Beyond the Lean Startup: Eric Ries on Why Good Companies Go Bad and How Great Ones Stay Great,

00:00:31 Andrew Keen: Hello, everybody. It is Thursday, April 9, 2026. It's not every day that my guest today, Eric Ries, comes out with a new book. He's a prolific author. He's written a couple of books that indeed have shaped a movement. One is called The Lean Startup, enormously influential in Silicon Valley, came out in 2011. And then his follow-up, The Startup Way, came out in 2017, was equally influential. And he has a new book out today, perhaps a reflection of the times, a shift in the zeitgeist. It's called Incorruptible: Why Good Companies Go Bad and How Great Companies Stay Great. Eric is joining us from Marin County, just north of San Francisco. Eric, congratulations on the new book.

00:01:24 Eric Ries: Oh, thank you very much. I really appreciate it.

00:01:26 Andrew Keen: So, Eric, I have to ask — after The Lean Startup and The Startup Way, does it suggest you're now focusing on incorruptibility, a shift in the zeitgeist? When you came out in 2011 with The Lean Startup, everybody loved tech. Everybody loved Silicon Valley. I don't think that's true anymore.

00:01:48 Eric Ries: No. Certainly not. You know, I don't know if you've seen the famous internet meme on Reddit or something — it's Anakin and Padmé. And he says, I'm gonna change the world. And she says, for the better. Right? And then he kind of grins mischievously. And in the fourth panel, she says, for the better. Right? I used to find that joke very, very funny. And then after a while, it stopped being funny. So I feel like we kind of forgot to specify what the purpose of all this disruption was. And I mean, I'm as guilty as anybody, you know, getting carried away with it. In fact, I was so embarrassed about it that I went back and checked in The Lean Startup. I said, did I ever tell anybody that they should change the world? And when I looked and looked, there at the end of the introduction is, you know, just blah blah blah, so that the next generation of entrepreneurs will have the tools they need to change the world, period. I thought it was obvious. Like, I took it for granted that we were trying to make the world a better place, but I think in retrospect that was naive. So, yeah, as I've gotten older and as I've had the chance to work with more and more and more companies — I've had the chance to work with hundreds or maybe even thousands of companies at this point — I've gotten to really see both the successes, like the abundance and the incredible positive impacts that this industry can have, but I've also been witness to the dark underbelly.

00:03:03 Andrew Keen: So I have to ask this question because I'm sure everybody is asking you it today, Eric, about your title. Why good companies go bad and how great companies stay great. What exactly is a good company, and what distinguishes a good from a great company?

00:03:21 Eric Ries: Yeah. So over the years, what I had noticed in my own career is that when companies begin, they tend to be very idealistic. It's rare actually to have a company — even in a mercenary culture like Silicon Valley — where most founders I meet are doing it to make money. Because if you look at the odds, if you wanna make money, being an entrepreneur is not nearly the best way. It has a negative expected value for sure when you begin. They generally tend to want to do some specific thing. And what I didn't really understand, you know, in the beginning of my career, is that in today's economic climate and in the financial system that we live in, if you want to do any specific thing — as lofty as you wanna solve climate change or as humble as you wanna bring a little bit of beauty or efficiency into your customer's life — as soon as you say that you want to do some specific thing, you are already a business revolutionary whether you admit it or want to be or not, because you're at odds with our dominant finance-driven culture, which sees organizations not as vital living beautiful things, but merely as financial instruments designed to enrich their shareholders. So what happens is over the course of watching companies grow in scale, I kept watching them get surgically deboned — where the soul, the animating essence, the thing that made me anyway excited to be part of them in the beginning, is inexorably stripped away. And, of course, that has malign social consequences as I know you've written about very eloquently, but also has dire economic consequences. A lot of these companies get destroyed over the course of their life because they were successful — not in spite of their success, but because of it. And so I wanted to kind of understand this question of why does this happen over and over again. Why would investors, for example, pressure a company to kill the golden goose, to make it less valuable? That didn't make sense to me. Wouldn't investors want to promote long-term thinking, long-term growth? Why is it that so many founders report that they lose control of their company? They can no longer get it to make and keep its promises. It becomes something bureaucratic or malign or worse. And then while I was trying to help people avoid that fate and work on it, I started studying and getting to meet through my work so many companies that are just complete outliers. Whereas most companies give in to this pressure — give in to what I call financial gravity — there are these companies that it just seems to bounce right off of them. They're able to stay high integrity over decades or even, you know, at some of them, across the century mark. And so I started to try to understand, well, why is it that some of these companies seem to be able to stay great and others go bad? And one of the things that really struck me is if you make a dataset of all the companies that have this kind of stainless steel quality — where the corrosion on the joints that's affecting these others doesn't seem to fit — you'll discover that every single one of them utterly violates almost every best practice that we teach today about how companies should be built, structured, and governed. And that shook me to my core because I adopted those best practices. I was told they were the best and only way. And it made me question whether many of our economic doctrines that we use for organization building are really true.

00:06:31 Andrew Keen: Yeah. There's a lot to unpack here. Last month, there was an interesting piece — an influential piece in the New Yorker about Sam Altman, about the many faces of Sam Altman. Does it concern you? I don't wanna get into an argument about Sam Altman himself, which may be part of the problem. Is this book an attempt to get away from the Sam Altman versus Dario Amodei versus Demis Hassabis kind of narrative that tends to dominate the media these days?

00:07:05 Eric Ries: Yeah. Well, I was quoted in that piece, so, you know, I guess I'm in it whether I wanna be or not.

