Most corporate innovation portfolios are managed like bookkeeping: spend a bit more, get a bit more, keep every project close to the average. That instinct feels safe, and it is precisely what starves the portfolio. Innovation does not cluster around a mean. It behaves like lightning: a handful of ideas create almost all the value, while the rest barely move the needle.
Most companies treat innovation like bookkeeping. They still think input and output move in sync: spend a bit more, get a bit more. Plan carefully, minimise surprises, and stay close to the average. That approach feels safe because it's what most executives learned early in their careers:
- Control the variables,
- Protect the forecast,
- Avoid embarrassment.
However, innovation doesn't adhere to those rules.
It doesn't cluster around a neat average or reward precision.
It behaves more like lightning: unpredictable, uneven, and wildly unequal. A handful of ideas create almost all the value, while the rest barely move the needle.
The math behind innovation isn't the bell curve they were taught to trust. It's a power law. And once you get it, you can't escape it.
The Bell Curve Mindset
If you studied business or finance, you were taught to think in averages and standard deviations. The bell curve underpins everything from Six Sigma to performance reviews. Most outcomes cluster around the mean. The rare extremes are treated as noise.
That's the foundation of how most firms run: stability, predictability, control. When most results fall within one standard deviation, you can plan. But innovation and growth don't live in the middle.
It lives in the tails, the outliers, the weird.
Normal Thinking vs. Power-Law Reality
In a bell-curve world, the average defines how you perform. Do you perform above or below the average?
In a power-law world, the average is meaningless.There is no average.There are only outliers.
This is why most corporate innovation portfolios feel stuck.
They try to optimise for averages and make sure every project will reach "the average". However, in reality, this will never happen. One or two projects will make a huge impact; the rest will never make it. That's the essence of the Power Law.
The CFO's World and the Innovator's World
Finance lives by proportionality.
Increase input by ten per cent, expect a ten per cent gain. Controllers are trained to minimise variance. So forecasts must be as accurate as possible, and budgets should be very precise. They are trained to anticipate and manage surprises.
That logic works in a stable business, but it will never hold up in an innovative environment. In innovation, variance is an inherent part of the process. Most projects won't work. A few will do fine. One might deliver more value than all others combined.
It's like Pluto and Mars. Man and Woman. They are different; they think and talk differently. If you look at the core principles of the logic of both, this is what it looks like:
Finance protects the mean.Innovation should break it.
How Companies Flatten the Curve
You can feel this tension everywhere in a stable company. Budgets get sliced and rationed. Success means sticking to the plan, and the ROI projections judge most projects.
Those rules reward predictability, not progress. They favour safe bets over bold ones. When you spread resources evenly across ideas with wildly different potential, you don't create balance; you will guarantee mediocrity. The few ideas that could change everything never get the fuel to prove it.
Innovation doesn't care about fairness.It rewards focus.
The few that break through pay for everything else.
The Math of Asymmetry
Here's what that looks like in practice.
Even in well-run portfolios, one or two projects drive most of the results.
Research backs this up.
McKinsey found that fewer than ten percent of projects deliver over seventy percent of new revenue. Strategy& reported that only two or three percent of initiatives ever scale. Strategyzer's data shows about seventy percent of projects miss their targets.
Innovation portfolios behave like asymmetric systems. The math isn't linear; it's exponential.
When you understand that, you stop asking how to make every project succeed and start asking how to design a system that lets you allocate your resources to the few winners.
Managing for Power-Law Outcomes
Managing innovation under a power law means building a proper filtering mechanism to find successful projects.
This can only be achieved by conducting numerous small experiments that have capped time limits and budgets. Treat early spending as an investment in information, not results. The information should be tested against a set of rules, which we call Fundamental Innovation Principles and Guiding Organisation Principles.
These principles will help you kill weak projects quickly and pour fuel on the few that test positive against the rules. This is a dynamic process guided by a system, not projections.
Measure by portfolio performance, not by project ROI. The goal isn't ninety percent success; it's one or breakouts that pays for the rest.
This is how Amazon built AWS and how Google's side projects turned into Android and YouTube. They didn't predict the winners. They built systems that allowed the winners to emerge and eliminate the pet projects.
Why the Average Is Your Enemy
An average ROI will not take you anywhere. It feels safe, but in innovation, the "average project" doesn't exist. It's the midpoint between failure and breakthrough. Healthy portfolios show high variance.
That's not chaos, it's exploration and the Power Law at work.
If your results cluster too tightly, you're not taking enough shots.
The Emotional Side of Asymmetry
Power-law systems are hard on morale. Most of the time, you'll feel like you're failing, which is completely normal.
Out of fifty projects, forty might go nowhere. The remaining ten hold the company's future. Leaders who understand this build emotional resilience into their teams. They normalise failure. They talk about it. They treat it as proof of motion, not as evidence of incompetence.
Bezos once wrote, "One big success can compensate for dozens of things that didn't work." He wasn't romanticising risk. He basically describes the math.
Even though these numbers of successes feel super low, Power-law management isn't guesswork. It's a structured exploration and a different mental model than you are probably used to. It takes rigour to fund experimental projects, test them fast, and reallocate resources based on evidence.
Your goal isn't control, it's calibration. You build a portfolio that can absorb losses while you chase a few outsized wins.
Leaders who grasp and use this mental model don't predict success. They build systems that allow outlier projects to come to the surface.
Closing
In a normal world, excellence is characterised by precision and consistency. In a power-law world, it means identifying what truly drives results and betting heavily.
The math of innovation isn't hidden, just uncomfortable. It asks you to trade control and predictability for discovery.
-Don't create unicorns,Breed blue whales.🐋
Related reading: Innovation is Capital Allocation. Everything else is theatre., Innovation and Return on Invested Capital a love and hate relationship.
Power-law math is why validation gates exist: capital follows proof, not conviction. That discipline is Revenue Engineering. We validate by commitment in PreXLR and install the go-to-market in XLR. Book a discovery call.