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How Your Startup Can Prepare for Black Swan Events

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Analysis of historical patterns doesn’t always accurately predict the future. Economists, historians, politicians, and armchair philosophers all try their best to interpret historical data and make predictions about what’s coming next. We believe that real estate prices will always continue to rise, because they always have. We believed that pandemics weren’t a true existential threat, because we hadn’t faced a significant one for decades.

Inevitably, events unfold that challenge our assumptions and disrupt the norm. If your business isn’t careful, one of these “black swan events” could completely jeopardize the integrity of your business, causing disruptions to your revenue generation and potentially compromising its future.

So how can your startup prepare for black swan events when, by definition, they’re unpredictable?

What Is a Black Swan Event?

The term “black swan event” was coined by Nassim Taleb in 2001, describing rare and unpredicted events that violate historical norms and challenge expectations. A classic example of a black swan event is the 2008 economic crisis, in which housing prices plummeted, the stock market crashed, and the global economy entered a major recession.

Many businesses collapsed because they weren’t prepared for such an eventuality; instead, they believed that everything would just continue as usual, indefinitely.

Your business doesn’t have to follow the same fate.

How Your Startup Can Prepare

So how can your startup prepare for potential black swan events?

  • Build up your personal finances. First, make sure you build up your personal finances. Having more money set aside in an emergency fund and in a retirement portfolio will equip you with a financial cushion you can utilize if the business ever goes under. You can also tap into this wealth to invest in the business if you have a plan for how to turn things around.

You don’t have to be an expert in candlestick patterns to learn the basics of investing; a few hours of research is all it takes to get a grasp of the fundamentals of topics like compound interest, financial leverage, and risk tolerance. After a few years of experience, you’ll be a seasoned investor making smarter choices with the money you set aside.

  • Diversify your income streams. Next, make sure you diversify the income streams in your business. This is very similar to diversifying your investment portfolio; the goal is to take advantage of multiple sources with complementary strengths and weaknesses. This way, you won’t be putting all your eggs in one proverbial basket, and you’ll see much more consistent returns. If any single revenue stream in your business is threatened, you’ll have the others to fall back on. Consider offering additional products, additional services, or alternative forms of monetization like affiliate linking to make more money in different ways.
  • Expect the unexpected. Don’t allow overconfidence to get the better of you. Always assume that your knowledge is incomplete – and that unpredictable events are always just around the corner.
  • Watch your competition closely. Competitors can help you understand the state of the market – and what’s coming down the line. If you notice your competitors investing in a particular area, or rearranging their priorities, take notice. It may be time to do the same.
  • Adopt new technologies. Being equipped with the latest technology can help you stay current – and have the efficiency necessary to thrive in a challenging environment.
  • Stay agile. Stay agile in your business. It’s almost impossible to predict what the future holds for your business, so your best strategy is to remain adaptable, so that your business can flexibly accommodate whatever comes next. Decentralizing your decision making, hiring creative problem solvers, and avoiding excessive debt or investments can help you do this.
  • Get involved in complementary businesses. If you have reason to be concerned about the future of your business, or if you just want to play it as safe as possible, get involved in a complementary business. For example, during periods of economic recession, people often forgo purchasing luxury goods; if you sell luxury goods, it could benefit you to invest in a business that sells cheaper products in the same niche.
  • Create backup plans. Finally, create some backup plans. If your business is no longer able to operate normally, what will you do? Is there a way you can pivot the business to a new model?

Black swan events, thankfully, tend to be few and far between. There’s a chance you may not see any such rare events throughout the entire course of your business’s operation. But all it takes is one major disruption, or one unforeseen development, to challenge the very existence of your business and threaten your ability to generate revenue. Make sure you have safeguards and redundancies in place to ensure your survival even in the worst-case scenario.

 

Kossi Adzo is the editor and author of Startup.info. He is software engineer. Innovation, Businesses and companies are his passion. He filled several patents in IT & Communication technologies. He manages the technical operations at Startup.info.

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