00:07:09 Andrew Keen: What did you say? I missed the quote.

00:07:12 Eric Ries: That's alright. It was a long piece. And I didn't — you know, I know Sam and he's always been very nice to me. So I kind of feel like, just like this is the direction your question is going: when we personalize these issues, we miss structural and systemic forces. That's not to say that personal virtue doesn't matter. Obviously it does. But I kind of feel like the food-fight style of reporting has dominated discussions of technology for a while now, and we tend to see these battles as personality-driven, ego-driven battles. And as a result, we miss the forces that tend to cause conformity. So for example, in the piece, I talked not about Sam specifically but about how, in this industry, we're seeing this tendency towards what are called circular deals, which in previous generations would have been —

00:07:54 Andrew Keen: Yeah. Yeah. Yeah.

00:07:55 Eric Ries: — borderline fraudulent behavior. Now the piece tried to imply that I was saying this person or that person is fraudulent. I made it super clear — I remember talking to the fact checker — I don't know. I'm not on the inside of any of these deals. Just from the outside, it smells bad. And I just feel like that's the classic issue where when a whole bunch of different people who come from different backgrounds, different industries, different ages, different countries, they all wind up in the same place doing the same deals, there must be some force aligning their behavior behind the scenes. And so this book — I tried to take our attention away from the things we usually talk about with organizations — the big personalities, culture, strategy, business model, important as those things are — and ask what are the fundamental forces that act on organizations. To me, this is like trying to figure out what is the physics of organizational design, not just its surface characteristics. And that for me in my own career, learning to see organizations through that lens gave me what I felt like were superpowers. Like, it helped me do a lot of cool stuff. And I thought, well, if I can teach this to others, they might be able to avoid some of these problems.

00:09:01 Andrew Keen: If we get to that physics, I wonder — we began this conversation talking about the zeitgeist and how it shifted. What about companies that don't shift and are kind of mirrors of the zeitgeist? The company that particularly comes to mind is Facebook. Of course, the mantra "move fast and break things" — I'm not sure if Zuckerberg invented it, but certainly he's lived by it for more than twenty years now of the company's history. In the beginning, Zuckerberg and Facebook were our heroes. They were changing everything. They were driving the Arab Spring and all the rest of it. Now the mantra "move fast and break things" is — you know, even my friend Jonathan Taplin turned it into a book, a book which is deeply critical —

00:09:47 Eric Ries: Yeah.

00:09:48 Andrew Keen: — of Facebook. So would it be fair to say — I'd be curious to know whether you think Facebook is a good, bad, or great company. But Facebook seems, for better or worse, to have been very loyal to its principles, whether they're moral principles is another matter.

00:10:07 Eric Ries: Well, that's exactly the question. So if you go back and read the Facebook S-1, the filing they made at the time that they went public — I remember reading it at the time. And when you reread it, at least for me, it hits very different now. And I remember when I was rereading it, I was like, wait a second. Because they really take on the patina of a mission-driven company. It's very explicit that this company — they say very clearly, we don't build Facebook to make money. We make money to make more Facebook. And but if you ask, like, what is the mission of Facebook really, it's actually kind of vague. At no point does it actually say "for the better." They literally use language like this: in the S-1, it says our goal is to rewire — they use the word "rewire" — the relationship of citizens with their government, rewire consumers with their employers, and the relationship of people with their communities. Rewire, as if they were reprogramming androids. You know, what a strange word to use, actually. But it doesn't say rewire for their benefit. It just takes for granted that a world with more Facebook in it is a better world, without articulating any moral principle as to why that should be. So I don't consider Facebook to be a trustworthy organization for that reason. Again, not because I have a personal beef with Mark Zuckerberg, who's been nothing but decent to me in my life. Rather, I feel like the organization has missed one of the essential ingredients that we need to build a trustworthy organization: an alignment of its purpose with the maximization of human flourishing. And in the book, I try to lay this out in a more formal way — what does it mean to make a profit? How can we reestablish a moral basis for that and show how that commitment to better and worse ways of making money is part of an ancient tradition that we've only recently lost sight of? That tradition says the best way to make money is to create net new value in the world and leave people and their communities better off than you found them. But unfortunately, our modern world has created almost innumerable opportunities to make money without creating value, just extracting value from what others have built. And unfortunately, we're all supposed to pretend that we think all those ways of making money are equally good. In fact, the number of times someone has said to me about some malign rich person, well, you gotta hand it to him, at least it works, you know, he's made all this money — and it's like, no. You know what? I don't think we do gotta hand it to him. I think our grandparents tried to warn us about this. The fact that it works is what makes it dangerous.

00:12:39 Andrew Keen: Let's use Google as another example.

00:12:41 Eric Ries: Sure. Please.

00:12:41 Andrew Keen: Yeah. Is this an example of a good company that went bad? It began as a good company, committed to giving away information, didn't even have a business model. Larry and Sergey initially didn't even want advertising, then Eric Schmidt came in as the grown-up. And yeah.

00:12:57 Eric Ries: Yeah. Yeah.

00:12:58 Andrew Keen: The IPO, and the rest is history. That "do no evil" mantra now is history. How would Google fit into your narrative in Incorruptible?

