April 16, 2025
[Full Podcast transcript at end of page]
We’ve worked inside dozens of large organizations trying to spark innovation—through venture studios, strategic pilots, new governance models, you name it.
So sitting down with Eric Ries (Founder of LTSE and Answer.ai and author of the NYT Best Seller, The Lean Startup) felt like talking to the person who first gave language to a lot of the battles we fight every day.
This wasn’t a theory-heavy conversation. It was a raw and often blunt discussion about why most corporate innovation fails—and what it actually takes to get it right.
Here are four lessons that stuck with us:
Eric broke it down into three stages:
→ Phase 1: Grassroots experiments. Small teams proving viability inside a rigid system.
→ Phase 2: Executive conviction. Someone at the top says “I’ve seen enough—let’s go.”
→ Phase 3: Deep systems change. Governance, incentives, budgeting, promotions.
Most companies stall after phase one. They run a few workshops, pilot a few MVPs, and hope the system will magically change. But without executive belief—and structural rewiring—it’s just a round of innovation theater.
You don’t scale transformation by accident. It requires deliberate, phased effort—backed by long-term commitment.
This one hit hard.
You can’t innovate if your customers don’t trust you. You can’t innovate if your employees don’t believe you. You can’t innovate if your investors panic every time you try something new.
According to Eric, this is why many companies test new ideas under “shadow brands” or off-brand identities—not just to manage reputational risk, but to move faster, limit competitor visibility, and avoid premature market signaling.
But if your brand is already distrusted, the risk isn’t launching something new—it’s doing nothing at all.
Eric challenged one of the most deeply held beliefs in corporate boardrooms: that strong governance = strong performance.
In his view, we’ve confused shareholder control with good governance. And it’s hollowed out companies from the inside.
Instead of founder-led or investor-led companies, he argues for mission-led companies—those with a clear reason to exist beyond quarterly returns. That’s the only way to earn and sustain long-term trust.
If governance doesn’t support the mission, then it’s just control for control’s sake.
This might be Eric’s core message. Innovation is easy to start, hard to finish.
Everyone’s excited in the beginning. There’s budget, energy, sponsorship. But when the market shifts? When leadership changes? When the next internal fire breaks out?
That’s when most organizations abandon the work.
The companies that succeed are the ones that hold the line. They stay true to purpose. They build systems around it. And they understand that trust and transformation are not one-time events—they’re ongoing commitments.
You can’t workshop your way to innovation (although it can be a good place to start!). And you can’t brute-force transformation from the top down.
It takes belief. It takes systems. It takes trust.
And above all else, it takes the constancy of purpose to stick with it when it’s no longer trendy.
- Ben and Marcus
With big companies, you spend a lot of time working with them, trying to apply lean startup principles. So where do you think companies are getting it right, and where do you think they're getting it wrong? And why?
Eric Ries 00:10
I think that most companies just do not have the constancy of purpose to do anything like they're so short term, and they're so getting buffeted by outside forces, and they're so like, caught in this gravitational pull that pulls them down to bureaucracy and lethargy. Like, it's kind of sad, even when the CEO, or like a top executive, says, We want to make a change, they feel trapped in the culture that they have. So that is, unfortunately, very common. Like, the conditions for big companies to actually do corporate transformation are very specific, and it requires, like quite the level of determination by the senior leadership, by the board, to carry it through.
Ben Yoskovitz 00:52
Eric, thanks for joining us. I think you and I met back in 2010 so it's been, it's been some time when you were writing lean startup. Actually, you were writing the blog first, and I think that's how I first got connected to you. And I know you hear this all the time, but genuinely changed my life, like actually, in fact, statistically significant changed my life. Then 2017 you wrote startup way, which I think was interesting, because it brought the Lean Startup more into the corporate world, into the enterprise world, bigger focus on culture and entrepreneurial management, which are topics we'll talk about. You've worked with a lot of big companies, a lot of startups, helping them innovate better and faster, and that's the intersection that Marcus and I live in every single day as a corporate venture studio and venture capital firm. And so we know a lot of big companies and corporate innovators are struggling with questions about long term thinking, governance, financial gravity, trustworthiness. So those are the topics that we're excited to dig into today. Some of my favorites, awesome. Yeah, exactly, exactly. That's why, that's why we're doing it, right? So, so let me start with this. You know, with with big companies, you spend a lot of time working with them, trying to apply lean startup principles. So where do you think companies are getting it right, and where do you think they're getting it wrong? And why?
Eric Ries 02:05
Well, first of all, thanks for the kind words. And yeah, it has been a long, strange trip. I guess we're going on 15 years now, so thanks for being at apostle all these years. Yeah, it's it's been awesome to watch what the whole, what the whole movement has become, and you played a big part of that. So thank you. Where do big companies get right, and what did they get wrong? How much time do you have? I mean, it's, it's, well, we have about 400
02:24
questions.
02:30
Yeah, we've trunk here.
