“To truly transform our organizations and... - Deepstash
ERIC RIES

“To truly transform our organizations and our way of working, we need to change our accounting systems, too.”

ERIC RIES

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Recently learned about Innovation Accounting that's been recommended as the practice to adopt until thinking about metrics relevant to product-market fit.

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MORE IDEAS FROM Innovation Accounting: What It Is and How to Get Started

Accountability is Key

Use the dashboard to hold your team accountable. Simply ask this question: Which metrics are improving over time?

For example, a team that’s trying to prove they can charge a price premium for a new product might do an initial version where nobody is willing to buy, so revenue per customer is $0 for the first test. A few product revisions later, perhaps revenue has grown to $1. This is progress, even if the goal is ultimately $10 or $100.

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Use IA in the early game

Innovation Accounting is a way of evaluating progress when all the metrics typically used in an established company (revenue, customers, ROI, market share) are effectively zero.

Innovation Accounting is not only a way for individual teams to report their progress and communicate in financial terms. It’s also extremely useful for seeing how projects, portfolios of projects, or even whole enterprises are changing over time. And, most importantly, it gives the ability to summarize these disparate initiatives using a common vocabulary and accountability framework. 

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1. Come up with some initial metrics. These should be simple and actionable and should not have to be related to one another.

For example, a number of customers interviewed and their rating on identified struggles might be two starting metrics.

2. If you’re stuck on metrics, ask these four questions, each of which will give rise to a set of metrics designed to answer it.

  • Did we do what we said we were going to do?
  • Are our people working differently?
  • Do customers (internal or external) recognize and improvement?
  • Are we unlocking new sources of growth as a company? 

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What does IA help with
  • It provides a framework of chained leading indicators, each of which predicts success. Each link in the chain is essential and, when broken, demands immediate attention.
  • It’s a focusing device for teams, keeping their attention on the most important assumptions they’ve made about their project.
  • It provides a way to tie long-term growth and R&D into a system that follows a clear process for funding innovation and can be audited for its ability to drive value creation. 

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  1. Use a simple dashboard of metrics that allows the team to track progress over time at the start of a project. It gives a basic sense of what’s working and what’s not. If customers won’t even try the product, it doesn’t matter what their repeat purchase rate is.
  2. It represents the complete interaction with a customer and includes later-stage variables like repeat purchases, bad retention levels, or margin.
  3. Looks at the learnings gained from the first two levels of IA translated into dollars by rerunning the full original business case with each Lvl 1 and 2 iteration.

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A simple Level 1 dashboard

Here’s an example of a Level 1 dashboard looking at the first experiment done by a team building a lemonade stand and hoping for hypergrowth through the use of drone delivery and premium ingredients down the road:

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RELATED IDEA

Innovation

...comes with a relentless focus on experience and not being satisfied by “just getting it out.” You must take time to create a complete experience by taking your innovative idea and ruthlessly concentrating on how to reduce it to its essence. 

It’s not just about the cool new feature. It’s more about how you can simplify it to a compelling solution.

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Innovation is essential

Innovation is a discipline that can be learned and repeated. However, it is organised and operate differently from everyday business.

Many companies are aware that they need to create an innovation capability but don't know where to start. Working through five ideas can help understand what projects are essential to success, how to get projects into your portfolio, where innovation and growth are located, and how to start work with a few small projects.

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Customer Discovery “is all about questioning your core business assumptions.” (Brant Cooper, author of The Lean Entrepreneur)

Performed correctly, Customer Discovery is a customer-centric, scientific process that puts evidence behind an assumed product-market fit:

  1. Observing and defining a phenomenon (problem or market need)
  2. Developing a hypothesis about a solution to the problem (business idea)
  3. Conducting an experiment to test the hypothesis (getting “out of the building”)

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