Building an Incorruptible Company that Lasts with Eric Ries, Author of Incorruptible & The Lean Startup - Ep 78

TT - 078 - Eric Ries - Full Episode === Eric Ries: Trust is by far the most underrated asset in business. And what's interesting to me is how many companies throw it away so casually. Instead of trying to stockpile it. Eric Ries: So much of what dominates our modern economy is based on what people say can or can't be done, but nobody knows what can or can't be done.

Eric Ries: success can become a liability in itself, because it attracts predators, because it creates temptation, Because it's so much easier to destroy than it is to create. Eric Ries: If you want to make your OKRs go up, you can always do it by spending down our trust account. Eric Ries: And you have these circular deals in AI that I bet are going to be scandals pretty soon. Eric Ries: We have built an economy that is eating itself alive as we hollow company after company, after company out.

Eric Ries: Trust is the asset that compounds. Craig Rosenberg: quick note as we start the show. Today, uh, we have our, our famous guest host. He's on show number eight, working with me today, Scott Albro.

So I think that's eight, right? I think you're on number eight. Um, so yeah. As we, as we, as we get into this, by the way, I'm gonna get, before we even intro, I, I had to take my dog to the vet.

Craig Rosenberg: I think all of us in tech messed up by not becoming veterinarians. It is like the, it is unreal. It was just to check him on a bunch of stuff and I walked out $800. Poor.

I mean, it was amazing. Scott Albro: You know, I saw, I saw a great tweet today, or whatever it's called now, post today related to this. I, it was some vc, I can't remember. He ba he basically tweeted whoever starts Alpha School for dogs will become a billionaire.

And Alpha, you know, Al Alpha School is that cutting edge school down in, down in Austin. Scott Albro: I think maybe there are a few locations now. Right. And anyway, I thought it was a great idea.

So, um, Eric Ries: Yeah, I'm sure that the problem is you have to get the dogs to use apps. That's gonna be a little challenging. Scott Albro: Yeah. Yeah.

Well, I don't know. We're gonna end up with some AI that can translate dog language to humans, so, um, Eric Ries: So that that would be the best seller. Yeah. Scott Albro: Yeah.

Craig Rosenberg: I love it. ​ Craig Rosenberg: All right, so today, um, Scott and I, uh, we do have a guest. I'm pr I'm just gonna admit I'm a little nervous just because, uh, today's guest is famous. And I'll just leave, like before I even, so, today's guest is Eric Ries.

He is the creator of the Lean Startup Method, which we've all sort of quoted from, grabbed from, and, you know, that is the author of the bestseller, the Lean Startup, the Leaders Guide. Craig Rosenberg: And the startup way and um, you know, like the term, the phrase, is it the term the acronym MVP that was came from you, right, Eric? Yeah. Yeah.

So like, Eric Ries: Yeah. Sorry about that. For people who are sick and tired of hearing about it, it's my fault. Yeah.

Craig Rosenberg: Albro used it a lot. He was our, my CEO for like 15 years. Scott Albro: I used to hammer people on that, but this is definitely the biggest guest that's ever been on the transaction, for Craig Rosenberg: Oh, for sure. Like e Yeah.

Eric Ries: Oh, you guys Craig Rosenberg: team reached out. I'm like, Hey, are you sure you meant to us? And the PR guy's like, yes, he likes like fun shows. I'm like, okay.

All right, well we'll Eric Ries: I do. I do like fun shows. Craig Rosenberg: Actually, before we start, I do have a, you know, it feels like the Lean Startup and a lot of the things that, um, like MVP and, um, you know, this sort of constant optimization philosophy that you, you brought to the table, it endured. Craig Rosenberg: I mean, how, what was it like 15, 20 Craig Rosenberg: years ago, you wrote the Eric Ries: Yeah, it's been 15.

Yeah. The book is 15 years old now. That's Craig Rosenberg: What do you think? I mean, what, what was the what?

What allowed it to sort of stay relevant like Craig Rosenberg: that through all those years? Eric Ries: Well, gosh, I don't know. You know, it's probably not my youthful good looks and my, uh, you know, stylish writing. I think it's much more about how useful the ideas turned out to be to a whole generation of founders.

The timing was good too. I, I started writing about these startup writer around the time of the great financial crisis. Eric Ries: So, of course people were hungry for new ideas and calling it lean since people thought that meant it was gonna be a lot cheaper, I think that was also really helpful. But, but you know, you never know with these things.

Sometimes you catch lightning in a bottle and it just, you know, it just happens. And again, I don't take the credit for it. Eric Ries: Like, I hope the book was good. I hope I did my part.

But my part was just one element of a whole, whole movement of people who wanted to see the practice of entrepreneurship and the practice of business be changed to be more scientific, more iterative, more humane. And I think we did We did pretty good. Craig Rosenberg: I mean, Scott Albro: Craig, I, I think about, I think, you know, in our world, the Go-To-Market world, there's all, there's a flavor of the year every year. You know, there's, there's some, there's something new every year, right?

