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

by Eric Ries

Why make a distinction between product and service? If products are designed to require periodic maintenance, why not take responsibility for providing it?

Should a company profit from a product that may not actually fulfill the customer’s needs? By charging only when the product performs—per-use or performance-based compensation—the comp...

Cycle times are faster when the company controls every aspect of service delivery. Can we take responsibility for intermediate steps in order to...

When a company puts itself on the customer’s side of the transaction (we profit only when they profit), we are able t...

Are new competitive dynamics available to gain market share? For example, in GE’s commercial lighting division, they have building-maintenance contracts that charge per socket rather than per bulb. GE is responsible for keeping the socket filled and operational. Every socket covered by a long-term agreement of this type effectively shr...

5. Create New Ways to Measure Success In this first phase of transformation, the organization is setting up cross-functional teams and doing experiments. But how do the teams know if they’re succeeding? Through the use of leading indicators that measure validated learning.

Leading indicators come in many forms. Their purpose is to track signs that the process is working at the team level. The goal is to show that the probability of something good happening is increasing. For example, one executive I worked with was very focused on cycle time as a leading indicator for success. He was happy if his product teams achieved an order-of-magnitude improvement in cycle time, even if they didn’t produce other tangible benefits immediately. He was convinced that just getting to market faster and learning from customers sooner would eventually produce better commercial outcomes. More often than not, he was right. And this conviction allowed his teams to become more bold in their thinking.

Another good early indicator is customer satisfactio...

The excitement at making new connections with real customers and seeing the potential there ties in to another important leading indicator: team morale. Change is hard, but it can also be contagious. Enthusiasm for a new way of working can make a huge impression on other people. Often one exposure to a truly engaged team is enough to get people saying things like, “I want my whole team to work like that,” or even, “I wish my whole division thought and acted that way.” Morale is powerful.

METRICS A little farther along on the path of experimentation, it’s important to create metrics to measure the success of entrepreneurial projects. This entails replacing traditional metrics—often ROI—with validated learning: scientifically gathered information based on frequent experiments.

“We used to measure too many damn things that did not have anything to do with the actual business value created.” Now they have a list of four: (1) how fast a team can get a new task done; (2) how many tasks a team can complete in the course of one regular work cycle (however long that is); (3) how long it takes for a task pulled out of the backlog lineup to get into production; and (4) how long a task has been sitting in the backlog, which includes pruning projects that have been made irrelevant by the passage of time.

“The simpler your metrics, the simpler your goals,” Smith says. “If everyone can understand it without a manual, people start getting better at a faster rate.”

As Brian Lefler, a software engineer who transitioned into government IT, says, “Software companies have plenty of parts of their company that don’t make obvious, clear money. At Google, when I worked in Ads it was very clear—I knew how much money we brought in divided by the number of people on my engineering team. But it wasn’t that way when I worked in Amazon Ordering, which was a cost center. We were either costing our salaries or we were costing our salaries plus all sales m...

The first-order effect of better measurements is better decision making. The second-order effect is that leadership gives high-performing teams the autonomy to act faster and focus their attention on the right things.”

6. Work by Exception Every team that’s working in the Startup Way needs to have someone in company leadership they can call upon, when needed, to resolve the toughest problems they face when interacting with the wider organization. The lack of such a person can be fatal to an internal startup at worst and cause a huge waste of time at best. Without such a sponsor, the team will have to spend precious resources explaining, navigating, and apologizing for their methods to others in the organization.

7. Translate This Way of Working into Terms the Organization Can Understand One of the most important things an organization needs to do in the early stages of a transformation is to make the process its own. That includes talking about it in language that makes sense for each individual company. As Beth Comstock says of FastWorks (a name that drew on GE’s tagline “Imagination at Work”): “I think with any company, you have to make it your own. We took the best of what was brought to us and adapted it, and I think that’s part of the story, too. We added other tools, like a more disciplined growth-board process inspired by venture capital funding and cultural sayings. I think if you judge a culture by their communication, by the words they use, that’s how you know you’ve had a change.” Remember, it’s not even called “lean manufacturing” at Toyota—it’s the Toyota Production System.

