5 trends after the Coronavirus
All over the world leaders are desperately trying to answer the question ‘When will life go back to normal?’ and “How will the future look?’. Of course no one knows when or how, because there is no precedent to draw upon, to even try to estimate. Just two weeks ago the President of the US proposed that he wanted to “have the country opened up and just raring to go by Easter“, and within that time the US has 10x’d from ~35,000 confirmed cases to ~368,000 cases. The point is that we don’t know a lot about the emerging situation, and where it will take us, and a lot of people are guessing. Some of those who are struggling to guess the most are those who economically will be hit the hardest, small to medium business owners.
At this point there is a generally accepted principle of countries endeavouring to minimise the impact of a large peak in infections which would overwhelm health facilities as we have seen in countries such as China and Italy, and the goal is then to reduce the number of simultaneous infections using measures such as staying home and social distancing. This concept is known as flattening the curve.
Therefore there will be a period of escalating cases, where they will grow to a peak and then drop. Also, it is reasonable to say that one day there will either be a vaccine or sufficient herd immunity within the community that restrictions are fully lifted. But remember there is no guarantee that a vaccine will be found in the near future, and for example there is still no cure for the common cold.
So we have the end of the peak, where cases are generally contained as they are in Wuhan at the moment, and we have the later point where all restrictions are lifted because of a vaccine or sufficient community immunity. What is in between, how long will it last and what will it look like? In his excellent post on the subject, Tomas Pueyo talks about the peak being known as ‘The Hammer’ and the period after The Hammer and before a vaccine as being know as ‘The Dance’, because it will be a period of alternating lifting and resumption of restrictions as societies endeavour to contain local outbreaks.
Based on this chart, it is reasonable to estimate that between 4-to-8 weeks after politicians begin talking about an emerging trend of new case number reductions, that we might see some lifting of restrictions. Of course that’s only if that trend continues during that ensuing 4-8 weeks.
So what happens next during the dance? Would you be interested to go on a trip to New York or Italy, or perhaps a cruise ship once restrictions begin to get lifted? How about the millions of unemployed people or the millions who lose their businesses? Just because a Government lifts restrictions, it doesn’t necessarily mean that people will do what they did before. There will be emotional scar tissue that changes behaviour patterns.
Perhaps things won’t go back to normal, but instead a new normal will emerge. If you are trying to understand how to plan for the future, after cashflow, the most important thing you need to do now is to plan how your business can be profitable and sustainable through the dance.
Because the dance could last for 1 to 2 years.
At some point though, all restrictions will be lifted, and the best estimate that we hear from experts is that this could be 12-18 months away.
Summarising the above, here are some estimates about the Coronavirus timelines.
- With appropriate measures, first world countries experiencing significant new cases currently should have implemented severe containment and will likely have controlled the spread (the hammer) between May and July 2020
- It’s likely that they will then move to lift restrictions in a phased, staged approach, the reverse manner in which many lockdowns were conducted. For example they may increase public gatherings from 2 people to 10 people in one stage, and then 10 people to 50 people in the next stage. See a partial definition of New Zealand levels here for example. As Governments release restrictions any outbreak will see the restrictions re-applied within that region. It’s likely that this fluctuating of restrictions (the dance) will continue from May – July 2020 until around June – December 2021.
- The arrival of a vaccine or sufficient confidence that enough time has passed without any cases will lead to the lifting of all restrictions. This is anticipated around June – December 2021.
Based on the above, your business planning should currently incorporate;
- Controlling cash until July 2020
- A plan to be profitable through fluctuating levels of Government restrictions, and adapting a new business model if necessary
- Consideration of trends after Coronavirus, and how opportunities that will emerge
Trend 1 – Government stimulus
Given the speed and severity of the downturn, Governments across the world have created some of the largest stimulus packages ever, and there is every chance that there will be more to come. This may have the effect of creating a period of rapid growth in some areas of the economy for years to come with unintended outcomes. For example after the Global Financial Crisis in Australia Government stimulus was put toward the Home Insulation Program, which cost $1 Billion to insulate peoples homes for free, which then overstimulated the home insulation industry with new, unexperienced contractors entering the industry and subsequent safety issues which cost another $1-$1.5 Billion to rectify.
Beyond the dance, when restrictions are lifted it is likely that Government stimulus will continue, and this may have an adverse affect on some industries with excessive growth or inexperienced players entering. But the Government stimulus can only help so many businesses which leads to Trend 2.
