Analyzing historical patterns does not always accurately predict the future. Economists, historians, politicians and parlor philosophers all do their best to interpret historical data and make predictions about what is to come. We believe real estate prices will always continue to rise, because they always have. We thought pandemics weren’t a real existential threat, because we hadn’t faced one in decades.
Inevitably, events occur that challenge our assumptions and upset the norm. If your business is not careful, one of these “black swan events” could completely compromise the integrity of your business, disrupting your revenue generation and potentially jeopardizing its future.
So how can your startup prepare for black swan events when, by definition, they are unpredictable?
What is a Black Swan event?
The term “black swan event” was coined by Nassim Taleb in 2001, describing rare and unforeseen events that violate historical norms and defy expectations. A classic example of a black swan event is the 2008 economic crisis, during which house prices plummeted, the stock market crashed, and the global economy entered a major recession.
Many companies have collapsed because they were not prepared for such an eventuality; instead, they believed that everything would continue as usual, indefinitely.
Your business doesn’t have to suffer the same fate.
How your startup can prepare
So how can your startup prepare for possible black swan events?
- Build your personal finances. First, be sure to build up your personal finances. Having more money set aside in an emergency fund and in a retirement portfolio will provide you with a financial cushion that you can use if the business ever fails. You can also tap into this wealth to invest in the business if you have a plan to turn things around.
You don’t have to be a candlestick expert to learn the basics of investing; It only takes a few hours of research to understand the fundamentals of topics such as compound interest, financial leverage, and risk tolerance. After a few years of experience, you’ll be a seasoned investor making smarter choices with the money you’ve set aside.
- Diversify your sources of income. Next, be sure to diversify your business’s sources of income. This is very similar to diversifying your investment portfolio; the goal is to leverage multiple sources with complementary strengths and weaknesses. That way you won’t be putting all your eggs in one proverbial basket and you’ll get much more consistent yields. If only one source of income for your business is threatened, you will have to fall back on the others. Consider offering additional products, additional services, or alternative forms of monetization like affiliate links to earn more money in different ways.
- Expect the unexpected. Don’t let overconfidence get the better of you. Always assume that your knowledge is incomplete and that unforeseeable events are always imminent.
- Watch your competition carefully. Competitors can help you understand the state of the market and what’s to come. If you notice your competitors investing in a particular area or rearranging their priorities, take note. Maybe it’s time to do the same.
- Adopt new technologies. Being equipped with the latest technology can help you stay up to date and have the efficiency needed to thrive in a challenging environment.
- Stay nimble. Stay agile in your business. It’s nearly impossible to predict what the future holds for your business. So your best strategy is to stay adaptable, so your business can flexibly adapt to whatever comes next. Decentralizing your decision making, hiring creative problem solvers, and avoiding excessive debt or investments can help you achieve this.
- Get involved in complementary businesses. If you have reason to worry about the future of your business, or just want to play it as safe as possible, engage in a complementary business. For example, during times of economic recession, people often give up buying luxury goods; if you sell luxury goods, you might benefit from investing in a company that sells cheaper products in the same niche.
- Create backup plans. Finally, create backup plans. If your business is no longer able to function normally, what will you do? Is there a way to pivot the business to a new model?
Black Swan events, fortunately, tend to be rare. You may not see such rare occurrences throughout the operation of your business. But all it takes is one major disruption or unforeseen development to jeopardize the very existence of your business and threaten your ability to generate revenue. Make sure you have safeguards and redundancies in place to ensure your survival even in the worst case scenario.