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5. Customers, looking to save, are more willing to try new products and services. With companies and consumers alike seeking savings, they are more willing than usual to reevaluate existing sales arrangements. In boom times few companies want to upset supplier relationships just to save a little money. Start-ups are lucky to even get in the door. But when the pressure is on to cut costs they merit a second look.
"People are searching for ways to save money," says electrical engineer Lorrin Gale, who started Augment Systems last July. "They could very well look at start-ups and their products in a downturn, whereas otherwise they might overlook them and stay with their traditional vendors. So a strong argument can be made that a start-up with a cheaper and better product can do very well in a down economy."
Augment, of Bedford, Mass., provides fiber-optic bus links for computers in engineering manufacturing settings. And Gale says fiber is cheaper than copper if buyers account for speed and distance.
Saving customers money, solving a problem, adding value -- those are key to a successful start in a recession. It's easy to see that this is a bad time to open a luxury-car dealership, for instance. New cars don't sell well in a downturn, but used cars do.
That's why something like Auto Critic is so exquisitely timed. For a low fee, its customers save $600 on average, because Auto Critic's analysis puts them in a better bargaining position. Ludwick has already sold more than 30 franchise territories, some as distant as Tacoma, Wash., and is selling an additional three or four a month.
Kevin Fortun credits much of Stockpot Soups' success to the same pressures. Making soups from scratch is tricky and labor-intensive. "Restaurants were looking for ways to save money, and one way is to save labor, because labor in a restaurant will kill you," he says. By using Stockpot products -- true homemade soups in the convenience of a package, for which all you do is add milk or water -- restaurants were able to cut labor costs and also get consistent results.
Walt Mitchell is equally well positioned for today's economy. In April 1990, just as the Northeast's economy was crashing, he launched ZoneSkip, in Paramus, N.J. ZoneSkip consolidates parcels from small shippers, trucks them long distance, then drops them for local UPS delivery -- saving customers as much as 25% of the cost of sending each piece individually.
In a healthy economy shippers might shun a new transporter and stay with a proven hauler. But in this downturn, demand for ZoneSkip's services is so strong that the company is on target for first-year sales of $25 million. "Saving people money works well in a healthy economy," Mitchell says. "It works tremendously well in a recession."
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6. Your bankers will see you now. The banks are spooked right now, yes, but they have to make loans. That's what banking is all about. And therein lies a silver lining for some new ventures.
"Speaking as a bank director, I know that banks are eager to lend money," says Roger Ford, the James Madison University professor and director of the school's Center for Entrepreneurship. The trouble is, in a downturn, they don't have anybody to make loans to. With their usual customers hunkered down, lending officers are looking for things to do. "A small-business-loan request might get more serious consideration now than it would have two years ago," Ford adds, "when banks were basically saying, Who needs you?"
For instance, banks don't like the paperwork and red tape that come with the Small Business Administration's loan-guarantee program. But Faye Coppin-Rock found her bankers glad to process the forms for the $100,000 SBA loan that financed Faye's 1, an upscale apparel retailer for executive women. It opened in February in Mequon, Wis., an affluent Milwaukee suburb.
A specialty retail store in this economy? And the bank went for it? Sure. The idea for the business grew out of a personal frustration. "This area is beer and bratwurst and bowling -- there is no fashion consciousness here," says Coppin-Rock, formerly an advertising executive. Finding no place in Milwaukee that carried the kind of "businesslike but creative" clothing she wanted, she shopped on vacations and business trips. She figured a lot of local women did the same.
"These two young bankers at First Wisconsin Mequon immediately latched on to this idea," she says. "They said it was terrific -- their own wives complained about shopping in Milwaukee. They took my business plan and just ran with it. It took them 20 or 30 hours of their own time to put the thing together. They sped it through the SBA process and kept me posted the whole time."
The bankers also liked the clarity of her marketing strategy. "It's very important these days to know who your market is, and cater to them," she says. "Mine is senior-management women who have flexibility in the way they dress. I can see the business built on 150 to 200 women who build a relationship with it. If they can't come to me, I can go to their boardrooms, and over lunch we try on clothes."
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7. You'll develop a culture of frugality. Dave Archer remembers the early days of Pioneer Pipe Inc. It was 1981 in Marietta, Ohio. "We called it a depression here," he says. "It was hard to go to a lender and say I wanted to start a pipe-fitting construction business when everyone around me was going broke."
So he bootstrapped, recession-style. First he raised $150,000, mortgaging his house and farms. Then he started knocking on some big doors along the Ohio River -- Shell Oil, Union Carbide. "We were a company without a name, in a field where competitors who had been at it for 75 years were killing each other in the marketplace," he says.
He'd get one job and leverage that to get another. "Now people seek us out, but until we got that first job, they didn't know if we were working out of a barn or a pup tent," he says. "It was tough."
But Archer feels lucky he launched when he did. "If we had started in fat times, it would have had a dramatic effect on how we ran the business," he says. In 1981 Archer saw too many businesses get hurt when the region's economy collapsed. "They were living high off the hog when the bottom dropped out."
That left an impression. Pioneer Pipe is now an $18-million company, but Archer is sitting at the same desk, in the same chair, as when he started. His office "still looks like something a rat concocted." There are no big office parties or seminars in Florida. "This is a shirtsleeve operation," he says. "People are elbow to elbow."
