Use the unexpected to build future resilience now
Nonprofit leaders often face unpredictable challenges that can have significant impacts on their organizations. Nassim Nicholas Taleb's concept of Black Swan events provides valuable insights into how nonprofits can prepare for and navigate these rare and extreme occurrences. Continuing our series on this powerful thinker, today we explore how Black Swans can create a wakeup call for building resilience.
Understanding Black Swan Events
Taleb’s “Black Swan” describes highly unpredictable, rare events that have extreme consequences. The metaphor originates from the historical belief that all swans were white—until, that is, black swans were discovered in Australia, shattering that assumption. He explains,
“What we call here a Black Swan (and capitalize it) is an event with the following three attributes. First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.”
Taleb has identified the rise of the internet, 9/11, and the 2008 financial crisis as Black Swans. Taleb believes that “conventional wisdom” utterly ignores Black Swans even though they are the driver of most significant historical changes:
“Almost everything in social life is produced by rare but consequential shocks and jumps; all the while almost everything studied about social life focuses on the "normal," particularly with "bell curve" methods of inference that tell you close to nothing. Why? Because the bell curve ignores large deviations, cannot handle them, yet makes us confident that we have tamed uncertainty.”
Furthermore, as noted above, when Black Swans do occur, conventional wisdom makes excuses and uses hindsight bias to paper over its analytical failures.
While I noted that one can debate whether the Trump Administration’s recent executive actions were unpredictable, the new Administration’s lightning-fast restructuring of the federal government has threatened nonprofit funding and introduced unprecedented federal hostility as the new normal. Even if the substance was known in advance, the pace of change has become a Black Swan for the sector, for sure.
Practical Strategies for Nonprofits
Nonprofits need to understand the basic concept of Black Swans. Crazy things occur, and those crazy things often have much greater impact than predictable events. A Black Swan like the Trump Administration’s sledgehammering is not unprecedented. There will be others, and nonprofits can adopt several strategies to mitigate the impact of Black Swan events:
These steps take time, but imagine the difference they might make. Consider a nonprofit organization that provides disaster relief services. When a sudden natural disaster strikes, the organization faces an overwhelming demand for its services. By having diversified funding sources, that nonprofit can quickly mobilize financial resources to support its response efforts and pivot from one to another if certain funders dry up. Strong community relationships can enable the organization to recruit volunteers and partner with local businesses for additional support. Flexibility in operations permits the nonprofit to adapt its service delivery methods to meet the urgent needs of affected communities.
Key Questions for Nonprofit Leaders
To take advantage of their understanding of Taleb's concept of Black Swan events, nonprofit leaders should ask themselves and their teams the following key questions:
These questions can help nonprofit leaders proactively prepare for and respond to Black Swan events, building more resilient and adaptable organizations.
Don’t Get Carried Away by Taleb’s Anti-Risk-Management Rhetoric
If you read a lot of Taleb, you will learn that he doesn’t hold risk managers in high regard. Don’t get carried away by Taleb’s rhetoric. Yes, Black Swan events have a powerful impact on modern society. And yes, many risk managers fail to acknowledge that their work cannot control for Black Swans.
Taleb’s railings against “risk management,” however, focus predominantly on the failures of stock analysts and mortgage lenders leading up to the 2008 financial crisis. Mortgage brokers and financial analysts had created complex financial models that they asserted would predict and prevent large losses, making their extremely risky financial instruments appear benign. That hubris cost the United States billions of dollars in lost wealth and imposed enormous human costs on our communities.
That sort of complex financial modeling is the direct opposite of what we advise nonprofits to do here at Risk Alternatives. Risk Alternatives focuses on creating a scalable process to help nonprofits address threats before they become crises and capture opportunities before they pass by. We emphasize empowering a “see something, say something, do something” ethos in a nonprofit. Nonprofits should strive to be radically aware of the uncertainties they face, then take the next reasonable response to the most important threats they see. They should do this as a matter of routine in a risk cycle, because reality never rests.
We also inform that training and support with a healthy dose of humility, reminding ourselves and the nonprofits we work with that we have no way of accurately forecasting the future. Indeed, we emphasize that because nobody can see the future, nonprofits also need a simple and robust Business Continuity Plan for when the unexpected does occur. Finally, we advise that nonprofits should explore essential scenarios, not to predict the future, but instead to stimulate discussions that create better options in the present.
Our approach expressly contemplates Black Swans and does not suggest that nonprofits can see them in advance. But just because a Black Swan could impact your nonprofit doesn’t mean you should ignore the leaky pipe right above your server. I will go out on a limb here (another risky thing) and suggest that Taleb would agree.
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Understanding Black Swans Taleb's can help you build a more resilient, adaptable, and successful organization. My next post will explain how nonprofit leaders can learn from Taleb’s concept of “antifragility.”