Eric Ries on Why Good Companies Go Bad

This transcript was generated by AI and may contain typos and inaccuracies.

Amie Vaccaro: Welcome to High Impact Growth, a podcast from Dimagi for people committed to creating a world where everyone has access to the services they need to thrive. We bring you candid conversations with leaders across global health and development about raising the bar on what’s possible with technology and human creativity.

I’m Amie Vaccaro, VP of CommCare Growth and Strategy at Dimagi, and your co-host, along with Jonathan Jackson, Dimagi’s CEO and co-founder. Today, we’re joined by one of the most influential voices in modern business.

Eric Ries is the creator of The Lean Startup method and the author of two New York Times bestsellers, The Lean Startup and his new book, Incorruptible. He’s also the founder of the Long-Term Stock Exchange and the AI R&D lab Answer.AI, as well as the host of The Eric Ries Show. His new book, Incorruptible: Why Good Companies Go Bad and How Great Companies Stay Great, is out now, and it asks the question I’ve been thinking about a lot since reading it: why do so many companies eventually betray the very things that made them great, while a rare handful stay true for decades, even a century?

This conversation feels especially urgent right now, as a massive new wave of tech and AI wealth reshapes who holds power and what they choose to do with it. I’ll be honest, this was one of the most eye-opening business books I’ve read in years, and I was thrilled to have Eric on the show. We dig into the invisible financial gravity that corrupts good organizations, the idea of mission lock, and his radical redefinition of profit itself.

Whether you’re a founder, a funder, or you simply want the organizations you work for and buy from to stay true to their mission, you’re gonna get a lot from this conversation. Enjoy.

Amie Vaccaro: All right. Welcome to the podcast. I’m here, as always, with my co-host, Jonathan Jackson. Jon, good to see you.

Jonathan Jackson: Good to see you as always, Amie.

Amie Vaccaro: And we are here with Eric Ries, who has just written a new book called “Incorruptible” that we are excited to dive into. Eric, welcome to the podcast.

Eric Ries: Thanks for having me.

Amie Vaccaro: Thank you so much for joining. I wanna say it’s been a real ride reading “Incorruptible.”

The book starts off pretty bleak, uncovering companies one after another and how they’ve been corrupted by shareholder primacy, as you call it, which you define as the dominant theory of corporate governance that holds the sole purpose of a corporation is to maximize the wealth of its shareholders.

But then you guide readers through a whole journey looking at how you protect an organization from that shareholder primacy, how you build a constellation of organizations that have what you call mission lock, and how an organization can transmit its mission beyond its borders through standards and other things.

And you end the book speaking about the individual and the power of the individual. I have to say, the ending really gives me hope, so thank you for that, and I truly hope listeners to this podcast get excited to read your book, because there’s so much in it. And along the way, you redefine the most basic word in business, which is profit.

You write: profit is the maximization of human flourishing. Before we go anywhere else, I wanna start there. Walk me through how you got there, and what this means for organizations.

Eric Ries: Yeah. Thanks for asking, and thanks for starting there. A lot of business books don’t have a lot of depth to them, it’s “here’s an idea, it worked, you should do it too” kind of thing. And I really wanted to try something different with this book, to make a philosophical point about the nature of business, the nature of organizations.

Because that has been my experience, having worked with so many companies, so many leaders, so many founders, so many boards, so many investors, nonprofits, for-profits, governments, you name it, I’ve been there. I’ve seen how having the wrong idea about what it is they’re doing in the first place leads them into all kinds of concrete difficulties that there are no downstream solutions to, because you’ve made an upstream mistake.

And certainly among these, the misunderstanding of profit is one of the most fundamental, especially because we currently divide the world into for-profit and nonprofit sectors. And if you ask such a person who’s made such a division, “Yes, but what does it mean to make a profit?” they will look at you like you’ve asked them the dumbest question in the world.

I give an example in the book of walking an entrepreneur through this question: “What does it mean to make a profit?” “What? This is the dumbest question I’ve ever been asked. Everyone knows what it is to make a profit. I know it.” “But humor me, explain.” He said, “Well, it’s the money that’s left over after you pay your expenses, revenue minus expenses.”

He’d been having investor meeting after investor meeting. “I know, we all know what it means to make a profit.” But the funny part is, of course, the reason he was coming to me is that he had embroiled himself in a difficulty, a concrete business difficulty that he found unresolvable.

Namely, his employees, or potential employees he’s trying to hire, are asking him, “How do I know for sure that this technology you’re building will be used to create long-term value and make the world a better place like you claim, and won’t be turned into some instrument of terrible things like so many technologies in the past have, or just turned into something extractive or exploitative?”

There are a lot of examples of organizations whose very success makes them a tempting takeover target. The person who takes it over either sucks out the marrow or turns it into an extortionist that starts blackmailing its customers. What’s to prevent that from happening here? He’s like, “Well, you gotta trust in my good intentions.” And that’s not really getting it done. So he’s struggling. “How am I gonna answer them?” But when he talks to his investors, they treated any hint that he was worried about stuff like that in an almost condescending way, as a sign that he wasn’t very serious about running a for-profit company. It’s right there in the name.

So he was stuck, actually concretely stuck. He couldn’t figure out how to satisfy both of these constituencies at the same time, which the way he was thinking about profit made impossible, as I demonstrated to him with an exercise. This is in the book too, and I’ve done this exercise with founders all over the world.

We start with, okay, you say it’s revenue minus expenses, but what about a Ponzi scheme? Is a Ponzi scheme profitable? Everybody wants to say no. Everyone intuitively understands that a Ponzi scheme could not possibly be profitable. But revenue minus expenses, of course it is. And they’re like, “But, but, but, no, come on. Yes, there’s expenses today, but there’s also expenses in the future. All they’ve done to make it seem profitable is push those expenses into the future.” Economists call that deferred liabilities. I say, “Ah, I see. So what you said was simple, revenue minus expenses. What you meant was revenue minus expenses minus deferred liabilities.”

