It’s not the threat from one smart kid — we live in a world of disruptive ubiquity

In an era when anyone can engage the means of production at peppercorn rents, corporations need to stop focusing on the single new upstart with a clever idea and realise they live in a world of disruptive ubiquity. There’s not one kid who has a smart idea that can hurt them, there are thousands. So says Eric Ries, author of The Lean Startup.

In an interview on the McKinsey & Company site, Ries says too many organisations remain blasé about the potential threat, believing their bank accounts will get them out of trouble when a bright young thing emerges. “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.

So you’re not dealing with one potential competitor, but with thousands or millions.

Many companies, he suggests, simply are not geared up for innovation at that pace.

The way he describes it, all the process diagrams [in major corporations] are linear, boxed diagrams that go one way — whereas he says 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’.

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(Lean Startup author Eric Ries, interviewed by McKinsey & Company’s Michael Chui)

Therein lies the rub. Companies — and the managers who run them — have a fairly problematic relationship with failure, especially where their personal pay cheques and mortgage payments are concerned. They need to recalibrate their thinking, Reis tells McKinsey & Company’s Michael Chui. “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.

The alternative is to find yourself on the wrong side of creative destruction. “It’s hard, but that’s better than having your company go the way of Kodak or BlackBerry or, you know, pick your favourite company in the last few years that’s gone from a $US100 billion market cap to $US5 billion.

Playing it safe is not always the safest option, he says.

Ries argues that companies should introduce a concept of productive failure and include it as an employee performance criterion: “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.

Open government movement

Ries also elaborates on the open government movement and the opportunity it affords for innovation.

He describes the data held by government as a precious commodity. “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.

Ries argues that we could be moving into an era of pro-entrepreneurship public policy. He says to be pro-entrepreneurship as a matter of public policy means making 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.

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.

He says that if you give people access to the tools and the information, you are actually giving them the opportunity to stumble on novel solutions.

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