Innovation Accounting – The Second System – Podcast Transcript

Innovation Metrics Podcast

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Teaser

If we want to change the world, we need that second system. And I want that to have a place in corporate business intelligence,

Innovation Metrics Podcast

Welcome to the innovation metrics podcast, where we bring you the latest on innovation management. We provide insights on how to measure innovation, innovation, accounting, and managing the uncertain process of developing new, sustainable, and profitable business models. You can find links to the main topics covered in this episode and information about the guests and hosts in the show notes, or go to our blog on innovation metrics.co. Your host is Aaliyah island.

Elijah

I’m very excited to welcome as on our show today as the author, the corporate startup and award-winning book. And it’s also the author of the brand new innovation accounting book, which I believe has also just received an award. Yay. That’s awesome. Congratulations. Our guest is also the CEO of ground control and innovation software to manage and report on innovation ecosystems. Esther has a background in technology and has been an entrepreneur for over 20 years. She has mentored several hundred startups amongst other as an investor at next startup ventures, lead mentor in the Rockstart accelerator programs and lean startup machine weekend. As always, we make sure to link all relevant information and how to get in touch with Esther and the show notes. Make sure to check them out. Hi, Ester. So happy to have you on the show today.

Esther

Hey, Elijah, I’m really thrilled to be on your show as, as you know, that podcasts are my passion. So I love every, every chance I can get to be in a forecast.

Elijah

You have radio show. I forgot to mention that

Esther

I have my own, I have my own little hobby, which is a, is a podcast that I record in the, in the local radio studio. So it’s also a local radio show.

Elijah

Yeah, I think that’s super cool. And where are you in the world? Maybe we want to tell folks where you are actually you’re in.

Esther

Oh, right. Yes. So welcome in my home. I’m actually in Al’s new, which is a, a little village or rather a, a sort of a suburb to Amsterdam in the Netherlands. So I’m in, I mean, in the greater Amsterdam area and I have my offices in Amsterdam, so I traveled back and forth, but I love living in this suburb, which is still a little village because it’s on a lake, I own a boat. So for me, that is, that is how I empty my head sometimes. And clear everything. Just go out in the boat a little bit.

Elijah

Do you have on it or do you

Know? I have, I have, I have a kayak with a pedal on, but I also have a boat with a motor. And if there is ice, I ice skate on it Cause I am right.

Elijah

Yeah, of course. So we mentioned that you, that you authored, or co-authored a book together with Dan Toma and with the book. I mean the innovation accounting book, the most recent one and yeah, I would like to go through that a little bit and first ask you why you decided to write this book.

Esther

Yeah. So the why is I don’t, I’m not sure if it’s clear why. Right. We, we, we written the corporate startup book, dental, my intent Vicky and I a few years earlier. And that was really straight forward. That was more of all the information is out there. We’re doing it in a practical way. Let’s put, put everything that we know together and make it really practical handbook so that everyone can do it right. Let’s make some impact in terms of corporate innovation. And for me, that was more a serendipity that 10, I said, OSU. So not, you know, so much about the practicality T how that works with startups. We need you in terms of knowledge and, and let’s do this together. But for innovation accounting, I think there’s more of a pioneering subject, right? Because there’s, there’s nothing out there really. Other than that, Eric Reese in his book said the startups themselves need to do some innovation accounting to keep themselves accountable and, and make data-driven decisions to move forward, to do these decisions, to pivot or persevere or, or stop even.

And, and as we started working so much with all of the corporates that wanted to do internal venture building, we started to see that there is, there’s so much governance that is either missing or working against these internal ventures because of the high risk that you can’t succeed in doing that without setting up a complete, complete new system. Really? Yeah, there, there, there was this gap, this need of, of corporates that didn’t know that they needed it. But we, as the practitioners, seeing that there was that there was this thing missing. And then, then had, I had been hammering on my door for a while and saying, Esther, we have this knowledge, we’re doing this. We need to write a book about it. And I wasn’t too sure. Cause I always wanted one to have it tested first. Right. So I I’m always like, yeah, but things are still changing and maybe others know more about this, but then soon we had this system and we tested it and I was like, he’s right, right.

