The term “Black Swan” has become immensely popular on Wall Street and in the media to designate a rare occurrence. Google “Black Swan Japan earthquake” (which is popular enough that Google will fill in the last 11 or 12 letters for you) and you’ll find hundreds of articles comparing that seismic event and the rare bird.
The term “Black Swan” comes from Nassim N. Taleb’s bestseller of the same name. Like most ideas popularized in the media, they got it wrong. Taleb’s point is that Black Swan events, those that are considered highly improbable, actually happen all the time.
Black Swan upon Black Swan?
So is a 9.0 earthquake all that improbable? They happen regularly in history (every few hundred years). There hasn’t been one in almost 200 years. Just because we haven’t seen one since the early 19th century doesn’t make the modern world immune to them.
Nuclear accident? With over 500 reactors either in operation or under construction, and a planned life of at least 30 years (many going beyond their scheduled life), that is well over 15,000 years of operation. With their huge water requirements, most are near the ocean. in 15,000 operating-years, how weird is it that something might go wrong?
Swans and Small Business
My point isn’t to prove Taleb’s theory. I am more concerned about my client who owns a motorcycle dealership. After suffering through a recession that closed the doors on 50% of the motorcycle franchises in America, he is seeing a comeback. Now he has supply chain issues. Will an earthquake and nuclear melt down cripple a small business in the Texas Hill Country?
Taleb’s hedge fund strategy is to bet against everything, in the belief that a Black Swan will occur somewhere with regularity. 
He has been enormously successful. One reason for this is the fact that, in a global context, huge events occur regularly. If you can cover all the bets, one will pay off. There will inevitably be a financial crisis, a sovereign default, a commodity bubble or a natural disaster somewhere.
Should the inevitibility of a disaster make it part of a small business owner’s planning process? Probably not. The motorcycle dealer could spend time and money preparing for a supply chain disruption, but it wouldn’t have been a wise use of his resources. If he started his dealership in 1980 and sold it after 30 years in business, the issue would have never come up.
The Boy Scout Strategy
The Scout’s motto is “be prepared.” While planning around a Black Swan event is beyond the capabilities of the average small business owner, it doesn’t mean that you should ignore the evening news. Too many owners think that nothing outside their own market will affect them. They think that because they are dependent on a large corporation for a critical part of the business, the big company will do the risk planning for them.
If there has been anything proven by the events of the last decade, it’s that the big corporations aren’t ready for these events either. Where were the strategic planners when Japan embraced sole-sourcing and Just In Time inventory? They were driven by profit. Apparently that trumped having a plan B.
Small businesses survive by being nimble. Global connectedness means that an event on the other side of the world can, and does, have an impact on a small local company. You may not be able to prepare in advance, but you also can’t assume someone else is going to take care of the problem for you.
