By Chandler Schmidt
In the strangeness and uncertainty of the pandemic and resulting global shutdown, the old familiar proverb rings true: necessity is the mother of invention. The COVID-19 outbreak has birthed innovation everywhere: from teleconference lectures, vaccines, viral treatments. hands-free door openers, rapidly-produced respirators, wrist-mounted disinfectant spray bottles, arm bands that deter people from touching their faces, stylish ventilators, food delivery innovations, to homemade hand sanitizer formulas. Innovators are rapidly responding by creating new tools to fight the deadly virus.
During the global shutdown, it is imperative that people also innovate in areas not so related to the virus. History shows that individuals or companies that innovate during economic downturns set themselves up for success during recovery. A Kauffman Foundation study published at the height of the Great Recession found that over half of the Fortune 500 companies at the time were started during a prior recession or bear market, including innovative companies such as Microsoft, Electronic Arts, Google, IBM, Salesforce, and Trader Joe’s. Additionally, more established firms that innovate during a recession find themselves reaping the rewards during recovery – one study shows that firms with a history of innovating during recessions more efficiently invest in R&D in future economic downturns. Further, the study found that around 90% of the executives interviewed for the study attributed their company’s success after the Great Recession to innovation. This is evidenced by the fact that there was a noticeable increase in the number of patent application filings right after the Great Recession, which tends to show that companies continued investing in R&D through the recession.
That said, when cashflow is reduced, the status quo for R&D expenditures typically cannot continue. Nonetheless, there are ways to strategically innovate that balance budget emergencies and the need to stay competitive and innovate. Here is a thought-provoking article by a well-known entrepreneur that describes an approach to innovating during a recession.