Isegoria

When in doubt, go to your customers, Norm Brodsky (The Knack) says, looking back at the transit strike his fledgling courier service faced in its first year:

I realized I was facing a potential disaster. Perfect Courier was barely seven months old. We were doing about $30,000 or $40,000 a month in sales. Deliveries by car or truck accounted for about one-third of our revenue. The rest came from messengers who got around the city on public transportation. Losing the messenger sales would cripple us. Granted, we could live off our receivables for a while, but we wouldn’t be generating very many new ones. What would we do when the cash ran out?

And there were other issues: How would our people get to work? For that matter, how would our customers’ people get to work? Would we be able to keep selling? Would our customers stop paying us? How would we meet payroll? We couldn’t very well lay everybody off for the duration of the strike, which — for all we knew — could go on for months. Somehow, we had to come up with a plan that would allow us to survive until some sort of settlement was reached. But what kind of a plan?

I was at a loss. I decided I needed advice from someone who’d been through the previous transit strike, in 1966, and could perhaps tell me what to expect. As it happened, one of our clients was a major accounting firm called Oppenheim, Appel, Dixon & Company. The head of the mailroom there was a guy named Sam Revson, who’d been around forever and whom I held in high regard. Because the strike was scheduled for the busiest part of the tax season, I figured Sam might have made some contingency plans, and I wanted to know what they were.

I dropped by his office one day in the middle of March. “Sam,” I asked, “what are you doing for the strike?”

“Why?” he said. “Are you thinking of transporting people during the strike?”

The thought hadn’t occurred to me, but it sounded like a reasonable possibility. “Yeah,” I said.

“That’s a great idea,” he said. “We could really use you. It makes sense, because you have vehicles already.”

“Yeah,” I said. “They’re ready to go.”

“Particularly being located next to Penn Station, like you are,” he said. “Assuming the Long Island Railroad doesn’t go out, people could just walk across the street, and you could take them downtown. But how are you going to handle the pickup at the end of the day? Have everybody meet somewhere?”

“Yeah,” I said. “That’s what I’m thinking.”

“It’s probably the way to go,” Sam said. “What are you going to charge?”

“I figure $20 a person,” I said, picking a number out of the air.

“Each way or round trip?” he asked. He didn’t seem to have any problem with the price.

“Each way,” I said. “So, $40 round trip.”

“How are you going to know which people are coming back with you?” he asked.

“Once we take them downtown, we assume they’re coming back, and so you have to pay for the round trip.”

“OK,” Sam said. “Are you going to issue passes or sell tickets or what?”

“We’re going to issue passes,” I said. “And we’re going to number them. How many people do you think you’ll have?”

“Well, if it’s just a transit strike, not a Long Island Railroad strike, we’ll have about 50 people,” he said. “How often do you plan to run the shuttle?”

Suddenly, it’s a shuttle. “About every half-hour,” I said. “They’ll come up to our place. We’ll have coffee and doughnuts for them, at no charge.”

“What if there’s a Long Island Railroad strike as well?” he asked.

“We’ll have a carpool service,” I said, thinking fast. “We’ll have pickup points on Long Island, one on the North Shore, one on the South Shore, and a couple in Queens.”

“Sounds good,” Sam said. “Do you want a deposit?”

“Yeah, of course,” I said, “and I’ll need a week’s worth, because we have to set up this whole system. You’re the first person I came to, because you’re our best customer. I have only so much capacity. If you want to do this, I’ll need the deposit right now.”

“OK,” he said. “What if the strike doesn’t happen?”

“The deposit is nonrefundable,” I said.

“OK,” he said. I left with a check for $10,000.

When I got back to my office, I told everybody what had happened, and we all had a good laugh. Then we went to work calling our other customers, making laminated strike passes, and figuring out how we were going to accommodate all the people who wanted to take advantage of our new service. The truth was, we had only four vehicles, and we had to get our own people to work as well. “How can we possibly do this?” my employees asked as more and more customers signed up.

