In the early 1970s, Fred Smith founded Federal Express (FedEx) with a novel, new idea on shipping: an end-to-end model where one carrier was responsible for delivery from pick-up all the way to final destination. The business took off quickly until the fuel crisis slammed it, causing it to start hemorrhaging over a million dollars a month.
Smith lobbied his investors for more capital to stay in business, but was unsuccessful. He was waiting for a flight home after this critical rejection when an idea struck him. Knowing that they were well short of being able to make payroll and fuel the delivery planes with the cash they had, Smith devised a noble strategy: put it on black.
He grabbed a flight to Las Vegas and turned the company’s last $5,000 into $27,000 at the blackjack table. This allowed them to stay in business and operational for another week. Shortly after, and just in time, he was able to secure another $11M in capital from investors. The rest is history.
(For more on Fred Smith and the blackjack story, see here and here.)
There’s no denying that luck plays a role in business. We might call it by different names – macroeconomics, unknown unknowns, Black Swan events, whatever – but the gist is that there are things that we don’t control that we still must react to for our business to survive. We often hear about successes, but rarely failures. Survivorship bias is a particularly nasty flaw in human cognition and social study. Dead companies tell no tales.
Is there any real way to prepare for events we can’t control, and often don’t even know are coming? Famed business researcher Jim Collins’ team (of Good to Great and Built to Last fame) set out to answer this question in the book Great by Choice: Uncertainty, Chaos, and Luck – Why Some Thrive Despite Them All.
While the original work (and his others) are all worth the read in full, here are three behaviors and characteristics of companies that survived and even thrived in turbulent times when competitor companies in the same situation faltered and failed.
- Consistency: Successful companies adhered to what Collins calls the “20 Mile March.” In good times and in bad, they were determined to grow at a steady, sustainable pace. Often, this meant exercising discipline in slowing growth during favorable times so that it could be realized in down times. The great companies would often lag behind their competitors who courted massive growth in good times, but left no reserves for the bad. They would then catch and pass them for good with their steady, unflappable pace.
- Calibration: As Collins calls it, “firing bullets, then cannonballs.” With a limited amount of resources (people, capital, and time chief among them), companies that want to survive turbulence need to calibrate their efforts by starting small and gathering objective, tangible data before investing fully in a new and exciting concept. Going small at first helps refine your aim when the stakes are low and you have little organizational inertia to overcome. Only after aiming should you fire the cannonball – dedicate a heavy amount of resources – on a project or idea.
- Conservatism: Plan for the worst, hope for the best, as they say. Collins calls it “productive paranoia.” Planning and strategizing conservatively – as if something will go wrong – gives you options whether events turn out in your favor or against. If you bring extra oxygen up the mountain, you can choose to wait out the storm and try for the summit tomorrow, instead of being forced to either fail to achieve the goal or die trying due to impossible conditions.
Smith’s blackjack ploy makes for great print, but many a company has died relying on that kind of luck explicitly or implicitly. In business and in life, assessing and planning for risk helps us survive and thrive through uncertain times.