Lenny's Podcast: Product | Career | Growth
00:06:39 · Eric Ries
I'm really proud of the bit part that I played in so many of these companies, and yet I've also seen this darkness. And it's not just founders getting fired, although we're obviously, we're going to talk about that. But the other day, I was out to dinner with some friends. We were not at home. We were away from our usual spots. And so someone said, "Oh, there's this restaurant. I haven't been there in a couple years, but it's really good. Let's check it out." We go, we sit down at dinner. They take one bite of the food and then they're on their phone and we're like, "Dude, you're being rude. Why are you on your phone?" "It's just one sec, one sec. Yep. I thought so." He turns it around. "I could tell that this restaurant got taken over by private equity. I could taste it." And I've told that story a bunch of times now, and so many different people have told me, "Oh yeah, I know what restaurant you're talking about." And then they name like 12 different restaurants. So what's going on that you can taste the ownership structure of a company in the food? How many people had a famous brand that they love get ruined? I tell hundreds of years of these stories in the book, all kinds of famous companies where the thing that destroyed them was not competition. It was not someone else came up with a better product. No. Their very success became a liability because the more golden the goose, the greater the temptation to butcher.
00:08:34 · Lenny Rachitsky, Eric Ries
[00:08:34] S1: Wow, that's a very visceral example. I think about vital eggs as a great example of this. It was in the news, I don't know, on Twitter, TikTok a while ago. It's the eggs that we've been getting forever. It's like pasture-raised, organic. [00:08:46] S0: Sure. Sure. I have all these in my fridge. [00:08:47] S1: Okay. I don't know if you saw this, but everyone's complaining of how they've gotten worse and they have all the highest level of toxins and then they're owned by BlackRock now, it turns out.
00:08:55 · Eric Ries
[00:08:55] S0: No, I was just wondering about that. Oh, okay. Now that's my new favorite example. That's really fun. I didn't even know that. But yeah, it's so common. It's the point now where I was doing an interview with someone who was telling me about a certain natural foods brand and the name of the product is the name of the founder. It's like, I can't remember her name now. It's just her name. That's the name of the product. And she gets ousted by investors and he's about to tell me the story. I said, "Let me guess what happened next. The board pushed her out in pursuit of higher growth, higher margins. As a result, we've seen lower quality and customers are super pissed, employees are pissed, and now it's starting to shrink market share." And he was like, "How did you know? I thought you said you didn't know this company." This pattern is so pervasive. We don't even have a name for it. We live it every day, but we don't know what to call it. Well, I know what to call it. I know what our grandparents would've called it. They would've called this corruption. Not legal bribery or embezzlement. No. This is like you're building a bridge. And if your bridge collapses, and Lenny, I say you're an engineer and I say, "Lenny, why did my bridge collapse?" If you're like, "Well, because of gravity," I'm going to be like, "Dude, yeah, thank you for that genius insight." I understand that that is correct in some very real way. We say, "Well, it's inevitable. It's greed." I call it financial gravity. "There's this thing of human nature when companies get big, whenever..." "Yeah, but I want to know why did this bridge collapse? And more importantly, how come other bridges didn't collapse?" Then they say, "Oh, for that, we need to study the load, load factor, wind load, shearing tension." And we go look up close, we say, "Oh, look, all the metal bolts have been corroded. They're rusted. No wonder it collapsed." And then if you say, " Well, I want to build a new bridge, but I don't want this one to collapse. What can I do?" You won't say, "Well, gravity, what can you do?" No. You'll say, "Why don't we use stainless steel next time on the bolts so they don't get corroded?" "Oh yeah, good idea." So this book is about what are the organizational equivalents of stainless steel.
00:10:51 · Eric Ries, Lenny Rachitsky
And the book is structured, not like a traditional business book, as you say, you picked up on that. It's much more like a mystery, a double mystery. First of all, why has this been going on for hundreds of years when we all think that the market selects for value creation, so this shouldn't happen, yet it happens all the time. But secondly, if it's inevitable, if it's caused by greed or age or size, why are there exceptions? [00:11:13] S1: You're actually going to give us answers and solutions because it sounds like, okay, this is impossible. But you actually have- [00:11:18] S0: I promise. [00:11:18] S1: ... you have some answers for what founders can do. Real quick, I'll just say on the viral X thing, I'm not exactly sure if the toxins are real. There's a whole viral thing on it. I haven't looked into it super deeply. [00:11:29] S0: Okay. All right. We both have homework to do now because it's what you feed your kids. You care. I'm definitely worried. Definitely worried to hear that. [00:11:35] S1: I want to talk about two things that are probably in people's minds as they listen to this conversation and even think about buying your book. One is, okay, I am not going to let this happen to my company. This is- [00:11:45] S0: Oh, sure. Sure.
00:11:45 · Eric Ries, Lenny Rachitsky
[00:11:45] S0: Oh, sure. Sure. [00:11:46] S1: ... oh, other people, they're weak, maybe they're of loose values. The other is just like, do I really need to do this? There's so many companies that are killing it. I don't think they've done any of this. Why do I even need to pay attention to this? So maybe let's start with that first one or this idea of, and this is a core thesis of your book. This is not like an ethical values thing. This is a structural element of building businesses in the US.
00:12:09 · Eric Ries
[00:12:09] S0: I'm going to make a claim that's going to sound radical, but I'll back it up. If you don't get this right, no other decision you make about your company will matter for the long term because you're not going to be the one making it. According to Harvard Law School, among venture-backed companies that have the standard best practices set up that you got from your lawyer, only 20% of founders are still the CEO three years after going public. Just statistically speaking, everyone's being told by their lawyers, their bankers, their VCs, everybody that you're the exception. It's not going to happen to you, but statistically speaking, you're much more likely to be in the 80% than the 20%. I'll tell you one story in particular. A very hot company came to see me a year or two before their IPO. They were planning IPO and I built the long-term stock exchange. I've done a bunch of stuff that people come to me for advice about these things. They wanted advice. How can we structure the IPO? We want to think long-term, we're really a mission-driven company, et cetera, et cetera. And I was going through their governance documents. I said, "Oh, good. You have all the best practices. So you're totally like..." I was like, "The good news is you're so screwed you're going to have to do something. This is your [inaudible 00:13:15] guarantee to get this mess." And I had all the data and just like I do in the book, like, here are the examples, here are the case studies, here's the data, you need to know about this. And the founder was really concerned. He's like, "Okay, we're going to definitely do something about this. We're going to fix it up." But then he called me back a few months later. He's like... I said, "Well, what are you going to do?" He's like, "You know what? I talked to my bankers, talked to my lawyers, talked to my CFO, talked to my GC, talked to my VCs, talked my growth VCs. You know what they all said? They all said, 'Man, Eric is such a downer. If he really believed in your vision, if he really saw how special you were, he wouldn't talk like that. You're the exception.'" I said, "Okay, man, good luck." This company went public, had a very successful IPO. A lot of people made a lot of money. And then five months into their IPO, a competitor gets acquired and the whole category, everyone freaks out.