Eric Ries: Why successful companies lose the purpose that made them work

Eric Ries asks audiences to remember a favorite product that raised money, grew, was acquired or went public. He then asks for a case where the infusion of money made the product better. The laughter, he says, suggests that many people have come to expect a company to become more extractive as it grows.

Krista Tippett describes Ries's book Incorruptible as an evolution of his earlier work on creating and scaling businesses. Ries says that advising founders exposed him to both sides of growth: he is proud of companies he helped start, but saw others damaged by the very success that allowed them to scale.

His audience exercise is meant to challenge the resignation that comes with that experience. Ries argues that treating deterioration as inevitable can lead people to accept the destruction of the value that made a product attractive in the first place.

Tippett reads his description of a company becoming unrecognizable after an acquisition, IPO or board decision. Ries calls that change corruption rather than a mere navigation error. He says he uses the word for making money by destroying value that others had built.

Ries calls the pressure behind this change 'financial gravity.' He argues that strategy, personalities and business models are visible, while a less visible force pushes organizations toward the preferences of people with resources.

In his account, financial gravity is a psychological pressure through which the values of people who control resources influence those seeking them. He compares it to the way someone may automatically try to please a wealthy or famous person without having decided to do so consciously.

The organizational version can appear in a meeting as an imagined objection: perhaps the market or donors will dislike a decision. No one has necessarily asked them. Ries describes the anticipated reaction as a ghost in the room that can shape decisions even when nobody explicitly gives an order.

Tippett links the argument to shareholder primacy, the idea that an organization exists primarily to enrich shareholders. She notes that Ries distinguishes wealth creation from transactions that merely redistribute or destroy value, and discusses profit in terms of human flourishing.

Ries says an organization has a character and a momentum of its own, which helps explain why changing one is difficult. He uses the language of a living system or a superorganism, while saying the idea can be understood in material as well as spiritual terms.

He argues that shareholder primacy is historically recent rather than an eternal American rule. Tippett associates it with the influence of economist Milton Friedman; Ries asks why later generations should regard those terms as impossible to redefine.

Ries describes an earlier period when U.S. corporate charters required state approval and a stated public purpose. In his account, general incorporation expanded access to company formation, while the view that a firm should exist for a specific purpose persisted for a time. He wants to recover that connection between business and purpose.

Tippett stresses that Ries is not arguing against growing a business or earning a profit. Her question is what happens after a company succeeds: the forces acting on a larger organization can put its original commitments at risk.

Ries says people often describe deterioration after growth as inevitable, then name Costco as an exception. He also points to organizations such as Patagonia, IKEA, Novo Nordisk and some credit unions. To him, exceptions are a reason to investigate the conditions that allow an organization to resist the pressure.

Tippett notes that these examples can depart from conventional business practices. Ries says that is uncomfortable because he once taught some of those practices himself; he wants leaders to consider that advice labeled 'best practice' may not always produce the results they assume.

As one example, Ries cites research he says found that companies rated highly on governance have performed worse for shareholders since 2008 than companies rated poorly. He argues that some governance ratings favor a company's immediate responsiveness to shareholder demands, which in his view can weaken its ability to maintain a mission.

Tippett asks about his phrase 'harder is easier' and the cost of mistrust. Ries says leaders are often urged to rank choices by a measurable return, even when a decision that protects customers has an immediate cost and its benefits are hard to quantify.

He calls trustworthiness an undervalued organizational asset. Tippett clarifies that a business may continue to exist while losing the character its founders would recognize. The question is whether it can maintain the purpose and relationships that originally made it valuable.

They discuss Google's former 'don't be evil' ethos. Tippett notes that the phrase was vague; Ries nevertheless sees the loss of a shared ethos as an economic as well as an ethical issue, because talented people may choose to work elsewhere.

Ries points to the departure of the original transformer paper's co-authors and estimates that losing that ethos cost Google a very large opportunity in generative AI. His estimate is a counterfactual judgment; he uses the example to argue that a reputation for doing the right thing can help an organization retain talent and compete.

Tippett mentions ideas from the book such as governance structures that protect a mission and what Ries calls a culture bank. She also refers to his Long-Term Stock Exchange, and says the same pressures on purpose affect nonprofits and social enterprises as well as for-profit firms.

Tippett reads Ries's comparison of organizations to children: people bring them into being, but they develop a character influenced by their surroundings. She adds that children learn as much from what adults do as from what they say, and asks what that analogy means as companies build AI agents.

Ries says AI makes the governance question urgent. He sees public concern about the social media era as a warning against repeating the same organizational patterns with a potentially more consequential technology.

He argues that stockpiling supplies is not a substitute for preventing harms through governance. But that raises another question: who governs the people and companies governing the technology? Because corporations build AI systems, he sees their internal incentives and decision-making as part of the safety problem.

Tippett closes by arguing that governance cannot be separated from purpose. In her view, technology companies are powerful enough that the way they are organized matters not only for their own health but also for the institutions and communities affected by their products.