The coronavirus pandemic raging across the world has taken a huge toll on global lives and economies. Already it is being seen as the most consequential global crisis since the Second World War. To date, the pandemic has forced countries around the world to take unprecedented measures ranging from effectively shutting down their borders shut, quarantining millions, and even closing down workplaces and schools. The challenges that we face today transcend industries and even national borders.
As the number of confirmed cases is poised to surpass 11 million people soon, the impact of the pandemic has been extensive. The crisis is causing the biggest and swiftest decline in international businesses and economies in modern history. Current forecasts estimate for up to a 32% decline in global merchandise trade, a 40% reduction in global foreign direct investment, and an 80% drop in international airline travels. The volume of global goods exports in 2020 could also fall to a level last seen in the mid-2000s.
Undoubtedly, all businesses have been tremendously affected by the coronavirus. The pandemic has become the biggest economic shock as the stock markets had their worst quarter in 30 years. It is estimated that the coronavirus could end up inflicting up to $12.5 trillion in global losses, with many countries positioned to fall into deep recessions and downturns.
Whilst global economic downturns and recessions are now seemingly unavoidable, the pressing question at hand is, once the lock-downs are over, what will the future look like for the entrepreneur?
The answer is that entrepreneurship will certainly not return to what it was. That’s because unlike any other crises that we have faced in recent history, this pandemic is novel in the sense that it has a directly transformative effect. Though the phrase “new normal” has been thrown around a lot lately, in many ways it is something of a misnomer because as a result of the pandemic, things are going to be very far from normal.
Indeed, our research indicates that there have been broad 3 fundamental transformations that have been effectively brought on by this virus as far as it applies to the business landscape which one would need to understand to place the future of entrepreneurship into a better perspective and appreciate the uniqueness of the pandemic.
Market Consumption Transformation
Firstly, consumers and market behaviour have been forced to transform almost effectively overnight. Market consumption is no longer the same. Unlike other economic crises, the pandemic is a serious and direct human health threat. This has created a universally shared culture of deep-rooted fear which has globally impacted people’s behaviour. Consumers are spending much less and have become much more apprehensive. However, more importantly, they now shoulder additional considerations that previously never existed when contemplating the offerings of the market. People now look for safer ways to enjoy the market whilst in many countries, there is no choice given how governments have implemented restrictions that have forced them to modify their behaviour.
As a result, the biggest change we are consistently observing lies with the rise of digital consumption. Where due to the factors of necessity, convenience, accessibility, and security, consumers had to resort to the digital economy. From this context, the pandemic has overdriven the wider emergence of the digital market. It has mostly digitized all economies around the world to an even larger degree than before at an unprecedented level.
Business Operation Transformation
Secondly, the way businesses operate has been forced to transform. First of all, the restrictions, lockdowns, and distancing measures have forced companies to change the way they operate. So to operate, businesses had to change the way they work and explore new ways of running such as remote working or other new digital work technologies that allow operations to continue. This has fundamentally changed the processes and culture of a business.
More significantly, the global supply chain network of the world has been completely disrupted. Whereas before this, globalization was growing ever stronger, and more often than not, we worked with suppliers and partners all around the world, all of a sudden with the pandemic, we have been locked out effectively. For many businesses that are dependent on the broad supply chain network, they find themselves out of operation and have to resort to replanning the entire companies’ supply chain and in many instances, even value chain. From this context, we have seen the rise of automation, localization, and also more broadly, decentralization.
Capital Flow Transformation
Thirdly, we have also seen fundamental transformations in business finance and the capital flow of markets globally. Naturally, the capital flow has been stunted as investor confidence has been deeply shaken and foreign direct investments have also seen significant global declines. This understandable as the global environment is full of doubt, uncertainty, and fear, with unpredictable developments occurring almost seemingly every week. Funding has been cut short for many businesses.
In many industries and countries, it has even dried up. The culture of investing has changed, as investors are now very wary and bearish, whilst others have started to opt for an investment focus set more on strong business fundamentals, rather than speculation and risk that has come much to define entrepreneurship for the past era. As such we have seen a great dip in overall venture capital financing and startup financing during this period. Consequently, a lot of businesses are out of financial fuel, especially entrepreneurial ventures.
Therefore it’s evident that the pandemic has radically disrupted every element of a business. It is not just another downturn of the business cycle, but a total shakeup of the world’s economic order. Perhaps what is more notable is that it is growingly clear that these changes we have seen are likely to be more permanent structural changes in the way we live, work, and consume going forward.
Permanent Structural Changes
Distinctively, many of these transformations that we see in the global market landscape such as the rise of digital consumption, business digitization, internet adoption, supply chain transformation, decentralization, automation, to name a few, are not technically in themselves new changes that were discovered or born out of this pandemic. Instead, they have been a growing trend that has already been under development over the last few years. These developments constitute an inevitable progression of our economic development according to analysts as representing the next natural stage of our industrial development. This is because these developments present more convenient, valuable, efficient, and forward-facing ways of living our lives and interacting in our market economies.