Learning to work in this new way is not about the rigid adoption of a series of practices; it’s about finding the ways the tools can be adapted and applied to each specific company.

“They say ‘What can we replicate?’ ” His answer? “The first thing I always say is, ‘You can’t replicate. Run your own experiments, apply everything to your own process, and then you’ll discover what works in your organization.’ ”

Rather than tinker with the old list, they decided to start fresh. “This is not incremental,” Semper remembers thinking. “This is a leap, a distinct repositioning of the way we need to work.”

Semper’s team zeroed in on the company’s weaknesses, which became the focus of its new priorities. “They were very much centered around being much more customer and user driven rather than product driven,” Semper says. “They were about being simple and lean and operating with speed and experimenting after creating the best teams possible with voices from all parts of the organization.”

After a few rounds of changes and feedback, they launched the GE Beliefs at the annual officers’ meeting in August of 2014: Customers determine our success. Stay lean to go fast. Learn and adapt to win. Empower and inspire each other. Deliver results in an uncertain world.

Every company has levers that make it run. All it takes to pull them is courage.

So what does the tipping point of the Startup Way look like? When and how do companies catalyze their early successes into scaled-up deployment? As I mentioned previously, sometimes the process is part of a planned transformation. Sometimes it’s prompted by crisis, be it positive, like massive growth in an early-stage startup, or negative, as with the federal government following the HealthCare.gov debacle.

Transformation unleashes a huge amount of latent creativity and energy. It makes impossible-seeming things suddenly possible. The key is to be ready.

As with Phase One, there’s no “right” way to go about Phase Two. But there are key patterns and tasks common to organizations that are working their way through this next stage of change. Review and identify challenges faced by Phase One teams and projects. Develop and roll out a widespread system for working in the new way. Identify and make proper use of executive-level champions to reinforce the new methods. Bring internal functions into the transformation process. Create an internal coaching program. Establish growth boards and begin to use metered funding for resource allocation.

Even in our most senior executive trainings, more than just managers were present. Each participant was required to work with a real-life project team from her or his division and do the work on site. Entrepreneurship fundamentally requires learning by doing. There were no “hypothetical” projects or simulations allowed. They built new plans, came up with MVPs, and asked difficult questions. “How do you account for this?” “How do you integrate this with Six Sigma?” “How does this relate to commercial operations?” “What if it’s federally regulated?” At the heart of each question was the same concern: “How do I know this is going to work when I’ve had success in my career doing something else?”

Crossing the Chasm Most people in product development are familiar with what management consultant Geoffrey Moore called the “technology adoption life cycle,” outlined in his book Crossing the Chasm. The “chasm” is the recurring problem that between visionary early adoption and pragmatic mainstream acceptance there’s an abyss that can be spanned only by a shift in the way a product is marketed and sold. The issue isn’t just that the product isn’t polished enough but that mainstream customers seek a like-minded reference in order to make the leap to purchase it.

We all have that friend we trust for recommendations of new cutting-edge products. But we also all have friends who are a little too “out there” for us to trust their recommendations. Enterprise sales works the same way: Regular, mainstream customers are risk averse and want to know that something is really going to work before they try it. Only so-called early adopters have a burning need for a new solution that is strong enough to overcome this friction. The same thing is true for new ideas and especially for new management practices.

The P&L leaders weren’t especially eager to make this commitment, but the president was unrelenting. So eventually each complied, committing a name, in black-and-white, to a whiteboard at the president’s insistence. The division president then dropped this bombshell: At the end of the quarter, he planned to meet individually with each and every person named on the whiteboard and ask them, “How are you being held accountable for success by your leaders? What kind of questions are they asking you in your reviews?” The key to these questions is that they don’t have any apparent right answers. In any meeting that didn’t highlight dramatic change from today’s way of working, he’d want to understand from the relevant P&L leader why.

Perhaps unsurprisingly, this division became one of the earliest adopters of the transformation. What may be surprising to you is that the division president came up with the whiteboard idea himself. Because his incentives were properly aligned, he took the process seriously, which allowed him to be not just effective but creative about how to motivate his own people.

