Latest / Giant Ideas / Does "Financial Gravity" Corrupt? - Lean Startup author Eric Ries on staying Incorruptible

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Does "Financial Gravity" Corrupt? - Lean Startup author Eric Ries on staying Incorruptible · Giant Ideas

• 0:00
  SPEAKER_02: Eric, thank you so much for joining us on Giant Ideas.
• 0:02
  SPEAKER_02: It's great to have you with us.
• 0:04
  SPEAKER_02: Nice to be here.
• 0:05
  SPEAKER_02: Let's start by talking about Lean Startup.
• 0:07
  SPEAKER_02: This was a book and a philosophy that really profoundly shaped so much of Silicon Valley and startup culture around the world.
• 0:14
  SPEAKER_02: Maybe before we talk about lessons learnt all this time that's passed, could you just distill down what was the key message of lean startup?
• 0:23
  SPEAKER_00: Sure, yeah.
• 0:25
  SPEAKER_00: So much of how we used to teach entrepreneurship really was based on 20th century general management principles.
• 0:33
  SPEAKER_00: Principles that every one of us has learned if we've had any kind of a job, right?
• 0:36
  SPEAKER_00: You you know, you do better than expected, you're doing a good job.
• 0:39
  SPEAKER_00: You do worse than expected, you're doing a bad job, which requires you to have a manager.
• 0:44
  SPEAKER_00: Your manager has to know what's supposed to happen.
• 0:47
  SPEAKER_00: And then you can be judged based on how what you did compares to what you were supposed to do.
• 0:53
  SPEAKER_00: Um if you study 20th century general management, you will learn that this was a big breakthrough, actually, in the early 20th century to figure out how to create forecasts of what is supposed to happen.
• 1:04
  SPEAKER_00: Taking macroeconomic data and sales data and all kinds of stuff, you put it together, you make a plan, the plan gets decomposed down into a series of metrics or OKRs we call them these days, where each middle manager is assigned to some metric.
• 1:16
  SPEAKER_00: Right, you know what I'm talking about?
• 1:17
  SPEAKER_00: This is you're familiar with this idea?
• 1:19
  SPEAKER_00: Yeah, of course.
• 1:19
  SPEAKER_00: If you pay attention closely, though, you'll see that in order for that whole system to operate, we have to have a long and stable operating history from which to extrapolate the forecast.
• 1:31
  SPEAKER_00: Otherwise, the targets are all arbitrary.
• 1:35
  SPEAKER_00: And in entrepreneurship, we by definition never have such a forecast because we're trying to do something new on purpose.
• 1:42
  SPEAKER_00: The whole point of it is to do something new where nobody knows how to make an accurate forecast.
• 1:47
  SPEAKER_00: So so much of business planning in an entrepreneurial situation is trying to figure out how to cope with the underlying uncertainty of doing a startup.
• 1:55
  SPEAKER_00: That's actually, to me, the definition of entrepreneurship to create something new under conditions of extreme uncertainty.
• 2:01
  SPEAKER_00: And so the idea of lean startup was to borrow ideas from a bunch of different fields from lean manufacturing, from a scientific method, from maneuver warfare, from customer development, from all kinds of places.
• 2:12
  SPEAKER_00: Try to put together a system that would allow us to evaluate and judge progress even when we didn't have enough stable operating history to make a forecast.
• 2:22
  SPEAKER_00: And that's where the famous, you know, terms, like the terminology of lean startup comes from, the minimum viable product or MVP, um, you know, that first increment of work that you have to do to run that first experiment.
• 2:33
  SPEAKER_00: One of the most underrated concepts in lean startup is that the unit of progress is not stuff.
• 2:41
  SPEAKER_00: You know, AI may lets you make stuff more stuff faster.
• 2:44
  SPEAKER_00: Congratulations.
• 2:44
  SPEAKER_00: That's been the trend of technology for going on a hundred years now.
• 2:48
  SPEAKER_00: You can make more stuff faster, good job.
• 2:50
  SPEAKER_00: But the question of our time primarily is not how do we make more stuff, but what's the right thing to build in the first place?
• 2:56
  SPEAKER_00: So learning how to operate the business, learning who the customers are and what they want, learning the economics and the business model a little bit, like that learning is actually progress.
• 3:07
  SPEAKER_00: And making the things is not, and that is super counterintuitive for most people.
• 3:11
  SPEAKER_00: We call it validated or scientific learning.
• 3:13
  SPEAKER_00: Like, how do we prove to ourselves and then to investors and everybody else?
