What CEOs & CFOs need to understand about innovation

So a CFO might say, well, why do we invest in those that don't, you know, that don't work? Because at the beginning, good ideas and bad ideas, they look virtually the same. Just about to jump on a podcast with Alexander Hanging. He is a chief innovation officer at the Norwegian Post and runs a great podcast. So here we go. So what you need to explain to the CFO and actually to the entire C suite is we make several small investments first. So we make many small bets. So I'll take a real example. Bosch, for example, they invest in over 200 teams over three years, okay? But they would give them three months and 130k euro, okay? And after that the team. So during this process of three months, they go out, get out of the building, to use Steve Blank's words, and they test their hypothesis. They come back with evidence if this is a good idea or not. So it's not the PowerPoint or Excel spreadsheet that they make shine the channel, make the evidence shine that supports the idea. And guess what? If they can't find evidence for real customer job spains and gains, their projects get killed. So only about 30%, you can Google it, actually have the exact numbers on a blog post, but only about 30% make it to the next phase. And then here you have another high kill rate. Here you invest a little bit more like 600k euro. And so at the end they had 19 winners, 19 projects coming out of these 200 here. So that's how you mitigate risk, right? So you have indeed a lot of in quotes losers at Bosch, they would say they successfully retired projects. So a very high kill rate. So a CFO might say, well, why do we invest in those that don't, you know, that don't work? Because at the beginning, good ideas and bad ideas, they look virtually the same. You do not know great ideas on paper, in a PowerPoint, in a spreadsheet, they might be completely wrong. And that's why we don't invest in business plans. Companies that still use business plans maximize the risk of failure. Because they say we can pick the winners. Nobody can pick the winners. That's why venture capital invests like this and venture capitalists are not known to be a humble breed. If they can't figure it out, guess what, you know, it's really hard. So what you do is you invest in a portfolio and you make follow up bets and you explain that to CFOs, they understand it very quickly that the investment mechanism and the metrics you follow, how you invest fundamentally different from when you invest in a new factory and expanding the supply chain or where business plans make sense. So the problem is we still have companies asking for business plans. What are you doing when you ask a team for a business plan? You're asking them to make you believe they know this idea is going to work and that you just need to execute it. The problem is, again, at the beginning, great ideas and stupid ideas, they look the same. What's hard in innovation? Constantly adapting the idea until you have a value proposition that customers care about, until you have a business model that's scalable. And many of those projects will go nowhere. So you need to kill them. Which then often also means changing the culture to make it safe to be part of a project that didn't work out. That's how it works. That's what Amazon figured out. That's what Netflix knows how to do. That's what Ping an knows how to do. They know how to distinguish between no go, operational failure, we don't want that. And experimentation, failure of which we want a lot. Failure is not the goal, but it's an inevitable side consequence of innovation. Sa.