Eric Ries 02:33
Yeah, exactly. I'm like, Okay, well, after we spend three hours on this one, maybe we'll have time for the other ones. I joke, because there's so many ways to get it wrong. It's kind of incredible. And I think that most companies, just, if I'm being really honest, just do not have the constancy of purpose to do anything like they're so short term, and they're so getting buffeted by outside forces, and they're so like, caught in this gravitational pull that pulls them down to bureaucracy and lethargy. Like, it's kind of sad. So even when, like, even when the CEO, or like a top executive, says we want to make a change, they feel trapped in the culture that they have. So then, like, when they go to implement Lean Startup, that's what's really interesting to me. I used to think, like, I remember the first big companies that I ever worked with, just they were total cowboys. You know, it was like a very chaotic environment. And I thought this was going to be great. They had very poor process, you know, like, they were interested in innovation, because they were getting their butt kicked. They were in an old legacy industry. They were getting absolutely disrupted. And if I said the name of the company, you'd be like, Oh yeah, they still around. Like, Oh my God, they're getting crushed. Are they around? Are they still around? Devastating. You know what? These big companies do not die quickly. So I actually think they are still around. But there, I haven't talked to them in ages, but for reasons, you'll understand it a second anyway. So I was like, this is the perfect condition, burning platform, absolute total disruption. I was kind of like, nothing to lose. And they totally got it. Every person I talked to as I talked to as I was like, Yeah, our whole business is going away. I remember sitting in their beautiful, gleaming office tower in like an old, you know, industrial core, hollowed out place, you know, just gorgeous, massive tower, like such a relic of another time, and in the lobby as I'm waiting for them to let me into security, you know, because God forbid I would steal their precious trade secrets. They had their annual report as the light reading on the coffee table. That was it no no magazine, not just their cone company's annual report. So I was like, Okay, well, I got those to do. I read their annual report, annual reports like, Hi shareholders. We are so doomed and dead, but we're gonna totally figure it out. So, like, it was like, very clear. They did not have any confusion about the disruption. So I was like, this is a great setup. And I went in there and I had one of the best workshops I've ever had. The teams that I worked with were like, super excited. Senior exec, everyone was super excited. They're like, this is a great idea. We're change everything. And I was like, Are you worried about your corporate process? Like, nope, nope, nope. We're gonna do it all. I was like, This is gonna be great. So we get make a new plan. They're gonna do Lean Startup, whatever. And we did a couple workshops. Everything was going great. And. I didn't hear from them for a little while, and then, like, I came back for the follow up, and I was like, how's it going? Like, oh, it's we're crushing it. It's going great. I was like, Cool. Did you, like, build all those MVPs we talked about? They're like, Oh no. It's like, Have you, have you built anything at all since? No way. No, no, we're crushing it. Because we decided to have these meetings, and we're doing Blue Ocean Strategy, we're doing this thing. I was like, but I thought you, when I was there, you said, you're gonna do this thing though, like, that's that like, that's true. That's true. But then the next day, some other guy came by and told us to do something different. And then we got excited about that. And then this other executive said, No, don't do that duplication strategy. And I was like, and then the other like, they had, they had been through like, five quote, unquote pivots since I had seen them, none of which had involved actually making anything at all. So that is, unfortunately, very common. Like, the conditions for big companies to actually do corporate transformation are very specific, and it requires, like, quite the level of determination by the senior leadership, by the board, to carry it through. And so, yeah, like, if you get it right, it's incredibly powerful. And I don't mean to say that you can't get it right in small ways. What I've seen a lot of cases is like individual teams, divisions, like subsections will be do the proof of concept, and that can set the stage for the larger, the larger transformation. But what's really interesting to me is how many ways you can go wrong, like, because we put this thing into a chaotic system, that's not that, you know, that, not really that performance oriented. Like, yeah, it's like a million different ways it can, it can get effed up. It's pretty funny. Yeah.
Marcus Daniels 06:22
It's pretty funny. So the most common organizational barrier, then, was maybe the lack of alignment to purpose. You think that's what you've experienced? And so do you think a venture studio construct maybe part of the solution?
Eric Ries 06:35
Well, the details awfully matter. And the issue with venture Studios is actually like, if you, if you I don't have it. I don't have a copy of the startup way in front of me, but if I did, there's literally a diagram in the startup way, where I try to identify all of the places on the modern org chart of big companies where entrepreneurship takes place, whether they admit it or not. So like every division, there's new products being introduced. Sometimes that has if there's uncertainty and there's a new product, boy, you're doing entrepreneurship. I don't care what you call it, but every new policy, every functional division of the company, so every like, gatekeeper function, whenever they'd roll out a new policy, like, that's the same as if you started a company to sell some new IT product into a big company. We all understand that that's risky and uncertain. Well, every time you do it, congratulations. You're doing entrepreneur anyway. So there's quite a few places, but few places. And of course, at the corporate level, we do entrepreneurship too, when we do a joint venture, or we have new strategic initiative from the chairman's office, or when we do a venture studio. And the curse of entrepreneurship is if the if the project is in the right place on the org chart, it has a chance of success. And if we only knew in advance which things were going to need to go, where we wouldn't have to do entrepreneurship, the uncertainty is more uncertain than people actually process. So the venture studio, the hard part of a venture studio is not getting the things started, it's transplanting them back into the correct soil, once you know what they are, that's usually where things fall apart, and that is why constancy of purpose is such a critical attribute of companies. When we talk about venture capitalists, the most the highest compliment you can give a VC is that they have high conviction, independent conviction, the ability to make up their own mind, not follow the herd, but actually decide if something makes sense and make the investment on that basis. The VCs I admire the most are the people who I've seen do that over and over again. They're not always right, but they're not weak. And so what we need is corporate executives who have that same conviction that when they it's like, I'm not saying it's that hard to get a new thing started actually, the hard part is, if do you know it when you see it, if you invent the new thing, can you actually nurture it and grow it? So yeah, I think companies that are true to purpose are not just chasing quarterly returns. They're not just chasing their short term metrics like they're not just kind of trapped in the financial gravity of our current system. They are the only ones really that have a chance to sustain conviction over time, such that then adventure studio, like, they could reap the rewards of the investments they make. Otherwise it's going to be like Xerox PARC, or, you know, all these famous R D labs. Like, think about how many companies Kodak inventing the digital camera. Like, we all know these stories. They're They're everywhere, of companies that could have been the leader in the new thing. Like, look, everyone who worked at OpenAI, where did they work before? Like, it's unbelievable. What could have been if the big companies who had those technologies in their own labs had the constancy of purpose necessary to commercialize them.
Ben Yoskovitz 09:33
What other conditions other than that consistency of purpose are required that you've seen that have said, Hey, that company is got it right, or is getting it right? Because getting it right sounds like they just won, and they call it a day. And I know it's never quite like that. But what are those other elements that you've seen? Is it, you know, like you mentioned, where it is in the org chart? So where should it be in the org chart? What other elements are needed to give things a better chance? Sense of you mentioned conviction, which is sounds a little bit like the culture of the company. But what are those other elements that really you've seen work, where people don't just do a workshop and say, rah, rah. And I've lived that, by the way, I've lived that experience too, right? With lean analytics, where you go in, everybody gets pumped and it never materializes. So what do you need? What are the ingredients that you've seen work?