Nobody’s written about it. We have this thing that works. We need to put it out there. We need to help companies move forward. Because if there’s no second system, there’s not going to be disruptive innovation. And how else can we make impact in the world? So then it just became a thing. And we started moving forward with, with innovation accounting as, as a book, which in the end took us like two years to actually write and research and test and, and put together because that means that man, it’s just not, it’s not the same as the corporate startup. Right. That was what is out there. How do you put it together in terms of making a of meaningful handbook? This was, we know the system, but we have to sort of describe it in a way that everybody understands and now we’re building this whole system and principles and, and give it to people.

So you have to make sure that, that it, that it’s, it’s a thing that works, that, that, that it’s going to, going to be accepted as, as that thing or that new system that needs to be implemented implemented. So yeah, it was quite a journey, but I’m really proud that, that we did it and really thankful that then kept on pushing me. But we have do, we had to do this second book and, and yes, indeed. As you said, we won, we recently won it out for two weeks. Now the golden Axiom will work for business intelligence and innovation for this book as well. So once you’re lucky twice, you’re good. I hope so.

Elijah

Yes. I got one obviously here.

Esther

Ah, yeah. Cool. So it’s so you can get it on the other side of the world.

Elijah

Yeah. I have this for, I’ve been a backer though. I’ve been back in your guests early on. So I got it like a while ago. Yeah. Well

Esther

That means you’re actually in the book, Elijah, your name is in that role.

Elijah

I know. Yeah. That’s awesome. Yeah. It’s lovely. Now, congratulations. How long did the corporate startup take you then?

Esther

I think it was the same amount of time. In the end could be a little bit less, but that was maybe because it was the three of us that had to work together and, and we had to figure out the process because it’s not, it’s not just the text and, and, and the, and the actual words that need to be put out there. It’s the process of how do you design a book that is understandable visually enticing and also really structured in a way that you can find everything because it’s not a book that you just read and then forget about it because there’s so much Information in it. It’s likethat systems or how do you, how do you convey that system to others so that they can, can easily find things that they want to find when they look back at it and that they know what’s where, so it’s, it’s this whole structure, visual structure, the models of how that system works, that need to be thought out. And then the illustrations come into that process of writing. And you need to find a figure out a way that works.

Right, then you have your backers that you want to, to be able to read the book halfway through and get your feedback from. And, and then we had experts coming in, help us write chapters. So, yeah.

Elijah

Yeah. I thought we, we just go through it in a, at a high level or rather go through what you guys describe as the four different types of innovation accounting, like, and please correct me. So we have a tactical managerial, strategic and innovation accounting for shareholders. And maybe you just want to say a few sentences or as much, or as little as you like tactical innovation accounting.

Esther

So, so let’s go back a step on how I would describe that. Right? So innovation accounting is, is, is literally the, the, the tools and the processes and the systems that you need within an organization to monitor the progress of high-risk disruptive ventures, which means that it’s not just, it’s not just a set of indicators that you need to be able to monitor that, but it’s a system of governance and indicators for several or levers of levels of decisions, make decision makers that need that data data to be able to make decisions, which means that you basically have three layers of indicators that abstract to above for the next layer of decision-makers or are you, you, you, you can understand that as a team, I need data to make decisions in terms of, is this a customer that I want to move forward to? Is this a problem that I want to focus on?

Is this a solution that works, whereas a manager of, of multiple teams, I need different kinds of indicators to understand if, if my funnel is field enough, or if, if overall all these teams are doing the things that they should be doing, and on a higher level strategically, I want to understand as a CEO, if my innovation efforts still are aligned with my strategy and how much money goes into that. And if that makes sense. So that’s, that’s why the innovation accounting system is actually three layers. It starts with the tactical in a tactical layer where you measured the teams and the teams know how to move forward. That abstracts into indicators that are related to the indicators that it all starts with, but it, it stacks abstracts to a level higher indicators that help the managerial level to decide on how do I measure my funnel, right?

How do I make decisions there? And that is going up to the strategical level where this data abstracts into new indicators that say, Hey, is revenue coming at all? Or is this still aligned to my strategical goals in terms of overall portfolio? And then if you take a step back then there’s, there’s always this underlying layer that sort of connects to it, but doesn’t have that abstraction level that all the three other levels have, and that’s the cultured and capability level where the skills and the capabilities and the culture of your company actually affect the, the output that your teams are doing. So it essentially affects all of these layers, but that’s, that’s not as, as interesting intrinsically related as the other three layers that, that are connected.

Elijah

Fantastic. Now that’s a great overview. Yeah. And do you want to talk to reporting to shareholders like cassettes in there as well? I’m very excited about that topic as well.