• 3:17
  SPEAKER_00: How do we prove that we actually are making progress?
• 3:19
  SPEAKER_00: We are learning how this business really operates.
• 3:21
  SPEAKER_02: Eric, is that anything that you regret from Lean Startup or that you think you got wrong?
• 3:26
  SPEAKER_00: Regret?
• 3:27
  SPEAKER_00: No, but you know, I know so much more now than I did then, so of course, a lot of things I didn't quite get right.
• 3:34
  SPEAKER_00: Um, you know, the biggest one, and obviously this is this ties into the themes of the new book.
• 3:39
  SPEAKER_00: One of the funny, one of one of the funniest jokes on the internet, or at least I thought so for a long time.
• 3:43
  SPEAKER_00: You've seen the Reddit meme that is Anakin and Padme.
• 3:46
  SPEAKER_00: No.
• 3:47
  SPEAKER_00: And Anakin says, I'm gonna change the world.
• 3:50
  SPEAKER_00: Oh, yeah.
• 3:51
  SPEAKER_00: That's that's frame one of the cartoon.
• 3:53
  SPEAKER_00: Padme says, for the better, right?
• 3:56
  SPEAKER_00: That's frame two.
• 3:57
  SPEAKER_00: In frame three, Anakin says nothing at all.
• 3:59
  SPEAKER_00: He just grins.
• 4:01
  SPEAKER_00: And then in frame four, Padme says, for the better, right?
• 4:05
  SPEAKER_00: And this question of when we try to change the world, do we have an obligation to change it for the better?
• 4:10
  SPEAKER_00: I definitely thought that was obvious.
• 4:12
  SPEAKER_00: We all were on the same page about that.
• 4:14
  SPEAKER_00: Of course, everyone was trying to make the world a better place, right?
• 4:16
  SPEAKER_00: Right?
• 4:17
  SPEAKER_00: Surely, right?
• 4:18
  SPEAKER_00: But in, you know, I used to think that joke was really funny in the last few years.
• 4:22
  SPEAKER_00: I don't find it that funny anymore.
• 4:23
  SPEAKER_00: I think a lot of people who got seduced by the idea of changing the world, like actually just assumed that if they had more power and influence over the world, that would be on its own a good thing without really thinking too deeply about what kind of effects they were going to have.
• 4:38
  SPEAKER_00: And if you go back, if if I was gonna change one thing in the lean startup, it would only be this.
• 4:43
  SPEAKER_00: I actually went back a couple years ago and checked.
• 4:45
  SPEAKER_00: Did I say that people should change the world in the book?
• 4:49
  SPEAKER_00: And I did.
• 4:50
  SPEAKER_00: In it's like a throwaway line at the end of the introduction, it just says, such and such a thing, so that the next generation of entrepreneurs will have the tools they need to change the world.
• 5:00
  SPEAKER_00: Period.
• 5:01
  SPEAKER_00: I forgot to specify for the better.
• 5:04
  SPEAKER_02: I love that.
• 5:05
  SPEAKER_02: Do you do you think that you you've been at the heart of Silicon Valley culture and you you know a lot of the top founders now and then?
• 5:11
  SPEAKER_02: Do you think that Silicon Valley founders on average are less driven by a desire to change the world for the better now than they were then?
• 5:21
  SPEAKER_00: I don't think it's that different now.
• 5:23
  SPEAKER_00: I think two things are happening.
• 5:24
  SPEAKER_00: One, we have uh we have a kind of very performative class of very rich people who've just decided to give up on that project and have just embraced cynicism and nihilism kind of as their brand.
• 5:37
  SPEAKER_00: And so, yeah, um, those people are very loud.
• 5:40
  SPEAKER_00: They they consume a lot of attention.
• 5:42
  SPEAKER_00: They have a special um talent for pissing off the rest of the public and making everyone worried about like Silicon Valley.
• 5:48
  SPEAKER_00: So I don't think those people are having a very positive effect on the ecosystem or on its uh on its branding, but it's been worried, you know, it's been helpful to them, so they keep doing it.
• 5:56
  SPEAKER_00: Um, that that really didn't exist, you know, when I was coming up in the industry.
• 6:00
  SPEAKER_00: Um, and then of course we have this set of founders now who have really lost control of their own creations and therefore have become villains, like not just um people like Dutch is having bad PR, but they've been complicit in bad stuff.
• 6:17
  SPEAKER_00: And they've had a really hard time reconciling that with their own self-image that they're supposed to be the heroes.
