Since the Great Recession in 2008, startups have become a major force in society. Today’s entrepreneurial culture — with lower financial barriers to launching a business and people’s increasing desire for flexibility, freedom, and purpose in their work — has bred a whole generation of young companies that have quickly scaled and revolutionized a wide range of industries. A number of those companies, like Airbnb and Uber, have achieved explosive growth and evolved into bonafide conglomerates in recent years.
Meanwhile, older organizations looking to remain relevant and thrive are striving to figure out the practices that allow these startups to excel — and how their corporations can adopt them in order to catch up.
At the helm of this paradigm shift is Eric Ries, author of The Lean Startup and leader of the movement of the same name. The Lean Startup ideology focuses primarily on how startups can apply practices from Japanese manufacturing methodologies to be more efficient with both human capital and creativity.
In his latest book, The Startup Way, Ries has bridged the gap of these learnings from the startup realm into the larger world of big business, helping large companies innovate, acquire and retain talent, and increase revenue. With insights on the practices of historic powerhouses like GE and Toyota, as well as more recent disruptors like Twilio and Facebook, The Startup Way provides management practices for organizations of all sizes.
We caught up with Ries, who shared what he learned from working directly with these organizations over the past five years.
Here are some of his top tips for established companies looking to leverage startup practices to evolve and grow their businesses.
Cultivating your workforce should start with accountability, not new hires.
Many business leaders think success happens solely by hiring superstar employees from high-profile companies. Ries warns that the cultivation of strong teams is not this simple.
“If you’re unhappy with the innovation results you’re getting, the natural thing people do is go top-down by simply replacing people,” Ries explains. “They try to hire a hot-shot entrepreneur or acquire a startup or put up some sort of motivational posters — which is nonsense. It’s backwards.”
Ries outlines four layers of priorities that companies must tackle to ensure they’re growing and maintaining a talented and reliable workforce:
First, companies need to keep current employees accountable through clearly defined goals and rewards systems. To construct these, organizations must take inventory of their resources, including general budget and opportunities to promote current staff, to determine what is possible logistically. With clearly outlined responsibilities and incentives, employees will be more motivated to contribute to the organization’s short- and long-term goals.
From there, companies can build informed processes that determine how they handle decisions and work day-to-day. In order for an employee to contribute to a company-wide goal, they must understand how the broader organization operates and how their particular role may contribute. For example, if the aforementioned employee’s goal is to increase sales leads by 10% and the employee feels motivated by the offer of a $10,000 bonus upon its completion, they will only be successful if they understand the correct stakeholders and processes that might interact with this goal.
New hires won’t fix a company’s problems if the company doesn’t foster an environment conducive to retaining them long-term, Ries argues. He says workplaces that focus on an open exchange of ideas and learning opportunities are best positioned to draw in and keep talented individuals. These people want to work somewhere where they can have influence and grow personally.
“If you want to attract the best of the best, they have to believe that they’re going to have a significant impact with their own ideas in the company,” he explains. Ries also encourages companies to focus on investing in ongoing education for employees. Employers who encourage workers to learn new skills and be collaborative will not only satisfy the employees’ desire for professional growth, but will also enhance the existing talent within the company.
A benefit to taking the steps above is that you may expose hidden talent within your organization by empowering employees to join teams and take on the tasks best aligned with their strengths. This is common practice at growing startups, where roles and duties can change quickly. Employees often wear lots of hats out of necessity in order to tackle different business needs, often driven by whatever skills they’re good at.
When employees know how to be successful within an organization and are provided with opportunities to highlight their strengths, they can take on work that provides the most organizational value. As such, Ries believes companies should focus on unlocking talent of current employees before looking externally.
“What I have seen is remarkable,” Ries says. “When you change the structures around people, you discover talent in your midst that you didn’t even know you had.”
One way to expose this talent is to continually encourage employees to develop new skills, and ensure that your culture values continued education and personal growth. “Companies need to get serious about cross-training and cross-functional collaboration and not just talk about it,” Ries adds.
Entrepreneurial experiments drive personal development and company-wide innovation.
In a small, growing organization, it’s often easy for employees to get their ideas in front of company leadership and put them to the test. For larger companies, though, there’s a much longer pipeline from idea to testing — which can lead to missing out on products that could grow the business.
Ries says in his initial talks with organizations, he seeks to understand how they enable employees to propose and test ideas for new products and features, if they even have formal processes in place for doing so.
He strongly advises that large companies develop frameworks that empower individual contributors to vocalize and potentially test their ideas in a real-world context. This leads to personal growth, but is also essential for driving innovation and remaining competitive in today’s business landscape.
To do this, companies can create streamlined processes that allow employees to run experiments that impact P&L to a degree. These experiments can provide valuable insights on a project before more widely scaling, while simultaneously mitigating larger strategy or financial risks.
They also create highly effective environments for training employees in general management skills. For example, an employee could expose a new onsite feature to a small percentage of visitors to understand its efficacy. From this minimal but genuine exposure, the employee will have concrete data to determine whether or not the feature should be further invested in or scaled broadly.
“The companies that are able to do this will harness creativity, test out people’s good ideas, and allow people to grow quickly into leadership opportunities if merited,” Ries says. “They will kick the butts of old-fashioned companies.”
Search for talent with nontraditional backgrounds.
Ries believes that talent is not always obvious, and established companies are missing out by following rigid guidelines for what constitutes talent. He says that businesses currently hire too many people based solely on their technical skills. In doing so, hiring managers have failed to consider the benefits that come with hires who have high emotional intelligence, and are therefore capable of organizational influence.
“People who can bring a high emotional quotient and a high resiliency to whatever their skill set is are underappreciated and can perform,” Ries explains.
Ries recommends that hiring managers more actively recruit applicants from nontraditional backgrounds, as it opens up their pool of highly emotionally intelligent candidates. For example, veterans who have seen genuine hardship have an advantage over other employees in this realm because they have more robust perspectives and experience in operating in humane ways. Nontraditional backgrounds can also include those with unique educational backgrounds, such as applicants from career accelerators or without formal collegiate degrees.
Make hard changes to innovate and survive.
In seeking to scale and innovate, large companies must be dedicated to engaging in time-consuming and bandwidth-intensive change.
Ultimately, Ries believes company innovation boils down to two critical factors: the cultivation of a strong workforce, and the establishment of a culture that allows teams to act as if they were their own standalone startups. Neither of these changes can happen overnight — they require company leadership to be honest about their future and not become complacent due to their current revenue-generating states.
Ries saw the necessity of this commitment when consulting with GE, famous for its Jack Welch-era Employee Management System, which influenced the corporate world with its assignment of key performance indicators (KPIs) to individual contributors. The company eventually realized that its once-effective process was beginning to impede innovative work.
When Ries proposed overhauling this historical and influential system, he, understandably, faced resistance: “They looked at me like I asked them how we were going to change gravity,” he says. “It was a mutable law of their universe.”
Confronted by what Ries calls “the second founding of a company,” GE took his suggestion to heart and enacted a painful but necessary change to its HR policies. In fact, many companies seeking to remain viable have undergone “second foundings” in recent history, like Airbnb, which has diversified its products beyond vacation rentals.
Ries is honest in vocalizing the correlation between growth-inducing innovation and uncomfortable change. He insists that large companies commit to these efforts, or potentially face difficulties in our rapidly evolving economy: “I want to tell the truth that it is hard and wrenching but the alternative is oblivion,” he says, “so it’s worth it.”
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