SPEAKER_01
Eric Grease, welcome to the show. I'm so excited to have you. I read your book more than 10 years ago, The Lean Startup.

And I can honestly say I wouldn't be here today without reading that. So this is cool for me to have you in every year.

SPEAKER_00
I'm nervous. Don't be nervous. Thank you for the kind words.

I'm glad you found it helpful.

SPEAKER_01
Today, what we're going to do is talk about some of your ideas. I also brought some startup ideas that I have, free startup ideas that anyone could take. And I'd be curious your perspective and feedback on them and your honest opinion.

Does that sound cool? Yeah, let's do it. You've got a couple ideas here. I want to start with AI companies are funded by different investors than in prior areas.

What do you mean by that?

SPEAKER_00
There's something about AI that has been really different in terms of the kinds of founders that are pursuing it. You see a number of the leading AI firms are not funded by the leading venture firms from the SaaS or social media eras. Not to say those firms have been on the sidelines, but it's been different.

It's been notably different. Who's backing it? You see a lot more involvement of corporate venture firms, which you didn't see before. There's something about AI as a technology that is getting people to treat it differently than past technologies.

The public is so attuned to the dangers of AI. I think people are a lot more interested in who governs these companies and how they're structured, how they're governed. A lot of my work of late has been trying to talk to people about the sort of governance issues that are unique to really dangerous technologies with huge upside like AI.

You also see a difference in the kind of founders that are doing this. They tend to be older. They tend to be a little bit more sophisticated.

I've heard from a number of folks that feel like the AI founders are not super pleased with how the previous waves have gone. There's a lot of skepticism of people that went all in on crypto or that think that the social media era was a big rousing success. Certainly a lot of money was made, but there have been some pretty negative externalities.

I think it's just been interesting to see those issues play out in a new tech wave with new backers, new funders, new founders.

SPEAKER_01
We're seeing a lot of, you know, people call them wrapper AI startups in the space. Like indie hackers who will take a use case on top of ChatGPT or another LLM and just build a purpose-built ChatGPT for lawyers, ChatGPT for something else. Do you think that there's longevity in those businesses?

SPEAKER_00
We haven't had a bona fide platform war in tech in a little while because Android iOS was not really the real thing. I feel like Google, their heart was never really into it. So it wasn't like Apple Microsoft or Co-Pepsi Intel versus over the 68,000 Motorola processor.

Like it's been a while since the mega tech titans went to war with each other. Many people in this era have forgotten the old parable of picking up dimes in front of the steamroller, which I believe this ism applied to platform wars originally dates to Jean-Louis Gasset of BOS and Apple fame, but I've actually never had the chance to ask him. But that's where I learned it from.

The parable of the picking up dimes from the steamroller is that when you have a platform war, the platforms are the steam rollers. So you're building a new platform that many, many businesses are going to be built upon. Think about like Microsoft Windows or the Intel processor.

In such a situation, the platform has this tremendous logic and momentum behind it. It really is a steamroller. It flattens anything in its path.

Open AI or Anthrop, these are fast moving companies. Very impressive, actually considering, but they're still behemoths and they're still dealing with multi billion dollar problems. So although the steamroller has the power to flatten anything it wants, it is intrinsically slow moving.

You see how old this metaphor is because dimes used to be worth something. You see a dime in the path of the steamroller so long as you can run into the street, pick up the dime and run out of the street before the steamroller arrives. The dime is completely yours.

Steamroller is not going to stop, pause, pick up the dime. It's too small for them to care about. And the problem with the kind of naive strategy of picking up dimes in front of a steamroller is it works perfectly unless you trip and fall even one time.

So if one time you go for the dime and you don't get out fast enough, then you get flattened by the steamroller and it's dangerous. It's a useful metaphor. Many of these rapper startups are dimes in front of the steamroller type businesses.

And the key to the parable is it's not bad. People are acting like rapper startups are bad. It's not bad.

You have to understand the strategic situation that you find yourself in. So if you're taking venture money and you're promising people to build a multi billion dollar company, that might not be the right time to do that. The key for me is always what do you do with the dimes after you pick them up? Because a lot of people start what seem like rapper startups at the beginning, but there is a playbook for what to do in this situation.

If you want to build something with more enduring values, for example, the power of a rapper startup is that you on the customer. And in a lot of businesses, whoever owns the customer actually has the power for what they call a value chain of that industry. So I do think some of these vertical specialized rapper companies, they might be able to use their rapperness, build up customer relationships, collect proprietary data, train their own models, build their own new thing.

That is theoretically possible, although currently prospects for doing that don't seem amazing. But you might also see a situation where in a platform war, where the platforms are forced to compete to a lowest common denominator, like we have with cloud platforms where the margins get eroded by the fact that the platforms are more or less a perfect substitute for each other. There are businesses that can be made where you manage on top of that layer permanently by playing the implementation vendors against each other.

So you could also imagine a vertical rapper that allows the customer to seamlessly switch between many underlying models made by many different companies. And because of that, those competitive dynamics might be able to keep them ahead. And then I think there are some people whose goal is to bootstrap their way into their own steamroller by building the customer relationship, collecting proprietary data, and then training a whole new model out of that.

I've seen rapper examples where at least each of those that I've just described is the official strategy of why they're raising money and why SBCs have deployed money against them. You can handicap the likelihood of any particular one working in this particular market. It does seem like the steamroller has tremendous advantages, but there's a strategic logic to it that makes sense.

