Kaihan Krippendorff: How to Build Your COVID Strategy in Four Steps

This is a guest blog post authored by Kaihan Krippendorff, renowned business strategist, best-selling author of Outthink the Competition, and popular Fast Company blogger.

COVID has accelerated key trends that have already been working to reinvent your industry for several years, including:

• The adoption of digital technologies like artificial intelligence, data analytics, and Internet of Things
• Distrust of large brands
• New customer preferences
• Digital and platform business models

The future we were headed for is now reaching us earlier. The future is arriving years ahead of schedule.

Such times of change always separate thinkers from Outthinkers. Thinkers cling to past practices. Outthinkers lean into the future. Thinkers fall behind. Outthinkers race ahead.

The question is, which will you choose to be?

To help you understand the choice COVID has placed in your path, I conducted an analysis of 96 industries, looking at about 400 data points, to help assess the risks and opportunities each industry faces.

Your burn rate and reserves

Discussions in the news and journals of COVID’s impact have focused primarily on the extent to which COVID will impact demand. Will people return to movie theaters or cruise ships? Will people continue to shop online? Will they return to working in offices?

A critical element has been missing from the conversation – a factor that could make the entire discussion of what the post-COVID future might look like irrelevant.

Think of it this way. Every company is an airplane that has suddenly hit severe turbulence. Not knowing when it might end, the company navigates out of the turbulence by finding a new altitude. But as the winds batter the plane, pilots in the cockpit are furiously making calculations to assess their options. Two critical factors they must consider are: (1) how fast they are burning fuel and (2) how much fuel they have in reserves.

Companies with high profit margins effectively burn less fuel. Even if their margins may shrink due to COVID’s disruption, they can fuel their business longer in search of a new altitude. Similarly, companies with lots of cash and little debt have more options because, with their fuel tanks full, they can fly longer in search a new altitude.

Finding your safe altitude

COVID’s turbulence is not hitting all industries or companies the same. Indeed, many find themselves at an altitude that is not only safe, but that is giving them tailwinds. 

Game developers like Activision Blizzard, Electronic Arts, and Nintendo, for example, are experiencing record profits. Nintendo recently reported its annual profits had surged 41%, its highest record in nine years.

With everyone sanitizing, companies like Clorox and Reckitt Benckiser, which own the most popular sanitization brands, are soaring. Clorox, for example, recently reported a 15% rise in quarterly profits. Reckitt Benckiser (maker of Lysol and Dettol) reported a 14% rise.

With people en masse abandoning gyms for home workouts, Peloton – the maker of the popular digitally enabled stationary bike and app – clocked a 66% rise in revenue. Thanks to much of the world suddenly working remotely, Slack experienced an 80% leap in paid customers in the most recent quarter, and Zoom’s stock price has more than doubled since mid-March.

There is a safe altitude out there for your company. There is somewhere you can position your company in front of tailwinds.

But how much time do you have to find that magical altitude?

Assessing your timeline

My analysis provides insight into which companies and industries have a better chance of finding a safe altitude. Looking at the relative profit margins and balance sheet strength of the industries, we can see they fit into one of four categories:

1. Thrive industries enjoy both high margins and strong balance sheets. They have plenty of fuel to burn, and they burn relatively less fuel.
2. Alive industries may have weak balance sheets (less fuel reserves) but because they are profitable, they can, by making the right choices, navigate to safety or wait it out until the storm subsides.
3. Survive industries may have low margins but have the cash on hand to probably survive, in some form, either by redesigning their business models or carefully managing their reserves with the hope the turbulence clears.
4. Taking a dive industries are in trouble. They burn cash quickly (due to low profit margins) and they their cash reserves are low. They are most at risk of running out of fuel and taking a dive.

By my definition, only seven industries seem positioned to Thrive:

1. Healthcare Products
2. Information Services
3. Oil/Gas (Production and Exploration)
4. Real Estate (General/Diversified)
5. Semiconductor
6. Software (Entertainment)
7. Telecom Equipment

Twenty-one industries fit Alive:

1. Apparel
2. Bank (Money Center)
3. Banks (Regional)
4. Beverage (Soft)
5. Brokerage & Investment Banking
6. Cable TV
7. Drugs (Biotechnology)
8. Drugs (Pharmaceutical)
9. Financial Services (Non-bank & Insurance)
10. Green & Renewable Energy
11. Hotel/Gaming
12. Household Products
13. Investments & Asset Management
14. R.E.I.T.
15. Software (Internet)
16. Software (System & Application)
17. Telecom (Wireless)
18. Telecom Services
19. Tobacco
20. Transportation (Railroads)
21. Utility (Water)

