The right moment: Technology leadership through the first wave of the economic crisis.

April 6, 2020
    It’s easy to be a leader when things go well. The economy is growing, people’s incomes are increasing, your company is getting more and more orders, and there is no need to make quick and sometimes fundamental decisions regarding personnel or budgets.  In good times, it is easy for us to make plans for the quarter, set three-year goals, and be a true visionary leader for the investors, society, and colleagues who surround us every day.
    Although we have experienced rather unpredictable times, it was difficult to imagine the current situation (both epidemiological and economic). The past month has put an end to the cycle of economic growth that has successfully lasted for 11 years, thus, launching the creation of a new reality. However, it’s a long way off. Now we are only at the beginning of the first wave of the crisis, and in the meantime Bloomberg analysts say that this recession is likely to be the most brutal in our history.
    The eurozone economy lost 12% of GDP as compared to the previous year, and the economic indicators of China returned to the early 1990s level. At this time, in most countries, the collapse is just starting. The scale of the crisis is enormous, both geographically and in terms of market disruption. For CEOs, the crisis is not the time to panic. This is the most important time to make bold and correct decisions about what the next few months of business operation will look like.  Understanding and accepting the complex reality undoubtedly encourages us to take action to protect and preserve the business. However, such actions must be taken very carefully, with surgical precision, as there may be no second chance.
    Over the last four years, we have been helping businesses actively grow,  equipping each with new technologies, creating new digital business models and digital products. Now, at the beginning of this difficult period, we feel the need to preserve and support what we have created and to help our clients survive this economic shock without catastrophic losses.
    In this article, we have promptly prepared all the information you need to make the right decisions at the very outset of a crisis. We have carefully studied every item to help you hold your position in the market and maintain your business efficiency.
    First of all, the situation that unfolds around should be analyzed in two aspects:
    Quarantine has already locked up at home 1 billion people. The internet is one of the few ways to get out. Fortunately, the online world is not exposed to organic viruses, so it offers us almost the only alternative to continue our work, engage with the community and consume products and services.

    As a result, even those businesses that previously had poor digital permeability are now intensively thinking on how to move their products and services online.
    The past 25 years of digitalization have consistently been aimed at reducing the amount of human contact in the value chain or in providing a service. This issue has become relevant in one day, here and now.  This lightning-fast dynamic forces entrepreneurs to look for ready-made solutions, even if they can not fully cover all the requests. The imperative of speed becomes the main one here.
    For many businessmen, this way looks almost perfect. Services like Uber Eats, Glovo or Delivery Hero and their local counterparts are experiencing an incredible surge in demand. The bulk of retailers will finally see the online segment generating more revenue than the offline one. Services covering the range of needs for efficient work from home are also on the list of the lucky ones.   By forcing many people to work, shop and amuse themselves at home, the crisis may give a permanent boost to online companies. Zoom, Microsoft Teams, Slack, WeChat Work, and other corporate-messaging services are experiencing a surge in demand. Data from Sensor Tower, an analytics firm, suggests that weekly new users of such apps leaped from 1.4m in early January to 6.7m in early March. A survey in Britain for Barclaycard, a payments firm, points to year-on-year growth of 12% in subscription entertainment services like Netflix in the four weeks to February 21st, and of nearly 9% growth in food takeaway and delivery spending. Amazon is hiring 100,000 new distribution workers in America to meet the demand for internet shopping.

The flip side of the coin

    In this situation is that with the start of quarantine, social isolation and the shutdown of a large part of the business, people’s real income is crawling downward. In a large part of the world, as of April, many people will be left without a full-time job as well as without an answer when they will get it back.  Steven Mnuchin, America’s treasury secretary, warned that the country’s unemployment rate could reach 20% unless a vaccine is invented.

    Since this crisis is not local in terms of geography or niche, the consequences will be equally hard for everyone.  Governments of many countries firmly state that they are ready to support people in such difficult conditions, negotiate with banks on credit and mortgage holidays and ease fiscal pressure. However, even these measures will not be enough in the absence of permanent work. The market basket of the majority will be revised and subject to rapid adjustment.
    The same applies to business opportunities to grow or at least maintain current positions. As governments restrict the movement of citizens to save lives, the number of struggling companies is increasing.  The light industry and service industries that are dominant in many countries have simply stopped.
    The decline is going to continue. Scott Stringer, CFO of the New York-based company, predicts that the city’s hotels will be two-thirds empty by the end of June. Restaurants and pubs can face an 80% drop in sales. The American Hotel & Lodging Association is afraid of a blow that exceeds the impacts of September  11, 2001, and the 2008 Great Recession put together. Morgan Stanley Bank estimates that retail traffic may decline by 60% in the coming weeks as more and more US cities follow the European example and stay in quarantine. This is a reality we couldn’t even imagine three months ago.
    Describing this context, we do not take into account that there is a risk of a prolonged fight with the virus far beyond the second quarter. In this case, the economic consequences will be catastrophic, since no one in the modern world is prepared for crises that may last for several years.
    On March 16, French President Emmanuel Macron declared that “No business will be allowed to fail” due to the virus. >Ernest Hemingway described bankruptcy as an experience that happens “in two ways: gradually and then suddenly.” The task of the manager is to make the right decision staying between these two ways.
    The economic response to the “19” pandemic is already following this pattern. Consumers respond to it in the same way.
    The course of events that unfold around us has a direct impact on a large number of digital businesses. Most of them are not in the market basket, so it is easy to leave them, change the tariff plan or just pause the subscription. This, in turn, is instantly reflected in the revenue of digital companies.
    Moreover, as major players of the digital business have started to provide their services for free, a significant part of digital product users expect the same pattern as the standard for digital brands.
    Changing economic doctrine also changes users’ behavioral patterns. Value migrates from one product to another; and we are not talking about the current time of quarantine, which leads to an asymmetry of consumption, but about the future that will come after the quarantine. At one point for hundreds of thousands of people; job search services will become more relevant than Netflix, and products that help quickly gain new skills or an entire profession will easily replace TikTok and Instagram shopping. People will rethink the current reality and see new sources of value. Will you be ready for new challenges?

