0 comments on “Book Review: Principles. By Ray Dalio”

Book Review: Principles. By Ray Dalio

Ray Dalio has founded and leads one of the worlds largest and most successful hedge funds, Bridgewater, worth 150 Billion$. Last year, and with great media fanfare, he launched his book to explain to the world his management philosophy. It’s a best seller, which is not surprising, given Mr. Dalio’s stellar reputation in the dominant business sector of our time: The guys making huge piles of money out of money: Hedge funds. Does all this money make Hedge funds or investment banks the real rulers of the world? You bet. The US government, the Senate, the Fed, International Institutions, the European Central Bank, the World Bank  – all full of ex-Investment Banker in leading positions. Even the former FBI director James Comey was a Bridgewater employee. The Masters of the Universe – and Dalio is one of the Grand-Masters of the Universe.

If a Grand-Master speaks out, you better listen. So I did. I read the book already a couple of months ago and did write a post about Bridgewater’s practices:  The World’s Leading Hedgefund is Relying on Key Principles of Self-Managed Organizations. But I delayed writing a full review: I was befuddled by what I read.

Outlandish, Orwellian Management Practices

Mr. Dalio is spelling out over 200 principles of “Work and Life,” principle by principles. Like the great Roman Emperor Marcus Aurelius did in his “Meditations.” How fitting.

Irony aside, I actually like the clarity and to read about the accumulated wisdom of thoughtful people. And Mr. Dalio is very thoughtful. He is driven by his worldviews, especially on management, and he share’s it with us. I think that’s grand, mainly because the management practices he employs are often so extreme and apparently over the top:

  • Video Taping all Meetings. All.
  • Giving performance feedback in real time during a meeting of every participant to let the person know how she is doing
  • The “Pain Button” app where people can describe their emotional stress and share it with others
  • The “Dispute Collector” app where people can mediate their interpersonal conflicts guided by a machine

Orwellian speech is rampant in “Principles.” Mr. Dalio talks of “tough love,” or “shoot your friend,” – all for the service of the collective.

The Rule of the Fittest

My favorite example of all those management practices is to let people vote on decisions while weighing these decisions with the “believability” of the person: An “Idea Meritocracy” where every person is eligible to vote, but only the most knowledgeable votes carry decisive weight. The believability is determined by their track records, test results, and other data. In other words: The reign of competence, instead of a reign of populists. Wow!

If only the standards that determine believability can be kept “objective” and free of corruption. Mr. Dalio doesn’t explain how to do that, but my hunch is Discipline. Adherence to formal systems, to the principles underlying the believability algorithm. Adherence to the formal system is prominent in Mr. Dalio’s business empire. Comply with the system or be fired. The attrition rate of new and very carefully selected employees is about 30% within the first year. And Bridgewater is very Elitist in selecting candidates in the first place.

Psychological safety, i.e., a safe place to speak up without the fear of retaliation, is a key feature of learning organizations or any organizations aiming at achieving innovations. Dissenters need to be encouraged. And yes, Bridgewater is a safe place to speak up, with even brutal honesty, as Mr. Dalio writes. People may even raise dissent with the system, and principles might evolve in consequence, if its ruling hierarchs choose to adopt them. But chances are that fear is rampant. Not the fear to speak up, but the fear of acting in a dissenting way, which is not in compliance with the ruling system, the principles. If everything is taped and visible to everyone, political correctness rules, and human fallibilities are suppressed. But control is maximized, too.

The central metaphor for the business which Dalio uses right at the start of the book is the machine. And as cogs in a machine people got to be kept inline, disciplined. Add to that that Mr. Dalio is very close to central figures of China’s ruling party, a country where a  lot of experimentation in social control is ongoing, and the pictures become genuinely, outlandish dystopian.

And whats more: His practices are actually embraced by Robert Kegan, a Harvard Professor of Psychology and one of the worlds leading proponent of the “learning organizations”. Money, Power, and Academia united to create a Dystopia. A possible future where the Rationale, Analytic, Performing runs Amok creating a new super-collective of connected super-minds, where the apparently “dumb” are ignored by the (believability) algorithm. This is can be labeled and sold as “Intelligent Democracy”: The rule of the one with the most merits. Not far from Darwins “The rule of the fittest”.

