The Startup Way

Entrepreneur and bestselling author of The Lean Startup, Eric Ries reveals how entrepreneurial principles can be used by businesses of all kinds, ranging from established companies to early-stage startups, to grow revenues, drive innovation, and transform themselves into truly modern organizations, poised to take advantage of the enormous opportunities of the twenty-first century.  

In The Lean Startup, Eric Ries laid out the practices of successful startups – building a minimal viable product, customer-focused and scientific testing based on a build-measure-learn method of continuous innovation, and deciding whether to persevere or pivot. In The Startup Way, he turns his attention to an entirely new group of organizations: established enterprises like iconic multinationals GE and Toyota, tech titans like Amazon and Facebook, and the next generation of Silicon Valley upstarts like Airbnb and Twilio.

Drawing on his experiences over the past five years working with these organizations, as well as nonprofits, NGOs, and governments, Ries lays out a system of entrepreneurial management that leads organizations of all sizes  and from every industry to sustainable growth and long-term impact. Filled with in-the-field stories, insights, and tools, The Startup Way is an essential road map for any organization navigating the uncertain waters of the century ahead.“Eric Ries just might be the new Peter Drucker. This masterpiece unpacks what it takes to achieve innovation at scale in modern organizations.  Ries provides leaders the right mindset and methods for building big organizations where people work much as entrepreneurs do in the best little startups.”    
-Robert I. Sutton, Professor of Management Science and Engineering and Professor of Organizational Behavior at Stanford, co-author of Scaling Up Excellence, author of The Asshole Survival Guide.

"Startups are experiments -- some are successful, some aren't, but they're the best way to bring new ideas to market. So how can a big company become more startup-like... or revive the focus and spirit that birthed it in the first place? Building on his revolutionary lean startup work, but applied to big companies, Ries' book shows you how."
-Marc Andreessen, co-founder and partner at Andreessen Horowitz

“I have witnessed firsthand how Eric Ries weaves the impact of lean start up methods with speed and scale into a big company. The Startup Way is an indispensable resource for companies, big and small, looking for faster, more sustainable ways to grow.”
-Beth Comstock, vice chair of GE

“Any leader looking to be on the cutting edge needs to ponder the lessons in this important book. Eric Ries demonstrates once again that the best ideas are both fresh and common sense once presented. An essential blueprint for modern companies—from large corporations to family businesses or nonprofits—for decades to come.” 
-Lawrence Summers, University Charles W. Eliot professor and former U.S. Treasury Secretary

“Continuous innovation is the key to long-term impact and success. Eric shows how organizations of all kinds—not just startups—can be built to learn and adapt. In the pivot-or-perish networked world of twenty-first-century business, this is mission critical reading.”
-Reid Hoffman, co-founder of LinkedIn and co-author of the #1 New York Times bestsellers The Alliance and The Startup of You

“Organizations are normally where entrepreneurship goes to die, but Eric Ries has the master plan for breathing new life into them. This is a remarkably useful playbook that every business, government, and nonprofit needs to ignite the spark of innovation and fuel the fire of change.”
-Adam Grant, New York Times bestselling author of Originals, Give and Take, and OPTION B with Sheryl Sandberg

"My research has focused on what causes established companies to maintain success, and The Startup Way provides practical guidance on how to do just that."
--Clay Christensen, Kim B. Clark Professor of Business Administration at Harvard Business School

"The Startup Way creates a vision and blueprint for a new form of management which combines entrepreneurial and general management skills and practices. The inspirational examples across multiple, diverse organizations show that integrating the highly iterative, experimental mindset and skills of start-ups into established organizations is key to unlocking continuous innovation and sustainable growth… Provides clear and useful guidance for tackling the toughest challenges.”
--Kathy Fish, CTO, Procter & Gamble

“To succeed in the Third Wave, an era where technology will disrupt everything from education to healthcare, companies will need new tools and approaches. Eric Ries provides a road map for companies on how to use entrepreneurial principles to achieve transformational growth.”
-- Steve Case, former Chairman of AOL Time Warner and author of the New York Times bestseller The Third Wave

“The Startup Way is a wonderful decoder ring for those seeking to create, nurture, and sustain entrepreneurial thinking in companies at any size and scale. Rich with case studies showcasing real world applications and lessons learned, The Startup Way builds on the proven techniques from The Lean Startup with the next generation of best practices for companies of all sizes and industries.” 
-Brad D. Smith, chairman and CEO of Intuit

