Companies Willing to Take Risks in a Recession

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Procter & Gamble (PG) would seem to have every reason to hunker down. In April it posted its first earnings drop in seven years as consumers chose cheaper alternatives to its Gillette razors and Tide detergent. Investors remain skittish about P&G's prospects over the next several months.

But the company isn't retrenching. Instead, it's daring to boost its fiscal 2009 R&D budget 4.5%, to $2.3 billion, estimates Wall Street research firm Sanford C. Bernstein. It's also launching the biggest capital expansion in its 171-year history: 19 new factories worldwide over the next five years. "We're always looking for opportunities to invest and, through that investment, create competitive advantage," says Chief Operating Officer Robert A. McDonald, the company's next CEO. "This crisis is an opportunity to do that." P&G executives say the long-term outlook for consumer spending is so positive that they must make major moves now.

SLASH AND SPEND

Some companies are even cutting current expenses while spending on long-term initiatives. Southwest Airlines (LUV) recently offered employee buyouts to trim payroll costs. But it's also adding a few key cities to its route map. Southwest recently started flying to Minneapolis-St. Paul and will bring New York and Boston into the network soon. "We don't want to get too far ahead of ourselves and take on too much risk," says CEO Gary C. Kelly. "You just have to be in a position of strength to take advantage of opportunities."

Wal-Mart (WMT), meanwhile, might have the ideal business model for an economy like this. But it isn't content to sit back and collect its growing profits. Instead it's expanding into regions it has been unable to tap fully—including Chicago, where the company is trying to open a supercenter on the troubled South Side.

with Roger O. Crockett

THE QUICK AND THE AGILE

A lot of small players are using their one advantage—nimbleness—to exploit the recession by rolling out new products and services. With credit tight, they're able to make big bets by quickly shifting resources and employees to meet changing demands.

One player gaining ground is BATS Global Markets, a Lenaxa (Kan.) outfit that has used superfast computer technology—especially suited to trading firms that buy and sell huge quantities of securities at a time—to become the nation's third-largest stock exchange in just three years. In May, BATS (short for Better Alternative Trading System) handled 10.2% of all the equities trading in the U.S., up from 8.5% a year before. The company has expanded into London and is exploring opportunities in Canada and the Pacific Rim. CEO Joe Ratterman says "firms that are flexible and don't carry a lot of overhead can often take the ball and run with it while the bigger firms have to pull back."

LESS BUYING, MORE REPAIRING

The sour economy has even helped some small businesses take off. JustAnswer, a San Francisco company that lets customers ask questions of experts in almost any field for a small fee, had been chugging along for five years when the recession hit. As the housing market crashed and homeowners slowed their purchases of new appliances, CEO Andy Kurtzig anticipated a demand for repair services. He's devoting an ever-increasing portion of his marketing budget to appliance repair advertising, more than he's spending on any other area—a potentially risky move. Much of that has gone to buying key words on Google (GOOG) and other search engines.

It worked: JustAnswer has seen a 57% increase in questions about repairs over the past year. Some of the sharpest jumps have come in the number of questions asked about common—but expensive—household items. Refrigerator- and computer-repair queries have risen 409% and 780%, respectively. "It's been remarkable. We're seeing tons of growth," says Kurtzig. "We're spending a lot of time and money bringing in new customers."

The common thread among successful entrepreneurs is that they're daring to be aggressive rather than defensive amid the weak economy. "Don't react to what competitors may be doing," advises Dave McMahon, an associate professor of marketing at Pepperdine University. "Carve your own niche."

with Brian Burnsed

Weber is BusinessWeek's chief of correspondents, based in Chicago.

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