Antifragility, Evolution, and Entrepreneurship

Noubar Afeyan, a Sloan professor and founder of Flagship Ventures, recently argued during Harvard’s Spark conference that we should better distinguish between the term entrepreneurship, where “ship” implies a certain constancy, and entrepreneuring, which describes in his words the process of building up an enterprise and has a much stronger connotation of fluency and evolution. The idea of understanding the process of founding companies as a profession on its own that can be taught, serially applied, and improved upon is in my view an almost inevitable conclusion of the evolution of strategic management over the last century. The last 100 years have seen a substantial transition from managers seeing the world as predictable and their companies as self-contained to a focus on surviving in a highly complex, evolving, and interdepended world.

Some of the earliest academic thoughts on what was at that time called Scientific Management were highly mechanistic; focusing not only almost exclusively on the internal side of the company but also assuming that the surrounding could be considered stable. Uncertainty was something that was not only avoided but seen as dangerous and unscientific as it becomes clear in this statement from 1912: “The theory of proper execution of work is that it should be planned completely before a single move is made.”¹

A first suggestion that the world is not as stable as the earliest theories suggested came up in the 1950s when strategic planning was introduced. The term planning implied that there was a future that could be planned against and that would look different to the context the company was in at the very moment. Advanced companies during the 1960s and 70s took this idea of transition and change a step further with more systematic tools to understand product life-cycles and learning curves-all methods to analytically get hold of an uncertain time ahead.

Even more interestingly, during this time managers and consultants developed the idea that sub-divisions of a company could be considered as part of a portfolio which could be adapted to counter risks faced by an uncertain future. By evolving the company’s product portfolio, future profits could be maximized following rigorous analysis. What makes this view so fascinating is that it gives a first hint of purposefully accepting losses in order to refocus the company’s efforts on other areas. More so, it implied that there was a central body of the corporation that would not only take those decisions but do this repeatedly and hence over time dynamically improve their company’s standing while learning new management lessons on the way.

All those models still had a strong passively reactive view on their environment. This changed in the 1980s when we saw a sudden spike of interest in understanding the world outside the firm. New concepts such as game theory came up which helped to better model future states of other actors and we also saw the emergence of Porter’s five-forces; a framework which provided a better view on a complex external world and allowed managers to more effectively position their firms in their respective environment.

While at that time the importance of an external perspective had already emerged and it was already widely accepted that the future was difficult to predict, it took the 1990s to bring these ideas full circle: The emergence of Dynamic Capabilities. Suddenly, people, interactions among them, shared knowledge, processes, and technical capabilities were not anymore seen as liabilities but as an asset that could be shaped and re-configured to answer new, to the managers beforehand unknown challenges. Managers were asked to actively look out for new opportunities that could be seized. I believe these insights were critical stepping stones in enabling today’s entrepreneurship culture: The consideration that the internal capabilities (incl. the product!) are important but not static. That they shall evolve with the company’s customers and more importantly with the visionary insights of the management.

The critical new element which today’s entrepreneurs bring to the table, is the insight of not only seeing their companies as evolving (or “pivoting”) but also considering their own abilities as limited and hence improving together with their companies. Increasingly failures are not anymore seen as a weakness but as a quintessential graduation to more challenging startup ideas.

The earlier insights, though, stayed: Agile process models, Minimum Viable Products, and Design Thinking are nowadays mainstays of the startup scene and are just the latest chapters in the collection of management tools that allow a company to survive in an uncertain world by testing their markets. Some of the proposed frameworks are even pushing the boundaries so far, that it is nowadays seen as acceptable to sell products into a market without having any certainty that there will be demand for it. Similarly, today’s entrepreneurs have not only learned the lessons of the past with respect of learning from the external world but further expanded on it. Most young companies will assert that they consider their customers at the very heart of their corporate strategy, as a bridge to the external world which helps to constantly shape and improve their company’s products. These are views which would have been unheard of 100 years ago. While it might be easy to dismiss these statements as corporate buzzwords, I believe they are mostly rooted in conviction. Stanford² and MIT³, arguably the leading universities nurturing entrepreneurship in the world, preach customer-centricity in their courses and less-than-perfect customer service is anecdotally seen by young people as a relic of the remaining old-world companies but certainly not something one would expect from the likes of Amazon, AirBnB, and Teespring.

The churn rate of today’s startups is also interesting to observe. Small enterprises are a substantial net contributor to job growth⁴ but this comes at the cost of individual stability. Young companies incorporate, start employing people, but more often than not fail.⁵ But should we consider this as a failure? Nassim Taleb would argue that we shouldn’t. In his book Antifragile he emphasizes the importance of small failures to stabilize and evolve an overall system.⁶ At the example of restaurants he makes the point that we would likely have a very unsatisfactory dining experience without the failure of some entrepreneurs. With every restaurant that fails, the collective knowledge grows. Business models are proven or disproven and creative ideas get new space with the failures of others. Over time, we experience countless local failures, but at the same time we see the emergence of a new, much more stable restaurant ecosystem that is collectively not only delivering more value to its customers but also positively embracing future changes. He calls this attribute the antifragility of the system.

Entrepreneurs are certainly not the rational actors as earlier management theory imagined managers to be. They are overconfident when they believe in their personal success no matter the odds they face. But as Taleb suggests: Selected overconfidence on a small scale is much preferable to a global overconfidence, as we’ve seen it during the great recession.⁷ And the overconfidence is confined not only to the individual entrepreneurs and their companies, but also it is limited to the financial sphere. What gets unshackled, though, is the learning experience the entrepreneurs go through. It will help them to be more successful the next time and it will support any other entrepreneur who is looking for lessons learnt. Today’s entrepreneurs are unprecedented in the amount of knowledge that they pass on to their peers. Books are written as open source documents, business templates shared freely online, and countless blogs about startup learnings are being published.

Communities such as WeWork⁸ also show another prospective of today’s management culture: Companies share their resources, build mutually beneficial networks between each other, and lend each other a hand when there are times of hardship. It’s not that competition has disappeared, but that the world has reached such a level of complexity and rate of change, that it is rarer and rarer to have two entrepreneurs in a room that compete with each other in the same niche but more and more likely that they either build on top of each other’s services, or offer complementary products.

While the world I have described above is not yet the reality for most of us, I strongly believe that we can learn a lot from those working at the edge of management practice. The past has shown that it is usually the practitioners who dare first to take the next steps and advance our understanding of the world. At times where large corporations and banks collapse with disastrous effects, I believe strategic management theory and large corporations alike can learn a lot by more strongly embracing the approach of startups of staying closer to their customers and partners and of accepting uncertainty by failing small and fast. This might not only be a path towards more stability and value generation in today’s world, but also an almost logical next stepping stone building on top of 100 years of management theory.