Disruptive entrepreneurs
An interview
with Eric Ries
Companies
are all too aware of the disruptive power of technology. The author of The
Lean Startup argues that the competitive reaction of many organizations
remains fatally flawed.
Digital technology has enabled the creation of new industries and upended many
more. In this video interview, Silicon Valley entrepreneur and author Eric Ries
explains how individuals with minimal funding can now challenge incumbent
companies, and he argues that the response of most organizations to this threat
is flawed because they continue to measure—and reward—the wrong performance.
This interview was conducted by McKinsey Global Institute partner Michael Chui.
An edited transcript of Ries’s remarks follows.
Interview
transcript
Renting
the means of production
I have spent a lot of time with
major companies where I’m considered some kind of innovation expert, whatever
that means. Is that an oxymoron? I don’t know. Is that a contradiction in
terms? Can you be an innovation expert? I don’t know. But anyway, I get the
phone call now from companies who want to know, “Why should my big company
innovate?”
And I always tell them the same
thing: “Because your company will die otherwise.” And they get so offended.
Like, “We are a 100-year-old company. We’re the leader in our . . . ” I’m,
like, “Hey, listen. Listen. You called me. I’m just telling you what I
think.” And then I try to tell them stories about a kid with a credit card—with
a $1,000 budget—I just saw build a product that, from the consumer’s point of
view, is indistinguishable from your highly polished, multiyear-generation,
established product.
And their first reaction is always
the same: “Well, we’ll just buy that kid if his product is successful.” And
I’m, like, “You’re not understanding the moral of the story. It’s not that this
one kid with a credit card could do this; anyone with a credit card can rent
the means of production and compete with you on a first-class basis in their
market. And so you’re not dealing with one potential competitor but with
thousands or millions. Are you really geared up for innovation at that pace?”
And that’s usually when they hang up the phone and say, “I’m going to call a
different expert to tell us what posters to put on the wall. We’re looking for
easy answers, not that kind of stuff.”
But I think that is what is so
exciting about technology today. It’s like putting Karl Marx on his head.
Anybody can rent the means of production, which means entrepreneurship is
becoming truly democratized, which means nobody is safe.
Productive
failure
All of our process diagrams [in
major corporations] are linear, boxed diagrams that go one way. But
entrepreneurship is fundamentally iterative. So our diagrams need to be in
circles. We have to be willing to be wrong and to fail. But modern management
says, “Failure means you get dinged.”
For example, one of things I’ve
tried to do is to tell companies, “Put on your employees’ performance
evaluation a concept we call productive failure: ‘How many productive
failures did you have this year?’ If someone comes to you and claims that they
didn’t fail this year, you know one of two things: they’re either lying to your
face or they were incredibly, unbelievably conservative.”
In both cases, it’s actually not a
positive attribute. You want to say, “Show me a time when you failed but
learned something really valuable, or were able to pivot from something that
didn’t work to something that did.” I have a lot of examples now where it’s
possible to say: “You saved the company an incredible amount of money, because
instead of spending $10 million on something, we spent $100,000 and did an
experiment that proves conclusively there ain’t no business here.”
Executive sponsorship of a start-up
is about learning and supporting the team and going on the journey with them.
It’s not about reviews and evaluation and go-kill decisions. It’s a really
different change required at the executive level, at the middle-manager level,
and at the line-manager level to do this thing.
But the alternative is to die. So I
feel, like, yes, it’s hard—but that’s better than having your company go the
way of Kodak or BlackBerry or, you know, pick your favorite company in the last
few years that’s gone from a $100 billion market cap to $5 billion. And ask
yourself, “Was playing it safe actually that safe?” I don’t see the evidence
that that’s true.
Pro-entrepreneurship
public policy
I think what’s happening in
government today is actually very exciting. People look at the political dysfunction
that makes it onto the cable news programs, and you’re, like, “Oh God, we’ve
got problems.” And, listen, we’ve got problems, no doubt.
But behind the scenes, off the
radar, not where people are willing to put the cameras, are really small, but I
think very hopeful, signs—that we are stumbling our way to a whole new form of
governance that is much more about the government as a creator of platforms
that allow citizens to solve their own problems.
To me, one of the most precious
commodities that government is hoarding at the moment is data. And we have an
opportunity to turn that data into useful solutions if we’re willing to open it
up and allow citizens, who ultimately paid for the collection of that data, to
have access to it.
So this is not about revealing
people’s private secrets; rather, it’s about taking the data that’s already
being lawfully and legally collected and making programmatic access to that
information available to everybody. And when you do that, you see incredible
innovations start to open up, because I think what we are on the verge of is
what I call a pro-entrepreneurship public policy.
To be pro-entrepreneurship as a
matter of public policy means to make government a tool for helping
entrepreneurs get started. That’s what we want. Entrepreneur start-ups are
experiments. So just like in a science lab, the more experiments you run, the
more likely you are to create something great.
So you’ve got to ask yourself,
“What’s going to make it more likely for someone to start a start-up in the
first place?” Open data is one such thing. If you give people access to the
tools, the information about what’s happening in the world, you give them the
opportunity to stumble on more novel solutions.
http://www.mckinsey.com/Insights/High_Tech_Telecoms_Internet/Disruptive_entrepreneurs_An_interview_with_Eric_Ries?cid=other-eml-alt-mgi-mck-oth-1404
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