Esther

And the shareholders is, is what we’re saying in terms of, of shareholders is not that it is part of that system, but rather that the entire innovation accounting system is something that you can use if you want to talk to shareholders, because in our experience, shareholders, all the ones that are actually pushing for, for, for that, for that profit, right? So, so usually a company has a profit, which means that if a company is heavily invest investing on innovation, then there’s this cost pressing on the profit and shareholders are going to ask questions right now with financial indicators. You can only show them the cost that you’re making, right? Whether, and, and not really show them if that’s an investment in the future and what kind of vision you have behind that investment. And where are you then going with that vision? Now, if you use innovation, accounting, what happens is that the costs that are going into an investment in the future are not just costs.

But what you can say is that I know these are costs, but what we’re doing is experimenting on future bets. And we can tell the story behind that with innovation, accounting, right? We know their costs, but the costs that are, are rather in investment, and this is what hap what’s happening with them. Now we have a story behind that that can tell the progress towards a certain vision towards a certain future bet. And I, and I’ve just written an article on our blog post around that where Facebook was, was rather hit hard in terms of their stock. It was going down in for the first time in, in, in years, because not only did the users sort of flat-lined a little bit, right? But also they had a really high cost, which was pressing on their overall profits. So financial analysts were concerned and their stock was going down.

But if you look at the total cost package, a large amount of this cost, I think 75% was an investment in their future bet on metaverse right. They have been pressing that a lot. And it’s there. I’m not saying it’s right or wrong, but it’s their vision that that’s where a new future might be for Facebook, even though right now, their business model is sort of leveling off. And if you look at it like that, if you tell Cheryl this, but look, we’re actually progressing towards a future that we’re seeing, and this is our, this is our opportunity. And this is what we have the risk. Then this is how far we are, are invalidating that future. This is what we’re doing with that investment. Then you have a different story than just that financial story.

Elijah

So we recently spoke about this as well. We’re we’re I saw that Monash Pryor said that he really liked the very fact that Amazon is doing a lot of small bets, like intrinsically that’s how they operate. And, you know, he’s basically saying like, he’s basically looking for, oh, he values that. Right. And he thinks without knowing whether or not one of their bats pays off, but he knows in theory, they have a higher probability than one of them will pay off. Right. And seeing that from a, not just, not just an investor, but somebody who is, as far as I understand, like a value investor, a very traditional Warren buffet style historian, right? Like, like he’s slipping through historical data and, you know, he can get a, yeah. So he is a good accountant, right? Like it traditional, very

Esther

Conservative.

Elijah

Exactly. Right. That’s what I’m trying to say. Like, no, I’m not dealing with that stuff. I look for really undervalued stocks where I know that I’m the valued and a few confident, and they have a mowed and all that stuff and not going for, but he totally understands that like, we need new business models, right. For these footies companies to at least continue to create.

Esther

And then also to understand the fact that, yeah, that’s really exciting, but also the fact that, that you need that for that to happen. Right. That those high risks and new things, you need statistically, a higher amount of, of these, these, these things to begin with. Right. Because there’s, there’s so many companies that I, that I talk to and they go like, oh, but I understand you have a new system. And there’s a new structure that goes with it, but we’re not sure yet we’re regarding, we’re going to try these two ideas and bring them to fruition and then see if that works, what you would say. And I’m like, no,

Elijah

Right.

Esther

Are you going to take this $1, you know, and then bet on it until it is a million, you know, that’s not going to work up front, right. You need, you need, you need to spread it’s high risk. You need at least a 50 beds to start off with, with small amounts. And, and then, and then I asked and Diane always says, you cannot pick the winners. What we, what we can do is at least validate and show the opportunity and have some confidence level in those opportunities that move forward and, and, and move forward with those and stop the ones that do not show any of that, but we cannot pick the winners. So I think to understand, as you said, also that you need these big amount of, of little bets to, to see that there is opportunity and value, which is which you can then value much higher than companies that move maybe one or two ideas forward first, because statistically, you know, then that a hundred percent is not going to work out.

