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Leading Through Chaos: The Leverage for Change

What came before: In part 1, we saw that chaos is a problem because it makes prediction hard. A barbell strategy helps us make it through. In part 2 we dealt with risk of ruin, and part 3, covered upside opportunity.

I’ve been talking about what you need to work through a time of turbulence. It involves planning (or not-planning) differently. That means actually changing the way you do things.

These mindset shifts are easy enough to do when it’s just you, but if you have a team, it gets way harder.

Narrator: these were not “easy enough to do” when it’s just you.

But there’s a lever. When you’re adapting an organization to new challenges, there’s one place where a small tweak can snowball into large organizational shifts.

The lever requires leadership, and a different emphasis on how you show up as a leader.

But before we can talk leadership, you need to understand the lever. It’s one that you use a dozen times a day…

The Moment of Truth

At my first management job, I was chose to join several company executives in a training with W. Edwards Deming. Deming founded the Total Quality movement which revolutionized Japanese manufacturing, and then American.

Deming taught us how to improve the quality of our work, systemically. We learned sexy, exciting things like cause/effect fishbone diagrams and statistical process control charts.

Our spouses were thrilled by our newfound dinnertime conversation!

Narrator: Their spouses were not thrilled.

When we got back to the office, someone reported that our product was hard to install. I ran to a vice president who had been at the workshop.

“This is the perfect time for us to set up a Deming system with my team! Let’s do it!”

“No,” he said. “There’s no need. What we learned will emerge from our work organically.”

(Ah, yes. The famous “statistical process control charts emerge from our work like Venus emerging from the sea” principle. I can’t even write the sentence without rolling my eyes so hard my glasses fall off.)

What he did was make a decision, the decision not to keep doing what he did. He could have decided to try a statistical process control chart. That decision make the difference. Or in this case, the sameness.

Two roads diverged in a wood, and I—I took the one less traveled by, And that has made all the difference. — Robert Frost

When you make a decision to take one road over another, it can be minor for the first few steps. The other road is still visible. A few more steps, and the other road fades from sight. Pretty soon, you’re somewhere new and different, far from where you would have been.

To weather the storm in a business, the magic is in how they decide

If you want to change behavior, change decisions. It’s possible.

I learned from VICI Partners, a consulting company that has perfected the art of changing companies by changing their decisions.

Their method works. They have a perfect decades-long track record of helping companies change decisions. The proof? Their clients get a minimum profit boost^[1] of 30–80% in under a year, whether it’s a $50 million company or a $20 billion company. And they charge based on results, so they’re highly motivated to do what works.

I like that! When I hear about results like that, I want to learn everything I can. Fortunately, the managing partner is a lifelong friend, and he put up with me asking him to step me through their process a piece at a time.

(I was so impressed that I’ve become a finder for them, so if you’d like an introduction, please request it through me.)

Reaching Decision Nirvana

Let’s explore their broadest framework—how long-term successful companies organize the decisions that lead to enduring success.

VICI’s decision-making framework looks at two dimensions of a company: (1) are decisions made from data or politics, and (2) can many people make decisions or is decision-making centralized.

The “Nirvana Zone” produces the outstanding results: data-based decisions, with many people free to make decisions. That’s where you want to be in times of turmoil.

That’s where we’ll focus. (You can read about the whole decision-making framework here.)

Amazon embodies the Nirvana Zone. Jeff Bezos encouraged many decision-makers to try things, with crystal-clear guidance to do what’s best for the customer. Amazon Prime and AWS Cloud Services were two of the small experiments. AWS now powers 40% of the Internet, and Amazon Prime is now a key element in Amazon’s profit-making strategy.

In short, you want NO POLITICS and MANY PEOPLE who can decide (and they need to be educated in order to decide).

The messages you need to give your decision-makers.

Now let’s apply this to what we’ve learned so far. You need to operate in a time when we can’t predict well: cover your downside and find unpredictable upside opportunity while using “affordable loss” so you can still sleep at night.

The challenge: aligning the decisions-making in your firm.

First, do a Nirvana Zone check. Who can make decisions in the firm? Do they base decisions on data, or politics, opinion, and whimsy?

If you’re not data-based with distributed decision-making, your first task is to start creating that culture. (Culture change is leadership stuff. That’s coming in the next installment.)

You’ll collect data that depends on your specific business. But among the data you want:

• What (possibly new) problems are customers struggling with?
• What are competitors doing?
• Which sectors are doing well?
• Which are faltering?

You’ll want many people who can make decisions from the data. You want them running experiments within your affordable less, to find and grab opportunity when they see it. Expect most to fail at finding the next great business opportunity, but done right, they should succeed at learning, which tilts the in your favor.

The upside opportunity comes from being a learning machine, while surviving long enough to find the path to long-term survival.

We’ve been talking systems and budgets. But people make up your company. Change like this needs more than management. It needs leadership.

… it’s leadership all the way down

Now that we know what we need to do, and how we need to be organized to do it, the final installment of Leading Through Chaos, will tackle what you as a leader—official or otherwise—need to do to put it into practice.

In the next and final installment, we’ll confront head-on the biggest mistake that many business leaders make and what you need to do to navigate through…

P.S. If you’re interested in learning more about organizational decision-making, leadership, VICI, or culture change, just drop me a line.

In part 1 we covered the need for predictability. We took Nassim Nicholas Taleb’s advice in part 2 to cover our worst-case scenarios.

Reader Shari Aaron asked: My business faces short-term disruption. Client budget approvals are very slow, due to so much uncertainty. How do you balance the need to keep your business healthy, when you believe it will come back once we have more clear direction on economics/tariffs, etc.?

