Adversity 101: What Doesn't Kill You Makes You Stronger

By 2002, Dick Czarniecki had already beaten the odds. While 56 percent of small businesses fail within four years, Czarniecki's metal-cutting tool company had hummed along for seven. Alliance CNC Grinding Services, with 18 employees, was "going great guns," he says.

Then, during a deer-hunting trip, Czarniecki got a call from his wife. Auto parts maker Bosch, which made up 40 percent of his Kentwood, Mich., company's sales, had decided to start producing diesel tools in South Carolina. "It ruined my weekend," says Czarniecki. Worse, the move threatened to sink his business.

Like Czarniecki, many entrepreneurs are optimistic about their prospects. But most don't make it, because their plans are flawed or they don't anticipate pitfalls. Yet hitting a rough patch does have an upside.

"Adversity will not make a great business," says Marilyn Landis, CEO of Basic Business Concepts, which offers financial services to growing companies. "Having to respond to it will." In the end, companies that can adapt to changing circumstances emerge stronger.

Czarniecki reacted quickly. He cut staff and traveled to South Carolina to recoup Bosch projects. He made a wider variety of tools to attract new clients. He went to Indiana and Illinois to build up customers and started partnering with distributors.

Rebound. Now Alliance has about 15 employees, and sales are back to their peak. And Czarniecki agrees the crisis improved his company. "It was basically energizing," he says. "We're putting in almost as much work with fewer people."

Small-business advisers say having a plan that anticipates such problems is the best way to head off tribulations. Still, unexpected events can kill even the most promising enterprise. "The difference between a business that survived and one that failed is realism," says Peter Horan, CEO of AllBusiness.com. "Hope is not a strategy."

By late 1997, Shannan Hearne of Clover, S.C., was making as much from her Internet marketing company, Success Promotions, as from her full-time job as a recruiter. She had just had her third child and wanted the flexibility that came with being her own boss. She quit her day job. Her firm's sales grew steadily.

Then things went sour. The post-9/11 downturn forced some of her customers to cut their advertising budgets or shutter their own businesses. Within a month, Hearne had lost a third of her 45 clients. By April 2002, she was down to 18 clients, and her sales had been cut in half.

Hearne managed to pull Success Promotions from failure by looking at how she could find other ways to make money. "I needed to reinvent myself, my niche market," she says. Hearne took a series of temporary jobs and even today works 40 hours a week outside her own company. "It went way beyond burning the candle at both ends," she says.

Eventually she started providing more services to fewer clients, learning skills like HTML so she could consult with her clients' Web designers. That has allowed her to take on more corporate customers, who provide steadier income. Sales are back up, and she hopes to quit her other job by year's end.

The lesson? "As easy as it would be to say 'I quit,' it doesn't accomplish anything," says Hearne. "As soon as you stop trying, you start dying."

How to Avoid Getting in Trouble

Get outside help. Don't just test your business plan on friends and family. Make sure accountants and consultants check it for holes. The Small Business Development Center Program (www.sba.gov/sbdc/) offers free counseling.

Play devil's advocate. Think about how things could go wrong, from natural disasters to construction near your business.

Buy insurance. Be ready for fires, floods, and lawsuits.

Measure everything. Track sales and costs. Dump your least profitable business lines, and focus on the growing ones.