Full Speed Ahead? Does a crisis for your competitors mean a golden opportunity for you? Be careful: The answer isn't as simple as you think.

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

"What a pity," you say to yourself with a grin."I guess that creates an opportunity for me now, doesn'tit?" With an espresso shot of adrenaline, you press theclutch, shift into fifth gear and hit the gas--zipping to youroffice 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 expertssuggest you'd better beware: The road blocks that have shutdown your competition's lane may not leave the road completelyopen for you.

"A crisis that strikes your competition could turn out tobe fool's gold for you," warns Robert Andoh, director ofthe University of Georgia Business Outreach Services & SmallBusiness 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 issuesmanagement consulting firm in Atlanta, also advises caution."A crisis situation [at one firm] sometimes presents anopportunity for another company," he says, "but there area 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 criticalquestions: Do you have the infrastructure, equipment, resources andpersonnel to handle a surge in business? And even if you have allthose things, does that mean you should definitely put the pedal tothe metal? The answer, again, is a resounding"maybe."

"Rapid change is an opportunity," says Joseph R.Mancuso, president of the Center for Entrepreneurial Management, anonprofit organization in New York City that serves small-businessowners. "But is the reward worth the expense? Nine times outof 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 tolook 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 anddecided it provided an opportunity the company couldn't passup. AOL made national news when it began offering unlimited accessto its subscribers--and made news again when the move caused such ajam on its phone lines and with its customer servicerepresentatives that many of the company's infuriated customersbegan fleeing to alternative firms like Global Datalink, whichserves the central and east coast areas of Florida.

"That special circumstance allowed us to obtain a lot ofcustomers from AOL," says Ramzi Nassar, 33, president of the4-year-old company, which generated $3 million in sales last year.Nassar estimates he scooped up 500 disgruntled AOL customers inless than three weeks, which translates to about $100,000 per yearin sales. He says his company--in effect a mom and pop shop on theinformation highway--was able to offer frustrated AOL subscribersfaster online connections and easier access to customerservice.

Perhaps more important for Global Datalink, however, was thatNassar had a customer-generation plan in place before theAOL log jam. While it's hard to predict the type of crisis thatcould drop thousands of customers in your lap, Nassar adviseshaving an "expansibility plan" ready for any suddenincrease in customers.

Nassar developed his plan during the company's first year inoperation. Anticipating that the demand for Internet services wouldgrow by leaps and bounds, he made sure he'd be able to acquirethe necessary infrastructure when needed. That meant having astrong enough working relationship with the local phone company toallow him to quickly add more lines. Nassar was already in theprocess of adding 24 lines when the overload hit AOL. He justpicked up the phone and ordered more.

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

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

Proceed With Caution

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

Tracy Calvillo, 36, owner of Capital Delivery System Inc., ashipping company in Sacramento, California, says the UPS strike inAugust 1997 added little to her company's bottom line. Althoughshe turned away new customers, her business still increased almost30 percent because of extra orders from existing clients. The salesboost, however, was offset by the funds Calvillo had to spend tohire extra trucks and drivers. "The strike did not contributeto our profits," she says.

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

Like many of her competitors, Calvillo opted not to try to snagthose customers the strike left hanging because of the expenseinvolved. "I didn't go out and solicit business," shesays. "But I was still inundated with calls from individualswhom I had to turn down because there was just no way to gear upfor that big a rush."

Calvillo says turning away customers was also a sound strategicdecision because she didn't want to risk losing her hard-woncustomer base. Robert Andoh notes that FedEx did the same thing atthe top of the food chain. "FedEx concentrated on customerallegiance," Andoh says. "They felt comfortable withtheir current market share, so they came out and said theyweren't taking on any new accounts. If companies take onconsiderably more work, they're putting the quality of theirservice in jeopardy."

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

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

Nassar agrees the only way to gain repeat customers is to earnthem. "The customer that left somebody else will leave you ifyou 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 rarelylasts forever. He says, "You have to get ready for the factthe competition will come back eventually."

