COVID-19 Exposes Cracks in the Status Quo

Startups have an unprecedented opportunity as the power structures that control many industries get a shakeup due to the coronavirus pandemic.

TL;DR:

• The coronavirus pandemic has exposed problematic power structures, broken decision making processes, static mindsets, and unnecessary barriers in both industry and government.
• With these issues now highly visible, and their limitations evident, they are more likely to be changed than they were pre-COVID.
• Startups, in some segments of the economy, will be the ones to facilitate that change, and they will have a significant say on how new power bases are structured.

A couple of years ago I wrote about studying where power and control lie in a market, and how envisioning adjacent structures can be an excellent way to spot new opportunities. A simple example is how Uber shifted power from the cab companies to drivers and users, thereby changing how personal transport was perceived and used. In order to succeed, Uber had to break through the existing control structures, which tend to get ‘hard shells’ over time; in Uber’s case, the power of the cab companies, the associated licensing commissions and their cozy relationships to host cities.

The COVID pandemic has brought many power structures into high relief. This is most obvious when looking at government structures, medical supplies and health care systems, but it also illuminates issues with supply chains, logistics, transportation, finance, monetary distribution networks, and other areas of the economy. In some cases, these existing systems were significantly unprepared for the current situation, and they broke…or are breaking.

The stress COVID has applied to our systems can inform which parts of the economy should be (need to be) improved or rebuilt; there are ripe opportunities for entrepreneurs (and VC’s) to identify and act upon. This includes startups which were already positioned to help during the crisis, but also those that will be formed in the next year or so based on the fissures that are now appearing. Many of these companies will have the ability to swing the pendulum between enabling a surveillance state and supporting an empowered populace, well articulated by Yuval Noah Harari. This is the prototypical example of the tug-o-war between centralized and decentralized power structures; when the existing system breaks, the void may be filled by a new approach which either puts power in even fewer hands, or where technology is leveraged to make decentralized systems more appealing.

As one example, COVID testing in the United States shows how a centralized system, controlled by a flawed democracy, can be both rigid and fragile. Compounding the Government’s slow response to the virus, the CDC, another centralized authority, caused delays in testing due to faulty tests and a slow turn-around time. Ultimately, the CDC loosened their hold but not before the virus had a chance to spread far enough that testing and contact tracing was no longer a possible solution. Instead social distancing was required which ultimately shut-down large portions of the economy. On the other hand, South Korea, which is also a flawed democracy (albeit not as badly rated as the USA), made quick decisions and handled the crisis well.

This comparison would indicate that the competency of the people in charge of a centralized decision making process has an immense impact on how fringe events are handled. This is part of what makes centralized systems fragile — one uninformed or bad decision impacts everyone; one delayed action can result in disaster. Time will tell, but it looks like functional democracies, including Canada, have responded more quickly and cohesively, as more citizens believe in the system and respect the rules. Likewise, an autocracy can make quick decisions in times of need…but are less than ideal at other times. This pandemic is making the trade-offs in governance highly tangible to all of us.

One could imagine a health testing environment that is the opposite of how the US system is currently configured. One where any company could provide testing in a competitive, transparent, and lightly regulated environment. As COVID became more serious, these facilities could have moved at lightning speed to win the testing market, less hindered by bureaucracy and politics. In fact, many health care companies and startups did move quickly, but the structure of the system and centralized approval processes constrained them. Of course, it’s easy to speculate, and a different architecture may not have yielded better results. That said, the outcome would have been less dependent on a small number of individual decisions, some by people with little or no expertise. Again, Canada sits somewhere in the middle; with provinces having significant control over testing approaches.

So, how will the US respond to the obvious failure of their response? Will the government add funding to the CDC and try to make it work better, or will the system be restructured so that states, cities, neighbourhoods, and communities of interest will be able to act more independently? A similar quandary will surround vaccines and cures. Will there be a single approval body, and few labs certified to develop the solution, leading to longer production and distribution time-frames? Or, will the solution be open sourced (albeit licensed and monetized) allowing any lab to quickly produce and sell? Or, perhaps most likely, something in between. Will countries learn from each other?

These questions are most obvious in markets directly touching the virus itself, but similar questions will also be asked in areas secondarily impacted by the virus. The power structures and embedded behavior behind all of these areas deserve in-depth analysis. That is not my intent here; I’m simply pointing out some of the obvious areas where the world may now be ready for different solutions than we have today, as those in power find it harder to defend themselves.

