Ep 2: How Innovation Can Save Your Business In A Recession

The global pandemic has created one of the biggest disruptions to our lives in living history.  But it's not the first time and it won't be the last.   

In today's episode, Ed & Jed discuss:

  • What history can teach us about how disruption creates innovation and how innovation creates disruption.
  • Why fear is normal during a disruption but the future is brighter than you think.
  • The ONLY three ways to grow a business.
  • How you can 'innovate' in your business to generate more income during tough economic times.
  • Why your customers will give you the answer to how to grow your business.

This is another packed show full of fresh thoughts and ideas to help your business thrive.  Enjoy and subscribe!

Transcription 

The following transcription has been largely automated by Otter.AI so please accept our apologies if there's the occasional error.

Jed Wylie  0:10  
Welcome to Mindset Marketing Money, refreshing the parts other podcasts cannot reach, with me Jed Wylie marketing consultant and my good friend and co-host, Ed Marshall Chartered Financial Planner. So today we're going to be talking about surviving and thriving during a recession pandemic. So that's a Recessiondemic or Pancession - I don't know what the portmanteau is of those two?

Ed Marshall  0:35  
Think we’ll go a Recessiondemic because let's face it, the recession is here. economies around the world are shrinking, right now, and people want to get back to work. We've got some serious physical limitations placed upon us at the moment. 

Jed Wylie  0:52  
We certainly do and augmenting those are also the limitations to the way in which we might be thinking, and that's something we're going to be talking about today, quite a bit around the mindset that business owners have, in respect of the current circumstances and what you can do to mitigate those. So, this has been exercising my mind quite a bit actually because now we know that disruption causes innovation. Interestingly, innovation also causes disruption. So, they do kind of mirror one another. But I wanted to put the current circumstances into a sort of historical framework or context if you like.

Ed Marshall  1:43  
Well, let's do that because it's really important to know that, as, as we've said these are unprecedented times. The cause is kind of unprecedented but actually, where we find ourselves, you know, there are plenty of examples in history that we can look to learn from.

Jed Wylie  2:03  
Yeah, absolutely. Certainly I guess ‘unprecedented’ in terms of living history, you know none of us has ever experienced this in quite this way before but every generation has had to live through either innovation causing disruption, or disruption causing innovation. And the key characteristic emotionally about this is that it induces fear. And this is the thing that we've got to tackle you know because this is a frightening situation, especially because it's new to most of us, but it's so critically important that we don't become frightened, and we don't become paralysed by the circumstances. 

Ed Marshall  2:47  
The whole thing with fear is it's going to do one or two things. It's either going to invoke a fight or flight reaction with you, whatever is your tendency - what your gut feel is, what is your instinct is. And are you going to approach this with a very fixed mindset of, ‘why is this happening to me, all of these external influences that I'm unable to do anything about’, or are you going to have a growth mindset about all of this, And what are the things that I can influence, what opportunities can I take from this because, let's just take stock here for a minute: What we already know is that governments are taking this so seriously. We know this because of the amount of money that has been pumped into economies to make sure that we've got economies to come back to. So, working on the basis that while yes, there is fear out there, but there is also a huge amount of opportunity out there being as a result of this disruption. What are we going to do about it?

Jed Wylie  3:50  
Yeah, exactly right. It's so important to try and shed fear from the circumstances that we're in at the moment. To give you some historical examples really of how innovation causes disruption and disruption creates fear. Take the mechanisation of the cotton industry around the turn of the 1800s, that's when the Luddites came into force and started smashing the machinery and rioting and all of the chaos that they induced was because of the fear of the fact that they were going to lose their jobs because of mechanisation and then it happened again back in the 1980s with the robotization of the car industry where robots were introduced onto the production lines and that caused strikes, and picketing and that was a real point of major concern for people in the car industry, creating fear about losing their jobs. But innovation doesn't always create fear necessarily I mean it can just create disruption. Faraday invented the electric motor about 10 years after the Luddites, 1820, I mean, our whole society is based on that invention it's in every power station. So that was a huge disruption culturally and at a societal level. 60 years after that you have Edison inventing the first practical light bulb. And that changed everybody's day entirely because suddenly night became day and people work beyond sunset - they, they could live in their home safely without candles burning them down. 

