COVID-19 A Massive Global Reset? Part 2

Capturing the Opportunities after the 2020 Pandemic

“A crisis is a terrible thing to waste”

The objective of this second blogpost (Part 2 of 3), is to recognize that the on-going COVID-19 crisis and the ensuing global recession, will create the impetus to disrupt industries untouched during prior crises. Part 2 - Global ResetThe purpose of this note is to look beyond the on-going massive global reset caused by the ongoing pandemic, by inviting us to position ourselves and become protagonists in seizing the moment.

The great recession (or depression?) created the impetus for several deep-seated technological, economic, political, and societal changes, to create a combined effect of greater impact. In fact, the global financial crisis of 2008[1] happened while one of the most significant and impactful technologies of modern history was introduced: the smartphone[2].

Although the sharing economy, or as it was originally coined “collaborative consumption”, could be traced several years earlier, it was during the darkest hours of the Great Recession that two emblematic companies representing this new economy (Uber and Airbnb) were founded. During the years that followed, hundreds of Unicorns from all over the world[3], mimicking Uber and Airbnb, led disruptions across many industries, taking advantage of new technology platforms and the new post-global-financial-crisis socio-economic-political reality.

For all the impetus to create value attacking established incumbents (Uber vs. the taxi industry or Airbnb vs. the hotel industry), some of the oldest industries known to mankind have remained untouched. Some of the most important include: health care, education, legal, government and organized religion.

By the virtue of being among the world oldest, these industries or enterprises share a common set of time-tested characteristics:

  1. Meet a basic human need by addressing a specific market pain,
  2. Constitute the source of livelihood for millions of people around the world for centuries,
  3. Are resilient, as their survival has been tested over multiple recessions, wars and other local/global calamities, and
  4. Refined and enhanced their business models, over the past centuries, and benefitted the ever-improving protection afforded by regulatory agencies around the world. Furthermore, the cultural acceptance of these enterprises has continued to grow mostly unchallenged by society[4].

In this blogpost, it is recognized that the on-going COVID-19 global crisis will create the impetus to disrupt some of these five industries, as it unleashes its disruptive force which will be magnified by some deep seated technological, economic, political, and societal changes taking shape over the preceding decades prior the pandemic (to be published in Part 3).

Of all the potential traditional industries identified to be disrupted, the 800-pound gorilla is the health care industry. Indeed, the Coronavirus has exposed its shortcoming across most countries around the world. Here in the USA, the health care expenditures are dangerously close to 20% of the American GDP, while 30MM of the US population does not have any coverage, and the life expectations at birth underperform by 6 to 8 years when compared to others G7 advanced economies. Successful disruption to healthcare, would promise better outcomes for everyone at cost closely aligned with most other developed countries. I predict that enormous fortunes will be made by the successful entrepreneurs able to disrupt the healthcare in the USA and export opportunities to other markets around the world.

Education is another thought-provoking candidate across all levels (K to college) and in particular tertiary level education. Suffice it to say that over the last several years teachers across the US have held countless long and inconclusive faculty meetings and other forums to discuss the opportunity to transform our classes into virtual teaching/distance learning. Yet for the last few weeks, from elementary schools to universities, classes are being held virtually. Now, the discussion has stopped and, with limited or no preparation, we are all adapting to learning by doing, and migrated our classrooms to virtual classrooms[5] since the beginning of the on-going lockdown.

Organized religion is another interesting enterprise which remained untouched for the most part over centuries. My angle of attack does not touch the core beliefs of Christianity or Buddhism, but the way they are organized and deliver the religious experience to their congregations.

What characteristics could we expect of in the new normal after the global reset? These characteristics are organized in Macro-trends and Focalized-trends.

Macro-trends cut across multiple industries, markets and geographies and they include:

  1. Frugality: consumer behavior has higher appreciation that less is more, recession makes consumer more thoughtful about expenditures and more socially and ecologically conscious. Household long-term savings increases.
  2. Less mobility, more virtualization: society has becomes more tech savvy and better able to communicate/work/play/visit/etc, virtually. Better knowledge of Apps (software tools) running on an ever-cheaper hardware. Home become a destination, home improvements and neighborhood activities capture part of the traveling and entertaining dollars.
  3. Human Capital will be plentiful: globally, competitively priced and well prepared ready to work remotely, in particular from the most punished areas by the pandemic in the emerging economies. Home-office work-tools are perfected.
  4. Gig Economy will grow: workforce on demand become a suitable option for many corporations substituting in place of full-time employees. Certain benefits will become available and baked-in the rates such as health insurance, unemployment benefits, etc.
  5. Market will enter a long-lasting bear market: money will be available as they leave the public markets, and available to fund startups. Funding sources will be highly selective, favoring those startups which have embraced the opportunities surfaced by the pandemic crash course, or follow-on investments in those portfolio companies untouched or favoured by the COVID-19.
  6. Price competition will be intense: post-recession firms will compete fiercely for every single consumer dollar across all industries/geographies. Margins will decrease, creating impetus for seeking new efficiencies and productivity gains, giving an additional stimulus to technology solutions lowering costs, reducing labor and improving quality, creating a renewed urgency of digital transformation initiatives.
  7. Global (previously unknown/unheard) actors will become fierce competitors: global providers, in particular those services which are part of the New Normal, will compete aggressively for every new opportunity.
  8. Globally interconnected and interdependent value chains will continue to grow: knowledge and supply chains are not going away, but new safeguards will be required. Redesigning and simplifying multistep supply chains and include redundancies with emergency sources closer to home. Rediscovering the “local advantage”.
  9. Overhead and bureaucracy becomes unacceptable: our days in lockdown have proven, we can thrive being self-sufficient without all the perks of our business offices setting and made evident unnecessary or redundant services.
  10. Optional features become a must in the Post COVID-19 world: transparency, ecological responsibility, simplicity become a requirement and not simply PR or marketing slogans.
  11. The pandemic increased our focus in dependable health care, and the resulting lockdown into virtual education (at all levels from Pre-K to College): both will be under scrutiny to deliver the best outcomes and the best price-performing solutions to everyone. Both will emerge (including broadband internet connectivity) as basic human rights.

