As we settle into a coronavirus world, we face a greater degree of uncertainty than at any time in living memory. The next few quarters are a cipher we cannot read. We dread the coming months. We know they’ll be bad, but we have no idea how bad. The water we’re swimming through is black. We are thrashing in a pool without a bottom.
While we wait in shock for the virus tsunami to pass over, we turn to videoconferencing and chatting to bide our time and be sociable while also distant. Zoom gets big points here. The company scaled up its operations almost instantly—starting in January, when end-user video traffic began to spike in China and the rest of East Asia due to the growing pandemic—by leasing more virtual machines from the likes of Dell and Amazon. Video’s moment in the sun is now because finally we have both the need and the capacity.
The economics in favor of videoconferencing have always been overwhelming. It’s much cheaper to meet online than in person. Can you imagine the tab for a hundred people flying in from all over for face time in some garden spot like Half Moon Bay? And it’s not just the key one-hour all-up meeting. It’s days getting in and out of there. So, lots of expensive time and actual expenses. Versus one hour of elapsed time hooked up to a computer.
Collaboration Tools Have Improved Markedly in Recent Years
But quality has been the issue. Only expensive, captive systems from companies like Cisco Systems and Hewlett-Packard were good enough to use for large enterprises. Commonly available tools were of low quality. They seized up, dropped calls, generated artifacts, and had poor rendering and frame rates. But they got better with time, more bandwidth and better software.
As a result, last Friday, I got to participate in a conference that I would never have otherwise. David Kirkpatrick, who runs Techonomy, a smart technology journalism site (disclosure: I’ve published several articles there), had John Chambers, former longtime CEO of Cisco, on with more than a hundred guests, all calling in on Zoom.
The technology and beneficial economics made it possible both for me to access free top-tier content and for Kirkpatrick to provide it. This is the new model.
In a sea of click-oriented, half-baked journalism, Chambers produced a number of clear insights into the current situation. He hails from West Virginia, where aphorisms sprout like wild roses, and quite a few of his observations were delivered up as if they were cherished family nuggets at a Sunday sermon. Nonetheless, they were trenchant. His perspective included that of a former large-enterprise CEO but also of a closely involved investor in 18 early-stage technology companies.
Crisis Will Take Three to Five Quarters to Resolve
Chambers said the crisis will take at least three to five quarters to move through the system. Upon astute questioning by Kirkpatrick, Chambers clarified that “late fall” was the earliest any economic uptick would occur, and real recovery would likely not begin until sometime in early 2021.
He counseled that big decisions—layoffs, store closings, supplier rearrangements, financial restructuring—would have to be made by CEOs running companies of all sizes, but that they should not move immediately because, at the moment, the uncertainty is too great. “We’ll know a lot more in 30 to 45 days,” he said. “You’ll get more predictability … later in the summer.”
He admonished companies not to waste that 30 to 45 days but to assess the situation, to make clear plans that include handling the likely damage from the pandemic but also take into account other ongoing capital projects. He noted that at Cisco he “doubled down” during difficult periods, like the 1998 crash of the “Asian Tiger” economies. “Paint the picture on the other side. Deal with the things you’re already weak on,” Chambers said.
Once that plan is made (and settled, 45 days from now), execute quickly. Otherwise, he warned, “you exhaust everybody, your employees, your customers, your shareholders. Do it once, deeper than you think. Position for the future.”
Tough Decisions Still to Come for Business Leaders
Chambers described the current moment as “early innings” and advised business leaders to “hope for the best but plan for the worst,” noting that “leadership hasn’t made [the] tough decisions yet.”
“Companies are running out of cash,” he told us, praising the government for “moving faster than I’ve ever seen, the Fed as well, getting loans out there.” But, he warned, “the next quarter is going to be ugly.” Broadly, he is expecting many companies will see “50% declines in revenue. It’s just beginning to get stressful.”
A Zoom poll, taken on the spot, showed that the vast majority of the call participants (mostly tech journalists and analysts) thought that large enterprises were best insulated from the pandemic’s worst effects. Not so, Chambers countered. Yes, big companies have already drawn down their lines of credit and have a cushion for the immediate period ahead, but in 10 years, “40% won’t exist, and this will accelerate [their decline].” He is putting his money—figuratively and literally—on startups that can pivot faster and address the urgent and fundamental changes required for people to do business in the future.
He warned of the “worst decline in the next quarter in our lifetimes” and said that from a fiscal point of view, we have to “just get the patient out of the hospital,” spending the necessary money now to keep the economy from collapsing entirely, to “get people what they need” without letting politics prevent lifelines from being thrown as necessary. But then “don’t stay addicted to [the subsidies],” he said.
No. 1 Challenge: Unite This Country
“Let’s make this one united country,” Chambers dared listeners. This is “perhaps our biggest challenge ever,” but we “can win in as few as three or four quarters.” He expressed some optimism: “People respond more to a crisis. They are more inclusive. People take risks because they have no choice.”
He also said that many “companies will use this moment to make the transition to digital,” which was in the cards anyway but is now accelerating.
For me, an important takeaway is that most Americans still have yet to grasp how fundamental the change we are about to undergo is. The economy—already wound pretty tight with lots of excess debt and near gambling levels of speculation—is in for a big slide. If companies on Wall Street can expect half the revenue they got last year in the second quarter, then their stocks should be worth about half of what they were at the peak of the market just a few weeks ago. We’re not there yet. The Dow is off about 35% and the Nasdaq, 30%. We still have a way to go.
Roger L. Kay is President of Endpoint Technologies Associates, Inc., an independent technology market intelligence company, and a contributor to PUND-IT. This commentary originally appeared in Medium.