Fight, flight, freeze?

How basic human reactions resemble economic responses to COVID-19

Let’s start off with a small biology lesson. When we find ourselves in acutely dangerous situations, the production of large amounts of adrenaline and cortisol (stress hormone) is triggered. This (subconscious) physical reaction prepared our predecessors to go into three basic defense modes: fight, flight or freeze.

So, how exactly is this relevant for our innovation pipeline? When talking with corporates or startups we actually see that this reaction is duplicated into economic responses to the current COVID-19-crisis: fight (increase investments), flight (divest), freeze (do nothing different and assume it will be fine). Let’s go over some of the scenarios.

Fight – Increase investments in innovation

This reaction follows the mantra of “never waste a good crisis”. In this scenario the company is willing to take more risks to create long-term competitive advantages. We see two big currents here. First there are the companies investing big in executing their innovation pipeline and getting these projects in production or execution. The second; companies overinvesting in (consumer) research and changing behavior, or building their internal or external pipeline to go in execution once business resumes at full force. The pre-requisite of this strategy? Ample cash resources to “burn” when continuous income might be at risk.

“Be fearful when others are greedy and greedy when others are fearful.” – Warren Buffett

Flight – Divest

Also known as cost cutting. When resources are scarce, or the current business model doesn’t support (changed) customer needs, companies choose to divest in development of (current) products. During COVID-19, this is done by corporates mainly divesting (people or assets) in R&D of product lines adapted to a pre-covid world. The startup approach can typically be described as a bit more “active”. They can’t afford to stop researching new route-to-markets so they will typically iterate (very) fast on new business models (with new and existing clients) rather than further developing their pre-covid business model which might have become obsolete.

Freeze – Business as usual

Whether (heavily) impacted by the crisis or not quite some companies choose not to change their way of working. Time will tell whether this reaction by panic (or stupidity) or whether the business model effectively is future proof.

How to stay ahead of competition?

The key to becoming a winner in a disrupted world is not to into defense mode but to react as you would do to small changes. Here’s three (very) simple questions you could ask to evaluate business relevance the changed global scene?

1. What is the relevance of my product/service?

2. How can I increase product relevance?

3. What are the tools I need to do so?

A last important realization is that innovation doesn’t necessarily come at a large cost. People still connect on innovation (maybe even more than before)! One of such events is The Big Score Sessions; where industry leaders, VCs and corporates collaborate to stay ahead of the curve.

So one piece of advice? Keep your head cool, and search for those low cost and high added value initiatives to check your business relevance. There’s plenty out there!