The Three Learning Milestones of Innovation Accounting

Innovation accounting works in three steps, which are called the three learning milestones. These milestones provide a framework for measuring progress in a startup.

The three learning milestones are:

Establish the baseline: The first step is to use a Minimum Viable Product to establish a baseline for where the company is right now. This baseline should include key metrics, such as conversion rates, customer lifetime value, and customer acquisition cost. This provides a clear, objective starting point.
Tune the engine: The second step is to attempt to tune the engine from the baseline toward the ideal state outlined in the business plan. This is done by running experiments and making changes to the product, marketing, and operations. The goal is to see if the changes are improving the key metrics and moving the startup closer to the ideal.
Pivot or persevere: The third step is to decide whether to pivot or persevere. After a set of experiments, if the company is making good progress toward the ideal, it should persevere. If the startup is not making progress and the engine tuning is not working, it's a sign that the current strategy is flawed, and the company must pivot. A pivot is a structured course correction designed to test a new fundamental hypothesis about the product, strategy, or engine of growth.

The three learning milestones provide a clear and objective way to measure progress in a startup. They help to ensure that the startup is learning and making progress toward its goal of building a sustainable business.