The Startup Way: How Entrepreneurial Management Transforms Culture and Drives Growth

by Eric Ries

Incentivizing learning in this case saved the company from wasting time and money. “We celebrate the team’s attitude as a best practice within Turbomachinery Solutions.”

If only customers would read the business plan, then they would know how to behave!

But real life had intervened.

genchi gembutsu—go see for yourself.

What a dreadful waste of human energy and potential.

In this entire “value chain,” no one has taken the responsibility for answering this simple question: What is the evidence that more buttons make customers more likely to buy this appliance, then buy from this company again and again over the long term?

What are people compensated for, promoted for, celebrated for, or fired for in the organization?

every company’s accountability systems constrain its choices.

Culture is formed over time, the residue leftover from the process and accountability choices of the company’s past.

To incubate a new culture requires individual teams to self-organize.

“Wait a minute,” you might say. “If this requires changing the org chart, the other functions, the culture of the company, who we hire and promote—that sounds very difficult.” That’s right, it is. I don’t want to sugarcoat this. It requires building a new kind of organization in response to a new blueprint, and doing so is especially hard because everyone involved has muscle memory and habits formed in the old order.4 But I believe the benefits are worth the pain.

there are ten criteria for conducting the evaluation, every team always seems to present seven greens, two yellows, and one red. It’s like magic—they’re always the same! Why? Every manager knows that if you show too many greens, you won’t sound credible. On the other hand, too many problems could get your project canceled. Managers are perfectly calibrating their status updates to what is needed to pass

heterogeneous

“Our stock price is stuck at the low end of the range because we can’t get the markets to give us credit for future growth. Even if we have a good year, or an individual breakthrough product, it’s hard to convince analysts that it was anything more than a fluke. They think our innovation story is—frankly—bullshit. What Intuit has done has not just changed their growth trajectory but proved to the markets that this growth is driven by a comprehensible process. That means that, over time, they’ve been able to convince the markets that their growth is no fluke.”

many useless microwave buttons? By now, I hope

The company had been so focused on the technical risks—Can this product be built?—that it hadn’t focused on the marketing and sales-related risks—Should this product be built?

one worth practically nothing. His objections continued. Even putting aside the futility of selling only one engine, targeting only one customer use effectively lowered the target market for this product by 80 percent. What

“What does this outsider think?” to “What do we, ourselves, think?”

Even the most senior technical leader in the entire company at the time, Mark Little, who was then senior vice president and chief technology officer of GE Global Research, had a change of heart. He was the person the engineers in the room most looked up to, and whose skepticism—voiced quite clearly earlier in the day—had them most worried. He ended our workshop by saying something that stunned the room: “I get it now. I am the problem.” He truly understood that for the company to move faster in the way that Jeff Immelt wanted, he, along with every other leader, had to adapt. The standard processes were holding back growth, and he, as a guardian of process, had to make a change.

it got the management team to think more about testing assumptions than creating failures,” he recalled.

no one had to tell these engineers what to do.

Once presented with the right framework for rethinking their assumptions, the engineers came up with the new plan through their

insights. It...

‘Don’t make it so hard.

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.”

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.

Work by exception at the start in order to move forward quickly

If the bonds are broken randomly, without the apparatus to manage the energy, the process can be tremendously destructive.

one of the biggest challenges her company faces is the transfer of knowledge in innovation projects from the innovation area to the business unit for commercialization.

“We have realized that unless you are involving the business unit in terms of being a sponsor or a stakeholder from the very beginning, it’s not going to work as well, because they don’t feel like the product is theirs,”

Functional team members serve not only as the team’s conscience in their particular area of expertise, but also as enthusiastic ambassadors.

“Golden Sword”

it cuts through bureaucracy in one swift stroke. It comes into play during meetings between teams and executives, and it goes like this. 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.

clear falsifiable hypothesis.

An obvious next action.

Strict risk containment.

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 extra penalties for non-performance.

tie between what is measured and at least one LOFA.

test an assumption,

“Do you hate your commute?,”

Fair enough. But then they had to reestimate and required six years until launch, at which point someone else added, “Wait a minute—in six years, won’t the efficiency need to be even greater?” Before anything had actually happened, the team was already trying to anticipate how they’d know whether they’d have market-leading efficiency by the time the engine was done. It was a downward spiral into near-infinite

‘Instead of waiting ten years for a turbine that’s 5 percent more efficient, what if we sold you one right now that is pretty good, the added value being that every year from now on, we’ll offer you an upgrade to replace the blades and fans, and tune the turbine to increase efficiency,’ ” the team brainstormed. “ ‘You’ll have the option, once a year, for us to install these parts, and we’ll have a pre-existing contract that says we get paid for every point of efficiency we drive with each new upgrade.’ ” We took this plan to the executives, who were

“Is the revenue that we make each year from installing the upgraded parts product revenue or service revenue?” Naïvely, I said, “Who cares? Revenue is revenue.”

“It took the threat of losing a one-billion-dollar deal with a major utility company and valued customer for the two division leaders (the turf owners) to find a way to resolve this. You have to understand, this is how we had worked for the past thirty-plus years.”

“It doesn’t matter where the revenue goes to the customer,” says DeLeonardo. “We got out of our own way to do what’s right for the customer.”

When experimenting with business models,9 here are

a few things to keep in mind:

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

By charging only when the product performs—per-use or performance-based compensation—the company stays fully aligned with the customer’s needs.

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