In 2020, the COVID-19 pandemic served as a baptism of fire for innovating through uncertainty. Two years on, with a looming recession, 2022’s economic storm clouds look almost certain to provide us with the sequel. Rising interest rates and the multiple crises of the pandemic, climate emergency, war in Ukraine, supply chain disruption, and food and energy shortages have converged as the catalyst for today’s tighter capital markets. But a quick look at the World Uncertainty Index, (a collaboration between the International Monetary Fund and Stanford University) shows that the genie was already out of the bottle. Uncertainty has been on the rise for decades, and the trend is unlikely to disappear anytime soon.
So we’re looking at the trends behind the latest outbreak of uncertainty and considering what they mean for start-ups and innovation businesses. Then, we’ll explore the best ways to keep innovating through uncertainty towards success.
The shape of uncertainty
The pandemic is stubbornly sticking around, continuing to disrupt global supply chains and create shortages. But the seeds of some of today’s economic woes date back to the start of the COVID-19 pandemic. The COVID-19 crisis saw the world’s largest economies roll out fiscal stimulus packages in 2020 and 2021. These policies were delivered against a baseline of low interest rates and lax lending practices which helped fuel inflation. Then there’s the Ukraine war causing food and energy shortages; escalating tensions with China over Taiwan; and climate-driven flood and fire disasters around the world adding to the uncertainty. Not to mention the World Health Organization declaring monkeypox a global health emergency. At a macro-economic level, inflation is the bogeyman that must be confronted. So governments and central banks around the world have been lifting interest rates to combat soaring prices.
What the current uncertainty means for innovation
All this economic, social, geopolitical and environmental upheaval around the world is filtering through to how innovation gets its funding. These trends are also impacting the budgets of customers in the B2B and B2C markets that innovators serve. A higher interest rate typically makes borrowing money more expensive, especially for start-ups and their business customers that have business loans with traditional lenders such as banks. Most of these institutions will pass upward changes to the base rate onto their customers in a heartbeat. Interest rates spiralling up and inflation are also impacting consumer markets. Most households are tightening their belts and reining in non-essential spending to pay their mortgage and put food on the table. But perhaps more significantly for start-ups, scale-ups and businesses doing R&D, the current turmoil is spooking investors, including many venture capitalist funds.
Venture Capital trends
A market correction is underway for start-ups seeking Venture Capital (VC). For now, it’s predominantly impacting early-stage entities with Series A and seed funding rounds. Over recent months, seed and Series A deal valuations have dropped significantly. The message from VCs is loud and clear: the days of growth at all costs are over. Early-stage investors are switching to businesses with higher revenue targets and a pathway to profitability. They’re asking their portfolio companies to preserve cash, cut costs and accept lower valuations for venture investment. The upshot is plunging valuations and increased dilution for early-stage founders courting VC funding. And in the US, start-ups with under 12 months of runway are being encouraged to sell to strategic buyers as the days are numbered for the investor capital that’s keeping them afloat. 
Start-ups are refocusing
The shift in investor and customer sentiment is translating into tumbling valuations, cost efficiencies, job cuts and insolvencies for start-ups and scale-ups. Even the most-lauded high-profile and successful ventures are not immune.
In previous years, Australian graphic design software start-up, Canva, hit the headlines for being one of the world’s fastest-growing privately-owned technology companies and Australia’s first unicorn. Now, the scoop on Canva is its tumbling value, after it suffered a markdown of 36% by its VC fund backers, Blackbird Ventures, in July.
Breaking news about tech start-ups trimming their teams is becoming a daily occurrence. Sydney-based Indebted, a fintech start-up helping people manage overdue payments, cut its workforce by 17% in June. What stands out about Indebted’s job losses is that they came hot on the heels of an impressive $22.5 million funding round and the business being named the 2022 AFR BOSS Best Place to Work and Best Place to Work in the technology sector.
While Canva and Indebted have escaped the current risk-averse trajectory of investors and consumers with a few cuts and bruises, other tech start-ups have been less fortunate. Ballarat-based food delivery start-up, Delivr, a challenger to Uber Eats and Deliveroo, went into liquidation on 20 July. Delivr’s founder, Alex Power, cited the shortage of delivery drivers pushing up its cost per delivery, and recent interest rate rises as key factors in the company’s demise.
However, there is light at the end of the tunnel, and potentially, learnings for other innovation businesses. Canva says it’s confident that its valuation will rebound, citing opportunities to grow using its large cash reserves. And its point of view is shared by investors and market analysts alike. Indebted’s founder, Josh Foreman, says a move away from ‘growth at all costs’ is the reason behind its recent restructure. And while it has cut sales and marketing headcount in the US, it will continue to expand positions in its R&D team which has grown by 40% in 2022 alone.
Adversity means opportunities for innovation
One thing is certain right now, and it’s that uncertainty is everywhere. Tempting as it may be, now is not the time to put your head in the sand or batten down the hatches and hope for the storm to pass. If history has taught us anything, it’s that innovating through uncertainty can equal opportunity.
According to Scott D. Anthony, growth consultant and author of The Silver Lining: An Innovation Playbook for Uncertain Times, uncertainty typically provides three types of innovation opportunities.
1. Game changers
These refer to revolutionary offerings inspired by a crisis or seismic event creating uncertainty. Founded during the Global Financial Crisis (GFC), sharing economy pioneers, Airbnb and Uber are two examples of game changers. Both innovators offered cheaper alternatives to their traditional counterparts of hotels and taxis.
