‘A fascinating, supremely useful read. On the foundation of his transformational The Lean Startup, Eric Ries has built a compelling case for entrepreneurial management 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 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, Intuit
‘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 with the right mindset and methods for building big organizations where people work much as entrepreneurs do in the best little startups’
Robert I. Sutton, Stanford Professor, co-author of Scaling Up Excellence, author of The Asshole Survival Guide
‘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 non-profits – for decades to come’
Lawrence Summers, Harvard University Charles W. Eliot Professor and former US Treasury Secretary
‘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
‘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
‘A future classic, a book that will inspire thousands of companies to leap into a much needed re-invention’
Seth Godin, author of Linchpin
‘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 of Box
‘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, Girls Who Code
‘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 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 road map 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 Council of Economic Advisers under President Obama and Bendheim Professor of Economics and Public Affairs at Princeton
‘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 non-profits, as well as for established for-profit businesses. If you want to visit the future of the modern organization, read this compelling book’
California Lieutenant Governor Gavin Newson
‘A 21st-century toolkit that will allow any company to flourish’
Ron Conway, founder of SV Angel
‘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 S. Teixeira, Harvard Business School
‘In The Startup Way, Eric Ries offers leaders across the public, private and nonprofit 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 US government, I’ve seen first-hand the improvement in people’s lives’
Aneesh Chopra, former CTO of the United States
‘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’
Clayton Christensen, author, entrepreneur, and 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 that 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 startups 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
‘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’s new 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 big outfits fighting to find a way. Well done!’
Tom Peters
‘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 and former United States deputy chief technology officer
‘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, read this compelling book’
Arianna Huffington, founder and CEO of Thrive Global and author of The Sleep Revolution and Thrive
‘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 brilliantly describes the limitations of old management thinking in a time where competitors bring out new products in an order of magnitude faster than legacy companies. The Startup Way describes how to foster entrepreneurial leadership essential to corporate survival in the twenty-first century’
Jeff Sutherland, CEO of Scrum, Inc., and author of Scrum
‘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, co-founder of reddit and Initialized Capital and bestselling author of Without Their Permission
UK | USA | Canada | Ireland | Australia
India | New Zealand | South Africa
Portfolio Penguin is part of the Penguin Random House group of companies whose addresses can be found at global.penguinrandomhouse.com.
First published in the United States of America by Currency 2017
First published in Great Britain by Portfolio 2017
Copyright © Eric Ries, 2017
The moral right of the author has been asserted
Cover design © Marcus Gosling
ISBN: 978-0-241-97271-7
For Gabriel and Clara
Introduction
PART ONE: THE MODERN COMPANY
Chapter 1
Respect the Past, Invent the Future: Creating the Modern Company
Chapter 2
Entrepreneurship: The Missing Function
Chapter 3
A Startup State of Mind
Chapter 4
Lessons from the Lean Startup
Chapter 5
A Management System for Innovation at Scale
PART TWO: A ROAD MAP FOR TRANSFORMATION
Chapter 6
Phase One: Critical Mass
Chapter 7
Phase Two: Scaling Up
Chapter 8
Phase Three: Deep Systems
Chapter 9
Innovation Accounting
PART THREE: THE BIG PICTURE
Chapter 10
A Unified Theory of Entrepreneurship
Chapter 11
Toward a Pro-Entrepreneurship Public Policy
Epilogue
A New Civic Religion
Appendix 1: Additional Resources
Appendix 2: A Catalog of MVPs
A Note on Research Methods
Disclosures
Notes
Acknowledgments
Follow Penguin
On a summer afternoon, a team of engineers and a group of executives at one of America’s largest companies met in a classroom deep in the heart of their sprawling executive training facility to discuss their multi-hundred-million-dollar five-year plan for developing a new diesel and natural gas engine. Their goal was to enter a new market space; excitement was running high. The engine, named Series X, had broad applications in many industries, from energy generation to locomotive power.