00:13:09 Eric Ries: Sure. I actually addressed Google specifically — not because Google is the worst offender among tech companies by far, but simply because it's the most transparent and its people have a tendency — very helpful for us as authors — to write about it when they leave the company after their long tenure. So I actually built a dataset of blog posts by people who have left Google after being there for more than ten years. And so, again, this is not my personal opinion. We live in such a polarized age that when we use words like good and bad, right and wrong, people think you can only use those words if you mean absolute — absolute good, absolute evil. No no no. The question is: the people who worked there and who were part of that "don't be evil" ethos, how did they experience it? And if you read these essays, they all have this striking tone, as if the elves have left Middle-earth and you can't quite figure out why. Like, they're trying to talk about the loss of a thing they can't quite name. And "don't be evil" tends to be the symbol of it. And for those that don't know, "don't be evil" used to be the corporate mantra of Google. And over time, it kind of gradually receded from their marketing materials until the very last vestige of it, after many years, was reduced to one extra line at the end of their employee handbook. It just said, notwithstanding all the previous stuff, if you see something that's evil, please say something because our mantra is don't be evil. And a couple years ago, a bunch of former employees sued Google for wrongful termination on the basis that Google had violated the "don't be evil" mantra by, in effect, being evil. And Google had to settle the lawsuit. So there were two lawsuits they've had to settle over the "don't be evil" claim. So if you look at that fact, there are two different ways of interpreting it. Some people would say, well, therefore, don't put stuff like that in your employee handbook. Don't make lofty promises. Just make money and keep your head down. But, you know, the younger people I talked to and most people I talked to were like, no. No. No. The problem is not that they put it in the handbook. The problem is that they were never really actually serious about it in the first place.

00:15:07 Andrew Keen: Well, let's establish then a counter-narrative to Google. What, according to Eric Ries, would have made Google a great company that stayed great? What should they have done? If Larry and Sergey picked up Incorruptible —

00:15:25 Eric Ries: I think this is —

00:15:26 Andrew Keen: — in '99 or 2000, how would they have changed the narrative of the company?

00:15:30 Eric Ries: Yeah. I think there are a couple of things. So we can talk about what they could have done and what the effect might have been. The analogy I use in the book — because I remember I did this exercise with a former Google person who was lamenting the loss of the ethos of Google —

00:15:45 Andrew Keen: Who was that?

00:15:46 Eric Ries: What's that? I don't have permission to share his name, so I won't do it. But if you read these blog posts, you can hear — there's a very common sentiment among ex-Googlers, and many of them have been willing to put their name to it. And basically I said, look, the way you can tell that Google was never actually that serious about "don't be evil" is to compare it to something else that they were serious about. And I asked him to do this exercise with me. He said, what are the odds in your imagination that Google will file its next quarterly report on time? And he looked at me like that was the dumbest question he'd ever heard. He's like, of course they're gonna do it. I said, no, but give it a number — 95, 98%? He said 100%. As certain as the sun will rise tomorrow? And he said, yes. Of course. Absolutely. Okay. I said, great. Now tell me — what is your estimation that in the next couple of years, Google will inadvertently kill somebody and cover it up? And he was like, come on, man. That's not a fair question. They probably wouldn't do that. He said "probably." Can you give me a number? And I was like, 95%, 100%? As certain as the sun will rise? And he started — you could see him thinking out loud. He's like, well, what if the social network was complicit in a genocide, like what happened at Meta? Or what if the self-driving car hit somebody? He was just starting to imagine the scenarios already, and then how Google's been fined and all these scandals — well, even though I think Google's on the whole a good company, they've had these issues. And I was like, okay. How could it be that the quarterly report is sacred, but manslaughter we're confused about? Is that the natural state of affairs because humans' moral intuition is confused on this point? Do people have a natural longing for quarterly reporting? No. Obviously not. The reason is because there is a massive, expensive bureaucracy — an incredible apparatus that Google has built to make sure the quarterly report happens on time, every time. And "don't be evil" was just a line in a handbook. So if they'd been serious about it, they would have built a correspondingly sophisticated apparatus to try to make sure that the mission of Google was actually present in everything that they did.

00:17:55 Andrew Keen: The word "scale," of course — you know this better than I do, Eric — is overused, to put it mildly, in Silicon Valley. You mentioned bureaucracy. We know that as small companies grow, they acquire, for better or worse — and I think most people would agree for the worst — these large bureaucracies. Are there examples in your book or in your mind of startups that have grown, that have acquired these bureaucracies, that have gone public, that have to declare their revenue every quarter, blah blah blah, that have remained great?

00:18:33 Eric Ries: Yeah. This is the crux of the question because everyone I talk to — if I say, what is the cause of this malignancy? — everyone says, well, it's inevitable. Scale, human nature, greed. You know, people pick their favorite thing: growth targets, quarterly reporting, public markets. And listen, I built a stock exchange called the Long-Term Stock Exchange trying to fix the public market. So I acknowledge those issues are real. But if you then press those people — if they've ever met a company in their own life that seems to be an exception to that rule, even though they just said it was inevitable — they'll be like, well, I guess, except for Costco. You're like, what? Costco is a $400 billion public company. They don't have the issue. Why is that? And in fact, there are many of these companies. Most people probably have a Vanguard mutual fund. They've eaten a Hershey chocolate bar. They've shopped at Patagonia or REI, or they have had the experience of interacting with a company — IKEA, LEGO, the John Lewis Partnership in the UK — that seems to violate these rules. H-E-B grocery in Texas, just to name a bunch. And what's interesting is people intellectually know these exceptions exist, and they're quite big. Novo Nordisk, you know, for a time had a valuation larger than the GDP of Denmark. It's been around for a hundred years and is a publicly traded company.

00:19:54 Andrew Keen: And it was a Danish company, which is a contradiction in terms.

