It was exactly a year ago that I returned from BrauBeviale, an international trade fair for the beverages and brewing industry and realised that I had lost my sense of taste. It was still pre-Covid-19 in the news, my doctors put it down to an inexplicable neurological cause that they couldn’t diagnose and it took me a month to regain my taste. In hindsight, it is obvious that I had caught a mild form of the coronavirus. Fast forwarding to this week, there have been some very positive developments in humanity’s hunt for a vaccine coming from companies like Pfizer and Moderna. I wonder with (some trepidation) whether the world will simply go back to normal. But should it? Go back to normal?
What normal used to be
As the CEO of a startup, normal before Covid-19 was waking up at 3am in order to take an 8h train from Basel to Göttingen for a 90 minute meeting with a prospect and then taking the train back to get home past midnight on the rare day when Deutsche Bahn trains were running on time. Normal was spending big budgets for a booth at trade fairs like Hannover Messe, simply to announce our arrival at the industrial stage and generate a few dozen good leads in the process, after 5 days of standing on our feet all day and smiling at the passing crowds. Personally, normal also meant missing out on various family events to grow the business, flying hundreds of thousands of air-miles a year to meet customers and prospects alike. At Facterra, Jade, Madhav and I wore these personal costs with pride, as a badge of startup-grind honour. I don’t believe that startups are alone in these experiences. Many people in different industries can relate to the above. The cost of doing business the right way – where people like meeting their prospective business partners in person, even for small deals. This used to be theNormal. How Covid-19 has changed it all!
The paradigm shift in the Covid months
In a matter of weeks in March, all the people we were in discussions with effortlessly switched to online meetings. Companies went from clunky Skype for Business to Microsoft Teams, Zoom and Google Hangouts in days. In the 8 months since, at Facterra, we have closed more deals without in-person meetings, progressed further on customer projects without days-long workshops and acquired more new customers despite cancelling our participation in all trade fairs, than in the previous 3 years. And all this at significantly lower costs! We shut down our office in Poland but our engineers have built better products at greater speeds, working from home. Personally as well, my life changed in this period. We welcomed our third child in August this year. Juggling online meetings with daddy duties, I have connected so profoundly with my infant daughter, discovering at the same time (with much regret), the moments that I had missed in the first days and weeks of my older children. In France, the lockdown meant that we had one hour a day for exercise, which we have used for daily family walks almost every day. Something we never did when there were no restrictions.
Some of the ugly realities of our world also came into sharp focus as a result of Covid-19. The virus outbreaks in slaughterhouses and meat processing plants convinced exposed the stark living conditions that we thought no longer existed in Europe. As a result, many of us have significantly reduced our meat consumption. Last week, we heard news from Denmark about the virus crossing over to minks and back has led to the extermination of millions of these tiny animals. This is not only scary but magnifies just how miserably we treat fellow creatures for such trivial needs as fur coats. In an era where technology has progressed to such an extent that synthetic material are more effective than fur in protecting us and keeping us warm, do we really need to continue slaughtering animals for leather and fur?
In summary, for us at Facterra, this “break down” of our normal routines forced us to question who we are, what kind of a world we have sleep-walked into and when we “start up” our engines again post-vaccine, we are determined to do our part in not going back to a world that proved so ripe for disruption. So vulnerable that a dead bat in a market half the world away could turn our lives upside down.
There are many things that changed thanks to Covid, that make us better as a company and as individuals. Do we want to lose these gains after the vaccine? No. And for those of you who have made similar lifestyle changes and business process adaptations, do you want to lose these benefits? So let’s stop second guessing what the world will be like and trying to “build strategies” to capitalise on them. Let’s not just passively look at the future as optimists or pessimists, and instead choose to be activists (as my personal CEO role model Jean-Pascal Tricoire likes to say).
A new normal for the machinery industry
So what is this new normal for the machinery industry then?
Empowering machinery customers with more self-service capabilities. The inability to send service engineers onsite has forced a lot of machine builders to part with knowledge to their customers so that the customers could perform basic, less complicated service tasks themselves. Many simply shipped over a lot of documents that they closely guarded as IP. This saved many a customer from painful outages. As the world opens up, many customers will demand more such empowerment from their suppliers. The trick for machine builders will be to offer this without impacting profitability. The answer is to use digital tools to allow customers to subscribe to self-service content – not very different from Netflix.
