* actually, some people know quite a bit and have interesting data and experience. Learn and contribute – but be cautious of predictions made by extrapolating during peak uncertainty. Focus where you had fundamental convictions of structural change before the world tipped off its axis due to Covid-19.
** I thought “Nobody Knows Anything” was a more famous quote than my google search proved it to be. It turns out, the phrase was made famous by Oscar-winning screenplay writer William Goldman (Princess Bride, All the Presidents Men, Butch Cassidy etc) who said it to make the point that you should stand by your ideas, because you can never know what will be a hit in Hollywood. He had great hits but also failures – and this quote was about how he couldn’t predict what would be a hit before hand…”Not one person in the entire motion picture field knows for a certainty what’s going to work.” Predictions are difficult in the best of times.
So how about predictions during peak uncertainty? We are ~ 30 days into the world having clear consensus we are in a new crisis. I think the date we will remember is March 11th when the NBA suspended the season and Tom Hanks announced his positive diagnosis. Go back in your memory to Oct 2001 – 30 days post 9/11. What were we forecasting then? We knew we were in uncharted territory then as now. I can tell you my experiences or you can draw on your own – the range of predictions which were feasible and real possibilities were scary. To be sure, plenty of things changed forever, but many of the worst case scenarios were never realized. What about in Oct 2008, 30 days after Lehman Brothers filed Chapter 11?
On Monday, I was reading an analyst note that was stress-testing a buy recommendation on PSTG. What happens if we see ~30% decline in industry rev predicated on a ~25% decline in GDP? That same morning, I saw a forecast for a -12% decline in Q2 GDP. Down 25% is a lot worse than down 12%, to put it mildly. But take a look below at the current range of Q2 GDP outlook from a respected group which shows a range of -9% to -40%. It’s not fun to publish your forecast while the facts change so rapidly. Ask any analyst or ask your favorite sales leader. Most forecasts are generally an extrapolation of underlying trends and the variations are between the the models become compromised* (*temporarily useless?) during a major dislocation.
There is plenty of great analysis that’s worth reading and valuable, but the conclusions should be taken with a grain of salt right now. Not to pile on, but to illustrate – BofA 2Q GDP forecast went from -12% to -30% in 2 weeks….!
So if trend extrapolation is not helpful at the moment, what is? I believe dislocations speed up underlying structural changes that were slowly building. Some long simmering problems will boil over (see Higher Education) and some long predicted changes will happen seemly overnight.
In enterprise tech, two major structural changes that have been underway but happening unevenly are ‘digital transformation‘ and ‘utility economic models‘ (public cloud, hybrid cloud or variable capex). Both trends have a range of definitions and fountains of ink (or pixels) used to analyze and write about the fundamental shift. Just a few short weeks ago, I was using a variation of a Bill Gates quote as my point of view on these shifts: “most people overestimate the what they can do in 1 year and underestimate what they can do in 10“.
I believe this market dislocation will speed up what was building up. Given the shared uncertainty about what unfolds next, the benefits of a variable, utility model are suddenly front and center if the industry can really deliver them. And the stubborn, people and organizational process obstacles that held back Digital transformation projects will unstick or evaporate.
Last – history has many examples of people and companies who were ingenious in the face of great uncertainty. A leader on our team wrote an email titled “Winning This Situation” which was about not being an optimist or a pessimist – but a realist in the face of uncertainty. We cannot know how this crisis will fully unfold and we shouldn’t extrapolate what we expected a few weeks back. But we can improve every day and we focus on the structural changes that could come a lot faster than we recently predicted.
be well…
Notes from the Field 
Excellent read!
LikeLike