Eric Ries kicks off his new book, Incorruptible, with a story. He bumped into a professor friend who had been offered investment for his invention of a life-changing medical breakthrough. He was unsure what to do. “What happens when investors demand we prioritise short-­term profits over everything else?” he asked Ries. “What happens if they fire me and put someone else in charge –­ someone who doesn’t care how our technology is used?”

Ries promised to get back to him. But first he had to attend a celebration – of another founder who had built and grown a company, then taken investment, only to spend the next few years being pushed to make bigger profits at the expense of his company’s original values. Eventually he was ousted. Ries was heading in to celebrate the founder’s life – it was his wake.

Ries did get back to the professor, though, helping him work out a different path. But that day made him reassess the way he thought about business. He realised that his work so far had shown “millions of people how to build something worth protecting, but not how to protect it. I realised we were all one acquisition, one IPO, one board meeting away from watching something we love turn into something we hate.”

Time sensitive

Ries has an uncanny knack for timing. The Lean Startup began life as a blog, titled Startup Lessons Learned, just as the financial crash hit – “not intentional,” he says – and struck a collective nerve. Three years later, the blog became a book, which has sold more than a million copies and been translated into over 30 languages. It fuelled the start-up culture, one which Ries has personally lived and breathed, notably as co-founder of social network IMVU in 2004.

He has advised on strategy for start-ups, venture capital firms and large companies, creating General Electric’s FastWorks programme and serving as Entrepreneur-in-Residence at Harvard Business School. He is also founder of the Long-Term Stock Exchange, which requires companies and investors to focus on durable value creation.

“We’re all one acquisition, one IPO, one board meeting away from watching something we love turn into something we hate”

Now Incorruptible is being published in a world of considerable economic volatility. “I wish it wasn’t such good timing,” he says wryly from his home in the San Francisco Bay Area. “When I started writing I didn’t expect the issue of public corruption to be so live for people.”

The book covers the corrosive effects of shareholder primacy and looks at how mission-driven companies can rise above the chaos with stronger profits, better talent and deeper loyalty.

Ries observes the longevity of business – and how some companies endure, where others seem to hit the skids just after moving up a level of success, gaining investment or coming under new ownership. He exposes the structural flaws that make modern companies vulnerable to short-term thinking and moral compromise. And he offers a solution: a blueprint for ‘mission-locked’ organisations that can grow, prosper and endure without losing the essence of what made them great and groundbreaking in the first place.

The mission, he suggests, is present from the beginning; it’s the fuel that drives businesses and gives them their USP, but that can get diluted as new pressures are introduced and new voices shout louder.

Solomon’s choice

One of the biggest problems, Ries believes, is that founders think they have to choose between one of two options: either sell up or run the business for the rest of their days. Ries’s book offers one particularly telling statistic: according to one study, “people who sell their business – small businesses, owner operators – 76% of them regret it within one year”.

The idea of ‘exit as a mark of success’ is deeply ingrained. “People think that this is the peak of business success. You’ve made it. You had an exit. You are now independently wealthy. Most people are being given the option to work themselves into the grave, or liquidate the thing that they own, and then they spend a lot of energy trying to figure out if they’re going to sell.”

Ries tells many cautionary tales in the book about founders who thought they found the right partner. “Investors can tell you anything they want during the sales process,” he says. “As soon as they own the company or a majority shareholding, you’re done. The problem is we don’t understand that success makes you a target. The more golden the goose, the greater the temptation to butcher it.”

Ries cites Mark Cuban, who sold 73% of the Dallas Mavericks basketball team to the Adelson and Dumont families, owners of the Las Vegas Sands Corp, at a valuation of approximately $3.5bn (£2.6bn). Cuban stayed on as a minority shareholder with 27%, with all parties insisting at the time of sale that “nothing changes”. But he was quickly sidelined from the basketball operations, Dumont took charge and traded their star player Luka Dončić to the LA Lakers. The Mavericks’ performance quickly declined.

New shareholders can actively turn against founders. Ries feels very strongly about bad behaviour from private equity or VCs: “The problem with shareholder primacy as a business philosophy is we’re, like, 40–50 years into this civilisation-scale experiment and, especially in the US and the UK, it’s been an unmitigated disaster,” he says.

“The era of shareholder primacy is already over, but go into the detail and you realise these companies are eating themselves alive. And it’s not that the investors are bad people. The issue is that they are locked into this prisoner’s dilemma. Everyone’s been told that all the other investors are going to try to get in, suck all the value out for themselves and get out before it collapses. If you don’t want to be the sucker, you better get in first.”