“A fascinating, supremely useful read. On the foundation of his transformational The Lean Startup, Eric Ries has built a compelling case for organizational entrepreneurship to enable continuous transformation at scale.  As he convincingly argues, it is not for every organization – only those that hope to survive and succeed in today’s environment.” 
-General Stanley McChrystal

“The Startup Way teaches companies of all sizes how to effectively incubate and maintain an entrepreneurial culture through growth by allowing employees to find their inner entrepreneur. A must read, especially, by all leaders burdened by legacy organizational baggage and processes.”
--Aaron Levie, co-founder and CEO, Box

"If The Startup Way can transform the federal government -- and it has -- it can transform your company. For everyone who's thought 'there has to be a better way,' here's your proof and a playbook to make it happen."
--Jennifer Pahlka, Founder and Executive Director, Code for America

"Big companies are struggling as never before. They need a brand new stem-to-stern game plan, and they get exactly that in Eric Ries' new book The Startup Way. It keys off The Lean Startup and makes a great leap forward. The game plan Eric suggests is 'not optional' for our bumbling big outfits. Well done!"
-Tom Peters

“As someone who is deeply committed to the public sector, I was heartened to see that the entrepreneurial principles and practices that Eric Ries describes in his new book, The Startup Way, apply equally effectively to governments and nonprofits, as well as for established for-profit businesses. If you want to visit the future of the modern organization, read this compelling book.”
--Gavin Newsom, Lieutenant Governor of California 

"In The Startup Way, Eric Ries uses his years of work with companies like GE and Toyota to show us what the company of the future will look like. If you want to know how companies can become more agile, more innovative, and more resilient in the face of today’s relentless pace of change, this is the book for you."
-Arianna Huffington, founder of The Huffington Post and founder and CEO of Thrive Global

“The American economy relies on a startup culture to create new goods and services, provide job opportunities, and raise living standards.  Eric Ries’s The Startup Way provides a compelling roadmap to guide all organizations – old and new, big and small, high-tech and low-tech – to build a startup culture to experiment, iterate and innovate.”
-Alan Krueger, Chairman of the President’s Economic Advisers under President Obama and Bendheim Professor of Economics and Public Affairs at Princeton

 “A twenty-first century toolkit that will allow any company to flourish.”
 –Ron Conway, founder and co-managing partner of SV Angel

“People tend to associate the term ‘startup’ with a uniqueness that assumes a culture of creativity, innovation, and continuous learning. But as Eric Ries’ shows, you don’t have to fit the mold of a typical Silicon Valley start-up to prioritize learning over perfection, and create a culture where making mistakes is not just accepted, but encouraged. The Startup Way presents a new vision for what a modern company can, and should, look like.”    
--Reshma Saujani, founder of Girls Who Code

“In The Startup Way, Eric Ries offers leaders across the public, private and non-profit sectors a road map for managing continuous innovation, regardless of organizational size or complexity. As someone who helped introduce some of these practices to the U.S. government, I’ve seen firsthand the improvement in people's lives.”
--Aneesh Chopra, former U.S. CTO
 
“Eric Ries does it again -- brilliantly. In his new book, The Startup Way, Ries argues that established businesses need to build a new entrepreneurial capability in order to innovate continuously. Most large companies are missing this fundamental piece of the corporate innovation puzzle. Neglect his advice at your peril.”  
-Thales Teixeira, Associate Professor of Business Administration at Harvard Business School

"A future classic, a book that will inspire thousands of companies to leap into a much needed re-invention."
 -Seth Godin, author of Linchpin

“In The Startup Way, Eric Ries applies the secrets of Silicon Valley to established companies in every industry. The fact is, today, every one of us is in Startup mode. Every leader and aspiring leader should read this eye-opening book.”  
-Marshall Goldsmith, author of the #1 bestselling Triggers, and What Got You Here Won’t Get You There

"Eric brilliantly describes the limitations of old management thinking in a time where competitors bring out new products an order of magnitude faster than legacy companies. The Startup Way describes how to foster entrepreneurial leadership essential to corporate survival in the 21st century."
-Jeff Sutherland, co-creator of Scrum Inc. and author of SCRUM: The Art of Doing Twice the Work in Half the Time

“Eric Ries shows that entrepreneurial management is a key to success in this fast-changing world. At ING we’ve embedded lean startup principles into the way we innovate, The Startup Way brings new and valuable insights"
-Ralph Hamers, CEO of ING Group
 
