From doubling down on advertising to developing new products, we look at 7 companies' strategies for navigating through a crisis.
Economic crises are an unpredictable but inevitable occurrence impacting economies worldwide.
While causes may vary, outcomes rarely do: from high unemployment to disrupted business operations to stock market plunges, the decline in economic activity can yield major setbacks. The 2008 mortgage crisis, for example, led to the devastation of global financial markets, ultimately causing one of the economic biggest downturns in history — one that took nearly a decade to recover from.
Today, companies around the world are scrambling to adapt to the shock waves caused by Covid-19, which has impacted investment activity across nearly every sector. As the coronavirus pandemic continues, companies both large and small are looking for ways to weather the storm.
Below, we dig into how 7 companies survived past economic calamities, from the dot-com bust to the Great Recession. While the current crisis may once again be challenging some of these companies, we look at their strategies for rebuilding in the past, and the lessons that could still apply today.
table of contents
- Booking Holdings (fka Priceline)
- Sequoia Capital
- General Motors
Kellogg’s thrived during the Great Depression by investing more in advertising — and in its people.
The Great Depression is one of the most catastrophic economic shocks the United States has ever seen, a calamity that saw unemployment climb to 25% alongside a massive GDP drop.
For many companies, the Great Depression meant instituting across-the-board cuts to lower their overhead. But one company in particular succeeded by taking the opposite approach: Kellogg’s.
Mirroring the Keynesian economic policies that would later be implemented by the Roosevelt administration, the cereal company doubled its advertising budget and re-invested in its workers shortly after the market crashed in late 1929. By 1933, Kellogg had increased its profits by 30% and distinguished itself as the country’s leading breakfast company.
Kellogg’s succeeded by going heavy into radio advertising, launching ads that featured its now-famous “Snap! Crackle! Pop!” slogan in 1932. The campaign helped catapult Rice Krispies into a breakfast staple, a position it holds to this day.
The company also innovated in its workforce. In order to create more jobs, the cereal manufacturer shifted to a 6-hour work day, giving workers a 12.5% raise in hourly wages while reducing working hours by 25%. Eighty-five percent of workers liked the 30-hour weekly schedule better, and worker productivity reached 40-hour levels within two years.
According to the Kellogg’s website, some of the newly created jobs went to workers who built a 10-acre park on the grounds of the company’s manufacturing plant in Battle Creek, Michigan. The company’s founder also created the W.K. Kellogg Foundation, which spent its early years working to improve public health in the Battle Creek area and building schools and outdoor camps in rural Michigan.
On the advertising front, Kellogg’s crisis strategy was successful because, at a time when other companies were making cuts, its increased advertising spend allowed its cereal brands to gain a greater share of consumer attention.
Meanwhile, the company’s decision to invest in its workforce and surrounding community developed a loyal, productive workforce that powered its success. These investments had the added benefit of good publicity, with founder W.K. Kellogg earning an invite to the White House to discuss the 6-hour workday with president Herbert Hoover.
Booking Holdings (fka Priceline)
Booking Holdings weathered the post-dot-com storm, then stocked up with a series of highly successful acquisitions.
In the Spring of 1999, Priceline.com was a darling of the booming dot-com sector, with a $990 stock price and an innovative name-your-own-pricing model for airline ticket sales.
Buoyed by extensive TV ads starring William Shatner, the company would eventually expand into related products like hotel rooms and rental cars, as well as less related fields like gasoline, groceries, and home mortgages.
Like many of the rising stars of the late 90s, Priceline.com came crashing down when the dot-com bubble burst. The company’s attempts to forge a path outside the travel industry failed, and competition from other travel sites and airlines ate into its market share. By the fall of 2000, the company’s stock price had fallen below $5 per share. Things only got worse after 9/11 and the industry-wide downturn that followed.
But unlike many of the late-90s dot-com startups, Priceline.com is still around today.
