Is a Recession Good for Business Model Innovation?


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It seems that many entrepreneurs have crawled into their caves to wait out the recession. For many of them, the battle cries have become:

  • If in doubt, don’t spend
  • Just ride it out
  • Change is dangerous, one small mistake might break the camel’s back

This general attitude of intense risk aversion leads to abysmal business model innovation. Many businesses only innovate when they are on death’s door- when there is no other option but to innovate. For many small businesses, this innovation comes too late.

Is a recession good for your business model?

It takes years for powerful innovations to take hold and fundamentally change a business. Take the success of the iPad. It may have taken Apple two or three years to move from conception to sellable product. However, the genesis of the iPad was in the late 1990s with the Newton. The failed Newton lead to the successful iPad. Great innovations take patience and time, something entrepreneurs tend to be short on.

Is it possible that business owners need to think more counter-intuitively? Rather than passively riding out the recession, could slow economic times be the perfect time to innovate the business model? I say “Yes.” Other than finances being tight during a recession, all other factors are favorable to experiment with your business model during tough times.

Why do college enrollments go up during a recession? Since there are fewer job opportunities, people figure, “I wasn’t going to get a job anyway, so why not put the time to good use.” Businesses should do the same thing. Innovation and the corresponding initiatives are easier when sales are slower. Yes, by innovating during tough times, the economic pain may be greater. Yes, it may be more difficult to fund the innovations to your business model. However, savvy entrepreneurs find a ways to innovate more during a downturn so they can “make more hay” when the economy turns.

How can you innovate despite the recession? Here are some starting points:

  • Focus on innovation, idea generation, and thinking activities which are free. You may need to put the implementation on the back burner, but you can carve out your plan today.
  • Consider quick trials rather than full-blown initiatives. Typically, resources can be hodge-podged together from the existing cost structure for a trial rather than creating a new expense.
  • Make small financial bets that won’t kill you. Nearly everything is cheaper during a recession, so your money will go further. Keep in mind that entrepreneurs are calculated risk takers. You may not like betting on snake eyes. However, if I give you 50/50 odds on it, you are chickening out if you don’t bet. Curb your number of bets, but keep investing on the sure winners.
  • Find somewhere else to cut. I have seen many businesses cut payroll or other expenses to the bone only to be fully able to cut again if times get worse. Do not sacrifice innovation for marginal expenses. Innovation will fuel the future of your business, marginal expenses or employees will not.

Do you agree that entrepreneurs should innovate their business model more during a recession?

Republished with author's permission from original post.

Jim Muehlhausen
Aside from his books "The 51 Fatal Business Errors and How to Avoid Them" and "Business Models for Dummies," Mr. Muehlhausen has been published in various publications including Inc., Entrepreneur, The Washington Post, MSNBC, The Small Business Report, The Indianapolis Business Journal, Undercar Digest, Digitrends, and NAICC Journal.


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