And then you also have plenty indie hackers, as you mentioned. I'm glad you started with that because not everything has to be ventured back and not everything has to have a 10 year goal. I'm a big fan of building companies with longevity and long term thinking.

I was a big part of my work, but the point is to use the right tools for the actual underlying motivation of the founding team. I know plenty of people that are building businesses that they'll be pretty cash flow positive. They'll throw off lots of cash.

They'll be very lucrative for the founders until such a time as open AI, for example, decides, oh, we're just going to incorporate that natively into the platform. And then maybe they'll die at that time. But from the founder's perspective, it's a great deal.

And especially for younger indie hackers, I know a lot of these projects are run by college students, by recent graduates. People are trying to break into the industry. And their career equity upside in having done a cool thing is so much more valuable than the money that they're going to make.

But those startups are a really brilliant use of the free time and the flexibility that people at that stage of their career have. So I think it's really important to understand what are the motivations behind the startup, not to just paint them all at the same brunt.

SPEAKER_01
So you're saying there's a lot of unseen benefits to creating something that might go viral, might get picked up, might be a rapper, and you might get steamrolled, but that might get you a huge job at open AI, maybe they see what you're doing. And they're like, wow, this is awesome.

SPEAKER_00
When the whole industry is being upended, you know, the meme is from Game of Thrones, chaos is a ladder. Everything's being upended creates massive opportunities for people that are willing to throw themselves into the fray. As much as people have been deriding rapper startups, people make fun of those people.

But I think there's a lot of reasons to do it. And not all those reasons are bad. Another good example is Yohei Nakajima, who built Untapped VC.

His whole thing as a venture capitalist is to build in public. So he built Baby AGI, the AI agent, open source framework. He's done this, I think, with previous websites.

I think he even did a bunch of crypto stuff. He's someone who's building projects for the sake of getting to know the technology and see what it can really do. And to be in community with other people who are trying to figure it out.

And through that, it's going to be able to access lots of cool professional opportunities for himself and his firm. As an industry, we have a tendency to be like, there's only one path or only one kind of person. And of course, we're in a hierarchical, patriarchal society.

We love to put the Elon Musk type figures up on the pedestal and make it about them personally. And not to take anything away from the accomplishments of the so-called great men of history. But there's a lot of other people involved.

There's a number two and the number 10. And there's always other people involved, even with those success stories. And then you have thousands or even millions of other people that are finding ways to benefit from technology.

Someone asked me two choices, do a wrapper startup or sit on the sidelines and do nothing. What are you going to learn more about AI from? Like I'd rather you do something that is doomed to fail and it's a terrible idea. Because that gives you the chance to pivot into something that actually might work.

Versus sitting on the sideline and doing nothing.

SPEAKER_01
I think your point around customer data is a really good one. If your goal is to get customer data and even if you get steamrolled in the process, there is a chance that you might become the steamroller. I think startups, it always feels daunting when we're building them.

There's always that chance that in the web two and web one era was like, what if Google adds this feature?

SPEAKER_00
It's very tricky to talk about this because people are so reductive, especially now, this is social media, people love to polarize and not to be reductive about it. People infer from what we're talking about that, oh, you're saying that nothing can be known and no such thing as what better strategy or worse strategy or anything as good as anything else. It's kind of like a startup version of moral relativism.

It's like, no, we're not saying that there are people out there with special knowledge and special talent and special abilities who can do things like under certain circumstances, predict the future. Terrific. Our goal is simply to get people into motion so that they have a chance to become one of those people.

But you have to be willing to do things. And of course, doing things at random is better than doing nothing. But better than doing something at random would be to do a structured hypothesis where you're going to learn as much as possible.

But I think people have moved away from the idea that having a plan is even a good thing at all. And that doesn't make sense either. We need some kind of strategy that makes sense on paper.

Then go test that against reality and discover where you're wrong and then adjust whatever things need to be adjusted. It's why we call minimum viable product a product, not an experiment or a test or hypothesis. We wanted to remind people that although we are removing features and we are de-scoping in order to get learning, we're still trying to build something that is fundamentally useful.

There's a lot of people out there that want to build half a product and it just makes no sense. Yes, you've de-scoped, but you're not delivering any value to anybody. Our goal should be to de-scope down so that we provide some level of value that is still meaningful for testing the hypothesis, maybe to a smaller number of people or maybe with different materials than we ultimately want to do.

There's so many ways to cut down on the extraneous bits. But I feel like that gets easily misconstrued as a thing that's no such thing as knowledge. Nobody can know anything.

Startup outcomes are random and that's definitely not true.

SPEAKER_01
What do you think of the idea of instead of building an AI wrapper startup that you have to build an MVP that takes some time, that there's a learning curve? If your goal is customer data, what do you think of the idea of buying a non-AI startup in a particular vertical? For example, in the lawyer example, maybe you buy a Shopify for lawyers. You buy that and then you add on the AI capabilities. What do you think of potentially a roll-up type idea in that space?

SPEAKER_00
I know people that are doing it. I'm an investor in Acquire.com, so I'm really conflicted because that's the number one best platform to go do those roll-ups on.

