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

by Eric Ries

“Hypergrowth for a company also requires hypergrowth of the people inside it.”

That’s what a modern company does: harnesses the creativity and talent of every single one of its employees.

The “fantasy plan” of the original pitch is often far too optimistic to be used as a real forecast.

I thought of the best, most successful entrepreneurs I know. What would their mug say? I settled on: I EAT FAILURE FOR BREAKFAST.

A modern company is one that has both halves, both systems. It has a capacity to produce products with great reliability and quality, but also to discover what new products to produce.

A modern company is disciplined at the rigorous execution of its core business—without discipline, no innovation is possible—but it also employs a complementary set of entrepreneurial management tools for dealing with situations of extreme uncertainty.

A MODERN COMPANY has a new tool in its arsenal: the internal startup, filled with a small number of passionate believers dedicated to one project at a time.

A MODERN COMPANY rewards productive failures that lead to smart changes in direction and provide useful information.

Overseeing high-potential growth initiatives that could one day become new divisions of the company. Infusing everyday work across the organization with an entrepreneurial, experimental, iterative mindset.

The first responsibility of the entrepreneurship function is to oversee the company’s internal startups. The

Because the types of projects that startups spearhead are best understood as experiments, internal startups must blend the scientific rigor of R&D, the customer-centered focus of sales and marketing, and the process discipline of engineering.

The second responsibility of the entrepreneurial function is to manage the problem of success.

Thus, every organizational unit is more properly understood as a portfolio that contains some mix of experimentation and execution. As startups mature, the ratio between the two naturally changes.

“I think there are always people in the organization who just get it intuitively,” she says. “They’re just waiting to be unleashed. You don’t know where they are, but once you give them the opportunity and the tools to focus them, they just are on fire.”

Being a startup investor often requires doubling down on teams that miss their accountability targets by orders of magnitude.

“Nobody gets assigned to work at a startup,” one corporate entrepreneur told me dismissively. And too many internal startups have teams that are indifferent to their success.

This is the most prized attribute among professional startup investors: conviction, the ability to form independent judgments based on limited but revealing early information.

clear understanding of the difference between trailing indicators (such as gross revenue, profit, ROI, and market share) and leading indicators that might predict future success (such as customer engagement, satisfaction, unit economics, repeat usage, and conversion rates).

Contrast this with the life of a typical corporate product manager. Most organizations subject their internal teams to an endless stream of meetings: formal reviews, budget updates, and a constant barrage of middle manager check-ins.

“The key reason for the success of empowered execution lay in what had come before it: the foundation of shared consciousness.”

Without a vision you cannot pivot.

people often think they know what they want, but it turns out that they’re wrong.1

In other words, don’t ask customers what they want. Design experiments that allow you to observe it.2

What assumptions would have to be true in order for the project to succeed? Are they assumptions about customers? Partners? Competitors? How much do we really know about customers’ habits, preferences, and need for solutions like ours? What evidence is there that customers really have the problem being solved for them and strongly desire (and are willing to pay for) a solution to it? What is really known about what customers want in that solution?

Do people really have the problem you think they do? How do they approach the problem today? Is your concept a better alternative for them?

Among its leap-of-faith assumptions, a startup has two that are fundamental: the value hypothesis,4 which tests whether a product or service really delights customers once they begin using it; and the growth hypothesis, which tests how, given some customers, it’s possible to get more.

“The thing about Minimum Viable Products is that while you decide what’s Minimum, the customer decides if it’s Viable,”

What’s most important, though, is to always brainstorm multiple MVPs for any given project. At Intuit, one of the core pillars of their Design for Delight program (their version of a Lean Startup program, similar to FastWorks) is “Go Broad to Go Narrow.”8

The goal of a sequence of MVPs is traction: to show that each experiment is driving superior customer behavior compared to the one before.

ACTIONABLE. For a report to be considered actionable, the data must demonstrate clear cause and effect and be related to changes in the product itself. Otherwise, it’s merely a vanity metric.

Often the hardest part of running a startup is simply getting everyone on the team to agree on the same set of facts. Only then can we figure out if we are making progress.

In the PRFAQ, the team writes a press release (similar to the Amazon process) and FAQ document for the customer, including information like the product launch date and cost (or at least a good estimate). Then the team sits down with customers who’ve been given the release to get feedback.

Schedule the pivot-or-persevere meeting in advance. Put it on the calendar. Make it a routine part of everyday life.

The foundation of the Startup Way is made up of these same elements, beginning with ACCOUNTABILITY: the systems, rewards, and incentives that drive employees’ behavior and focus their attention. What are people compensated for, promoted for, celebrated for, or fired for in the organization? What performance objectives really matter for employees’ careers at the end of the day? Accountability systems must be aligned with the goals—both long- and short-term—that the company wants to achieve.

New cultures come from the lived experience of seeing a new way succeed.

Once a project starts to gather political momentum, it becomes hard for a stage-gate process to stop it.7 Middle managers are forced to act like executioners—when they do have to kill a project, it’s usually

Managers are perfectly calibrating their status updates to what is needed to pass through the gates.

The amount of behind-the-scenes time and energy spent on constructing this narrative, which often has little connection to how the project is actually progressing, is huge.

If you can’t fail, you can’t learn.

In order to solve it, the ability to experiment and pivot and learn has to be embedded in the fabric of a company. It has to be available to every employee.

Customers don’t always know what they want, though they are often more than happy to tell you anyway.

They do them to gain knowledge by measuring customer actions, not just what customers say.

And if you cannot fail, you cannot learn.

What’s the worst that can happen? is

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

It was, I think, the first time we were getting this raw data from users.

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

When a company puts itself on the customer’s side of the transaction (we profit only when they profit), we are able to discover more ways to add value.

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.