Building Companies That Last Without Selling Out with Brian Ardinger and Eric Ries, Author of Incorruptible

On this week's episode of Inside Outside Innovation, we sit down with Eric Ries, founder of the Lean Startup Movement, and author of the new book, incorruptible, why Good Companies Go Bad, and How Great Companies Stay Great. Eric and I talk about the challenges and opportunities of creating incorruptible company, the difference between value creation and value extraction, and how companies like Costco and Patagonia build value by violating conventional best practices. Let's get started.

Inside Outside Innovation is the podcast to help innovation leaders navigate what's next. Each week we'll give you a front row seat into what it takes to grow and thrive in a world of hyper uncertainty and accelerating change. Join me, Brian Ardinger, as we discuss the latest tools, tactics, and trends for creating innovations with impact, let's get started.

Podcast Transcript with Brian Ardinger and Eric Rise

Eric Ries on Incorruptible, The Lean Startup, and Building Companies That Last

[00:01:00] Brian Ardinger: Welcome to another episode of Inside Outside Innovation. I'm your host, Brian Ardinger, and as always, we have another amazing guest. Today we have Eric Ries. If you followed this podcast, if you followed the world of. Startups and innovation you know of Eric. He's the author of the Lean Startup, the Startup Way, and he is got a brand new book out called Incorruptible: Why Good Companies Go Bad and How Great Companies Stay Great. Welcome, Eric. 

[00:01:17] Eric Ries: Thanks so much. Appreciate it. 

[00:01:18] Brian Ardinger: Eric, I'm super excited to have you on this show. I'm surprised we haven't had a chance to have you on before to talk about some of the previous work with Lean Startup and Startup Way, but I'm excited to talk about this new book because it takes off where the previous books let go.

If these books in the past show you how to build or scale new ventures, this book teaches you how to build companies to last without selling out. You know, you open the book talking about by saying you taught people how to build companies worth protecting, but not how to protect them. What did you miss about that first time around and how did this book come about based on what you've learned?

[00:01:52] Eric Ries: Well, thank you first of all, thanks for the kind words. And thanks for seeing it as a continuity, because that's really how it's felt to me. I feel like I've been on this journey now, you know, over the course of my career, and when I look back on it, I think I keep discovering things that I'm sure is the most powerful force in the universe.

So I feel like when I first learned to code program computers, I was like, this is the most powerful thing in the universe. And then I realized that in writing individual programs was nothing, if you could build, you know, technology platforms. And build whole scale, in large scale technology. I was in love with technology from an early age.

And over time as I watched, you know, so many technology products fail, I started to realize that no management is the most powerful force in the universe, right? Human beings make technology, and if you can't manage human beings, you can't do it. And this book came out of my recognition that although over the past 20 years we have gotten so much better at the science of management, and especially thanks to Lean Startup and tools like that. We've been able to really build brand new companies and take them public. Been able to revitalize more abundant old companies and making them more modern.

And yet I always felt like we were up against this other force that was even more powerful than management and what I didn't understand, what nobody ever told me I was, I was coming up as an entrepreneur, as an innovator, is that for mission-driven companies especially, success becomes a liability because the more golden the goose, the more temptation there is to butcher it.

And I got sick and tired of it. I felt like I was feeding one company after another into a meat grinder. Help people create these really wonderful companies and then have them you know, turn into something almost unrecognizable. And I just felt like we need to stop doing that. And so, this book is the culmination of a many, many year journey to try to figure out like, what is this force that causes this and what can we do about it to stop it from turning?

Why Eric Ries Uses the Word “Corruption” in Business

[00:03:39] Brian Ardinger: You label the book about corruption, you know, incorruptible. Why is it more accurate word than like mission creep or bad leadership? What about the word corruption? 

[00:03:48] Eric Ries: Yeah. Thank you. Thank you for asking that question because I do think it's something that a lot of people have struggled with, with the book, which is when we say the word corruption, people like think I'm talking about embezzlement or bribery, and of course those things are bad.

But one of the really deep insights that I've had, banging my head against this, I think I always think of that famous Mahler quote, you know, I'm banging against my head against the wall, and the wall is starting to give. That's how it felt to me, like it took me a really long time to understand that these actions that transform value creating economic activity into value destroying economic activity, that actually corrupts the foundation of our entire economic system.

Because when you ask people to defend capitalism, you know, this is going back hundreds of years now, all the way back to, you know, to Adam Smith, let alone Bastiat and Milton Friedman, and you, you name it, you name it. Someone who's made an attempt to give a moral defense of capitalism. We always say that when people are engaged in fully informed voluntary transactions, then both parties are better off, and that is why free commerce ultimately leads to value creation.

And that's like a very logical, very tidy argument. And yet it has preconditions. In order for a transaction to be value creating, it must be fully informed and it must be voluntary. And what we're seeing now in our modern economy is so many ways to make money without creating value. In fact, many of the ways that we consider to be just normal ways of making money are grandparents would've seen as theft, as crimes.

So I think we've kind of gradually lost the plot. And so to me, using a bracing word like corruption and, and naming the book Incorruptible, to me was what is necessary to say, look, these actions are not wrong just because they're immoral or even because they're illegal, but rather because they corrupt the economic logic of our whole civilization.

Value Creation vs Value Extraction in Modern Capitalism

[00:05:36] Brian Ardinger: You talk a lot about this difference between value extraction versus value creation. Can you tell us a little bit more about the dichotomy between those two and, and where the challenges lie. 

[00:05:45] Eric Ries: Yeah. I saw this incredible video and he was telling this story about going out to dinner with a friend at one of the friend's favorite restaurants. They walked in the door, they sat down, they ordered. The guy took a bite of the food and he, he took, he took out his phone and, and the guy's telling the story. He's like, that's kind of rude, why you taking out your phone? He's like, has this restaurant been bought by private equity? He's like, what are you talking about? He's like, looki...