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Innovations Accounting: Why Businesses Should Adopt in 2022

Quality innovations set firms from the rest with an exclusive competitive edge. They can even allow you to uncover a whole new market, ensuring you enjoy the first-mover advantage. But flipping creative business ideas into viable products and models is a slippery journey.

Latest Accounting Innovations 2022-2023

It exposes your new products to high risk and uncertainty levels. So, without carefully tracking and measuring your innovations, you may fall hard and out of business in extreme scenarios. 


According to CB Insights, lack of product-market fit accounts for the second leading factor for startup failure rates at 35%. The first and third factors are lack of capital and stiff competition. 


But, there are still startups with unicorns status with over $10 billion valuation. Take the case of Byte Dance, the parent company of Tik Tok, which has reached a market value of over $400 billion within ten years. 


Tik Tok’s innovative platform hinge on captivating short videos and a high-tech content suggestion algorithm. It took Instagram and YouTube by surprise. In fact, the two had to make copycats through Instagram Reels and YouTube Shorts to remain relevant. 


Similar innovation success is also testimony at SpaceX. SpaceX is reducing the costs of launching payloads to Earth’s orbit and outer space through its revolutionary reusable launching boosters. As a result, it is unraveling a new space frontier. 


So, you can fail hard or scale to growth depending on how you handle your innovations. And one of the successful ingredients to scaling development is competent evaluation and insights using innovation accounting. 

What Is Innovation Accounting?


Innovation accounting evaluates your ideas, tests their viability, and scales viable products to drive your growth. Using innovation accounting for business ensure relevant tracking metrics that uncover insights across each product development stage. Armed with that, you can know what to tweak to get your desired results and where to put resources to achieve maximum traction. 


But most importantly, it ensures your creative products solve real user problems. You will be part of statistics of product failures due to lack of product-market if you do not link your innovation process to market needs. Leveraging innovation accounting helps you achieve the needed market fit.


Traditional accounting evaluates mature products and markets using metrics like market share, ROI, etc. So, the approach is ill-equipped to track innovation progress in the development stage. 


Your innovations, especially those at an early development stage, can’t showcase their future profits or viability. But you’ll still need to measure your progress to ensure you’re making informed decisions that do not drown you into bankruptcy. 


Here are extra benefits why businesses should adopt innovation accounting in 2022. 

Help You Narrow Down to Customer Needs 

Customer Satisfaction Accounting

The current inflation rates may push various economies into recession. The anxiety is already being felt in regions like the EU. The common euro currency dropped due to the energy crisis and the ongoing Russia-Ukraine war. It’s leading to inflation and feared recession that affects customers. 


So, depending on your target market, you’ll need to know your customers’ needs deeply. A complete 360-degree view of their needs will ensure the products you’re offering address these needs. 


Lean startup innovation accounting ensures your early-stage product development is tied to customer needs. It will help you measure customer feedback, conversions, etc. As a result, it will help iterate your innovative products toward fulfilling customers’ needs. 

Ensure Your Innovative Products are Fit for the Market 

Innovation accounting is also a practical way of solving the lack of a product-market fit problem. The first step to achieving product-market fit is understanding customer needs. 


The second level of innovation accounting ensures real users test your actual products. You can track your progress in the process, especially by testing your initial market growth assumption. You can also test your product value assumptions to uncover whether users benefit from the products.


You can use a metric like referrals or the ability to reinvest sales revenue to acquire more users to test your market growth assumptions.  


For value assumptions evaluations, you can choose some of these metrics depending on your scenario: 

  • Retention rates 
  • Repeat purchases
  • Referral rates etc. 

Depending on your agreed threshold, these metrics will show you if you’re meeting product-market fit or not. The metrics will help you further iterate or change your strategy to reach product-market fit (persevere or pivot). 


Regardless of the direction, innovation accounting guides you towards achieving the product-market fit. 

Enhance Efficiency in Screening of Idea Opportunities 

Effective Idea Screening

Even before thinking of reaching the product-market fit stage and pushing for product scaling, you must evaluate your business ideas. Most companies have a structured flow of innovative ideas that can benefit the company. The business ideas may be generated internally, externally, or both. 


Amid ever-flowing glossy ideas, you must evaluate them quickly and concentrate on worthwhile ones. Traditional accounting can not cut it at this stage. But, innovation accounting is the best fit to qualify your ideas faster. 


Innovation accounting ensures you focus on testing your hypothesis and moving on to the next one. So, it can evaluate your assumptions with relevant data and qualify them against your beliefs. That allows you to assess your numerous ideas faster and pick the best ones for further evaluation down the stream. 


So, it makes it efficient because it will ensure resource allocation only for worthwhile projects.  

Ensure You Scale Your Growth 

After capturing customers' needs and achieving product-market fit, you’ll be ready to scale your product for sustainable growth. Innovation accounting will show you your product's current value at this stage. 


Put differently, it will help gauge your innovative product's market and financial performance. You can draw the insights from metrics like: 

  • Total number of active users
  • Percentage of users paying for the product etc. 

With that information, you can know how to scale the product, market it and drive its sustainable growth. 

Final Takeaway 

With the lingering effects of the pandemic and the rising inflation, every business should innovate to stay afloat. But, innovation comes with a lot of risks. Innovation accounting supports you with the needed insights to guide your decisions and operations. 


Innovation accounting will help you screen your numerous ideas faster and qualify the worthy ones. It will also nurture innovative projects to ensure they meet consumer needs and product-market fit. As a result, you can scale your new products faster into the market for growth with minimal resource wastage. 

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"Innovations Accounting: Why Businesses Should Adopt in 2022" was written by Mary under the Business category. It has been read 817 times and generated 1 comments. The article was created on and updated on 21 July 2022.
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