Innovation Accounting (Feat. Eric Ries @ Tasks at Google 35:58s)

@ 35min 58s

The Role of Accounting

  • Accounting was invented to hold people accountable — so they can continue to do a good job;

Challenge of Accounting: The Data Predicts Versus External Uncertainties

  • Using accounting to drive accountability depends on having the prior accounting established over a stream of data, thus enabling decisions to be taken;
  • When you have a lot of operating history, and say a lot of customers — standard accounting processes may apply;
  • Yet when you have a road ahead (think of the external environment) and your internal data is a gross measurement of the things that you decided to follow, you have a lethal pathway established;

Watch out for wrong metrics — and the disconnect between metrics from your responsibility to drive the future

Labor-based metrics (like working for working), or vanity metrics, are examples of measurements that can apply to a team doing something strategically good or bad. A team drive by metrics does not reveal the healthiness of their work towards the team’s mission.

On Labor Metrics

  • Avoid labor metrics — Eric didn’t use the word labor but this is how I took it. He did mention to not deliver by the gross numbers and milestones. This idea sounded like working for working or a model of the older days of factories oriented to labor work. Using these metrics can measure labor but does not translate in strategic or faster learning;

On Vanity Metrics

  • Don’t focus in vanity metrics — Eric Ries refers to vanity metrics as the kind of metrics that are visible and clear for external audiences. Such metrics may be applicable because the external environment measures competition, businesses, using them — perhaps simply because the world communicates in fragments that can tell a story, such as a success story. An example of a vanity metric is total number of page views. This way of measuring does not connect with quality, it’s not qualitative;
  • Vanity metrics may be applicable to communication in the external environment — exactly when the external environment, audience or medium of communication is requiring so. An example would be a magazine or a study that wants to contrast your situation with the other using such audience-ready metrics. Well, the world, out there, uses these metrics (in certain mediocre channels as well) and they may even apply to tell part of the story. Just make sure that there are more like widgets for how the world perceives but not how you interact with your own team. These are to be more like your “external skin” not your internal soul. Don’t get confused and don’t guide your roadmap based on external vanity metrics, meaning, don’t be a follower — that because the qualitative aspect and the strategic north breaks vanish externalities. Plus the next big vanity metric is yet to be discovered.

Blind Races

What is worse is a sort of race that may appears at large (and worse when it’s small) organisations. This happens when a management system uses metrics that are quantitative but meaningless in strategic terms, thus distinguishing peer teams racing each other and evaluating them based on the results of the competition measured by such incorrect metrics in the sense of quality.

Such race, leading to potentially two or more participants to drive to a meaningless north , resonates with the illustration by Andy Grove in High Output Management however is like 10x the problem:

“Just as you would not permit a fellow employee to steal a piece of office equipment worth $2,000, you shouldn’t let anyone walk away with the time of his fellow managers.” Grove S. Andrew, 2015, p 86.

The traps can be perceived

When driving by metrics we can be fooled. And worse, a team can establish their own pathways for fooling themselves. Eric Ries illustrates the situation that is common with large organisations:

When the numbers goes up, it’s always because I was what I was working on. Everyone thinks — I made this feature last week and now the numbers went up. So obviously it’s due to me. Of course, the people in marketing feel like it’s because [of] their new marketing campaign, etc. What happens when the numbers go down? Anyone ever been in that meeting? Oh, it’s seasonal effects.“ Eric Ries @ Talks At Google 2011 40:27s

A team meets to enjoy the good numbers — they easily can find the culprits. On the other hand, at another time, the team meets to reflect about the bad numbers — they suddenly are confused to find the responsible origins and they even consider external conditions, such as the seasonality to be an influencer.

Learning model for Innovation Accounting 41:13s

Milestone 1 — Establish the Baseline

  • Establish an MVP in a much more rigorous setting — the MVP should allow learning, have the minimum function in order to, whether the plan is correct or not.
  • Actionable metrics — per customer behaviour, things that can be measured at micro scale. What are the real numbers for each of those inputs (customer behaviour?) at micro scale.
  • Truth seeking — not number making, or in fact the real number quest. According to Ries @ Talks at Google, 2011 42:45s “Finding Out the Truth Of Where We Are Right Now Is Progress, We Should Celebrate.“

Milestone 2 — Tune the Engine

  • Product Development Changes — Takes place to resonate the external inputs with the business plan/model goals.
  • Establishing or Experimenting With New Metrics with Improved Resonating Drive
  • This may relate to experiment faster engines, or experiments Metrics Thesis for Efficiency; yet executing these experiments with rigour, not accelerating everything in one hypothesis only. So this is may consider growth in product development related to growth in response from the market/user yet considering diversity and other hypothesis;
  • This may also relate, perhaps, to the vision presented by Paul Graham about the 10% growth.
  • Measure growth of metrics by hypothesis — one kind of growth is incremental, the team feels traction. This approach is not exactly seeking hyper growth.
  • Other kind of growth may lead to Watch out or The Land of Death March — the situation of measuring your achievements, by a metric/goal, and knowing that over time your team is able to increment but it does not take off into any significant perceived realm between the input and the business model aims. ( Eric Ries @ Talks At Google 2011 43:53s )

Milestone 3 — Pivot or Persevere

  • In advance, such as 3 months from now, you will reflect about pivoting or persevering based on the tuning experiments. If the tuning relates to attempt to push a pedal, under hypothesis; with the tuning experiments you are considering which model of acceleration may be applicable in contrast with the vision, with the proposed model, with the potential customers. Of course the whole external baselines can be wrong, that is why you can pivot too, and of course pivoting may be about reconsidering baselines?

References

Eric Ries, 2011, The Lean Startup at Talks at Google https://www.youtube.com/watch?v=fEvKo90qBns

Grove S. Andrew, (2015). High Output Management (3rd ed.). Vintage Books.