When an old friend, a talented chef, decided to go it alone in 2009 and open his own restaurant, there were plenty of people around to tell him that doing so was a terrible idea. Romania, where he lived, was in the middle of a dreadful recession (the size of the country’s economy plunged more than seven per cent that year), but he was insistent. “Business is always slow at the beginning,” he would say. “So why not have that slow period at a time when business is slow for everyone?”
His restaurant, after that predictably slow start, eventually thrived, and was a fixture of the Bucharest scene (surviving the Covid-19 lockdowns) until his retirement last year.
His confidence paid dividends (quite literally, for his shareholders), but the naysayer instinct to retreat during a downturn (as old as commerce, and restaurants, itself) remains a stumbling block too far for many.
That instinct, however, is by most measures wrong. The global economy is once again under serious strain, this time from the war in the Middle East. The conflict between America, Israel and Iran has produced what the International Energy Agency calls the largest supply disruption in the history of the global oil market, with crude prices surging above 100 US dollars a barrel and shipping through the Strait of Hormuz reduced to a trickle. Goldman Sachs reckons the probability of a downturn over the next 12 months has risen to 30 per cent. Fertiliser prices have jumped by a third in a single month. The IMF warns that all roads lead to higher prices and slower growth.
Greater conviction
Against this grim backdrop, businesses across Europe and beyond are doing what they almost always do in a crisis, pausing investment, shelving transformation plans and waiting for the skies to clear. McKinsey’s most recent survey of more than 1,000 executives found that nearly 60 per cent are freezing or cutting spending on innovation. The temptation to batten down the hatches is understandable. It is also a mistake.
The same McKinsey research found that companies that maintained their innovation spending through the 2009 financial crisis outperformed the market average by more than 30 per cent in the years that followed, with accelerated growth lasting three to five years after the trough.
A separate McKinsey study published in February examined 61 companies that outperformed their peers from 2019 to 2024 (a period spanning the pandemic, inflation and a labour shortage). The distinguishing factor was not foresight but conviction: these firms invested when uncertainty was at its peak. “What distinguishes business growth leaders,” its authors concluded, “is greater conviction.”
The phenomenon is not confined to large corporations. The 2008-9 recession birthed an extraordinary litter of start-ups (and restaurants). Airbnb, Uber, Slack, WhatsApp, Square and Venmo were all founded during or immediately after the crisis. CB Insights identified 17 companies that raised their first funding between the fourth quarter of 2008 and the end of 2009 and went on to reach valuations above one billion US dollars. The year 2009 was, it turns out, the single best year for founding American software companies across the entire 2003-14 period.
Downturns favour the bold
Structural reasons explain why downturns favour the bold. Talent becomes cheaper and more available, as competitors shed staff and skilled workers look for new berths. Advertising and marketing costs drop because others have pulled back. Customers, squeezed by rising costs, grow more receptive to cheaper or more efficient alternatives (the precise conditions that lifted Airbnb and Uber from obscurity). Research by Filippo Mezzanotti at Northwestern University’s Kellogg School into the Great Depression found that economic crises act as catalysts, reshuffling innovative talent from independent work into firms and accelerating structural changes that might otherwise take decades.
The current crisis offers its own particular opportunities. The war in the Middle East has exposed how dangerously dependent many economies remain on a single shipping chokepoint. Companies rethinking their supply chains, energy sources or operating models are not merely responding to an emergency; they are building resilience that will pay off long after the Strait of Hormuz reopens. The energy shock is also accelerating investment in renewables, battery storage and energy efficiency, areas where many economies in central and eastern Europe have genuine comparative advantages.
McKinsey’s survey offers one encouraging data point amid the gloom: top economic performers (those reporting revenue and profit growth above 15 per cent) are 61 per cent more likely than others to increase spending on innovation. The pattern holds across recessions: companies that are bold gain ground on those that are not.
None of this is a counsel of recklessness. McKinsey’s ‘resilients’ from the last downturn (the roughly 10 per cent of publicly traded companies that fared materially better than the rest) did not simply spend their way through the crisis. They cleaned up their balance sheets before the trough, cut costs early and selectively, then invested aggressively in growth. By 2009, their earnings had risen by 10 per cent while peers lost 15 per cent. The trick, as McKinsey’s Greg Kelly puts it, is maintaining investment through the cycle. Only a third of companies manage it.
Creative destruction
For companies in Central and Eastern Europe, many of which have spent the past decade building capacity in technology, services and manufacturing, the argument is especially pointed. A downturn is precisely when competitive positions shift. The firms that emerged strongest from previous crises looked beyond their core markets, made acquisitions when assets were cheap, and treated innovation as an ongoing discipline rather than a discretionary budget line.
Joseph Schumpeter coined the phrase “creative destruction” in 1942, during the darkest days of a global war. His point was that capitalism progresses not in spite of crises but through them, as old structures give way to new ones. The boardrooms (and kitchens) currently reaching for the pause button might want to consider that the cost of inaction compounds just as reliably as the cost of capital.
Photo: Dreamstime.
