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: tendayi.viki@bennelijacobs.co

Buy Book: http://thecorporatestartupbook.com/