November 8, 2018

Pitney Bowes Ten Years After My Retirement

Pitney Bowes Ten Years After My Retirement

As I reach the 10th anniversary of my retirement from Pitney Bowes, many people ask about what happened to the company after I retired and my prognosis for the company going forward.

The company fell on very difficult times in the last 10 years.  The biggest single contributor to that was the huge drop in U.S. transaction mail volume, which started in late 2008 and continues to this day.

In fiscal 2008, which ended September 30, 2008, the Postal Service processed over 127 billion pieces of transactional mail.  In 2017, that volume dropped to 76 billion, most of the drop occurring in the first two years after I retired.  The financial crisis, which brought an end to a long consumer credit bubble, had triggered this drop and it was permanent.

I had announced my retirement in May, 2008.  I had been the CEO and/or Chairman for 12 years at that time.  My retirement date was effective at the end of the year.  In hindsight, as an experienced CEO, I would have relished the challenge to stay somewhat longer to help the company formulate a new strategy in response to this permanent decline in the company’s core mailing market, but my decision and the company’s response had been finalized.

Market conditions change so rapidly today that 25-35% of all Fortune 500 companies disappear within any 10-year period.  Many are acquired and others go out of business.  For example, retail store chains and high-tech companies can disappear rapidly.

Think of Yahoo, a high flier in 2008 that turned down multiple acquisition proposals from Microsoft, the last for over $44 billion in stock and cash.  Less than a decade later, Verizon acquired Yahoo for $4.8 billion.  MySpace, a pioneer social media platform, was acquired by News Corporation in 2005 for $580 million, and sold years later to a group headed by entertainment Justin Timberlake for $35 million.  More recently, GE, which was worth $600 billion less than 20 years ago, has a market value of less than $100 billion today.

When any business experiences a significant and unexpected decline in its core business, it has to act with urgency to throw out whatever “playbook” it was using, select the right new “playbook,” execute extremely well with the new playbook, and get a modicum of luck.  Every single one of these tasks is risky, and, as a result, very few companies faced with a rapid and significant decline in their end markets succeed.

For example, Yahoo tried a number of unsuccessful growth and diversification alternatives before Verizon acquired it.  GE’s history in the last decade is that of a company that spent huge sums of money on acquisitions in new markets that did not pan out.

My chief strategist, Luis Jimenez, assembled materials from the Corporate Strategy Board that assessed the odds of success of companies needing to reinvent themselves completely in a relatively short period of years.  Among the 1,500+ companies in that situation, about 40, or less than 3%, succeeded in creating a new set of business opportunities that maintained their prior position.  An additional and relatively small percentage survived, but were shells of their former selves.  The vast majority either were acquired or were no longer in business.

We celebrate the successes of companies like Intel, the Thomson Group, and Fuji Film that successfully reinvented themselves in response to adverse conditions in their primary markets, because these stories are so few and far between.

I believe Pitney Bowes is using the right playbook with its “digital commerce” rebranding, although, in a perfect world, it could have rolled out that strategy sooner.  No one on the outside, including me, can intelligently assess the quality of the company’s execution and the threats and opportunities in its end markets.

The company survived, is on its way back, and has a chance to recover its former glory, and do even better.  I am confident, based on the leadership team it has, that it is likely to be doing the right things.  Its ultimate success will require some good luck and, obviously, is unknowable.

However, we have to recognize that, for companies in fast-changing markets, their decline can happen far more rapidly than their restoration and rebuild.  Often, they do not get credit for taking the right steps until they have achieved great results over many years with the rebuilt businesses in place.

Pitney Bowes reached its all-time low stock price (around $.37, adjusted for stock splits) as a public company in 1974, after ending a disastrous joint venture with Alpex Computer to develop an electronic cash register.  Its stock price took years to recover, but it ultimately did.

In assessing Pitney Bowes’ future, I think about another company, which, less than a decade after its founding and a year after an absolutely spectacular advertising campaign and product roll-out, was in such dire straits that its stock dropped below $2 a share.  Its leading competitor had to invest $150 million 12 years later to keep it afloat.  The company barely survived those 12 years.

That company is Apple, Inc. and it has the highest market value of any business in history, with a valuation of $1 trillion.

Pitney Bowes is stronger today than Apple was in 1985 or 1997.  Unlike Apple, it will not need an injection of cash from a competitor to keep it alive.

I am confident in its future, but also recognize the immensely difficult odds its faces.  I look forward to celebrating the company’s 100th anniversary in 2020 with the rest of the Pitney Bowes family.