Book Review: The Startup Way – How Modern Companies Use Entrepreneurial Management to Transform Culture & Drive Long-Term Growth

The book is written by Eric Ries, who is also the author of the New York Times bestseller The Lean Startup. He is also 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, with whom he partnered to create the Fast Works 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.

The twenty main takeaways that I got out of this book are outlined below:

1. Today’s organizations – both established and emerging – are missing capabilities that are needed for every organization to thrive in the century ahead: the ability to experiment rapidly with new products and new business models, the ability to empower their most creative people, and the ability to engage again and again in an innovation process – and manage it with rigor and accountability – so that they can unlock new sources of growth and productivity. That process – and how to take it from “missing” to “thriving” in any company or organization – is the focus of this book… “If you hate big companies so much, why are you trying to create a new one?“
2. The five principles behind the start up way – it combines the rigor of general management with the highly iterative nature of startups… 1) Continuous Innovation; 2) Startup as atomic unit of work; 3) The Missing Function; 4) The Second Founding; and 5) Continuous transformation… Every manager in the company must become literate in the tools of entrepreneurial management, even managers who are not directly involved with startups. They need to understand why some people are working differently, be able to hold them accountable to new standards, and recognize when their own normal gatekeeper functions, such as HR, IT, legal, and compliance, are getting in the way… It’s the difference between “playing Caesar” (deciding which projects live or die), and “playing the scientist” (being perpetually open to search and discovery). It will make your work more interesting and more effective.
3. Hypergrowth for a company also requires hypergrowth of the people inside it… Hypergrowth is painful – there’s no way to do it gracefully. If it hurts, you’re not doing it wrong. you’re doing it right… For most of the twentieth century, growth in most industries was constrained by capacity… 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 a by today’s standards… Incremental improvements to existing products or new variations thereof are relatively predictable investments, as are process improvements to increase quality and margins…
4. Traditional management tools struggle with uncertainty: an older system of accountability, 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?… “Failure is not an option” vs “I eat failure for breakfast”… My job is actually to learn new things: 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.
5. Amazon is a collection of several businesses and initiatives – even in situations where you can’t forecast, you can still plan… The missing half of the Toyota Production System is that it is a system that is outstanding at producing what we specify, with high quality, but it does not have a corresponding system for discovering what to produce in the first place… A modern company is one that has both halves, both systems. It has a capacity to produce products with great reliability and quality, but also to discover what new products to produce… A modern company is one in which every employee has the opportunity to be an entrepreneur. It respects its employees and their ideas at a fundamental level… Like Amazon’s famous “two-pizza team” – no larger than you can feed with two pizzas – these small teams are able to experiment rapidly and scale their impact.
6. Entrepreneurship – the missing function: The first responsibility of the entrepreneurship function is to oversee the company’s internal startups. The company’s leaders need to understand the startup as an atomic unit of work, distinct from other kinds of project teams that companies typically employ… Every organizational unit is more properly understood as a portfolio that contains some mix of experimentation and execution… It requires a new leadership style… Entrepreneurship is not only for products… Entrepreneurship is not only for entrepreneurs.
7. The missing organizational capabilities – 1) How do we create space for experiments with appropriate liability constraints? – through MVPs. 2) How do we fund projects without knowing the ROI in advance? 3) How do we create appropriate milestones for teams that are operating autonomously? 4) How do we provide professional development and coaching to help people get better at entrepreneurship as a skill? 5) How do we provide networking and matchmaking in and out of the company, so people understand their new identity: ‘I’m a corporate entrepreneur.’ 6) How do we put the right person in the right team? 7) How do we create new incentive and advancement systems?
8. It’s all about the team – small teams eat big teams. Have the smallest number of people with the largest amount of responsibility that they can carry… Scarcity is important: if you passionate believe in a mission but lack the resources to make it unfurl in every possible way, youre absolutely forced to focus. There’s simply no extra time and no extra money, and corporate death threatens at any moment… The Internet is an open system: It works because you don’t need to ask anyone’s permission to be creative and because every address is equally accessible… Silicon Valley prioritizes cross-functional teams. The team may look different, depending on what the project is and which resources and people are available to it, but the organizing principle remains the same… Amazon uses a method called “working backward“ to make sure that discovering a true customer problem is the very first thing a team focuses on… By giving employees access to equity, startups directly incentivize learning in the most dramatic way. Equity ownership allows for compensation, risk-taking, and investment in whatever is necessary… What meritocracy actually means to Silicon Valley is that your credentials or qualifications don’t necessarily predict whether you’ll be a good founder or not… Meritocracy is not an either/or concept. Meritocracy exists on a spectrum.
9. Without a vision you cannot pivot – a pivot is a change in strategy without a change in vision… Vision is often the reason that startup teams are able to pivot in a way that traditional product teams seldom can… Entrepreneurship is not a linear path.
10. The basics of the Lean Startup Method – 1) Identify the beliefs about what must be true in order for the startup to succeed. We call these leap-of faith assumptions. 2) Create an experiment to test those assumptions as quickly and inexpensively as possible. We call this initial effort a minimum viable product. 3) Think like a scientist. Treat each experiment as an opportunity to learn what’s working and what’s not. We call this “unit of progress” for startups validated learning. 4) Take the learning from each experiment and start the loop over again. This cycle of iteration is called the build-measure-learn feedback loop. 5) On a regular schedule (cadence), make a decision about whether to make a change in strategy (pivot) or stay the course (persevere)…
