systems change like a startup

Systems Change Like a Startup, Not a Bureaucracy

Is the most popular way to organize systems change ineffective? Or is organizing systems change like a startup better?

Most systems change initiatives are large-scale reform efforts aimed at agreed-upon social problems. They’re characterized by big boards, broad goals, and strategy at scale. Investors are usually groups of large foundations and managers are paid staff or consultants. This approach can work, but it sometimes doesn’t. Why?

Essentially, conventional systems change initiatives emulate the structure of bureaucracies. 

It’s a weird choice when you think about it. Bureaucracies move slowly. They have trouble adapting to change. And they shift power to those at the top. If anything, you’d think changemakers would want to avoid bureaucratic structures at all costs.

Systems change like a startup

In this blog, I show how to organize your systems change initiative to be nimble and quick so you can more effectively counter the status quo.

Using 7 principles from Peter Thiel’s book Zero to One, I explain how the startup business mindset can be adopted in the social sector. By the time you’re done reading, you’ll be questioning systems change orthodoxy and imagining new ways to organize for big impact.

What does 0 to 1 mean?

While Zero to One is ostensibly about creating startup companies, the underlying question is about how to create a future of progress.

Zero to One: Notes on Startups, or How to Build the Future: Thiel, Peter,  Masters, Blake: 9780804139298: Books

According to Thiel, there are two types of progress:

  1. Horizontal progress, by which he means copying things that work. Think best practices. He calls this going from “1 to n”.
  2. Vertical progress, by which he means doing something no one has ever done before. Think true innovation. He calls this going from “0 to 1”. Importantly, going from 0 to 1 only happens once. 

Existing businesses and existing products go from 1 to n. They are essentially scaled, usually through globalization. However, the fundamental challenge of startups – and systems change initiatives – is how to get from 0 to 1. They have to figure out how to do something entirely new. And that can only happen by following some basic but contrarian principles.

Continue reading below to learn the 7 principles to do systems change like a startup or check out my online course all about the best strategies to solve complex social problems.

Principle #1. Choose an uncommon cause

Zero to One begins with a question that Peter Thiel asks during interviews:

“What important truth do very few people agree with you on?”

systems change like a startup
Photo by Oksana Manych on Unsplash

The reason for this contrarian question is, according to Thiel, is to distinguish conventional thinkers (e.g. good students who know what everyone already agrees upon) from those who can imagine the future. As Thiel writes:

“Most answers to the contrarian question are different ways of seeing  the present; good answers are as close as we can come to looking into the future.”

Thiel’s lesson is that unsuccessful businesses are based on common causes that everyone agrees upon. They indicate a herd mentality and usually create “undifferentiated products all in the name of one overbroad goal.”

Applying this insight to systems change for social issues is easy. Unsuccessful systems change initiatives will pursue what everyone already agrees upon. While that may seem a good strategy, it’s actually only a vehicle for strengthening the status quo. If everybody already agrees, you probably are already getting the results of that belief. Or perhaps you just have an overbroad goal that masks disagreements.

Successful systems change like a startup address uncommon causes or tackle problems with unconventional solutions.

The key questions (adapted from Thiel’s startup questions) that prospective systems change initiatives should be asking are,

“What valuable systems change initiative is nobody else building?”

“What important thing are we doing that no one else is going to get done?”

Principle #2. Start small and monopolize

Thiel asserts that:

“Monopoly is the condition of every successful business.”

systems change like a startup
Photo by Robert Linder on Unsplash

That’s because contrary to the belief that capitalism is all about competition, the best startups work hard to avoid having to compete with others. That’s also part of the logic behind choosing an uncommon cause (principle #1). Common causes have lots of competition and thus less chances of success.

As such, the best way to get started is to:

“Dominate a small niche and scale up from there, toward your ambitious long-term vision.”

Thiel explains how his startup, PayPal, wanted to disrupt the existing financial system, but they didn’t do it by starting big. Instead, they found a niche market (which turned out to be buyers and sellers on eBay) that they could dominate. The niche market provided profit and proof of concept, which PayPal subsequently used to grow further.

Unsuccessful systems change initiatives start big and try to remake entire systems. Not only is that approach unlikely to succeed, but it’s also very risky. Without proof of concept, it’s possible that the changes actually make things worse.

Successful systems change like a startup finds something they can do that no one else can. To prove it, they find a small niche and completely own it. Initial success may seem small compared to the total reform envisioned, but it is a foundation upon which to build.

Principle #3. Keep a secret

When you have a good idea, you’re inclined to tell everyone about it. However, with startups, that’s not the case. As Thiel says,

“The best entrepreneurs know this: every great business is built around a secret that’s hidden from the outside.”

systems change like a startup
Photo by Kristina Flour on Unsplash

Why? Because going from 0 to 1 is about doing something no one else has ever done before. It’s about finding a way to innovatively make progress, usually against conventional understanding of what is possible. Thiel describes it this way:

“A great company is a conspiracy to change the world…”

His recommendation is to keep the conspiracy small and secret. You’ll need to share the secret with a few trusted souls, but who else should you tell? As Thiel advises,

“Whoever you need to, and no more.”

