Why Good Companies Go Dark

Speaker 1 0:00

And as much success as we're having, and as much as you know, wonderful, great things are being done, people are making money, there's also a darkness to it. There's a loss to it. And so, you know, in my own work, I've been trying to figure out what is going on, what what is the source of this pressure that warps companies as they grow, as they get more successful. There's just so many ways to make money without creating any value. In fact, by destroying value is incredibly common. I tell tons of these stories in the book. People don't like founder control. I get there are founders that make mistakes, but at least somebody should be what I call the mission guardian. Somebody should have the responsibility for keeping the mission alive and not just liquidating it at the first opportunity.

Rajiv Parikh 0:44

Today's episode is a really special one. We have Eric Ries, the one who wrote the book Lean Startup, which so many of us use as part of how we build our companies. His learnings and teachings have become part of how we build and operate our startups, building MVPs and how we lead eventual to pivots and how we drive our teams forward in an experimental fashion. I think of it as sort of the Toyota production system applied to startups. And I think Eric sees the outcome of these companies that build with such incredible missions, with such incredible founders who do want to make a difference in the world, and then sees how they become corrupted, how they live towards short-termism, and how they create how they hollow out the economy. And that was the driver for his book, Incorruptible. And we have the special pleasure of having him on our show where we ask him about his thoughts about how these companies are being built and how they're running and how you can enable everyone to win in a way by building these more mission-driven companies that take care of employees, truly built to enable the customers and also drive investor success. But it's done all together as a system and to get us out of the short-termism that we're become so enamored of in terms of what we celebrate. And he brings specific examples to it. And in today's show, he comments heavily on AI. Not just AI as in bad, but AI as in here are the things that it can add value to. He has a specific take on the notion of vibe coding and the importance of building learning loops and importance of learning as the testament to what you want your team and your ecosystem to do. And hints at a lot of the things that he has in the book about real specific examples of how companies are building whole ecosystems where the community wins while they may be providing lower cost or better service to customers. And I think that thinking, that ethos, that language is what we explore in today's show. So there's contrarian thinking, there's controversial thoughts, but there's also just an innate understanding and system to it that I really look forward to bringing to you today. Welcome to the Spark of Ages podcast. We're joined by Eric Ries, an accomplished serial entrepreneur, advisor, and New York Times bestselling author. Eric's impressive legacy includes creating the Lean Startup methodology and writing the iconic book, The Lean Startup, which has sold over a million copies worldwide. He's now preparing to launch his highly anticipated new book, Incorruptible, Why Good Companies Go Bad and How Great Companies Stay Great. It's coming this May. Eric is a partner at Unshackle Ventures and also the founder and executive chairman of the Long-Term Stock Exchange, or LTSE, a national securities exchange designed with listing standards that protect and incentivize companies to focus on long-term value creation. Armed with a computer science degree from Yale University, previously Eric co-founded the 3D Avatar Instant Messaging Company, IMVU, in 2004. Serving as the CTO and VP of Engineering, Eric is also the co-founder of the AI RD lab answer.ai, a former entrepreneur at residence at the Harvard Business School in IDO, and a host of his own podcast, the Eric Ries Show. Some of the key takeaways you can expect from today's episode: the agentic superorganism with AI hijacked the company SOLP, building governance fortresses to fight off financial gravity, and finally reclaiming agency and human flourishing in the AI era. Eric, welcome to the Spark of Ages.

Speaker 1 4:35

Hey, thanks for having me.

Rajiv Parikh 4:36

Yeah, Eric, so glad to have you. I met you at Manan's event, Unshackled, where they were unveiling Unshackled 3 and was super surprised and excited that you're gonna be a partner there.

Speaker 1 4:47

Yeah, yeah, I like them a lot. They're a really great team. And, you know, I don't I don't want to take any credit for their success. I play only a very bit part, but I do what I can.

Rajiv Parikh 4:54

Yeah, so it's gonna be amazing. So let me just start off with the first question. What sparked you to write Incorruptible?

Speaker 1 4:59

Well, you know, most of the books, all the books really that I've written have come from my own personal experience. You know, the pain of watching great companies lose that spark that made them special. I've helped a lot of people create a lot of companies, and obviously Lean Startup has sold a lot of copies and helped a lot of people start a lot of companies. So I've been around the process of company building. I've been in the boardrooms, I've been in the C-suite, I've been with CEOs, and I've been with public market investors. I created a new stock exchange. Like I've really been all around the landscape of modern business. And as much success as we're having, and as much as you know, wonderful, great things are being done, people are making money, there's also a darkness to it. There's a loss to it. And so, you know, in my own work, I've been trying to figure out what is going on, what what is the source of this pressure that warps companies as they grow, as they get more successful? And more importantly, what can

Corporations As Slow AI

Speaker 1 5:45

we do about it?

Rajiv Parikh 5:45

I love that. I love that. I think and and in the book you go into tremendous depth. I I like you have this way of looking at flows and organizations and entities and really talking about how we reshape it. So in Incorruptible, you describe corporations as superorganisms with their own emergent intelligence and moral character that often actively resist the intentions of the human founders. So in one of our previous episodes of the show, our guest Orrin Michaels, founder of Mashery and Barn Dor AI, talked about how a hundred thousand agents will soon have right access to our most critical systems. So, with the impending deployment of thousands of autonomous AI agents within the enterprise, how do you foresee this agentic workforce altering the superorganism's emergent will?