What is rather unexpected is that whereas we were originally expecting these transformations to happen in the next few years, the pandemic has amplified these inevitable developments and sped up their progression and adoption in our society today. The permanent nature of these changes we are witnessing in the pandemic can be easily understood and appreciated. Naturally, if we are becoming used to such developments during the pandemic such as for example internet consumption, virtual education, or remote working, how can we ever see ourselves going back to the previous ways? That’s why the pandemic is quickly becoming pivotal in ultimately moving our societies to their next levels of development, opening the way for greater innovation and entrepreneurship.
That’s why the future of entrepreneurship is inevitably different, filled with opportunities and challenges. Different winners and different losers, depending on which entrepreneurs can successfully seize these opportunities presented by the new market landscape.
Winners and Losers Of Pandemic
At present and amid the pandemic, we are already witnessing this. There have been clear winners and losers in terms of how well certain business models fit the realities and demands of the new market. Going sector-wise, we are also seeing immense growth in Food: from groceries, food deliveries. Ecommerce: from online retail platforms and marketplaces to online stores of various sorts. Digital Entertainment: from gaming to streaming on-demand to virtual reality. Online Media: from digital publications to online content creation. Education: from virtual classrooms to online cooking classes. Fintech: from contact-less payment technologies to remote banking services. Logistics: from deliveries to technology-enabled localized transport networks. Healthcare: from pharmaceuticals to telemedicine. Working technologies: from video conferencing to remote working technologies. Whereas the current losers struggling with their business models range from physical retail to transport to restaurants to air travel, oil trading, hospitality, tourism, and real estate. Many of which are currently struggling to stay afloat or even recover in this market reality.
So what does all this mean exactly for entrepreneurship going forward? Does it mean that one has to be in one of these industries to succeed? What about those entrepreneurs that are not in these industries?
Problem Solving Covid 19 As An Entrepreneur
We have to remember that all entrepreneurs are, at heart, problem solvers. It is the very essence of an entrepreneur, to be perceptive in identifying market realities in ways that others can’t, to discover emerging needs and gaps, and to be creative and innovative in realizing a product or service for the market that meets these needs or gaps. In the fight against the pandemic and also in the emergence of new market realities, the essence of entrepreneurship does not change, no matter which industry one might be in.
Now more so than ever, entrepreneurs have to take a lead role in developing pressing and creative solutions. In times of crisis, our research has shown that successful entrepreneurs are fulfilling the important roles of providing needed goods and services with their business in creative ways and creating new or re-establishing value networks that have been disrupted by affected industries. There are many case studies we can easily witness how many entrepreneurs have successfully tapped into ingenuity despite being in adversely affected industries.
For example some in the deeply affected restaurant business, some have gone down the route of direct selling and shipping their unprepared and underutilized food supplies as easy home preparation kits since they are not able to operate their restaurants, with examples such as My Burger Lab or Din Tai Fung to great effect. While others have rented trucks to operate mobile drive-through food joints close to people’s homes such as Canlis from Seattle. Whereas Streetify in retail has been able to recreate an entire virtual high street of famous landmark locations with true-to-life positioned stores to work with retailers to bring the same retail locations and offerings to users online allowing them to browse in the same sense as if they were high street shopping.
Process of Future Entrepreneurship
How does all this translate exactly to what future entrepreneurs must do to overcome the challenges and seize on the opportunities presented by the pandemic? What would be the action plan? In our research, we believe there are essentially 3 core steps that define successful entrepreneurship post-pandemic.
Firstly, entrepreneurs must immediately focus on the survivability of their startups. As mentioned earlier, no matter which industry they are in, the entire market landscape has transformed, society has changed and all business models are more or less disrupted. Many aspects of the pre-existing business models might be outdated or even obsolete. Generally, revenue might have already been negatively affected, funding may have become scarce and within this context, many cost-structures are no longer justified. The first step is to ensure that the entrepreneur builds an effective runway for the company that is aligned with the market realities of today. They need an updated lifeboat strategy. At this stage, entrepreneurs should focus on cost-cutting measures, revisiting their cost structures. Our research has shown statistically, the right path forward is to develop a leaner model of operation, and as this is a widespread trend that can be seen across all industries and company sizes. From lay-offs to the closing of certain disrupted divisions; while for some, it may even involve business hibernation; putting their entire operation on hold, until they can find a realistic way to control their business’ burn-rate and extend their runway. The key is to realize that the cost of operating may jeopardize the entire survival of the business because of market disruptions, and being in a survivable position is paramount before any strategic consideration.
Secondly, all entrepreneurs need to reexamine their markets, and their business’s fit into the market. Since the entire market environment has transformed, their business may no longer be aligned to the market in the same way as it did before. It may be that their customers, their preferences and predispositions have changed entirely, and what was once a value proposition offered by their business, is now no longer considered valuable at all due to the current landscape. The product and services may have become misaligned with the current market need. One can of course think of many examples of this being the case. Entrepreneurs need to carefully and critically study their target markets and question whether the solutions they are offering still meet the needs of the market. They might have to go back to the drawing board and come up with an entirely new value proposition.
