When Following “Best Practices” Is the Real Mistake: What Lean Practitioners Can Learn from Eric Ries

Eric Ries is best known as the author of The Lean Startup — the book that gave a generation of founders a shared vocabulary of minimum viable product, build-measure-learn, and pivot. But when I had him on My Favorite Mistake for Episode #353, the conversation went somewhere most Lean practitioners will find more familiar than they might expect.

Eric's new book (available now) is Incorruptible: Why Good Companies Go Bad and How Great Companies Stay Great. It's an argument that many of the so-called “best practices” we train leaders to follow are quietly destroying the organizations they're meant to govern. If you've spent any time trying to embed Lean thinking into an organization, only to watch it get hollowed out by quarterly pressure or a new CFO with a cost-cutting mandate, this book is for you.

This post is about what struck me most — and what I think matters most for Lean practitioners working in healthcare, manufacturing, or anywhere else.

Related podcast episode — Eric on my Lean podcast: Eric Ries on The Startup Way, Lean Startup, and Corporate Innovation

A Plan Is Not a Strategy

Eric's “favorite mistake” wasn't his failed dot-com startup. It was what that failure exposed. He had a 40-page business plan and an Excel model so complicated that it would crash Excel. He had elite co-founders, real investors, and a working product. What he didn't have was a strategy — and he didn't realize it until a Boston job interview, when a panel of consultants told him his answers weren't strategy and he sat there in a moment of panic, realizing he didn't know what the word meant.

This is a Lean lesson dressed up in startup clothing. The 40-page plan was a prediction. A strategy, if there had been one, would have been a method for testing whether the predictions were true.

Lean practitioners see this pattern constantly. The detailed implementation plan is not the same thing as a hypothesis. The Gantt chart plan is not a PDSA cycle. The strategy deployment binder is not the same thing as catchball. Eric's startup had all the appearance of planning rigor but no actual mechanism for learning. Most failing Lean transformation efforts share the same structure: impressive documents and no learning loops.

The deeper point: when you're operating in conditions of uncertainty — which describes most improvement work, most patient care, most product development, most knowledge work — knowing the answer is the wrong skill. Finding it through small, fast, cheap experiments is the right skill. Eric's elite-student training had taught him to know the answer. That's exactly what made him unprepared.

Do we KNOW the answer? Or we wllling to work at figuring it out?

Related post: Why You Can't Think Your Way to a Root Cause

How Leaders Respond to Mistakes Sets the Culture

After Eric's startup collapsed, he interviewed for jobs in two very different places. The Boston interviewers in suits, all from strategy consulting backgrounds, treated his failure as a personal indictment. “Yes, but now that you realize your mistake, what would you do differently?” — with a tone of barely concealed annoyance.

Silicon Valley interviewers reacted the opposite way. When Eric started to apologize, they cut him off and exclaimed:

“Don't apologize. What's great is that you must have learned really valuable lessons on somebody else's dime. Someone else paid for your education. We don't have to pay for it.”

Same failure. Same person. Two completely different signals about what's safe to admit and what's worth learning from in those situations.

For any Lean leader working on cultivating psychological safety, this contrast is instructive. The Boston response taught Eric that failure was something to hide or apologize for. The Silicon Valley response taught him that failure, well-examined, was an asset. Which environment do you think produces more honest problem-solving the next time something goes wrong?

I'm not romanticizing 1990s Silicon Valley. Plenty of nonsense came out of that era, as Eric's investors demonstrated. But the principle holds: how a leader responds to a mistake shapes what people are willing to bring forward next time. That's true in a startup, a hospital, or a factory.

Why “Best Practices” Often Fail

Here's where the conversation pivots into the heart of Incorruptible. Eric argues that many of the practices we treat as immutable rules of business are actually relatively modern inventions, and the evidence on how well they work is pretty bad.

“There's a dark underside to this business. I really wanted to try to do something about it, because I honestly felt like I was feeding one company after another into a meat grinder.”

This is a Deming argument applied to corporate governance. Deming told us that most problems come from the system, not the individuals operating inside it. Eric extends that idea: the system itself — the legal, financial, and governance structures most companies are built on — is generating predictable failure. We blame the leaders. We swap them out. The pattern repeats. As Eric puts it in the book:

“If the players change but the play remains the same, then something deeper is at work.”

For Lean practitioners, this should sound familiar. We've all watched organizations replace one CEO with another, expecting different results, and get the same outcomes because the structure underneath remained unchanged.

