How Do Business Owners Make Sense Of The Future?

Years ago, as a young marketer in a corporate I was sent away to do a course on marketing to ‘old people’.?In one exercise I put on earmuffs, glasses covered in Vaseline so I could not see well and rubber dishwashing gloves and had to follow a series of instructions like open a pill container.

One thing that I really remember from the training was the comment that ‘when we look into the future, we see the world as the same, except we have a few more wrinkles and grey hair’.

This idea that the future will be the same, but I’ll be older has worked for centuries.?But – as the pace of change has accelerated this is no longer the case.?

Pace of Change and a Change of Pace

In 2008 I bought my first smartphone.?At the time my son was 6 and my daughter 3.?If you had said to me then that by 2020 –

• I’d be dropping thousands of dollars on laptops and smartphones for my teenage children
• That 3.5 billion people would own a smartphone
• That 1.69 billion of them would be using Facebook, and
• Nearly all photo printing shops, video rental stores, bookstores and record shops would have disappeared along with video cameras, DVD’s, CD’s and photo albums…

I’m simply not sure I would have believed you!

A convergence of technologies has created a boom in new products and services.?But what I find most interesting is not so much the emergence of all these amazing things, it is the pace of adoption by us humans!

It seems to me that technology determines the maximum pace of change, and humans adopting it determine the actual pace of change.

What we have learnt in the last 12 years is that we humans have a huge capacity to adjust to and adopt change.

Show Me the Money – an example of the Impact of Change

We only need to have a look at the music industry to see the impact of change.

From a $20b to a $7b turnover music industry in a few short years as digital disruption and new business models took hold.

And, equally this graph shows us how as consumers we completely changed our behaviour.?Steaming didn’t kill CD’s – we did when we started using iTunes and Spotify.

‘We are one the cusp of the fastest, deepest, most consequential transformation of human civilisation in history, a transformation every bit as significant as the move from foraging to cities and agriculture 10,000 years ago.’ - ?Tony Seba

As Business Owners Why Does This Matter?

In the music industry new businesses boomed, and some disappeared.?Even before the Smartphone arrived CD revenue was in decline.?As revenues tanked a couple of things were going on –

1. Executives were refusing to acknowledge the evidence of change in front of them (as did famously the leaders at Kodak), and
2. Organizational design, processes and group think led to structural ‘immunity to change’ – even as some tried to act the ‘change anti-bodies’ of corporations killed off innovation.

What Do We Need?

Whether we acknowledge it or not we make up a story about what the world will look like and then we navigate our business toward that world.?We call that business planning.?As the pace of change picks up we need a –

1. Better approach to predicting the future, and
2. A planning rhythm that supports adapting to change.

A Short Human History– How Do We Make Sense of Change?

Earth is estimated to be 4.54 billion years old and we, as humans have been evolving on it for around 2 million years.?For roughly 10,000 years… only 0.5% of that time we have lived an agrarian, and then urban lifestyle.?And for around the last 200 years, or 0.0001% of human’s time on earth the pace of change around us has accelerated.

And now we are expecting to face the same amount of change in the next couple of decades that we faced in the last two hundred years, which was about the same as the two thousand years that preceded it.

From an evolutionary point of view, we are still ‘monkeys with clothes.’

Coping with uncertainty and change has always been an important part of human evolution.?Some of the things that makes us distinct from our primate ancestors (apart from our clothes) is our ability to communicate, our ability is a species to grow, share and store knowledge, and our ability to imagine and predict the future.

At the heart of how we communicate is story telling.?The story is the original package for information we used as a species, and we have continued using it ever since.?From around the campfire for thousands of years, to reading the Hungry Caterpillar to our children, to Ted Talks – this is how we share knowledge, inspire people, and create cultural movements.

We have evolved culturally as a connected and social species who are better together. ?We have evolved from simple specialisation of skills in villages to a species with highly complex and interconnected societies.?

We Imagine, Predict and Communicate Using Stories

Stories are how we make sense of the present and envision the future.

As business owners - it is the story we construct for the future that provides the framework for our future plans, it is the story we tell of the future that we use to align our people and it is the story of the future we provide our spouse or partner in the hope they don’t think we are crazy and jump in the next Uber out of here!

So How Do We Best Create a Useful Story of The Future in a Fast Changing and Radically Uncertain World??…first a couple of health warnings.

