Eric Ries became a celebrity in the business world for his "Lean Startup" methodology, a set of principles that helps small companies move fast and stay nimble. Lately, he's been devoting much of his time to counseling big companies that want to do those same things.

"The first time that happened to me, I was like, gag me with a spoon," Ries told me earlier this week, during a break at the Lean Startup conference in San Francisco. "You want to be a startup and you have like 10,000 employees? I was like, uh huh."

"Now I've seen it can be done, so I've become much more respectful," he added. "But I've also seen how difficult it is."

At the conference, executives from giant firms like GE and Intuit were on hand to talk about how they've successfully applied Lean methodology within their organizations. What are the strategies that enabled them to become more entrepreneurial in their operations? Ries offered three.

1. Insist on failure.

Most big companies give their employees regular performance reviews, but those reviews neglect or miscategorize one of the most important markers of entrepreneurial success: failure. "If somebody fails, it's either not mentioned at all in your performance review, just whitewashed out of your year, or it's mentioned as a negative: You failed to execute," Ries says.

That's the wrong way of looking at it. Ries tells companies they must add a section to their performance reviews for discussing what he calls "productive failures," which are really a form of accomplishment. "If an employee is claiming to be acting in an entrepreneurial way and they didn't fail all year long, they're either lying to you or they were actually not acting in an entrepreneurial way because they didn't take any risks," he says. "If you want people to act in an entrepreneurial way, you need to proactively manage the perceptions of failure in your company."

2. Reward weirdos.

By the same token, true entrepreneurial personalities often fare badly in corporate environments. Not only do they spend a lot of their time working on things that don't pan out, but they also tend to clash with their more conventionally minded colleagues. "If someone's failing all the time and not abiding by the normal standards and they're constantly doing weird stuff most people don't understand, in most organizations, that's a fast track to getting fired," Ries says. "The personnel file of an entrepreneur and a bozo can look very similar."

3. Turn off the spigot.

It's useless to promote and reward entrepreneurial types if you then incentivize them to act in non-entrepreneurial ways. In most big companies, new projects get funded like government agencies, not startups, with budgets that automatically renew quarter after quarter, year after year. Ries calls it "entitlement funding."

"It's totally impossible to innovate in that structure," he says. "The incentives are all wrong." Since only a glaring miscue can get the spigot shut off, there's strong pressure to delay judgment day by postponing product launches rather than take a chance on something that might need further refinement. Entitlement funding also encourages what he calls "success theater," the presentation of carefully selected success metrics that purport to show a project is on target but still needs more runway.

Ries advocates funding internal products just like startups, with discrete rounds of funding. If a project burns through its capital without hitting benchmarks, there's no need to take any action to terminate it; it sunsets itself by running out of money.

Published on: Nov 20, 2015