Hope is not a strategy, but strategy gives you hope. Hunker down, or innovate? What’s your instinct telling you about the ‘bets’ you have to make to navigate a way forward in the Covid-impacted economy? The only thing we know for sure about life after Covid is that it will be different, and like any crisis, there will be challenges – and opportunities, if you chose to see them.
For startups, the natural instinct at this time is to enter into disaster management mode. Haemorrhaging revenue and cash must be cauterised, battened down with triage measures. If the patient is bleeding you need to stop that first. There’s no sense worrying if we can learn a new trick while we’re still leaking blood. Despite this, innovation should not always be a casualty of crisis. While it makes sense to suspend efforts to improve while the existence of your startup itself is at risk, startups stand a lot to gain by taking the long view in a ‘sense and respond’ strategy.
It will be some time before we understand the full economic impact of the pandemic, but the history of such shocks tells us two things. Firstly, economic downturns provide opportunities to move your business forward; secondly, crises produce not just a raft of temporary market shifts, but also some long-term, permanent market realignment. History is replete with examples of businesses that found opportunities to innovate in times of crisis, reaping massive wins as a result. For example, the 2003 SARS outbreak in China is seen as the catalyst for accelerating a structural shift to e-commerce, paving the way for the rise of Alibaba.
The Covid pandemic will accelerate change and bring both opportunity and danger. The theory of Black Swans, developed by Nassim Nicholas Taleb in his book Fooled By Randomness, shows that unpredictable high impact events play a vastly greater role than most people realise. The importance of the metaphor lies in its analogy to the fragility of any system of thought.
We’re all familiar with stories about how American GI’s kept trucks and jeeps rolling during World War II, even when spare parts weren’t available. Used to tinkering with jalopies in their garages back home, the young soldiers were able to conjure up fixes with whatever materials were on hand. Improvisation in times of necessity brings out ingenuity.
In response to the pandemic, we’ve seen innovators to jump in, for example, beer makers and distilleries have shifted production to hand sanitisers. In Italy, a start-up engineering company applied 3D printers to create the valves used in ventilators. Those just-in-time valves saved lives. But there is much more to the generative nature of a crisis that leads to innovation than simply an opportunity to solve problems. Crises present us with unique conditions that allow innovators to think and move more freely to create rapid, impactful change.
Zoom and gloom. The transition to remote work was an experiment driven by the need to reshape the traditional office-based working routine. In a matter of weeks, we all abandoned our offices en masse in favour of working from home. Meetings were replaced with Zoom calls, and commutes with longer, solitary hours at the home working desk. The experiment has turned out to be an improvement for many.
But it is not just small, scrappy startup firms that push innovation forward. Schumpeterian ‘creative destruction’ in times of crisis is just a version of ‘creative accumulation’ in economic upswings, when incremental innovation is carried out in the R&D teams of big-tech firms. The cash-rich tech giants have become examples of creative accumulation, helping foster some amazing innovation during the good times. They will probably continue to do so during the current crisis, as they expand into health care, fintech and other sectors with their smart thinking and deep pockets.
So, lets retain a focus on the optimist’s scenario, in what I call a ‘sense and respond strategy’, where you have to upend your existing startup thinking, scan the horizon and look for contrarian or adverse challenges, and those you never considered to be on your radar previously, and make some bets.
The pandemic has disrupted consumption, forcing both organisations and customers to unlearn old habits and adopt new ones. From the organisation perspective, it’s about how to sense growth opportunities and respond with innovation initiatives to accelerate the engagement, experience and satisfaction of the customer in the ‘new normal’.
Startups seeking to emerge from the crisis with momentum to build a stronger future must develop a systematic understanding of changed customer needs and habits. The first step is to map the potential ramifications of changing expectations and trends to identify specific products or business opportunities that will most likely grow as a result.
Unless we respond to new habits and demands, and their cascading indirect effects, we will fail to spot signals and miss opportunities to shape markets. One approach is to categorise demand shifts on the basis of whether they are likely to be short-term or long-term, and whether they were existing before the crisis or have emerged since it began. I’ve put them into a framework, the ‘ACID test’
- What are the Advancers? These are temporary departures from existing customer behaviours you’ve seen in the market, but they’ve increased demand for certain aspects of your business model. An example we’ve seen in the pandemic is the uplift in demand for home food deliveries from supermarkets. As part of your updated business model, what can you make this a sustainable driver of growth?
- What are the Catalysts? These are accelerations of existing trends that the pandemic has boosted further. A good example is video streaming, with the internet completely changing how we watch films and television, no longer are we shackled to schedules, it’s on-demand and we don’t have to pay hand-over-fist for the latest film releases. Where are the catalysts for high-growth you’ve seen in your business?
