“There is something in our corporate egos these days,” according to Eric Ries, New York Times bestselling author and pioneer of the lean startup movement. “We build these fantasy plans that are incredibly complicated, because that’s how we get products funded in the first place, and because we are addicted to the idea of our lie.”
Ries delivered this sobering message at Nordic Business Forum Sweden 2018. Recounting his personal journey from a software engineer to involvement in various startups and subsequent transition to author of The Lean Startup, Ries likened company’s growth strategies to the cliched hockey stick curve: eventually major investments should pay off, but by the time companies often realize their strategies were flawed, the key decision makers behind them most likely will have moved on.
This doesn’t happen by chance though. Companies are currently designed this way, Ries maintained.
“A startup is a human institution creating something new under conditions of extreme uncertainty,” said Ries. Yet in a real world scenario, forecast return on investment becomes a “totally meaningless concept because it’s undefined divided by undefined,” he said.
“If you actually put that in your business plan and submit that to corporate finance, they will be very happy to round it off to zero,” Ries continued. “You quickly learn that if you want to get your thing funded, you better pitch it as the fantasy plan that promises outlandish results, and you want to push those outlandish results into the future so you can be sure to be promoted before the accountability hits.”
Rather than building companies on the strength of a “fantasy plan that’s not tethered to reality,” Ries suggested that companies reorganize themselves to favor a process of continuous innovation, where products are continuously brought to new markets, and new technologies are similarly brought to bear.
“In the world we live in today it is not sufficient just to have that one good idea and build it into a company,” said Ries. “Innovation is not just something that happens to you when you get lucky.”
Ries also suggested that companies add an entrepreneurial function to their work charts, appointing an individual to be responsible for overseeing a portfolios of internal startups.
“All the same reasons why finance or marketing has to be its own function apply to innovation,” Ries said. “If you are going to have a career path for people who are good at entrepreneurship, then there has to be a path to see that,” he said. “Otherwise, those people will be distributed throughout the organization and they will be evaluated based on other functions or criteria that don’t make sense.”
By having a seat at the table, the individual responsible for entrepreneurship also has the opportunity to integrate entrepreneurial thinking into all of the deep systems of the corporation, Ries said. He referred to the model as the unified theory of entrepreneurship.