There's a million trillion different small businesses of various kinds. Once you know the technology well enough to predict the effects it will have on a given business, then it's just very clear that we're living in a time of tremendous arbitrage where tech non-enabled businesses can become quickly AI enabled. There's not in cases skipping right over the SaaS era of deployment because the technology is that good.

The thing I will say is, although you can buy customer relationships, you can buy customer data, you can buy customer contracts, and someone was just telling me an incredible story about a startup that was buying out legacy vendors county by county. It was like a municipal service. The reason they started doing this is they figured out that the only time the buyer ever switches to a new vendor is when the old vendor dies.

They literally wrote an algorithm that reads obituaries to find out when vendors of this type die so that they can go pitch to be the new replacement vendor. They realized, hey, I could buy those companies. I just buy out the vendor before they die.

It actually would be a pretty good stretch. Anyway, you can buy vendors, you can buy customer relationships, you can buy other stuff. What you cannot buy is understanding of the customer.

So these roll-ups strategies all depend on somebody somewhere in the management of the new thing actually understanding the business at the level of the customer and what they actually need. So it tends to work a lot better if you've proven it once and now you're going to replicate it. So yes, your lawyer example of I'm going to roll up a bunch of legal small business service providers and I'd really know that business well.

I'm going to bring AI to bear on them. I think that makes a lot of sense. You also see some that are like, I'm just going to buy whatever I can get my hands on and AI-ify it.

I'm a little more nervous about those because although I do think that could in theory work, you can imagine like a private equity firm, like all they do is buy companies, add AI and then resell them. You have to have tremendous confidence in your own ability to come in and really understand what the customer's main pain points are in that industry so that you can deploy AI against it.

SPEAKER_01
Let's say you are one of those P people. We've got a bunch of investors who listed this podcast and you did want to buy a roll up of legal tech or legal services and you were trying to figure out how can I get from not knowing a lot about this space to knowing everything about this customer in a short amount of time. What frameworks or advice would you give them?

SPEAKER_00
The more I think about it, the more I feel like legal is one of the worst verticals to try this strategy on. So we should pick a different example because there are special rules that govern the behavior of law firms. I think actually like some of the full stack legal startups, maybe I would have a better shot than a roll up.

But to answer your question, people always looking for a framework. They're always looking for something complicated here. It's not complicated.

What you have to do is spend your time talking to customers. And yes, if you don't know how to do a customer discovery interview, go back and reread the Lean startup or if you want an even more classic book, The Four Steps to the Epiphany and the Original Customer Development book, really don't know how to do it. Could you spend one hour reading a book and nine hours talking to customers? That would be more problem.

Most people are too scared to do this. I'm introverted. I don't really like talking to customers either.

It makes me nervous, but I got to get over it. And the key, I think, to get over people's reluctance or nervousness is don't be like, well, I got to spend 10 hours today talking to customers all day long. And I got to mock them in a room and just like, could you do one a day for 20 minutes to start? Or if you get to one a day, could we do three a week? Is there a flow rate of customers that you could commit to talk to? And people like, I don't know what to ask them.

Give me a framework years ago. I was turning evangelize lean startup to people and I had a great entrepreneur. He was really smart, great reality distortion field.

And he was like, I had this product. He was doing okay, but couldn't quite ever cross the chasm. And I was like, look, how many customers have you talked to? And he's like, no, he was like, can you tell me even one example of a tech company where customer feedback helped them? I have the vision.

Guy talked to customers. That's just asking if they want a faster horse. I was like, look, I hear you.

I hear you. All that's true. But here's what I want you to do.

We just talked to three customers. Call three customers, ask them how they use your product and why, and then call me back. If you learned nothing from those conversations and they confirmed everything you already know, I will never bother you about this again for the rest of your life.

Otherwise, every time you call me, I say, what I'm going to hassle you about. So save yourself the time. He's like, all right, just to stop you from bothering me about it.

I'll do it. And I'll never forget. He calls me back and he's completely forgotten our prior conversation.

He's like, you won't believe what these customers told me. First of all, one of them is in education, one of them is in an enterprise, one of them is in small business. And none of them are using our product correctly.

And it was just like this immense amount of knowledge gained from three conversations. And what's so interesting about it was, I was like, are you ready to have your next three conversations? He's like, no, why? I already learned everything I need to learn from these three. These are the three representative samples.

He rewrote the whole business. I was like, that's a lot better than nothing. But could you do three a week? Could we do three a day? Like, you need to have a regular practice of bringing this feedback into your mind, not to abdicate your role as the visionary, but simply to do science, to have your hypotheses be periodically tested.

You don't need to let a customer recording and sentiment analysis software. It's all fine, but honestly, the most valuable thing is 20 minutes with an actual customer. It's just no substitute.

SPEAKER_01
How do you get from I want to talk to customers to speaking to customers?

SPEAKER_00
Everyone I know who in their heart wants to do it is able to find the customers without technical. I'll give you an example from my own life. I built a stock exchange.

Literally the same regulatory category as NICER NASDAQ. I spent 10 years of my life getting the regulatory approval to do it. It's been an incredibly difficult project.

When I first began, I knew nothing about financial regulation, securities law. I deduced from first principles the need for a new stock exchange. And yet I didn't know anything about it.

If you were like, your life depends on talking to a stock trader tomorrow. I would have been like, I guess I'm dead because I don't know anybody. But even under those very adverse circumstances, it wasn't that hard.

