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Never Let a Crisis Go to Waste

Chunka Mui and Paul B. Carroll How to Change the World

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June 17, 2009

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Business Forecasting 2012

Our special feature on forecasting sheds light on how to choose the right model, offers advice from Jack Stack and more.

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Despite the steady drumbeat of bad economic news, small businesses have a major opportunity shaping up over the next year or two. They could become big businesses.

It’s happened before. Andrew Carnegie and John D. Rockefeller were bit players until the Panic of 1873, during which they bought competitors at fire-sale prices and built empires. Southwest Air was a regional upstart until it expanded rapidly during a recession in the 1980s. Today, it is the most successful airline.

There is, of course, also the potential for disaster if you get too aggressive. Just look at the Bank of America purchase of Merrill Lynch for $50 billion. Do you think BofA CEO Ken Lewis would like a do-over on that one?

So, the question is: How can you be aggressive but safe?

While there’s no way to get rid of all risk—despite what the sub-prime lenders were saying back in the good old days when nobody was talking about the possibility of a Depression—you can greatly minimize your chances of failing. The key is to introduce more disagreement into your decision-making.

Here’s what you do:

1. Assemble a list of half a dozen or more strategic opportunities. Maybe you can buy a competitor. Maybe you can expand while your rivals are weak. Maybe you can add product lines in anticipation of future demand.

2. List key stakeholders and the assumptions about them that would have to be true for your strategy to succeed. Those assumptions may be about how competitors will respond, how customers will react, or whatever. Enlist help. Ask subordinates. Ask any friends and family who are in the business or who might have a useful perspective.

3. Don’t ask people whether something might be a good idea. They like you. They’ll try to sugarcoat objections. Just ask for help identifying assumptions and possible problems. Tell people you only want negatives, not positives.

4. Lay out a dozen or more scenarios that could determine whether your strategy succeeds. Maybe the recession will be short and shallow, or long and deep. Maybe a major supplier goes out of business. Maybe a big customer cuts back. Perhaps competitors react more aggressively than you expect. (This often happens.) If a scenario would have a major impact, consider carefully the likelihood that it will occur.

Then, after you’ve considered all the ways you can fail, you’ll be prepared to make a thoroughly rational decision about what strategy to pursue and will feel safe taking bold action. The only remaining task will be to get ready for the Wall Street Journal front-page profile proclaiming you as the second coming of Southwest founder Herb Kelleher.