If we’ve learned anything from the last 18 months, it’s that the world is much more uncertain than we could ever have imagined. The COVID-19 pandemic has forced businesses around the world to reimagine what their offering looks like in these crazy times, with many of them scrambling to pivot their organization in order to stay afloat.
This is obviously a black swan event that no one could have predicted, but there are still lessons to be learned from this experience. And the most important one is something that Ken Miller discussed in his interview at the 2021 Strategy Fest- the importance of a Plan B.
Things are not always going to go your way and there are going to be curveballs that you must avoid as you’re growing your organization. So it’s worth spending some time and effort planning for some other eventualities so that your business is more resilient to unexpected shocks.
Misled by Prior Success Stories
There are a lot of stories out there about companies who burned the boats and sunk all of their efforts into one particular plan- and then beat the odds to make it work. In these stories, you’ll hear about the tremendous risk that they took and how they were able to prevail in the face of all of it. These stories are incredibly compelling to us because they echo a David v Goliath match-up and they provide a journey that we can route for. You hear about the 20-year-old college dropout who maxed out his credit cards to start a business and you are in awe of what he has been able to build.
There are three nefarious things about the way these stories are told:
- Firstly, the narrative often paints a very linear journey from rags to riches, plugging in every piece of information neatly into a story that looks completely planned from the beginning. In hindsight, it’s easy to look back and spot the patterns, decisions, and consequences that came along every step of the journey. However, this is almost never the case. If you were to actually look at the story at any single point in time, you’ll often find that the “hero” didn’t have that linear plan that you imagined they did. There is a lot of trial and error, mistakes, luck, and other factors that led to them making the decisions that they did. The journey is much more random than we are led to believe. As such, we are caught up with the idea that this person found the silver bullet, and perhaps we could emulate that success.
- Secondly, these stories often downplay the unique advantages and opportunities that these businesses had in order to get them to where they are. In any business success, there are likely to be certain things about the business environment, the founders, the investors, and so on that were significant factors in the overall success. Great companies leverage their unfair advantages to beat their competition and you can see this play out across any industry you look at. However, the typical business story undersells these characteristics which make things seem easier and more straightforward than they actually are. As such, we think that we can recreate that exact same strategy and get the same results. But, because we don’t have those same advantages, this is almost never the case. We need to find a strategy that works to our advantage and that requires a level of self-awareness that often isn’t encouraged by typical success stories.
- Lastly, we simply don’t hear the stories of businesses that didn’t succeed. For every business that changes the world, there are thousands that fail and we aren’t exposed to those stories because they don’t make for good reading. As a result, we have a warped perception of what reality actually looks like, and we don’t get to learn the lessons we should be learning from business failure. This is what psychologists call ‘survivorship bias’ and it’s a major problem with how strategy is communicated for the most part.
All of this leads to this romantic notion that if we are to build a highly successful business, we should pick one strategy and throw everything we have behind it. We are supposed to hustle 24/7 in order to achieve those ambitious goals and take any risk necessary to get there. We are filled with dreams of a linear storyline that will make us look like heroes in our eventual autobiography.
And then the market slaps us across the face.
Strategy is a Process
“Strategy is about creating a winning plan. How are we going to do something that allows us to compete stronger and win together? Right? But what I've learned recently over the last 18 months since we've been going through this global pandemic is that you've always got to have a plan B.”
It’s naïve to think that you’re going to create a winning plan upfront and that’s going to hold true for the rest of your business life cycle. That’s just not how the world works. The circumstances are going to change, and you have to be able to adapt and adjust as they do. The moment you are married to one particular idea, and you throw all your eggs into one basket, you’ll find that your organization is actually very fragile.
You can look at any high-profile business failure and the vast majority of them happened because the business was not agile enough to shift their operations to remain relevant as the industry changed around them. They held fast to the status quo even when the signs showed that it was losing its shine. They didn’t have a Plan B, and they just threw everything behind Plan A.
You have to ensure that your strategy is more dynamic than that. Instead of seeing your strategy as a single destination that you’re aiming towards, you need to think about it as a process. With every month that goes past, you are collecting information about your customers, the market, and the industry as a whole which should then be stress-tested against your current strategy. When you see something that isn’t aligned, you should be taking steps to make the required adjustments. When you do this, you make sure that you never find yourself made completely obsolete because you’re evolving with the industry that you’re in.
It’s a journey, not a destination. And you have to continually re-evaluate your performance and adjust the course where needed.
Data as Predictive Maintenance
With all that being said, it's often quite difficult to recognize that your strategy is failing until it is too late. It goes without saying that the more proactive you can be here, the better chance you’re going to have of adjusting. But because a lot of the feedback you’re getting is on quite a time lag and it often can be very circumstantial, most businesses end up being reactive, not proactive.
This is not even mentioning the blind spots we all have towards our own plans. When there are red flags about something that we’ve poured our blood, sweat, and tears into – we are much more likely to ignore it or rationalize why it couldn’t possibly be true. Our minds trick us because of our confirmation bias and unless it’s very obvious, it’s easier if we just stick our heads in the sand.
This is where we need to use data.
Data is objective and unemotional. The data doesn’t care about how long you spent coming up with your perfect strategic plan. It’s going to show you the truth of the situation, no matter how ugly it is.