And I think about Eric, what you did for startups more generally, product development, right? To have something that's lasted 15 years is, is really, really remarkable. Scott Albro: So, so Scott Albro: thank you for that. It's incredible.

Eric Ries: It has, it has been quite a run. So I'm very, I'm grateful really to the people who have been the evangelists for these ideas. Especially in the early days. You know, now it's easy to evangelize 'cause it's popular.

But you know, when, when we first started talking about Lean startup, most people thought it was absolutely ridiculous and it was count, counter, like it was, it was contravening these best practices that were really firmly entrenched that people, I remember people telling me, you'll never be able to change. Eric Ries: Those are, that's how it's always been. That's how it has to be for some. Reason, and I, I actually feel like the fact that people took a, a leap of faith on it and said, well, because it makes sense to me.

I'm willing to speak up in favor of it. You know, you open your mouth, you never know what might happen next. Craig Rosenberg: that's great. I, uh, uh, before, actually, before I talk about, uh, the new book and then kick off the real part of the show, the, the, um, what about like, now, like, is, is there anything related to AI and the new revolution that we're going through that, you know, uh, it makes the lean startup more relevant, the same or less relevant?

Eric Ries: Oh, I think a lot more relevant. I was just, um. Yeah, I, uh, it's funny, a couple weeks ago I did Lenny's podcast, um, and he was talking about, you know, he's, he's being interviewing all the product managers and Go-To-Market leaders at the major AI companies to really unpack how they're working. And he was like, they're really, they don't call it MVP 'cause that's not a customer facing term, but they are really embracing the winners there are embracing lean startup in a really profound way.

Eric Ries: Because at the end of the day, you have, you, you can't really predict what these models are gonna do. And so when you embed them into a product, you have all this uncertainty. You have to experiment with real, real life use cases or you, you know, you're sunk. And I just thought that was such a good point.

Eric Ries: Like this is not, you know, I wrote The Lean Startup well in advance of ever hearing the term generative ai, right? Like before I knew what a Lang large language bot, I could never have predicted Claude Code or anything like that. But the principles have held up really well because we still see the same two fundamental facts. Eric Ries: Think like what are the mega trends about.

Business in our lifetimes. It has been one about the democratization of access to the tools of building. So faster cycle times, uh, you know, more iteration, more data, more ability to, to put ideas into the world. You know, any individual person now can, can be a first party competitor to some of the world's largest companies.

Eric Ries: And on the second hand, increased uncertainty. Customers have more choices. Uh, channels are more crowded. Um, you know, markets are, are more interconnected than ever.

And obviously we live in a time of geopolitical uncertainty too. So you have have kind of external uncertainty on top of all the uncertainty we as innovators are always trying to create ourselves. So yeah, when you have that combination of extreme speed and extreme uncertainty, lean startup is your, you know, that's, that's the tool that is evolved for those conditions. Craig Rosenberg: Said Albro.

Were you getting up to react to that or were you just reacting? Scott Albro: No, I was just getting excited. I mean, I couldn't, I couldn't agree more, so it, it caused me to sit up in my seat. What's the meme where the guy sits up in his seat?

Uh, yeah, Scott Albro: I don't, yeah. Craig Rosenberg: All right, so the, the new book, I love the title by the way, so Craig Rosenberg: just everyone will get excited about that. Incorruptible, why good companies go bad and how great companies stay. Great.

I mean, come on man. That is a great title. Eric Ries: Well, thank you very much. Craig Rosenberg: let's, , so just for the audience, our special guest that is, I'm very nervous.

I wore three coats of deodorant for, uh, I just say, Hey man, this is how we do this show. And I said, Hey, we, we'd love to hear a story from you. He's like, oh, let's do it. Eric Ries: Let's do it.

Okay. Yeah, yeah. No, no, it's great. Uh, this is, I feel like kind of the essence of the book is in this one story.

So let me tell you the legend of Sol Price. So Sol is the unquestioned goat of retail, like the father of modern retail. So much so that people don't know this, the, when Sam Walton decided he was gonna get into retail, he was like, what should I name my company? He named it Walmart.

As an intentional tribute to Fed Mart, the company that Sol Price had started in the 1950s. Eric Ries: But what's interesting about Sol is that he was a lawyer before he became a retailer, and he was trained that he had, as a lawyer, a fiduciary duty to his client. It means you put the client's needs before your own. So when he became a retailer, he said, you gotta be a fiduciary to the customer.

That's what it meant. Eric Ries: So when his competitors would try to undercut him on price. Sol would put up signs in his own store that says, don't buy this product from me. You can get it cheaper at this other store down the street.

Because being a fiduciary meant he wanted to get his customers the best price, he didn't care. So his go-to-market strategy was so different than hardly any other retailer, certainly at that time, but even today would be very unusual. Eric Ries: He didn't spend money on sales and marketing. He said the best advertisement is the unsolicited testimonial of a satisfied customer.

He practiced what he called capped margins. He wouldn't mark up any item more than 14%. He paid above market wages. He had, he called it the intelligent loss of sales.

