Latest / Success Story with Scott Clary / Eric Ries - Author of The Lean Startup (5M+ Copies Sold) | The Man Who Wrote The Lean Startup Says t

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Eric Ries - Author of The Lean Startup (5M+ Copies Sold) | The Man Who Wrote The Lean Startup Says t · Success Story with Scott Clary

• 0:00
  People say, well, if you're successful, you'll be able to define success in your own terms.
• 0:03
  You'll be in control, you'll have leverage.
• 0:05
  But how much more success you're supposed to have?
• 0:07
  What I've seen over and over again is people keep losing control of their organization
• 0:10
  and become something that they did not intend.
• 0:12
  What if everything you've been taught about building a business is slowing you down?
• 0:17
  Eric Grease changed the way startups are built by challenging the idea that you need everything
• 0:22
  figured out before you start.
• 0:24
  We've been taught something very specific about how markets work, what leadership is about.
• 0:28
  Founders who create a lot of value should have the most freedom.
• 0:31
  It's not true that if you have success, you'll have the power to do what you want.
• 0:35
  For these kind of companies, their very success is the thing that makes them an attractive target.
• 0:39
  From rapid experimentation to embracing uncertainty, he's built a framework that redefines how companies grow.
• 0:47
  Today, he breaks down how to build smarter and create something people actually want.
• 0:52
  I call it trustworthiness, the most underrated asset in business today.
• 0:55
  We taught a whole generation of founders, a set of best practices,
• 0:59
  and we left people vulnerable to forces that we and they did not understand.
• 1:03
  So that's why we see people who start out in business very idealistic and end up very cynical.
• 1:08
  They often don't even realize that it's happened.
• 1:10
  We can just build the organizations we want to build, we can just stand for what we want to stand for.
• 1:14
  When you create an organization, you become a parent, we birth organizations, we don't own them.
• 1:25
  Eric, you attended a wake, not for a person, but for a company.
• 1:33
  A thousand people showed up.
• 1:35
  The board wasn't invited.
• 1:37
  Just explain what's going on here.
• 1:40
  This is a very surreal experience.
• 1:42
  I wish I could say that it's only ever happened to me once, but it's actually like a genre of thing.
• 1:48
  What's strange about it, I had a hard time writing the story for the book because a couple test readers read it and they were like,
• 1:54
  did somebody die?
• 1:55
  I'm like, no, nobody died.
• 1:56
  They're like, well, is the company in bankruptcy or something?
• 1:59
  It's a multi-billion dollar company.
• 2:01
  What are we mourning?
• 2:04
  I was like, that is the question we were all asking ourselves.
• 2:08
  At this thing, this thing is nominally a party to celebrate.
• 2:11
  What happened was, there's a founder I really admire had built this exceptional company and had been ousted.
• 2:17
  We were celebrating the end of his tenure, but it wasn't like he didn't leave on his own terms.
• 2:23
  Sometimes you go to a retirement party, someone's like, I'm ready to retire or I'm leaving to do the next thing and I wish everybody well.
• 2:29
  This was different.
• 2:31
  This was a party to celebrate everything that this person and this company had accomplished with this also weird feeling that the company is going to keep going,
• 2:40
  but now no one really knew what direction and what really struck me.
• 2:43
  He was my friend, so I didn't work there or anything.
• 2:46
  I was just a fly on the wall.
• 2:48
  I think I was the only non-company person in the room as far as I know.
• 2:52
  So it was amazing.
• 2:53
  There were a ton of people turned out and I was just hanging with him and people came up to him.
• 2:57
  I got to watch dozens of people.
• 3:00
  I don't know how many people it was.
• 3:02
  It was a long night.
• 3:03
  People come up to him and just say thank you or say whatever they wanted to say to him.
• 3:07
  And it was kind of fast.
• 3:08
  The first person that came up and I'm like, oh, this person works at the company.
• 3:11
  He was there, but until a minute ago.
• 3:13
  So natural that they would want to say something nice to him.
• 3:15
  But then after a while, he started to be like, what is going on?
• 3:17
  Because people were morose.
• 3:19
  Maybe like, hey man, you know, how you doing?
• 3:22
  I'm like, you know what?
• 3:25
  I just, I know no one would talk about the thing that it happens.
• 3:28
  No one was like, I think it sucks that you wanted to say that.
• 3:31
  Nobody wanted to say that.
• 3:32
  No one said it out loud.
• 3:33
  I was like, but people were like, you know, hey man, this is like a heavy people.
• 3:37
  I understood something had been lost.
• 3:38
  And the people that really struck me the most, a bunch of ex employees had flown in for the event.
• 3:43
  Flown in to be at this party, including I recognize people who I knew he had fired.
• 3:48
  That's so weird.
• 3:50
  And I was like, you're not pissed.
• 3:52
  And they're like, well, I was.
• 3:54
  But like, this is worse.
• 3:56
  What just happened is worse than anything that happened to me.
• 3:59
  And I put my game, my life to this company and I want to mourn what's been lost.
• 4:03
  And so at the time, I was just like, well, that was a weird night and I went home.
• 4:06
  And like I said, I've actually had this experience a couple of times now.
• 4:09
  And it's only in retrospect that I was like, what were we celebrating and what were we mourning?
• 4:13
  Exactly.
• 4:14
  Because in the moment we couldn't talk about it.
• 4:17
  It was hard to articulate like what's going on.
• 4:19
  And I realized later that we all felt this profound sense of loss.
• 4:24
  Not because the new CEO was bad or anything like that.
• 4:27
  I think that's a perfectly good person in this case.
• 4:30
  But like once a company has shown that it can be decapitated from the outside,
• 4:36
  you can never really trust it anymore.
• 4:39
  And this company was one of those good companies where all the employees felt a certain bond
• 4:43
  to be there.
• 4:44
  Like the customers, people felt loyal.
• 4:46
  I think genuine loyalty was very old fashioned.
• 4:48
  Loyalty to a company.
• 4:50
  Can you even imagine such a thing anymore?
• 4:52
  That's how people felt.
• 4:53
  And so it wasn't that the new company sucked.
• 4:55
  It wasn't like it went bankrupt or anything.
• 4:57
  In fact, I'm sure the stock price is up from that day till now.
• 5:00
  But the fact that people felt like they just, I can't trust it anymore.
• 5:04
  It's now a little bit more like a regular old company was the thing I think in retrospect we were all mourning.
• 5:10
  And I just don't, you know, a lot of the book is about trying to grapple with why does this keep happening.
• 5:15
  Like people say what was about greed.
• 5:17
  But this founder had made the people that did this to him billions of dollars.
• 5:21
  So they want more.
• 5:22
  Is that not enough?
• 5:23
  Like people say, well, if you're successful, you'll be able to define success on your own terms.
• 5:28
  You'll be in control.
• 5:29
  You'll have leverage.
• 5:30
  But how much more success you're supposed to have.
• 5:32
  And what I've seen in my career now, over and over again, is people keep losing control of their organization.
• 5:37
  It becomes something that they did not intend.
• 5:40
  And I wanted to explore all the different ways that that can happen.
• 5:42
  And more importantly, what can the next generation of founders do to prevent it?
• 5:46
  It's interesting because there is a negative undertone in this environment, in this circumstance at this wake.
• 5:55
  But you're trying to figure out what's negative.
• 5:58
  Like what is the negative, like you're trying to name it, right?
• 6:01
  Like, well, the founder built a good company.
• 6:04
  And that founder was successful and the investors made their money and the employees were happy with the founder and the employees on their CEO were also.
• 6:11
  So what's the, but there's this, I understand what you're saying.
• 6:15
  There's this feeling of, I don't know if it was supposed to work out like this.
• 6:20
  Yeah, it definitely is not supposed to be like this.
• 6:23
  And I think in retrospect, again, I couldn't have named any of these things in the moment.
• 6:27
  In the moment, we were all just reeling from this.
• 6:29
  It was like a really bizarre.
• 6:31
  Who chose to do this, by the way?
• 6:33
  Was it the founder who chose to put on this event?
• 6:36
  I presume, I presume, like I got rid of a couple of these parties.
• 6:39
  I don't really know. I've never been in the behind the scenes.
• 6:41
  Like, who decides it's time to have a party?
• 6:43
  But I think, I think there's something like very old and human and cathartic about being like,
• 6:47
  something has happened and we need to process it together in community.
• 6:50
  So we got to do something.
• 6:52
  Yeah, because it was like not only a celebration, but it felt, it really felt like a way.
• 6:57
  I think what was going on for a lot of us is that actually many of our like baseline assumptions about our financial system had just been thrown into question.
• 7:07
  We've been taught something very specific about how markets work and how entrepreneurship is supposed to be what leadership is about.
• 7:15
  We've indoctrinated to a whole set of ideas about what I would call the finance theory of capitalism.
• 7:22
  And in this theory, the market rewards value creation.
• 7:27
  So founders who create a lot of value should have the most freedom.
• 7:30
  They should be the ones who are lauded the most.
• 7:33
  We believe that if a company is a certain way, it's because it's competitively necessary for it to be that way.
• 7:39
  So like when you see people say, gosh, why did this company become so repatious?
• 7:43
  Why are they so exploitative?
• 7:44
  I used to be so great now, their product sucks.
• 7:46
  We say, well, I guess the market rewards that I guess they had to do that for competitive reasons.
• 7:51
  And we occasionally have these moments where those doctrines are shown to be lies.
• 7:56
  And it's very uncomfortable.
• 7:58
  And now that I've done the research, and we can go through it if you want.
• 8:02
  But these are not true facts.
• 8:03
  The market does not reward value creation for what's something else.
• 8:06
  Which is horrible to imagine or believe.
• 8:08
  It's not true that if you have success as a leader, as a founder, as a whatever, that you'll have the power to do what you want.
• 8:15
  Because for these kind of companies, these companies that create loyalty, their very success is the thing that makes them an attractive target for someone to steal.
• 8:24
  It's like we're we're stockpiling this asset.
• 8:27
  I call it trustworthiness, the most underrated asset in business today.
• 8:31
  You stockpile it and then you're like, gosh, huh?
• 8:34
  Someone tried to steal it.
• 8:35
  What a surprise.
• 8:36
  Is like, have you met human nature?
• 8:37
  Are you kidding me?
• 8:38
  Yeah.
• 8:39
  You want to build a giant vault or something valuable?
• 8:41
  You should put some locks on the door.
• 8:42
  And yet we are been trained through this indoctrination that we don't need to do that.
• 8:46
  So anyway, a lot of these doctrines, you know, we've been living with them long enough
• 8:51
  that we're starting to realize that they don't make sense. They're not right.
• 8:54
  But it's painful. It's difficult to let them go.
• 8:56
  And especially because we don't know what to replace them with.
• 8:59
  So this book in some ways is my attempt to show people the evidence that so many of the so-called best practices that govern our lives today are value-destroying.
• 9:07
  But more importantly than that, to lay out a new set of practices, a new blueprint for a way forward,
• 9:12
  where we can fix those problems again for this next generation.
• 9:16
  So let's talk about some of these truths that are not so true from the lens of an entrepreneur.
• 9:24
  So, you know, you built a name and a brand on entrepreneurship, on people, on founders, on scaling companies.
• 9:35
  And at the same time, you've also, I don't want to put words into your mouth and say that you feel like slightly responsible.
• 9:44
  But do you, to a degree, feel responsible for where some of these founders have ended up?
• 9:50
  You told them that entrepreneurship is going to be one way.
• 9:55
  And you created a whole bunch of great entrepreneurs and great companies who have studied like your ideas and your books and your works.
• 10:02
  But it's actually not that way.
• 10:04
  Yeah, yeah, I do.
• 10:06
  I mean, look, I don't want to overstate my responsibility here, like because I'm on a megalomaniac.
• 10:10
  Like, first of all, the success was not mine.
• 10:13
  Oh, hold on.
• 10:14
  Yeah.
• 10:15
  The success was not mine.
• 10:17
  So the risk, so the failure is not mine either.
• 10:19
  You know, I played a bit part.
• 10:20
  I was like, I'm a bit, you know, I have a bit of a forest gum kind of story where I've been around all these incredible companies.
• 10:26
  And, you know, I like to think that I've been helpful.