Now known as Booking Holdings, the company survived the post-dot-com, post-9/11 period by cutting staff, shedding non-core businesses, and focusing on its work in the travel industry. Its resurgence would come later, from an aggressive global acquisition strategy.
Rather than pinning its hopes on airlines, which were hurting after 9/11, Priceline looked to hotels, which offered better profit margins. The company expanded into Europe with the acquisitions of two hotel booking platforms, Active Hotels and Booking.com, in 2004 and 2005, respectively. In addition to growing Priceline’s supply, the acquisitions allowed the company to take advantage of a new market. Today, these transactions are widely considered some of the travel industry’s greatest acquisitions.
Priceline also expanded into Asia with its 2007 acquisition of Singapore-based hotel reservation site Agoda. Since then, it has invested more than $2B in Chinese businesses including ride-hailing giant Didi Chuxing, travel agency Ctrip, and restaurant review, couponing, and retail delivery app Meituan Dianping. As of the end of 2018, close to 90% of Booking’s profits reportedly came from outside the US.
Domestically, the company has further expanded its business with the acquisitions of OpenTable and Kayak.
To an extent, the first ingredient to Booking Holdings’ resurgence was a healthy dose of patience. The company’s turnaround was far from overnight, and it would take some 14 years for its stock price to exceed its dot-com highs.
Following the twin crises of the dot-com crash and September 11, Priceline hunkered down, cut costs, and focused on survival. Then, when the company had some breathing room again, it found new revenue streams by expanding into new industries that still fit within its core competency of helping consumers make reservations. Whereas the company’s initial plans to move into unrelated spaces like gasoline and mortgages failed, its move into hotels was a hit.
Today, even as the Covid-19 crisis has caused a significant drop in the company’s stock price, Booking Holdings is valued at a market capitalization of around $60B.
Sequoia Capital thrived during the Great Recession by turning its attention to focused, disciplined domestic companies, as well as to China.
At the onset of the Great Recession, leading venture capital firm Sequoia Capital shared a now-famous PowerPoint presentation entitled “RIP Good Times” with the heads of its portfolio companies. In the presentation, Sequoia warned that a long economic downturn was coming, and suggested different ways companies should make cuts to “batten down the hatches” and preserve enough runway to stay afloat.
But while Sequoia encouraged its portfolio companies to tighten their belts, the VC itself survived the crisis by continuing to make investments.
As then-partner Greg McAdoo explained to The Wall Street Journal in 2009, Sequoia’s position was less that everyone needed to cut spending, and more that “recessions reward discipline.” As he put it:
“…a lot of startups got going in good times and frankly fell into bad habits you would not get into in a bad economy but can kill you now. The message was not to fold up your tents but to reevaluate…and re-engineer your business.”
Rather than scaling down its investments, Sequoia worked with companies that were locked in on a clear set of goals. In 2009, it made a $600K seed investment in Airbnb, impressed by the company’s focus on culture and customer service. By 2019, the company had reached a valuation of $35. Sequoia also ramped up its investment in file-storage company Dropbox, which was focusing heavily on providing a simple user experience, and went on to make about $2B when the company went public in 2018.
With the markets cooling in the US, Sequoia also began ramping up its investments in China. The VC firm participated in every funding round for Meituan Dianping beginning in 2011. By the time Meituan went public in 2018, the $400M that Sequoia had invested was worth $4.9B, making it one of the best bets in VC history.
In early March 2020, faced with another crisis, Sequoia released similar advice for how companies can survive Covid-19. Posting on Medium, the VC firm advised its portfolio companies to think carefully about every aspect of their spending and take proactive steps to address the crisis at hand. The post concluded:
“Having weathered every business downturn for nearly fifty years, we’ve learned an important lesson — nobody ever regrets making fast and decisive adjustments to changing circumstances .. In some ways, business mirrors biology. As Darwin surmised, those who survive “are not the strongest or the most intelligent, but the most adaptable to change.””
Amazon survived the dot-com bust with smart fundraising, a strong cash flow, and two lucrative new B2B products.
