How adaptable are you as a leader to change? As the world faces the impact of Coronavirus, the executive summary of this article is simple: Act Now
Let us talk, then, about three things:
- What is a Black Swan event?
- To what level can we predict such events?
- What can we do in business to respond, and specifically now we face this (Coronavirus) “Black Swan”?
To open, Sequoia Capital this week wrote a piece that I believe every business leader will benefit from reading. I share here a snippet (bold highlights my own), then go on to discuss the points above in-depth:
Having weathered every business downturn for nearly fifty years, we’ve learned an important lesson — nobody ever regrets making fast and decisive adjustments to changing circumstances. In downturns, revenue and cash levels always fall faster than expenses. In some ways, business mirrors biology. As Darwin surmised, those who survive “are not the strongest or the most intelligent, but the most adaptable to change.”
Sequoia Capital – Coronavirus: The Black Swan of 2020
What is a Black Swan event?
Earlier this year I was at a lunch meeting for a group aligned around a common interest (sorry, confidential) where the focus was on strategy for 2020 and beyond.
When each of us was asked to comment with our thoughts, I said: “Beware the Black Swans”.
Lo and behold, within two weeks, a Black Swan event occurred massively impacting them. Interestingly enough, only one person at that lunch table had heard the term or of the author of it.
Nicholas Nassim Taleb wrote “The Black Swan” in 2007, summarising his definition in this NY Times piece:
What we call here a Black Swan (and capitalize it) is an event with the following three attributes.
First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.
I stop and summarize the triplet: rarity, extreme impact, and retrospective (though not prospective) predictability.
To what level can we predict such events?
In the case of my warning, I felt that the overarching global geopolitical and diplomatic environment surrounding the discussion at that lunch meant that it was highly likely that the level of focus I was hearing was too narrow. That concern was amplified by the blank looks facing back to me when I used the term “Black Swan”.
My warning, in this case, came because I felt that the focus of the group was too narrow and that there was a real danger of “we’ve got all the bases covered and are doing all we can” complacency kicking in.
Broadly, I encouraged them to look at the bigger picture and then to do some scenario planning, to look widely at the “what if” conditions.
By Taleb’s very definition of a Black Swan, we cannot predict them, but we can look at the circumstances and environments that can lead to events of “rarity” and “extreme impact”.
We can also, to reference another book by Taleb, look to be “Anti-Fragile“, to be resilient both in looking to predict rare and extreme impact events and also in how quickly and effectively we are able to respond when they occur.
Predict and Respond – Hurricane Ivan
To look at predicting and responding, I’ll use personal experience. In 2004 Cayman went through one of the most devastating natural disasters in history. Now, I hasten to add that the level of devastation was in terms of capital damage per capita, not loss of life, which is why few outside of Cayman remember this event.
Imagine, though, per-capita damage of US$95,000 translated to 60 million people in the UK, that is ~£4.4 trillion. The annual GDP of the UK is around £2tn, annual government spending is ~£1tn at most.
In short, devastating for people’s lives and for business, yet the country as a whole showed amazing resilience. Personally, the business I was part of leading was one of the larger ones in the country, with many physical assets and many people in our employee to care for in the aftermath.
Could we predict Hurricane Ivan? Well, yes, but only partly. Hurricane Ivan was, statistically, a “five hundred year” storm, so nobody could be fully prepared, but Cayman is in a hurricane belt and our business always built strong buildings plus prudently insured ourselves, kept capital reserves, plus had disaster and redundancy planning in place.
So, we had planned for a Hurricane, but key for us was how we responded in the face of something way, way beyond what we could have readied ourselves for. In short, we were fortunate to have several of us in leadership who had relevant experience in crises, both theoretically (we had been trained in various ways) and having lived through crises.
In short, while the Cayman economy had been booming for many years prior, such that a “rising tide floats all boats” and most businesses were thriving, Ivan really “sorted the wheat from the chaff” and our business thrived and stood out. We were prepared, we were able to respond, and (of course) we had some luck.
So, it is key to both predict and respond.
Before I look at some thoughts on how to respond to coronavirus, let me emphasise how, in business, we often fail to predict events and why.
Why do we fail to predict events? Often because we have too narrow a focus, we are too busy with our heads down working in our own focussed field of vision to see what may come at us from other directions.
So (and yes this is a role I fill professionally for leaders as a Sounding Board!) I recommend you invest on a continuing basis in resources and people outside of your business to look at this for you, a form of “black swan insurance” if you like, or at least potentially an “early warning system”!
A last thought on predictability is again around investing in this and how we often “save money” by not investing in this. In 2015 Bill Gates gave a TED Talk predicting the massive pandemic virus threat. Taleb might say talking about this is “retrospective predictability”, but I highlight instead that we have known for a long time of the risks Gates noted, yet we have chosen to ignore them as they fall under the category of “too expensive” and “important, but not urgent”
What can we do in business to respond, and specifically now we face this (Coronavirus) “Black Swan”?
For this, my succinct advice is to Act Now
More contextually, “Reshape your Year”
Act Now
For business leaders, be decisive and act. That Sequoia Capital article spells out many key steps, yet as a Sounding Board to leaders and with experience of responding to devastating crises impacting businesses and the people they serve, it is key to set a direction and act.
You won’t get it right, but in a crisis, it is key to live by two maxims:
“Ready, Fire, Aim”
A military maxim for acting in a crisis when there is no time to think, as opposed to “Ready, Aim, Fire”. I lived this in the immediate aftermath of Ivan!
and
“..keep your head when all about you. Are losing theirs..”
from “If” by Rudyard Kipling. Stay calm, focussed, aligned on core needs
For business, the good news is that the path ahead for the coming months is, as Sequoia noted, now quite predictable. Economic activity will be down, radically. We may bounce back quickly, we may not.
My own advice is simpler (though very much aligned) to that of Sequoia. Focus on cash reserves. Another maxim is “nobody goes out of business for lack of profit, but for lack of cash”.
A few tips then for where to focus when you “Act Now:
- Gather what reserves you can to help weather this
- Economic activity will drop, so now is not the time to launch new products or revenue streams.
- Cut back capacity where you can to match the slowdown.
Those are just three business moves, but I also want to highlight some behavioural keys that leaders often fail at in a crisis
- Talk to people, particularly employees. Be honest, be open and talk to them often. Uncertainty is paralysing, so tell them where things are.
- Be steadfast (remember the Kipling quote!). You may yourself have little idea of the answers, but you must focus on leading everyone toward responding in an aligned and focus way while answers emerge. As the entrepreneurial phrase goes, “build the plane while flying it!”
- I repeat, talk to people. This is not time to be silent, a key “act now” is to talk to your people!
Reshape your Year
In a more contextual way of looking at it, as you plan out your year, most businesses have seasonality and in the slower periods tend to look at such internal areas as strategy, systems, people development. If you have sufficient resources to do this, I encourage you to “reshape your year” to invest in these areas now to then capitalise when things recover.
As Warren Buffet would say: “Be fearful when others are greedy, and greedy when others are fearful“. Every crisis is also an opportunity. A simple one is to redirect your leadership activity from areas such as driving revenue to focussing on relationships with your people, your clients, your stakeholders.
We know this will get worse (from this date) before it gets better, so you don’t need to predict too much, you know you need to respond, so keep your head, make choices on how and where to respond, and Act Now.