A Great Experiment

Let’s look at the bright side. It’s is a great experiment based on many of the principles of movements like Agile, Lean, the Learning Organization, Leading Management thinkers and Behavioral Organizational Psychologists propose:

  • Build more reflection into daily work routines in order to enable learning
  • Trust more in the power of the collective than in individual decisions makers through structured exchanges that drive out biases, to come up with better decisions
  • Give everyone a voice and a place and time to speak out
  • Use data gained from objective and subjective sources extensively
  • Address all level of the Organization simultaneously:  Mind-Sets, Principles, and Practices
  • Seek organizational growth in the inert, personal growth of individuals

Looking at Mr. Dalio’s work this way, there is a lot to learn about Bridgewater. Therefore reading “Principles” is absolutely recommended.

Long live Hierarchy & Control!

The most remarkable thing is, Mr. Dalio has added all these routines on top of the traditional management hierarchy.


(For more on Management Practices and Maturity Level check out some of the previous blog posts 76 Agile Workouts & A Fish and Let a Thousand Nerds Blossom!)

In all of the 539 pages, he does not write a single line about self-managed teams. But the other times he uses the prefix “self” is revealing: Self-accountability, self-discipline, self-reflection, self-accountability. It is the individual how needs to better herself. By sticking to the collective rules set by, well Mr. Dalio. Or the Chinese communist party…

Mr. Dalio trusts the individual to get better under guidance, he trusts collective, believable weighted votings, as long as

  • Superiors may veto any decision and
  • Mr. Dalio (or a governing elite) sets the rules

At the heart, Mr. Dalio’s vision is not about liberation. It is about performance. About making money. If what it takes to make money is to develop individuals, so be it.

But Control is central. Full stop.

Bridgewater might be a great Place for Fawning Alphas

I like organizational designs more that give space for autonomy (a word not found anywhere in the book) and non-mainstream people – call them beta if you want.

Whats more, true innovativeness will not come from an environment that is purely ratio driven and relegates fun to an emotion that is to be reflected on and analyzed – all in the service of big performance equation that is to be solved.

The featured sentence on the promotional page of “Principles” is “Principles are ways of successfully dealing with reality to get what you want out of life“.

A bigger car, I guess. This Hedgefond even wants to exploit life itself. Putting such a line in front of the whole work shows what Frederick Laloux would call intensely “orange” beliefs, beliefs bred in the industrial revolution: It’s about getting things, about scarcity, about accumulating, and finally about consuming life itself.

I am a bit harsh, though. It’s is worthwhile reading:

 It shows how the application of Agile/Lean/ Behavioral Sciences while being stuck in a Mindset of scarcity and control – instead of abundance and exploration- may quickly lead to dystopia.


This is what I think. What do you think?







1 comment on “The Startup Way by Eric Ries – Book review”

The Startup Way by Eric Ries – Book review

Want to know how to scale the “Startup Way” of doing business to conventional organizations? Want to know how to keep on perpetually innovating new products and processes? Then “The Startup Way- How Modern Companies Use Entrepreneurial Management to Transform Culture and Drive Long-Term Growth” should be for you. According to Eric Ries, it outlines nothing less than a “unified theory of management.”

Wow. What a claim. I was excited, as I admire Eric Ries last book, the “Lean-Startup” and many of its sister publications like “The Lean Enterprise.” And finding better ways to manage in the digital age is all that my work is about.

Spoiler Alert: I was bitterly disappointed.

How to transform a company to work like a start-up?

The recipe according to Eric Ries is to:

  1. Fully understand the Lean Start-up Model with its Minimal Viable Products, Experimentation, Pivots, Leap of Faith Assumptions, Iterations & Learning, etc.
  2. Gain top Management buy-in, so that they commit themselves fully to a big change management program that focusses on training more and more people in “Entrepreneurship.”
  3. Institutionalizing Entrepreneurship in a separate line function.  So Entrepreneurship become a department, such as HR, Finance, IT, Sales and Purchasing are. In contrast to the other departments, the “Entrepreneurship” unit has some matrix functions in the other line functions, such as training and coaching entrepreneurs and maintaining start-ups like funding and governance structures. Thereby the “Entrepreneurship Department” is mimicking external start-up functions internally inside a company.
  4. Continually change the processes of a company by experimentation and iteration to come up with just the right ones for your company. Do it scientifically, never stop experimenting and adapting and you will be fine for all time to come.

Eric’s “Unified Theory of Managment”

The new organization will be a combination of “general management practices” (see the left side of the graphic below) and “experimental management practices” (on the right side). Traditional management practices based on hierarchy and experimental, team-based, lean start-up practices are meant to coexist in every company:

Experimental Management is like a bolt on general management practices. IMG_6527.PNG

Nothing much changes in General Management practices. Eric describes experimental management – in a less than humble manner – as the “missing part of the lean manufacturing system,” known as Toyota Production System (TPS), the mother of all Lean and Agile movements. Lean Manufacturing (and its off spins like Six Sigma) have been all about efficiency (doing the things right). But they couldn’t help at all in effectiveness, i.e. determining what things are the right things to do. These “right things”  can only be identified by customer-centric experimentation. This is exactly what the lean startup method is there for.