00:19:59 Eric Ries: Well, you know, when they crossed a $500 billion valuation, people started to be like, wait a second. Maybe that's not true. So what's interesting to me about these different companies is if you study them, not a single one conforms to our modern ideas of corporate governance best practice. And yet they have been able to maintain their integrity — their structural integrity — over time, to stand for something specific. So I think it can't be true that the issue is inevitable or that the issue is caused by scale, when we have these outlier counter-examples. There must be something that they have in common that the companies that fall do not, and the book is an exploration as to what that could be.

00:20:39 Andrew Keen: So let's examine Costco. Everyone's been to one of these superstores, and in most people's minds, they coexist with Walmart. We've done shows on Walmart. Many books have been written, as you know, Eric, about —

00:20:56 Eric Ries: Of course. Yeah.

00:20:57 Andrew Keen: — how Walmart's destroying the American economy, although some people would argue we've had recent books which suggest that Walmart isn't quite as guilty as some people think. What distinguishes, say, Costco from Walmart in terms of your argument in Incorruptible? I'm assuming you don't consider Walmart an incorruptible company. Why are they so different given that they're in a relatively similar market?

00:21:22 Eric Ries: Yeah. Yeah. Yeah. Before I did this research, I would have said, oh, yeah, they're the same. Sure, discount retailers. But no. If you look at the research, there's actually a whole body of literature that you're alluding to called the Walmart effect, where people measure what happens when a Walmart supercenter enters a community. And there's literally a dose response. The closer a small business is — block by block by block — if you're within the blast radius of where that thing is, the more likely you are to go out of business. Wages fall, all kinds of other what are called spillover effects in the literature happen. But there's also a Costco effect, which is totally opposite. So even though Costco is in the discount retail business, they have a totally different ethos, a different culture, and a different set of fiduciary commitments that you can trace all the way back through the founder of Costco, Jim Sinegal's mentor, Sol Price. And if you want — can I tell Sol's story? I don't know if your listeners are already there. Yeah. So in the nineteen fifties, a guy named Sol Price was a lawyer, and he's like the founder of modern retail. Just to get a sense of how influential he was, the company he founded in the fifties was called FedMart — it's now gone. And Sam Walton, when he started Walmart, the name "Walmart" was an intentional homage to Sol Price. So very influential guy. But he was a lawyer, and he had this idea — when he was a lawyer, he had been trained that you have a fiduciary duty to your client, meaning you have to put the client's interest before your own. So when he became a retailer, he thought, who's my client? Oh, the customer is my client. So he built FedMart on the principle of a fiduciary commitment to the customer. He actually had a hierarchy of customers first, employees second, shareholders last — the complete opposite of what today is taught as best practice. And he was really serious about this. There are a ton of funny Sol Price stories from back in the day. One of my favorites is that his competitors were always trying to drive him out of business. You ever been in an economics class and they say, well, if you try to treat your employees right, okay, you could do that, but then someone will undercut you on price and drive you out of business, you soft-hearted, you know, weak whatever. Sol was immune to that kind of logic. His competitors would sell products below cost and advertise it on purpose to try to drive FedMart out of business. And every time they did that, he would post their advertisements inside his own store and say, don't buy eggs from me — they're cheaper down the street. Because he was a fiduciary to the customer. He was not interested in defrauding them.

00:23:44 Andrew Keen: But are you falling, Eric, into the cult-of-the-personality trap here?

00:23:50 Eric Ries: No. I'll tell you why. Because I'm trying to give you a sense of his business philosophy. And in fact, the story I'll tell you will show that the philosophy actually outlived the man. He was not an essential component for this philosophy to operate. He took FedMart public, because it was very successful. And from that day on, he hated it. Investors were constantly pushing him to adopt more conventional retail practices, to be more extractive, to raise prices, all the usual stuff. And so after a number of years of being a public company, he decided he would take the company private with a syndicate of investors who he thought understood retail better. But it didn't help. He and his board were constantly clashing over this question. And I think the board and the investors understood something that Sol did not. They understood that because customers trusted him, he could get away with betraying them and they wouldn't notice. So you could make a bunch of extra money by extracting value out of the ethos that he had built. So this culminated in a big battle with the board. They were so angry at him that one day in 1975, he came into work and the doors on his office were closed, were locked. He couldn't get in. His keys didn't work anymore. So after building the company for twenty years, he was out. I tell you this story because, first of all, it is a parable of the killing of the golden goose that we see over and over and over again in our economy. Investors got their way. FedMart was returned to conventional retail practices, and it was bankrupt within seven years. But Sol Price was not deterred. He took two weeks off, and then he leased the office upstairs in the same building as FedMart HQ, and he started again. He built something called Price Club. He taught the principles at Price Club to one of his executives who had worked his way up from stockboy. His name was Jim Sinegal. He was the founder of Costco. And eventually Price Club and Costco merged to create the behemoth we all know and love today. Now Sol Price is long gone, and in fact Costco has had three or, I think, four CEOs since then. And yet its ethos endures. So contra the cult of the personality, companies that rely on an individual person to be what I call the mission guardian are fundamentally not actually able to achieve —

00:25:57 Andrew Keen: How does that contrast with Sam Walton, who was notoriously thrifty, to be polite? Yeah. He was obsessed with price. I'm guessing if he was on this show, or someone from Walmart was on the show, they would argue, well, we're benefiting our customer. Maybe I don't know if they would compare themselves with Costco, but stuff in Walmart is just as affordable as in Costco, and we're just as friendly to America. How does Costco support competing small businesses in small American towns, in contrast to Walmart?

