Recessions offer great opportunities for innovators. They can be a good time to come up with innovative offers or simple, affordable solutions or to make bold strategic moves. The scarcity of resources that often accompanies recessions forces innovators to do things they should already have been doing: prune wisely, resubmit to cut costs, master smart strategic experiments, and manage the risks of innovating by sharing them with others.
The feeling is growing that a recession is looming. If it does, will it cause innovation to slow down? Not necessarily. History shows that recessions create three specific opportunities for innovators.
1. Game-changing deals
Startups with radical products or services that “reverberate” from the big event that fuels the recession can take off. For example, Airbnb, an online marketplace for “places to stay and things to do,” was founded during the height of the recession in 2008. Its service appealed to thrifty millennials looking for a cheap way to travel, as did Uber. . model.
Persistent mistrust of traditional financial providers after the global financial crisis helped fuel new payment providers. For example, Jack Dorsey founded Square (later called Block), the financial services startup known for its square-shaped white credit card reader, in 2009. “There’s no better time to start a new business or a new idea than a depression or recession,” Dorsey, who also helped found Twitter. , reflected. “There [are] a lot of people who need to be really creative to create something new”. Turn back the clock even further. Walt Disney founded his namesake company in 1923, a time when the world desperately needed hope. It is reasonable to expect the need for alternative energy sources to combat climate change and reduce reliance on autocracies, greater food security, and more reliable supply chains to attract today’s business energy.
2. Simple and affordable solutions
Recessions can be great times to introduce offers that connect with consumers who have tighter budgets or who are naturally frugal due to ongoing uncertainty.
There was a recession immediately after World War II, in 1948-1949, before the post-war boom. In 1948, the McDonald brothers laid off all of their carhops, closed their flagship store, installed new equipment, and reopened three months later with a novel approach to food preparation. Instead of having a single qualified chef do custom orders, McDonald’s simplified the menu so that less-skilled people could prepare the same thing over and over again. All McDonald’s menu items could be eaten with one hand while consumers were driving.
It was Henry Ford’s assembly line approach applied to food service. The brothers named the model “Speedee Service System”. It made it much easier to hire and fire cooks and allowed McDonald’s to lower prices and prepare food faster. The new business model began to take off. In 1953, the company began franchising its stores to other entrepreneurs. Franchise owner Ray Kroc bought the brothers in 1954 and made McDonald’s the world powerhouse today.
3. Bold strategic moves
Recessions can be good times for established companies to make drastic changes. Shantanu Narayan took over as Adobe’s CEO in late 2007. The 25-year-old company seemed stagnant, with products like Photoshop and PageMaker stalling. Nimble software-as-a-service (SaaS) competitors were emerging. And the onslaught of global financial crises would challenge even the strongest of established companies.
Faced with these challenges, Narayen and his team embarked on a bold transformation strategy. In 2008, they tested a Photoshop model delivered by software. A few years later, Adobe “burned the boats”, stopped producing packaged software and moved to a completely SaaS model. In 2009, Adobe bought Omniture for roughly $1.8 billion, a price 40% lower than its pre-crisis peak (but 2.5x its mid-crisis trough!). That acquisition served as the cornerstone of Adobe’s efforts to build a new growth business related to advertising and analytics services. From 2009 to 2019, Adobe’s revenue tripled and its stock price increased 29% a year, making it one of the top game changers of the decade.
These three growth pathways emerged from the research reported in my 2009 book The silver lining. The title of the book did not only refer to these types of opportunities; he was referring to the fact that the scarcity of resources that often accompanies recessions forces innovators to do things they should already have been doing:
prune wisely
Take a look at what’s in your innovation portfolio. Cut at least 50% of it. Your resources should be concentrated in places where they can have the greatest impact. Many of the projects you kill are likely to be shuffling “zombies,” sucking the innovative life out of your organization. Kill the zombies. It is something absolutely without regret: you should have done it already, you must do it now.
Re-function to reduce costs
Customer focus should be a core component of cost reduction efforts. After all, you can’t do more with less until you can define what plus medium. That means figuring out the job to be done by the customer (employee, stakeholder, channel partner).
Master smart strategic experiments
It has never been easier to experiment, which makes it even more important to do it with the proper discipline. As a good scientist, start with a hypothesis. Design an experiment with clear objectives. Make a prediction about what you think will happen. Test in a way where you can measure and evaluate your prediction. You never know for sure, so remember HOPE (hypothesis, goal, prediction, plan of execution).
Share the burden of innovation
People think that successful entrepreneurs seek risk. That is not right. Smart successful entrepreneurs manage risk by sharing it as widely as they can. Now more than ever, companies need to embrace open innovation and find smart ways to collaborate.
Amid the onslaught of endless change, it’s easy for leaders to freeze up and focus on survival. Do not freeze. Take the bright side and find a unique opportunity to turn today’s ambiguity into tomorrow’s opportunity.