If the pandemic has taught us anything, it’s that keeping innovation on the agenda when times are tough is crucial. Investor capital is hard to come by and interest rates are rising. So, if you’re running a start-up, especially an early-stage one, you might be tempted to hit pause on your R&D projects. Don’t make the mistake of cutting back on your innovation efforts until conditions improve. Your R&D programs aren’t the best place to cut costs. So, we’re exploring why keeping innovation on the agenda is a must for any start-up, scale-up or company with R&D, and how R&D can succeed despite the current headwinds.
For better or for worse, innovation holds the key to all progress, at all levels – from the macro to the micro. Mothballing your R&D could help balance the books in the short term. But it could leave your business unable to ever catch up with your competitors long-term. So, it’s not a risk worth taking.
The first mover advantage
If you’re running a tech start-up or other innovation business, being the first to release a brand-new concept is your chance to shape and capitalise on a new market. So, think carefully before taking any action that could cause you to lose your company’s edge.
The counter-cyclical advantage
Equally, if your business keeps the pedal to the metal on R&D in straitened circumstances and during the negative business cycle, it could grasp opportunities to grow that companies with shuttered R&D programs will miss.
Flexibility and relevance
A deep commitment to innovation when faced with difficult or unforeseen challenges has other benefits. It enables your team to maintain an adaptable mindset so your business can overcome adversity and embrace emerging opportunities. And it also ensures your offerings stay relevant and in tune with current market demand.
How to keep innovating
If you’re thinking constant innovation is all well and good in theory, but not as straightforward in practice, don’t worry. We’ve collated four expert tips to help you.
1. Prioritise your projects
Picking a winner is imperative at the best of times. But during a downturn, your finite resources of time, money and human capital are stretched even thinner. That means your company’s very survival could hinge on making the right choices. The R&D projects you pursue are mission-critical. But the V-SAFE method of project prioritisation is an effective way of separating the wheat from the chaff.
Step 1: Value
V is for value. So, start by asking yourself, whether the innovation will give your company real advantages and work out what any upsides will look like. Consider what your return on innovation investment (ROII) will be, and the project’s net contribution to your company’s fundamental goals.
Step 2: Suitable
S is for suitable. How does the proposed innovation align with your strategy and the current market conditions? Thinking about an idea’s suitability will help you keep your eye on the prize and avoid projects that are diversions.
Step 3: Acceptable
A is for acceptable. Ask the sixty-four-thousand-dollar question of whether your company’s stakeholders will get behind the idea. Innovations can sink like a stone without sufficient stakeholder backing. So, if you think you’ve got a winning idea on your hands, make sure you and your team explain the benefits to key stakeholders such as investors. That way, you can take the temperature of their enthusiasm levels before moving forward.
Step 4: Feasible
F is for feasible. You might have a great idea but does your company have the capacity to get it off the ground? When you’re assessing your idea’s feasibility, you’re working out whether you can deliver the innovation using your existing R&D budget and skill sets, or whether you’ll need additional resources.
Step 5: Enduring
E is for enduring. Does your idea have staying power, or will it just be a flash in the pan? This final step in project prioritisation will compel you to circle back and consider your idea’s strategic merits and its ROII.
2. Keep communicating
When the economy declines, so can your team’s morale. It’s vital to rally your troops and keep them engaged and motivated. If you’ve prioritised your projects using V-SAFE, you’ll be able to show your team how your company’s chosen innovation makes strategic sense and optimises its short and long-term market position. This will reassure your staff that your company is on solid ground, and they’ll be less likely to jump ship.
Whether it’s with your team, investors, customers or other stakeholders, you can’t over communicate. So, make sure you’re continually reminding your stakeholders about your company’s vision and your plans and actions to achieve it. And don’t forget to celebrate your success by shouting it from the rooftops to keep motivation levels sky-high.
