Risk, Metrics, and Venture Capital: 10 key takeaways on what your innovation process should look like
On December 8th I had the amazing opportunity to join the group that is at the avant-garde of corporate innovation. I was invited to share my perspective on Venture Building and Portfolio Management at the Innov8rs Connect Conference from my experience as a startup founder.
I remember exactly one year ago, I was watching these exact talks, with awe, amazement, and brightness in my eyes, like a child seeing the Avengers in action for the first time.
And it really moved and humbled me to then see a couple of these same “idols” actually watching my talk this time and coming later to connect and exchange ideas.
I wrote this article to share the key takeaways from my talk Innovation Metrics: Building Ventures and Managing Portfolios from a Risk Perspective for those that could not attend.
And also as a thank you to all the innovators that inspired and taught me so much throughout this journey that brought me to where I am now.
So let’s get to it:
“Metrics are the instruments to take the calculated risks necessary to step ever further into the unknown of innovation.”
- Innovation must be looked at from a risk perspective. This goes against the popular belief that innovation is uncertain. The difference is that risk is measurable and, therefore, manageable. Uncertainty is not.
- When you try to develop high-risk innovation within a process designed for operational excellence and risk mitigation, you create the exact opposite effect. It’s like having Modern Times’ Charlie Chaplin operating the gears. It increases overall risk and, consequently, inhibits innovation.
- Innovation metrics aren’t about outcome, but progress KPIs. And the north-star is GROWTH.
- H3 innovation is about speed. “Fail fast” is about bringing all your assumptions to invalidation. The faster you kill the bad assumptions, the sooner you have CLARITY of your pathway to growth.
- Corporate innovators must think like venture capitalists. They want de-risked investments with huge potential returns.
- They make a lot of small bets only to double down on those that become de-risked.
- They play a numbers game. Failures don’t matter — they’re just statistics. And the funds with the highest number of successes Are also those with the highest number of failed ventures.
- They invest in HUGE opportunities only. The funds with the highest profitabilities are also the ones investing in products that can reach the largest markets.
6. There are four components that must be aligned in order to have speed in your innovation process. And it is better to have small changes on all four coordinated than one at a time at scale (an F1 car cannot go fast with only 3 tires). These are:
- A Lean Process for product development and idea validation;
- A tranche funding budget process;
- Transparency — A clear and well-defined process to bring an idea to product will incentivize employees to bring these ideas forward. It allows management to have a bird’s eye view of all innovation initiatives. And it increases cross-silo collaboration and budget efficiency.
- Metrics — They allow you to evaluate venture opportunity and team performance, create a baseline for comparison between different ventures, and to balance your portfolio.
7. These metrics can be qualified as Project-level and Portfolio-level metrics — The former is about speed and the latter, profitability.
8. There is a validation hierarchy that must be followed. It is inefficient and highly risky to scale without having validated value and business model hypotheses, for example.
9. The virtuous cycle of failing fast. The logic is simple: the faster you fail bad projects (or do evidence-based pivoting decisions), the more resources are opened to be reinvested and more ideas are tested. And ventures with better odds advance. Now, not only your success probability increases but the ventures in your pipeline become better and better. Consequently, you start to bring cooler products to market. With cool products comes great talent. And, along with them, their even greater ideas to feed your pipeline.
10. Last but not least: Be Lean — It is better to have small but orchestrated changes happening to implement a different governance for innovation than a compartmentalized, blown up, transformation at scale. Large consulting projects also designed from the same operational excellence and predictability mindset, not a risk management one.
So, in a nuthsell:
- Be Lean
- Apply Lean
- Measure Progress from the get-go
- Select the Home-runs
- Build Unicorns.
All of the above is what we apply at Trimaran Ventures. We combine startup agility, consulting intelligence, and risk management expertise. Our goal is simple: deliver high-growth, de-risked, and ready to scale ventures for corporations.
Visit us at www.trimaran.ventures and contact us to know how we can apply these practices in your company.