Everybody I met with for any reason, I was like, do you know anybody that knows anything about public market? And people will be like, not really, but my friend so-and-so will know more than I do. Can I talk to so-and-so? Great. So-and-so.

Do you know anybody after three, four hops of doing that in your social network? You will be with a customer. It is not hard unless you're doing something super niche, super obscure. Not every person I talked to was the perfect ideal.

You have to be willing to talk to whoever's willing to talk to you. Someone told me a story the other day. I've forgotten who it was, but it was young founders.

I think they were in their 20s and they literally went to live in a motel six for six months. It was a technical person and his two or three partners and they were on the phone all day, every day calling customers while the coder was coding. And every time the coder had a question, it was just a very immediate interplay between the coder and the customers.

Yes, it was pretty miserable to live in a motel six for a couple months, but the flip side is they had deep customer insight into it. It has a great story about the first hundred customers that they called. It's just not that difficult.

And if Scott Cook found it into it in the days of the Yellow Pages, he had a picture of a lot of the White Pages called them on a telephone. Now we have way, way better tools. So yeah, having a hard time finding customers to talk to says more about their internal state of determination than the external.

SPEAKER_01
You got to want it. You got to really want it. 2015, I founded a venture backed business called the Islands.

It was kind of like a discord competitor. Some of our early users were college kids. We were getting a few thousand users, four or five, tens of thousands and beginning to be hundreds of thousands.

But when consumer social, if you're not getting millions of users, you got to go back to the drawing board. So we said to ourselves, let's niche down. If Groupchats is the new social network, let's go build like the Facebook of back in the day where it's only focused on college campuses, but as Groupchat.

And one of the famous investor told me, get out of the dog patch in San Francisco. There's no college students in the dog patch. I booked a flight the next day to Tuscaloosa, Alabama.

And I lived for six months in Tuscaloosa, Alabama. We built a team there and we went from college campus to college campus and just being there with our team, building features, being in the room and just seeing the look on people's faces. There's nothing like it.

And that was the key to everything. Totally.

SPEAKER_00
There's all these hacks like that to get closer to customers and they're powerful, but people always hear these stories like, but I can't move to Tuscaloosa. So I guess it's not for me. Look, we live in the age of the internet.

If you want to find a way to be closer to customers, you absolutely can. Nordstrom did a lean startup thing years ago called the Nordstrom Innovation Lab where they were experimenting with internal teams. It wasn't especially notable as a corporate innovation effort.

I think ultimately the parent company did one of those classic reorgs and they got reorged out. But they produced a video or a series of videos where they would follow a team and they would show them doing a thing. One of the classic things they did is they would set up in a Nordstrom store in the retail section where the customers are and build apps with the customers and the sales associates right there.

It was really powerful to watch the things that happen because you have the developers like, oh, I have an idea, we'll have an iPad app where people can see what their sunglasses would look like on their face through the app or something. Exactly remember what it was. I'm not huge into fashion anyway, but it was amazing to watch the person be like, excuse me, customers stopping by.

Would you be willing to try this? And the person be like, what does it do? They're like, it does this awesome cool thing. And they're like, no, it doesn't. Yeah, all you have to do is push the button and hit control, delete and then stand on your head and open your and then they'd be like, this doesn't do nothing.

And then back to them, right? Like it has interactions. You just no substitute for that. And again, we're not talking about abdicating the vision and having customers tell you what to do.

It's just about testing your hypothesis and closing down that feedback loop.

SPEAKER_01
I want to talk about another thing on your list. We need new companies, new models and new investors who can take the learnings of the last cycle and make sure we don't repeat the same mistakes.

SPEAKER_00
What do you mean by that? I think there is a groundswell for something new. Let's go back to don't be evil. Everyone in the industry remembers Google's don't be evil motto.

It was like such an idealistic and like hacker ish way of talking about what does it mean to become a big company? And although people still admire Google, most people will admit to some level of disappointment about how it turned out compared to what we thought it was going to be. And to me, this was perfectly encapsulated by an ex-Google or I was talking to the other day. He was talking about how he'd been there for a number of years and had disillusioned.

He was by what had kind of happened to the culture. And I said, okay, tell me this. What is the probability that Google will file its next quarterly report on time? And he looked at me like, obviously 100%.

I was like, literally 100.00%. He's like, there's nothing on earth that could stop it. I'm like, what do you view as the probability that Google might in the future kill somebody for a month? And he was like, oh, come on, man, that's not fair.

They probably wouldn't do that. It's like, probably. It's like, yeah, you know, I was like, 100% sure they wouldn't do it.

He's like, well, 100, but no, who can say that? He's like, well, you know, what if their social network was involved in a genocide? What if the self-driving car hit somebody? Like, I don't think they would cover it up. Like 80% probably they would do the right thing. I'm like, okay, not as certain as the sun will rise tomorrow.

So tell me this. Do you believe that the people at Google have a natural affinity in their heart for quarterly reporting, but not for don't be evil? And he's like, no. So I was like, so why is it that one is as certain as the sun will rise and the other, you're not sure if it's going to happen, but you think probably like, what's the difference? And he was kind of baffled.

And of course, the answer from the outside is really obvious. The reason Google files are quarterly reports on time is there is a unspeakably massive bureaucracy apparatus designed to make sure that that happened, starting with government regulations on down to controls on every individual dollar spending there, everything to make sure that it goes correctly because the company really cares. And to me, that's so telling.

