The Innovator's Toolkit: 50+ Techniques for Predictable and Sustainable Organic Growth, 2nd Edition

Technique 13

Innovation Financial Management

Constantly improve your assumption-to-knowledge ratio.

 

The innovation financial management approach offers a clear advantage over traditional financial assessments. By forcing you to articulate your assumptions early in the innovation process, innovation financial management provides a systematic way to evaluate the feasibility of your innovation before putting too much time, money, and resources into it.

Consider the case of Euro Disney. When Walt Disney Company built the park, one key assumption was that visitors would spend an average of four days in an on-site hotel. The average turned out to be only two days. Alone, this inaccurate assumption does not account for Euro Disney's initially poor return on investment. But it can be coupled with a host of other unverified assumptions that cost the company nearly $1 billion in losses during its first two years.

Any innovation is risky. Innovation financial management reduces this risk by increasing the ratio of verified knowledge to unverified assumptions as the project unfolds. This learn-as-you-go approach ensures that you have the most accurate and updated information possible and enables you to confidently proceed or abandon the project at any point.

Background

Many innovation projects fail because the business lacks the right tools to understand markets, build brands, find customers, select employees, organize processes, and drive strategy. Traditional financial analysis tools, ...