"You can be wrong half the time and still make a fortune"
I am reading a fabulous book about managing your emotions as it relates to investing. The book is titled, "The Psychology of Money" and, as you can imagine, my mind went to supply chain strategies and how this psychology can apply. My mind also went to a theme I have been writing about relative to scenario planning.
The quote above is from the lead page in Chapter 6 titled, "Tails, You Win". and it truly embodies a lot of what scenario planning is about. Here are the key lessons:
- Your Business Plan Cannot Depend on Perfection: Whenever I see someone developing a plan the first question I ask them is, "What if assumption [fill in the blank] is not accurate? What happens to the plan? If they cannot answer that question or the answer is the plan falls apart, then there is no plan. There are numerous sayings on this but it all comes down to not developing a plan which relies on a hole in one. Holes in one rarely happen. "The more you need specific elements of a plan to be true, the more fragile [the plan] becomes".
- The Plan "Bets the Farm": The quote from the book which applies here is: "Few gains are so great that they're worth wiping yourself (or your business) out over. When I hear people say they are going to be the "Amazon of..." or the "Tesla of...." I know the plan is doomed. Going to Vegas and putting it all on one number is not a strategy.
- Planning is important, but the most important part of every plan is to plan on the plan not going according to plan. The follow on quote to this is, "you plan, God laughs". The author reinforces over and over again that "A plan is only useful if it can survive reality. And a future filled with unknowns is everyone's reality". Bottom line is you must plan on the plan not going the way you want it to.
- Margin of safety / room for error: Allow for margins. It is one reason why leverage really can be a problem. Using leverage in financing removes a lot of the margin for safety and then you are back to violating rule 1 - you are hoping for perfection.
- Develop a barbelled personality - be optimistic about the future, but paranoid about what will prevent you from getting to the future. Andy Grove, founder of Intel, wrote a book titled, "Only the Paranoid Survive" and he was write. However, you must also be optimistic (not blindly) about the future. The future curve is almost always up and to the right for great plans as long as they meet these rules.
These rules are just fantastic reminders of what makes a great business strategy and makes a business that can survive both the great times and the not so great times, like freight and supply chain entities are seeing now.
Since it is July 3d and I am off tomorrow, I will leave you with a fantastic patriotic song. As a veteran, I am "Proud to be an American".