1.??????Beware the Expert Peddling Predictions

It is now well established that the track record of expert forecasters—in science, in economics, in politics—is as dismal as ever. In business, well-known, and well-paid forecasters are routinely wildly wrong in their predictions of everything from the next stock-market correction to the next housing crash (NZ Reserve Bank predictions on house prices during 2020 anyone?)

In 1984 Philip Tetlock decided to put expert political and economic predictions to the test. With the Cold War in full swing, he collected forecasts from 284 highly educated experts who averaged more than 12 years of experience in their specialties. To ensure that the predictions were concrete, experts had to give specific probabilities of future events. Tetlock had to collect enough predictions that he could separate lucky and unlucky streaks from true skill. The project lasted 20 years and comprised 82,361 probability estimates about the future.

In a great summary in the Atlantic (1) they reported the result: The experts were, by and large, horrific forecasters. Their areas of specialty, years of experience, and (for some) access to classified information made no difference. They were bad at short-term forecasting and bad at long-term forecasting. They were bad at forecasting in every domain. When experts declared that future events were impossible or nearly impossible, 15 percent of them occurred, nonetheless. When they declared events to be a sure thing, more than one-quarter of them failed to transpire.

As the Danish proverb warns, “It is difficult to make predictions, especially about the future.”(1)

And what about the humble mobile phone we mentioned earlier - In 1980, AT&T commissioned McKinsey & Company to predict cell phone usage in the United States by 2000... McKinsey's estimate was less than 1% of the actual figure: 109 million. ?A decade later AT&T spent 12.6 billion dollars to acquire McCaw Cellular and get in the game!

Hedgehogs and Foxes -So why are experts so poor??Eventually Tetlock bestowed nicknames (borrowed from the philosopher Isaiah Berlin) on the experts he’d observed: The highly specialised hedgehogs knew “one big thing,” while the integrator foxes knew “many little things”.

Hedgehogs are deeply and tightly focused. Some have spent their career studying one problem. They fashion tidy theories of how the world works based on observations through the single lens of their specialty. Foxes, meanwhile, “draw from an eclectic array of traditions, and accept ambiguity and contradiction,” Tetlock wrote. Where hedgehogs represent narrowness, foxes embody breadth.

Interestingly, the hedgehogs performed especially poorly on long-term predictions within their specialty. They got worse as they accumulated experience and credentials in their field. The more information they had to work with, the more easily they could fit any story into their worldview (1).

… this is probably something we may want to bear in mind as we navigate our businesses out of the COVID crisis.

2.??????Economic and Business Models are Stories About the Future – But They Are Not the Future!

We live in a big, complex, interconnected, and uncertain world.?To understand it we develop theories and models to explain and to predict.?

Economists love their models – and the more complex the better.?These models are essentially the construction of a ‘small world’ that they believe will predict the real one.?But the more complicated a model, essentially the more hidden assumptions are built in.?The problem is that you cannot statistically build in Steve Jobs or Elon Musk, and you cannot statistically build in COVID or an earthquake and then predict with any level of reasonable certainty what will occur.

It is from Economists that we learn the essential truth – these theories and models can help us understand ’what is going on here?’ But they are largely useless at predicting the future!?

One study compiled a decade of annual dollar-to-euro exchange-rate predictions made by 22 international banks: Barclays, Citigroup, JPMorgan Chase, and others. Each year, every bank predicted the end-of-year exchange rate. The banks missed every single change of direction in the exchange rate. In six of the 10 years, the true exchange rate fell outside the entire range of all 22 bank forecasts. (1)?

So, what are models??Models are complex stories with lots of assumptions.?They can be a useful tool for understanding possibilities, but they are largely useless at predicting them. ?They are in effect made up quantifications of the unknown.?And, if we let them they give us a false sense of certainty about the future.

Note: the exception here is models that work with static rules and no human based uncertainties… which is helpful if you are planning the trajectory of a rocket, but no help if you are trying to understand market conditions when it gets back from Mars.

If We Can’t Rely on Experts, And We Cannot Rely on Experts’ Models What Can We Rely On?

Tetlock, having identified the problem helpfully set out to solve it.?He and his wife/collaborator ran the Good Judgement Project.?Instead of recruiting well known experts they looked for volunteers.?Among them they selected a small group who were particularly fox’y –

• Bright people with wide ranging interests, and
• Unusually expansive reading habits, and
• Skeptical of grand theories and group think, but
• ?No particular relevant background.

