A key component of innovation is measurement. No, not measurement of sales or business growth, although that will eventually come. Early measurement consists of product / market fit, an assessment of whether the solution really solved a pain point that was important enough that your customers will pay you for it.
Assess whether your solution really solves a problem that causes significant enough pain that your customers will spend money to fix it.
What separates the few businesses that innovate efficiently and cost effectively from those that don’t? It’s the ability to quickly identify the things that don’t work for their customers so they can kill those ideas and move on to the next solution. Failed ideas are part of the innovation game, but massive investment in those failed ideas does not need to be part of your game plan.
I see two barriers to creating effective measures that lead to good innovation investment decisions. (Note that innovation can be internal or external. The customer for your innovation project could very well be another internal team or process.)
- Identifying the measures that matter can be difficult. Is it enough that they sign up to learn more about your solution or does money need to exchange hands? What measures can be built into your solution?
- Assessing results and translating them into actionable decisions is challenging. How should you pivot based on the results you see? How much is enough data?
Measures don’t need to be perfect to get started. The most important thing is to set a goal, and measure whether you met that goal. This is key so that you move your decisions from opinion-based to fact-based. There is this thing that our brains do called “sunk cost fallacy” which essentially means that if we’ve spent money on it, we’re sticking to it until the bitter end. For example, when is the last time you walked out of a movie you weren’t enjoying? You spent money on that theater ticket so dammit, you’d better get your money’s worth. When in fact by staying, you are throwing good resources – your time – at a bad investment. The same thing happens when innovation teams hang on to an idea just because they’ve spent a lot of time and money on it.
Let’s take a look at how you can get started measuring the results from your innovation investment.
Setting Innovation Goals
The strategic goal for innovation is usually to grow. But if you use metrics from your existing, core business to measure results it will lead you to make the wrong decision and abandon the idea too quickly. Instead your innovation goals should be focused on learning – about your customers, about the market, about the solution ecosystem. So for example, the goal for the first iteration of your innovation could be to assess whether the cost outweighs the benefit. For an internal innovation, this could be the cost of implementing a new process versus the benefit in terms of cost savings or additional customer engagements. For an external innovation, the cost is the price point customers are willing to pay for your solution, and the benefit is a measure of what it is worth to them to alleviate that pain point.
Learning Goal #1: Assess whether Benefits are greater than Costs
The goal for your second iteration could be to determine a minimum viable product – what is the complete set of features you need to provide for the solution to deliver enough value to offset the cost? What is extraneous and adding no value? Again, avoid the sunk cost fallacy that leads you to think that you may as well leave in these extra features since, “we already created it and someone, somewhere might use it.” These features will confuse your customers and detract from your value proposition, and they will use your valuable resources to maintain. The cost is greater than the benefit so get rid of them or at the very least, archive them to be revisited on another day.
Learning Goal #2: Find your MVP
For your third iteration, the goal could be to learn which customer value proposition message resonates with your target audience. Not only will this help you learn how to speak your customer’s language in your marketing material, it will help you find a niche audience. This is another place where your business legacy can keep you from effectively innovating. If business leaders are thinking growth and expansion, opportunities that are interesting enough for them to invest in have broad market appeal. However, it is crucial that you start small, with a narrow, well defined niche in order to get any traction. Your goal at this stage should be to prove appeal to your niche, not to a broad market.
Learning Goal #3: Discover your Customer voice
The data you collect as you learn through these iterations is used to make decisions about the direction you go next in your innovation efforts. It should be clearly leading you down a path to an innovation that is a) needed by your internal or external customers and b) able to make revenue. It should free your team from making decisions based on emotion or opinion, instead providing an assessment framework where an unbiased decision is clear to everyone.
These are the forks in the road for innovation projects:
- You thought you understood the customer need, but it doesn’t help them with the job or task they “hired” your solution to help them with. At this point, you can decide whether to find other customers that do need your solution, or whether to pivot to building a solution that does meet these customer needs. If you believe that this new customer pain point is big enough that they will pay you to fix it, and you have 90% of the necessary operational capabilities needed, building a solution that meets those customer needs is always a better choice.
- Your solution fulfills a customer need, but it is not compelling enough that they will pay you for it. You could look for a different customer whose pain point is compelling enough, but be careful that you don’t fall into the hole of “a solution looking for a problem to solve”. This is a very expensive and time consuming place to be, and most of the time it’s better to kill the project and move on to the next idea. Give yourself a deadline, a number of iterations you will invest in but don’t get so wed to your innovation that you can’t put it to rest if that is what the data tells you.
- You discover a need that is much broader than the scope of your innovation project, one that will take building a whole new set of operational capabilities to deliver or is not aligned with your brand. Be very careful here because while this may be a lucrative business opportunity, it may not be the right fit for your business. This is where an honest assessment of the value of your business comes into play. What is your brand value? What are your operational strengths? With those as your framework, you can make a good assessment of whether investment in this broader scope will yield a good return for your business. And don’t forget to count partnerships – there may be others in your ecosystem that can really help.
Building your Innovation Engine
This framework of innovation goals and measurement data will provide the chassis for your organization’s innovation engine. With it, you will be able to quickly assess ideas as they come through your innovation funnel. This turns your business from being a one-hit wonder to a scalable, innovative company.
Let me know if I can help you build your company’s innovation engine – it may mean the difference between growth and obsolescence for your business.
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