Elijah

Nah, that’s why I’m super excited about seeing something, you know, seeing the book, mentioning that as well, because like, it’s just so important. Like, you know, shareholders just need to be happy and, and trusted and, you know, support, support. Destructure I know, like, and the people within it, so yeah. So that’s, that’s really exciting. And I think we probably, yeah, it’s going to be very hard to correct. You know, without, without being, being able to please shareholders as well,

Esther

Well, one profit in the end. Right. But I think the shareholders also want continuity because that’s, they become, obviously they become short shareholders somehow for the money, but I also believe that you become a shareholder because you believe in that continuity of, of that business. So at some level you also understand that if you do not invest in something new, then there won’t be that continuity. And, and with the world changing this fast, right? I mean, we’re, we’re, we’re, we’re putting together crisis over crisis. And we know that things be really have to change. Impactfully changed to, to, to even continue what we have. Then, then people understand that these bets are going to be more and more riskier to be able to, to achieve that change. And that has to come from somewhere. So I think as a share holder, they, they, they understand that there is a need for these kinds of high-risk investment. But if you then can just show them that it’s not just an investment that disappears, but it’s a divestment that is well forethought out that is monitored in terms of progress and opportunity and has some sort of ongoing benchmark on itself with, with improvement. Then that story is easier to tell. And then if it, if that story continues, it’s also easier to get more money to put in there. Right. So it’s just, it’s the story.

Elijah

Yeah. Yeah. It takes a long time. It takes. And I think people forget that if you do risks, new business models, it takes five to 12 years to become something that has a turnover that is as big as, as your, or your core. So that means that it takes a long time to have confidence in just an opportunity.

Elijah

It’s like one of my favorite topics, like, you know, when we talk about empathy and how innovators should have empathy with the customers, like, you know, it takes a bit of empathy, you know, like as well here, like, you know, a shareholder going and, you know, obviously CFOs as well, but you know, even shareholders are gonna say, yeah, no, I’ve got to trust that for the next 10 years. Right. No, just because you feel great about it or, you know, like you, you know what I mean? That’s for sure. Right. So like,

And not even investors are doing that, right. I want to see some sort of progress and certain stories, some sort of vision, some sort of indicators behind the story. So that’s also where innovation, accounting stands. Right? It’s that, it’s the hand in hand with financial accounting. It’s, there’s a diagram in the book. That’s really interesting. It’s a diagram where the, the, the actual income level and, and amount of people using Airbnb over time, it is mapped out where in the first seven years, what you see is early, eventually just interacting with the platform, not much happening in terms of revenue, because that’s still volatile. We’re still testing. We’re still experimenting what works and what doesn’t work. Yeah. They’re bootstrapping things are happening. But as soon as that hit max mass market, then stuff starts to move. And then 12 years later for a financial analyst, Airbnb became an overnight success, but there’s nothing overnight about it. Right. But for financial analysts up until then they were under the radar But that Story was there. So how could they have seen that story? Well, that’s where innovation, accounting command comes in. It’s that bit before financial accounting that tells the story of, is there a progression? What kind of opportunity? What kind of confidence levels do do we have for this future bed? And that story, then Ben goes hand in hand with

Elijah

That reads very well. I remember that I can find it so quickly right now, but that was, yeah. I remember that was really very clear when you read it also in the book and you, and you look at it. Yeah.

Esther

And I think that was a more complex our, our society and our economy is going to get the more financial analyst also understand that we need something to go next to just financials because the world is changing, not just into more complex, but also less assets. Right. We’re moving into a completely digital work world now. So we have to look for different indicators.

Elijah

Yeah. And historic day is kind of the way work, right. There was a problem. And your accounting system that like broken wasn’t good enough anymore. And then things changed right. Then guests. That’s where we are right now. It’s just like, it’s just not working. Yeah. Fantastic. So what are your DSM tips and tricks or some stories or something like that around getting CEOs and CFOs to accept different measures and to yeah. Get them more used to different system.

Esther

Yeah. So that’s what, that’s something that we’ve struggled with before we wrote this book, right? So we, at first we thought it was about education, right? You need to teach these people, they need to be, then they need to understand that there’s going to be different indicators and that financial indicators are not good enough. They need to understand the high risk of it. And that, that might need some change in mindset in terms of how you invest in, in these things, which just so different from, from what you’re used to. But then over time, number one, the board is super busy, right? They get extreme amount of money and bonuses to do that core ride and they don’t get it because they’re not doing anything. They get it because they’re good at it because they’re experienced in it. And it’s so much work and responsibility shareholders, the core business, continuing strategies for moving that core into the future.