“Yeah, that’s what I meant.” Okay. But what about a company that pollutes a river, and a community downstream gets sick, and somebody has to pay their healthcare costs, but not you? Always imagine in these scenarios that you get away with it, no one ever finds out. Is that profitable?

And again, everybody wants to say no, because revenue minus expenses, you’ve just moved the expense onto somebody else’s balance sheet and gotten away with it, but you didn’t really create a profit. The whole idea of the word profit is supposed to be the surplus value that was created.

Most people will hem and haw about this. Occasionally you’ll meet a sociopathic person who says, “Yeah, if you get away with it, that’s the dream.” But most people are like, “No, that’s not profit. You’re right.” And economists have a word for this too, they call it negative externalities, as I’m sure many of your listeners already know. “Great, so when you said it was simple, revenue minus expenses, what you meant was revenue minus expenses minus deferred liabilities minus negative externalities.” “Yeah, that’s what I meant.” But what if I don’t create any value at all, because I don’t account for the cost of the inputs of my production?

He’d given me the example: “You take a fifty-dollar piece of wood, you turn it into a two-hundred-dollar table, you created a hundred and fifty dollars’ worth of profit.” I said, “Okay. But imagine I steal a two-hundred-dollar piece of wood and turn it into a hundred-dollar table. Again, imagine I get away with it. Is that creating a profit?” Most people are very frustrated by this question, because they know that can’t be right, but every one of these questions is showing this chasm between people’s formal definitions, the ones they learned in business school or absorbed from spending too much time with investors, and their intuitive understanding of what it means to build and profit in the world. That disconnect causes immense problems.

Eventually people will say, “No, hold on, that can’t be right. That’s like a kid who has two hundred dollars’ worth of their parents’ organic lemons, makes a lemonade stand, sells twenty-five dollars’ worth of lemonade, and thinks they made twenty-five dollars.” We all understand that in the real world you have to account for the input factors of production.

So when you said it was simple, revenue minus expenses, what you meant was revenue minus expenses, minus deferred liabilities, minus negative externalities, minus the true cost of the input factors of production. “Yeah, that’s what I meant.” But what about a business where one of the input factors of production is a human life?

Now what? Most founders, most leaders, get very uncomfortable with this. “Well, what do you mean?” Imagine I do murder for hire. Can murder for hire be profitable? Most people, if they really sit with it, will try to avoid the question for a while, then say it’s profitable but unethical, illegal, immoral. Okay, great, but I understand it’s illegal. What if I made so much money doing it that I could lobby the government to make it legal? Now is it profitable? Again, profit is one of the most fundamental words in business, and we care about it. Even though we say it’s simple, a mechanical accounting thing, no, we care. So if you push hard enough, eventually the definition of profit that most people claim is simple will collapse in self-incoherence, because a human being of infinite value cannot ever be legitimately considered an input factor of production. That’s absurd.

But when you go through this exercise, people will say, “Wait a minute, are you saying most companies today are not profitable? Can that possibly be right?” I haven’t said anything in this exercise you can’t learn in an Econ 101 or Econ 201 class. This is all well known. In fact, if you study stock market returns, you’ll notice that although the stock market on average is very profitable, most of that money comes from a very small percentage of the companies. The vast majority of companies are, in fact, not creating any returns at all.

They are, in fact, not profitable, even if we care about it in this very conventional way. So my claim in the book, and I try to give a more robust derivation of this argument than we can do here, is that if we’re carrying around a formal definition of profit that isn’t useful, isn’t serving us, isn’t intellectually rigorous, and is full of these well-known holes, why are we using it?

Why don’t we just change it, use a different one? My attempt is to lay this out: to make a profit is actually to maximize human flourishing. And as soon as you accept this definition, all these problems go away. Obviously, none of these ways of making money by skirting the rules, tricking people, getting away with it, none of that is profitable. And of course actions that destroy human potential are not profitable. They’re just not, and we see that in the evidence. Companies that do that stuff eventually set themselves up for their own collapse, unless they can find a regulatory arbitrage or some other way of cheating the system.

Going back to my friend, the founder in trouble: this is not a work of abstract philosophy. This understanding let him solve his conundrum. “Yes, we are a for-profit company,” he can say to his employees, “but that doesn’t mean we’ll do anything to make money. We’re structured so that we can only profit by maximizing human flourishing.” And to the investors who thought he wasn’t very serious, he said, “I’m quite serious, more serious about this than you are. I intend to build a truly long-term value-creating engine that no one will be able to stop me from operating. If that doesn’t interest you, I’d suggest you get off your high horse and stop telling me what a long-term value creator you are. We’re not gonna do this other stuff. If that’s an important part of your investment thesis, please don’t invest.” It worked out very well for him.

Jonathan Jackson: That’s great, and I loved that, and it’s something you also espouse in the book. One of the things that stuck with me as you went through this redefinition of profit is also the nature of commercial transactions, and the premise of complete information transparency and no coercion as two necessary ingredients for that transaction to make sense.

I was talking with Amie about your book, and one of the things is that a lot of salespeople are trying to hit their number, trying to sell, trying to make money for the company. But when the transaction is meaningful, it’s not just profit for you as the company, it’s profit for the purchaser too. They have surplus, they were, as you put it in the book, willing to pay more than the price they actually paid. So you should be proud not just that you made your company money, but that you sold an amazing product at a price somebody wanted to pay.

That switch in the mental model of what to be proud of as a sales agent, when closing a deal, really struck me. We at Dimagi have been at this for twenty-four-plus years. We’ve been mission-driven, we’re B Lab certified, we were the first B Corp, now PBC, in Massachusetts. We’ve been on this journey a long time, and I completely agree with everything you’re saying. But even for us, thinking about selling, the instinct is “Dimagi made more profit,” as opposed to “we created human flourishing, we sold a good to somebody who’s now gonna be better off because we made that sale.” It’s fascinating, even for a mission-driven company like us, to read that one sentence and realize, that’s what should be exciting to us, not making more profit for Dimagi.