And if these two pillars of the house of management are built on solid foundations, i.e., vision, purpose, a focus on people and long-term thinking, the house will stand. It will deliver excellence and continuous improvement if only the shared values of all people in the company embrace truth and discipline.

That’s it. That’s all there is. How stupid have we been not to see this future of management! Just bolt on experimental management and get the senior management team to sponsor vision, truth and discipline et voila: The Organization of the future.

Naivete galore!

It is so naive. So torpedos away.

Eric’s 4 step recipe for transforming a company is EXACTLY what a conventional change management program is all about since time immemorial. Get Management Buy-in, teach and motivate people, lead by example, devote time and attention, train-the-trainers, etc. This is business as usual in modern companies. It is just another top-down driven Change Program. There is nothing to assume that this program will be more efficient than any other change program is.

Oh, wait! Maybe there is: Entrepreneurship is an institution now. We are adding a new department to the company. Surely this will help! It will help exactly like installing a “Chief Digital” or a “Chief Innovation Officer” helps to promote those themes on the board. The name is different, but there is nothing that indicates why a “Chief Entrepreneur” should be more effective. Those Organisations will always be the “weak line”:  Organizations are dominated by those “strong lines” of the departments doing the real work, closer to the business. Hell, they ARE the business. Entrepreneurship is just another matrix function.

But wait again! The strong lines, the realm of General Management, will be all aligned with experimental management now, as they all share a vision and embrace truth and discipline now – as in the neat graphic above.

This degree of naivete leaves me speechless. There is nothing in this book and in the world that will indicate any more success with this as with all other Change management initiatives before.

Looking deeper into “Deep Processes.”

Eric Ries describes the deep processes, such as career and promotion, salary management or purchasing, as “Deep Processes.” Those are the final frontier to conquer once all the successful experiments produced such a momentum to do this in a company’s drive to everlasting change and improvement.

This is very shallow. These are not the deep processes of an organization. These processes are just the result of the management hierarchy coming up with rules and regulations, that minimize variation, seek security in control and assign people to jobs like cogs in a machine.

To really change the “deep processes” you need to change the “metaprocess” under which decisions about processes are made. These are things like giving people a voice, letting the people who are doing the work decide what is best, utilizing all their local knowledge and sensors to come up what is best, giving them leverage to experiment and learn by their own initiative and not by the initiative of an autocrat of the management hierarchy.

It requires flatter hierarchies. It needs more self-management. It requires more local autonomy, less fear, and less separation. But there is no reference to that in the Startup Way. None at all.

A House divided against itself can not stand: The insecurities brought about by experimental management and its rule-breaking nature collide fundamentally with the stability and predictability seeking hierarchy. 

Eric asserts that companies need to act more based on rigorous “scientific experiments,” for which Lean Start-up is the vehicle. In doing that, he is basically giving the same advice that Frederick Winslow Taylor gave in 1911 in his book “The Principles of Scientific Management.” While no one can argue with this benefits of putting more science in management by doing more experiments, the “Startup Way” adds nothing new. The problem is still: How to get the hierarchy to embrace uncertainty and unpredictability? There are no answers to this in his book.

Damm it, he even gets the reference to Taylor’s all-time classic book wrong. This book, one of the most important books ever in the realms of organization and management, has been published in 1911, not 1915 as Eric Rees claims on page 355. A small, insignificant error? I think this is a symptomatic error. Just skim through the list of sources, and you will find secondary sources taken for example from such “authoritative” sites like Quora.

What happened to Eric Ries?

I feel kind of personally injured by “The Startup Way.” Lean Start-up was a great book. So many fabulous ideas that inspired such a great movement and community.

But it appears that all the well earned success within the Corporate world, for example in his long commercial engagement with General Electric, all those speeches to deliver, left him with only minimal time for deep thinking and research.

It feels like Eric Ries is out of his (Start-up) waters in the corporate world. His intentions are good, but there are much more thoughtful and ultimately helpful books available on the future of management such as Fredericks Laloux’s “Reinventing Organizations,” Jurgen Appelo’s “Management 3.0” or even General Stanley McChrystal’s “Team of Teams.” Or this Blog 😉

The “Startup way” is a shallow book.


This is what I think. What do you think?