From the April 1999 issue of Entrepreneur

It's 7 a.m., and you're driving to your office when the radio news catches your attention. Big trouble has landed in one of your competitors' laps. Maybe its employees have gone on strike or perhaps a managerial bungle has angered throngs of its customers.

"What a pity," you say to yourself with a grin. "I guess that creates an opportunity for me now, doesn't it?" With an espresso shot of adrenaline, you press the clutch, shift into fifth gear and hit the gas--zipping to your office with newfound excitement.

But hold on there, Speed Racer, you first need to heed those "dangerous curves ahead" signs you're blowing by. Conversations with a number of entrepreneurs and business experts suggest you'd better beware: The road blocks that have shut down your competition's lane may not leave the road completely open for you.

"A crisis that strikes your competition could turn out to be fool's gold for you," warns Robert Andoh, director of the University of Georgia Business Outreach Services & Small Business Development Center in Norcross, Georgia. "In the end, it might not have the impact you were hoping for."

Lee Echols, president of The Echols Group, a media and issues management consulting firm in Atlanta, also advises caution. "A crisis situation [at one firm] sometimes presents an opportunity for another company," he says, "but there are a lot of considerations that a competitor should [contemplate] before trying to take advantage of the situation."

Are You Ready?

Before you seize the day, you must ask yourself two critical questions: Do you have the infrastructure, equipment, resources and personnel to handle a surge in business? And even if you have all those things, does that mean you should definitely put the pedal to the metal? The answer, again, is a resounding "maybe."

"Rapid change is an opportunity," says Joseph R. Mancuso, president of the Center for Entrepreneurial Management, a nonprofit organization in New York City that serves small-business owners. "But is the reward worth the expense? Nine times out of 10, the experts are right when they say you shouldn't do it. But that tenth time could make up for the other nine. You have to look at each crisis on a case-by-case basis."

Global Datalink Inc., an Internet service provider in Orlando, Florida, looked at the crisis that whacked AOL in December 1996 and decided it provided an opportunity the company couldn't pass up. AOL made national news when it began offering unlimited access to its subscribers--and made news again when the move caused such a jam on its phone lines and with its customer service representatives that many of the company's infuriated customers began fleeing to alternative firms like Global Datalink, which serves the central and east coast areas of Florida.

"That special circumstance allowed us to obtain a lot of customers from AOL," says Ramzi Nassar, 33, president of the 4-year-old company, which generated $3 million in sales last year. Nassar estimates he scooped up 500 disgruntled AOL customers in less than three weeks, which translates to about $100,000 per year in sales. He says his company--in effect a mom and pop shop on the information highway--was able to offer frustrated AOL subscribers faster online connections and easier access to customer service.

Perhaps more important for Global Datalink, however, was that Nassar had a customer-generation plan in place before the AOL log jam. While it's hard to predict the type of crisis that could drop thousands of customers in your lap, Nassar advises having an "expansibility plan" ready for any sudden increase in customers.

Nassar developed his plan during the company's first year in operation. Anticipating that the demand for Internet services would grow by leaps and bounds, he made sure he'd be able to acquire the necessary infrastructure when needed. That meant having a strong enough working relationship with the local phone company to allow him to quickly add more lines. Nassar was already in the process of adding 24 lines when the overload hit AOL. He just picked up the phone and ordered more.

"It wasn't a problem," Nassar says. "We had established a relationship with the phone company to add more lines anyway, so it was easy for them to give us what we needed when we needed it. It would've been a lot harder for us to pick up the extra customers if we hadn't had an upgrade schedule in place."

Another plus for Nassar was that he was able to capture the additional market share without spending much money on marketing. "Seventy percent of our new accounts come through word-of-mouth," he says. "We had very few marketing campaigns in place, so we didn't have to spend a whole lot of money trying to get the new business."

Proceed With Caution

Nassar was lucky. In crisis situations, many companies have to spend big bucks to keep up with customer demands--meaning the opportunity can prove to be far from a windfall.

Tracy Calvillo, 36, owner of Capital Delivery System Inc., a shipping company in Sacramento, California, says the UPS strike in August 1997 added little to her company's bottom line. Although she turned away new customers, her business still increased almost 30 percent because of extra orders from existing clients. The sales boost, however, was offset by the funds Calvillo had to spend to hire extra trucks and drivers. "The strike did not contribute to our profits," she says.

In fact, Calvillo says the strike was more of a hindrance than a help. Many people who thought the strike would be resolved quickly were left with large orders to fill. "It was a hassle," she says, "because there was that huge sense of urgency with companies holding on to freight hoping the crisis would be resolved--then realizing it wasn't going to be and saying, `Oh my God, help us.' "

Like many of her competitors, Calvillo opted not to try to snag those customers the strike left hanging because of the expense involved. "I didn't go out and solicit business," she says. "But I was still inundated with calls from individuals whom I had to turn down because there was just no way to gear up for that big a rush."

Calvillo says turning away customers was also a sound strategic decision because she didn't want to risk losing her hard-won customer base. Robert Andoh notes that FedEx did the same thing at the top of the food chain. "FedEx concentrated on customer allegiance," Andoh says. "They felt comfortable with their current market share, so they came out and said they weren't taking on any new accounts. If companies take on considerably more work, they're putting the quality of their service in jeopardy."

So even though UPS transports more than 3 billion parcels each year and has revenues of $22.5 billion, according to U.S. News & World Report, Calvillo and many others who could have snagged some of that business chose to stay away from the shipping giant's trouble.

