Tim O'Reilly on Building Businesses with Purpose and Idealism

Tim O'Reilly, founder of O'Reilly Media and influential technology thinker, joined Eric Ries to discuss building businesses with purpose and idealism. Here are some key insights from their conversation:

The Importance of Idealism in Business

O'Reilly emphasized that there is a "deficit of idealism" in many companies today, but expressing values and ideals can be a powerful competitive advantage:

"People are just starved for idealism. They're starved for values and companies that express values. It's winning. Google when they were idealistic and expressed their ideals, Amazon when they were idealistic and expressed their ideals, had enormous loyalty from their staff and they had people who felt mission-driven. When you lose that, you lose something."

He argued that idealism and values are critical for building long-term success and loyalty:

"Idealism is a critical part of the human soul. These companies are alive, they're superorganisms with their own soul and their own ethos and their own moral compass. People feel something deep when they connect with them as customers, as investors, as employees."

Creating More Value Than You Capture

One of O'Reilly's core philosophies is that businesses should aim to "create more value than you capture." He explained the origin of this idea:

"Back in 2000 we were having a management retreat and I happened to tell the story of a couple of Internet billionaires who told me that they started their company with the help of an O'Reilly book. I kind of laughed and said they got billions, we got $35 bucks. But that seems like pretty great - we played a role in making these companies, in making this industry."

This led to the realization that creating outsized value for others could be a powerful business strategy. O'Reilly argued that taking a long-term, ecosystem view is critical:

"If you want to survive over the long term, you have to create a sort of balanced ecosystem, one that leaves enough for everybody to prosper."

Viewing Companies as Ecosystems

O'Reilly emphasized the importance of viewing businesses as interconnected ecosystems rather than isolated entities:

"A marketplace is a lot like an ecosystem - it has to be circular. Businesses have ecosystems. They have competitors, they have customers, they have various kinds of dependencies, they have parasites. Thinking about what happens in ecosystems - for example, when an apex predator becomes too powerful, it takes out everything else and then it dies off."

He argued that companies need to consider all stakeholders, not just shareholders:

"You have to think about not just your users, you have to think about your suppliers, you have to think about your employees, you have to think about your society, because we are enmeshed in an ecosystem."

The Dangers of Extractive Business Models

O'Reilly cautioned against purely extractive or exploitative business models that prioritize short-term gains over long-term sustainability:

"There are a lot of business models that are just bad and eventually it catches up with you. The problem with our economy is that in so many cases you can take your winnings when the horse is around the first turn. You don't have to wait till the race is over."

He gave the example of Amazon's advertising business:

"Amazon completely lost the plot with the introduction of their ad business. The ads are now a third of the most clicked-on products because of course they're given top billing. The products that are advertised are generally 30% worse by Amazon's own metrics."

O'Reilly argued this type of short-term thinking ultimately undermines a company's competitive position:

"When you recommend worse products that cost more, you think your users won't eventually notice? And if you basically start taxing your vendors more heavily, don't you think that they will notice and look for alternatives?"

AI as a Mirror, Not a Master

On the topic of AI, O'Reilly emphasized viewing AI systems as reflections of human values and practices rather than autonomous entities:

"AI is a mirror, not a master. People have this notion that AI controls us. In reality, what's the AI doing? It's trained on actual practices. We should be going and looking at all these AI algorithmic results that we don't like and go 'Wow, those values look really shitty on us. How are we going to change ourselves?'"

He argued AI systems could provide valuable insights into flaws in human systems:

"If some sentencing algorithm is bad, great - let's not just fix the algorithm, let's fix the actual sentencing practices that we trained that algorithm on."

The Need for Transparency and Disclosure

O'Reilly emphasized the importance of transparency and disclosure, especially as AI systems become more prevalent:

"You can't regulate what you can't understand. We need disclosure of what companies are actually doing to manage AI systems. You read the accounts, it's like 'We do red teaming' - well, what does that mean?"

He suggested looking to accounting standards as a model:

"Accounting standards and auditing are based on some system that companies actually themselves use to basically manage and regulate themselves. That's what we need for AI."

Building Businesses with Purpose

Ultimately, O'Reilly advocated for building businesses with a clear sense of purpose beyond just maximizing profits:

"I want people who are fundamentally interesting because they're going to do something that will make the world a better place. I've always been drawn to people who wanted to change the world rather than people who were just going to make the most money."

He emphasized that this approach can lead to more sustainable, impactful businesses:

"If you have the ambition to build a great company, how much you have to provide that support for people in the organization to make the more difficult choice to do the right thing - not just because it's the right thing to do for moral reasons, but because that ultimately is the source of greatness. That is your ultimate competitive advantage."

By focusing on creating value, considering all stakeholders, and maintaining a strong sense of purpose, O'Reilly believes businesses can achieve long-term success while having a positive impact on the world.

Article created from: https://www.youtube.com/watch?v=ss-SI2Szjxk