Detecon
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2020/04/16

Looking for the ‘Next Normal’

Internet giants and startups in Silicon Valley battle with the crisis

An Interview with Stefan Wilhelm, CEO of Detecon Inc. in San Francisco

On 19 March 2020, California had already imposed a sheltering in place policy that was stricter than Germany’s. Since that time, no one has been allowed to leave home without a good reason. Apart from a few “system-relevant” exceptions, all offices have been closed. Office manager and Managing Partner Stefan Wilhelm is experiencing directly the impact on companies and employees on the site in the San Francisco Bay Area.

Stefan, you and your family have lived in San Francisco for three years. How are you doing, and how are people in the Bay Area managing while sheltering in place?

Stefan Wilhelm: We are doing fine. My wife is a teacher, and at the moment, she is doing her job from our kitchen. Our children go to school in the morning as usual. However, their attendance is digital, using computers and video conferences while sitting in their rooms. We constantly have four video streams running at the same time. And I am advising our clients virtually. Anyone who goes out on the street wears a mask, and everyone is following the rules very strictly. California reacted quickly; as of the moment, there have been about 700 COVID-19 deaths per 40 million residents (per 12/4). Some of the shops have been boarded up. This is in part because the social security systems are not comparable with Europe.

So school is going on as usual?

As soon as the shutdown went into effect, schools immediately set up Google Classrooms. Instruction continues "normally" using Google Meet for each period. There was never any discussion about this, either, and in the meantime, it is certain that schools will remain closed until August. My wife has set up two spotlights in the kitchen and teaches her class with the help of Google Classroom as well. And that works really well. Students work as if they were sitting in their classrooms at school and ask questions just as if they were all together. There are breakout sessions in small groups. They do their assignments online. All that is needed to attend class is a Chromebook for $249.

But the consulting business is presumably dead.

We are focusing on our existing clientele and have projects that continue remotely. Some topics are more in demand at present, of course. We advise companies in three areas. First of all, there are connectivity issues. This is still going well because connectivity means everything for businesses right now. Second, we are continuing to work with a partner on OKR topics (objectives and key results), i.e., methods of agile management. This is also going well as companies are making major use of OKRs, especially during this crisis, to synchronize their spread-out teams and focus on results. Only our third focal sector, innovation management, is currently pretty much idle. Everyone is in crisis mode, and since business continuity and survival itself are at stake, strategic long-term issues have understandably been put on the back burner for the moment.

You say it’s a question of survival itself. Even in Silicon Valley?

Companies in Silicon Valley have been affected in very different ways. There is big tech – Google, Apple, etc. – the companies backed by enormous reserves that can hold on to or even increase their headcount. The companies in the share economy such as WeWork or Airbnb, on the other hand, have been hit harder, with revenues down significantly, and are trying to obtain fresh capital. And for the thousands of startups that live from venture capital and usually have funds for no more than a few months, the next round of financing will be very difficult. Everyone is attempting to extend liquidity – the cash runway – by making massive reductions in expenses and quickly reducing their workforce. Even large companies such as Facebook and Google are experiencing a decline in advertising revenues, yet have rising infrastructure costs because their users are currently making tremendous use of social media channels, viewing videos, and spending a lot of time online in general. The pressure on these indirect business models is growing. Startups that have ARR (annually recurring revenue from software rental) as their business model are better off. Even cloud providers are experiencing short-term revenue losses, but in the long run, the crisis means a massive boost for technology and Silicon Valley – everyone is extremely positive about that.

Unemployment in the USA is rising by leaps and bounds. Will this trend continue?

That is exactly what no one can say. Within three weeks, 17 million people became unemployed. Analysts say that less than 20 percent of GDP will be severely affected, although the number of employees will be disproportionately high. In Silicon Valley, many of the startups have reduced their workforce by 30 to 40 percent in a very short time. With only a few exceptions, there are no proper employment contracts in the USA, and people can be terminated without notice. As a rule, you usually have one hour to clear out your workplace, and you often lose your health insurance at the same time. I experienced this myself at an e-scooter supplier. Thirty percent of the employees were terminated during a video conference and asked to return their laptops by mail. That was hard, but necessary.

