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:
- Set an end goal
- Build a plan to reach that goal
- 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.
