Darrell Rigby has a really hard job. He advises CEOs on what to do during a downturn as part of his work at the Boston consulting firm Bain & Co. He tells them to think of their companies as race cars careening around a track, where recessions are the curves.
Rigby says it's hard for companies to pass each other during good times on the straightaway. The big companies stay in front on power alone.
"But on a curve, curves are driven by strategic finesse and so even a company that has less power — if it is skillfully maneuvered in curves — can pass much larger, stronger competitors," Rigby says.
The U.S has just been through its worst recession in decades. More than 100 banks have failed and countless businesses have gone under. But there's a growing body of research that suggests some companies actually do well in recessions. That's because recessions create opportunities that don't tend to occur when the economy is humming along. Inevitably, some companies are able to take advantage of these opportunities.
Rigby has research to back up his racetrack analogy. It shows that market share changes more during a downturn than at any other time. Other research also demonstrates that one-third of industry leaders come out of a recession as industry laggards. And those who start out as laggards emerge as leaders. The reason, Rigby says, is that while people and businesses may spend less during recessions, they also spend differently, and that creates opportunities.
"It's fascinating that during the last recession — 2001 — Apple launched the iPod," Rigby says. "You see people like Zipcar rolling out their national strategy."
People turned to the car-sharing company because they wanted to save money by getting rid of a vehicle. Another good example is EMC, a data-storage firm based outside Boston. Vice President Frank Hauck joined the company in 1990 when EMC was just a tiny player up against IBM.
"I mean our market share was 0.2 percent when I started, and IBM's share was in the 80s," Hauck says.
But then came a recession. EMC's product offered clients more versatility right when they were looking for alternatives.
"Once we saw that we could crack into the biggest accounts on Wall Street, I think that's when people thought anything was possible," Hauck says.
Within a few years, EMC was a major player.
Bold Moves During Bad Times
Of course, it's easy in hindsight. It's a lot harder when you're in a downturn when cash is tight and everyone is panicking.
Rigby says most companies focus too much on cost-cutting and forget to invest in growth.
"At a time when others are pulling in their horns and hunkering down, it does leave opportunity because it's just easier pickings — there's not as much competition out there," Rigby says.
Now that the economy appears to be turning around, many companies are waking up to find that their competitors made bold moves during the bad times.
Mike Witynski, the president of Shaw's Supermarkets, decided to build a new store in Chestnut Hill, Mass., just outside Boston.
There's a panini station, a pasta bar and a brick oven pizza service. Witynski says Shaw's is appealing to people who like to eat out, but have cut back.
"[It's] great, restaurant-quality food, at much lower than restaurant prices," he says. "And you don't have to tip."
Shoppers have also been reaching for fewer name-brand products on the shelves and buying Shaw's products instead. Witynski says he invested in quality and marketing and wants to keep those strong sales as times get better.
"Those customers [are] not going to all of a sudden flip the switch and go back and start wanting to pay more," he says.
Recessions are tough on businesses and the people who work for them. But like race cars trying to build momentum for the straightaway, some companies are gaining market position by hitting the gas while they're still coming out of the curve.