When things are going well, most people don't stop to plan for bad times ahead. But they should, because preparedness is what will set apart the companies that will fail from the ones that will survive.
Small businesses are particularly vulnerable to crises, because many don't have huge reserves or reliable access to emergency funding.
In the book Resilience: Why Things Bounce Back, author Andrew Zolli, executive director at Poptech, discusses how these organizations can survive even when they can't predict their next crisis.
In his book, Zolli revealed three behavioral biases that prevent businesses from becoming fully prepared:
1. The novelty bias. "Human beings a have a persistent, pernicious tendency when thinking about the future, which is uncertain, to take the newest fact in the present and make it the dominant fact in the future," Zolli says.
Most people think what's happening now will continue to happen in the future, but business owners shouldn't count on a popular product to always be trendy.
It's easy to just keep doing what works, and this is what leaves businesses unprepared. Instead, business owners should focus on their surroundings, and this requires a little bit of change in the way you think.
2. We focus on people, not our environment. Through long experience, we are conditioned to see other people as our biggest threats, we have an innate psychological tendency to focus intently on competitors and spend time reacting to their moves.
However, this can lead people to ignore long-term, less-obvious threats, making them even more prone to failure. Basically, don't just focus on the risks encountered every day. Know what your business really can't do without, and have alternative plans in case things don't go as planned.
3. Know what risks you're taking. When credit is extremely cheap, there's a powerful impulse to load up with debt. For example, we drive faster on open roads, and bike more aggressively when wearing a helmet, because we think the consequences are lower. When things become less risky, people end up taking even more risks, because the safer we feel, the more susceptible we are to disruptions.
Companies that survive use boom times to become rock solid, not just grow at a rapid speed, so use those "good business times" to really understand what works for your company, what drives your revenue, who your consumers are and use this research to understand why changes occur if they do.
Zolli defines resilience as "the ability to maintain core purpose over the widest variety of circumstances, with integrity." As the world grows more and more volatile, that's increasingly important.