"Eric has done it again! Every company can benefit from these startup principles -- and should -- because if they don't, a startup is probably going to drink up all their milkshake. This is the internet revolution and if your company isn't adapting to The Startup Way, it's failing."
- Alexis Ohanian, cofounder of Reddit & Initialized Capital, bestselling author of Without Their Permission
 
“The most important companies in the world were not built in a day. Companies like Facebook, SpaceX, and AirBnB did not stop after their first successful product. They continued to innovate, even in the face of extreme competition from startups.  As a long term investor, I look for companies that can maintain that innovative edge over the course of decades. This book gives the blueprint essential to creating and sustaining that innovative culture regardless of the size of the company.”
-- Brian Singerman, Partner, Founders Fund
 
 “There's a lot of talk about the need for more entrepreneurship in today's changing economy. But there isn't a lot of real insight about just what that means. The Startup Way is the toolkit every business needs to make itself both more entrepreneurial and more effective.”
-- Tim O’Reilly, CEO O’Reilly Media

"The problem with many 'how-to' books is that they don't really answer on the promise of teaching us how to. Not so with Ries' new book: this book is born out of the real world of application. It teaches line by line the path to put lean thinking to work in order to produce breakthrough results in culture and growth."
-- Greg McKeown, the author of the New York Times Bestseller, Essentialism: The Disciplined Pursuit of Less

Eric Ries is an entrepreneur and the author of the New York Times bestseller The Lean Startup, which has sold over one million copies and has been translated into more than thirty languages. 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.
 
He has founded a number of startups including IMVU, where he served as CTO, and he has advised on business and product strategy for startups, venture capital firms, and large companies, including GE, where he partnered to create the FastWorks program. Ries has served as an Entrepreneur-in-Residence at Harvard Business School, IDEO, and Pivotal, and he is the founder and CEO of the Long-Term Stock Exchange.Chapter 1

Respect the Past, Invent the Future: Creating the Modern Company

When I first began working with GE six years ago, I sat down for a conversation with CEO Jeff Immelt. Something he said to me that day has stayed with me ever since: “Nobody wants to work at an old-fashioned company. Nobody wants to buy products from an old-fashioned company. And nobody wants to invest in an old-fashioned company.”

What followed was an in-depth discussion of what makes a company truly modern. How do you know it when you see it?

I asked him to imagine the following: if I selected an employee of the company at random, from any level or function or region, and they had an absolutely brilliant idea that would unlock a dramatic new source of growth for the company, how would they get it implemented? Does the company have an automatic process for testing a new idea, to see if it is actually any good? And does the company have the management tools necessary to scale this idea up to maximum impact, even if it doesn’t align with any of the company’s current lines of business? That’s what a modern company does: harnesses the creativity and talent of every single one of its employees.

Jeff answered me directly: “That’s what your next book should be about.”

The Marketplace of Uncertainty

I think most business leaders recognize that the everyday challenges of executing their core business leave little time and energy for harnessing and testing new ideas. This stands to reason, as today’s companies are operating in an environment quite different from their predecessors. I’ve had the privilege of meeting thousands of managers around the world in the past few years. Over and over again, I see their incredible anxiety about the unpredictability of the world they live in. The most common concerns I hear:

1. Globalization and the rise of new global competitors.

2. “Software eating the world” and the way automation and IT seem to destroy the competitive “moats” companies have been able to set up around their products and services in the past.

3. The increasing speed of technological change and consumer preference.

4. The ridiculous number of new potential high-growth startups that are entering every industry—even if most of them flame out.

And those are just examples of the external sources of uncertainty that face today’s managers. Increasingly, today’s managers are also under pressure to create more uncertainty themselves: by launching new innovative products, seeking new sources of growth, or entering new markets.

It’s important to see this as the change it is. For most of the twentieth century, growth in most industries was constrained by capacity. It was considered completely obvious what a company would do if it had extra capacity: make more stuff and then sell it. “New products” meant mostly variations of what they already made. “New growth” usually meant putting out more advertising to reach new audiences with existing products. The bases for competition were primarily price, quality, variety, and distribution. Barriers to entry were high, and if competitors did come on the scene, they entered and grew relatively slowly—by today’s standards.

Today, global communications means that new products can be conceived and built anywhere, and customers can discover them at an unprecedented pace.

This setup flips Karl Marx’s old dictum on its head; what he called the means of production can now be rented. Entire global supply chains can be borrowed at little more than the marginal cost of the underlying products they produce. This dramatically lowers the initial capital costs required to try something new.

