Market Adaptation: Finding Cracks in Economic Disruption

New niches in markets are created with economic movement. When the economy took a huge dive in 2008, many businesses were killed and more had to cut back their production due to lower demand.

When millions lose their jobs and companies go bankrupt, not much is reported about new innovations or very small bright spots in markets. But the disruption in demand also causes a chain reaction to the uses of capital, distribution, service levels and the micro-economies of individual products.

One example is in the construction industry. In Southern California, the Inland Empire (which is east of Los Angles and Orange Counties) was the fastest growing MSA, but it now has among the highest unemployment rates in the country. Construction was a huge component of the old economy, but following the Great Recession it is just a shadow of itself.

This huge disruption idled equipment, put companies out of business, broke down market niche leadership and changed the rules of success.  Large companies that used to take only very large jobs sold equipment, and bid smaller jobs.

This put pressure on smaller companies who now had much more competition. An element of survival was the ability to downsize, liquidate excess assets and eliminate fixed costs if sufficient equity was not present.

In a way it was like the asteroid that killed all of the dinosaurs. The fallout from dust and reduced food killed all but the ones that were small enough to live underground, find a crack to live in or adapt to new food sources. Once the sun was finally visible enough to grow food, some of the underground mammals came out to forage free from large predators.

An example of this kind of market crack formation is a small paving company that fills holes and cracks and does small parking lot and driveway asphalt projects. This particular company started business in 2008, just as the economy was imploding. Because they were so small, the little jobs they got had to be bid very competitively.

But also because they were small, they had almost no overhead. They could buy equipment at a few cents on the dollar, lowering the investment required to get into business. Skilled, unemployed workers were everywhere so their labor costs were less than the large, bulky companies, of which many were union shops.

They would do just about any job. They literally fixed pot holes or “filled cracks” in a driveway or parking lot to get any job available. They were responsive, high quality and service oriented. Large property owners with big parking lots came to rely on them for all the small jobs that the larger companies could not afford to bid. Eventually, they got an opportunity to bid the larger jobs and they maintained their high quality.

As they grew, they continued to buy cheap equipment and hire the most skilled workers. In just seven years they hit $12 million in revenue. Today, they keep costs low by using an old house as an office in an industrialized area. They will try to stay unnoticed by the bigger companies as long as possible as they gain strength and determine if or how they might move into another, larger niche.

Like the environment, one weakened species can be overtaken by another when the food supply is threatened. The species that adapts survives.

Market emplacement was at work here, whether the owner knew he was doing it or not.  Being in the right place, with the right competencies, at the right time created an environment that he could thrive in. Because no marketing was ever done (they do have salesmen, however), no market positioning was done either; this was pure emplacement.

If you watch the news, recessions are nasty things that should be done away with. Even if we had that power, recessions also mix up the status quo and the turmoil creates opportunities just as it destroys others. Part of the recovery system of the past is that people will work for less and paying less is just what small businesses need to jump into a crack in the market that is available.

Extended government unemployment eases the pain for unemployed (and has other positive economic effects too), but it is also “intervention” in the natural economic processes. During the great depression in the 1930’s, the conservation corp. was a low paying government program that gave men the dignity of work while keeping them from starving.

But the other benefit was that they built needed infrastructure which is still evident today. In the great recession, just 3% of the bailout funds actually made it to infrastructure projects, while millions sat home idle.

Small business is perfectly capable of fixing all kinds of problems if it is just left to do so naturally, without government meddling. The subject company of this article is just one of thousands that are helping to restart the economy, despite interference.

One day this company will be larger and want to do big jobs. They will have the ability to pay union wages and probably be more efficient than the earlier companies that went out of business. It’s an amazing thing!