Three ways to innovate in a downturn

If there’s a recession, will it slow innovation? Not necessarily.

Innovation is still possible in a downturn.

There’s a growing sense that a recession is coming. If it does, will it slow innovation? Not necessarily. History shows that recessions create three specific opportunities for innovators.

1. GAME-CHANGING OFFERINGS
Start-ups with radical products or services that “reverb” off of the big event driving 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’s car-sharing model.

Lingering distrust in traditional finance providers after the global financial crisis helped to spur novel payments providers. For example, Jack Dorsey founded Square (later named Block), the financial services start-up known for its square-shaped white credit card reader, in 2009.

“There is no better time to start a new company or a new idea than a depression or recession,” Dorsey, who also helped to found Twitter, reflected. “There (are) a lot of people who need to get really creative to create something new.”

Wind back the clock further. Walt Disney founded his eponymous company in 1923, a time when the world desperately needed hope. It’s reasonable to expect the need for alternative energy sources to combat climate change and reduce dependence on autocracies, as well as the need for greater food safety and more dependable supply chains to attract today’s entrepreneurial energy.

2. SIMPLE, AFFORDABLE SOLUTIONS
Downturns can be great times to introduce offerings that connect with consumers who have tighter purse strings or are naturally frugal given continued uncertainty.

There was a recession on the heels of World War II, from 1948 to 1949, before the post-war boom. In 1948, the McDonald brothers fired all their carhops, closed their flagship store, installed new equipment and reopened three months later with a novel approach for preparing food. Instead of having a single skilled cook who would custom-make orders, McDonald’s simplified the menu so less-skilled people could prepare the same thing over and over again. All McDonald’s menu items could be eaten one-handed while consumers were driving.

It was Henry Ford’s assembly-line approach applied to food service. The brothers called the model the 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 started franchising its stores to other entrepreneurs. Franchise owner Ray Kroc bought out the brothers in 1954 and scaled McDonald’s into today’s global powerhouse.

3. BOLD STRATEGIC MOVES
Downturns can be great times for established companies to make dramatic changes. Shantanu Narayan took over as chief executive of Adobe in late 2007. The 25-year-old company seemed stuck, with products such as Photoshop and PageMaker stagnating. Nimble software-as-a-service competitors were emerging. And the onslaught of the global financial crisis would challenge even the strongest incumbent companies.

In the face of these challenges, Narayen and his team undertook a bold transformation strategy. In 2008, they tested a software-delivered model of Photoshop. A few years later Adobe “burned the boats”, stopped producing packaged software and went to a fully SaaS model. In 2009, Adobe purchased Omniture for about $US1.8bn, a price 40 per cent lower than its pre-crisis peak (but 2½ times above its mid-crisis trough). That acquisition served as the cornerstone of Adobe’s efforts to build a new growth business related to advertising services and analytics. From 2009 to 2019 Adobe’s revenues tripled and its stock price rose 29 per cent a year, making it one of the decade’s top transformers.

These three avenues for growth emerged from research recounted in my 2009 book, The Silver Lining. The book’s title didn’t just refer to these kinds of opportunities; it referred to the fact the resource scarcity that typically accompanies recessions forces innovators to do things they should have been doing already:

● Prune prudently
Take a hard look at what is in your innovation portfolio. Cut at least 50 per cent of it. Your resources need to be focused on places where they can have the greatest impact. Many of the projects that you cut are likely to be “zombies” that shuffle along, sucking the innovation life out of your organisation. Kill the zombies. You should have done it already; you need to do it now.

●Re-feature to cut costs
Customer-centricity should be a core component of cost-cutting efforts. After all, you can’t do more with less until you can define what more means. That means figuring out the job to be done involving the customer.

●Master smart strategic experiments
It never has been easier to experiment and it needs to be accomplished with discipline. Like 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 in which you can measure and assess your prediction. You never know for sure, so remember the acronym HOPE (hypothesis, objective, prediction, execution plan).

● Share the innovation load
People think successful entrepreneurs seek out risk. That’s not right. Successful entrepreneurs smartly manage risk by sharing it as widely as they can. Now more than ever, companies should embrace open innovation and find smart ways to collaborate.

In the onslaught of never-ending change, it’s easy for leaders to freeze and focus on survival. Don’t freeze. See the silver lining and find unique opportunities to turn today’s ambiguity into tomorrow’s opportunity.

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Scott D. Anthony is a clinical professor at Dartmouth College’s Tuck School of Business, a senior partner at Innosight and the lead author of Eat, Sleep, Innovate.