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How to find your grit and stay scrappy during a recession

This economic downturn will undoubtedly make or break startups. The survivors will be the ones that use these trying times as an opportunity to innovate, run on lower cash flow, and pivot their operations to meet changing market needs. Companies born during recessions tend to end up being the most resilient. More than half of Fortune 500 companies ​were created during a recession or a bear market.



This picture show a notebook with some innovation ideas.

There’s no denying the COVID-19 pandemic has left an indelible dark mark on the global economy. In the U.S. alone, the economy shrank by nearly 5% in the first quarter of 2020. GDP was 1.2% lower than it was in the fourth quarter of 2019, and more than 30 million Americans have filed for unemployment insurance since the pandemic began.

It’s looking like we’ll experience a sharp contraction of the market in the second quarter of 2020, with GDP projected to decline another 12%, the unemployment rate to average about 14%, and interest rates on three-month Treasury bills and 10-year Treasury notes expected to average 0.1% and 0.6%, respectively.

This might seem like a gloomy outlook, but there is still room for optimism in the startup scene. I’ve long believed there’s something about the challenge of a recession that forces startup founders to launch lean, cash-savvy, and innovative ventures. Now, it’s time to put that belief to work.

A shot in the arm for innovation

What is it about recessions that encourages some startup founders to thrive? When startups are forced to make cuts, they rely on their scrappy and creative roots to stay afloat, finding ways to run on less funding while adapting to a rocky supply chain. Without these adjustments, they could become part of the two-thirds of startups will likely run out of money within six months.

Car rental startup Zoomcar, for example, is using this time to get creative with its service model. The company has shifted from its standard B2C model to one that is B2B, and it’s collaborating with essential emergency providers like food technology, logistics, and healthcare companies — as well as government services.

Companies born during recessions tend to end up being the  most resilient. These businesses are infused with a spirit of grit, which enables them to expand and thrive long after recessions have passed. When companies find ways to become more cash-efficient during tough times, those lessons keep them going as they build momentum and find success. It says something that more than half of Fortune 500 companies ​were created during a recession or a bear market.

How can your company fortify its innovation efforts during economic downturns? Here are three steps to help you draw on your startup’s scrappiness and grit to make it to the other side of these challenging times:

1. Protect Your Innovation Budget at All Costs

Innovation is the lifeblood of your organization. It might seem tempting to cut your innovation budget now, but you’re going to pay the price tenfold down the road if you do. It’s vital for the health of your business that you keep a clear vision of the future and let that vision drive you — not just the current state of your finances.

Instead, perhaps you can boost business by finding ways to digitize your physical product or to mediate your service with technology. The answers are right in front of you, but you have to look for them.

2. Put Resources Behind Skunkworks Projects

If you feel like your back is against a wall, let those feelings motivate you to get lean and scrappy. Before, you may have relied on policies, procedures, and structure. Now, it’s a great time to take a skunkworks approach like the Google X lab, which Google (NASDAQ: GOOGL) used to come up with ideas like its self-driving car and space elevators.

Picture a large operation where workers do most things by the book, but there’s a group of people in the corner of the lab going rogue and cobbling things together to provide something new. That should be you.

3. Don’t Lose Sight of What the Market Wants

Too often, innovation labs become innovation theaters. They recruit engineers rather than product developers, pour money in, and see little output. Prototypes are great, but then they’re isolated from the market.

No product can be valuable if it’s not developed in conjunction with the market and customers. Even Amazon Web Services (NASDAQ: AMZN) struggles with this, which has caused it to miss analysts’ revenue expectations. By keeping a finger on the pulse of the market and your customers, you’ll find creative ways to shift your business to keep customers happy and your business afloat.

This economic downturn will undoubtedly make or break startups. Companies that use these trying times as an opportunity to innovate, run on lower cash flow, and pivot their operations to meet changing market needs are the ones that will survive. With grit, resilience, and a scrappy attitude, you can keep your business steady and strengthen it for the future — as long as you view this “new normal” as an opportunity rather than a setback.

(Featured image by Med Badr Chemmaoui via Unsplash)

DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.

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Michael Ellenby is the director of corporate innovation at  Coplex, a venture builder that partners with industry experts, entrepreneurs, and corporate innovators to build the next wave of high-growth tech companies.