Sunday, February 15, 2009


6 companies born during downturns

Think a recession is a bad time to start a company? Imagine if the founders of these major corporations had thought the same...

4. A bright idea in a financial crisis

Company: General Electric
Industry: Energy and other
Founded during: Panic of 1873

Picture: A woman demonstrates a General Electric Toaster, ca. 1920.

Kicking off the Long Depression was the Panic of 1873, which began when major investment firm Jay Cooke & Co. collapsed, causing the NYSE to shut down for days. The ensuing financial crisis lasted six years. Sound like an ideal time to open a laboratory? That's what Thomas Edison thought as he set up a facility in Menlo Park, N.J., in 1876. There, he produced the first light bulb in 1879 - the same year the panic officially ended. Although economic conditions would remain poor until 1896, Edison had gained enough momentum to start a company he called Edison General Electric Company. In 1896, Edison's GE landed a spot on the first-ever Dow Jones Industrial Average. Today, it is the only remaining company of the original twelve.

Status today: GE posted $183 billion in revenues in 2008, but its earnings were down 19%. Profits from GE's consumer and industrial segment dropped 65% during the year, and GE Capital's profits fell almost 30%. While GE's energy sector saw a modest growth in profits, the company is bracing for a rough 2009.

5. Outliving a long depression

Company: IBM Industry:
Industry: Computer
Founded during: The Long Depression, 1873-1896

Picture: A tabulator from 1890

Aptly named, this era comprised a series of unfortunate events. The Vienna Stock Exchange fell. The Coinage Act of 1873 demonetized silver, pushing investors away from making long-term loans. U.S. banks collapsed twice, causing the Panic of 1873 and the Panic of 1893. But three startups - the Tabulating Machine Company, the International Time Recording Company and the Computing Scale Corporation - developed technologies during this 23-year period that were in demand despite the sour economy. A time clock for recording workers' hours, for example, was needed as industrial production at the end of the century surged. Also, a tabulating machine was vital during the immigration wave, to tally up the expanding population. These three companies merged in 1911 as the Computing-Tabulating-Recording Company, which changed its name to IBM several years later.

Status today: If it's true that what doesn't kill you makes you stronger, IBM came into this recession well-fortified: Big Blue is a veteran of near-death experiences.

IBM's wild success in the 1960s led to antitrust action by the U.S. Department of Justice. The fallout from U.S. v. IBM took its toll over the next decade and radically reshaped IBM's business operations. IBM eyed oblivion again in the early 1990s, as its traditional hardware and mainframe computing business dried up. Under Lou Gerstner's leadership, IBM overhauled its business model, shifting the emphasis from products to services. Although consumers are spending less on technology in the current economy, IBM recently posted a strong quarter, which it attributed to an increased demand for its outsourcing services. Last year, the company had record revenue of $103.6 billion. However, thousands of layoffs are reportedly underway in IBM's sales and software units.

6. Rising above inflation

Company: Procter & Gamble
Industry: Household products
Founded during: The Panic of 1837

Picture: A P&G distributor makes his rounds in the 1870s.

Candle maker William Procter and soap maker James Gamble joined forces to start a small household-goods business in Cincinnati. It was a risky move for the brothers-in-law: The shaky economy had a full six years of financial crisis ahead. Massive migration to the West caused land prices to rise, and inflation soon followed. Under President Martin Van Buren, bank failures and concerns about the paper economy spurred the greatest economic decline since the birth of the country. But P&G survived and went on to score lucrative contracts to supply necessities to the Union Army during the Civil War.

Status today: With $83.5 billion in revenue in 2008, Procter & Gamble has built a portfolio of some of the most recognizable brands in the U.S., including Tide, Pampers, Oral-B, Iams, Pantene, Duracell and Pringles. The company's shares took a hit this past year, but it has held steady against smaller competitors such as Johnson & Johnson and Colgate-Palmolive, and its earnings remain strong: P&G had net earnings last year of $12.1 billion.

Because consumers rely on P&G products in good times and bad, it is considered a titan even in a rough economy.