- What are the Innovations – what has had a seismic shift in customer demand? For years, videoconferencing enjoyed growth by focusing on corporate clients. Now Zoom, with simple setup and viral connectivity, has become, overnight, the go-to connector in the pandemic. We are all ‘zooming’ for a myriad of purposes, including family and fitness. Where in your business is your ‘Zoom’ innovative growth offering?
- What are the Dislocations? What has the pandemic brought an abrupt halt to in your business? According to McKinsey, 96% of businesses have changed their go-to-market model since the pandemic hit – sales coverage has been completely redefined, virtual teams a core part of the organisation structure. What do you now need to repurpose and redefine, and bake into your business model innovation?
This framework can be used to highlight which trends to follow and which to shape more aggressively – you cannot pursue all possibilities and should not try to – but use this to get an idea of which ones to back, asking yourself whether any shift in demand is temporary or permanent?
Any analysis of growth opportunities must go beyond a simple assessment of what you already know. You need to challenge your thinking about what’s happening in your domain by taking a fresh, careful look and actively seek out anomalies and surprises. Armed with an understanding of where your opportunities lie given the new shape of demand, you can now move to the next step – reshaping your business model to create and deliver value.
Your answers to the Advancers-Catalysts-Innovations-Dislocations should tell you what you need to focus on in terms of an innovation process, and adopt a lean startup mindset, for example:
- Deconstruction: Understand the constituent parts of your business.
- Imagination: Visualise what can be improved
- Testing: Subject your ideas to rigorous testing
- Prototyping: Create a simplified version of your product or service to gauge market impact
To make a difference, your investments should focus on specific business-model innovations to address identified opportunities, rather than convince yourself you’ve got a short-term win as a comfort blanket to pay catch up or simply reduce cost.
Granted, innovation in times of crisis can be hard going, especially due to tight resources. But this can also be a good thing. Less can often be more when it concerns innovation. You can still create meaningful advantage if you find ways to innovate behind the scenes, even at less than desired rates. As you undergo this process of innovation, apply the 70/20/10 test to your process:
- 70% of your innovation should be focused on improving the core of your business
- 20% should look to take advantage of adjacent opportunities
- 10% on transformational opportunities.
In the current environment, startups that are willing to embrace potentially higher levels of risks are likely to benefit the most. Rather than hoard cash and protect the runaway, whilst agonising about what might befall you, engage in more-aggressive, dynamic innovation thinking. Now is the time to be bold and not sit there letting your tea go cold. Heightened uncertainty means you cannot accurately predict which innovations will be most successful, so take an experimental approach and go with an approach like the ACID test to provide some validated thinking.
In times of crisis, it’s easy for organisations to default to old habits, but these are the times in which new approaches are most valuable. John F. Kennedy once observed that the word ‘crisis’ in Chinese is composed of two characters, one representing danger, the other opportunity. He may not have been entirely correct on the linguistics, but the sentiment is true enough: a crisis presents a choice.
As startups seek to reposition themselves for the new normal, they cannot afford to be constrained by the existing business model, processes and behaviours and be complacent about customer behaviours, habits and expectations. Instead they must challenge mental models, revamp their business model, and invest in innovation systematically to not only survive the crisis but also thrive in the post-crisis world. Prioritising innovation today is the key to unlocking post-crisis growth of tomorrow.
Focus toward a clear purpose in resolving the crisis will typically find more than just a deep wellspring of energy and make you feel good. For example, the Apollo 13 mission to the moon that was upended by an explosion on board forced NASA engineers to improvise to save the crew. Under the famous leadership statement that Failure is not an option, the engineering team successfully rallied to design a makeshift device to scrub the air of carbon dioxide so the astronauts could survive the trip home, using only items available to the crew on board the lunar module.
The Apollo example shows crisis demands movement and change, the pace of ideation, decision making, and implementation all increases dramatically – because there is an imperative to do so. A startup that gets trapped in the ‘intense study of the obvious’ and fixates on the short term, whilst not having an awareness of the unknown unknowns, must force itself to quickly create experiments, see what happens, and experiment some more. This process of experimentation allows the freedom to test different thinking, to fail fast, to learn, and to move forward – in short, to innovate.
So, we face the dichotomy of the peril and the promise of zoom and gloom. We’re in a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress. Make you startup venture an adventure, not a predicament. Adventure is worthwhile. It begins with a thought, decision and action. As Mark Twain said, Explore, Dream, Discover. Oh, the places you’ll go to.