In such unprecedented times in the history of mankind where businesses small and big are struggling to stay afloat and survive, we have to search and instill in ourselves what survivors and winners incorporate to thrive in uncertain times. One such concept or system we can study and implement is Antifragility.
What is Antifragility?
In order to understand it, we have to take the concept of Fragility, Resilience also. Like in cases of people, organizations, and systems, they can be categorized or defined in: fragile, resilient, or antifragile.
Let’s take an example of a delivery package:
Fragility: The first package says “Handle with care.” If you’re not careful, everything inside the box will break. It’s fragile.
Resilience: The second package says “Robust.” This box can take some hits before the contents inside break. It’s resilient.
The third package says “Handle roughly.” The stuff in this one actually gets stronger if you kick it around. It’s antifragile.
Basically, antifragile things are things that benefit from disorder, obstacles, unexpected events, change, etc.
In his book Antifragile, statistician and essayist Nassim Nicholas Taleb writes:
“Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile. Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better.”
“Antifragility implies more to gain than to lose, equals more upside than downside, equals favorable asymmetry.”
Some examples of Antifragility:
The Greek mythical Hydra, that grows two new heads every time you cut one-off.
In Nature, Growth of muscle strength when we exercise and are exposed to physical stressors.
“What doesn’t kill you will only make you stronger.” in inexperience and learnings.
Natural selection, the survival of the fittest, where the weak or unadapted perish, leaving the fit to continue on more suited to the environment.
The Big Question is how do we incorporate such mentality and systems in our lives and businesses especially in times of COVID-19 pandemics.
There are some companies that are considered to be antifragile now were not intentionally designed or built to be antifragile or at least resilient. Companies like Zoom and all the Online learning portals happened to possess the right products and services at the right time and were not affected.
Other Biggies like Microsoft and Amazon are partially anti-fragile because of their diverse products and strong infrastructure to upscale and meet the demands of remote connectivity, cloud infrastructure, and sales of essential commodities.
Salman Khan of Khan Academy said in an interview that they were prepared to increase their infrastructure to accommodate a 300x increase in their usage and introduced new free content or classes which are much better than some other paid courses on the internet. They aim to thrive in such times when the world moves to online learning and remote connectivity.
Another example of successful resilience or contingency plans in business is the tennis Grand Slam tournament Wimbledon.
For the last 17 years, Wimbledon has been paying $2 million dollars per year in pandemic insurance, and now as part of the “force majeure” clause, they will be receiving $141 million as a payout. Wimbledon might not gain from the payout but could certainly mitigate the losses, putting them in a huge advantage or resilient position compared to other sports leagues in the world right now.
I have filtered down some ways or mental models which can be created into a system where you can move from fragility to robustness to antifragility:
1. Follow Via Negativa or Inverse thinking
The best way for a person or organization to become antifragile (something that gains from setbacks and chaos rather than just survives) is to first decrease their downside. Many solutions in life can be solved by removing things. Instead of asking yourself what to add to your life, you invert the question and ask yourself what to remove.
Yvon Chouinard, Founder of Patagonia said and I quote:
“If for whatever reason we have another downturn in our business like we had in 1990-91, our policy is to first cut the fat, freeze hiring, reduce unnecessary travel, and generally trim expenses”
There are many companies now cutting down on their recurring expenses and discontinuing non-essential licenses or software trimming it down to the essentials only.
Right now, companies should be focussed on what their companies mean to the customers and also aim to serve their best seller products without trying all the full diverse portfolios of products. Simplifying products and services save a lot of opportunity cost for your main products.
2. Stress Response Management
When a stressor or uncertainty shows up in your business, there are two ways you can perceive it: as a threat or as a challenge/ learning. These two views completely change how we respond to it through our emotions, logic, and behaviors.
Always remember that when there is pain or uphill or difficulty, there is always a signal of growth, learning, and opportunity to adapt.
A threat response makes you fragile with flight or fight mentality, while learning or challenge-response makes you antifragile with the option to adapt to the current reality. So, a “Let’s get it” mentality and converting “pain” signal to “adaptation and learning” make us antifragile like making things on the go.
3. Practice Voluntary Discomfort
The biggest industries in the world are made by things trying to reduce or remove our uncertainty and discomfort. We have a natural tendency to resist and suppress randomness.
But the warriors and winners embrace this uncertainty. The Spartan warriors had a creed that stated, “He who sweats more in training bleeds less in war.”
You can prepare yourself for the battles of life by practicing voluntary hardships. Example in daily life: occasionally take cold showers, exercise muscles, live on a tight budget, drink water only, and so on.
Yvon Chouinard, Founder of Patagonia (One of the most respected and environmentally responsible companies on earth.) in his book “Let my people go surfing”:
“Just as doing risk sports will create stresses that lead to a bettering of one’s self, so should a company constantly stress itself in order to grow. Our Company has always done its best work whenever we’ve had a crisis. I’ve never been so proud of our employees as in 1994, when the entire company was mobilized to change over from using traditional cotton to organically grown by 1996. It was a crisis that led to writing down our philosophies. When there is no crisis, the wise leader or CEO will invent one. Not crying wolf but by challenging the employees with change.”
