Random Events
You can predict a lot that will happen, at least in a general way, by paying attention to what is happening now and what has happened in the past. You can predict how people will act based on what they have already done and what they say they will do. Then there are the totally random events that come out of nowhere and, like a tidal wave, threaten to wipe you out.
All individuals and organizations are at risk of these random events. A story in the Financial Times, “Big US Hedge Funds Hit Hard by Valeant Sell-Off” offers an example. It discusses the huge losses three of the biggest hedge funds, Pershing Square, ValueAct, and Paulson & Co suffered due to a large and rapid fall in Valeant’s share price. It seems all three funds have a very large percentage of their holdings in Valeant.
Valeant has made its money buying up old pharmaceuticals and then raising their prices by a huge percentage. The random event? Suddenly US regulators are investigating Valeant for price gouging. Result? A rapid drop in stock price as investors get nervous about where this investigation is going.
Up to now the hedge funds have been huge winners and their managers regarded as investment geniuses. Now? Who knows? A random event has intervened causing chaos in their well-thought- out plans.
Random events happen all the time. And yet, so few think about what they will do should such an event happen to them or to their organization. Sometimes random events…or perhaps as with the Valeant situation we should call them semi-random events…are preceded by warnings and still they usually remain unplanned for.
In hindsight it’s not surprising that with all the attention being paid to the cost of healthcare such big drug price increases for seemingly no reason would catch the eye of regulators. And yet…the hedge funds bet the farm without a plan for a rapid fall in stock price.
We are so comfortable and set in our ways that it becomes impossible to even think about extreme possibilities, much less think about what to do should one occur. Even worse, we tend to shut down those few who do have the vision to look beyond normal predictors and imagine scenarios others think impossible. Their ideas make us uncomfortable as they threaten our idealized futures.
As a result, when these unthinkable events occur…you are defenseless.
In many cases you’re not only defenseless but your boxed-in thinking prohibits you from rapidly coming up with new ideas and solutions to remedy the situation. So you circle the wagons, get the lawyers working, and hope for the best.
Consider the rise of Uber, the “unthinkable” scenario for taxi companies. There was plenty of warning, in the form of disruptive technology springing up and making the business models of the past obsolete . And yet, taxi companies never imagined this would affect them. Even as customers flocked to Uber as they established themselves in several cities, taxi companies in other cities told themselves “it can’t happen here” and then moved on to “we’ll create laws to stop them”.
Where was the thinking about how to compete in the new world? It was replaced with efforts to protect the past by trying to kill off the future.
You might as well try to legislate stopping the tides as think you can stop the advance of a business model that appeals to millions of customers disgusted by the way existing companies operate. A model, I might add, that is less expensive, more convenient, and customer friendly.
Start now. Think the unthinkable. Plan for it. Be prepared so if it appears on the horizon you’re ready to respond instead of being washed out to sea. And if it doesn’t appear, who knows, the planning you do just might lead to the disruptive ideas that launch you into a bright new future.