So how can we expect them to also make time to earn, learn things and be an expert on that other thing as well? Well, some for some, it it’s possible, right. But for others, can they make that time? Is that, is that something we can expect of them? And if they do that, how long will it take them to, to get where you want them to be so free innovation managers that are there because they are, they have that expertise, right. They have to sort of make the decisions there and then tell the story to the CEO so that he or she has the overview. So what we’ve noticed is that it’s easier to introduce a complete system and then consistently report with that same system, what you’re doing, then telling them it can’t be done with financial indicators, just look at it differently. I then, then how do I look at it?

I’m still going to ask the same questions, but reporting consistently from the beginning, even if it’s just two or three things that you’re picking up with a new set of indicators that have a different structure come from a different way of working and have that mindset of investing in a lot of small bets first and then follow up on those that, that make sense later. And then reporting that in the same way consistently over and over again with the Y makes so much more sense than trying to educate the board first and have them move along to make those decisions. So you’re responsible for that part. That’s why you are hired because the CEO can’t be the expert on, on everything, but make sure you have that system in place right away with the venture board that knows to make that knows how to make these decisions and then consistently report on them. And usually only pull this, this, the board in, on decisions that are really big when you’re at the end of your funnel, when there is big amounts involved. And you can tell a little bit of a different story and do updates on how you’re moving along on strategic level and not updates on how teams are doing individually, because strategically in the mind of the CEO, that doesn’t make any sense.

Elijah

Nice.

Esther

Although they are CEOs, they want to see all the teams as well, because that makes them really positive and really, and really joyful. But there’s also a danger that then the board is going to take gut decisions because they like the teams or the ideas where what you want is, is data-driven decisions and follow that works with ideas that, that fits to the strategy. So it’s, it’s, it’s just more logical just to report on these strategic indicators.

Elijah

So do you think the, the venture board is that the buffer, is that sort of the inside your, your risk management for the board note taking over?

Esther

So the adventure adventure

Elijah

In this context,

Esther

In this context, what you’re saying is, look, we have the skilled people and a decision making mechanism that works. Right. We’ll just give you the indicators that are useful to your decision-making. Yeah.

Esther

All right. Cool. Yeah. So this, this is nicely. We talk about the funnel and what I would like to discover a bit more with you today would be what is the funnel? What does the portfolio, and again, you mentioned the new book, so it is important. And, you know, what’s the demarcation line maybe where you stay even the difference, or is it just like, you know, different reports drawn from the same, from the same system or, you know, anyway, that, that will be sort of where I would like to go. So Maybe

Elijah

Run us through maybe running, sorry.

Esther

It’s just words, right? Yeah.

Elijah

You know, that’s like, what I recently I really was, I was just shredded with the word. It’s very interesting. You’re saying that, cause it, it creates, it creates like a preconceived what this is and now a hat, but you know, what, what, is there a difference between the funnel or portfolio or not?

Esther

Yeah. So in my, my association there is, and, and so that’s why I’m saying it’s just words, because I have learned that there’s different companies that are using different words for different things. So jargon plays a big role in associating things with other things. And, and that, that is something that you have to understand before you move forward within a company, right? So what is innovation in your company? Big thing, make sure everybody’s on the same page, right? One of the most important things stage gating, right? A framework with innovation, accounting is really important, but if you borrow stage gaging from your digitalization process and say, and think that it’s the same purpose in the same kind of mechanism, then something will go wrong. Definitely because it has a different purpose and is a different kind of mechanism, but we’re using the same word. So be careful with that, but in the book it’s, it’s explained.

And I think there’s a really important difference to understand, because if you, if you, it’s how you judge and evaluate things, so your portfolio is your portfolio of, and we’re saying you’re profiling, folio of business models that you have right now. That is your, that is your offering right now, right? That you’re, that you’re making your money with. So, so those are the things that, that are out of the test explore phase and our actual business units, surfaces products that you’re offering to your clients right now and earning your money with that’s your portfolio. And we prefer to look at the portfolio through the lens of business models. So if you do that, you can look at what is my current current EV offering do, is that just one business model that has 80 products that are just customizations of the same product for four different clients, right? Because if that thing is under threat, all your 80 products are on their set. And then you have to move a lot faster with your innovation. Then if you have like four business models where there’s a lot of differentiation, and now that is your portfolio

Elijah

To make that maybe a tiny bit more complicated before we want another term. And just another word, if you will, like we have the innovation portfolio and we have the portfolio. And I think often, and don’t know how you experienced that it’s sort of interchangeable, or it’s not quite clear, is there a difference or not like right now, you know, that was clear, right? It’s the portfolio at entails whole business models,

Esther

Just your, no, just your current offerings in terms of business models, all of the products that are tested and that are offered right now and are making your money with the mask. And that’s really important to understand, because even if it’s that that’s in an adjacent market for you, but it’s a, it’s a core offering, right. Then this is your portfolio, but the funnel is something different. I think it’s important to understand because I there’s a lot of corporates that are saying, we want to understand everything that we have in terms of innovation and in terms of offerings. And then that’s our complete portfolio.