The Management Portfolio

In addition, he basis of competition is shifting. Today’s consumers have more choices and are more demanding. Technology trends reward businesses who have the broadest reach with near-monopoly type power. The basis of competition is often design, brand, business model, or technology platform.

This is the context in which a modern company operates. Plenty of companies still make commodity products. But more often, they require new sources of growth that can only come from innovation. This has very real effects for what I call the management portfolio of a company. Incremental improvements to existing products or new variations thereof are relatively predictable investments, as are process improvements to increase quality and margins. The tools of traditional management—from forecasting to typical performance objectives—work fine in these situations.

But for other parts of the management portfolio, where leaps of innovation are being attempted, the traditional management tools don’t fit. Yet most companies don’t have anything to replace them with—yet.

Why Traditional Management Tools Struggle with Uncertainty

Some years ago, I picked up one of the classics of the management genre, Alfred Sloan’s My Years with General Motors (1963). In it, he recounts the moment in 1921 that GM almost ran out of cash. The cause? Not some devastating catastrophe or embezzlement scandal. No, they simply dramatically overbought their inventory supplies, to the tune of several hundred million dollars (in 1920s dollars!), unaware that the general economy was slumping that year and demand would prove to be soft in 1920–21.

After saving the company through emergency measures, Sloan undertook a several-years-long journey to find a new management principle that could prevent this kind of problem from recurring. Eventually he made a breakthrough discovery, which he called “The Key to Co-ordinated Control of Decentralized Operations.”

The foundation of this system was the rigorous production of estimates, for each divisional manager, of the precise number of cars that GM should sell in an “ideal” year. Using these estimates in combination with a number of internal targets and external macroeconomic factors, the company would produce a forecast of how many cars each division was responsible for selling. Managers that exceeded this total were promoted, those that fell short were not. Once put into place, the system worked to prevent the kind of miscalculation and waste of resources that had previously occurred in the company.

The structure that Alfred Sloan pioneered became the basis for all of twentieth-century general management. You can’t run a multi-product, multi-division, multi-national company and its attendant global supply chains without it. It is one of the true revolutionary ideas of the past one hundred years and is still widely in use today. Everyone knows the drill: beat your forecast, your stock goes up, you get promoted. Miss it and watch out.

But when I first read this story, what I thought was: You’re telling me that . . . ​

once upon a time . . . ​

people made forecasts . . . ​

and they came true?

And, not only that, the forecasts were so accurate that they could be used as a fair system for deciding who gets promoted and who doesn’t? As an entrepreneur, I had never experienced or heard of such a thing.

The startups I had always worked on and got to know in Silicon Valley couldn’t make accurate forecasts because they had no operating history at all. Because their product was unknown, their market was unknown—and in some cases, even the functionality of the technology itself was unknown—accurate forecasting was entirely impossible.

Nevertheless, startups make forecasts, too—just not accurate ones.

Early in my career, I knew why I had always made a forecast for my businesses: you can’t raise money for a startup without one. I assumed it was a kind of kabuki ritual where entrepreneurs prove to investors how tough they are by showing how much spreadsheet pain they can endure. It was a fantasy exercise driven by our desire to show an outcome remotely plausible for an idea that was—usually, at that point—totally unproven.

Eventually, though, I found out that some investors actually believed the forecast. They would even try to use it as a tool of accountability. If a startup failed to match the numbers in the original business plan, the investors would take this as a sign of poor execution. As an entrepreneur, I found this baffling. Didn’t they know that those numbers were entirely made up?

Later in my career, I befriended more managers in traditional corporate jobs who were trying to drive innovation. The more corporate innovators I met, the more I heard about how much faith their bosses put in forecasts as a tool for holding people ­accountable—even senior managers who (I thought) surely would know better. The “fantasy plan” of the original pitch is often far too optimistic to be used as a real forecast. But managers, lacking any other system to use, need something to hold on to. Without an alternative, they cling to the forecast—even if it’s “just made up.”

You’ve probably started to sense the problem here: an older system of forecasting, designed in a very different time and for a very different context, is still being used in situations where it doesn’t work. Sometimes, failure to hit the forecast means a team executed poorly. But sometimes it means the forecast itself was a fantasy. How can we tell the difference?

How Do We Deal with Failure?