In systems change, the desired change is often trumped to all who will listen. But consider that the world is the way it is for a reason. In other words, the status quo has lots of supporters. As such, your desired changes will have lots of opponents.

Unsuccessful systems change initiatives tell everyone what they’re trying to do. In the process, they strengthen the opposition and decrease their chances of success.

Successful systems change like a startup keeps their conspiracy to change the world to themselves. They use information strategically, expand the circle of trust slowly, and make changes quietly. 

Principle #4. Keep governance small

Once you have an uncommon cause (principle #1) and a secret to change the world (principle #3), it’s time to organize a structure that will help you dominate a small niche market (principle #2). Put simply, keeping governance small is the best way to succeed according to Thiel.

“By far the worst you can do is to make your board extra large. When unsavvy observers see a nonprofit organization with dozens of people on its board, they think: “Look how many great people are committed to this organization! It must be extremely well run.” Actually, a huge board will exercise no effective oversight at all; it merely provides clever for whatever microdictator actually runs the organization.”

Photo by Christina @ on Unsplash

What should you do instead? Thiel counsels that

“A board of three is ideal.”

Photo by Christina @ on Unsplash

Thiel’s rationale for small governance is based primarily on the negatives of big governance. As he writes:

“…it’s hard to develop new things in big organizations, and it’s even hard to do it by yourself. Bureaucratic hierarchies move slowly, and entrenched interests shy away from risk.”

Unsuccessful systems change initiatives create large, representative boards and steering committees. The purpose is to be inclusive of all interests, but also to gain buy-in for change. While this is true in theory, the reality is that large group meetings aren’t very productive. And, large groups tend to gravitate to what everyone already believes (the opposite principle #1: choose an uncommon cause). That means that the end result will most likely be more of the status quo.

Successful systems change like a startup stays as small as possible. This is based partly on the logic of only working with those who believe in the initiative’s secret (principle #3), but also just a pragmatic way to stay efficient. 

Principle #5. Require skin in the game

When talking about alignment of a company towards its mission, Thiel distinguishes between three different components of structure:

  • “Ownership: who legally owns a company’s equity?
  • Possession: who actually runs the company on a day-to-day basis?
  • Control: who formally governs the company’s affairs?”

To maximize alignment between these parts, Thiel counsels that all people engaged in the company should be involved full-time. He further specifies that starting CEOs should have a modest salary (if at all), and that the best way to align staff is to pay them in company equity. Specifically, the goal is to align staff to the long-term value of the company, not short-term results. Finally, he advises against part-time consultants who have no vested interest in the company itself or the long-term results.

In unsuccessful systems change initiatives, lots of people are involved on a part-time basis. Ownership is often collective (usually indicating a lack of accountability), and governance reflects many diverging interests. Part-time consultants (often from out-of-town) with no vested interest end up spending the most time on the initiative. The end result of this combination is stagnation. Progress is elusive because there isn’t alignment among the primary players.

In successful systems like a startup, the primary players all have skin in the game. They’re committed full-time to the the secret (principle #3) and what it takes to achieve long-term results. Rather than getting a stake of equity like they would in a company, changemakers instead stake their reputation on long-term success. In other words, they are personally accountable for whether the initiative succeeds or not.

Principle #6. Capture value

In a compelling example, Thiel explains how even big businesses can be bad businesses. For example, the airline industry in 2012 had an average one-way airfare of $178. However, the airlines only made $0.37 per passenger trip.

Photo by Annie Spratt on Unsplash

The lesson according to Thiel is that:

“Creating value isn’t enough – you also need to capture some of the value you create.”

In unsuccessful systems change initiatives, results last only as long as the initiative itself. When the initiative ends, usually after many years and many millions of dollars, results disappear and the status quo returns. Impact is limited to what the initiative does itself rather than by the changes it affects.

Successful systems change like a startup captures value by affecting changes that last beyond the initiative itself. Instead of creating and running new programs, they change policies and rules that have consequences for the system as a whole.  When successful systems change initiatives end, positive changes continue and grow.

Principle #7. Think for yourself

If startup companies are about future progress, they need to be refuges for critical thinking. As Thiel states,

“A company’s most important strength is new thinking: even more important than nimbleness, small size affords the space to think.”

Photo by Yosep Surahman on Unsplash

Many of the previous principles help foster the space to think independently. An uncommon cause (principle #1) encourages out-of-the-box thinking, and small governance (principle #4) limits pushback from the status quo. In the end, these mechanisms preserve the space for good business thinking.

In unsuccessful systems change initiatives, everyone agrees that things should be better, but no one has the courage to say why they’re not better. Groupthink limits innovative ideas, and conventional thinking reins. 

Successful systems change like a startup creates the space for contrarian thinking. By seeing the current system differently than others, they adopt a pragmatic vision for how the current system can be better. And by following these principles, they organize to achieve success.

Learn how to do systems change like a startup

If you want to learn more about how to organize a new systems change initiative like a startup, or you just want to revamp your existing efforts, check out my online course all about strategically solving complex social problems.