Innovation Metrics Podcast

Elijah Eilert is talking to Joseph Brookes about the Innovation Metrics Review, a report that assesses the way Australia is currently measuring innovation, and then makes recommendations on how it can be improved. The Australian Government commissioned the review discussed in this episode due to a recommendation from Innovation and Science Australia in 2017. The review was finally released by the new government on September 30th 2022.

Elijah Eilert is talking to Susie Braam about what keeps innovators within large organisations going and what makes it really hard for them. Susie shares what good leadership behaviour looks like, the problems with short-term thinking and how to carve out the necessary space for a strategic approach to innovation.

Elijah Eilert is talking to Oliver Durrer. Oliver is sharing insights from his accomplished career in corporate innovation. He is also helping Elijah do a Retro on the podcast for this 10th episode:

• What went well?
• What didn’t go well?
• What to do next?

This episode is a bit different from others as it focuses less on specific lessons for innovation teams and leaders and more on personal experiences.

Elijah Eilert is talking to Tendayi Viki about the power and pitfalls of storytelling in the context of innovation management. 

A well told story has the power to move us, we are biologically programmed to buy into storytelling. The problem is that often in an innovation context a well told story bypasses logic and reason, selling a tall story devoid of facts. This lively and fun conversation will challenge your thinking and approach when it comes to storytelling in an innovation context. Whether a sceptic or a fan of well told stories, the question arises, how do we best design a system that fosters evidence-based storytelling? To what degree does storytelling need to be encouraged or even regulated?

• (01:00) Introducing Tendayi and some of his professional biography 
• (03:00) Elijah asks “Where is the middle ground? How should we use stories appropriately and where should we not use stories?” (Tendayi recommends the book Stumbling on Happiness by Daniel Gilbert.) 
• (08:00) Tendayi speaks about visual storytelling and mentions the following book: 
• Resonate: Present Visual Stories that Transform Audiences 
• Alexander Osterwalder’s books
• (09:00) On how the best storytellers will always win. Good stories are irresistible. This means that the business environments need to be constrained and the question is how to do it well in order to extract stories that are more likely to be true
• (11:00) On the leap of faith component of investing in innovation
• (12:00) To what degree are all numbers in a financial/forecasting model for wacky? 
• (16:00) Placing a lot of bets is the fundamental principle to increase the chances of success for an innovation portfolio. It is also an antidote to the negative impact of an infactual story. 
• (18:00) How history is packed with scientists refusing data and evidence  
• (23:00) Elijah starts coming to terms with the fact that storytelling will always play a role in investment decisions. If a story is not provided the other person will make one up. 
• (24:00) On the fact that investment decisions should be made based on evidence. 
• (25:30) Storytelling should have a format, get Tendayi’s template:  

S

GET THE TEMPLATE

• (26:30) Innovation as a wicked problem
• (28:30) How humans are not designed to think probabilistic
• (32:00) Storytelling after scaling and IPO 
• (33:00) Where storytelling in innovation is helpful 
• (34:30) Running a con is possible with or without storytelling
• You can run a con without telling stories by faking the data 
• You can run a con without data by just telling stories
• You can run a con with the data by deliberately misinterpreting them 
• (37:00) Forensic innovation accounting roles – innovation bookkeepers and innovation accountants
• (38:00) The use of qualitative data in Customer Discovery
• (40:00) Elijah messes up Monte Carlo Simulation and Ranges (the inputs of the simulation) 
• (42:00) Should we test purely data-based investment decisions for innovation projects?
• (47:40) Tendayi’s closing remarks, reinforcing why we need Evidence Based Storytelling 

Website / LinkedIn / Twitter

01:00 Introducing Esther

03:00 Esther's reasons for writing the Innovation Accounting Book include finding an answer to corporates hindering governance structure to transformational innovation by outlining a second system that operates in parallel to the core.

06:00 On the process of writing a book and, moreover, a book that is pushing the boundaries.

09:30 Defining innovation accounting

“The tools, processes and systems an organisation needs to monitor the progress of high-risk disruptive ventures”.

This is more than just a set of indicators, it is several levels of governance indicators to enable decision-making. The three core layers of innovation accounting abstract information to the one above.