It was an exciting, if exhausting, time. It was also an experiment—an MVP for training, if you will. Because the team had to put together a plan so quickly and implement it in just a few months, there was no time to spend perfecting the program. The typical way to approach this at a large corporation, of course, would be to build out a huge briefing book, hire lots of facilitators, and roll it out slowly. Instead, the first training session happened mere months after Immelt’s request. We ran the workshops during the day, then spent the nights integrating what we’d learned into the next iteration of the training. “After each session, we would huddle and ask, ‘What worked? What didn’t work? What’s not resonating? What do we need to dial up or dial down?’ ” Janice Semper remembers. “It was tough.”

And although I am enormously proud of the fact that I was part of this journey, the really hard work—the behind-the-scenes arm-twisting and the mind-numbing logistics and political machinations—was done by employees of the company. They don’t get the glory in the magazines and business cases, but I witnessed their dedication firsthand. It continues to inspire me.

1. Identify the Challenges Faced by Pilot Teams By the time a company is into Phase Two of transformation, it will have two major sources of information to draw upon. This is the payoff for letting teams fail and succeed.

The first source consists of all the exceptions that had to be made for a team to kick off its project: compliance, hiring, approvals, etc., many of which we touched upon in Chapter 6. What were the biggest issues the teams faced? The variety of problems tends to be far-reaching, but the message among them is clear: What was done ad hoc and by decree in the early stages must now be systematized.

The other source is the results of the early projects themselves. Some will have succeeded and become templates for others to emulate. Many will have failed ...

Any kind of change is hard, so the best way to keep moving forward is to enlist ...

Their job was to follow their startups’ successes and failures, chronicling their observations, then analyzing how and why failures happened—and how they could be prevented next time.

RESISTANCE IS A SPECIFIC KIND OF CHALLENGE A major challenge that innovation teams face in Phase Two is resistance from within. Most resistance comes from a totally valid place: managers who have been trained throughout their careers to act in a specific way. I’m often tasked with giving executives the bad news that they’re paying people to inhibit innovation in their organizations. It’s not so easy to change these incentives. And, once they’ve been changed, the effects of years of that incentive structure don’t evaporate overnight.

Because innovation is a form of positive variation, there is a built-in conflict that almost every manager in the organization will confront. Rather than view these managers as villains, we have to take their objections and skepticism seriously—and find ways to help them support the transformation rather than hinder it.

2. Implement a Widespread Rollout The months we spent on the road training executives were, as I mentioned, a way of spreading change in an organization that was very specific to GE. It was directly tied to the company’s hard-driving culture and to Jeff Immelt’s desire to effect change as quickly as possible. But, of course, it’s far from the only way to take things to the next level.

“There wasn’t any more downside…and the clear signal and direction from the very top of the agency [was] that nothing is more important to us today than getting HealthCare.gov to work. You put all those things together, and you can move quickly.”

“Just as important, if not more important,” Van Dyck explains, “it was an aha moment, I think, for people across the country with skill sets running large-scale digital services that there was a need for their talents inside government and that the projects inside government were not just bureaucratic, paper-pushing exercises. They were actually real, large services that impacted millions of people, people trying to get health care.”

3. Identify and Make Proper Use of Executive-Level Champions In larger corporations, an important role emerges in Phase Two: the executive-level champion. Different from a coach and also distinct from the role of the executive sponsor in Phase One (who is required to be intimately involved with the program on a day-to-day level), the executive-level champion’s primary function is to clear obstacles that crop up for teams as the lean way of working spreads. But rather than one-off exceptions, these interactions are more systemic and proactive.

“His project didn’t get picked as one of the ones that was being tracked and funded and incubated, but he said, ‘Screw that, I’m still going to do it. It’s a good idea. I like this tool.’ He did a sort of skunkworks with Lean Startup, and it ended up getting him promoted.”

4. Train Representatives of All Internal Functions Considering the ways in which his company has changed, Jeff Immelt recently said to me: “One of the things that makes FastWorks a little bit different than other things we’ve done is that certain functions in the company could stop it. You could say, if you’re one of the enabling functions, ‘We don’t have the budget,’ or, ‘I worry about compliance.’ ” The solution? “You need messaging, not so much for the people who are the practitioners, but for the people who can stop things.