6 companies born during downturns

Think a recession is a bad time to start a company? Imagine if the founders of these major corporations had thought the same...

1. Speeding around oil prices

Company: FedEx
Industry: Shipping
Founded during: The Oil Crisis of 1973

Picture: CEO Frederick Smith boards Federal Express Corp.'s first Falcon fanjet.

Entrepreneur Frederick W. Smith identified a pressing business need: important documents had to reach their destinations within one or two days. He incorporated a company called Federal Express in June 1971 and began operations in 1973 from Memphis International Airport. On its first night, in April, FedEx shipped 186 packages to 25 U.S. cities. But all was not well on the international front, and within months, several Arab states had embargoed oil exports to the United States. While this news could have been disastrous for a company that relied on petroleum-fueled transportation, Federal Express stayed alive and became profitable in July 1975, when oil prices finally leveled off.

Status today: 2008 seemed at first to be a deja-vu replay of the company's nascent years, as soaring fuel prices hurt operating costs. But when prices retreated, FedEx faced a new whammy: The weakening economy has reduced demand for prompt shipping. Average package volume for daily ground shipping dropped 2% year-over-year for the quarter ended Nov. 30. Warning that FedEx faces "some of the worst economic conditions in the company's 35-year operating history," CEO Frederick Smith took a 20% pay cut for 2009 as part of a sweeping cost-cutting plan.

2. Taking flight in the great depression

Company: United Technologies Corp
Industry: Aerospace
Founded during: In 1929, amid the Great Depression

Picture: With seating for 18 passengers, this fabric-covered transport of 1929 was an enlarged version of the Model 80 - the first true Boeing passenger airliner - of the year before.

The notorious year that the stock market crashed, spurring a 10-year global downturn, also marked the birth of an aerospace giant. United Aircraft and Transport Corporation began life as a holding company for airlines, airplane parts manufacturers and aviation companies such as Boeing.

Most industries floundered under the financial crisis, but the Golden Age of Aviation was in full swing and kept United Aircraft aloft. In fact, the company pulled so many other businesses under its umbrella during its initial years that it quickly smacked up against antitrust laws. In 1934, Boeing and United Airlines became separate companies and United Aircraft turned into what is now UTC, a diversified industrial manufacturer.

Status today: UTC reported $58.7 billion in revenue in 2008. Thanks to increased revenue at UTC's aerospace companies, profits were up in the last quarter of 2008. But orders were slow for products such as elevators and air conditioners, which is a big deal for the company that owns Otis Elevator and Carrier Corp. In the past year, UTC has laid off thousands of workers, and the company plans continue slashing in the early months of 2009 as it undergoes major restructuring.

3. Smooth riding through a panic

Company: General Motors
Industry: Automobiles
Founded during: The Panic of 1907

Picture: The first Buick of 1903.

Back in the days of President Theodore Roosevelt, before a central bank had been established, lending institutions were dependent on their own currency resources. This became a problem in 1907 when numerous large banks made a bid for controlling shares of United Copper Company. When the attempt failed, the public pulled their money from the banks, causing runs that led to the failure of many trusts and lending institutions. These events didn't deter William Durant, a leading manufacturer of horse-drawn vehicles, from trying his luck on a new technology called the automobile. He founded GM on Sept. 16, 1908 in Flint, Mich. That year, it became a holding company for Buick and Oldsmobile, which had been established several years. Historians consider the Panic of 1907, also known as the Banker's Panic, to have ended in June 1908, even though the market didn't reach pre-1907 levels until 1909. That was perfectly timed for GM, which went on to acquire many more companies in that rebound year.

Status today: Hit with a double whammy in 2008 from sky-high fuel prices and a terrible market, GM has seen its stock price fall 85% in a year. Its competitors aren't faring much better - in December, GM went to Washington with Chrysler and Ford to seek $34 billion in government loans. The company is currently under scrutiny: Iit must prove it can cut costs enough to be a viable recipient of the billions it needs to stave off bankruptcy.