Business Musings: Running A (Writing) Business In Uncertain Times
Last week, I explained the economic term, “Black Swan Event,” and said that Donald Trump’s election here in the United States is not one. A number of you wrote to me privately and argued that it was, talking about the severity of the change he will bring, not just to the U.S., but to the world.
I’m not denying the change. At all. We are facing a future that’s very, very different from the one we thought we were going to have. (Almost everyone in “the know,” including the Trump people, thought he was going to lose on that Tuesday night.)
However, that difference, profound as it is going to be, was not unpredictable.
How do I know this? Dean and I modeled Donald Trump’s win as part of our future planning, starting last June. We gave the win low odds, but we calculated it into the various models we were working out for our businesses.
I’m going to discuss the difference, the modeling, and the ways of thinking from a business perspective and do my best to leave politics out of this. Just because I’m discussing this election dispassionately does not mean I am dispassionate. I have very strong opinions about this country, its direction and importance in the world, and how we should be as a nation. Please see my fiction for that.
But I’m fully aware that this blog is not written for partisans. It’s written for writers from all over the world, most of whom barely give a rat’s flying patootie about American politics. For that reason, my discussion of politics here only comes in the context of current events and the things writer-business people should consider. So no political comments, please.
First, let me address the difference between an emotional shock to the system and a Black Swan event.
An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult to predict. This term was popularized by Nassim Nicholas Taleb’s book “The Black Swan: The Impact of the Highly Improbable.” Mr Taleb is a finance professor and former Wall Street trader.
Note that there are two parts to the definition of a Black Swan event. The U.S. election fits the first part. Donald Trump’s win did deviate from what was normally expected of the situation according to the polls, the pundits, and the experts.
Except…if you used a historical perspective to understand what was normally expected of the situation—an American election after one party holds office for two terms—then the event was not unexpected. It was expected. According to a 2013 article in the non-partisan Constitution Daily, the Democrats (Hillary Clinton’s party) had a .333 chance of keeping the White House in this cycle. This article was written two years before any candidates announced for office.
But let’s say that those of you who wrote to me were right, and this election was a deviation from the norm.
The election still—clearly—does not meet the second half of the definition, which is that the event would be “extremely difficult to predict.” It wasn’t difficult to predict. The polls were uncertain. They were misinterpreted often. The information on the ground was incomplete. But it was clear, right from the Democrats’ win in 2012 that the White House could change hands in 2016.
Even the recent odds were solid that Trump could win. Just before Election Day, he had a greater than 1 in 3 chance of winning. Or as Nate Silver of fivethirtyeight.com said on October 30, almost two weeks before the election, the Chicago Cubs had a smaller chance of winning the World Series than Trump did of winning the election. Anyone who reads my blog knows that the Cubs won and I was happy about it. You can bet, though, that Silver’s words rang in my head that night—and in the nights to follow.
Or as Dean, who was a professional poker player, often said, he’d won hands when the odds were 1 in 3 against him. One in three is likely, not a Black Swan event. It’s something that can easily be predicted—and was.
What was unpredictable was that two of the most unpopular candidates in the history of American polling were chosen by their parties. That meant that no matter what happened, a large chunk of the populace was going to hate whoever became president.
Nearly seventy of eligible American voters did not vote for Trump. 25.9% voted for Clinton, and 42% did not vote at all. America historically has the one of the lowest voter turnouts in the developed world and this year was no exception.
What that also means is this: Had Trump lost and Clinton won, that seventy percent number would have been reversed. Roughly seventy percent of the electorate would not have voted for Clinton. (Trump received 25.7% of the vote.) That would have caused problems as well.
Americans were shocked by Trump’s win. It was an emotional shock to the system, which many people in the U.S. population are still struggling to understand. Those people (probably not the full 70%, but maybe 50%) did not believe that a man like Trump could win the White House.
You Brits went through this exact same emotional shock, with the same uncertain and unreliable polling, in June of 2016. No one—no one—in the know could believe that voters would choose to leave the European Union, given the difficulties, the worldwide ramifications, the severe economic repercussions.
And then, voters surprised everyone by choosing Brexit. The plan to leave the E.U. is now underway, although it is moving slowly, and there are still uncertainties about what will happen next.
Last week, as I was researching the upcoming European elections which had similar candidates to Trump on the ballot, I saw several articles which claimed that the establishment candidate would win, despite their serious unpopularity and growing discontent in those countries. I recognized those articles. I read many similar ones here in early 2016.
In the U.S., those articles were wrong. In the U.K., those same types of articles on Brexit were wrong. I’m not saying they’re wrong for your particular country, non-Americans. I’m just saying that two major Democracies just administered a major shock to their established norms. Don’t be surprised if yours does too.
The theme of the 21st century thus far has been disruption. Technology has disrupted established industries in ways that were inconceivable in 1990. That’s why this blog exists. To understand the disruption in publishing.
I had not expected the disruption in established political institutions. That it’s happening will probably make sense in hindsight to all of those historians from 2090 who will make their entire careers studying this period of time. But I doubt I’ll live long enough to see that. 🙂
We’re here to discuss business. Your business. Your writing business. Although much of what I discuss will apply to most businesses.
