What does 2008’s Great Recession tell us about business risk?
Now’s the time to take risks.
And more specifically: crises and recessions are great times to try something new, not only for entrepreneurs with start-up ideas, but also for existing companies considering new initiatives.
Many companies, in fact, are founded at times of crisis. People are willing to try new things. Right now, there are risks being taken in food products, automobiles and other industries. It’s a great time to launch a new company or try a new initiative.
“A look back at history shows us that crises are opportune moments for new ideas, innovations, and systems,” writes Uri Adoni in the Harvard Business Review. “Some of the most famous companies today were launched right after the 2008 economic crisis.”
Companies that grew out of the 2008 crisis include many names that are famous today: Credit Karma, Venmo, WhatsApp, Instagram, Uber, Slack and others. There were failures, too, of course; there always are with start-ups. But the batting average for this period is pretty good.
Robert Fairlie, an economics professor at the University of California Santa Cruz, terms the phenomenon “necessity entrepreneurship,” as in, you start a business when there are not many jobs. And that’s what is happening: According to the U.S. Census Bureau, new business applications for the third quarter of 2020, adjusted for seasonal variation, surged to 1,566,373, an increase of 77.4 percent from 2020’s second quarter.
The positive environment for risk taking is evident both in existing companies and in would-be start-ups.
Existing Companies: Assessing and Adjusting
In the wake of the Covid-19 pandemic, managements and Boards of established companies are asking themselves tough questions about their products, services, customers, supply chains, differentiation and relevance. It’s an incredibly important self-examination. If they and their offering stands up to this “scrub,” a second round of questions is needed and should dive even more deeply into the beneficial role of technology, as well as go-forward adjustments that may be helpful.
“Prudent organizations will look at the pandemic from a proactive stance and imagine how they can create benefit and value for themselves and their clients,” observe Frederick Gentile and Lucy Stanbrough of Willis Towers Watson.
And, if executive teams and Boards of Directors really are being honest with themselves, they may determine the current environment offers a unique opportunity that not only provides short-term relief … but, perhaps, even provides longer-term upside.
· Adoni in the Harvard Business Review notes the example, for instance, of Athena Security, which adeptly adjusted its firearm-detecting security software into a solution that identifies fevers in people.
· Another example is Room, which moved from private telephone rooms and meeting pods in open offices to making coronavirus-testing booths for healthcare clinics.
· DnaNudge, a consumer nutrition company, pivoted by re-coding its diagnostic chip for COVID-19 RNA.
Examples across various industries include commercial airlines (carrying freight); retailers (curbside pickup), auto (self-driving cars making deliveries) and hospitality (day rates for work-for-home employees).
The services industry, in particular, appears prime for this type of adjustment.
“The epidemic has dealt a heavy blow to the service industry, exposing and amplifying its weaknesses,” says Katherine Xin, Associate Dean (Europe) and Professor of Management at the China Europe International Business School (CEIBS). “Meanwhile, service firms themselves should re-evaluate their operations, identify their weak links, and improve their internal resilience. Though the epidemic has inflicted losses in the short term, the test it presents companies is expected to help improve the industry over the long term.”
Changed Landscape for Founders
Similarly, entrepreneurs need to remain focused.
“Whether you’ve already played with the idea of launching a startup, or you’d like to do so in the future, your plans probably got slammed by this crisis,” notes Rhea Moutafis in builtin.com. “But keep your plans going, because it may well turn out that there has never been a better time to launch than now.”
Focus is just part of the prescription: founders also need to possess a good dose of flexibility and creativity.
“An entrepreneurial mindset is about embracing a pain point as an opportunity to create novel and productive solutions,” says Tyler Wry, an associate professor of management at the University of Pennsylvania’s Wharton School. “This may result in a business idea, or it may not: the important thing is that entrepreneurs don’t just sit back and accept the status quo.”
One thing, however, that entrepreneurs need to be mind of is that the potential investor they spoke with prior to the crisis may in fact have a very different perspective now. The same person who favored aggressive spending to trigger grow may now be advocating a long-term play supported by producent spending. It doesn’t mean you can’t get the funding; it just underlines the importance of flexibility and creativity.
It’s an Opportunity: Go for It
Risk and reward are two sides of the same coin. Have the confidence to flip that coin. If you avoid taking risks, you limit your opportunities.
Covid-19, in fact, enables you to actually increase your risk tolerance. It permits you to take more risks because you are willing – and able – to live with more fluctuation in performance. It may sound a bit flip, but it’s true: It’s incredibly difficult to plan and predict performance.
So, that’s a great time to take risk because if it doesn’t work, you can just throw it into the “Covid-19” bucket … and then flip another coin. Take a long view and be ready for the surge to come.
Reference link - https://www.forbes.com/sites/shellyearchambeau/2020/11/12/now-is-a-good-time-to-take-risks/?sh=9af124f7f9ef
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