Scott D. Anthony

Companies often want to make decisions based on “the number,” or a precise estimate of a project’s financial potential. When companies only consider a single scenario, they almost always feel as if they have to be conservative, leading them to prioritize “sure things” in known markets over risky ventures in new markets.

While that approach might be reasonable when a company is launching a modest line extension into a known market, a new-to-the-world solution could unfold in infinite ways. It might be worth investing in a project that appears to have negative NPV, on average, if a modest investment can highlight whether outsize returns are possible. Further, if you don’t invest in the long term, you increase the odds that you will fall behind existing and emerging competitors in the next economic cycle. A company that ranks all of the projects in its innovation portfolio by NPV might unintentionally stop working on projects with the greatest long-term growth potential.

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