• 10:28
  You know, and people who've readily started up come up to me still all the time and be like,
• 10:32
  oh, I built this huge company and it was thanks to this book, you know, helped me a lot.
• 10:35
  And I'm like, oh, great.
• 10:36
  I'm glad to find out of you.
• 10:37
  You couldn't let me know along the way.
• 10:38
  You know, I mean, I said no earlier.
• 10:39
  Okay, now that you're super rich, I'm super glad to know.
• 10:41
  I'm actually genuinely happy for those people.
• 10:43
  So, so no, I'm not, I'm not embarrassed about it or ashamed of it at all.
• 10:47
  What I think, what I am a little bit ashamed of, and I think this is not just me,
• 10:51
  but we have a whole industry of people who should be feeling this way,
• 10:54
  is that we taught a whole generation of founders a set of best practices that we inherited.
• 11:01
  Like, not the lean startup part, but the other stuff I taught the same as I was taught.
• 11:06
  You know, I passed it on, just as it was passed on to me.
• 11:09
  And we left people, I think, frankly, vulnerable to forces that we and they did not understand.
• 11:15
  So, this kind of financial gravity that pulls organizations down into mediocrity.
• 11:20
  Like, we've lived it, but we don't really talk about it.
• 11:23
  And it causes people to build these companies that start out so idealistic
• 11:27
  and then have that kind of inexplicable loss of something special.
• 11:31
  So, I feel like I wish I had been more clear about those issues from the beginning.
• 11:35
  So, I could have prepared people for what was going to come next.
• 11:37
  As I say in the book, I feel like I taught people to build things that were worth protecting,
• 11:42
  but I teach them how to protect them.
• 11:44
  And so, this book is my attempt to really lay that out because in the world that we live in,
• 11:48
  everything that deserves protection will eventually need it.
• 11:52
  So, it's a very like straight forward calculus to me
• 11:55
  that if we're going to teach people how to create these amazing, trustworthy,
• 11:58
  value creating machines, we have to also teach them the responsibilities that go with that
• 12:04
  to be good stewards of the things that they create.
• 12:06
  So, then what are these truths that are actually not true when it comes to?
• 12:12
  So, the main principle is we build an incredible, idealistic company
• 12:18
  that customers and the market trust.
• 12:21
  And we have not done a good job of protecting that,
• 12:24
  but we should have a playbook for how to protect that thing.
• 12:27
  And we have to define what protect even really means.
• 12:30
  But before we even get there,
• 12:33
  you mentioned there's truths about building companies and value creation
• 12:38
  that a good founder believes but are actually not true.
• 12:43
  So, maybe lay those out.
• 12:44
  Like, let's just like sort of like quell the myths right now
• 12:47
  so they can understand what is not accurate.
• 12:50
  Sure. So, in the book I lay out this pattern I call Enlightened Capitalism.
• 12:54
  Following, that's actually a great book called The Enlightened Capitalist by James O'Toole.
• 12:57
  And it's a really, it's a depressing book if you read it,
• 13:00
  cover to cover because it's he's a business journalist.
• 13:03
  And he just laying out 200 years of case studies.
• 13:06
  And every story in the book is exactly the same,
• 13:08
  even though they happen in wildly different decades and centuries.
• 13:11
  And they all go like this.
• 13:13
  You know, in 1800, Robert Owen, the idealistic industrialist,
• 13:17
  takes over a mill, the new Lanark Mill in Scotland.
• 13:21
  The mill was bankrupt.
• 13:23
  It was, you know, people were miserable there,
• 13:25
  working conditions were terrible.
• 13:26
  Everything about it was bad.
• 13:27
  Product was low quality.
• 13:28
  Mill was doing a really bad job.
• 13:29
  And he enacted a series of enlightened reforms that were way ahead of their time.
• 13:34
  It's actually kind of impressive.
• 13:35
  If you read them through a modern lens, like modern management practices,
• 13:38
  feedback practices, labor practices, he took care of his employees.
• 13:42
  He created on-site housing.
• 13:43
  He got rid of child labor.
• 13:44
  He created the first, I think the world's first like old age pension plan.
• 13:48
  He had like very, very far-sighted ideas.
• 13:50
  And within just a few years, he had turned this bankrupt mill
• 13:53
  into one of the most profitable mills in Scotland.
• 13:55
  So he was like, this is sweet.
• 13:57
  Not only have I made a bunch of money,
• 14:00
  but I've shown people almost like a new technology.
• 14:03
  I've had a breakthrough.
• 14:05
  I've shown people that if you operate your company a certain way,
• 14:08
  you will make more money.
• 14:09
  He basically had this famous quote he said,
• 14:11
  given how much money you're investing in your physical machines,
• 14:15
  how much more valuable are the vital machines,
• 14:18
  meaning the employees that work for you.
• 14:20
  They are even more wonderfully constructed than any steam engine.
• 14:23
  And you should invest more.
• 14:25
  In them, you will get a greater return.
• 14:27
  So he thought this was like ironclad logic.
• 14:29
  And it was like a very simple plan.
• 14:30
  Step was like underpants, no, I'm theory.
• 14:32
  Step one.
• 14:33
  Step one.
• 14:34
  Show that this can work in industrial setting.
• 14:36
  Check, work perfectly.
• 14:37
  Step two.
• 14:38
  Because capitalism is about competition,
• 14:43
  he will be out competing his rivals.
• 14:45
  So those who oppose his reforms
• 14:47
  are put themselves at a competitive disadvantage.
• 14:49
  Check.
• 14:50
  Third, therefore, he is going to be a hero
• 14:53
  to all the other industrialists.
• 14:55
  They're going to be his investors
• 14:56
  and everybody else are going to be psyched to copy his breakthrough.
• 15:00
  We saw that happen with the steam engine.
• 15:02
  Why not with this?
• 15:03
  Because the market rewards value creation.
• 15:05
  People are going to see this as a better path to value creation.
• 15:07
  And these ideas will take over the world.
• 15:09
  No check.
• 15:10
  Right?
• 15:11
  X, a family feud X.
• 15:12
  He got this so wrong, it's almost painful to read.
• 15:15
  His investors were pissed at him from the beginning.
• 15:17
  They never liked this.
• 15:19
  And they tried to get rid of him.
• 15:21
  Three times they tried.
• 15:23
  He had to buy them out three times
• 15:25
  to get rid of people who did not understand him.
• 15:27
  Each time he'd bring in new investors.
• 15:29
  The new investors said they understood what he was doing.
• 15:32
  But every time the investors would be like,
• 15:34
  we don't like all this money you're wasting on your employees.
• 15:36
  We don't like, you know, they got all kinds of fights.
• 15:38
  We don't want you to indoctrinate.
• 15:40
  You're going to do education.
• 15:41
  It has to be religious education.
• 15:42
  It has to be this thing, that thing.
• 15:43
  They were constantly fighting with him.
• 15:45
  And anyway, on the third try,
• 15:47
  they finally got him out, reversed his reforms,
• 15:50
  and drove the mill right back into mediocrity.
• 15:53
  So like, okay, wow.
• 15:55
  People in 1800 were stupid about business, no kidding.
• 15:57
  But that same story repeats and repeats and repeats.
• 16:00
  And what's so wild in the book,
• 16:02
  I have a chart of 200 years of this.
• 16:04
  Company after company after company that you've heard of.
• 16:06
  And you're like, whatever happened to Sears,
• 16:08
  or Circuit City, like you're like, oh, yeah.
• 16:10
  I remember those guys,
• 16:11
  but a blockbuster video.
• 16:12
  People were like, oh, yeah, blockbuster.
• 16:13
  And they were disrupted by Netflix.
• 16:14
  But if you read this story and actually learn what happened,
• 16:17
  you will find these moments in all these stories,
• 16:20
  where the company wanted to do the right thing,
• 16:23
  but was prevented from doing so,
• 16:25
  by either its own investors or its own employees,
• 16:28
  or people who should have had every incentive
• 16:30
  to benefit from this.
• 16:31
  Blockbusters are a great example,
• 16:33
  because they finally had a CEO who was like,
• 16:35
  our customers hate late fees.
• 16:37
  We got to get rid of the late fees, and he did.
• 16:40
  And he was ousted by his investors,
• 16:42
  who didn't want to give up the cash cowl
• 16:44
  of all those fees,
• 16:45
  and drove blockbusters right back into bankruptcy.
• 16:48
  So like, these are stories,
• 16:50
  not of business failure the way we normally are taught it.
• 16:55
  We've taught blockbuster got disrupted by Netflix,
• 16:58
  because Netflix had the better product.
• 17:00
  Sears was disrupted by e-commerce,
• 17:02
  because they were slow to adjust.
• 17:03
  But if you study the stories, what you'll see,
• 17:05
  is these are what I call unusual failures,
• 17:07
  like what happened to Robert Owen,
• 17:09
  where the very success that they had is what caused the failure,
• 17:13
  because someone figured out, oh, I can use that success
• 17:16
  to steal a bunch of money.
• 17:18
  So like, the guy who took over Sears after the founder died.
• 17:22
  Sears used to be a company that was based on employee ownership,
• 17:25
  and the alignment of the customer with the employee.
• 17:28
  When it got taken over,
• 17:30
  it got taken over by a guy who like,
• 17:31
  not only took over the company, but became its landlord,
• 17:34
  bought the force Sears to sell him all the land
• 17:37
  that it owned under all the stores,
• 17:38
  is that it could lease it back to him.
• 17:39
  And he extracted like $2 billion personally,
• 17:42
  while driving Sears into bankruptcy.
• 17:44
  And you're like, why would he do that?
• 17:46
  It doesn't make sense.
• 17:47
  That's value destroying.
• 17:48
  What investors went along with this?
• 17:50
  And we live with this so commonly now,
• 17:52
  we don't even really know what to call it.
• 17:54
  Like, think about the last time some private equity
• 17:55
  from ruined one of your favorite products.
• 17:57
  We've all had the experience.
• 17:59
  I literally was in a restaurant the other day.
• 18:00
  I took one bite of the food.
• 18:02
  I'm like, I haven't been here in a couple years.
• 18:04
  But like, I need to go on my phone and check.
• 18:06
  Like, did private equity buy this restaurant?
• 18:08
  That's so funny.
• 18:09
  I can taste it.
• 18:10
  And everyone has had that experience.
• 18:12
  So this is going on all the time, and it's getting worse,
• 18:15
  because we're all blind by these simple dogmas.
• 18:18
  The companies become a victim of their own success.
• 18:21
  Even though we preach value creation,
• 18:23
  the people that have the interests of the company
• 18:26
  in mind, the investors, the employees.
• 18:29
  What is it, short-sightedness?
• 18:31
  Is it, like, when somebody extracts
• 18:34
  two billion dollars of value out of Sears,
• 18:37
  these investors are not stupid people.
• 18:39
  They're not?
• 18:40
  So why would they let this happen?
• 18:43
  Is it?
• 18:44
  Yes.
• 18:45
  Yes.
• 18:46
  Now we're asking the right question.
• 18:47
  Mike, this can't be right.
• 18:49
  I'll tell you another story.
• 18:50
  There's a very famous retail story called Fed Mart.
• 18:53
  If you've studied retail, Fed Mart's one of the most famous
• 18:55
  case studies of all time, but a lot of people don't know it.
• 18:57
  Fed Mart's so influential, by the way,
• 18:59
  that the reason Walmart is called Walmart is because Sam Walton
• 19:02
  was inspired by Saul Price, who founded Fed Mart,
• 19:04
  and Walmart was an homage to him.
• 19:07
  So in the 1950s, this guy named Saul Price was a lawyer.
• 19:10
  He decided to go into retail, leave his legal career behind,
• 19:13
  and become a retailer.
• 19:14
  And because he was trained as a lawyer,
• 19:16
  he had this idea that he was used to his client
• 19:19
  being the fiduciary, meaning when you're a lawyer,
• 19:22
  you have a fiduciary duty to take care of your client,
• 19:24
  put your client's interest before your own.
• 19:26
  So when he came into retail, he just naturally was like,
• 19:28
  well, who's my fiduciary to now, the customer?
• 19:31
  I'm a discount retailer.
• 19:32
  My job is to look out for them economically.
• 19:34
  And he used to drive his competitors crazy.
• 19:37
  Because they would be doing the conventional retail playbook.
