In my previous article, I wrote about spotting real growth markets and the supporting trends that kick start, accelerate, or cement them.
However, does it mean that all companies will grow in that growing market?
What about those companies in declining markets or stable markets?
If you are a business in a declining market, does it mean you are doomed?
That's what I'm going to explore in this article.
These are unprecedented times for businesses because we are experiencing VUCA (Volatile, Uncertainty, Complexity, Ambiguity) conditions, which hinders good planning and decision making, at a time when they are most critical. Yet, never underestimate the human spirit and our ability to pivot, adapt, and change.
Firstly, let's set some kind of time frame to give us a contextual background. In this slide below, we use Tom Pueyo terminology of the Hammer and the Dance:
The lockdown phase (~3months).
The transition phase, with restrictions removed except for international travel and large gatherings (~1-2years).
The new normal, once all restrictions have been lifted and a vaccine or control mechanism is in place (~2-5years).
During Phase 1 lockdown period, there has been 4 different types of demand/revenue experiences (as depicted in the slide below)
1) Balloon (high growth >50%)
2) Surge (slight growth <30%)
3) Contract (slight contract <30%)
4) Collapse (high contract >50%)
It is important to understand the underlying market dynamics of each of these companies whether it is in a growing, stable, or declining market after Covid19 experiences with a view of asking what it would look like in Phase 2 and Phase 3.
It's also important to note the demand in Phase 1 & 2 can be deceiving, like the volatility of share prices in the stock market, the fluctuations can become noisy distractions.
What you need to be clear about, is if the market is trending up, down or stable. The noise might give you a false sense of security that leads to inaction or unpreparedness for rapidly changing market shifts. This will help influence what key strategic bold moves you need to make now before it hits you like a tsunami.
Let's walk through 8 examples so that you get a sense of what I mean.
1A) Accelerate: Balloon Demand in a growing market (see Slide) e.g. Meal Kit Delivery
Take meal kit delivery companies like Hello Fresh, Marley Spoons etc, there was already a growing trend before Covid. During lockdown, the demand ballooned, with the need to cook at home, eat healthily, and with convenience of delivery, accelerating the trend. However, during Phase 2 with ease of restrictions, everyone will be craving to eat out instead of cooking another home cooked meal, therefore leading to a fall in demand and then a leveling off. Eventually, given that it's resting on a longer-term trend and it is a real growth market, the demand will be trending upwards as the market grows. Interestingly, this meal kit startup was funded for $41M in April 2020, so these companies will be looking at accelerating their growth.
This is a scenario where a rising tide lifts all boats. (see my article that explains how to spot real growth markets)
1B) Spike: Balloon Demand in a stable market (see Slide) e.g. Cleaning Products
Everyone can see the empty shelves of cleaning products, but if you fast forward to Phase 3, do you think the overall market is a growing one? Or is it a situational spike, albeit an elongated one. People's habits of cleaning will eventually transition back to their pre-Covid habits, as the underlying market is a saturated red ocean. What we are seeing is actually a spike in demand - most people are grabbing any cleaning products they can find instead of choosing either a fragrant one or one that is gentle on hands. Toilet paper is another example.
Again, the rising tide lifts all boats.
2A) Growth: Surge Demand in a growing market (see Slide above) e.g. Online Learning
Demand surges during lockdown have seen providers scramble to provide online learning solutions, catering to the captive audiences born out of necessities or boredom. It has created the tailwind that pushed the industry to question how learning and education can be delivered partially or fully online. It has been a growing trend that is likely to kick start deeper structural industry changes over the next few years and create greater demand for online learning. Therefore, it will continue to be a growth market with a gentler slope at first while the industry goes through a transformation.
2B) Adjustment: Surge Demand in a stable market (see Slide above) e.g. Virtual Summit
If you provide virtual summit conferences, I'm sure you experienced a surge in demand, as people in isolation scrambled to connect and event companies pivoted digitally to ensure engagement. However, I would contest that most people would prefer face to face networking conferences to build connections and socialise. Therefore, there is probably a stronger desire post Covid to connect at face to face conferences, instead of virtual summits. So, a demand adjustment, instead of real growth is where I think the virtual summit market lies.
3A) Restricted: Contract Demand in a stable market (see slide above) e.g. Niche, Theme Restaurant
Due to imposed restrictions, restaurant businesses have been impacted significantly during shutdowns, but they are still able to operate for takeaways and online delivery, so it's not a full collapse. When restrictions are eased during Phase 2 and 3, the restaurants that fall under "essential budget spend" for consumers and have a niche position with loyal customers - they will see demand recover to what it was before as it is a relatively stable market. One example, is the Organic Vegan cafe in the neighborhood that serves value, tasty authentic vegan food with a distinct following.