How is the government helping?

The economic crisis has immediate and serious consequences for people. The crisis is hitting here a country that, compared to Europe, has a limited social security system and provides virtually no protection for workers. People who have health insurance coverage usually lose it along with their jobs when they are terminated because the insurance is organized through the companies. Nor is there the instrument of short-term work here. So it is often truly a matter of survival. Everyone here knows and prepares for that. That is why people are able to adapt incredibly fast.

But it affects people very differently?

It is far easier for the elite working from home to deal with the crisis than for the Uber drivers or in general the gig workers. They cannot react flexibly if they are immediately tossed out the door or lose contracts. Yet people do not blame the system; they regard this as a normal process. This is essentially incomprehensible for me as a European. But it is clear to Americans that the government should play a very minor role. Nobody expects anything from the government. However, there are big differences from one state to the next. Taxes in California are much higher, so more services are provided to small businesses or at the municipal level, for example.

Working from home is probably much more common than here in Germany.

It is not possible to say in general whether working from home is more common here. Americans also like to go to the office. This is even true of the digital economy or startups. But we also have clients who no longer have a brick-and-mortar office location. Making the switch to working from home was easy here in Silicon Valley because the level of digital work is generally very high. Moreover, the latest software tools can be used without major regulatory restrictions. So now everyone is working remotely and using Slack and Workboard to connect teams and customers in real time.

Can we expect business as usual to resume once the crisis has passed in the USA?

Even though it is a cliché – the world will be different. There is a lot of discussion in the USA right now about the Next Normal. What will a touchless society look like? There is a great sense of confidence that the crisis could have a corrective effect and unleash tremendous potential. And it will give a huge boost to the increase in digitalization. Technology will also play a major role in gaining control over biology – the virus – in the short term. For the first time, Google and Apple are cooperating to integrate social tracking into both operating systems. Everything will become much more digital. I no longer want people to touch the products in the supermarket or at Starbucks; people remain a risk. And since regulatory conditions in the USA are different from those in Europe, new technologies are tried out and deployed more quickly by companies here. Everyone is currently examining business models to see whether and how they are geared to the future.

Can anything be changed in a globalized world?

Deglobalization is the prominent issue at the moment. I am convinced that some things will become much more local. There will be more local supply chains, and that will change consumption. Even globally operating companies will have to become more local, however difficult that might be; just one example will be the IT sector reducing its dependence on China. Industrial policy will experience a great renaissance.

Are these now topics in your client projects as well?

We are now trying (in collaboration with clients) to accelerate the introduction of cloud software tools, especially Workboard. Once it has been implemented, companies have a key tool for transparency and decision-making. Every company will invest heavily in resilience issues, and we will help with that as well. This will also include digital technology to make us more independent of labor and sales channels. The trend is in the direction of a touchless society. Just like paying without a credit card has long been normal here. I am also one of those people who no longer go to any store where they cannot use Apple Pay for contactless payment.

What do you, a German in the Bay Area, currently recommend to your European colleagues? And what do you envy them for?

In the short term, many here envy Europe for its health insurance systems and certainly as well for its options of short-time work that make it possible to retain talented employees. Europe is “more comfortable” in the crisis, whereas there is almost no cushioning here. The trade-off is a high degree of flexibility and adaptation – painful in the short term, but very advantageous in the medium term. The selection mechanism here in Silicon Valley has accelerated, and companies needed no more than one to two weeks to accept the new reality. Although this has cost Bay Area startups 20,000 jobs so far, the venture funds have more capital available than ever before, and fantastic new companies are springing up. The use of digital technology will be vital for survival in the future. Having an excellent digital economy will provide a tremendous edge, and Europe continues to lag far behind in the USA or China in this respect. More industrial policy and deglobalization significance that we in Germany must do everything in our power to raise digitalization to a higher level.

 

 

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