Business leaders must ask themselves: How do you prepare for something that’s impossible to predict?
It’s the thing that keeps many leaders awake at night. The sudden, unforeseen disruption out of left field that they haven’t – couldn’t have – prepared for.
A ‘black swan’ event – a term based on an ancient Latin expression that presumed these birds did not exist – could be anything from a natural disaster to a war, a financial crash or the outbreak of a new virus. And it has severe consequences.
“First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility,” writes Nassim Nicholas Taleb, a former Wall Street trader, in his book The Black Swan: The Impact of the Highly Improbable. “Second, it carries an extreme impact (unlike the bird). Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact.”
Just how do you prepare for something that’s impossible to predict? How can you formulate strategy in the face of uncertainty? These are the fundamental questions business leaders must ask as they prepare for the future.
“While there are many uncertainties, some will be related to trends or questions that we are aware of. These are the ‘known unknowns’, and we can plan for them,” says Willem Sels, Global CIO, HSBC Global Private Banking. “By planning for and mitigating the risks around the big trends we can anticipate, we narrow down the scope of those we can’t – the real ‘unknown unknowns’.”
So even if we can’t know what – or when – the next black swan event will be, lessons from the past can show us how to be ready for them, and how to build resilient businesses and investment portfolios. Here are seven steps to build a strong, agile business that can withstand unexpected shocks.
1. Play the unpredictable
Businesses and investors are using ‘speculative design’ to help them envisage and plan for threats and opportunities they might never have imagined.
In Speculative Everything, authors Anthony Dunne and Fiona Raby explain that this form of design thrives on imagination, which opens up new perspectives and creates space to discuss and debate. Speculative design is intentionally provocative, they write, pulling on “fictional worlds, cautionary tales, what-if scenarios, thought experiments, counterfactuals, reductio ad absurdum experiments and prefigurative futures”.1 Business leaders are encouraged to suspend their disbelief and momentarily forget how things are now, and wonder about how things could be – getting there before reality does.
Companies such as Tesla, Google, Disney, Microsoft and Apple use this practice to rehearse the future. “It’s a way of visualising forks in the road and what futures might be down them; like a movie trailer that shows what’s coming, depending on how you make the film,” writes Golden Krishna, head of design strategy at Google’s Platforms & Ecosystems group. “The idea is to depict wildly different outcomes from which Google can then pick its direction.”2
2. Change or be changed
Revisit plans often. Update, pivot and evolve them to keep pace with the changing world.
68 per cent of entrepreneurs adapted their business plans during the first half of 20203 – from calling on capital to investing in digital transformation. Others left it too late.
Jan Cavelle, author of Scale for Success: Expert Insights Into Growing Your Business, believes firms must radically change how they view themselves. “Businesses should reform themselves as problem solvers, constantly building new structures, systems and skill sets to cope with future disruptions and unexpected challenges,” she says. “The old style of business plan has become irrelevant.”
Flexibility, adaptability and diversification give you an advantage – and the means to take advantage of new opportunities as they arise.
3. Look for opportunity in disruption
Research from King’s Business School found that 40 per cent of entrepreneurs saw new business opportunities during the pandemic. More than 70 per cent expect to create new jobs over the next five years, and nearly half believe the pandemic could have a positive impact on their business in the long-term.4
Take Alex Hayes, for example, the co-founder of Concept Asia, which manufactures coats and jackets for retailers including Asos, Jack Wills and TK Maxx. “We were completely blindsided by the pandemic,” he says. “Overnight, our factory in Shanghai closed down and we were bracing ourselves for a 60 per cent drop in revenues.” But he turned panic into productivity, launching a new online menswear brand called Wear London, manufacturing in the UK and selling directly to consumers for the first time.
Wear London currently has two pop-up stores in London, with plans to open more across the country, and is on track to hit GPB1 million in turnover next year. “With the demise of many high-street retailers, we see an opportunity to fill the gap,” adds Hayes.
4. Sustainable = future-ready
Fact: companies that focus on sustainability are more robust and tend to outperform their competitors in the medium to long term. Our research found that stocks and bonds with higher environmental, social and governance (ESG) scores outperformed between 2010 and 2020.5
In the September–October 2020 issue of Harvard Business Review Magazine, George Serafeim, the Charles M. Williams Professor of Business Administration at Harvard Business School, writes: “Companies are likely to be more resilient in the face of unexpected shocks and hardships if they are managed for the long term and in line with societal megatrends, such as inclusion and climate change.”6
ESG integration can create competitive advantages, and business leaders that prioritise it will help to solve some of the world’s biggest challenges.
5. Purpose drives performance
A common thread among companies that have weathered storms most successfully is an authentic, purpose-led approach. What value do you get from your business beyond the balance sheets? How do you want to be remembered?
“There is immense value in taking the time to clearly articulate your values and purpose” says Carly Doshi, Americas Head of Wealth Planning and Advisory, HSBC Global Private Banking. “During a crisis, organisations are able to use their values and purpose as a ‘North Star’ to inform decisions and avoid knee-jerk reactions.
“Resiliency requires flexibility, and businesses that thrived during 2020 were able to endure change – even dramatic change – without succumbing to the fears and uncertainty that black swan events bring.”
Rupert Pick, founder of marketing agency Hot Pickle and creator of Work for Good, a fundraising platform which helps small businesses donate to charity, adds: “Purpose drives loyalty and advocacy. It improves a company’s balance sheet. It helps companies to attract and retain staff. And it gives organisations clarity, which is particularly powerful in moments of great change or crisis. If you put purpose first, the profits will follow.”
6. Look beyond your comfort zone
A laser-sharp focus may put you on a narrow path.
Instead of relying on your existing networks, make sure you surround yourself with people who can bring different experiences, perspectives and approaches to the table. They will challenge stale ways of thinking and approach problems from different angles.
Because research shows that diverse and inclusive teams are more creative and innovative, and make faster, better business decisions.
According to McKinsey’s Diversity Wins report, companies in the top quartile for ethnic and cultural diversity outperformed those in the bottom quartile by 36 per cent in profitability: “Some companies appear to be viewing [inclusion and diversity] as a ‘luxury we cannot afford’ during the crisis,” write the authors. “We believe such companies risk tarnishing their license to operate in the long term and will lose out on opportunities to innovate their business models and strengthen their recovery.”7
7. Plug yourself into a network of expertise
At HSBC Global Private Banking, we know successful businesses and understand the entrepreneurs, owners and leaders behind them like no one else.
Access to our deep global network means we’re able to take a bird’s eye view of your business world and personal world, bringing you new opportunities and skilful guidance to complement your own expertise.
We cannot be certain of the future, but HSBC can help you prepare.
1Speculative Everything: Design, fiction, and social dreaming, Anthony Dunne and Fiona Raby, The MIT Press, 2013↩
5HSBC Asset Management, data from March 2011 to December 2020 ↩