2. Simple, affordable solutions
These innovations tune into the customer’s desire to reduce risk by saving money during uncertain times. These offerings resonate with consumers and business customers with leaner budgets or who use frugality to manage uncertainty. Fast-food behemoth McDonald’s underwent its metamorphosis towards a simple, affordable solution during the austerity that followed World War II. Its novel low-cost, simple menu has gone on to appeal to busy and budget-conscious diners the world over — ever since.
3. Bold strategic moves
Capitalising on uncertainty is not only the preserve of start-ups and scale-ups. Downturns can provide established businesses — especially those doing R&D — with top cover to make radical changes. Adobe used the GFC as the catalyst to review its business model and trial a software-delivered option of Photoshop. The trial turned into a strategic shift with Adobe going fully Software-as-a-Service (SaaS) across its product suite. The change paid off, and Adobe tripled its revenue between 2009 and 2019.
How innovators can seize the moment
Although the three types of innovation during uncertain times are different, executing innovation successfully during uncertainty shares the same playbook. Let’s take a look at the expert tips on innovating through uncertainty.
Fight the fear
An issue that seldom gets top billing when it comes to innovation is that you simply cannot innovate without wasting resources and failing. Even at the best of times, most people and organisations have to jump over their shadow to try something they’ll most likely instantly suck at, or will drain precious resources. When you pile on macro and micro economic uncertainty to the urge to swerve failure, you have a formidable barrier to innovation. Targeting a solution and giving you and your team a timeline to complete your innovation can help fight the fear. It’s also useful to remember the adage that you have to break some eggs to make an omelette.
Spread the load
Think of how you can build consensus and collaboration around your innovation. As they say, many hands make light work. Internally, make sure your team is onboard and contributing. It will help you gain fresh perspectives and stress test ideas to deliver your innovative solution. Collaborating and building consensus has other flow-on benefits. Efficient and effective involvement of your team in the leadership and decision-making on innovation will provide extra clarity on their goals and add meaning and motivation to their working lives. But don’t stop at the threshold of your office building, factory or lab. Consider how you can collaborate with other organisations and entities. It’s a great way of spreading the risk and cost of innovation.
Lighthouse Consulting founder Larry Robertson says most organisations value creative ideas, but not changes to the systems, structures and mindsets required for creativity to transcend its ad hoc, quick-fix status. Many disruptive innovations are innovations to business models. As we’ve seen from the examples of Uber and Airbnb, this can be a new business model (the sharing economy) for travel accommodation and passenger transport. Or in the case of Adobe’s switch to SaaS, it can be a strategic shift to an existing but more suitable business model.
Look beyond the obvious
Indeed, a 2019 Deloitte study found businesses that had focused on going digital in areas such as data management, customer experience and business models were more successful at driving innovation. So the key takeaway is that innovation is far more than developing a whiz-bang new product or service. Don’t overlook your ability to innovate in behind-the-scenes processes such as systems, structures and business models.
Think about people
Harnessing your team, and forging external collaborations and partnerships for innovation has the added benefit that it involves people. Ultimately, your new product, service, business model or system will involve people. People will create it, and people will buy and/or use it. And if your innovation is going to be a success, it will need to serve the interests of your customers and stakeholders. So make sure a people-focused, customer-centric mindset leads your decision-making on innovation — at all times.
Kill the zombies
When tough times arrive, resources (capital, people and time) typically become less abundant. So revisit your R&D programs and ask yourself where your limited resources can make the biggest impact. Then, as Scott D. Anthony says, ‘kill the zombies’. Cut those innovation projects that are ‘drains not gains’ for your business. Futurist and Innovation Strategist Anders Sorman-Nilsson recommends businesses conduct a ‘premortem’. He advises his clients to imagine that their business has failed, and to identify what went wrong. This helps them pinpoint weak or missing areas and plan a solid future. A premortem can also be a great tool for identifying the ‘zombies’ in your business.
Find affordable, accessible capital
The hard job of landing investor capital is now harder than ever. Typically, less than 1% of firms seeking VC backing are successful. But now, this small window of opportunity to secure VC is narrowing due to the shift in market sentiment and looming recession. So if you need funding, what are your options?
Explore R&D financing
If you’re an innovation business, check whether your R&D is eligible for the Federal Government R&D Tax Incentive. If you qualify, you can apply to access your expected tax refund early with a Radium Advance from Radium Capital. A Radium Advance is R&D financing. It’s non-dilutionary funding that’s typically secured against your R&D tax refund. You can access up to 80% of your refund from Radium Capital at an affordable, fixed interest rate. So you’ll know exactly how much your financing will cost before you sign your loan agreement, and there’s nothing to pay until your R&D refund arrives from the Australian Tax Office. If the recent economic curve balls have left your business reeling, a Radium Advance could be a great option for you. We can approve your loan application and send you your money in a matter of days. To access the affordable capital you need, contact one of our R&D finance experts today.
 https://www.imf.org/. 2022. Will Inflation Remain High?. [ONLINE] Available at: https://www.imf.org/en/Publications/fandd/issues/2022/03/Future-of-inflation-partI-Agarwal-kimball.
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 Fundera by nerdwallet, 2020: Raising Capital for Startups: 8 Statistics That Will Surprise You. [online] available at: https://www.fundera.com/resources/startup-funding-statistics