00:26:30 Eric Ries: I'll give you a couple of reasons why. This is an emerging area of research, but I think the evidence is pretty clear. First of all, Costco pays above-market wages. It doesn't squeeze on wages. That's a really important point. So if you've studied the economics of spillover effects — in economics they're called multiplier effects — if you pay higher wages in the community, not only do you put more money into the pockets of small businesses because your local employees shop there also, but you actually force local employers to up their game and improve both quality and wages.

00:27:00 Andrew Keen: Although Walmart doesn't pay badly. That's my understanding anyway.

00:27:05 Eric Ries: But not nearly as well as Costco. Costco pays significantly better. The second difference is Costco is actually a supplier to local small business. They partner with local small business. Many local small businesses are thrilled when a Costco opens because their own costs go down — they are actually a very friendly and reliable partner. And the third thing is a little bit more counterintuitive. Because Costco is so trusted, whenever they open in a new area, they bring significant foot traffic into that area because consumers preferentially shop at Costco. They'll travel a long way and make a day of it and shop at related local businesses. So we see that there's a community-building element to the Costco ethos. The other thing I think is valuable — Costco is famously known for limited selection. Sol Price believed in what he called the intelligent loss of sales and capped margins. So whereas Walmart's low prices famously come from squeezing suppliers, Costco's model is different. They make money from the membership fee that members pay them, so they never need to squeeze. They charge a consistent markup for all the products that they carry. Now, Costco is not a perfect company. I could tell you ten different things they do wrong. I don't mean to say that they're perfect, but simply that they are strong. They've been able to endure, to keep this ethos going, and it spills over into related issues. Like, if you remember when Target was abandoning its principles on DEI and all this stuff to jump with the trends, Costco didn't. And leaving aside the politics of whether you like DEI or not, I think I've talked to a lot of people who would say, look, I don't personally agree with DEI, but I admire Costco for their integrity. They stuck to their principles when they were popular and when they were unpopular alike. They don't switch with the wind. And you know, think about how many tech companies have failed that test in recent years — including some of the ones that you named, that couldn't wait to jump on the bandwagon of the next thing. I think customers instinctively understand, and employees understand, that that is not trustworthy behavior.

00:29:05 Andrew Keen: You're a Bay Area guy, Eric. So you know Berkeley Bowl, which is a cooperative —

00:29:10 Eric Ries: I do.

00:29:11 Andrew Keen: — versus Whole Foods, which of course now is part of the Amazon corporation.

00:29:16 Eric Ries: Yes.

00:29:17 Andrew Keen: How do these two companies — because Whole Foods began, I guess, as a good company, although its founder is enormously controversial. I can't say I'm much of a fan. Whereas Berkeley Bowl, for me at least, is the best store in the world. It's a cooperative. I guess it's for profit, although I'm not sure if anyone actually makes any money out of it. Yeah. My question is not just about Whole Foods and Berkeley Bowl. But is part of the question in Incorruptible — of why good companies go bad — systemic capitalism? And that if they embrace the spirit, the principles of cooperative architecture, they're much more likely to remain great companies?

00:30:07 Eric Ries: Yes. Cooperatives feature prominently in the book. Mondragón is probably the —

00:30:11 Andrew Keen: They make great bikes.

00:30:13 Eric Ries: Yeah. Yeah. Yeah. People who know the Mondragón brands are always like, wait, that's a collection of 90-plus cooperatives — I didn't even know. But yes.

00:30:20 Andrew Keen: This is a northern Spanish company.

00:30:23 Eric Ries: Yeah. Yeah. In the Basque region. And that's an incredible story, a story for the ages. But yes. Vanguard is actually a form of cooperative. REI is famously a customer cooperative. Cooperatives employ — I can't remember the number offhand, but something like a significant percentage of the world's employment is in cooperatives. It's actually not a niche thing. And cooperatives are one of maybe ten different structures that would go into the very badly named heading of alternative governance structures. If you tell your lawyer — if you wanna start a new organization today and you ask your lawyer or your banker or your investor, anyone you talk to: I'm thinking of starting a company. I wanna do it as a cooperative, or I wanna have an industrial foundation like Novo Nordisk. I wanna be an employee ownership trust or an ESOP like Taylor Guitars. You'll always be given this pat on the head. Like, oh, no. That's some weird old-fashioned thing. No one's ever heard of that. No. You don't wanna do that. You wanna follow the only investment model — the Delaware C corp, venture-backed, public markets — the one true way. But what's wild about that statement is that there are so many of these alternative governance structures. I would estimate something like 5% of world GDP goes through these structures. They're a huge collective force in the world. So we have academic data on how they perform, and these alternative structures are much better — not just for corporate longevity and for social-purpose kinds of stuff. They just outperform economically. So the story of Whole Foods is actually a tragedy, and I tell the story in the book, of a company that could have been structured so that its mission was enacted and coded into its governing documents, but wasn't. It was a company that was built according to bog-standard corporate governance best practices, and those best practices left it weak and vulnerable and caused it ultimately to be destroyed.

00:32:12 Andrew Keen: How does your argument work in terms of OpenAI? Of course, a couple of years ago, there was a huge debate within OpenAI — there's been an ongoing debate about the nonprofit versus for-profit structure. If Sam Altman were to read Incorruptible, which he might do — you said he's a friend — or any of the people on either side of the nonprofit versus for-profit argument at OpenAI — how does your argument work in terms of whether —

00:32:46 Eric Ries: Sure.

