On the Monday Lehman went bust and Merrill Lynch sold itself to Bank of America, I happened to be on Wall Street. I was a little anxious – fear of being crushed by executives jumping from skyscrapers did prey on my mind. Only the cab drivers were cheerful: fired executives wouldn’t be riding in limousines now.
All around me I heard and felt panic. No-one seemed to have much sense of history. Britain may not have had a recession for more than ten years, but America has.
In 2002, the NASDAQ lost 31.53 per cent of its value, the Dow lost 17 per cent. That was after the falls precipitated by September 11. The following year brought no relief but saw a falling dollar and multiple indictments for CEOs of publicly traded companies. Bad news isn’t new.
The period 2001-04 also included anthrax scares, avian flu, SARS, the second Gulf War, Abu Ghraib, the Bali and Madrid bombings, and the collapse of both Arthur Andersen and Enron.
What everyone seems to forget is that, during this period, some US companies did brilliantly. To paraphrase Faulkner, they didn’t just survive, they endured – triumphantly.
Take Apple. The iPod wasn’t an overnight success. It launched two weeks after September 11 to a riot of silence. Quarter after quarter, analysts announced Apple’s death. With declining market share and no great products, it would have to merge with a PC manufacturer. What did Apple do” Launched the iPod, launched iTunes, launched all the easy-to-use software – and waited until 2005, when sales ignited. They focused on their strategy and ignored the noise.
Look at Yum Brands, the parent company of KFC, Taco Bell and Pizza Hut. Clobbered by animal activists and avian flu, David Novak did something incredible, if totally unnoticed – he cut his staff turnover by half. Like most fast food businesses, his costs were hammered by the industry standard turnover of 200 per cent. In other words, every job had to be filled twice a year. He brought that down to under 100 per cent, something no-one in the industry had ever managed to achieve. In doing so, he transformed his business model and cost structure.
After September 11, the CEO of Continental Airlines announced grimly: “The patient is dying.” So convinced was he that consumers wouldn’t fly again. But, despite his Texan love of melodrama, he didn’t ride off into the sunset.
He made two key decisions: to make all staff reductions at once, so morale wouldn’t die from the trauma of multiple layoffs; and he insisted that nothing be done to damage customer satisfaction. As he colourfully put it, he refused to “take the cheese off the pizza”.
While his competitors removed meals and blankets, he didn’t. (He did, however, remove the fork from breakfast trays that no-one ever used, thus saving $80,000 a year. Imagine how hard a multi-billion dollar business must have been looking to find that saving!) When the economy revived, he had loyal passengers where his competitors did not.
Finally, take the mighty Timken, supplier of the world’s ball bearings. In 2002, Timken made its biggest acquisition in the company’s history, doubling its size overnight. A big, bold move when most people were hiding under the covers.
Ward Timken, company CEO, didn’t think the US was in recession – he called it a depression. But, as he put it: “You plant into a glut because that’s when everyone else loses their nerve.”
These companies maintained focus and courage while their competitors lost theirs. They’re proof that, during recessions, even depressions, you have to ignore the noise.
So, turn off the radio. Cancel the newspaper. And if you have to watch TV, stick to nature films: survival of the fittest is all you need to think about.