• 19:40
  Conventional retail customers are a resource to be mined.
• 19:43
  You're like a strip miner.
• 19:44
  And so when a new guy comes in town and claims to do right
• 19:46
  by customers, you need to drive him out of business.
• 19:48
  So his competitors would always collude to put him out of business.
• 19:50
  They would do what's called product dumping.
• 19:53
  So they would be like, they'd advertise in the Sunday Circular.
• 19:56
  Eggs are basically sell products at a loss
• 19:59
  to get viewed as shop with them instead of shopping at Fed Mart.
• 20:02
  And that idea was they would drive him out of business.
• 20:05
  But Saul Price didn't mind when people did that.
• 20:07
  He would read the Sunday Circular too.
• 20:08
  And if he saw that there was ever a product at a lower price
• 20:10
  at a competitor's store, he would put up signs
• 20:12
  all over the warehouse.
• 20:14
  You shouldn't buy that product for me.
• 20:16
  You can get it cheaper down the street.
• 20:18
  Because he's a fiduciary.
• 20:19
  He's like, if I can get you a lower price, I've done my duty by you.
• 20:22
  So customers love Fed Mart.
• 20:24
  They would drive miles past dozens of other stores
• 20:26
  for the privilege of getting to shop there.
• 20:28
  It worked great.
• 20:29
  And he built it into this retail empire.
• 20:31
  He took it public at a successful IPO.
• 20:34
  But as soon as he went public, he had this problem.
• 20:37
  His investors were constantly harping on him
• 20:40
  to get rid of all this wasted money,
• 20:42
  taking care of customers.
• 20:44
  Perversely, they understood
• 20:46
  that because he was so trusted by his customers,
• 20:48
  he could get away with screwing them over.
• 20:50
  If he raised prices, no one would even notice.
• 20:52
  Everyone assumed he had the lowest price.
• 20:54
  People weren't checking anymore.
• 20:56
  So he hated being a public company.
• 20:57
  He did not like the short-term pressure.
• 20:59
  And he actually arranged with a bunch of retail investors.
• 21:01
  He's like, I'm going to find the most savvy retail investors
• 21:03
  I can find to take the company private
• 21:05
  because they're going to understand what I do.
• 21:07
  So he took the company private.
• 21:09
  And he said, guess what?
• 21:10
  The second those people became the majority shareholders.
• 21:13
  They started fighting with him about all these ways.
• 21:15
  All the wasted money.
• 21:16
  All the investors did the same thing.
• 21:18
  All the same thing.
• 21:19
  One day in 1975, he'd been running this company
• 21:21
  for 20 years, built it into a behemoth from nothing.
• 21:24
  One day he comes to work in 1975
• 21:26
  and the doors, blocks on his doors have been changed.
• 21:28
  He's been fired.
• 21:30
  Now, why would they do that?
• 21:33
  Again, every time I tell the story,
• 21:34
  people either are like, well, I guess those are some greedy investors.
• 21:37
  Or what a naive founder.
• 21:39
  He was so stupid.
• 21:40
  He should have protected himself better, right?
• 21:41
  And because we love the personal drama of these stories,
• 21:44
  we're missing something essential.
• 21:46
  That this is not about smart or stupid.
• 21:48
  This is about something systemic.
• 21:51
  We've built a financial system that rewards this behavior,
• 21:55
  even while it claims to reward value creation.
• 21:58
  So if we're going to build an organization that is going to live
• 22:01
  under the influence of this gravitational field,
• 22:03
  we have to learn how to make it strong enough to resist.
• 22:06
  And although Saul Price was not able to do that at FedMart,
• 22:09
  if you follow his story to the end, then as a happy ending,
• 22:11
  because it ultimately leads to the creation of Costco.
• 22:14
  And Costco, which is like his descendent of FedMart,
• 22:18
  not only follows his same playbook,
• 22:21
  Capped margins, fiduciary to do the customer,
• 22:23
  taking care of employees.
• 22:25
  But it also features what I call a governance fortress
• 22:28
  that violates every best practice we are taught
• 22:31
  about how companies are supposed to be structured.
• 22:34
  But in its deviation has protected the ethos of Saul Price
• 22:37
  for now going on 40 years.
• 22:39
  This is interesting.
• 22:40
  So this is where we come to the idea of protecting the trust worthiness,
• 22:46
  but building a company that is truly incorruptible.
• 22:49
  This is what it comes down to.
• 22:51
  And these are not the things that are taught to any founder.
• 22:54
  I mean, my god, there's like a trillion things
• 22:56
  you have to think about when you're starting a company.
• 22:58
  And protecting the trust worthiness or the proper governance structure.
• 23:02
  I mean, yeah, there's anklings of teaching people,
• 23:05
  you know, don't raise too early,
• 23:07
  or you don't want to bring the wrong investors on.
• 23:09
  But that's not what we're talking about here.
• 23:12
  These are much more complex ideas
• 23:15
  that I don't think anybody considers till it's far too late,
• 23:17
  which is really what all these stories are saying.
• 23:19
  Like, you have a good...
• 23:20
  It's always too early until it's too late.
• 23:23
  That's been my experience.
• 23:24
  And what's interesting is this is not a work of theory for me.
• 23:26
  So I have been in the trenches helping people build companies
• 23:29
  myself now for quite a number of years.
• 23:32
  I probably helped hundreds or thousands of people start to come.
• 23:35
  I can't even imagine.
• 23:36
  It's basically the most common phone call I get.
• 23:38
  Someone like, hey, I read the link and start up.
• 23:40
  I'm a big fan, I'm starting a company,
• 23:41
  or I'm trying to revitalize my existing company.
• 23:43
  I've got a public company, I'm going to turn it around.
• 23:44
  I'm preparing for an IPO.
• 23:45
  Like, people call me with specific business scenarios.
• 23:47
  And I used to ask them about...
• 23:48
  Tell me about your metrics.
• 23:49
  Tell me about your deployment process.
• 23:51
  Like, we would talk product.
• 23:52
  We would talk strategy.
• 23:53
  We would talk business model.
• 23:54
  But after a while, I started to realize that
• 23:56
  we were missing something a little bit deeper.
• 23:58
  I started to ask them these other questions about governance,
• 24:00
  about trustworthiness, about culture, about alignment.
• 24:04
  And I realized that most founders,
• 24:06
  I was the first person who ever asked.
• 24:09
  I would say, well, what are...
• 24:10
  Tell me about your governance.
• 24:12
  And they'd be like, my what?
• 24:14
  I'm like, your government...
• 24:16
  You have a constitution.
• 24:18
  Have you read it?
• 24:19
  And they'd be like, no, it's just like a building permit.
• 24:21
  Why would I read that?
• 24:22
  It's like, why would you read...
• 24:23
  You're in trouble, my friend.
• 24:25
  And so, like, I started to realize that not only are we kind of...
• 24:29
  Not teaching founders the right things,
• 24:31
  we have kind of blinded them to some of these really important things.
• 24:34
  And so, I started to get really interested in, okay, what...
• 24:36
  What could we do, starting from the earliest days,
• 24:39
  but really at every stage.
• 24:40
  The book is about companies at every stage of their life cycle.
• 24:43
  What are the tools that are available to protect them from these forces?
• 24:46
  To get them into a rhythm where they can be value-creating instead of becoming extractive?
• 24:51
  And what's wild is that there are...
• 24:53
  There are case studies and there are good practices.
• 24:56
  There's a lot of data about this.
• 24:57
  I thought I was going to make something new up,
• 24:59
  but no, there's a ton of stuff we can draw on to make this work.
• 25:02
  So, I started to get real excited about the possibility that we could build this new blueprint.
• 25:06
  HubSpot is a success story partner.
• 25:08
  Now, customers are using traditional search less and less to find the businesses they want to buy from.
• 25:13
  Now, when a buyer or a customer asks AI for a solution like yours,
• 25:17
  does your business come up?
• 25:18
  They're looking for a product, they're looking for a service,
• 25:20
  and they're going into some AI chat tool and they're saying,
• 25:23
  hey, help me find the best one.
• 25:25
  If your company isn't showing up, you're missing out.
• 25:27
  And most companies have no idea if their business is showing up or even how to show up.
• 25:32
  And by the time they figure it out, they've already lost a deal to somebody that figured out AI.
• 25:36
  This is what AEO is.
• 25:38
  Answer Engine Optimization.
• 25:40
  HubSpot AEO helps you show up in those moments with the right answers
• 25:44
  that your buyers and your customers are looking for.
• 25:46
  It could be before the first click, before the first form fill.
• 25:50
  That's the moment HubSpot AEO is built for.
• 25:53
  So check out HubSpot.com to learn more about AEO.
• 25:55
  HubSpot is the agent to customer platform for growing businesses.
• 25:59
  That suite is a success story partner.
• 26:01
  Now, look, I talked to a lot of operators and founders and entrepreneurs on this show.
• 26:04
  And the ones we're pulling ahead right now all have one thing in common.
• 26:07
  They stopped treating AI like a buzzword and they started actually running their business with it.
• 26:12
  The ones who are still on the sidelines, their competitors are eating their lunch.
• 26:16
  NetSuite Bi Oracle is the number one AI cloud ERP.
• 26:19
  43,000 businesses run on it.
• 26:21
  It takes your financials, your inventory, your commerce, your HR, your CRM.
• 26:25
  It puts it all into one platform, one source of truth.
• 26:28
  And because all that data is connected, the AI is actually useful.
• 26:32
  It's not guessing. It knows your business.
• 26:34
  It automates the stuff you shouldn't be doing manually.
• 26:36
  Surfaces things that you'd normally miss and it lets you make faster calls with real confidence.
• 26:41
  Software, healthcare, manufacturing, financial services, it does not matter.
• 26:46
  They build it around you.
• 26:47
  If I needed an ERP, this is what I use.
• 26:50
  If your company's doing seven figures or more, go grab their free guide demystifying AI at NetSuite.com slash Scott Clary.
• 26:57
  It's free NetSuite.com slash Scott Clary.
• 27:00
  That's NetSuite.com slash Scott Clary.
• 27:03
  Riverside is a success story partner and a core part of how I produce this show.
• 27:07
  Now, something I keep coming back to, the founders that are growing the fastest right now are the ones treating content as their main distribution channel.
• 27:13
  Podcasts, videos, short form.
• 27:15
  They are earning attention that the other people are paying for.
• 27:18
  And I get this because I record a podcast for a living.
• 27:20
  I record every single episode of success story on Riverside.
• 27:23
  It captures studio quality, video and audio locally on each person's device.
• 27:27
  When a guest has bad Wi-Fi, recording still comes out clean.
• 27:30
  You get separate tracks, automatic transcriptions, and shares what makes it different from everything else I've tried.
• 27:34
  The entire workflow lives in one place.
• 27:37
  You record, you edit with your built-in editor right on the platform.
• 27:40
  It chops your long conversation into short form clips and you can publish and host directly from Riverside.
• 27:45
  No jumping between five different tools.
• 27:47
  One recording, a full week of content start to finish without leaving the platform.
• 27:51
  So if you're a founder, a creator, if you're building any kind of brand online, go check out Riverside.
• 27:55
  It's what I use every single week.
• 27:57
  To creators.riverside.com slash Scott Clary to support the show.
• 28:00
  That's creators.riverside.com slash Scott Clary.
• 28:04
  Obviously a super broad question, but just curious about your perspective.
• 28:08
  Is this the answer to creating true ethical capitalism that everybody speaks about but nobody really knows what that actually means?
• 28:15
  Is this part of the answer to that?
• 28:18
  Yes. I'm like, well, how can I make it more complicated?
• 28:21
  The answer is yes.
• 28:22
  We have the tools we need to build a 100% fully ethical financial system.
• 28:28
  And if we do so, not only will we leave the planet and every person we touch better off, we will actually create a lot more money.
• 28:34
  This is the really wild part to me is we have really good evidence that today's extractive business practices are on the whole value destroying.
• 28:40
  So when you see people getting rich from those practices, they often are made money at the expense of the value creating engine.
• 28:48
  They're like that landlord who stole that money from steers.
• 28:51
  That wasn't a legal theft.
• 28:53
  He didn't go to prison.
• 28:54
  Well, he did is not considered a crime.