Amazon is one of the world’s largest publicly traded companies, but it only got to that point by surviving the dot-com bust. While the company didn’t go out of business like other internet retailers, including Pets.com and Webvan, Amazon did lose a whopping 90% of its stock value between late 1999 and late 2001.
One major reason that Amazon was able to hold on was that it had raised a large amount of money right before the market crashed, giving it the funding it needed to continue operations. In his book The Everything Store, business reporter Brad Stone wrote that Amazon may have even gone bankrupt had it not sold nearly $700M in convertible bonds to European investors investors in early 2020.
According to an analysis from Harvard Business School, Amazon’s post-bubble runway was further enhanced by a negative cash conversion cycle, which allowed the company to receive payment from customers before it had even finished paying the supplier it acquired the product from. The combination of this cash flow strategy and its existing investor capital allowed Amazon to continue gaining market share even with negative profits.
In the years that followed, Amazon expanded into new business operations that laid the groundwork for its astronomical growth. Essentially, the company realized that it could succeed in higher-margin business services on top of the thin margins in its consumer-facing retail business.
In late 2000, it unveiled Marketplace, a used book marketplace that ultimately evolved into a third-party sales platform for businesses to sell just about everything. That same year, the company took the first steps toward creating what would eventually become Amazon Web Services, a business that lets software developers rent out servers from Amazon data centers. In the Q4’19, AWS brought in just shy of $10B in revenues for the company.
Amazon may owe as much of its success to what it did before the crisis as it does to its actions during and after. By planning ahead and creating a financial cushion through fundraising and a quick cash conversion cycle, the company was able to continue moving forward, even as its stock crashed to under $10 a share.
By the time the dot-com crisis ended, Amazon had successfully outlasted other online retail competitors, and its innovative new B2B revenue streams helped grow the company into the e-commerce giant it is today.
Hostess made it through a Great Recession bankruptcy by modernizing its factories, launching a PR blitz, and developing a longer-lasting Twinkie recipe.
In the aftermath of the late-2000s financial crisis, snack food manufacturer Hostess was on the ropes. The company went bankrupt in 2012, marking its second bankruptcy in a decade and taking its famous Twinkies snacks out of American grocery stores for the first time in 80 years.
Hostess’ initial gambit was to cut costs by renegotiating its labor contracts, but the maneuver failed when the company’s bakers went on strike, forcing the owners to shut down operations the following week. However, a smart acquisition, several production breakthroughs, and a well-executed marketing strategy ended up helping the company turn its fortunes around.
Billionaire investor C. Dean Metropoulos and private equity firm Apollo Global purchased Hostess’ cake brands for $410M in April 2013. The investors modernized its factories, instituting a new warehouse-based delivery system that expanded Hostess’ reach while slashing delivery costs from 36% to 16% of revenue. Through an investment in R&D, Hostess also developed a new formula that more than doubled Twinkies’ shelf life from 25 days to 65.
Hostess paired these advancements with a staggeringly successful public relations blitz after Twinkies returned to shelves in July 2013. Framing the snack cakes as a piece of iconic Americana, Hostess placed its Twinkies on Jimmy Fallon, Ellen, and the Today Show, where Al Roker threw free samples to fans. The media buzz helped drive sales so high that some retailers decided not to charge the slotting fee they usually applied for brands to appear on their shelves.
Three years later, Metropoulos and Apollo Global sold a majority stake in the company to a publicly traded affiliate of the Gores Group for $725M. The investors collected a return of about $1B on an initial equity investment of about $185M, according to The New York Times.
Ultimately, Hostess’ resurgence was fueled by its decision to invest in its product and infrastructure. With a longer shelf life, Hostess could sell more Twinkies, and with better logistics, it cost the company less to make them. The major PR push was the final factor in the company’s return to success. And while Hostess’ investments in its product cost money, they more than paid for themselves in the end.
General Motors is still in business due to a massive government bailout, efficient corporate cuts, and a focus on collaboration.
