Q&A on the Book The Startup Way

The book The Startup Way by Eric Ries explores how large organizations can use startup techniques to innovate and accelerate growth. It provides methods for creating a transformation roadmap towards an entrepreneurial way of working: to experiment and collect data, roll out entrepreneurial ways of working throughout the organization, and tackle the supporting systems like legal, finance, and HR.

InfoQ readers can download a sample of the startup way

InfoQ interviewed Ries about the differences between "old fashioned" and "modern" companies, challenges that entrepreneurial initiatives often face, what can be done to enable and promote entrepreneurial thinking and acting, transforming towards an entrepreneurial way of working, designing good experiments, enabling continuous innovation, and what governments do to stimulate innovation and entrepreneurship.

InfoQ: Why did you write this book?

Eric Ries: After I published The Lean Startup about five years ago, I started working with companies that wanted to use startup techniques to innovate and accelerate growth. The big surprise to me was that many of these companies weren't startups--they were very large, often legacy, organizations that understood the challenges of the modern marketplace and wanted to learn how to innovate to meet them. They also included non-profits and local and federal government. All of them had one thing in common: they realized they had to change in order to take advantage of new opportunities and avoid becoming obsolete in the rapidly changing business environment, but they didn't have a structure for doing it. Through that work, I developed the system I call entrepreneurial management, and I wrote the book to share it with anyone who thinks it could benefit their company (which is every company!).

InfoQ: For whom is this book intended?

Ries: As I said, it's for anyone within an organization ranging from 10 to 100,000 people--or even bigger--who wants to create a continuous cycle of innovation within their company. What that means, effectively, is that it's for leaders and managers within organizations who have the will to help bring their work, and the people who work for them, into the modern age of business. 

InfoQ: What are the main differences between "old-fashioned" and "modern" companies?

Ries: A modern company is one in which every employee has the opportunity to be an entrepreneur. What I mean by that is that it's disciplined at executing its core business, but also has a complementary set of management tools that make it possible to discover, test, and scale new ideas that will help the company grow. It's focused on long-term growth and impact rather than short-term profits, and all of its internal functions, like HR, Legal, and Finance, are also designed to truly support flexibility and growth. These are very different priorities from old-fashioned companies, which tend to move slowly, fund and execute large projects to their conclusion without testing them along the way, and often have a thriving subculture of siloed divisions that hinder instead of help each other.

InfoQ: What challenges do entrepreneurial initiatives often face?

Ries: I think the biggest challenge they face is that they're going against the ingrained culture and way of working that surrounds them. There are often a lot of questions about why a certain group of people gets to work in a different way, and no incentives in place to encourage people to work innovatively. The other big problem they face is that even when innovation projects find success, there's no way to integrate them into the company as a whole. This is why innovation labs and other stand alone entrepreneurial projects that many companies create ultimately fail. You have to do more than just discover a great idea--there has to be a system for scaling it up to its full potential. 

InfoQ: What can be done to enable and promote entrepreneurial thinking and acting?

Ries: I think one of the biggest changes that promotes entrepreneurial thinking and acting is changing the incentive system of an organization. If you're asking people to innovate but the employee rating system is still based on the old criteria, no one is going to do it. They don't want to risk what I call career equity--all the parts of their employment record that will allow them to follow an upward trajectory. So everything from hiring, to compensation and annual reviews, needs to be aligned with the process of working in an entrepreneurial way or it won't happen. The companies I've seen have the most success are the ones that have rethought these things from the executive suite right down to new hires. 

InfoQ: In the book you suggest to schedule pivot-or-persevere meetings in advance. Can you elaborate why?

Ries: There are very few stories of startup successes that don't include a pivot--or three or four! It's almost a given that a company is going to have to rethink strategy at some point, so it makes sense to plan ahead for a time to do that. If you arrive at pivot-or-persevere day and your ideas have played out exactly as you thought they would, then all you have to do is meet and agree to continue. Either way, it's important that teams have a time set aside for accountability. Without it, projects can go on too long and use up excess time and money.

InfoQ: Your book provides a roadmap for transformation towards an entrepreneurial way of working. How does this roadmap look?

Ries: It's a three-phase process. Start small in the beginning, with one team or one project, and collect important data about how well the new way of working serves your organization. In phase 2, the company moves on to rolling out entrepreneurial ways of working more widely, and continues with the gathering of evidence about how possible, and preferable, the new way of working is. Once that critical mass has been achieved, companies can move on to phase 3, which involves tackling a company's deep systems like legal, finance, and HR. If you can't change these supporting systems, which is often the most difficult part of the process, the transformation won't ultimately survive because it will still face significant internal challenges. The specifics of each phase will be different according to the company going through it, but there are some commonalities, especially in the earlier phases.

InfoQ: What are these commonalities?

Ries:  In the early days, all companies do the work of learning how to build cross-functional teams that use appropriate startup-style metrics to measure their progress. Those metrics will be different depending on the project at hand, but every team needs to figure out what they are. Other key steps in phase 1 are setting up a system of accountability that allows executives to make quick, swift decisions about whether or not to continue with a project, and building an in-house network of leaders who can grant exceptions to teams who encounter conflicts with the usual management practices when working in this new way. It’s also really important for companies to find a way to communicate about the new ways of working in language that is specific to them and fits in with their culture. Again, this looks different for every company, but they all need to do it. In phase 2, all companies will spend time reviewing the results of phase 1 to identify the biggest challenges, and will turn to executives to help them reinforce the new methods as they’re rolled out. This is also when internal functions like legal and HR start to come into a play a bit (before the real push in phase 3). The other common occurrence in phase 2 is the creation of an internal coaching program, which is critical to the ongoing success of a transformation program. Because phase 3 is about the deep systems of a company, there are no true commonalities. The work will be based on the outcomes of everything the company has done to arrive at this final step.

InfoQ: What are your suggestions for designing good experiments?

Ries: An experiment is created as a way to measure whether an idea is worth continuing with. And in order to asses that, it needs certain features:

1. A clear, falsifiable hypothesis that will allow a simple failure/success judgment;
2. An obvious next action, so a team knows what to do next to continue gathering data;
3. Strict risk containment, so that any negative consequence is just a failure rather than a catastrophe;
4. A tie between whatever data is being measured and one of the assumptions that has been made about the project.

InfoQ: What does it take for organizations to make the Startup Way part of their culture to enable continuous innovation?

Ries: I think there are a few key things. Someone needs to be in charge of it, full-time. It's not enough to just give someone a title like "innovation director" when they actually have another job. Also, the company needs to signal at every level that this new way of working is the only way of working. That means adjusting employee ratings and incentives to reward it, and making promotion even at the highest levels a function of working in an innovative way. If employees see that they're being asked to work one way but the people in the executive suite are still being rewarded for holding up old standards, it can be a real problem.

InfoQ: What can governments do to stimulate innovation and entrepreneurship?

Ries: The same things as any other large organization that wants to become more flexible, move faster, and provide great services to the people it serves both internally and externally. Experiment, reward learning, and not just success, focus on long-term vision and impact, and listen to good ideas no matter where or what level they come from. Any truly modern organization knows its best resource is the people who work there, and those people should be respected and supported.

About the Book Author

Eric Ries is an entrepreneur and the bestselling author of the The Lean Startup, which has sold over one million copies and The Startup Way, released October 2017. He is the creator of the Lean Startup methodology, which has become a global movement in business, practiced by individuals and companies around the world.