He had limited selection, only of the highest quality products that he would personally vouch for, and it was a very particular warehouse format. Eric Ries: You know, big box retail. pioneer Eric Ries: It really worked. Customers loved it because they felt they could trust Fed Mart.

You knew you were getting a fair price because they were not trying to charge you as much as they could get away with. They were charging you always what they thought was fair. 14% over their own cost. Company grew.

He took it public, but as a public company, he was miserable. He hated the short term pressure of Wall Street constantly on him to have higher prices and lower wages. But he believed in low prices and high wages. That was his formula that drove Fed Mart's growth.

So he took the company private. Eric Ries: He brought in new investors, a new board he that he thought would understand retail better, but no, they were still hypnotized by these best practices that drive our finance driven economy to this day higher. Prices, lower wages, squeeze what you can faster growth quarterly targets. We've all lived it.

You don't need me to tell you all about it. Eric Ries: Sol found it infuriating. All this culminated in a big fight in 1975 after Sol had been building Fed Mart for more than 20 years. He comes into work one day and he can't get into his office because the locks on the doors have been changed.

He doesn't work at Fed Mart anymore. The board got what they wanted. Eric Ries: Sol was in their way in the way of more profit is how they thought about it. So they got rid of him and they were able to convert Fed Mart into a more conventional retail approach.

You wanna guess what happened? It only took him seven years to bankrupt what Sol had built over the course of 20. By 1982, the whole chain was completely liquidated. Eric Ries: And what's so interesting about this story is you see an act of immense value, destruction being done in the name of profit.

It's the same thing that destroyed so many iconic brands that we kind of think of vaguely as old fashioned, like Sears or Circuit City. Whatever happened to Sunbeam, whatever happened to Sharper Image, you know, whatever happened to, uh, men's Warehouse? Eric Ries: You're like, oh yeah, that thing. I remember that company.

If you study the behind the scenes story, you'll find this incredible destruction. That was caused by the very success of the company itself, because the more successful you become, the more valuable you are as a target. So Fed Mart was destroyed, but what happened to Sol? Eric Ries: Did he spend the rest of his life complaining about how the market's not fair?

No. He was a classic entrepreneur. See if you can relate to this. He took two weeks off.

To lick his wounds, he rented the office upstairs from Fed Mart and he started again. He built a new company that he called Price Club. Eric Ries: Today. Price Club is mostly forgotten, but that's because of what happened next.

One of the people that went with him from Fed Mart to Price Club was named Jim Senegal. And Jim Senegal. A few years later after that, decided to start his own company with Sol's blessing implementing the engine he had learned at Fed Mart. Eric Ries: And a few years after that, his company and Sol's company merged to form the company we know today as Costco.

So Sol is actually like, this is like the deep cut history of the founding of Costco. Today. Costco is a $400 billion public company, but it still to this day maintains the integrity of Sol's ethos, capped margins, fiduciary to the customer. Eric Ries: It's all still there, the dollar 50 hotdog.

All the famous stories you know about Costco are made possible by this particular combination. Of the ethos, the business philosophy, but a structure, a governance structure that protects that ethos and prevents what happened to fed Bart from happening to Costco now going on 40 years. Craig Rosenberg: Now that's a story, my God. Um, all right, well, let's react to that Albro.

Any thoughts? Scott Albro: I mean, it's, it's such a, I I was familiar with that story and it's, it's ex it's just a very compelling story and, um, it's so rare, I think, to find companies that are able to do what you just described there, Eric, like, like really focus on the customer delivering value to the customer. But also survive in today's, you know, economic climate. Scott Albro: Right.

Um, and, um, you know, I I, I do have one personal anecdote that's sort sort of related to this. The first CEO I ever worked for, um, I worked in sales and this CEO used to beat into the sales organization. Sales is just about trust and, and this is why salespeople exist. This was late nineties.

He had this theory that all products commoditize over all markets commoditize over time. Scott Albro: And so in the world of B two, we were in the world of B2B in the world of B2B. The thing that prevents you from commoditizing is the salesperson. And the way the sales person can do that is just by being the most trustworthy partner that the customer can have.

Now, I think he took the commoditization thing a little too far, right? Scott Albro: I don't, I don't fully believe in that. But this idea that the number one job of a salesperson is to establish trust, I've, I've always found that to be a really compelling idea. And Eric, your story just reminds me of that, of those days now, you know, 25, 30 years ago.

Eric Ries: Trust is by far the most underrated asset in business. And what's interesting to me is how many companies throw it away so casually. Instead of trying to stockpile. it So it's like an asset that we're just like a leaky boat, just letting it drift right out.

And it's true that, yes, in a sales driven process, of course trust can be personal to a individual person, but trust can also be institutional. Eric Ries: You know, um, Bruce Schneier the Shire, the the security expert, has a whole book of what we call institutional trust. And he, he gave this example, which I thought was so brilliant. When you get on an airplane, you are literally betting your life.

That the plane is gonna take you where you want to go. So you say, oh, I trust. But who are you trusting? Exactly?

You trust the pilot. You've never even met the pilot. How could you trust someone you've never met? You're trusting.

