If you’ve ever been a part of a startup or a new business unit, you know the enormous amount of ambiguity, persistence, and focus required to make progress. As author of the entrepreneurship bible The Lean Startup, Eric Ries has spent a considerable amount of time thinking about a methodical approach to how new businesses get off the ground.
Following the success of his book, Ries found himself consistently asked about how larger organizations like GE, Toyota, and the U.S. government can take on an entrepreneurial mind-set. He provides a blueprint for this in his latest installment, The Startup Way.
I sat down with Ries to chat about how to help companies change mind-sets and become more experimental, lean, and accountable. His observation is that these days big companies want to be startups, and startups want to be big companies. But somewhere along the way, as any organization grows, it gets mired in bureaucracy that’s resistant to innovation. Here are five tips gleaned from our discussion on how to adopt a more entrepreneurial culture.
1. Cultivate An Experimental Mind-set
“In preparing for battle, I have always found that plans are useless but planning is indispensable,” Dwight D. Eisenhower famously said. This is as true in innovation work as it is on the battlefield. Too frequently businesses construct fantasy plans–models that project hockey stick-like growth in five years. But those models have inputs and assumptions. Ries doesn’t suggest doing away with the business plan, but rather to drill down beneath the data to the underlying “leap of faith assumptions” within the Excel doc. What must be true for this to work? Show how individual customer behaviors add up to a scalable business. Ries recommends a scientific method-like approach to test those critical assumptions quickly rather than waiting years. As Ries says, it’s better to find out that we have bad news that’s true than good news we made up.
An example Ries cited was the GE Series X Engine, which planned to launch with five different use cases scaling to $1 billion in revenue in five years after a $300 million investment. He helped the company narrow the scope by asking, could we sell an engine for just one use case and get feedback in six months or a year? Once GE saw the first phase as a minimum viable product, or early experiment, it unlocked a faster path to progress.
2. Build A Learning Organization (and Reclaim Learning!)
Learning can have a bad connotation. In a corporate setting, it can imply failure especially when it’s used to explain a lack of performance: “Well . . . we learned a lot!” With experiments, you want to focus on scientific or validated learning where each iteration of the product gets you a better response from customers. You want to ask them not just, “What did you learn?” but also, “How did you know?” In The Startup Way, Ries argues that “too many leaders are searching for that one key innovation. But long-term growth requires something different: a method for finding new breakthroughs repeatedly, drawing on the creativity and talent of every level of the organization.” Ries quotes Jeff Bezos who says, “‘I’ve made billions of dollars of failures at Amazon.com. Literally. None of those things are fun, but they don’t matter. . . . [w]hat really matters is that companies that don’t continue to experiment– companies that don’t embrace failure–they eventually get in a desperate position, where the only thing they can do is make a Hail Mary bet at the very end.” When companies reclaim learning as central to their long-term journey, they can design not only their products, but also their strategy.
3. Make Entrepreneurship Its Own Discipline
Ries recommends identifying who in the organization is accountable for innovation and launching new business lines. Sometimes within companies, when asked who’s in charge of innovation, the response is “all of us.” That means that everyone does a tiny bit of innovation. But you wouldn’t announce one day that finance or accounting is everyone’s responsibility, would you? You’d be in prison in no time. Studies have shown that humans are notoriously bad at multitasking. So having people divert 5%, 10%, or 20% of their energies from core business lines to innovation rarely seems to work.
At the same time, people leave larger corporations to go and start their own companies. Corporations are loaded with entrepreneurs, but somehow we’re discouraging people from showing their entrepreneurial selves at work. How can we retain that talent and empower them to be more entrepreneurial here? Airbnb is one example cited in The Startup Way of a company that places considerable value on experimentation. The founding members set a new structure, independent of the base business, to allow for continuous building and risk-taking–and ensure the company doesn’t rest on its laurels. Entrepreneurship and innovation need to be integrated into the structure of a company just like marketing or finance.
4. Create Cross-Functional Teams
Breaking through silos is a key challenge for companies looking to be more nimble. Often politics or budgets can prevent us from building the team we need. Ries highlights an example about a GE Life Sciences team that designed an experiment to inform a pending $35 million investment. Only the night before launch, the team got a call from legal to halt the experiment. Having representation and communication across teams early can identify shortcomings or impediments along the road to learning.
5. Hold Feet To The Fire
Ries argues that accountability is foundational to launching new business lines. Lack of accountability tends to manifest in two related ways. The first being there’s little incentive to actually launch and learn. It always feels safer to hesitate and postpone. That’s why we need to reduce the scope of experiments to make them more likely to launch. That forces us to ask, how can we get something to market in six months instead of five years?
Another place where accountability often falls short is in funding new business lines. Usually, funding within large companies does not depend on outcomes and is not metered in the way that a venture capital firm might base funding on milestones. So if the funding is there whether you hesitate or not, what incentive is there to launch and learn? In his book, Ries references the example of the Global Innovation Fund (GIF), a nonprofit organization focused on scaling innovations that improve the lives of the poorest people in developing countries. GIF uses different levels of funding to help support organizations and investment vehicles–grants, loans, and equity investments. Early-stage projects are funded with smaller grants to learn and validate business opportunities. Later-stage projects are funded with multimillion-dollar investments to scale and commercialize their solutions. Smaller experiments with metered funding are key ways to hold a team’s feet to the fire, increasing their accountability.