Speaker 1 6:31

Whoa. Okay, there's a lot we got to break down here. Okay, that's a that's a complicated question. So, first of all, let's talk about what a superorganism is, because I think that it caused a lot of confusion. And people tend to talk about things like that as if it was a metaphor or almost like a metaphysical thing, but no, emergent intelligence is a real scientifically verified fact. And if you want to see a demonstration of it, my favorite demonstration, of course, is in the book. There's a study that was done where researchers asked ants, they trained ants to solve a certain kind of physical puzzle. They call it the piano mover puzzle, where it's actually like moving an object through a narrow gap where it all requires a lot of pivots, you know, gotta get it just right. And if you watch a human solve this puzzle, you can feel their intelligence at work. It's very obvious. The human being, you know, they try it one way, they get blocked, they back up, try it again, and you can feel like the little pauses as it can as you can say, like you can tell. Oh, it says there's an intelligent. If you don't know who it is, intelligent might work. So if you watch the video, and this is what I my favorite thing about this study is that it comes with a video where you can actually see this in action. They trained ants to solve this puzzle. Now a single ant cannot solve it. It doesn't have the intelligence. Ten ants can't solve it, a hundred ants can't solve it. But as you add more and more and more ants, the effectiveness of the problem solving goes up. And in fact, the more ants, the more ants the better, just straight up more ants the better. Until you watch the ant swarm, it does that same thing. It tries something, pauses to reflect, tries a different angle, like and it eventually gets the thing through. You're watching an intelligence be born as the ants get at it. Well, groups of humans also display emergent intelligence. In fact, emergent intelligence is the same phenomenon behind uh generative LLMs and all these AI agents, they're all they work the same on the on the same principle. An intelligence that is present in the group that is not present in any individual item. So when we talk about adding AI to the emergent intelligence of the human collective, that's not like a threshold event. That's what we've been doing this whole time. Corporations are the original AIs on this planet. And just as we have had difficulty learning to govern slow AIs, we call them, we're having even more difficulty figuring out how to govern fast AIs. But either way, the the challenge for us as a species right now is to get really good at governance, really good at aligning emergent intelligence, groups of intelligences to pursue common goals, and then to have that sense of common purpose be directed towards human flourishing rather than something much worse.

Rajiv Parikh 9:05

You know, what you talked about is this you actually characterize this as there's the slow AI versus the fast AI. And I think that's an interesting way of putting it is like that the governance systems behind this are the are this how do I adapt to something I've already had, but just moving at

Shareholder Primacy And Value Destruction

Rajiv Parikh 9:22

at incredible speed. It makes a lot of sense in terms of thinking about it. So do you believe that governance methodology needs to change significantly?

Speaker 1 9:30

Yeah, I think the way that we're currently teaching governance is causing massive problems. You know, we we have settled on a governance theory that has been dominant in our society for the past 50 years or so, depending on how you count, which is the idea that it's it's optimal to give organizations a single fitness function, one function to optimize for, and that the directors, the governors of that organization, of that slow AI, have the obligation, what's called a fiduciary obligation, to pursue only this objective function. They actually, in the law, they're called agents. They are the agents of the shareholders designed to pursue profit maximization for the shareholders. That's called shareholder primacy. And this is an utterly self-defeating dogma. And we have it, we have it in the data. This causes so many problems because there's just so many ways to make money without creating any value. In fact, by destroying value is incredibly common. I tell tons of these stories in the book of companies that because they're pursuing this dogma, in the short term, they make a lot of money for the agents, but in the long run, the company collapses. And I can think of story after story after story. So many of the companies we now remember as kind of like old-fashioned companies who say, oh, they didn't change with the times, I guess. Think about like Sears or Circuit City. Actually, if you studied the history, what happened? They were doing fine. Sears was powered by employee ownership and a really like a very particular ethos of service. But when it fell into the dogma of shoulder primacy, uh, someone took it over and extracted one and a half billion dollars of money for himself while the company itself lost $11 billion. So this wasn't some like natural disruption by the market.

Rajiv Parikh 11:06

Yeah, he just saw it as a real estate investment.

Speaker 1 11:08

It was just a real estate investment. It was, it was absolutely collapse. You know, Circuit City, they laid everybody off, and then the, you know, then the company couldn't function anymore. And so, of course, it collapsed. We have all these cases where people are privatizing the gains but socializing the losses. If you keep doing that, you've built an economy that is literally hollowing itself out, and so collapse is inevitable. When you add AI agents to this story, you get the really scary scenarios that people are worried about. Civilization level, civilization scale collapse, which will be really bad.

Vibe Coding And Validated Learning

Rajiv Parikh 11:36

Yeah. No, it's a really interesting way of looking at it. And that leads me to this next one, which is you've said that vibe coding is leading us towards an AI Chernobyl because we're vibe coding software that no human can evaluate. So previously in your lean startup book, which everyone knows and has, I know our company uses it quite a bit, you discussed the build measure learn feedback loop where progress is measured by validated learning rather than just by shipping features. So in an AI era where we're generating code faster than we can verify it works, what does validated learning look like when the developer doesn't fully understand what they've even built?

Speaker 1 12:09

Yeah, it's not possible to have learning be outsourced. I think this is just one of these things that I've been fighting this battle for more than 15 years now. People wanted to outsource their learning to low-age countries. They want to outsource their learning to their team, they want to outsource it to a development partner, they want to outsource it to anyone. It's like learning is very unpleasant. Nobody wants to do it. I get it. But the whole idea of lean startup is that the rate limiting reagent, like the thing, the fundamental thing that determines whether a startup is making progress or not is simply whether it is learning what needs to be learned. So though the wetware is still the dominant thing. Now, if you look at the studies on vibe coding, preliminary studies, of course, it's all very new. But one of the dangers of vibe coding, for sure, is not just that we're deploying software that nobody understands. I mean, that is a big problem. But you say, well, the models will understand it, that's totally fine. But the issue is that at the end of the day, vibe coding is still LLMs, okay? If you go down all the layers, I mean, Cloud Code is a very cool, sophisticated application. You know, resource code was recently leaked, so we can see how it works. It's full of actually non-LLM heuristics and stuff that is very cool. But like down at the base layer is just an LLM. LLM is still fundamentally about the training distribution. And disasters tend to be black swan events that are outside the training distribution. So one day, to me, this is just absolutely inevitable. We are gonna get into a situation where, again, the data shows that as you use vibe coding more and more, you become less capable but more overconfident. They are done in Kruger machines. They make you think you've built something of high quality even when you haven't. So as you go through the process of making more and more and more software with vibe coding, um, more and more and more errors, bugs, subtle problems are gonna seep in. Now, it's only a matter of time to me when somebody's gonna deploy one of these pieces of software that they had tremendous overconfidence in to a mission critical application. And one of these subtle errors is gonna cause a really big problem. Now, we pray, we hope it won't cause the kind of loss of human life that the actual Chernobyl did, but I think it's kind of random what happens here. We're we're almost inevitably going to deal with some kind of disaster. I mean, we've already had AI's already dropped bombs on schools. Like if you told us 10 years ago, what does an AI disaster look like? We might say an AI killing innocents, you know, and yet it's already happening.

