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TECH TALK: Black Swans: Entrepreneurship

August 12th, 2004 · No Comments

Let us start by reiterating Nassim Talebs description: A black swan is an outlier, an event that lies beyond the realm of normal expectations. Most people expect all swans to be white because that’s what their experience tells them; a black swan is by definition a surprise. Nevertheless, people tend to concoct explanations for them after the fact, which makes them appear more predictable, and less random, than they are.

Nassim elaborates: The Black Swan is defined as a random event satisfying the following three properties: large impact, incomputable probabilities, and surprise effect. First, it carries upon its occurrence a disproportionately large impact. The impact being extremely large, no matter how low the associated probability, the expected effect (the impact times its probability), if quantified, would be significant. Second, its incidence has a small but incomputable probability based on information available prior to its incidence2. Third, a vicious property of a Black Swan is its surprise effect: at a given time of observation there is no convincing element pointing to an increased likelihood of the event.

In my life as an entrepreneur, I have experienced one black swan event.

When I started as an entrepreneur in 1992, I wanted to build a successful software company. 30 months later, that idea lay in shambles I didnt have much of a company, we werent doing much of software, and success was something others had. I had only options: restart, work somewhere, or join a fledgling family business dealing with marble and edible oils. The decision was easy.

When I restarted and made a bet on the Internet as a medium for distributing content to Indians globally as a prelude to enabling ecommerce, I had no idea of the endgame. All I could think was that I did not want to fail this time I had to first ensure that we got to profits quickly. There were challenges to be met on an ongoing basis each day brought with it something unexpected. Not necessarily black swans, though. We lived through some tough times and finally experienced some good times.

But even I was not prepared for the ending. If someone had told me in September 1999 that I would be selling my company for a hundred million dollars in two months, I would have thought of it as a nice joke. That September, I had exhausted talking to the last venture capitalist who showed an interest in us. We had profits, yes. We were market leaders, yes. We had great month-on-month growth, yes. But we were still a small sub-million dollar company catering to a small segment of the global online population.

That was when the black swan event occurred. Large impact, undoubtedly. Incomputable probabilities, absolutely. Surprise effect, totally. It was an ending no one could have scripted, and yet as it turned out, it had a finite possibility it happened to me and my company. Today, nearly five years later, as I look back, there is no way I could have imagined or prepared for that event.

For an entrepreneur, a black swan event is a nice, happy ending. But few entrepreneurs build a company keeping in mind that a black swan event will one day happen. They are just following their dream. Yes, they are inspired by stories of previous black swan events and think it can happen to them. But, they are also practical they go in to work every day working to reduce the risk of failure that is so much a reality in every small business.

Tomorrow: The Next


TECH TALK Black Swans+T

Tags: Tech Talk

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