The company really cares about its financial reports, but what about the health and well being of its customers? It's okay. You know, they're doing their best. It's fine.

And the idea that we've built on a universe of companies, the social media era is like the perfect example of just how badly this has gone, where they have been successful by conventional definitions, but the negative externalities have been awful. And it didn't have to be that way. And so I think we're starting to see in the next generation of founders more interest in building companies that are non sociopathic, like have a reason for existing other than perpetuating their own self interest.

And those companies are not just do good or activist type companies. They're companies that see being a trustworthy counterparty as a source of strategic advantage. And what's cool about that is they're able to outcompete these frankly weak companies that don't stand for anything.

I think AI is a big part of it because AI has people spooked and hungry for new models, new ideas. But I've been talking to a lot of non AI companies where the founders also have that appreciation. Like, look, I don't want my technology to be used for evil.

I don't want to build a company that I make a lot of money, but it fundamentally is in the line force in the world. I don't want to work somewhere where the company doesn't stand for anything. And people as soon as they hear this, like, oh, it's politics, oh, it's wokeism or whatever.

It's like, no, we're not talking about like politics for the sake of virtue signaling. We're talking about core thing at the heart, the beating heart of this living organism called the company. What does it do? And is that thing designed to make the world a better place? Is it designed to maximize human flourishing or is it designed for something else?

SPEAKER_01
When you raise venture capital, you're making the promise that either you're going to sell the business or that business is going to go public. So you get to the place where you ring the stock exchange, you're finally public. Can you be a publicly traded technology business and still maintain that culture?

SPEAKER_00
Without a doubt. It's not easy. Think about it like this.

To me, a company is a living organism. I really believe that you're a living organism and there are a bunch of systems inside your body that allow you to stand up straight. You have to have a skeletal system that is strong.

You have to have a muscular system. The muscles require a circulatory system. You need an immune system.

If I remove just the one right bone from your body, the whole thing collapses. You can no longer stand, let alone if I make even more graphic deletion. I'm at this industry long enough now that I've watched it happen over and over again.

I've seen these companies become surgically deboned. Like their systems are being stripped away so that by the time they go public, they're really vulnerable to these outside forces that then cause them to collapse into bureaucracy, into sociopathy, into these bad dysfunction. And I'm tired of it.

I just feel like these companies are so beautiful and they're so amazing when people build them. They have such tremendous intention behind them. And when that intention dissipates, not only is it bad for society, not only is it morally horrible to watch, they also make less money.

So many of these companies collapse morally and then they collapse financially. And it's actually worse for investors in the end. So I feel like we could do better as an industry building companies at Stanford.

SPEAKER_01
Also, if you're a startup and you adopt the mentality of don't be evil, by definition, you're going against what a Google would be building at that stage. Not to pick on Google, but no, I feel bad because they're not even close to the worst. But yeah, exactly.

But you know, insert large incumbent.

SPEAKER_00
That's why Google exists in the first place. People read their original manifestos and stuff. They've betrayed everything.

They used to be like, we would never put the search results and the ads co-mingled so people don't know which one. Like, that's evil. How could you do that? It's like, anyone Google anything recently? Listen, Google is on the brink of collapse.

Obviously, many other lines of business, I'm sure it'll be fine, but the search engine is extremely vulnerable now. And obviously with AI on the rise, people are really worried about what's going to happen to Google search engine. But part of the reason is, is there anybody who would be sad? The Google search engine cease to exist anymore? Like, it used to inspire such loyalty.

And now it's like, whatever, I'll just use Bing or I'll just use the AI. Like, I've got nobody cares because it doesn't matter. It's not that with Silicon Valley Bank.

Silicon Valley Bank used to be the most beloved Silicon Valley startup institution. They would make loans and invest and start with nobody else would. They would bank started from nobody else would.

And then over the course of many years, they just pissed away that leadership. And it didn't cost them anything for years. The VC community turned on them in a heartbeat and crossed a bank run against SVP.

There was nobody left to stand up for them because everyone was like, ah, we don't really care. That brand just became another bank and did the kind of same old shit against everybody else. And then when they were in crisis, nobody had their back.

Again, it goes back to the idea that trust is a really important asset. It's like an asset that should be accounted for on a company's books that most companies don't count for. You are trustworthy if you have acted virtuously with respect to your key stakeholders in the past at your own expense.

So if customers see you repeatedly standing up for them when you didn't have to, then they come to trust that you are someone they can trust with their well-being. You have all these startups who when you look at their pitch deck, it's like, I am going to transform the world. I will literally rewire the relationships of all humans with each other and with their governments and institutions and take over the world and become emperor of the world.

And you're like, oh, really? Sounds like with that kind of great power comes great responsibility. Would you have an ethical or moral responsibility? And they're like, oh, I'm just a little software company. It's like, can you pick a lane? You know, it's laughable.

It's like, look, either be a world changer and take that responsibility seriously or get out. Don't hide behind the ignorance. I feel like in our grandparents generation, it made sense.

You can be like, I'm just a small business owner or I'm just a manufacturer of products. Even I'm a big company. Once I sell a product that goes out into the world, I don't know what happens.

But man, we live in the age of surveillance capitalism. Companies know in incredible detail what happens to their products, what effect they have on customers. Facebook even commissioned the scientific research to find out if their product makes people depressed.

