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Why Every Business Needs to Become a Startup — Interview with Eric Ries

Amid a growing fear of “Digital Darwinism,” executives are embracing the startup ethos to stay competitive in the fast-paced global economy.

 

The 4th Industrial Revolution inspires hope, but also fear. There’s hope that technology can help solved some of society’s greatest challenges — from poverty to access to healthcare and electricity, as the latest GE Global Innovation Barometer shows. But among executives from around the world who took part in the survey, there is also a palpable sense of fear of becoming obsolete (FOBO) as emerging and disruptive technologies pass them by.

Survival in this new era of “Digital Darwinism” means being able to adapt quickly to technological change and foster disruptive innovation. In other words, embrace a startup mentality. More than four-fifths of executives surveyed recognized the startup ethos as increasingly the norm for creating an innovation culture for companies — regardless of sizes.

“The one thing you can say for sure is that whatever’s in your five-year plan today is certainly not right,” says Eric Ries, entrepreneur and author of The Lean Startup. “That’s the substantive reason why something has really changed here and why startups are extremely well adapted to the situation.”

The “dramatic change” in speed and uncertainty compels companies to scrap the 20th century business model focused on planning and forecasting in favor of a more agile approach of “continuous innovation, says Ries, who works with new and established companies to apply lean startup principles.

In the interview, Ries discusses why executives are increasingly recognizing the need to adopt a lean startup approach — and what they need to know to make it successful:

 

A key finding in this year’s Innovation Barometer is this fear of becoming obsolete (FOBO) in the digital age. Do you consider so-called “Digital Darwinism” a threat that executives should take seriously?

I love FOBO as a way of having that conversation — I’m going to start using that. It describes a certain corporate mindset I see. Most companies I talk to of a certain size have become really paranoid about becoming obsolete.

In the same organization, you can have factions — people who think that obsolescence is coming, and people who are in denial about it. The reason I’m talking to most companies is that at least one far-sighted leader has gotten the memo about this and wants to have some kind of conversation about what the company can do. But they’re often fighting against the forces of inertia or denial in the rest of the organization.

This is a consequential and monumental change. If you look at the pace of turnover of the S&P 500 – the length of time that any company can expect to dominate with the right combination of product and business model has changed. Anyone who really thinks the business models and products of today will be the same 50 years from now — even 10 or 20 — I think that proposition is really laughable.

 

How do you get executives to recognize — and embrace — the new reality of disruptive innovation?

As an outside consultant, I have the advantage of being able to say to companies, “Look, as a customer, I don’t really care if you live or die. And my friends in Silicon Valley are — right now as we speak — embracing this new way of working and are eagerly trying to disrupt your market.”

In some cases, the startup will embrace this new way of working and will disrupt and replace the incumbent — and the customer will benefit. In others, the incumbent may be willing to do the hard work and transformation to embrace these new ways of working together — and the customer will benefit.

We know for sure that the products and business models will evolve and that we, as consumers, will be the beneficiaries of those amazing products. So we don’t especially care who does it. It’s important for companies to understand that if they want to be the ones that survive that change, they have to be willing to do that hard work.

 

The Barometer points to a growing recognition of the benefits of a “startup ethos” — what does this mean for larger companies?

There are substantive reasons why a startup management system is required to deal with this digital revolution. The semiconductor revolution has two really important consequences for every industry — a dramatic change in speed and in uncertainty.

Because software is fundamentally intangible, the limits on what can be produced — and in how long — are nothing like the era of physical products. For both pure software products and for products that have software as a component, there isn’t really any hard limit to how fast new products can be developed, or on how many different variations all the competitors in a given market can try. It’s really only limited by the imagination and personnel involved, which is why you see kids in their dorm room building multi-billion-dollar companies.

Technology enables speed and rapid experimentation, which means that no matter how safe your business is, you can’t make really long-term plans. The one thing you can say for sure is that whatever’s in your five-year plan today is certainly not right. That’s the substantive reason why something has really changed here and why startups are extremely well adapted to the situation.

 

Why do you think the lean startup trend is finally catching on among larger companies?

I think there’s finally a recognition that older management methods that made most of today’s companies a success are really based on planning and forecasting. I think because we got so good at it, people have forgotten that original theory and they have just viewed the management system we have as inscribed on stone tablets and just the way you do work.

But a management system based on accurate forecasting is going to be in trouble with the level of disruption we anticipate in the 21st century. That’s why people are starting to get nervous — are the systems and structures of my company really rigorous and agile enough to deal with the rocky seas that are coming up ahead?

I think in a lot of cases the answer is no — and that has driven people to search for solutions.

(Top image: Eric Ries at Lean Startup London, Courtesy of Betsy Weber)

 

Ries headshotEric Ries is an entrepreneur and author of the New York Times bestseller, The Lean Startup.”

 

 

 

 

All views expressed are those of the authors.

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