Source: The Motley Fool
For General Motors, the late-2000s recession was the straw that broke the camel’s back, pushing the struggling company into a much-publicized bankruptcy.
The company had already been losing billions of dollars annually for several years, a downturn caused by high pension costs, unprofitable new cars, and expensive production facilities. When sales slumped during the Great Recession, the company bottomed out and declared bankruptcy.
Due to GM’s status as one of the United States’ largest manufacturers and employers, the US government responded with a massive private sector intervention. In 2009, the US invested nearly $50B in the bankrupt company in exchange for a 60% stake. The company’s eventual recovery is one of the most discussed comebacks in American business.
After taking a controlling stake in the company, the Obama administration appointed a new board of directors and remained in close contact with the new executives as they went about returning the company to profitability. New CEO Fritz Henderson asked more than 400 of the company’s bloated roster of 1,300 executives to resign, with management also cutting car dealers, employees and entire divisions like Pontiac and Saturn.
The changes helped a slimmed-down GM achieve 15 straight quarters of profitability by the end of 2013, when the government sold its last portion of stock in the company. This resurgence was also fueled by increased sales as the overall economy rebounded, particularly when it came to SUVs and trucks.
Though GM’s comeback was temporarily interrupted by a $4B ignition switch failure in 2014, its rebound continued under the leadership of Mary Barra, a longtime employee who became the company’s first female CEO at the end of 2013. Barra has worked to institute a culture of accountability that brings together GM’s previously siloed leadership in a more agile, collaborative effort.
Barra has also worked to make the company leaner by shedding unprofitable divisions like GM’s European business and cutting non-essential employees and factories. Now looking ahead, GM has sought to set itself up for future success through measures like investing $500M in ride-share company Lyft, introducing the fully electric Chevrolet Bolt, and acquiring self-driving car startup Cruise Automation.
Perhaps more than anything else, General Motors survived its recession-era bankruptcy due to the decades of work that went into making the company a lynchpin of the American economy, securing its government bailout.
Since its bankruptcy, GM has clawed its way back to profitability by aggressively cutting parts of the business that aren’t working, be that employees, production facilities, or entire corporate divisions. When combined with an innovative and forward-looking corporate culture, this efficiency has made the company well-positioned to ride out future crises.
Delta rebounded after 9/11 by investing in its workforce and making its supply chain more efficient.
In the years following September 11, Delta was one of several major airlines that struggled to adjust to decreased consumer demand, rising fuel costs, and the growth of budget competitors offering lower fares. The company declared bankruptcy in 2005.
When Delta emerged from bankruptcy in 2007, its first steps were to improve its customer experience by investing in its workforce.
To do so, Delta developed new training systems and instituted an employee profit-sharing program that paid out 16.6% of each employee’s salary (a total of $1.6B) in January 2020. As CEO Ed Bastian told The New York Times, “You’ve got to make certain that your employees know that they are the absolute best asset you have,” especially during tough times.
These improvements greatly improved Delta’s service and helped the company keep its unionization rates well below industry average, allowing executives to save on labor costs.
Next, the company focused on becoming more efficient through increased scale and a tighter grip on its supply chain. Its 2008 merger with Northwest Airlines allowed it to add crucial Pacific and midwest routes in the United States, while partnerships with airlines like Aeroméxico, Brazil’s GOL and the UK’s Virgin Atlantic gave Delta customers more international access.
Finally, the company cut into its fuel costs by hiring crude oil traders and purchasing its own oil refinery and transport ship. This strategy has helped Delta keep its fuel costs about 5 to 10 cents per gallon lower than the industry average. Considering that the airline spends about $12B on fuel annually, this efficiency makes a big difference.
Like other companies on this list, Delta survived an economic crisis by investing heavily in its product, in this case the service it provides customers. Better trained, happier employees made better crew members, which has led to more satisfied, more loyal customers. And by taking a bold risk on producing its own fuel, the company has transformed its supply chain and further expanded its profit margins.
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