On this week's episode of Inside Outside Innovation, we sit down with Esther Gons, CEO and Co-founder of Ground Control and Author of the upcoming book, Innovation Accounting. Esther and Brian Ardinger, Inside Outside Innovation Cofounder, talk about the ins and outs of innovation accounting, and what companies should be doing to track and measure their innovation initiatives. Let's get started.

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Interview Transcript with Esther Gons, CEO and Co-founder of Ground Control and Author of Innovation Accounting

Brian Ardinger: Welcome to another episode of Inside Outside Innovation. I'm your host, Brian Ardinger. And as always, we have another amazing guest. Today we have Esther Gons. She is CEO and co-founder of Ground Control, which is a software platform that helps companies measure innovation and co-author of the corporate startup, and upcoming book Innovation Accounting. Welcome Esther to the show.

Esther Gons: Thank you, Brian. I'm really happy to be here.

Brian Ardinger: I'm excited to have you on the show. We've had Dan Toma, your co-author of the Corporate Startup and Tendayi Viki on the show in the past. How did you get involved in this innovation space?

Esther Gons: I think for me, it's been a journey of entrepreneurship. So, my background is basically being an entrepreneur, starting startups, helping startups. So, I've always been an entrepreneur. And one of my first things that I did when I still was actually in my studies of Information Science was starting a business.

And one of the things that I was asked to do by one of the bigger computer companies was building something completely new around their selling of computers. And I think that was one of the first corporate startups that I did, but it wasn't called that way, way back when.

But I build over the course of two years, a platform with personal logins, with all sorts of new technologies and things that you could do just to sell their computers, to be able to be working from home. So, blog posts that weren't called blog posts.

That was just content from people saying your employees will be so loyal. If you have them working from home, all these kinds of things. I even had other vendors ramped up with furniture, stuff like that. It was an amazing platform. And after two years and a lot of money when we finally launched nothing really happened.

And the computer company didn't understand because there were no sales whatsoever and they just simply pulled the plug. But for me, that was a really important event because I was asking myself what went wrong there? What was the risk involved? Was it too early? How could I have known? And that was a search that put me on the path of pioneering and innovation and understanding how you could deal with that.

So obviously that platform that failed was 20 years too early. If we look at the situation right now and we needed a COVID pandemic to get there. But yes, that got me into the puzzle, discovering things like the Lean Startup methodology when Steve Blank wrote about it and then working with other entrepreneurs to get it working. To evolve it. To make sure that startups heard about it.

So that was when I started to volunteer for a lot of startup activity in Amsterdam. And got involved in that in the tech scene, since I've always been a tech entrepreneur.

Brian Ardinger: Your first book, the Corporate Startup really gave corporations that inside look on what it was like and what it is like, to think and act, and move like startups. And create new business models from scratch. And it was a great opportunity to provide a framework for how corporations think about that. Your new book, Innovation Accounting, I'd love to start there. What is innovation? Accounting, and why is it so important?

Esther Gons: A lot of corporates asked for metrics. You're absolutely right. But they usually ask for the one metric to rule everything, right? So how are we doing in terms of innovation? And then they use innovation as a catch-all phrase. We want to know about all of our innovation, right? We want to see everything in our portfolio. So, what we've seen with working with a lot of clients, because we like to be practical about things that we write.

We want to know that it works. Is that for that startup kind of innovation, which is different from what you do in terms of innovation in the rest of your company, you could be doing a digital transformation. You could be optimizing your current processes with startups. It's all innovation, but if you truly want to do new business model innovation. Breakthrough in disruptive innovation. Then you actually need something else than the processes and the accounting systems that you have in your current company.

And we noticed that if people didn't have that new system in place and they were trying to do Lean Startup and they were trying to build new business models, if they didn't have the whole system, the whole package, then it all turned back into incremental innovation again.

So, then we thought, well, we have to let people know that if they truly want to do new business model innovation, this kind of disruptive innovation, they can measure that with the indicators that they have in their current company with that current system. Because then it will always fail or turn back into incremental innovation again.

So, let's talk about that word innovation accounting, that Eric Ries, once coined as being the system that teams needed to have to be accountable for the decisions they made based on data. And talk about how that evolved into something else. And then what do you need inside a company? What kind of system do you need, need inside of a company to actually measure that kind of innovation?

