Investments in innovation take on all shapes and sizes. If you’re Uber, the level of investment is usually undeniably grand whether it’s to the tune of a $500 million collaboration with Toyota to deliver autonomous vehicles by 2021, or $200 million to bring Jump-branded electric scooters to the United States. A company with the sources and long-term management commitment innovation should press its advantage as Uber does. For Uber to act otherwise would mean giving up one of the competitive advantage that the company (valued at $120 billion) possesses.
How Metered Funding Works
But only a handful of companies enjoy the internal alignment and resources to swing for the fences as Uber does. The remaining 99.9 percent of businesses have to work with more finite resources and must evaluate innovation investments in a more measured way. As executives (especially modern CFOs) navigate paths to growth in a time when disruption is likely around the corner and value is fleeting from established sources, they may (understandably) hesitate to invest big in innovation when the immediate ROI is unknown. These CFOs should take a closer look at metered funding.
Metered funding, per Eric Ries, contrasts with traditional entitlement funding as follows:
- Traditional entitlement funding: teams and projects are funded through an infrequent (usually annual) budgeting process. Typically a central decision-making team assesses businesses cases for funding different projects and makes an allocation for a set period of time, typically a year. This kind of funding process is what most big companies are accustomed to using.
- Metered funding: works like a startup’s funding process. Ideas requiring funding are presented to decision makers, who allocate funding over a series of rounds. The funding is based on goals and milestones. In the early stages of funding, funding is learning based, and in the latter stages, funding is growth based.
Metered funding supports an organization’s need to strategically balance and enable what will yield immediate results and produce future value, by pragmatically funding enhancements and exploration. Metered funding adds a level of accountability to each funding cycle, and metered funding provides an investment hedge, especially when the ROI is not always known.
As organizations prepare for innovation and embark on the journey of creating new products or upgrading existing ones, we often get questions about how to get started with metered funding and what to measure. Here are some tips on how to facilitate metered funding.
Getting Started and Finding Focus
To activate metered funding and navigate away from traditional ROIs to learning-based returns, it’s helpful to understand that the shape of the funding depends on:
- The stage of the product being created (or maintained)
- The learnings to be had
- As a result, what should be measured
If you’re just getting started and establishing strategic fit for a new product, consider investing enough funding and time to run a series of design sprints with key stakeholders and makers on your future offering. Spend a week on each sprint. Measure actionable learnings in the form of validated hypotheses, key concepts, and features. Do so via customer tests to inform what does or doesn’t get additional focus in subsequent sprints.
As the product become less nebulous and approaches a solution fit, funding should activate the ability to measure the business model in the form of conversions and acquisitions with would-be customers. There should be enough runway to iteratively refine a prototype and test for weeks. The level of investment should reflect the main effort and time accordingly.
Committing to Learnings, and More Learnings
When you’re ready to build the first minimum lovable product — the version of a new product that brings back the maximum amount of love from a business’s early tribe members with the least effort — the learnings should validate whether key value and growth assumptions hold. Consider focusing on measuring three primary categories to inform that learning:
- Customer impact: in the form of adoption and growth (impressions, retention rates, and referrals).
- Financial consequences: whether a dependable source of revenue is being realized and if it will provide sufficient margins to allow continued investment and eventual scale.
- Behavioral changes: is the team operating better and faster? Are there productivity savings? Are feedback loops established and influencing the next iteration? If investments have been made in DevOps, measure the decrease in the lead time from learnings to responses, too.
As the product matures, double down on metered funding to facilitate fast starts and stops to keep an offering uniquely valuable.
A Way Forward
When working within the operating constraints of a modern organization, pairing validated learnings and accountable results with metered funding makes an abundance of sense for those planning across multiple horizons of growth.
At Moonshot, we recommend using metered funding to enable the innovation function within an organization. Fund an initiative via metered funding, and execute it per Moonshot’s FUEL methodology, which combines the outcomes of design thinking and lean innovation with rapid fit-based delivery. It’ll become clear why metered funding is the mechanism that enables organizations to strategically defend their space by enhancing their current offerings and innovate with less risk on products that will eventually command the firm’s focus in the future.
These tips are by no means comprehensive. If you have any questions, we’re here to help. Reach out anytime.