When Life Gives You Lemons…

By Sander A. Flaum

Months into the global financial crisis, the world continues to dedicate vast amounts of energy to worrying. Government officials issue mountains of statements to calm the markets. Accountants scurry to spin their earnings reports. Business pundits yell more loudly than ever. And traders buy and sell at breakneck speed.

Business leaders can also get caught up in the turmoil. We can wring our hands over the direction of the stock market and calculate—minute by minute—how much wealth we’ve lost. We can focus on spinning the bad news to make ourselves look better in front of our boards, resorting to the classic “herd instinct” by cutting jobs and trimming expenses. We can fret over how the downturn may threaten our firms in the months to come: no bonuses, no options, more doom and gloom as the credit crisis worsens. We can do all of these things, exhausting ourselves in the process.

Or, we can try another tack: we can take charge and lead our businesses in an innovative and entrepreneurial mode. Great leaders use their energy to the fullest during trying times. They hunt voraciously for ideas, track the flow of capital (tight as it may be), and create and/or seize upon new opportunities as they present themselves.

The Great Depression was an excellent laboratory for this sort of innovation. During the 1930s, Charles G. Guth took control of Pepsi-Cola and used a timely and creative strategy to steal market share from rival Coca-Cola. Guth surmised that an economic downturn would make value more important to consumers, so he began selling 12-ounce bottles of Pepsi for five cents apiece, the same price Coke charged for its 6-ounce bottles. He also took advantage of the popularity of radio by letting the public know about the price cut in a new advertising jingle:

Pepsi-Cola hits the spot
Twelve full ounces, that's a lot
Twice as much for a nickel, too
Pepsi-Cola is the drink for you.

In two years, Pepsi’s profits had more than doubled, and an early salvo had been fired in the Cola Wars.

IBM also gained ground during the Depression. Under the leadership of founder Thomas Watson, Sr., the firm recognized that U.S. industries would be unlikely to dedicate capital spending to new technologies, so IBM took its business overseas to a receptive European market, where sales soared. Even through the third quarter of 2008, as the downturn squeezed American businesses yet again, IBM’s Europe/Middle East/Africa division posted a 10% revenue growth.

Of course the entire economy doesn’t need to collapse to create tough conditions for an industry leader. Take the case of Frank Yuengling, the former chief executive of a small Pennsylvania beer company named after his family. In 1919, Prohibition leveled the American beer industry, wiping out most of the nation’s breweries. However, Yuengling survived under Frank’s guidance by using the firm’s vats to brew nonalcoholic “near beer” and by opening a dairy next door to sell ice cream. Yuengling remained in business during a difficult period by using innovative thinking to create new revenue streams until the 18th Amendment was repealed in 1933. Today, the company remains America’s oldest brewery and a favorite brand among Philadelphians—just ask Wharton students.

More recently, my class of Fordham MBA students came up with a brilliant new Website to teach newly unemployed MBAs how to seek out opportunities during the slowdown. For example, since plumbers and electricians are now in great demand (and pulling in about $80 an hour the last time I checked!), the site suggests starting up job training companies that use licensed plumbers to train unemployed men and women to secure their license. There were other creative ideas, including ways to help recently unemployed workers without health benefits obtain their medications affordably. The take-away here is that there are always opportunities for the entrepreneurially minded, positive thinkers, and innovators.

Even if you can’t be upbeat all time, remember that there is great value in being tested. Henry Ford, one of America’s most influential entrepreneurs, saw merit in periodic struggle. In his book My Life and Work he wrote, “Business is never so healthy as when, like a chicken, it must do a certain amount of scratching around for what it gets.”

Author Bio:
Sander A. Flaum is managing partner, Flaum Partners, Inc., and chairman of the Fordham Leadership Forum, Fordham Graduate School of Business. He is coauthor, with his son Jonathon A. Flaum, of the book The 100-Mile Walk—A Father and Son on a Quest to Find the Essence of Leadership (AMACOM, 2006). Contact him at sflaum@flaumpartners.com.

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