Pivoting in the Face of Crisis

Wartime aside, which pre-internet decade held the most technological innovation? According to Professor of Economics at Santa Clara University Alexander J. Field, the answer to that question is in the 1930s A Great Leap Forward: 1930s Depression and U.S. Economic Growth, Field credits the struggles of America’s Great Depression with a burst in productive capacity. In fact, he links this technological advancement to America’s relative success during World War II and the “Golden Age” of capitalism between 1948 and 1973.

Studies looking at more recent periods also note the relationship between crisis and innovation. Shortly after the 2008 global recession, the Ewing Marion Kauffman Foundation published a report on the relationship between recession and entrepreneurial success. It found that 57% of Fortune 500 companies were founded during recessions or during other times when investors were tightening their purse strings. Innovation advisory service Startup Genome puts it another way: “Crisis begets opportunity.”

There are several obvious reasons for this, and they’re well documented in the innovation space. For businesses and organizations, crises are much like a storm in a large forest: Trees that are unable to be flexible break under the pressure of the wind. With larger and older trees out of the picture, there are more nutrients and light for smaller trees and seedlings. These smaller, younger trees then stretch and grow, moving into the newly opened space and benefiting from the increase in sunlight.

Global crises take out competitors who are stuck in old and inflexible ways of thinking and operating, leaving the market open for businesses that are agile. However, many businesses fail to engage in several critical steps. It’s tempting for us to believe that reduced competition is, in and of itself, enough to guarantee success in a market in flux. The reality is that stretching and growing our businesses to meet new needs is a process deserving of careful thought and strategic planning. Indeed, it will be the difference between merely adapting and thriving.

What parts of your business or organization need to stretch?

First, be mindful of cash flow.

As much as communicators like Simon Sinek encourage us to focus first on the “why,” a wiser approach for a business or organization in the midst of a storm may be to focus on this vital part of the “how.”

Let’s go back to the tree metaphor. Minding your cash flow is like making sure your seedling has access to water and nutrients in the immediate future before it does the work of stretching and growing. Ask yourself: What is my cash position? What is my current burn rate? What accounts receivable can I secure? Do I have access to funding if my stretching and growing involves new upfront capital costs? Am I prepared to secure a loan if I need to? If I were to go through a major pivot, is it realistic to expect that I could bootstrap my way through it?

Be clear about your intended direction.

Take an inventory of your resources. What knowledge, skills, abilities, assets, and processes do you have at your fingertips that could be used to meet new needs? What new needs have arisen over the course of 2020 that have gone unnoticed by other businesses in your space? Look for opportunities where those preexisting resources are aligned with a new need. Remember, for most businesses, the goal will be to stretch — not necessarily to uproot or plant seeds in a completely different area.

Take Chinese cosmetic company Lin Qingxuan, for instance. Despite the fact that it was required to close 40% of its storefronts during China’s initial Covid-19 outbreaks, it assessed its inventory and counted plenty of knowledgeable beauty consultants among it. The company quickly set itself up for digital consultations over WeChat. As a result, sales in Wuhan achieved 200% growth compared to the previous year.

Plan for additional storms; they’re coming.

Now is the time for new and innovative ideas. It would be naive to assume, however, that the crises we’ve witnessed in the first half of 2020 are the storms that will end all storms. It’s time to set up businesses that are not just new and different; they must also be lean, innovative, and resilient.

Ask yourself: How would my business fare in the event of a steeper economic downturn? What customer or client attitudes and behaviors might change in the near future, and how will I respond? Are there ways that I can diversify revenue and cut costs once my idea is off the ground? Am I setting up a business that will become irrelevant once the pandemic is under control? This last consideration is important. The point is to set up a business that is versatile, not a business that is tied rigidly to the pandemic.

An example of a job well done in this area is high-end swimwear company Granadilla, which transitioned into the role of getting fresh food from farmers to consumers. The demand for fresh food will remain when Covid-19 is long gone.

For those who are at the junctures in their lives where everyone expects a major pivot — graduating from high school or college, entering the professional workforce, or changing corporate roles, for example — this is both an exciting and scary time. Similarly, many business owners and service providers will now find themselves in a position where business, as usual, is neither possible nor prudent. Maybe you were anticipating a major pivot this year, or maybe it has taken you entirely by surprise. Either way, remember that it is the flexible among us who will survive in times of crisis. It is those who see new needs and strategically stretch to address them who will thrive.

This was originally published on Forbes.

English AOTJuly 7, 2020