Slump-busting strategies

These small businesses are prepared to thrive - even if recession strikes.

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Defying the downturn Defying the downturn Defying the downturn
Five small businesses hiring staff, expanding, and laying plans to thrive in a recession.

(FORTUNE Small Business) -- As the CEO of Commonwealth Worldwide Chauffeured Transportation, Dawson Rutter painfully rode out the downturns of 1982, 1991, and 2001. Now the Boston-based entrepreneur is putting to work the lessons he learned.

He has beefed up his sales staff from five to 14 in the past year because he remembers that competitors who slashed their marketing efforts got killed in 2001. He is concentrating on executive travel because he watched businesses with low-end customers get hit by price wars and defections. And he plans to invest in new cars - beyond the RR.L he just purchased - so he is poised to take advantage of the post-recession boom.

"Even if we have to accept more debt to grow, we'll do it," says Rutter, 56, whose firm had $47 million in sales last year. "We don't worry about retrenching."

With meager cash reserves and credit, little fat to cut, and a dearth of geographic and industry diversification, small businesses are typically hit harder by a slowing economy than are large corporations. During each of the past three recessions, about 500,000 small businesses closed or went bankrupt, says Villanova School of Business professor John Pearce II, who culled the figure from federal bankruptcy data.

While the U.S. has not officially entered a recession (fourth-quarter GDP growth was still positive, albeit an anemic 0.6%), smart entrepreneurs are already planning on one - and the smartest have been doing so for years. In November and December, the National Federation of Independent Businesses optimism index, which has measured small-business attitudes since 1986, fell to lows previously seen only in 1991 and 1993.

Each recession hits entrepreneurs differently. Seven years ago, companies in travel and technology got slammed hardest, while this time those involved in real estate are worst off.

But today, as in past downturns, some small-business owners - even some in housing and construction - are nimble and savvy enough to thrive. Where others see only calamity, they see cheap credit, bargains on equipment and property, and new opportunities to hire topflight employees.

There are a few common themes to their success: They didn't wait for Congress to decide on a stimulus package; they moved quickly to adjust their products and business plans to take advantage of more lucrative niches. Some diversified. Others identified new customers. Almost all cut behind-the-scenes costs.

And the most aggressive, like Rutter, are investing in new technology, equipment, and personnel to seize market share from competitors large and small who entered the hard times poorly prepared.

"Recessions are a period of opportunity," says Pearce. "During recessions, large companies abandon marginally profitable customers, and small businesses can get those customers. And recessions are healthy. They reward a history of fiscal responsibility. They discipline the economy for its excesses. And the great thing about recessions is, they end." - By Ian Mount

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