No doubt you’ve heard of Six Sigma, one of the most famous corporate transformations in management history—it’s just one of the systems Sloan’s work spawned. Introduced to GE in 1995 by CEO Jack Welch, Six Sigma is a process to develop and deliver near-perfect products. Sigma is a statistical term measuring how far a given process deviates from perfection. To achieve Six Sigma Quality, a process must produce no more than 3.4 defects per million opportunities, i.e., it must be defective less than 0.0000034 percent of the time. Welch introduced the process to GE with the goal of achieving Six Sigma Quality across the company within five years, stating, “Quality can truly change GE from one of the great companies to absolutely the greatest company in world business.”

As I traveled around GE training executives, a lot of questions arose, from both fans and skeptics of Six Sigma, as to whether FastWorks was to be GE’s next “big thing.” Did it render past Six Sigma training obsolete? If FastWorks was meant to work alongside Six Sigma, how would you know when to use which? Were there certifications and levels to Lean Startup knowledge, akin to the colored belts of Six Sigma?

One day, as I was meeting with the head Six Sigma leader from GE’s industrial business—who was quite skeptical of me and FastWorks—I found myself distracted by the mug on his desk, which read: failure is not an option. To me, it epitomized the mindset of the old-fashioned way of thinking. Nobody in the startup world could have such a mug, I mused; it would be ridiculous. Underlying the inscription on that mug is an assumption that failure can always be prevented by careful analysis and rigorous preventive action. There are places and times when that’s true. But my experience is full of situations where reality proved too unpredictable to avoid failure.

I thought of the best, most successful entrepreneurs I know. What would their mug say? I settled on: “I eat failure for breakfast.”

The tension between our two slogans is a great starting point for understanding why startups have had such a hard time adopting traditional management methods, and vice versa—but also what connects them. There was a time when producing high-quality products on time, on budget, and at scale was one of the preeminent problems of the age. Understanding how to build quality into products from the inside out required mastering the new statistical science of variation, and then devising tools, methodologies, and training programs that could make this practical. Standardization, mass production, lean manufacturing, and Six Sigma are all fruits of this hard-won conceptual victory.

Baked into these methods is a presupposition that failure can be prevented through diligent preparation, planning, and execution. But the startup part of the management portfolio challenges this assumption. If some projects fail to meet their projections because the underlying uncertainty was extremely high, how do we hold those leaders accountable?

Changing How Companies “Grow Up”

Aditya Agarwal, who worked at Facebook in the company’s early years when it grew from ten people to about 2,500 people, and is now chief technology officer at Dropbox, sees the entrepreneurial dilemma this way:

One of the reasons it’s hard to build new things at larger companies is because people don’t have the mental model of “My job is to actually learn new things.” A lot of the mental model is you get ­really good at doing something and then you are supposed to keep on doing that. Yes, there’s incremental learning, but it’s more about perfecting your craft as opposed to bootstrapping your craft. Even companies that seem to have launched one good product won’t easily know how to do it again.

You’d think that an innovative, hot startup like Dropbox, which was founded in 2007 and as of this writing is worth $10 billion, has 500 million users, and roughly 1,500 employees worldwide, would easily avoid the problem of replicating an ­old-fashioned structure, right? After all, it came into the marketplace with a product no one even knew they needed yet and blew up in a big way.

But it, too, has run into some of the problems we typically associate with traditional, more established companies. Why? Because over the course of its tremendous, and tremendously fast, growth, the company was built to a familiar blueprint. It lost some of the first principles of product thinking that made its initial success possible. Its launches of two new flagship products, Mailbox and Carousel, were, in Agarwal’s words, “disappointing. There ­wasn’t the massive scale we wanted and we ended up having to sunset them.”

The reasons for these failures were familiar. Says Agarwal, “We did not get enough pertinent user feedback. We were building and building but not listening enough.”

The difference between Dropbox and more established, legacy companies, was that at the company’s core, there remained the original understanding of the best ways in which to test, market, and grow ideas. “It was the most painful experience the company has gone through,” Agarwal says, “but also the most rewarding and important one. It taught us so many things about what we were doing wrong building new products. It’s important that you accept the pain and do all the postmortems and you learn from it. And that’s how you get better and stronger.”

After adopting a series of changes, they released Dropbox Paper, a new feature for communicating and collaborating on the platform that draws on what they learned from previous attempts, globally and in twenty-one languages, in January of 2017.

As Dropbox director of product Todd Jackson puts it, “It’s a different discipline to launch brand-new products.” The awareness of the need to both protect and grow an existing product while also being able to experiment with new ones in this way is critical to success in the twenty-first century, and a hallmark of a modern company.