NYTimes: Over 50% of the Fortune 500 were founded during a recession or bear market....
I'm not sure what this tells us. I mean, the company at #500 on the list is a $4.6B business, Legg Mason, a company founded in 1899, just a few years after the 1893-1896 recession. It's likely that Legg Mason was 'founded' during the recession or bear market, but that's probably a function of the length of the recession which lasted 3 years. Recessions lasted longer back then (3, 6, 9 years). In contrast, the longest recession after 1939 lasted a mere 22 months (in 1981-2). And the '91-'82 recession was fairly painful. Imagine how painful a 6-year recession would be. And how much innovation that would create, right?
The point of the article is to encourage people to start up new businesses now. Now could be the best time to do it. However, it's not clear what the cause-effect relationship is. Even if you accept the implication that recessions yield the right environment to create new businesses at a disproportionate level, it's not clear that short recessions today will generate the same number of start-ups that grow large enough to make the Fortune 500.
I agree that now is a great time to start up a business, but not for the reason cited by the NYTimes. I would say with certainty that the time is always right to launch a start-up for a good idea and solid business plan, regardless of economic conditions. Entrepreneurs and Intrapreneurs are always looking for opportunities to launch new businesses, again, regardless of the economy.
Many times during my years at HP where I launched 5 businesses that generated nearly $1B in revenue, there was an investment pullback that was followed a few quarters later by a new growth strategy. For example, after HP and Compaq came out of the 2002 merger process, there was a clear shift of the pendulum in 2003 from cost reduction efforts to revenue growth. Fortunately, I anticipated the pendulum swing and worked on new business ideas during the slow down. This meant I had a well-developed business plan for a new venture ready when there was funding available in 2003.
I believe that recessions create the environment to launch new businesses at a higher rate than during good times for the following reasons:
- corporations reduce internal investment, making room for start-ups to pursue opportunities the big companies rejected
- top talent leaves large companies and joins or launches start ups, thus giving them valuable experience that increases the odds of success for the start up
- investors aggressively seek higher returns than established companies generate during downturns
- systemic problems become apparent during downturns, encouraging innovation with this new-found insight(this is the 'Monday morning quarterback syndrome')
For these reasons, this is as good of a time as any to launch a new business or join a start-up -- probably with higher odds of success than any time in history.
Sunday, August 23, 2009
Saturday, August 22, 2009
Good Flight Plan
Many articles have been written about Southwest Airlines’ secrets to successfully building a low-cost business model in a capital-intensive service industry. Southwest disrupted the airline industry many years ago and continues to do so today even though copycats have tried to beat them at their own game without success.
In spite of all that’s been written, I was still impressed during recent trips by Southwest operational practices that provide lessons for anyone striving to balance cost-cutting in today’s difficult economic environment with delivering competitive customer service. Let me mention several things that stood out on my recent trip from Midway Airport in Chicago to San Jose, CA, with a stop in Phoenix:
1. Skipped to the front of the line: Our departure from Midway was delayed about 30 minutes because the plane arrived late due to bad weather on the east coast. We boarded quickly and left the gate. Then, an amazing thing happened that I’ve never seen before. Our plane raced away from the gate at a faster-than-normal taxi speed, took a shortcut, and skipped ahead of another Southwest plane that had taken the normal route to the head of the runway so we could depart early. How did this happen? I imagined our pilot calling his friend in the other Southwest plane, saying, ‘hey Bob, I’m 30 minutes late, do you mind if I go first?’ And Bob, knowing how important it is for the company to get all passengers to their destination on time, said ‘ok’ and pulled over. The two pilots are on the same team with the same goals, resulting in our plane making up a 5-10 minutes of valuable passenger time.
2. Cleaning crew: When the plane pulled into the gate in Phoenix, I noticed they didn’t bring in a cleaning crew; the flight attendants cleaned the plane. Hmm, I wonder what the Flight Attendant Union rules at the older airlines say about that. But at Southwest, the Flight Attendants don gloves and quickly clean up the visible garbage. The impact of owning this task has a clear impact on Flight Attendant behavior. Because they know they have to clean the plane when it lands, they do a very thorough job of picking up garbage during the flight. And why not? If I was a flight attendant and knew that I had to clean the plane, I would figure out how to ‘clean up’ process to make it as painless as possible. As a matter of fact, I would enlist every passenger to clean up his own trash – he knows where he put his trash. As they say in back country hiking, pack it in, pack it out. Instead of defining jobs narrowly and discouraging innovation with formal union contracts like other airlines, Southwest assigns job responsibilities to the employees who have the ability to innovate new approaches to delivering efficient and effective results.
3. Quick turns: I clocked the amount of time the plane spent on the ground in Phoenix during the late trip from Chicago: 26 minutes. That’s incredible! They did everything in 26 minutes: emptied 100+ passengers, cleaned the visible garbage, refueled, boarded 100+ sunburned passengers from the 108 degree Phoenix sun, completed cockpit tasks (whatever that entails) and departed. Not only did this help us make up valuable time, but it also showed that Southwest has learned how to turn planes around quickly, thus maximizing utilization of its resources in this capital-intensive industry.
