≡ Menu

Don't Let The Black Swan Bite You In The Ass

“There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know.”
-Donald Rumsfeld

I am slogging through Nassim Nicholas Taleb‘s “The Black Swan: The Impact Of The Highly Improbable“. I say “slogging” because it is a huge book, in volume and also in depth. Every page makes me stop and reflect how “Black Swan” events have changed the course of history, and also how they have impacted my business and my life.

A “Black Swan” event is something that happens, outside of your assumptions or forecasts, that has a major impact on your plans. The event comes as a major surprise to you, however in hindsight, the event is logical and even inevitable.

Most plans assume that current trends will continue into the future, or at least if there are changes, they will happen gradually. In reality, what happens more often is that unforeseen events make a “discontinuous” impact, placing you in a situation where the next step is not evident (or foreseeable). Whether it is events far away like turmoil in Egypt, or economic shocks like the price of gas, or technology or competitive events, it is the “unknown unknowns” that usually come to bite you in the ass.

From Mediocristan To Extremistan

A Black Swan event:

1. is a surprise to the observer at the time it happens,
2. has a major impact that forces a reaction or a response,
3. in hindsight, the event was foreseeable, usually disproving a key assumption on which the plan or the system is based.

Black Swan events are directly related to the quality of the assumptions underlying the plan. Every plan is based on conscious or unconscious assumptions: that there is a certain stability to the economic and political situation, technology and market trends, demographics, etc. Many assumptions have as underlying model that the world follows a Normal (Bell-curve) distribution – that what we see around us is an average situation. The bell curve is neat, easily visualized, and mathematically predictable. It is also a dangerous assumption. Taleb calls this mindset “Mediocristan”, because the predictability of the bell curve lulls the planner into a sense of false security.

In the real world, it is the extreme events that have real impact. Taleb calls this “Extremistan”, and instead of using the Bell-curve to represent reality, he proposes that we see trends as more fractal than normal. While the bell-curve “Mediocristan” view looks at surprise events as outliers whose effects fade in time as things return to normal, a fractal “Extremistan” view of the world incorporates Black Swan events as starting points for a new evolutionary path.

Planning For The Black Swan Event

What does this mean for the project planner? The biggest weakness of project plans lies in the assumptions underlying the plan. This is why I like the Rumsfeld quote at the beginning of this post, encapsulating where the planning for the war in Iraq went wrong: the “unknown unknowns”.

We want our environment to be in static balance. There are so many variable just within the project to foresee and to control, that when you add all of the external factors, the problem quickly becomes too big to conceive. But the real world is chaotic.

This is why it is very important to be aware of the assumptions underlying your plans and your goals. Research them. Test them. What if situations changed? It could be at a macro level, such as a sudden spike in fuel prices or currency devaluation, or at a micro level, what happens if your home burns down or a car accident puts you in the hospital? How can you make your planning more resilient to the “unknown unknowns”?

Making The Black Swan Your Friend

“The strategy for the discoverers and entrepreneurs is to rely less on top-down planning and focus on maximum tinkering and recognizing opportunities when they present themselves. So I disagree with the followers of Marx and those of Adam Smith: the reason free markets work is because they allow people to be lucky, thanks to aggressive trial and error, not by giving rewards or “incentives” for skill. The strategy is, then, to tinker as much as possible and try to collect as many Black Swan opportunities as you can.”

My personal conclusion from reading “The Black Swan” confirms my belief that high-velocity entrepreneurs such as solos and ventures, must set aside the straightjacket of formal business plans, and adopt instead a rapid prototyping strategy of “Fail. Forward. Fast”. By accelerating the evolutionary cycle, you can take advantage of unforeseen opportunities and respond to negative events in a positive way very quickly. Try things, learn, adapt and relaunch.

By acknowledging the weaknesses of your assumptions from the start, and recognizing that what will shape the success of your project are the “unknown unknowns”, you can make the Black Swan a friend that opens doors for you to succeed while others flail.

For more information

“The Black Swan” on Amazon: http://www.amazon.com/Black-Swan-Impact-Highly-Improbable/dp/1400063515

My Kindle Notes page about this book: https://kindle.amazon.com/work/black-swan-improbable-robustness-ebook/B000Q2CLQS/B00139XTG4

Nassim Nicholas Taleb Web Site: http://www.fooledbyrandomness.com/

N.N.T. on “What is a Black Swan” (video): http://www.youtube.com/watch?v=BDbuJtAiABA

Related articles:

The Way To Succeed Is To Celebrate Failure

Resilience: Live A No-Limits Life In Chaotic Times

{ 1 comment… add one }

Leave a Comment