• 6:23
  SPEAKER_00: So that the fact that they're like publicly struggling with this tension, like out, like that I think that is also very different, you know, than what we had before.
• 6:31
  SPEAKER_00: But no, in terms of why people become entrepreneurs in the first place, like I don't detect much difference in how mission-driven or idealistic they start out as.
• 6:40
  SPEAKER_00: Um, because it's just why, why else would you become an entrepreneur?
• 6:44
  SPEAKER_00: Like that's what's so interesting to me.
• 6:45
  SPEAKER_00: It's like it's not, it's not actually a profession, except during like the height of bubbles and peaks, like what we're going on right now.
• 6:51
  SPEAKER_00: Generally speaking, entrepreneurship does not attract people who are in it for the money because they're just better ways to make money.
• 6:56
  SPEAKER_00: Way better ways, ways with a way higher higher probability of success.
• 7:00
  SPEAKER_00: Generally speaking, like, unless you're a very, very cynical person, entrepreneurship tends to attract people who want to accomplish something in the world and have been thwarted in being able to accomplish that through traditional channels.
• 7:12
  SPEAKER_00: So, you know, over time, the financial gravity of this system does tend to corrupt people.
• 7:17
  SPEAKER_00: That's obviously a big issue.
• 7:19
  SPEAKER_00: But they don't start out that way.
• 7:20
  SPEAKER_00: Generally speaking, they start out very, very naive, very idealistic.
• 7:24
  SPEAKER_02: You've written a second book, you know, a couple of a couple of decades on, uh, called Incorruptible.
• 7:30
  SPEAKER_02: And it in many ways, I think, deals with a lot of the problems, not just with Silicon Valley, but with business more generally across the world and when things go wrong with business.
• 7:38
  SPEAKER_02: Eric, could you just give us a quick version of the thinking, the main vision behind the book?
• 7:43
  SPEAKER_00: So, yeah, the new book is called Incorruptible.
• 7:45
  SPEAKER_00: And it's about this double mystery that is the at the heart of modern life.
• 7:51
  SPEAKER_00: We we all know, although we don't really have language for it, that quite often when companies become successful, they get ruined.
• 8:00
  SPEAKER_00: And this is not the same as they get disrupted by some competitor.
• 8:04
  SPEAKER_00: You know, like I was having dinner the other day, and uh one of the people who was at dinner was like, I'm sorry I recommended this place because the food tastes disgusting.
• 8:12
  SPEAKER_00: We're like, Yeah, why did you recommend it?
• 8:13
  SPEAKER_00: They're like, Yeah, hold on one second.
• 8:15
  SPEAKER_00: They're on their phone, they're like, Yeah, sorry guys, I didn't realize this place had been taken over by private equity.
• 8:19
  SPEAKER_00: I could taste it.
• 8:21
  SPEAKER_00: How can the capital structure of a company have a flavor?
• 8:24
  SPEAKER_00: And like, think about your favorite brand that got acquired or that went public.
• 8:29
  SPEAKER_00: Have you ever been like, well, maybe with all the vast financial resources of the private equity firm, the food will taste better?
• 8:36
  SPEAKER_00: You know, maybe it'll be like it's never good.
• 8:39
  SPEAKER_00: It's always wow, why does it always get worse?
• 8:42
  SPEAKER_00: And and I just someone called me now, you know, because the book has been out for a little while now.
• 8:45
  SPEAKER_00: People are trying to just tell me their horror stories.
• 8:48
  SPEAKER_00: I was someone who went to a membership club, like uh, you know, uh, an athletic club, and they were thinking about becoming a member, and they were like, God, the everything about this place just screams.
• 8:58
  SPEAKER_00: They're trying to squeeze every last dollar out of me, and they left and they'd be like, they looked it up and they're like, Google a thing.
• 9:03
  SPEAKER_00: Is this thing owned by private equity?
• 9:05
  SPEAKER_00: Oh, look, oh look, it is.
• 9:06
  SPEAKER_00: Like, it's just somehow we've gotten used to the idea that um when companies get bigger, they get ruined.
• 9:14
  SPEAKER_00: So many stories in the book are about companies that are destroyed by their own investors in the name of profit.
• 9:21
  SPEAKER_00: What's going on?
• 9:22
  SPEAKER_00: And we have this like uh this like a mystery.
• 9:24
  SPEAKER_00: Why are we destroying value in the name of profit?
• 9:27
  SPEAKER_00: In the book, I show that this has been going on for hundreds of years.
• 9:29
  SPEAKER_00: But there's a second mystery buried in that one, which is if you ask most normal people why does this happen, they'll be like, well, it's inevitable.
