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How big companies measure success is very different from how you measure progress and success of new growth initiatives or ventures. Inherently, this is something we all understand, but very few companies do so effectively. While a big company reports on revenue, profitability, price-to-earnings ratio, stock price and other key metrics (often focused on what investors care about), a new venture has none of these things. Even if a new venture has revenue, it’s immaterial to the overall performance of the larger company, because it’s so small.
So the challenge remains: How do you measure progress for a growth innovation project, venture or initiative? The answer is to focus on two key questions:
It’s possible to answer the first question through the application of a simple analytics framework, more focused on how startups measure progress.
Specifically, in Lean Analytics, which I co-authored with Alistair Croll, we created the Lean Analytics Stages, which represent the different stages that a startup (or new corporate venture) should go through in order to succeed. In addition, we defined the “gate” you go through in order to move from one stage to the next.
Big companies are already at the Scale stage; they have already won and grown into a massive organization. But new growth ventures start at the very beginning Empathy stage; regardless of where they come from–either founders in a basement ideating or corporate innovators building within a large company.
For corporate innovators, this is definitely the point in time when you need to figure out the longer term relationship between your new venture and ‘the mothership’. If that’s not clear to everyone involved, there’s a very good chance that you may be at the cusp of scaling but not have the resources to execute, because the investment is high, but the return on investment is still unclear.
To figure out if things are moving well with a new venture or not, you need to first determine the stage you’re at. And then you need to decide what metrics matter at that stage in order to determine if you’re making rapid enough progress to move forward.
The specific metrics for your venture will depend on what type of business you’re building. A consumer mobile app is going to have different metrics than an enterprise B2B solution. A 2-sided marketplace will have different metrics than an e-commerce business.
In Lean Analytics we evaluated 6 different business types in an effort to demonstrate the different metrics that are relevant at each stage.
This is by no means exhaustive, and many new ventures or businesses are a combination of models. For example, you might have a 2-sided marketplace mobile application, or an e-commerce business that relies on user-generated content. And in the context of SaaS businesses, there’s quite a bit of variety, including freemium, free trial, etc. You have to understand how your venture works (its business model and all the components of the business model) to pinpoint the metrics that matter at a specific stage.
The most important takeaway for large companies is that you need to build a framework for assessing whether or not to keep investing in new ventures in your portfolio that accounts for both different stages & different types of ventures. Based on those two variables, what you measure will change, but the decision to move forward or not will be made more objectively clear and the story around why can be more seamlessly told.
Once you have a framework in place for assessing and comparing new ventures within your innovation portfolio, the next question is to figure out when those new ventures will have a meaningful impact on the core business.
Unfortunately, this is a very complicated question and we can’t pretend there are easy answers. A few key things to keep in mind:
The best corporate innovators commit to taking a portfolio approach when building new ventures and determining their value back to the core. Some ventures, if successful, will get spun into the core business somewhere, tuck-ins that create new, incremental value. Some ventures, if successful, will become standalone business units, and may need to be spun-out into net new entities. Some ventures will fail, but the learnings will be immensely valuable, and can still feed into the macro-company strategy, or even lead to potential startup partnerships, investments and acquisitions. Building new ventures within a corporate context isn’t exclusively about building new billion dollar businesses; there’s an immense amount of additional value that can be leveraged.
What does your innovation system look like?
As leaders within our organizations we tend to easily dial in on processes, checklists and outputs to build and measure our innovation system that helps us build new ventures. The question then becomes: Does this truly add value back to our organizations, or are we focusing more on these processes, task-lists, outputs and versus outcomes that drive real value?
We’ve put together an innovation Measurement Dashboard that builds on Lean Analytics, a book Founding Partner, Ben Yoskovitz co-authored with Alistair Croll to help you demonstrate the value from your innovation initiatives back to your organization.
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