Rajiv Parikh 14:19

Unfortunately, yeah, and in in Ukraine it's happening every day. It happened in Iran, right? So it's happening.

Speaker 1 14:24

Yeah, I mean, it's just we we're living it now. It's like people I got asked on a panel the other day how long until the first AI caused disaster. I mean, what do you mean how long? It's in the past. These things are already happening, and and of course the trend is is being accelerated because we're doing it more and more and more. So it's very important. I think we have an urgent need to learn to use these LLMs, not to replace humans and human creativity, but to augment it. See, the same tool that can be used to create code you don't understand that it it itself can't debug, could also be used to help you learn how to do whatever the thing is you want to learn. That's what's so amazing about it. So instead of saying AI, make me an artifact, people need to learn to train to say, AI, teach me how to make that artifact. Help me improve my own skill and understanding. And if you do that, if the of course I wish the tools were designed to emphasize that, if we do that, we get that right, then we can really unlock the transformative potential of this technology.

Rajiv Parikh 15:18

Yeah, it's it's uncovering more learning for us instead of taking away that that

Rethinking VC For Long-Term Wins

Rajiv Parikh 15:23

capability. So you advocate that for the harder is easier path, knowing that making short-term sacrifices to build a reservoir of trust ultimately yields massive compounding returns and magnetic alignment? Yet the entire venture capital model relies on rapid high variance outcomes to offset massive failure rates. How can the fundamental structure of VC funds be re-architected so they're incentivized to fund mission-driven companies without destroying their own LP return models?

Speaker 1 15:49

Well, I don't see any evidence whatsoever that investing in mercenary companies is a reliable source of returns. Now, you'll say, well, hold on, there are some companies, there are some funds that do this and make money. Because look, think about all the people that made money in crypto. If you get in and get out with good timing, even if you leave others holding the bag, you can make money that way. And if your LPs want that, well, I'm not here to say you shouldn't do it. You know, do whatever you want. But I think if you notice, it's very, very small number of funds pursuing a strategy like that that have been able to stay in the top quartile, top decile over time. I think what's happening is those funds are basically gambling. Just you're deploying money on timing, uh timing theory, the greater fool theory. Again, if you want to gamble with your money, go to Vegas. What do you mean, leave our ecosystem alone? But I understand people want to do that.

Rajiv Parikh 16:32

Do some high frequency trading. Yeah.

Speaker 1 16:34

Some funds that do that have been able to achieve durable advantage, but they tend to be the most elite brand name funds who could convert early success in investing into a whole franchise that gives them, you know, near monopoly power over some segments. It's like, so okay, again, that's fine too. But I think if you ask LPs like, why are you allocated to venture? Some people would just be like, well, I ran, I have a formula. You know, I learned the I learned that I learned the Yale model formula and it says I have to have 3% in venture or whatever. Okay. But most people who are in venture, they're saying, well, we want long-term returns. We want to power the innovation economy. We want something that is for our members, our retirees, our university. Like, we have a long-term goal. And so if you if you really want to align with the goals of the LPs, yeah, they're like, I think even a seven-year IRR targets are not that great. I think it'd be much better to have longer-term fund structures. Really we have an explicit mandate from the LPs to invest in mission-driven companies because over the long run, the evidence shows those are the companies that outperform. And if we're going to try to create the next Toyota, the next Costco, we want companies that are set up to run and make money for their investors for decades. And then we don't have to do this silly thing where everyone's chasing the hot trend, the hot fad, the hot benchmark in so many of these categories. Even when we have a good company, we have a winner, we're overbidding the valuation so that then the LPs still don't make any money. The GPs do fine, of course. But we shouldn't be optimizing for the lifestyle of GPs. We should be optimizing for long-term value

Mission-Controlled Governance Fortresses

Speaker 1 17:55

creation.

Rajiv Parikh 17:55

I think at their expense. And that leads, you know, in your new book, you champion the governance fortress like Costco, which protects a company's mission from predatory financial gravity and short-term Wall Street demands. However, founder control without a mission can lead to hubris and power gremlins, as you suggest. So where's the line between a virtuous governance fortress protecting a noble mission and an entrenched, unaccountable monopoly that uses its structure to ignore legitimate democratic or ethical oversight?

Speaker 1 18:21

Yeah, well, listen, the market is not providing democratic ethical oversight to any companies right now. So give me a break. Okay, like I just think like the the companies, just just and just so you know, like if you look at the data, the companies since since 2008. Okay, this is not some insignificant data set. Since 2008, companies that are rated by governance rating agencies to have bad governance have outperformed the ones rated to have good governance. Okay. So what are we doing here? Mind-blowing. It's mind-blowing. I mean, it's it's it's nuts and you know, quarterly reporting, quarterly guidance, this whole system of beaten rays. There's so many of these best practices that the academic research shows are value destroying. Just following ISS's recommendations will get you, I can't remember what the data is offhand, but like will cost you quite a quite a few points of your long-term returns. It's it's it's crazy. Yet trillions of dollars are voting with them uh every time there's any kind of fight. So, no, I don't think our unaccountable emperor for life is an especially stable political system. So, yeah, I think we can do a lot better. Today we are kind of stuck in a dichotomy of investor-controlled companies that are mostly short-term driven or founder-controlled companies with all the problems of hubris and unaccountability that that brings. I advocate in the book for the creation of what I call mission-controlled companies. And that is a very specific structure that the data shows is more stable. Just like a unicameral legislature is not as good as a bicameral legislature. Like we have all this data from political philosophy that, like, it's like a multi-branch governmental system with checks and balances is more stable. But like the idea that allowing hedge funds to borrow as much money as they want and if in one minute redirect or decapitate any company they want, that that's somehow like a deliberative democratic governance is ludicrous. Give me a break. In political philosophy, they would never even study such a system because it's so self-evidently stupid, yet that's considered our best practice. Come on, we could do a lot better. And the data shows we have models that are, in fact, a lot better.

Rajiv Parikh 20:11

What you're saying to me resonates in the sense of I I think about David Ellison and what's happening with Paramount and Warner Brothers, right? Where he's he's arguing it'll eventually create a better movie experience or it'll bring more people to the movies where the creative community is saying, no, this is going to stifle competition, therefore it harms creativity. Or my recent experience just flying on Southwest Airlines, where you know, Elliot came in and bought some stock, petitioned to change the board, and therefore they went back to being just they went to being just like other airlines.

