“The best laid plans of mice and men often go awry.”—Robert Burns, ‘To a Mouse’
Every so often, some cataclysmic event reminds us that we live in a world of endless variables and unpredictability. No matter how well you plan for your law firm, no matter how much you prepare, there’s always a chance something will happen to throw those plans off-kilter. I’m not talking about the occasional “wrench” or complication—everyone has those, sometimes on a daily basis. I’m talking about a major event that seems to come out of the blue, something that completely disrupts the process, changes the rules, changes the landscape. We refer to these as “black swan events,” and in some cases they have the potential to set you back months or even years.
What Is a Black Swan Event?
The term “black swan event” was coined in 2001 by finance professor Nassim Nicholas Taleb in his book Fooled by Randomness. It refers to the once-held belief that there was no such thing as a black swan—until one was discovered in Australia in 1697. Taleb identifies a black swan event by the following three characteristics:
1. It is impossible to predict or foresee (at least from the observer’s perspective);
2. It has major repercussions and ramifications; and
3. It can later be explained as inevitable, creating a paradigm shift in the process. (The phrase “hindsight is 20/20” applies here.)
In plain English, when you’re hit with a black swan event, you don’t see it coming, it rocks your world, and after the fact it becomes obvious why it happened. (Face palm—“Of course!”)
Examples of Black Swan Events
The best way to understand black swans is to give some examples most people can relate to, both in recent and distant history:
· The 9/11 terrorist attacks
· The Great Recession of 2007-2008
· The personal computer and the advent of the Internet
· World War I
· The Fall of the Roman Empire
· The Black Death
Note that not all black swans (like the Internet) are disasters—think of them as game-changers, whether good or bad.
How Can Black Swans Affect Your Law Firm?
Not every black swan event is global in scale. Obviously, if you were attempting to launch a law firm in New York City’s financial district in September 2001, your plans were probably disrupted on 9/11. But where you’re concerned, a black swan could be any unexpected occurrence that deeply impacts your plans. Some possible examples:
· Your biggest angel investor dies of a heart attack two weeks before the scheduled transfer of funds.
· The 100-year-old office suite you just leased burns to the ground due to faulty electrical wiring.
· You base your entire practice on estate tax planning—just before Congress eliminates the estate tax.
The bad news is there’s really no way to predict specific black swan events because from your perspective, they’re impossible or at least highly improbable. The good news is that you can take practical steps to safeguard your firm by learning to expect the unexpected. For further guidance and strategy planning in this area, give us a call at 888-891-6998.