6 Strategies For Dealing With Uncertainty In Business

Randomness and uncertainty play increasingly greater roles in determining business success, largely because of rapidly evolving social networks. Here are six strategies that can help your business remain stable as the tides shift.

A few years ago, my son graduated college and asked me to back him financially so he could launch a business. What business? I asked. New type of tanning salon, said he. So, you got a business plan?

Whereupon my son looked at me like I’d just stepped off a ship from the Old Country. "Dad," he explained carefully, "it’s not that complicated. I mean, you launched a business, and you were successful, right?" (Like, how hard could it be?) He was referring to Peppers & Rogers Group, the management consulting firm which had by then grown to employ more than 100 people. Martha Rogers and I founded it after our first book.

I replied yes, but did he know how many other new businesses I had actually started or tried to get funding for, at one time or another? No? Six. "What happened to them?" he asked, trying to take this in. I failed every time, that’s what. A group legal services firm, an all-first-class airline, a fax-based media company, a real estate investment operation, a marketing consulting business...down in flames, each of them. But Martha’s and my business had succeeded, and we’ve remained partners and co-authors ever since. Our ninth book together, Extreme Trust, is due out in a month, and Peppers & Rogers Group now operates on five continents.

So what really separates success and failure in business? Everyone has a different explanation, but in the end a great deal of life boils down simply to being in the right place at the right time. Energy, determination, intelligence, vision—all this helps, and of course the more times you get up to bat the more chances you have to make a hit. In the end, however, things either come together or they don’t, and in retrospect you can usually point to several different junctures where your venture might have taken a completely different turn.

Today, however, randomness and uncertainty play even greater roles in determining business success, largely because of the increasing importance of rapidly evolving social networks, and the inherent unpredictability of social sentiment. Social influence cascades in random ways, often very rapidly. Predictions and forecasts are pretty much useless.

Researchers for The Wall Street Journal once analyzed 25,000 user contributions at six large sharing-and-collaboration websites. What they found in each network was that a very small number of participants commanded extremely high levels of influence. Of Netscape’s million-plus users at the time, for instance, 13 percent of the postings rated "most popular" came from a single one. And of the 900,000 users of Digg, a third of the contributions rated highly enough to make it to the home page came from just 30. The newspaper’s researchers then decided to track down one of Reddit’s most widely read users, a blogger named Adam Fuhrer, in order to figure out why his opinions on software and legal issues had been so widely praised by other users. What they found was that Adam was 12 years old, and lived with his parents in Toronto.

Now doubtless Adam was a very smart young man, but out of 400,000 Reddit users, there had to be hundreds even smarter than this 12-year-old. What probably happened was that one or two posts Adam wrote early on were rated high by another Reddit user, and because this user had high ratings himself, other Reddit members read Adam’s post and rated it high, and so forth. Adam’s reputation cascaded because of this positive feedback loop. 

But here’s the thing: If we wanted to predict the next Adam Fuhrer—that’s a completely impossible task. It would be like trying to predict what time it will start raining in downtown Dubuque on May 12, 2029. Predicting the future behavior of networks and other complex systems generating things like the weather and social sentiment is what scientists call an uncomputable problem, and they don’t just mean that we lack the computing power to do it with our current technology; they mean there isn’t enough computing power in the universe to solve the problem. 

But knowing that technological progress, networks, and complex systems are making the business world less and less predictable is a prediction itself, right? You can actually plan on it. So here are six strategies that can help your business deal with increasing levels of uncertainty:

1. Use analytic techniques that don’t require high accuracy.

Simple statistical models are often more reliable for dealing with highly complex situations than more detailed models. This is especially good advice for marketers, who may be used to seeing awareness and preference data with two or more decimal places. The problem in dealing with social networks and other complex systems is that a sophisticated model is more likely to fit past data well but fail to predict the future, while a more basic model is less likely to fit past data, but more likely to be able to anticipate different future scenarios. Multi-variant trade-off analysis may predict demand for your product quite accurately, but then over one weekend the mommy bloggers suddenly take offense...

2. Prepare for multiple outcomes.

Rather than trying to make the one right guess as to what will most likely happen, make multiple guesses. Place many small bets on a variety of options. This is the way any truly innovative process works, and innovation is a good analogy for prediction. Don’t bet the farm on the Edsel, in other words, without also having a Mustang or Thunderbird in your portfolio.

3. Find and rely on the predictable elements of the situation.

You may not be able to predict who the next Adam Fuhrer will be for any particular social network, but you know there will be a few participants with extremely high influence, and there will be cascades of sentiment, sometimes sudden. Just because you don’t know which particular day it’s going to rain doesn’t mean you should sell the umbrella.

4. Focus your evaluation of initiatives on the inputs, not just the outputs.

Randomness will confound even the best efforts to produce results, so when assessing an initiative’s success, consider the quality of the decision to undertake it. Don’t rely solely on the actual outcome of the project (bad or good), but take into account the quality of the process that went into its planning and execution. A bad leader can sometimes get elected despite the evidence, but as long as the election was fair, you shouldn’t throw out the democratic process.

5. Remain agile, and strive to respond quickly.

There’s no substitute for awareness, listening, and detecting events as soon as they happen. Focus on "sense and respond" as an organization, and empower your people to act quickly and decisively. Have a social media policy strong on principle but general enough to be flexible, remembering that actual results can vary. And stage a social-media fire drill every so often.

6. Cultivate your reputation for extreme trust.

In the end, you have to prepare for failure, success, and everything in between. But as long as others find you trustable, you’ll never be on your own. Focus on doing the right thing, and your customers, employees, and other stakeholders will all have an interest in seeing your company weather whatever unpredictable storm might come your way. 

By the way, my son now has a promising sales career with Interactive Brokers—a well-deserved success he earned entirely on his own. (He’s afflicted with the entrepreneurial bug, though, and sooner or later I’m thinking he’ll probably have to run with it, as I had to.)

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[Image: Flickr user dave.scriven]

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