Ed Marshall  6:01  
The light bulb and the microchip are things we take for granted that we never give a second thought to but absolutely revolutionised the world.

Jed Wylie  6:10  
Yeah, I mean we were talking about, about the construction really of the 24/7 economy with the light bulb - it enabled shift working.

Ed Marshall   6:20  
It's all about disruption. Yeah, it is right there.

Jed Wylie  6:26  
Yes, and as you said the microchip and computing, that's, that's another great example. The internet, that's another major disruption that's taking place in society largely for the good but all of these inventions, all of these innovations, they affect the status quo - they change what is currently at that happening at that moment and usually, it starts quite negatively. That's why you find people, striking and the Luddites getting so animated because of course, it was a negative effect that was happening in society as a result of this innovation but there are huge positives that usually come out of these scenarios.

Ed Marshall  7:12  
And from a small number of early adopters, you know from the small number of people that actually recognise the advantages that these innovations can have who can actually see the potential. Let's face it for the majority of the population they're just simply very blinkered, there is a fixed mindset, there is a concern that perhaps this could only be of negative consequences to them. And it's only when these things start to gain traction and acceptance that people actually then move into the mainstream. So, here we are in this world where you've got a majority, who are still wondering what on earth happened. Yeah, you've got a small few who are saying, “Wow, this is disruption being enforced upon us. But what are we going to do about it? We're going to innovate.”.

Jed Wylie  8:15  
That's absolutely right you know and I think if you if you take a couple of examples of businesses that really held on to the status quo they held on to the negative and refused to recognise what was happening around them. Take Polaroid okay, digital cameras came out Polaroid was one of the preeminent names in photography everybody had a Polaroid and yet they hung on doggedly to film, rather than digital, and they could have pivoted their business and they could have become something different but they missed it, they were so rooted in the status quo that they couldn't see that there was going to be this innovation that was going to overtake them.

Ed Marshall  8:56  
Polaroid and Kodak exactly that is just absolute disbelief, of the innovation that was occurring, was going to gain traction that those early adopters would actually end up becoming the majority. 

Jed Wylie  9:14  
Yes, look at the saviour of the lockdown - Netflix. I mean, Netflix, just saved most of our sanity over the last few weeks. But that could have been Blockbuster, and I think blockbuster even had an opportunity to invest in Netflix in the very early days and didn't. There's an example of a business that was rooted in DVDs and videos and rental and this model that you go to the shop you pick up your entertainment you walk away with it, you know, 1980s 90s methodology and they tried to apply that in the 2000s and of course it didn't work. I mean their innovation was about “we'll post you the DVD”. How crazy was that I mean that was, that was putting too archaic technologies DVDs and the Postal Service together to try and solve the Netflix problem where people could just sit at home and consume whatever they wanted when they wanted on their TV. Blockbuster lost sight of that and as a consequence of it they went out of business. And I think that's the key thing here, recognising the innovation around you and then being able to flow with it, being able to adapt and to move forward with it and not just be stuck in the past hanging on to old ideas and old ways of doing things and old processes. We're in the middle of innovation. Right now, it's happening now because the disruption is around us. You know so innovation will be taking place in all sorts of different ways.