Eric Ries 10:21
So, okay, so, so successful transformation has to, has to evolve over three phases. And one of the problems, as is true in all kinds of entrepreneurship, is that what you need in every given phase is different than what you needed before, and often the opposite. So that's very confusing. So we will always ask me, is innovation? Is it bottoms up or tops down. It's like, Well, depends. Everyone has like, What do you mean? Depends? I hate everyone hates that answer. I don't want depends. Just say,
Ben Yoskovitz 10:47
give me a question. I'll cross the question off our list. Eric, yeah. I mean, it's extremely frustrating.
Eric Ries 10:52
Look, if there was an easy answer to these things, everybody would do it. And like in a capitalist system, you would be no room for you to be no profits to be made by doing it, because everyone else would have already done it. The good news is, it's incredibly hard. So if incredibly hard. So if you do it, you reap tremendous advantage. So in phase one, we have to demonstrate the viability of whatever the innovation system is in our unique culture and context. So the grassroots, that's why I do one off workshops. Even still, even after you've seen it go wrong, so many times, you never know when it's going to catch fire. If you never try sparks, you never know. So you have to do the, you have to do the the initial stages of it and what that looks like. It's really individual teams trying to do things differently. So we have to find, do we have a middle manager or an executive somewhere who will sponsor some teams like when I first did this at GE. This is the old GE now, three managements ago, but I never this was like, I will never forget, the chairman of the company was doing his off site retreat with 400 of his top senior executives from around the world, and he asked me to come in and speak to the executives. I've done that many times now. It's like, sure, you know, no problem. Come in and speak to them. He's like, but also, while you're here, will you do a workshop for one of my teams? He's like, I don't want to just hear about this in the abstract. I want to see it with my own eyes, that it works for our companies. Whatever you want. Boss. Man, sure. And he's like, Okay, I'm going to choose the I choose the team, though. I don't want some some software thing from California F that. I want you to prove to me that you can make this work for whatever I choose. Okay? And he chooses a a gas turbine being developed in Texas for power generation and transportation. And I was like, Sure, only one question, what is a gas turbine? Is it one engine or a turbine or this or that, you know. And he was like, No, is it? Sorry? See, I just made the mistake. It was a gas engine, not a gas turbine, but I kept using the wrong word. Everyone thinks engine and turbo is same thing. Oh, no, I learned the hard way, but not that well, as you can tell anyway, I was like, is it bigger than a bread box? Probably like, what is it? You know, I really had no. I did not know anything about he's like, perfect. That's what I want. Okay, so, so we go in and we do the workshop. And just just, you could visualize the scene I'm in one of those beautiful, I'm up in crotonville, the famous Ge, you know, Learning Center, one of these beautiful tiered seating, like MIT style, uh, Harvard, Harvard Business School style classrooms, and it's me up at the front. They've flown in three guys from Texas to do this workshop with me who are working on this project, just three people. They have 25 corporate executives, okay, just to observe. Can you and Matt, These poor guys, I felt so bad for them. Like, what a nightmare of us, of a workshop set up, you know, just complete and utter devastation. I was like, sorry, guys, I'm sorry. This was not my idea. I'm really sorry. But like, at GE, the culture was, like, the boss says, jump. You say, How high? Like, so they were, like, I didn't realize at the time. I felt bad for them, but this is a big career booster for them. Like, they're gonna get this airtime for these senior executives. On the other hand, I executives. On the other hand, they have to listen to this idiot from California tell them what to do, and if they say it's a good idea, then they must be stupid, because they didn't know that. If they say it's a bad idea, they're saying the chairman made a bad choice to make the guy from California come in here. So it's a very much a cat 22 anyway. So we start the workshop, and it's like, Yeah, you tell me. I was like, Look, could you just present to me and all of us, what is the plan for this project? I don't know what it is, so you better teach me about this thing. And they did a great job. They took the currently approved business plan, they presented it huge projector. In the front of the like, way bigger than me, are these huge bar charts of like, I'll never forget, revenue forecast by year for the next 30 years. And it's, of course, got the beautiful hockey stick shape forecast. And I was like, Look, I don't know anything about gas engines, but guys, now you're in my office, you know, like the hockey stick shape growth curve, this, this cycle quite well. Big fan, yeah, yeah, yeah, I know. Now I know what to do. And I'm like, Okay, everyone, raise your hand. You. If you believe this forecast, and they were so pissed at me, they're like, kid, you obviously noticed in the brightest minds of the GE Corporation have, like, thoroughly vetted this our finance team that we're investing hundreds of millions of dollars on the face of this forecast. And everyone's hand goes up, and I'm like, okay, with all respect, I get it. But no, really, who here believes in the year 2045 you're gonna make this much revenue. I read, I just read it off the chart. And they're like, Well, I'm like, exactly, you know, $4.5 billion Exactly. And they're like, not so sure. I was like, Okay, can we have a real game? So that's how it starts. That led to a massive program. We did so much good stuff at GE and we'll get back to what happened. Because, you know, activists basically took the thing apart. And no matter how good you make the management system, you know, there's these other forces that lurk. So we can come back to that. But like that really is the essence of phase one. Like one team, one project at a time. We did we did these cohorts, we did four projects at a time, then we did eight projects at a time, that we did 16 projects at a time, and we had done hundreds of projects while the company was still deciding whether this was a good idea or not. And what was so great about that was, you know, we did everything by exception, every project had an executive sponsor. And when the company we would run into issues with the company's bureaucracy, the executive sponsor would be called to clear them. Well, at a certain point, this gets really non scalable. You're just you're up against the company's full on bureaucracy. So eventually you have to graduate out of phase one into phase two, where you need somebody who has the authority to say, Okay, we're committed, let's go. And that that happened, Chairman said, Okay, I've seen enough. And that was really the key. Like, we had these executive sponsors and these key people that were like, we had basically what we called a growth board, like our board of directors for the change were five senior executives, all of whom reported to the chairman personally. And they were, he didn't pick pushovers. We had some skeptics on that board. You know, they were like, What is this thing? They had to see it to believe it. But when they did, like, the key to this whole thing is they had conviction. You know, I'll never forget the CTO of GE sitting with me, being like, I don't think this is a good idea, but I've been told I have to do this. So what's the plan? And I was like, well, first of all, you're going to send me one of your teams after three days with me. What can I