Speaker 1 20:41

Oh, it's a lot of people.

Rajiv Parikh 20:42

And took away from the experience of flying.

Speaker 1 20:44

You know, I'll tell you uh a funny story. When I was getting the long-term stock exchange off the ground, and I was I spent a lot of years really working on this. God been in the in the belly of the beast. So I would fly to DC all the time, and you should have seen me walking on DC with my entourage of lawyers and lobbyists. It was absurd. What a system we have. Anyway, I would I would fly what was at that time the tech industry's favorite airline, Virgin America. And for those who don't know, Virgin America was a kind of a brand extension from Richard Branson. He had, you know, he runs the Virgin Atlantic and many other other brands like that. And he wanted to have something in the US, so he built Virgin America. It was the first airline to have consistent Wi-Fi on the planes and had boot lighting and had cool, you know, LCD screen. So it's like a lot of cool stuff that we now take for granted in flying that they were first to pioneer, a classic startup airline. But due to the quirks of American airline rules, he wasn't allowed to be the majority owner of the company. We'll come back to that in a second. So, anyway, long story short, I happened to be in DC one one on one of my trips where I'm talking to policymakers all day, you know, senators, SEC staff, commissioners, you know, academics, investors, like all the all the East Coast people you'd expect me to meet on trying to say, Hey, I think we should reform corporate governance. I want permission to run this exchange, et cetera. And every person I talked to was just like, is there really a problem? Maybe actually the system is working as designed. Actually, maybe there's No short-termism. Maybe actually this is the most it's just so like maybe the problem will fix itself when we raise interest rates. Maybe somehow that will make people go public again. Like it's just like every kind of excuse for inaction you can imagine. I heard it all day to the point that I get to the end of the day and I was like, Am I the crazy one? What's going on? Because I've, you know, I've worked in these companies. I've sat with middle managers and boards and CEOs. I've been on the factory floor. I've been, and if you go to any place where work is actually done in this country, people will tell you this is a huge problem. They live it every day. And yet in these elite circles, people just seem so clueless. Anyway, as I'm going to the, I'm in the car on the way to the airport, the news breaks, or at least I get the news, that Virgin America is being sold to Alaska Airlines. I didn't know any details or anything. I just saw the headline and I was like, oh, that's interesting. So I get in, I check in for my flight, and the baggage handlers and the flight attendants and the staff of Virgin America, they happen to be, it's a slow day. There's not a lot going on in the airport. They're all just hanging around the check-in desk. So I come in, I say, hey everybody, how are we feeling about the merger? And the baggage handler, who's like taking my bag, gave me the most eloquent explanation of our economy. You can imagine. He was like, that's what happens when you take a company public. See, Richard Branson didn't have majority control. So it's all these finance guys, and all they care about is the quarterly returns. And so they're just absolutely selling out the mission. Just like gave me the most, I was like, oh, the baggage handler understands this better than all the policymakers I met put together. All these mandarins of corporate governance, they are out to lunch. The people living this reality every day understand what a big problem this is. And he said to me, yet another way to make money without creating any value at all. He had such disgust, disdain for these people. And, you know, I was like, oh, really? You know, I don't think there's any chance that Alaska will be a good steward of this thing. And they start laughing at me, like, of course not. And of course, you know, nothing against Alaska Airlines, but all those innovations of Virgin America are long gone. And for what? For, you know, Branson was furious. He was forced. He didn't want to do it. And it's like, okay, I get people don't like founder control. I get there are founders that make mistakes, but at least somebody should be what I call the mission guardian. Somebody should have the responsibility for keeping the mission alive and not just liquidating it at the first opportunity.

Rajiv Parikh 24:10

No, I love that. And you go through it in detail. Corporate empathy is usually treated as a soft, unmeasurable value that fades as companies grow. So in your book, you highlight how devoted health uses love as a specific operating decision framework, including instructing employees to visualize their own parents when serving members. So how do founders hardwire radical

Hardwiring Empathy As Strategy

Rajiv Parikh 24:32

empathy into an organization's structural ethos rather than just becoming a diluted buzzword?

Speaker 1 24:37

Okay. When I tell you about an insurance company that loves its customers, people always roll their eyes, like, come on. How many, how many companies are going to have to endure that pretend to say everyone's our family and all this other BS? Yeah, I get it, I understand. But to voter health is different. You can actually see the interview. I'm sure you can link in the show notes. I've interviewed Todd Park, the founder. You can hear it from his own lips. It's one of the fastest growing private companies in America. And certainly of ones that are not really AI companies, you know, like they're a health insurance company and yet they do this incredible thing. Their own customers call the customer service agents the guardian angels. Because if you call the insurance company and have a problem, they will fix it for you. This is not just my like cherry-picked examples. A lot of these interviews are all they're on YouTube. Go look them up. You can just hear from Dwayne herself talking about the time that devoted saved her life, not by giving her the right medical treatment, but by fixing a problem with her housing. She had toxic mold she didn't know in her apartment. They got her a new apartment. Like they are very committed to taking care of their members. So this sounds like soft-hearted stuff to a lot of people who are like, oh, I don't care about serious business. But here's what I want you to imagine. Okay. When customers call you their guardian angel, they don't churn. So when you produce true loyalty, trust with a customer, you literally shrink the total available market available to competitors by one. So imagine you're some private equity dude who's like, oh, I'm gonna put these guys out of business. I'm gonna roll up a bunch of local insurance companies, carriers, I'm gonna undercut them on price, whatever. But when you call Dwayne, she's like, We want me to switch away from my guardian angel to help some out-of-state billionaire make a little bit more money, like, no thanks. So love may seem like it's a soft-hearted thing, but it's actually like the most ruthless of business strategies.

Rajiv Parikh 26:17

I love it. And it works, right? It like you say, it lowers the churn of employee, lowers churn of customers, it changes the whole game, right? And so in your book, you also discuss the two-way review. So we'll go to the employee side. An internal process where stories collected during employee performance evaluations are aggregated to judge the overall cultural health of the company and catch mission drift. So as companies increasingly deploy AI coaches to evaluate human sales pitches and workflows, they risk severe surrogation, which is another interesting term from your book, where the measurable metric becomes the target and the underlying human reality is ignored. So, how do we prevent AI-driven performance management from replacing the nuanced human stories required to accurately diagnose a company's soul?

