How thoroughly should we prepare for things that might never happen?

Dear Aunty B,

My question is about timing and when to act.

Things in our business are not too bad and we don’t want to panic, although others in our industry are. But we also don’t want to turn around and think why the hell hadn’t we acted faster because there are some signs things aren’t good.

How thoroughly should we prepare for things that might never happen?

Uncertain times!
Perth

Dear Uncertain times,

That, my friend, is an excellent question. It’s tricky. The best entrepreneurs I know are paranoid nutcases. Yes, they hold their nerve and don’t jump at shadows. On the other hand they don’t muck around if they sense the risk profile is changing.

I think Jim Collins puts this well in his new book Great by Choice. In it he has studied the practices of 10 leading companies that didn’t just thrive but beat their industry index by 10, hence he dubs them 10Xs

In a chapter depressingly called “Leading above the Death Line”, he asks the following questions. Are they huge risk takers? How gutsy are they? How do they respond to risk? When do they take action?

His findings? The key to their success is remaining “productively paranoid” in good times, recognising it’s what they do before the storm comes that matters most. And I love this line: “They recognise it’s impossible to consistently predict specific disruptive events so they systematically build buffers and shock absorbers for dealing with unexpected events.”

In other words they always prepare for what they can’t possibly predict. In fact on delving down further, the 10X companies took less risk than the comparison cases. So if they are risk adverse did the 10Xs act fast when they saw risk?

And this is where it gets interesting. They didn’t panic. Jim says they zoom in and out, focusing on their objectives and sensing change (zoom out) and then refocusing energies on executing objectives (the zoom in bit).

And this does not distract them from perfect execution: they keep executing while they adjust to the changing conditions. When they sense danger they zoom out to consider how quickly a threat is approaching and whether it calls for a change in plan. Rapid change does not call for abandoning disciplined thought and action. And of course they could keep a cool head because they have built in buffers.

So here is what you should do. Check your buffers and ask a lot of questions like: Are the buffers strong enough? Can they withstand worst-case scenarios? What’s outside your control? How can you minimise exposure to forces outside your control? And then you do the zoom thing in and out which does sound fun.

Be smart,
Your Aunty B

To read more Aunty B advice, click here.

Email your questions, problems and issues to auntyb@smartcompany.com.au right now!