To Cede, or to Seed, that is the question:

Whether ‘tis nobler in the mind to suffer

The slings and arrows of a down quarter or year,

Or to take arms against the Tyranny of Now

And by opposing overcome it.

To Cede – to withdraw,

Spend no more; and by stopping to say we end

The innovation and the thousand natural insights

That pave the way: ‘tis a necessity

Stoically to be endured

To Seed, to spend;

To spend perchance to grow – ay there’s the rub:

For in that spending on innovation what revenue may come,

When we have emerged from this uncertainty,

Must give us hope – there’s the advantage

That makes success of such a business

  • Hamlet, if he were a senior executive making budget decisions during periods of uncertainty (and with my deepest apologies to Shakespeare)

The Question

To cede or seed is the question facing so many executives right now.

The same question faced executives in 2001, 2008, and 2020.

And an answer is required.

But what’s the right answer?

As a friend likes to say, “It’s contextual.”

To Cede

Cede is the most common answer for two main reasons: (1) executives feel they don’t have a choice because super-senior executives mandated an x% budget, or (2) executives need to boost results by allocating resources to things with “guaranteed” ROI.

Whatever the reason, innovation is a luxury the business can no longer afford, and the core business is a necessity to be supported at all costs. As a result, rather than scaling back a little in a lot of places, managers believe it is safer and easier to eliminate innovation entirely and maintain, or even increase, resources for operations.

Sometimes, this is also the right answer.

If the business is hemorrhaging cash, its value is plummeting, and people are questioning whether or not it can stay in business, then Cede is the right answer. There’s no sense in investing for success in one, three, or five years if there’s little chance of seeing the next day, week, or month.

But odds are, you’re not in that situation.

To Seed

The Dot-com bubble. The Great Recession. COVID-19 recession. 

The 21st century has allowed us to study the impact of different decisions during and after economic crises.

And when it comes to innovation, evidence shows that companies that continue to invest in innovation during times of economic uncertainty outperformed the market by 10% during the crisis and by up to 30% in the five years immediately following the crisis.

But not all companies.

A study of 4,700 companies during three global recessions (1980 – 1982, 1990 – 1991, and 2000 – 2002) found that “Businesses that boldly invest more than their rivals during a recession… enjoy only a 26% chance of becoming leaders after a downturn.”  However,

“Companies that master the delicate balance between cutting costs to survive today and investing to grow tomorrow do well after a recession. Within this group, a subset that deploys a specific combination of defensive and offensive moves has the highest probability—37%—of breaking away from the pack. These companies reduce costs selectively by focusing more on operational efficiency than their rivals do, even as they invest relatively comprehensively in the future by spending on marketing, R&D, and new assets. Their multipronged strategy…is the best antidote to a recession.”

The takeaway – Seed, don’t splurge.

The Answer (sort of)

It’s easy, and incredibly biased, of me to assert that there is one and only one right answer. That the executive who cuts innovation spending (along with travel budgets and probably a few other things) is woefully short-sighted and dooming his business to a never-ending cycle of cutting back, losing ground, and racing to catch up, only to cut again when the next downturn hits.

It’s also very unfair because I’d be using history and theory to judge an executive grappling with the reality of organizational mandates, limited resources, and very real responsibilities.

The right answer is the one you can live with.

Ceding makes sense in the short term, but it’s a liability in the medium and long term.

Seeding pays off in 2-3 years, but you’ll endure skepticism and risk your bonus or job while waiting.

Research says Seeding is the right answer.

Reality often dictates Ceding.

The choice is yours.

Just remember that, like Hamlet, you live (or die) with the results.