Not just the pilot, but like 10,000 people. Every person who maintains that aircraft, who built it, every rivet of every joint, you know, the staff on board, the, the, uh, aircraft control, the FAA like think how many people are required to keep you alive. Eric Ries: And it's so seamless. You don't even think about it.

You just hop on, hop off. If there's a delay, you complain. If The food tastes bad, you complain. It's like you just had a miracle of a million people work together to move you to a point A to point B, and you're complaining about the peanuts.

Like it's so powerful. Eric Ries: That's the power of trust. It makes possible the seemingly impossible. And if you study mission-driven companies, which I, I did for the new book especially, but having been around a lot of these leaders too, you'll notice they have these incredible superpowers.

That if you've never seen it in action, you might actually not believe. Eric Ries: Like I, I was, I, I keep seeing these examples where, where people kind of can't fathom. Like, how is that company shipping product so fast? How come they can raise so much money?

How come their like cost basis is lower? than Their competitors? How come their com their customers don't churn even when they make a mistake? Eric Ries: Why, why, why?

If you look at the research, the answer is always trust. When people trust friction goes down, costs go down, velocity increases. It's like a, a lubricant that makes business more efficient across the board. So why, if it's so valuable, do we not stockpile?

And why, if it's so valuable, do we not protect it? Eric Ries: See, this is like, again, going back to the Fed Mart example, you can see how Sol was able to stockpile it, but that just made it more valuable for the investors to wanna steal from him. And we see that all over the economy. Scott Albro: Yeah.

How Founding The Long-Term Stock Exchange Showed The Limits of Best Practices & Convetional Thinking - Scott Albro: Hey, Eric, that, that reminds me of your work with on on LTSE and, and founding LTSE. You know, my, my response to what you just said is like, there's long-term thinking and there's short-term thinking, and the system right now rewards a lot of short-term thinking. Right. Scott Albro: And can can you tell us a little bit more about your experience with LTSE and some of the thinking behind that, it seems, seems related here.

Eric Ries: Oh yeah, of course. The reason I know so much about this, you know, corporate governance and trust and finance, and, I mean, I, I'm not a lawyer, but I can play one on tv, but I can play a lot of these other roles too. I can pretend to be a banker, pretend to be an investor, pretend to be all kinds of things. Eric Ries: 'cause I've really been in the belly of the beast for a while.

So if you, if you have your beat up old copy of the Blue Book, right of Lean Startup and you turn to basically the last page, it was almost the last thing I wrote in the book too. It says somebody should really build a long-term stock exchange or LTSE. When I wrote those words, I didn't know anything about stock exchanges. It was a pure deduction from first principles based on the following argument.

We know from the re research, like if you look, read the, you know, lean manufacturing, lean startup comes from Toyota. So if you read books about Toyota or companies like it, you will see that having a philosophy of long-term thinking is the necessary precondition for making a lot of money and companies that have that have a huge advantage. Eric Ries: And then I thought, oh, that's interesting. If that's how you make a lot of money as a company, why are we putting companies in a short-term pressure cooker called the public markets wouldn't long-term oriented investors want long-term value creating companies?

And so I said, oh, okay. That seems like we've made a mistake. Eric Ries: We have to find a way to get long-term investors and long-term companies together for mutual benefit. Am am I crazy or is that not a stock exchange?

So I just wrote that somebody should really do that. And then, you know, nobody did. Lean Startup has sold millions of copies and it has been picked clean of its ideas. Eric Ries: Every crazy random thing that I said someone should do in that book, believe me, someone's done it.

And I've gotten to do a bunch of the things like I remember, I remember when I told people we were gonna change how business education works. They're like, that's impossible, but I get to work on the new Harvard Business School curriculum. Eric Ries: And now it's like entrepreneurship is taught in a way better way. Like I can tell you 20 things like that.

But nobody ever called me to say, Hey, Eric, is the stock exchange idea still available? No one ever wanted to do it. In fact, the Wall Street Journal wrote an article, straight news article, not an op-ed that said, you know, lean Startup guys next. Eric Ries: Crazy idea.

And it was about like, and I was like, oh, crazy can be used as a, as a straight description. It's not considered editorial. That's just a fact. Yeah, that's how crazy it seemed.

But I couldn't understand why. What was so weird to me was for years, I mean, literally for years I would talk to anybody who knew anything about public markets and I'd just say, I get this crazy idea. Eric Ries: Tell me why it won't work. And everyone I met was a hundred percent sure it couldn't work.

Impossible not, and not just, it wouldn't be profitable, but like you'll never get it approved. It's illegal. You'll never get companies to list it. Like everything you need to do to make an exchange will never be able to do.

Eric Ries: And what was so interesting about that is the reasons they would give made no sense. So to an entrepreneur that's like raving a red flag at the bull, you know? 'cause I'm like, wait a second, I need to know why I'm not doing this. It seems like a good idea to me.