• 9:38
  SPEAKER_00: It's inevitable.
• 9:39
  SPEAKER_00: Why are there exceptions?
• 9:41
  SPEAKER_00: Why are there some companies that this doesn't seem to happen to?
• 9:45
  SPEAKER_00: And so if you take those two mysteries as as uh as our jumping off point, that's what the book is about.
• 9:52
  SPEAKER_01: And what are the companies that manage to debug the trend?
• 9:55
  SPEAKER_00: If you you play this game with people, even the people that say it's inevitable will be able to name exceptions because they'll have a Vanguard mutual fund, or they'll own a Patagonia fleece, or they'll have shopped at uh John Lowe's partnership, or they'll um they'll have taken a Nova Nordist medication.
• 10:11
  SPEAKER_00: And you go through the list of companies that aren't seen as the exceptions, that have managed to sustain an ethos, Mondragon in Spain.
• 10:18
  SPEAKER_00: Um, some of these companies have been able to maintain this ethos for 50, 75, 100 years more.
• 10:23
  SPEAKER_00: And you say, well, what do all those companies have in common?
• 10:28
  SPEAKER_00: You will discover that every single one of them violates what we consider to be the best practices of how companies are supposed to be built, structured, and governed.
• 10:39
  SPEAKER_00: So, in some way, we have gotten ourselves into an economy where we have built a whole playbook of best practices that, as far as I can tell, are value-destroying.
• 10:50
  SPEAKER_00: And yet we treat them like they're pillars of capitalism that are sacrosanct, when in fact they're quite bad.
• 10:55
  SPEAKER_02: What is the element for across all those different examples that is not present in most companies where things go wrong?
• 11:01
  SPEAKER_00: So there's a blueprint that these companies share that broadly speaking has two elements.
• 11:05
  SPEAKER_00: One is an inner element, the element of alignment or ethos is the word I use in the book.
• 11:10
  SPEAKER_00: They have a character to them, they stand for something.
• 11:13
  SPEAKER_00: Um, you know, the original concept for Costco was that it should be a fiduciary to the customer.
• 11:20
  SPEAKER_00: Meaning, if you put customers first, you put their interests first, eventually shareholders and everyone else will prosper.
• 11:26
  SPEAKER_00: You treat employees with respect, you pay them above market wages.
• 11:29
  SPEAKER_00: That is going to lead to good things.
• 11:31
  SPEAKER_00: It's a more enlightened view of capitalism.
• 11:33
  SPEAKER_00: And under conventional structures, those insights, that ethos is the thing that can tend to get destroyed.
• 11:41
  SPEAKER_00: So there's this spark, this thing that makes companies worth creating in the first place that we have to protect.
• 11:46
  SPEAKER_00: We protect it first and foremost by getting everyone aligned around that common vision or goal.
• 11:50
  SPEAKER_00: And the second dimension is we learn to build the company with structural integrity.
• 11:55
  SPEAKER_00: We make sure that if they try to get bullied or tempted to betray or defect, uh there's something that interrupts that process.
• 12:01
  SPEAKER_00: So the companies that I mentioned that are these exceptions, they all have some mechanism for being a mission guardian, someone or something whose job it is to make sure that the company cannot deviate from its mission over time.
• 12:14
  SPEAKER_00: And those two things together, ethos plus integrity, are the blueprint for building an incorruptible company.
• 12:19
  SPEAKER_01: And you seem to think a systems-based approach works best.
• 12:22
  SPEAKER_01: But I would probably counter that.
• 12:24
  SPEAKER_01: The best safeguard for that is an empowered founder, strong incentive alignment, and you just hope that the founder stays mission aligned and and uh uncorrupted.
• 12:35
  SPEAKER_00: Sure.
• 12:35
  SPEAKER_00: So here are the problems with that.
• 12:37
  SPEAKER_00: First thing is even if I grant the premise of your question, that will only protect the company up to the maximum of the human lifespan.
• 12:45
  unknown: Yeah.
• 12:46
  SPEAKER_00: Which is not.
• 12:47
  SPEAKER_01: Yeah, that's a long, it's a long run if you start the company.
• 12:50
  SPEAKER_00: Sure.
• 12:50
  SPEAKER_00: If you start the company when you're 20 and you, you know, stay at it.
• 12:53
  SPEAKER_00: Um, so that is one possibility.
• 12:55
  SPEAKER_00: But I don't think I don't think that's that great.
