Now That We’re All Getting Used to Quarantine, What’s Next For Business?
Small & medium business planning for the next 1–2 years ahead.
We’ve now passed a month in the pandemic world. Things still feel surreal, but less absolutely is-the-really-happening surreal than they did a few weeks ago. Life is starting to settle, humans can adjust to anything, and as a community and society we’re starting to shift from pure shock about the present to looking into the future.
(You may have heard the saying that it takes about a month to form a habit. When we teach at consumer behavior change at Prototype Thinking Labs, we also use a guideline that there’s a tipping point at approximately 40 days for adjustment. This is the approximate point we are all approaching or at right now.)
As we are looking ahead to the future, here is what we at PTL are thinking about strategically:
Social Distancing: Understanding the Math
(Skip this section if you are tired of reading about social distancing projections.)
The main question is, how long will social distancing and/or state of crisis last? There are many articles out there laying out different scenarios. Here’s what’s foundational:
In the long run, in order for Covid-19 to be controlled, we have to keep the rate of infection (“R0”) under 1.
In other words, if one person gets it, how many people are they likely to give it to? As long as they are more likely to fail to spread it than to spread it, the effects can be mitigated / controlled.
The natural R0 of Covid-19 under normal circumstances is currently estimated to be about 2.5 (ie, each individual infects 2–3 other people). The core function fo social distancing is to manually reduce that infection rate.
In order to get the infection rate BELOW 1 in any given context, all the people, collectively, in that context have to reduce their social contact to 40% or less of what it previously was.
Note, importantly, that this reduction is not to 0%, and the reduction is an average (mean) rather than global across the board. Instead, what practically happens is lot of people reduce more to 10% or 20% or so (ie, mandatory lockdown), so that some people (essential workers) who still have to be in contact a lot can reduce to just 70% or so. Thus, an entire city, on average, clocks in below 40%.
Practically speaking, the most important thing to know about this is:
The long-term distancing practices we need to keep R0 < 1 are similar but not identical to what we’ve been doing this past month.
This past month, we’ve been doing a much more ambitious version of this, implementing a substantially lower rate of contact to get a substantially lower R0.
The reason for this is was to make an emergency intervention to precipitously reduce the maximum possible number of people sick at one time, so that medical resources aren’t overwhelmed. Depending on where you’re located, your region has been or or less effective at this. Either way, depending on where you are, it’s likely to go on for another month or so give or take a few weeks.
However, the key piece of information not currently common in public discourse, and on which we are basing our strategic choices, is this:
At some point in the next 2–6 weeks, as the emergency containment of infection successfully caps at whatever maximum it is able to achieve, we will all be able to switch to the “keeping contact under 40%” model.
At that point, we will need to continue measures that keep R0 < 1 for probably about 2 years in order to prevent another unmanageable outbreak that leads to another emergency situation.
(The main factors that could impact R0 in the coming 2 years are social distancing and whether herd immunity develops. Herd immunity will reduce the natural R0 of the virus, requiring less social distancing to achieve the same result. However, initial data is still inconclusive about that, so it may be a long / complicated / reearch-filled journey to reach herd immunity.
Additionally, vaccine deployment primarily affects the length of time we need to keep R0 < 1. But the current research is not optimistic of it happening anytime soon, being able to get manufactured safely, and there has never been a vaccine for any human coronavirus before. Hence, most physicians are pessimistic about a 12–18 month timeline, which is why we are using a 24 month timeline optimistically.
Sufficient herd immunity could solve the problem naturally before vaccine deployment, but we currently don’t have evidence that it will happen.)
Business Landscape Implications
So what does all this mean for business decision making?
The short answer is that we’re betting on distancing.
The longer answer is the following:
We know mathematically that, barring a really lucky random event, “normal” cannot happen for at least two years.
Specifically, we don’t know or have individual control over how BAD it could get — eg, a political decision to lift distancing early could result in massive contagion, panic, and casualities, or we simply can’t achieve either herd immunity or a vaccine for many years.
But we do have an upper limit on how GOOD it can get. Namely, we know that EITHER there will be distancing at the 40% rate, OR there will be a complete outbreak disaster that in practice also leads to nobody wanting to buy things in-person with any consistency anyway.
In other words, while, as individuals in society, a lot of facets of our future lives are up in the air, as business owners we can actually ignore about 80% of those variables.
Here are the things PTL is assuming or projecting:
1) The difference between 2 years and more than 2 years is actually not that meaningful: 2 years is already long enough that we just have to build a business model for about 40% distancing, and then whenever this over we re-innovate into whatever that future world looks like and switch back.