4. Snacks: With all this focus on cost-cutting, how could they possibly deliver competitive service levels? Let me say, they certainly over-delivered with the snack service. During the flight, Southwest serves snacks from a large Nabisco-branded box that includes cheese/crackers, peanuts, Oreo cookie thins, and animal crackers -- a choice of 4 snacks and – get this -- they let you take as many as you want! This is brilliant! No one can complain about getting one little bag of peanuts when flying on Southwest. Besides, this is a significant differentiator from other airlines which recently decided to charge for all food served during flights except for a bag of peanuts. However, this is counter-intuitive to Southwest’s low-cost approach. How do they do it? I couldn’t help but notice the large Nabisco label on the cleverly-designed box in which the snacks are served. I’m sure Nabisco ‘chips’ in some marketing funds to have the right to the great marketing exposure that comes with delivering exceptional customer service. It’s must be a great value for Nabisco to be seen as the solution to a major source of irritation while flying.
5. Room to work: 4 out of 5 flights were 100% full. In spite of this, there was room for my luggage above me, plenty of leg room, and plenty of room to open my notebook to write (I’m writing this blog post from my Flight 3792, seat 5B, middle seat, without incident). On other airlines, there never seems to be enough room in Economy class. You need to sit in Business Class or Economy-Plus seats -- which are reserved for loyal customers – to have enough room to work on a full flight. Southwest has learned how to be efficient without sacrificing one of the most important traveler requirements.
6. On-time arrival: The most important area where Southwest excelled was in on-time arrival. We departed 30 minutes late from Midway but because of the things I mentioned earlier, we arrived 4 minutes early in San Jose. That’s a guaranteed way to keep me as a customer.
Efficiency, combined with a clever approach to customer service: good flight plan.
In spite of all that’s been written, I was still impressed during recent trips by Southwest operational practices that provide lessons for anyone striving to balance cost-cutting in today’s difficult economic environment with delivering competitive customer service. Let me mention several things that stood out on my recent trip from Midway Airport in Chicago to San Jose, CA, with a stop in Phoenix:
1. Skipped to the front of the line: Our departure from Midway was delayed about 30 minutes because the plane arrived late due to bad weather on the east coast. We boarded quickly and left the gate. Then, an amazing thing happened that I’ve never seen before. Our plane raced away from the gate at a faster-than-normal taxi speed, took a shortcut, and skipped ahead of another Southwest plane that had taken the normal route to the head of the runway so we could depart early. How did this happen? I imagined our pilot calling his friend in the other Southwest plane, saying, ‘hey Bob, I’m 30 minutes late, do you mind if I go first?’ And Bob, knowing how important it is for the company to get all passengers to their destination on time, said ‘ok’ and pulled over. The two pilots are on the same team with the same goals, resulting in our plane making up a 5-10 minutes of valuable passenger time.
2. Cleaning crew: When the plane pulled into the gate in Phoenix, I noticed they didn’t bring in a cleaning crew; the flight attendants cleaned the plane. Hmm, I wonder what the Flight Attendant Union rules at the older airlines say about that. But at Southwest, the Flight Attendants don gloves and quickly clean up the visible garbage. The impact of owning this task has a clear impact on Flight Attendant behavior. Because they know they have to clean the plane when it lands, they do a very thorough job of picking up garbage during the flight. And why not? If I was a flight attendant and knew that I had to clean the plane, I would figure out how to ‘clean up’ process to make it as painless as possible. As a matter of fact, I would enlist every passenger to clean up his own trash – he knows where he put his trash. As they say in back country hiking, pack it in, pack it out. Instead of defining jobs narrowly and discouraging innovation with formal union contracts like other airlines, Southwest assigns job responsibilities to the employees who have the ability to innovate new approaches to delivering efficient and effective results.
3. Quick turns: I clocked the amount of time the plane spent on the ground in Phoenix during the late trip from Chicago: 26 minutes. That’s incredible! They did everything in 26 minutes: emptied 100+ passengers, cleaned the visible garbage, refueled, boarded 100+ sunburned passengers from the 108 degree Phoenix sun, completed cockpit tasks (whatever that entails) and departed. Not only did this help us make up valuable time, but it also showed that Southwest has learned how to turn planes around quickly, thus maximizing utilization of its resources in this capital-intensive industry.
4. Snacks: With all this focus on cost-cutting, how could they possibly deliver competitive service levels? Let me say, they certainly over-delivered with the snack service. During the flight, Southwest serves snacks from a large Nabisco-branded box that includes cheese/crackers, peanuts, Oreo cookie thins, and animal crackers -- a choice of 4 snacks and – get this -- they let you take as many as you want! This is brilliant! No one can complain about getting one little bag of peanuts when flying on Southwest. Besides, this is a significant differentiator from other airlines which recently decided to charge for all food served during flights except for a bag of peanuts. However, this is counter-intuitive to Southwest’s low-cost approach. How do they do it? I couldn’t help but notice the large Nabisco label on the cleverly-designed box in which the snacks are served. I’m sure Nabisco ‘chips’ in some marketing funds to have the right to the great marketing exposure that comes with delivering exceptional customer service. It’s must be a great value for Nabisco to be seen as the solution to a major source of irritation while flying.
5. Room to work: 4 out of 5 flights were 100% full. In spite of this, there was room for my luggage above me, plenty of leg room, and plenty of room to open my notebook to write (I’m writing this blog post from my Flight 3792, seat 5B, middle seat, without incident). On other airlines, there never seems to be enough room in Economy class. You need to sit in Business Class or Economy-Plus seats -- which are reserved for loyal customers – to have enough room to work on a full flight. Southwest has learned how to be efficient without sacrificing one of the most important traveler requirements.
6. On-time arrival: The most important area where Southwest excelled was in on-time arrival. We departed 30 minutes late from Midway but because of the things I mentioned earlier, we arrived 4 minutes early in San Jose. That’s a guaranteed way to keep me as a customer.
Efficiency, combined with a clever approach to customer service: good flight plan.
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