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The Economy is Changing, Are You?

by Michael Jones

Expansion, prosperity, contraction, recession.  The world’s economies move in great economic cycles that have continued their pattern since markets began to form.  Expansion, prosperity, contraction, recession.  Sometimes they move quickly, at others times more slowly, but always moving.  Expansion, prosperity, contraction, recession.  As often as these cycles occur, why don’t we understand them better than we do?

Large quantities of business innovation tend to occur during times of recession more than any other time in an economic cycle.  Is that because people are more creative when everything is crashing down around them?  No.  If you look at the research, there is little to no change in the rate at which new ideas are generated over time.  So what causes innovation to occur in patterns if idea generation is relatively constant?

Why does business innovation tend to occur in patterns?

During periods of prosperity, most would expect business innovation to be at its peak: money is flowing, confidence is high. But as it turns out, reality is somewhat bleaker.  During periods of prosperity, employment is also high.  The labor markets favor the employee, and the cost of innovation is very expensive.  At the same time, goods are in demand, production schedules are maxed out, and everyone is busy.  There is no time to focus on innovation.  Then the economy changes.

The economy rolls into a period of contraction.  The money supply starts to dry up; companies become concerned about cash flow.  Labor costs are still high, but buyers are starting to cut back on their purchasing.  Profits fall rapidly.  Innovation is the first thing on the chopping block.  No one is buying anyway, why create something new?  Then the economy changes.

We slide down the slippery slope into recession.  Purchasing collapses, weaker businesses fail, stronger ones cut costs and layoff personnel, unemployment is high, labor markets crumple, capital markets are dead. More companies fail.  The companies that remain are beaten down and many are struggling day-to-day to survive.  They have tightened their belts and reduced staff to the bare minimum for keeping the doors open.  They are time-broke.  There is no one left to innovate.  However, in the midst of all of this pain, we have a group of entrepreneurs that see the world differently.  Costs are low.  Labor is cheap.  Production schedules are looser.  Innovation is on sale.  What a fabulous time to develop all those new products that, during the good times, no one ever had a moment to consider.

Another group of entrepreneurs emerges. Rather than be unemployed, theses individuals decide to follow their long-postponed dream and start their own business.  They finally have the time to focus on it and costs are low.  They pour creativity into their business, developing new products, growing slowly, getting all of the bugs worked out waiting for the perfect opening when they will make their mark on the world.  Then the ecomony changes.

The economy expands, there’s light at the end of the tunnel, hope blooms, products start selling again, consumers start seeing all of these new products on the market and excitedly purchase them, market share shifts to the innovators that have caught the market’s attention. Revenue for the non-innovators falls, business models fail, more companies collapse.  What happened?  In the middle of an economic resurgence, how can long-standing companies be run over by young startups?

Innovation!  Innovation is about moving away from the safe and comfortable past and creating your own future.  As companies and products begin to slide, you have to reinvent yourself or die.  In order to innovate, you need to break out of old patterns and change the way you think.

How can companies change the way they think?

Breaking old patterns is hard–true innovation, harder still.  However, if we are to avoid the decline into product and company death, we have to be able to embrace and drive change and innovation throughout our companies.  We must transform our business models to capture the hearts and minds of our customers.  How then do we create a culture that excels at innovation?

Reward failure.  This may seem counterintuitive, but if your employees are out pushing the limits, trying to create change and innovation, they are sometimes going to fail.  The fastest way to stifle innovation in a company is to punish failure.  No one will ever take a chance again.  Instead, celebrate failure publicly and help everyone to learn from it and not make the same mistakes in the future.  This also encourages everyone to be honest about the effectiveness of their projects so that you aren’t pouring good money into bad ideas.

Fail faster.  The faster you can identify and stop a dead-end project, the less time, money, and other resources you will waste.  This means you should be constantly assessing and evaluating whether the projects you are working on are still good prospects.  Markets change, needs change, new information is discovered during the development of a project. Any of these factors can make a project no longer viable.  This isn’t to say that when a project becomes difficult, you should stop. Just take a step back, assess and ensure that you are still on the right track.

Get outside your box.  Businesses can become inbred in their thinking.  Reviewing your business from an outside perspective uncovers ideas that would never occur to those within.  Inbred thinking has many causes, but some of the most common include:

  • Promoting only from within. There are good reasons to promote from within, however, periodically bringing in fresh ideas, by hiring experienced personnel from the outside, can help companies become more innovative.
  • Only hiring from within your own industry. While direct experience can cut training time and learning curves, this is because everyone in an industry tends to look at issues the same way.  Hiring experienced personnel from outside your industry will bring in innovative ideas.
  • Hiring industry consultants. Bringing in cross-industry consultants, who spend a good deal of their time in other industries, can bring a new perspective to the issues you are trying to solve.
  • Lack of external perspective. Innovation starts at the top.  If the top leaders of a company can gain new perspectives on how other industries are addressing similar issues, they can ask much better questions and better drive innovation at home.  Consider joining a peer advisory board.  Cross-industry advisory boards have long provided a forum for business leaders to gain constructive, innovative advice before they start spending time, money, and other resources chasing issues someone else may have already solved.

Where do we go from here?

The economy is changing continuously.  How you respond to that change will determine how well your business prospers.  As Stephen Epner (John Cook School of Business) once noted,

“If we do not change, we will fail.

If we wait to change, we can only follow.

If we embrace change, we can succeed and lead.”

Where do you want your business to be?

The economy is changing, are you?

 

Michael Jones is the Owner of CEO Focus of Jacksonville, which provides business coaching, professionally facilitated peer advisory boards, and other support services to the Northeast Florida business community.  Previously, Mike worked as a consultant and a coach in many different industries in both the for-profit and nonprofit communities.


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