Great Depression 2020? (Part 2)

In a previous article, I shared a little history about the Great Depression of the 1930s and explained why the causes of the depression back then would be unlikely to repeat today.

However, in the time that I wrote the article and sent it out to you (perhaps a week lag), new economic data has emerged that wasn’t available when I wrote that article.

I made the case (that I still stand by) that a collapse of the consumer banking system (in the 1930s) and the investment banking system (in 2008) would not be reasons why our current economy would go into a depression.

However, I did not mean to imply that a depression wasn’t possible at all — just not for the same reasons as in prior downturns.

Here in the United States, new unemployment claims data has recently been released that the number of new people seeking unemployment benefits in a given week has been five to ten times higher than any other time in U.S. history. That is a staggering and unprecedented increase.

This new information warrants an update to my earlier writing.

While the financial systems don’t appear to be at risk of collapsing within this economy, it is possible to have an extremely severe recession and possibly even a depression if customer demand drops dramatically for an extended period of time.

To state the obvious, unemployed people with no income can’t buy things from businesses.

Businesses that have major declines in sales can’t afford to pay employees or buy from suppliers (who themselves have employees and their own suppliers to pay).

There’s very much an interdependency across all parties within an economy.

More important than what may or may not happen in the macroeconomy, the far more useful question to answer is, “What do you do about it?”

The answer is the same as it has been in every recession (only the sense of urgency and downside risk of failing is much greater).

If you’re one of the economic survivors (so far), it’s imperative that you do three things:

1. Figure out where the market is going;
2. Figure out how to get ahead of it;
3. Add value within your ecosystem.

I’ve written previously about finding the trends that emerge in a recession and riding them. So, I won’t belabor that point here.

Instead, I’ll focus on #2, how to get ahead of the trend, and #3, how to add value within your ecosystem.

In most economic transitions, what is valued in the “new normal” differs from what was valued before. In many cases, businesses and individuals are initially mispositioned in terms of their market position, skills, or capabilities.

I’ve seen this pattern play out repeatedly over the past three decades — especially in the technology sector.

Even for people not in the tech sector, it’s useful to pay attention to the sector because of its unusually high business birth and death rate.

The technology sector is like its own economy with all kinds of unexpected shocks, surprises, and changes in trends. When you’re in such an unforgiving economy (sound familiar?), it’s useful to notice which companies survive and which do not. It is very… instructive (if you’re willing to pay attention).

Before I was born, mainframe computers were the norm. I was a child when personal desktop computers were a new emerging trend. Many companies that couldn’t make the transition from mainframe to desktop computers died.

Years later, desktop computers were waning and laptop computers were becoming far more popular. Bigger, faster, and more powerful used to be how you’d compete in building a better desktop computer.

Then suddenly, the design parameters changed: lower weight, lower power consumption, and “good enough” performance became the new trend. Many established companies had difficulty with this concept.

Laptops gave way to untethered mobile devices and smartphones.

Desktop-installed software gave way to software in the cloud.

Computing used to only take place on computing devices. Now we have computers within thermostats, doorbells, light switches, and more. Now the internet isn’t just for people, but it’s for the “things” inside our home that can now talk to each other (the “Internet of Things”).

What has always been true and will continue to be true in the technology economy is that, at some point, something changes and the list of winners versus losers shifts.

In the tech world, these changes are usually driven by some kind of technological breakthrough that wasn’t previously possible. In other words, the set of assumptions on which every decision was based had suddenly changed.

Now, as we turn back to the global economy, we have one simple shift that changes everything. The existence of the coronavirus. That simple fact has shut down entire industries and slowed down entire geographies.

If you’re trying to get ahead of the curve, knowing which industries have shut down is a little helpful, as you don’t want to devote time investing in a sector that’s currently frozen. What’s more useful than knowing which industries have been shut down is knowing which industries have not been shut down.

If you don’t have a job, don’t focus on which companies aren’t hiring. Focus on which companies are hiring.

If you run a company, don’t focus on which customer segments aren’t buying. Focus on which customer segments are still buying.

Psychologically, our instinct is to notice danger (this is good) so we know what to avoid. But, our tendency is to fixate on what’s not working, rather than to notice what is still working (or in this case, who is still working).

Here’s an example. The U.S. Government has published a list of essential industries.

This is a list of industries that are not typically impacted by the shelter-at-home orders. Whether you’re trying to find a vertical industry to target or looking for a job, it makes sense to focus on the kinds of industries that are more likely to financially benefit (or at least be financially neutral) as a result of the pandemic.

In every major economic (or societal) shift, the list of winning and losing companies is rearranged quite significantly. If you’re currently tied to a losing company or industry, it’s worth thinking about who’s winning and finding a way to align yourself with them.

This is how you get ahead of the curve, by riding the coattails of those most likely to thrive (or at least survive) in this recession.

Finally, you want to add value within your ecosystem. There’s an enormous opportunity to build goodwill, expand your market presence, and acquire “share of mind” in uncertain times.

There’s no shortage of opportunities to demonstrate leadership in your ecosystem.

This reminds me of a saying that a former coworker and military veteran taught me. He said, “We have a saying in the Army, ‘Lead, follow, or get the f**k out of the way.’”

This is an amazing time to lead.

You lead by adding value to others in whatever way you have available to you.

If your industry association is struggling, volunteer to help. You’ll meet a lot of very grateful people along the way.

If your customers can’t afford to buy your most profitable offering, find a way to help them get through this difficult time.

If your community needs help, give back to your community in whatever way that you can.

When this period in our global history transitions to something better, there will be three categories or players.

1. Those who helped to make the situation better
2. Those who did nothing
3. Those who made things worse

Be in the first category for two reasons. First, it’s the right thing to do. Second, what goes around comes around. When you add value to the ecosystem around you, that often comes back to benefit you in unforeseen ways.

Whether we have a recession or depression is not in your control. What is in your control are the choices you make right now. To the extent possible, be a part of the solution rather than a part of the problem.

In a crisis, leaders lead regardless of their job title.