The three core layers of innovation accounting as defined in the book are

Tactical Innovation Accounting

Managerial Innovation Accounting

Strategic Innovation Accounting

Interlinked, but not in a way that information can be abstracted as directly to the higher level, are

Innovation Accounting for Shareholders

Innovation Accounting for Culture and Capability

12:30 How innovation accounting can help shareholders value innovation efforts

15:30 Innovation success depends on the number of bets a company can place. Companies need to test at least 50 ideas in their funnel and increase confidence about or kill them early on. As Tendayi Viki says

“You can not pick the winners!”

20:30 High-risk new business models take a long time, often 5 - 12 years. Startups often look like an overnight success but that is rarely ever true.

How empathy is often a desired trait of innovation teams engaged in building better products. It is also needed by innovation managers for senior leadership and shareholders, in order to build a better system

24:00 Accounting must evolve when it becomes insufficient for what it has to account for and model

25:00 How to get CEO’s and CFO’s to accept and get used to different measures

29:00 The differences between an innovation funnel and an innovation portfolio or pipeline, and the importance of being internally aligned in defining them

32:00 Innovation Portfolio vs Portfolio

40:30 How often should CEOs be involved in portfolio management, and how often they need to look at the dashboard - as so often it depends

42:30 The funnel is the execution of the innovation strategy

43:00 Innovation accounting should be a part of business intelligence

44:30 People from corporate accounting, controlling and governance are reaching out to Ester to better understand how they can provide value to the company in this space, specifically as more and more of what they are doing is getting automated.

46:30 The future job profiles of innovation accountants and bookkeepers

49:00 Esthers vision for innovation accounting in 10 years

“As an accepted system for high-risk search that has its own place possibly within the accounting function of corporate.”

Elijah Eilert speaks to Paul Orlando about his book Growth Units to discover how to best calculate Customer Acquisition Cost and Lifetime Value. Paul tells us how to significantly improve common calculation methods and how to use those to make critical business decisions. Understanding revenue and cost on a per unit basis for Startups/innovation projects is vital but even established businesses have a lot to gain from doing it right. 

(01:00) Introducing Paul Orlando and his book Growth Units, the foundation of this episode. Paul initially wrote the book as a reaction to the change in teaching environment caused by Covid 19. This insightful and entertaining book was originally designed to assist with the teaching of University of Southern California students.

(06:30) An overview of Unit Economics, Customer Acquisition Cost (CAC) and Customer Lifetime Value (LTV).

(09:00) Exploring the value of analysing the unit level like

• price per unit 
• cost to serve that unit 
• number of times someone stays to buy that unit 

over the business level like 

• total revenue
• total cost
• ... 

The aggregate or business level doesn’t help when the product is still being developed, Product/Market-Fit is not yet established, a profitable channel is still to be determined, and so on.

(11:00) Customer Acquisition Cost means how much money it takes a business to bring someone in and turn into a customer such as word of mouth, paid advertising, sales team, and so on. Lifetime Value is a measure of gross profit a business earns from a customer over time. It often takes more time to understand this than it does to understand CAC.

(15:00) CAC over LTV is fundamental to understanding product performance and analysing specific customer segments. It provides a much more forensic look into the performance of the business. This is not just helpful from the product development side, but also for figuring out the best way to grow, what kind of customer should or should not be acquired through paid advertisement, referral or stick around for as long as possible. 

(17:30) To properly calculate CAC, one has to look more granularly into the sales funnel. What happens when a customer comes “in the door”, either physically or online, when and how do they become actual customers. There are essentially two parts to this. 

(19:00) The different steps in a conversion funnel depend on the type of business and customer behaviours. Pirate Metrics is a great default framework to establish this. 

(20:00) The boundary between Acquisition and Activation is not always clear, teams have to ultimately figure it out for themselves, as so often - it depends!

(23:30) How to calculate Customer Acquisition Cost

An Unhelpful way of calculating CAC:

total spent on marketing in period / number of new customers in this period

A reason why this is not helpful, is because it misses the time factor. The marketing dollars spent in a particular period might not be related to the customers onboarded during this same time frame. Another reason is that it does not take customer segmentation into account. It subsequently won’t tell us what segment is particularly lucrative or what segment we don’t want to attract going forward. 