Improving employee work-life balance by reducing travel and replacing manually delivered services with remotely-delivered ones. There is still a lot of mind-numbing and potentially hazardous tasks that people do in every kind of work that they would gladly not have to do anymore – think mundane data-entry whether it is as part of inspection rounds in factories to record meter readings, or transcribing medical records and entering other administrative data as part of a medical checkup, or manually entering order data in to SAP/ERP systems. For sales people, its the hours spent on the road to get to a 30 minute meeting with a customer somewhere when a McKinsey study shows that customers don’t care much for this anymore especially for renewals. There is still a lot of room for revenue growth, and efficiency gains should we decide to stay with the measures we adopted during the Covid-19 lockdowns – remote meetings = less travel and more meetings.
Automation to augment humans instead of killing jobs. Many of us, white-collars mainly, conveniently switched to working from home and kept our income streams safe. The crisis however has shown our societies who the real hero-/ines are: the cashiers at supermarkets, the doctors and nurses at hospitals, the factory workers and technicians who ensured that our basic necessities were met, the trash collectors and sewage plant workers who made sure that the health crisis didn’t snowball into something much worse. The people in these jobs were the ones, often at heavy personal costs, who made sure that our societies functioned. And these are the very same people whose jobs we are trying to automate away through software and robotics. The warp speed with which we are doing this with machinery is such that people will not be gradually replaced over a generation – in fact they will brutally lose their jobs in a matter of years if the key-note speakers in AI conferences are to be believed. As a society, we have to ask ourselves – not whether it can be done but whether it should be done. Is this the way we want to thank the people who served society so selflessly during its moment of crisis. And no, I do not subscribe to ideas like Universal Basic Income. I do not buy the bromides of people having more time to live, love and learn when they are freed from the drudgery of work. As CEO’s, we are keenly aware of the meaning we find in our work. Why would the average supermarket cashier who braved the risks of infection to serve us be any different? There is still a lot of good that automation and software can do, and do profitably, without ripping at our delicate social fabric. We should take control of the future not by building strategies to capitalise on trends, but by building the narrative for a different, more humane future.
The case for a new normal
Serving a larger customer base. There is a revenue argument to be made for digitally enabled, service-centric business and operating models. The customer base is bigger by several orders of magnitude. Less than 20% of the installed base is accessible today with the kind of service contracts that most machinery companies offer. There are simply not enough service engineers in the world to serve all of them. As a result, most machinery OEM’s choose to serve the customers closer to their home base and lose out on potential revenues from farther afield because it is simply too risky and not profitable enough. Take customer-self-service and remote video-based customer mentoring – these are services that can be offered and delivered to every customer of every machine everywhere in the world. While Revenue per Unit might be lower, it is recurring and much more profitable if embedded in the purchase contract. Ask yourself whether the math adds up for training service engineers and retaining service knowhow within the company vs. empowering customer employees in a self service mode? Which one is more profitable, sustainable and scalable?
Lower Customer Acquisition Costs(CAC) As a SaaS company, one of the most important metrics for Facterra is the cost of customer acquisition and has an outsized impact on the profitability of a SaaS business. What is amazing is the CAC for machinery companies – it is HUGE if one ignores the % costs and adds up the bills for all the trade fairs, the travel, the order handling costs and then compares it to the sales-effectiveness rate. Ask yourself – do your sales people enjoy the hours and days away from their families and hobbies to go meet customers in person? Is it even necessary in most cases?
Lower sales transaction costs. There are massive efficiency gains to be made by going digital with more customer self service in terms of ordering automation. And what’s more, Covid-19 has softened up some of the most resistant markets in Europe for eCommerce. But eCommerce needs to be done right. Listing your spare parts on Amazon or your own web-shop won’t do it.
The cost of doing nothing is impending irrelevance
Your employees will abandon you progressively for industries and companies that offer better work-life integration vs. the failed work-life balance model that traditional companies offer today. Your IP and strong customer relationships can at best delay your customers switching to newer suppliers that offer better financing models and RoI on performance SLA’s – all enabled with data-driven digital tools. You should see such upstarts as the Teslas of the industrial machineryindustry and they are being built as you read this post in a foundry somewhere. They won’t outcompete you in building better machines at the beginning. They will use digital tools to make the financial risk of experimenting with their machines much more attractive for small and medium sized companies and then your strategic accounts will fall – and the most ambitious and competent of your employees will see more upside in working for them than to compete in the shark tank that is the traditional machinery company today. Just like the auto-industry did with Tesla- first you will ignore them, then you will laugh at them, then you will fight them and then you will lose. Or, you can be them if you make a good crisis out of Covid-19. The choice is yours.
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