2) Any removal of distancing and “re-opening of economy”, whenever it happens, done either in a haphazard or carefully managed way, necessarily has to be temporary. The best case of this is a strategy that alternates opening and closing, letting the virus wax and wane in growth by keeping the max infection under a certain point. It’s messy, strict, and in the US at least, there is unlikely to be the political coordination to do even that.
3) Any really meaningful, lasting economy growth is more likely to happen within the context of 40% (ish) distancing. Ie, we as a society will figure out how to live more remotely and figure out how to create economic value in this world.
My person guess here is that it’s most likely that another tier of face-to-face services will open in a month or two, but large gatherings and in-person work will mostly not come back, but that’s just one possible outcome.
The point is that we’re looking to join in major economic trends that are effective in a mostly-distancing context.
4) We’re all going to be significantly impacted by economic contraction for a few years and need to budget accordingly.
After the first few weeks of initial shock, we’re going to see wave after wave of recession consequences as progressive groups further away from the economic ground zero of the crisis start feeling the impact. Specifically, but not limited to:
Immediate — small businesses and independents drastically lose income, need to supplement work, or find alternative income. Millions of these people are consumers for other businesses that will be impacted by their loss of revenue over the next 3 months.
2 months in — small businesses shut down. A poll said that 43% of small businesses report they will have to shut down soon if they don’t get help. I think the sample size (500) was way too small and that number is actually lower, but it’s somewhere in there.
Summer / Fall — economic slowdown from professional class people spending more conservatively since the beginning of the crisis and also not having access to enough services to buy. Also from professional class people experiencing negative professional consequences due to early lack of childcare.
Fall / Winter — large businesses & major corporations hit with consequences of drastic lose of revenue this year and dramatically change 2021 budget allocations. Remember right now all the big companies are still operating on pre-crisis budget allocations.
Spring/Summer 2021 — major crash as the entities with the most money (large companies) stop spending it or investing in growth. Downturn seriously hits professional class, more layoffs, and general bad news.
Now, successful government intervention to save the small business and everyday people base can prevent this spiral. We’re not betting on this administration to do that effectively, but feel that there will likely be some small degree of additional intervention upcoming.
Strategic Priorities
So what does all this mean we do?
Here are the strategic priorities & perspectives we’re looking at:
1 — Optimize your business function for the ~40% distancing world. Shift your core function to bet for distancing-but-less-than-now, and readapt again when it eventually ends.
2 — Plan for some of the worst of the economic storm to hit in late 2020 / early 2021, not just all right at this moment.
3 — Assume that b2c / b2-small-b revenues and transactions will just be lower going forward, and b2-corporate revenues will be lower starting later this year.
(Anecdotally over the past few weeks, we’ve seen professional services able to price at about 40% — 50% of previous rates. This is merely a guess, but my personal bet is that we’re going to hit an equilibrium over the next few months where everything from therapy to training & consulting is going to price at about 45% of cost for 70% of quality from doing it remotely for a while.)
4 — As much as possible, sell things that people are likely to need no matter what, either physically or emotionally.
(Remember that for everyday consumers, the next couple years are still going to be a major emotional roller coaster every month or two. An unexpected 2-week re-opening or steady casualty rate may not affect our business model, but the former will give everyone a lot of feelings and the latter means that almost everyone will experience a close person dying over the next few years. So customers will need both food/supplies and things to do when distraught.)
5 — Focus. The weird thing about a distanced world is that it’s as easy to sell across the country as across the street. So the market for most things are going to get a lot more competitive in ways that nobody understands yet.
It’s a time in which, especially with revenue going down, we’ll be tempted to diversify to be everything to everybody. But the way to rise above is actually the opposite: take a clear stand with a strong brand and obvious value, and double down on it.
(But listen to and engage with your customers very, very carefully, because they are having feelings.)
6 — Take care of yourself. You are your most limited resource, and with less of a social safety net it’s especially important to look out for yourself.
The simple truth is that this picture, when we step back and look at it, is not that great. The strategic priorities list above points to a lot of hard work and hard decisions for in many cases less reward.
Some of us are in industries that are presently growing like mad and primarily need to capitalize on the new landscape.
Others of us will simply be faced with the choice to stay in a shrinking industry or switch — but those who stay can still come out ahead by adapting.
Still others don’t actually have that choice and will be forced into drastic business or career shifts.
But the difference between now and 2 weeks ago is that we can begin making plans for the next few years. And as we do so, so do our customers — so we have the unique opportunity to become a stable part of their 40% distancing world.
Sources
https://jamanetwork.com/journals/jama/fullarticle/2763187
https://www.thelancet.com/journals/lanres/article/PIIS2213-2600(20)30128-4/fulltext