Speaker 1 27:02

Well, I love the idea that you think artisanal handcrafted

Stories Beat Metrics In Performance

Speaker 1 27:06

human performance management is that great today in most companies. Like, I don't know. I think in a lot of companies, AI will be a big improvement over the garbage that we use for performance management because a lot of companies have already fallen to what the academics call surrogation, where the surrogate, the metric, becomes the surrogate for the thing itself. We understand intuitively that a company that is doing well will have a higher stock price. But then we make the error of thinking, okay, therefore the stock price is an indicator of the company doing well. Not necessarily. If you look at a conventional combustion engine, you see exhaust coming out the tailpipe, you might say, oh, the faster the car is going, the more exhaust it produces. That's not the same as saying the more exhaust it produces, the faster it's going. See, there's lots of ways to make exhaust without generating speed. So that's what most performance management systems are today. They're actually quite inhuman. And so I do think I, you know, I would I have many companies I'd turn their performance review over to Claude and think it'd probably be a pretty big improvement. Because Claude at least could be trained to be consistently compassionate. But of course, the best would be, the best would be if we harness the human judgment, the human stories, lore is the oldest technology for knowledge transmission in the world. Remember that that oral traditions predate written traditions by centuries, by millennia in the human species. And we have evidence of like continuous transmission of deeply relevant and important knowledge over millennia pre-writing. So corporations are no ex no exception to this. Human beings form stories and lore and mythology always when they're in groups. That's what we do. It's our human nature. The fact that most organizations allow this lore to circulate unmonitored, unaffected, just kind of random, instead of make taking an active hand and trying to shape it, promote it, assist it in transmitting, I think is foolish. So yes, I'm a big believer that the most important output of a performance review process is not the compensation adjustments or the promotions. The most valuable thing you're doing is you're harvesting stories and throwing the stories away is like mining for gold and keeping the dirt. What are we doing?

Rajiv Parikh 29:05

Like you're saying, maybe these AI systems can actually produce more consistently or get the stories more consistently from folks than what would happen in the traditional way things work, right? So I think there's an aspect of that that we can capture and help drive the mission more effectively. So you also mentioned an incorruptible. You argue that every transaction in business is an act of mission transmission, and that fighting financial gravity requires costly deposits into the company's culture bank. So imagine a CEO who just realized their legacy enterprise is completely compromised by extractive financial gravity. So what's the single most painful withdrawal from the Bank of Wall Street they must make tomorrow to prove to their employees and customers that the new commitment to human flourishing is real?

Trust Deposits And The HEB Test

Speaker 1 29:49

So let me tell you a story about a grocery store in Texas. Okay. It's called HEB. And if you talk to anyone who's lived in Texas for any amount of time, they'll be happy to talk to you about HEB. Okay, in fact, you might have a hard time getting to stop talking about it. HE B is so beloved in Texas that customers mistakenly think that the initials stand for here, everything's better, when in fact it's just the founder's son's initials have been going on for decades. Anyway, I told a story in the book of a couple cool things that they've done. One of them was one of my favorites in the 2020s, I think, a couple years ago, it was an ice storm in Texas. And so one of their HEB locations, the power went out because of the storm. And I mean hard out. No backup, no nothing. Store's completely dead. The cash register's point of sale system is down. They can't take anybody's payment. They can't even unlock the cash registers to take cash. Nothing. So there's this like collective groan that goes up in the store as all these customers with carts full of stuff are like, oh no, we're not gonna be able to pay. And if you think of why were they so upset, why were they in the store? What did I say before? There's an ice storm. Of course they're in this. Everyone's stocking up. They're in the store. Of course they're there. So of course they're upset. And the store manager gets everyone together, say, huddle up everybody. Can you all hear me? Okay, good. Everyone just take your carts and go. Just take the stuff. And people were like, How are we gonna pay you? You're not gonna pay us. Just just go. And people started crying. Like you have customers like breaking down in tears in the aisle for the simple act of kindness. Now, when managers and leaders hear this story, they're always like, Wow, what a brave store manager. Because remember, there was no chance the phone system was down. There's no way to get headquarters on the phone. There's no way to get permission. You had to just make the call in the moment. Why did this person make the right call? You know, the loyalty that an act like that buys from customers is so much greater than the cost of the groceries you let walk out the door. Well, it wasn't a courageous store manager. It was not somebody out on a limb. This is something that HEB trains their people in. They drill for it, not for ice storms, but for the idea that when a crisis occurs, whenever there's a doubt about what to do, put the customer first. Saul Price, the father of modern retail, the legendary founder of Fedmart, which is the predecessor of Costco, he said that a company should see themselves as having a fiduciary duty to the customer, not just the shareholder. And this is that principle in action. Now, if you want to build a company that embodies that principle, you have to teach people to see trustworthiness as a very valuable asset, I think the most underrated asset in business today. And you have to teach them that when they make a choice like that H E B store manager, that's not an expense, that's an investment. The cost may be on the balance sheet and the return may be invisible. So it may look like ROI negative, but actually you're making an investment that is going to compound an investment in customers who will trust you and be loyal to you over time.

Rajiv Parikh 32:30

That's true. I mean, I was sitting with a friend of mine, or actually one of my employees who's now who's in Texas, and that's what he would say to me when we were talking about like Trader Joe's and and Whole Foods. He's like, I don't even know why these companies started and why did Whole Foods even start in Texas? Why are we at H E B? So there's just tremendous passion for their grocery store for good reason, right? I still go to piazas down the street because they all know us and they know my kids and they they help me find things. And I don't mind paying a premium for good fruit, good vegetables, and great service. So now, Eric, thank you so much for all your insights

Sci-Fi Corporate Ethics Lightning Round

Rajiv Parikh 33:04

about this. We're gonna now jump to our game. So it's called the Spark Tank. So welcome to the Spark Tank. Today we're joined by a man who has fundamentally rewritten the source code for modern entrepreneurship, Eric Ries. As author of the iconic New York Times bestseller, the Lean Startup, Eric launched a global methodology that has guided over a million founders. He's now preparing for the launch of his new book, Incorruptible. Eric is a master of understanding why good companies go bad and how great ones survive. But Eric, while you spend your days building the corporate governance of the future, you've also been a lifelong observer of speculative corporations of the far future. From the bureaucratic corporation rim of Martha Wells' Murderbot to the tea-drinking imperialists of Anne Leckie's Imperial Ratch. You've seen how authors use science fiction to stress test our ideas about AI, personhood, and power. So today, we're putting your strategic mind and deep sci-fi knowledge to the ultimate test with the fictional founder Enterprise Challenge. We're going deep into the logistics, protocols, and pivot points of the most infamous organizations in fiction. So, Eric, are you ready to prove that your lean instincts are as sharp as the far reaches of space?