All of this was very clear to those assembled in the room. Except to one person, who had joined the meeting with no prior knowledge of engines, energy, or industrial product production and was therefore reduced to asking a series of questions Dr. Seuss might have posed:
“What is this used for again? It’s in a boat? On a plane? By sea and by land? On a train?”
The executives and engineers alike were no doubt wondering, “Who is this guy?”
That guy was me. The company was GE, one of America’s oldest, most venerable organizations, with a market cap (at the time) of $220.47 billion and no fewer than 300,000 employees.
So what was I doing there at GE in the summer of 2012? I’m not a corporate executive. My background is not in energy or health care or any of GE’s myriad industrial businesses.
I am an entrepreneur.
GE Chairman and CEO Jeffrey Immelt and Vice Chair Beth Comstock had invited me to Crotonville, New York, that day because they were intrigued by an idea proposed in my first book, The Lean Startup: that the principles of entrepreneurial management could be applied in any industry, size of company, or sector of the economy. And they believed their company needed to start working according to those principles. The goal was to set GE on a path for growth and adaptability, and for Immelt to leave a legacy that would allow the company to flourish long term.
That day we took a fresh look at the plan for the Series X engine and realized that it could get to market radically faster by building a simpler engine in a matter of months, not years. It was the first of many such sessions (some of which you’ll hear more about).
The next day I had a conversation that seemed—on its surface—very different. It was with the founder and CEO of one of the next generation of hypergrowth tech startups. The two companies couldn’t be much more different: one old and one new, one the market leader in many of the businesses it’s in, the other fighting to get traction. One building massive physical products, the other building the kind of software infrastructure that powers the Internet. One East Coast, one West Coast. One where executives wear suits and the other where they wear ripped jeans.
The CEO of this company, an early adopter of The Lean Startup, was confronting a new set of challenges: How could they scale beyond their first, successful innovation? How could they empower their employees to think like entrepreneurs? And, most of all, how could they find new sources of sustainable growth?
I was stunned by how, despite all the surface differences, these two conversations were surprisingly similar. GE—like many successful companies—was looking to reinvigorate its culture with entrepreneurial energy so it could continue to grow. The startup I’d met with that afternoon was trying to figure out how to maintain its entrepreneurial culture as it grew up.
Over the past few years, I’ve had many such moments, when I’ve been struck by the parallel challenges faced by organizations we typically think of as very different. Out of these conversations with leaders and founders, I have come to realize that 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.
My journey to that meeting in Crotonville was an unlikely—not to mention unexpected—one. Early in my career, I trained as a software engineer, after which I became an entrepreneur. If you’ve ever pictured a stereotypical tech entrepreneur as a kid, laboring away in their parents’ basement—well, that was me. My first foray in entrepreneurship, during the dot-com bubble, was an abject failure. My first published writing, 1996’s scintillating The Black Art of Java Game Programming, is, last time I checked, available used on Amazon.com for $0.99. None of these projects seemed, at the time, like harbingers of the future years that would be spent advocating for a new system of management.
After I moved to Silicon Valley, though, I started to see patterns in what was driving both successes and failures. And, along the way, I started to formulate a model for how to make the practice of entrepreneurship more rigorous. Then I began writing about it, first online beginning in 2008, and then in a book, The Lean Startup, published in 2011. What happened from there exceeded my wildest expectations. The Lean Startup movement spread worldwide. More than a million people around the world read the book. Odds are, no matter where on the globe you are right now, there’s a local Lean Startup Meetup group nearby.1 Thousands of founders, investors, and others in the startup ecosystem rallied to embrace the ideas and practices of Lean Startup.
In the book, I made a claim that seemed radical at the time. I argued that a startup should be properly understood as “a human institution designed to create a new product or service under conditions of extreme uncertainty.” This definition was purposefully general. It didn’t specify anything about the size of the organization, the form it took (company, nonprofit, or other), or the industry or sector of which it was a part. According to this broad definition, anyone—no matter their official job title—can be cast unexpectedly into the waters of entrepreneurship if the context of their work becomes highly uncertain. I argued that entrepreneurs are everywhere—in small businesses, mammoth corporations, health care systems, and schools, even inside government agencies. They are anywhere that people are doing the honorable and often unheralded labor of testing a novel idea, creating a better way to work, or serving new customers by extending a product or service into new markets.