A better way of calculating CAC: 

cost to get a potential customer “in the door” / becoming a customer

For example, if it costs $10 to get someone “in the door”, and 10% of those people convert, then the CAC will be $100

An even better way of calculating CAC:

The cost of getting a customer into the door / conversion rate by cohort

Different channels have different CACs, and it is crucial for a business to understand it to scale/grow.

(27:30) How to pick one initiative over another

(30:00) On how much larger CAC has to be in relation to LTV. 3 or 4 to 1 is common, but this metric on its own can be very deceiving without looking at payback time. Paul gives an example from his book. In this example CAC/LTV looks great but the payback time for the initial investment is 3 years, making it impossible to grow for this particular business model. So what is the right CAC:LTV ratio? As Pauls would say - “It depends”. 

(32:00) LTV is like a river, it flows.

(33:00) A bad dad joke from Elijah & a shoutout to Ana for the podcast post-production.

(40:00) How to calculate Lifetime Value

LTV is harder to calculate than CAC, mainly because LTV is calculated over time.

An unhelpful way of calculating LTV:

Most commonly LTV is calculated by revenue, the price of the product.

A better way of calculating LTV:

LTV should be broken down into three parts 

Price of the Product - Cost of the Product x Number of repeat purchases 

• Unit Price
• Unit cost 
• Repeat Purchase (Retention Metric) 

It is important not to hide the parts of the calculation as too much context would be lost. In other words vital information to drive the business. Paul gives a great example of how this drives vital business decisions. 

An even better way to calculate LTV:

LTV should be expressed as a timeseries. As mentioned earlier, LTV is like a river that flows. This means that one needs to account for specific cohorts from a specific channel in a specific month. 

(41:00) On Weighted Gross Margins and Negative Churn.

(43:00) A perspective on Product/Market-Fit (PMF). More important than what PMF truly means, is the fact that teams and organisations have an internal definition. Similarly to the term innovation. It is very hard to reach a goal and be effective without a common definition.

Elements of Product/Market-Fit are

• It is possible to grow organically, low or no CAC
• Further growth is possible
• Profitability at a unit basis 
• High retention 

(47:30) Using the Sean Ellis test to determine some degree of PMF. 

(49:30) PMF is the demarcation line for taking the next step in growing a business and trying to scale it.

(50:30) Paul and Elijah went on a long diversion ending up at innovation accounting but somehow found their way back

(51:30) Finishing off with a case study from Paul's book about Data Storage and how Gmail and Dropbox were able to launch and scale before the unit economics made sense. This is because they were able to accurately predict the drop in costs.

Paul Orlando has built startup accelerators/incubators around the world (Los Angeles, Rome, Hong Kong, and remote). He is Adjunct Professor of Entrepreneurship at the University of Southern California and runs USC’s on-campus Incubator for businesses founded by students, alumni and faculty. Paul advises large organizations on internal product innovation, rapid experimentation and growth. He wrote Growth Units, a book on unit economics.

Website / LinkedIn / Twitter 

Elijah Eilert speaks to Andy Cars, the founder and CEO of Lean Ventures International, about ISO standards for innovation management. Having participated in the ISO creation process, Andy Cars will discuss the concepts around ISO standards and how organisations can benefit from them. The aim is to create a long-term innovation strategy and transform an organisation's culture into a value creation mindset.

