In this article I reference the book Great by Choice, by Jim Collins and Morten T. Hansen. For another of my articles referencing this book, go here.
At the end of this article you can find links to all articles on my blog dealing with the Coronavirus.
It might seem odd, but some businesses and people benefited from the global effects of the pandemic.
For example, let's say you're a manufacturer of a niche product like facemasks, and suddenly it becomes the most sought after product worldwide, sold for exorbitant prices.
It can seem as if luck fell out of the sky, into your lap. What will you do?
Quick-thinking entrepreneurs realized they have an unusual opportunity to "make a killing" selling masks and protective gear, and ordered thousands of masks from China. Four entrepreneurs even purchased machines and set up a local factory dedicated to manufacturing masks.
I'll return to the "opportunity" to sell masks in a moment.
There are, of course, other medical products whose manufacturers benefit from increased demand. Like life-support machines, lab equipment, vitamins, etc.
The list isn’t limited to medical and paramedical products. Quarantines, lockdowns, layoffs and businesses' collapse worldwide sent millions of people home. And those people suddenly had a lot of free time on their hands.
What did people do with all that free time? Among other things, many started riding bicycles. When lockdown was first declared in Israel, we bought two used bicycles. And we would have bought more if we didn’t already have enough pairs. Supply was plentiful, and prices reasonable. This quickly changed. The global bicycle market is suffering a severe shortage, and new or used bicycles are almost impossible to get.
If you produce or sell bicycles – luck is on your side.
What Do Lucky People Do?
It's difficult to imagine now, but one day the global panic will subside. Even if the Coronavirus doesn’t disappear, vaccines will create a new equilibrium. We'll use much fewer facemasks, we'll have enough bikes, laptops, tablets, and other products which saw greatly increased sells lately.
Even before we learn to live with the pandemic, supply will grow and prices will drop. Every new opportunity immediately attracts new manufacturers and importers. The lower the barriers to entry, the faster supply grows.
Luck Happens – How Do We React?
Let's look at facemask, where the barriers to entry are very low. In the early days, demand was high while supply was very low, and masks sold for very high prices. We can even call it hysteria. I know several entrepreneurs who hurried to import thousands of masks. For a moment, there was a great shortage. Online, people were predicting a shortage of hundreds of thousands of masks and protective suits for health services, police, and the armed forces. I assume the above entrepreneurs were already counting the millions. I contacted, for one of my clients, the person in charge of emergency equipment in the Ministry of Health's emergency HQ. A dedicated civil servant who answered late Friday afternoon, right before the weekend – a clear indicator of the sense of urgency which was felt.
I know of at least three more importers who contacted the emergency HQ.
After some delays, all the masks arrived, pretty much simultaneously. The Ministry of Health no longer had need of them, and said dedicated civil servant didn’t answer our messages. My client was stuck with thousands of masks he couldn’t sell at a price which will cover the costs of fast shipping and urgent handling.
Low Barriers of Entry Mean Faster Competition
As I wrote above, the barriers of entry for selling, and likely producing, masks are very low. Thus, the market became flooded. I wish the four entrepreneurs who set up the Israeli mask factory every success. But there's no doubt they have to be very, very efficient in order to make a profit from a new factory producing such a simple product.
Contrastingly, the barriers of entry for producing life support machines are very high, including exacting approval processes (such as from the FDA or the European CE). So existing manufacturers who already had all the certificates had the opportunity to enter, and stay in, new markets.
What Will Be Left of This Success After the Pandemic?
So we can see that for some businesses, the Coronavirus brought success. How will these businesses leverage it going forward? Those who tried, and even succeeded to make a profit importing masks or other equipment to fill a momentary shortage – aren’t likely to leverage any success in the long term.
On the other hand, if the pandemic opened new markets for you, or led to the development of new abilities – then you can leverage it.
And What of Those Businesses Hurt by the Pandemic?
Based on a survey conducted by Facebook and the OECD among approximately 30,000 small and medium-sized businesses in 50 countries, the worst hit sectors were, as expected, tourism, hospitality, and events-planning. 54% of the reviewed tourism businesses closed, as well as 47% hospitality and events-based businesses. 423 Israeli businesses were reviewed, of which 58% reported decreased profits and 34% reported layoffs. The survey was conducted between May 28th and the 31st.
From what I see in the field and read in the newspapers, in Israel even more businesses were hurt during the second wave. Businesses which operated almost normally during the first lockdown, stopped completely or worked with less employees during the second.