Speaker 1 34:13

I guess so. Let's give it a try.

Rajiv Parikh 34:15

All right, let's get started. I'll give you the question and there'll be a multiple choice of four answers. So in Blade Runner 2049, the Tyrell Corporation is a legacy brand that has been acquired by the Wallace Corporation. What was Neander Wallace's primary business before he purchased Tyrell's replicant assets?

Speaker 1 34:35

Oh no, I don't know this one. I don't know that movie. Oh shoot. I only know the original Blade Runner. I'm dating myself. Oh, you're gonna let everyone know how old I am. Okay, go ahead. I mean I could guess. It's my multiple choice.

Rajiv Parikh 34:45

Guess what? I've watched both, and I remember the first one more. Okay. A off-world mining transport. B synthetic agriculture and genetically modified protein. C deep space terraforming or D memory mapping for the police industrial complex.

Speaker 1 35:04

Ooh, let's do memory mapping for the police industrial complex. That sounds good.

Rajiv Parikh 35:08

Why would you say that?

Speaker 1 35:09

Oh, I have no idea. That would be isn't it if it was a if it was still a Philip K. Dick story, that's the one that would be on brand for Dick. But yeah, I know I don't, I don't unfortunately have not seen the sequel, so I do not know the answer to this question.

Rajiv Parikh 35:21

That's all good. That's all good. It's actually B, but I thought you had a good answer for the. Oh, the genetically modified one.

Speaker 1 35:27

Yeah, that's a good one. Yeah, that I guess that would also make sense for modern anxieties and themes. Okay. Yeah.

Rajiv Parikh 35:32

And Wallace became a trillionaire by solving a global famine with synthetic crops. He then used that capital to acquire bankrupt Tyrell Corporation, moving from feeding humans to manufacturing them.

Speaker 1 35:43

So one that's really extremely on point for a modern sci-fi dystopia.

Rajiv Parikh 35:47

But it could have been D because it was this strange world and your police mapping, your memory mapping. All right. So number two, this is the logistics of colonization from the Murderbot Diaries. So in Martha Wells' The Murderbot Diaries, what is the specific legal status of Murderbot at all sec units that Gray Chris and other companies exploit to maintain control? A, they are least governed assets that lack personhood under the insurance alliance. B, they are biological clones with synthetic overlays classified as disposable medical waste. C, they're owned by the planets they occupy, not by the companies that manufacture them. Or D, they're indentured computational engines whose rights are held in escrow by the Port Authority.

Speaker 1 36:32

Yeah, what was the first one again?

Rajiv Parikh 36:34

They are leased governed assets that lack personhood under the insurance alone.

Speaker 1 36:39

So what I love about I love about this series is that in the corporation rim, which is one of the polities in the series, these hybrid human mechanical artificial intelligences are just straight up slavery, straight up property. But in the independent systems, they have nominal independence, but they have to have a human guardian, which is like kind of sort of independent, but kind of not. It's like, yeah, anyway, I'm pretty sure that that translates to A.

Rajiv Parikh 37:05

There you go. You nailed it.

Speaker 1 37:06

Martha Wells is as a genius for thinking about these things. Yeah.

Rajiv Parikh 37:10

That's right. The insurance alliance rigid bureaucracy treats them as equipment, which is why murderbots hacking of its own governor module is a radical act of reclaiming its own human capital.

Speaker 1 37:19

I'm really glad we've trained all these LLMs on stories like this, yeah. Preparing them for the future.

Rajiv Parikh 37:24

I can use that for layering these LLMs. Okay. The next one is the Whalen Uttani ROI. So this is from Alien. In the original Alien, according to the special order 937 delivered to the ship's Android, what is the company's official stance on the human crew? So I think you'll remember this right when you hear it. Okay.

Speaker 1 37:46

Okay.

Rajiv Parikh 37:46

A crew status secondary. B biological data prioritized over personnel. C, non-essential assets to be liquidated upon contact, or D, crew expendable.

Speaker 1 38:00

I believe it is D crew expendable, if my memory serves.

Rajiv Parikh 38:04

That's right. That's right. And you are correct.

Speaker 1 38:06

I haven't seen that movie in a long time.

Rajiv Parikh 38:08

Two-word directive, crew expendable, is the ultimate negative outcome scenario showing that the company's ROI calculation placed zero value on human life compared to their IP.

Speaker 1 38:18

That's also kind of sadly prescient.

Rajiv Parikh 38:20

Do you want one more? I got one more if you want.

Speaker 1 38:21

Let's do it.

Rajiv Parikh 38:22

All right. Do you remember Terminator 2?

Speaker 1 38:24

Do I ever?

Rajiv Parikh 38:25

All right. Terminator 2, we learned that Cyberdyne system's sudden leap in technology was actually reverse engineering. What specific IP do they use to jumpstart their AI development? You may be able to answer this just right off.

Speaker 1 38:38

Sure. I know exactly what it is. I don't need a multiple choice. They had the hand, they had Arnold Schwarzenegger's original hand and the broken chip, the broken chip from Terminator 1 after it got crushed in the hydraulic press. That was enough to jumpstart the apocalypse.

Rajiv Parikh 38:51

You named it a damaged arm and shattered CPU chip.

Speaker 1 38:54

Yep.

Rajiv Parikh 38:55

So CyberDime's growth wasn't organic. It was based on recovered debris from the future. This is classic frontier tech story, building on the future on the little broken path of the uh parts of the failed past. So you nailed it. Love it.

Speaker 1 39:08

Okay, good. Yeah, see, it sounds like three out of four. That's not bad. That's not bad.

Rajiv Parikh 39:11

Three out of four, and you know, the first one you don't remember. So that's yeah, yeah.