Trend 2 – Small to Medium business collapsing
As Warren Buffet said “Only when the tide goes out do you discover who’s been swimming naked.” and between now and December 2021 the tide is definitely going out. When we do begin a new normal (rather than going back to normal), it’s not unreasonable to estimate that many businesses simply will not survive. A JP Morgan Chase survey of 600,000 small businesses revealed that on average a small business could last 27 days without cash inflows. It might not yet be 27 days since the average small business has been shuttered, but the lifting of restrictions or a vaccine are a very long way away from now. A quarter of US businesses surveyed by the U.S. Chamber of Commerce in the past week are two months or less from going out of business, and of the businesses who haven’t already closed, 40% expect to close within two weeks. It’s not unreasonable to estimate that in the coming year, between 30% – 40% of small businesses will close. The most likely companies to survive will be the most agile who pivot their business model, and those who do not have excessive debt obligations.
This will dramatically alter the landscape from both a competitive and demand perspective. There may be less competition when selling to customers, but there will also be less customers you are able to sell to.
With more businesses closing there will be less disposable money within the economy, which brings us to Trend 3.
Trend 3 – Frugality
In the past 2 weeks 10 million US citizens have applied for unemployment benefits, or 4.5% of the working population. In Australia it’s estimated that one million people have become unemployed in the past weeks. Now consider the number of people who will become unemployed in the coming months, and the people who lose businesses. Finally think about the effect that this has on the spending patterns of the average person, employed or not.
Many people who are in lockdown in their homes are realising a new way to live. Like it or not, coffee catch-ups are being replaced by video catch-ups, beers in the pub are being replaced by beers over video. Eating out is being replaced by cooking at home. Because many retail shops are closed people are learning what it means to live outside a society with planned obsolescence built into many products. People are developing frugal habits, that when coupled with unemployment and lower disposable cash in the general economy creates a broad frugality trend.
When we consider less businesses, higher unemployment and travel restrictions it brings us to Trend 4.
Trend 4 – Nationalism & Anti-Globalisation
Just in time and Lean processes are sensible when applied to a factory, but not when applied to a country. Only a crisis could jolt state leaders into understanding the true cost of this.
Around the world health professionals are dying because they can’t get enough protective equipment to safely treat patients without getting infected. Countries are fighting each other to get medical equipment and pharmaceuticals. In Australia the head of the National COVID-19 Coordination Commission has said that Australia is too reliant on Chinese imports and that “Australia has an ‘enormous opportunity’ to reboot its manufacturing sector by taking advantage of crippled global supply chains and a lower currency”.
When we consider shortages the public have already seen and are likely to see both in everyday consumables as well as medical equipment and supplies, then we couple that sentiment with higher local unemployment and a Government keen to stimulate the economy, especially in a manner pleasing to the population, we are likely to see a trend towards local manufacturing and locally made products and services that are stimulated by Government incentives.
As a note, three years after World War 2, Australia’s first locally made car the Holden FX was unveiled to great local pride, which was the result of an invitation to General Motors from the Australian Government to locally manufacture a car with the hope that it would improve local employment and increase Australia’s industrial capability in the event there was another war.
Trend 5 – Internet first
In 2012 as Facebook was preparing for its IPO, Mark Zuckerberg called an all hands meeting where employees thought he was going to talk about the impending IPO. But instead he outlined a complete pivot for the company. Up until then the company had focussed on a desktop computer web experience for users. And from that point forward they would focus on mobile first. They would rewrite the Facebook website and from then on always focus on Facebook as a mobile user experience. The first consideration should always be mobile devices.
After Coronavirus, business will be internet first.
If motor vehicles came of age after Henry Ford’s production line, and helicopters came of age after the Vietnam war, the Coronavirus will indicate the coming of age of the internet.
Retailers who have relied on landlords to provide foot traffic – which has now evaporated – will need to build direct relationships with consumers.
Businesses who have relied on travel to communicate with customers, who are now forced to communicate via video, are unlikely to want to spend as much time and money on travel, once innovative ways to communicate have been forced on them through lockdowns.
Patients who have experienced telemedicine are unlikely to want to wait over an hour for a late doctor again in a waiting room.
Consumers who have been in isolation shopping through the internet for months will find the habit easier and be more likely to shop via the internet in the future.
All over the world right now businesses are scrambling to embrace the internet as a primary route to revenue, because their previous route has been impacted. These new, leaner ways of generating business are likely to change the face of commerce and create a new normal that customers quickly adapt to.