In June, we entered times of serious and major uncertainty in the economic side of the world. Yes, June was Brexit. June was also when it became clear here in the United States that the U.S. election would be between Hillary Clinton and Donald Trump.
In June, Dean and I began serious planning for the coming uncertainty.
I know that sounds weird. How do you plan for uncertainty? The way that Writing Observer mentioned in the comments to last week’s blog:
For predictable uncertain times – you make contingency plans. … They might not be plans that you especially LIKE the idea of executing – but you pull out the one for that contingency, adjust for the details you didn’t plan for – and continue with life.
I mentioned that I had put off writing last week’s post, Third Quarter Blues, although I wanted to write it in October. I needed one final piece. I needed to see how the financial markets would respond to a Trump win. The pundits (yeah, them) believed we were looking at a steep and serious market decline immediately after a Trump victory, and considering how the markets reacted to Brexit, that decline was within the realm of the possible.
Instead, the entire world is taking a wait-and-see attitude—economically. Which means that we’re not going to go in a severe financial decline in the next few months. But you should be modeling a financial decline for 2017/2018, along with all of the other possible models.
What do I mean by modeling?
It sounds complicated, but it’s not. It’s that old if-then game we played as children. If this happens, then what will you do?
You go through all the scenarios:
If the UK votes to stay in the European Union, then what will you do?
If the UK votes to leave the European Union, then what will you do?
If the UK’s vote is tied somehow, then what will you do?
If the UK decides to leave and somehow changes its mind, then what will you do?
If you hit a place where you say, That’ll never happen, which is what a lot of Democrats (and non-voters) in the US said all year, then you hit a scenario that scares the pants off you and it’s one you really, really have to look at.
Economically speaking only, the contingency I feared the most in the days coming up to the election was a Bush v. Gore style tie in the Electoral College. That would have extended the waiting period I discussed in last week’s blog until December at the earliest, and any result—Clinton, Trump—would have been even more impactful than it would be had the decision been clear.
The decision turned out to be clear, which meant that model for that economic future got discarded.
You must plan for all the contingencies you can foresee.
Dean and I have made contingency plans for almost everything we can think of, not just for political events, but physical ones too. If a tsunami hits the Oregon Coast, where our physical business is located, what then? If a depression devastates the country and the world, what then?
But let’s move out of the realm of the devastating back to the realm of uncertain economic times.
Dean and I came up with several contingency plans for the last half of 2016 and the first part of 2017. Some of those plans included a Clinton win, some of them included a Clinton loss. All of them took Brexit into account, as best we could given what information we had.
It became clear in June that after the November election—no matter who won—there would be civil unrest in this country. It seemed obvious that if Clinton was elected, then gridlock would remain the rule of the day in U.S. government.
Modeling a Trump economic future is tougher. We don’t know what he’ll do, but we know what his party wants to do. But we also know that Trump does not get along with his party.
In other words, the world became more uncertain with a Trump victory than it would have with a Clinton victory. The man is predictably unpredictable. (Sigh.)
How long will the uncertainty last? At least two years, maybe four. Maybe more than that. We have moved into truly uncertain waters—compounded by the upcoming European elections.
How do businesses handle uncertainty? In general, businesses make sure they have enough capital to weather economic stagnation and bumps. The businesses also need three kinds of plans—a plan for growth, a plan for stagnation, and a plan for loss. Predicting what will happen for your business is not as simple as looking at what’s happening at other businesses.
In any changing economic climate, some businesses will succeed and others will struggle. Sometimes those changes are predictable. For example, in late 2008 and early 2009 as the economy went into decline, I knew that small business would grow. How did I know that? I’m not a guru or anything; I’d been through this before, in the early 1980s.
When people lose their jobs and can’t find work, some of those people see that as an opportunity to leave the job market altogether and give that project they’d always been thinking of a try. Because I knew that small business and freelancing would grow in 2009 and 2010, I wrote The Freelancer’s Survival Guide.
Because the other thing that I knew was that most first-time small business owners fail. I wanted to prevent as much failure as possible.
To do modeling for the next year of your business, you need to be as clear-eyed as possible. You should research trends for your business for similar economic times, if you can.
Then you figure out as best you can what your future will be.
Here’s how you do it.
First, you figure out what the possible futures could be. By July, ours were pretty simple. Clinton victory—then what? Trump victory—then what? Markets react well—then what? Markets react poorly—then what? Civil unrest—then what? Governmental gridlock—then what? Governmental ease—then what? Possible impeachment (either candidate)—then what? And so on.
Second, figure out the impact those scenarios will have on your business. Dean and I were modeling for different businesses. Our retail businesses have a local component that our publishing and writing businesses do not have. Therefore, our models for the retail business were different than our models for publishing and writing.
Some scenarios will have no impact at all on what you’re doing. Others might have a huge impact. Be as clear-eyed and honest with yourself as possible as you set out these scenarios.
Third, plan for struggle and for success. Some businesses do better in certain types of downturns. Inexpensive entertainment—like books—do very well in economic recession. Publishing also does well—if the publishing company has low overhead. Traditional publishing companies had trouble in the last recession in part because they were bloated. They also had trouble because the technological disruption was hitting at the same time.