Medical Equipment: Beyond the obvious issue of ensuring that appropriate volumes of medical equipment can be manufactured and delivered (whether that is domesticating production and/or multi-sourcing suppliers across the globe), the question remains on how the costs of maintaining readiness are handled. Traditionally this would be a government mandate, but given the recent failures and politics surrounding that approach, there may be innovative ways to meet this need without (as much) reliance on centralized actors. The next outlier event may be quite different than COVID, so this does not mean being prepared for the same equipment as we require today, but rather a flexible readiness that allows many different types of solutions to be spun up and scaled quickly.

Will more automation and 3D printing allow for distributed networks of production facilities? Will machines be built that build one type of product by default, but can be easily reconfigured in a crisis to build ventilators, masks, or whatever the next crisis demands. This would be a move away from specialization and back towards limited generalization, with the associated trade offs.

Hospitals: We have evolved towards having large hospitals in few locations. This has made sense — doctors with highly specialized skills can’t be everywhere, so it’s better to bring people to a central location than attempt to get doctors to make house calls. We are now seeing the downside — if everyone with COVID has to be treated in a large hospital, then more people than need to be are exposed. Now instead of a hospital being a place to get treated for an issue, they are places to avoid at all costs.

We are at the cusp of remote medicine, robotic surgeries, distributed testing, and a host of other technology enabled innovations. Some of these have been struggling to get a foothold because they have to fit within the existing system and regulatory structure. Will we see a future where more and more “outpatient” treatments are available in your local neighbourhood? This is an area where a new balance between hospitals for capital intensive highly specialized procedures and telemedicine with local clinics for everything else makes sense.

Health Insurance: Most mature economies, such as Canada and the UK, have this figured out, but for the USA, COVID is further uncovering the costs of not having ‘healthcare for all’. COVID is showing that the interconnectedness of health and wellness of those around us impacts us all. If a large portion of society can’t get access to or afford testing or treatment, how can one ever expect to go to a crowded location without worrying about their own personal health? One obvious solution is for the US to follow other countries and roll out a centrally managed universal healthcare program. But those programs aren’t perfect either; it’s possible to envision a broader network of competing providers, under a common mandate, achieving the same ends.

Transportation: Will cities double down on their public transport solutions which pack many people into small spaces? Will they require masks and provide hand sanitizer, while spraying down vehicles at every stop? Will disinfectant sprays replace water bottles in the back seats of Ubers? Or, will innovative personal pods or self-driving vehicles accelerate into the market believing that public transport will never ‘return to normal?’ Will one pay extra for a ‘sanitized’ ride?

There is a deeply embedded structure within cities and public transport agencies based on hundreds of years of experience, long planning horizons, and political momentum. Is that structure still the right one to serve the needs of citizens in the future, or is it finally time to stop laying rail and start investing in modern modes of transport? During this crisis many cities have opened up streets to bikes and walkers; will that accelerate a trend towards healthier cities, or is it a momentary change?

Will we see more choice in the airline industry where configurations that allow for more personal space will be offered? Will choices expand beyond sardine class and elite class to include more middle tiers which provide better value and better safety?

Fintech: The distribution of large sums into the small business community in the US is not going smoothly. Will the government build its own tightly controlled digital currency and distribution system to facilitate future transfers? Or will a large group of smaller entities agree on a standard way to move money with full transparency and accountability?
Some have already. Of course, a middle ground using existing banks is a likely scenario as well, but they are being challenged by neo-banks. Will the government loosen restrictions for more innovative approaches, or continue to be influenced by financial industry lobby groups?

Will cryptocurrencies, with their built-in decentralization, become more widespread in the general public. We haven’t seen a run on the banks (in fact, perhaps the reverse), but people will be feeling uncertain about the safety of their money, and will look at alternatives.

Education: While many teachers, students and parents are struggling with the current “learn from home” environment, it will certainly spur the next generation of remote learning, monitoring, and teaching tools and it will also change expectations for how education can be delivered. This is an industry with immense embedded legacy power and control, which has kept the industry from improving as quickly as it should.