00:32:46 Andrew Keen: — OpenAI should or shouldn't be a for-profit company?

00:32:50 Eric Ries: Yeah. The most stable structure for companies in the world is the industrial foundation. That is a nonprofit parent company with its own separate board of trustees that wholly owns a for-profit subsidiary. It endures even if the for-profit subsidiary is a public company, again, as in the case of Novo Nordisk. That structure, by the way, is not new. When OpenAI did this, people acted like it had never happened before. But actually, the German optics company Zeiss adopted the structure in 1885. It's still around. But OpenAI made what I consider to be a fundamental mistake in its structure. Through all of its gyrations and controversies, OpenAI has only ever had one board. It never adopted the kind of system of checks and balances of separate trustees from a separate for-profit board, which I think ultimately is part of the instability that we've seen with that. Although I think it's always wrong to draw too many lessons from OpenAI. That's a very exceptional story, in a lot of different ways. But yeah, I would say, in general, two things you can draw from that crisis. One, the unicameral structure is unstable. Second thing is people often mistake governance for what's written in the documents. But if you study the whole situation where Sam was fired by the board and then reinstated, the employees, investors, and suppliers of OpenAI ultimately had the power to override the formal control of the board, because of the unique circumstances of that situation. And so I think it's important to remember that governance is fundamentally about power relationships in two ways. One is as a political philosophy — it encodes a certain idea about how power should be shared among human beings, kind of enacting the birthright of the human species to experiment with our own political forms. That's really what organizations are in some deep way. But secondly, it's also there to help understand who has the power to do what. And over time, generally speaking, if you have a flawed constitutional foundation that you build on, you will see this kind of instability as somebody realizes: oh, the trustworthiness of this organization can be commandeered to my proprietary benefit if I'm willing to do the dirty work of using its constitutional mechanisms to take power for myself.

00:34:57 Andrew Keen: The more I listen to you, Eric, the more I wonder whether Anthropic and Dario Amodei had an early copy of the book. What do you make of Dario's attempt to make — at least in his mind — Anthropic a good or even a great AI company, in the context of all the hysteria about AI?

00:35:26 Eric Ries: Yeah. Yeah. Well, no — you've guessed it correctly. Dario did have an early copy of the book, because he came to see me right after he left OpenAI. And as I say, I take no credit for their success. Okay. The company is having extraordinary success, and I played the tiniest bit part in its founding. So I don't wanna overstate my role. But I do tell the story in the book of talking to the founders of Anthropic about these issues. Now I wasn't as articulate or smart about it as I am now because it was a few years ago. But what I give them tremendous credit for — so many Silicon Valley founders, and I've met many of them, they like to use mission, "change the world," whatever rhetoric as a candy coating to make what they're doing seem virtuous and often to evade accountability. Let's be honest. So, you know, if you listen to these companies when they're raising money, they'll be pounding their chest like, rah rah, we are world-beating monsters who are gonna rewire society. And then if you ask, since you're gonna be changing the world in this profound way, do you have any moral responsibility for the ensuing outcomes? They're like, oh, no. I'm just a little database technology company. What are you talking about? It's like — man up. You can't have it both ways. Either accept moral responsibility or stop pretending. And what I love about Anthropic, what I really admire about them for all their ups and downs, whatever mistakes they may or may not make, is they said this was important to them, and they took it seriously. So I helped them to develop what eventually became the Long-Term Benefit Trust. And that structure — which has outside trustees committed to safety — required them to defend that idea across multiple funding rounds for like two years before they finally were able to do the actual legal enactment of it. And I do think part of the reason people admire them is that they, again, have shown a willingness to do the right thing — not the absolute morally right thing, because of course they've done bad things too, but rather the right thing as it relates to their own principles and values. So, for example, when they stood up to the Pentagon — if you remember that episode from a little while ago — regardless of whether you think it was the right thing for them to do or not — and frankly, I don't think Anthropic is even the main actor in that story. To my mind, US government overreach is really the main story. But it put them in an impossible situation. So people have lots of different hot takes about what they should or shouldn't have done. But I remember the day that they did it, someone sent me a video of the sidewalk all around their San Francisco headquarters chalked up with messages of thanks. And believe me, when you tell me that San Francisco residents have chalked up a tech company headquarters, messages of thanks are not the thing that first comes to mind. So I don't think they could possibly have foreseen the positive outpouring that they would get from that stand. Obviously Claude went to number one, and it's accelerated their revenue growth and a bunch of other good things. But I think, ultimately, from what I could tell, they just had to make a principled decision. And even people that disagree can admire that and say, well, okay, I may not agree that you did the right thing, but I understand that you did what was right as it relates to your values. And that gives me a sense that I can trust you in the future to make sacrifices on behalf of those values, and I think that's a really underrated value in business.

00:38:30 Andrew Keen: I don't suppose there was a lot of celebration on the street, though, in Birmingham, Alabama, or Jackson, Mississippi, or Kansas City, in terms of the behavior of Anthropic. Some people might be listening to this, Eric, and just thinking, well, here's just another left-wing Northern Californian peddling his own communitarian thinking. What gives you the moral authority to determine what a good company actually is? I mean, why why shouldn't a company just make money?

