Guest Post

How would a K-shaped economic recovery affect MSPs?

Dave Sobel explains how MSPs should be prepared economically and socially for a K-shaped recovery that economists see happening due to the continuing COVID-19 pandemic.

Dave Sobel is host of the podcast The Business of Tech and co-host of the podcast Killing IT. In addition, he wrote Virtualization: Defined. Sobel is regarded as a leading expert in the delivery of technology services, with broad experience in both technology and business.

For this week's video, Sobel answers a question regarding how managed services providers might be affected by a K-shaped economic recovery that is said to be currently happening as the U.S. tries to come out the other side of the COVID-19 pandemic.

Transcript follows below.

Let's talk about the recovery. Here's the question I was asked: 'What does a K-shaped recovery look like?' Our industry, and a few others, while not unaffected, has many of us prospering while our neighbors may be unemployed (though I still think jobless rates are no worse than some previous non-recession times) or underemployed. I would be curious on your thoughts on how this plays out not only economically for us, but socially.

Disclaimer: I am not an economist, but I clearly play one on TV.

First, I want to address the jobless rates. Pulling from the Washington Post and their data from the labor department, you can see in this image exactly the difference this time versus the previous recessions.

Yeah, it's different. This the core for me of considering a K-shaped recovery.

Now, for those who aren't experts -- you know, like me -- let's nail down the definition. When talking about an economy moving up or down, one is considering how the shape of the growth looks.  A V-shaped recovery is the idea that economic growth goes down, then bounces off some bottom, and comes back, ideally with that ideal up and to the right slant being as fast as possible. The shape -- a V.

Some have spoken of the idea of an L-shaped recovery, and that idea is that it drops and lingers there, thus looking more like an L. Other letters used are a W -- meaning a plummet, a recovery, then a plummet again before recovering. And finally, the K-shaped one. Here, the recovery splits, in that some participants in the economy do well, and others continue to drop.

I'm going to reference this graph now from the U.S. Chamber of Commerce. As I've stated before, this recession is not due to a problem with the banking system nor a plummet in credit or consumer confidence. This recession is due to a public health crisis.

How may this play out economically?

I turned to some investors and asked this question, and their take was that the up sectors are carrying the down sectors when you consider this at a macro level. This, they argue, is why they predict the overall U.S. economy to only shrink about 3% this year, and why they argue that things are trending upward.

IDC projects 30% of SMBs will fail by 2021; 100,000 small businesses have already gone out of business. The problem is that it's not evenly distributed among industries. The question also does note that technology is clearly in the recovering industries category. That said, technology services depend more on their customers directly.

I've said several times on the podcast that I think providers need to be doing an analysis of their own customer's customer, and this is why. If you're a lawyer serving retail, you're doing ok. If you're a lawyer serving the hospitality sector, you're impacted more.

It's this web of impact that is much harder to track the deeper you go into the economy, and while at a macro level may not drag down the whole economy, it's going to be locally felt a lot harder.

My crystal ball? You're graphing the recovery out to 2024 where I have seen multiple projections assume, we're back to 2019 levels. The question is how quickly specific organizations get there.

Unlike previous recessions, you can map this based on industry rather than having to dig into business execution. The reason companies failed before was they weren't able to manage during bad times. The reason companies fail now is that their industry is unable to adapt. You want to get smarter on your customer's industries really fast. The economic impact is significant, but not consistent.

What about the social aspect?

The second part of this question was about socially, and this flirts incredibly close to politics. I'm not a political commentator by design, although I do have a principle that I use to guide, and that's to protect people rather than companies. If you will indulge me, I'll offer my perspective.

Think about that graph on job loss. Those closest to the edge are the ones being hit the absolute hardest.  Times of extreme economic disparity, when the economic gap between those at the top and those at the bottom are their farthest apart, generally resolve themselves in one of three ways -- war, famine or revolution.

We're not likely to go to war -- the world is too interconnected. We're also not likely to have a famine, at least not in the Western world. So, revolution. Are we having a soft one now?  Those who have struggled are pushing back. Actions from either end of the political spectrum can be viewed by the other side as that soft revolution.

I will quote a politician with a sentiment that I think we can all agree to: 'There is nothing wrong with America that cannot be cured by what is right with America.' And, from the other side of the aisle, 'Optimism comes less easily today, not because democracy is less vigorous, but because democracy's enemies have refined their instruments of repression.'

I think a lot about World War 2 right now. I'm not a huge history buff, and came from a family of educators, which means I enjoy learning. The sacrifices our grandparents and great grandparents made. Did you know Americans voluntarily slowed down driving to not use rubber as fast because it was so critical on tires? They donated millions of tires, rubber raincoats, garden hoses. No one mandated that -- they did it. Americans bought war bonds. They rationed food, took short showers. The government asked -- not mandated -- and Americans responded. And the same can be said of other countries, like the British.

So, when asked how it will go socially, I offer that we need to have a conversation about citizenship. Things happen at a local level. In your community, with your neighbors. I love small companies and small business because I believe things really happen at this level. You can make a difference in people's lives. Put people over companies, because companies are nothing without people.

Think about World War 2, and then think about now. And our opportunity to do better. In small ways, each and every day. Be a little more generous. Be a little more helpful. Because by the way, business wise -- this is not a great environment to do business in, both economically and socially.

To sum, it's going to be rough for a large number economically and so we should do our part socially, because we all do better when the tide rises.

About the author

Dave Sobel is the host of the podcast The Business of Tech, co-host of the podcast Killing IT and authored the book Virtualization: Defined. Sobel is regarded as a leading expert in the delivery of technology services, with broad experience in both technology and business. He owned and operated an IT solution provider and MSP for more than a decade, and has worked for vendors such as Level Platforms, GFI, LOGICnow and SolarWinds, leading community, event, marketing and product strategies, as well as M&A activities. Sobel has received multiple industry recognitions, including CRN Channel Chief, CRN UK A-List, Channel Futures Circle of Excellence winner, Channel Pro's 20/20 Visionaries and MSPmentor 250.

Dig Deeper on MSP business strategy

Cloud Computing
Data Management
Business Analytics