Speaker 1 39:14

Listen, I I have I have young kids. So any movies that have been made remotely recently, I have not had the chance to watch, but anything older than that, I got a chance. I got a shot. This is fun.

Rajiv Parikh 39:23

You're watching a lot of uh animation stuff.

Speaker 1 39:25

Yeah, ask me about Moana, I can answer any of your questions.

Rajiv Parikh 39:28

There you go. I like Moana, that was a great one. Did you always know

Falling In Love With Programming

Rajiv Parikh 39:32

you wanted to work in technology? Was there a specific moment or project that sparked your passion?

Speaker 1 39:36

Oh, yeah. Oh, from when I was a young kid, I wanted to. I can still remember. So my parents are doctors. They weren't that excited for me to become a computer programmer. That was not their plan for me at all. But my dad, you know, when I was young, brought home from work a gray beige IBM XT personal computer with a five and a quarter inch floppy disk. So those disc drives were powered by a rubber band, you know, that pulled the thing around like it was a mechanical device. It was so primitive. I, you know, did that have what, 640k of RAM? I mean, these were it was no hard drive.

Rajiv Parikh 40:07

That's right. 640K. That was a big upgrade.

Speaker 1 40:10

Oh, which which, yeah, I I didn't know, of course. That was a big upgrade of what had been existed before. And it and it was a remarkable, those were remarkable computers. You know, they could run spreadsheets and word processors, of course. That's what he was interested in doing on them. But I very quickly realized that they all came with basic programming. That was just like a built-in, built-in thing. Microsoft got their start with basic programming. So they always included a basic interpreter. And if you could learn to do that, you could make your own video games, you could, you could make the computer do what you what you wanted. And I just I fell in love with it from that, from that first moment or always wanted to have a computer of my own, always wanted to learn all the different secrets of programming it. So yeah, I feel feel very grateful to have had the opportunity to to do that.

Rajiv Parikh 40:45

That's amazing. Yeah, yeah. I'm with you. I remember the original Commodore 64, and then eventually getting my first, I think it was like an 18 T PC way back.

Speaker 1 40:55

Oh, sure. Sloppy tracks. Yeah, yeah, exactly. The first computer my parents ever allowed me to buy, they had a a colleague who was selling his old used Mac Plus. I'm talking about the beige integrated box, and I loved that computer like you wouldn't believe. That was just an incredible machine. It had a 20-megabyte hard drive that was an external accessory. Like it was, you know, bigger, bigger than the fit. Here's the book. It's big bigger than that, way bigger than this, that you could plug in. And you weren't allowed to open the case. You know, Steve Jobs was such a control freak. You weren't allowed to open it. And I remember you could get, you know, as I was getting the latest software, I remember one year I had to buy the special tool to crack the case open and pop out the memory because yeah, we upgraded the Mac Plus had a whole megabyte of RAM for 256k DIMS. And I remember very carefully popping the DIMS out to six slot in two one megabyte DIMM so I could upgrade to two and a half megabytes so I could run system seven. Yeah. Like I was really into it. Which was huge.

Rajiv Parikh 41:47

Megabytes?

Speaker 1 41:48

Huge improvement. Now, you know, now my phone runs circles around those computers. Like you wouldn't believe.

Rajiv Parikh 41:53

That's right. In the early days of IMView, venture capitalists sent gray-haired technical experts to do due diligence. They insisted you abandon your continuous deployment methods in favor of traditional PRDs and one-year waterfall release schedules. You've admitted that you previously considered swallowing your pride and capitulating

How Lean Startup Almost Died

Rajiv Parikh 42:10

to their demands just to secure the funding check. So, how close did the foundational concepts of the lean startup come to being permanently erased by the venture capital best practices of the early 2000s? And what gave you and your co-founders the ultimate conviction to exist?

Speaker 1 42:23

Really close. You can't, the only reason that lean startup even exists to this day is because I was too stupid to know to capitulate. So we're like, I mean, I'm in retrospect, I'm very lucky.

Rajiv Parikh 42:34

You didn't want to just take the money, you want to fight it, right?

Speaker 1 42:36

I was so naive. I thought that, like, you know, I was 20, 25, 22. I don't know how old was I? I was in my 20s. And, you know, meeting with like a 50-year-old software veteran. I was so stupid and naive that I thought that if I was like, sir, guess what? Good news. I have the evidence that we here at this company have discovered a better way of making software than the thing you learned in your whole career. Would you like to see the evidence that that would go well? That he would be like, oh yeah, very curious. I mean, it was just like, no, I'm not interested in that. You need to listen to me. This is what you need to do. And yeah, if I had been even the tiniest bit more political, the tiniest bit savvier, I would have been like, of course, sure, I'm sure we will. Yes, yes, uh-huh. I'm sure we'll get right on that. But I was too stubborn. And to this day, I don't understand how my co-founders put up with it. Like, I can't believe I wasn't like immediately ejected out the air nearest airlock after that happened, but they stuck with me. They stuck with the ideas of the rest is history.

Rajiv Parikh 43:33

I think the right people like that fight. And I think the right VCs like that fight too.

Speaker 1 43:37

That was certainly by experience.

Rajiv Parikh 43:39

You originally floated the idea for the long term stock exchange, the LTSE, in the epilogue of the lean startup, hoping that because you were an author, someone would read it and build it. So at what specific moment did you realize that you had to stop being just an author or advisor and actually step into the arena yourself and build this infrastructure?

Speaker 1 43:56

I really didn't want to. I mean, running a financial services company was never my idea. Of a good time. And I remember a friend of mine, good friend, said to me, We were having dinner. This is after the lean startups have blown up and been a huge success. You're selling millions of copies and doing all this cool stuff. And he's like, It's such a shame you can never be a founder again. I said, What do you mean? He's like, Well, you can't risk it. If you start a company and it fails, people will say, see, what does he really know? He's no expert. Which I mean, that is true, but also very dumb. Because of course, entrepreneurship is a probabilities game, not a guarantee. But anyway, I said to him, I remember saying this, I don't know what came over me to say this. I said, Well, not if the thing we're trying to do is so crazy everyone knows it's impossible. Then you can't be faulted for failing. He's like, Do you have an idea like that? I was like, Well, let me tell you. And yeah, he actually came in and come into work for me at LTSE and was one of our early employees. So yeah. I never was sure if it was gonna work out. I just thought, well, my job is not to decide if it's gonna work. My job is simply to put one foot in front of the other and learn as much as I can about this idea and see where it goes. And next thing we knew, we're raising money. Next thing we knew, we're off to the races. Next thing we knew, getting the thing approved. Like I never imagined we'd make as much progress as we have. Although I keep saying we, but I don't run the company anymore. Thankfully, now it's run by people who really like to run a financial services company.