So on that note, around selling goods, and a lot of our listeners are social enterprises and foundations: you talk about this gravity, when you use the traditional definition of profit. You see it all the time with companies that were amazing, the “don’t be evil” Google stuff, where you just get pulled toward profit maximization from that silly starting definition of profit. I was joking with Amie that I feel like a lot of our social enterprises would love to feel that gravity pull.

When you’re talking with entrepreneurs across so many different fields, nonprofit or for-profit, do you see commonalities in when they start to feel that gravity? I think there’s a different version of this gravity in the nonprofit world, where you start with an amazing idea and then chase what I call the dumb money, the very traditional, rote grant reporting, annual stuff, increasing OPEX. So there’s potentially a different type of gravity going after donors, but it’s no different, it’s the same gravity well of doing what everybody else is doing, doing the low-risk thing. Are there different moments you consistently see in an entrepreneur’s journey, whether it’s their first time, second time, and so on?

Eric Ries: That’s exactly right. First of all, financial gravity is the unconscious psychological transmission of values from those who have resources to those who want resources. It’s an old psychological reflex built into humanity. Now, it’s very important to understand, as we cover in the later chapters of the book, that which values are transmitted by gravity is not a law of nature, but rather an artifact of the financial system people find themselves embedded in.

We happen to live in the era of shareholder primacy, an era where extraction and conformity to a certain set of financial priorities is ubiquitous. But that has not always been the case, nor is there anything necessary about it. It’s fascinating to watch it metastasize out of the domain of traditional business into every other area of life, to the point that I once watched, from afar, a big member-driven nonprofit having a meltdown, a massive conflict between the sponsors of their flagship event and their donors and their members. The members wanted one thing, the people providing the money wanted another, and the executive director was trying to do damage control: “Look, I hear that you have this very principled stand, members, that you want us to do this thing, but we have a fiduciary duty to…” And I was like, “You have a what? You’re a mission-driven nonprofit, and now you’re gonna justify this on the basis of your fiduciary duty? To who? To what? For what?” It’s so internalized as a best practice that organizations must continue to get money, so whatever you have to do to get the money, you do.

This leads many organizations into value-destroying acts of self-destruction. That’s not confined to the for-profit sector at all, you see it all over the place. And again, what’s going on is a misunderstanding of what it means to make a profit in the first place, which is why dividing the world into nonprofit and for-profit makes no sense. “Nonprofit” would technically describe Philip Morris; the Smithsonian Institution is super for-profit, it makes a ton of profit if you buy into this whole thing. But once you reorient away from that wrong dichotomy, you can say: when people say “for-profit,” what they really mean, and when they say “nonprofit,” what they’re trying to say, is self-controlled or autonomous organizations versus, in practice, often just donor-controlled organizations. And how many nonprofits do we all know that spend all the money they raise on fundraising? What is that but a Ponzi scheme?

But once we break that dichotomy open, it creates the possibility of building mission-controlled companies, and that’s my preoccupation in the book: what does it look like to build an entity, or eventually a constellation of entities, where the mission itself has sovereignty, where the mission can help decide what happens, so that when you have an executive director saying “I have this fiduciary duty,” the answer is, “You have a fiduciary duty to the mission. So let’s talk about what the mission of this organization is. Is it to raise as much money as possible?” No, of course not. Financial resources are to an organization what oxygen is to a human body. You need it, it’s important.

People who are, say, starving, or struggling to breathe, aren’t interested in fine-grained distinctions about that. But just because that’s true doesn’t mean our goal as an organization is to breathe as much oxygen as possible, as if, in the old Tennyson line, to breathe were life. No, there’s something else we aspire to do. I think the reason most leaders, in startups and nonprofits alike, are so vulnerable to gravity’s pull is that when something works, well, I joke that I did a podcast interviewing mission-driven leaders, one after another, almost all of whom were overnight successes ten years in the making. The world celebrates the three-thousandth night of the success as though it were the first, because that’s when the world noticed. But there’s this massive, long, flat part of the hockey stick during which the thing was being ground out. During the grind, we are beggars. We beg people for money, and we start to subtly internalize that investors and donors, the people who have money, are our superiors. We don’t say it out loud, but we internalize it, and start thinking, “I just have to do whatever the market might want.” And it’s the “might” that’s really the problem. If you actually go interview a bunch of investors about what they want, that’s perfectly fine. But instead you start avoiding that, thinking, “Everyone just says we need to be more profitable, more abstract. Maybe if we were stabbing a few more people in the back, people would be more excited about what we’re doing.” And it starts to shape you. You start to feel a compulsion to do what these people want.

And when you finally have success, many leaders wrongly attribute the success to the compromises they made to get there. It’s generally not true. I’ve been in these situations many times, where you’ve been doing your thing, the same thing the whole time, and finally it’s working, you’ve made the key pivot that was necessary, and now investors are throwing themselves at you, donors are dying to be associated with you. And you still act like you’re begging them for money. You see it in how allocations get made, it goes from “who can I get to invest” to “who gets to invest,” and you wind up giving away this most precious thing to the ones with the slickest marketing and the biggest stats, as if compensating for years of neglect, finally basking in the sun of these people’s approval and attention. Like medieval courtiers thinking, “The court has finally acknowledged me, the nobility is ready to welcome me into its ranks.” And if you’ve ever read a historical novel about what happens to people once they’re finally basking, they get stabbed in the back later. These stories don’t have a happy ending. So I think we have to really examine this and recognize our own complicity in it. We create the incentive structure we see, because we reward the worst people when the time comes. One of my goals in writing the book is to help leaders across all sectors see these forces clearly and learn to navigate them.

Jonathan Jackson: That’s great, and it’s timely given some of the conversations I’ve been having about this unprecedented new wealth coming online from SpaceX and AI IPOs. Is there a better way to think about capital, and about helping those most in need through philanthropy? Because it doesn’t have to be done the way it currently is. There’s no law of nature, to your point, that says this is how grant-making has to happen, or how supporting nonprofits or for-profits with a social mission has to work.