On the other hand, the value proposition may intrinsically remain intact, but the market change lies in disruptions to their business’s value chain, for example, the marketing, distribution, and access of their goods and services. Entrepreneurs will also need to critically re-examine how they are going to distribute and market their offerings within a newly updated market context. Previous channels may no longer be viable, for example, trade shows, physical events; whereas other greater channels may begin appearing, such as those found online. Entrepreneurs might need to develop entirely new value chains.
Thirdly, once entrepreneurs can survive and rediscover the new market realities and conceptualize new value propositions, they have to focus on building new organizational capabilities that will allow them to realize their new value propositions and positions in the market. As it stands, most organizations currently possess operating models that were built for a market landscape that no longer exists. Some of the required capabilities to allow organizations to capture value today and operate efficiently in the current market landscape may be non-existent or underdeveloped. One can think of business digitization, remote working, or a redesign of their supply chain such as automation, localization as primary examples. Within this context, entrepreneurs will need to invest, develop new resources and secure new partners to build these new core capabilities, only when they do that will they be able to operate efficiently and realize their objectives in the new market.
Therefore taking into account the above 3 steps, future entrepreneurs do not necessarily have to be in the aforementioned golden industries to succeed but rather if they wish to gain a competitive advantage in the aftermath of this crisis, they can only do so if they can become competent and agile in re-purposing their organization such that their businesses are relevant to the new economic and social reality. They will do well if they can critically realize and creatively capitalize on the transformed mindsets, attitudes, perceptions, and behaviors of customers and consumers in the new market reality. This means rethinking business, product, and process innovations but also thinking about what sort of value can be added by their businesses to society.
This is really what will come to define future entrepreneurship in a post-pandemic economy.
Trends of Future Entrepreneurship
Going forward, our research shows several key trends of Asian entrepreneurship which will become important.
If there is a single takeaway from the recent crises, it is the importance of having a well-understood disaster recovery and business continuity plan in place. One would think such plans would only come in the realm of public policy and applying mainly to earthquakes or floods or nuclear disasters but the truth is that a pandemic like the coronavirus can also be as disruptive as any natural disaster. The pandemic highlights the unpredictability of market developments and the importance of building resilience structures into businesses to account for weathering through all contingencies whether they are planned or unplanned. Companies at all times need to have a sound business continuity plans in place to prepare for all contingencies, as we have seen with the pandemic anything can happen which can deeply affect business, entrepreneurs cannot just act on the going-concern principle alone.
We will start to rethink globalization after this pandemic. The world is emerging from a long period where globalisation was previously regarded as being good for all sectors of society. Now that we realise how globalisation can carry certain societal risks and how fragile the global supply chains are and how easily they can be disrupted when they are so interconnected, questions about globalisation will further grow. The low-cost model where manufacturing is widely outsourced to developing countries be critically questioned. The reshoring of that manufacturing back to the home country might be on the minds of many entrepreneurs with greater diversification of production. Although it is unlikely that global trade will disappear, companies will certainly look very differently at how to reorganise their supply chains and their international activities. Emerging considerations such as the robustness of supply chains might take priority over purely a consideration of cost advantage. This will have a major impact on other Asian countries that have benefited from globalisation.
This pandemic has allowed us to repurpose the value of entrepreneurship itself. From this pandemic, we can now investigate how entrepreneurs can take on an even greater role to help communities across the globe solve socio-economic problems while being true to market forces. Often, such systemic transformations of purpose require collective intent, this is something that is yet infrequent in business communities around the world. However, the pandemic has abruptly altered this fact in creating the necessary conditions for this collective intent. Currently, entrepreneurs around the world are taking on a social entrepreneurship role to help fight this pandemic. For example, cosmetic companies have altered productions to make sanitisers, fashion companies have gone to produce hospital gowns, and PPE, automotive manufacturers have assisted in producing ventilators whilst online businesses are working to help other traditional businesses digitize. It is anticipated there will be a bigger shift and focus on sustainability and CSR initiatives, going forward.
In Asia, we have previously seen much capital allocation in traditional sectors. Sectors with well established conventional business models. Over the last decade, our research has shown that 80 percent of investments are concentrated in traditional sectors as manufacturing, energy, trade, and financial services. Only 20 percent of invested capital went into more innovative and startup businesses. However, with the pandemic highlighting the value of innovative startups, we can also expect a shift in the attitude of institutional investors eventually in the long run. In the short run, we can still expect due to the volatility of global markets, investor sentiments will still be wavy, and funding may still be very very difficult to secure.
In the past, many Asian businesses and institutions employed technology in an ancillary way, where it mainly played a supporting role. This is reflected in terms of structural investments in technology as well as the position technology occupied in many business models. The pandemic has critically modified technology’s place, going forward, technology will take on an even more active role and become the driver of business models.
Today as we consider how much havoc has been caused by the pandemic, we should recognize this pandemic also as an unmistakable moment of change for entrepreneurship in our history. For the first time more than ever, entrepreneurship will have a pivotal role and responsibility in building a better world going forward, how we go about it, depends on entrepreneurial we can truly be.
About the Author
This article was written by Melvin Poh, founder of The Asian Entrepreneur. It was a written report that accompanies a speech he recently gave at a conference for Enterprise Asia.