A Gated Approach to Innovation Experimentation

As we’ve run this experimentation model for our clients, I thought we would share our approach to running and managing growth experiments within companies.

The biggest failure of organizations is a lack of innovation. This is clear. But what is significantly less clear is exactly how to solve it.

There is no framework or methodology, regardless of what you’ve been told (or even trained on), that will work every time to help you innovate. Innovation is a complicated, messy process that involves not just technology, but also a change of culture.

So, without going too deep into the weeds on this, I wanted to show how our three-tier innovation experimentation model works. To do this, I think it is important to first examine the way things have been done for quite some time; the current “best practices” that incorporate a lot of old ways of thinking.

traditional-approach

Traditional Approach: Have an idea for a product → Conduct research (i.e., surveys, consumer interviews, etc.) → Build your product → Go to market and hope for the best.

This results in a lot of money, time, and resources spent on building a product or service that often never becomes adopted by clients or users. Additionally, this failure winds up reflecting poorly on leaders and teams since it failed in a big way. No leader wants to approach their CFO or Board of Directors with a lack of progress or significant failure that sets the organization back.

experimentation-approach

Experimentation Approach: Come up with seven new ideas for a product → Capitalize each idea with a minimal investment to test out → Four ideas fail quickly, three ideas demonstrate early signals of traction, and one idea is prime for scale.

The major difference in this revised approach is that we are counting on failure to happen and using quantitative evaluation at every stage of the product life cycle. They are called experiments for a reason.

The team is expecting failure, but since failure is expected and also happens quickly, we’re able to learn from it and move on. Of course, what comes with this experimentation model is that one or two of the ideas succeed and become marketable products as well as engines for growth.

A few ground rules:

  1. You must run multiple experiments simultaneously and give them ample time to evolve. Run too little experiments, and you don’t have enough ideas to test out. Run too many experiments, and you will lose focus on your end goal. We think the sweet spot is between seven to ten experiments.
  2. Each idea needs to have a hypothesis on ROI and the metrics you’d look at to indicate early traction.
  3. You must appropriately fund each experiment to give it a chance. Underfund it, and you won’t give it enough air to breathe. Overfund it, and you’ll end up with a lot of money spent and possibly no results.
  4. You must have gated tiers for innovation that are gated by metrics and constrained by capital. Every time you pass a tier by hitting a certain metric, you’ll get more capital to invest in that experiment. More on that later.

We separate experiments by the following categories. The “$” indicates how much investment (time, resources, and capital) should be invested in each stage.

  • Tier 2 ($) — This is the outside ring of the framework. This tier is reserved for experiments you are interested in trying out.
    • Emerging trends you are hearing a lot about, but still not sure if it applies to your business.
    • New business models (subscription, etc.), digital engagement trends, and new tech.
    • Innovation opportunities outside of your business.
  • Tier 1 ($$) — These are experiments that have passed the Tier 2 gate. They met the gated metric that was defined by the innovation team, and are now ready for further capital and resource investment.
  • Core ($$$) — Implementation — The experiment has passed the gates of Tier 2 and Tier 1 and is now an official product of the company. It is supported just like every other production-ready product.

We use simple spreadsheets to track the success and failures of our experiments. Here is how it would look in real life.

experiment-tracking

Here is a graphic that demonstrates how a company might plot their experiments.

experiment-plot

That’s it!

Innovation doesn’t need to be a genius within your organization who comes up with the best ideas. With diligence on how you execute ideas, and how you treat failure, you will see your speed-to-failure increase, but you’ll also see your speed-to-success speed up even more.

If you’re interested in learning more and would benefit from an on-site consultation as a meeting or even a Lunch and Learn, we’ll be more than happy to present this model in detail to your executive team. Please reach out to us directly, and we’ll schedule a time to present the experimentation model.

Embrace the three-tier experimentation model and let us know how it goes.