In the six years since The Lean Startup was published, the diverse organizations adopting its methods have proven this claim time and again. I have had the chance to travel all over the world, working with companies of just about every size you can imagine. Three founders working on a new app? Check. Small business? Check. Religious nonprofits? Certainly. Medium-sized manufacturing companies? Check. Hypergrowth pre-IPO tech startups? Definitely. Massive government bureaucracies? Check. Some of the largest and slowest multinational companies in the world? You bet. All these kinds of organizations can use the Lean Startup methodology to do more effective work and accelerate their progress.
These travels are ultimately what brought me to that GE classroom. The success of the Series X engine, along with a number of other similar pilot projects, led to something extraordinary. GE and I forged a partnership to develop a program called FastWorks,2 which enacted a major cultural and managerial change. Over several years, we trained thousands of leaders throughout the company. I personally coached more than a hundred project teams, spanning every function, region, and business unit in the company. Within GE, every business CEO and top manager has been trained in entrepreneurial ways of working, and internal functions have been transformed so that they facilitate—rather than hinder—innovation.
But I’ve been surprised to discover that startups, too, need this kind of training and transformation work. Like many of my peers in Silicon Valley, I came up in my career with a belief that “big company” people were fundamentally different from creative, disruptive entrepreneurs like us.3 That once organizations reach a certain size, they start dying slowly, from the inside. They cease to innovate. The most creative people choose to leave. Big companies inevitably become sclerotic, bureaucratic, political.
This belief creates a strange paradox, a kind of cognitive dissonance that affects all of us who aspire to high-growth entrepreneurship. Having worked with literally hundreds of entrepreneurs, I’ve become used to asking them:
“If you hate big companies so much, why are you trying to create a new one?”
They’re often stumped by the question, since in their mind’s eye, the company they are busy building will be different. It won’t be dragged down by inane meetings and nosy middle managers. It will remain dynamic, scrappy, a perpetual startup. But how often is this ideal organization actually what they end up creating?
Over the past several years, founders and CEOs who had been early adopters of the Lean Startup method began to get back in touch with me. In the early days, they had been excited about the parts of Lean Startup that are about getting started quickly, like minimum viable product and pivot. But they hadn’t been as focused on the parts that are, frankly, a little more boring: the science of management and the discipline of accounting. Now that their companies had scaled to hundreds, thousands, or, in some cases, tens of thousands of employees, they realized they had to find a way to hold on to their entrepreneurial way of working, even as they put traditional management tools in place, did more forecasting, and moved toward a traditional-looking org chart.
I have seen this firsthand in dozens of amazing companies: when employees are subject to traditional organizational structures and incentives, certain specific bureaucratic behaviors result. It’s an inevitable consequence of the way those systems are designed.
What these founders wanted to know was: Could we use Lean Startup techniques to prevent our organizations from becoming lethargic and bureaucratic as they scaled? Thanks to the work I’d been doing with larger organizations, I could tell them the answer was yes.
That’s why, for the past five years, I’ve been living a double life. I’ve had plenty of days when I met with the leader of a mammoth, market-leading organization in the morning and then, in the afternoon, spent time with startups, from massive hypergrowth Silicon Valley success stories to tiny seed-stage hopefuls. The questions I’m asked are amazingly consistent:
How do I encourage the people who work for me to think more like entrepreneurs?
How can I build new products for new markets without losing my existing customers?
How do I hold people working in an entrepreneurial way accountable without putting my core business at risk?
How can I create a culture that will balance the needs of existing business with new sources of growth?
If you are reading this book, you have probably been asking these questions about your organization, too.
