Crisis: a terrible thing to waste

Charles Darwin famously said, "The species that survives is not the strongest, nor is it the most intelligent; it is the one that is most adaptable to change." It is interesting to see how his philosophy has been placed well within the backdrop of today’s business environment. 

As we sit here, it feels like economic uncertainty is at its highest point in years—the highest inflation in 40 years, rising interest rates, many tech stocks down by more than 50%, and broken supply chains, among other things. So, to say that uncertainty has been a recurring theme, especially over the past several months, and businesses of all sizes are constantly challenged by it, most entrepreneurs are compelled to innovate and make power moves to stay afloat.

So, how did they accomplish that? 

Before we get started, though, it is imperative to recognize the stark distinction between RISK and UNCERTAINTY. We have all used these two terms synonymously at some point, even though their relevance in our world has intensified. The two scenarios call for different actions, and if we muddle them, we will not be able to choose the right strategy.

Let’s use an example to illustrate this. How many of us enjoy being on roller coaster rides? A roller coaster ride is risky. We might experience stress or possibly have strokes or sustain other severe injuries if we fall. But most of the time, we experience a combination of pleasure and a natural high. So, it is risky, but we are aware of the potential outcomes and their likelihood of occurring, as we know it is intended to be thrilling.

On the other hand, uncertainty is the inability to predict potential outcomes or consequences due to a lack of information, making it difficult to measure the outcome since the events are unknown.

Dealing with uncertainty, therefore, becomes a greater challenge than dealing with risk, given the varying degrees of control and predictability of a given scenario.

What use do uncertainties serve then?

Stanford economist Paul Romer once famously said, "a crisis is a terrible thing to waste," which is based on the idea that a crisis is a rare and valuable opportunity to take action that you might not be able to take otherwise.

Even in a naturally steady condition, businesses have always had to deal with some degree of uncertainty and have struggled to adjust to both internal and external realities. Startups, for instance, frequently operate under financial uncertainty, and their financial security is dependent on investors. This struggle is intensified, particularly during sustained periods of uncertainty, because if you cannot see uncertainties coming your way, you will not be ready for them. And if you are not ready for it, it can do more damage when it hits you.

How then can you decide wisely when and how to make sharp shifts to spot new opportunities and innovate? 

The success stories of businesses and startups throughout the pandemic are evidence that it is possible to survive and even thrive during times of economic volatility. A roadmap and uncertainty framework can be used to create a distinct picture of the future. This can be achieved by reusing data, materials, and technologies that already exist.

• Scenario planning 

This is an effective strategy and is hugely valuable for future-proofing your plans. Planning different scenarios will assist you in asking the right questions and preparing for the unexpected. But the sober reality is that only a small percentage of businesses use scenario planning. To increase the likelihood of success, businesses should seek out uncertainty.

The cryptocurrency market has been erratic from the start, owing to the hazy regulatory landscape. There is no doubt, however, that the increased volatility was successful in causing ripples across the world financial system. The panic caused by the crash has fueled debate over DeFi regulation and potentially accelerated legislative action in favor of CBDCs (Central Bank Digital Currencies). Imagining alternative futures and their interconnected impacts was possible using Scenario Planning.

• Making tough choices

Making tough choices for your business is never easy, but doing so in the face of uncertainty is particularly difficult. Many of us even avoid making these choices to limit any potential harm. But you have to learn to get comfortable with it. 

The recent slowdown in investment activity has placed this into perspective. Startups, regardless of stage, will need to closely monitor their core businesses. Stronger unit economics, less cash burn, and rationalized customer acquisition costs must now take precedence. Reorienting on "cash preservation" to ensure the business can continue to run until fresh fundraising opportunities arise, while also testing out new products and services to see how the market reacts.

• Use of technology

Another way for businesses to expedite innovation is through the use of technology. This is one of the main tenets of repurposing. To enhance their ability to innovate swiftly, businesses have continued to engage in digital transformation. That said, it's essential to spot the variables that affect your capacity for innovation.

• Speed

Leaders can no longer "wait and see" given the speed at which disruptive forces are affecting firms today across industries and geographies. You may either embrace the pressure to change quickly or start worrying about your business falling behind the curve. The focus should therefore be to disrupt yourself before anyone else can. Adopting a dynamic style of operating in unexpected situations may also mean discarding or, at the very least, revisiting some of the practices.

The speedup ensures faster iterations, creating exhaustive views in less time. Rapid iteration is a useful strategy for testing out ideas and theories. This methodology involves iterating upon concepts and testing them to create a practical product or service. It has been successful in producing positive results for a variety of industries, including IT, manufacturing, HR, and marketing. This fits well with Linus Pauling's theory, where he said that the best way to have a great idea is to have a lot of ideas. Volume can help reduce uncertainty.

However, persuading risk-averse businesses to relocate, deploy, and iterate in short cycles is a tall order. The only way to instill a sense of urgency is to ask: "Do you want to stay relevant tomorrow?"

Even our investing ecosystem can serve as an example. Particularly for early-stage companies’ investors often tie funding to achieving specific milestones, like reaching a certain scale or demonstrating technological viability, to reduce the risk of uncertainty. This strategy gives startups a call to action to reach a financial milestone to keep their business afloat. Even for large companies, a pandemic scenario or the Russia-Ukraine conflict can create this sense of urgency.

Implementing these strategies can help companies navigate the erratic ups and downs caused by current uncertainty. That being said, betting on sustainable growth as a crisis solution is not a surefire approach. To thrive in this world, we must be innovative not only during difficult times but also after they've passed, to be prepared for the next wave of uncertainty.