• 28:56
  And in fact, increasingly in the modern world, we are taught that you're supposed to pretend.
• 29:01
  No one really believes this in their heart, but we're supposed to pretend that always of making money are equally good.
• 29:06
  And so when you see someone do this, you're supposed to pretend you got to be like, well, you got to hand it to them.
• 29:10
  Creative guy. Sure.
• 29:11
  A great deal maker.
• 29:12
  Yeah, super great.
• 29:13
  He destroyed a lot of value, but he made $2 billion.
• 29:15
  So you're like, I'm like, you know what?
• 29:17
  No.
• 29:18
  We don't got to hand it to him.
• 29:20
  We can say that that was a corrupt act.
• 29:23
  Our grandparents were comfortable saying stuff like that.
• 29:26
  It's very old fashioned to use the word corruption, especially when we're talking about something other than like legal,
• 29:30
  investment or bribery or something like that.
• 29:32
  But our grandparents and our great grandparents, not to mention for generations,
• 29:35
  had a much clearer understanding that they were good and bad ways to make money.
• 29:39
  And the bad ways often corrupt the moral logic of our whole financial system.
• 29:43
  So I think we can say whenever we see some private equity destroy something beautiful,
• 29:48
  whenever we see a founder lose control of their company like Frankenstein and his monster,
• 29:52
  whenever we see someone being naive and not really learning to protect what they do.
• 29:57
  And so inadvertently becoming a monster themselves,
• 30:00
  we can say all those are forms of corruption.
• 30:03
  And our goal as those who build lead by from work for these organizations,
• 30:08
  our goal at every level should be to build organizations that are incorruptible,
• 30:12
  that this cannot happen to.
• 30:14
  Not just less likely, not just we hope,
• 30:16
  but actually bona fide mission driven.
• 30:19
  I almost like think about the difference between stainless steel and regular steel.
• 30:24
  It's not that stainless steel like hopes that it won't get rusty.
• 30:28
  It is engineered in such a way that the corrosion cannot take root.
• 30:32
  That should be our aspiration.
• 30:33
  I'll ask the easy question.
• 30:35
  How do we do that?
• 30:37
  I'm so glad you asked.
• 30:39
  Now it took me a couple hundred pages to answer this question and book one.
• 30:42
  So just like you didn't learn, you know, I tell people,
• 30:44
  if you went to business school like,
• 30:46
  you don't learn accounting like from a guy in a podcast in 30 minutes,
• 30:49
  you got to study, okay?
• 30:50
  So there's no skipping any steps here,
• 30:52
  but I will give you the overview of it.
• 30:54
  And the overview of the blueprint is what I call it in the book has two paths.
• 30:58
  One is what I call the path of ethos.
• 31:00
  And the second is what I call the path of integrity.
• 31:03
  Let's take them each in turn.
• 31:05
  Ethos is what we've mostly been talking about so far.
• 31:07
  How do you build something worth protecting?
• 31:09
  How do you create trustworthiness as an asset?
• 31:12
  And I tried to stay away from fuzzy modern words like culture, stakeholder, you know,
• 31:16
  ESG nonsense, like, no,
• 31:18
  I used a really old fashioned word ethos.
• 31:21
  Ethos is the ancient Greek word that Aristotle used to mean the character of a person.
• 31:26
  What do they do when nobody's watching?
• 31:28
  And we all have an intuitive sense of ethos.
• 31:30
  If I tell you, like, tell me about a friend you can trust.
• 31:33
  You can't, you know who I'm talking about.
• 31:36
  If your friend you can trust tells you they'll be there at two o'clock.
• 31:39
  They can be there at two fifteen.
• 31:41
  No, they can be there at two o'clock.
• 31:43
  If they can't be there at two o'clock, they won't tell you.
• 31:45
  They won't say that.
• 31:46
  They'll say something else.
• 31:47
  I don't know what time I can be there.
• 31:48
  Or they're not sure they can be there.
• 31:49
  They'll tell you the truth about their own intentions.
• 31:51
  And they have the maturity to be honest about what they can and can't do.
• 31:55
  They can make promises and keep them.
• 31:57
  It's like what differentiates an adult from a child.
• 31:59
  The ability to make and keep a promise.
• 32:01
  So organizations also have a character.
• 32:04
  They also have an ethos.
• 32:06
  When they're consciously designed,
• 32:07
  Saul Price's organizations all had this very specific ethos of the customer as a fiduciary.
• 32:12
  And there's a lot of practices that we can teach.
• 32:16
  It's not just he was a great leader.
• 32:18
  He was a charismatic guy.
• 32:19
  No, he had a system, an engine,
• 32:21
  that we see over and over again in these mission driven companies.
• 32:25
  And so in the path of ethos, we study things like,
• 32:28
  how do we declare formally what the purpose of an organization is?
• 32:31
  What is it designed to maximize?
• 32:33
  We learn how to create a holistic matrix,
• 32:35
  a better system of metrics in OKRs.
• 32:37
  We learn how to create what Mary Parker followed called the invisible leader.
• 32:42
  The thing that people follow, even when no manager is present.
• 32:45
  So there are defined practices we can create a high coherence,
• 32:50
  culturally unified, highly aligned organization.
• 32:54
  It's the difference between being mission driven and mission hopeful.
• 32:58
  You're not just saying, I hope in the future I'll do the right thing.
• 33:02
  No, you have made it clear.
• 33:03
  And if you tell like most founders who are hearing this,
• 33:06
  if you go to your lawyer and say, hey, I heard from this guy on a podcast,
• 33:09
  that I need to write my corporate purpose into my corporate charter.
• 33:12
  My mission here is to make the world a better place by doing this certain thing.
• 33:15
  And again, it doesn't do something high concept like I'm going to solve climate change.
• 33:18
  A lot of companies are just like, I want to bring a little bit of beauty into the world.
• 33:21
  I want to make my customers lives a little better by making something more efficient.
• 33:24
  I just want to build great products.
• 33:26
  I believe in craftsmanship and quality.
• 33:28
  The second you say you believe anything at all,
• 33:31
  you are a business revolutionary whether you realize it or not.
• 33:34
  Because you live in an era where we teach people that the only legitimate purpose
• 33:38
  of a company is to enrich its shareholders.
• 33:40
  So if you say you want to make high quality,
• 33:42
  actually what you're saying is only in so far as it benefits my investors,
• 33:46
  will I make high quality.
• 33:47
  And therefore, if I have my investors ever find a way to make money with low quality,
• 33:51
  I'm supposed to do what they want.
• 33:52
  It's called having a fiduciary duty to maximize shareholder returns.
• 33:55
  It's one of the stupidest ideas in the world.
• 33:57
  But that's the world we live in.
• 33:59
  So if you want to have a different purpose, you need to write it down,
• 34:03
  put it in the charter.
• 34:04
  And you draw to your lawyer and say, hey, I think I heard this on this podcast.
• 34:08
  It seems like an easy thing to do.
• 34:09
  And Delaware is a two-page legal filing.
• 34:11
  It takes five minutes.
• 34:12
  Very one of the easiest things in the whole book you can do.
• 34:14
  Your lawyer will tell you that's not a bad idea,
• 34:16
  but you don't need to do it now.
• 34:18
  Better to keep all your options open.
• 34:20
  The way to maximize value is to keep options open.
• 34:22
  Optionality is to want to watch word of business today.
• 34:25
  And I always ask people, ask them if you want,
• 34:27
  if you think you should keep open the option of turning your customers into
• 34:30
  soyling green and eating them.
• 34:32
  And they'll, you know, because like surely we can take that one off the table, right?
• 34:36
  Most lawyers will be like, actually, honestly, you should just wait and see.
• 34:40
  You never know.
• 34:41
  Okay.
• 34:42
  And neither.
• 34:43
  But then you turn around.
• 34:44
  You're like, hey, customer, will you trust me with your private data,
• 34:46
  with your life, with your friend, with your community?
• 34:48
  Will you trust me?
• 34:49
  It's like, well, you won't even promise not to turn me into soyling green?
• 34:51
  Like, no, no, I won't trust you.
• 34:53
  And then we're like, gosh, why are we having a worldwide crisis of trust?
• 34:56
  The data on this is unbelievable.
• 34:58
  So no, we should write down what we intend to do and build operational systems to do it.
• 35:02
  That's the path of ethos.
• 35:04
  The path of integrity is different.
• 35:07
  When I use the word integrity, it conjures for most people two different ideas.
• 35:11
  Personal integrity.
• 35:12
  That's my friend who always keeps their promise.
• 35:14
  Or structural integrity, like a bridge that doesn't fall down.
• 35:17
  But for organizations, these two versions of integrity are the same thing.
• 35:22
  In order for an organization to keep its promises, it has to be structurally strong.
• 35:26
  Think about my friend, the wake.
• 35:28
  He made all kinds of promises to his employees, to his customers, even to his investors.
• 35:33
  And they believed him because they thought he was going to be around to keep those promises.
• 35:37
  But one day he was gone.
• 35:39
  The new person that shows up is like, I promise, I don't even care what they say next.
• 35:44
  Does it matter what the rest of that sentence is?
• 35:46
  No, because if you piss those insane investors off, you could be gone the next day.
• 35:52
  So it's not that he was fire, but the fact that he could be fired is what created the little lack of integrity in that organization.
• 36:00
  So in the path of integrity, we study things like the traditional domains of governance, board composition, board privileges and powers.
• 36:07
  I call for something I call the directors oath that directors should have to take the equivalent of a Hippocratic oath, like nurses and doctors do.
• 36:14
  We talk about the right relationship between companies and their investors.
• 36:18
  And the right way to share power between all of a company's different factional divisions.
• 36:24
  We cite things like employee ownership and industrial foundations and all kinds of what are called alternative governance systems.
• 36:29
  And what's so interesting is when I say alternative governance people are like, oh boy.
• 36:33
  Well, I was going to say I just wanted to make a point because I think people listening to this, they will immediately think this means I can never I can never sell my company.
• 36:44
  Like that's the first thought, right?
• 36:46
  I can never sell.
• 36:47
  Of course, I'm going to give up liquidity.
• 36:48
  I'm never going to be able to get rich.
• 36:49
  What about my personal dreams and the good news is you don't have to give up any of that stuff.
• 36:54
  And I know it's hard to believe because we've all been told that that stuff is necessary.
• 36:57
  But again, this is not just my personal opinion.
• 37:00
  We have good, hard evidence that what I'm saying is true.
• 37:04
  So I'll just give you one statistic that blew my mind.
• 37:08
  If you structure your company with one of the particular alternatives that I'd recommend in the book, it's called an industrial foundation.
• 37:13
  This is like Novo Nordisk, where a nonprofit foundation owns and controls a for-profit subsidiary finance theory, modern finance theory predicts that that would put you with a major competitive disadvantage because they're owned by a nonprofit.
• 37:26
  They're going to be doing virtue signaling and other kind of crap.
• 37:28
  They're not going to be focused on the mission.
• 37:30
  You're not going to be able to raise money in competitive capital markets.
• 37:32
  You're going to be undercut on price by your ruthless company.
• 37:34
  I tell people the story, everyone reacts the exact same way.
• 37:38
  But Novo Nordisk is one of the largest companies in the world.
• 37:41
  And it's not an outlier.
• 37:43
  There's a ton of companies that have this structure and therefore we have a data set.
• 37:46
  Let's go ask, is the modern finance theory correct?
• 37:49
  Is it true that these companies are at a disadvantage? The answer is no.
• 37:52
  One of my favorite stats in the whole book is that companies that are structured this way are six times more likely to live to year 50 than companies with a conventional structure.
• 38:01
  We're not talking about a marginal advantage.
• 38:03
  We're talking about 10% versus 60%.
• 38:06
  Extremely, extremely more likely.
• 38:08
  And whatever metric you want to measure, return an invested capital,
• 38:12
  obviously anything to do with company or employee morale, efficiency, investing in R&D,
• 38:17
  the ability to invest countercyclically during downturns, even like finance metrics like Tobin's Q,
• 38:22
  which if you know what that is, these companies outperform on all these dimensions.
• 38:26
  When finance theory predicts they should underperform.
• 38:29
  Why?
• 38:31
  If finance theory is correct, these companies shouldn't exist and yet they're everywhere.
