Never Waste a Crisis: Lessons from Recent Downturns

Weekly reflection

We interviewed NGP Capital Advisor Esko Aho for his views on managing through a crisis. His views are particularly timely; Esko became Prime Minister of Finland in 1991 at the outset of a global recession. Finland was especially hard hit as 1991 also marked the dissolution of the Soviet Union, its largest trading partner, which accounted for 20% of GDP.

For Finland, the impact was catastrophic. The stock market and housing prices dropped by 50%. The economy fell by 13% and Finland went from full employment to 20% unemployment. Growth in the 1980s had been fueled by debt spending, putting Finland in a precarious position as public debt ballooned to 60% of GDP.

Esko warns us at the outset: “We tend to underestimate the depth of downturns when they emerge.” “Leaders,” he continues, “must balance realism and optimism.” Esko helped Finland navigate this ‘black swan’ event, overseeing a recovery that started in 1993 and leading Finland into the European Union in 1995. This period served as the foundation for Finland’s future prosperity. Finland has grown 3.5% annually or 2.3x since 1995, one of the fastest growth rates in the EU during this period.

Nokia engineered a rebirth of its business while navigating through this same crisis. In 1991, Nokia was an industrial conglomerate with eleven subsidiaries, bearing little resemblance to the global mobile phone leader it would become later that decade. Nokia sold its tire, rubber works, and computer subsidiaries in three years, shedding assets to raise cash and cover massive losses. Nokia considered selling its mobile phone division, but its leader, Jorma Ollila, convinced the Board to keep it. The Board promoted Jorma to CEO in 1992, where he oversaw the resurgence of Nokia over the next fourteen years. Nokia surged from a net loss of $1 billion in 1991 to a $4 billion profit in 1999.

Esko offers a fitting conclusion for his experience in Finland and on the Board of Nokia that is relevant for leaders today: “You need to believe that your company will survive and will find ways to succeed beyond the immediate crisis. Be ready to make radical moves, take personal risks, and tolerate uncertainty. Know-how is not enough; mental and even physical strength is required.” You can read the full article on our website.

During the last downturn, in 2009, NGP Capital played an essential role in a spectacular turnaround at Heptagon, an optics chip supplier for mobile phones. Heptagon had $12M sales in 2008, but sales cratered in 2009 as phone sales plummeted. When Heptagon ran out of money, NGP Capital refinanced the business and recruited Christian Tang Jespersen as CEO to resuscitate the business. Christian’s key insight was the idea to shift Heptagon into an optics module supplier, a big step up in the supply chain that significantly increased the market opportunity. Heptagon re-engineered its business, won key supplier contracts, and built a new manufacturing facility to produce optics modules. In 2016, Heptagon was sold to AMS for over $1 billion, a 70x increase in value from when Christian joined the company.

Sailors say that races are won at night and in light wind. Many of the iconic technology companies of the past decade — Uber, AirBnB, Square, Spotify — were founded during the past downturn. Companies can make good use of a crisis by optimizing their business models and go-to-market strategies. They can attract new talent as the labor market loosens, consolidate and extend their market position, and extend their runways while improving underlying unit economics. Companies that survive will face less competition and healthier market conditions for long-term success.

The current crisis has lengthened the odds for many companies. But this is where inspired leadership shines.

Who will be the next Steve Jobs, who took over Apple on the brink of failure in 1999 and engineered its spectacular turnaround in the coming decade? Who will be the next Esko Aho, Jorma Ollila, or Christian Tang Jespersen?

As bleak as the situation may seem today, that is the opportunity for aspiring leaders today.

Make a difference and be the best you this week!

Paul Asel is a global technology investor across the U.S., Europe, and Asia for over 25 years. Twitter: @PaulAsel

Managing Partner at global VC @ngpcapital $1.2 bn AUM. Portfolio: Xaiomi, Deliveroo, Lime, etc. Writes about smart mobility, entrepreneurship & venture capital.