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Home / Opinion / Columns /  Opinion | Some lessons from Depression-era corporate survivors

Even as the covid-19 pandemic continues to wreak havoc, there are growing fears that when it is finally done, the world will plunge into an economic contraction matched only by the Great Depression years of 1929 to 1941.

That Depression was set off by the stock market collapse of October 1929, and was worsened by some ill-thought legislation like the Smoot-Hawley Act of 1930, which sharply hiked US import tariffs on hundreds of products to protect local producers, leading to a 65% contraction in global trade and an increase in prices of agricultural products in the US. Then, as now, the poorest of the poor—sharecroppers, migrant workers—faced the brunt of the ensuing hardship.

Just over 90 years later, the onus is once again on governments to prepare for a downturn. Large companies, though, cannot always expect government bailouts, even though many of them may be faced with extinction. For a March 2010 article titled Roaring Out Of Recession in the Harvard Business Review (HBR), authors Ranjay Gulati , Nitin Nohria and Franz Wohlgezogen studied 4,700 public companies to come up with some startling findings: 17% of these companies didn’t survive a recession and went bankrupt, were acquired or went private. Only a small number of companies—about 9% of the sample—could flourish after a slowdown .

The challenge for companies now will be to join this 9% category, and for that, some lessons learnt from the Depression could come in handy. Here are some tips gleaned from the business literature of the period.

Spread the love: This is the time to be with your people, not to let them go. According to the HBR study, firms that cut costs faster and deeper than rivals have the lowest likelihood of pulling ahead of the competition when times get better. Instead of concluding that you don’t need so many people, tell yourself that if you can achieve this level of output with people working under such severe physical and psychological constraints, how much more will they do when things get better. In an interview with Fortune magazine on managing the economic downturn following the 2008 financial crisis, Steve Jobs had this to say: “We’ve had one of these before, when the dot-com bubble burst. What I told our company was that we were just going to invest our way through the downturn, that we weren’t going to lay off people, that we’d taken a tremendous amount of effort to get them into Apple in the first place—the last thing we were going to do is lay them off." It was no surprise that a year after the dot-com crash, Apple launched iTunes and the iPod in quick succession. Then again, soon after the 2008 meltdown, Apple launched the iPad in April 2010.

Be your customer’s 3am friend: The kirana shop that is still open 12 hours a day or the local vegetable seller who comes calling each day will not be forgotten once the worst is behind us. Customer memory is deep. If you are not with them today, they won’t be with you tomorrow. Early on in 1929, Charlie Merrill, co-founder of Merrill Lynch, wrote a letter to his clients warning them of a stock bubble building up on Wall Street and advising them to reduce their debt holdings and review stock portfolios. Some clients heeded Merrill’s advice and liquidated their holdings well before Black Tuesday wiped out investor wealth by the million. They would go on to become loyal customers of the bank. Even those who did not would have realized the value of the advice.

Unleash the creativity within: Cubicles and open offices are creativity busters. Use the enforced work-from-home model to stoke people’s imagination because the one sure way out of the recession is through out-of-the-box thinking. During the Great Depression, as others slashed costs, Procter & Gamble (P&G) enhanced its ad spends. After the overwhelming popularity of Ma Perkins, a radio programme sponsored by the company’s Oxydol soap powder, P&G went on to sponsor several other soap operas whose listeners would in time become loyal customers.

This is also the time to take advantage of the “lipstick effect", the small luxuries consumers will allow themselves to lift their mood. Indeed, firms that can show people the way out of the current gloom and doom will reap the benefits. Columbia Pictures as well as Paramount Pictures emerged stronger from the Depression era. Today, Netflix, Hotstar and Amazon, which have been struggling to figure out the programming mix that appeals to Indian audiences, need to find their “Little Miss Sunshine".

Be flexible with your business: The Depression years were also a period of prohibition in the US, spelling doom for breweries. Many survived by diversifying into related areas like dairy and agri-products, or even converting their facilities into dance halls. Recessions are the best time to turn convention on its head and look at completely different product and services. Thus, with the travel and hospitality industry looking at a virtual wipeout, this may be a good time for hotels, in collaboration with hospitals, to turn some wings into high-end convalescence centres for richer patients.

Start planning for the next crisis: The best companies will endure because somewhere in their contingency plans, they would have factored in such a moment. For those that did not, this is a good time to meticulously note down all the deficiencies in their scenario planning. Terrible as it is, this won’t be the last such crisis.

Sundeep Khanna is former executive editor of Mint

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