Brian Ardinger: I think that’s such an important point that corporations really need to define innovation and understand the spectrum of it. You know, everything from, like you said, the stuff close to the core of that optimization of what they're currently doing and how that differs significantly from transformational innovation when you're trying to come up with a brand new business model. Why do you think it's so difficult for companies to understand this distinction and be able to do something about it?

Esther Gons: For a company, it's ingrained in their system, that their goal is to optimize and grow their current system. Right? That's what they are there for. The CEO has been appointed by the shareholders to do that specific thing. So that means that their whole existence, their future is based on, on executing on that core thing.

And that also means that everything that they have gathered around it, their processes, their culture, their people, are based around that. And it's hard to understand something that isn't there yet. Something that is probably really risky. So, if you can't see it, then it's harder to understand and to act around it.

So, I think it's actually a good point that you're making Brian, because what we've seen is that if you do not make it visible by either a new system with innovation accounting, or in any other way, then top level, it's hard to make that distinction because you can't see it. You're just seeing the investment that you're making, but you can see what you're doing.

And what I always say is that you have to look at it in terms of buckets, right? There's buckets that do not have a really high risk, and that have business goals that are aligned with your core business. So fine, you can do that with the current systems and your investment will have to return something in probably a year, because that's what you're used to.

But if you're investing in a high-risk bucket, startups are high risk. I'm a investor myself. So, most VCs know this. This is a high-risk profession, right? You don't know how many will return, what kind of money. And the timelines are vague, could be three years, could be 12 years. So, these high risk buckets needs to have a different approach.

But you need to have some sort of visibility in terms of control. So, if you make the bet in your strategy, just that saying, okay, I have business models that are fading. I need to look at the future. Then at least you should have some sort of visibility of what you are doing with that future. So are you betting on a specific innovation thesis like we've described in the Corporate Startup.

So, then you want to understand how that is going along. Are we doing well? Are we turning that strategy into, into something really practical? Is your funnel turning into a portfolio? So, you need all kinds of indicators to be able to understand that without falling back to your financial indicator. Because naturally, if you're looking for something that is really new, you're searching and your core business is learning, which means that you do not have a return in Dollars or Euros. You have a return on insights and learnings, and that's what you work for.

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Brian Ardinger: So, let's talk about some of those particular metrics. Traditional metrics might be things like profitability, number of customers, things like that. When you get into, on the innovation front, especially transformational innovation, what are some of the early metrics that you should be looking at?

Esther Gons: That sounds really simple, right? And I can give you like three indicators, but it makes sense to sort of understand first that what we understand in terms of innovation accounting is like a whole package of indicators. Because you do not only want to understand every single individual team and how that idea is turning into a business model, right.

Because we're talking about that journey from idea to business model, and that is a risky journey because you're searching. But you also want to understand how all of the teams are doing inside of the program that you have. Then you want to understand if you have enough ideas to turn that into future portfolio products or services. Is that going along? Do we need more ideas? Is everything stopped at, I don’t know, stage two then we definitely have to look at what's going on here.

And then you need to also understand from a strategic level, if your bets for the future are doing well. And if your total investment in the future is turning into something that you want for the company. So, these are three levels of indicators or different kinds of indicators that have some sort of abstraction from each other, right?

So, at a team level, you need to understand things. Then the manager needs to understand things in terms of how are the teams doing? That is abstracted from the team indicators and strategy level.

They don't want to understand how every team is doing, but they do want to understand how that is translated into their portfolio strategy, for instance. So, I think it's important to understand that where Eric Ries said innovation accounting is for the teams. If you want to do it within a corporate situation, you want to do it in a different setting. So, you need to manage all these things and you need be sort of aware or in control of how all of these investments are doing. And if there is some return, I don't know, in the future.

Brian Ardinger: So, if I'm part of an innovation team and I'm trying to understand if I'm making progress, what should I be looking at? Should I be looking at the number of ideas I'm working on, the number of assumptions that I'm testing? Where should I start?

Esther Gons: For me, the most important thing for, for this kind of innovation is understanding that your core business is learning. So that means there need to be teams that are doing a unified way of working and validating with experiments. Methodically de-risking that business model. Right.

So that means that you want to understand if they're learning well. So how many learnings did they have? Maybe you can look at a experiment learning ratio so that every experiment have a learning or not. Or are we doing experiments for the sake of experiments, for instance. If you put that against time or against cost. Because learning for teams is essentially the core business.

Brian Ardinger: So, the idea of measuring that against velocity, how fast do they learn, and the cost of that learning. Is that what you're looking at?