Learning from the companies I have been working with, I began to evolve a new body of work about principles that apply beyond the “getting started” phase, particularly in established and even large-scale enterprises.
I’ve worked with thousands of managers and founders to test and refine this new approach. I’ve been in the trenches with them, launching new products, founding new companies, reinventing IT systems, auditing financial processes, rethinking HR practices and sales strategies—you name it. I’ve worked with leaders of every corporate function: from supply chain to legal to R&D. And I’ve worked in a crazy assortment of industries: deep-sea drilling, electronics, automotive, fashion, health care, the military, and education, to name just a few.
The new approach draws not just on my own direct work with companies, but on the wisdom of an entire movement of like-minded leaders. It is informed by case studies and wisdom from a variety of sources: iconic multinationals like GE and Toyota; established tech pioneers like Amazon, Intuit, and Facebook; the next generation of hypergrowth startups like Twilio, Dropbox, and Airbnb; and countless emerging startups you haven’t heard of—yet. And, perhaps even more surprisingly, it draws on the work of innovators reforming some of the world’s oldest and most bureaucratic institutions—including the U.S. federal government.
Visionary leaders across every kind of business are waking up to new possibilities, ones that blend the best of general management with the emerging discipline of entrepreneurial management.
Working with them, I have seen that entrepreneurship has the potential to revitalize management thinking in the twenty-first century. This is no longer just the way people work in one industry. It’s the way people everywhere work—or want to work.
I call it the Startup Way.
The Startup Way combines the rigor of general management with the highly iterative nature of startups. It is a system that can be used in any organization that seeks to practice continuous innovation, regardless of size, age, or mission.
Think back to the definition of a startup I offered above. Because entrepreneurship is always about institution-building, it is, necessarily, about management. In the Startup Way, entrepreneurship is a management discipline, a new framework for organizing, evaluating, and allocating resources for the work of a company. It’s a philosophy that replaces the old-fashioned template currently holding so many companies back, providing a new blueprint of how a modern company should work to create sustained growth through continuous innovation. In lieu of the current management system, which is bound by planning and forecasting, the Startup Way creates a system that embraces and even thrives on speed and uncertainty.
The five key principles behind the Startup Way philosophy are:
1. CONTINUOUS INNOVATION: 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.
2. STARTUP AS ATOMIC UNIT OF WORK: In order to create cycles of continuous innovation and unlock new sources of growth, companies need to have teams that can experiment to find them. These teams are internal startups, and they require a distinct organizational structure to support them.
3. THE MISSING FUNCTION: If you add startups to an organization’s ecosystem, they must be managed in ways that confound traditional techniques. Most organizations are missing a core discipline—entrepreneurship—that is just as vital to their future success as marketing or finance.
4. THE SECOND FOUNDING: Making this kind of profound change to an organization’s structure is like founding the company all over again, whether it’s five or a hundred years old.
5. CONTINUOUS TRANSFORMATION: All of this requires the development of a new organizational capability: the ability to rewrite the organization’s DNA in response to new and diverse challenges. It would be a shame to transform only once. When a company has figured out how to transform, it can—and should—be prepared to do it many more times in the future.
It’s important to note emphatically up front that committing the entire organization to this method of working does not mean that every single team is reorganized around startup principles. Nor does it mean that every employee magically starts acting like an entrepreneur. Instead, the goal is to make it possible for startup teams to operate reliably and give every employee the opportunity to act in an entrepreneurial way. This allows for the emergence of people who are naturally inclined to work this way—or could be inclined, given encouragement and permission. Accordingly, 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.
This is not a manifesto. We have enough of those already. Our world is awash with gurus and experts telling us all to move faster, be more innovative, and think outside the box. But we are short on specific details: How, exactly, do we attain these results? This book is an attempt to fill in the missing details. It offers proven techniques to rekindle an organization’s entrepreneurial spirit—or prevent it from ever being lost in the first place.
