September 17, 2020

Adapting to the New Normal and Catalyzing Innovation in a Post-COVID-19 Economy

Written by German Accelerator

COVID-19 has turned our world upside down. The usual and commonly used method of analyzing probabilities based on past experience to predict the future often breaks down, which makes many of us feel uncomfortable. Instead of burying their heads in the sand, many entrepreneurs are using the crisis as a catalyst to brainstorm, innovate, pivot, and solve novel problems that will lay the foundation for the time after.

In our virtual fireside chat with our Southeast Asia Program CEO, Claus Karthe, and #GAmentors Andreas Schaffer (former CEO, Avalerion Capital), and Shomit Ghose (General Partner, ONSET Ventures), we discussed the implications of different scenarios in a post-COVID-19 global economy.

How has the pandemic changed business strategy and is there some specific advice we can give to founders? 

Shomit: I am optimistic and I think that many entrepreneurs are optimistic about the future. We shouldn’t forget about the key question entrepreneurs need to continue to ask themselves: “What will the future look like?”

In a normal setting and without a global pandemic, going fully virtual as we have, would have happened over the course of five to 10 years. What COVID-19 has done, is deliver the future to us today. So if you can solve a problem caused by COVID-19 today, you might actually have figured out how to solve one of our future problems.

Who would you say are the winners and losers in this current COVID-19 world?  situation? 

Andreas: In my view, there are three types of companies: the winners, the losers and the challengers. The winners are those that have strong technology and software solutions and are benefiting from the accelerated need for disruptive technologies. Now, they have to be smart about scaling their business and showing profitability because raising capital will be hard for the foreseeable future.

Then you have losers, which currently include the international tourism industry, the airline industry, supply industries, or uncompetitive startups who have three choices: to fix, sell, or close. Can you fix it if you are a major organization like an airline where you can negotiate a bailout? If you have a noncompetitive company but you might have assets that are interesting, you have the option of selling or closing.

Then you have the most interesting category, the challengers. These are the businesses that are being challenged by the current situation. If they are able to make adjustments to their business models, conduct strategic pivots, or identify new revenue streams, they might be able to transform their organizations into competitive and successful ventures coming out of the crisis stronger than before.

Shomit, in your research you wrote that a crisis can serve as a catalyst for innovation. What role do you think entrepreneurs can play in this crisis? 

Shomit: Education, healthcare, and many other large sectors have not yet experienced the benefits of virtualization. These sectors are essential on a global level and will continue to be of fundamental importance. But in the midst of COVID-19, we’ve had to shift the focus in these industries as well – to telemedicine and distance learning, for example. COVID-19 has shown us the shortcomings of previous approaches.

New startups can take advantage of the fact that traditional companies who are stuck in their traditional ways, so-called legacy companies, are now playing catch-up. This sudden change, with legacy companies not yet prepared for the virtualized workplace, allows dynamic startups to fill the void that legacy companies aren’t capable of filling as they are too stuck in their old ways.

Claus: Our lives have become simpler in some ways during the lockdown, and it’s shown us that many of the things we do or have, do not necessarily create value. It has also shown us that we need to constantly adapt to our situation, which in the case of entrepreneurship, highlights the endless opportunities there are in this new world.

What scenarios do you see happening in the global economy over the next 6, 12, 18 months? How do you see the  post-COVID-19 economy evolving? 

Andreas: The best way to answer this question is to consider the main uncertainties that influence how the world and economy will evolve. First, we need to understand the true severity of COVID-19 and second, we need to understand how well we respond to this crisis as a society and economy at a national and international level. The situation is too uncertain at the moment to predict what will happen with any great accuracy, but my estimation would be a recession of 3-5% over the next year.

How should leaders steer their organizations for the short, medium, and long term? 

Andreas: In the short, medium, and long run, honest and transparent leadership is critical. If the prospects are good and if there is a reason for optimism, then say so and spread that positivity with confidence but if the situation is challenging, then be open and honest about that, too. To steer their organization, managers must chart their course. If you can only chart the course for six months, then so be it – but acknowledge the shortcomings this may have. People will be looking to you as a leader to tell them where the journey is headed.

In a digital world, the good old “let’s go for a coffee,” “let’s take this offline” will be hard or impossible in some situations, but that shouldn’t mean you should be invisible as a leader. Stay connected and be in touch with your team via Zoom or other channels and have personal conversations with them. People will be struggling and they need that personal touch and recognition, so connect regularly.

At the end of the day, leadership will make the difference between a challenger company ending up as a winner or a loser.

Andreas, you wrote a paper on the global scenarios for a time after COVID-19, and one of the themes is the emergence of a ‘fractured world’. What does that mean and how do you see this shaping the world in the future?  

Andreas: We are in a situation that we would characterize as a ‘fractured world.’ The world is fracturing into countries that have done well in managing the COVID-19 crisis from healthcare, economic and social costs perspective, and those that haven’t.

Globally, we are observing countries employing an implicit or explicit strategy of eliminating the virus – others who are choosing to live with it. The former will not want to have a resurgence of the virus and will, therefore, keep their borders closed like New Zealand. They will only engage with other countries that are doing the same.

The notion of jumping on a plane and flying to another country for a meeting will no longer be possible unless you are within a group of countries that operate within the same paradigm. We are seeing this unfold in front of our eyes as travel bubbles and ‘green lanes’ are becoming the new normal when traveling.

COVID-19 and has also dramatically highlighted the dependency of the world on global supply chains and the heavy reliance on China. As a direct consequence of the crisis, we are already seeing the global supply chain starting to partially rearrange itself, with the emergence of shifting supply chains out of China. This in turn is driving self-sufficiency across many sectors and a move towards an increase in local production.

Is it all doom and gloom? What opportunities do you think are out there for entrepreneurs? 

Shomit: There are a lot of opportunities today because of how the world has been upended. Many of the dinosaur industries will be completely disrupted, opening up opportunities for startups. But in order to survive, startups need to remember the following: “Think hard about being cash efficient because in the current environment getting funding will be difficult.”

One of the strongest attributes you can have as a startup is to be cash efficient. So if 2019 was the year of the unicorn, 2020 is the year of the camel. Every startup should strive to be a camel and be very efficient when it comes to using resources and by doing so, you are making yourself into a cash efficient and sustainable organization. The financial discipline that has been forced upon us is making companies stronger competitors and not one that is burning through cash, day in, day out.

Andreas: Only time will tell where we are headed. But on the positive side, there is an enormous amount of startup financing being made available through various governments. For example, the Singaporean and German governments are providing an unprecedented amount of money, not just for mature industries but also for entrepreneurs. If one starts a business now or has an early-stage business, they should look into potentially leveraging some of these funds to make up for the gap that the traditional VC industry can’t, or won’t want to fill right now.

Secondly, partnering in your ecosystem is absolutely critical right now. Don’t try to do everything by yourself, try and work with partners wherever you can – that’s also part of being cash efficient. You can’t build up high fixed costs at this point in time, so it’s important to find partners in functions and regions with similar goals where you can leverage from and off each other.

Research by our Panelists: