Business Planning and Black Swans
Have you read Nassim Nicholas Taleb's The Black Swan*? It's a great book. It should be required reading, especially for business planning and management. The black swan is the big event we didn't predict, that we couldn't have predicted, but that we convince ourselves, after the fact, that if we'd only read the signs right, we would have known.
The black swan is 9/11. It's that big crash in 2008 and 2009. It's that huge wave of reality that surprises everybody and changes everything. And, by definition, it's not in your business plan.
The best planning isn't about accurately predicting the future. It's about keeping long-term and short-term and all those business interdependencies organized so you can manage them quickly and effectively when you have to.
For example, say you're running a business planning software business when the economy crashes in the Fall of 2008. Of course the crash wasn't in your business plan. Now what? Has all that planning been a waste of time? Would you have been better off not planning at all?
No, quite the contrary; your planning is even more important when the black swan appears. If you have a business plan in place, and you've been managing a planning process, you can adjust. 'Oh no. Sales are way down. How do we react?' Look at your plan: you've got budgeted spendings right there. You've been tracking how sales are down, in which lines, so you can quickly react with inventory and direct costs, related overhead, and appropriate adjustments in sales and marketing expenses.
Without the planning process already in place, when the big unexpected hits, it takes a ton of special analysis to figure out what it means and how to react. So here we are in a crisis situation, in need of quick action, but without the information that might help us piece together the possible causes, the possible alternative actions to take, and so on.
So what are the action points here?
- Make sure you have a plan. Form follows function, do you don't necessarily need a full formal plan; but you do need a good reference to long-term goals, strategies, focus, marketing programs, and basic numbers including projected sales, costs, and expenses.
- Keep the plan alive. It's the planning that matters, not just a plan. Take an hour or two each month to review the plan, key assumptions, and what's change.
- Never do anything just because it's in the plan. Stay alert, aware, and flexible. Planning manages change.
- Never stop watching. Expect the unexpected. Planning helps you notice when things go awry. It's part of your early warning system.
* not a government website
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