• 38:35
  And if your listeners are skeptical, I can guarantee you that you've interacted with one of these companies before.
• 38:41
  Even if you've never bought a Novon artist medication, I bet you've eaten a Hershey chocolate bar.
• 38:45
  I bet your portfolio has a Vanguard mutual fund in it.
• 38:48
  I bet you've been to a Patagonia or an REI, right?
• 38:51
  There's hundreds of these companies and they are quietly, unassumingly, doing the right thing day in day out.
• 38:58
  And on TV, pounding their chest about how great they are, a lot of them actually feel a little bit shy or defensive
• 39:03
  about the fact that they violate every single best practice we teach everybody else.
• 39:09
  And yet here they are quietly proving these best practices wrong day in and day out.
• 39:14
  And that that structural advantage that they have, Costco has it, Patagonia has it, Novon artist has it,
• 39:20
  that is the magic of the path of integrity.
• 39:24
  So those are the two paths, the path of ethos and the path of integrity.
• 39:26
  You build that two-part blueprint, you can build a company that is literally incorruptible.
• 39:30
  We touched on this briefly and we have to just go into it a little bit deeper because it's core to understanding why companies do become corrupt.
• 39:39
  You touched on financial gravity but you didn't go deep on it.
• 39:43
  So I just want to expand on it a little bit more because it'll help frame why we're even in this situation in the first place.
• 39:50
  If you ever been around somebody who meets a celebrity or a billionaire for the first time.
• 39:54
  Yes, I have.
• 39:56
  And it's super, it's super gross.
• 39:58
  And like it's weird, even people that I'm like this person doesn't really even care.
• 40:02
  Like they start to behave really weird, they become super up sequence.
• 40:06
  And they just, they can't help themselves but just like, I want to please this person.
• 40:10
  Why? Why is it so important?
• 40:12
  Well, it turns out there's a lot of research on this topic.
• 40:14
  And basically to summarize it very quickly, whenever there's a massive resource disparity between people.
• 40:20
  And resource can mean money but it can also mean power, fame, whatever you want.
• 40:25
  Someone else has a lot of it a lot more than you.
• 40:28
  You can't help this. You have an unconscious mental circuit.
• 40:31
  It's the same instinct that causes your eyes to die light in the dark.
• 40:35
  Okay, you have no control over this.
• 40:37
  You automatically start to think about the ways in which that person could help you.
• 40:41
  They could.
• 40:43
  Think about it. You meet an incredibly famous person and you're an aspiring actor.
• 40:47
  They could make your career.
• 40:49
  Just one kind word from them to the right person.
• 40:52
  Boom.
• 40:53
  They could put you on a video and give you billions of views, right?
• 40:55
  They can do anything they want for you.
• 40:57
  You mean a bonafide billionaire?
• 40:59
  They could endow you for life to pursue whatever they think you like.
• 41:04
  They could if they wanted to.
• 41:06
  It wouldn't cost them anything.
• 41:07
  They wouldn't notice. They could give you $100 million and not even notice it.
• 41:11
  Right? So the fact that they could do that, even though they don't do it,
• 41:15
  the fact that they could do it influences your behavior.
• 41:18
  Now, when we see this and that's the interpersonal side of it.
• 41:21
  But when we have an organization, we build a whole group of people who are all feeling this way,
• 41:26
  especially about our financial markets.
• 41:28
  So if you've ever talked to founders and they start to talk about what investors might like,
• 41:34
  what VCs might want to fund.
• 41:36
  You talk to public companies about what the market might want.
• 41:39
  You talk to non-profit executives about what their donors might want.
• 41:42
  The word might is doing a lot of work these sentences.
• 41:47
  Because remember, what investors might want is not the same as actually going to find out what they want.
• 41:53
  If you're a public company and you're like, I want to have an investor relations function.
• 41:56
  I'm going to meet my investors and learn who they are.
• 41:58
  That would be healthy.
• 42:00
  Of course, the way today's modern markets are structured.
• 42:02
  Most investors hold their shares anonymously.
• 42:04
  So companies actually have no idea who their investors are.
• 42:07
  So instead, we just look at what the market wants.
• 42:10
  Well, we did something good.
• 42:12
  Stock price went down.
• 42:13
  I guess it's bad.
• 42:14
  We did something bad.
• 42:15
  The stock price went up.
• 42:16
  We just saw this in the news.
• 42:17
  Block laid off a ton of people claiming AI is going to make them more efficient.
• 42:20
  Their stock price shot up.
• 42:21
  Founder, I can't remember Jack Dorsey made like how many billions of dollars that day?
• 42:25
  He made a fortune on the announcement of massive layoffs.
• 42:29
  Everybody notices that.
• 42:30
  You're like, oh, okay, that's what the market wants.
• 42:33
  Now, if you meet individual investors and I have, I spend a lot of time with investors.
• 42:37
  You ask them, is that what you want?
• 42:38
  They'll be like, oh, no, I think that's terrible.
• 42:41
  But he thinks that's what you do want.
• 42:44
  Oh, no.
• 42:45
  I tell them all the time.
• 42:46
  That's all I don't want.
• 42:47
  So what you say you want doesn't matter.
• 42:50
  Gravity is an unconscious process by which people start to change their behavior
• 42:54
  in order to maximize their success at future transactions.
• 42:58
  And what makes gravity dangerous is that we have good research that shows
• 43:02
  that consistently performed behaviors, eventually become internalized as values,
• 43:08
  whether people intended or not.
• 43:10
  So that's why we see people who start out in business very idealistic and end up very cynical.
• 43:14
  They often don't even realize that it's happened.
• 43:17
  If you ask them, what was the day you changed your belief that quality is what really matters in product development?
• 43:23
  They'll be like, I still believe that.
• 43:24
  Some people, why do you ship all this garbage?
• 43:26
  They're like, well, it's not me, the market one, the market insists my boss.
• 43:30
  They make up all kinds of excuses.
• 43:32
  But the truth is inside they have internalized the idea that crap is what gets rewarded.
• 43:37
  Therefore, that's what you do.
• 43:39
  You say, you love your employees and you do anything for them.
• 43:42
  Now you're squeezing them, laying them off, cutting their salaries.
• 43:44
  They're like, I don't want to do that.
• 43:46
  I have to.
• 43:47
  Interesting.
• 43:48
  Interesting.
• 43:49
  So gravity is this unconscious force that is warping everybody's values without them realizing it.
• 43:54
  Now, if it was random, it wouldn't be so bad.
• 43:57
  But it's not random.
• 43:59
  Gravity always transmits the values of the one with the resources to the one without.
• 44:05
  So our financial system has right now, the way it's currently constructed, a set of shared values.
• 44:11
  If you ever want to study solidarity and action, study bankers.
• 44:14
  They ruthlessly compete with each other, but when they need to close ranks, they're really good at it.
• 44:18
  They understand solidarity better than most unions, okay?
• 44:21
  They don't give into infighting when the chips are down.
• 44:24
  Because they have a shared value system.
• 44:26
  Now, most normal people, when they hear about this value system, think it's a foreign.
• 44:31
  But that doesn't matter.
• 44:32
  We are in its gravitational field and we adopt its values without realizing it.
• 44:37
  So the key to gravity is to understand that it doesn't matter what people say they believe.
• 44:42
  It only matters what is perceived by the person being shaped.
• 44:46
  But the flip side of that is that the values of our financial system are not fixed.
• 44:51
  They could be different.
• 44:53
  And if you build a different financial system with different values,
• 44:57
  you would transmit those values gravitationally just the same with the same force and severity
• 45:02
  as today's conventional system transmits the values of exploitation.
• 45:08
  We could transmit different values if we wanted to.
• 45:11
  Do you believe that it is more realistic for a founder to adopt a mental model
• 45:19
  or some operate in the current environment?
• 45:22
  Or do you believe that shifting gravitational force
• 45:26
  and value signaling from those that have power is a likely outcome?
• 45:30
  What's the difference between the two?
• 45:32
  Well, the founder could play within the existing playbook successfully
• 45:35
  and the alternative would be to shape the entire environment.
• 45:38
  Yeah, those are actually the same.
• 45:40
  Explain.
• 45:41
  I know people are like, what is he talking about?
• 45:44
  I get it.
• 45:45
  You got to just go bare with me for a second.
• 45:48
  When you create success within our current economic system,
• 45:53
  you become a gravitational body, whether you want to or not.
• 45:59
  So what happens is that the first step is to learn to build an organization
• 46:04
  that can resist this outside pressure.
• 46:07
  That's hard enough.
• 46:08
  But I tell the story in the book of something I call mission transmission.
• 46:12
  Let's go back to Costco for a second.
• 46:14
  Costco is like a recurring character in the book
• 46:17
  that kind of pop up where you least expect it in a bunch of chapters,
• 46:19
  not just the one that's about Costco.
• 46:21
  And one of the things I learned when researching this book
• 46:23
  that blew my mind is that Costco performs something
• 46:26
  like depending on how you count,
• 46:28
  40% of all of the food inspections in America.
• 46:33
  So like almost as many as the United States federal government
• 46:36
  performs in a given year.
• 46:38
  And they have a rule that when if you want to sell in Costco,
• 46:42
  your factories have to be inspected basically every year.
• 46:45
  And you have to meet their really high standards for quality and safety.
• 46:48
  But those rules don't apply just to the stuff you send them.
• 46:52
  The whole facility has to pass.
• 46:55
  Even if you send only one thing to Costco, they don't care.
• 46:58
  Everything you send, which means that all of us,
• 47:01
  every one of the every American who lives under our current food system,
• 47:06
  lives under the protective shield of Costco,
• 47:09
  even if you've never set foot in one of their warehouses.
• 47:12
  Because their mission is not just to make money,
• 47:17
  their mission is to be a fiduciary to the customer.
• 47:20
  And it's beneficial to their customers that they live in a world of healthier
• 47:24
  and safer food, not just the food they buy in Costco.
• 47:27
  So they're not using that inspection cost as a proprietary advantage.
• 47:32
  They're using it to shield our whole country.
• 47:36
  We see that in a lot of cases where companies,
• 47:38
  if they are strong and have high integrity,
• 47:40
  they can start to transmit their own values out gravitationally.
• 47:43
  So yes, you're right that when you're starting out,
• 47:46
  you need to be more focused on one than the other.
• 47:49
  But really both happen at the same time.
• 47:51
  And in fact, one of the really interesting things about this method in this book
• 47:54
  is it unlocks new business ideas you probably wouldn't think of
• 47:58
  if you were only seeking out your own proprietary advantage.
• 48:01
  I'm most proud of, you know, I put it in the hands of like five or six hundred test readers,
• 48:08
  all different kinds of people to just see,
• 48:10
  I'm a believer in getting feedback.
• 48:11
  So before the book was published, I had a set of people read it and give me feedback.
• 48:15
  And at least three of them wrote to me and said,
• 48:19
  I'm actually starting a new business that I wouldn't have thought of otherwise,
• 48:23
  except I got the idea from your book.
• 48:25
  And because that is sometimes when you're thinking about systemic change,
• 48:30
  you realize that there's an opportunity.
• 48:32
  And here's, I'll give you a very concrete way of thinking about this.
• 48:36
  Most people in business are taught that having higher margins is better,
• 48:39
  because the more margin you have, the more profitable you are,
• 48:41
  the more powerful you are, right?
• 48:43
  But we also taught Jeff Bezos' famous dictum that your margin is my opportunity.
• 48:48
  So Jeff Bezos is like actually margin is a form of liability.
• 48:51
  Higher your margins, the more competitive room there is for me to undercut you.
• 48:55
  So just by having that insight,
• 48:57
  that, oh, if I don't, instead of trying to maximize margins,
• 49:00
  I should try to maximize what I call human flourishing,
• 49:03
  build a company that people love, even if it means lower margins.
• 49:06
  That will actually create more durable success.
• 49:08
  People have started to be like, oh, wait a minute.
• 49:10
  There's a company X or a category of companies X that everybody hates.
• 49:15
  What if we had one that people didn't hate?
• 49:17
  Maybe that would be a competitive advantage.
• 49:19
  And they're seeking out these opportunities and building them when like,
• 49:24
  they could have started that company any time,
• 49:26
  but it required them to change their mindset.
• 49:28
  We have these blinders on.
