Innovation is dead, long live innovation
Pre-COVID-19, innovation sounds very much like a buzzword. In the time of a pandemic, innovation seems to have taken a backseat. Further, most people expect startups to be disruptive — Recall a time when we leaned in and listened to a conversation between a founder and someone they’re pitching to: “It’s X for Y” — for example, oh we’re a sharing economy for umbrellas. What is disruptive innovation, and what does it take for it to be successful?
In particular, I will focus on why startups globally tend to converge into similar-type companies, and whether or not despite the COVID-19 crisis, we’ll still see innovative, disruptive startups globally. By delving deeper, I’ll attempt to sieve out some implications for the common man, why not all crises are the same, and how might we drive innovation whilst recovering from the residual shockwaves of crises.
Dare to disrupt…?
We’ve seen quite a number of similar-type companies, and how some of these ideas were made successful only in specific regions/countries. There’s Gojek (ride-sharing / Uber) in Indonesia, Yanolja (online booking for accommodation / AirBnb) in South Korea, and TikTok (short videos social network / Vine) in China, but now has a global presence. We lived past an era when Vine existed for awhile before it was acquired by Twitter in 2012, and later shut down in 2016 because they (purportedly) didn’t differentiate (or innovate) quickly enough, allowing TikTok to take the world by storm.
It’ll also be important to discuss what the #newnormal will look like in a post-COVID world. Physical retail and F&B establishments have taken a hit, and the travel industry is adversely affected due to quarantine measures and border controls. These trends are alarming, and it’s going to be a tough one for everyone, everywhere. Leading newspapers write about how the most innovative startups are born out of crises; baptism by fire, so to speak.
Recall the Global Financial Crisis in 2008/2009. It spawned a number of innovative companies — Uber, Instagram, AirBnb, Netflix, Slack, Asana, and Zoom. Here, if we were to fit these startups into a framework, they are mostly new solutions in either existing or new markets — meaning they disrupt existing industries in more ways than one.
Not all crises are the same
While the Global Financial Crisis in 2008 was catastrophic, to think that all crises are the same is naïve, and overly simplistic. A pandemic carries along with it many other externalities. The Spanish Flu of 1918 was highly infectious — its transmission infected an estimated 500M people in the two years, and caused an estimated 25–50M deaths globally. How did innovation fare during other crises?
For the purpose of data analysis across the past 100 years, I compared the occurrences of pandemics and its death toll as a measure for severity and impact on the global population, and the growth rate of new inventions or discoveries (1900–1969), and the founding of new enterprises (1970s — ), as a proxy for innovation.
Even during the Spanish Flu, inventors and innovators in 1918–1920 still managed to come up with some important discoveries and some of the greatest inventions of our time — the radio, bandaids, passenger transport planes, and fortune cookies.
Ten years after the Spanish Flu, the Great Depression of 1929 struck, yet another crisis. Strangely, innovation rate increased over this 10-year period. One of the more compelling studies I found detailed some lessons to take away from the 1930s. Here, Professor Tom Nicholas from HBS measured innovation by the annual growth rate of patent applications, which drastically fell between the years of 1929–1933 due to the recovery from the 1929 crisis, and picked up only five years later in 1933. Even so, it would take a longer period of time for the growth rate of innovation to return to pre-pandemic levels.
Despite an economic downturn where the natural response is for companies to withhold expenditure on R&D and innovation practices, Prof. Tom asserted that companies should continue innovating even in a difficult economic climate, and especially so with technologies that may take awhile to commercialise after discovery. Essentially, companies which delay investment in R&D and innovation risk forgoing massive opportunities for growth when crises subside.
Interestingly, the growth rate of innovation in 1958 rose during the Asian Flu in the same year. With over 1.1M deaths worldwide caused by the pandemic, there seems to be some intriguing factors that continue to drive innovation. A study done in 2017 explored the impact of the 1956 Consent Decree, which stipulated that it was compulsory for firms to license their patents to others for follow-on innovation.
The study revealed that with licensing of patents, there is a higher propensity for new firms to enter markets and foster (an early version of) open innovation. Perhaps it was the Decree that alleviated the effects of the pandemic, allowing for more new ideas, inventions, and extensions to patented technologies to exist in the next 10–20 years.