• (01:09) Introducing Andy Cars owner of Lean Ventures International AB
• (03:52) Discussing Andy's contribution to the ISO standards for innovation management 
• (05:31) Providing an overview of the ISO standards for innovation management and its structure:
• ISO 56000 - Fundamentals and vocabulary, 2019
• ISO 56001 - Innovation management system - Requirements, 2026 (TBC)
• ISO 56002 - Innovation management system - Guidance, July 2019
• ISO 56003 - Tools and methods for innovation partnership - Guidance, Feb 2019
• ISO 56004 - Innovation Management Assessment - Guidance, Feb 2019
• ISO 56005 - Intellectual property management - Guidance, Nov 2020
• ISO 56006 - Strategic intelligence management - Guidance, 2021 (TBC)
• ISO 56007 - Idea management - Guidance, 2021 (TBC)
• ISO 56008 - Innovation Operation Measurements - Guidance, 2022(TBC)
• (07:05) This ISO series is better seen as “centred around a number of core principles that are there as a guide for organisations to have when they are trying to implement an innovation management system” and less as a standard where a company can receive an actual certificate
• (10:36) Why it is important to define innovation and how the standards can help
• (12:57) The principles of The Agile Manifesto and their similarity to ISO 56000 is discussed as a set of principles rather than as a traditional standard the ISO establishes 
• (14:31) The 8 principles of ISO 56000:2020:
• 1. Realization of value
• 2. Future-focused leaders
• 3. Strategic direction
• 5. Culture 
• 4. Exploiting insights
• 6. Managing uncertainty 
• 7. Adaptability
• 8. Systems approach
• (15:42) On the axiom for innovation management to identify and focus on the barriers to innovation
• (16:27) How to use ISO to optimise innovation ecosystems systematically
• (16:28) Why innovation is a long-term marathon rather than a 100-metre sprint, and why organisations need to consistently develop a muscle for innovation
• (18:48) Changes in the organisation's culture and insights start with an entrepreneurial mindset
• Going into the specifics of principle 6. Managing Uncertainty that is defined by the ISO. The definition nicely illustrates the general nature of the standard

“Innovation activities need to address high degrees of variation and uncertainty, particularly during the early creative phases. They're exploratory and characterised by search, experimentation and learning. As the process progresses, knowledge is gained, and uncertainty is reduced.”

• (19:00) On the need for an innovation strategy 
• (21:40) The Value Proposition of the standards and specifically 56002 is a great way of getting started with building a proper system. Secondly, it enables the ability to influence leadership and the rest of the organisation with a peer reviewed approach that is backed by a well regarded organisation
• (22:32) Andy and Elijah are clearly outed as nerds, proving that innovation management is clearly maturing
• (25:05) On major red flags for innovation in large organisations, which are, for example, a lack of ownership and a disconnection from the people for whom value is created for. 
• (26:42) Tips around measuring innovation culture
• (32:43) On the 40 different barriers to innovation, identified by Andy,  such as a lack of budget, lack of full-time innovation teams ...
• (32:45) On the likelihood of innovation success and how many bets it takes to win
• (32:50) On innovation as an insurance policy 
• (33:54) How incentives are directly connected to building a culture of innovation in an organisation. Earnings per Share (EPS) as a KPI for senior management can be a problem for a long-term innovation strategy.
• (35:32) How well can analysts be informed about the innovative potential of a company? How to incentivise CEOs to invest in innovation by talking about their legacy
• (43:33) The importance of targeting the right market to create value innovation
• (45:29) How the Long-Term Stock Exchange (LTSE) can help with a better incentive structure for innovation
• (53:48) innovation could be institutionalised as the “fourth bottom line” in addition to the triple bottom line accounting system, where social and environmental reports are added to traditional financial reports (people, planet, profit + innovation).
• (54:00) On the need for a Chief Entrepreneurship/Innovation Officer (as championed by Alexander Osterwalder).
• (54:25) On innovation and making this world a better place. The first principle of the ISO is the realisation of value and that is not only monetary value (and a silly joke from Elijah, that worked out for a change). The ISO definition for value is:

“Value is not limited to financial value, but can be any kind of value should such as experience wellbeing or social value”

• (56:17) On wellbeing and how it should appear  more often on the agenda within large multinational organisations
• Innovating within large organisations is hard for individuals, and until a properly designed and managed system to innovate is established, it most likely will not  change.

Andy is a serial entrepreneur with 16 years of international experience. In addition to coaching more than 200 startup teams on how to take their ideas to market, he has worked with some of the world’s largest companies to help build their innovation capabilities. Andy is currently on the investment committee of the European Innovation Council that is tasked with funding European startups. He has also co-written ISO 56002, the world’s first international guiding standard for innovation management. Andy is passionate about innovation and entrepreneurship and likes to see both the businesses and people that he works with grow and prosper.

Website / LinkedIn / Twitter

Elijah Eilert speaks to Tristan Kromer about the fundamentals of a VC-like funding approach for corporate innovation that releases resources over time in exchange for specific evidence. Funding a startup or corporate venture from idea to scale is becoming increasingly outdated. Applying traditional stage-gate funding models for innovation projects come with a set of issues on their own. Discover the fundamentals of what Eric Ries calls Metered Funding and how to design an effective incremental funding approach for innovation.   