If you are a leader—whether of a company or a team—this book will give you the blueprint for transforming your organization into one that is capable of finding new sources for growth over the long term. You’ll learn how to create accountability structures that incentivize productive innovation—the kind that truly has value for a company. You’ll learn how to structure work so that it’s more fulfilling. You’ll also get a new understanding of what your role is as a leader—a role that’s quite different than what’s still taught in many MBA programs or sought out by investors and board members. Scott Cook, co-founder of Intuit and now chairman of its executive committee, describes this change as one of perspective. 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.
It is rooted in the experiences of actual living, breathing organizations that have successfully implemented these ideas across a wide array of sectors, industries, and scales. The Startup Way details a series of specific interventions that can help you invest in entrepreneurship as a core discipline, and walks you through how to change the mindset of senior leadership. Thanks to my work with GE, I have generously been granted extensive access to bring you “behind the scenes” of the FastWorks transformation, which will serve as a kind of extended case study to illustrate these concepts that have been implemented to make GE adaptable for the future. But I will also share detailed stories of many other organizations that have been through a similar journey.
In Part One, “The Modern Company,” we’ll uncover why traditional management practices are no longer up to the task, and what about this particular historical moment has made the integration of entrepreneurial management so critical. We’ll talk about the new capacities and ways of working needed now.
Part One defines how “the startup” is a new atomic unit of work for highly uncertain terrain, and it lays out the conditions required to build a portfolio of startups within an organization. We’ll discuss how to lay the foundations of strong accountability for innovation projects, even in situations of high uncertainty, where planning and forecasting are difficult or impossible, and how to avoid the kinds of accountability measures that routinely kill worthwhile innovation projects. We’ll also take a quick tour through the major points and processes detailed in The Lean Startup, such as minimum viable products, pivots, and the build-measure-learn loop.
In Part Two, “A Road Map for Transformation,” we will dive into the “how” of the Startup Way. When teams are given the chance to organize in the Startup Way, they naturally gravitate to new and different processes than people are accustomed to. We will explore these unconventional techniques—some of which are based on concepts from The Lean Startup, and some of which are brand-new. We’ll also talk about how to manage conflict between these new processes and legacy systems, including conflicts among the middle managers, who historically have been the assassins of progress.
For a modern company, the payoffs of continuous innovation are not only the breakthrough new products, services, internal systems, and commercial wins that it produces. Innovation also provides the opportunity to incubate a new culture, one that unleashes entrepreneurial creativity at every level of the organization. We’ll explore how making the right accountability and process choices allows this new culture to thrive and grow.
We’ll look at the personnel, hiring, and development needs that are implied by this new way of working. We will address, head-on, the mistaken but widespread belief that working in an entrepreneurial way requires firing existing staff and going outside to look for fancy superstars. In every organization I have worked with—without exception and including some iconic Fortune 500 companies—I have found true entrepreneurs on the inside. We’ll discuss how to bring those talented people out of the shadows, build a network of coaching and support, and ultimately help them succeed. We’ll examine how the internal functions of a corporation, including HR, legal, finance, IT, and procurement, can be transformed in order to facilitate rather than block innovation. We’ll look at the kinds of problems that uniquely arise during continuous innovation. Finally, we’ll take a very close look at the process and mechanisms of innovation accounting, the financial structure that supports this new way of working.
In Part Three, “The Big Picture,” we’ll explore what happens once the transformation process is “complete.” Or rather, the fact that it never really is. The ultimate goal of the Startup Way is for organizations to be in a state of continuous transformation, which will allow them to flourish in any circumstance. I believe this kind of flexibility can also be used far more broadly, so the final chapters are about the greater consequences of this new structure when applied to public policy and the problems we face as a society.
Continuing a theme from The Lean Startup, in this book I will return often to a central question: How can companies truly create long-term growth and results? Of all of the topics I discuss from day to day, this one is the most emotionally charged for today’s managers and founders. Over and over again, I see people who desperately want to fulfill a long-term vision for the company, to leave a legacy of meaningful change behind. And yet they are continually frustrated by the short-term demands of our current business systems. All it takes is a few bad quarters for investors to demand change, and for the internal politics of a company to create massive upheaval, all the way to the top.