• 12:58
  SPEAKER_00: First of all, the idea that the founder will remain incorruptible runs into the problems of human psychology.
• 13:04
  SPEAKER_00: Like we all know that absolute power corrupts absolutely.
• 13:06
  SPEAKER_00: So like if you watch some of these guys, like they, the psychology research, they have a term for this, they call it hubris syndrome.
• 13:12
  SPEAKER_00: They tend to become arrogant, they tend to become uh divorced from reality.
• 13:17
  SPEAKER_00: And it's actually like statistically speaking, like it works out sometimes, but it doesn't work out every time.
• 13:23
  SPEAKER_00: The second problem is it's not enough to protect the founder, because in a modern company, you'll have thousands and thousands of employees who all have short-term stock options.
• 13:34
  SPEAKER_00: So we have a lot of companies where like the founder is up there protected and thinking long-term, but their actual systems and procedures that run the company uh deviate from that vision.
• 13:43
  SPEAKER_00: That's actually why we have the whole discourse recently about founder mode.
• 13:47
  SPEAKER_00: Um, and this the other problem with it, I think this is a little bit more subtle.
• 13:52
  SPEAKER_00: A lot of these founders are trapped.
• 13:55
  SPEAKER_00: At a certain point, this ceases to be your dream job and becomes a job you can never quit.
• 14:01
  SPEAKER_00: You basically become an indentured servant.
• 14:03
  SPEAKER_00: If you leave, the thing will fall apart.
• 14:05
  SPEAKER_00: So you must stay.
• 14:07
  SPEAKER_00: And I think the psychological toll that that takes, look, these guys are rich beyond belief.
• 14:11
  SPEAKER_00: So, you know, I know that we don't have a lot of sympathy for them.
• 14:14
  SPEAKER_00: But like, it's kind of a hostage situation.
• 14:16
  SPEAKER_00: Like, do you really want a hostage running your company?
• 14:19
  SPEAKER_00: I just think we could do better.
• 14:20
  SPEAKER_00: And the fact that we have these examples of companies that have been able to sustain an ethos over generations, to me, points the way towards a much more humane way of working.
• 14:32
  SPEAKER_02: And so, Eric, just to clarify that the problem here, the kind of bugbear is shareholder primacy.
• 14:38
  SPEAKER_02: It's it's the profit motive, it's it's quarterly reporting.
• 14:42
  SPEAKER_02: What specifically do you think is at fault?
• 14:46
  SPEAKER_00: Yeah.
• 14:46
  SPEAKER_00: So all of those things are symptoms of a phenomenon I call financial gravity.
• 14:51
  SPEAKER_00: That there's a literal force that financial systems exert that can drag companies down into mediocrity or worse.
• 14:58
  SPEAKER_00: So, yes, the financial gravity is the root cause behind, for example, shareholder privacy.
• 15:03
  SPEAKER_00: The idea that, oh, you think your company is a beautiful living organism designed to create quality products that make your customers' lives better, like a sucker, jokes on you.
• 15:13
  SPEAKER_00: Oh, no, my friend.
• 15:14
  SPEAKER_00: No, no, didn't you know?
• 15:16
  SPEAKER_00: Your company is nothing more than a financial instrument to profit shareholders.
• 15:20
  SPEAKER_00: Oh, good to know, right?
• 15:21
  SPEAKER_00: That is certainly one of the problems.
• 15:23
  SPEAKER_00: That's one of the dumbest ideas in the world.
• 15:25
  SPEAKER_00: And people are taught that that's some kind of ancient pillar of capitalism, but it mostly dates to the 1980s.
• 15:30
  SPEAKER_00: Like it's a relatively recent addition to our theories of the corporation and one that has not worked very well.
• 15:36
  SPEAKER_00: So that's something we can easily uh reverse and undo.
• 15:39
  SPEAKER_00: Yes, you talked about the profit motive.
• 15:41
  SPEAKER_00: Most companies, in my opinion, do not understand what it means to make a profit.
• 15:45
  SPEAKER_00: We don't define it correctly.
• 15:46
  SPEAKER_00: As a result, we're living in a world where the very idea of being for-profit is under attack.
• 15:51
  SPEAKER_00: You see people who are kind of reflexively suspicious of any for-profit company always assume that it has malign intentions.
• 15:57
  SPEAKER_00: I don't blame them.
• 15:58
  SPEAKER_00: That is a pretty reasonable uh guess these days because statistically speaking, that's what we're built doing.
• 16:04
  SPEAKER_00: But again, it doesn't have to be that way.