I loved a lot of the examples in the book, and would love for you to walk through a few of them, the mission lock stories from famous companies. The Novo Nordisk story in particular was awesome, setting this up before B Lab was even a thing, before public benefit corporations were a thing, to create this mission lock. These are massive, wildly successful companies, and their mission lock made them more, quote unquote, profitable downstream because of it. Can you take us through Costco and Novo Nordisk as two examples?

Eric Ries: Yeah, I like giving people the deep-cut Costco story, because Costco is a company people are such fans of, and yet most people don’t really understand what makes it special, because they don’t know the pre-history of Costco.

Before there was Costco, there was a company called FedMart, started by one of the greatest entrepreneurs of all time, named Sol Price. He’s widely seen as the father of modern retail. Just so you get a sense of how influential he was: Walmart is named in tribute to FedMart.

Sol was a lawyer before he became an entrepreneur, and he had a very particular philosophy of business as a result. I wish all lawyers who went into business brought this with them. Sol understood being a lawyer as a profession in which you’re a fiduciary to the client. The client comes in, you put the client’s interest before your own, you’re of service to them. So when he became a retailer, he asked himself a very simple question: who’s my client? “Oh, the customer is my client.” It was so obvious to him. I’m a fiduciary to the customer. That was his philosophy.

He had a fiduciary hierarchy: customers first, employees second, shareholders last. The great Peter Drucker, by the way, said, “No, that’s backwards, it’s supposed to be employees first, customers second, shareholders last.” The famous Johnson & Johnson credo is patients and nurses first, employees second, communities third, shareholders last. Are you noticing a pattern?

Anyway, that was Sol’s belief about business, and he would go to ridiculous lengths to insist on it. He paid higher than market wages. There’s a famous story about the time he opened a store in San Antonio during segregation. He was told, “If you have a food court out front, you have to segregate it,” and he wouldn’t do it. So he said, “If it doesn’t have tables or chairs, it’s not a food court,” ripped all the tables and chairs out, and had an integrated food service counter instead. There are tons of stories like this. One of my favorites: he went to one of his suppliers and said, “We wanna sell this product for a dollar less. If you take fifty cents off, we’ll take fifty cents off, and we’ll sell more volume.” The vendor agreed, they did it, put it on the shelves, and it sold about the same number of units as before. Sol calls his category buyer and says, “Go back to the supplier and give them their fifty cents back.” The buyer says, “Sol, we don’t have to do that, we had a contract, we entered into it in good faith, it just didn’t work, you don’t have to give them the fifty cents.” Sol says, “Yeah, but we told them it would, and it didn’t, so give them their fifty cents.” There are universal stories like this about Sol.

As a result, everybody trusted FedMart. Employees loved working there, customers would drive miles out of their way to shop there, investors made a lot of money. Sol took the company public, made more money for his investors than they could possibly spend. So obviously they were fully satisfied and gave him the freedom to run the company the way he thought was best, right? No. Obviously not. No matter how much money Sol made for them, they always wanted more, they were voraciously hungry for more profit. For twenty years, Sol battled his investors for control of FedMart. Even though it was working, his philosophy produced the competitive advantage investors were happy about, they were still like, “Why do you pay more than you have to?” Sol believed in low prices and high wages, but so many investors wanted high prices and low wages. All this came to a head one day in 1975, when Sol came into his office and couldn’t get in the door, because they’d changed the locks. He’d been summarily fired.

What’s so interesting is what happened next. On one hand, the investors got their way, FedMart was turned into a profit-seeking company above all, and as a result went bankrupt within seven years. It took them only seven years to destroy what had taken Sol more than twenty to build. On the other hand, Sol understood something the investors didn’t. They thought, “This guy is an impediment.” But he’d say, “I’m not getting in the way. The reason FedMart was successful wasn’t my charismatic leadership, it was that this whole thing is an integrated engine, a set of interlocking principles that developed this commercial outcome. So I can do it again.” After taking two weeks off to lick his wounds, Sol was back. He leased the office upstairs from FedMart, in the same building, and started a new company called The Price Club. When I was a kid, that’s where we shopped. But today Price Club isn’t really remembered, because he wasn’t the only one who learned this lesson.

A guy named Jim Sinegal, who had worked his way up from stock boy to executive at FedMart, quit in protest when Sol was fired and eventually started his own company. His company and Sol’s merged some years later, forming a company they called PriceCostco. But we just call it Costco. So that’s the deep-cut origin of Costco. Today, Costco is a $400 billion public company that still maintains Sol’s ethos all these years later. The reason FedMart was destroyed and Costco endures is that Costco was protected by this mission lock mechanism, which I spell out in the book. Jim Sinegal was there the day Sol was betrayed, and he thought, “I don’t want that to happen to me,” so he built structures to give Costco sovereignty.

Jonathan Jackson: That story is so timely, too, with how GLP-1s are exploding and worth a jillion dollars now.

Eric Ries: It’s such a wild story. I was just in LA doing the LA leg of the book tour, and people were far more interested in GLP-1s there than anywhere else, I didn’t really understand how mainstream this has become until I was in LA and it was all anyone could talk about. Not to lionize GLP-1s, which I have mixed feelings about, but from a profit perspective they’re undeniably powerful, maybe the most profitable pharmaceutical in the history of humanity. Dwarkesh had a podcast episode recently where he mentions in passing that GLP-1 is only possible because of a quirk in the Danish tax code, which is kind of, sort of true, there’s a kernel of truth in it, but I think it really undersells the farsightedness of a woman named Marie Krogh, who helped set Novo Nordisk up more than a hundred years ago.