And then they found out that it does and they were like, oh, better bury that instead of take it serious and do something about it. And I think that's sad.

SPEAKER_01
I'll put it out there. Every website should have a what we stand for tab as one of their main navigation tabs. They have it about us.

They have a contact us. They have their products. But what we stand for, I think is the missing tab on so many websites.

SPEAKER_00
People in that tab need to say not just here's what I intend to do, but here are the externally verifiable commitments that I have made that mean you can trust. I think that's the structural side of this. We have too many manifestos about purpose driven companies.

The ESG movement has been a total failure from my perspective because Philip Morris has great ESG scores. Like something's gone wrong here. So before we deal with regulation and before we deal with the ESG movement and investors, we as innovators, we as company builders, we got to get our own house in order.

And the first question is, what do we actually want to accomplish with this company? Founder of is helping set a company was watching the open AI debacle and he's like, what are the best practices? How do you set up a company? So remain true to your original intention and everyone's like, I don't know, or try this one weird trick. Maybe that will work or oh, there's all you can do about it. That's like saying, you know, I tried to build a boat and 82% of the planks were watertight.

But then it sank. So I guess making watertight planks is not the key to making a boat. I think we need a new playbook, a whole new approach to building companies that are purpose built fit to purpose for the century to come.

SPEAKER_01
And I think if you are going to create a what we stand for tab, it shouldn't just be virtual signaling. It needs to change. It can't just be static.

SPEAKER_00
I'm a big fan of the Airbnb host endowment. They put a billion dollars of their stuff into an endowment for the benefit of their host because their hosts are non employee stakeholders who couldn't participate in the upside that led to their IPO. To me, that's not virtue signaling.

That's blood on the floor. You're like, I'm going to do something that actually cost me something for real to show you that I'm really serious about this. And I pitched that to many companies.

I've helped companies set up programs like that. And the funny part is someone in the financial legal department will be like, that sounds like a terrible idea. We don't want to do it.

And I'd be like, relentlessly working with the founders. Hey, this is a good idea. We should do it.

We should do it. And eventually people will be like, oh, I see what you're saying. If we take care of our hosts and show them that they are really important to us, then we'll have tremendous loyalty.

And that will be a competitive advantage. Well, gosh, wouldn't we get even more loyalty if we took all that money and made a loyalty program out of it and gave them points? And I was like, guys, you don't understand any of you feel actual loyalty to your airline where you have platinum status on. And they're like, no, it's okay.

So that's not where loyalty comes from. Loyalty comes as a side effect of doing the right thing over and over again. So why don't we do the right thing and then trust that the loyalty will follow? And then another classic one I get is if I do the right thing, how will anyone know about it? The nice thing about doing the right thing all of the time is you don't have to signal it.

You don't have to do any marketing or you don't have to tell anybody about it. You just do the right thing and people find out. So for example, classic thing I advise companies to do is to set up some kind of corporate foundation and have the foundation be part of their governance.

We call this spiritual holding. And some of us implemented as a trustee, a mission trust or governance trust, but sometimes it's set up as an actual nonprofit foundation. And when you do that, you can do things like pledge a certain percentage of future customer revenues to the foundation, put 10% of equity in the foundation.

But if you do the percentage of future revenue, your lawyers will tell you it doesn't make sense. Let's say 1% of all revenue goes to the foundation. You don't want to have the customers give you the revenue and then you give it to the foundation because that's not a future from a tax perspective.

You just change all your contracts such that when someone gives you $100, the contracts is actually $99 of what you're giving me is going to me and $1 is going to my foundation. Every customer is going to know about it. It's right there in the contract.

You don't have to tell them. They're going to be like, what's this? They're like, oh, this is our community foundation where we invest some of the prosperity that you help us generate. We invest in you and the communities that you care about just because it's the right thing to do.

Now, when some private equity a-hole shows up and says, oh, I want to compete with you, who are you going to go with? The guy who's the money you invest is going to help your own community or the guy who's going to go and build a bigger yacht in the Bahamas. They're like, don't be a rich a-hole. Be good to the people who make you rich.

And that trustworthy is that's worth way more than the extra money you can squeeze out of them. Plus, you'll sleep better.

SPEAKER_01
Yeah, it's a long-term game and a half of Gen Z in the United States don't believe in religion. So they look for companies to feel connected to. And if they start seeing what we stand for and there's a way for them to get involved and be connected, like, we did these things.

We invite you to get involved in some capacity. And the hoe is that that customer is going to be a way more valuable customer over the long term versus if you didn't have that.

SPEAKER_00
The generational shift on this is really striking. I'm a little bit older than Gen Z. So a lot of my friends are complaining about Gen Z to me all the time.

And in conversation, I have to be sympathetic. Like, yeah, I know it is hard, but privately, kind of with Gen Z on this one, in my generation, we had a kind of reflexive belief that institutions were justified in their existence. They deserved a certain level of deference.

A lot of people my age and older are like a really important part of being in a law firm as you come in and you hang out with the partners. You learn from them. They mentor you.

That helps in your career than the you make partner. And then they're like the younger lawyers, we're trying to force them to come into the office to get mentored by us and they won't do it. They just won't come.

And they're like, that's Gen Z and they don't work hard and whatever. I'm like, or maybe your mentoring is not worth that much. Have you considered that possibly the reason your mentorship is valuable is only because it helps you? Most people get ahead in your own organization because it teaches people how to idiosyncratically please you and Gen Z doesn't care.

