The Startup Way: How Modern Companies Use Entrepreneurial Management to Transform Culture and Drive Long-Term Growth

by Eric Ries

Once that moment arrives, the organization shifts into Phase Two, which is for rapid scaling and deployment. All the resisters and objectors come out of the woodwork. The transformation either develops its own political heft or it dies. When Mikey Dickerson took the phone call, he actually entered the middle of the government’s transformation story.

If these early efforts succeed, they will eventually have the power to tackle Phase Three: dealing with the deep systems of the corporation. Here, finally, it becomes possible to address the structures that cause people, again and again, to return to the old ways. For Dickerson and the government, that meant the establishment of the United States Digital Service and, later, the Technology Transformation Service. If we neglect them, any change wil...

While I will walk you through how I’ve seen these transformations play out, starting simply and gradually getting more complex, do not treat these chapters as a step-by-step guide to everything you must do. Rather, use these stories and tools to prepare for the specific challenges that will inevitably arise.

Every organization is different, and in fact many of the techniques you’ll see are about how to experiment to learn what works best in any specific context. Pay attention to the way these entrepreneurs think, and how they devised experiments that revealed the right path forward, rather than making any attempt to slavishly copy their stories.

“It was like all the business plans we see, with a hockey stick that is going to grow to the moon in five years, and everything is going to be perfect.”

Customers don’t always know what they want, though they are often more than happy to tell you anyway. The incentives that govern most customer research promote more rather than fewer requirements (especially when you use a third party).

And just because we can serve multiple customer segments with the same product doesn’t mean we have to.

“Forgive my ignorance, but I’m not asking about one line of engines. How long would it take you to produce just one single unit? You must have a testing process, right?” They did, and it required that the first working prototype be done and tested within the first year. When I asked if anyone in the room had a customer who might be interested in buying the first prototype, one of the VPs present suddenly said, “I’ve got someone who comes into my office every month asking for that. I’m pretty sure they’d buy it.”

Once presented with the right framework for rethinking their assumptions, the engineers came up with the new plan through their own analysis and their own insights. It became obvious to everyone in the room that this method had worked and that the team had arrived at an outcome that the company would not have been able to get to any other way.

“The Lean Startup just simplified it,” Cory Nelson recounts. “We were trying to drag around so much complexity and so much overhead. The Lean Startup said, ‘Don’t make it so hard. Take it a step at a time.’ Let’s get an engine out there, let’s go learn some things, then let’s pivot when we need to. There may be some intermediate stops along the way. It’s not going to be a straight line to get there, but it’s having the faith that you’re going to figure out a way to get there.”

It looks different depending on the organization, but I’ve noticed certain common patterns that recur in many different kinds of organizations:

Start with a limited number of projects and build from there in order to create a comprehensive set of cases, stories, and results to show how the new method works in this particular organization.

Create dedicated, cross-functional teams to undertake the pilot projects in order to embed functio...

Create a growth board–type system that allows executives to make swift, clear decisions about the...

Teach early teams how to design Lean Startup–type experiments that help them plot a course...

Use the right startup-style metrics to measure the results of...

Build a network of leaders in the organization who can help resolve problems that come up as the new way of working comes into conflict with entrenched methods. Work by exception at the start in order to move forward quickly and to defe...

Translate the new concepts into company-specific la...

Where do organizations get the motivation to embark on a Startup Way type of transformation? I have seen three distinct driving forces behind this kind of change:

CRISIS: Sometimes, a crisis forces change. Earlier I recounted the story of how the very public meltdown of HealthCare.gov—a crisis of the highest order—was the catalyst for real change at numerous agencies across the federal government, beginning with an epic lesson in what can happen if you rely on traditional “safe” management methods.

STRATEGY: Other times, a new organizational strategy clearly necessitates a new way of working. At GE and Intuit, change was driven from the very top by a recognition that new strategic imperatives required a dramatic overhaul. This can work only when the most senior leaders in the company have bought into the new approach and are determined to see it through. It is also not the kind of decision that can be made lightly, which is why it becomes critical, after the first stages, to demonstrate how the new methods function and to lay the groundwork for full mobilization across the entire organization.

HYPERGROWTH: Success can be its own form of crisis. When a startup achieves product/market fit, it can be forced to grow extremely rapidly. As legendary Silicon Valley investor Marc Andreessen, also founder of Netscape and general partner of the VC firm Andreessen Horowitz, put it (in one of the startup movement’s most famous pieces of writing):

In a great market—a market with lots of real potential customers—the market pulls product out of the startup….And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it—or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house.2

What all three of those scenarios have in common is that they unleash a tremendous amount of energy. Like breaking the nuclear bonds of an atom, this discharge must be carefully managed. The kind of energy released in each scenario is different, but once it’s unlocked, what happens next follows the same pattern. If the bonds are broken randomly, without the apparatus to manage the energy, the process can be tremendously destructive. Those who have a way to turn that energy into productive change are at a decisive advantage.

The Series X workshop kicked off a transformation process. After its success, we continued to coach new teams until we had a critical mass that touched every combination of function, region, and business unit in the entire company. The early participants were not chosen at random. Nor was the work they did an end in itself—although it was real, important work. Rather, these initial proofs of concept were designed to demonstrate to senior management that this new way of working would be viable across the organization.

GE made an early key decision that was a big driver of FastWorks’s later success. The CEO appointed a cross-functional team of senior executives to oversee the initiative. Comprising the top executives across each of the core disciplines of engineering, marketing, HR, IT, and finance,3 this team served as a kind of steering committee.