Finance professionals can end up being at the centre of such destruction – whether in practice advising a company or working in-house. And of course, accountancy firms may themselves be attractive destinations for private equity.

In March, the Independent Federation of Accountants reported that more than 1,000 practices globally had received private-equity investment over the past decade, a trend that has accelerated significantly since 2022.

On many levels investment makes sense and is a good – sometimes only – way to grow and develop great talent. But how best for business leaders and finance professionals to work out which prospective investors’ goals align with the company’s original mission?

Ries believes there is a third option, beyond selling up or working forever, which he calls “mission control”.

The answer lies in the structure of the company, he says: “We have to create governance and structures that allow the mission to endure.”

Ries believes there are types of business that aren’t new, but are often forgotten: “There are principled alternatives, with checks and balances, but this thinking is not present, so we forget that we actually know a lot about this. The German optics company Zeiss has had an alternative structure since 1885, for example.”  

He runs through the options: the industrial foundation structure (such as Zeiss), the employee ownership trust (eg John Lewis partnership), an employee voting trust, and a perpetual purpose trust (such as the one Patagonia is now governed by).

“What’s funny to me is that these are seen as the outliers despite their longevity and massive scale,” he says. “We admire them as exceptions that prove the rule, thinking that the success is down to cultures or founders or missions. But culture dies, founders leave and missions drift – unless something deeper protects them. That’s the thinking we need to instil.”

Strong foundations

The secret, Ries says, is to build companies that are neither investor- nor founder-controlled. Rather, they are mission-controlled entities. “There is overwhelming evidence that mission-driven companies outperform: they have faster revenue growth, better employee and customer loyalty and they last generations.” His blueprint is twofold and simple, as he outlines in the new book:

First, create something worth protecting. An incorruptible organisation begins with an aspirational mission aligned with human flourishing, and a principled ethos that instils in everyone it touches the determination to see the mission through.

Second, build with structural integrity. The more successful an organisation is at that first step, the more valuable it becomes as a target. Profits attract predators. This is where the gravity of our financial system buckles most standard structures. To resist requires powerful and carefully designed defences, and a whole new theory of corporate governance to match.

Finance professionals have a huge part to play in bringing mission-driven companies to the fore. “There’s so much they can do,” he smiles. “I spend my time with leaders on the operating side, and they’re always, like, ‘My kingdom for a finance leader who understands all this!’”

So where to start?

“Familiarise yourself with the data,” he says. “Companies that have the industrial foundation structure, for example, are six times more likely to live to year 50. We’re talking about a 60% versus 10% probability. Their financial metrics are much stronger, as is their longevity because they invest counter-cyclically. They invest in R&D. They’re much better corporate citizens in every dimension. Realise that these are not do-gooder things. These are sources of competitive advantage, and then build your investment thesis accordingly.”

Ries understands that structural change, both of internal company structures and the motivation of the financial markets, is a huge tanker to turn around but he’s optimistic.

“We are living in dark times. Compared with the world we thought we were going to have when we were kids, things have gone quite badly wrong. Stories on the news now would have been an earth-shattering scandal not that long ago – now though it’s ‘just Monday’.

“We have a chance to be the generation to embark on a programme of civic renewal, and to bring human flourishing and integrity back into the centre of leadership”

“I’m descended from grandparents who were directly affected by World War Two – they were on both sides of that conflict. I remind myself that our grandparents saw a lot worse than we have so far. They endured unimaginable darkness, and somehow they kept the faith that humanity would triumph over darkness.

“However, they didn’t view that as somebody else’s job – they saw themselves as personally responsible for fighting. And more importantly, when the darkness did pass, they embarked on a spree of institution-building; many of those institutions still govern our lives to this day, and yet we’ve kind of forgotten how to operate them, and certainly we’ve forgotten how to build new ones.

“We’ve legalised so many forms of making money that our grandparents would have seen not just as morally dubious, but they would have unquestionably been crimes – like incentivising insider trading and totally pointless speculation, gambling.

“If we keep the faith, we have a chance to be the generation to embark on a programme of civic renewal, and to bring human flourishing and integrity back into the centre of leadership, back into the centre of the purpose of organisations. And if we do that, then we have a lot to look forward to.”

Incorruptible: Why Good Companies Go Bad and How Great Companies Stay Great is out this week (Penguin Life, £18.99)

 

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