Crisis, Innovation and Entrepreneurship
The above title was the subject of a regional convention held in Podgorica , Montenegro, on September 20 2013. It was opened by the first Deputy Prime Minister, to which I was asked to deliver a short presentation.
I do not have the transcript. Here is what I said from memory.
Crisis comes from the Greek language, and it means-I find this interesting-that it is time to do something different. In Hebrew, the word for crisis is mashber, which comes from the root “something broke up.” Same is true for the meaning of the word in Chinese.
There is a common denominator here: crisis means that whatever we have had until now does not work anymore, and it is time to do something else, and differently.
Innovation by definition, means doing something different, something new.
Therefore, crisis provides a perfect environment for innovation; it offers us a chance to come up with fresh and different ways to satisfy an old or a new need.
However, it should be stressed, not all innovations are successful. Quite the contrary. Most fail. To be effective, to succeed, innovations need an entrepreneur who will invest time, energy and money, to make the new ideas and approach commercially acceptable.
That brings us to the next important question: What are the conditions for successful entrepreneurship? In other words, what does an entrepreneur need if he is determined to introduce innovation?
First, a caveat. Whenever we introduce innovation and wish to make it successful, we have to deal with uncertainty and risk; they are not one and the same thing.
Uncertainty deals with insufficient information. And innovation by definition cannot give us historical data on which to base our judgment. And the future, by definition, is unknown. Thus, uncertainty.
Risk is different. To commercialize or just monetize an innovation we need to provide energy, time and resources. All three are necessary if we wish to succeed.
There is always a chance our efforts to innovate might not work, and our time, energy and resources will be wasted. That is the risk.
Entrepreneurs of course want to have as little uncertainty as possible…and controllable risk as well.
Huh, there is a problem now. In a time of crisis, uncertainty is high as is risk. That might tend to discourage entrepreneurs from embarking on a new path, on trying to innovate.
They might want to wait until the dust settles. But waiting might not be the right strategy. They might lose the window of opportunity and someone else might step in and seize the chance to innovate
What to do?
In my opinion, here is where government has a role to play.
As long as potential entrepreneurs trust the government, trust the leaders, there is hope. And when there is hope, uncertainty and risk are not quite as threatening. It is trust in the system in which the entrepreneurs operates that makes uncertainty and risk tolerable.
It is the absence of hope, and of trust, that is damaging.
In this time of financial crisis, in my work as a consultant to national governments, I have been asked by several prime ministers and presidents for advice what do I suggest to do.
They expected an answer composed of some sophisticated economic policy or of some elaborate financial strategy.
My answer to all of them was the same: “whatever you do, do not lose the trust of the people.”
For example, look at the recent crisis in Cyprus and the way the government handled it. Their solution was to freeze bank accounts of people’s deposits.
What does it do to trust?
Depositors will not deposit again in Cyprus, not for a long, long time. It was a short tactical solution with enormous long term strategic repercussions. Cyprus will never be the safe harbor for foreign investors that it used to be.
How about devaluation of the currency?
Again, when people lose trust in money, what happens?
You tell me.
Always be careful with how much money you print and flood the market in order to ease the credit crunch. Inflation has a serious impact on trust.
Crisis can be an opportunity to change, to innovate, to encourage entrepreneurship, to improve the system and flourish again, but only as long as trust is not hurt.
Dr. Ichak Kalderon Adizes