Entrepreneurial Management

Eric Ries — "If you go back to my definition of a start-up: a human institution designed to create something new under conditions of extreme uncertainty, you realize that building a start-up is not just having an idea. It’s not just building a product. It’s actually building a company. It is building a new organization from scratch. That new organization can build products, can have great ideas, in fact we hope to build the kind of organization that can continue to innovate on a continuous basis. That’s a management challenge.

When I tell people that entrepreneurship is management I usually get pretty blank looks, because entrepreneurship is cool and exciting and fun and management is one of the most boring concepts in the whole world. So people are like ‘Well how can entrepreneurship be the same thing as what those guys in the grey suits are going to at those nameless, faceless companies? That doesn’t seem right.’

What I am trying to convince people of is that entrepreneurship is a kind of management, it’s just not the same old boring twentieth-century management we are teaching in our business schools, rather it is a separate branch of management - one that I call entrepreneurial management, that deals specifically with those conditions of extreme uncertainty that are what start-ups are all about.

If we look at the history of twentieth-century management and we look at our friends who have regular jobs, it is relatively straightforward to know if you are doing a good job or not. Basically a manager (a professional) figures out the plan. So you take a big project and you break it down into a plan, which is a series of tasks, and each of those tasks gets farmed out to a functional specialist in a functional department who does the same kind of task day in and day out. If you just do your task as good as the manager expected, or maybe a little bit better, then you are doing a good job. You are going to get promoted. Things are going to go well. But not just go well for you! Things will go well for the company. They are going to go well for the company’s customers. For example: if you are a designer and you make a product easier to use then that is a true win-win-win. You get promoted, the customer likes the product more, and the company makes more money because the product is now easier to use, and thats all good.

But if you are an entrepreneur it’s not that easy. If you are an entrepreneur most of the time you are busy building something that nobody wants. If you are building something that nobody wants, and you make it easier to use - then you just made it easier for people to realize that they don’t want your product. That’s not a win-win-win! That’s a lose-lose-lose! The customer churns out faster, the business makes less money and you certainly are not going to get promoted. That’s the problem with using traditional management concepts in an entrepreneurial context.

So what’s the alternative? If you look at all the twentieth-century management systems they are all based on planning and forecasting as their primary tools. A professional manager can figure out how good the team is supposed to do and if we can do it as good as that, or better, we get promoted, otherwise fired. You see, an analyst sets a target for a stock price and if you exceed the analysts expectations the stock price goes up, otherwise it goes down. But if we give it some thought, planning and forecasting really only makes sense if we have a long and stable operating history from which to make the forecast. Forecasts are extrapolations from what’s worked in the past. Who feels like the world is getting more and more stable every day? Yeah, not exactly. And for those of us who are in start-ups right now - stability is the last thing on our mind! It’s like Muppet Labs in here! Everything is going wrong all the time! So how are we supposed to make accurate forecasts for the future? We can’t.

We have to create a new management toolkit that is designed specifically for the kinds of crazy uncertainty that we face every day. That’s what we call entrepreneurial management. The tools of entrepreneurial management are different than traditional management but there’s still discipline - that’s still really important, and there is still a process that we follow. For example: the most important concept in the toolbox of entrepreneurial management is this really overly used buzz-word called: the pivot. Certainly here in San Francisco people are sick and tired of hearing about start-ups pivoting left and right, but it’s such an important concept. That’s why it has become jargon. A pivot is a change in strategy without a change in vision. That’s it. When entrepreneurs get into trouble they don’t just give up and go home, but neither do they persevere the plane straight into the ground through stubbornness. They are able to do this funny combination of things, that’s why we use the analogy of the pivot. They can keep one foot rooted in what they have learned while changing one other thing about their business, something about the strategy. Maybe we had the right product but for the wrong customer? Maybe we had the right product but the wrong pricing? Maybe we had the right pricing and customer but we solved the wrong problem with our product when a whole bunch of other problems can go wrong? The reason it is such an important part of entrepreneurial management, is that everything we do in a start-up has to be geared to learning that it’s time to pivot a little bit sooner. If you look at the stories of successful entrepreneurs and compare them to the stories of unsuccessful entrepreneurs (contra what you see in the movies), the successful entrepreneurs did not have better ideas than the failed ones. Actually, we generally had equally bad ideas at the beginning. The first version of Paypal was digital cyber-cash for PDAs, eBay was about selling Beanie Babies or Pez Dispensers online. Remember how the Google founders were going to make all their money from selling those yellow search appliances in corporate environments? These original business plans, from our vantage-point, now look positively stupid. In fact, so do the unsuccessful entrepreneurs. The difference is the successful entrepreneurs had the discipline necessary to pivot when it wasn’t working. To change the strategy without abandoning the whole vision. That really is the bedrock, upon which the whole discipline of entrepreneurial management was built."