• 49:29
  And once you get the blinders off, new opportunities become possible.
• 49:32
  So for example, I'll tell the story in the book of a company called Tony's Chocolate Lonely.
• 49:36
  Now that I've told you about it, you're going to start to notice it in stores,
• 49:39
  which is just like a really distinctive brand.
• 49:42
  And most people in America don't know the story of the company.
• 49:45
  They just know that it makes the best chocolate.
• 49:47
  But actually in the Netherlands, where they're from,
• 49:49
  where they're now the number one chocolate brand,
• 49:51
  it was started by a TV journalist who tried to get himself arrested for eating chocolate.
• 49:58
  He did a big expose about all the child labor and child slavery in the cocoa supply chain.
• 50:04
  And he was like, if I'm eating chocolate, I'm financing this horror.
• 50:08
  And he tried to get himself arrested.
• 50:10
  Now the authorities of course refused to prosecute him because if they prosecute him,
• 50:13
  they have to prosecute basically every person in the Netherlands who consume quite a lot of chocolate.
• 50:16
  And so he was like, I can't get this problem fixed as a journalist.
• 50:20
  I've exhausted my tools as a journalist.
• 50:22
  I need to go to entrepreneurship.
• 50:23
  And so we started this company called Tony's Chocolate Lonely that is about having ethical chocolate.
• 50:28
  Like that's its thing.
• 50:29
  They use the money they make from customers to go eradicate child slavery in the cocoa supply chain.
• 50:35
  And what's really cool about it is that fact that it has this systemic change in mind
• 50:40
  from the beginning is what allowed customers to rally to their cause.
• 50:44
  So again, it's not really one thing or the other.
• 50:47
  It's one integrated system.
• 50:49
  And when we allow our values to be enacted in our business model, in our business structure,
• 50:54
  we often unlock business benefits we wouldn't otherwise be able to achieve.
• 50:57
  The HubSpot podcast network is a success story partner.
• 51:00
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• 51:03
  It's on the HubSpot podcast network hosted by Troy Sandage.
• 51:06
  He's great for taking this stuff that feels complicated in business so that could be growth strategy,
• 51:10
  scaling all of it and just making it simple.
• 51:12
  Episodes are under 30 minutes.
• 51:14
  You'll walk away with something you can use that day.
• 51:16
  The tool is a success story partner.
• 51:17
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• 51:22
  I'll look up, it's two in the afternoon, I haven't even had a real meal.
• 51:25
  And then I'm just useless for the rest of the day because I'm hitting a wall.
• 51:28
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• 51:43
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• 51:48
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• 52:00
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• 52:09
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• 52:11
  Now, before I say anything else, just let me get the pronunciation right because they told me they...
• 52:14
  Like five times I need to get this right.
• 52:16
  It is Odew.
• 52:17
  Odew.
• 52:18
  Here's why I actually care about this one.
• 52:20
  A few years ago I was running my company with a video editor, one city, a designer in another city.
• 52:24
  I had a VA overseas every Friday night.
• 52:26
  I was logging into three different platforms to pay them.
• 52:28
  It was different fees, different invoice formats.
• 52:31
  A Google sheet I was updating at midnight to track.
• 52:33
  Who got what?
• 52:34
  That was my payroll.
• 52:35
  Odew is the platform I wish I'd had five years ago.
• 52:37
  It's not a tool.
• 52:38
  It's basically an operating system for a business.
• 52:40
  Accounting, invoicing, project management, inventory HR.
• 52:43
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  All running on one platform.
• 52:48
  And here's the part that got me.
• 52:49
  The same platform that runs your books can also build your website, e-commerce, signatures, the whole stack.
• 52:53
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• 52:55
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• 52:57
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• 52:59
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• 53:01
  So if you are stitching six tabs together to run your company, like I think most of us are sometimes, just go look at this thing.
• 53:06
  Odew.com start with one free app.
• 53:08
  You have so many good stories in this book about examples of...
• 53:12
  No, some of these I've known.
• 53:15
  I think the average person has at least seen a post about Costco's hot dogs before and why they keep them at the price that they keep them at.
• 53:25
  I go into business content all the time.
• 53:28
  I know about the J&J $100 million pulling the product off the shelves.
• 53:33
  I love that story.
• 53:34
  But there's other ones in here.
• 53:36
  There's Eileen Fisher walking away from an IPO.
• 53:41
  Bob Moore giving his company away.
• 53:45
  There's a few different ones that are really good that I haven't heard of before.
• 53:48
  But I guess the question is...
• 53:51
  If there's so many examples...
• 53:54
  And this is again, it's so obvious because I don't think people study this and understand that you can build companies different ways.
• 54:01
  But I'll ask anyways that there's so many examples of companies like a Costco and what entrepreneur would say,
• 54:08
  Oh, I don't want to build something like a Costco.
• 54:10
  Obviously that would be a great accomplishment for anybody.
• 54:14
  Why do we still build companies I would say after chatting with you and I think we share a very common belief system of what capitalism could and should be?
• 54:22
  Why do people still build companies like the quote-unquote wrong way?
• 54:25
  Like when there are huge gravitational forces like a Costco.
• 54:29
  And that's right in the face.
• 54:31
  Yeah, that's what's really like for me having had the insights behind this book a few years ago.
• 54:36
  It took me a long time right this book was hard to write.
• 54:39
  I felt like having this clarity about what's going on gave me superpowers.
• 54:43
  Like it's allowed me to be so much more effective myself as an entrepreneur and as an advisor and investor.
• 54:48
  Like I've made so much more money than I would have otherwise having had this insight.
• 54:52
  And yet when I tell people about it, they still tell me it's impossible.
• 54:57
  I'm like, how could it be impossible? I'm living it.
• 55:00
  How could it be impossible?
• 55:02
  And so people say things like, well, okay, that sounds nice.
• 55:05
  Actually, there's someone said this to me and I put it right in the book.
• 55:07
  I was like, look, if it was really true what you're saying, then just through the process of natural selection, this would be the dominant way of building businesses.
• 55:15
  The fact that it isn't means that you must be wrong.
• 55:18
  And it's like, oh, that's such a great theory.
• 55:20
  That makes perfect sense. It has the clean logic of natural selection behind it.
• 55:24
  And the only problem with it is that it once again relies on that fallacy that the market rewards value creation, but it doesn't.
• 55:31
  It doesn't.
• 55:32
  So why do we see all this crap? Because we're rewarding it.
• 55:35
  We're paying people to destroy these companies.
• 55:38
  They're being like, it's not a conspiracy.
• 55:41
  They do it right out in the open and they advertise the job that way.
• 55:46
  It's very, very, very clear.
• 55:48
  So one of the biggest obstacles is simply getting people, I call them builders, people who share the builders intuition.
• 55:54
  The best way to make money is to create new value.
• 55:56
  Leave the world better off and capture some of that value for yourself.
• 55:59
  Builders are painfully naive about this point.
• 56:02
  They just, they can't believe the world really works the way that it does.
• 56:06
  The part of my job is just to be like, look, you need to understand what these people really believe in what they're doing.
• 56:10
  The reason these companies are not successful in your view is they're not allowed to be successful.
• 56:16
  I'll give you a personal story that I had this experience once that blew my mind.
• 56:21
  So everyone knows it's a very famous story in tech circles that when Google did their IPO, it was done an unusual way.
• 56:27
  It was called a reverse or Dutch auction.
• 56:30
  Because the way that IPOs are normally done, the bankers who run the IPO are able to enrich their favorite clients quite a lot.
• 56:37
  And we'll get into the mechanics of how this is done.
• 56:39
  You can read about it online.
• 56:40
  Like, if you ask VCs or anyone who knows the IPO process, people love to complain about the way IPOs are structured.
• 56:46
  A lot of people make money for my POs who don't really deserve to.
• 56:49
  They don't create any value.
• 56:51
  So Google wanted to use their mighty power to change this process.
• 56:55
  And they were the first to adopt this Dutch auction.
• 56:57
  Now, if you ask people about it now, say, why did nobody follow Google?
• 57:01
  Google did it.
• 57:04
  And they were like, oh, it was a big disaster.
• 57:06
  And they were like, what was the disaster exactly?
• 57:08
  They were like, I don't know.
• 57:09
  It was something like, something was messed up about it.
• 57:11
  You made people unhappy.
• 57:12
  You know, investors didn't like it.
• 57:13
  Whatever.
• 57:14
  And it's so funny.
• 57:15
  It's just perception that it was a disaster.
• 57:16
  But if you bought and held Google at the IPO, no matter what price you paid, if you held it till now, you are as rich as crotious, my friend.
• 57:23
  Like, it's incredible and incredible accomplishment.
• 57:25
  Okay.
• 57:26
  But it's perceived to be a failure.
• 57:28
  Anyway, I built this thing called a long-term stock exchange, which is another financial reform startup.
• 57:33
  And, you know, it's still going to this day.
• 57:36
  But when I was first setting it up, I was going on meeting people who'd work in the public markets.
• 57:39
  And I would talk to anybody, bankers, lawyers, investors of any kind.
• 57:43
  I didn't know anything.
• 57:44
  So I was like, I want to get educated.
• 57:45
  And I said, yeah, I got this idea.
• 57:46
  I met this investment banker, retired.
• 57:48
  And he was like, oh, this is great.
• 57:50
  I'm really happy to meet you.
• 57:51
  A super interesting idea.
• 57:52
  And he said, yeah, this is a cool idea.
• 57:53
  It definitely would work, but they'll never let you do it.
• 57:57
  It was like, excuse me.
• 57:58
  What does that mean?
• 57:59
  He's like, oh, yeah.
• 58:00
  Yeah, you don't know about this.
• 58:01
  He was like, kind of surprised.
• 58:02
  You don't know.
• 58:03
  He's like, remember the Google IPO?
• 58:05
  I was like, yeah.
• 58:06
  I was like, you remember how it's a big failure?
• 58:07
  I'm like, yeah.
• 58:08
  He's like, we had a meeting about it.
• 58:10
  All the bankers who worked on the IPO, or even were adjacent to it, all got together.
• 58:14
  And we said, look, if this is perceived to be a success, it's going to really cut into our profits.
• 58:19
  So we need to make sure it's not perceived that way.
• 58:22
  And we made it so.
• 58:25
  And I was like, what?
• 58:28
  You're just telling me this?
• 58:30
  Like, why are you telling me this?
• 58:32
  He's like, oh, you need to be warned not to try to mess with these guys.
• 58:35
  They're too powerful.
• 58:36
  You can't mess with us.
• 58:37
  He wasn't ashamed of it.
• 58:39
  He didn't think it was wrong what he had done.
• 58:41
  He wasn't embarrassed about it.
• 58:43
  He was just like, yeah, we closed ranks to defend our profits.
• 58:46
  Of course, we did.
• 58:47
  What do you expect?
• 58:48
  You're going to mess with us?
• 58:49
  We're going to mess with you back.
• 58:50
  So there's this like really powerful set of incentives
• 58:54
  that puts investors into what I call a prisoner's dilemma, basically where investors are being told
• 58:59
  that every other investor is going to try to squeeze all the value out of every company you invest in.
• 59:03
  So you better get there first.
• 59:05
  So the whole thing becomes like I kind of a self-fulfilling, self-perpetuating prophecy.
• 59:09
  But again, it doesn't have to be that way.
• 59:11
  We've built a system that has put these repacious people in charge.
• 59:14
  But why?
• 59:15
  What kind of value do they add?
• 59:17
  So I feel like we actually, as builders, have the final say here.
• 59:21
  At the end of the day, this system is value-destroying, so it requires a steady supply of fresh meat to keep going.
• 59:26
  The number of public companies in this country has fallen by more than half in the last 20 years.
• 59:31
  Average company, 10 years are collapsing.
• 59:33
  Average stock period holdings are collapsing.
• 59:35
  Average executive tenure is collapsing.
• 59:38
  We are entering an era of disposable organizations held by temporary leaders on behalf of indifferent microsecond owners.
• 59:46
  Then we're like, but why?
• 59:47
  And why is trust falling again?
• 59:49
  Like obviously, but there's no reason for this.
• 59:52
  It doesn't need to be this way.
• 59:54
  We have enacted a set of values at the core of this system.