The owners of one large commercial company told me recently the overall, his business wasn’t hurt by the global crisis. They continued to grow as they did before the pandemic, maybe even more so. According to them, 25% of businesses weren’t hurt. I was surprised by this figure, but even if it's true, the list of businesses which were hurt by the crisis is very long.
What Do the Owners of Suffering Businesses Do?
Dany Eitan is one of the owners of Yam7, a restaurant on the Herzelia coast. Before the pandemic, this prestigious restaurant was a source of good food for costumers, and profits for the owners. During the first lockdown, the restaurant closed, then opened for a short while, and following the second lockdown closed again. Dany accepted the decrees of fate. He says there's nothing he can do right now, and once the restaurant can reopen, he'll consider his future actions. The restaurant's location and the food it offers make it impossible to turn it into a takeaway restaurant.
Closing the restaurant isn’t the ideal solution for the economic crisis. Restaurants, like other businesses, continue paying rent and bills, payments on loans, and salaries, even when closed. The owners too need to live off something. Maybe some of the payments will be postponed, but that just means they'll add-up, and debts grow larger.
Dany is also a part owner of Tanaka, a Japanese restaurant on Tel-Aviv's Even Gvirol street. Tanaka's clientele has always been passerbys buying takeaway food. It continued to operate during the second lockdown. Dany told me sales are down by 50%, and they're barely making ends meet. But even so, as long as they have some sales, there's a better chance they'll survive.
Some restaurant owners managed to find various solutions enabling them to continue operating, with the key word being creativity, or creating cash flow by any means possible.
Necessity Is the Mother of All Invention: Manufacturers Develop New Abilities
Decreased demand and more competition forces manufacturers to go against the grain, and develop new important abilities which will remain once the crisis is over. For example, producing smaller series, reduced setup costs, and working more efficiently.
A company which manufactures CNC parts for other companies used to only take orders for dozens of parts. Now almost all of their orders are for singular products, for a low price – a result of growing competition. This company had to focus on efficiency in order to supply what the market demands and maintain profitability.
Another example is the many companies who, for the first time, began selling online.
These abilities were important before the crisis hit, and will remain at the companies' disposal after it's passed. And if manufacturers continue to work on improvements and efficiency, and to go against the grain – they could ultimately benefit from this period of uncertainty.
Returns on Luck
In their book Great by Choice, Jim Collins and Morten T. Hansen have a chapter on luck.
They define luck by three criteria: when an event is developed or altered separately from the actors actions; when it has significant results (for better or worse); and when it has an element of unpredictability. By these criteria, the current pandemic fits the bill, and it's interesting to look at what we see around us in light of what Collins and Hansen write, based on extensive research.
They looked at many dozens of "luck" events in companies they defined as great, and in comparative companies. According to them, an organization can withstand bad luck, and bring about a favorable outcome, or likewise squander good luck. The question is, they say, not if you have luck, but if you have a good return on luck.
Let's go back to the above examples, and to what we see around us. We can see success isn’t only a product of luck. Companies and businesses, and especially managers looking to survive, will continuously look for ways to renew and invent. The road to success is riddled with many falls and failures, and you need dedication and perseverance.
Collins and Hansen write that life is full of uncertainty and can't be predicted or controlled. Likewise is luck. Great leaders never rest on their laurels, or become disheartened when bad luck hits. They install in their people a profound belief that, ultimately, success isn’t up to luck.
Summary and Recommendations
The Coronavirus came unexpectedly, and for now, is here to stay. It created, all at once, a new reality which hurt most businesses, and benefited some.
The crucial point isn’t whether the pandemic benefited or hurt your business, but how you handle the results of the global economic crisis.
If the new reality created by the virus hurt you, you must reinvent yourself. To reexamine you underlying assumptions regarding production or sales. For example, find a way to manufacture smaller series, or make set up more efficient, quicker, and with less depreciation. Or, find a way to reach new clients and sectors. Start selling online if you haven’t before, etc.
If the current crisis hasn’t hurt, or even benefitted your company, you should find creative ways to leverage that success, and not rest on your laurels.
The global change brought about by the pandemic is so profound, you must challenge your reality. The way you do business.
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More Articles about the Current Crisis:
- How to Initiate Change and Deal with Objections
- The Cost of Work-From-Home and Zoom Meetings
- In Times of Financial Crisis It's Essential You Make Business Decisions Using the Sensitivity Analysis Model
- Sales and Marketing During and After the Coronavirus Crisis
- The Coronavirus Crisis is a Great Opportunity to Engage Employees with Company Goals
- What to Do During the Coronavirus Crisis