This group left the experts for dead!?These foxy foxes where curious – about everything.?They crossed disciplines and viewed other team members as sources for learning.?Grouped into small teams of about 12 members each they outperformed (by a lot) a group of experienced intelligence agents who had exclusive access to classified information.?This is a great example of the Wisdom of (Small) Crowds

What was particularly interesting is that foxes were much more likely to adjust their ideas if new or contradictory information showed up.?This is the opposite of the ‘hedgehog’ experts who dug in or doubled down on incorrect predictions.?

The best forecaster sees their predictions as ideas in need of testing If they make a bet and lose, they embrace the logic of a loss just as they would the reinforcement of a win. This is called, in a word, learning. (1)

Sense Making

In the past we have planned for (or assumed) a slow pace of change and a recognisable future.?But what if our market changes or our industry is disrupted like the media, camera, map, or screen-printing industries??

In this context Sense Making is about figuring out what the future may look like, how it is different to today and what it may mean to us and our businesses.?As business owners we must now constantly reframe our view of the future, or we are destined to fail.

So How Do Business Owners Figure the Future Out??

Having met with hundreds of business owners over the years this is what I am seeing -

1.??????Aim For Good Enough – Not Perfect

The chances of making perfect predictions are incredibly small.?If you combine good sense making with short planning and trend review cycles (see below) you can take in the new evidence, adjust, and move on.?

2.??????Be Curious – Keep Learning – Be Skeptical (and unlearning)

One of the defining characteristics of a successful business owner (and a fox) is curiosity.?Depending on your preferred learning style read/listen/watch widely.?Take in information and trends from a wide range of industries and areas – after all more often than not disruption will come from outside your industry.

Be skeptical, test ideas and points of view, including your own.?

And for those of you who have been around business a while, be willing to ‘unlearn’ previous rules and approaches that have served you in the past.?Much of what we were taught or have learned in business suited the old world of slow incremental change, and new approaches are often cheaper and better than a few years ago.

3.??????Better Together – The Wisdom of (Small) Crowds

Seek out business communities that support learning and sharing of ideas and perspectives.?It is upon us as business owners to get together and work on the story of our future. We are better together! ?

It turns out social evolution is smarter than experts.?The trick as Tetlock found is to ensure that the team people you surround yourself with have a range of perspectives and experiences.?

4.??????A Shorter Planning Rhythm (And Be a Meercat)

In business the days of 3-to-5-year linear plan/do/review processes have been replaced with rapid cycles of plan, do, review, adapt, repeat.

Welcome to the new rhythm.?I am seeing more and more businesses with a BHAG, a 3–5-year strategy, a year plan and quarterly planning cycle (or a version that meets the rhythm of their business).

They are regularly getting together with their teams and acting like a Gang of Meercats (yep – a ‘gang’ is a group of meercats), so regularly pause, stand up and have a good look around.?If you wait a year or three to review trends your competitor will have picked up the shift and be long gone, or worse, your industry might have completely changed, and you could be stranded high and dry.?

5.??????Be Willing to Be Wrong

And finally, when the facts get in the way of your predictions or plan, embrace the learnings, adapt, and move on.

Looking Through Your Crystal Ball (when it’s a bit fogged over)

The world has sped up.?Basing tomorrow on our experiences of yesterday will not cut it as we forge our plans for our businesses.?

The old days were like a 10k track run.?Most of the variables were predictable – the distance, the surface, the weather, the number of competitors.?These days are more like orienteering – it is still a foot race, and we have an idea where we are headed but each station requires us to pause, take in new information and adjust.?Being fast is helpful; being smart about our approach is essential.

We used to gaze into ‘our crystal ball’ with reasonable confidence about what conditions would be like in three or five years.?This has been replaced with a crystal ball that’s fogged over – the picture is less distinct, the picture forever moving.

This requires a fresh approach.?Good luck out there.?And don’t forget to have fun!

About The Author:?Ben Marris runs communities for the owners and leaders of emerging mid-market ($2m to $20m) growth companies and the advisors and suppliers who support them.?He believes that these companies are vital for the prosperity of our communities in a fast-changing world. ?He loves red wine and a good story.?He is also dyslexic, so if there are any spelling mistakes or grammatical error blame his spell check, he does.

Other Resources:?

1.??????Atlantic Article - https://www.theatlantic.com/magazine/archive/2019/06/how-to-predict-the-future/588040/

2.??????For a deeper dive into why models don’t work and why human narratives do have a look at the book – ‘Radical Uncertainty’ by John Kay and Mervyn King.?When former governor of the Bank of England tells you not to trust economic models it is worth taking some time to hear what he has to say.

Ben Marris - September 2021 ?