Efficient businesses will perish

Some of the most efficient businesses are the ones that are being forced to swallow the largest losses today.

Nasim Taleb in his book ‘Anti-fragile’ talks about systems that can withstand a black swan event. A once in a lifetime shock that can be hard to predict and overcome.

Capitalism promotes profiting at all costs. This relentless pursuit of margin requires squeezing every bit of productivity and efficiency out of the system. You want things to function in a manner where not an extra moment is available to an individual.

Since time is the ultimate resource, this has also resulted in wastage of an unforeseen nature (of every other resource) just as long as it can save time. This path to generating more and more profitability has resulted in a focus on more and more efficient systems.

Highly efficient systems are incredibly inflexible.

Efficient Businesses

This of a Toyota assembly plant which is just in time and second perfect. What if you have a miss a beat?

In the US the food industry is highly efficient. The production chains are very tightly controlled and the food production system was the first to suffer when the pandemic forced a shut down of these efficient lines. Millions of Hogs had to be culled and buried as there were no buyers since restaurants had all shut down. Highly efficient systems buckle in the face of change.

In India, the banking system has the same nature of efficiency. What happens when people do not pay up their EMIs? The financial system struggles and the struggles reverberate throughout the system. The pain is yet to surface but it will.

Part of the reason startups survive at all is because they are inefficient. This makes it possible for them to pivot, change direction and business models. Startups are constantly undergoing shocks. Shocks where their assumptions about the market or customer are constantly being proven wrong. The only option that they have is to change.

When you realise that the customer is not going to buy the solution you are offering, you change. Or perish. Building a startup is like going through a series of black swan events. The only difference is these were caused by your assumptions.

A very efficient system is like a very very very sharp knife. The only thing it will do; is cut. You have to ensure that it is kept pointed in the right direction. If not, you could end up injuring yourself.

In a world that is increasingly unpredictable; one where our denial of science will result in the increased frequencies of such unprecedented black swans, it pays to be less efficient and more flexible.





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