show you that would make you believe? And he's he's a scientist. He's like, Well, I need to see the evidence, evidence of what he's like. Well, he thought about it. It's like, if you can improve cycle time, I'm a believer. Like, yes, sir. So like, after three days, we took that project from five months cycle time five years cycle down to six months. He was like, this is like, an order of magnitude improvement in three days. How'd you do it? What's the trick? I was like, Sir, there's no trick him. And I walked him through that like he saw we did that over and over again, he was like, Oh, I'm a believer now. Anyway, so the company became a believer, and they rolled it out company wide, and it went from being super bottoms up distributed to very tops down by Fiat. You have to do this. And we could talk about all the things you do it. What's interesting is, most people think that's the end of the story, when, in fact, that is the preseason. That is just, that is just earning the right to tackle the actual problem, which is the deep systems of the corporation you've you could train. We trained like 100,000 people or more. I mean, I've never trained. That's the biggest training program I ever built. It was an incredible feat of logistics. The logistics of it were unbelievable. They were so good at it. But even after we had like, at the peak of our training power, we'd only trained like 1/3 of the company. Geez, a big, big, big company. And more importantly, it doesn't count for anything until you tackle how are people compensated? How do they get promoted? I felt it. There was like a disturbance in the Force One day when all these senior executives started calling me for advice that usually wouldn't give me the time of day. Usually I have to call them. Now they're calling me, and I couldn't figure out what happened. And finally, someone took me aside and been like, well, they've changed you just so you know, is this supposed to be a secret? No one's supposed to know this. I'm like, but somehow everybody knows it. Yeah, it's supposed to be a secret. They've changed the criteria for promotion to Officer, to include innovation. So all these people calling you are people on the fast track to promotion, and they've somehow figured out that this is important to their political future in the company, it was like anyway you start messing with that stuff. You see real with the system, with the actual system, with the system. So we had to change compensation, promotion, budgeting, how resources are allocated, the really the third rail stuff that everyone says you cannot touch that or you will die you. And when I tell people this, I feel bad actually, having written a whole book where I said, Look, this is what you're going to have to do. Because many people, when they hear that, they either say, this proves that transformation is impossible, or they say, great. Well, why don't we just start with that? That'd be a lot easier. It's like, well, after you get electrocuted, call me back, you know? Like, that's the problem. You don't have people refuse to accept the political nature of transformation. And so I was like, Well, you don't have the political capital. You don't have the power to do this. So what are you doing anyway? So that's, that's, that's how it plays out. And so, yeah, we're quite. Is, it's like a very delicate thing. You have to really take it seriously. And far too many people don't.
Marcus Daniels 20:04
Yeah, Eric, you're seeing a lot of growth innovation now. So helping happening beyond the core. Just what's your take on this? Your from your lens, you know, beyond GE and other experiences that you've had over the years, well, from the perspective of, you know, transformation ends up being, you know, the hate h1 and the fringe of ideas that are kind of spinning out, like big companies spinning out new products, setting up corporate venture arms on the outside, leveraging corporate venture capital as another tool, you know, to effectively, you know, really push forward transformation on the outside, just just just from your lens and perspective, just how you seeing, you know, lean being applied on the outside.
Eric Ries 20:44
Yeah. Well, what's funny is, like, you know, in Silicon Valley, people don't know me for my transformation work at all. It's funny. There's like, two completely different populations of the world have read these two books and know me for two different things, and both groups think what the other group does is stupid and wasted time. So it's actually, like, it's funny when I bring them together, like, who are you? What are you doing here? So like, the, you know, obviously, like, a huge amount of innovation that's happening is happening in startups and in place like Silicon Valley, and is, like, really off the wall compared to what big companies are used to. And yet, these two groups need each other. First of all, because many startups that are going to end their life being acquired by a big company, but the ones that don't are going to become big companies themselves. So like, the ultimate corporate transformation is the emerging from the chrysalis of a startup into a major enterprise. And many people start companies because they hate big companies. And I always ask people, if you hate big companies so much, why are you trying to create a new one? Like, what are you doing and what's your plan for having it have a different outcome than what we are normally seeing? So like, there, I think generally speaking, at both the corporate level and in the startup ecosystem, we greatly under appreciate how difficult these gravitational issues are. And so we're, like, living through a time Corey doctor, I think, has the best term for it. He calls it enshitification, which is, like, it's profane. But I'm just like, let's get right to it. We all know this is true. Many, many, many products that we rely on every day are actively getting worse, especially tech platforms, because they become quasi monopolies, and they just exploit the hell out of that position to their own self destruction. And so what are we doing? Like, I just, I feel like there's a part of us that we're like, sleep. Like, sleepwalking into this phenomenon, and we could do a lot better. Like, I think a lot of value is being destroyed in the world by companies that have, like, lost their integrity, and startups that are growing up into things that their founders abhor. And it's like, Why, I don't really understand why we're doing that. And the crazy part of it is, and, you know, maybe this is going to sound vain, but I have personally helped people make literally billions of dollars in my career. Like, I'm not exaggerating. I know many, many billionaires who were not billionaires when I met them, and I don't begrudge any of them their success. Like, I don't have any jealousy about it. I think it's wonderful. I actually think that capitalism can be a force for tremendous good in the world. What pisses me off is how miserable they are. Like, I know so many people who are so unbelievably rich. This is not billionaires only. Like, I know a lot of people who are very, very, very well wealthy beyond all historical norms. And like, wealth so wealthy that their families, for generations, will be living off the wealth that they created, and they're totally miserable. And, you know, some of them are having a very public, you know, psychological meltdown, right in public, so you could watch it for yourself. Do those people seem happy to you? I don't think so. So I don't really understand we are sacrificing the souls of these companies in the name of profit so that we can make money and then be miserable. What are we doing? Like, I just, I really don't understand it. So, like, Yeah, I think it's absolutely time for a change in the, like, the root philosophy of what we're doing as the business community, as organization builders. And, yeah, I think it's frankly overdue.