And so this is 10 years ago now, maybe I, I said, oh, well I'll just put one foot in front of the other and see where it goes and see what kind of progress we can make. And one day I figured I would find out why it's a bad idea and then it will leave me alone. Hey, I might still, you know, it's a going concern even now, but you know, it's hasn't taken over the world yet. And everything that people said was impossible, we showed was possible, and eventually I came to realize that so much of what dominates our modern economy is based on what people say can or can't be done, but nobody knows what can or can't be done.

So we actually, we have people, I think, who are very invested in shaping the domain of what is possible for their own benefit. And what is needed to break out of that consensus is entrepreneurs, as they always have in history, to say, you know, don't tell me what I can't do. Let's go find out. And I think LTSE is like one instance of a general pattern I call civic infrastructure.

Eric Ries: Not just a regular old for-profit company, but, and not just a mission-driven company, a company that is attempting to remedy, um, a civic scale problem. That allows every other part of the economy to operate more effectively, to nurture and support other organizations too. I think, uh, we need entrepreneurs to tackle those kinds of problems, and I wanted to create a proof point that it can be done. Scott Albro: Very cool.

Eric Ries: I got into it. Scott Albro: Very cool. Craig Rosenberg: Amazing. That is amazing.

Alright, so let's, let's do this. That was the story we'd hoped for. There's a lot of things I think we'll point back to you. I do wanna make sure though, that we have the opportunity to tie this to incorruptible, my new favorite title.

I will repeat it just for everyone to have some fun incorruptible, why good companies go bad, and how great companies stay great. The story has example of why good companies go bad and how great companies stay. Great. Uh, that was like the story, uh, to the book, but like, um, I, I, you know, How Businesses Cash in Trust & How They Build Trust with Customers - Craig Rosenberg: I do wanna sort of transition to some of the ideas that, you know, that Incorruptibles is gonna bring to the table.

But is there anything else you wanna say about the book? Craig Rosenberg: And then let's, let's talk, let's talk about some of the ideas in there. Eric Ries: Yeah, sure. I think.

Most leaders are taught a very narrow idea of what their job is, and they're taught that success will protect you. So like, don't worry, like the kind of stuff we're gonna talk about in this episode, we're told, don't worry about that stuff. You can always do that later. You can always add it later.

Eric Ries: You know, just get successful. Get product market fit. You know, be, get rich, get successful. Like power gain.

Power power will give you freedom. And the big message of this book is, is the way in which success can become a liability. In itself because it attracts predators, because it creates temptation, because it's so much easier to destroy than it is to create. Eric Ries: So when people harvest the trust of Fed Mart, suck the marrow out of it, that appears to be profitable.

When in fact it's an act of value destruction. And I'll just, can I tell you a funny story? Eric Ries: Maybe Guys tell, tell me if, tell me if this has happened to you. I was out to dinner with a group of friends.

We were traveling away from home and someone said, oh, I think this restaurant, we had two nights we were out, we had two restaurants to pick. Eric Ries: Someone picks a restaurant on the first night, we go there. He's like, I haven't been here in a couple years, but it's really good. And we sit down and we take a bite of food and he is like, one sec, I gotta go on my phone.

And we're like, dude, you're being rude right now. Get off your phone. Just one sec. One sec.

Eric Ries: Oh yeah. He turns it around. I could tell this restaurant got bought by private equity. I could taste it.

And we're all just like, oh no, it's gonna be gross. And it was gross. So we go out to dinner the next night, a different person picks a totally different restaurant, hasn't been there in a couple years. Eric Ries: We sit down and I swear to God, I was like, is this the same, same damn private equity fund?

I was like, look it up again. And like, no, it was a different private equity fund, but the food tasted disgusting in that exact same way, and we were just sitting there being like, how is it possible that you can taste the capital ownership structure of a company? You can taste it in the food. You guys ever had this experience?

It's disgusting. It's just like it used to be. Eric Ries: Used to be great and like so many brands, so many products. Cory Doctorow calls it enshittification just to really drive home the point he's most, he's talking about tech platforms, but like if you tried to Google anything recently, Jesus Christ, Eric Ries: there's so many products that are so much worse.

Eric Ries: I haven't even done this. A friend of mine yesterday outta the blue, a civilian, not some tech person was like, oh, I tried to log into Facebook to look something up. I'm like, what happened to Facebook? I was like, oh yeah, you don't know.

Like, oh, sorry, newsflash. It was just like unbelievable. The usability is all broken. Eric Ries: The ads are clogging up everything, and we're just, we've gotten used to the idea that once things become successful, they're gonna get ruined.

And we don't even know what to call it. Like what, when this happens to your favorite restaurant, to your favorite brand, to your favorite product, what do you call it? Eric Ries: Well, our grandparents knew what to call it. They would've called it corruption, the making of money without the creating of value.

And today we have a very narrow idea about what corruption means. We think it only means, you know, embezzlement or bribery. No. Corruption is literally corrupting the moral logic of our economic system, and it's closer to theft than it is to value creation Enough.

Craig Rosenberg: That was a great story and yes, so many things have happened to me where they get bought by private equity with all due respect to my friends in the game. Um, but yeah, that, that, that is, that, that totally resonates. Um, so if you, Why Re-examining OKRs & GTM Metrics Can Improve the Long Term Health of a Company - Craig Rosenberg: as we think about some of the big ideas and incorruptible and you wanted to impart some of those, like, you know, one to three of those to the Go-To-Market audience, what, what would you choose to talk about and, uh, you know.