00:39:05 Eric Ries: Well, okay. There's a lot to unpack in your question. First of all, I don't think it is appropriate — to me, the true strength of a democratic market-based society is that we don't have to have a monoculture of values. It's okay to have companies that embody different values. That's actually okay. And no, I am not saying that what Anthropic did was morally right, and I don't think it matters whether people were celebrating in the streets in any given city or not. This is just a statement of fact of what they did. I think if you wanna have companies with different values, that's totally fine. The thesis of the book is not anti-capitalist. It's not anti-making money. Actually, almost every protagonist in this book made a colossal amount of money and they used these principles to do it. Instead, you have to understand that if you are willing to be a trustworthy counterparty — that is, to enact in a really deep way the moral bedrock of capitalism — which is that voluntary, uncoerced, fully informed, mutual transactions are value-creating — when people make money that way, the value that is created is not stolen from anybody. It is generated. That is the engine of this machine. So I think that's a fervent defense of capitalism.

00:40:21 Andrew Keen: Oh, there are some people who would argue that Anthropic — like all these other OpenAI — all these other AI companies have stolen their intelligence.

00:40:30 Eric Ries: No. A hundred percent. Listen. I'm not claiming that they're the good guys. My own work — I was involuntarily in the training data too. You know? Like, I could argue both sides of whether they are the good guys. I — that doesn't matter. Because, again, the point is not to say that there should be one best moral judgment about companies, but rather that each organization should be free to declare what its values are and to live with those consequences. The problem is we have built an economic system that is antithetical to companies having any values at all. As soon as a company declares its allegiance to any higher principle — as simple as quality and beauty, or as complicated as solving some really important problem — we have a financial system that has a tendency to rip it to shreds. And in the book, I document two hundred years of this phenomenon happening, where companies have success by treating workers well, or by investing in craftsmanship and quality, or a bunch of other principles. Again, not aligned with some particular political agenda. And yet the very thing that makes them trustworthy makes them into an asset worth stealing. And I think we have to grapple with the fact that we've built an economy that creates too many ways to make money without really creating value.

00:41:41 Andrew Keen: Well, let's end with everybody's favorite good company, Patagonia, including my own. I know you feature them.

00:41:47 Eric Ries: Of course.

00:41:49 Andrew Keen: What's the parable in the Patagonia story? Not everyone can be Patagonia, but they do seem to be, of all these companies, the squeakiest, the cleanest. They really are a decent company.

00:42:03 Eric Ries: Yeah. You know, I'll tell you a story. I was on a road trip and, you know, staying at a hotel, and I met some civilians in the lobby — not people in the business, not Silicon Valley insiders or anything. I was just making conversation. Oh, how are your kids, you know, whatever. And they told me this story about friends of theirs that happened to work at Patagonia. But that wasn't the point of the story. They were making a different point. And the story involved me understanding that these two people would know a lot about how to go camping, be like excellent outdoorspeople. And they didn't need to explain that to me. They just said, oh, they work at Patagonia, so you know — and then they kept going. It was like they had an instinctive understanding. If I tell you that someone works at Patagonia, not only can you infer from that that they obviously love the outdoors, that they are committed to — they live the lifestyle of the Patagonia brand — but that everyone knows that, so I don't need to explain. It was, to me, such a profound example of how a brand can be so all-encompassing when done properly. And it is true that they are a great company. They're a company that has gone out of its way to act with integrity in a bunch of different situations. However — and I know a lot of people are like, well, aren't those the environmentalists? Yes. That's true. But the original obsession of Patagonia was not environmentalism, but product quality. Yvon Chouinard was one of these really irritating founders — he's a guy who hand-forged his own carabiners because he couldn't find ones of sufficient quality. He learned blacksmithing so he could climb more effectively. And he used to do this exercise with his employees when they would come to work for him. He would teach a class on the nature of quality. And he would sit down with them, and he would say, okay, here's a bag of Peet's Coffee beans — or whatever he'd pull out. Is this a high-quality product? His employees naturally would be like, well, I guess it depends if you like coffee. He would say, no. Wrong. Quality is an objective characteristic of a product itself. Tell me the highest quality piece of clothing you can name. And someone would say, an expensive Italian dress shirt. He'd say, no. Wrong. Put that thing in the washing machine a couple of cycles. Now is it high quality? Like, he was an absolutist about what he viewed to be quality. Now, that kind of attitude — people hear that and they're like, that's crazy. Quality is an objective function — what's he talking about? But for the people that resonated with it, that is what drew them to want to be part of the company. And the company was willing to make outlandish sacrifices to defend its ethos at multiple times in its history. That's why people admire them so much. One of my favorite stories is — you know, remember the outsourcing boom of the late nineties? People were just flying away from American factories and into foreign factories and whatever. Patagonia got caught up in the best practices of that era, they wound up with all these crap foreign factories that were doing really poor work, and they really damaged their brand. The company almost went out of business. They had to do a bunch of layoffs — to this day the company still refers to it as Black Wednesday, the day they had to do those layoffs. And they had to negotiate with their banks for a huge loan to restructure their financial debts. They really almost bankrupted the company. And the CEO at the time — not Yvon, already a new CEO — was doing the negotiation with the banks. I think HSBC, if I remember right from the story, was the lead lender. And they made a deal. Okay. Here's the restructuring. We're gonna lay some people off, we're gonna cut costs, we'll do all these things, we'll guarantee your loans, blah blah blah blah blah. We have one condition. Just while you're doing the restructuring, just for a couple of years, we need you to suspend your donations to nonprofit causes. Because, look, you're basically taking the money we lend you and giving it to others, and we'd like you to spend that money only on the business. So that's our condition to close the deal. And the CEO of Patagonia was like, oh, sorry. Misunderstood. No deal. With the most reasonable request on the planet — I can't imagine any business other than Patagonia would ever say no to a thing like this. And they were just like, no. Obviously not. The point of this restructuring is to save the company, not to destroy it. So forget it. And the bank — it was so fascinating. First of all, what kind of company says such a thing? But more importantly, it put the bank in this really funny position, because what are they gonna do now? Call the loans and destroy the company and get nothing over this tiny little point? Of course not. So of course they relented, and they went ahead with the loan, and they got to let Patagonia be Patagonia. So these stories — again, people who don't love the company or aren't into their causes might be like, well, why do I care about that? But to me, again, these are indications not of moral righteousness, but about corporate organizational strength — the ability to resist outside pressure and stay true to some principle. And that's what unites all of these stories and all of these companies. You may appreciate this: a couple of years ago, Patagonia converted to what's called a perpetual purpose trust to handle the succession problem after the Chouinards. You know, eventually they will pass away, and the company needs to be in the hands of trustees permanently. So they have a structure very similar now to the Novo Nordisk structure, although it's not exactly a cooperative, not exactly a nonprofit. It's what's called a perpetual purpose trust, but a similar concept. And at the time — I can't remember exactly who now — there was a conservative company whose billionaire owner also sold his company to a private equity firm, and it was subsequently dismantled. And whereas the Chouinards had pledged that the purpose trust will make environmental cause donations out of Patagonia forever, this billionaire had said that he was going to take the proceeds of his liquidation and use that to fund conservative causes. And there were a bunch of articles in the press that saw these two activities as the same thing. It was like a trend — political billionaires pledging whatever to political causes. And I just thought, what a sign of the times that we literally cannot tell the difference between a company that is being liquidated and one that is being rendered immortal. Because we are so indoctrinated into finance-based thinking that we say, well, if two things have equivalent value, then they must be the same thing. Absurd.