Besides, there's no guarantee that customers will stay in your camp after your competitor gets back on its feet. "People don't like change," Andoh says. "They also forget easily, and Americans in general forgive quickly and move on--meaning a customer might use your company temporarily and then go back to UPS, for example, when the crisis is over."

Nassar agrees the only way to gain repeat customers is to earn them. "The customer that left somebody else will leave you if you don't provide the proper service," he says.

The Center for Entrepreneurial Management's Mancuso, meanwhile, says it's important to remember that a crisis rarely lasts forever. He says, "You have to get ready for the fact the competition will come back eventually."

It Could Happen To You

Consultants such as Echols say there's another often overlooked fact that should make business owners think at least twice before trying to take advantage of another company's crisis: The very act that causes your competition's problem can give you a headache as well. The 1982 Tylenol tampering scare is the perfect reminder that your company is as vulnerable as your competitors'. In that case, seven people in the Chicago area died from consuming cyanide-laced capsules, as did a Peekskill, New York, woman four years later. Tylenol manufacturer Johnson & Johnson recalled 31 million bottles and watched its share of the analgesic market plunge from 35 percent to 7 percent, but it could have happened to any company's pills.

Echols says it's a good idea to think defensively when that kind of news hits a company in your industry. He cites another famous case as an example every entrepreneur should be aware of. In 1993, PepsiCo Inc. was the victim of a cruel hoax during which people from some two dozen states claimed to have found syringes inside cans of Pepsi products. "I guarantee you every executive at Coca-Cola was watching that very closely and pulling their crisis-management manuals off the shelves," Echols says.

Another boomerang that can smack entrepreneurs in the head is "guilt by association." "That runs rampant in a crisis situation," Echols says. "If you're the owner of a pet store, for example, and you've been accused of mistreating your puppies, other pet stores in your area are going to be looked at with the same degree of skepticism by the media and people who buy pets."

Conversely, if your company is a "good guy" and one or two of your competitors are making the industry look bad, Echols says you need to adopt a team mentality. That's exactly what Atlanta apartment owners did in 1995 when one owner issued a letter saying that he wasn't going to renew the leases of many of his tenants and that there was going to be a two- or three-week vacancy period before renewal. Why? The 1996 Summer Olympics were coming to town, and like so many business owners in other Olympic cities, he had the unrealistic expectation that he'd be able to make a mint in less than a month.

Unfortunately for other apartment owners, the story was picked up by the local media, plus many national and international outlets. The news of one business's tactics not only put apartment dwellers in a panic but also made housing owners look very bad.

A local apartment provider led a charge by the Atlanta Apartment Association (AAA) to make all property companies behave responsibly. The Worthing Companies' John Flattery, whose real estate company does annual sales of $50 million, says companies large and small stepped forward to put everyone at ease.

"We enjoy a reputation second only to used-car dealers," Flattery says. "We're the big, fat, ugly landlords, and that one incident exacerbated our [image] problems."

Flattery and the AAA drafted a policy stating that the housing providers it represented wouldn't terminate anyone's lease and that they would rent only vacant sites to Olympic guests. Some 90 percent of the metro area's property owners signed on to express their support for the notion of "all for one and one for all."

"You have to have a `Three Musketeers' philosophy sometimes," Flattery says. "It can be the best thing for your business."

In the end, the reckless landlord rescinded his plan, and the crisis was forgotten. Entrepreneurs, however, learned a valuable lesson. Says Echols, "Although a company should look closely at a competitor's crisis for an opportunity, it must be aware of its own vulnerability."

If you don't hear a boomerang whipping through the air, then examine your business structure to decide whether you want to try to take advantage of that news you heard on your drive to work. And while all aggressive business owners may be tempted to start humming "Go, Speed Racer, go," the smartest move may be to keep your foot off the gas.

Do You Have What It Takes?

Is your company ready to capitalize on a crisis situation? Here are several concerns you need to address well before one occurs:

The issue of personnel is the first thing you need to examine before going after crisis dollars, according to Dr. Jan W. Zupnick, president of The Entrepreneurship Institute, a Columbus, Ohio, nonprofit educational organization that provides workshops for presidents of small and midsized businesses. "If you're going to try to be opportunistic, you can't do it without people," says Zupnick. And if you get the people, you also have to make sure they'll have something to do when the crisis is over. If you don't retain a significant percentage of your short-term gain, you'll be left with employee overload.

Zupnick says the same considerations that apply to your personnel situation apply to your equipment. If the crisis opportunity motivates you to buy equipment that will help you in the long term, do it. If not, forget it.

Third is infrastructure. Consider whether a strategic move means you'll need extra electricity, lights, sewer connections, water or parking spaces. "Most of these things become fixed costs," he says, "and that will only make it harder for you to break even."

Lastly, look at the question of resources--both financial and intellectual. Whether the banks will be able to fulfill your borrowing needs is more certain than whether you have the knowledge and skills to pull off the crisis move. "You don't have to know it all yourself," Zupnick says, "but you do have to know whom to call if you don't know something."

Contact Sources

Capital Delivery System Inc., 4660 Pell Dr., Ste. A, Sacramento, CA 95838, (916) 929-9458

The Echols Group, (404) 815-2081, http://www.echolsgroup.com

The Entrepreneurship Institute,http://www.tei.net

Global Datalink Inc., (800) 929-2GDI, http://www.gdi.net

UGA Businss Center, 1770 Indian Trail Rd., #410, Norcross, GA 30093, randoh@sbdc.uga.edu