Ideally, each decision point or gate is dictated by uncertainty. In reality, it does not really matter if the uncertainty relates to Desirability, Feasibility or Viability. If innovation accounting techniques are applied we can quantify where exactly the uncertainty lies. Otherwise, designing the first gate around desirability is probably a good bet. As for the vast majority of cases, a lack of customer understanding is the biggest risk. 

• (02:00) Elijah skips talking about problems associated with funding a project from idea to scale, preferring to start by discussing the common issues with stage-gate funding specifically for innovation projects. 
• (05:30) Introducing the basics of metered funding/stage gates which are based on impact, not ticking boxes or entitlement funding.
• (06:00) How to call decision points in the innovation funnel and who oversees them – stages gates, phase gates, scales gates, stakeholder meetings, innovation committee, steering committee, investment boards, innovation boards, investor board, growth board and so on.
• (08:00) Using the analogy for innovation boards being gas stations at a decision point/stage gates. By default, innovators run out of resources – gas/petrol. The gas station gets paid in the form of valuable information that the project is good, i.e. it delivers value and can therefore fuel up again. 
• (10:00) On the term “scale gates”, what it implies, the fact that Elijah may be the only one who has adopted it and broccoli flavoured ice cream is mentioned! 
• (16:00) Common names and concepts for decision points. Typically four stages are used. The Corporate Startup book provides one of the best ‘off the shelf’ solutions for creating scale gates.
• (20:00) Designing the right decision points (gates) depends on the type of innovation and industry we are looking at. 
• (21:45) Any system needs to have adequate desirability, feasibility and viability. Validating these should ideally be prioritised by risk and nothing else. In most cases, desirability is the riskiest factor. 
• (26:00) Brief overview and classification of innovation – Core, Adjacent & Transformational and whether they need a different funding system.
• (27:00) The reasons for different management approaches to innovation for managers and organisations as a whole may be different. Organisations long for better predictability and managers may also want to change the culture. 
• (28:00) 99% of the time, customer demand is the biggest risk and it should usually be the first decision point. Ideally, the financial model is based on ranges for each variable. The model needs to inform us
• if it is at least theoretically possible to get a certain amount of ROI;
• what the most uncertain variable is. This uncertain variable would be ‘the first gate’ and again, it is usually driven by a lack of consumer understanding – Desirability.
• (34:47) For ideas that are not going to work there is a way to quantify earlier by utilising innovation accounting. 
• (37:02) Gates and their specific order is always simplifying something and in place to give people something they can understand and work towards. Any system needs to be flexible enough to override if required. 
• (40:20) Discussing the point when a predictive model makes sense, i.e. how early. 
• (46:15) We finally found one thing that does not make sense to be quantified – Founder-Market-Fit i.e. “do founders care about the problem they are working on?” For corporates, it is important to assign the right team to the right project.
• (53:15) Recap

SHOW TRANSCRIPT

A

As the founder of Kromatic, Tristan works with innovation teams and leaders to create amazing products and build innovation ecosystems.

Tristan has worked with more than 30 technology accelerator programs, including government-funded initiatives such as Innovation Norway, Vinnova (Sweden), Enterprise Ireland, NEST’up (Belgium), StartSmart (Estonia), and the Innovation Partnership Program (Vietnam-Finland). He has designed lean startup programs such as the Build or Die Bootcamp for TechBA (Mexico) and the Boom Reactor (Belgium) in addition to being part of Luxr, whose Core Curriculum has been used by 13 accelerators internationally, including Singularity University, 500 Startups, & The United States Innovation Fellows.

He has worked with companies ranging from early stage startups with zero revenue to established businesses with >$10M USD revenue (Kiva, Cancer Research U.K., TES) to enterprise companies with >$50B USD revenue (Unilever, Swisscom, Salesforce, Fujitsu, LinkedIn).

Tristan regularly speaks, appears on panels, and gives workshops internationally with organizations such as the Stanford Center for Entrepreneurial Studies & D-school, Global Product Management Talks, Lean Startup Machine, General Electric (GE), and more.

With his remaining hours, Tristan volunteers his time with early stage startups.

Originally from New York City, he has lived in Germany, Switzerland, Taiwan, and Vietnam, and currently resides in San Francisco, USA. 

