MEASURE & MANAGE PRODUCT
For most innovation projects, business plans are like pieces of fiction, which means investors and stakeholders are more often than not convinced by the best storytellers and politicians. We know most of these projects will not keep their promise. Uncertain and with no data that can be judged through the lens of traditional accounting, innovation projects are notoriously hard to handle.
Innovation Accounting fills this gap by enabling teams to translate very early ideas into a financial (or mission impact) model that actually assists with decision making. Innovation Accounting draws on actionable and funnel metrics. The five cornerstone components of the most common framework – Pirate Metrics for Startups are Acquisition, Activation, Revenue, Retention and Referral. (AARRR, hence the pirate name.)
AAARR metrics create accountability by expressing a specific customer journey as a funnel but they still express each uncertain variable in one number. No matter how uncertain each variable is, decision making can be improved further by utilising a Monte Carlo Analysis on the model. This calculates the most likely outcome as within a range of likelihood.