Rajiv Parikh 45:07

That's amazing. But you got it started and you went for it. To get it started, yeah. Two or two for that. And during your early internship at Microsoft, in its ruthless pre-antitrust era, you witnessed a feeding frenzy of young interns fawning around Bill Gates. Looking back, did that early exposure to the distorting psychological effects of extreme wealth and power plant the seed for what you call the financial gravity that unconsciously corrupts an organization's ethos?

Speaker 1 45:30

Yeah, I do think that was my first real glimpse of it up close. And I don't want to make too much of it. I mean, Bill Gates was an incredibly generous person. He was, he used to meet with all the summer interns, like at his house. You know, why? Why would he do that? You know, he didn't have to do that. It was already, I think at that point, the richest man in America. So it was a thrill for all of us to get to see him. You know, he was already such a great man at that point. But I do remember very distinctly the feeding frenzy, the feeling that all the other interns were like dying to say something intelligent in front of Bill Gates. And I've now seen that many times over the years. You see a billionaire, you see a celebrity, people they become obsequious, they fawn over them. They just feel like, oh, this person could change my life. And it's true, they could. It really could change your life. You know, if someone has a billion dollars, they could snap their fingers and give you millions of dollars and they wouldn't even notice it. To you, it would be like a normal person buying a pack of gum. Nothing. So, of course, you can't help it. You have a human instinct to want to please. And the problem is that this inequality causes a warping effect around it. Money, power, status, they create changes in the behavior of the human beings in their orbit. I call it financial gravity because it's like an unconscious, involuntary force. So much of our writing and teaching about leadership and management focuses on the surface level criteria, like surface level phenomena, the things you can see and control, business model,

Financial Gravity And Personal Agency

Speaker 1 46:47

strategy, culture, even. But there's something deeper at work. There are fundamental forces like physics that act on organizations. And you can tell me you don't believe in gravity, but every time you jump up in the air, gravity believes in you and brings you right back down to earth. Well, financial gravity works the same way.

Rajiv Parikh 47:04

If you could give your current anxiety or biggest worry a name and personality, what would you call it? What would you say to it?

Speaker 1 47:10

Well, you're talking to an author right before his book comes out. So of course I'm stressed to see you know how will the book go. And actually, I took a lot of comfort. I saw an interview with Steve Jobs, you know, during the the beginning of the iPhone era when Rim Blackberry was still the dominant smartphone, especially for business. And some snarky reporter asked him, you know, do you really think you can displace Rim's 90% market share? And I expected Steve, you know, Steve was a pretty arrogant guy. Like he would have been like, Smack, of course we can. We make the better. But he answered in such an interesting way that I think we all could learn something from. He said, you know, that's not really my job or my concern. Our job is to make a phone that we're really proud of, the best phone that we can make. And ultimately, market share is up to the customer. If a customer likes it, if they choose, so be it. That's their choice. They get to they get the final say, not us. We do the best that we can. And I just thought that's the antidote to so much of the anxiety we feel about the need to be successful to grow faster, to get more and more, more. It's like, no. What we need to do is build the highest quality, best thing that we are capable of, and then let the chips fall where they may.

Rajiv Parikh 48:11

All right, final question. What's a question you wish people would ask you more often? And what's a question you wish they'd stop asking?

Speaker 1 48:17

Well, I wish they would stop asking me if lean startup means cheap startup, because the idea that lean is about spending less money is an old misconception going back to lean manufacturing. We've been having that problem for decades. So yeah, please stop asking me that. What do I wish people would ask? You know, I wish people would read my book to the end. Okay, that's really my like every author, you're like, I wish people would read the stuff I write at the end of books, not just the stuff that's at the beginning of books. And in the new book, at the end of the book, I talk about our individual agency over organizations. Because today we live in a time of tremendous cynicism, but also a real pervasive sense of powerlessness. We all feel like these institutions, these organizations are so big and powerful and we can't influence them. But actually, in reality, organizations, modern companies are obsessed with what you will or won't do. Every time you make a decision in the era of surveillance capitalism, it's somebody's job out there to influence you to make that decision or to make the opposite decision. So every time you do something, you are wielding gravitational influence more than you realize. And so I wish people would ask me about how to how to maximize that impact or at least to read those chapters of the book.

Rajiv Parikh 49:22

Yeah, I like how you put those at the end of your books. You know, it's like the reward at the end, right? It's a great way to let Felix go. And I think it's also good that in the way you wrote the book, that how you lay it out depending on your frame of mind, read one, two, or three, or here's the order you can read depending on where you're coming from. So I appreciate how you set it up for folks. And you even have a section where it's if I'm an entrepreneur, read it this way. If I'm a founder, read it this way. If I'm an investor, read it this way. So thank you for doing that. It makes the book much more approachable. So thank you, and thank you for joining me today on the show. And I know you're dealing with something at home with some power outages, and I appreciate how you went through all of it. And you know, it worked out. It worked out.

Speaker 1 49:57

I'm so grateful that we live in a time when, you know, we can be connected globally. And so, yeah, we have some inconveniences. But the underlying truth that we have the ability to be connected to each other is really wonderful. So, yeah, thank you for having me on. Thank you for bearing with me. And thanks for borrowing the book. I really appreciate it.

Rajiv Parikh 50:11

Yeah, and look forward to seeing you at the next LP meeting.

Speaker 1 50:13

I look forward to it. That's gonna be a lot of fun.

Ratings Links And Farewell

Rajiv Parikh 50:20

All right, thanks for listening. If you enjoyed the pod, please take a moment to rate it and comment. You can find us on Apple, Spotify, YouTube, and everywhere podcasts can be found. The show is produced by Anand Shah, edited by Laura Ballant, production assistant by Taran Tally. I'm your host, Rajiv Parik from Position Squared, a leading AI enabled growth marketing company based in Silicon Valley. Come visit us at position2.com. This has been an F Funny production, and we'll catch you next time. And remember, folks, be ever curious.