VCs use a portfolio approach so that they balance the risk of losers with the upsides of winners.  They are comfortable with the knowledge that many of the ideas they back will fail.  They are also comfortable with quantity.  They receive hundreds or thousands of business proposals every year from all sorts of diverse sources.  Many of these have already been rejected by several other VCs but that does not matter.  The VC sets his own criteria and selects several ideas to support and put into his portfolio.  If the business plan then misses its targets or milestones or the customer reaction is poor or the technology fails to deliver then the VC is sanguine about pulling the plug on this investment.  He wants to put more resources into the portfolio ideas that are working and he is quite relaxed about strangling the losers.  If he can cut his losses and get out early he will.

Contrast this with a typical corporate environment where a small number of new business proposals are considered.  A small number are eventually selected and then every effort is made to make them succeed.  Failure is abhorred.  Extra resources and efforts pour into the CEO’s pet project even when the market is screaming that this one won’t fly.  Emotion and egos come to the fore.

Think like a VC and remember these key points:

• Quantity is good – we want lots of ideas.
• If an idea has been rejected before, we are happy to consider it again.
• We will select the most promising on objective criteria.
• We want a return on our innovation portfolio as a whole.
• We know that many of the more radical ideas will probably fail.
• We will focus our resources on the winners and cut resources on the losers.

Why not get a Venture Capitalist to speak at your next executive meeting? 

Paul Sloane

Input metrics:

• Number of ideas generated
• Resources allocated to innovation – people and budget

Process Metrics

• Average time from idea approval to implementation
• Number of ideas approved and number implemented
• Stage-gate pass rates
• Value of the innovation pipeline

Output metrics

• Number of new products or services launched
• Revenue from new products or services
• ROI on innovation spend
• Market Perception
• Number of new customers

We also found it useful to draw flow-chart diagrams of the innovation approval and pipeline processes and ask some searching questions about this.  Are we getting enough ideas coming in?  Is it taking too long for good ideas to be implemented?  Are we getting enough innovations out of the process?  Are our approval processes too complicated or too difficult?

It was agreed that everyone should have targets or objectives for innovation.  In collaborative ventures it is particularly important to agree goals, expectations and metrics for innovation at the outset.

There are no perfect measurements for innovation.  All the metrics are limited in value.  But that does not mean that you should not use them.  By choosing and applying a small number of metrics appropriate for your business you can add innovation to your balanced scorecard and give it the high level attention that it needs if you are to succeed.

Paul Sloane