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Eric Ries, creator of The Lean Startup and author of Incorruptible, joins us to explain why “financial gravity” pulls even the best companies away from their mission. He explains why the standard best practices founders are handed “are designed to make you lose control of your company.”
Eric published The Lean Startup 15 years ago and went on to found the Long-Term Stock Exchange. He co-founded the AI research lab Answer.AI and helped start Virgil, an AI-enabled law firm for early-stage companies. In his latest book, Incorruptible, he studies the companies that have resisted this force, from Costco to Novo Nordisk to Anthropic.
In our in-depth episode, we discuss:
How the default “any lawful act or activity” clause in a Delaware charter quietly commits founders to maximizing shareholder value, and why lawyers rarely tell them
The story of Sol Price, FedMart and the origins of Costco, and the “governance fortress” that has protected Costco’s $1.50 hot dog for 40 years
The three mission protective provisions every founder can set up in a matter of weeks: becoming a PBC, adopting a director’s oath, and appointing a mission guardian
The difference between a mission statement and a mission, and what Silicon Valley Bank’s charter revealed after its collapse
Why “it’s always too early until it’s too late,” how to win over the roughly 25 people who must agree to a change, and why Anthropic’s Long-Term Benefit Trust has become a commercial advantage
Watch or listen now across YouTube, Apple Podcasts, Spotify, and X
Download the transcript 👇
Timestamps
(0:00) Meet Eric Ries
(2:14) Eric’s New Book
(3:30) How Startups Are Built Today
(6:20) Why Companies Self-Destruct
(16:37) Who’s to Blame When Companies Fail
(21:25) The Blueprint for a High-Performing Company
(26:52) How Companies Protect Themselves
(33:13) Building Company Ethos and Structure
(46:05) Why Companies Get Bullied
(50:32) When Is It Too Late to Save a Company?
(55:15) The Company Eric Would Have Saved
(1:00:05) What Eric Is Excited About Next
Lessons from this episode with Eric
1. Why great companies are destroyed by financial gravity
Eric explains why blaming a greedy investor or a reckless founder misses the real cause of most corporate collapses.
“There is a form of what I call financial gravity that operates on these companies. The ones that collapse, the ones that erupt in scandal, whether I’m talking about Boeing or FTX or Wells Fargo or Silicon Valley Bank, they’re all the same story.”
He compares it to a submarine with a weak hull. Asking whether the water is to blame is the wrong question. The right question is who designed the submarine.
Gravity acts on every company, yet some have lasted 50, 75 or even 500 years. Studying the ones that never collapse is how you learn to build differently.
2. How the firing of Sol Price led to the founding of Costco
Sol Price capped his markups at 14% and treated customers as clients he owed a fiduciary duty to. His investors fought him for 20 years, then changed the locks on his office overnight.
“It is so much easier to destroy than to create. They managed to destroy in seven years what had taken Sol more than 20 to build.”
Within seven years of firing him, the investors had completely liquidated FedMart. Two weeks after his dismissal, Sol leased the office upstairs and started the Price Club, which later merged into Costco.
Costco has survived for 40 years because of what Eric calls a governance fortress. That structure lets its directors act as a bulwark against Wall Street pressure.
3. The six words in your charter that hand your company to shareholders
Most founders have never read the first sentence of their own corporate charter. Eric says that sentence decides who the company really serves.
“Since 1986 in the United States, whenever you see ‘any lawful act or activity,’ the courts have decided that actually means maximize shareholder value.”
The phrase sounds open-ended. Legally, it makes your company a financial instrument whose job is to enrich shareholders.
The same duty forced Twitter’s board to sue Elon to complete his deal. It also let Philip Morris take over an inhaled therapeutics company and destroy it.
4. Three mission protective provisions that take weeks, not years
Eric gives founders a short list of protections they can put in place early. Some take only days.
“Welcome to best practices. They are designed to make you lose control of your company by force or by corruption.”
First, become a public benefit corporation, a two-page filing in Delaware. Second, require every director to take an oath to protect the mission, much like the Hippocratic oath. Third, set up a mission guardian, such as a foundation or a purpose trust.
Companies owned by an industrial foundation, such as Novo Nordisk, are five times more likely to reach year 50. Eric’s explanation: “Checks and balances work.”
5. A mission statement is not a mission
Eric’s own deposits were at Silicon Valley Bank when it collapsed. Afterwards, he looked up what the bank had legally committed to.
“They had no mission at all. The whole thing was a scam.”
The bank’s mission statement promised to move the innovation economy forward. Its charter said “any lawful act or activity.” Even if its interest rate bets had paid off, they would have done nothing for customers.
His test: Google spends billions to make sure its quarterly reports are on time, while “Don’t be evil” was one sentence in the employee handbook. What a company invests in shows what it values.
6. It’s always too early until it’s too late
Lawyers and investors often tell founders to deal with governance after product-market fit. Eric says that advice really means never.
“In most companies, there are at most 25 people that need to consent to anything like this.”
Veeva Systems became a public benefit corporation after it was already a $40 billion public company. It spent a year on investor relations and won 90% of the shareholder vote.
Eric’s line for pitching a change to investors: “It is my judgment as the founder of this company that it is essential to our strategy that we win the trust of [some group].” Framing it this way forces people to say exactly what they object to.
7. Why ethics is an accelerant
Eric uses Anthropic to show that integrity can be a source of commercial strength.
“People talk about ethics like it’s an impediment to business success, but here it is clearly an accelerant.”
Anthropic is governed by the Long-Term Benefit Trust, which appoints directors to its for-profit board. Eric argues this structure is a big part of why enterprises trust it more than its competitors.
Costco, Patagonia, Vanguard, Mondragon and Anthropic have different missions and cultures. The one thing they share is that each rejected the standard best practices for how a company should be structured.
Where to connect with us
Follow Ollie on X: https://x.com/ollieforsyth
Follow Eric on X: https://x.com/ericries
Eric's new book - Incorruptible: https://www.incorruptible.co
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