Introducing the “champagne effect”
published on 11.06.21
The much anticipated summer has finally arrived. Thanks to vaccination, we are starting to emerge from the gloomy shadows of COVID to rediscover the bright colours of economic recovery. This is undoubtedly what is known as the “champagne effect”. Companies that have done their due diligence on innovation and diversification, with a good capacity for adaptation and market analysis, will bounce back very strongly. Likewise, consumers who have not been hit financially by the pandemic have saved their money and are eagerly anticipating the starting pistol so they can let loose with spending and investment.
I like to describe the “champagne effect” using F1 racing as a metaphor. The green light signals the start of the race, the cars, prepared by the pit crew, are roaring and the drivers are putting in the fastest times on every lap. Until, out of nowhere, there is an accident at turn 12, and the safety car pulls out to lead the field. It forces all the cars to slow down. There is no chance to overtake the pack, everyone is moving at the same speed. Once the track has been cleared and racing is safe again, the safety car returns to the pits and the F1 drivers put the pedal to the metal. This phenomenon of being held up and then exploding out of the gates is the “champagne effect”.
Undoubtedly, some financial analysts will view this effect as simply an “upsurge in sales”, a harbinger of an impending and severe consumer crisis. However, despite these calls for caution, the reality is that the COVID-19 pandemic has clearly underlined the power of e-commerce and the maxim that crisis breeds innovation and opportunity. At this very moment, thousands of entrepreneurs are creating or have already created products and services that will go on to enjoy long-term success. And many are aiming to translate their innovations into sustainable businesses that will endure well beyond the current health crisis.
For this reason, and to prolong the “champagne effect”, we are recommending four steps to transform a project conceived in the midst of the COVID era into a profitable business:
1.Innovation as a driving force
The most successful innovations solve specific, immediate and important problems. As such, an entrepreneur must ask themselves: will we still need this solution in three or five years’ time? Is the problem it solves now a problem from a few years ago? And, if so, how big was it?
To answer all these questions, we must first assess the current market and that of previous years to identify the different trends at play. In fact, some entrepreneurs have taken advantage of existing trends that have been magnified and accelerated by the pandemic, such as the rapid growth of e-health startups and telehealth. The need to care for patients from afar was a problem that was solved by remote patient monitoring, which of course existed prior to 2020. The difference was the acceleration of the innovation process due to blanket orders to isolate at home because of COVID-19, and the widespread availability of home videoconferencing.
Let’s look at another example: one of the winning entries in the MIT COVID-19 Challenge put together a model to monitor nationwide distribution of essential medical supplies to the hospitals most in need. Will such an innovation be relevant in the long term? Efficient distribution of healthcare supplies was obviously a pressing concern in the midst of a pandemic, but, moving forward, it is likely to remain of value to healthcare systems which need improved monitoring to reduce costs.
2. Identifying the market
Answer three questions: does this innovation engage customers today? How long will consumption of the product/service last? Will there be a high enough rate of customer loyalty to grow a business in the long term?
It is incredibly important to forecast and assess whether a sizeable and loyal market will still exist for a product or service in the future. Furthermore, this is an important consideration, especially for startups, because it is possible to fall into the common trap of concentrating too much on the technology and not enough on the potential customer; user-centred design teaches us that focus on the customer is key to building a lasting business. In other words, you must have a solid grasp of who the customers are and how the product or service will fit into their lives.
3. Agility is essential
In a changing market, we might need to switch strategies, products or even customers. Pivoting quickly, proactively and reflexively will enable us to respond to change.
During the pandemic, many SMEs and startups made reactive changes in a frenzied struggle for survival. However, some entrepreneurs were more resourceful, shifting their businesses with some form of ‘repurposing’ and redirecting existing knowledge, skills, personnel and networks to the new needs that arose.
This focus on repurposing is not devoid of challenges. Indeed, most startups may view repurposing as a short-term opportunity or solution. Therefore, they see adapting as an effective survival strategy.
We must learn from this. A good approach to planning is for the resulting plan to establish three possible business scenarios where different targets are chosen according to their benefits. The maxim is to always plan, pre-empt and pivot.
4. Mapping the business model
The COVID-19 pandemic has become the most significant disruptive event for a generation. From the adoption of remote working and the decline in global travel, to a comprehensive digital shift, the outbreak has fundamentally altered the way businesses operate. This transformative effect will not be fleeting; it is significant and it is here to stay.
Due to the crisis, many of the innovations that emerged during COVID-19 were either free or supported by donations. This is why models from the field of social enterprise should be considered. If we examine social enterprises, their mission is twofold: social impact and financial growth, and, with this in mind, they have developed a range of business models to achieve these twin objectives.
Entrepreneurs who are mapping their business model should also consider historical events, when other economic upheavals, such as the 2008 crisis, forced many companies to rethink their businesses in much the same way. All of this is required to determine the value proposition for the customer, as well as the key resources and processes that are necessary to face a future that will demand innovative solutions.
What we are witnessing today is the potential to democratise entrepreneurship and create new business models that people can identify with more easily. For many, this could ultimately remove entrepreneurship’s barriers to entry and encourage people to start their own businesses.
Author: Joan Margarit, Marketing and Communication Analyst
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