How ‘Lean Startup’ author Eric Ries redefines profitability in his new book – GeekWire
Eric Ries wants to do away with the word “profit,” or at least the way we usually define it.
In his new book, “Incorruptible: Why Good Companies Become Bad and How Great Companies Stay Great,” the “Lean Startup” author redefines profitability as maximizing human prosperity. He argues that much of what passes for profit in today’s economy is actually a form of corruption.
“We should all pretend we think all ways to make money are equally good,” Ries told a room of startup founders at Seattle Flow Startup Day in Seattle. “But nobody really thinks that.”
Instead, he calls for a new era of “mechanism”: replacing the original structure of shareholders that has been responsible for corporate governance since the 1980s with structures that protect the purpose of the company from being blocked by investors who benefit from its success.
After interviewing Ries in the opening keynote session at the May 15 event, I sat down with him for this exclusive podcast interview, going over the ideas in the book, and how it applies to recent news events. We talked about the Musk v. OpenAI, the collapse of Whole Foods, what he told Anthropic’s founders about their business structure, and why he thinks big stocks are already dead.
Listen below, then read on for the highlights.
For corruption: Ries uses the term not in a legal sense but as a description of structural decay. If a popular product is taken over by private equity and the product becomes trash, or if a large company goes public and loses its soul, that is “corruption” in its essence.
In the case of Musk v. OpenAI: During Elon Musk’s trial against OpenAI, Microsoft CEO Satya Nadella testified under oath that his primary responsibility is to Microsoft’s shareholders, that he has a fiduciary duty to increase shareholder value, and that this is because Microsoft is a for-profit corporation.
I brought up that exchange with Ries, explaining how true confession affected me differently after reading his book. He said it shows the tension in this case, and in the business world in general. Finally, companies in this framework are recognized by shareholders.
In advising Anthropic’s founders: When Anthropic’s founders left OpenAI due to concerns about its direction, Ries was one of the people they consulted about how to structure the new company. They had already decided to incorporate as a public benefit corporation — a two-page Delaware legal filing that commits the company to a mission beyond maximizing shareholder returns. Ries told them it wasn’t enough.
“My job was to tell them that’s good, but it’s not enough. If you only do that, it’s not strong enough for what your goals are,” he said.
Finally they created the Long Term Benefit Trust, a private entity with the power to appoint and remove board directors. Ries says research shows that this two-tier approach, with checks and balances, has been the most stable business structure over the past 150 years.
At Whole Foods: Ries calls the 2017 sale of Whole Foods to Amazon one of the saddest stories in the book. The company has been profitable every quarter. Customers loved it. Founder John Mackey had built it on a philosophy he called conscious capitalism, based on love for customers and employees.
None of this mattered when activist investors showed up, forced the sale, and made $500 million in six months’ work. Mackey still sees it as a personal failure. Ries sees it as a structure: “If you want to build a company with an ethos, the structure has to be consistent. Otherwise, this is what happens.”
Next time: Ries believes that the time of the greatness of shareholders is already collapsing under its own weight – it is because many people have not noticed: “We are like Runner. We have already forgotten this rock, but we have not looked down.”
He envisions another place he calls “mission primacy,” where it is also clear that business must have the power to do good, and companies are free to define their version of human prosperity and put it to the test in the market.
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