Eric Ries On How To Make Any Company Move Like A Lean Startup

"Corporations are ruled by the systems that you create," Lean Startup author Eric Ries tells Fast Company. Whether your team's 100 or 100,000, here's how to make a system that's entrepreneurial by process, not by slogan.

"It's like an alternate reality," Eric Ries says. The entrepreneur-turned-author whose Lean Startup--the book, then the movement--infused the Valley/Alley lexicon with now-ubiquitous terms like "pivot" and "minimum viable product," is now boldly going where few startup guys have gone before: corporate America.

It's "like on Star Trek or something," he says of his consulting forays with organizations including Intuit, GE, and the U.S. government. "Everyone is very familiar and very alien at the same time."

While a 300,000-person company looks nothing like one with 100 people, Ries says the problems that entrepreneurs in those super-sized ecosystems are dealing with are the exact same ones that he made a name for himself researching. His intellectual labors have earned big-name adherents: Intuit's Scott Cook, GE's Beth Comstock, and the White House's Todd Park all spoke at the Lean Startup conference last year, evidencing that yes, entrepreneurship can happen in a corporate setting.

"It's not 'intrepreneurship,' it's not 'like entrepreneurship,''' Ries says. "Corporate entrepreneurship is regular entrepreneurship."

In turn, entrepreneurship is a management discipline, one that can be applied regardless of company size, but only under a certain disruptive context. Here are the truths that remain constant, no matter the size of the company.

Entrepreneurship is uncertain--extremely so.

"I call it the context of extreme uncertainty," Reis says. Why so uncertain? Because as entrepreneurs, "we're trying to do something where we don't have good antecedent evidence that it's going to work."

Eric Ries

This is why some companies that think they're engaging in entrepreneurship really aren't--venture-backed startups included. If you're building a new jet engine or the new version of Quicken, you may be modeling, forecasting, and improving on a complex product, but all that precedent precludes the doing of entrepreneurship proper.

Extreme uncertainty, on the other hand, is "your classic disruptive situation," Ries says. Customers might say they don't want it, the economics don't quite make sense, you'll have to use truly new technology in some new way, or build an unproven distribution channel. In these situations, Ries says, the classic managerial crafts of modeling and prediction lose their applicability.

Entrepreneurs are not in the business of prediction.

"You can make all the models and forecasts you want, but it's basically a waste of time," Ries says, echoing concepts touted by Nate Silver (improbably, for a professional forecaster) and Nassim Taleb. Given that models necessarily draw on precedent and that entrepreneurial ventures are necessarily unprecedented, forecasting and its sibling, analysis, are not the levers of entrepreneurial decision making. Instead, Ries explains, we need to get good at experimentation.

Part of that skill is the ability to extrapolate from statistically insignificant samples. This is done by holding a prior belief--like, say, an assumption about the customer--and then iteratively testing against it. (For further explanation, consult Bayesian probability.) And since there's isn't a marketplace antecedent, what we're iterating from is vision.

"You know how people always talk about how vision is the key to entrepreneurship and perseverance and really seeing what other people don't see?" Ries says. "We can actually redeem a fair amount of that folk wisdom."

Ries references how Scott Cook tested out his assumptions. Cook began Intuit with the assumption that people were frustrated by having to pay their bills with paper and pen. So he started calling random people in the phone book to see if he understood their problems and to make sure he wasn't extrapolating from the wrong data--what Ries calls a microscale experiment.

"I work hard to get entrepreneurs to (interact directly with customers)," Ries says, "because it requires you to hold the vision strongly and be willing to listen to see if your facts and your strategy are actually correct."

What comes naturally to entrepreneurs must be systematized for employees.

"Entrepreneurship is not really building a product, it's not having an idea, it's not being in the right place at the right time," Ries says, "it's fundamentally company building."

Because even if you're the next Scott Cook--or Eric Ries--you're going to need to hire people. The managerial question, then, Ries says, is this: "How are we going to instill in them management practices to build the kind of company that can continuously innovate over time?"

Not by slogan.

"You get a culture of entrepreneurship after you have successfully changed the accountability system so that people can use a better process," Ries says. "Process drives culture, not the other way around, so you can't just change the culture, you have to change the system."

Leaders create--and align--tools for innovation.

Leadership, Ries says, has always been about figuring out what to do with scarce resources, and how to spend your money aligned with the best probability of success. There's two ways to get to answers: analysis and experimentation.

Back when analysis ruled the day, the most senior managers were the best analyzers. "Proposals would bubble up through the organization and the leader would play Caesar," Ries says, riffing again on Cook. The emperor would then give the thumbs up or down after analyzing the proposal.

But in the day of experimentation, the person best qualified to run the experiment is the person nearest to the customer, so data flows up the totem pole. This means that if you're the CEO and you get the proposal from a senior leader, you should already have the data for whether or not it's going to work.

"We teach our employees to go and see for themselves what is actually happening in the world," Ries says, "to run the experiment on their own, without senior management approval, because by definition when you're running a new experiment, it's not something that everybody else is going to understand."

Leaders, then, give employees tools to make experiments easy and cheap, and in so doing contain the cost of failure.

"Who's responsible for the tools of experimentation?" Ries asks. "Senior management--so we have to be platform builders, tool builders, not just Caesars."

Related:

How Eric Ries Coined "The Pivot" And What Your Business Can Learn From It
Entrepreneurs Are Everywhere. Eric Ries Knows What They Have In Common
Eric Ries Is A Lean Startup Machine
"The Lean Startup" Author Eric Ries On Entrepreneur Being A Job Title

Drake Baer covers leadership for Fast Company. You can follow him on Twitter.

[Image: Flickr user Jared Goralnick, and Dan Machold]

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5 Comments

  • Michelle Batten

    Nathan, you make an excellent point.  Culture will often resist new, unfamiliar processes, which calls for strong change management from the top in order to re-shape it.  For that reason, I would challenge the notion of "It's not 'intrepreneurship,' it's not 'like entrepreneurship - corporate entrepreneurship is regular entrepreneurship."  Intrapreneurs must also contend with changing the status quo inside very large, complex institutions, which requires a unique breed of change agents with serious passion, patience and political moxie.

    The book has some good illustrations around this point, but I think the process and culture of 'Intrapreneurship' is just beginning to evolve.  Keen to read/hear more on how others are faring.

  • Nathan Zeldes

    As to "Process drives culture, not the other way around" - that may be true, but most corporate processes are not exactly conducive to entrepreneurship (been there, seen that). For the right kind of processes to get in the door at all, you need the kind of leadership from the top that defines, that becomes inseparable from, the company culture. So perhaps it's a chicken and egg thing?

  • A game

    "Process drives culture, not the other way around, so you can't just change the culture, you have to change the system." SPOT ON !!