Are You Ready to Come out on Offense?

With all the major sports leagues shut down, perhaps it is more important than ever that we keep alive that grand American business tradition – the sports analogy.  So here it goes: boxer Mike Tyson once said “Everyone has a plan ’til they get punched in the mouth.”  At this point in the Covid-19 crisis, that sums up where most companies are with regards to their 2020 plans – we are reeling from being punched in the mouth.

Our hearts go out to all those who have lost loved ones, and our thanks to those who have been risking their lives on the front line fighting this invisible enemy.  As we write this, there appears to be a light at the end of the tunnel, people are making plans to re-open the economy.  But to Mr. Tyson’s point, those can’t be the same plans that we had coming into the crisis.  You’ve been punched in the mouth, what do you need to change before the bell rings to start the next round?

The current situation is unprecedented, at least in our lifetimes.  There is literally no one alive who remembers a global pandemic of this magnitude.  That being said, we can and should still learn from history.  While no two events are identical, from the long view, there appears to be some kind of macro event that reshapes the world every ten to twenty years or so.  While unforeseen, these shocks cause structural change such that the world coming out is fundamentally different than the world going in.  Our list of these occurrences includes:

  • World War One (US involvement 1917-1918)
  • Spanish Flu Pandemic (1918 – 1920)
  • The Great Depression (1929 – 1939)
  • World War Two (US involvement 1941 – 1945)
  • Civil Rights movement (culminating in the late 1960s)
  • Oil Shock/Energy Crisis (1973 and again in 1979)
  • Oil Shock/Global Recession (1990 – 1991)
  • September 11 attacks (2001)
  • Financial Crisis (2008 – 2009)
  • Covid 19 Pandemic (2020 – ?)

And that is just a partial list of calamities.  We’ve left out many other dramatic events with huge localized impact and often global ripple effects (think, fall of the Berlin Wall). These events differed in important ways, and there is no single parallel to the current situation.  Yet, what do these events have in common?  As a species, we survived, we recovered, we generally even thrived.  Human beings in general, and Americans in particular, are very resilient.  Yet in each case, the ‘after’ was different than the ‘before.’ Government regulations and people’s attitudes changed, often in ways that were hard to predict.  For example, soldiers returning en masse from World War II with a boost from the GI Bill, that helped many of them go to college and buy houses, fueled a booming middle class that no one could have imagined in 1939.  Many things that had been luxury products (or pure science fiction) like televisions and dishwashers, were soon commonplace in working-class American homes.

So what can you do now? If you have made the tough decisions to get through what could still be several more dark weeks, and are thinking about what comes next, here is our advice:

  1. Develop a perspective on what changes will be temporary and what will be permanent.  Will more employees working from home become the ‘new normal’? And if so, what will that mean for the demand for office space and therefore office furniture?  On the other hand, what could it mean for videoconferencing services and the infrastructure for reliable bandwidth?  How might these changes and many others affect your customers?
  2. Understand that not everything will bounce back at once; It is becoming clear that we will see a staggered restart to the economy – by state, but also by sector.  As restrictions are lifted, end user attitudes may depress demand for certain products and services.  Sure, you may run out immediately to get your hair cut, but are you in a hurry to book a European cruise this summer? Will your customers come roaring back, or proceed with caution?
  3. Update your understanding of the end-customer.  We have long argued that the foundation for a good strategy is an understanding of customer value at all levels of the value chain.  But how is that likely to change?  Too many companies focus on what we want (sell more of what we already have, preferably at higher prices) and not what the end-customer really should want – objectively, what is their best option, given their trade-offs and limited resources?  If you can’t answer that question about your customers, now would be a really good time to invest in that understanding – how will your customers, and their customers, lives and probems be different?
  4. Understand your strategic assets and be creative about new ways to pivot and drive customer value.  At times like this, it is critical to unpack your strategic advantage and think about ways to re-package to create new opportunities and perhaps even new business models.  For example, Panera Bread has started selling groceries: bread, bagels, milk, yogurt and even fresh produce at many of its stores.  This is not just a panicked response to a decline in sales, but rather a clever way to leverage some of their core strengths: baking bread on site and managing a perishable supply chain, to meet the changing needs of a customer base trying to leave their homes less often – instead of buying a sandwich, buy the ingredients to make yourself a week’s worth of sandwiches.  How might you recombine your strategic assets to better serve your customers?
  5. Plan with an eye towards the option value of your position.  As you make the difficult decisions about what to cut and what to keep, do so with an eye towards the future – what will best position you for a range of possible futures?  For example, food delivery service Postmates is paying their drivers a premium to keep working through the crisis and yet has waived their consumer delivery fee (they still charge some fee to the restaurants for whom they deliver).  They are betting that for some time, home food delivery will remain a popular option and that they can be a preferred partner – already on everyone’s speed dial, creating switching costs that will be hard for competitors to overcome, even when sit-down restaurants return in some form.

Remember, hope is not a strategy; we can’t assume that things will soon be just like they were before and we can all breathe easier.  Military planners call this trap ‘preparing to fight the last war.’  The most famous example is the French preparation prior to World War II.  Recognizing that the Germans were ramping up their military in the 1930s, the French built up massive fortifications along the ‘Maginot line’  – the front across which much of the severe fighting in World War I took place.  They failed to acknowledge what the Germans had learned from their loss in WWI.  Having no desire to get bogged down in lengthy trench warfare again, the Germans developed the concept of ‘Blitzkrieg’ – audacious concentrated attacks led by armored divisions that could cover tens of miles in a day.  Using this tactic, the Germans invaded Belgium, rolled through the Ardennes, and got behind the French lines, thereby experiencing relatively little resistance between them and Paris, and forcing a quick French surrender. How have your customers and your competitors adapted to the ‘war’ that is to come as markets open up?

To wrap this up with another sports analogy: Legendary DePaul University basketball coach Ray Meyer led his team to 21 post-season appearances in his 42 years at the helm (1942-1984).  He was famous for saying that the most important part of a basketball game is the first two minutes of the second half.  To paraphrase his logic: given three or four days to prepare, any decent coach can get his team ready for an opponent.  But at half-time you have less than 20 minutes to revise your strategy and effectively communicate it to your team.  More importantly, you are not just planning to face the team that showed up in the first half, but anticipating the changes that the other coach is making in their team’s locker room.  In short, that is where coaches earn their keep.

So when the whistle signals that play can resume, how can you be ready to come out on offense, and not be stuck on your heels?

Co-written with Don Gottwald, an advisor, investor, and consultant based in Carmel, IN https://www.linkedin.com/in/dongottwald/

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