Stakeholders demand results. CFOs ask for projections.

Yet innovation teams often find themselves pitching bold ideas with little more than a business model canvas that doesn’t fit a quarterly earnings report.

As Tristan Kromer, Founder and CEO of Kromatic, puts it: “At some point, somebody with a calculator is going to ask how much money your project will make.” That moment is when most innovation teams stumble because the language of innovation often clashes with the metrics finance teams trust.

In a recent Innov8rs Learning Labs session, Tristan shared actionable strategies for bridging the gap between innovation and business goals. He emphasized the advantages of building a deliberate, strategy-driven innovation portfolio—one that balances risk and reward while aligning with the language and priorities of your business.

Tristan Kromer

CEO and Founder at Kromatic

Strategy Before Metrics

One of the most overlooked yet essential aspects of innovation portfolio management is starting with strategic clarity. Before debating metrics or forecasting financial returns, Tristan urges innovation leaders to ask:

  • What problems are we solving?
  • How does this align with our company’s growth, efficiency, or transformation goals?
  • Are we placing bets in a way that supports our strategic mandate?

Without this foundation, portfolio management becomes little more than a numbers game (and a speculative one at that).

The Problem with Single Metrics

Innovation is messy, complex, and inherently uncertain. Yet corporate leaders often pressure innovators to quantify success with a single, all-encompassing metric.

Tristan calls this “the one metric to rule them all” problem.
He critiques commonly used tools like Net Present Value (NPV) and the Rule of 40, as they fail to account for uncertainty or long-term impact. These metrics may work for core operations, but they oversimplify the complexity of innovation and discourage smart risk-taking.

“Even the CFO knows those numbers are made up,” Tristan jokes—but then warns that innovation teams still need to be able to show value in a credible, business-relevant way.

Traditional business metrics like NPV focus narrowly on financial forecasts, but these forecasts are often based on guesswork when it comes to innovation projects. “Most of us have a stack of ideas and maybe a business model canvas,” says Tristan. “But the CFO doesn’t understand this. It doesn’t translate to a quarterly statement.”

The Rule of 40 (used by SaaS companies to evaluate performance) prioritizes growth and margin but offers little insight into how experimental projects or disruptive innovations contribute to long-term company value. It forces innovation teams to chase arbitrary growth targets, often with fictional spreadsheets that even executives know are speculative. “I suggest you have a chat with your CFO, get everybody to admit that the projections are ridiculous,” Tristan encourages.

Ultimately, relying on single metrics discourages risk-taking and oversimplifies the complexity of innovation.

Why “More Projects” Isn’t Always Better

Another common trap is the practice of stuffing the innovation pipeline with as many projects as possible. While volume might seem like a good strategy, the result is often fragmented efforts without a clear connection to strategic goals.

Tristan emphasizes that volume without alignment leads to fragmented efforts.

“Our general approach too often is just to shove as many projects through the pipeline as possible and hope for some wins at the end. But that’s not a strategy.”

Instead, innovation portfolios must prioritize quality over quantity, and ensure that each project relates to a clear business goal. Building on this idea, diversification isn’t about chasing trends but about placing a range of focused bets on different ways to solve the same strategic challenge.

Innovation Mandates as a Missing Link

Many organizations fail to establish an explicit innovation mandate. The mandate is a strategic compass that connects innovation activities to business outcomes like revenue growth, EBITDA, or risk mitigation.

A clear mandate should define:

  • The core and transformational objectives
  • The problems innovation is tasked with solving
  • The non-financial success metrics (e.g., learning velocity, validated assumptions)

Bets, Not Projects

To make innovation work, it’s essential to treat your projects as a portfolio of bets. Much like an investor diversifies stocks to hedge against risks and capture opportunities, innovators must take a diversified approach to project investment.

Tristan frames this through two primary strategic goals:

  • Risk Mitigation: Protecting against market disruption or technological change.
  • Opportunity Creation: Generating new value or unlocking exponential growth.

“Think of your portfolio like poker. Some bets are safe, others are bold. The trick is knowing how to balance the hand,” he advises. This means placing multiple bets on solving the same challenge, not spreading thin across unrelated trends.

“Each bet you make represents an idea or project,” he says. “Some bets might be smaller and safer, like incremental improvements to existing offerings, while others are riskier and require more investment, akin to going all-in on a bold innovation.”

Just like in poker, not every bet will pay off, but the goal is to strategically balance your bets to maximize overall success. By spreading your investments across a mix of low-risk and high-reward initiatives, you create a diversified strategy that increases your chances of uncovering the next big opportunity while safeguarding against total loss.

The term diversification is often misunderstood. Tristan clarifies, “Diversification doesn’t mean spreading bets across unrelated areas like hamburgers, blockchain, and AI. It means placing varied bets on different ways to solve the same problem within one market or industry.”

Diversification means:

  • Betting on multiple approaches to solve the same problem
  • Staying focused within a domain or market
  • Avoiding scattershot investments that dilute impact

For example: A SaaS company exploring AI should experiment with personalization tools, language models, and chatbot upgrades, but not with launching a snack food brand. Or, a consumer electronics company exploring wearable technology could invest in variations such as fitness wearables, health-monitoring devices, and augmented-reality glasses.

