The Roman satirist Juvenal used the black swan to describe something so rare that it practically does not exist. And for more than fifteen hundred years that was Europe’s certainty. All swans are white! Until 1697, when the expedition of the Dutchman Willem de Vlamingh came across black swans in Western Australia. A single observation. That was enough to bring down a certainty of centuries!
It was on exactly this image that Nassim Nicholas Taleb built his theory of the Black Swan in 2007. According to Taleb, a black swan is an event that combines three characteristics. It is highly improbable on the basis of our experience, it has enormous consequences and, finally, once it has happened, we explain it as if it had been predictable.
Someone may now ask, and rightly so. What does all this have to do with my business? My personal view is that it has everything to do with it. Every business, small or large, will sooner or later meet its own black swan. So the question is not whether it will happen. The question is what condition it will find the business in!
Let us not forget that five centuries before Taleb, Machiavelli had already described the phenomenon. Those who have read my book “Conversations with Machiavelli” know that the dominant characteristic of his work is realism. The Florentine moves constantly between what ought to be done and what is actually done. And Fortune is perhaps the best example.
In chapter 25 of “The Prince” he argues that Fortune, fortuna, governs perhaps half of our actions and leaves the other half to us. And he compares it to a raging river which, when it swells, floods the plains, uproots trees and tears down houses. The river does not stop. The prudent leader, however, can build dams and levees while the weather is calm, so that when the flood comes it is channelled away or loses its force. Five hundred years later, Taleb says exactly the same thing. You cannot predict the black swan. But you can prepare for its existence!
And this is precisely where the trap lies. Business plans, budgets and forecasts essentially describe what ought to happen. The black swan comes to remind us of what actually happens. And modern management has learned to see every margin as waste. Minimal stock. A single supplier, the one with the best price. The big customer who “carries” the turnover. Cash worked down to the last euro. Under normal conditions, all of this improves the profitability ratios. Right? Right! Under normal conditions, though.
In March 2021 a single ship, the Ever Given, blocked the Suez Canal for six days. The result? Disruption to supply chains all over the world. Chains that had been designed to carry nothing superfluous had, by the same token, nothing with which to absorb the shock.
Let us make this a little more concrete for our own market. What share of a Greek small or medium-sized company’s turnover passes through a single customer or a single channel? How many months of operation does its cash cover? Is there a second supplier for the critical raw material? In the language of the balance sheet, Machiavelli’s levees look like “idle” capital. In the flood, though, they are the only thing that counts!
But let us go a little deeper. There is a distinction that is uncomfortable, yet we owe it to ourselves to make it. In 2016, with her book “The Gray Rhino”, Michele Wucker established the term “gray rhino”. Meaning what? A risk that is large, probable and entirely visible, charging straight at us while we pretend not to see it.
The conclusion is awkward, but I will say it. Most “unforeseeable” crises in business are not swans. They are rhinos! The dependence on that one customer. The ageing production line. The successor who was never prepared. And when we baptise them swans, what are we really doing? We are absolving management of responsibility for its inaction. Does anyone disagree? I believe not.
Rhinos are like an illness. If you detect them early, treating them is relatively easy. But if you let them run their full course, it is hard for any medicine to cure.
And after the crisis comes the most dangerous part. Suddenly everyone “saw it coming”! The board drafts a neat narrative of causes, warning signs and lessons learned. Taleb calls this the narrative fallacy, while psychology knows it as hindsight bias. Both lead to the same illusion. That next time we will predict it.
So the organisation prepares for the crisis that has just passed. It adds an indicator, a procedure, a committee, while the next swan will come from somewhere else. The result? The wrong starting point leads to the wrong destination! The right question is not “what should we have seen?”. It is “how fragile were we in the face of something we could not see?”.
So what is left to the leader if prediction fails? The levees are. First of all, the rhinos. Before any extreme-risk scenario, let us list the visible risks, the ones everybody knows about and nobody manages. They are also the cheapest to deal with.
Second, resilience instead of prediction. The question is not “what will happen?” but “what would finish us if it happened?”. Liquidity, alternative suppliers, a broad spread of customers. That is the insurance premium for survival!
Third, the barbell strategy, as Taleb calls it. The bulk of the resources in very safe options and a small part in bold bets, avoiding the “middle” zone of moderate risk. The damage stays limited. The upside does not.
And finally, exposure to positive swans. Because not every swan is a disaster! Small, cheap experiments in new products, channels or markets increase the chances that one of them will take off unexpectedly. In “Antifragile” (2012) Taleb goes one step further and describes systems that not only withstand turbulence but grow stronger through it. That, in my view, is the highest goal for any organisation.
Black swans will come, and no business plan will show them to us. Timing does not matter. What matters is what we built while the river was flowing quietly. Because Leadership is not judged in the middle of the storm. It is judged in the quiet years, when everyone is in a hurry to tear down the levees because they “cost money”!
I will close with the words of the Master, as I recorded them in our own conversation:
“My intention was to write something useful and to reach the real truth of the matter, by showing that what ought to be done is one thing and what is actually done is another!”
— “Conversations with Machiavelli”