Avoiding the Black Swan

I forced myself to slog through Nassim Nicholas Taleb’s bestselling book, The Black Swan, because I kept thinking there would be valuable marketing insight tucked away. And I guess that’s true, even though Taleb makes it very hard on the reader to discover insight.

On one hand, he ridicules economists, investment counselors and other “prognosticators” for their inability to predict important events. Then he turns right around and reminds you he was once one of those people, using four and five syllable words like epistemic and Platonicity to impress us with his in-depth credentials and wisdom.

I’ve always felt a true expert should make complicated issues simple and understandable. Taleb takes the other extreme. By sprinkling his writing with ten and twenty dollar words, he forces you to continually flip back to previous pages and chapters to refresh your memory as to what he is saying. It isn’t necessary, and it isn’t good journalism. But enough about that.

There are some important lessons for marketers in The Black Swan, the main one being it’s almost as important to consider what we don’t know as it is to analyze what we do know. Business intelligence software models historic data to help you predict the future based on what has happened in the past. Amazon has built a huge business using tools like that.

And Taleb will tell you predictive software is okay for certain types of data that fit a bell curve (Gaussian) dispersion. Other types of data, however, do not fit. When one or two new entries completely change the average or the shape of the curve, traditional modeling formulas are out the window.

Movie ticket sales is a good example. You might know that Titanic is the all-time box office champion with sales of more than $600 million ($1.8 billion adjusted for inflation). You might even have a list of other movies that have done well. But someday a movie will come along that will totally obliterate the mark set by Titanic. Predictions based on the bell curve dispersion of historic movie performance won’t help you estimate the potential of future blockbusters.

That’s why Taleb strongly advises us to consider the unexpected. His book, written in 2007, is filled with warnings about complicated derivative financial investments and Wall Street’s increasing fascination with them. He’s one of the few people who spoke out about the dangers of acting like we know how to “manage risk” with these instruments when, in fact, they are unmanageable because of vulnerability to outside influences.

It would be like asking military experts in 2003 how long we will need to take care of business in Iraq and get that country back on its feet with new leadership. Whatever they might have predicted, it wouldn’t be six years and counting. We simply don’t have the ability to predict things like that, so our plans should take into consideration extreme events that will cause our assumptions to go radically in one direction or another.

That’s the primary lesson of The Black Swan. Analyze your historical data. Consider your market position and competition.  Develop sales and market share projections. But also consider what happens if extreme events change the game entirely. New laws, new technology, wars, out of control inflation — these are all examples of possible scenarios that should be included in your planning.

And in case you’re wondering about the book’s title, for hundreds of years we assumed all swans were white because every swan we could see was white. One hundred percent of the data said swans are white. And then someone spotted a black one.

In the world of swan watching, that’s what you call a game changer.

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