Even CEOs are part of a system. Most problems are caused by a system…

The Whole Foods Five Whys

The most striking part of our conversation — and the part I think every Lean practitioner should sit with — was Eric running the 5 Whys on what happened to Whole Foods.

Whole Foods was a trusted, mission-driven brand. Activist investors forced it into a sale to Amazon. The activists made about $500 million. Most observers, by most accounts, would say the ethos that made Whole Foods special is gone.

Eric's question: why couldn't John Mackey simply cut prices and let margins come down to retain customers?

Why didn't they cut prices? Because their margins were too high relative to competitors, but they were afraid Wall Street would punish them with a falling stock price.

Why did they need the stock price to stay high? Not because they needed cash — Whole Foods was profitable every quarter and every year it was a public company, including 2008 when the stock dropped 90%. Mackey had donated all his stock options to charity. Personal greed wasn't the motive.

So why did the stock price matter? Because a high stock price was the only thing standing between Whole Foods and a hostile takeover that would dismantle everything the company had built.

Read that twice. The stock price wasn't an operational goal. It was a defense mechanism. And as Eric puts it: “Wall Street created the very problem that it then showed up later to solve and claim this value-creating behavior. It's not value creating.”

If you've ever sat in a Lean transformation and watched an executive demand cost cuts that destroyed the very operational capability the organization was trying to build, this pattern will feel familiar. The metrics that get rewarded in conventional corporate governance are not the same as the metrics that build something durable. Eric is making the structural version of that argument.

Costco as a Counter-Example

The contrast is Costco. Costco has fended off raiders every few years for four decades. It has the worst possible governance ratings from the agencies that grade these things. And it has been one of the best-performing stocks in the entire market over that same period.

What makes Costco work is exactly what Lean practitioners would predict. Its founders, going back to Sol Price's FedMart in the 1950s, treated the customer as the party they owed a fiduciary duty to. They capped margins. They paid above-average wages because they wanted the best people. To this day, Costco performs nearly as many food safety inspections as the FDA, not because it has to but because that's what the work requires.

The $1.50 hot dog story is the punchline most people have heard. The COO told CEO Jim Sinegal they were losing money and had to raise the price. Sinegal said:

“If you raise the price of the hot dog, I will effing kill you. Figure it out.”

So they vertically integrated the hot dog supply chain and brought the cost down.

“A company like Toyota would call that value engineering,” I said to Eric in the episode — you have a price target and you figure out how to engineer to it.

Eric's response:

“And you make it work. People hear that and say, ‘But it's so much extra work.' Trustworthiness is hard work. Welcome to business.”

That's the line I want every Lean leader to hold onto. Trustworthiness is hard work. Quality is hard work. Respect for people is hard work. The systems that make those things possible aren't cheap, fast shortcuts. They are deliberate, expensive, ongoing investments. And they are exactly what gets cut first when an organization adopts the wrong set of “best practices.”

Better Structures Already Exist

The most provocative argument in Incorruptible is that the patterns Lean practitioners care about — long-term thinking, respect for people, customer-first quality, resistance to short-term pressure — are structurally easier in some company forms than others.

Eric tells the story of Marie and August Krogh, who in the 1920s licensed insulin from Canadian scientists to bring it to Denmark. They were worried about the obvious problem: a company with a monopoly on a life-saving medicine could exploit patients without limit. So they designed a structure — now called the industrial foundation — in which a for-profit company is owned and controlled by a nonprofit foundation. That company became Novo Nordisk.

Companies with industrial foundation structures are six times more likely to survive 50 years than conventionally structured companies. Hershey, Ikea, and Patagonia are organized this way. Most founders have never heard of the structure. Eric's question at the end of our conversation is the one I'll leave you with:

“The next time someone tells you that such and such thing is a best practice and you have to do it — ask yourself one simple question: are you sure they are smarter than a Nobel laureate?”

For Lean practitioners, the lesson is this. The cultural work we do — the kaizen, the gemba, the catchball, the andon, the respect for people — needs structural protection. Without it, every gain is one CFO away from being unwound. With it, the engine can run for generations.

Eric Ries's new book is Incorruptible: Why Good Companies Go Bad and How Great Companies Stay Great. You can listen to our full conversation on Episode #353 of My Favorite Mistake.

I received a free early edition of the book and have been enjoying it very much.