• 16:06
  SPEAKER_00: Um, and yeah, quarterly reporting like that.
• 16:09
  SPEAKER_00: There's what's anyway, each of these are like examples of so-called best practices that we have really good evidence destroy value.
• 16:17
  SPEAKER_00: So um, there's pretty good evidence that companies that have to report four times a year are 5% less valuable of total market cap compared to reporting twice a year.
• 16:25
  SPEAKER_00: Like it's an incredibly powerful effect.
• 16:28
  SPEAKER_00: Um, companies today that are rated to have bad governance have outperformed companies rated to have good governance since 2008.
• 16:36
  SPEAKER_00: Like we have, we're starting to accumulate this data that these practices are not only immoral and unethical and bad for the environment and bad for human welfare and all this other stuff, but also fail on their own terms because they're fundamentally value destroying.
• 16:49
  SPEAKER_01: So, I mean, we back companies a giant that we believe are going to be very big companies, but we have conviction that they will also make the world a better place.
• 16:56
  SPEAKER_01: So we're very aligned with the vision.
• 16:58
  SPEAKER_01: But trying to have a dual purpose for companies, whether it's been the B corporation or kind of some of the ESG efforts, have struggled and faltered in the last years just because it can be hard to kind of objectively talk about uh non-financial results.
• 17:13
  SPEAKER_01: So I mean, do you have any suggestions on how we could move this forward?
• 17:16
  SPEAKER_01: We had um Andrew Yang on the podcast a couple months ago, and he has a vision for society where we really do try and compensate people for the contributions that are non-financial, whether it's sort of you know taking care of a loved one or contributing to the community.
• 17:29
  SPEAKER_01: But how we kind of make that a reality and a practice, I think, is is is where the we kind of falter somewhat.
• 17:36
  SPEAKER_00: Yeah, I'm not a big fan of some of these um double and triple bottom line initiatives that have happened before.
• 17:42
  SPEAKER_00: Not that they were ill-intentioned, but simply for the reason you're saying, then it's just very difficult to serve multiple masters.
• 17:48
  SPEAKER_00: Um, I'm really a believer in a single bottom line.
• 17:50
  SPEAKER_00: I just think we don't define that bottom line correctly.
• 17:53
  SPEAKER_00: So we have so many examples, like I could just give you company after company after company, where the profit motive proved unprofitable because thinking in a short-term way, thinking in a narrow way, like cause the company to miss out on the value creation that is available if you can see things in a more broad way.
• 18:13
  SPEAKER_00: So, so yeah, I think we have the evidence to support the idea that working in this way, being mission-driven, being long-term, making what I call fiduciary commitments to more than just shareholders.
• 18:24
  SPEAKER_00: Those choices, the evidence shows, lead to more commercial success.
• 18:28
  SPEAKER_00: They're sources of competitive advantage, not disadvantage.
• 18:32
  SPEAKER_00: So no one's asking anybody to sacrifice or give up on their dream of changing the world for the better and being handsomely rewarded for it.
• 18:39
  SPEAKER_00: This is actually the path by which that can happen.
• 18:41
  SPEAKER_02: My experience about Eric, having written another book called Connect, and it was all about how you know there's a huge amount of value at stake from companies in terms of their interactions with societal stakeholders, not just shareholders.
• 18:53
  SPEAKER_02: And there's a real competitive advantage to be gained by engaging radically with society.
• 18:57
  SPEAKER_02: When we took that around the world and we interviewed AT CEOs, everyone from the big banks to the consumer goods companies, they they kind of intellectually got it, but their heart wasn't really in it, you know, and they kind of nod and nod along, and then nothing really changes, you know.
• 19:11
  SPEAKER_02: The kind of old ways of doing capitalism don't change.
• 19:13
  SPEAKER_02: You're unusual in that you have not just written about this stuff, you you very actively tried to change it with a long-term stock exchange.
• 19:20
  SPEAKER_02: Maybe tell us a little bit about what that stock exchange is, how it works, but also crucially, kind of has it worked and what's been your your experience in reality of trying to get people to adopt these new ways of valuing profit and valuing contributions to society.
• 19:36
  SPEAKER_00: Yeah, well, it has not been easy, of course.
• 19:39
  SPEAKER_00: Um yeah, yeah.
• 19:40
  SPEAKER_00: So for those who don't know, long-term stock exchange LTSC is an idea that I first floated in the lean startup in the final chapter.
• 19:46
  SPEAKER_00: I just say somebody should really do this.
• 19:48
  SPEAKER_00: I didn't think it was gonna have to be me.
