When bad things happen to good entrepreneurs: what every small-business owner needs to know about crisis management.
Rocket USA Inc. was ready for takeoff. In a few harried months during the summer of 1997, the five-person company in Oak Park, Illinois, had done everything it could to get off the ground. The finishing touch was signing a contract with a Japanese company to be the sole distributor for a line of collectible windup toys, including the robot from the original TV series "Lost in Space."

Company president Michael Perry, 40, had planned for everything--except a crisis. With c.o.d. orders streaming in and the first inventory of robots filling the warehouse, UPS went on strike. The package delivery company's shutdown was an inconvenience for many small businesses, but for Rocket USA, it was a stratospheric disaster.

"We were totally in the dark about how we were going to ship," says Perry, who didn't have accounts with other carriers and discovered other carriers would only accept current customers' deliveries. "We had to hand-carry orders to the post office [because] we really had no backup plan."

Entrepreneurs may think crises are reserved for politicians, large corporations and Kathie Lee Gifford, but a debilitating disaster can strike even the smallest of ventures. Unlike Fortune 500 CEOs, who have legal departments and PR agencies to call on, small-business owners have to handle emergencies themselves.

But can a small business really plan for a crisis? Absolutely, says crisis management expert Jeffrey R. Caponigro. "It's even more important for a small business or start-up to be prepared for a crisis because their margin of error is smaller," says Caponigro, 41, president and CEO of Caponigro Public Relations Inc. in Southfield, Michigan, and author of The Crisis Counselor (Barker Business Books). "They're dealing with a much more fragile environment, where even a minor crisis could put them out of business."

Caponigro defines a crisis as anything that has the potential to negatively affect the reputation or credibility of your business. He suggests entrepreneurs follow some basic steps to prepare for and manage a crisis:

Form a crisis team. Even if it's only you and one other person, you need to define roles and know who to call if a crisis hits. Since disasters don't always work the 9-to-5 shift, make sure you exchange home, pager and cell phone numbers so you'll know how to reach team members at odd hours.

"The first rule of crisis management is to not wait for a debacle to happen before starting your planning process," says Hal Warner, a crisis communications counselor in Vienna, Virginia. Warner says steps should be taken in advance to minimize damage and maintain your company's good image. You may not know the exact nature of the storm looming on the horizon, but you and other employees can develop enough scenarios to cover almost any potential disaster.

Identify your vulnerabilities. To make a list of your company's vulnerabilities, start by looking within your business. While a meteor may fall from the sky and pulverize your biggest client, a crisis is more likely to result from internal mismanagement.

Caponigro advises businesses to make two lists. "On one list, put the crises that are most likely to happen," he says. "On the other, list those that may not be likely to happen, but would be extremely damaging if they did occur. Then compare the two lists to see if any vulnerabilities appear on both lists. If so, those are the crises you really need to be prepared for."

Prevent vulnerabilities from turning into crises. Once you've identified your vulnerabilities, ask yourself if there's anything you can do now to prevent them from turning into crises. For each vulnerability, list the action steps you intend to take to eliminate or lessen the risk of it becoming a crisis.

Develop your plan. Take a look at your list of action steps and determine which ones can be done in advance so you can be better prepared if the crisis happens. "Your plan is particularly valuable during the first few hours of a crisis when you may not know what to say, what to do or what's really happened," says Warner. "The plan will serve as an invaluable road map during a stressful time when strategic thinking can give way to rash decisions."

Warner says crisis plans should not be voluminous documents. They should consist of a simple checklist of action steps for each potential crisis. Plans should also identify crisis team members (including pertinent contact numbers) and a list of who's responsible for which actions.

Move quickly. When a crisis threatens your business, time is of the essence. "The window to prove to your public that the crisis is being managed as effectively as possible is usually only a few hours long," says Caponigro. "In the early stages of a crisis, it's important to prove your competency and control over the situation. You'll have a difficult time establishing this once you're placed in a defensive mode."

Communicate. Inform everyone who's important to the success of your business about the crisis, and ask for their input and feedback. This list may include customers, prospective customers, suppliers, community leaders and the news media.

Crisis experts advise businesses not to try to sweep the crisis under the rug in hopes it will blow over. "If [key people] are going to find out about it anyway, you'd be much better off informing them proactively and explaining what happened than having them read about it in the paper the next day," says Caponigro. He also suggests getting all the bad news out at once. Avoid letting a new accusation surface every week.

Warner calls this an "oozing" crisis. "Picture an oozing tube of toothpaste. Like the toothpaste, once a crisis is out, you can't get it back in," he says. "Businesses often put a crisis on the back burner, hoping no one will notice it, but all of a sudden, it leaks out and you're in deep trouble because it appears you've been hiding something."

Handle the media. In an era of almost instantaneous global communication, a negative story about your company that breaks in the middle of the night can be worldwide news before the morning newspaper hits your doorstep. Crisis experts offer these guidelines for dealing with the media:

Write a concise statement about the crisis, and detail the steps you're taking to remedy the situation.
Don't stray too far from your statement when talking to reporters.
Keep accurate logs of media inquiries and news coverage.
Be clear and avoid jargon.
Be concise. Speak in short, eight- to 10-second snippets.
Stay in control. Don't let the interviewer dictate the discussion.
Be confident. People remember more about how you said it than what you said.
Be honest. If you don't know an answer, admit it.
Monitor and evaluate. Determine how the crisis has affected your sales as well as customers' behavior and opinions. In his book, Caponigro suggests some effective ways to assess the impact of a crisis, including:

Measuring and tracking sales and profits during and after a crisis.
Using a news media monitoring service to provide you with copies of media coverage of your crisis.
Establishing a telephone hot line for customers to call with questions and comments about the crisis.
Conducting focus group sessions to get opinions from your target customers.
Perry survived the UPS strike and learned some valuable lessons. His distribution system is now much more diverse, and he has enough contingency shipping relationships so that the shipping of orders would continue smoothly even if a major carrier went on strike. "Don't believe the unexpected won't happen," says Perry. "That's the game of business--trying to have a solid response to anything that pops up. And don't worry; crises will come."

By Brian Ruberry