The Right Climate for Innovation

What a terrible time to try to sell an innovation. Oh, for the boom years of a decade ago, when investment capital was as plentiful as the dew.

Or maybe not. Yes, there are advantages to boom years. Historians of innovation say, however, there’s a lot to be said—maybe more to be said—about individuals and companies that come up with new ideas in hard times.

After all, there’s no guarantee that a boom-time company will succeed. Remember Pets.com? And CueCat? Hundreds of millions of dollars were burned through during the last technology boom by companies that are scarcely a footnote to business history.

And hard times? Reach back to 1938, the depths of the Great Depression. Hewlett-Packard started in a garage. In late 1982, the U.S. was just emerging from a recession . And two entrepreneurs left Xerox to found Adobe. In 2008, as markets crumbled and world economies teetered, Groupon sold its first bargain. Even questions now cropping up about Groupon don’t challenge the point that this rocket lit its fuse in the midst of the current downturn.

It’s not that good times are bad for innovation, necessarily. Easy money just tends to generate more followers than leaders, says Steven Johnson, author of “Where Good Ideas Come From: The Natural History of Innovation.”

He uses a metaphor from biology: Nature has evolved several tiny critters that reproduce asexually when food is plentiful.

“Just make a copy of ourselves, because this is working,” Johnson said.

When resources are scarce, though, suddenly there are males that mate with females to produce a more-diverse next generation. Sex, after all, shakes up the genetic dice.

Something like that happens in business when resources get tight. Instead of companies trying to simply duplicate existing success, they’re more willing to mix up the old formulas.

“There is more of a drive for experimentation in the lean times and more of a copycat model in the fast times,” Johnson says.

Ken Tencer sings much the same tune. He’s the CEO of Spyder Works Inc., and the co-author and developer of The 90% Rule book and seminars.

“Innovation has always thrived during hard times, as they freed people to question the status quo,” he says. “In good times, people may be less inclined to rock the boat, but in tough times you have no choice.”

He also notes that “innovation” doesn’t necessarily mean “capital intensive.”

“If you can cut melon or make a right-hand turn, then you can be innovative. Supermarkets recognized the growing demand for take-out food and simply added prepared foods to their product mix,” Tencer says. “UPS recognized that right-hand turns saved gas and time, enabling more deliveries. These are examples of simple, adaptive innovation.”

He does suggest that there are strategies better tailored for good times and bad. Easier access to money does make a difference, after all. A smart entrepreneur works to find and use that different edge, Tencer says.

“That is the importance of understanding the innovation continuum—simple, adaptive to focused, disruptive. In tough times, be a little more to the conservative, simple end of the continuum. And in good times move toward the disruptive end, which requires greater capital,” he says. “If you’ve done well in the tough times, finding money in good times to further build on your success should be that much easier.”

Just don’t be too conservative, he cautions.

“Fear makes us cut budgets to the bare bones and fall behind those who manage to keep reinvesting,” he says. “Today, not going forward means moving backwards.”

The basic approach toward innovation should stay constant, regardless of the business climate, Tencer says.

“Don’t launch something because times are good or bad—launch it because it is ready to be launched,” he says. “Launch it if it is new, improved, fulfills a customer need—and works.”

Despite the headlines and statistics about the Great Recession, these aren’t actually hard times for all industries, author Johnson says. The tech industry is actually in its own, isolated boom, for instance.

“The web and tech sector is totally disconnected from the rest of the country,” he says.

But isn’t the claim that the rules are different, that gravity does not apply to the Internet, the same kind of talk that inflated the last tech bubble? Partly, Johnson says. Many of the current tech successes actually have a business model that includes profits, he argues, though that doesn’t keep him from getting a tad nervous.

“It’s getting a little frothy now,” Johnson says.

His suggestion is that innovators aim a bit lower for a while. Don’t try to become the next Mark Zuckerberg. Don’t set your sights on billions. Satisfy yourself, and maybe others will want to pay for the product.

“Build a tool that actually does something you want,” Johnson says.

Kevin Kelly has been an innovator since the 1980s. He was publisher and editor of Whole Earth Review, co-founded Wired magazine, helped launch the virtual community The WELL, and is, most recently, the author of "What Technology Wants."

Whether the surrounding economic climate was sunny or stormy, Kelly has kept on producing new and often successful ideas. Does plentiful money change the kinds of ideas that succeed? Are some kinds of technology, for instance, better suited for tough sledding?

Not so much, he said.

“While it may not change the technology, bad times do change the people,” Kelly said. “It's the best education and makes the next round of innovators far more cagey, wiley, realistic, and likely to succeed when the good times start.”