The Core-Adjacent-Transformational Model

Tristan explains the core, adjacent, and transformational innovation framework through the lens of the Ansoff Matrix, which categorizes strategies based on two key dimensions: product (existing vs. new) and market (existing vs. new). He provides examples and business goals for each quadrant to help organizations align innovation initiatives with strategic objectives.

1. Core Innovation

Market penetration involves focusing on existing products for existing markets. The goal is to drive efficiency and improve margins, such as by reducing costs or increasing EBITDA. Strategically, this approach plays a defensive role by protecting and strengthening the current business through improvements to what already works.

Example: Leveraging AI to streamline operations (like automating repetitive tasks or optimizing supply chains) can help achieve these objectives.

2. Adjacent Innovation

Adjacent innovation is a key growth strategy where you expand into new markets with existing products or offer new products to existing markets. Product development focuses on introducing new features or capabilities to upsell or cross-sell to current customers, while market development involves adapting existing products to reach new customer segments or regions.

The primary goal of these strategies is to grow revenue and expand market reach. Strategically, this is an offensive approach, enabling growth while remaining aligned with the company’s core competencies.

Example: Use AI for localization or personalization to enter a new market.

3. Transformational Innovation

Creating new products for entirely new markets falls under the Diversification quadrant of the Ansoff Matrix.

The goal of this strategy is to explore radically new opportunities and prepare for potential disruption. This approach plays an exploratory strategic role, positioning the company for the future by mitigating risks of disruption and unlocking new growth opportunities.

Example: Leverage AI to create brand-new value propositions or explore uncharted markets.

In short:

  • Core = Efficiency & margin improvement.
  • Adjacent = Revenue growth & market expansion.
  • Transformational = Future readiness & optionality.

Tristan warns against a blanket approach like the 70/20/10 resource allocation rule (core/adjacent/transformational).

While this may work for fast-moving industries like tech, more stable sectors (e.g., consumer goods) should allocate resources more conservatively to transformational bets, given the higher risks.

Regardless of industry or sector, building a meaningful innovation portfolio requires intentional strategy. Each project should tie back to a clear objective: why it’s being pursued, what metrics it impacts, and which quadrant it falls into.

Communicating Progress

Ultimately, innovation teams must demonstrate their value to stakeholders by communicating progress in a way that their internal stakeholders (think business leaders as well as finance teams and other functional units). Tristan recommends three effective approaches to achieve this:

1. Highlight “Option Value” (Monte Carlo Simulation)

Innovation often acts as insurance against future disruptions. While some projects may not seem immediately profitable, they can serve as a hedge for when the market shifts. As Tristan explains, “If you don’t place a bet on it, you’ll regret it when the market shifts.”

Tools like Monte Carlo simulations operate much like hurricane forecasting. Just as meteorologists model various storm paths to account for uncertainty, Monte Carlo simulations explore probabilistic outcomes by analyzing a wide range of scenarios.

“Hurricane graphs allow us to accurately demonstrate that we might hit something really phenomenal, but we could also absolutely trash it,” Tristan says. “This is far superior than the basic business case in terms of accuracy.”

Unlike traditional business cases that rely on static assumptions and a single “most likely” outcome, Monte Carlo simulations provide a dynamic, data-driven approach. By generating thousands of potential outcomes based on input variables, they offer a clearer picture of risks and opportunities, much like mapping the possible impact zones of a hurricane.

Monte Carlo simulations empower decision-makers to prepare for a variety of possibilities, especially when dealing with high-risk, unpredictable investments. By modeling uncertainty, leaders can better anticipate unexpected events, make informed trade-offs, and create flexible, resilient strategies.

2. Leverage Information Value

Demonstrating how experimentation reduces uncertainty is a powerful way to drive better decision-making and innovation. The key lies in narrowing the range of unknowns through targeted, low-cost experiments. For instance:

Before Experiment: Customers’ willingness to pay is estimated to vary widely, from $5 to $20.
After Experiment: Data from testing narrows this range to $12 to $18.

This reduction in uncertainty is valuable because it allows teams to focus their resources on clearer, more accurate assumptions. By investing small budgets into early-stage experiments, businesses can gather actionable insights without committing to large-scale initiatives prematurely.

These insights provide clarity and direction, helping to ensure that bigger investments in innovation are backed by reliable data rather than guesswork.

This approach works because it creates a feedback loop, where each experiment refines the understanding of the market, product, or customer needs. As the uncertainty shrinks, teams can realign their efforts toward the most promising opportunities, improving efficiency and reducing the risk of failure. For executives, this demonstrates that resources are being allocated strategically to minimize risks and maximize impact. This boosts confidence in decision-making and paves the way for sustainable innovation.

3. Emphasize Portfolio Value

Finally, innovation teams can showcase their value by presenting innovation as a strategic, diversified portfolio. Rather than relying on a single project, teams spread investments across multiple initiatives, increasing the likelihood of success. This approach highlights the collective potential of projects, balancing high-risk bets with safer, incremental innovations to produce consistent long-term value.

By combining these three approaches, innovation teams can effectively communicate the progress they’re making and showcase the value they’re delivering. And more importantly, applying these principles contributes immensely to creating deliberate and diverse innovation portfolios needed to succeed in the long run.