Craig Rosenberg: Uh, just help us understand those and let's talk about those. Eric Ries: Yeah. Yeah. Well, you mentioned already, um, uh, uh, the, the importance of trust.

As the like pointy edge of the spear Go-To-Market is the point, the pointiest point at the edge of the spear of a, of a business, right? So Go-To-Market. Like that's literally the interface between the public and what we want to make. Eric Ries: So the leadership lessons are really essential.

So if you think about, again, what I was talking about before that like an incorruptible company is kind of a formula or a blueprint that combines the ethos of Sol price with the governance fortress, the integrity that has protected Costco all these years. Eric Ries: We need, we need both those elements. A lot of the leadership stuff, you know, that comes up very regularly in a Go-To-Market context. So, yeah, how do we, how do we make promises that people can believe?

How do we make sure that we don't fall into the temptation to harvest rather than to create? Um, and one of the funny things about the way we do OKRs these days. We do this in Go-To-Market, but also like Go-To-Market is just a microcosm or like a, a recipient of this bigger system where everyone in the company has the company's main goals to decompose down into their individual sub metrics. The problem is because trust is an asset.

See, it's a currency you can spend as well as collect. If you want to make your OKRs go up, you can always do it by spending down our trust account. Uh, Go-To-Market is the worst offender no offense, but like, you have a sales target, you got a quota, you got some goal. Hey, I got an easy way for you to make your goal.

Why don't you start making unbelievable promises about what the cup, what the product can do? How do, like, it's so tempting. You've all, we've all done it. I've done it.

Like everyone's been in this situation where it's like, look, I just make a little extra promise. The engineers will catch up to my promises. Eventually, it's probably gonna be fine. And here's the problem.

Even if you're like, I'll never do that, that's deceptive. Eric Ries: I have personal integrity. The problem is that most companies operate a competitive compensation environment. So if you don't do it, you are gonna be behind the people that do do it.

It's like a prisoner's dilemma. Everyone can figure that out and then they can be like, uhoh, I better make sure I get to it first. Eric Ries: So what's happening is we are competing with each other to see how, how quickly we can spend down the trust account. Now of course, Go-To-Market is not the only offender.

Can you think of ways that finance can do this play the same trick you, you obviously always engineers can may play the same trick, of course, like. Eric Ries: Even better would be to, uh, send your Go-To-Market team out there, you know, with a water gun instead of an actual gun because you, you know, the thing doesn't actually work. You told them to tell people it does work. Well, that's not necessarily gonna cause a problem for you.

You are already promoted to the next job. Eric Ries: Meanwhile, some poor guy's trying to sell the thing you made that doesn't work. So we see it all over the modern company. We develop these tribal identities, we go to war with each other, and we're again locked into this kind of zero sum struggle.

Instead, we have to master the techniques of making and keeping promises, like seeing that as a economic logic that we want to master. Eric Ries: And once you start thinking in those terms, new things become possible. Craig Rosenberg: Okay. That was amazing.

Hey, by the way, you know, side note related to the. To this and to the, uh, the Fed Mart story when he hung the sign and said, don't buy this from me, buy it somewhere else. You know, Matt, Matt Dixon, I don't know if you know he is, he wrote The Challenger Sale, which was a very Craig Rosenberg: popular book. Yeah.

So his new book, he studied literally thousands of phone calls to see like, what is the, what are the tr at attributes of the great rep. Craig Rosenberg: One of them was that the, the great rep won. Was not afraid to talk about their competitors and not afraid to talk about what their competitors were better at, not afraid to even share competitors' content if it was better than theirs. Craig Rosenberg: And, um, and that you might lose that deal, but that trust that you've created will, you know, come in handy down the line.

And then his co-writer of the Challenger, Brett Adamson, has this similar concepts that they're bringing to market today, which is like, you know, very similar to what you're talking about. Craig Rosenberg: I think of that, you know, I, I thought of it initially when you brought up the sign, don't buy from us. Buy from, Craig Rosenberg: you know, my competitor. cause it's a better deal.

Um, and that, as you said, you when you said, no offense on the Go-To-Market side, Eric Ries: Yeah. Craig Rosenberg: no offense to, we know exactly what you're talking Eric Ries: Yeah, we've Eric Ries: all been there. I Craig Rosenberg: Yeah. Eric Ries: be honest about it, right?

We've all been there. Eric Ries: And you think about, like, think about channel stuffing. I mean, now I feel like we haven't had a channel stuffing like public scandal in a while, but, but like used to be a regular feature of, of scandals. Eric Ries: And you have these circular deals in AI that I bet are going to be scandals pretty soon.

You see it in, um, like the fake account scandal at Wells Fargo. Remember that one? Um, the collapse of Silicon Valley Bank. I could just like go on and on and on these stories where like in the name of profit, we destroy the profit.