Is there a model where good teachers make what they deserve (certainly more than what they currently make), are held accountable and paid meritocratically, where students realize their full potential, and where the cost structure is significantly upended so that society gets better results at a lower price? Is this the time where modern technology is applied to teaching, where rote tasks are automated, and where teachers add higher level value (amazing teachers having their lessons used globally not locally, teachers who focus on learning and social skills versus rote learning) at a much lower student to teacher ratio? A lot here depends on bending, if not breaking, the current model and placing power in different (and hopefully more) hands.

Education has evolved to be both babysitting (in the sense that having your kids at school allows you to go to work) and learning. Will these functions separate? Will we see the reinvention of small schools with twenty students across all grades where older children tutor younger ones, versus the factory schools we have today?

Work: COVID is an unprecedented experiment in work-from-home (WFH). Support tools (video conferencing, employee engagement, feedback and performance management, etc.) are accelerating which is both educating people of their capabilities and revealing their limitations. Productivity measurements will be taken, and no doubt companies will find improvements, status quo, and in some cases, dramatic reductions. Regardless, it would be surprising if there is not more WFH after COVID than before. The cost savings and access to remote talent will outweigh watercooler effects for many companies. This is a subtle shift in power from employers to workers. If you don’t have to move for a job, then significantly more jobs are available to you.

Food: At one extreme everyone grows all the food they need. This is not scalable, and is why we’ve ended up at the other end of the spectrum — factory farms that produce food at scale, but which are fragile (food contamination) and have other costs (transportation, logistics, quality). Recent technologies like vertical farming and personal greenhouses have been relatively fringe efforts. Now, with everyone sitting at home balancing hoarding with thinking about the food network collapsing, bringing food production closer to home will become a focus.

We are also used to going to a supermarket to do our weekly (or more often) shopping. Again, before today’s technology that was a reasonable thing to do — easy access to a broad array of products. However, it is also very inefficient once you add up real estate, food waste from displaying products in public, the number of trips we all make back and forth for groceries. The static and inflexible separation of restaurant and consumer supply chains is suddenly visible with COVID. Improved distribution and delivery networks, combined with changes in consumer behaviour suddenly seem more likely. Amazon Fresh and other large retailers will accelerate, and there is lots of room for more innovation here.

Sports and Entertainment: When will you go to your next professional sports game? For some the thrill of sport will override the concerns of health, but for many this equation is changed forever. We’ve seen big power shifts already (digital music, streaming video, video sharing sites), and we should expect to see even more innovation in both sports and entertainment. A big network producer used to choose which camera angle you watched and how often the replay was shown. Soon you will control this, and more, yourself.

Security: Personal security, including health, is poised to change dramatically. The surveillance state versus citizen empowerment has been well covered. This will be combined with a next generation of wellness solutions as COVID uncovers the deep relationship between the two (i.e., a high temperature triggering privacy-protecting contact tracing). But, enterprise security will also evolve as WFH grabs hold, and as trust between trading partners is rebuilt. This will accelerate the evolution we outlined in a previous post.

Climate: So much of our busy work is unnecessary: commuting long distances for knowledge workers; food production thousands of miles from consumption requiring transportation, refrigeration, and chemical treatments; centralized shopping requiring every consumer to drive to and from, versus highly optimized delivery reducing travel and fuel consumption for all, etc, etc. COVID has suddenly eliminated much of this, and the skies are bluer for it. Of course it is naive to assume that society will directly learn from this experience and switch over to cleaner models today…but the compound effect of our experiences through this period may point to a better future.

I’ve only touched on a few industries here; certainly there will be stresses on many more.

Thinking about “who controls” our systems leads us to reflect on innovation, and to help focus us on creating progressive solutions. Often, but not always, those solutions will necessitate decentralizing systems that have grown overly centralized, and thus overly fragile and static. These systems end up with a rigid set of laws and relationships often leading to graft and corruption to support them and that makes progressive change difficult. We may be in a unique time where the cracks in the system will be pried open by enterprising entrepreneurs who can see a better future.

The previous series of blogs on power structures and decentralization are here:

• The Center Cannot Hold which talks about how fragile centralized systems are;
• Democracy, Decentralization and Well-Being which takes a high level statistical look at how our health relates to how much control we have over our lives;
• Strategy Frameworks and Decentralization looks at how more decentralized systems impact the current major strategy models;
• Decentralized Transportation which does a deeper dive on what the future of transportation may be (perhaps more relevant post-COVID); and
• Systems of Participation which was written at the peak of the ICO hype, but more generally looks at how new configurations of power may be analyzed.