Website / LinkedIn / Twitter

Elijah Eilert speaks to Jael Kong who until recently was working with a leading FMCG company. She is jam-packed with insights and will speak with us about the systemic problems large organisations have when making (kill, pivot, persevere) decisions specifically after launching new products. 

Jael also gives us a glimpse into an early post-launch tracking approach that leverages the Pirate Metrics Framework ((A)AARRR).

Our favourite quote from Jael:

“Jael Kong’s Cheatsheet for Metrics and Data Sources” draws on the Pirate Metric Framework ((A)AARRR). Use it for pre and early post launch product tracking to support critical kill, pivot, persevere decisions.

• (00:50) Introducing Jael and her company LevelUPPP
• (03:00) 80% of product launches fail and how to define failure 
• (05:00) The issues with lagging indicators 
• (07:30) On Product-Market-Fit and the problem with placing too many large scale and expensive bets 
• (13:00) Why it is hard to Pivot in a system that is designed for execution with siloed teams and different KPI’s
• (15:30) The accountability/non-accountability of early innovation teams post-launch 
• (17:00) How to improve the handover and knowledge transfer between teams
• (20:00) On the use of Experiment Report Cards / Learning Report Cards
• (23:00) The need for an Innovation Bookkeeper / Innovation Accountant)
• (27:30) A systematic approach to post launch tracking - Get Jael’s Cheat Cheat for Metrics & Data Sources   

• (29:30) The issue with placing more bets than a company can handle and monitor 
• (31:30) On innovation ecosystems that rewards the wrong behaviour
• (33:30) How the Pirate Metrics Framework / Innovation Accounting can be part of the solution
• (43:00) Using Pirate Metrics for an ‘Early Post Launch Tracker' and introducing dog food as an example
• (46:30) How to measure customer satisfaction (or the dog food user satisfaction)
• (51:30) The importance for financial viability and the potential disconnect between innovation teams and business analysts/finance departments
• (54:00) Early indicators and Jael’s book Living Happily Ever After 
• (56:30) How alignment, clear goals, reward structure and open communication are essential for pivots and how to do it, including retargeting.
• (106:00) Jael’s biggest tips for corporate innovators 

Jael Kong is passionate about developing people and teams to their most powerful selves, and no surprise, through innovating themselves and their contribution to the ecosystem around them.

Jael has recently stepped down from a full-time corporate innovator leadership role in a leading FMCG company and started her own consultancy LevelUPPP to dedicate more time to supporting teams, leaders, and individuals to better achieve their goals in a sustained manner.

Jael Kong is a Certified Professional Co-active Coach and accredited by the International Coach Federation and a certified Agile Team Coach. With over 17 years of human insights experience in different matrix corporations and having lived and worked out of Singapore, China, and currently The Netherlands, Jael discovered her purpose and calling in supporting her fellow human beings in their search for a more meaningful fulfilling life. 

Jael is also the author of Life Happily Ever After - Find It Between Your Choice And Commitment. A book to accompany you on your personal adventure to pursue more fulfilment and satisfaction. The book is filled with practical exercises and reflection questions grounded in coaching principles and techniques.

Email / LinkedIn

The Innovation Metrics podcast provides insights on measuring innovation, innovation accounting and managing the uncertain process of developing new, sustainable and profitable business models.

Tristan Kromer speaks with us about the pitfalls of early-stage predictions in startups and corporate innovation initiatives, and how to drastically improve them. 

“It’s ok to ask innovators how a business is going to make money and how much. The problem is the way we traditionally expect them to produce the answer. The way we frame it can’t be answered effectively.”

An emerging concept, enabling effective Innovation accounting, is to express variables as a range of likelihood not as single numbers. Subsequently, the outcome of the financial or mission impact model can be expressed as a range of likelihood rather than a wildly optimistic estimation of a single number. This enables innovators to quantify the uncertainty of each variable and the entire project. The innovation team’s job is to gather new insights and reduce uncertainty. Innovation accounting enables them to feed this back into the model by changing the estimated ranges and quantify what they have learned. By narrowing down the ranges based on a new insight teams gain the ability to demonstrate progress in a quantifiable way even before a product is launched.