Specific Focalized-trends are industry sector, technology, market or geography specific, and they include:

  1. New technological advances are quickly adopted as competitive weapons: Digital Transformation, 3D printing, AI/autonomous, 5G, robotics (soft/hard), find their way into processes, products and services to meet the new market demand in the new normal, enhance productivity, improve quality and making local manufacturing competitive again,
  2. Strong brands which strategically provide sense of belonging and emotional proximity: brands that embrace empathy and meet human aspirations aligned with the new normal, will increase a brand attractiveness,
  3. The consumer behavior already changed: Are your product/services meeting the new demands which are part of the new normal? Some examples of this new products/services are shown below:
        1. Contactless e-commerce
        2. Drone and autonomous delivery
        3. Delivery-only services and parcel protection,
        4. Health safety protection gadgets
        5. Telemedicine, home tests, wellness devices/Apps, etc.
        6. Autonomous diagnosis
        7. Accessing virtual caregivers
        8. Speaker bot companions
        9. Virtual communication, celebrations, culture forming activities
        10. Autonomous/virtual education
        11. Virtual coach/mentor for life/study/work
        12. Technology supported communities
        13. Market driven kindness and branded relief
  4. US Healthcare system disruption will be unavoidable: the pandemic has affected everyone with or without insurance coverage. Renewed focus on outcomes and price/performance. It will require the breaking of the incumbent market lock by the key players (physicians, hospitals, big-pharma, insurance companies, and others) and realign the per capita expenditures to the rest of the developed world (around 10% of GDP)
  5. Disruptive redesign of the educational system: blending public/private, virtual/physical, local/global, specific skills vs. human enlightenment and citizenship, academic/ apprenticeships, with the goal of making the students employable for life. College and universities re-design their transactional business model to become a life-time companion for constant re-skilling and personal and professional re-invention during the professional journey[6],
  6. Planning and delivering the religious experience will be different: while the dogma will depend of each individual religion, the actual planning and delivery will rely more on technology, freeing religious personnel from administrative tasks enabling them to focus into the spiritual needs of the congregation.

Business leaders, as they navigate the on-going COVID-19 crisis, will need to adjust their planning horizons into three phases[7]. The specific duration is the prevailing wisdom today under “average” conditions, but they may be optimistic, if the worst predictions became real. The planning phases are:

  • Planning Phase 1: dealing with the Coronavirus health crisis (2020 and most of 2021), represents the time to overcome the COVID-19 pandemic. During this great global reset period due to health concern citizens have been constraint to live in isolation, causing great economic damage in the aggregate. Eventually towards the end of this phase, social activity begins to resume. This Phase is followed by,
  • Planning Phase 2: dealing with the global recession due to the economic damage inflicted by the Coronavirus health crisis and the societal lockdown (2021/2022 and possibly 2023), represents the time to overcome the economic recession, while employment and consumption begin to rise after the quarantine is rolled back after the COVID-19 health crisis. At the end of this phase, society is healing from the health and economic woes inflicted by the global pandemic.
  • 2023 and beyond, represents the time to reach a new normal in the world economy, assuming that no other global crisis was triggered during the recovery process.

The world was looking for an opportunity for a great global reset. The corona virus certainly offered one of epic proportions. Difficult as it certainly is to rise above the current global storm, it remains an absolute truth that the pandemic increases our dependency on technology. Furthermore, it does reinforce the importance of innovation & entrepreneurial ecosystem around the world and the leadership of Silicon Valley and its companies we have greatly depended on during this pandemic: Zoom, Twitter, Google, Facebook, WhatsApp, etc.

Part 2 - Schumpeter

A well-founded survival of the current crises is only worthy if the firm can emerge vibrant and competitive post crisis. Otherwise, as Schumpeter’s writings remind us, if a firm is destined to die, the sooner the better, releasing its resources to new and more productive sectors of the economy.

The future is now, and the opportunity is ours!

Until our paths cross again amigo – Carlos B.

[1] The global financial crisis (a.k.a. The Great Recession) began in 2007 with a depreciation in the subprime mortgage market in the United States, and it developed into an international banking crisis with the collapse of  the investment bank Lehman Brothers on September 15, 2008.

[2] The first iPhone became available to consumers on June 2007 and the first Android Phone on October 2008.

[3] Unicorn population is dominated by USA (60%) and China (15%), with a total unicorn population of about 400 worldwide… Probably shrinking today.

[4] Consumers routinely purchase health services without an a-priori knowledge of their prices and their potential outcomes, even for the most established procedures.

[5] Included Physical Education (PE) which was always excluded from virtual considerations.

[6] As life expectancy surpasses 100 for the current millennials, retirement-age will likely be pushed past 75 years old. This will require five or more re-inventions in their 50+ years professional journey.

[7] There is no certainty of the depth, length of the disruption as well as the shape of the recovery.

About Carlos S. Baradello

Investor, thought leader, university professor, and advisor in areas of corporate innovation, born global entrepreneurship and venture capital investing.
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