As we likely head towards another recession, we look at 4 of the biggest recessions since the 30s and how innovation has pulled us through.
It was when the US stock market almost doubled in the 18 months before “Black Tuesday”, October 24, 1929, that panic set in across America. Over 16 million shares were traded on the New York Stock Exchange in a single day, billions of dollars were lost and Wall Street investors were wiped out to the point of no return.
In the aftermath, America and the rest of the industrialised world spiralled into the deepest and longest economic recession of Western history, otherwise known as the Great Depression (1929-39).
Despite a sharp decline in nominal wealth and the series of financial crises that followed, the Depression-era is a prime example of how economic devastation can ignite innovation and strategic decisions amongst entrepreneurs.
Lack of employment opportunities worsened economic conditions, but confidence was instilled through innovative business interventions. It’s an observation that can also be made for 4 of the biggest recessions since the 1930s.
The question to be asked is this: Can a recession mean more opportunities for entrepreneurs? Is there an underlying trend during every economic tailspin?
How & why recessions call for innovation
A lot of recessions emerge from overoptimistic expectations of efficiency-gains in the financial sector. Failing that, they’re often a result of an unlucky combination of factors – spur-of-the-moment rules and regulations, lack of government protection and an extremely high unemployment rate.
But, behavioural changes caused by such economic adversity still opens up a window for businesses to pursue opportunity. They’re able to use uncertain grounds to get closer to customers who might be ignored by their competitors, acquire instantly-available talent that could surge them forward and make strategic investments that will benefit them long-term. As the saying goes: fortune often favours the brave, and those that aggressively capitalise on their opponents’ struggles often flourish.
As the world after is also unlikely to resemble the one before it, they can use this to their advantage to embark upon a new way of life – improving the way people communicate, acting upon convenience and instilling happiness through simple measures.
Little research has been done to confirm exactly which strategies are successful, but we can conclude the power of entrepreneurship and innovation during such financial crashes by analysing the state of businesses since the 1930s.
Businesses that thrived during 4 of the deepest recessions
Let’s take a look at their history, analyse the themes throughout and determine which business leaders embraced the paradoxes of innovation.
The Great Depression, 1929–39
The Great Depression was the worst economic downturn of the economic world, caused by wild speculation in the roaring twenties, inactivity of the Federal Reserve and inconsistent government interventionist efforts.
As the U.S. was thrown into despair, Walt Disney created cartoons to bring joy and happiness to those suffering from the Depression. The Mickey Mouse adventures buoyed Americans through the devastation that would follow, starting with Disney’s first full-length feature of “Snow White and the Seven Dwarves”. It was a move that kept Disney afloat, but most significantly, reminded the masses of what it’s like to feel happy and appreciate life’s simplest pleasures.
Even now, it’s deemed the cartoon that helped get America through the Great Depression.
Hewlett-Packard (HP) was also established during 1937-1938, introducing innovation through technological advances. Interestingly, the sound engineer for Walt Disney’s movie, ‘Fantasia,’ saw the fixed-frequency oscillator they had created and bought eight of them in one go.
All of a sudden, happiness in its purest form had links to intelligent technology. It started a sequence of correlation that would make itself clear throughout every recession and would lead us to a point where technological innovation is essential to survive in today’s economy.
Mid-1970s Recession, 1973–75
The 1970s was a period of economic stagnation in much of the Western world, witnessing some of the highest rates of inflation in the United States in history. The recession that followed tore apart many businesses across America.
In his book, “Stocks for the Long Run: A Guide for Long-Term Growth” (1994), Wharton professor Jeremy Siegel, called it “the greatest failure of American macroeconomic policy in the postwar period.”
However, in spite of such wreckage, the 1970s also saw the establishment of Microsoft, who’s net worth now stands at over $1 trillion. The technology company launched on April 4, 1975, just days after the recession was considered officially over and has since created 3 billionaires and 12,000 millionaires. It’s an invention that helped create the technologically-obsessed world we live in today.
The 1990s Recession, 1990–1991
The 1990s recession came after the 1980s economic boom, where software company Adobe originally developed and sold PostScript page description language for corporations, including Apple.
But what’s interesting about the 1990s recession is that innovation never stopped. Despite a dramatic growth in employment, at a time where professional expertise, proof of an admirable reputation and a network of contacts were held in high regard, business leaders continued to make developments that we still rely on today.
One of the few successful tech companies to emerge from the recession was Bungie, a successful game developer mostly for the Mac platform. After the product was demonstrated at MacWorld in 1999, Microsoft bought the company for a reported price of between $20 and $40 million. Bungie’s Halo has since become a multibillion-dollar game franchise.