00:48:00 Andrew Keen: And finally, Eric, I have to ask this in our politically turbulent times. We haven't talked much about politics. I don't wanna turn this into another Trump conversation. But given the state of America these days, there are business school professors who argue the only morality now in America — or the only moral direction — can be got from corporate companies like Patagonia, perhaps like Costco. Yeah. Is that your argument in the book? Is that to reinvent itself politically, or to cure its political cleavages, its toxicity, the kind of companies that you write about — the great companies — can help? Can they lead us? Can the American Constitution, which is also an architectural product, learn from all this?

00:48:51 Eric Ries: I think so. I make the argument in the book that what we currently call for-profit and nonprofit is a wrong distinction. That really, those are elements of the tax code. That should not be the primary thing that determines the kind of organization you are. Today, when we mean for-profit, we generally actually mean investor-controlled company, and nonprofit means self-controlled or autonomous company. When you collapse the definition, when you redefine profit — as I do in the book — as the maximization of human flourishing, we can say very confidently that the Smithsonian Institution is very for-profit and Philip Morris is very nonprofit. Now we can see things more clearly. In the later chapters of the book, I expound on how these principles can be used to build not just regular old for-profit companies, but to establish what I call civic infrastructure — the kinds of organizations that set the rules of the road for others. And some of that has obvious political overtones. And obviously we have a lot of civic infrastructure to build and rebuild. I think this is, basically, the darkest time for this country that I can remember in my lifetime, certainly. And I often am given to despair, as so many others are, but I try to remind myself that our grandparents went through much darker times. And somehow in the insanity that they experienced, they kept the faith that a better world was possible. And more importantly, they worked really hard to end the darkness. They didn't just say, well, it's inevitable that it will end eventually, I should wait for somebody else to do it for me. They sacrificed to make it so. And then they learned the lessons of their mistakes and they built a huge raft. They had just such an incredible outpouring of creative energy to build new institutions, many of which are still the dominant institutions that govern our lives today. And I feel like we are a society that has kind of fallen into atrophy, where we can't remember even how to operate the machinery that they built for us. And certainly when you say we're gonna build a new one, people look at you like — I mean, even when I was building a new stock exchange, people said, you can't. That's not the kind of thing people do anymore. That's the kind of thing our grandparents did. No. Wrong. We are going to have to — in our generation and the next — when this darkness passes, learn these lessons and really rebuild every aspect of our civic fabric to insulate it against the things that have led us into this really dark place. I do think reversing the mistakes we've made in corporate governance is a really important part of that. But more importantly, I think, is adopting a culture that puts the making of things and the creating of value — the defending of the moral foundation of our economic and political system — putting that back into the public sphere. I think that is extremely important. I didn't realize when I first started working on this book, now many years ago, how much public corruption would become an issue of the time. And so the book coming out now is kind of interesting timing. But yeah, I think before we can start talking about what people should be allowed to do, before we get into the political question of what is legal and illegal, this book is kind of an old-fashioned one that says, look, before we get to that, we have to first ask the question: what should the leaders of organizations — what ought they to want to do? Because we are the ones who get to make that decision, not just ourselves as leaders, but also as employees and consumers and investors. We can choose. We can choose to support those organizations that are in fact committed to human flourishing. And when we do, we actually find that we have surprising power. So yes, I think this is an incredibly important part of the story of how we will emerge from this darkness.

00:52:15 Andrew Keen: Well, there you have it. Some cheerful news about the future, potentially. It's up to us, of course. Eric Ries' new book — it's out today — Incorruptible: Why Good Companies Go Bad and How Great Companies Stay Great. Eric, congratulations on the book. Lovely to talk to you, and best of luck making the world less corruptible. Thank you so much.

00:52:39 Eric Ries: Thank you very much. I appreciate the conversation.