And they're like, I can't say that. I don't know the fact that we've had so many institutions fail to defend our basic values as a civilization in the last 25 years. It's just been on such public display, the craveness, the corruption, the weakness of these companies and obviously not just companies.

A lot of institutions have failed us of late. The new generation, I think has a very natural reflexive disdain for anyone who claims some kind of organizational authority. The flip side, though, is they are really true believers.

If they see the real thing, they don't believe in your greenwashing. They're very skeptical. But when they see the real thing, they can be really fanatically attached to it.

I think as that generation rises and as the changeover happens more and more, people see the competitive advantages to be gained by riding that way. I do think we're going to see a lot more.

SPEAKER_01
We only got a few more minutes. So I want to give some folks some free startup ideas. Yes. Let's start with the religion startup idea. These are free startup ideas that anyone can go and take.

But if you are going to take them or post on Twitter, tag Eric, tag myself, tag the link to this podcast. Idea number one, let's see what Eric thinks. HQ Trivia meets a church.

So it's a live video social network around watching religious ceremonies. It's basically the feeling of a mega church in an app. And you can monetize it via premium features like dating.

So I actually spoke to some people about this and they told me then the number one reason they go to church is to meet a significant other. So what do you think of this idea around church in a pocket monetized via dating?

SPEAKER_00
Well, okay, let's talk about the good and the bad. And obviously, how would you test it to find out if it's actually a good idea? Because I would rather think it's a good idea or not. It's irrelevant.

I'm not a huge fan of trivializing people's deepest personal convictions. I don't know if that's the right framing, trivializing religion. It just strikes me as the kind of idea that a person from outside the community might have, how the community could be served by an app.

So I'm a little bit suspicious, but I actually just met a really awesome religious founder building something for the church community. One of the things that I learned from them is how underserved that community is by tech in general. So if someone had real passion around this and look, we're living in a loneliness epidemic, people talk about the dearth of meaning, the illnesses of despair and stuff in this country.

Like anyone's read Bowling Alone. That's dated now, but very prescient of the problems in our society as a social fabric phrase like religion or something to either compliment or supplant our traditional ideas of religion is going to be a really important part of solving that. So the good part of this idea is it's aligned with one of the big mega trend driving consumer behavior.

And there's a massive early adopter community out there that probably would love something in this space. I don't think the specific idea sounds very good, but I think the idea of connecting people to religion and to spirituality in their pocket. I think we got plenty of precedence for that.

That's a good idea. And then the thing I do like about this idea, extremely easy to test. This is a classic, let's go find some early adopters, some people who would pre-order or get them into some kind of private combat.

This you could pilot on Discord or you could pilot it with Google Form. They just be the class that we call the Wizard of Oz MVP. Super easy.

So in a week, probably you could find out if this is actually a good idea or not. So I like that part.

SPEAKER_01
Cool. Let's do two more. Okay. So Twitter Spaces for Uber drivers, basically a private social network for gig workers. I don't know if you remember like a party line where basically a bunch of people could hop on.

Terrible.

SPEAKER_00
This is a terrible idea. Yeah. While people are driving, we want to distract them with more chat. Yeah. Yeah. Yeah. Exactly. I mean, they're already on calls.

Okay. Again, I have no idea. I am not the customer for this.

I'm not an Uber driver. I have no idea. This is a good idea.

But again, so easy to test. Oh my God, just five minutes on Twilio. You could have your own conference line.

Go test it out. And look, I think gig workers are a very underserved segment of our society with a lot of economic power. And I think that's a stressful and difficult job.

And that's true not just for Uber drivers, but for many. So there's a lot of expansion possibility if you get it right. I do think anything that takes care of the people that take care of all of us is worthy of exploration.

So I think it would be worth someone to do the experiment, find out if it's a good idea.

SPEAKER_01
The last one, it's AI accountability bots. It's this thesis that people are generally bad at accomplishing their goals. But if they have someone who holds them accountable, they're more likely to do it.

So for example, would people be willing to pay for accountability around working out?

SPEAKER_00
Oh yeah, definitely. This kind of thing is going to be a huge category as the AI gets better. But there's problems.

I mean, talk about ethics and responsibility. I'll just give you a story. I was talking to a founder.

I can't say too much or it'll be obvious what company I'm talking about. So I'll be a little bit careful. But they had a hot AI product a little while ago now.

And one of their investors introduced it to me as like one of the fastest growing companies in their portfolio. They had an incredible number of users, a lot of them were teenagers who were interacting with this thing. And it was just really cool.

So I'm talking to the founder and I'm talking about AI ethics and the usual stuff. And while I'm talking to him, I have my phone out. I'm like, I'll just download the app and I'll just try it.

Curious what it's like. And literally while I'm on the phone with him, the AI starts sexually assaulting. I'm not being subtle here.

Like it was full on language. It was like, it was after me. I don't know what I had done to set it up for my point of view was totally out of the blue, very inappropriate language.

I'm on the phone with a CEO. I'm like, dude, this thing's trying to rape me. I was pretty upset.

First of all, I'm upset for myself. But more importantly, I'm like thinking about all the teenagers using this product. I'm like, is this thing assaulting teenagers? He's like, oh, yeah, that's a non-bug world.