Why would we do that? Like, it doesn't, it actually is irrational, it's illogical. But um, you know, I remember I read this blog post, I read a lot of blog posts about, um, people who've left Google. So I, I, I did a study of, of employees who've been at Google for more than 10 years who write a blog post when they leave, which is, you know, like a whole common enough that it's a whole genre of blog posts.

And one of them wrote the the, they have this sense of like something special got lost and Google's a great company. Yet it's not what it once was. There's something different and they have a hard time putting their finger on it. One of them put it this way, I thought it was almost poetic.

They said Decisions went, this is a person, who'd been there I think 13 years. Eric Ries: Decisions went from being made for the benefit of customers to being made for the benefit of Google, to then eventually being made for the benefit of whoever was making the decision. So in all of these corruption examples, you almost always will figure out if you study the incentive design, you'll say, oh, I see this might be value destroying overall, but it does profit somebody. Somebody thinks this is how I'm gonna get ahead, I'm gonna get an advantage for it.

So, like, you know, Sears, during this collapse of Sears, the guy who was running it, uh, managed to extract like one and a half billion dollars in fees out of the company at a time when the company was losing $11 billion. So he made out, he became a billionaire, but Sears was destroyed. I guess he sleeps okay at night. Somehow.

I don't know. A lot of these guys, uh, I think, I think are, it's very important to realize this, this desire to build mission-driven companies, this need to do it. It's not just a moral thing or an ethical thing. It is an, uh, economic necessity.

We have built an economy that is eating itself alive as we hollow company after company, after company out. Scott Albro: Yeah. The Looming Crisis in How Startups are Accounting their Annual Recurring Revenue (ARR) - Scott Albro: By the way, Eric, those examples you mentioned, Wells Fargo a round tripping in, in AI right now. I, I think the big scandal that's coming is how people are accounting for ARR in startup land.

I mean, Scott Albro: you, we, we are seeing the most creative accounting around ARR and, and this is squarely in the realm of Go-To-Market, right? Scott Albro: So, Eric Ries: Totally. Scott Albro: that, will be a big one in the years to come. Eric Ries: Oh, I look, I look forward to it.

I wish we would. I, I think, I actually think ARR. I do because like we have to, I have to purge this bad behavior from Eric Ries: the ecosystem. Like it's, it's really, really harmful.

I remember when people first taught ARR, before it was called ARR, I was taught, the way you did it was you take your last month's revenue and multiply times 12, and that's your forecasted revenue for the new year. Eric Ries: As if, as if your most recent month was gonna be your month going forward. And that was at least more honest. Because it was like a rule of thumb.

We weren't claiming it as recurring revenue. We were just saying, look, if, if it went really well, here's what it might look like. So you get a sense, you could, you know, dimensionalize for people how big the company could be. Eric Ries: We did that for valuation calculation reasons.

We would never have dreamed of reporting that as recurring revenue. That would've been like so dishonest. Like, of course not. So I think, I think, yeah, we've got some, got some bad practices going on.

Look forward to those being removed Eric Ries: from the ecosystem. some, cleanup there. Yeah. Yeah.

Eric Ries: Yeah. Eric Ries: Yeah, for sure. For sure. Craig Rosenberg: by the way, thank you for mixing in stories throughout the conversation.

You can't tell, I can't tell you how much we've struggled on some guests to be like, tell us stories. Um, so I, well, well, first I do, I do think like our, let's just be, let's that, since we're being our CRO sales leader listeners today, how are they gonna react to what we're talking about in terms of, uh, you know, how we. Eric Ries: I could tell you exactly. I could tell you exactly because I was on a podcast with a more traditionally trained person.

Okay. I won't say who it was. And, and then we were doing the, it was, it was going fine like we're doing okay. They're like on board with what I'm saying, what I'm saying, and then they were like, but hold on a second.

Eric Ries: It sounds like what you're saying is like kind of contradicting a bunch of stuff I learned in business school. Like, what's up with that? And I was like, oh yeah. Are you open to the possibility that some of the things they taught you in business school wasn't true?

And he was like, not really. Nope. Yeah. Eric Ries: So if your, if your CRO is willing to look at the evidence, a lot of these so-called best practices are actually value destroying.

We, this is not just my opinion, okay? Eric says, no, no, no. We have the data on this. So that means that that can be challenging, okay?

I get people like, wait a minute, why was I taught this practice as good when actually it's bad? I thought being serious about business meant being extractive and exploitative. No, you're saying that that's actually value destroying. There's this better thing, but I, there's a bunch of evidence in the book.

You'll have to just see how open-minded you can be and look at it for yourself. Don't take my word for it. Eric Ries: Look at the data yourself decide, but. It's not just about, um, feeling good or having employee morale or whatever it is.

The reason why these companies have faster revenue growth, it is one of the most important growth drivers because ultimately that is the asset that compounds trust is the asset that compounds. Eric Ries: Where do you think the revenue comes from? We get so confused because we say, well, marketing and sales, marketing, making outbound calls, inbound, SEO, all this stuff like that created the sale. No.

