily difficult. And to be clear, I don't run the company anymore day to day. I have hired a very talented management team who, who knows how to run a financial services company. But you know, I ran it for many years and I got it off the ground even at a time when nobody thought it was possible. And the idea is very simple. The idea is that because we know that having a philosophy of long term thinking, the kind of practices we're talking about, it's not just better for the planet or better for employees or better for whoever, it's also better for shareholders.

So companies that are run that way make more money for their investors and investors who are long term holders, who support long term thinking, they actually have an amplification effect. They make the companies they invest in more valuable. So to me it seemed very obvious that we should bring those two communities together for mutual benefit. So that's what a stock exchange is for, to bring together long term oriented investors and long term oriented companies. We're the first new stock exchange with its own new listings model to list multiple companies since the creation of Nasdaq in the 70s. So it's been a long time since anyone's even attempted this. And yes, we are in the same regulatory category as New York Stock Exchange or nasdaq. And it's been, you know, it's been a thrill and a roller coaster to try to get that company built.

But yes, very, very proud of everything that it's accomplished. Great.

We'll put links to everything in the show notes, the book, the Long Term Stock Exchange. Oh, that's great.

Yeah. If you want to. And if you want to link to some recent news, there's been a lot of chatter in the press about the possibility of the SEC ending quarterly reporting, which is like one of the scourges of modern business. If you read the Wall Street Journal coverage of it, although a lot of the other coverage doesn't mention this, that action of the SEC is in response to our petition that we filed at ltsc.

Okay.

So our mission is not just to get companies to list and to trade stocks and to make money, but to be an advocate for reform in the entire financial ecosystem. To bring back more long term thinking.

Thank you and congratulations.

Thank you very much. Appreciate it.

Eric, I could hang out with you all day. I feel a little jealous of people who do like three hour podcast.

Thank you.

But I'm not, I'm not going to waste your time or our listeners. I'm going to tell listeners, go get the book. I highly, highly, highly recommend it. Eric, as we're starting to wind down, is there anything else you were hoping we would cover or there's things you want to leave our social entrepreneur listeners with as we start to say goodbye?

Well, okay. So we've been talking this whole time from the founder's perspective, obviously, because look at me. I mean, of course that's my background. I see every when someone tells me an organizational story, I'm instantly like, who is the founder? How? What's the competitive advantage? I see things through organizational eyes. I can't help it. But in the later chapters of the book, which you'll get to when you get a chance to read a little further, I try to flip the camera lens and start to, to reveal what I think is kind of like a hidden book that's like hidden inside the book that I wrote. If you pay close attention, you'll realize that every one of these stories can be told backwards in reverse from the perspective of a different stakeholder altogether. So when I say, for example, that mission driven companies have a talent advantage, they have better employee morale, and they have longer employee retention, is that a guide to how to build a high integrity company? It is, but it's also an employment guide.

When I say that customers have greater loyalty to mission driven companies, that is also a shopping guide. When we talk about the investing returns of these kinds of companies, yes, we're talking about corporate practices, but it's also a way to invest your retirement for superior gains. So the same principle that it's always too early until it's too late applies to your career too. And so part of my goal with this book is to give people a sense that although in our modern system we tend to all feel very disempowered and a real lack of agency about the possibility of change, actually we have more power than we realize. And the book is also partly about how to activate and exercise that power.

Eric, if somebody wants to get the book or they want to get a hold of you, where would they get the book or they want to find out more about your work, where should they go?

Fantastic. The book is going to be available May 26, starting in the US absolutely anywhere that books are sold. So you will be able to get it in hardcover, in e book or in audiobook. I personally read and recorded the audiobook. It has a bunch of cool bonus content in it. I'm really proud of it actually. And to get the book you can go to Incorruptible Co. We will have links to all the major retailers that are covering the book and in fact they're carrying the book.

In fact, we also one of the proudest features that we added that website, we also have links to hundreds of local independent bookstores around the country who are carrying the book. And so if you want to, you could even buy the book from a local independent bookstore and strengthen your own community at the same time as you support me as an author. But anywhere you want to get the book, I greatly appreciate it. If you want to learn more about me and follow my work, the best way is to join my mailing list, which you can do right on the website. We have a bunch of cool bonus content that is only available for two subscribers, so you can go check that out too. So we've tried to really make it. We're trying to reward people as much as possible for being a supporter of the book and its ideas.

Great. Well, Eric, thank you so much for being on the show today. I really appreciate it. And again, thanks for writing this book in this moment in our journey, particularly for those of us who live in the US it feels pretty spot on. So I just, yeah, again, I've read a lot of business books in my 20 years of doing this and thinking about mission driven companies and this one is going to be on my short list that I recommend to clients and colleagues. So just thank you for writing.

Oh, thank you. Thank you for saying that. That means a lot to me. It's. It's been a real joy getting to see people finally react to the book after so much time spending with it alone, alone in my cave trying to. Trying to crank it out. So yeah, that means a lot to me for you to say. Thank you.

Great.

So listeners, go check it out. There'll be links in the show Note, go get the book. Go get on the mailing list. Maybe consider following Eric on LinkedIn or somewhere else that you like to follow thought leaders. And I just want to remind you that if you do need some help with your business and growing your mission driven company, I have consulting services. You can follow my link to my website. And I want to thank you so much for listening. If something in this episode stirred you, please share it.

I know you know someone who can benefit from Eric's message and what's in the book. And until next time, please keep working for positive impact and letting your values guide your incorruptible business.