FROM THE MVP TO INNOVATION ACCOUNTING

 

The solution to this dilemma is a commitment to iteration. You have to commit to a locked-in agreement—ahead of time—that no matter what comes of testing the MVP, you will not give up hope. Successful entrepreneurs do not give up at the first sign of trouble, nor do they persevere the plane right into the ground. Instead, they possess a unique combination of perseverance and flexibility. The MVP is just the first step on a journey of learning. Down that road—after many iterations—you may learn that some element of your product or strategy is flawed and decide it is time to make a change, which I call a pivot, to a different method for achieving your vision.

Startups are especially at risk when outside stakeholders and investors (especially corporate CFOs for internal projects) have a crisis of confidence. When the project was authorized or the investment made, the entrepreneur promised that the new product would be world-changing. Customers were supposed to flock to it in record numbers. Why are so few actually doing so?

In traditional management, a manager who promises to deliver something and fails to do so is in trouble. There are only two possible explanations: a failure of execution or a failure to plan appropriately. Both are equally inexcusable. Entrepreneurial managers face a difficult problem: because the plans and projections we make are full of uncertainty, how can we claim success when we inevitably fail to deliver what we promised? Put another way, how does the CFO or VC know that we’re failing because we learned something critical and not because we were goofing off or misguided?

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The solution to this problem resides at the heart of the Lean Startup model. We all need a disciplined, systematic approach to figuring out if we’re making progress and discovering if we’re actually achieving validated learning. I call this system innovation accounting, an alternative to traditional accounting designed specifically for startups. It is the subject of Chapter 7.