Ed Marshall  10:48  
So I'd say you're a retailer and if we look historically retail establishments were on the high streets, and then retail moved from the high street to big out of town purpose-built shopping centres. And then, of course, the underlying momentum grew, so a lot of retail had to move online and you got retailers that believe that the high street would never die, but everybody would always want the high street and they didn't want to move into the out of town shopping stores, so they got left behind, and then they caught on to it too late. And then they were slow to move into the online space because they believed that well, everybody's still going to want to shop physically, but then actually failing to catch on to the fact that people would want to shop online. And there are some businesses some retailers out there who still didn't have an online store, but then as a result of this disruption that we've seen that occur off the back of coronavirus happening so quickly, so abruptly - this isn't a case of well we've got it wrong for a few years, but maybe we can change our direction and try and catch up. This is literally what are you going to do because you're not going to have a business in six months if you do not adapt quickly. And we've seen online shopping stalls literally building them from scratch within a matter of a few weeks. This is literally the advancement in technological improvements within businesses that we've seen over such a short period of time it has been absolutely staggering because some businesses, haven't, and they're not going to be there in six months’ time, other businesses that should have already been there that weren't have managed to catch up and are now looking at coming out of this, perhaps in a stronger position than they were before they went into the pandemic.

Jed Wylie  12:38  
That is so true because the disruption of the pandemic as inducing innovation and by innovation I think we're talking in a wider sense of not just innovation as in creating something new that's never been seen before, but actually at an individual business level, you know - I am doing something innovative for my business I am moving my business into eCommerce, I am moving it into an area or a zone of innovation which I haven't done before, that's, just as acceptable as you know as creating something from scratch. But, I think going back to the historical context, looking at disruptions that have happened in the past and in recent memory that have induced innovation if we looked at WWII. That was a huge disruption in terms of the culture, the economy, society I mean you couldn't get more fundamental than that. And yet from it, from all that negativity we saw the development of large-scale computing with things like ENIAC and the Colossus at Bletchley. Without those maybe our development of the computer would have been far more retarded. We saw things like the jerrycan, freeze-dried coffee,  the whole passenger airline industry, a billion-dollar industry, is entirely based around the innovations that came from WWII: Pressurised cabins, guidance systems, fly-by-wire equipment, RADAR, the jet engine.  If you look at another one like the Space Race, the Soviets innovated - they put Sputnik up in into orbit, presumably for obvious military implications, but during the middle of the Cold War. And I think that was 1957 they did it and 12 years later, man landed on the moon. In terms of the disruption that it created that's astonishing because the whole space exploration industry that grew out of that has given us things like CAT scanners, LEDs, water purification systems, ear thermometers, home insulation, baby formula, portable computers, you know, it just the list goes on and on.

Ed Marshall  15:04  
Yeah, what was it that fuelled the Americans to create all of that tech? It was fear in the first instance, the Soviets will beat them in terms of the space race, but they channelled that fear into literally big, hairy scary humongous goals, and they put all their resources into it, and they drew up a plan, they accomplished it, and you know what success starts with a list that starts with a plan.

Jed Wylie  15:39  
That's exactly right you know, born out of fear, born out of disruption. And, that's in recent memory so when we say, you know, it's unprecedented times that we're living in yes they are to a degree but actually as I've said before every generation has lived through disruption and innovation. This is normal, what comes out of it is surprisingly positive. I mean look at what's happening to us now and the way in which we're working. Who would have thought that working from home would be an acceptable way of business being conducted? If you go back even just a few years I remember that we felt it incumbent to actually go and get very expensive offices to impress customers that we were a legitimate business when there's no need for it. We didn't need to do that we are distributed business. And that's fine. It was just the sort of sense that that was the right thing to do so, we should do it. We don't need to do that now; the world has changed from the knowledge worker point of view. Now we can sit at home and we can have Zoom meetings and finally, video conferencing has come into its own. Doing my research for the show. I was staggered that video conferencing actually started in 1927.

Ed Marshall  17:00  
Can you believe that? You've blown my mind.

Jed Wylie  17:02  
Yeah, I mean I couldn't believe that - it was a two-way conversation and a one-way video but in 1956, AT&T tested the first picture phone which was true video conferencing two way, 1956! So it's taken us a long time the tech has been there but it's actually taken sort of cultural and business revolution to happen born out of this disruption for us to realise, there's a new way of doing things.

Ed Marshall  17:32  
And that's all well and good when you're in a business where you are able to adapt because you can pivot, you can be dynamic, you can influence the environments in which you're operating in because virtual really works for you. But what about if you're in a space that's more physical i.e. where the social distance then requirements, you know, are a physical limitation on how you can make your money – you can’t move into an online world, in order to be able to serve up a meal, for example, sure you could get takeout, you could get delivery, but about the physical experience of going out to dinner for example?

