Creativity loves constraints. When it seems like there's no other option, human history shows that we create one. We innovate. The question is, What is the best way to innovate when times get tough? To quote Warren Buffett, "Risk comes from not knowing what you're doing." Here are three things you need to know and do, now.
1. Launch your most disruptive ideas. Industry leaders leapfrog the competition by launching their most disruptive ideas when others pull back. To illustrate, consider this: In February 1930, four months after the stock market crash, Henry R. Luce launched an audacious, irreverent and vibrantly colored arsenal of human-interest stories in the form of a new media product called Fortune magazine. Not only did he have the gall to launch a new product in the shadow of the Great Depression, he created an expensive one. At the outrageously lofty price of $1 per issue, Fortune launched with only 30,000 subscribers. By 1937, the magazine netted a half-million dollars on its circulation of 460,000. By the end of the decade, Fortune had become required reading on Wall Street.
Why did it work? For the very same reason that all great new products work: It made a uniquely relevant contribution to its customers' lives. A recession--or in this case, a depression--doesn't make market needs disappear. Not only do they still exist, new needs emerge. In the case of Fortune, the stock market crash actually piqued interest in the culture of business. People were more attuned to what went on behind closed doors, in boardrooms and in the hallowed halls of corporate America. Luce gave consumers the stories they couldn't get: insight into the personalities behind the numbers.
Fortune worked not in spite of the Great Depression, but because of it. Like Luce did then, use this time now to be aware of the market, not afraid of it.
2. Crank up communication. In a study of 600 companies, McGraw-Hill Research found that businesses that maintained or increased their advertising spend during the 1981-82 recession averaged higher sales growth during the recession and in the three years following. By 1985, sales of aggressive recession advertisers had risen 256% over those that cut back on advertising. In contrast, in 2002, the Strategic Planning Institute illustrated that during economic expansion, although 80% of businesses increased their ad spending, there wasn't any improvement in market share simply because everyone had increased spending. In a crowded bar, yelling louder doesn't help. When markets are quiet, messages are heard.
3. Cut bad costs, and invest in good costs. Before launching that across-the-board cost containment program, ensure that the right costs are cut.
Profit Impact of Market Strategy studied 1,000 businesses between the 1970s and the 1990s to understand how they fared during recessions.
In order to separate winners from losers, PIMS considered three measures: return on capital employed, change in profitability during the first two years of recovery and change in market share during the first two years of recovery. PIMS found that not all costs are created equal. In other words, there are both "good" and "bad" costs.
Good costs yield improvements to these measures. Bad costs do not. Good costs are those that should be increased during a recession. Bad costs are those that should be cut. In other words, invest aggressively in good costs: namely, marketing and innovation.
Downturns are the ideal time to unleash corporate creativity. The greatest mistake one can make now is to mortgage the future by failing to innovate.
Andrew Razeghi (@andrewrazeghi) is a lecturer at the Kellogg School of Management at Northwestern University and managing director of StrategyLab, a growth strategy and innovation consulting firm. Email him at email@example.com.