a practical guide to innovation accounting
TRANSCRIPT
A Practical Guide to Innovation Accounting
Tendayi VikiPrincipal Consultant
Benneli Jacobs and Company
There is no denying
that over the last
decade, the lean
startup movement has
become a global
phenomenon.
The success of the movement
is rooted in the distinction
between searching and
executing. While large
companies execute on known
business models with known
customers, startups should be
searching for sustainably
profitable business models.
This build-measure-learn loop
and the iterative process that
underlies it, is the engine that
drives the rhythm of how
innovators work. We identify
our assumptions, develop
experiments to test these and
iterate using the lessons
learned, before we scale.
From a lean startup perspective innovators are using the build-measure-
learn loop to solve this equation. Innovation is viewed as the combination
of creative new ideas with sustainable business models. This is what
takes innovation beyond creativity. This notion that our cool creative ideas
must eventually get traction and be self-sustaining.
And on this journey, we are using
innovation accounting to answer a
hierarchy of questions. With some
questions preceeding others in
importance. Our value assumptions
around making stuff people want,
should be tested before our growth
assumptions. At the heart of the
process is the idea that product
teams can avoid the mistake of
premature scaling by doing the
right things at the right time.
Corporate leaders have become interested
in lean startup and bringing it into their
organizations. They want training for their
product teams on how to use lean startup
methods. We do the training and people love
it. Product teams take well to lean startup
methods and they want to bring these back
into their organizations.
VERSUS
The problem is what happens when they get back to work after the training. They
walk into an organization whose rhythm and ways of working are markedly different
from what they have learned. Large companies are execution engines with siloed
departments and long planning cycles. And this creates a rhythm misalignment.
So innovators create innovation labs
that are located as far away from the
company as possible! But a lot of
innovation labs create products that
become orphans because no-one in
the main company will invest to take
the products to scale. This happens
because there is no alignment
between what the lab is working on
and what the business needs.
And so to us, it is an unavoidable challenge, that if companies want sustained
innovation, they have to change how their companies work. While lean startup has
been successful in developing the tools for innovation practice, we now need to
develop similar tools for innovation strategy and innovation management.
At the management level, we need to
change how we make investment decisions
in new ideas. This is the build-measure-
learn loop for making investment decisions.
The principle is that rather than invest a
large amount of money as a one-time shot
based on a business plan, it is better to
engage in incremental investing. Invest a
little bit, track and review the team’s
progress, and then double-down on those
ideas that are showing the most promise.
Innovation accounting provides us
with the criteria of what we mean by
“showing promise”. So we invest a
little to allow you to figure out
customer needs. We invest some
more to give you runway to create
the right solution. And double down
with a larger amount for you to find
your business model. At any point,
we can iterate with small
investments or stop failing projects
without investing too much.
What you are looking at here is the build-
measure-learn loop for strategic decision
making. We believe all innovation should
be guided by an innovation thesis. This
innovation thesis informs our investment
decision making, and what our teams
ultimately end up working on. Our
innovation strategy is a thesis not a law.
We will test this thesis via our investment
decisions, review what’s working and
iterate on the thesis if we need to.
Learn More: http://www.tendayiviki.com/
Contact Me: [email protected]
Buy Book: http://thecorporatestartupbook.com/