3. Outsource what you can
When you’re scaling your business, from marketing and finance to human resources, the received wisdom is not to hire until you absolutely can’t avoid it. Until you reach that point, outsource what you can, and R&D is no exception. If your business is early stage or pursuing highly specialised innovation, this sage advice may seem counterintuitive at best, or nigh on impossible at worst. But that’s not the case.
There are more than 100 Registered Research Providers (RSPs) across Australia. Registered with the Department of Industry, Science, Energy and Resources, RSPs allow you to tap into the expertise and knowledge of their staff and their infrastructure resources for your R&D projects. In exchange for engaging an RSP, your business will sidestep the significant costs and commitment involved in in-house R&D.
AusIndustry has an online directory of RSPs. Each RSP lists the ANZSRC codes to show its specialist areas of R&D, so you can find the right RSP for your R&D project. Even though you’re not conducting the R&D yourself, if you use an RSP, you can still claim the Federal Government’s R&D Tax Incentive (R&DTI). Better still, the minimum R&D investment requirement of $20,000 a year is waived if you complete your R&D through an RSP. So smaller innovation projects can qualify for the R&DTI refund too. Read our article How a Research Service Provider can support your R&D to find out more.
4. Create your funding strategy
We’ve advised you on how to be thrifty and cut your burn rate in our previous blogs. While cutting expenses and adjusting your accounting policies to boost cash flow is a must during lean times, the truth is that it will not fully fund your R&D. Without a funding strategy, you may struggle to keep innovation on the agenda. Investor capital is certainly still worth considering. But it’s not the golden goose it was in 2020 and 2021. Chances are it will take you longer to obtain investor funds, and you’ll yield more of your equity for less capital.
If you need to act quickly to keep your R&D programs alive, you need to be claiming the R&DTI. If your annual aggregated turnover is below $20 million, you can claim the R&DTI tax refund and get 43.5 cents back on each dollar you invest in R&D. If your turnover is $20 million or more, you can claim a non-refundable tax offset which varies depending on the amount you invest in R&D and the company tax rate your business pays. If you’re hesitating to apply for the R&DTI, you can be sure your competitors aren’t. According to estimates from the Department of Industry, Science, and Resources, the current financial year is on track to be the biggest yet for R&DTI claims.
If you’re claiming the R&DTI refund, don’t miss your opportunity to grow the size of the tax refund your business receives by using R&D financing. R&D financing in the form of Radium Advances lets you access your expected R&D refund sooner. And if your R&D is ongoing and you reinvest your loan in more R&D, this will trigger additional tax refunds without you having to increase your original R&D budget.
Radium Advances are uniquely flexible and scalable. So, you can use them to maximise your R&D or cash flow position to suit the stage and circumstances of your business. Check out our article, Funding your innovation: Which R&D financing model suits your business goals? It covers the different ways you can use Radium Advances to increase your R&D budget or reduce your capital outlay.
Even if you’re looking for a short-term bridging loan for your innovation, Radium Capital can help. Radium Advances have no restrictions on loan amounts or terms. So, you can borrow from us now until your R&DTI refund arrives. With nothing to pay until your loan matures, our fixed interest rates are just 1.25% – 1.33% per month. If this sounds like a funding option you’d like to explore for your business, contact our expert team today to find out more.
 Business Insights Blog. 2022. Innovation in Business: What It Is & Why It’s So Important. [ONLINE] Available at: https://online.hbs.edu/blog/post/importance-of-innovation-in-business.
 Chuck Frey. 2009. Innovation management: How to prioritize, filter and plan ideas – InnovationManagement. [ONLINE] Available at: https://innovationmanagement.se/2009/02/05/innovation-management-how-to-prioritize-filter-and-plan-ideas/.
 InnovationAus.com. 2023. Biggest RDTI spend this financial year: Industry dept. [ONLINE] Available at: https://www.innovationaus.com/biggest-rdti-spend-this-financial-year-industry-dept/.