Ben Yoskovitz 23:56
Got it interesting. And by the way, the GE stuff you mentioned that was a couple management, you know, people executive leadership ago. So do you know where GE is at within now, did some of what you did there, the work that you you did, Did it survive, or did it kind of die on the vine as management switched over? Because, you know, part of it is like, public, you know, CEOs of public companies don't have a super long tenure. No,
Eric Ries 24:25
I know. And that used to be one of the things that made GE different. And it's kind of, it's been a bit not like they've been more conventional since then. I The truth is, I don't know. Most of the people I worked with were laid off in the in the immediate aftermath of these, of these gyrations. And the ones that stayed were like, listen, we have to rebrand everything. Like, they're like, so I did get some calls in the in the like, the year or two after, like, actually, this thing survived, that thing survived, but we had to rebrand it, rename it, do this. And, yeah, like, you know, I don't I was the press wanted to write a story that I was responsible somehow for, geez, turnaround, where it looks like it was going to work. And then they wanted to write that I was responsible. For its downfall when it looked like dinner, where I was like, Guys, I listen, I appreciate being seen as some important factor here, like I was a bit player in the grand scheme of things, especially because, and I didn't even know this during the time I was working with GE, like it was under this tremendous activist pressure, and they spent something like, I want to say, $20 billion on stock buybacks, $20 billion plus they spent untold billions on these acquisitions that were just designed to, like, boost the stock price. And I was sitting there being like, Man, when the things went bad, you imagine how valuable it would have been to have an extra $20 billion sitting around to so it's just like a classic dysfunction where companies, like, they buy back their stock when it's high and they sell it when it's low, which is, like, it's just the exact just the exact you should buy, just a Buy low, sell high. Companies do the exact opposite under activist pressure. It's totally insane. So, yeah, I got to see the dysfunction up close, and it was part of what radicalized me, you know, in the years to come about, like, oh, we need more fundamental reform here. Because the reality is, and I saw this at png too. I was there when they were having their activist campaign, and obviously counseled many, many people through this over the years. Like, no matter how good your management system is, you're up against these gravitational forces. So if you if you're blind to that, you can have lots of good work be undone. It's kind
Ben Yoskovitz 26:11
of sad and so. So on the governance side, you've used this term strong governance, and you've said that traditional strong governance can actually weaken companies. So I'm curious, you know, what do you mean by that, and what are the alternatives that you're thinking about or proposing? Like, how would you change governance structures of organizations? You know, with respect to innovation, or more broadly, that you say, like, this is going to be better than this other thing? Sure, like,
Eric Ries 26:36
most people don't know what the word governance means. That's really the first, problem, and we don't agree our society. We don't agree about what is good corporate governance. We paper over these disagreements to a great degree, but it's easy to show you that this is not true. So for example, if I go to Washington, DC or New York or San Francisco, and I ask poo boss in that place, what is good governance, I will get three very different answers, like shockingly different answers, and I can pick specific scenarios. So for example, talk to a founder and say, Hey, you're making some amazing product. It's really exciting. It's worth X dollars per share right now. And I always ask founders, tell me who you think the most evil company in the world is? And I thought it's funny, the answers you get to that question, I get actually quite a range of different answers. I've got answers I've gotten. But for me, my father was a pulmonologist growing up. So to me, the most evil company in the world will always be Philip Morris. You know, tobacco, to me, is like the ultimate evil products. There's no benefit whatsoever, because killed so many people like we committed, like Europeans committed genocide for the privilege to plant tobacco and have enslaved people farm it and then feed it and then feed it to themselves so they could die of lung cancer. Who was the winner of this absolutely epic world historical level disaster? Nobody should be proud of that. So Philip Morris, okay, but you could substitute with your own favorite, most evil company. Privately, they come to you and say, Listen, I'd like to buy your company for $1 more per share that it's worth. So I'll just pay you X plus $1 per share. Would you like to sell it to me? Now, what is good governance in this situation? Every founder I've ever done this exercise with is like, well, Edith, give me two answers. One answer is, hell no. I would never do that under any circumstances. Of course. Of course not. But the more sophisticated ones will say, Well, what do they want to use it for? Right? Like, maybe it's for something good. I'm like, Oh no. They tell you we are going to use this to sell tobacco to children. Okay, that's our plan. Now, every founder I've ever met, when revealed with this and right, say, Well, no, the good governance would be, I have the power to resist this evil act. If you go to Wall Street and ask people, What is good governance in this situation, they will say, Well, how is it for shareholders? They're gonna make money or lose money. I'm like, well, they're gonna make money. They have stock worth X, they X. Plus one, good governance is the shareholders have the right to force this situation. And if you go to DC, you will have people say, Oh, it is a crime to say no. You are obligated. You have a fiduciary duty to your shareholders. If you say no, you could be sued. You've committed securities fraud, you could go to prison. You come back and tell founders that, that's what people on the East Coast say. It's so monstrous they don't believe me. Be like, that's you must have heard them wrong. That can't possibly be right. And I've learned I'll be like, look with all respect, if I pull your Delaware charter right now and read your governing documents, I bet you it says you have this fiduciary duty. And they're like, No way, man, my lawyer, my buddy, Mike. It's always like, do some dude. He's my buddy. He wouldn't have set me up with that. So I learned to be like, Why don't you call Mike? Ask him this question, to ask him, What is good governance in this situation? And call me back and they're like, you're not going to believe what Mike said. Like, oh, I'll believe it. Oh, let me guess. Did he say this? How did you were you tapping the conversation? I'm like, What do you want? Mike thinks he's doing you a favor. Okay? He. Thinks he's helping you raise money by showing your obeisance to an investor dominated world. And they're like, I feel so betrayed. So what are we doing, honestly? What do we do in that situation? Why? Who could possibly say it's the right thing to do that these companies should be destroyed for the sake of a quick buck? So what's really wild about it. So questions like, What is strong governance? And in