• 19:49
  SPEAKER_00: I figured, you know, the mythical somebody would do it.
• 19:51
  SPEAKER_00: Um, it is a national securities exchange, so it is a direct competitor to the New York Stock Exchange at NASDAQ, the first to list and trade multiple stocks since the creation of Nasdaq in the 70s.
• 20:01
  SPEAKER_00: So first time someone's tried this in a really long time.
• 20:04
  SPEAKER_00: And the idea is to have listing standards that align with long-term value creation.
• 20:08
  SPEAKER_00: So uh companies to list on LTSE have to uh adopt our principles uh as of that basically doing the things that we've talked about, I talked about happening.
• 20:17
  SPEAKER_00: And the evidence shows that companies that do that make more money.
• 20:19
  SPEAKER_00: They attract more long-term investors, they're more commercially successful.
• 20:22
  SPEAKER_00: So we we view it as a way of protecting or enhancing the success of the companies that that list.
• 20:27
  SPEAKER_00: Um, it took an immense amount of time, money, and effort to get that company built, um, to get the legal approvals to run a new stock exchange, to build it from scratch, uh, to get the first companies to list to trade.
• 20:40
  SPEAKER_00: I mean, it's just been it's been an uphill battle for many years of my life.
• 20:43
  SPEAKER_00: I'm I'm happy to say that I do not run the company anymore.
• 20:46
  SPEAKER_00: So I have gotta get to get out of the habit of saying we did this, we did that.
• 20:50
  SPEAKER_00: But if you saw in the news recently, there's been a lot of discussion about the US SEC um switching from quarterly to semi-annual reporting.
• 20:58
  SPEAKER_00: Um, that's the result of an LTSE petition that was filed last year.
• 21:01
  SPEAKER_00: So um the company sees itself as on a mission to try to influence um in a positive way these rules that govern so much of our um financial life.
• 21:12
  SPEAKER_00: Uh and how's it going?
• 21:13
  SPEAKER_00: You know, I don't know.
• 21:15
  SPEAKER_00: I I think a very common problem with these kinds of projects is simply how do you know how well it's supposed to be going?
• 21:21
  SPEAKER_00: So the company, you know, so three amazing companies are listed in LTSE.
• 21:25
  SPEAKER_00: You could say, well, that's a lot less than the thousands that are listed on the New York Stock Exchange in NASDAQ.
• 21:29
  SPEAKER_00: True.
• 21:29
  SPEAKER_00: No, that's 100% true.
• 21:30
  SPEAKER_00: On the other hand, no one has ever gotten three companies listed on a non-IC, non-NASDAQ exchange, ever, ever.
• 21:37
  SPEAKER_00: So, you know, it's it's glacial tectonic type progress.
• 21:41
  SPEAKER_00: Is it enough?
• 21:42
  SPEAKER_00: Will it ultimately lead to success?
• 21:43
  SPEAKER_00: That's actually not up to me, but up to everybody listening.
• 21:47
  SPEAKER_00: People have to vote with their wallet to say, yes, this is the vision of the world that I want to see.
• 21:52
  SPEAKER_00: If you wait, people who wait to see and they say, well, let's see, after it becomes successful, I'm happy to jump on the bandwagon.
• 21:58
  SPEAKER_00: Um, if that's how people respond to it, Ultimately, no, it won't succeed.
• 22:02
  SPEAKER_00: This is going to require people that I mean founders, leaders, board members, investors to stand up and say, yes, this is the world we want, and we're willing to put our money where our mouth is to say this is this is how it should be.
• 22:13
  SPEAKER_00: And you know, I think with time will tell if we get it right.
• 22:16
  SPEAKER_02: I think it does require leadership.
• 22:17
  SPEAKER_02: The one of the best stories I've heard about this is Paul Pullman, who was the CEO of Unilever, this enormous consumer goods company.
• 22:25
  SPEAKER_02: And when he was first appointed CEO, he was a big believer in all the stuff you're talking about, long-term capitalism and purpose-driven capitalism.
• 22:32
  SPEAKER_02: And he really, really hates quarterly reporting.
• 22:34
  SPEAKER_02: And so on day one, as CEO of Unilever, he said to the hedge fund shareholders, I fire you.
• 22:40
  SPEAKER_02: I don't want you as I don't want you as shareholders anymore.
• 22:42
  SPEAKER_02: And he said he could only do it on day one because he couldn't possibly have been fired by the board on day one.
• 22:47
  SPEAKER_02: It'd been too embarrassing.
