The Inevitable

2020 is a year we’ll never forget. Yet our memories of this time may be different than we imagine them to be. Eventually our nations will heal, our people will be vaccinated, and our memories of lockdown will fade. But the engines of our economic growth will never be the same. This pandemic has created an inflection point for business. Last year taught us that workers don’t need to be co-located to be productive. It forced us to become comfortable with strangers picking out our produce. It showed us that online marketplaces like Etsy could create opportunity.

When we needed it, the world shifted on a dime to embrace the digital foundation that was laid over the past two decades. Those who were slow to change saw their competitors rise and their own stars fade.

Leaders everywhere face this question: In an increasingly unpredictable world, how do you ensure you’re predictably ahead of the curve, instead of struggling to catch up?

While 2020 was unique, it points towards a simple conclusion that I’ve seen reveal itself over years of driving digital transformation: success is in the fearless march towards a certain future. If it’s inevitable, act immediately.

Bet on an inevitable future

More than five years ago, I witnessed an exchange between a junior employee at Tesla and a C-Suite executive at Daimler. As they debated a future for electric vehicles, it was clear that they agreed. The future would leave behind the internal combustion engine. But the young Tesla employee couldn’t understand why, if they were in agreement, Daimler wasn’t moving faster. The C-Suite executive – now long gone from the company – argued that Daimler believed whole-heartedly in an electrified future. But to move too swiftly would jeopardize the earnings of the business and so, instead, Daimler had hired the worlds’ best minds to predict exactly how to stage the transformation over time. While Tesla raced to a market and arrived early, Daimler would show up just on time. Daimler knew best.

The young Tesla employee’s response: “Well, we don’t know when that future will arrive. But we know we’ll be there first when it comes.”

I find myself returning to that exchange regularly when advising companies or executives. Why? Because two intelligent people could agree on an inevitable future; one that would last decades. But out of hubris, one of those people chose to walk a fine line of compromise. The other chose resolve on behalf of the consumer, forgoing any short-term thinking to meet them where they knew they would be in the future.

Not even a decade later, it’s clear just how wrong Daimler’s position was. In the same year this exchange occurred Daimler offloaded almost 5 million shares. As EV adoption accelerates, Tesla stock surges, and Daimler’s value dwindles – the only explanation is the market’s realization that an electrified future will arrive far faster than anticipated.

There are countless examples of these tectonic shifts; the shift to e-commerce, the embrace of digital payments, the growth of connected healthcare, the digital distribution of media, and so many more. 2020 accelerated all of these trends. And it highlighted that the leaders who avoided compromise were far better prepared to capitalize on an inevitable future that arrived.

Embrace strategies that build a foundation

Boldness does not mean recklessness. Success requires a sustainable model that improves in a new paradigm.

Years before COVID-19, Netflix proved that a fading strategy is okay if you’re also laying a foundation for the future. Netflix was created with the understanding that DVDs wouldn’t last forever. The promise of the infinite selection and immediate distribution that streaming content offered was already obvious. However, when Netflix was finally forced to react to that inevitable market condition they’d already built a strategy that supported the change. They could use the same access system, the same supplier relationships, and the same subscription arrangement to deliver streaming that they did to deliver their billionth DVD. In fact, their speed and selection only improved in the new world. Netflix is now synonymous with streaming and has 204 million subscribers and counting.

Similarly, Shopify has tripled in size as quarantines forced consumers go online to shop small. Shopify started with a model that made selling easier online. But it also grows better with every new store on the platform. Their online storefronts naturally gave way to payments, lending, and distribution services as they achieved each new stage of scale - opening up even more share of wallet over time.

For leaders leaning into an inevitable change, building a strategy that works today and gets more profitable over time is a key to remarkable success.

Prepare for a long road

Still, you can’t simply hope for profit. While growth can consume cash, you should be within a quarter of hitting the breaks and preserving cash flow. Webvan, founded in 1996, famously imploded in a market where Instacart, founded in 2012, flourishes today. Among the many reasons for this is Instacart’s early focus on unit economics of delivery. Webvan spent an enormous amount to build out its own warehouse and delivery infrastructure, while Instacart leverages contractors as shoppers at local grocery stores. Webvan declared bankruptcy in four years, while Instacart grew more thoughtfully into an enormous market. As of October 2020, Instacart was valued at $17.7 billion.

Major shifts play out over decades, not months. Amazon started as a bookstore with an eye towards an infinite retail shelf – and has become a behemoth few can reckon with. SpaceX was founded in 2002 when the idea of privatizing space expeditions was insanity – but it is now driving innovation to provide cheap internet across the globe, unimaginably fast intercontinental travel, and colonization of distant planets and the moon. It doesn’t matter that these results have, and will continue to, take time. The payoff is huge. Morgan Stanley recently doubled its long-term valuation of SpaceX, expecting it to be worth at least $100 billion someday, driven primarily by its satellite internet business capturing as many as 364 million subscribers by 2040. For leaders betting on an inevitable future, maintaining longevity is the key to being there when the inflection point occurs.

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Bill McDermott has a saying: “Anything that is inevitable should be done immediately.” It might be an oversimplification – but it’s certainly easier to act with conviction against simple direction then elegantly walk a tightrope indefinitely.