Many factors--demographics, consolidation, funding disparities--contribute to the persistent decline in startup rates. Here's another possibility: Maybe corporations are learning to keep their entrepreneurial employees happy.
Eric Ries makes no such assertion in his new book, The Startup Way: How Modern Companies Use Entrepreneurial Management to Transform Culture and Drive Long-Term Growth (Currency). That's not surprising. Any phenomenon that depresses business starts would be anathema to the author of The Lean Startup, arguably the most influential book for entrepreneurs in the past decade.
Still, when people choose to start companies they are choosing not to do something else. Traditionally, that something has been working at a slow-moving corporation that grinds creativity into the dirt like cigarette butts. In The Startup Way, however, Ries demonstrates that the same methodology he proposed to help startups achieve product-market fit and reduce risk can also transform the most venerable organizations into venturing havens.
In Ries's schema, "management"--a word that many entrepreneurs interpret as "the party's over; here come the bureaucrats"--can be used to enshrine innovation at scale. If you have an itch for the rapid-fire, ask-the-customer, try-fail-learn approach to bringing stuff to market, large companies increasingly can scratch it for you.
The Lean Startup had something to do with that. After his first book's phenomenal success (Silicon Valley denizens wear T-shirts emblazoned with plays on the term "minimal viable product"), Ries spent six years advising organizations of all shapes and sizes on lean principles. In 2011, he sat down with General Electric's then-CEO Jeff Immelt to discuss how to make GE a "modern" (as opposed to "old-fashioned") company. A modern company, Ries concluded, "is one in which every employee has the opportunity to be an entrepreneur. It respects its employees and their ideas at a fundamental level."
A modern company also deploys lean startup principles. If you haven't read the earlier book, Ries catches you up with a primer on concepts like "leap-of-faith assumptions" (the beliefs about your project that must be true for it to succeed), "minimal viable product" (an experiment to test those assumptions as quickly and cheaply as possible); and "pivot" (a decision to change strategy). For entrepreneurs, this will be familiar turf. Corporate types will likely tread new ground.
The David-ization of Goliath
Much of The Startup Way chronicles FastWorks, a program of dramatic cultural and process change that Ries diffused throughout General Electric in collaboration with business leaders and top managers. GE, of course, is a 139-year-old global colossus famous for, among other things, the practice of Six Sigma (a process whose goal is elimination of defects) and--for decades--an employee evaluation system based on forced ranking. Introducing a "startup state of mind" fueled by experimentation and the embrace of failure was like asking the Mormon Tabernacle Choir to sing scat.
Dissonance was present from the start. Birthed in Silicon Valley, the lean startup methodology is associated with software. Ries's first project at GE: a huge new diesel and natural gas engine. Product development was projected to take five years and cost hundreds of millions of dollars. "The thinking was that if we could get this project operating in a new way, there was no limit to Lean Startup applications companywide," Ries writes.
They did, and there wasn't. After an early workshop on the engine--during which Ries persuaded the team to create an MVP for a single customer in less than six months to gain market insights--Immelt opened the floodgates. Eventually, lean was transforming projects in every function, unit, and region of the company.
Like Ries's first book, The Startup Way is rich in examples of the principles at work. The most satisfying involved the conflict between FastWorks and GE's employee appraisal system: a rigid procedure in which employees set goals at the start of each year and are assessed on those goals at the end. A pivot, while good for a project, could be bad for an individual's performance review.
Ries describes how GE's HR team used FastWorks to completely redesign performance management as a continuous, fluid process aligned with the company's new experimental culture. It's a wonderful illustration of the lean framework applied to process--and the inverse of everything we thought we knew about GE.
The book draws on other cases, some of which Ries was involved in, some of which he merely studied. Some of the best examples, unfortunately, go unidentified. Among them: a software company that almost forwent a chance to globalize because it feared running Facebook ads, even before it had a product, to see if anyone overseas would order. (A company lawyer pointed out that the potential liability--$3,000--was less than the cost of the legal department's time spent answering the question.)
Grow Big, Not Up
The larger potential of the "Startup Way," of course, isn't dinosaurs reinventing themselves as butterflies. Rather, it is breeding huge, successful butterflies that never become dinosaurs. Ries often asks entrepreneurs, "If you hate big companies so much, why are you trying to create one?" The response is that theirs will be different: 'dynamic, scrappy, a perpetual startup.' But how often," Ries writes, "is this ideal organization what they actually end up creating?"
The Startup Way, then, doesn't promise just new life for aging corporations but also the next act for young businesses born from lean principles. Ries calls this stage "the second founding"--when companies know they'll make it and settle in for the long haul, typically shedding their "startup DNA" in the process. That doesn't have to happen, says Ries, who holds up a few businesses--notably 34-year-old Intuit--as exemplars of continuous innovation at scale.
Ries predicts a day when organizations will elevate entrepreneurship to a dedicated function "with experts and career-path corporate entrepreneurs, but also as a source of widespread basic knowledge and the ability to spread entrepreneurial methods throughout the organization." For mature companies, it's a provocative vision. For actual startups competing against them, it's a scary one.