Recently, while speaking with Jim, we started talking about some of the investment asks that came to him over his career. He broke his explanation down in two parts.
One, any technology company has to experiment with ideas. Not all will succeed, but till you don't invest in some, you won't really get innovative new directions. He said 'investors often asked me about our wasted spends on areas that didn't pan out. and I always responded, show me a company whose investments and experiments pan out exactly as they outlined. it doesn't work that way.' He repeated his older phrase again: you have to light some sparks to ignite some fires.
Two, if the investment ask is modest, I am generally ok. When I prodded some more, he outlined his mental model.
He said, typically, I look at four things:
1) is the idea interesting? As finance professionals we obviously can't know (and don't need to know) all the technicalities and specifics. But does the idea seem interesting, and with some chance of success? we need to ask appropriate questions for that understanding.
2) is the return compelling? this is more straight forward and based on some math model.
3) is the investment modest? this is important. You obviously can't run several experiments. So you evaluate tradeoffs and assess how much incremental investment is needed. As long as it is few engineers, and some ancillary expenses such as marketing, gtm, etc., to assess the success possibility, you should let it happen.
4) will this idea distract the leader from the core business? this is the most critical criteria. Experiments have to happen. but unless your job is to experiment, the focus needs to be on the core business.
In larger companies, there is more latitude to get distracted from the core business. But in smaller companies like yours, building the core business becomes even more important. If the experiment distracts the leader from core business, then it is probably required to hire someone else to handle the project under the leader.
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