• (03:15) Nobody in innovation is happy with the way predictions are made.  
• (07:00) Business cases tend not to be terrible when there is enough historical data available. 
• (10:15) Human behaviour usually causes the most uncertainty. 
• (12:00) There are legitimate reasons not to invest in innovation.
• (16:00) Asking if and how a startup will eventually make money is a fair question but the way the question is usually framed can’t be answered effectively. 
• (18:00) Even businesses with a 10 year trading history have mostly terrible business cases. Warren Buffet who is known to only invest in companies with a long track record does not listen to forecasters when allocating resources. (“There is no business so lousy it can’t get a wonderful projection” – Charlie Munger.)
• (20:30) Typical business cases don’t inform about uncertainty effectively. 
• (21:30) Asking for best case, worst case estimation and dividing them by two is hardly an improvement. The solution to understanding uncertainty better is to allow for ranges. 
• (24:30) Allowing for ranges is great for any type of project, not just innovation.
• (25:40) Expressing things in ranges has many benefits, amongst them, that it makes predictions more honest and more accurate. It also increases the sense of psychological safety and is simply easier.  
• (28:00) If innovation accounting can assist in solving the problem of biases and favouring talented storytellers in securing funding. 
• (29:30) Methods to battle certain biases during resource allocation. 
• (31:15) On the usefulness of templates for auditioning.
• (33:00) Innovation accounting can measure and demonstrate progress by narrowing down the ranges. 
• (36:40) In a state of extreme uncertainty, a little bit of information is telling us a lot.
• (37:40) Monte Carlo Simulations can be applied to the ranges thus making the predictions more accurate.
• (39:00) The art of entrepreneurship is the art of reducing uncertainty by getting information.
• (39:40) Fermi Decomposition demonstrates how complex problems, when broken down into simple steps, are easier to measure. From estimating the height of the Empire State Building to the output of a business model.  
• (44:00) How this topic relates to the question of how to measure innovation teams, as discussed in a previous episode (Insight Velocity, Experimentation Velocity and quantifying the value of the information).
• (46:00) Discovered a new innovation team and culture measure in ‘Percentage of Teams Asking for Help’.
• (46:30) Bridge the communication gap between innovation and finance, where both parties have to make one step towards each other 
• (47:30) On metered funding and paying for information not for a product/ROI)
• (51:00) Innovation accounting should be about expressing uncertainty in a quantitative way and reducing the range of uncertainty as the project proceeds. 
• (51:30) Innovation is a game of information and needs a portfolio perspective. The one with more information will increase the odds of success over time.
• (54:30) The innovation game, Plinkromatic, demonstrates the math behind funding innovation.
• (55:00) Elijah tried to be funny, guess the outcome.
• (55:30) Ranges are awesome

FULL SHOW TRANSCRIPT

As the founder of Kromatic, Tristan works with innovation teams and leaders to create amazing products and build innovation ecosystems.

Tristan has worked with more than 30 technology accelerator programs, including government-funded initiatives such as Innovation Norway, Vinnova (Sweden), Enterprise Ireland, NEST’up (Belgium), StartSmart (Estonia), and the Innovation Partnership Program (Vietnam-Finland). He has designed lean startup programs such as the Build or Die Bootcamp for TechBA (Mexico) and the Boom Reactor (Belgium) in addition to being part of Luxr, whose Core Curriculum has been used by 13 accelerators internationally, including Singularity University, 500 Startups, & The United States Innovation Fellows.

He has worked with companies ranging from early stage startups with zero revenue to established businesses with >$10M USD revenue (Kiva, Cancer Research U.K., TES) to enterprise companies with >$50B USD revenue (Unilever, Swisscom, Salesforce, Fujitsu, LinkedIn).

Tristan regularly speaks, appears on panels, and gives workshops internationally with organizations such as the Stanford Center for Entrepreneurial Studies & D-school, Global Product Management Talks, Lean Startup Machine, General Electric (GE), and more.

With his remaining hours, Tristan volunteers his time with early stage startups.

Originally from New York City, he has lived in Germany, Switzerland, Taiwan, and Vietnam, and currently resides in San Francisco, USA.

Website / LinkedIn / Twitter

Learn how to create a simple financial (or impact) model that works for innovation.

MORE ABOUT THE COURSE