Is the recession universally bad news? By Abigail Simpson , MD of Charterhouse

“Is the recession universally bad news?” is a question that we have been thinking about quite a bit here at Charterhouse.

It’s certainly true that the fall into this Global Recession has been quicker, steeper, deeper and lasted longer than most people were predicting 12 – 18 months ago. One only has to look at GDP statistics for the major economies of the world, levels of unemployment, stock market capitalisations and pretty much any other indicator that you care to choose, to see the negative impacts. But is there some small crumb of comfort that we can take from reviewing the past?

The most obvious comparison is the depression of the 1930’s. This was truly monumental in its severity starting as it did on October 29, 1929 or “Black Tuesday”. The depression had devastating effects in virtually every country, rich or poor. International trade plunged by half to two-thirds, as did personal income, tax revenue, prices and profits.

However, there were upsides despite, or indeed because of, this collapse. Many companies came through the whole process fitter and stronger and with the added advantage of having some of their competitors disappear! There were many innovators and entrepreneurs who were ‘kick started’ into following through on their ideas due to circumstances. Some very famous names made their money during the Depression era. In Kentucky, a grandfather, called Colonel Sanders, started serving fried chicken at his petrol station and we all know to where that led. Also, two young electrical engineering graduates stared business in a rented garage during the 1930s. Bill Hewlett and Dave Packard officially became business partners in 1939 with $538 in investment money; again, great things were to follow.

It is an odd fact that actually more Americans became millionaires during this time than in any other time in their history. Opportunities, that were not present during the 1920s economic boom times, suddenly became available. An Economic Downturn can often be a good time to start a business. It was these ‘if you can dream it, you can do it’ Great Depression entrepreneurs that made the best of the crisis to provide a service, or product, for new markets.

There is also a related question as to what distinguished successful existing companies from their competition. Frequently they were the companies that kept their name in front of the public and created brand name recognition even during the worst of times. Companies like Kelloggs and Chevrolet, both of whom were struggling against larger competition at the time. However a confident belief in their product coupled with a brave stance on advertising led to them weathering the storm in significantly better shape than others. The other sort of businesses that fared well were the ones whose debt levels were manageable (or indeed zero) and whose operations were run under constant scrutiny. Smart companies had used the boom years of the 1920’s to eliminate debt and build a ‘war-chest’ for expansion – usually of less well prepared competitors. This was to prove to be a successful strategy.

The harsh environment of the 1930s rewarded tight ships, strong brand management and the accumulation of small advantages, oh…and people willing to strike out on their own.

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