Jimi Smoot Entrepreneur / Software Engineer

Economic downturns can benefit you business

Do you every wonder why some people who have had incredibly difficult and intense life experiences end up being so successful?

Or why some organizations seems to thrive in completely chaotic environments? While others, often those that appear more experienced or competent, seem to panic and crumble in times of change?

There is actually a formula for this confusion and Nassim Taleb (author of The Black Swan and Fooled by Randomness) has cracked the code.

In his book Antifragile Taleb explores the idea that some structures, across business, culture, and even biology, actually benefit from shock, volatility, and randomness. He goes on to say that those things which profit from this disorder have a distinct quality that can be considered the opposite of fragility.

Whilst the common idea is that something that is not fragile is strong, Taleb proposes that it is not strength, structure, or rigidity that are the opposites in this case. These qualities, that you might call robust or resilient, can allow you to survive shock, but they don’t actually benefit from the experience.

As opposed to fragile items, which will shatter when they are met with stress or shock, something that is antifragilewill grow and profit from the chaos.

Being antifragile is not being resilient. Being resilient means that you withstand shock, being antifragile means you gain from it and this is a key difference between the two.

The analogy Taleb draws is from the Greek myth of the Hydra, a many headed serpent which haunted the ancient world. Every time someone would cut off a head of this beast, two would grow back meaning every time Hydra was shocked or stressed, it would bounce back even fiercer and more threatening than before.

The business of a fragile economy

In environments that are dictated by unpredictability, we often see a type of chaos that we as businessmen and women, look to avoid. However, it is from this disarray that we often see greater creativity and growth.

The traditional way of doing business is an example of a fragile model, as was the economic system in place prior to the 2008 market crash. But what we are now seeing through the development of new technologies are digital models decentralized, chaotic and antifragile.

Antifragility requires that some of the parts of a system, those that are fragile must be able to be sacrificed. For example, as exponential technologies level the playing field in business, the average life expectancy of traditional corporations are decreasing, with many going under.

However, this chaos brings new entrepreneurs to the scene, allowing for novel and innovative ideas and ways of doing business. It also forces the old culture to rethink its position going forward. The result is that some companies fail, while the digital economy as a whole continues to grow.

So all of this raises a fundamental question:

How can your business become Antifragile?

To become antifragile as an organization you must follow a few principles. What follows are some interpretations of the points that Taleb makes in the book and how I believe they might apply to business.

Don’t overanalyze opportunities

As Taleb points out, it is a common mistake for businesses to underestimate the role that chance plays in the market. Therefore when opportunities do arise particularly unexpected ones it is easy for businesses to spend too much energy focusing on why. You may be so drawn to make sense of the chaos that you waste energy doing so and miss the boat. In this instance, too much worry, wonder, or hesitation will make you fragile.

Structure your organization in a way that prepares it for unexpected opportunities, with allocated assets for such situations, and a company culture that understands the reality of unpredictability and the necessity of acting on instinct.

Make your teams as small as possible

Small teams are usually more effective in a fragile and chaotic environments. This is partly because focus and cohesion is much easier to maintain with smaller teams. It is why guerrilla regimes and terrorist organizations are able to take on multi-trillion dollar governments with well funded standing armies.

Despite their size, both Apple and Google strive to do this and they know that their continued dominance is dependent on it. Small and autonomous teams are more creative, generally more productive, and are more apt at making quick decisions in high pressure situations.

Face risks head on and plan to minimize them

To be fragile in business is to bury your head in the sand. Be stoic in your philosophy, prepared to stick to your guns when handling both gains and losses but not becoming too distracted or impacted by either.

Taleb suggests ensuring that 90% of your assets are safe against unexpected factors such as a market collapse, whilst 10% should be allocated towards risk taking in high volatile situations. This, he suggests, is much more antifragile than putting 100% of your assets in an area of medium risk, where you still stand to lose everything.

Embrace volatility and plan for the long term

This is as much an attitude as it is a practice. To embrace volatility is to value change. In order to do this you must have a long term vision and reframe any disruptions under the question how can this benefit us in the long run?

Rigidity in business and a fear of change is often a result of an imbalanced focus on the short term over the long. This is a fundamental problem with businesses that must cater to shareholders. They are guided by the need to make immediate short term gains, and it thwarts their decision making and causes them to be fragile.

If you do all this what will this antifragile attitude bring you:

  • Your decision making will be faster and more efficient
  • The choices for you and your team won’t be determined by fear
  • With the reduction of fear and worry of the uncertainty comes the mental space to allow for a clarity of purpose
  • Less fear and quick decision making will give you momentum that propels you forward
  • Over planning will largely be eliminated
  • Your organization will be more grounded in reality, and ok with the answer I don’t know€

To become antifragile is vital, particularly in today’s business landscape.

Discuss with your team how you can incorporate the suggestions above, and you’ll be able to take a step towards a more sustainable and creative attitude towards volatility.

Tags: antifragile, management, and risk