lean startup for finance: using innovation accounting for valuation and risk management

Measuring Learning in DollarsDavid Binetti

@dbinetti

... But Consider Finance's Perspective

The Accounting is the Problem

We Need Options

Financial Options→ Right, but not obligation

→ Delay decisions until we know more

Where there is uncertainty, you'll find options.

We Need Innovation

Options

Value = Sum of the Possibilities

$3.3M - $1.0M = $2.3M

Lean Startup, Positive ROI

Now, Let's Learn

Given what you've learned,are you better, worse,

or about the same?

Invest

Pass

Pivot

Measures Learning in

Dollars

Measures Risk

Risk Sigma 1.6

Risk Sigma 1.1

Risk Sigma 0.8

Risk Sigma 0.4

Risk Sigma→ Normalized metric

→ Comparable between projects→ Enables corporate governance

KPIs(We want the Truth, Fast)

Accurate bad news is superior to inaccurate

good news

KPIs→ Sensitivity and Specificity (Accuracy)

→ Fall out, miss rate, PPV, FOR→ Clinical trials for your business model

WarningValuation is NOT a KPI

Innovation Options are Profit Insurance

Value, Risk, KPIs?That's (Innovation) Accounting!

Product Happy→ No traps

→ Focuses on learning→ Rewards speed and truth

Finance Happy→ Reports in dollars/sigma→ Allocates resources→ Meaningful KPIs

Deliver FabricationsDetermine Reality

@dbinettihttp://innovation-options.com