An economic downturn, or recession, is a period of significant and prolonged decline in a nation’s economy, along with negative GDP (Gross Domestic Product), a rise in unemployment rates, and a fall in retail sales and manufacturing.
None of these are going to make things easier for business, and the rough waters of an economic downturn can cause owners of businesses large and small to feel stressed, overwhelmed, and fearful for the future. Understandable, given that in the Great Recession of 2008, 1.8 million US businesses went under.
It’s these emotions that can cause some businesses to try to stand still when the economy dips dramatically, rather than focusing on nurturing new ideas and finding new and innovative ways of working.
But as we’ll see, that’s never a good idea.
Why innovation is often the first thing to go
Innovation is the ability to conceive, develop, deliver and scale new products, services, and processes. To be effective, innovation can’t just be something new, it must also be useful. And it’s this combined usefulness and novelty that makes it the lifeblood of business.
Most people would agree that innovation fosters growth, but despite this, (or perhaps because of this), in an economic crisis, it very often becomes the first casualty.
The stress and fear when faced with economic uncertainty often leads to businesses making knee-jerk reactions, or going into temporary “freeze” mode, brought about by the fear of the unknown.
Instead of changing course and facing the headwinds, they switch to defense mode, thinking that cutting back on innovation will help them to weather the storm. This can be seen as an easy win, as it appears to lessen the financial impact.
The reality is somewhat different, and can be devastating.
But innovation takes money, right?
In the year of the global financial crisis, 2008, Airbnb founders Brian Chesky and Joe Gebbia came up with the simple but brilliant idea of inviting paying guests to stay in their New York home.
They recognized that despite (or perhaps because of) the economic situation, people still wanted holidays, but couldn’t always get the bookings they wanted. Impoverished students, they could only offer their guests airbeds to sleep on, which is how the (now) iconic name came about.
Airbnb’s business model meant that they didn’t have to spend a single cent on buying expensive accommodation because their customers would provide that themselves. It was the founders’ impoverished status at the time of starting out, coupled with the financial climate that existed in 2008 which gave life to their innovative and ground-breaking idea.
The rest, as they say, is history; in 2023, Airbnb is a multi-billion dollar industry.
How to innovate during a financial crisis
So, with Airbnb’s inspirational story ringing in your ears, here are some suggestions for ways to not just survive but thrive during times of financial hardship:
- Build partnerships
Look for opportunities to collaborate with other businesses. Partnerships can be a great way to create new ideas and diversify your thinking at any time, but they are invaluable during an economic downturn. Did you know that a staggering 95% of Microsoft’s financial revenue flows through its partner ecosystem?
A partnership can help your business gain a bigger client base and increase your credibility, and there are many companies looking to create partnerships nowadays.
- Get creative with your tech
Businesses that invested in tech during the COVID-19 pandemic are now growing five times faster than their competitors, says a report by Accenture.
Meanwhile, a recent McKinsey report noted that from a sample of businesses reporting very effective responses to COVID-19, 72% of these were also first in their field to experiment with new technologies during the crisis, and 67% invested more than industry peers in digital related expenditures.
So, when times are tough, get innovative with your tech and let it work for you. For example, if you have a sales team, a call center in the cloud could save you money by allowing your staff to work remotely, as well as taking care of staff monitoring analytics and call distribution, meaning you can get on with thinking up new ideas.
Or you may want to consider microservice architecture which can help you overhaul your outdated legacy systems without a large outlay, allowing you to give your customers a smoother, more streamlined digital user experience.
- AI can help you innovate
Look into ways to leverage AI and harness its power to help you innovate. This might be, for example, using it to analyze your data to make unbiased and subjective recommendations. There are many free guides to AI available to get you off the ground.
- Communication, communication, communication
Communication in business is always going to be hugely important, and never more so than in an economic downturn.
So, make sure your staff and co-workers can communicate easily. If you think your existing phone systems aren’t up to the job, think about how you could improve them—here, Vonage explains types of phone services, for the uninitiated.
- Look at buying smaller businesses
It may feel counter-intuitive, but businesses often become available at a good price during a downturn.
By expanding your portfolio, you’ll create more opportunities. The buyer’s market means less competition, and the higher unemployment rate that exists during a recession can make it easier for you to hire and retain skilled workers.
- Offer affordable solutions to your customers that solve their problems
Your customers are likely to be struggling financially, so think about ways you can help, by coming up with innovative ideas.
In 2009, a year after the big crash, a small marketing company called Mailchimp read the room and came up with the idea of offering a free email service to SMEs, with the option to upgrade to extra paid services. In 2023, Mailchimp’s revenue is $800 Million, with 140 million customers.
They knew that their idea would help them reach those small businesses that couldn’t afford to pay for email marketing services. They also knew that their “freemium” offering meant that those SMEs would develop and grow and turn into paying customers.
Co-founder Ben Chestnut was quoted as saying: ‘People want what’s best for them, and they can switch on a dime, because there’s always a new disruptor…’
- Don’t be afraid to make big changes
Making big changes may seem like a daunting prospect at any time, even more so during an economic downturn. However, not making changes is so much riskier.
Study your customer feedback. Is there anything that’s being called out repeatedly that your customers want you to change, or that they don’t like? Now’s the time to act.
The fast food pizza chain Domino’s was in trouble in 2008. Their shares had dipped to an all-time low, due to customers leaving scathing reviews about them online, resulting in huge reputational damage.
They listened, and the “Pizza Turnaround” was born; a totally new and improved recipe, which saved the company from financial ruin. In 2023, Domino’s ovens are still firing up.
- Find ways to innovate frugally
When you’re looking to innovate and change, look for ideas which don’t break the bank.
Take your inspiration from “jugaad”, a colloquial Hindi word which refers to a non-conventional, resourceful, money saving innovation. To be effective, your “jugaad” (or life-hack solutions) must still be high quality.
One way you could consider saving money is by employing some IVR software. This can revolutionize the way your customers interact with you, by making it quicker and easier for them to get through to the right person, first time. As every business owner knows, happy customers usually mean healthy profit margins.
Businesses have to think on their feet in times of financial hardship, and if your business needs to gain signatures for contracts, you could save money on postage and travel if you’re able to send a fax from a computer.
If you’re spending money on research and development (R&D), meanwhile, remember to claim back the tax that you’re due. Have a look at this Boast.ai R&D tax credit calculator, to see how much you may be eligible for.
- Create an “ideas bank”
Talk to your staff, particularly those closest to your customers, and ask them for their ideas. They’re likely to be brim-full of interesting and practical solutions for ways to do things better, save money, or become more efficient.
Suggestions could be as simple as buying domain names to target a new audience or as complex as reworking an entire business process. Whatever you do, don’t stifle your team’s creativity.
Remember – don’t just survive, thrive
As we’ve seen, businesses that innovate during tough times come out on top. The ability to re-think, pivot, and change in a tough economic climate will set you apart from the crowd.
So, whether you’re just starting out, or a seasoned operator, seize the opportunity to get creative and think of new and interesting solutions, then stand back and watch your business thrive.