A common thought, at least in my experience, is that the way startups work and are managed is vastly different from that of massive established companies. However, Eric Ries analyzes the entrepreneurial management style and how it can benefit all companies. Although The Startup Way by Eric Ries is a follow up book to his first, The Lean Startup, the book can decipher its own message without the knowledge of the prior book. Ries provides enough conclusions about the previous book to create the foundation to understand how entrepreneurial management can and should be applied to any and all companies. Immediately in the introduction, Ries establishes his definition of a startup which is an organization that innovates in circumstances of “extreme uncertainty.” Every company can push themselves into this position to avoid the rut after the startup spirit is lost. Using the “Startup Way,” companies can rapidly innovate and excel in conditions of uncertainty rather than result to old methods.
Ries begins his book by describing what the “modern company” looks like and how it differs from “old-fashioned companies.” In modern companies, every sector of the organization allows for the employees to act as entrepreneurs and employ their ideas regardless of position. While old-fashioned companies focus so much on quality they wrap themselves up in massive, long-term projects, modern companies rapidly innovate gaining knowledge every step of the way. Seemingly ironic, past companies focus on meeting short-term reports, while modern companies focus on long-term results of the company by continuously innovating. What companies need is entrepreneurship. Ries suggests to imbed entrepreneurship into a company by creating internal startups within every segment of the company. Then, the company is a portfolio of different startups that have the ability to take risks with new ventures, without risking the whole company.
At this point, Ries discusses the startup culture and style of teams within an organization. He says they should be small, cross-functional teams. They should be built up of members from all backgrounds including finance, marketing, HR, IT, etc. More importantly, these people must have the startup state of mind in that the feel passionately about their mission, and understand that they have a scarcity of resources. Vision is the key to motivate these teams to fully invest in their project. They may have to change their direction or strategy, which Ries refers to as a “pivot-or-preserve decision,” but their vision remains.
The aspect I found most interesting and applicable to our class was the funding and motivation behind startups. “Metered funding” and “validated learning” are crucial to managing these internal startup teams. Metered funding is the process for “risk mitigation” used in Silicon Valley, and used by venture capital firms. Because startups, internal or not, are under conditions of extreme uncertainty, they cannot actually project accurate sales numbers. Therefore, metered funding allows for them to start with a sum of money, that they can go out and experiment with. They must come back with telling results in order to receive more funding. This would come from a venture capital firm when considering new startups, or an investment board in the case of an internal startup in an established company. Validated learning comes in at this point. Once teams have developed the “minimum viable product,” they must immediately get it out to customers in order to receive feedback. That is considered validated learning. Startups can then show data to a board with real customer feedback instead of a guess that cannot be accurate considering the conditions.
Ries uses the case of College Scorecard to run through the “lean startup method.” Beginning with a leap-of-faith assumption, one can develop a minimum viable product to gather validated learning, and can then enter the build-measure-learn feedback loop until they reach the product that most meets the desires of the customers. This entire process is focused on what the customer wants. College Scorecard assumed that people wanted a better source to learn about colleges and which was the proper fit for them. Their MVP was a cardboard phone, but they were able to watch how customers interact with it and which features they used. This was an example of validated learning so they could create a new model and bring it back to more customers. College Scorecard was able to have a set plan of the exact features customers wanted to use before they had to code anything, and therefore didn’t waste time on meaningless code. Ries continuously emphasizes that teams need to get a product to customers as soon as possible in order to begin the process of learning and improving.
With the set foundation of the “lean startup method,” Ries moves into the startup way and how to fully integrate these methods into a corporation. Ries suggests it begins with accountability in that there must be certain systems and rewards to incentivize employees. The process, or way in which employees work every day, must be altered to a new mindset. Once the process changes, the culture is finally able to change because it is not how the company desires to operate, but how it has in the past. Once the processes are in an entrepreneurial mindset, the culture can shift. Finally, the people, or “the ultimate corporate resource,” need to consist of innovative, passionate individuals. Transformation is long and difficult, but necessary to reform a company to a modern mindset. Companies can then not only produce quality products, but can know what products they need to produce next to stay ahead of the game.
Ries digs deeper into the transformation of a company suggesting that the force to transform is either a crisis, a desire to change strategy, or hyper growth of a new startup learning to control their growing company. Ries finally discusses how to rework accounting and finance departments within these new companies, but I found this information less applicable at this point in time.
I would absolutely recommend this book! Ries is directing it more towards owners of companies, which you can see directly through his language when he addresses readers. However, I believe there is a lot of valuable information in the type of talent that companies are looking for and how to successfully start with a simple product to grow rather than relying on a plan without customer-backed research. This book made me really excited about the companies and their cultures. I found the different case studies including GE, Airbnb, College Scorecard, etc. very helpful in understanding how this transformation looks throughout companies. It is very different between companies, and that is okay because it must fit the certain organization. I would like to read The Lean Startup to have a better background, but nevertheless was not confused while reading this book, and really enjoyed it.