There may be trouble ahead... but innovate wisely during a recession and you can emerge ahead of the pack. What looks like a crisis now could become a rich opportunity.

One characteristic that marks out entrepreneurs from other business leaders is their optimism, often expressed as a belief that any challenge is also an opportunity. As a recession looms, this ability will be in greater demand than ever. But can this attitude be transmitted to the rest of the economy? Last October, BusinessWeek suggested that the way out of the slowdown was innovation: "During economic downturns, innovation is the single most important condition for turning the crisis into an opportunity."

In challenging economic times, there is a greater need than ever to innovate. A recession forces all companies to behave more entrepreneurially, which will be a good thing for business in the long term. The obvious reaction to gloomy times is to curl up into a defensive, cost-cutting mode. This creates an innovation-stifling culture based on short-term thinking. More dangerously, it means you are ignoring the talent in your organisation. This kind of knee-jerk reaction could be devastating for your company.

A more productive approach is to react in the opposite way. Approach the tough period ahead with the right mindset and you can position yourself to come out on top. Many of the biggest corporate names—from Virgin in the 1970s, to Microsoft in the 1980s and Google in the 1990s—were born out of a recession. The visionaries leading these companies spotted the great opportunities that faced them. And now there is a chance for your business to do likewise.

Any shake-up in your market will create gaps that could give you a lucky break. Innovation can provide more value in a recession than it does in a boom. And a lack of money makes everyone more creative, not less. Only the committed will be with you for this journey. You will lose the unmotivated excess, people who were rolling along for the ride.
Innovation should be a priority despite short-term market conditions. Take cost-cutting as an opportunity to make your business leaner and more efficient by cutting waste, but not talent. Be careful, though, that any cuts don't affect your capacity to be inventive.

It's a habit for entrepreneurs to stretch resources to make them go further. But you must ensure that everyone—from the receptionist to the chairman—is involved in this process. It should be seen as cost-saving, not cost-cutting.

Many large firms lack the close culture that comes naturally for entrepreneurs. The all-for-one mindset is often replaced with an inefficient silo mentality. But here is another opportunity—use the crisis in the outside world to bring everyone together inside. And organise cross-functional teams. The world around you has transformed—it's time to forget how you've always done things and go out to find cheaper, better and easier ways of doing what you already do. Involve everyone in the business in this process and they really might be able to turn a crisis into an opportunity.

Director Magazine