Here’s the story of Novo. Marie was one of the first women to become an officially credentialed doctor in Denmark, a remarkable woman in her own right, but today she’s mostly known because of her husband, August, who won the Nobel Prize around 1920. Around the same time he won it, she was diagnosed with a fatal illness, diabetes, at a time when diabetes was an incurable disease. It was a death sentence. Despite the diagnosis, August asked if she’d be willing to travel with him on a lecture tour of North America to talk about his Nobel Prize-winning research, and, dutiful wife that she was, she said yes.

So August and Marie, scientists both, traveled to North America, and on this tour, someone took them aside at dinner and said there were people in Canada who’d first synthesized a potential cure for diabetes. Marie convinced August they should extend their trip, go to Canada, and see this technology for themselves. They did. Because they had the scientific caliber to understand what the technology actually was, they asked the Canadian scientists if they could bring it back to Denmark and commercialize it for use in Scandinavia. They made an agreement: all the scientists got together and said, “Okay, we’re gonna do this project.” But they had a concern, even back in the 1920s. Imagine, Jonathan, that you have a life-saving medication I depend on to live. I’d want you to charge me a fair price for it. In fact, I’d want you to profit from it, so you have every incentive to stay in business and keep providing the medication. But as much as I want that, I’d live every day in fear that you might wake up one morning and think, “Wait, I don’t have to charge Eric a fair price, I can charge whatever I want, he needs this medication.” That’s the same fear those employees were talking about with the founder at the beginning of our conversation, the fear that someone could wield a powerful technology to become a gangster.

So the scientists foresaw this possibility and decided to act on it. They incorporated the company using a structure called the industrial foundation structure, which, to this day, is still how it works: Novo Nordisk is a for-profit company governed by a mission-guardian nonprofit foundation. Yes, this structure is more common in Denmark than elsewhere, because starting in the early twentieth century, Denmark had a tax code especially favorable to it. But that’s not why they did it. They did it for mission-preservation reasons, and that choice has since been vindicated many times over. The tax issues have long since been solved, you can build this structure in basically any country now.

What’s interesting is that in most of business, we can only hypothesize that a structure like this was important to a company’s success. Anthropic is governed by the Long-Term Benefit Trust, and that seems to have really helped its integrity. Other companies have different structures where the connection seems plausible. But in this case, we have the most perfect natural experiment you’ll ever find in business, showing exactly how valuable this structure was, because eighty years after the Kroghs set it up, it was tested in a really profound way.

The key to this structure is that there are two entities. It’s not like OpenAI, which was only ever one board, one entity. You have a board of trustees with mission-guardianship responsibility, and a for-profit subsidiary, or really multiple subsidiaries, each with its own independent board handling business operations. It’s a system of checks and balances. Most decisions are made by the for-profit board, and every once in a while, something urgent comes to the attention of the trustees, who have to intervene. This is one of those cases. There are a zillion stories in this book of boards who decide to betray the mission for no good reason, they see an opportunity and they take it. This is one of those stories.

The for-profit subsidiary got caught up in a wave of pharma consolidation, and got excited about selling the company to a Swiss biotech company that was, at the time, the third-largest in the world. They inked a merger agreement. Now, Novo Nordisk was a publicly traded, multi-billion-dollar company, I can’t remember its exact value at the time, but they were going to get a big premium, something like $20 billion for a company worth $15 billion. They were real excited about this merger, signed a definitive agreement, and treated the board of trustees’ approval as a checklist due-diligence item, since the trustees are the ones who have to approve any sale. At the first meeting, the trustees asked a simple question: “What is the purpose of this transaction?”

The for-profit board must have been thinking, “What are you talking about? We’re about to make a ton of money, that’s the purpose. We’re a for-profit company, there’s a ton of profit to be had here.” And the trustees said, “That’s interesting, because our mission is a little different from yours. Our charter says we can only approve a transaction if it’s necessary for the survival of Novo Nordisk. Is this transaction necessary for our survival?” My favorite detail in the story is that they had to come back for a second meeting, the first one went so badly you can just picture them saying, “Time out, we’re gonna re-sync with our bankers and come back with a much more compelling presentation.” They clearly hadn’t taken it seriously, hadn’t realized this was even remotely a possibility.

The second time, they said, “Look, the new best practice in pharma is consolidation. If we don’t consolidate, we’re gonna be eaten. It’s eat or be eaten.” And again the trustees said, “Okay, but we’ve been profitable and growing fifteen percent a year for ten years in a row. So once again, what business problem is this transaction supposed to solve?” And again: “We’re just gonna make so much money, isn’t that our purpose here?” No, that is not the purpose, that’s a confusion about corporate purpose. And they said no. The transaction was blown up. You can imagine how upset everybody was. They said no. They had the absolute power, and they used it.

What’s interesting is that we know exactly what would have happened to Novo Nordisk if they’d said yes, because the company they were going to merge with itself merged with Merck two years later, and as a consequence had all of its R&D operations shut down. We know that any R&D program running at Novo Nordisk that hadn’t yet borne fruit would have been canceled. There’s a lot of academic research showing that something like five percent of all pharma acquisitions are so-called killer acquisitions, where the acquirer’s intention is to shut down the R&D, a massive way to make money without creating value, in fact by destroying a lot of it. In this case, the timing happens to be amazing: the research program that created Wegovy, Ozempic, and the GLP-1 class of drugs took thirteen or fifteen years to come to fruition. Most of the experiments didn’t work, and for years this was buried as the least favorite research project in the Novo Nordisk research pantheon. That merger would have happened just about two years before the end of this program. So we know for sure that if the company had been merged, this research would have been canceled.

Now freeze frame the moment the transaction was declined by the board, and freeze frame again a few years later, when, because of GLP-1, the market cap of Novo Nordisk exceeded the GDP of Denmark, and ask how much shareholder value was created by that refusal. The answer is more than $500 billion of shareholder value. This is the paradox of mission protection. Conventional finance theory says that because trustees have no skin in the game, they themselves aren’t shareholders, they lack the efficiency and desperation of an agent, and would therefore be bad stewards of shareholder value. Yet the paradox is that they’re exceptional stewards of shareholder value, because human nature being what it is, we have a tendency to kill the golden goose even when we know we’re not supposed to.