What to do in this situation? 

How not to lose the audience and business at all?

    The CFO, CMO, and CEOs have these questions in their minds and there is a common basis for the answer.
    Professor Robert Kaplan in his legendary book BSC wrote the following: “In times of crisis, there are only two ways: either you cut costs to a minimum and prepare to jump right after growth starts again, or you quickly invent a new business model that will start generating the revenue you need to miniize the crisis. Everything else is nothing more than just music in the background. You need to be determined enough to work in both aspects together. ”
    Upon careful analysis of the situation and communication with our clients, digital business executives and startup communities, we have outlined some important tips for how to adapt your digital product to new realities, how to prepare for a possible downturn in demand, and how to get ready for a gradual end of this crisis.

 

 

Here is what we suggest.

      1. Update the customer journey map of your product. In a rapidly-changing environment, the users’ previous experience may easily become irrelevant, and instead, a greater need for other parts of your product or its additional functionality may arise.  Over the last three weeks, the world has turned upside down. It is a mistake to think that the same is not happening to your users. Now, they are probably looking for something in your product and your brand in general that can help them to adapt to today’s realities.  To quickly turn the situation in your favor, you can carry out 5-10 new user interviews to gather new insights, get information about your users’ current pain, their new expectations for your product, and then, based on gathered information, create relevant value. The main thing is to act promptly.
      1. Take a closer look at your product analytics over the last few weeks and discover new growth points. Having analyzed the analytics of a mobile application of one of our clients, we quickly discovered the massive flow of users from the functionality, for purchasing financial services and electronic transport tickets, to the functionality for online payments, payments by scanning QR code on websites and card to card transfers. (There are specific behavioral patterns for Ukraine that may be different from those in your country. We still have a lot of cash to use;) Try to understand how these growth points can survive or continue to grow. If this is the case, make easier or more accessible new functionality that is important to your audience.For one of our clients, a large chain of gas stations (one of the few entities that continue to operate under conditions of quarantine), we have urgently developed the functionality for advance purchases of coffee, hot-dogs, and other takeaway products to minimize contact with other people.
      1. Try to keep as much of your business as possible, don’t focus on winning new segments or aggressively promoting new functionality. In the face of information overload with news on pandemic and economic downturn, your press release on new functionality may go unnoticed or ignored. In the coming weeks marketing campaigns that are not related to healthcare will have little effect, as for the majority of the population, the # 1 focus, for now, is to stay healthy. We suggest reviewing your release plan for the next few months and focus on the implementation of the preceding items, moving ahead with small scale releases. For this, we recommend using the KANO framework to give your users only the most valuable functionality.

      1. Allow your users to continue using your service (those who unsubscribe because of financial problems). Launch a temporary compensation program, discount program, or freemium model to support your user at difficult times. Believe  – the user will reward you. Your main prerogative in times of crisis is to try not to take away people’s usual comfort or level of service, if possible. After overcoming financial difficulties, your efforts will be quickly monetized by a large audience. 
      2. And most importantly, ensure the continuity of operation and stability of your product, regardless of the situation around. Your users expect a high level of service from you, even (we would say especially) in times of economic instability. From the user’s perspective, the value of money spent is much higher in times of crisis and economic downturn. Practice shows that now buyers of goods or services are much more sensitive during the purchase process than usual. Our advice here is to start building off-site options for your business. Alternatively, software and design outsourcing can be a great start.  During an economic downturn, an off-site team can help you save up to 40% of your budget on product support and development without losing quality and often with it increasing. This is especially relevant in the context of a total home office, where the former in-house capacity is no longer different from the outsource team.

 

    Under high levels of uncertainty, you need to operate at high speeds. The right steps at the beginning of a crisis give you a much better chance of surviving difficult times and saving the business. Many executives who survived the 2008 financial crisis say they regret starting so late. Early actions could have saved much of their business and assets.
    In order not to see the second part of Hemingway’s sentence, we suggest that you use the full potential of your leadership and make the difficult decisions to preserve what you and the team have been building for so long.
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The right moment: Technology leadership through the first wave of the economic crisis.

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