Innovation Accounting is a System for Measuring Progress in a Startup

Innovation accounting is a system of accounting that is designed specifically for startups. It is a way to measure progress when traditional accounting metrics, such as revenue and profit, are not yet meaningful.

The goal of innovation accounting is to prove objectively that a startup is learning how to grow a sustainable business. It does this by focusing on validated learning, which is the process of demonstrating empirically that a team has discovered valuable truths about a startup's present and future business prospects.

Innovation accounting works in three steps, which are called the three learning milestones:

1. Establish the baseline: Use a Minimum Viable Product to establish real data on where the company is right now.
2. Tune the engine: Attempt to tune the engine from the baseline toward the ideal.
3. Pivot or persevere: If the company is making good progress toward the ideal, it should persevere. If not, it should pivot.

Innovation accounting is a critical tool for startups. It provides a way to measure progress, make informed decisions, and hold teams accountable.