At the recent Highline Beta event in New York, we hosted innovation teams and leaders from Citi, Credit Suisse, Fitch Ratings and Mitsui & Co. to dig deeper into the good and the bad of innovation metrics. Read Part 1: Getting Metrics Right: How your KPIs and metrics might be killing your innovations here. This is Part 2.
Tracking innovation metrics can make or break innovation projects. Although performance, venture and portfolio metrics are all important and fascinating, let’s dig a bit deeper into venture metrics. Given that new initiatives, projects or ventures start so early, these metrics are radically different from what an at-scale, large company would track.
Ventures go through specific stages, and how you measure progress at each stage will help support your portfolio metrics (performance metrics bubble up to venture metrics, which bubble up to portfolio metrics), which means you need consistency. In order to be successful, it helps to track progress along the way as a venture changes. In Lean Analytics, Yoskovitz and his co-author, Alistair Croll, identified 5 stages that startups go through, and these stages apply very well to new innovation projects or ventures as well:
- Empathy is the earliest stage, and the key question for the company is about finding out if anybody out there cares. Talking with customers can help you learn what problems are important to them, and how motivated they are to find a new solution. How to move through it? Find a real poorly-met need that a reachable market faces. Before jumping into solving any problem it helps to validate your assumptions about your problem statement. This is done mostly through qualitative research (user interviews, early concept tests) and early prototyping work (landing pages, value proposition tests, clickable prototypes.)can be done through interviews, qualitative results, quantitative scoring and surveys. For large companies, where regulations and compliance rules in place introduce a layer of complexity, market simulation–, using proxies to prove whether people will engage or transact (without actually completing transactions!), pre-sales/orders, “taste tests” or deep dive focus groups–can will people buy these things, through e-commerce sites but without transactions, or pre-sale and pre-order the concept; “Taste-test” or a focus-group approach can be helpful to move innovation projects into the next stage.
- Stickiness. You’ve figured out how to solve the problem in a way that users will adapt, keep using and “pay” for (with money, data, attention)with money, or attention;. To get here, you’d be synthesizing research and making rapid prototypes to test ideas with your target users. This stage is about asking the question “How are we solving the problem?” Solutions can then be validated and reworked until there’s enough clarity to outline a first product release. At this stage, the metrics that matter are related to engagement. The key question is whether you’ve created a solution that solves the problem in a way that matters. And engagement metrics (DAU, MAU, etc.) are a proxy of value creation (if people are using something, it’s a good sign.) growth, acquisition and unit economics. It’s not a linear road to success, and this phase can go in loops. Stickiness is the toughest phase and most products, projects and startups fail at this point. Ultimately these things fail because they don’t solve a meaningful enough problem in a good enough way. The stickiness one is the hardest, most companies fail at this point. The founders typically run out of money. It’s about balancing the opportunity cost: what else could you be doing with your time? Investing time and money wisely, when you get it right you’ll know that you are solving a real market problem that matters.
- Virality: Are you moving past your early adopters to later adopters to chase other markets, and see if the new people you acquire behave in the same way? Your users and features fuel growth organically and artificially. This stage is about growth; it’s about proving your channels for user/customer acquisition. You start to care about CAC (cost of acquisition) and look to optimize conversion. For B2B sales, you’re aiming to begin the process of building a sales process that works.
- Revenue: You’ve found a sustainable, scalable business with the right margins in a healthy ecosystem.
- Scale: Can you build that infrastructure and streamline it, knowing that when you hit the product-market fit you put the foot on the gas and the foot is massive. The corporations have a huge advantage at this stage, as they can scale faster.
You need to measure the right thing, but you also need to iterate and understand that progress can happen in a loop and some of the stages can and should be revisited before moving forward.
The commitment that large organisations make when they take a portfolio approach to innovation and place their bets is not about building a $100M business overnight; this just doesn’t happen. Startups iterate quickly and they win because they compete on speed. Enterprises win because they compete on scale.
With the right metrics in place, when speed meets scale (which is possible!), you get exponential impact and growth (that you can measure and prove!)