Twenty-three industries have the balance sheet to Survive despite their lower margins:

1. Healthcare Information and Technology
2. Chemical (Specialty)
3. Coal & Related Energy
4. Diversified
5. Education
6. Electronics (Consumer & Office)
7. Electronics (General)
8. Engineering/Construction
9. Entertainment
10. Homebuilding
11. Insurance (General)
12. Insurance (Life)
13. Insurance (Prop/Cas.)
14. Metals & Mining
15. Oil/Gas (Integrated)
16. Oilfield Svcs/Equip.
17. Paper/Forest Products
18. Precious Metals
19. Reinsurance
20. Semiconductor Equipment
21. Shipbuilding & Marine
22. Shoe
23. Steel

And finally, 44 industries are facing the risk of Taking a Dive. It is no coincidence that these industries are experiencing high rates of bankruptcy.

1. Advertising
2. Aerospace/Defense
3. Air Transport
4. Auto & Truck
5. Auto Parts
6. Beverage (Alcoholic)
7. Broadcasting
8. Building Materials
9. Business & Consumer Services
10. Chemical (Basic)
11. Chemical (Diversified)
12. Computer Services
13. Computers/Peripherals
14. Construction Supplies
15. Electrical Equipment
16. Environmental & Waste Services
17. Farming/Agriculture
18. Food Processing
19. Food Wholesalers
20. Furniture/Home Furnishings
21. Healthcare Support Services
22. Hospitals/Healthcare Facilities
23. Machinery
24. Office Equipment & Services
25. Oil/Gas Distribution
26. Packaging & Container
27. Power
28. Publishing & Newspapers
29. Real Estate (Development)
30. Real Estate (Operations & Services)
31. Recreation
32. Restaurant/Dining
33. Retail (Automotive)
34. Retail (Building Supply)
35. Retail (Distributors)
36. Retail (General)
37. Retail (Grocery and Food)
38. Retail (Online)
39. Retail (Special Lines)
40. Rubber & Tires
41. Total Market (without Financials)
42. Transportation
43. Trucking
44. Utility (General)

Now, every industry has outliers. You may have the strongest balance sheet and highest margins of your peers thanks to your business model and strategy. But it helps to make an honest assessment of your starting point.

Four-step process to find your new altitude

To get your business through these turbulent times, follow this four-step process:

Step 1: Assess your burn rate (profit margins) and fuel level (balance sheet strength) to understand how much time you have to find a new altitude.

Step 2: Brainstorm strategies you might consider to define your new altitude. Ask yourself the following:

• What unique resources (your brand, reputation, relationship, know-how) do you have and what new ways might you think about monetizing them?
• Where are other players running not because of a rational assessment of the danger but instead because of crowd-think? These may reveal opportunities others are ignoring.
• Who else benefits if you thrive? Imagine coming out of COVID stronger. Then look around at who else would benefit from your success (customers, vendors, complementary products). This may reveal unexpected partnerships.
• Where can you make a strategic retreat? Rather than view exiting a business, market, or product as a failure, consider it a temporary, strategic retreat that allows you to invest more resources in an area in which you can win.

Step 3: Sort through your brainstormed ideas and identify the ones that (a) have a reasonable chance of success, (b) you can execute in a timely manner, and (c) do not burn more fuel than you can afford (again, considering your burn rate and reserves).

Step 4: Conduct some frugal experiments, build low-cost MVPs (minimum viable products), and test concepts quickly with potential customers. At this moment, time is a highly precious resource. Choosing frugal experiments that move you quickly into action, rather than spending time on drawn-out plans, will help you more quickly test the turbulence and headwinds of new altitudes.

Taking these four steps as soon as possible can help you soar to new heights while your competitors start to lose altitude.

Kaihan Krippendorff is committed to helping organizations and individuals thrive in today’s era of fast-paced disruptive technological change. He has insider knowledge of the world’s most innovative businesses through his popular Fast Company blog and is the best-selling author of Outthink the Competition. Known for his ability to turn difficult concepts into easy-to-understand ideas that drive meaningful outcomes and action, he is an internationally recognized thought-leader, battle-tested consultant, and sought-after keynote speaker on the topics of business strategy, growth, transformation, and innovation.

To learn more about Kaihan Krippendorff, visit his speaker page, call us at 1-800-speaker, or chat with a sales representative now.