We’ve already seen that priority #1 is Don’t Die! But don’t go into survival mode, just yet. Because even in survival mode, you need to keep the tools to rebuild.

You need to grab any upside that comes with turbulence. You can’t use prediction, remember. The rules are changing too fast.

I’ve personally never been good at ambiguity. My mind is orderly. It runs on plans. No plan? No problem. I’ll make a plan to create a plan. Then I’ll follow that. To my mind, it’s plans all the way down.

But when faced with things that can’t be planned, I freeze like a deer in headlights. Cold headlights. Subzero headlights. With a freeze ray. I really freeze.

I’ve always wanted to be able to plan for the unplannable. And after decades of searching, I learned there’s a way.

We have role models right in front of us who operate where the rules are unknown. Where opportunity is all around, and the skill shifts from predicting the future to shaping the future.

As it turns out …

Entrepreneurs Live in Uncertainty

It’s entrepreneurs! They do what we need! When they invent new products or open new markets, they don’t know how it will turn out. The successful ones limit their downside while grabbing opportunity. The very barbell we want!

Even better, we know how to think to do this.

Babson College has been the world’s #1 school in entrepreneurship since 1994. I worked with the President during their strategy redesign, and there learned about Entrepreneurial Thought and Action.

It start with Professor Saras Sarasvathy at the Darden School of Business. She found serial entrepreneurs with multiple successes. All had invented new products and markets. Prediction and planning were impossible.

Successful entrepreneurs limit their downside while grabbing opportunity

She gave them challenges and had them describe their approach to overcoming them. Successful entrepreneurs all used the same mindset. A mindset that captures good luck, while protecting against losses.

She called it “Effectuation,” an easy-to-remember, evocative name that instantly conveys deep meaning. Jk.

For me, it was love at first read (the concept, anyway. The research itself makes a great insomnia cure). It gave a framework! Not as good as a plan, but a way forward. A way to take action when faced with my dread nemesis, The Unknowable.

Acting Under Uncertainty: The Basics of Effectuation

We usually make decisions based on plans. Or the way we think the future will unfold. Effectuation complements that approach.

Where we can’t plan, we can effectuate. When plans work again, we reach for our beloved GANTT chart.

“Effectuation” is for whenever there isn’t a firm roadmap: starting a company, dating, writing a theatrical piece, launching a product, building a gigantic Burning Man art installation, learning a skill, or anywhere else you can think of.

Learn the Effectuation principles and apply them as needed:

Pilot in Plane. Don’t think about the future as something you predict; think of the it as something you shape. You’re not a passenger in the plane, you’re the pilot. You can change where it’s going by taking action. As business scholar Peter Drucker often said, “The best way to predict the future is to create it.”.

Bird in Hand. Textbook business development classes tell us how to make the future happen:

1. Set an end goal
2. Build a plan to reach that goal
3. Raise the money from investors to execute that plan.

But knowing a goal and plan requires prediction. Instead, try doing whatever you can with what you have on hand—from money to hard assets to relationships.

Identify how to invest the fewest resources to get the most learning to direct you towards the right course of action. Invest those. Then use what you learn to decide on another learning cycle or a switch into planning mode.

Crazy quilt. In uncertain times, listen to people who have skin in the game. Everyone has advice, even though they can’t predict any better than you can. Hold their advice lightly … unless they put skin in the game. If they’re committed enough to their ideas to put down money, time, or sacrifice, they’re worth taking seriously.

That doesn’t just mean doing what they say. It’s adding another relationship, another patch, to your quilt of committed stakeholders. The more people have skin in the game, the more you’ll support each other. You’ll all be motivated to roll up your sleeves, get creative, and make the business work together.

Affordable loss. To sleep well at night, never invest more than you can afford to lose. Once again, this addresses the “Don’t die!” barbell.

Every so often, review what you can afford to lose and still sleep at night. How much money? How much reputation? How much time? Then ask, “given what I can afford to lose, what can I do to make as much progress as far as possible?”

Combined with Bird-in-Hand, Affordable loss is how you choose a path forward that keeps you sane while keeping you solvent.

Lemonade. When life gives you lemons, make lemonade. When things don’t go the way you want, always be asking how to turn the new circumstances into advantage.

This is where you find the other half of your barbell, upside! When you are nimble—because you have limited your downside to your affordable loss—you can experiment when opportunity or brilliant ideas come your way.

Remember, everyone else is also without a roadmap and disoriented. So when you see a $100 bill on the sidewalk, grab it! Everyone else might be missing it because they’re too busy trying to figure out why their plans aren’t working.

Effectuation gives you a way to take short steps (the size of your affordable loss), with committed allies (crazy quilt), to direct your resources (pilot in plane, bird in the hand) towards seizing opportunity (lemonade), all while sleeping well at night (affordable loss).

Two colleagues and I trained in Effectuation. We then founded a company and ran it for a year and a half explicitly using effectuation. At its peak, we had a team of 14 people, an alpha-level product, and a total capitalization of less than $5,000.

What we know so far:

• Uncertainty makes it hard to plan. A Barbell strategy is how to survive.
• Don’t Die! Do make protection against risk of ruin your top priority.
• Effectuate with learning cycles to help spot upside opportunity.

If you’re changing how you plan, how you prioritize, and turning planning into learning cycles, you need to change the way you make decisions.

Next time, we’ll look at how your company can make high-quality decisions to go down possibly new, lemonade-covered paths.