the in the investor world, like, there's a there's a research paper recently was showing how strong governance leads to weak companies. Because strong governance just means investors can do what, literally whatever they want. Investors roll everything around. We live in it. We live in the era of shareholder supremacy. And it's it's been a disaster of an era. I don't think we have that much to be proud of with this switch in our philosophy of company building, but certainly founders and company builders managers shouldn't be psyched about this. It's been a total disaster. So if, and in fact, it's the internal contradiction of the whole ESG movement, because the E and the s are about long term thinking and sustainability, and the G is about investors being in charge. And look what, looked at the results of that bit. Of course, the G drops, the other two things. So I know companies like that are really, truly making pioneering improvements to like, transform the climate for the future, for the better, have low ESG ratings because they are founder controlled, but they're only, they're only making those investments because they're founder controlled. If we lost the founder control, the other things wouldn't matter for one second. For one second. So I think our whole idea about what constitutes good governance is like utterly backwards. Now the critics of this idea will say, Hold on hold. On Hold on you're saying no accountability for managers, right? Like that's the problem. That's why we don't want men, and that's fair. If you look at the Business Roundtable did this letter A while ago talking about multi stakeholder governance, and the new future of the company is, you know, blah, blah, blah, that was all. We call it fake holders in my world, because, and it just was amazing about it is that letter was signed right before the pandemic, and some academic came, we had a brilliant idea to see whether people who signed that letter actually treated their shareholders, their stakeholders, any better than the ones who did it. And they found it was actually was actually negatively correlated with things like exploitation, because people signed the letter to get the quick. It was like, Oh, great. Now I have no accountability. I can do whatever I want. What do I want? I want to exploit? It's like, Oh, great. That's That's so what we need, I think, as an industry, as an ecosystem, as a movement, what we need is that affirmative vision that's not anti shareholder, but pro something else. What is it that we're actually trying to accomplish? And so I don't want founder controlled companies. I don't want shareholder control companies. I want Mission Control companies, companies that have that constancy of purpose, that have fidelity to some higher principle. Those are the kind of companies that can build this very particular asset called trustworthiness. We in our modern world have totally lost the idea that trust is an asset that we don't account for, and therefore we lose and that's why every like people look around and say, like, How come nothing works anymore? Why is everything so broken? Why are institutions so weak? This is why it's like the marrow in the bones has been sapped. So yeah, they're weak, and we're now living with the consequences, but we doesn't have to be that way. We could do much better.
Marcus Daniels 33:04
I mean, what you're proposing in kind of modern governance is really stakeholder alignment beyond shareholders in some ways, right? So the old model was about maximizing profit at all costs, and now we're looking at stakeholders tied to a long term vision and mission. Well,
Eric Ries 33:21
yes and no, I don't like the multi stakeholder paradigm. First of all, because nobody can tell me what a stakeholder is. Like, we can't even agree about what that word means. It just, it just means not shareholders. But that's not helpful. Like, you know, our enemies are not our stakeholders. So who's, who are my allies and who my enemies? We can't even, we can't even say and our shareholders are not our enemies either. Like I spent a long time talking about the power of long term investors and why they're so important, but short term investors are great too. They're just like tourists. You know, the citizen public long term investors, the tourists are the short term investors. Nobody says that. They think tourists should be able to borrow money and buy up as many votes as they want vote in our elections. Like that would be insane, but that's the system we run for most companies. It's an idea so bad they don't even study it in political science departments because it's so self evidently stupid. So, you know, so we've got some issues to do, but the other part of your question is, right? The idea is not to align around multi stakeholderism. I don't think that's going to work, because that's fundamentally a compromise. And business is about synthesis, not compromise. So for example, I'm thinking about lowering prices. Well, customers love that, but maybe my employees don't love it. My shareholders are worried about, oh, no, sorry. I meant I'm raising prices. So now my customers don't like it, but my vendors love it, right? Like my stakeholders don't agree about what I should do and the things I do to help one stakeholder harm other stakeholders sometimes. So if we're just trying to do multi stakeholder, it's like, I don't know, a little of this, a little of that. It's like, it's very it's very weak. I think trying
Ben Yoskovitz 34:47
to get everybody to agree to one thing,
Eric Ries 34:49
consensus driven organization, good luck with that, man. It's hard. So I think it's much more better say no. Our goal is to find synthesis. We are looking for solutions that maximize the. Total human flourishing of all the people we touch. And actually, I would go so far as the issue is not that we've misdefined governance. The issue is that we've misdefined What it means to make a profit. We literally don't know what it means to make a profit. The word profit is misunderstood. I think to make a profit is to maximize human flourishing. That's literally what it means. So when someone says, We will criticize a company for putting profits over people, I'm like, that's impossible. If you really understood what it means to make a profit, you would say that that cannot be done. And of course, then you're like, but what you're telling me that most of these companies that I'm criticizing for being exploitative are not profitable? Yeah, that's what I'm saying. So like, it's a radical statement, and people get freaked out by it. You're like, well, are any companies by that definition profitable? I'm like, I know a few couple. But like, the data is very clear, actually, that that's true,
Ben Yoskovitz 35:51
yeah, but probably, like, probably not many companies. Because, like, I remember starting a company in the recruitment space in 2007 and you ask any CEO what's the most important thing to your organization? And they'll say the people, the people are the top the people who work inside my organization are the most important thing. And yet, I remember trying to sell to HR and sort of describing HR, like, first of all, not at the seat before there were Chief People officers, you know, like one step above janitorial staff. And that's not trying to be dismissive of janitorial staff. It's just they had no power. So I think if profit is human flourishing, maybe there are a few companies that are there, but I don't know that. How many really, truly believe that that's the case?