Fast forward to the 2000s, we saw the rise of tech startups — Facebook, Google’s IPO, Twitter, AirBnb, WhatsApp, Stripe, and venture capital firm Andreessen Horowitz. Here, we observe a quicker rate of economic recovery over 2009/2010 — which suggests technology being a catalyst for crisis recovery. The Information Technology and Innovation Foundation (ITIF) reported private expenditure on R&D nearly doubled from the 1970s through the 2000s, accounting for the increase in the rate of innovation (i.e. formation of new startups and enterprises).
What’s the #newnormal for innovation?
It seems as though the adverse effect of a pandemic is far more profound on the rate of innovation as compared to a financial crisis. There are definitely factors I have yet to consider to correlate at a simplistic level the severity of a pandemic or a crisis, and innovation trends over the same period.
In Europe, this conventional wisdom is proven by a team of economists and researchers. Crises do impact innovation across the board. In a downturn, most companies substantially reduce expenditure in innovation, others accumulate technologies that may have a long incubation period for commercialisability, or creative accumulation, while startups drive creative destruction.
Hence, in an ever increasingly technology-driven world, it becomes less difficult for founders and innovators to come forth and break out new solutions in new and existing markets. Undoubtedly, it was an unprecedented time during the Global Financial Crisis of 2008, the crème de la crème of startups managed to execute their ideas near-flawlessly, and were able to achieve an insurmountable level of success today.
The convergence of similar-type startups and frontier technology
If we think about it, it’s easy to accept why not all crises are the same; and why some crises, in particular pandemics, have prolonged effects on innovation. However, with greater social connectivity and wider accessibility to knowledge, information, and ideas, it makes it much easier for people globally to come together virtually and come up with solutions on how best to stand #strongertogether against COVID-19, or any crisis for that matter.
There are two caveats though, in my opinion.
While I’m optimistic about the future of innovation, if innovations do arise from troubling times, they tend to arise due to either one or both factors: (A) Existing solutions will be inspired by an idea first executed elsewhere, then replicated in a new market, along with lessons learnt from past similar-type failures, possibly with a now differentiating value proposition, i.e. creative destruction, or (B) It inherently holds some form of frontier technology, for instance a patent for an algorithm or a recipe for lab-grown meats, i.e. creative accumulation.
Globally we’ve seen the ease of propagating and replicating simple, executable ideas in the form of startups in market-ready regions — (A) seems a better bet for the future of creative destruction. Since frontier technology in (B) is only accessible to private companies with vast resources or research labs heavily funded by the state, and has a considerably longer incubation period to actually commercialise creative accumulation, it is less likely for innovation in the form of a revolutionary solution to sprout during the time of a crisis.
By no means am I saying it will be easy either way. It will be tough beyond measure, but will it be worthwhile (?), that’s the question —
To build, or not to build
Timing will be determinant of a startup’s success in a time of a pandemic — the founding of Zoom explains this aptly. It was founded during the Global Financial Crisis of 2008, but it did not achieve significant growth for the first 3–4 years of its operations. Users did not see a need to switch from Skype to another video conferencing tool, and fundamentally, there was no pandemic — There was no need for people to do video calls at all. In-person meetings still went about at a café, in meeting rooms, or at the office.
Today, Zoom is hailed as the social network for the pandemic because of quarantine and safe distancing measures. Zoom may have managed to take the lead in the COVID-19 situation for business, while established counterparts such as Google Hangouts, Microsoft Teams, and Facebook Messenger / Workspace are still playing catch-up.
Yet, here’s something to think about: If the future of work is remote, then maybe the future of innovation is open-sourced. We draw innovation lessons from the 1930s, adapt (from an early version of) open innovation from the Decree, and crucially, leverage on technology capabilities to build faster, cheaper, and better. This can then eventually catalyse innovation in a more connected world of ideas and insights — an open-sourced future of innovation, if you will.
In Marc Andreessen’s recent essay, he shared:
“What are you building? What are you building directly, or helping other people to build, or teaching other people to build, or taking care of people who are building?”
Regardless if we choose to build, or not to — We can draw inspiration from ideas in other regions/countries that have been made successful, learn from past similar-type companies’ failures to drive creative destruction, and continue to invest in innovation for creative accumulation — because by doing so, we can then think about how better we can innovate for the future, and that, is the only way we will move forward.
