The Reset Moment: How Downturns Create the Dynamics for Innovation and Transformation
We tend to think of economic cycles as peaks and troughs of good times and bad — but the lesson of history for leaders is that our thinking and strategies need a far more nuanced understanding of changing times.
From FedEx and Amgen to Microsoft, Salesforce and Square, 50% of today’s Fortune 500 were founded in times of economic stress over the last 100 years. Indeed, Fortune Magazine was launched just 90 days after the 1929 Wall Street Crash when fortunes were being lost not made. The notion that many of the world’s best companies were either founded or really took off during times of economic stress is inspiring. It’s easy to think that the best path is to lie low and slash burn and conserve runway until the economy picks back up again. But that’s what everyone else out there is trying to do; simply tread water and survive until market conditions become more favorable. These risk-averse behaviors stem from a fear-based survival mindset. It’s a mindset and approach that history shows will not carry you far relative to smarter, better-financed and better-positioned competition.
The moment for reset
The best companies in the world are leveraging this moment to reset their foundation. They are applying the strategic skill of ‘seeing around corners’ to determine what their big opportunity is through this downturn – and then aligning leaders and mobilizing to deliver targeted outcomes in a focused and disciplined way. We’ve been working with three such organizations at different stages of maturity as they have made weighty decisions to pivot their strategy and operations towards those areas they can have the biggest impact now. These hard choices may seem to channel risk, but upon closer examination are calculated moves designed to shore up the path to success in the long run.
1. The early stage start-up: Creating a bridge to sustainable growth
This fintech company was banking on a major round of fundraising to fuel growth, but is changing tack as access to capital is shut down for the foreseeable future. Instead of continuing to serve multiple customer segments in a scattershot way, they are retrenching Go To Market efforts to focus on the one segment they can serve the best and most profitably right now. This will buy them the time they need to build out the remainder of their product suite and scale up operations to move aggressively up-market in a sustainable way. This has required saying ‘no’ to bigger customers whom they can’t serve well at the moment while at the same time taking on fairly significant operational risks to cut internal costs and shift to an offshore development model. If successful, they will benefit from dramatically expanding their engineering capacity, but first will have to manage the looming tech and cultural risks associated with this new plan.
2. The late stage start-up: Creating an entirely new market amid uncertainty
This market-making organization is working to commercialize brand-new technology. After making the tough decision to cut 20% of costs, they are going all in on a single, complex company-wide strategic initiative that, if successful, will demonstrate tangible proof points and value creation at scale. This will generate the momentum they need to take off when (not if) the market bounces back. When you step back to consider their position, it feels less risky to proceed with this strategy than to continue spreading resources thinly across multiple different commercial bets hoping that one of them might take hold and gain traction. There’s also a higher chance of winning when every team member across the company is focused on the same outcome.
3. The mature, established category leader: Taking on organizational inertia
Although this company has enjoyed stable revenue and profitability, growth has slowed considerably in the last several years and they’re not acquiring new customers at nearly the same rate they were used to in the past. They are in the unenviable position of having to disrupt themselves. They will do so through two doorways: 1) brand new product innovation by deepening understanding of and finding novel ways to meet consumers’ changing needs during these uncertain times and 2) brand storytelling investments: shaping and communicating their brand promise in a clear, compelling and accessible way Allowing someone else to step in and tell their story for them has been a consistent problem, as generally, these lurking stories cast this company in a negative light in attempts to bring down the market leader. Taking destiny back into their hands has meant owning their narrative and being unabashed about what they stand for in this world, while continuing to discover new ways to serve and delight customers.
You can’t cut your way to greatness
Reducing unnecessary costs and becoming more efficient operationally are table stakes. That should be happening anyway. At the same time, this behavior on its own can be taken too far. Organizations that slash and burn, desperately trying to get themselves out of extreme debt by cutting as many heads as they possibly can without a clear sense of how to ‘win’ hearts and minds of customers, partners and employees amounts to a fruitless strategy. What will be left of those organizations in the end? The opportunity of a downturn is the moment to reset: sometimes this can feel like a hard reboot, yet leaders operating with a more nuanced understanding of where the present and future strengths of the organization lie will have the clarity to see how to leverage their existing assets most strategically – to catalyze innovation and transformation.
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