So by giving up control, investors actually make more money, and that’s not unique to Novo Nordisk. There’s a whole data set of companies with these unusual structures, and the data shows they’re about five times more likely to live to year fifty. They have better R&D investments, they’re more efficient, they do all kinds of things modern shareholder primacy and finance theory would predict to be impossible. I think we very much owe it to ourselves, as board members, leaders, executives, customers, employees, and citizens, to reckon with this data. Most importantly: why are you having to learn this data from me? So many of us employ an army of advisors, consultants, lawyers, bankers, investors, and donors, all these super smart people. How come they didn’t mention it to you? I think asking yourself who profits from the suppression of this knowledge is very valuable.

Jonathan Jackson: And going into that why, one thing to build on that story: I believe the CEO who proposed that merger became a huge advocate for the trustee model, and is now on the trustee side making sure Novo Nordisk lives up to its mission as it continues. Is that right, do I remember that correctly from the book?

Eric Ries: Yeah, he eventually became chairman of the foundation. In recent years, Novo Nordisk has been having all kinds of problems, a complicated squabble with the Trump administration over GLP-1 sales in the US. It’s a big mess, their stock price has been all over the map, and there’s been a massive disagreement between the trustees and the for-profit board about what to do. With him leading the charge on the trustee side, I saw the news recently that the trustees fired all the for-profit board members and basically started over to assert their view. Now, I can’t say I’m following it closely enough to know exactly who’s right, it’s a highly regulated business and it’s complicated. My point isn’t that Novo Nordisk is perfect, like I said, I even have mixed feelings about GLP-1s myself. We run into this with any company you want to hold up. I talk about the famous $1.50 hot dog at Costco in the book, and I have a friend who’s a vegetarian environmental activist who asks, “Why are you holding up a hot dog as virtuous?” I have to tell the founding story of Anthropic in the book, where I played a bit part, and plenty of people would say, “You’re an author and they stole your work,” and yes, I’m in the class action settlement with Anthropic. I’m not saying they’re perfect. People say the same about Patagonia or whatever company you want to put on a pedestal, I could find something they did that was a mistake or wrong. Sure, of course.

When we say a company is praiseworthy, is doing the right thing, it can’t mean absolutely right according to my personal values. If that were the only way to say someone did the right thing, none of us could ever agree that anyone did the right thing except ourselves, which would drive us into solipsism and eventually insanity, which is what we’re seeing happen, because that’s the value system we’re increasingly embracing in this highly polarized time. Instead, we have to get back to an older conception of “the right,” one that recognizes the integrity of a person or organization who stays true to their own values, values aligned with human flourishing, and is doing the best they can to consistently and with high integrity make good choices. We may not always agree, but we can see that they’re trying to do something that makes sense to them and to us, and therefore we can trust them even if we don’t agree.

Jonathan Jackson: Yeah, that’s great. One of the stakeholders you mentioned was employees, and I think there’s one way to view this book, and mission lock and incorruptibility, as a founder trying to protect a multibillion-dollar vision they have. But most people aren’t necessarily founders of multibillion-dollar companies, they’re employees who want a good paycheck but also want their work to mean something and contribute to something. One of the things that struck me is you talk about the longevity of these mission-locked structures in terms of decades, sometimes hundreds of years. But for employees only looking five or ten years out, who I hope read this book and are thinking through whether to work in this sector or that, this company or that one, how do you want them to internalize what you’ve written and apply it in a meaningful, practical way, when they’re not the founder coming up with the B Corp structure, or the investor making the choice?

Eric Ries: Yeah, in some ways they’re the most important audience for the book, even more so than founders, leaders, and board members, for two reasons. First, you said “well, they’re not the founder of a multibillion-dollar company,” but how do you know? How do they know? A lot of people who founded multibillion-dollar companies didn’t think they’d do that one day. It’s a myth that people are born knowing they’re gonna be a world-beating, Napoleon-type figure, and honestly, most of those people aren’t that great anyway. A lot of people succeed because they had a preexisting ethos of integrity that put them in a position to do something great, not necessarily to make billions of dollars, but to become a leader. So future leaders, future builders, are a very important audience for the book.

But even for people who say, “That’s definitely not for me,” I think they can still get a lot out of this book, and in fact the later chapters are preoccupied with this question. We’ve been talking about this gravitational pressure that organizations feel, and you have to ask, where does it come from, who generates it? People say, “Well, the money generates it.” But is that right? Can money generate a psychological force by itself? No, people have to generate the force, and all of us are the transmission mechanism by which these values are transmitted. Who we choose to give our money, time, and attention to, and where we choose to work or invest, these decisions are surprisingly consequential.

And yet we live in a very cynical age, where the message from the media is very much that none of these things matter, that virtue signaling is a waste of time, that if you think you’re gonna solve climate change through recycling, you must be a chump. In particular, the idea that you should be selective about where you give your attention is under tremendous attack. What’s interesting to me is that the same people telling people their decisions don’t matter, that they have no agency, are spending billions of dollars to make that message known. Why is it so valuable to them to spend all this money making you feel helpless and weak? Maybe because they fear your strength.

So the goal of the book is that when somebody claims to be mission-driven to you, you’ll now have the tools to find out whether they’re sincere. I think it’s a mistake to assume that anyone talking about mission or values must be trying to trick you, even though a lot of people are. How can you tell the difference, how do you find out if it’s for real? The book is basically a checklist, all the steps we teach leaders for building a mission-driven company, one that’s not merely mission-hopeful but truly mission-driven. Every one of us can use that as a checklist. I use it now, someone says, “I’m mission-driven,” and I say, “Oh really? Which of these twelve things have you done? None of them? Come back later once you’ve actually done a couple, and I’ll take you more seriously.” People are constantly asking us to trust them with our data, our lives, our children, our welfare, our mental health. Why are you worthy of that trust?

