Want to create a culture of innovation? Ask these questions | So Good News

This past weekend I had a rare opportunity to rest and breathe. I needed a few supplies before settling down on the couch, so I grabbed my Amazon Fire phone and hit the local stores. I didn’t need to bring cash – my Amazon Wallet had me covered. When I got home, I nearly tripped over a box of Amazon Dash-ordered laundry detergent. I remembered to book my trip to New York City through Amazon Destinations, and when I confirmed my hotel, the doorbell rang to let me know that my order from Amazon Restaurants had arrived. I grabbed my food, sat down on my comfy couch and spent the rest of the day playing Amazon’s Crucible online game.

Of course, none of this happened. Because while all of Amazon’s products and services are real, they no longer exist. They were experiments that failed to reach milestones and were shut down by Amazon.

One of the things that made Jeff Bezos a great founder was his passion for experimentation and failure. He invested relentlessly in new product development. But he didn’t fall in love with any one product or tactic to realize his vision. Instead, if an experiment failed to meet minimal performance expectations regardless of the amount of time and effort involved, he quickly pulled the plug, making room for future experiments.

Innovation and experimentation are essential to a startup’s journey. You’re looking for a massive product-market fit. Most of your guesses will be wrong. Many of your experiments and tests will fail. It’s fine if you follow one important rule.

Believe in your vision, but be ruthless in closing initiatives that don’t meet expectations. If you don’t quickly shut down failing projects, your team will be bogged down in non-scalable work, wasting time and money away from much higher potential ideas. Three questions to ask when evaluating the potential of a new product or service:

Related: What it takes to build a culture of innovation and do it right

1. Are your early adopters accelerating organic growth?

When you first launch your product, you should be able to find a core group of early adopters. Your target early adopters have problems to solve. You’re launching a product that solves these problems. If you hit the mark on features and price and can easily communicate your value proposition, they should be willing to try your product with very little incentive or marketing effort. If they like it, they can quickly become evangelists within their community, creating the initial flywheels for organic growth.

If you can’t find a group of early adopters to help you grow organically, you have an important decision to make. Iterate and try again, or delete the product and move on to the next idea. Unfortunately, the biggest mistake many startups make at this crucial crossroads is to increase their marketing spend beyond sustainable levels under the mistaken assumption that they have a marketing problem rather than a product problem. This path will only lead to accelerating cash burn and missed opportunities.

Related: 3 Common Mistakes That Can Blow Up Your Marketing Budget

2. Do your customers come back for more?

Once you’ve found the messaging that attracts customers to your product, you need to meet their expectations. Will they continue to use your product after the first few attempts? Will they keep coming back to buy more from you? Or are you suffering from high return rates, cancellations or product abandonment? You need to have clear KPIs for customer behavior that you measure consistently to ensure you’re creating an offer that’s sticky enough to scale your business.

Successful startups are driven by customer lifetime value (LTV) that can drive profitable, scalable growth. High LTV is fueled by strong customer retention and consistent repeat buyer behavior. If most of your customers are one-time customers, it is unlikely that you will be able to effectively scale your company.

Related: Are You Sitting on a Customer Retention Gold Mine?

3. Do you have enough pricing power to ensure profitability?

Sales volume and customer retention are only important if each sale is profitable enough. The path to profitability and positive cash flow is a healthy contribution margin. Contribution margin is calculated by deducting the variable costs required to manufacture and sell your product from the net selling price.

It’s easy to entice customers to order a free trial or accept delivery of a subscription box before they buy. But can you attract customers willing to pay a price that delivers a reasonable contribution margin? Too many startups fall into the trap of focusing on empty metrics to measure their product’s performance—downloads, total sales, and free trial downloads. Ultimately, your product and launch will only be successful if you can consistently get the profitable pricing you need to support sales and marketing, new product development, and day-to-day operations.

Related: 4 Reasons Pricing Is Key to Startup Success

The Amazon Fire phone may have been a failure, but the technology built for the phone has fueled the development of two highly successful products: the Echo and Alexa. Creating a culture of innovation is not easy. It requires an acceptance of failure, backed by a culture of measurement and accountability. But it’s a powerful force for product-market fit, increasing profitability and increasing enterprise value. It’s also a much more fun and exciting way to build your company.