By Gareth Burton

When I first got into the Lean Start-up movement a year or two ago, like most people I went online searching for as much information on the subject as I could find.  The funny thing was (and still is) that there’s loads of fluffy discussion and shed loads of information about what Ries calls the ‘bumper sticker’ stuff like ‘MVP’, ‘Pivoting’ and ‘Getting out of the building’.  But, there’s certainly very little good stuff out there on the real tough stuff, the nitty gritty that constitutes the foundations that the whole concept is built on.  Eric Ries himself believes this to be the case and I know this to be true because he said exactly that to a small group of us from The Manchester Lean Start-up group that had a Skype call with him a while back!!

I like to DO stuff, not just talk about it and the bits that interested me were the actionable aspects of the concept, how to measure and improve on a company’s innovation processes.  Aside from Ash Maurya, Alistair Croll, Ben Yoskovitz and the members on the Lean Start-up Circle discussion group, I don’t see lots of really valuable information out there to be honest.  Well not lots of really actionable stuff.  So I thought I’d see if I could throw something of use out there into the world from now on.  I’m still finding my way, the same way that everybody else is, so anything I say is certainly going to be subjective.  It’s all a matter of opinion and we are each entitled to our own!

The Lean Start-up has had a huge effect on my current thinking and I would certainly wager a large sum of money that it’s going to become a lot more prevalent within tech businesses in the very near future.  It’ll spread out from the start-ups into the bigger tech businesses that need to innovate like a start-up to compete and then it may spill out into all businesses as the lines between technology and day-to-day life (and business) blur more and more.

One of the aspects of this blog is for me to share my own thoughts, insights, ideas and suggestions with those that are interested so that we can discuss and learn together.  To learn from this blog you won’t need to be a Tech Start-up, I think the principles are universal.  The only pre-requisite is that you need to have recognised that you and your business (that you own or work for) are in the same position that almost every other business is in these days… you need to innovate or you WILL lose your edge.  As one of my company values states ‘The more we learn, the more we innovate, the more we improve’.

So to begin with let’s talk about what innovation accounting really is.  I don’t have a bumper sticker definition, but I’d say that it’s the system or process that allows the decision makers of the business to prove objectively that the developments that they are making to their product are having a measurable impact on the behaviour of their customers.

In simple terms, whenever you change something about your product, you should measure the impact that the change makes on user behaviour, after that improvement is released, and whether the changes in behaviour are in line with the expectations you had BEFORE you made the change.  That’s a really key point actually, one of the key parts aspects of the Lean Start-up is that you don’t just make changes and ‘see what happens’ as you won’t learn anything.  You define why you’re doing something before you do it and create a hypothesis of what you think will happen to user/customer behaviour thereafter.  You then measure your results, learn your lessons and start again.  It’s known as the Build-Measure-Learn feedback loop.

Not only that but for those of you reading this that are from the more ‘traditional’ business world, you should be able to relate Innovation Accounting to many of the business theories that you’ve come across before.  Just think about it; management information, business intelligence, KPI’s, the list goes on and all of them are simply variations on a theme.  You have something about your business that you want to improve on, in order to do something about it you establish some baseline measures of performance and you measure how the numbers change as you change things about your business that you think will improve its performance in those areas.

In the same way that measuring your confirmed sales appointments as a leading KPI when using the balanced scorecard, Innovation Accounting is simply a way of measuring if your user behaviour changes in line with a desired outcome (which will ultimately feed into a more traditional business goal).  For example, let’s say we measure the percentage of users that come back within a week after you introduce an easier login process feature (this would probably be labelled as a retention % test).  The more people that come back, the more that will use the product to its potential, the more will possibly share it, or pay for it and so on.  You could even argue that Innovation Accounting will create leading KPIs for your leading KPIs!!!

So, in simple terms, Innovation accounting is just a way to stop wastage on developing big expensive features for your product that ultimately won’t make any difference to your customers and are therefore effectively waste.  The whole reason the movement is called ‘lean’ is that we are trying to eliminate waste.  Innovation is such a murky and misunderstood area in business these days that by creating some systems of measurement around how we innovate and what we innovate on, then hopefully we will be less wasteful.

Now this is a very slim overview, the content will likely get more in depth from here, but hopefully you can understand where I’m coming from.  It’s nothing to do with accounting at all you see.  Innovation accounting just means having the right measures in place to make sure that everything you create makes a real difference.

Please tell me what innovation accounting means to you, what you’d like me to talk about in more detail below and please do share this if you find it of value.  The more people I get to talk to, the more I’ll be inclined to create!!

Bye for now,

Gareth