Jed Wylie  18:17  
Oh, that's a good point, you know, if we were to look at the more impacted end of business, you know anywhere where customer numbers, during the day, actually drive takings, as you say, restaurants, shops, tourist attractions, stately homes, theatres, you know, there are lots of examples of these, where social distance is actually going to reduce the numbers that you've got coming into your business and therefore, is going to reduce your ability to earn money.

Ed Marshall  18:50  
Right, the economy is firing back up, it is inevitable. And whilst some people will be perhaps a little reticent to first in order to take a step outside. Others are literally just chomping at the bit in order to get back to some sort of the normality that they remember which means going out to dinner, which means being able to go to the theatre which means being able to visit a tourist attraction. So, what do you do when physical limitations mean that your business model, perhaps, isn’t going to work for you in the new normal.

Jed Wylie  19:26  
Yeah, so the key thing to remember here is to apply what I would regard as kind of accurate thinking. So, there are only three ways that you can grow a business. Okay. If you find a fourth let me know, we'll be billionaires by the end of the week. But there are only three. Okay. One is that you get more customers - more customers, more revenue that's one way to grow.

Ed Marshall  20:09  
Greater market share. Right?

Jed Wylie  20:10  
Yeah, exactly. Okay. The second is to increase the number of times those customers buy from you. So, to increase the frequency of purchase.

Ed Marshall  20:21  
So, they love you so much, they're just going to keep coming back from all. Exactly.

Jed Wylie  20:25  
The third is to into increase each customer's individual transaction value so instead of spending £10 with you. They now spend £11 or £20 or £30. So those are the three ways that you can grow. Now if, one of those ways has been lopped off because you can't add any more customers into your business because social distancing physically precludes it, then it means that you've got to be reliant on the other two. So that and that's where innovation comes in because now, you're thinking okay. “I've only got two other ways in which I can grow the business, I can increase the transaction value of my customers or I can increase the number of times they come back” so I tell you what, before you do any kind of thinking around what it is that you can innovate around, you need to know the numbers. As an example, we need to know what the shortfall might be in a business, in order to work out how to innovate, to resolve that gap. Okay, so let's say we're a restaurant, and we've got 100 customers, eating at tables a day but let's say that due to social distancing you've now only got 70 customers that you can get into your premises a day. So, your takings are down by 30%. If you're a restaurant and your profit margins could be anything from of 0% to 15%, but let's say 10 to 15%. And so that means that you need to find an extra 15% to 20% extra in order to make up that shortfall. Now you've got a number you know how much money it is that you need to make up using these other two methods of increasing transaction value and increasing customer frequency. Now you can innovate around those because there's no good spending lots of time thinking about innovations which only deliver you a fraction of what you need, you need to focus on one or two innovations that are going to make up that shortfall for you.

Ed Marshall  22:26  
You got to think big here because if you're just tinkering or tinkering around the edges, then ultimately you're not going to get the results that you need. You've got to look at your operation and know this is what I'm going to be down on turnover. If this is what I'm going to be down on profit. If this is what I need in order to make each cover pay, then how am I going to get that and you can't just simply put your prices up. Now, there are some that will say well actually, if I know that you're going to keep me safe, that I'm in an environment that's disinfected and all the rest, then you know maybe that is worth paying a bit extra, but a lot of people are just going to be saying why charge me more. I'm not getting anything more. So, you've got to figure out what it is about your clients, and what it is that they value about. What are you going to do in order to be able to push that average transaction charge up? What more are you going to be giving? That means that people are going to want to pay you more and come back more often as well.

Jed Wylie  23:24  
Yes, you're absolutely right you know just putting prices up, could be more of a deterrent than it could be in the attraction.

Ed Marshall  23:30  
Because I'm not perceiving anything extra for that.

Jed Wylie  23:33  
Yeah. And if you're going to change your pricing model then you need to be giving extra there. 

