Black Swan planning

17Jan11

Okay so I didn’t go with the daily blog for 2011 as i thought that the discipline required for that was beyond me but Jeeze I thought I would cope with at least one a week. No, its a fail. In my defence however i am on track with my other commitments for 2011 and i can still make 52 blog entries in a year which is technically a pass. Plus I have finally finished the partnership tax returns so am now ahead of that (fun) game for the first time since 2005!

Anyway, the plan for Jan was fourfold; 1 – Get the partnership tax returns completed. Tick. 2 – Read at least one non-fiction a month. Tick (and passed with flying colours having nailed the whole Stieg Larsson Trilogy in the first ten days of the year). 3 – Get personal tax returns completed. Not quite / at all yet. And 4 – Update the Hoffi Barbershop business plans for the year ahead. Its the last one that I suspect may be the failing from January’s targets.

The main element that i update each year is the risks to the business and the warning signs to look out for. Its easy enough and I can, for example, forecast a 10% fall in sales (weather, inflation, recession, etc) a competitor opening up, a fire in the shop or other unlikely risks which i can plan around as potential scenarios. Its never been a problem doing this exercise over the last 5 years and it serves no purpose, other than making me feel on top of things. Basically its the same disaster recovery planning that any business would do.

However the dilemma this time comes from an excellent book I read last year, Black Swans by Nassim Nicholas Taleb. I was reading it from an investing    background as opposed to anything barber related to be honest and whilst i enjoyed it, it didn’t have any profound impact on my thinking at the time.  The  basic concept is easy to grasp in as much as it explores the disproportionate role of high-impact, hard to predict, and rare events that are beyond the realm  of normal expectations. His point being that when we plan, forecast or explain events we are doing so based on our understanding of normal  circumstances and ‘normal’ probabilities. So, for example, had I been going through the above exercise in 2000 and been unfortunate enough for Hoffi to  have been in the shadows of the World Trade Centre what hope would I have had of predicting the event and, to be less highbrow, WTF would I have done  in prep anyway? Who in all the business owners based in NYC at that time would have planned for such an event (and if they had then no doubt they  would have got a subsequent visit from the FBI).

This is my point regarding Black Swans, where do you actually draw the line? How do you hope to predict them or is that actually the point in the first place? Is the point that its futile to try and plan when you really cant imagine the type of events that would truly turn the business on its head – so therefore why waste the time. I can plan for competitors, I have price cuts and loyal clients in the toolkit for that eventuality. I can plan for new technologies muscling into the barber space, actually i cant but that would be a hell of a black swan if we are to get robot barbers in the next 12 months. What I can’t plan for is unknown ‘game changers’.

We are in Fenchurch Street, right in the heart of the City of london, this must be one of the top terrorist targets in the world but would that even count as a black swan? Bar anything happening within 100 yards of the shop we’ve already had it twice in the last decade to varying degrees. If i was to plan for Aliens turning up in London with a laser gun that turned all men bald then you’d think me a idiot but I am finding it really hard to identify what might happen somewhere in the middle. So whilst i know that something will happen and i won’t actually see it coming I have no way of planning for it.

Therefore I conclude that I am going to bin the planning process after all. There is as much chance of me predicting the Black Swan as there is of a 10% fall in sales so I might as well plan equally for both, and not bother with either.

So another tick in the box, and back to the tax returns!

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Tags: Black Swan, business plans, Nassim Nicholas Taleb