“I have no idea,” I said, “but we’d better come up with something.”

We decided to call everyone we knew who worked in Manhattan and owned a car. “Here’s the deal,” we said. “We’re going to pay you to drive into the city, plus we’ll cover your parking, gas, tolls, everything. You’re going to have to drive anyway. With us, you can make money doing it. You just have to agree to take some other people with you.”

We managed to put together a network of about 40 drivers — friends, friends of friends, relatives, friends of relatives, relatives of friends, you name it — and were ready when the strike began on April 1. Coordinating the operation proved to be the biggest challenge. During the strike, some of the drivers got sick, while others ran into conflicts and couldn’t make it. The needs of our customers were constantly changing as well. I wound up sleeping at the office along with two of my employees to handle the calls that came in from customers all night long and to find replacements for the dropout drivers.

In the end, the transit strike lasted almost two full workweeks. The Long Island Railroad workers went out as well, but only for a day. Still, the city was in chaos. There weren’t nearly enough cabs to accommodate the thousands of people looking for rides. We did our best to adapt. Among other things, we came up with a new system for the messengers who didn’t depend on public transportation. Far from declining, our messenger and delivery business boomed during the strike. So did our new car service. As word spread about what we were doing, more and more people contacted us. Commuters arriving on the Long Island Railroad would come across the street to our office and ask for a lift downtown. We’d tell them, “Unless you’re a customer, we can’t help you.” We landed a lot of new accounts that way.

Just as important, our ties with our existing customers became closer. Before the strike, for example, we’d had only a small portion of the delivery business that Sam’s firm did, and we’d had no contact with the senior people. During the strike, we saw them every day, and they became our friends, as did the executives at other accounts. They came to our office for coffee and doughnuts. Our people would serve them and then drive them downtown. A lot of them increased the amount of business they did with us. At the end of the strike, our monthly sales were more than twice what they’d been at the beginning.

By then, of course, we were ready for it to be over. Although we’d done well financially, the 11 days of the strike had been utterly exhausting. Aside from the additional cash and the new sales, I took away from the episode one of the most important lessons I’ve learned in business: When in doubt, go to your customers.

James Surowiecki notes that firms going into a recession are worried more about either sinking the boat or missing the boat:

In the late nineteen-twenties, two companies — Kellogg and Post — dominated the market for packaged cereal. It was still a relatively new market: ready-to-eat cereal had been around for decades, but Americans didn’t see it as a real alternative to oatmeal or cream of wheat until the twenties. So, when the Depression hit, no one knew what would happen to consumer demand. Post did the predictable thing: it reined in expenses and cut back on advertising. But Kellogg doubled its ad budget, moved aggressively into radio advertising, and heavily pushed its new cereal, Rice Krispies. (Snap, Crackle, and Pop first appeared in the thirties.) By 1933, even as the economy cratered, Kellogg’s profits had risen almost thirty per cent and it had become what it remains today: the industry’s dominant player.

You’d think that everyone would want to emulate Kellogg’s success, but, when hard times hit, most companies end up behaving more like Post. They hunker down, cut spending, and wait for good times to return. They make fewer acquisitions, even though prices are cheaper. They cut advertising budgets. And often they invest less in research and development. They do all this to preserve what they have. But there’s a trade-off: numerous studies have shown that companies that keep spending on acquisition, advertising, and R. & D. during recessions do significantly better than those which make big cuts. In 1927, the economist Roland Vaile found that firms that kept ad spending stable or increased it during the recession of 1921-22 saw their sales hold up significantly better than those which didn’t. A study of advertising during the 1981-82 recession found that sales at firms that increased advertising or held steady grew precipitously in the next three years, compared with only slight increases at firms that had slashed their budgets. And a McKinsey study of the 1990-91 recession found that companies that remained market leaders or became serious challengers during the downturn had increased their acquisition, R. & D., and ad budgets, while companies at the bottom of the pile had reduced them.