• 59:57
  So because those who build organizations are the ones who supply the fresh meat,
• 1:00:02
  the system cannot exist without their consent.
• 1:00:05
  So if builders had half the sense of solidarity of bankers, they could have any financial system they want.
• 1:00:10
  What's a spiritual holding company?
• 1:00:13
  This is probably the most controversial idea in the book.
• 1:00:16
  And it's actually the oldest idea in the book, despite its controversy.
• 1:00:21
  So just to give you an example, the German Optics Company Zeiss adopted this structure in 1885.
• 1:00:27
  Okay, so it's not some newfangled idea that I have.
• 1:00:30
  But it turns out that all over our economy, I mentioned Novo Nordisk, right,
• 1:00:33
  the Industrial Foundation that owns a subsidiary.
• 1:00:35
  That is one example of what I call a mission locked constellation.
• 1:00:39
  That is a set of interlocking organizational entities that keep each other honest and on mission for long periods of time.
• 1:00:49
  And there are probably 20 different ways to accomplish this.
• 1:00:52
  You could do it with a nonprofit.
• 1:00:53
  You could do it with employee ownership, either via an employee ownership trust, an ESOP.
• 1:00:57
  You can do it as a co-op, as an employee co-op, like like Mondragon in Europe.
• 1:01:03
  You could do it as a customer co-op, like REI or Vanguard.
• 1:01:06
  There are all these alternative structures that have a common pattern.
• 1:01:09
  And what's funny is the advocates for these patterns tend to be very specialized.
• 1:01:14
  So they actually don't like each other very much.
• 1:01:16
  You know, the Industrial Foundation people and the employee ownership people are natural like rivals,
• 1:01:20
  because they're all like trying to compete in a zero sum game for attention.
• 1:01:23
  So I realized in the course of meeting all these people and learning about all these different structures,
• 1:01:27
  all of which, by the way, have tremendous academic research supporting them as being superior to the standard structure we teach people.
• 1:01:33
  I was like, we need a term to describe this structure that is not one of its specific legal implementations.
• 1:01:39
  So I didn't even mention the perpetual purpose trust or the anthropic long-term benefit trust.
• 1:01:43
  It's all trusts or a whole yet other genre of these.
• 1:01:46
  Anyway, there's so many of them, we need a term to describe.
• 1:01:49
  And I've been working on what that term should be.
• 1:01:51
  And I settled on this one.
• 1:01:52
  I call it the spiritual holding company.
• 1:01:54
  And I did that because everyone knows what a holding company is.
• 1:01:57
  I think about Warren Buffett's Brooks or Hathaway.
• 1:02:00
  A holding company that owns a whole bunch of subsidiaries.
• 1:02:03
  The subsidiaries all obey what the holding company says.
• 1:02:06
  Now, the problem with the holding company is you have to be rich enough to be able to buy and wholly own all the subsidiaries.
• 1:02:13
  That's the nature of it.
• 1:02:14
  So it's because Brooks or Hathaway had this massive cash cow of insurance premiums and stuff to get used to buy up stuff.
• 1:02:21
  Like that's why it works.
• 1:02:23
  But a lot of these other companies, the holding company isn't actually physically owned the subsidiary.
• 1:02:29
  It just has governance rights over it.
• 1:02:32
  So take over notice again.
• 1:02:33
  Nova Norton is a publicly traded company.
• 1:02:35
  It trades like millions of shares on New York Stock Exchange every day.
• 1:02:38
  The foundation, you know, only owns a small percentage of the underlying thing.
• 1:02:43
  But it has 75% of the voting rights.
• 1:02:45
  So it has what's called a golden share.
• 1:02:47
  It gives it special rights.
• 1:02:49
  Tony's chocolate lonely is protected by something called Tony's mission lock, which appoints certain mission guardians to have the oversight responsibility.
• 1:02:57
  As I mentioned, anthropic is overseen by outside trustees in the form of a long-term benefit trust.
• 1:03:01
  That's been a key part of why anthropic has been able to be both very courageous and raise an incredible amount of money in recent years.
• 1:03:08
  So I use the word spiritual holding company to not in the sense of religion in the sense of something older and more primeval.
• 1:03:16
  The spirit or animating essence of a thing is what this entity is the guardian of.
• 1:03:21
  That's what it holds as a holding company.
• 1:03:24
  So because we have so much data to show that this structure works, I felt comfortable being a little bit bold with my terminology choice here.
• 1:03:31
  Because the truth is I work with so many founders, so many builders over the years.
• 1:03:35
  We all share a certain conviction that we very rarely say out loud.
• 1:03:39
  We actually think our creations are alive.
• 1:03:44
  Not size a metaphor.
• 1:03:48
  We actually think they are categories of emergent intelligence.
• 1:03:52
  And there's a lot of science to back this up. It's not a crazy view.
• 1:03:55
  What's interesting to me, if these things are alive, then they must have a soul.
• 1:04:00
  What are we talking about?
• 1:04:02
  And we all know this to be true because if I tell you that some big company lost its soul, you know what I mean.
• 1:04:08
  In fact, customers use that phrase all the time, employees use that phrase all the time.
• 1:04:12
  Well, I was like, look, let's take that seriously.
• 1:04:14
  There's a deep human instinct here to understand that there is an animating essence behind a thing that can be lost.
• 1:04:22
  That's why the word soulless means something something very specific.
• 1:04:26
  And anyway, for those that want to take that in a religious direction, I give guidance for how to do that in the book.
• 1:04:30
  But more important for I think the more common listener is going to say,
• 1:04:33
  I'm not interested in any religious mumbo jumbo. No problem.
• 1:04:35
  Everything I'm saying can be understood on purely material terms.
• 1:04:38
  Like we have, we've had a lot of people who worked this out over the course of many decades of excellent research.
• 1:04:43
  We can talk about soulfulness. We can talk about emergent intelligence.
• 1:04:46
  We can do it using only physical principles.
• 1:04:48
  And also having these guiding governance principles and ethical principles that pushes the company in the right way.
• 1:04:54
  And again, now I see all these ideas are now compact.
• 1:04:57
  So that it also protects what the founder's idealistic original vision was when it morphs into something bigger and greater.
• 1:05:04
  So this is how we protect what that first day founder wanted to build before whatever that vision was just gets warped, whatever the term is by the markets, by the gravity of some negative influence.
• 1:05:24
  This is how we do it.
• 1:05:31
  What's the simple like bringing it back to somebody who's just starting out.
• 1:05:40
  A founder is listening to this and entrepreneurs listen to this and they're already overwhelmed with.
• 1:05:44
  Oh, yeah, yeah.
• 1:05:46
  You know, a thousand different things they're trying to deal with in their day to day.
• 1:05:49
  So we're talking about all these big ideas and they're thinking great.
• 1:05:56
  Eventually, I'll have to deal with problems like that.
• 1:06:00
  What is your advice to a founder who's just starting out right now?
• 1:06:04
  How do they structure themselves? What do they think about?
• 1:06:07
  What do they focus on?
• 1:06:09
  I mean, we gave examples of companies and of founders.
• 1:06:13
  They should probably study for sure.
• 1:06:16
  But what should they be thinking about right now?
• 1:06:19
  Yeah, you have to see this as a long game.
• 1:06:22
  This is a long term project.
• 1:06:24
  Imagine you watch the Olympics and you see someone on there and you're like,
• 1:06:28
  man, she's amazing.
• 1:06:30
  I want to be like her one day.
• 1:06:31
  He's so strong.
• 1:06:33
  You think of the bodybuilder or a lifter.
• 1:06:36
  He throws the discus or figure skater.
• 1:06:38
  It doesn't matter to me.
• 1:06:39
  You see an elite athlete.
• 1:06:40
  You're like, wow.
• 1:06:41
  I want to be like that one day.
• 1:06:43
  That's basically what happens when someone's like, oh, I want to be.
• 1:06:45
  I see a successful founder on TV.
• 1:06:46
  I want to be like them.
• 1:06:47
  Okay.
• 1:06:48
  You want to be an Olympic athlete?
• 1:06:49
  Great.
• 1:06:50
  And then you say, okay, give me some advice about what to do.
• 1:06:51
  And I'm like, okay.
• 1:06:52
  You have to learn to hit the gym.
• 1:06:54
  You have to learn to eat right.
• 1:06:55
  You're like, no, no, no, no, no.
• 1:06:57
  That's that's for later.
• 1:06:59
  Okay.
• 1:07:00
  First you have to teach me how to figure skate.
• 1:07:02
  I'm like, no, I'm sorry.
• 1:07:04
  But like, no, no, but that's the stuff that she, she eats amazing.
• 1:07:08
  I want to know what can I do?
• 1:07:10
  It's like, how do you think she became amazing, my friend?
• 1:07:14
  You are you willing to hit the gym?
• 1:07:15
  Are you willing to do this day by day, brick by brick?
• 1:07:18
  And are you willing to hold in your mind the vision of yourself as successful?
• 1:07:23
  What are the things you will wish you had done?
• 1:07:25
  And people are like, I want to, if you tell me I want to eat a big Mac every day.
• 1:07:29
  But I also want to become an Olympic athlete.
• 1:07:31
  I call bullshit.
• 1:07:32
  Sorry.
• 1:07:33
  I don't think you really do.
• 1:07:34
  I think you're trying to do something else.
• 1:07:36
  I don't know what it is.
• 1:07:37
  But it's not that.
• 1:07:38
  Because if you go ask any of those people for advice.
• 1:07:40
  And people are always like, you're not honest.
• 1:07:41
  This is why my favorite criticism is like that.
• 1:07:43
  People are like, you're not honest enough about the trade-offs.
• 1:07:46
  And I'm like, I don't understand that criticism.
• 1:07:49
  So I got really freaked out about it.
• 1:07:51
  You know, a lot of people, I said I like test readers.
• 1:07:53
  Test readers would say to be more honest about the trade-offs.
• 1:07:55
  So I want to re-interviewed a bunch of these people who have done this.
• 1:07:59
  And I was like, what do you see as the trade-offs of working this way?
• 1:08:02
  And they all looked at me like, what?
• 1:08:04
  They didn't understand the question.
• 1:08:05
  Like, what is the trade-off?
• 1:08:06
  And they said, like, imagine you ask Arnold Schwarzenegger,
• 1:08:08
  like, what's the trade-off of like never being able to eat a big Mac?
• 1:08:11
  And they were like, the trade-off is you don't get to, yeah,
• 1:08:15
  you don't get to eat a big Mac, but on the flip side,
• 1:08:17
  you get to be like, you think it was like, what's the trade-off
• 1:08:20
  between eating food and eating poison?
• 1:08:22
  It's that same optionality thing.
• 1:08:24
  Again, yeah, you're taking something pleasurable off the table, I guess.
• 1:08:28
  But the flip side is you're gaining all these superpowers.
• 1:08:32
  It's not really a trade-off, it's just a choice.
• 1:08:34
  Do you want to get rich this way?
• 1:08:36
  You want to get rich that way?
• 1:08:37
  It's a choice.
• 1:08:38
  You just make it.
• 1:08:39
  So when you want to start out, what you want to do is keep it very simple.
• 1:08:42
  Okay, don't go around blabbing about spiritual holding company and whatever.
• 1:08:45
  Just design the structure you want to have.
• 1:08:49
  Don't worry about what investors want.
• 1:08:51
  Don't worry about other people are going to say just like,
• 1:08:53
  what kind of company do you want to be?
• 1:08:55
  Do you think you should get rich, but your employees don't get rich?
• 1:08:57
  Or do you think your employees should share it?
• 1:08:59
  I think every founder just ever would say, I want everybody.
• 1:09:02
  Ever.
• 1:09:03
  Like, of course, I'm like, well, then why do your corporate governance documents
• 1:09:05
  give you all the money you make all the money and your employees get screwed?
• 1:09:09
  Take that off the table.
• 1:09:10
  Make your employees your co-owners.
• 1:09:12
  That's really simple.
• 1:09:13
  Give them a seat on the board.
• 1:09:14
  Yeah, why not?
• 1:09:15
  While it's cheap and small, well, nobody cares is the time to make these decisions.
• 1:09:20
  Do you want the company to stand for something?
• 1:09:23
  Are there certain values you would rather die than betray?
• 1:09:26
  Write them down.
