Iterate

Rethinking Volkswagen: 3 reasons why a crisis could be just what your company needs

4 years ago, Posted in Uncategorized

Right now, Volkswagen’s competitors are certainly feeling a bit of schadenfreude at the ‘Das Auto’ carmaker’s fall from grace. Fallout from the company’s emissions scandal has hit the brand hard, with stock prices plunging by up to 50 percent. Critics are already asking: can Volkswagen – even with hundreds of billions in assets – ever steer itself back into pole position?

The company is in the midst of a crisis, without a doubt, and an inexcusable one, too. But does this necessarily have to spell disaster? Successful businesses are often forged in the crucible of crisis, and solid businesses have an uncanny knack for getting far better when the heat is on. I know it can be difficult to see a silver lining at the time. But in my experience, crisis can actually prove invaluable for a business, for a few key reasons.

There’s no more room for excuses

My company’s first brush with crisis came while we were still pre-revenue. The dotcom crash of 2000 was followed by a global downturn in the wake of 9/11. In the midst of this, we were trying to build out a new platform where people could shop online for home improvement supplies, just like they shopped for books and CDs.

It was a hard slog – even getting a shipment of flooring from a manufacturer to a homeowner was a logistical nightmare. At that point, we could have closed up shop and walked away with our heads held high. Our money was gone. Investment had dried up. Plenty of companies in our position had folded and nobody faulted them.

But there’s a paradox about real crisis. While it can provide the ultimate excuse for failure, it also renders excuses pointless. To borrow the words of Mark Suster, during a crisis “the excuse department is closed.” It’s either find a way forward or fold. You no longer have the luxury to fixate on what went wrong or what could have been done differently. You’re thrown into sheer survival mode.

We raised money from friends and colleagues. We took wage cuts. I had to get rid of half of the team – and at that stage, it was like letting go of family. But faced with an existential crisis, the skeleton staff that remained pulled together a viable platform, faster and cheaper than we ever imagined.

Constraints force creativity

A crisis will limit your options — but great entrepreneurs thrive when they’re boxed-in. In fact, the best ones create their own smaller frame to give them the focus to beat their competitors. Under constraints, imagination has an uncanny knack of flourishing.

Take Netflix. When the logistics of mailing millions of DVDs back and forth first-class proved problematic, the company got creative and embraced new – and largely untested – streaming technology … leaving Blockbuster in the dust. Later, when cable TV networks threatened to withhold licensing agreements, Netflix pivoted from content distribution to content creation, launching popular shows like House of Cards. Pushed forward by constraints, the company is today valued at around $33 billion, more than CBS.

I’ve seen the same dynamic firsthand. When the housing market crashed in 2008, we went from a $50-million run rate to $20-million, overnight. We couldn’t find investment to tide us over. Without a major turnaround, our days were numbered.

Out of necessity, we looked within – and discovered an accidental goldmine in the unique way we collected data. Crunching the numbers, we realized we could pretty much predict demand – anywhere – and sell out vast quantities of product, even in a struggling marketplace. Constrained by crisis, we saw that data – not flooring or doors or windows – was our real currency.

You discover what’s most valuable about your company

Crisis can be humbling, in the best of ways. It forces you to strip away pretension and see your business for what it really is, not what you think it could or should be. There’s nothing like a brush with disaster to sober up your vision and get you focused on moving the needle.

Back in the late ‘90s, for example, when Apple was on the verge of closing up shop (unthinkable today), they did the unthinkable: close ranks with their arch-nemesis, Microsoft. For a $150-million lifeline, Apple essentially agreed to load up their machines with Internet Explorer and Microsoft Office packages.

Now, this couldn’t have been easy … not for a company that had long prided itself on streamlined, easy-to-use software. But during that moment of crisis, Apple saw that design-friendly hardware was far more central to their core value than what was running on it. We’re still seeing the upside of that deal today, as Apple piles away twice as much cash as what’s in the US treasury.


No one invites a crisis, but handled well, it can be what your company needs. It forces you to re-examine your mission, your timelines and your strategy. It obligates you to find ways to do more with less. And it generates the urgency needed to act now and act decisively. Ultimately, by forcing you to see things as they really are, a crisis can be used to create enormous value.

MaddieDavidson

Leave a Reply

Your email address will not be published. Required fields are marked *