3B) Shifted: Contract Demand in a declining market (see slide above) e.g. Fine-Dining restaurant
While in the same industry, fine dining restaurants are impacted by different factors. With the restrictions easing in Phase 2, we might see a flurry of customers rush to experience fine dining again, the overall market itself will probably see a decline in demand as the consumers move towards essential cautious spending to stretch out their dollar until the economy rebounds.
4) Hibernate: Collapse Demand in a growing market (see slide above) e.g. Adventure travel
The travel industry has faced a severe collapse of demand, with the restrictions not only in Phase 1, but going into Phase 2 with hangover effects into Phase 3. The adventure travel category has been a growing market pre-Covid. As the restrictions ease and recovery begins, and the demand begins to resume, the market will continue trending up - especially among customers who've experienced cabin fever during lockdown. This will only add to the existing trend towards authentic travel experiences. Therefore the market will continue its upward trend as demand resumes although it might take some time to get back to the same volume pre-Covid.
4) Shrunk: Collapse Demand in a declining market (see slide above) e.g. Luxury travel
However, it's close cousin, the luxury travel category, will face headwinds in the aftermath of the economic contraction and the ensuing loss of overall wealth. As the restriction ease and transition to new normal, the market will continue to decline for a while before the economic growth resume and wealth and discretionary spend pick back up to pre-Covid levels.
I have provided 8 examples to show that it is important not to be misled by the Phase 1 experiences of demand, either with a false sense of security or a sense of doom.
Growth is possible regardless of Market Volatility
Regardless of market volatility, growth is still possible. The key is understanding the market dynamics relating to your business. With a given time frame, you need to start thinking of what you need to do DIFFERENTLY now as we emerge from Phase 1 (see slide below).
If you are in an Accelerate or Growth (growing) markets, you can grow faster than the market.
If you are in restricted or Spike (stable) markets, you can grow your market share.
If you are in Shifted or Shrunk (declining) markets, you can grow by consolidating within the market and create new growth engines.
Not only is growth possible, but it is also the only way to navigate out of this crisis. In order to grow regardless of your market volatility, you have to do 3 things:
1) Leverage your Endowment
2) Ride the Trends
3) Make Strategic Big Moves
Given that the chaos will present opportunities for a reordering of your market unless you do something different and take some big bets, you will not outmaneuver the market dynamics.
The Sobering Fact
There is a large sharp economic contraction with knock-on effects on spending for the next few years. The recovery will depend on the individual country's response over the next year. There will be less spending to go around, money and credit will be restricted and selective, and speed at which the money circulates will be slower.
This is the sobering fact:
If you are an SME, there will be only 60% of you left standing around in 1-2 years time.
The only chance you have is to move fast - aim to grow and thrive. The worst response is to hunker down and wait to see how the market plays out; or assume the market will resume to pre-Covid conditions.
The game has changed, the only question is by how much and how fast, depending on the market you are in.
Business as usual will not be nearly enough: the game has changed too much.
- McKinsey Insights May 2020: From Surviving to thriving
The ones who emerge from surviving to thriving will be those who double down, and take calculated strategic bold moves. They'll be agile and adaptive, able to leverage the opportunities presented amid the market chaos, to level up and grow.
Unless you take an offensive approach, you will be stuck in the past using yesterday's logic. In this VUCA (Volatile, Uncertain, Complex, Ambiguous) times, it's a natural human response to be cautious or wait and see, but you must act counterintuitively. You need to lean in, embrace your ignorance, gain understanding and clarity - make some key bets and strategic moves now, to emerge stronger and thrive on the other side.
If you aim high, you give yourself a good chance to land somewhere safe, if you try to play it safe, you might not be left standing.
The greatest danger in times of turbulence is not the turbulence itself, but to act with yesterday's logic.
- Peter Drucker, Managing in Turbulence Times.
As we emerge from Phase 1, it's time to shift your VUCA world and dig deeper to gain understanding and clarity and set a bigger vision but with Agile mindset and practices.
In summary, these are the key takeaway:
1) Don't be fooled by the demand experiences in Phase 1
2) Understand your underlying market dynamics in the 3 Phases
3) Regardless of market volatility, growth is possible
4) Aim high, make bold strategic moves - stay agile in execution,
5) Business As Usual is no longer enough as we emerge into the new world order
If you have been inspired by this article and found it helpful to your business decision making; please comment or share your experiences to inspire others to take action.
You don't drown by falling in the water; you drown by staying there.
- Edwin Louis Cole
(To find out how this analysis applies to your business and help identify big bets and strategive moves you need to make, please reach out on LinkedIn or my website. Thanks to Andrew Thompson for editorial support!)