Corporate innovation teams should use venture capital's milestone and stage-gate approach instead of traditional evaluation models. Fund projects in rounds tied to specific questions: total addressable market at idea validation, willingness to pay at MVP stage, and customer acquisition cost and lifetime value at launch.
Chapters
If you're going to allocate resources in the right way, what they can't do is to use traditional corporate models to evaluate individual initiatives. They've got to adopt the venture capital practice of using milestones and stage gates. You might hear people talking about rounds, you know, A rounds, B rounds, C rounds, and that's going to help them to assess the risk that's involved. It's going to help them to assess potential and ultimately the likely value creation potential of each project. You know, as projects progress, the board have got to ask the right questions essentially. And those questions, depending on what stage an idea is at, might not be traditional questions around EBIT, around profitability. They might, you know, depending on what stage an idea is at, not even be about revenue either. You know, if you're at the opportunity navigation stage and you're asking for, I don't know, $100K to test an idea, it might be about the total addressable market. Or if you've tested an idea and you want to raise funds to build an MVP, it might be about, um, customer willingness to pay. Or if you're trying to get something launched maybe after an MVP pilot, then, you know, it might— and this is depending on the business model— be about customer acquisition cost, you know, lifetime value, churn rates, very non-traditional types of metrics. And, and as an innovation team, what you've got to do is help them to understand Which are the right questions to ask at which juncture? You know, it's these milestones and this stage gate process that gives you way more structure to work with. And if you're breaking projects down into these manageable stages and tying resource allocation to the achievement of those specific milestones, then you can build a really disciplined approach to corporate innovation that, A, really encourages this progress that we're talking about, but B, minimizes the chances of wasting resources on projects that are doomed to fail.