Ken described how data can be used as predictive maintenance and we thought that was a really great way to think about it. When you’re in the airline business or other high-stakes industries, they have to take maintenance very seriously. So, they will set a range of benchmark metrics for their equipment and then monitor their current inventory against those benchmarks on a regular basis. When those metrics start to diverge, that is a clear sign that the equipment might need to be restored and maintained.
By tackling this maintenance pre-emptively, rather than waiting until it breaks completely, they save themselves a lot of money and they ensure that their equipment is always in great shape and aligned with the safety expectations placed upon them by consumers.
If we use this analogy in business, we can apply the same thinking. As we continually monitor metrics across our operations, we look out for anomalies that may suggest that our strategy is failing us. Perhaps we see that customer conversions are trending down? Perhaps we observe that our suppliers are putting more and more pricing pressure on us? Perhaps we find out that our margins are being squeezed by new competitors?
All of these are early signs that we might need to re-visit our strategy and make sure that we’re making the required adjustments to stay on the right track. The data acts as the warning signals and then we can make better decisions.
If we weren’t monitoring that data, then we simply wouldn’t have had those insights until it was too late, making it that much more difficult to shift our plans. This is why it is so important to invest time and effort into strong data collection, storage, and analysis capabilities because they act as your scouts around the clock, assessing your strategy’s performance and reporting back whenever there is a problem that needs to be rectified.
Everything we’ve discussed above is important for subtle, slower changes to the economic landscape in which you find yourself. But every now and then (as illustrated perfectly by this pandemic), your business will be hit by a substantial obstacle that disrupts everything in an instant. All of a sudden, your world turns upside down and you’re forced to reckon with a brand-new reality.
It’s in these moments that you must turn to a Plan B.
A Plan B is a euphemism for a contingency plan to use in times of crisis.
What will you do if your main strategy becomes made instantly unusable?
How will you respond to an existential threat to your business or industry?
Ken reiterated the importance of this planning because of how quickly things can change in modern business. With the world moving so fast these days, time is of the essence when you’re responding to difficult times. If you’ve been able to do some of the thinking and decision-making ahead of time, you’re well placed to respond appropriately and achieve the necessary pivot to get your company out of a potentially devastating situation.
A Plan B is important because it makes your company more resilient. It acknowledges the uncertainty that you’re wading through and plans for that rainy day. We hope that we’ll never have to use it, but it feels great to know that it is there.
A good Plan B has two important components:
- Damage Mitigation. Plan B should attempt to mitigate any damage that is caused in the event of Plan A failing. How can we limit the losses? What can we offload to buy more time? What can we repurpose to realize its value? There are a thousand different ways you can slice this, depending on your unique business, but anything you can do to limit the downside is going to be worth its weight in gold. As we alluded to above, the media celebrates the risks taken by business superstars and often ignores the risk mitigation measures that they installed in order to cover the downside. It’s not sexy to talk about, but it's crucially important when things go wrong.
- The Pivot(s). Once you’ve mitigated as many of the losses as you can, Plan B should chart your route towards a new lane. This is affectionately known in business as a ‘pivot’ and it refers to a business shifting its business model significantly to become a different company entirely. Having a plan for these potential pivots is important because it gives you options to think through when you need to make a change. Hopefully, you’ve parked a few ideas here that have emerged during your strategic planning process and now you have some viable options for how to transform your organization in these challenging times.
You don’t need to have a crystal ball here. But you do need to have done some careful thought about what could go wrong and how you might respond as a business. It might not be immediately needed, and hopefully, you’ll never have to use it- but if things do go wrong, you’ll be very glad you have it.
It puts you on the front foot. You can get up, dust yourself off, and keep going.
It is important to say one thing about perseverance though. We don’t want to suggest that you abandon everything at the first red flag and pivot to an entirely new model. We’ve seen businesses become serial pivoters and that rarely works either. These companies don’t give their strategy enough time in the market to really work and so they end up short-changing themselves.
You need to persevere with a plan long enough to determine if it is a winner. It’s very rare that something just succeeds straight away. In most cases, it takes some time for the plan to unravel and for you to see if it is working for you.
How long should you wait? Now, that’s not an easy question to answer. It depends on a range of different factors including the type of business you’re running, the industry, your runway, your burn rate, investor sentiment, and more. That’s what makes strategy so difficult. There is no right or wrong. You have to make a judgment call on when is the right time to abandon your plan and try something else.
All we wanted to do here is remind you that sometimes things take longer than you think, and you should try to avoid overreacting in these cases. Slow down, take your time, and try to remove your emotions from the equation. Then, you’ll be able to make better decisions.
That brings us to the end of a rather sobering post about when things go wrong. This is something that people don’t like to talk about because we all believe that we’re going to have amazing success the first time around, but it’s important to acknowledge the reality. Having a Plan B doesn’t mean that you lack conviction about your main plan. It shows that you care about the robustness and resilience of your organization, and that you are willing to do whatever it takes to make the required adjustments when the world changes around you. If this pandemic isn’t enough to make you realize this, then we’re not sure what else will.
You must have a Plan B. The life of your company may one day depend on it.