“You might think that a nomadic society packs up and moves when things get bad. However, a wise leader knows that you also move when everything is going too well; everyone is laid-back, lazy, and happy.
If you don’t move now, then you may not be able to move when the real crisis happens”
We have to practice getting comfortable being uncomfortable, and the inevitable blows of life won’t be as devastating.
4. Create Redundancies and Layers
Mother Nature is filled with redundancies. For example, animals have two lungs, two kidneys, and two testicles, even though one of each would do just fine. But since one in a pair of organs can become disabled through disease or trauma, it pays to have a spare.
We have to create various layers of functioning and leave no single point of failure or ruin. You can use the same strategy to decrease the fragility of the systems in your life.
Take for example a professional who is working a full day at a corporate and also grinding on his side hustle of freelancing and YouTubing every day. This gives him some layers of protection when a pandemic hits when he goes furlough or laid off from his corporate job.
Some examples: Start an emergency fund, have a spare tire in your car, use an external hard drive to back up your work, and so on.
In business, there are some companies that have multiple products catering to essentials and also luxury items; protecting themselves when luxury items take a hit. Companies with brick and mortar stores gone bust but surviving as their main bestseller products are selling on Amazon and also on their own eCommerce website.
Companies now can introduce a diverse portfolio of products to create safety margins. Fashion brands are now adding designer masks in their line up and perfume brands are going into sanitizer manufacturing.
5. Use the Barbell Strategy
A Barbell strategy a la Taleb, applied to business strategy, means having a binary approach. On the one hand, extremely conservative. On the other, extremely aggressive, thus creating a potent mix. This strategy mainly consists of making sure that 90% of your capital is safe, by investing it in Risk-Free assets, which cover from inflation. On the other hand use 10% of the remaining capital for very risky investments.
The strategy comes from Investment in stock or options where you keep a portfolio in safe and risky buckets 90% extremely safe and 10% extreme risk.
In Business, we can think about products or services which are extremely focused on essential commodities and diverging some into extremely risky but potential to upscale in the future. This way the business can protect itself from fat tail events and completely wiping off.
The fitness chain Gold Gym recently filed for bankruptcy during this pandemic and I couldn't help but think of the ways they could have diversified into fitness supplements, fitness home equipment, fitness content and merchandise for athleisure wear etc. They considered gym fitness is essential but covid 19 is totally a blindspot and a fat tailed event
Avoid risks that, if lost, would wipe you out completely ( Check out Kelly Criterion) and tinker — take lots of small risks.
6. Respect the old truth and rules in your industry or products
“When fishermen cannot go to sea, they repair nets.”
Now is the time to reflect, implement upgrades in your business, and change while improving the truth in your business. By truth, I mean the perennial truths that will remain in your business that customers will always want.
"It's very hard to not be distracted from the obvious. The little things, they distract. I know that 10 years from now customers are still going to like low prices and faster delivery - Jeff Bezos
In Coworking we used to focus on the fact that our members will always have a prime office location, fast internet, comfortable chair & furniture.
So what are the truths or obvious facts in your business and industry that you can always improve, what will never go wrong?
7. More than skin in the game, you have your soul in the game
Owner-operated companies usually have incentives to perform better than counterparts.
When you operate the business with life dedication and you yourself are also a user of the product, we have something called a soul in the game.
Warren Buffett said in his annual report of 2017
“In line with Berkshire’s owner-orientation, most of our directors have a significant portion of their net worth invested in the company. We eat our own cooking.”
It simply means that you incur the risk of loss in achieving the potential gain. In other words, the symmetry between gain and pain. For example, if a well-paid executive without any ownership in the business makes a fatal blunder, he risks no financial loss. Perhaps he gets fired (with a hefty compensation, of course) or weakens his reputation, but his scars are nothing compared to the owners – the real risk-takers. His risk is asymmetric and different from the owners.
Concept of "scratching your own itch" is incredibly powerful, and is the genesis for many successful products
Some reasons to consider skin in the game:
Committed to taking care of the enterprise and handing it over to the next generation in better condition than when they received it. They work for their kids and grandsons.
Better focus on expenses, employees, and customers. Perhaps they have additional goals than just making money, which, perhaps paradoxically, can help their business. Many businesses serve as a cornerstone in the local community or region and thrive by serving their customers well, which should be a business's ultimate goal. Any business that adds value to the customer should do well in the long term.
Focus is on what is best for the company and its customers, not what is best for the management. Remuneration tends to be based more on long-term financial targets and not short term outcomes
Conservative and avoiding binary bets, and be vigilant of ruinous sequence risk. If the river is on average four-feet deep, you still don't make it to the other side if it's ten-feet deep in just one section.
A focus on longevity and durability not hyper-scale growth. Deals are on average much smaller, and perhaps more value-creating than their counterparts.
"We have to get away from thinking all growth is good. There's a big difference between growing fatter and growing stronger"-Yvon Chouinard
The general underlying principle here is to play the long game, keep your options open, and avoid total failure while trying lots of different things and maintaining an open mind.
Philosopher Friedrich Nietzsche once said,
“That which does not kill us, makes us stronger.”