Recently, this news appeared in Calcalist: https://www.calcalist.co.il/calcalistech/article/h1e00l6vujl
The company encountered an unexpected series of events and filed for bankruptcy.
These highly unexpected events that the company had to deal with reminded me of a book I once read.
In 2007, Nassim Nicholas Taleb introduced the concept of “Black Swan events” through his groundbreaking book “The Black Swan.” Since then, this theory has become increasingly relevant in business, especially as global markets face unprecedented challenges and disruptions.
What makes an event a Black Swan?
A Black Swan event is characterized as an extremely rare and unpredictable occurrence with far-reaching consequences.
Additional examples of Black Swan events:
The 2008 financial crisis grew from what appeared to be a stable housing market and led to the collapse of major financial institutions and a global economic recession. While there were warning signs, the intensity of the crisis and its interconnections caught most experts unprepared.
The COVID-19 pandemic. Despite previous warnings about potential global health crises, few businesses were truly prepared for the widespread disruption in supply chains, consumer behavior, and work patterns that followed.
The dot-com bubble burst in 2000 also caught many unprepared, as the seemingly inevitable rise of internet-based companies came to a dramatic end, wiping out billions of dollars in market value.
So what did Taleb do?
Nassim was a trader in U.S. stock markets and identified a certain market cycle – there’s one major overall drop every few years in the total value of companies following what he called a Black Swan event. Nassim, like in the movie “The Big Short,” decided to short the markets based on recognizing the potential profit hidden in such a fall. Unlike the movie, he understood that the reason for the crisis wasn’t relevant, and the timing was less interesting – only the fact that the probability of a crisis from any cause is 1, meaning absolute certainty in a long enough timeframe.
How do you deal with Black Swans?
By nature, you can’t predict such events. But as Taleb understood, you can be prepared not for a specific event but for the idea of an extreme event with global impact.
In the three examples I gave, they all have a clear signal for businesses: in the short term, there’s a need for fundamental change in how you operate.
Just as Gardnox had to deal with the cancellation of most investments in rounds since COVID, every company needs to ask itself how it should react in case of an extreme event (or chain of events).
Preparing for the Unexpected
While it’s impossible to predict specific Black Swan events, businesses can take steps to better position themselves:
Scenarios
In one of my first jobs (which ended in a very nice exit), the CEO liked to ask questions like “what would happen if tomorrow we fired all of team X” (frontend, marketing, finance, etc.). The idea was to examine an extreme scenario where a certain part of the company ceased to function and check how we could respond in the immediate term (the assumption was that in the long term, we could recruit the missing team again).
I really like (today, not so much then) questions of this type:
What if the next funding round succeeds six months later than planned?
What if we only raise half of what was planned?
What if we don’t increase ARR this year?
What if we discover the PMF isn’t as fit as we thought?
Cultural Readiness
Building a culture that accepts uncertainty and maintains adaptability is critical. This includes:
– Encouraging diverse opinions
– Maintaining open communication channels
– Fostering innovation and experimentation
– Building strong leadership capabilities at all levels
I’ve written before about organizations that built response capabilities in middle management, and as an organization grows, this is in my opinion one of the most important capabilities.
Identifying Opportunities
Most of us here are still at a stage where organizational change is relatively possible (even if painful). It’s easier to pivot an organization of 20 people than one of 20,000 people.
Scenarios don’t have to be pessimistic; you can think about how your organization can emerge stronger.
Creative Disruption
The idea is that instead of waiting for another company to come and create a better product than yours (someone said Deepseek?), the company proactively launches a product every so often that completely disrupts the market of its existing product. iPhone versus iPod, Netflix when it switched from mail-order DVDs to streaming are “one-time” examples (meaning there’s no periodic repetition of the disruption). Gillette (with the transition from one blade to two and then three, etc.) was commonly cited, but I think the best example recently is Fortnite. Each “chapter” completely turns the game on its head, adds and changes player behavior within the game, and keeps the game relevant and up-to-date (and therefore less exposed to competition from new games).
In other words, if you create your own Black Swans, you’re less sensitive to external events.
Summary
Black Swan events remind us that the business world is inherently unpredictable. While we cannot prevent or predict these events, we can build organizations that are better prepared to deal with them and even thrive in their aftermath. The key is not in trying to predict the unpredictable, but in building strong and adaptable organizations that can respond effectively to any challenge that arises.
Success in dealing with Black Swan events is usually based on organizational culture, leadership quality, and the ability to maintain both stability and flexibility. By recognizing the reality of these extreme events and preparing accordingly, businesses can better position themselves for survival and long-term success in an increasingly uncertain world.