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Innovation Accounting for your startup ?


Innovation Accounting for startups was introduced by Eric Ries in his famous book ‘The Lean Startup’, however is as case with many thing written about in the book it is poorly understood even if it is acknowledged as an important and useful thing to do.

Before one can do the accounting, i.e. tracking, a good understanding of what it is that is being tracked is needed ?

Defining something as complex as Innovation turns out to be hard. Lets try address this by asking a few simple questions

What name, object, people or thing comes to mind when the term innovation is utterance.

     Typical keywords as part of the answers include  Google, Apple, iPhone, Steve Jobs, Something Different, New,  Solving Problem, Doing in a Better way, Novelty etc

Where do you start when you start with innovation ?

       It would be great if one starts with a problem, however most people start with an idea. Key again is that it is different from something that exists. However being different by definition makes it uncertain in terms of the value it brings.  

Who decides something as an innovation ?

       The day iPhone was launched or any product is released in the market it does not become an innovation.  The declaration of it is an innovation happens almost unconsciously when it delights the target user. Important thing to note is that it is the end user that decides something as innovation

What is the difference between an invention and an innovation ?

     A key difference between an invention and innovation is that invention is declared as so by the inventor or the patent office whereas an innovation is declared so by the target user for whom it is intended for.

So in a nutshell you start with a new and different idea that has potential value but with high amount of uncertainty and after some time when it delivers value to a certain audience it is meant for it gets declared innovation.  It is this journey of going from uncertain business value to certain business value that is called as Innovation.


     Thing to note is that this journey is an extremely hard and only one in tens of thousands succeed.Many people confuse the journey to innovation as innovation itself. Innovation can only be look through the rear view mirror, not through the front glasses.

Now coming back to accounting innovation.

Any simple method where this degree of uncertainty is methodically listed and addressed to reduce the degree of uncertainty and  confidence of business value is increased where business value can be counted through money, those would be called as Innovation tracking. To make these abstract sounding concept a little more real. Here is an example from a peer group of startups that I meet with regularly that practice Leanstartup. 

May 24 – June 6 ( 2 weeks)

Overall Learning Goal Goal/Objective

Learning Goal/Objective Customers Spoken/Experiment Validated Learning Surprise Learnt


Learning Goal is something that you intend to know about the assumptions you are making.

Anything that you have done that helps track your startup’s journey of innovation.

How to think about a product startup progress ?

One of the most difficult things in a product startup is to know when has progress happened and if it is in the right track. This is an even more difficult problem for first time product entrepreneurs. Not to say that it easy for a second time entrepreneur but in that case experience intuitively guides.

Most prevalent thinking is to go from idea to a product build phase leading to a launch in alpha & beta followed by several product releases. Sales & marketing gets somewhat sprinkled on top of this mostly spread after the beta release.

Another way to think about this that I have found very useful is the following.

When the anatomy of an idea is examined it leads to revealing of problem and solution hypothesis inside it.

Problem/Solution Fit

The first stage or milestone therefore lends itself to a problem/solution fit. This is the stage when product idea under question has established that it addresses a large pain point and demonstrated a solution that works well for the problem faced for a specific set of users/customers.   For a B2C company this occurs when a few 1000 of users exists and some amount of recurrence or stickiness exist. In case of B2B or SMB product 1- 5 paid or evangelist customers.

User/Experience Fit 

Subsequently this milestone involves having identified the right architecture/flow, copywriting that connects & forms right positioning in the mind, visual and graphic design to create an element of identity for perception and recall.  Essentially providing an experience to the identified user/customers that truly delights and  helps improve acquisition and create retention.

Product/Market Fit

Product/Market Fit is a term that was coined by Marc Andreessen. It means being in a market with a product that can satisfy the market. It is the stage where the product is used or adopted repeatedly by a sizable number of users/customers

Sean Ellis further refined the definition to say that in a survey with customers they are told that product that they are have been exposed would be discontinued and if at least 40% of customers will revolt at that the thought.

In B2B/SMB it is few 50-100 customers and beyond, In B2C it is at least 200,000 users with a good repeat usage could be roughly called to.

Business Model/Scale Fit

It is the growth stage where the right business model for growing at scale is identified at which truly phenomenal growth happens.

Up until the Product/Market fit it is phase of learning and discovery and several iterations & pivots can and do happen.  While this happens it is also important to keep in mind another stage though not related to the product but an important one.

Founder/Problem Fit

Sometimes founder starts with a big vision about the product idea however having to identify a problem that is truly worth solving can be highly iterative process and can look very different from what was originally envisioned. It is important for the founder to re-establish that the revised version is indeed something that continues to motivate to build.  This stage ideally should be post problem/solution fit and before user/experience fit.

This model is not an original one or not even the only model of thinking about stages of a product startup but it helps frame answers for many things.

    • Each successive stage marks reduction of uncertainty and better modeling of risks in product success journey.
    • Visits, Page Views, number of downloads are not good enough for product/market fit. It may be necessary but not sufficient.
    • Product/market fit success is not equal to business success. In my previous startup I built a mobile app (turn phone into webcam) with over 1.5 million downloads and very high daily active usage and along with an excellent NPS. Product was super success but with no business model ( in the pre iOS era  of no app store or mobile ads) the business did not succeed.
    • Early business traction is not equal to product success (not even problem/solution fit). Ex: Several of the Indian e-commerce companies.
    • Job of an accelerator is to help take companies beyond Problem/Solution fit. If the market structure allows smaller cycle feedback loop then it should even achieve User/Experience fit by the time startups graduate from these accelerators. Unfortunately many view accelerator as a way to get funded forward.
    • In India most of the product startups are stuck at just before reaching problem/solution fit and also just before product/market fit.

What are the mental map of your product startup progress ?