Eric Ries 36:33
No, it's quite rare. And it's sad. I think, I mean, the problem is right there in the name human resources, like humans are not a resource, resources are consumed. And so one of the problems we have is we have bought into this ideology that if a company has so called negative externalities, you know, that's too bad, but it's just how it is. So it's like, you know, so therefore, like, a company that pollutes or that creates toxic waste or whatever, and doesn't clean it up, like, that's not, you know that's like, we really, like, everyone knows we really ought to do something about that, to fix our accounting standards, to make them like, that's like, very obvious. Every economics person will say, Yeah, we should do that, but then we never get around to doing it. But like, even beyond negative, we don't even have a word for like, what about a company whose business model depends on the destruction of human lives in order to run the machine that it does. So it consumes human resources and destroys them and makes money. We have a lot of companies that fit that bill, and the reason we I can know that so with confidence, is everyone I tell that story to knows what company I'm talking about. But if you ask them, What company am I talking about, they'll say 100 different companies. So what are we doing? So, like, so again, imagine I had a lemonade stand, and I'm like, my lemonade stand is profitable. And, like, really, how much do you charge for lemonade? 10 cents a cup. How could it be profitable? You're like, well, I stole the lemons, so I don't pay for ingredients, so I'm profitable. Well, it's good. Yeah, I got great margins because I just, I just heist. I just walk in the grocery store and steal lemons with at gunpoint. You know, like, is that so I asked Bill, is that company profitable? Most people like, no, that's not profitable. It's like, why not? Like, well, it's illegal to steal a lemon, say, but what if I made so much money I could lobby the government to get the laws changed so it was legal for me to steal the inputs. Now, is it profitable? And they're like, oh, but it's immoral to steal. It's like, okay, but is it, I hear you that it's immoral, but is it profit? Anyway, you push people on this and they'll finally be like, I guess it's not profitable. Like, okay, good. Now, what if I'm a hitman and I make money by killing people? Is that profitable? And they're like, Well, no, that's illegal. And I'm like, Well, what if I made so much money as a hit just you really do this exercise? What if I got the laws changed? Well, it's immoral. I was like, what if I make so much money I start my own religion, and my religion says it is moral. Now, is it profit? You could push and push and push and push like people just really don't want to say that making him hit man is profitable, because I know why. I've been doing this exercise a long time. Now, the moral basis of capitalism is that voluntary exchange creates surplus value, and that means everybody's better off when we make money, when we create value. If you push any defender of capitalism on, why should the system be protected, they always retreat to the fact that people are better off. So I'm like, Okay, if human flourishing is the moral basis, what about an act like murder that is manifestly anti human flourishing, because I've consumed a human life in order to make money. People were like, well, but how can you ever really know? We were just totally equivocate like, ah, the world is so complicated. You can't really know. It's like, but we live in an era of surveillance capitalism. We can't know. I can tell you exactly how many people died. Like, when, when Facebook is implicated in genocide. They commissioned research about it. They knew every know exactly how many people they killed. So what are we doing anyway? I think it's, I think it's actually, if you really step back and think about it, we've just made a mistake. It's not some, like, catastrophic, like complicated thing. It's like, look, this isn't right, and we could do better. People want to work at a company that they can trust. People want to buy products from a company that thinks. It has their back, like investors. Long term investors want to invest in companies that are trustworthy. So I'm like, if we have a way of building companies that gives the employees, the customers and the shareholders what they actually want, why is that considered radical? Like I actually think it's kind of the dumbest, stupidest, most obvious strategy on the planet. Let's just give the people what they want, see what happens, and of course, talk to any academic who studies this, they're like, oh, yeah, everyone knows that this is more profitable. I'm like, Well, if everyone knows it, why aren't we doing it? You
Ben Yoskovitz 40:28
talked about trustworthiness a lot. So is there a way to quantify and measure trustworthiness in a business context where it's like, you can, I think we can also, oh, we think that company's more trustworthy. We feel like that company's more trustworthy. But if somebody says, hey, I want to buy into this, this idea, and I know trustworthiness is only one part of it, but is there a way of measuring it? And then maybe, like the other part of that question for me is, how do you balance innovation and taking risks as a company? You say, I want to go do things that are maybe will seem a little bit crazy or radical to our own employees, to the customers. How do you balance that while maintaining trustworthiness at the same time, I
Eric Ries 41:07
think you have it backwards. I don't think you can do it at all unless people trust you. Like this is the thing people don't get so like, I when I talk to people about this, they're like, man, business is already so hard. You know, I can't communicate with my employees. My customers don't trust me. Like one of the huge issues we wrote in it for so innovation and it the number one issue. We talk, we talk about making releases more frequent so we can actually experiment. The number one thing I hear every time is like, but our customers hate it when we make it a release, making it really so difficult. They hate it. They yell at us. They're really upset. They don't like it. They're cranky. The business is already so hard. Now you're gonna make it harder. Come on, but respond the same way. Well, is it possible that the reason that business is so hard for you is nobody trusts you? What if your employees believed what you were saying? Would you have to repeat yourself over and over and over again? How many people you know? You guys must hear this every CEO I meet, every manager I meet, it's like, man, employee communication is so hard I gotta repeat myself 50 times. The companies that actually are good places to work and people trust the leadership don't have. They don't complain about that. They say something one time. People like, oh, yeah, that makes sense. I just go about their business because, not because they're great, super communicators, but because, first of all, they have built up trust with their employees, so the people employees know that they are not there's not, like, a hidden agenda. You have to, like, decode what do they really mean? But secondly, the business model that they're asking people to operate makes sense at the level of the human heart. Because exploitation is exploitation is hard to explain to people, because you have to obfuscate it. If you were like, actually, we're murdering people for money, most people wouldn't work there. So you have to be like, actually, we're maximizing shareholder value, or by increasing customer engagement, by, you know, making our product super addictive. Oh, I'm sorry. I mean addictive. I meant highly engaging, like, at the point where people like, well, what's our product again? What does it do? So, so that's the first thing, is we have to recognize that. So innovation requires trust with customers, with employees, because, like, we're going to make mistakes. The whole nature of innovations, you're gonna go out there and try something and fail, and you need the failure to not be catastrophic
Ben Yoskovitz 43:08
if people are running so to that point, like, if you don't have trust, the innovation, the risks you take, the things you ask of customers, the bets you make, are much, way harder.
