Four Pandemic Changes That Will Change Your Business
Forever
The oncoming Omicron wave will only lock in the new realities of how we operate. Don't even think about going back to the way things were.
howard tullman, GENERAL MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH INVESTORS@TULLMAN
I really pity the people who are still holding their breath and
waiting for life to get back to normal: that glorious day when we all
triumphantly return to business as usual. I've been struggling for a simple way
- by example or analogy - to break the ugly news to them that they're dreaming.
And to demonstrate that, post-pandemic, for a variety of reasons we'll never
again look at our lives, our careers, or the world in the same way.
Not that that's exactly a terrible thing; nostalgia and
tradition are very often just bad excuses to avoid change. We'll never progress
by trying to live our lives looking backwards. That's why the car's windshield
is so much bigger than the rear-view mirror.
So, I've settled on single symbol: the ratchet. Not the
"full ratchet," which is a venture capital deal provision that
protects early investors from later dilution, and something all founders dread.
(And lovingly call rat shit). I'm referring to a b asic mechanical device
that allows motion in one direction only, in a series of irreversible steps.
That's where we're at today; there's no going back. We've learned too much, we've changed too much,
and we've seen opportunities ahead of us - both personally and career wise -
that we never even thought were possible or previously imagined.
The best plan for now is to survey the landscape, note the
important changes going on that will impact your business and your plans, and
start adjusting, adapting and revising your strategy so you don't end up at the
airport when your ship comes in. Keep in mind that you can learn a great deal
about what's coming from scanning -- not just your industry or marketplace, but
also what's happening in other sectors as well. "Not invented here,"
which rarely works out for big businesses trying to innovate, has also never been a successful approach for startups.
Beg, borrow or steal whatever works best.
Here are four big directional shifts to keep an eye on so you
can build them into your own plans.
Forget Lifetime Employment
Few organizations benefited more structurally from the COVID-19
pandemic than the old-line property and casualty (P&C) insurance companies.
They got an enormous one-time, two-fold opportunity, without any material
social or regulatory consequences or blowback, to (a) reap enormous profits
without being subject to the typical offsetting claims; people who aren't
driving don't have accidents, but still paid their full auto insurance premiums
until the companies were finally shamed into giving some modest prospective
relief; and (b) even more importantly, to shed thousands of full-time,
long-term employees -- a demonstrably fixed and fully-loaded cost -- in
favor of adopting a variable-cost approach, where peak demands for additional
manpower would be met by third party vendors.
Many of these very traditional corporations took pride in, and
regularly advertised themselves, as lifetime employers of generations of
families in their local communities, even as new technologies made multiple
efficiencies and increased per-employee productivity possible. As the gig
economy with its variable and on-demand charms loomed larger and larger across
many industries, insurers as one example saw no way to effect savings and
improvements in their own bottom lines other than through painfully slow
attrition. These semi-societal and "political" limitations were
eliminated by the pandemic. What's already obvious is that, not only is
there no rush to rehire, but there's also little
rationale or desire to do so, for a variety of good reasons.
Regular Retail is History
Covid-19 didn't kill luxury retail, it was just the last nail in the colossal coffin. Michigan
Avenue, Madison Avenue, Rodeo Drive, Bal Harbour - it doesn't matter - they're
coming for all of you. It's a deadly combination of three C's: choice
(the joy of infinite online inventory); convenience (the ease of never leaving
home to shop for anything); and crime (the rampant looting of luxury stores by
growing crowds of teenage gangbangers and professional crews of thieves). The
cities can't seem to stop it, the merchants themselves are doing little or
nothing, and you have to be nuts to go hunting for Hermes when you're taking
your life in your hands.
JIT Means Right Around the Corner
"Just in time" inventory and parts delivery programs
don't work that well when your supply chain starts halfway across the world and
your shipments are sitting offshore in a massive traffic jam while the shippers
and other port gougers keep raising your fees and even have the gall to charge
you for storage. Going forward, we're gonna see a whole new emphasis on
redundancy and resilience, with critical materials of all kinds localized,
backed up, and readily available in real time. Parking garages, office
buildings, and big box stores will all be reimagined as hyper-local warehouses
for Amazon, Walmart, Costco and Sam's Club. If you don't have some leeway and slack built into your
systems, and you somehow managed to survive this go-round, you won't
be around long in the next installment.
Long -Term Leases Are for Losers
Landlords, by and large, were another group that took full
advantage of the pandemic for as long as possible. They were happy to accept
PPP monies and blame their lenders for not making concessions and deferrals for
them. At the same time, they were slow as molasses in providing any relief or
givebacks to their struggling tenants. But now, because we're closing in on two
years of the virus and many leases whose end dates once looked fairly distant
are now rolling around for renewal discussions, the many tenants with
reasonably sharp memories of the shabby treatment they received will have their
innings at bat. This is going to be brutal for the commercial real estate
business.
One of my good friends recently told me that the best possible
lease for any business is a one-year deal with a dozen or so annual options to
renew or walk away. With the continued uncertainty surrounding the economy and
the virus and with the clear and obvious need for so many firms to shrink their
physical footprints as their workforce becomes increasingly hybrid or largely
remote, the nature of the new negotiations is going to be radically different.
That starts with a laundry list of new demands for people who
want to bring their pets to work. Then, add
requests for enhanced onsite childcare provisions, along with the extensive
insurance, safety, security and even air handling issues relating to both kids
and dogs, and you can imagine the bumpy and costly road ahead for owners and
managers. To compete, landlords will also need to figure out how to design
their spaces with new features and amenities in ways that will convince
business owners that their location will help entice existing employees back
and continually attract new talent as well.
The landlord's traditional incentives have always been about
absorbing the costs of new space buildouts and leasehold improvements on the
front end and recouping them over the back end of the lease. Today, the math
and the mechanics are completely upside down because so many tenants want less
space and don't want to build out anything. Instead, they want lower rents and
other CAM concessions, and they will be insisting on more flexibility in terms
of lease terms, options and outs. We can expect to see a rapid growth in
"spec suites" for tenants to occupy on an "as-is"
short-term basis while they see where the world ends up. Rent rolls, which are
crucial to the landlords' ability to secure and renew financing, are going to
be considerably shorter, thinner and less substantial than ever in the past.
.
DEC 21, 2021
The
opinions expressed here by Inc.com columnists are their own, not those of
Inc.com.