It Could Happen To You

Consultants such as Echols say there's another oftenoverlooked fact that should make business owners think at leasttwice before trying to take advantage of another company'scrisis: The very act that causes your competition's problem cangive you a headache as well. The 1982 Tylenol tampering scare isthe perfect reminder that your company is as vulnerable as yourcompetitors'. In that case, seven people in the Chicago areadied from consuming cyanide-laced capsules, as did a Peekskill, NewYork, woman four years later. Tylenol manufacturer Johnson &Johnson recalled 31 million bottles and watched its share of theanalgesic market plunge from 35 percent to 7 percent, but it couldhave happened to any company's pills.

Echols says it's a good idea to think defensively when thatkind of news hits a company in your industry. He cites anotherfamous case as an example every entrepreneur should be aware of. In1993, PepsiCo Inc. was the victim of a cruel hoax during whichpeople from some two dozen states claimed to have found syringesinside cans of Pepsi products. "I guarantee you everyexecutive at Coca-Cola was watching that very closely and pullingtheir crisis-management manuals off the shelves," Echolssays.

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

Conversely, if your company is a "good guy" and one ortwo of your competitors are making the industry look bad, Echolssays you need to adopt a team mentality. That's exactly whatAtlanta apartment owners did in 1995 when one owner issued a lettersaying that he wasn't going to renew the leases of many of histenants and that there was going to be a two- or three-week vacancyperiod before renewal. Why? The 1996 Summer Olympics were coming totown, and like so many business owners in other Olympic cities, hehad the unrealistic expectation that he'd be able to make amint in less than a month.

Unfortunately for other apartment owners, the story was pickedup by the local media, plus many national and internationaloutlets. The news of one business's tactics not only putapartment dwellers in a panic but also made housing owners lookvery bad.

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

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

Flattery and the AAA drafted a policy stating that the housingproviders it represented wouldn't terminate anyone's leaseand that they would rent only vacant sites to Olympic guests. Some90 percent of the metro area's property owners signed on toexpress their support for the notion of "all for one and onefor all."

"You have to have a `Three Musketeers' philosophysometimes," Flattery says. "It can be the best thing foryour business."

In the end, the reckless landlord rescinded his plan, and thecrisis was forgotten. Entrepreneurs, however, learned a valuablelesson. Says Echols, "Although a company should look closelyat a competitor's crisis for an opportunity, it must be awareof its own vulnerability."

If you don't hear a boomerang whipping through the air, thenexamine your business structure to decide whether you want to tryto take advantage of that news you heard on your drive to work. Andwhile all aggressive business owners may be tempted to starthumming "Go, Speed Racer, go," the smartest move may beto keep your foot off the gas.

Do You Have What It Takes?

Is your company ready to capitalize on a crisis situation? Hereare several concerns you need to address well before oneoccurs:

The issue of personnel is the first thing you need to examinebefore going after crisis dollars, according to Dr. Jan W. Zupnick,president of The Entrepreneurship Institute, a Columbus, Ohio,nonprofit educational organization that provides workshops forpresidents of small and midsized businesses. "If you'regoing to try to be opportunistic, you can't do it withoutpeople," says Zupnick. And if you get the people, you alsohave to make sure they'll have something to do when the crisisis over. If you don't retain a significant percentage of yourshort-term gain, you'll be left with employee overload.

Zupnick says the same considerations that apply to yourpersonnel situation apply to your equipment. If the crisisopportunity motivates you to buy equipment that will help you inthe long term, do it. If not, forget it.

Third is infrastructure. Consider whether a strategic move meansyou'll need extra electricity, lights, sewer connections, wateror parking spaces. "Most of these things become fixedcosts," he says, "and that will only make it harder foryou to break even."

Lastly, look at the question of resources--both financial andintellectual. Whether the banks will be able to fulfill yourborrowing needs is more certain than whether you have the knowledgeand skills to pull off the crisis move. "You don't have toknow it all yourself," Zupnick says, "but you do have toknow 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