Pioneer Pipe has made money from year one, but Archer operates as though the wolf were always at the door, and that's typical. "The culture that a company starts with is a long-lasting phenomenon," observes Marc Dollinger, a business professor at Indiana University. "There is an imprinting that goes on." Adds Jon P. Goodman, director of The Entrepreneurship Program at the University of Southern California: "The really healthy businesses are the ones you see in the good times that started in the bad. It's that mentality. You never forget the pennies you pinched and why you had to do it. That really communicates itself into the company's culture."
When Jim Lynch started KD Kanopy, in 1984, for example, he sent products COD because he couldn't afford to extend credit. He still does. "People tell us they have good credit ratings," he says. "We say we send COD, not because we don't trust them but because we don't want to be their banker. They accept that." And Kevin Fortun still runs a tight ship at Stockpot Soups. "We're very profitable now, but we scrutinize everything," he says. "It relates back to the old days. I don't ever want to be back in that position. It never leaves you."
Inevitably, good times will return. When they do, start-ups that have seized on these circumstances will be primed for strong and profitable growth. Weathering that first recession will have tempered their outlook and inspired them to build their businesses on solid foundations; the memories of those early storms will serve as reminders that hard times are always somewhere down the road.
Meanwhile, start-ups can exploit the relative calm of a recession's business climate to help them through the break-in phase. They need time to work out the usual bugs that appear in policies, production, and services. It's a chance for smart founders to marshal the advantages listed above -- to train the troops and square away the logistics, in effect, before the action begins. "You want to get in and be poised in your industry with some distinctive advantage when the economy takes off," says Vanderbilt University assistant professor of management Bill Lindsley. "You're in much better shape than you would be by waiting until it does."
A RECESSION-OPPORTUNITY CHECKLIST
If this describes your company, act now
Whether you're just starting up or have a going concern, a downturn can be a time not just to survive but to reposition for the eventual recovery, or even to grow. The companies best able to exploit a recession are --
* Labor- or talent-intensive. With talent cheap and available, companies can elevate work-force caliber. This is true for businesses that need lots of workers (restaurants, production plants) as well as those requiring engineers, who might be more willing to accept creative forms of pay.
* Cash-based. Accounts receivable are tough to collect when customers are suffering; the result can be cash-flow turmoil. Businesses taking payment in cash enjoy the advantage.
* Bootstrappable. Capital from banks and investors is harder to come by. A business that can grow slowly and generate capital internally from earnings has better prospects -- and also avoids damage from nervous bankers calling loans or from investors demanding fast returns.
* Reliant on space or location. There's no better time to upgrade a business's visibility or meet expansion needs. Discount prices -- and flexible terms -- are available.
* Selling nondiscretionary products. Low consumer confidence and tightfisted businesses won't wreck companies whose offerings are needed in both good times and bad.
* Capital-equipment-intensive. Business liquidations surge, making available everything from bulldozers to desks -- at superb savings.
* Saving money for customers. Products and services that cut costs or add value for consumers or businesses find strong demand. Companies that provide them, through innovation or efficiency, stand to capture market share.
* Geographically diverse. Companies selling strictly to a weak market face trouble. The most recession-resilient businesses spread risk by selling nationally. Exports add even more protection.
'ARE YOU CRAZY?'
For would-be founders in a downturn, encouragement is gone
Weighing against all the benefits, there's at least one downside to launching a business in a recession: the psychic burden. It takes more nerve than usual to start a company when everyone around you says you're out of your mind.
That lack of support is not something you forget. It's been a decade, but Kevin Fortun still recalls the outpouring of pessimism when he left a steady job to start Stockpot Soups. His idea was to provide restaurants with premium soup concentrates to help them cut labor costs and control soup consistency. The environment: the downtrodden Seattle of 1981.
"Everybody told me I was crazy to open up something at that point in time, that it was especially crazy to go into the soup business because it was unproven," he says. "Everybody told me what I couldn't do." Even his old boss was telling people Fortun would be back in six months.
"I had second thoughts myself," Fortun adds, "but you can't let yourself think that way. If you do, it will take over and you won't make it. I believed in myself and the numbers. It was well planned out before I went into it."
Denver was nearing rock bottom in 1984, when former aircraft engineer Jim Lynch established KD Kanopy to make party tents. His own brother looked at what Lynch was doing and said he was crazy. "But even in a recession you don't have to be doing milk and butter to survive," says Lynch. "There will always be someplace to market your product if it's any good. You can't listen to all the people telling you that you can't do something unless they can give you some really good reasons."
Nobody could. And the same people who were telling Lynch he was crazy are now the ones asking him how he did it.