A young person who was an early reader of the book came to me for advice. They said, “I want to apply the ideas in the book, I want to be an activist for them, I want to spread them, but I want you to know, I’m not very courageous. I need a job, I can’t really afford to piss anybody off. Can you give me a no-courage activism formula?” It was like asking for a no-bake cookie recipe. I said, “Sure, that’s actually very easy. Here’s your plan. You’re gonna go to your job interview, and at the end they’ll ask if you have any questions for them, everyone knows you’re supposed to say yes. Here’s your question: is this a mission-driven organization?” Nothing offensive about that. “Oh, cool, how do you know? Tell me about what’s mission-driven about it.” Whatever they say, be like, “Oh, that’s so great.” Just be open and curious, and at the end ask, “Is that also our legal mission? Is that in the corporate charter, or is it just rhetoric?” You’re just asking, you’re not saying anything.

I’m pretty sure the person you ask won’t know the answer, but it’s a legitimate question. If the company has taken no steps to preserve the mission, it won’t be preserved, and eventually they’ll betray you. It’s a perfectly legitimate question for an employee to ask, no judgment, you just wanna know. If they don’t know, say, “Could you get me an answer to that? I’d love to know.” Whether you get an answer or not, you’ve just created a gravitational ripple, because every company that runs a hiring process has somebody whose job is to make sure every question a candidate might ask has an answer. There’s a document, somebody writing all the frequently asked questions and their answers, even the infrequently asked ones. Which means whoever’s job that is will have to ask their manager, “What’s the answer to this? I’ve never even thought of this.” And that manager will ask their manager. I’ve actually been in board meetings where this comes up, someone says, “We’re getting this weird question from candidates, we’re trying to hire the best people, does anyone know what our answer is?” Maybe no one will care, maybe nothing happens. But every once in a while you’ll have a CEO who’s been wanting to do this the whole time, wants to become a public benefit corporation, which means writing this purpose into the legal charter, and just by asking a question, you’ve given them the excuse they need. “Hey, I know you were resistant before to doing the right thing for the right reasons, but can I interest you in doing the right thing for the wrong reasons, to get the commercial benefit of the best talent?” You never know.

I was just talking to the CEO of a big public company this happened to. It really bothered him. He hadn’t started the company thinking it was gonna work, and when his lawyers presented him with the incorporation documents, it said, like almost every company today, by default, that the legal purpose is to maximize shareholder value. He thought, “That doesn’t seem right,” but they told him not to worry about it, he could always change it later. He figured it probably wasn’t gonna work out anyway, so he kept it simple and didn’t bother. And then for years it kept bothering him. Every round he’d think, “Is this the time to change it?” No, don’t rock the boat. Next thing you know, they became a public company, and they still hadn’t changed it, because it was always too early, too early, too early. He ended up changing it as a public company, which was really difficult to do, but he did it. Part of what gave him the courage was people asking these kinds of questions. He realized, “We need to stand for something specific, commercially, as part of our strategy.” So he did it. Just by learning to ask the right questions, you wield immense power. That’s the no-courage version. If you have a little more courage, you could try something spicier. Either way, know where your power lies, so you can make a conscious decision about whether to use it.

Amie Vaccaro: I love that example, that’s really good advice. Coming back to the founder’s role, and the idea that any of us could be a potential founder, I thought you had a really interesting take on founder mode, which is such a popular buzzword in Silicon Valley these days. You wrote about emergent intelligence, that “an organization’s emergent intelligence is powerful enough to defeat the efforts of smart, well-intentioned leaders again and again,” and you suggest founder mode is really a short-term thing. How should founders think about their role in ensuring an organization’s mission lasts?

Eric Ries: Yeah, for those who don’t know the term, founder mode was coined by Paul Graham after he described a phenomenon he observed in Brian Chesky. Brian gave a talk at Y Combinator about losing control of his company to his employees. He’d hired all these managers and professionals, was trained in the best practice of delegating decisions and not micromanaging, and next thing you know, the company doesn’t stand for anything. He told this story of having to basically fire those people, blow up those procedures, and reassert his own ownership of the company so it reflected his integrity. I know Brian, I was there, I’m familiar with this story from the inside. But since then it’s spawned a whole genre of stories about people going “founder mode” on some problem, meaning the founder asserts their moral authority to make dramatic changes in the company. There are times when this is necessary, and I think the charge that it’s just micromanaging is a bunch of nonsense, I’m sympathetic to this story.

But the question you never see asked in these founder mode drama stories is: who hired all these people in the first place? The founder mode story is the founder as victim of choices and decisions they themselves made. Our grandparents didn’t tell stories like that, they’d say, “Take responsibility for this.” Founder mode is admitting error while painting yourself as a victim, which is kind of gross, don’t do that. Admit you made a mistake, and try to undo it. The question is: why did you make the mistake in the first place? These founders are the strongest, most bold people you’ll ever meet. Did they forget to be bold for a minute? No. What happened is they got sucked into this gravitational well, which is why companies that go founder mode often have to do it more than once, you do the intervention, then start to drift back, and have to do it again. And God help you if you have an organization that doesn’t have a founder running it anymore, now what?

