Innovation: Finding the Way Out of the Recession

By Elizabeth Harrin (London)iStock_000010253878XSmall

The U.S. may have turned the corner and be on its way out of the recession, but what else is coming out of the recession? A new frugality? Consumers who will never invest in luxury products again? Not so. In fact, recessions have a history of giving us new and exciting things. The iPod was a product of the last recession, and this downturn also looks to be providing organisations with some great opportunities.

Julie Meyer, founder and CEO of Ariadne Capital believes that one of the things businesses could benefit from is the shift towards what she calls ‘individual capitalism’. “The unit of business has come down to the individual,” she says. There’s a focus on providing customers with a more personalised approach – whether that’s in financial services products or giving them the chance to tailor their coffee to their personal tastes on the way into the office each morning.

Beating Difficulty through Innovation

Certain companies, according to Meyer, are using the downturn to drive innovation. This was the focus of the Innovation Summit hosted by The Economist in London recently, where Meyer was speaking. One of the shifts Meyer identifies is an innovative approach to the counter the fact that venture capitalist firms have moved into funding late early-stage capital instead of funding unproven ideas through early stage capital. Business owners who are on their second great idea are not approaching the investment firms of the past. Instead, says Meyer, there is a trend towards groups of people in this situation banding together to create investment communities.

Regardless of the product, good management is a way that companies can keep themselves profitable during a downturn. “I see a lean operating model everywhere,” Meyer says. “That’s what we look for.”
Keeping the operating model lean is a mixture of a number of management strategies, all of which we have seen recently in the financial services market: getting rid of people (preferably the unproductive ones), selling off non-core divisions, streamlining processes and grabbing market share from not-so-successful competitors. “I think economic growth will come from new companies, not just big companies reinventing themselves,” Meyer adds. “Good companies continue to innovate and use the recession as a market share opportunity.”

The Role of Government in Driving Business Innovation

Part of economic growth requires companies to take the lead, and make wise investment and strategy decisions. But part of it is down to a supportive economic framework. Meyer believes governments have a role to play, but they better not meddle too much. She gives an example: when India’s government didn’t understand the emerging technology sector, it decided to do nothing. Doing nothing was exactly the right strategy because it gave India’s technology sector the ability to expand without legislative interference.

“It’s irresponsible for governments not to communicate that change is happening more and more,” Meyer says. Government subsidies to keep companies afloat fossilises the existing industry structure. “You don’t need to leave it at the doorstep of government. You could move people from the cost side of the economy to the revenue side.” She does concede that there are some good government sponsored initiatives, but there are also examples of small companies and foundations getting disadvantaged people into (or back into) work.

“Capital Follows Great Ideas”

Small companies will be part of the economic revival by becoming part of large companies. Big organisations will be on the look out to take on successful small players with a good business model. The parent company can then provide them with the scale and distribution outlets for their services. It’s a good time for financial services companies to be acquiring smaller, successful, niche players and Meyer doesn’t think there is any shortage of investment for the right companies. “Capital follows great ideas,” she says. And with this recession providing opportunities for those who know how to exploit it, there could soon be some very happy partnerships out there.