Innovating Through a Downturn

What is it?

We’ve been here before. Inflation skyrocketing. Cost of living increasing. Volatile economic markets. Political turmoil at home. War in Europe. The early 80s, 90s and mid 00’s all experienced economic crises and/or recessionary periods.

As we teeter on the brink in 2022, waiting for 180,000 people to decide the next UK Prime Minister, and the hammer blow that will be the October price cap review potentially forcing millions more into fuel poverty. Now seemed like the perfect time to see how others have previously ridden out crisis and uncertainty.

Why should I care?

During the 1990s recession, one thing characterised almost all of the worst performing charities - disinvestment in fundraising budgets. These spiralling cuts led to lower income, not only during the recessionary period, but also continuing as markets started to recover.

Conversely, of the top 50 fastest growing charities coming out of the crisis, 45 increased (or at least maintained) their fundraising spend, and 7 of the fastest growing charities did this in the face of falling income at the start of the recession.

Similarly, data pooled from the early 1980s, early 1990s, and 2001 recession years shows that companies that invested in innovation during economic downturns improved their position relative to their competitors during the recovery period.

Responses to our recent state of the nation survey showed a sector appetite (75% of respondents) to invest in innovation in order to build resilience during and coming out of the crisis.

So when you’re probably being pushed to slash spend, cut costs and reduce investment in order to sustain BAU and ride out the storm, how do you make a case for continued or increased investment in innovation?

We’ve got some helpful charity and corporate data and case studies to show the impact of not showing fear in the face of uncertainty, and other lessons to be learned from how others have innovated through a downturn.

How were charities impacted by the Great Recession?

The 2008 financial crash, and subsequent recession, caused a significant dent in UK charity income. A March 2010 Charity Commission report found that 59% of charities said they’d been affected by the economic downturn. 62% had seen a reduction in investment income, and 29% in fundraising income. Meanwhile, a third of larger charities had experienced a rise in demand for their services.

NCVO reported on donor behaviour in 2009. It found that the proportion of adults giving to charities in the UK remained roughly the same through the recession at 54%. However, the total amount given declined by 11% in comparison with 2007/8.

Legacy donations also decreased in value as the value of assets like properties and investments fell. Whilst 75% of major donors maintained their giving at the same level and some even reported increasing their giving. Donations from companies crashed, but while there was a dip in trusts and grants income, it recovered quickly.

It took almost a decade for finances to be restored to 2007/8 levels.

How others innovated through a crisis

Pivoting your business model - Mailchimp

Mailchimp was founded in 2001 during a recession. Their original business model focused on large corporate clients with yearly retainers. But when the Great Recession hit, Mailchimp was forced to pivot. They flipped from yearly retainers to become a freemium business, and rapidly saw their user base and revenue balloon from 85,000 to 450,000 in just one year.

Returning to core values - Airbnb

For a business built on travel and in-person experiences, the 2020 pandemic and global lockdowns should have been the death knell for Airbnb. However they have survived and weathered the storm by focusing on the core values the business was built on - community.

So what did they actually do? It’s split into three strands: Innovation, Community and Focus.

Innovation:

• Experiences were already being trialled on the as part of the proposition, but in May 2020 Airbnb went all in on offering as many of these as possible as virtual experiences.
• They introduced a full refund policy for guests should they or their host need to cancel due to Covid. This policy was incredibly unpopular amongst hosts, who had previously been able to rely on guaranteed income show or now show, but very popular with guests. In May 2022 Airbnb ended the contentious clause.
• As lockdowns started to ease and travellers dipped a toe in venturing back into the world, Airbnb introduced AirCover - comprehensive travel insurance included FOR FREE for every traveller. This, combined with the cancellation policy, were all designed to retain connection and brand loyalty with travellers, even when they couldn’t use the service.

Community:

Community and connection are at the core of Airbnb’s USP. Whilst the refund policy might have gone down like a lead balloon amongst hosts, they did want to ensure that their host community were also cared for. Airbnb actively supported hosts to deliver pandemic risk mitigation and supported them to feel safe in their properties once travellers started to return.

Focus:

To help weather the immediate impact, Airbnb instigated a renewed focus on cost management, including a cut in marketing spend and a refocus on promoting local, non-urban destinations that didn’t rely on cross-border air travel.

They also abandoned some experiments to expand the Airbnb offer, and focused on their community value - facilitating transactions between hosts and guests.