Elijah

So it’s the, it’s the innovation, sorry, sorry. Then is it an innovation portfolios then the innovation portfolio and innovation funnel, the same thing.

Esther

So sometimes in the innovation portfolio that’s projects that are being rolled out right now in terms of digitization or new product offerings that fall under the, the core incremental innovation portfolio, but can be rolled out pretty much immediately. Right? So they’re, they have a business case. Usually they’re prioritized, usually they’re prioritized project by project. They look at it per project in terms of investment costs and opportunity or, or risk, right? So in terms of business case, and that’s usually what’s in the innovation portfolio, what we’re saying is that as soon as you’re doing this high risk disruptive innovation, these are just ideas, right? And as we’ve talked about before, the one thing you need to understand is that those ideas can not be judged as individual ideas and then prioritized against other individual ideas, because there’s maybe one out of 10 that is going to make it to the end.

So you cannot do the same thing that you do with the rest of your innovation portfolio, because you cannot prioritize things on individual level. You have to look at the complete set of ideas that you have, and the stages that these ideas are in, in terms of de-risking towards a working business model. So everything that is disruptive innovation or whatever definition you’ve made for innovation and all of the ideas that are inside of that framework of stage gate in the process of being the risks from idea towards working business model are in the funnel of your innovation framework. And the funnel is something that you judge in terms of outcome or ROI or return on investment. And you do not use an idea by because the funnel of ideas that you have for this disruptive innovation are the opportunities or the new business models for your portfolio of tomorrow. So it’s not. So you don’t judge just idea by a project by project. It’s the whole concept of the box or basket of opportunities that you’re testing there that might become part of your portfolio in the future. But right now are part of your funnel of your investment. And that’s a big difference because you cannot put them in your portfolio. They’re not there yet. There’s a ha there’s a high risk.

90% is going to drop off. So you can’t judge it or put it in your portfolio yet until it’s the risk. And with more incremental innovation, you make the decision, usually project per project. So that’s a whole different decision-making thing. And usually those, those projects are becoming part of your innovation portfolio, because they have a clear roadmap. If they have a clear cost analysis, there’s a different timeframe. There’s a different risk involved.

Elijah

Cool. Yeah.

Esther

It make sense. I see you processing.

Elijah

Oh, no, I’ve been obsessing about it for awhile. Now I have to say, and

Esther

We’ll give

Elijah

You, I mean, I haven’t, I have a concept. I said, I have a concept, you know, sort of say, I don’t, I’m just not, I’m just trying to work it out really well. You know, like, and I find I’m pretty, I’m pretty set on the fact that all of these terms are thrown around usually. And just like innovation doesn’t really matter at the end of the day. What, what is the true definition of innovation? Like as long as you have it defined in your company, good job. Right. And like, what’s your portfolio, what’s the, is there a funnel? Is there an innovation portfolio and then a portfolio and are these all different? And do they move from a funnel into an innovation portfolio and from there into a portfolio, like who cares, but right. In the sense who cares, like as long as your system works, but still find it very, very an am. I just hung up on it because of the terms itself, because these terms exist, right? Or is there, is there something, is there something more to it or should we just at least put it out there to say, Hey, think it through when you use these terms while building a system. So if that’s more kind of where I’m coming from and see if I can settle on, on something as well, right?

