A Recession? Save your innovation budget!

According to the Duke University/CFO Business Outlook survey, nearly half of the CFOs surveyed believe that the United States will enter a recession by the end of 2019, and 82% expect that a recession will happen by the end of 2020.

For those of you running your company’s innovation program, you know what that likely means. Despite the fact that mature innovation programs are constructed in such a way to protect against downturns, they are often the first programs to be cut. Worse, despite the increase in uncertainty concomitant with economic downturns, businesses forget what was learned in their innovation programs. They revert to entrenched execution behaviors, trying to squeeze blood out of a turnip.

I would like to offer a different, proactive strategy; one that demonstrates that the opportunity cost of not investing in innovation far outweighs the immediate cost savings. This 5 step strategy is derived from our experience guiding clients through uncertainty and will demonstrate the value inherent in the innovation investment.

Step 1: Start small, but be audacious.

Innovators who want to make an impact despite a change in market sentiment should look no further than what is right in front of them. Internal hackathons, comprised of local kindred spirits, coached by the innovation team are a great way to equip employees with the right tools and tactics while moving real projects forward quickly

The hackathons can be held over any 2–3 day period, including off-hours. A common practice we’ve seen is clustering time over a long weekend, running from Friday to Sunday, or Saturday to a wrap-up half-day session on a Monday holiday.

Along with the right timing, successful innovation “hackathons” are those with the biggest ambitions. In the most effective and memorable hackathons we’ve encountered, the corporate innovation team set the goal of “100 startups in 100 days.” In other words, using a combination of ideas generated by employees, as well as those based on needs identified by leaders, 100 internal startup teams were formed in a little over 3 months.

This was neither an attempt to create “disruptive innovation,” nor “innovation theater.” Rather, it was about inspiring creativity on real business issues, both customer-facing and internal, through constraint. And to demonstrate that innovation is an essential function across the organization, not nice-to-have R&D or only to be undertaken by the innovation team.

Step 2: Find the ruptures.

There’s a catch. This is not your typical hackathon. The standard “build it and they will come” innovation ideation session that favors building prototypes over the course of a weekend. That kind of effort is primarily based on technical risk. In other words, how much technical viability, can we build over the weekend? This challenge is exciting, because who doesn’t like a new toy after a hard-working weekend?

Our recommended version of an innovation workshop program seeks to find immediate customer value. Ideas are broken down to their core assumptions, then tested through various methods, including talking to real customers or creating concierge experiments.

This methodology centers on three principles, which we call the 3 Es of Lean Innovation:

Empathy — Understanding customers deeply

Experiments — Running experiments to test the riskiest assumptions

Evidence — Looking at data + insights on a regular cadence to inform next steps

The results generated will reveal opportunities. Whether it’s a product or service, customer-facing or an internal process issue, the ruptures that are identified in delivery or support present opportunities for improvement. How we respond and what solution we place in the rupture makes all the difference. We need to demonstrate the real customer impact due to this rupture (again, external or internal customers) and then execute upon it in the short term.

Step 3: Repeat steps 1 and 2, but with a larger sample group.

In our “100 startups in 100 days” experience, progress was not linear. Initial feedback identified in step 2 was re-tested and reconfirmed before being exposed to the broader organization.

Along the way, certain business cases became stronger based on market evidence, others went through pivots to be better aligned. The vision became clearer and the pool of participants increased, adding champions from leadership as well as a broader sampling of customers.

For corporate innovators trying to outrun a recession, we advise that the numbers don’t have to be perfect. Instead, they should be meaningful enough to scale to the rest of the organization. Testimonials from participants and other feedback is also helpful, because it validates what you’re doing as well as helps to maintain momentum.

The amount of evidence required to demonstrate a positive outcome depends on corporate culture.

According to Bansi Nagii and Geoff Tuff in the Harvard Business Review, the metric is not a magic number, but a balance between investment and opportunity:

“The point is that a management team should arrive at a ratio that it believes will deliver better ROI in the form of revenue growth and market capitalization, should discover how far its current allocation is from that ideal, and should come up with a plan to close the gap.”

To guide your decision-making, our Value Stream Discovery (VSD) loop and toolkit helps you articulate what business activities you assume you must undertake in order to create value while facing extreme uncertainty.

This tool helps determine an internal startup metric that represents “progress toward impact.” Investment decisions are made based upon the numbers. The carrot for those who volunteer for the hackathon: they get to continue to work on the project at some percentage of their team if their idea receives investment. Even better, they receive a bonus based upon the actual impact if they progress that far.

Step 4: Be a microscope; be a telescope.

“Forever Recession” is the term author and innovation expert Seth Godin uses for the continuous state of disruption that companies face. Clearly, when we take a close look at the wild fluctuations of the market within a given day, it is hard to debate such vigilance.

At the same time, companies cannot exist within the micro-instant. Along with knowing what’s right in front of them, they must have something to move toward. Call it a “vision statement” or just a reason to get out of bed in the morning. The bottom line is that the bottom line needs to point somewhere.

“Forever Boom; Forever Recession” (our variation) seems a truer statement of the situation — and one that also embraces the joyful aspect of the struggle for innovation. Maintaining an aggressive stance implies a fluid view, not one that lingers too long on this morning’s micro-trend or the deficit on the negative end of the bell-curve.

If clients ask whether it is more important to be a telescope or a microscope, we remind them that with the right tools, you don’t have to choose. What to do?

Don’t get caught in one perspective. Change lenses, expand your context. Alternate between the up-close and the long-term.

The devil’s in the details, of course. The internal startup teams need to be tightly focused on creating real customer value. This doesn’t happen without leadership support. That does NOT mean leaders simply get out of the way. Leaders must make decisions to balance the search mode with execution mode. They must be “mini-portfolio managers” and allocate resources based on evidence. Leaders must walk the talk and evaluate teams based on evidence and not gut feel. Leaders must clear the runway by helping teams overcome internal obstacles and roadblocks. Mostly, leaders need to be engaged by mentoring, inspiring, and, yes, getting a bit out of the way, too.

Learning how to balance search and execute is one of the more difficult conundrums. But executing only in the face of uncertainty leads to failure. So balance you must.

Step 5: Look for that $90 million in value.

Innovation programs must be tied to economic value for the organization. When our colleagues set out to found 100 startups in 100 days, they fell short by 18, but in the process, generated $90+ million in savings and new revenue from the insights, innovations and products that emerged from the lean innovation hackathons.

The lesson for innovation professionals worried about a recession should be clear. Setting unrealistic goals is the only realistic way to succeed. The trick is being diligent about sharing the discoveries and metrics of progress toward impact so that when it is time to show the program's value, the monetary benefits are clear to even the harshest critics.

Where to start?

A good place is with a conversation or perhaps Readiness Assessment, which will help you determine where your organization is excelling and what a bold implementation roadmap would look like.

And regarding that $90 million in unrealized value: How about instead of founding 100 startups, you shoot for 200? And rather than $90 million, go for $200?