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Why Invest in R&D During Times of Economic Uncertainty

When the economy is thriving, money flows more freely, and selling products becomes a breeze. It seems like the perfect moment to dive into new ventures. But here’s the twist: everyone else thinks the same. In a booming economy, aspiring entrepreneurs come out of the woodwork, each hoping to make their mark.

With more businesses entering the fray, maintaining a competitive edge becomes increasingly challenging, regardless of how vibrant the market appears. Furthermore, the relative ease of securing investment can lead to poor financial management as money comes and goes.

Learn how Financial Modelling can help you make informed financial decisions.

A significant issue in the marketplace is this “herd effect.” When the going is good, everyone jumps in. At the first hint of trouble, they all retreat en masse. This collective retreat can have devastating consequences, turning the fear of a recession into a self-fulfilling prophecy.

However, history shows that the contrarians, those who dare to think differently often reap the greatest rewards. Investing in fresh ideas while others are hitting the brakes is a proven strategy for gaining an edge.

Forbes, Shopify and even Investopedia have their own list of recession-proof business ideas, so you don’t need to be original neither think much. If you prefer to take the easiest path, good luck.

But if you want to really stand out from the crowd, here are some interesting and real examples of new business ideas that emerged during an economic crisis, proving that innovation is key in recession times:

1930s Great Depression

In the 1930s, during the Great Depression, engineer Charles Darrow lost his job. To entertain his kids, he created a real estate trading game on a tablecloth. With one in four workers out of a job, dreaming of properties, wealth, and abundance acted as a relief. The game quickly became a local sensation, prompting Parker Brothers (leading game manufacturer at that time) to partner with Mr Darrow. Thus, Monopoly was born. Until this day, it’s a global phenomenon, played by millions, turning Darrow into the first millionaire game creator.

1970s Economic Recession

The 1970s recession made it hard for delivery services to be efficient and trustworthy. A young Frederick W. Smith identified a critical need for reliable overnight delivery services, particularly for time-sensitive shipments. He proposed an innovative system based on a hub-and-spoke model, where packages could be sorted and transported through a central hub. This approach revolutionised the logistics industry by guaranteeing overnight delivery across the United States. Today, FedEx is a global leader in express shipping, setting new standards for speed and efficiency in package delivery services.

1990s Recession

The 90s recession affected much of the Western world. It was characterised by a slowdown in economic activity, high unemployment, and significant fiscal deficits. The aftermath of the recession led many people in the US to focus on finding innovative ways to save money and generate income. Notably, Pierre Omidyar launched eBay, a platform that provided a solution for people looking to sell unwanted items and make extra cash, as well as for buyers seeking affordable goods. This peer-to-peer marketplace rode the wave of the big technological transformation and thrived in an environment where consumers were eager for cost-effective options and new revenue streams

2000s Dot-com Bubble Burst

In the early 2000, the internet bubble burst, causing tech shares to plummet and fortunes to vanish. Investors despaired, uncertain of the market’s bottom. Amidst this chaos, a new website emerged and thrived. Its secret? It fed on the sector’s collapse, reporting which portals were about to fail, go bankrupt, or lay off employees. This made it essential reading for Silicon Valley execs and Wall Street investors. During the crisis, millions visited daily, with ad revenue keeping the site alive until 2007. Its fitting name? F*ckedcompany.com.

2008 Financial Crisis

Founded by Andrew Mason in 2008, Groupon emerged during a time when consumers were seeking ways to save money amidst economic uncertainty. The platform offered daily deals and discounts for local businesses, encouraging consumers to purchase vouchers at a reduced rate. This model not only helped consumers stretch their budgets but also provided a lifeline for small businesses struggling to attract customers during the recession. Groupon’s success lay in its ability to leverage collective buying power and stimulate consumer spending during a period of financial constraint. It quickly expanded globally, becoming a pioneer in the daily deals industry and influencing how businesses market their products and services online.

2008 Financial Crisis

Also directly related to the 2008 global economic downturn, in 2009, Jan Koum and Brian Acton, both former Yahoo employees, noticed that people wanted to stay connected without incurring high SMS costs. This led them to create WhatsApp, a messaging app that allowed users to send texts, images, and videos over the internet for free. The app quickly gained popularity, especially in regions with expensive texting services, providing an affordable communication solution during tough financial times. WhatsApp’s success culminated in its acquisition by Facebook in 2014 for $19 billion, making it one of the most significant tech deals in history.

In each case, these businesses prospered not despite the economic crisis, but because of it—like a flower sprouting from manure. Even if you don’t have an idea to profit from a crisis, remember that recessionary times are fertile ground for investing in new businesses. No matter how deep a crisis may seem, there is always room for imaginative minds to navigate difficulties and find opportunities to thrive.

Best of all, the Australian Government incentivises companies investing in new ideas by offering substantial tax refunds through the R&D Tax Incentive program. The Federal Government also offers tax offsets and CGT-exempt status on shares purchased in Early-Stage Innovation Companies.

If you’re a bold business owner looking to grow your business despite (or because of) economic turbulence, reach out to Alan Baghdasaryan, Director of our Government Grants & Incentives team at BridgePoint Group. He will explain how we can help your company access the R&DTI and ESIC programs.

Talk To
Alan Baghdasarayan
GOVERNMENT GRANTS & INCENTIVES DIRECTOR
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