Every decision made by an innovation board is an opportunity to not invest in a failing idea.
Money saved from the clutches of a failing idea can be reallocated to a more promising vision. Each dollar moved from a bad project to a good one means a higher return on each dollar invested. Continuing to invest in mediocre zombie projects due to sunk-cost fallacy or pure stubbornness means wasted money and resources. So the more bad projects you kill, the higher your overall ROI.
This means innovation board investment decisions need to be fast, voluminous, and made as early as possible to make every dollar count.
The Cost of Delayed Decisions
It’s better to have the innovation board meet for short periods more frequently than to try to be “efficient” by having a 12-hour marathon once a year. An annual meeting may be efficient for the board members, but could represent a significant cost of delay for the projects waiting for approval or funding of next steps. A project that spends six months waiting for the innovation board to meet has lost six months of momentum and lost market share to a competitor that moved faster.
Although it’s not usually included in a formal cost of delay calculation, there is also a morale cost to delayed decisions. The innovation process is stressful enough. Many teams only get one opportunity to pitch their ideas to senior executives at their organization – the last thing they want is to come to the innovation board expecting funding and leave with a delayed decision.
If companies can’t make innovation fun, or at least not a bureaucratic nightmare of delays, then intrapreneurs will simply leave and become the competition. In other words, the cost of delay can include employee attrition, HR costs, and a more competitive market landscape.
The Cost of Making Decisions
We want to make decisions fast, but innovation boards are expensive to run.
The board members are often Executive Vice Presidents and C-level officers. A two-hour meeting can cost thousands of dollars, not to mention opportunity costs.
If a board is debating giving an early-stage innovation team $5,000 dollars of walking-around money, but they take two hours to make that decision, they are spending more money making the decision than they are actually allocating to the team.
It makes sense to spend a lot of time deciding to buy a house. But buying a candy bar shouldn’t take the same level of rigor. If decisions are expensive and require hours of meetings, making a lot of decisions can be a terrible idea and drive up costs with bureaucracy.
But the solution isn’t to make fewer decisions and drive up the cost of delay. The solution is to make the decisions more quickly.
Making Quick Decisions
We need to remember that the only thing the innovation board should be deciding is whether or not to fund the project. They do this based on:
- The potential value of the project.
- The amount of risk the project represents.
- The amount of resources being requested.
This isn’t Cirque du Soleil, it’s a simple balancing act:
Value * Risk vs. Cost
If the cost is too high compared to the risk-adjusted reward, the innovation board should simply say “No.”
If the cost is lower than the reward, then “Yes.”
It is not the job of the innovation board to:
- Create an execution plan.
- Micromanage the color of the landing page.
- Tell the innovation team how to pivot.
- Pontificate on their 20 years of experience.
If the innovation teams are bringing valid data to the board, they should anticipate the board’s decision and be proposing the next steps, even if that means recommending their own team be shut down. In a well-managed innovation ecosystem, the innovation board should simply have to agree with their team’s recommendations, as both parties are basing their decisions on the same data. These decisions should be quick, and since they are data-driven, they should be nearly automatic. Do what the numbers tell you.
Picking the Right Cadence and Speed
Innovation boards should not be constantly meeting with teams and making game-changing decisions based on each new piece of information. Big decisions that might include shutting down a project or awarding a large budget should probably only happen once a quarter. I’ve never heard of a venture board meeting every two weeks to give a startup another two weeks of capital. That starts to become a very expensive decision-making process.
Startups that have to raise capital every few months are essentially operating without a CEO, who is always busy pitching the project and raising funds. If the most valuable team member is unavailable to contribute to the actual functioning of the team because they are constantly entertaining the innovation board, then the board needs to give them more slack.
Give teams enough time and independence to do their work and make progress. Rapid, repeating turnaround deadlines waste management time and demoralize the team with what feels like micromanagement and a lack of trust.
The team is also making investment decisions on where and how to spend their time over the course of their project. Results from weekly experiments often give the team an option to pivot, which may require time to consider and further test. The team needs the freedom to pursue important ideas and solve critical problems without surrendering at the first sign of difficulty.
The meeting cadence and speed will vary from industry to industry and organization to organization. There is no perfect template to copy. But a good place to start is:
- 1 meeting per month.
- 2 hours maximum.
- 15-minute decisions per project at the early stage.
- 45-minute decisions for full launches.
- Cancel or shorten the meeting if there aren’t enough projects to fill the agenda.
- Allow individual board members to act as “angel investors” with the authority to give bridge funds and approval for 1 month of action.
If this seems too fast and the innovation board doesn’t have enough projects to talk about month to month, slow down! Conversely, launch more teams so the innovation board isn’t twiddling its thumbs. As always, test, debrief, retro, and modify your Standard Operating Procedure (SOP) until it fits your organization.
Giving teams sufficient independence to take a few swings at a strategically important idea is critical to your innovation ecosystem. It builds trust, lets teams develop important innovation skills, and improves morale. A good team with good skills (and a good coach!) will kill an unviable project themselves rather than waste their own time. But for a team to feel confident that they have the resources to pursue their project, they need a decisive innovation board that knows how to make quick, early decisions, and then leave the team alone to work their magic.
- Your decision-making process should not be more expensive than the resources being allocated.
- A best-guess decision made early is better than a perfect decision after the fact.
- The more decisions, the better.
Become a faster, more confident decision-maker
Learn how to make better pivot or persevere decisions on your real project by building a hypothesis-driven financial model. Innovation Accounting is a six-week training program taught by real entrepreneurs with real experience and you’ll get results you can use right away. Our next course kicks off Jan 16, 2024 and $500 early bird discount is valid through Dec 15.
Reserve a seat