As anyone who’s launched a product or business under conditions of extreme uncertainty knows, it’s very difficult to make accurate forecasts about markets you’ve never played in before — or that may not even exist yet. Innovation accounting gives entrepreneurs and leaders a language for talking about progress in the years before revenue kicks in. And not only that — it allows you to actually translate your learning into numbers your finance colleagues and investors can understand.
Having that shared language, and a shared system for showing progress, helps concretize the trust between leaders and entrepreneurial teams. Entrepreneurs and leaders agree to a set of metrics they believe are important to the success of a project. Entrepreneurs must show progress to be able to secure their next round of funding, and leaders agree to continue supporting the project as long as entrepreneurs can demonstrate that their strategy is working — or that they’re making the proper adjustments to their strategy based on their discoveries.
— The Leader’s Guide by Eric Ries