So I think ultimately founder mode isn’t a long-term solution to what’s an underlying systems problem. The reason I use the term emergent intelligence is that we have really good evidence this is what organizations are like, metaphysically speaking, that’s literally what they are. They have a living character that’s both measurable and, to some degree, controllable. It’s like human health. The analogy I give in the book: many people, at some age, some earlier, some later, have to face the question of what they are, mind-body duality and all that. Am I a body? Am I in a body? A lot of people conclude, “Oh, I’m in control of my body, I tell my arm to lift and it does, my mind controls the body.” And if you’ve ever been in a Socratic questioning situation, with friends or a mentor or in a philosophy class, someone will say, “Oh really? Why don’t you command your body to heal that wound?” “Oh, no, that happens automatically.” “I see, so you can’t actually command yourself to be healthy?” “No, not exactly.” And a lot of us, especially a lot of college students, fall into nihilism: “If I’m not in control, nothing I do matters, so I can eat all the Doritos I want.” That’s not right either. If you wanna be healthy, your conscious choices, your voluntary actions, have a very important effect. This is why I use the word ethos in the book, a very old-fashioned idea going back to Aristotle and before: your conscious choices accrete, like layers of sediment, forming your character over time. If you build a healthy character, healthy habits, eventually you’ll have exerted conscious control over the emergent properties of your own body. Organizations are the same, there’s no difference at all, they’re just made of different things, but the process is the same. Many managers have the same misconception: “I control my organization, how do you know? I give a command and it’s obeyed.” Congratulations, that means you have a functioning nervous system. But can you command the culture of your company to be a certain way? No. Founder mode is a story of command and control, which is powerful in the same way that if you eat right, you can be healthy, but you can’t do it just once. It has to be a lifetime discipline, a lifetime process. A lot of the book is about grappling with what it means to lead an emergent intelligence, to lead an organization and try to bind it to certain principles and values when you don’t directly command it. In the book I say we don’t own organizations, we birth them. Being a leader, an entrepreneur, a founder, is a lot closer to motherhood than to being a slave owner. Once we recognize that shift in our own thinking, it opens up new practical possibilities to solve problems we’d otherwise see as intractable.

Jonathan Jackson: I love that. I know we’re taking up a ton of your time, but I wanna ask one last question, related to both founder mode and all this ingenuity you’ve seen in researching the book. How do we get that same level of ingenuity, uniqueness, and human flourishing into the philanthropic space? Because what I see, having been on both the for-profit and social enterprise side, is a lot of amazingly smart, caring people who stop at “I made a bunch of money, I took my company public,” when actually the most important part of their job, causing human flourishing, is how they make the most impact with the money they now want to drive impact with. A lot of people give it to DAFs or similar vehicles, and they don’t bring the same insight and ingenuity and caring that made their company amazing, that created tens of thousands of jobs, into their giving, which I’d argue could be even more impactful than the company they built, if they did it right. What’s your take on that, and what can we do about it?

Eric Ries: Oh, it’s very dispiriting. I think so much of philanthropy is frankly vapid and content-free, and most people who do philanthropy don’t realize it, because they’re surrounded by yes-men who only tell them what geniuses they are, that’s gravity’s most pernicious effect. If you sit on a giant pool of resources, everyone conforms their behavior to please you. It’s so gross, I once sat with a group of incredibly successful businessmen meeting Oprah for the first time, and they turned into a bunch of little boys, “Oh, please, is there anything I can say to impress Oprah?” It was sad in a way, how obsequious they were, and if you asked them afterward why they behaved that way, they wouldn’t know, it’s an involuntary reflex. If you find that funny, and you’re in philanthropy, if you have a large pool of resources you’re giving out, you have to understand that everyone you interact with is doing that to you, including the people who give you negative feedback to prove their authenticity and honesty, they’re just calibrating what they have to do to make you believe they really see you.

In the book I call this phenomenon mission transmission, the awareness that every transaction you make, when you’re the holder of resources, transmits your values whether you intend it or not. I know so many family offices and foundations that keep money in so-called neutral index funds while they’re waiting to invest it, but there’s no neutral in this world. As the old song says, you gotta serve somebody, so the money winds up serving groups like ISS, who have values and beliefs about governance that are generally antithetical to the people whose money is being invested. You have to be willing to see that the way you make grants is an act of value transmission, an act of mission transmission. The way you choose how money is invested is an act of mission transmission. Who you choose to bless and endorse, who you give your time and attention to, whose podcast you go on because you’re famous, all of these are ways you cause gravitational force to align with somebody’s values.

Jonathan Jackson: I love that, it’s a great place to close. We really appreciate your time, Eric, and that you’ve been able to spend it with us. I know our readers and listeners will get a ton from this.

Eric Ries: Oh, thank you so much, I appreciate all that you do, and thanks for the chance to talk about these ideas.

Amie Vaccaro: A huge thank you to Eric Ries for such a generous, genuinely mind-opening conversation. And thank you, dear listener, as always, for being here. A few ideas I’m walking away with.

First, profit isn’t revenue minus expenses. Eric argues it’s the maximization of human flourishing, and once you accept that, a lot of what looks profitable actually isn’t.

Second, he defines financial gravity as the unconscious pull to take on the values of whoever controls the resources you need. It shows up differently depending on the organization. In a for-profit, gravity pulls you toward investors and the market. In a nonprofit, it pulls you toward donors, chasing the grant, doing what everyone else does, until eventually you’re drifting from your mission. Either way, the antidote is the same: get clear on your mission and let it hold the authority.

Third, to do this, structure is critical. Costco still honors its founder’s ethos decades later, while its predecessor, FedMart, was gutted within seven years of his ouster. The difference is mission lock: building the mission into the legal bones of the company so it can’t be stripped away. One of the most striking cases is Novo Nordisk, where a mission-guardian foundation blocked a hugely lucrative merger by asking one question, “Is this necessary for our survival?” and in doing so saved the research that became Ozempic, ultimately creating more than five hundred billion dollars in shareholder value.

And finally, you have more power than you think. As Eric puts it in the book, “You’re not stuck in traffic, you are traffic.” Every transaction you take part in transmits your values, whether you intend to or not. So whether you’re hiring someone, interviewing for a role, buying something, giving, or investing, you can do it thoughtfully, and transmit your values on purpose.

That’s our show. Please rate, review, subscribe, and share this episode if you found it useful. It really helps us grow our impact. And write to us at podcast@dimagi.com with any ideas, comments, or feedback. This show is executive produced by myself. Prarthana Balachandar and Michelle Valencia are our editors. Natalia Glowacky is our producer, and cover art is by Sudanshu Kant. A final note in the spirit of transparency: we use AI to assist with guest research, copywriting, and post-production, so a small team can produce a high-quality show. All AI-assisted content is reviewed and edited by humans, and we retain full responsibility for what you hear.