She had just been to a hair products expo, the lady sitting next to me on the plane said. I was relieved when she stopped talking about beauty salons and asked what I did. When she heard about my work, she said, “The last recession was the best thing that ever happened to my business.” I stared at my tray table. I thought I was on my first cocktail, but if I heard that the recession was good for her business, perhaps I’m on my fifth or sixth.
Before the recession, she explained, the best locations for salons were either leased up or too expensive. She bided her time with middling stores, saving her profits for a better opportunity. When the recession hit, she visited landlords with empty shops in great locations. She made low-ball offers which were eventually accepted.
She also tracked down the inventory of wigs and hair extensions of the shops that had gone bankrupt. She bought the products for pennies on the dollar.
Customers who were used to shopping at the now-bankrupt salons walked into her shops. Others walked by and stopped in to see what was available. Business boomed.
The hair stylist’s small business experience mirrors results that the McKinsey consulting firm found in a global study of major corporations. The best performing companies did little expansion during economic booms. They declined to pay up for mergers and acquisitions, using the good times to build up their finances. These corporations used economic expansions to pay down debt and accumulate cash.
When the economy turned down, as it inevitably does, the most successful companies looked for opportunities to expand. They purchased assets at fire-sale prices. Some of the purchases were whole companies, through acquisitions. Other transactions involved physical assets, such as real estate or equipment.