Inflexible Business Models and Black Swan Exposure

June 18, 2009
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black swanToo many companies are not prepared for the significant adverse event – rare and unexpected kurtosis. As such, when tsunami’s hit (those 1 in 100 year floods) some business models cannot cope and a subsequent meltdown occurs.

Case in point, the WSJ today provided this quote from Robert Nardelli in regards to how the financial crisis impacted one global automaker: “Even with our early and aggressive restructuring efforts, we could not offset the negative impact of the financial crisis and the severe economic recession.”

Sometimes, a business model is designed for profitability under certain conditions. When those conditions no longer exist, the model fails.

Your action item: Take a look at your business model. Notice fixed costs. Look for inflexibility. Do your own stress test, and then design one worse than your wildest dreams.

Imagine the outlier that will destroy your company. Could it be on a 1-5 year horizon? If it happens, would you be able to survive? Thrive? In a world where complexity is the norm, and interconnectedness reigns, kurtosis happens more than ever. How exposed are you to the next huge deviation?


black swanToo many companies are not prepared for the significant adverse event – rare and unexpected kurtosis. As such, when tsunami’s hit (those 1 in 100 year floods) some business models cannot cope and a subsequent meltdown occurs.

Case in point, the WSJ today provided this quote from Robert Nardelli in regards to how the financial crisis impacted one global automaker: “Even with our early and aggressive restructuring efforts, we could not offset the negative impact of the financial crisis and the severe economic recession.”

Sometimes, a business model is designed for profitability under certain conditions. When those conditions no longer exist, the model fails.

Your action item: Take a look at your business model. Notice fixed costs. Look for inflexibility. Do your own stress test, and then design one worse than your wildest dreams.

Imagine the outlier that will destroy your company. Could it be on a 1-5 year horizon? If it happens, would you be able to survive? Thrive? In a world where complexity is the norm, and interconnectedness reigns, kurtosis happens more than ever. How exposed are you to the next huge deviation?