Esther

Yeah. For me, it’s, it’s, it’s part of that mindset, right? So like we just discussed that you need to understand that this high-risk innovation need to be invested in, in a different way, because a nine and a 10 are not going to make it. So you do this, the same thing goes for a funnel versus portfolio, right? So it’s that mindset of how you manage and evaluate these ideas. All of the ideas that are still in process of being the risk is something that you need the innovation accounting system with. And which means there are in a funnel of exploration and not part of your portfolio, because your portfolio is, is, is, is where you get you more money from right now. So it, that follow is part of your high risk investment. And, and you can see the progress on what’s going on. You need innovation, accounting for that. Once it turns over to your business, it’s part of your portfolio. And then how your portfolio performs right now is something that you then use to identify your strategy in terms of where do we want to go, innovation wise, what do we need to improve core wise? And that feeds back into your funnel again,

Elijah

Oh, you’re familiar, right? Like that’s what I feel like you have a funnel against, against a certain strategy, and then you have kind of a funnel for it to feed that strategy. And it takes a different amount of resources. Then another part of your strategy where you’re not as much under threat, which is creating less options at this point,

Esther

As you understand that the portfolio is then the bit where, I mean is already the risk, you are exploiting on this to be able to be more efficient on it and grow it. And the funnel is what you’re exploring to understand if it’s going to work or not. Yeah.

Elijah

And, and that’s where, you know, I think for example, what would maybe tricky there in general is like, what’s that dedication line, like, you know, do people scale projects when, when you’re in that sort of scale phase, maybe that’s for around some terms without the finding them too well, but you know, you have product market fit and you want to scale them. Do they go into portfolio? Like, according to that, rather than not, you wait until you have more certainty that they can actually scale and then they go into the portfolio. Right. So that is, that would be the view. Yeah. No, that’s great. Thank you. So portfolio management itself, I think you spoke about that there, how it pays off to, to manage as well. I’m getting confused. How often would a, would a CEO ideally sort of look at a dashboard or at their portfolio distribution? What do you think? Is there, is there something, is there a time cadence you think is, you know, every three months or like how involved should a cob in managing their portfolio that, well, that is the PR, but like how often should that be looked at other?

Esther

Yeah. So, so What kind of market and industry you’re in and then also of what the rate of disruption is in that market. Do you already have a strong fate? How, how, how, how much pressure is there to change. But then what companies right now are doing is looking at their core and, and having these strategy sessions, every, what is it, five years, 10 years, and then think about how, how that core needs to move forward to 2050 and this trends analysis, et cetera. But what makes sense to look at your portfolio in terms of business models and, and determine if we have a vision somewhere in between, cause that usually have these, these black spots in between. So our corporate core strategy is to move forward towards two dozen 50 and be this leader in, I dunno something, but there’s usually black spots in between that like, okay, mobility is going to change, but we do not know how just that is going to affect our core business.

Right. And what you do with your, with your, a little bit more high risk innovation and building new business models is focused on these, on these black spots. What could be an opportunity for us to invest in, in terms of moving towards new business model, but also one of our current portfolio is under threat and we need to improve on, on where do we want to be and, and how much, and, and, and determined based on that portfolio, what is under threat? What’s under fate, what is doing well and how much you want to invest in this high risk, kind of new business model innovation. And, and then you want to, to look at these future bets and see how they’re doing. So every half year, you have to sort of look at your funnel and understand what we, what came from this future bet.

Did that make sense? They w were we able to validate anything internal the market is that, does that mean we are too early or just way off, and we need to figure out a new future back, and then you get sort of a loop going there, because then if you’re really in the beginning, it might make sense to do it, not as often to go back to the complete portfolio analysis, but if there’s a loop going on, you want to continuously check, how does that revert back to my portfolio? What kind of ROI do I get from those investment, but also how does it affect my overall portfolio? And are we on the right path? Right? So you need to keep revising that loop because in S in essence, that funnel is, is your execution on your strategy, right? And you want to check back.

So not, maybe not as often as every half year where you do have to check your future bet your investment thesis, but I think a lot more often, just, just then everyone’s once in five or 10 years as it is, what’s happening right now with your, with your corporate strategy. So I’d say at least touch base on it every year, right? So what’s happening? What are we doing? Is this, and how is the funnel coming? Are we going into the right direction? I think it should be part of business analysis, right? So there’s a lot of corporate accounting and controlling people, even risk and compliance people that are approaching me right now. And that are saying, we know that our base changing, right. It’s being automated, things are happening. How can we give value to what we’re doing to the business? So isn’t there something that should be part of our business intelligence, where we can look at our portfolio in a more strategic way. So I think it, it, it will sort of evolve hopefully into something that, that can be a combined function.

Elijah

Yeah. Nice. Yeah. Thanks. That’s, that’s such a good vision. Isn’t it? I agree that it’s nice that you’re getting approached there. That’s really good to hear. That’s super interesting. That’s that’s like super exciting right now to hear, I have to say. Yeah.