You might think an organization that measures its employees against strict quarterly deadlines, the way most companies currently do, would operate with a mindset that encourages rapid experimentation on an abbreviated schedule. But what actually happens is the opposite. Because of the short-term pressure, anything that can be done in one quarter has to be highly predictable in order to make future commitments based on its results. Instead of seeing the innovation opportunities that come with thinking in short cycles, companies become conservative and focus only on the projects they believe will maximize that quarter or fiscal year. That means they continue to do the same things, whether or not those things still work the way they used to. In addition, the company that demands predictability in the short term is also ill-equipped to hold teams working on longer projects accountable.
I believe the new framework described in this book provides concrete guidance for how to move beyond this dilemma to a new, more sustainable system for creating long-term growth and flexibility.
So now that you understand what we want to accomplish—changing the way the modern company operates—let’s begin.
In 2006, you probably never would have even thought of renting a stranger’s apartment instead of checking in at the Hilton. As of this writing, more than 100 million people have,1 thanks to Airbnb. At its core, the company is already experimental. If it weren’t, it never would have uncovered a whole hidden market and grown in just ten years to a valuation of $30 billion. So what more could startup thinking possibly bring to a company that very recently found huge success by disrupting an entire market?
A few years after Airbnb launched, the company’s original team started looking around for growth opportunities. They’d added new features to their existing product, including user verification and host insurance to increase confidence in the platform, and they’d formed a partnership with Concur Technologies to capture business travelers. But they knew that in order to keep growing, they needed to come up with something entirely different. “We said, ‘What’s next? Where is this going?’ ” recalls Joe Zadeh, one of the company’s first employees and now its VP of product. As founder Brian Chesky said, in retrospect: “I had this sense of urgency or crisis. You can’t stay the same.”2
Zadeh and Chesky realized that in order to come up with something completely new, they needed to give themselves the time and space to experiment—something they’d had when they launched the company, purely because of circumstance, but hadn’t been prioritizing as Airbnb grew. They created a small dedicated team within the company, led by Chesky, whose first mission was an afternoon at Fisherman’s Wharf, a scenic spot overlooking San Francisco Bay, Alcatraz, and the Golden Gate Bridge, where out-of-towners flock and souvenir shops abound. The result, which came several years later, was the launch of Airbnb Trips, a trip-planning service that marks the company’s first major expansion. In Chapter 8 you’ll learn more about what came between that afternoon and the product launch, and about Airbnb’s structure, which allows both for the maintenance of its core product and for experiments with new ideas, like Trips. It’s the philosophy behind being able to make bets that may or may not pay off, rather than to simply refine a current success, that I want to highlight here. Zadeh sums it up: “Hypergrowth for a company also requires hypergrowth of the people inside it.”
Airbnb is just one example of a startup structure that allows for experimentation. Throughout the book, we’ll look at aspects of a variety of startups, including Dropbox, WordPress, and Emerald Cloud Lab, to see how they’ve done it.
Many startups, of course, are not yet at this point. But if they succeed, they’ll reach it soon enough. Thinking about how to manage growth ahead of time, rather than when it’s already happened and is creating a crisis, is critical. Understanding the tools that are available and the environment we’re using them in is key to sustained, long-term success. As Palantir’s Ari Gesher says, “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.”3
In this part of the book, we’ll talk about what it means to become a modern company, and the entrepreneurial structure required to survive and embody a long-term vision for the future. Implementing that vision takes patience and dedication—transformation is never a quick fix—but organizations that operate this way have the greatest chance at continued expansion. We’ll walk through the elements of startup culture and work that have made Silicon Valley and other startup hubs such dynamic places, as well as the lessons and theories from the past that form the foundation on which to build a new way of thinking about management. Finally, we’ll synthesize these ideas into the Startup Way.