Eric Ries 43:20
It's much, it's way, way, way, way, way harder. In fact, most, most big companies that I work with have to take their corporate brand off the innovation just to do the experiment,
Ben Yoskovitz 43:29
right? And what do you think about that? Do you think that makes sense at all? It's an absolute
Eric Ries 43:33
requirement. It's a requirement for two reasons. One is, most corporate brands, like, are highly protected, so you're not like, right? So, like people are worried, oh no, I'm going to ruin the brand by attaching it to something that people don't like, but like those same companies like, but do people like your brand? Is that you're protecting it, but is it positive? So the real reason is that most brands are hyper, specifically associated with specific products, rather than with an idea. You know, think about the really great brands that transcended, brands like Nike, like Apple, like Apple launched a new product. No one's like, what does Apple know about launch a new product? What right do they have when night, like, when Nike does something that's aspirational? People are like, yeah, that's their brand. But most brands are crap. Most brands are like, about a specific product that only half works, and I can't stand having to buy it. So you attach that brand to a new product just like, Oh, not again,
Ben Yoskovitz 44:20
right, right? So you create a new brand, you create a new brand. So of course, so like, associate, yeah,
Eric Ries 44:25
you so you have to do that. But if you have a good brand, a brand that people actually like and that people have an open hearted trust relationship with, it's very easy to just be like, Yeah, of course. And again, like, I mean, apples, the apples the king of that. But there's plenty of brands that people trust enough that you feel like, yeah, when they do a new thing, you're not, you're not reflect, not reflexively suspicious about it. But it also goes back to the first thing that we talked about with with venture Studios, where the other problem is, like, the most depressing experience you can have in a modern corporation, I think, is to go take a tour of their research lab and meet the researchers and ask them this. Question, bring a violin with you so you can play that sad music. Tell me about some commercial some scientific breakthroughs that you have had in the lab here that have not been commercialized. And it'll be like, Yeah, I got a cure for cancer here on the shelf. I got infinite power over here, teleportation. I got this, you know, this, this, this. Have
Ben Yoskovitz 45:17
you seen these things? Just, let me ask you, probably has. Yeah. These are
Eric Ries 45:20
not, these are not hypotheticals. I'm I remember what I was in a thing where this, like, Yeah, we had this thing where you put your hang your clothes up in your closet, and it could come out dry cleaned for you. And I was like, Where can I buy it? They're like, nobody wants it. Like, nobody wants it. I walk I was like, Can I buy it from you right now? Can I have it? I mean, like, big, like, things, big and small, diapers that don't leak. I've seen so many amazing things. We're just like, how is that in the lab and I can't have it? Don't even get me started on AI. It's a disaster zone of things. It's like, what a cool demo. Why can't I buy that? Okay? Why does this happen? Well, the same reason we talked about before. You spend all this money to develop it, but then you have to hand it off to some commercial organization that doesn't trust you, and they're like, What am I supposed to do with this? Or the dry cleaning guys were like, well, this is gonna hurt our laundry sales. It's like, yeah, it's gonna hurt your laundry sales. But we funny to invent this thing. It's like, what are we doing? This is insane. So we have to, we like, we really can do better if we recognize that being trusted is the foundation that allows this innovation to proceed. And it's not just trust with customers. Obviously, trust with our employees is important also. Trust with investors. If you innovate and your stock tanks every time you do it, you're going to stop doing it, and that's what happens to too many companies.
Marcus Daniels 46:38
Yeah. And I think, you know, we think back to corporate venturing and investing into innovation. And I just love the concept of human flourishing. And the question is, how can structures like corporate venture capital, structures that are evergreen to take a different horizon often can basically be the catalyst to really support human furnishing versus like traditional 1010, year cycles, or even being within larger corporations. So I think there really is a role to have these corporate venturing structures living on the outside and having funding vehicles with longer time horizons to support that. So yeah, we don't
Eric Ries 47:11
experiment with that nearly enough like corporate ventures should have a major advantage, because it's evergreen structure. And I think basically the venture ecosystem would benefit from permanent funds a lot more than it does. Now these short term 10 years is not that long, so these short term funds are just these disposable funds are actually problem. And we've moved to a world of multi strategy funds and crossover funds, but then you have this problem where you make an investment in a company and it graduates out of the fund, and now it's basically, it's like, it's partnered with a new company, right? Like my board member was from the early stage practice. Well, I'm not early stage anymore. Now I got this new Pro. Who's this new person? Yeah, like you talk to the public markets people in crossover funds, they don't invest in public companies. They inherit public companies from the private con. They're constantly like, I don't Why did you invest in this? I don't want this. You know, now you've got someone on your board doesn't want to be there. It's terrible. We could, we could do way better.
Ben Yoskovitz 48:00
Awesome, Eric. I appreciate the time. Thank you so much. Interesting conversation. Really appreciate it. Thank
Eric Ries 48:06
you. Yeah, and shout out to lead analytics going strong after all these years, man like
Ben Yoskovitz 48:11
that, let's, let's save that. Yeah, I know what my royalty checks are. Nowhere near as big as your royalty checks, I'm sure. But every month, every month, I can take my family out for one dinner because of Lean analytics, not translated into many languages, but still pretty cool. Well,
Eric Ries 48:27
I'll give you, I'll give you a clip. You can use them, because I have said this to people many, many, many times. Linux is is great, and the content of it is really good, but it's by itself, just the examples in the back that show the benchmark metrics for different industries, different categories. That is worth the price of admission by itself. Most entrepreneurs have never seen any other company's dashboard but themselves and have no idea whether what they're doing is good or bad, like just the benchmarking power of it is is so underrated. So thanks for writing that it's been, also been a real thanks so much that go strong all these years. Thanks, Eric. Nice guys. Yeah, I appreciate it. See you.
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