How does a business achieve enterprise agility? For large corporations, this is one of the most compelling questions of our time. That’s because in the digital age, the future belongs to businesses that develop lovable products at digital speed – and doing so is extremely difficult for big companies. I talk with clients a lot about this very topic. The reality is, as much progress a company makes in terms of becoming more agile, if it doesn’t change the way it allocates capital to strategic initiatives, transformation efforts will be limited. At Moonshot, we believe changing the way you budget for innovation is key. To unlock the power of innovation, big companies that operate complex budgets need a more adaptive way to fund new ideas.
Big Companies Struggle with Barriers to Innovation
Big companies have a tremendous advantage over startups: their employee base gives them a wellspring of ideas for innovative products. But after a business harvests those ideas, it takes money and a measured approach to scale and make them profitable. I would argue that an inability to allocate capital to test new ideas is the single-biggest barrier to innovation among large companies.
Look at the hotel industry. Large, established chains could have beat Airbnb to the market had they possessed a better way to allocate capital. But they were hampered by funding models that focus on allocating capital to keep investors happy today instead of experimenting with ideas that propel their businesses in to the future.
What Is Innovation Accounting?
There is a better way: innovation accounting (aka metered funding). With metered funding (which took hold originally in the venture capital community), enterprises invest like startups do. Ideas requiring funding are presented to decision makers. The decision makers allocate funding over a series of rounds. The funding is based on goals and milestones. In the early stages of a product’s lifecycle, funding is learning based, and in the latter stages, funding is growth based.
How Innovation Accounting Differs from Entitlement Funding
By contrast, with traditional forms of funding, known as entitlement funding, budgets are defined and distributed on an annual cycle. But in an agile culture, a company cannot allocate once, wait 12+ months, and then determine whether the project worked. The point of an agile culture is to rapidly test ideas, drop the ones that don’t work, and double down on those that show promise. Entitlement funding is a slow and risky approach. A business risks allocating money to ideas that are not going to work and misses opportunities for ideas that quickly bubble to the surface and show promise.
Metered funding does not require gut-wrenching change to the entire business. We’re not talking about widespread internal disruption here. But we are talking about a better way to unleash the power of the ideas in your workforce that need attention and investment to drive the creation of lovable products.
How Metered Funding Works
Let’s use a hypothetical example to bring the concept of metered funding to life. Let’s say you are a C-suite leader (CMO, CIO, CTO, CDO, etc.) for a Fortune 1000 company. You are “bought in” on the idea of going agile but aren’t sure where to start exploring alternatives to entitlement funding.
As you look across your portfolio of initiatives, how do you choose the right project to explore what metered funding looks like within your organization? Prioritization is the key to picking the right project. Using a framework that balances revenue potential with customer and operational value will allow you as a leader to narrow down your portfolio of initiatives into a subset to experiment with.
How Metered Funding Supports Lighthouse Projects
Leaders should use this prioritization framework to identify their lighthouse project. Beyond achieving its original purpose, a lighthouse project aims to have a signal effect on numerous follow-up projects as teams look towards it for inspiration and guidance. A lighthouse project provides the momentum leaders need to show others how initiatives can have a more nimble, pragmatic use of capital.
Use the Right Project Tool to Support Metered Funding
After you decide which project to move forward with (and learn from), how do you determine whether to continue to invest in an iterative and incremental way? We use a tool called the FIT Board to help executives understand how teams are measuring progress of bringing a new product or service to life through quantitative and qualitative measures.
I’d be happy to share with you the FIT Board tool – reach out to me here.
We believe metered funding works best when performed as part of a larger initiative to be a more agile enterprise – one that incorporates how your people work and how you collaborate with your customers. In fact, we recently introduced a 5 C’s Framework to help businesses understand the core elements of an agile enterprise. But you can change your funding approach in isolation just as a person can achieve better health by eating better even if they don’t exercise regularly. To learn more about how to unleash innovation in your enterprise, contact Moonshot. We use a process designed to help companies rapidly develop lovable products at scale. We’d love to help you, too.