innovation accounting

is a new kind of accountability designed for start-ups. It is concerned with the how to measure progress, how to set up milestones, and how to prioritize work.

is a quantitative approach allowing one to see if efforts are bearing fruit by creating learning milestones (as opposed to product milestones) which concern the analysis of customer behavior.

The method I recommend is called innovation accounting, a quantitative approach that allows us to see whether our engine-tuning efforts are bearing fruit. It also allows us to create learning milestones, which are an alternative to traditional business and product milestones. Learning milestones are useful for entrepreneurs as a way of assessing their progress accurately and objectively... they are also invaluable to managers and investors who objectively... they are also invaluable to managers and investors who must hold entrepreneurs accountable. However, not all metrics are created equal, and in Chapter 7 I'll clarify the danger of vanity metrics in contrast to the nuts-and-bolts usefulness of actionable metrics, which help to analyze customer behavior in ways that support innovation accounting.

is a way to evaluate learning consisting first of using a minimum viable product to obtain real data, then tuning the engine and re-testing, and lastly determining either to pivot or persevere.

Innovation accounting works in three steps: first use a minimum viable product to establish real data on where the company is right now. Without a clear-eyed picture of your current status no matter how far from the goal you may be you cannot begin to track your progress. Second, startups must attempt to tune the engine from the baseline toward the ideal. This may take many attempts. After the startup has made all the micro changes and product optimizations it can to move its baseline toward the ideal, the company reaches a decision point. That is the third step: pivot or persevere. If the company is making good progress toward the ideal, that means it's learning appropriately and using that learning effectively in which case it makes sense to continue. If not, the management team eventually must conclude that its current product strategy is flawed and needs a serious change. When a company pivots, it starts the process all over again, reestablishing a new baseline and then tuning the engine from there. The sign of a successful pivot is that these engine-tuning activities are more productive after the pivot than before.

is able to tell the company when it is executing a plan that does not make sense.

Learning milestones prevent this negative spiral by emphasizing a more likely possibility: the company is executing with discipline! a plan that does not make sense. The innovation accounting framework makes it clear when the company is stuck and needs to change direction.

is, unlike traditional accounting, a kind of accounting that takes care to judge startups by standards tuned to startups, not established companies, which have different aims.

One of the goals of innovation accounting, which is discussed in depth in Chapter 7, is to help differentiate these false startups from true innovators. Traditional accounting judges new ventures by the same standards it uses for established companies, but these indications are not reliable predictors of a startup's future prospects. Consider companies such as Amazon.com that racked up huge losses on their way to breakthrough success.

is the use of the tools of validated learning (e.g. Minimal viable product) to determine and then track real baseline data in a growth model (including conversion rates, sign-up and trial rates, customer lifetime value).

The solution to this problem resides at the heart of the Lean Startup model. We all need a disciplined, systematic approach to figuring out if we're making progress and discovering if we're actually achieving validated learning. I call this system innovation accounting, an alternative to traditional accounting designed specifically for startups. It is the subject of Chapter 7. . . .These MVPs provide the first example of a learning milestone. An MVP allows a startup to fill in real baseline data in its growth model conversion rates, sign-up and trial rates, customer lifetime value, and so on and this is valuable as the foundation for learning about customers and their reactions to a product even if that foundation begins with extremely bad news. Over time, a team that is learning its way toward a sustainable business will see the numbers in its model rise from the horrible baseline established by the MVP and converge to something like the ideal one established in the business plan.

innovation accounting, n.Definitions

innovation accounting