• 22:48
  SPEAKER_02: Um so he took that opportunity to do it.
• 22:50
  SPEAKER_02: But ultimately, you know, Paul Paul put forward that view of of long-term capitalism, and and it was he was a poster boy for it for a while, and you know, Unilever now has kind of rejected what the new CEO described, I think, as a kind of woke capitalism and has gone back to the old way of doing it.
• 23:06
  SPEAKER_02: What do you think as you kind of assess all the work you've done with long-term stock exchange, with with the writing, what what do you what makes you hopeful that this all can change in a very radical but also kind of mass way, where it's not a few pioneers like Paul and others, and it actually changes how everyone does capitalism?
• 23:27
  SPEAKER_00: I think I think ultimately the generational shift is the mega trend.
• 23:31
  SPEAKER_00: If you talk to younger people about this, they're they're not confused.
• 23:35
  SPEAKER_00: They have no debate, like they just think this system sucks, and they're very hungry for change.
• 23:41
  SPEAKER_00: And I think the question of how radical that change will be and exactly, you know, how it will happen, how painful and wrenching will it be versus how smooth and quarterly, that's up to older people to decide.
• 23:51
  SPEAKER_00: Um, and I think it's interesting.
• 23:54
  SPEAKER_00: Like when I well, the if I people project their ideas, their pre-existing ideas about capitalism onto the book.
• 24:00
  SPEAKER_00: So a lot of test readers would say things like, you know, like I had an economics professor who called me up.
• 24:04
  SPEAKER_00: He's like, look, you're you're too harsh on capitalism here.
• 24:07
  SPEAKER_00: Capitalism is a lot better than you make it sound in this book.
• 24:10
  SPEAKER_00: And I was like, that's interesting because I don't even mention capitalism in the book.
• 24:12
  SPEAKER_00: I just present the evidence of what is going on.
• 24:15
  SPEAKER_00: If you perceive this evidence as a critique of capitalism, doesn't that say something about your own beliefs?
• 24:21
  SPEAKER_00: What does nothing to do with me?
• 24:22
  SPEAKER_00: I just gave you the evidence.
• 24:23
  SPEAKER_00: You don't like it?
• 24:24
  SPEAKER_00: You know, what are you gonna do about that?
• 24:27
  SPEAKER_00: But for younger people who read the book, I had test readers who would say things to me like, this is the first book I've ever read in my life that defends capitalism.
• 24:37
  SPEAKER_00: Right?
• 24:37
  SPEAKER_00: So compare, like, so it's all a question of what do you, what is your preconceived notion about where we are as a society?
• 24:43
  SPEAKER_00: My goal is only to present the evidence.
• 24:45
  SPEAKER_00: It's not really up to me whether the system changes.
• 24:48
  SPEAKER_00: Like I said, it's up to those who are listening.
• 24:50
  SPEAKER_00: I I in the later chapters of the book really explore this idea that we as employees, we as customers, we as shareholders, we have more agency than we realize.
• 24:59
  SPEAKER_00: And we live in this very cynical age where people are constantly trying to tell you that your vote doesn't matter, your voice doesn't matter, what you do doesn't matter, you don't have any power.
• 25:10
  SPEAKER_00: And it's like those people are awfully rich.
• 25:14
  SPEAKER_00: They could be off on an island just partying by themselves.
• 25:17
  SPEAKER_00: Why are they spending all this money trying to convince you that you have no power?
• 25:22
  SPEAKER_00: Like, isn't that interesting?
• 25:24
  SPEAKER_00: Doesn't it seem a little bit strange that people spend so much time and energy trying to convince you you have no agency?
• 25:28
  SPEAKER_00: Maybe they're afraid of something.
• 25:30
  SPEAKER_00: Maybe they know something that they're not willing to admit.
• 25:33
  SPEAKER_00: And so maybe we should know it too.
• 25:35
  SPEAKER_00: So, yeah, maybe that's maybe that's a note to end on.
• 25:37
  SPEAKER_01: There we go.
• 25:37
  SPEAKER_01: Yeah, well, you you put a giant idea out onto the ether almost 15 years ago with the lean startup.
• 25:44
  SPEAKER_01: Uh, it certainly shaped the discourse of entrepreneurship for over a decade.
• 25:48
  SPEAKER_01: And hopefully this book, uh, Incorruptible, will do the same.
• 25:51
  SPEAKER_01: Thank you so much uh for joining us on Giant Ideas.
• 25:54
  SPEAKER_01: It was great to have you.
• 25:54
  SPEAKER_01: Thanks, Eric.