11. Questions to ask – What assumptions would have to be true in order for the project to succeed? Are they assumptions about customers? Partners? Competitors? How much do we really know about customers’ habits, preferences, and need for solutions like ours? What evidence is there that customers really have the problem being solved for them and strongly desire (and are willing to pay for) a solution to it? What is really known about what customers want in that solution?… Keep it simple – Do people really have the problem you think they do? How do they approach the problem today? Is your concept a better alternative for them?… Avoid analysis paralysis at all costs, and usually that means focusing on fewer rather than more assumptions (see diagrams and tables in pages 93-95). Determine the Value Hypothesis and Growth Hypothesis.
12. An MVP is an early version of a new product that allows a team to collect the maximum amount of validated learning (learning based on real data gathering rather than guesses about the future) about customers. Ideally, this learning will maximize the number of LOFAs tested while minimizing cost, time, and effort… In today’s marketplace of uncertainty, whoever learns fastest wins… A minimum viable product quickly turns an idea into something real – even if imperfect – in order to begin the process of iterating and retesting… MVP is a state of mind… Nearly every great startup success had to pivot along the way. It’s a universal consequence of the conditions of extreme uncertainty that startups live in… Schedule the pivot-or-persevere meeting in advance. Put it on the calendar. Make it a routine part of everyday life.
13. Lean startup for leaders – The most important questions for the leaders to ask are: a) What did you learn?; and b) How do you know?… So much of this change in management approach comes down to culture, mindset, and habits. One of the hardest assumptions to dispel is the idea that the leader is the supreme expert: The leader makes the plan, and subordinates execute it. When there is uncertainty, the leader provides definitive answers… Many situations in the modern world defy this older paradigm. Many failures are caused not by incompetent execution but by reality failing to live up to the assumptions built into the plan. If only customers would read the business plan, then they would know how to behave!
14. Accountability is the foundation of management – Entrepreneurial management is a leadership framework designed specifically for twenty-first-century uncertainty. It’s not a replacement for traditional management… Just because innovation is decentralized and unpredictable doesn’t mean it can’t be managed… Accountability: the systems, rewards, and incentives that drive employees behavior and focus their attention… Process concerns the tools and tactics that employees habitually use every day to get work done, such as project planning, management, team coordination, and collaboration… Over time, these habits and ways of working congeal into culture: the shared, often unstated, beliefs that determine what employees believe to be possible, because “that’s just the way things are around here.” Every culture attracts certain kinds of people: the ultimate corporate resource.
15. The outcomes of transformation – a) It provides many more opportunities for leadership; b) It helps keep innovative people in the company instead of incentivizing them to leave; c) It reduces wasted time and energy; d) It’s a much better way to kill projects; e) The ability to solve heterogeneous problems with speed and agility; f) …Profit?
16. A roadmap for transformation – a) Start with a limited number of projects and build from there in order to create a comprehensive set of cases, stories, and results to show how the new method works in this particular organization; b) Create dedicared, cross-functional teams to undertake the pilot projects in order to embed functional diversity from the start; c) Create a growth board-type system that allows executives to make swift, clear decisions about the projects presented to them; d) Teach early teams how to design Lean Startup-type experiments that help them plot a course through uncertain terrain; e) Use the right startup-style metrics to measure the results of those experiments; f) Build a network of leaders in the organization who can help resolve problems that come up as the new way of working comes into conflict with entrenched methods. Work by exception at the start in order to move forward quickly and to defer deep changes to organizational structures until later phases; g) Translate the new concepts into company-specific language and tools.
17. The energy for transformation – Where do organizations get the motivation to embark on a Startup Way type of transformation? There are three distinct driving forces behind this kind of change: a) Crisis: Sometimes, a crisis forces change; b) Strategy: Other times, a new organizational strategy clearly necessitates a new way of working; c) Hypergrowth: Success can be its own form of crisis. When a startup achieves product/market fit, it can be forced to grow extremely rapidly… What all three of those scenarios have in common is that they unleash a tremendous amount of energy.
18. Create new ways to measure success – Leading indicators: Leading indicators come in many forms. Their purpose is to track signs that the process is working at the team level… Metrics: A little farther along on the path of experimentation, it’s important to create metrics to measure the success of entrepreneurial projects… Metrics need not be complicated… The simpler your metrics, the simpler your goals.
19. Innovation Accounting (IA) is a way of evaluating progress when all the metrics typically used in an established company (revenue, customers, ROI, market share) are effectively zero… Three levels of IA: Dashboard; Business Case; and Net Present Value (see the ‘Bingo Card’ of key questions in pages 280-281)
20. Continuous transformation requires rigorous approach – a) Assigns responsibility for the entrepreneurship function to somebody (too many orgs have nobody); b) Gives these people real operating responsibility instead of des.
    ignating them merely as futurists or instigators (as too many ‘chief innovation officers’ are); c) Builds a career path and a specialized performance develop-
    ment process for entrepreneurial talent (producing a common standard that can be used across the pillars, no matter which function or division is affected); d) Facilitates cross-training of entrepreneurs across the pillars (This is why VCs who have had real-world operating experi-
    ence as founders are so highly prized, though I should note the many VCs who have succeeded despite not having it.
    What matters is the mindset, not the résumé.); e) Offers training, mentorship, support, coaching, and best
    practices designed to foster excellence in entrepreneurship across the organization; f) Somewhat counterintuitively, takes responsibility for educating the non-entrepreneurs in the organization, who, though not necessarily acting as drivers of change, will still need to adopt a more entrepreneurial way of working; g) Gives entrepreneurship a seat at the table when the other functions- especially gatekeeper functions- are setting company policy. This is incredibly important for finance, legal, HR, and IT in particular.