• 1:09:28
  Is there an economic component?
• 1:09:29
  Are you willing to say that you're the kind of company that cannot make money
• 1:09:33
  except by achieving its mission?
• 1:09:35
  Is that what you want?
• 1:09:37
  You want people to believe that of you?
• 1:09:39
  Make it real.
• 1:09:40
  So start simple.
• 1:09:41
  There's a lot of really simple things we can do.
• 1:09:43
  Obviously in the book, I lay this out in a lot of detail.
• 1:09:45
  But first, like, decide the kind of thing you want to be when you grow up.
• 1:09:48
  And now work backwards.
• 1:09:49
  Okay.
• 1:09:50
  What do I have to do today to make sure I have the option to do that later?
• 1:09:54
  What happens is founders generally don't think about this stuff until they've already lost control of the company.
• 1:09:58
  And now it's too late.
• 1:10:00
  So that's what I try to do.
• 1:10:01
  My promise to anyone who decides to read this book is every technique in the book is something practical
• 1:10:07
  that you can do today.
• 1:10:09
  There's nothing in there that you have to be like, what I'm a later stage, I can do it.
• 1:10:11
  Or like what I'm after the laws are changed, I can do it.
• 1:10:14
  Now, everything is a technique you can do today.
• 1:10:16
  Every technique we have example case studies, you can study someone who has done this before.
• 1:10:21
  And for every technique, we have data.
• 1:10:23
  Academic research that shows that this is a superior way of getting things done.
• 1:10:28
  So in the same way that like if you if you were a fan of lean startup,
• 1:10:31
  you know, I remember getting this question when I was telling the startup,
• 1:10:34
  like, yeah, you don't have to start with something.
• 1:10:36
  Start with minimum viable product.
• 1:10:37
  Start with pivot, you know, start with some concept.
• 1:10:39
  But don't just be like, oh, I did one thing.
• 1:10:41
  Now I'm set.
• 1:10:43
  You got to understand this is a system of things that work together.
• 1:10:46
  Over time, as you get more proficient at each, you can that will give you the strength
• 1:10:50
  and the political capital you need to do the next one and the next one and the next one.
• 1:10:54
  You spoke to Brian Chesky who told you that all businesses are built on love and trust,
• 1:10:59
  not just the good ones, but all of them.
• 1:11:02
  Do you believe that to be true?
• 1:11:04
  Oh, it's self-evidently true because even the most mercenary company depends on people
• 1:11:09
  who love someone enough to be willing to work for money.
• 1:11:13
  And they have to trust that the mercenary company will pay them if they do what they want.
• 1:11:17
  This is like a recurring theme in like mafia movies and stuff like that.
• 1:11:20
  It's like, when you work outside the law, how can you trust?
• 1:11:22
  If you're a man, how can I trust that I'll be paid if I do the evil deed?
• 1:11:26
  So no matter how evil the company, you still need these two basic human emotions.
• 1:11:30
  But of course, the more important part of that lesson that I learned from Brian
• 1:11:35
  is that if you focus on those two attributes of love and trust,
• 1:11:41
  you can uncover these magnetic superpowers that just create business opportunities
• 1:11:48
  and business capabilities that people, if you've never experienced it, think I'm making it up.
• 1:11:53
  That's why I include so much research in this book because you just, I tell these stories
• 1:11:56
  and I'm like, look, I've witnessed this with my own two eyes.
• 1:11:59
  I've seen someone build a company based on love.
• 1:12:01
  I've seen people convert enemies into allies.
• 1:12:05
  I've seen people where their employees actually listen to what they say
• 1:12:09
  and are deeply aligned with them.
• 1:12:11
  So they don't spend all this time on compensation and rewards and checking and punishments
• 1:12:15
  and like it's modern business is because it's so exploitative.
• 1:12:19
  No one trusts anybody.
• 1:12:20
  It's really freaking difficult to get anything done.
• 1:12:23
  It's political.
• 1:12:24
  It's like, you have to have all these meetings. It's bureaucratic.
• 1:12:26
  It's just irritating.
• 1:12:28
  And then you go meet one of these mission-driven companies and none of that's there.
• 1:12:31
  They're just like, yeah, we just do the right thing.
• 1:12:32
  Why do we have to meeting about it?
• 1:12:34
  It's just, it's such a relief.
• 1:12:36
  So if you've never experienced it, like, if you don't trust me, trust Brian Chesky,
• 1:12:40
  find someone, trust Jim Senegal, the founder of Costco,
• 1:12:44
  then listen to Saul Price.
• 1:12:45
  Like these great founders are always talking about it.
• 1:12:48
  And these stories, I don't know why they're not better known or why they're only learned
• 1:12:52
  in the context of kind of like corporate social responsibility or whatever,
• 1:12:55
  a crisis response.
• 1:12:56
  But the information is available.
• 1:12:58
  I think it's the kind of the biggest open secret in the whole world.
• 1:13:02
  It's staring us in the face.
• 1:13:03
  If we're willing to embrace its implications, we can do cool things.
• 1:13:06
  I thought one idea and then we'll close it out because I want people to,
• 1:13:10
  I want people to go into this book and just, because it's a business book,
• 1:13:15
  but there's so much more to it than that for especially people in this audience
• 1:13:19
  that there are a lot of founders or people looking to start companies.
• 1:13:22
  I want this to be like the guide that they used to start the company properly.
• 1:13:26
  But this is one idea that I took out of the book.
• 1:13:29
  Like we are all one acquisition, one IPO, one board meeting away from watching
• 1:13:34
  something we love turning to something we hate.
• 1:13:36
  And that idea hits home, especially for me, like many of my friends,
• 1:13:41
  and I will never name names, but everything we spoke about at the beginning
• 1:13:47
  with the founder going to the wake of their company and the transfer of ownership
• 1:13:52
  or the stories about raising from the wrong people,
• 1:13:55
  or I don't think I know a single, I know a lot of entrepreneurs,
• 1:14:00
  mostly because of the work that I do and the interviews that I do.
• 1:14:02
  I know so many entrepreneurs and I don't think there's a single one
• 1:14:06
  where if they were successful in the company survived,
• 1:14:09
  it was 100% what they wanted it to turn into.
• 1:14:12
  Yeah, they made money and they'll never talk about it publicly.
• 1:14:15
  They made more money than they know what to do with.
• 1:14:17
  But when you get to know these people, you have a drink with them,
• 1:14:19
  you sit down with them.
• 1:14:21
  There is a little bit of animosity towards what that thing turned into
• 1:14:25
  in like 11 out of 10 times.
• 1:14:27
  Yeah, because the world we live in, nobody wants to have sympathy for rich people.
• 1:14:32
  I hear you, man, fair enough.
• 1:14:36
  A lot of rich people behave badly in the planet right now.
• 1:14:39
  But we have to grapple with this.
• 1:14:41
  It is actually a really hidden mental health crisis.
• 1:14:44
  And people sometimes ask me, why are all these tech founders going crazy on social media?
• 1:14:48
  They seem like they're having a nervous breakdown right in front of all of us.
• 1:14:51
  And I'm like, yeah, you're watching what happens when you are struggling
• 1:14:56
  to make yourself the hero of your own story.
• 1:14:59
  Well, someone once put it to me this way talking about a very famous tech founder.
• 1:15:03
  He doesn't do what's right.
• 1:15:05
  He makes what he does right.
• 1:15:07
  I just thought that was such a sad state of affairs.
• 1:15:10
  As soon as I said that, I recognize that type totally.
• 1:15:13
  And so like you have people that are kind of quietly suffering
• 1:15:17
  because they admit that the thing didn't become the way that they wanted to be.
• 1:15:21
  I know so many people who are rich and miserable.
• 1:15:23
  Or they refuse to admit it.
• 1:15:26
  Now they're having to go out and make a story about how they're actually the hero
• 1:15:29
  and they're actually the good guy and it's everybody else's fault and whatever.
• 1:15:32
  So like all of this stuff, all these costs can be avoided.
• 1:15:36
  We don't have to make all these compromises.
• 1:15:39
  We can just build the organizations we want to build.
• 1:15:41
  We can just stand for what we want to stand for.
• 1:15:44
  And I feel like this book, people someone has asked me,
• 1:15:47
  do I find the book trying to be persuasive?
• 1:15:49
  And the answer is honestly no.
• 1:15:51
  I'm not trying to convince anybody to do the right thing.
• 1:15:54
  This book is for people that already want to do the right thing.
• 1:15:57
  Can they preserve that instinct in the face of all this hostility and all this gravity
• 1:16:02
  and all this crap that tells them the way they want to do it.
• 1:16:05
  Their intuition is wrong. They're naive.
• 1:16:07
  They don't get it.
• 1:16:08
  They need whatever.
• 1:16:09
  So that the next time someone tells you you have to make this compromise.
• 1:16:12
  You have to give up this value.
• 1:16:15
  You could instead of kind of being defensive about it or compromising.
• 1:16:18
  You could just say, no, this person who's talking to me right now,
• 1:16:21
  they are proposing the liquidation of my most precious asset.
• 1:16:25
  F off.
• 1:16:26
  The answer is no. Go away.
• 1:16:28
  I don't need this.
• 1:16:29
  I can build a successful company without you.
• 1:16:31
  And I think if more founders, leaders, board members, employees, frankly,
• 1:16:35
  customers, frankly, were comfortable saying that we would see seismic change in the world.
• 1:16:40
  Where else do you want to send people?
• 1:16:42
  If you want them to go down the rabbit hole, see more of your content.
• 1:16:45
  Yeah, yeah.
• 1:16:46
  If you want to learn more, the easiest thing to do is just go to incorruptible.co.
• 1:16:49
  You can sign up for my mailing list.
• 1:16:50
  We have all kinds of cool bonuses and special features that are only for subscribers, naturally.
• 1:16:55
  We also have you go on the website.
• 1:16:58
  You'll see how to get.
• 1:16:59
  It's like a secret chapter of stuff that got cut from the book.
• 1:17:01
  You can access.
• 1:17:02
  We have implementation guides and reader guides and all kinds of other cool stuff available to people that go to the website.
• 1:17:07
  And yeah, the book is available in hardcover in ebook and audiobook.
• 1:17:12
  I personally read the audiobook in a recording studio.
• 1:17:14
  It had a bunch of cool bonus content in it.
• 1:17:16
  So I'm really proud of how it turned out.
• 1:17:17
  So please do check out the audiobook for those that like to listen that way.
• 1:17:20
  And the other feature we have on incorruptible.co is you can find hundreds of independent bookstores all across this country.
• 1:17:27
  They're carrying the book.
• 1:17:28
  So if you feel like supporting your local community, maybe buy the book from a local bookstore.
• 1:17:32
  Okay.
• 1:17:33
  Bringing it home, you have three kids, right?
• 1:17:35
  So I want to just understand if you were going to pass on one lesson to them about business or one idea about what you wish business was when they start their own businesses in the future.
• 1:17:51
  If they want to be entrepreneurs, what would that idea be or that lesson?
• 1:17:55
  Yeah, that's like making them go into the family business.
• 1:17:57
  I'm not sure.
• 1:17:58
  I'm not sure they're going to want to.
• 1:17:59
  We'll see.
• 1:18:00
  I mean, they're too young yet to make such decisions.
• 1:18:02
  But gosh, you know, I really trust them to make their own way.
• 1:18:07
  One of the things about being a parent, you realize that you're not the main character of the story anymore.
• 1:18:11
  Right.
• 1:18:12
  You're like the wise and old wizard, you know, who helps the hero go on their journey.
• 1:18:16
  And that's, you know, from an ego perspective that's challenging.
• 1:18:19
  But, you know, if you really see what parenting is about, you start to realize what a beautiful thing that actually is to have faith in them to make their own choices.
• 1:18:29
  So all I would really want for them is to maintain that sense of integrity, that sense of who they are in the face of whatever success or failure the world throws at them and just let the organization that they birth.
• 1:18:41
  And some way is like when you create an organization, you become a parent.
• 1:18:46
  We birth organizations.
• 1:18:47
  We don't own them.
• 1:18:48
  So like to really like revel in that process of creating something new and trying to create something that has fidelity to who you are and what you care about.
• 1:18:58
  That would be that sense of personal integrity is what I would want for them.