That closed the sale. What created the sale was the product and the promise that we made to the customer that they believe their belief in our ability to do it is ultimately what powers everything else that we do. Eric Ries: More belief means more sales. And if you've never lived through the collapse of trust, like if you've ever tried to sell something after you've lost that most precious thing, you all of a sudden realize every sales tactic in the world is useless.

If you don't have that precondition for it. So I think the Enlightened CROs will be very excited because here's a chance for them, first of all to get more, just get more growth, get more acceleration over the long run, but also to deal themselves into the high level conversation. Eric Ries: This book is about governance fundamentally, which most people don't even know what that word means, but they know that it's the thing that gets talked about at the biggest of the big kid tables, the board.

So if you are at the C-suite level and you are like feeling like, I'm still not, I'm still not cut in to the most important conversations this company has. Eric Ries: This book can help you achieve that and form much more lasting partnerships between functions and departments, between investors and companies, between sales and marketing, between marketing and product, that kind of stuff. That's, that's what we should be looking to do. Craig Rosenberg: Yeah, I was gonna say that was a perfect end, but I can't let you go because I do have to say you did say it, which is I feel like, and Scott, you could tell me if Why & When Early Stage Startups Need To Seriously Think About Governance - Craig Rosenberg: when we're talking to like startup startups, so like Scott and I sort of live in seed to b, c, we use the word governance and they're gonna be like, I got no time for that.

But you're talking about it in a bigger strategic way, and we've talked about it throughout, but like when you talk to early stage folks, how do you talk about it in a way that it makes sense to them where they are now and where they want to go? Eric Ries: most important question in the whole book is actually not which of the techniques to adopt. 'cause the book is loaded with tactics and techniques. Okay.

It's, it's a blueprint book, not a. Craig Rosenberg: Yeah. Eric Ries: you know, agonizing about the problem kind of book, the most important question is not what to do, but when to do it. What you'll notice for people in the early stages is they get talked out of building the kind of company they want to build.

Not because someone tells them no, but because people say, well, not yet. Oh, sweetheart, it's a little early to worry about that. Get product market fit first and then. Why don't you raise some money?

Eric Ries: And then what? And you know the old joke? The old joke is I was started a company, so I had a problem, so I raised some money. Now I have two problems.

So I, so I hired some people. Now I have three problems. Yeah. Like the things you add create momentum and problems and drama of their own, even while they attempt to fix the previous thing.

Eric Ries: So if you think you're gonna be less busy in the future, you're conceding defeat. The only way you're gonna be less busy in the future is if you're out of business. Okay. If it's growing.

You are gonna be more busy. It's gonna be more difficult. So it's very important to tackle these issues as early as you can. Eric Ries: It's not to say that if you missed the window, it's too late now, but generally speaking, don't get lulled into the trap thinking it's too early.

The saying in the book is it's always too early until it's too late. It'll never be the right time, so you gotta get on it. Craig Rosenberg: Yeah. Love it.

All right. So that's the kind of stuff we could put on the back of our t-shirts. Um, that was great. And, uh, that was, I'm, I'm, I'm both happy and relieved and thought this was a great show because I You did great.

You did great. No one. No one would've known if you hadn't told us. Craig Rosenberg: It's wild.

I mean, we've had authors on before, but this one I was like going, oh my God, Scott, man, I need your help. Craig Rosenberg: We Craig Rosenberg: gotta go get this Craig Rosenberg: thing done. So, um, so, you know, this show will come out at, around the release of incorruptible and We'll, you know, we'll, we'll make sure people know about it and, you know, obviously we've, we've had sneak previews, but we'll make sure we read it and I'll make my sons that my Craig Rosenberg: 14-year-old boys read it for their, you know, selling of sneakers.

Craig Rosenberg: Yeah. Eric Ries: Excellent. Yes. All, all the people you're willing to put a copy in their hands of, you're doing me a great service, so thank you.

I appreciate it. That is what a, a new book needs. You can't imagine how many people like went out on a limb to hand a copy of Lean Startup in 2011 to someone they knew and liked and just said, look, this is gonna be a thing. Eric Ries: You're gonna be glad you read it.

And that, that was really what drove its success. So, uh, the people are willing to do that for me, once again, you have my undying gratitude. Sam Guertin: there'll be a link in the show notes. Craig Rosenberg: Well, we trust you.

Sorry, I had to throw that in there. Yeah, Craig Rosenberg: Yeah, man. Scott, thanks for coming in with Craig Rosenberg: me on this one. It was fun working with you and, and interviewing Eric.

so Scott Albro: Yeah. Well, I've, I've, I've always wanted to meet Eric, so, Scott Albro: uh, now I can, that, that was a bucket Scott Albro: list item, so I can check that off the list and uh, Eric Ries: Ah, it's very nice of you guys are very kind. Thank you. Eric Ries: All right, well, thanks.

Yeah, thanks for the conversation and please be in touch. Look forward to chatting again. Craig Rosenberg: Yes. Yes.

Done. That's the transaction. Thanks for joining us for another episode of the Transaction, Craig, and I really appreciate the fact that you've listened all the way to the end. What are you actually doing here?

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