But the entire self-publishing movement started in the last recession. Indie writers have grown into a force since their humble beginnings of 2009—as most people struggled to make ends meet.
Fourth, make sure your plans are concrete. No vague well, we’ll look at it once the future arrives kind of plan or a maybe we’ll make cuts if the economy tanks kind of plan. Figure out what you will do from moment one.
Dean and I had meetings with the people running our companies long before November 8. We showed up for the scheduled November 9 meeting with notepads in hand, because we all knew that the future had arrived. Then we discussed the next few months, and looked at the next year as well.
Fifth, be prepared to make modifications. Even though your plans are concrete, reality does shift things. Sometimes you will have to tweak the plan you made in June to handle the realities on the ground in November.
Sixth, review your plans every week or every month throughout the period of uncertainty. Again, events on the ground are going to shift, sometimes in unexpected ways. Just this week, I’ve received all kinds of interest on projects that I thought were dead six months ago. Some of that interest is coming about because of the election. I had not planned for the revival of interest on these projects, and will have to tweak the plans Dean and I made in the coming weeks.
Seventh, be sure to include your personal time and finances in those plans. Uncertain times mean that friends, family, and others might need you on a personal level more than ever. You might find yourself providing care where you didn’t expect to, or donating more of your income to charities that have stepped up to fill some kind of gap. You might think it necessary to join the political fray in one way or another. Those things take time and resources. Plan accordingly.
Eighth, remember that the world will go on. It always does. It might not be a world you like. It might be a world you loathe. It might be a truly ugly place. Or it might be the place you dreamed about. Whatever it will be, it will be something.
For those of you in the United States, realize that 42% of eligible voters did not care enough to vote. If you asked most of them how they feel today, some will probably regret that decision. Most of them, though, are probably feeling relief that the election ads have ended, and they’re probably annoyed at everyone who still wants to talk about politics. That 42% wants to get on with the business of everyday living.
So, I would wager, does a goodly percentage of the 58% who did vote. They’re looking ahead to the holiday season. They’re back watching football instead of the political shows. They’re talking about winter weather, not who they plan to vote for (or against).
Ninth, uncertain times—whether they’re good or bad for your business—can be extremely difficult emotionally. Hang in there. Realize that this too shall pass. Someday.
I have one final, extremely important point.
Uncertain times are not limited to world events. In fact, uncertain times are generally not worldwide events at all. They can be nationwide. They can be regional. They can be local. And they can be familial.
The United States is a large nation with a large global impact. Smaller nations have elections too, and their impact might not have an impact on any major country outside of their region. But the impact within the region might be large.
New Zealand just suffered a major earthquake. Italy has recently suffered through several major earthquakes. Those national disasters will have an impact on those countries and will probably have an impact in the region as well.
Right now, inside the United States, there are wildfires raging in American Southeast, which is not a common thing at this time of year. Not unexpected, though, given the drought. These fires will have an impact on the region and on people inside the area, but probably not a large impact on writers who live in the Pacific Northwest—unless we have family in those areas.
Familial disasters and uncertainty will have a larger impact on your business than almost any of the other disasters and uncertainties I’ve named. Dean and I have contingency plans for our deaths. If we die together, we have one plan in place. If we die separately, another exists. If we die and the other person is incapacitated, yet another plan exists.
We own businesses that employ people. We had to make these plans. It’s irresponsible not to.
It’s the old hope for the best, but plan for the worst view of life and living.
None of us can clearly see the future. We look at it through a haze, and we always operate on guesswork. But we can should plan enough so that we can make swift and informed decisions when those futures arrive.
Yes, there are black swan events. Those are harder to plan for. Often, you can modify a plan you made for uncertainty to handle the black swan event.
Mostly, though, there are foreseeable consequences for each human action. Do your best to dispassionately make the decisions you need to make for your business (and your own personal set of ethics).
If you do that, you’ll thank yourself when the time comes.
If you don’t, you might end up making the right decision waaaay too late.
I know, because some of what I’m writing about right now comes out of the school of hard knocks. Dean and I did not do this contingency planning when we owned Pulphouse Publishing. We ended up doing too little too late in two areas—first, when we had a great success that we hadn’t planned for, and then, second, when an outside event crashed into the business we were growing much too fast. We had spectacular success, followed by huge failure.
We probably could have survived that outside event had we known how to plan for uncertain times. We definitely could have survived the great success and the rapid growth it brought had we known that was going to be a problem.
Live and learn.
Or, my motto: Live, learn, and share the knowledge.
I hope you can avoid my mistakes from the past.
The next few years will be an uncertain time. Plan for that. Please.
I plan to continue the blog during this uncertain time. I’m also trying to move into the current world of technological advancement. That’s why you now see a Patreon link. I’ll write about that in an upcoming blog.
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“Business Musings: Running A (Writing) Business In Uncertain Times,” copyright © 2016 by Kristine Kathryn Rusch. Image at the top of the blog copyright © 2016 by © Can Stock Photo / iqoncept.