The term Black Swan is coined by the metaphor that describes an event that comes as a surprise and has a major effect on the globe. The term is based on an ancient saying that presumed black swans did not exist but was contradicted when the first European discovered them.
The term Black Swan was discovered by Nassim Nicholas Taleb in his book "The Black Swan", a Finance professor, writer, and former Wall Street Quant trader. The word Black Swan was popularized after the detrimental incident "Financial crisis of 2008" in the US. Setting the 2008 financial crisis as the base example, Taleb argued that Black Swan events are almost impossible to predict yet have far-reaching consequences, therefore, people should always assume that a Black Swan event would take place & plan accordingly. It could be anything from a natural disaster to war, a financial crash, or the outbreak of a virus. But they do share same characteristics according to Taleb, who formulated the theory about how extreme and surprise events can play an outsized role in life.
Mediocristan people are the who are non-risk-takers, mediocre people. They drives in the same predictable events where the results are the same- "predictable" . The outcomes are expected and the expectations are rare which can be ignored easily. The less experienced accountants might be paid around $30,000 per year, and the senior ones might be paid around $80,000 per year. However, the accountant will not be paid $1 million per year.
In Contrast, the extremistian people consists of risk-takers, rebels, misfits, to the people who see things differently. Extremistan situations include disruptive and deteriorating events that happen in such a way that the outcomes cannot be statistically ignored. For instance.,
- A natural incident like the asteroid that struck Earth 60 million years ago happened only once, but it changed life on Earth forever.
- Man Made crises like the 2008 financial crisis- the largest bankruptcy filing in US history in which over $10 trillion was eventually wiped out in the global equity markets, 9/11 Attacks- $1.4 trillion in stock market value was abolished within a week.
However, "The Black Swan" doesn’t term to just negative terms, it is coining the unexpected event which comes without any knowledge. A positive example is, a unicorn - Google, which appeared after nowhere and completely changed the world.
Inference Of The Black Swan Theory In Technology Startups :
Consider the examples from Mediocristan in the startup world:
1.) Marketing campaigns have an average click-through rate of around 2%. Some poor campaigns will have 1% CTR, while some great marketing companies would have 4% CTR or better. However, the average remains 2%, and getting a CTR way above this average is very difficult or not possible
2.)The salaries of employees in companies are ranging indefinite amount and depend on seniority and where employees are recruited, among other factors, but salaries will consistently sit within well-defined ranges, with small differences from one case to another.
Now let's consider the hero of Black Swan - Extremistan, where things get unpredictable and unimaginable where outstanding success becomes possible,
Think of "Extremistan" as California "Gold Rush" event during the 19th-century. The first lunatic explorers discovered the gold mines and became filthy rich. After a while, many other explorers walked in their path but finding gold mines became harder and harder.
Therefore, being the first one to discover something or being one of the few to understand something is a competitive advantage in a business.
The point is to be at right time and at the right place, scaling up and escalating the number of directions and giving a try to every opportunity you get, where an extraordinary outcome can make all the difference between a poor startup and a unicorn, for example:
1. Sometimes we drive ourselves trying and testing new and small things and over a cycle, and trying small things will experience us up to do "BIG Thing". But, trying the same mediocre methods and committing yourself to one field, won’t give the Extremistan event. You have to think out of the box to find the bigger things and implement them at right time. For instance, Sometimes signing a big contract takes the same amount of time assigning smaller ones. To scale up, it makes sense to sign multiple smaller contracts to get the ladder of better and big contracts.
2. Same as above, it is totally normal to train and test smaller partnerships, but there comes a moment when you can go for the big one, which might require the same amount of effort and time as the smaller ones.