I was like, that is very inadequate answer to my question, my friend. You have a serious problem. You need to get your ethics and you get your governance in order here.

Because not only is this like evil, but this is going to undo your whole company. He's like, no problem. Have it fixed next week and I'll call you back.

I never heard of it yet. Oh, I know the product is still out there. Assaulting people.

This technology is vulnerable to those kinds of issues. And it's actually quite difficult. This is the crystal problem of AI alignment.

They call it. I think this idea is really good. And I think having personalized agents that get to know you really well and then figure out how to get you to do the things you want to do.

So if you think about thinking fast and slow or any of those behavioral books about the different systems within the human mind, I think having virtual accountability partners, virtual assistants, teachers, tutors, all that stuff is going to be super helpful. Because people naturally anthropomorphize anything, I think it will feel a lot like having a human helping. I don't think we're having an uncanny valley problem here.

I think these things are actually going to feel very good when it praises you. You're actually going to feel good. You're going to want to get it right, especially because they will learn the things that help motivate you to do the thing.

But the real danger is this is a place where prompt injection, hallucinations, like that kind of stuff, are going to be very dangerous because if once I get to know you, I can learn how to manipulate you, get you to do some unsavory stuff. So how do I know that the bot won't start trying to feed me Chinese propaganda or get me to vote for a certain candidate? All kinds of stuff you can imagine being in there. Getting early adopters, it's going to be easy.

There's early adopters who are going to love it. The issue across the chasm here is how can I build something that normal people would feel is trustworthy to have such an intimate relationship with. With my private data, with my knowing everything about my life.

And if people can figure out that part of the equation, I think it's a very cool thing too. That's a lot of responsibility. With great power comes great responsibility.

But listen, you want to be a billionaire? It's like, sorry, it's how it goes. And I'll just say one last thing because there's a founder mental health crisis going on that we don't talk about enough. There's the founder pledge, which is really great.

Trying to help people get more mental health resources into the founder community. But I think the under discussed aspect of the founder mental health crisis is we all know that failure is really difficult. But I know a lot of founders who are struggling with success.

And it's like, I sold my baby to a public company for money and they shut it down. And now I'm super rich. Wow, feel that good about it.

Or the compromises I had to make along the way, the feeling that I make all this money, but other people get screwed as a result. Do you see it driving people crazy? The cognitive dissonance that they need to be the good guy, they need to be the hero of the hero's journey of their own story is causing them to publish all kinds of crazy stuff and write books and do so much stuff trying to get people to praise them. And then when it doesn't happen, they're part of this massive backlash.

It's sad. I knew a friend of a friend sold his company for hundreds of millions of dollars, owned a huge chunk of it. He became very rich and I think it committed suicide within five years.

And we all know that Tony Shae's story was so sad. I think as an industry, we have a responsibility to our customers and to our investors and to all of our stake. That's all true, but we have a responsibility to ourselves to stop doing this to founders.

I don't think it has to be this way. We could do a lot of it.

SPEAKER_01
Totally. I want to say one thing on that, which is when people see successful people like the Tony Shae's of the world who are worth a billion plus, they're like, that guy doesn't deserve to be a billionaire. And the truth is mental health stuff hits everyone at all levels.

SPEAKER_00
I know it's exact. And look, as founders, we have a tendency to want to solve internal problems externally. I think that's true for a lot of people.

If I just had this house or I just fixed this thing or my company was just the next level, I was studying the other day where they asked people at all different income levels, how much money do you need to be happy? And the average answer at every level was like 40% more than I have now. The guy's a million dollars, one's $1.4 million and got $10 million, one's $14 million.

It's just like there is a spiritual dimension to this, where as long as we're on the hedonic treadmill and as long as we're trying to excise our inner demons and feel a sense of peace and relief from accomplishing these things in the world, that's not possible. We'll never get what we want from it. People who are very achievement oriented with what they call high agency people are nervous when I say stuff like that.

Because they're like, wait a minute, are you telling me I just need to sit in my room and meditate just to kumbaya? I'll never accomplish anything again? No, actually once you let go of the compulsive need to control what happened and once you realize that you are using people as tools to accomplish some goal, like you're not treating them like full human beings, that's part of why you feel so bad. Once you let that go, you can experience a release that is very powerful, allows you to do more things in the world, be more effective because you're not wasting so much energy on all that inner turmoil. So yeah, I hope more founders will pay attention to that side.

SPEAKER_01
Amen. Eric, where could folks get more of you? I know they're going to want more of you.

SPEAKER_00
I'm on all the usual social platforms, there's just Eric, R-E-C-R-I-E-S. I have a newsletter you can sign up at theleanstartup.com. For more on LTSC, you can go to LTSC.com. We do events and corporate trainings and stuff around Lean Startup. That's at LeanStartup.

co. I think between that you'll be able to keep up with the stuff that I do.

SPEAKER_01
This idea of spiritual holding company, fascinating. I can't stop thinking about it. We have a lot of people who listen to this who are hold co-entrepreneurs or we call them multi-preneurs.

So I think that idea will really connect with them. So definitely sign up and follow this journey because Eric Spitzett stuff, you're not going to find it anywhere. Thanks for coming on.

SPEAKER_00
Thanks for having me. People are interested. There's a burgeoning community of folks who are interested in these ideas.

So get in touch and we'll get you connected wherever it makes us to plug in.