The COVID-19 pandemic won’t last forever, but many of the changes it’s made to the business landscape will. We’ve seen household names like JCPenney, Gold's Gym and Neiman Marcus file for bankruptcy, while companies like DoorDash and Zoom have rocketed to unprecedented levels of success.
But for every crisis, there’s an opportunity, and no one is better at spotting those opportunities than Dave Knox. The former CMO, brand marketer, VC has worked across both the Fortune 500 and startup world, giving him unique insights into the way markets evolve. He joined Lob recently to present some key takeaways from his new book, Predicting the Turn, to share insights into how to benefit from the historical changes occurring in the business world.
The disruption caused by COVID-19 has given a lot of creative people time to think, and spot opportunities. This has already led to a massive increase in new business applications, as users spot flaws in the online tools we’ve all come to rely on during the pandemic. This boom in applications has already led to transformation, as entrepreneurs seek out ways to make the most of the current situation and spot new opportunities in the current crisis.
While in many ways the current situation is unprecedented, economic instability has long been a driver of progress.
“50 percent of Fortune 500 companies were founded during a recession or bear stock market,” said Knox, “and not just the modern ones.” From GE (founded during the Panic of 1890) to Walt Disney (great depression) to modern companies like Salesforce and Square, many of the most prosperous companies in the world were founded in reaction to adverse economic conditions.
While the process is still ongoing, Knox points out that coronavirus “has already created winners and losers in the online economy.”
“If you look at the very, very competitive space of food delivery on March1st, a lot of those companies were in pretty even races across the board…. It was kind of a coin toss. Would it be DoorDash or Uber Eats or GrubHub or Postmates? Well, what you've seen is DoorDash has run away with it and has more than doubled their business and taken a lead in that industry that was never before.”
The challenge — whether you’re an investor or an entrepreneur — is to anticipate which companies, technologies or strategies will emerge victorious, and which will not, a process Dave Knox calls “predicting the turn.”
Knox borrowed the concept of “predicting the turn” from poker games such as Texas Hold’em. In these games, players have to make their hand from a combination of shared community cards and their own cards, which only they can see. The turn in Texas Hold’em is when the fourth community card is played.
At that point players have two cards in their hands and four on the table, and can use any combination of five cards to make the best hand possible. There’s still a degree of uncertainty, however players have enough information to take an educated guess as to how strong their hand is. Because of this, the turn is a major decision point in the game, where players have to choose what they’re willing to bet on the outcome.
Knox uses this metaphor to reflect the fact that in business, like poker, there’s always an element of luck. There are things everyone can see (like community cards) and individual insights and opportunities that only a particular entrepreneur may have. While no move guarantees a win, those with the most chance of success are the business leaders who understand the probabilities, and are able to use them to anticipate the most likely outcome.
One excellent source of information for predicting the flop is looking at what startups are already doing. Knox calls startups as “the canary in the coal mine,” and sees them as a type of R&D, which can inform observers of what the future might look like.
“They provide a clear picture of a competitive landscape. They identify validated consumer interests and trends, and they reveal market opportunities to us.”
Unlike the historical canary, which was used to warn miners of dangerous carbon monoxide (if the bird became sick or died, the miners would know they had to leave immediately), startups don’t just warn of danger, but also provide inspiration and evidence of opportunities.
For example, a dental startup offering teeth straightening recently became very successful, in part because of the way they used direct mail. By personalizing communication, they were able to differentiate themselves from the expensive and impersonal competition. One way they did this was to ask people why they were getting their teeth straightened, and use that information to follow up with customers — e.g. by including wedding pictures in follow up mailings if the customer indicated they were getting their teeth straightened for an upcoming wedding.
This is a great data point for startups, because it shows the importance of direct mail personalization in the new, online economy. Companies in radically different industries can use this data point to deduce that it may be worth investing in direct mail personalization, as a way to nurture customer relationships.
Another important tool in predicting the flop is looking at the way small changes can create a multiplying force, resulting in huge second order consequences. Knox uses an analogy involving dominoes, originally used by nuclear physicist Lauren Whitehead to explain how nuclear chain reactions work.
“What he found was that a domino could knock down another domino, that was about one and a half times its size. [At this rate] it would take twenty nine dominoes to knock down the Empire State Building.”
Much like the dominoes, the changes we’ve had to undertake to cope with COVID-19 have had rapidly multiplying effects. For example, the barriers to living our lives online have been almost completely removed. Although the technology has existed for some time to do telemedicine, remote business meetings and other online activities, a variety of factors previously limited adoptions of these practices, until coronavirus made it necessary. At the same time, COVID-19 has eliminated activities that businesses rely on for advertising, such as sporting events.
Companies like Verizon have gotten great results by looking at how these changes multiply to create second order effects. Before COVID-19 Verizon was a major sports sponsor and TV advertiser. While they’ve always used direct mail, its applications were somewhat limited in the past due to the long lead times and low agility of their legacy direct mail system.
In response to COVID-19, Verizon partnered with Lob to upgrade their direct mail, enabling them to adapt to the new conditions imposed by the virus:
“They're now able to seize opportunities and make those changes on the fly, which is having a dramatic impact of how they think about the agility around these second order consequences.”
Now that you have insight into the changes multiplying through society, you need to use that insight to predict the long-term changes in the market. That’s where market intelligence comes in. David Knox calls market intelligence “the so what?” of predicting the turn.
“What do you do with all of this and how do you apply it? It's about developing a sense of how and when the future will happen and sharing that foresight with key stakeholders throughout the corporation. It's the ability to see the future of your industry before it happens.”
How do you do that? Part of it is through taking a global view of the changes happening in society. Knox sees this era as equivalent to the rise of the interstate half a century ago. Much like the new interstate spawned new roads, businesses and attractions, the new phase of the online economy will lead to a fundamentally new order of things that will last for decades.
Knox sees the way Booking.com uses direct mail as an inspiration in this regard. With the movement of life to online, they saw a rise in fake listings to scam unwary consumers. In response to this, they turned to Lob, and began sending customers a physical address confirmation during sign up, as a way to confirm that the property was real. By understanding a second-order consequence of life online (the rise in fake addresses), they were able to improve customer satisfaction, and adapt to the new economic order forming under COVID-19.
“They saw this ninety seven percent drop in fake properties going live because of this verification. And they also saw greater customer satisfaction as those fake listings.”
For more insight into predicting the turn, check out our webinar with Dave Knox.