ARM was also founded during the disastrous downturn that started in 1990 and is now an application that powers most of the world’s smartphones. Again, connecting friends, instilling happiness in relationships and allowing people to switch off from the outside world.
The same theme was later reinforced by John Andrews, now 78, who was 51-years-old when the 1990’s recession took place in Australia. “The 1990s experience made me angry and made me far stronger in my belief that we were all in this together,” he said. It was a time of devastation where innovation was the saviour, despite whether or not it was known.
The Great Recession, 2007–2009
Devastating world financial markets, the Great Recession was a period of economic decline considered as the most significant downturn since the Great Depression. It refers to both the U.S. recession that took place from December 2007 to June 2009 and the consequent global recession as a result thereafter.
According to a 2011 report by the Financial Crisis Inquiry Commission, the Great Recession was avoidable. It was arguably linked to greed, whereby the U.S. housing market was capitalising from thousands of risky mortgages in the hopes of acquiring quick profit.
But, in a time of worldwide economic uncertainty, entrepreneurs thought about convenience. They began eliminating any question marks through digital forms of communication, bringing people together and enabling families to grow closer than ever before.
If we take WhatsApp, for example, Jan Koum and Brian Acton created the platform as a way for people around the world to message each other quickly. Around the same time, with discounts, incentives and product discovery, Groupon provided a way for business owners to get exposure and ease consumers back into discretionary spending.
Stephen George, one of Groupon’s first five employees now the CEO of experiential marketing platform Surkus, told FOX Business:
“During a difficult time, Groupon was able to deliver performance-based marketing solutions to connect businesses and brands with their customers”.
It’s a recurring theme that helped people survive and enabled entrepreneurs to thrive in times of difficulty.
Other examples include:
- Airbnb, 2008 – Created by Brian Chesky and Joe Gebbia as a way for people to earn extra money during the financial crisis. It is now a $30 billion firm with more than 6 million listings in 191 countries.
- Uber, 2009 – Businessmen Travis Kalanick and Garrett Camp founded Uber after they couldn’t find a taxi ride on a cold night in Paris. The rideshare behemoth has since expanded internationally to include a food delivery service, a bike and scooter share service and a temporary work staffing service.
- Slack, 2009 – Photo website Flickr co-founder Stewart Butterfield initially created Slack as a work messaging app, which now has around 12 million users and has since broken user records.
What can we expect from the 2020 recession?
Analysing past and recent recessions, Wunderman Thompson APAC chief exec Annette Male, says businesses that innovate out of a recession by focusing on consumers will be “the dominant brands of tomorrow.”
“I think we need to recognise that there is nothing in a recession that can be taken for granted. There can be no sacred cows and we should always be looking at innovative solutions to the problems that spring up because it is during these times that truly disruptive ideas can take root. Our job as marketers should be to guide that process and to identify the innovative ideas and risks worth taking,” she continued.
For Sanchit Jain, technology and media analyst at Enders, advertisers and business owners should spend time both analysing and considering the context of the current economic downturn before creating a strategy.
“[The 2009 crisis] didn’t create the same level of economic uncertainty as the pandemic has. Households are worried about job security, overall health and their future economic prospects – to an extent not seen a decade ago. Nevertheless, marketers cannot afford to fall into the same cautious mindset as consumers at the moment – in doing so, they will forego invaluable opportunities.”
Some professionals also predict today’s recession will be over before we know it, but it’s what businesses do in the meantime that really matters. Striving for success using the best digital platforms could be what helps you rise above your competitors should we face another financial crisis.
Entrepreneurship and innovation: A necessity for growth
At the height of the Great Depression, Disney cartoons brought people together by igniting happiness. Business leaders have since invested in digital transformation, using behavioural economics to dominate the market and develop products that offer both convenience and pleasure. They’re innovating using more than just feelings: it’s a two-way street that’s built up over the years.
For those who saw this coming, today’s recession will be one of the easiest to combat.
Former HP Fellow Charlie Bess, also gave advice we can learn from while face-to-face with today’s economy. In an interview about recessions being a prime time for innovation, especially given the success of HP, he said:
“The challenge is to innovate while you keep the rest of IT humming. It’s a delicate balance. We talked to some CIOs and their senior IT execs to learn how they’re doing it, and rolled their feedback into four essential steps that are key to enabling IT innovation. Step 1 is to focus on meeting some of the basic business needs first.”
So, if you’re wondering how to navigate the industry as it stands, we’d recommend stripping it back and thinking about why you started your business in the first place. Look at how it can help your customers, how your product or service ties into the economy and how innovative it really is.
If your answer is a little blurry, it might take a little more to dominate the battlefield.