The Character of Investment
Asking a manager how much they are willing to invest in innovation often sounds like a simple accounting question, but it is fundamentally a question of character. The answer reveals how a company views the future, how much uncertainty it can tolerate, and who within the organization possesses the authority to fail. A figure stated in isolation, without this context, tells us very little.
The problem with the question, as it is typically posed, lies in the vocabulary. The word investment implies a predictable return, whereas innovation is largely about purchasing information regarding the unknown. Furthermore, innovation is a term so broad that it encompasses everything from repainting a conference room to reinventing an entire business model. Those who decide without distinguishing between these two ends up spending capital without knowing what they have actually acquired.
Learning Over Spending
We propose reversing the usual order. Instead of starting with a budget, start with the mechanism: what do we want to learn, what bet are we willing to lose, and who is overseeing the experiment? Only then does it make sense to discuss funding.
Routine expenses exist to maintain what already works. Innovation expenses exist to discover if something might work in the future. These are distinct logics requiring different evaluation criteria. Measuring an experiment by immediate return is akin to judging a seed by the harvest of the following week.
Consider a family-owned distribution firm that suspects its younger customers are shopping differently. The company could commission an extensive study, launch a small pilot in a single location, or do nothing and wait for the suspicion to either be confirmed or vanish. Each path carries a cost, including the last one, whose expense is invisible and therefore dangerous: the price of inertia never appears on an invoice.
Defining the Threshold
The rule of thumb is simple. Before approving any funds, write down in a single sentence the question that the experiment will answer. If the sentence does not fit on one line, the idea is not yet mature enough to receive funding. And if the only possible answer is yes, the experiment is merely decoration, not learning.
There is a useful way to think about the value to set aside: not as an ambition, but as a tolerance. What is the loss that the company can sustain without compromising its core business, payroll, or banking relationships? That is the real ceiling, far more honest than any figure copied from manuals or competitors.
This leads to an uncomfortable consequence. Companies with narrow margins have less room for error and should therefore bet on smaller, more frequent experiments rather than one grand gamble. Companies with financial slack face the opposite risk: spending far more than they learn, because abundance often eliminates the need for rigor.
The Scarcity of Attention
We must also distinguish between money and attention. Management attention is the scarcest resource and rarely enters the calculation. A cheap experiment that consumes half of the executive director’s schedule may be more expensive than a financially heavy project that runs on its own. Decision-makers must ask not only what it costs, but who will be left doing what while the experiment is underway.
Most innovation initiatives fail for organizational reasons, not technical ones. They fail because the proposer lacks the authority to decide, because the decision-maker is disconnected from the field, or because no one knows when an experiment should end. The money is present, but the mandate is not.
The Culture of Exploration
A useful rule is to define three things before starting: who is responsible, what would be a clear sign that the idea should continue, and what would be a clear sign that it should stop. The last one is the most difficult, as it requires accepting beforehand that one might be wrong. Without a termination criterion, weak projects survive out of sympathy and consume the space meant for strong ones.
There is also a cultural dimension. If the team perceives that failing in an authorized experiment carries the same reputational cost as failing in a daily routine, they will quickly learn not to experiment. Innovation requires a clear distinction between failure due to negligence and failure due to exploration, and that distinction only exists if leadership practices it, rather than merely proclaiming it.
A Broader Ecosystem
The decision to innovate rarely stays within the walls of a company. When a business learns something new, suppliers adapt, workers acquire skills, and other companies in the area observe and imitate. In a territory with few companies willing to experiment, each one that does acts as a laboratory for the rest.
This changes the perspective for those managing a municipality, a business association, or a region. The question shifts from how much companies are investing to what conditions facilitate experimentation: access to qualified people, networks where failures are shared, and a local market willing to test novelties. A territory that punishes error, through bureaucracy or distrust, pushes companies toward safe imitation and stagnation.
Ultimately, the question that should accompany any budget remains: if your company were to lose, entirely, the funds reserved for innovation, what would you have learned anyway, and what would remain unknown? The answer to that question is worth more than the number that precedes it.