Esther Gons: So as soon as you put learning the core, you can look at these things, right? So, what is the learning philosophy? What is the learning ratio? What is the velocity cost ratio? How much time do they spend in a certain state, for instance, doing the learnings?

That makes sense if you look at the learnings. That is their core business. But I wouldn't ramp up everything if you start. And just look at the core business and what you want to improve, because you have these indicators to be able to steer and improve of them.

Brian Ardinger: So, at the organizational level, what are some of the metrics at that portfolio level that companies should be using to know if they're making progress?

Esther Gons: That's the top level. You mean the strategic level? I think it's important to understand if you look at that strategic level. The indicators are basically, framed around questions. So, from a strategic point of view, what you're doing is trying to understand how much your company is really under risk of disruption. Right?

So is your current business model under threat of, or fade or disruption? Then that is really important to understand. So, we always say, if you look at your portfolio to understand how much you should invest in this kind of innovation, then look at your portfolio in terms of business models and not in terms of products.

People usually look at it, in terms of products, right? But then if you look at it, in terms of business models, most of these products are, have the same business model, especially in product driven companies. But the question is my company under the risk of disruption, or is innovation driving growth in the company, that will give you an answer into how much of your investment should actually go to disruptive innovation.

And that could then translate into indicators like portfolio fade, stuff like that. And the other questions you should ask yourself is how does my company future look like, right? Am I betting in the right direction? So how is the innovation thesis doing in terms of progressing towards newer stages. Or how efficient is my innovation ecosystem, if I look into the average speed of these innovation going through the stages or are my investment returning something in so many years.

Brian Ardinger: So, looking at things like how much of my revenue is coming from new initiatives, things along those lines?

Esther Gons: Things along those lines, but that's the easiest one. And that's one that corporates usually want to see that. So that's why I usually stay away from those in questions like this, because in essence, of course you want to understand how much of your growth is driven by revenue from these kinds of disruptive innovations. If you are starting out with innovation accounting right now, you won't be seeing that until three years or four years from now.

I think it's then better to look at different kind of indicators on a funnel level. So, what is going on in the funnel? How many of these ideas are actually starting? And how many end up in different stages. Is that progressing well. With one of your innovation theses that you defined, because you wanted to bet in that specific future, nothing is happening after the second stage, you should ask yourself, is this the right pieces? Should we look at it again? So, you need to have some insight depending on the maturity level of your innovation ecosystem, to be able to steer towards a better ecosystem.

Brian Ardinger: The last topic I want to talk about is you're based in Amsterdam, so I'd love to get your insights, and I'm curious to know what you're seeing as it pertains to European companies and their approach to innovation and how it may differ from what's going on in the U S.

Esther Gons: So, the things I've seen in Europe, but maybe in the Netherlands specifically, is that the Lean Startup and the Lean Startup Methodology is a little bit farther ahead than it is in the U S maybe, especially in terms of the systematic approach towards the Lean Startup and how to do that within a corporate. Which I'm really happy about because that sort of helps me with the innovation accounting.

And then the other way around in the U S there is within startups, I'm not sure how that is in a corporate world. But within startups, there's far more appetite for risk investment. So, in Europe, we tend to be a little bit risk averse. Show me first, and then can you at least show me a revenue first before we do any kind of innovation? So, you're dependent on really early-stage angels, if you want to prove that revenue first. But that differs in country per country.

But if you look at ten European investment funds, that those tend to be a little bit more risk averse then the U S. And you can see that back into the amount of investments. So, if you compare VC investments, in terms of numbers, US are higher than they are in Europe.

For More Information

Brian Ardinger: Well, I can't wait to go a copy of Innovation Accounting. Your books are always so great because they're visual and they're tactical with templates and guides and that. If people want to find out more about your book or about yourself, what's the best way to do that?

Esther Gons: For the book, definitely go to Innovation Accounting Book.com, where we have the table of contents and you can download the resources and also look where you can order, and pre-order the book. If you want to know more about me or my company, then simply go to ToGroundControl.Com or might be a little bit more difficult as EstherEmmelyGons.NL.

Brian Ardinger: Well, thank you Esther, for being on Inside Outside Innovation. I look forward to continuing to have these conversations about what makes innovation so great and appreciate your time and your insights. Thank you.

Esther Gons: Love to be here Brian.

Brian Ardinger: That's it for another episode of Inside Outside Innovation. If you want to learn more about our team, our content, our services, check out InsideOutside.io or follow us on Twitter @theIOpodcast or @Ardinger. Until next time, go out and innovate.

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