Esther

Yeah. So there is there’s those accountants and, and, and consultancy agency that approached me and then say, oh, I was wrong. I felt that it was about accounting innovation in accounting. But now that you’ve explained to me what it is, it might still be using because accounting is as a function is under threat because of automation and right. So there’s a lot of,

Elijah

Oh, wow. So that’s their problem that they own own. Their own business model is under threat is when you’re saying, oh, the accountant.

Esther

Yes. And, and now they’re seeing his opportunity where They’re offering. They could be, and, and with their business analysis and, and intelligence, they could have a whole new role now in business. And they have, and they’re looking for these new business intelligence roles that they, that they could have with that data. So this is a really interesting,

Elijah

Totally. I totally see roads. This is fascinating, like beyond, like, you wouldn’t believe how, how anyway, I’m excited. So, yeah. I always think like accountants, you know, as a job, like even all the way from the teams, you know, like, even like, you know, think about report cards on that, on that sort of level and updating, updating these things and updating projections, you know, and updating, you know, Monte Carlo simulations and financial early financial models and things like that. And how is that connected to your actual insights and things like that, you know, and this is a bit like what you’re talking about. There are bookkeepers, they’re accountants, of course, it’s not fun. It’s too many people to some, it is, you know, but like too many, it’s not right. And I get it, you know, you wanna do your acts and, you know, you want to do what you’re good at and you know, like, right. And you want to, you know, you want to talk to people and you’re very good at discovery and things like that. So, but you have to do potentially, you know, other things and, and there’s a lot of work, right? There’s a lot of, there’s some data entry to be done. Right. And to, to get these reportings off the ground. So, so that’s where my head is, but yeah, this, this, this, this is so funny. This is such a funny story that, that, that, you know, that accountants go like,

Elijah

Yeah,

Esther

Well the same goes for legal and compliance, really, because then, because the world is changing so fast right now, and there’s so many crisis following each other, that if companies stick to their old risk and compliance models, then they can’t move forward. So risking compliance are looking for ways to, for new ways to de-risk things. So there was this, there’s a person from a rom of the, the larger banks in the Netherlands that approached me and say, Hey, you’re talking about this validated learning stuff. Is that something that we can use as a de-risking mechanism now, like Startup that has like a bad flavor for most of corporates because it’s startups are not going to work with incorporates now has within legal and compliance is, Hey, can we use that to, to de-risk we need new mechanisms to the risk because there’s more risk and more complexity in the world. How do we deal with it? So I think it’s, it’s nice to see all these kinds of trends.

Elijah

This is good. This, this may my week, this may my week. It’s already going that far. Cause like, that’s not what I, I think, I don’t know, like time-wise, I dunno when I can get a comfortable chair and get myself some nice hang out for another five hours, obviously. No doubt. I’m also happy to, I think we’re approaching

Esther

Time.

Elijah

I could touch on innovation culture, but I think we, we run through time very quickly. So I would rather ask you, like, where do you see innovation accounting in 10 years? Or where would you like to see it

Esther

As an accepted system for high risk search as a completely accepted system that has its own spot or place maybe even within the accounting function of, of corporate, but that is except that it is accepted to have the second system and then people know how to use it so that we can actually achieve the change and the impact that we need to achieve right now. Because I always say that there’s so many companies now that are saying, oh, we have purpose. And we want to impact, make impact on CO2, blah, blah, blah. If you don’t have a second system, you’re never going to make that impact because you’re always going to prioritize on, on profit and efficiency. So you need that second system to get out of that box and actually make that impact because you need the system that allows you to prioritize on that impact on that purpose. That you’re, that you’re, that you’re saying that you want to want to have, or, or make. So if we want to change the world, we need that second system. And I want that to have a place in, in corporate business intelligence.

Elijah

There you go. That’s I think that’s the, that’s the best way to, to end the episode. I have to say they re on a high absolute high note and a

Esther

Yeah. Cool.

Elijah

Thank you so much.

Esther

Thank you for me, allowing, for allowing me to have that podium.

Elijah

Yeah, no, you you’re welcome anytime. Like, it’s it just call you just call and yeah. And we make sure to link to the, in the show, they look at the show notes to, to get in touch with Esther, to get in touch with what she’s doing, to get the book and all the things we talk about. We’re linked to everything that’s remotely relevant and yeah. Hope you enjoyed the show.

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