Lenny's Podcast: Product | Career | Growth
01:18:30 · Eric Ries
[01:18:30] S0: So we talked about we need a mission guardian. So first question, is the mission guardian a person or a thing? That's our kind of first decision point. So yeah, some, I think for early stage companies, founder control is fine as a good bridge, a temporary bridge to a more permanent structure. And some companies get really far with founder control. That's okay. But a lot of founders who have founder control wind up really miserable, as you can see by the fact they're having a mental health breakdown right in front of us, all of us on social media basically every day. Because you become like Atlas, you can't even shrug. It's you holding back the abyss. It's a lot. So I think a better, more permanent solution is to encode the protection into the structure. Now that can be done with a single entity like Costco. Costco just has the rules written right into the structure itself. But that means that every time they lose one of the structures, every once in a while when an attack chips off a little bit of it, they don't have any way to grow them back. So it's like you've built this fortress, but you don't have a way to renew it. The better way, I think, according to the evidence, is to have some stakeholder, somebody be the steward of the mission and have a way to renew that person, that set of people. So some people accomplish that by what's called an employee ownership trust. So the employees are the mission guardians, like the John Lewis Partnership in the UK is a famous example. Obviously cooperatives have this... This can work in a cooperative at scale. Mondragon, for example, in Spain has like 80,000 employees. It's a huge company, but they're all employee cooperatives. You can do it through an employee voting trust. That's how Alibaba is protected, where the employees vote for the board members rather than the reverse. But those are much more complicated compared to me, the two simplest solutions are either a nonprofit foundation as in the Novo Nordisk example, or in the case of what's called the Perpetual Purpose Trust or PPT. And Perpetual Purpose Trust is a non-economic entity. So whereas the Novo Nordisk Foundation is the largest charitable foundation in the world because it owns a big chunk of Novo Nordisk and that's worked out pretty well. The Anthropic long-term benefit trust has no economic dimension to it at all.
01:20:30 · Eric Ries
It only has the mission, oversight, responsibility. And what's nice about a Perpetual Purpose Trust, as in the case of Patagonia is governed with a purpose trust also, is you have the trustees, but then you also have someone whose job is actually to sue the trustees if they ever deviate from the mission. So you actually have what's called the purpose protector who's an extra person who can get in there and say, "If things go wrong." So to me, it's like you have checks and balances like in a government. It's more stable. It's a more stable structure. To me though, I use the omnibus term spiritual holding company to describe this category of things. Because I said before, we have a lot of infighting. The people who advocate for each of these things thinks their version is the best. I didn't even mention the Evergreen, the Tugboat Foundation. They don't believe in having investors at all. So there's people who think the solution to this is no investors involved, that makes the problem a lot easier. So anyway, there's a lot of different ways this can be done. I don't think I even mentioned ESOPs. There's just so many. So we need to have an omnibus term. I call it the spiritual holding company. The holding company, like the Berkshire Hathaway, but rather than having everything be wholly owned, it's the holding company for the spirit, the animating essence of the whole. And it's a lot of evidence in the book, a lot that this structure is more stable, more durable, more likely to invest in quality and R&D and the things we really care about and better for shareholders than the conventional structure.
01:21:53 · Lenny Rachitsky
[01:21:53] S1: If this all sounds like a huge drag and a lot of work and really annoying, I'd say go back an hour when we talked a lot about just what is it you were trying to avoid and the pain.
01:22:02 · Eric Ries
[01:22:02] S0: Yes. That's the thing. It's like, you know what's really a drag? I'll tell you a story. A friend of mine got ousted by his investors. Okay? And I was going to this party to celebrate him. And it was like people had flown in from all over the country to celebrate, including employees he laid off came to this party. It must have been a thousand people there. It was amazing. And I was describing to a new founder like, "I'm sorry, I can't help you with your company right now. I got to go to this party." And he was like, "Okay." I'm describing to him and he was just like, "Wow, what respect. That founder sounds invested. Just the kind of company I want to create." I'm like, "Dude, you have not been listening to anything I'm saying. He doesn't work there anymore." He's like, "Sol Price. This is not a party. This is awake." And he was like, "What? Did he die?" "No, man, he didn't die." "Did the company go bankrupt?" "No, the company's fine. That's not the problem. The new..." And he was like, "Is the new CEO an asshole or something?" I was like, "No, I like the new CEO. He's a friend of mine also. Perfectly fine. The problem is..." He's like, "What's the problem?" "The problem is if a company can be decapitated at any time, you can no longer trust it. All the promises that this company had made over its 15-year life, nobody believes them anymore." The new CEO is going out and making new promises, but we're like, "An activist investor owning 0.5% of the company can oust you at any time. Why should I believe anything you say?" And then we're like, "Why is trust collapsing in our institutions across the board?" We are teaching a leadership philosophy that is antitrust, anti-trustworthy. So yeah, if it sounds like this sounds like a bummer to have to worry about this stuff, you know what's really a bummer? Come to that party with me. That sucks. And that's a founder who made literally billions of dollars for his investors, but it wasn't enough. It's never enough.
01:23:54 · Lenny Rachitsky, Eric Ries
[01:23:54] S1: And hearing these from you is important and powerful because you see so many founders. There's few people in the world that see the number of founders, meet with the number of founders, work with as many startups as you. And this is not an easy place you're in, trying to convince people to do these very annoying things. [01:24:11] S0: It's very annoying. I know. I do agree. Yeah. [01:24:13] S1: And so it just says a lot that you're putting yourself out there this much. For you guys, pay attention. Even though it feels weird now, the idea is should not. This should be-
01:24:13 · Lenny Rachitsky, Eric Ries
[01:24:13] S1: And so it just says a lot that you're putting yourself out there this much. For you guys, pay attention. Even though it feels weird now, the idea is should not. This should be- [01:24:22] S0: Be Our grandkids will think this is the most obvious thing they've ever heard about. So yeah. You can get ahead of it now. When I first started talking about Lean Startup, people thought it was so weird. As weird as you think this is, people thought Lean Startup was a lot weirder. So I've been through this before. And when I write, I don't write very many books. Okay> I'm not like an influencer. I don't tweet every 30 minutes. I'm not that kind of person. It takes me years to put these things together. And I only do it when I have figured something out that I have personally lived myself and found useful in my own work and I've helped lots of other people do it. So it takes me a long time because it takes a lot of experimentation, a lot of testing. This is the work of hundreds and hundreds of companies who I have worked, had the chance to work with and seen what works and what doesn't work. So the pain that I'm describing to you is like, this is not some hypothetical thing. I'm not trying to trick you into something. I have nothing to sell you. This is just what the data shows can prevent this epidemic of value destruction that we're seeing all over our economy.