The goal was to test as many kinds of teams and functions as possible to show that the FastWorks methodology could work company-wide on a broad cross-section of lines of business, functions, and geographic regions. This critical mass eventually set off a chain reaction of change throughout the company, sparked and driven by the confident buy-in of senior management.

1. Start Small This first phase is about looking at the results of early projects and asking what went well and what went poorly. Which behaviors and practices support experimentation and entrepreneurial behavior? Which employees have proven to be change agents who will help to scale these efforts?

“The failure pattern is: as you scale your business, you stop applying what you had to do out of necessity when you were smaller. You stop experimenting the way you had to experiment because you didn’t have enough resources to go do a three-year project that goes nowhere.

But these pioneers also learned that there was a real place for technology and startup talent within government. It was the first time anyone was able to gather real evidence for this idea at scale.

After several early successes, Todd Park, who had been promoted to federal CTO after Aneesh Chopra stepped down, proposed a program called the Presidential Innovation Fellows (PIFs), in which leaders from the tech industry would do “tours of duty,” in partnership with civil servants inside the agencies, to tackle specific problems in government that seemed intractable.

The idea was to combine the experience and expertise of inside stakeholders with the skills and talents of outside entrepreneurs, designers, and engineers, just as Park would himself do during the HealthCare.gov meltdown and rescue. “What we said was,” Park explained, “what are you trying to do? What kinds of capabilities and skills do you want to bring in from the outside to help you? Let’s form a team that has your best people on it and bring people in from the outside who have the skills you want, and then have that team execute [operations] in a Lean Startup mode to do more than either could do separately and deliver successfully against that mission.”

2. Build Dedicated, Cross-Functional Teams The goal of building cross-functional teams is to harness and share collaborative energy from various disciplines within the organization, allowing functional diversity to grow over time.

On one team I worked with at a large corporation, the leader wanted an industrial designer on the team full-time. But this team didn’t have the budget or political capital to get someone with the right skills assigned to it. Design was considered a separate function from product in this company, so there was a lot of resistance to assigning someone from a rival function.

Convincing leaders not only to build truly cross-functional teams but to make them fully dedicated is one of the most significant challenges I typically face when I work with companies of any size.

Of course, not every team needs an industrial designer, just as some won’t need IT or legal support but might need engineering, marketing, or sales. The key is to identify which functions each team requires to make progress.

After going through the FastWorks process, the team decided to build an MVP that they could show a specific customer within a few weeks—instead of waiting for years. They built the prototype, which was nonfunctional but showed how the device would both look and work,

FUNCTIONAL AMBASSADORS I want to highlight one additional critical aspect of cross-functionality. Functional team members serve not only as the team’s conscience in their particular area of expertise, but also as enthusiastic ambassadors. As the Startup Way of working starts to spread, it’s important to have people on board who can go back to their colleagues in each function and tell them about the new method.

Ambassadors also act as translators who can explain their role in terms others on the team can understand. I experienced this firsthand with a team at a major manufacturer. An engineer was brought in to ensure that the rigor of the process wasn’t lost as the team transitioned to experimenting and making MVPs.

3. Wield the Golden Sword At GE, we held “report out” sessions at the end of every three-day training for the teams in Phase One. The second part of the presentation was like a corporate version of the TV show Deal or No Deal. We would explain what was required in order to make the new plan succeed. I encouraged every team to be honest and ask for what was really needed, not the usual corporate-speak padded estimates.

Over the years, I’ve been repeatedly amazed at how many “impossible” problems could be solved by using the simple process I call the “Golden Sword” because it cuts through bureaucracy in one swift stroke.

The team presents an offer to the senior leaders, saying here is what you get: faster cycle time, more insight into what’s happening on the ground, and a promise to solve the problem fully and control spending along the way. And here is what it will cost you: air cover, secure funding, and cross-functional collaborators. From the point of view of most executives, that’s a true bargain. Greater accountability, greater confidence that the team will deliver real results, and all for the low, low cost of some political maneuvering, which is one thing they excel at.

When we launched the first cohort of projects at one company, I had a conversation with executives in which I explained, with all due respect, it would be a triumph if even one team succeeded. True to corporate form there was a lot of pressure to ensure a 100 percent success rate. This kind of thinking, of course, is incompatible with startup thinking, which understands failure and experimentation as part of the methodology. Wielding the Golden Sword helps leadership become a part of that process.

4. Design a Good Experiment In order for an experiment to tell us what we need to know, i.e., whether it’s worth continuing, it needs to have certain features. Teams don’t do experiments just to see what might happen (if they did, they’d always be successful because something will always happen!). They do them to gain knowledge by measuring customer actions, not just what customers say. Every experiment should have:

A clear falsifiable hypothesis. Without a clear vision of what is supposed to happen, we can’t judge success or failure. And if you cannot fail, you cannot learn.

An obvious next action. Build-measure-learn is a cycle, which means every experiment should lead directly to a follow-on action. One experiment is never enough to draw the necessary conclusions...

Strict risk containment. What’s the worst that can happen? is usually a question we ask flippantly. But here we really need to know the answer—and make sure we can live with it. The goal isn’t to prevent anything bad from happening. It’s to make sure, by modifying the experiment, that whatever that bad thing is isn’t disastrous. Risk containment strategies include restricting the number of customers who are exposed; not putting the corporate brand on the MVP; not compromising safety or compliance (even better, having a compliance expert on the team); giving the customer a more-than-money-back guarantee; offering to pay ex...

A tie between what is measured and at least one LOFA. If we’re not using an experiment to test an assumption, it’s ...

When experimenting with business models,9 here are a few things to keep in mind:

Whose balance sheet should the product be on? Does it really make sense to force a small business or a consumer to pay cash up front?