Ed Marshall  23:40  
What do people enjoy about your service to begin with? What is it about the fact that they would rather do that, then go to an alternative restaurant or an alternative tourist attraction? What is it about what you give to your customers that means that they always want to come back and they don't just want to consume an alternative, whatever it might be a home instead what is it that makes them want to step out of their front door and step into yours.

Jed Wylie  24:07  
That's where the innovation and the thinking is, and actually going and speaking to customers and finding out how they want to be treated in the new normal, in the new business that you're presenting. And then finding ways of monetising that so that you can take that value, and that you can extend it into something which becomes something you can charge for.

Ed Marshall  24:35  
Make people happy, give them what they want and need, and they'll happily pay you for it.

Jed Wylie  24:42  
And this does mean that you've got to think out of conventional wisdom. You've got to disrupt the status quo disrupt the industry that you're in, not be average, you have to be above average. I mean, for example, theatres, have got I've got huge problems at the moment and it's not just feasible to say, well, why don't they just stream their productions because streaming involves lots of money buying equipment and having people use that equipment and complicated stuff like that and now we're going back to getting more customers, which is difficult in these circumstances. So you might look at doing things like how can we increase transaction value (going back to your point about value) so that might be things like selling backstage passes, showing people behind the scenes of things, charging an extra £2-3two to join in for a Q&A with the actors at the end of the performance or how about something really radical and actually having pizza delivery to their seat. I mean, there are cinemas that do this, but I've never seen it done in a theatre, maybe that's something about the sort of sometimes slightly stuffy make-up that theatres can have.

Ed Marshall  26:12  
But if you ask your customers, then you'll know whether they want it. A lot of businesses don't ask their customers they just assume that they know what their customers want. And when you ask those questions, those big open questions, you can be amazed at what your customers will tell you. And people want to give their opinions, they want to be heard people and generally are actually very happy to help. It makes them feel good if they're able to help a business, so take advantage of that and get as much good data as you can from your clients.

Jed Wylie  26:44  
Yeah, and they value it because they value being valued.

Ed Marshall  26:51  
You know that with that information you can be the game changer in your industry. Doesn't matter if nobody else has tried it before us because they haven't thought of it because they haven't asked their clients and because they haven't implemented it.

Jed Wylie  27:02  
That's exactly right. Exactly right. And so, you know, it becomes incumbent on us as business owners to, in a sense, recognise the fact that we're in this disruptive environment at the moment, that we are able and capable of doing innovative things I mean our species has been the apex predator in the world, you know; we've solved problems like food production, toothbrushes and now Netflix. You know, we are, we are, problem-solving geniuses. But just being innovative isn't something which necessarily is automatic. But, as you say, Ed Marshall, you know, going back to the idea of going to customers and saying, “what do you want, what value can we provide for you that's above and beyond what you would be interested in”, and tying those two things into increasing the frequency of purchase and increasing transaction value, then you start to coordinate, and innovate around your business, which could see you out of this Recessiondemic and onto a steady course - through it and out the other side, not just surviving but thriving, as well. 

Ed Marshall  28:39  
Exactly. Grab it by the scruff of the neck, okay there are many that have been impacted very severely as the result of the economic shutdown. There are many, many people who are actually going to come out of this with more money in the bank than they had on the way in. And if you're able to find out what it is that concerns them, you can address those concerns and make them feel safe and secure. If you can find out what it is that they value most about what you provide in your business, and what it is that excites you the most about being able to reconnect with them as well, you get those three areas addressed and you are going to be on a pathway to success. No doubt about it.

Jed Wylie  29:22  
Perfectly put. So we've got a few more podcasts lined up which tackle this, haven't we? And we've got some great ideas on how you can retain more customers how you can implement these three ways to grow even during these difficult times so, I think we'll leave it there for now. And thank you, Ed for joining me. And thanks everybody for listening. It's great that you're here listening to this and we'd love to hear your feedback too. 
Stay safe everybody and look after each other. Take care. Until next time.
 

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