Entrepreneurs are known risk takers and move according to their future insights into the tumultuous world we live in.
But what happens when something unexpected happens? Something so unpredictable or bizarre that all bets are off.
In this article, we look at so-called “Black Swan” events and what entrepreneurs can learn from them.
Here goes…
What Is a Black Swan Event?
Historically, the term Black Swan event originates from the 17th century. Before that time, it was assumed that all swans were white.
It was not until European explorers reached Australia that they soon realised that something that was once deemed impossible, a “Black Swan”, was indeed a reality.
Minds were blown, and the term gained cultural and philosophical meaning, indicating something that is deemed impossible until sufficient evidence proves otherwise.
The phrase ‘Black Swan’ is first seen historically in a Latin expression of the 2nd century, “A bird as rare upon the earth as a black swan”, “rara avis in terris nigroque simillima cygno“.
The Black Swan event was also popularised by former Wall Street trader and scholar Nassim Nicholas Taleb in his 2007 book The Black Swan: The Impact of the Highly Improbable.
The concept has since become the cornerstone of economics, risk management, sociology, and political science. So, in essence, a ‘Black Swan’ is a rare breed, something that is not everyday. But should it be feared?
The answer, as far as entrepreneurs are concerned, is that Black Swan events do indeed cause upheaval and demolition of the existing norms, but these events also create brand new opportunities.
Qualities of a Black Swan Event?
- Rare and Unpredictable – A Black Swan event lies outside the realms of the expected. Nothing in the past usually points to the possibility of the occurrence of such an event. If there are indications or individuals pointing to the possibility, they are in the minority and ignored or ridiculed.
- Extreme Impact – A Black Swan Event will disrupt systems. Including economic, social, technological, religious or political.
- Retrospective Predictability – Post Black Swan event, analysts will claim that it should have been obvious, even though they claimed it was impossible beforehand.
Black Swan events reveal the biases of the human mind and weaknesses in the way we forecast the likelihood of future events.
These events highlight the dangers of relying solely on historical patterns and believing that the world behaves predictably.
Examples of Black Swan Events
1. The 2008 Global Financial Crisis
The 2008 crisis shocked the global economy. Prior to that event, many economists believed the financial system was stable.
The crises caused mass unemployment, business failures and trillions of dollars in wealth annihilation.
The event reshaped financial regulation and highlighted the fragility of seemingly secure systems.
2. The COVID-19 Pandemic
The spread of a worldwide virus, some argue, was predictable. However what was not predicted was the scale of the response.
By early 2020, the virus had spread across continents, and governments began to effect, a global shutdown.
Billions of people were on lockdown, told to stay in their homes, and economies shut down, leading to collapsing supply chains and overwhelmed healthcare systems.
The pandemic led to historic government stimulus programs, accelerated digital transformation, and shifted work culture toward remote and hybrid models.
3. The Rise of the Internet
We now all take the internet for granted, but prior to its explosive growth, few understood or expected the scale of transformation the global network would bring.
The rise of the internet is an example where opportunities were created by a Black Swan event.
The internet created entire industries, such as social media, e-commerce, streaming entertainment and disrupted others, from newspapers to retail.
4. The September 11, 2001 Attacks
The 9/11 attacks dramatically reshaped global politics. The intelligence agencies did not expect a terrorist event on the scale of what transpired on September 11th 2001.
The event led to new security measures, new laws and of course wars and conflicts globally.
5. Bitcoin and the Rise of Cryptocurrencies
Bitcoin’s rise has startled and rocked many economists, investors and even nation states.
The digital currency was initially dismissed as just a fringe experiment. But has grown from nothing into a 2 trillion dollar asset class.
Its growth was unpredictable and had profound economic implications.
What Can Entrepreneurs Do?
Black Swan events by their very nature are unpredictable, but that does not mean that, as entrepreneurs, there is nothing we can do to prepare.
Here are some tips:
Build Financial Resilience: Maintain cash reserves, avoid excessive leverage or debt. Diversify revenue streams.
Develop Adaptable Business Models: Use digital-first operations where possible, and use multiple strategies in your business. Use processes that can be pivoted easily if necessary.
Keep an Eye on Early Signals: Track emerging trends. Listen to industry groups, thought leaders and advisors. Ask yourself “what if?” questions and come up with solutions prior to the event.
Diversify Supply Chains and Partnerships: Over-reliance on one supplier could be fatal. Use multiple suppliers. Explore both local and global options.
Invest in Technology: Black Swan events often accelerate technological change. Having your technology in place could help you pivot should the worst happen.
Stay Humble and Expect the Unexpected: No matter how experienced we are, there is always something new to learn. Black Swan events force us into change. Review insurance, legal contracts, and take on fewer risky commitments. Be open to adaptability and doing things differently.
Final thoughts
Black Swan events are by their very nature a rare breed. Entrepreneurs should be prepared but not afraid, as these events can bring tremendous opportunities for forward-thinking and brave entrepreneurs.
By building financial resilience, being adaptable and diversifying, entrepreneurs should aim to protect themselves from potential risks.
While we cannot exactly predict these events, we can be certain that at some point the unexpected will happen.
With that in mind, entrepreneurs who are humble and embrace change are more likely to navigate any future uncertainty.
Good luck!
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