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Rodent Adaptations

Surviving and Thriving in a Rapidly Shifting (Corporate) World.

Unless you are reading this in some dusty digital archive in the baking summer of 2050, I don’t need to tell you what we are all thinking about as I write this. COVID-19 has tossed all our well-laid strategies in the air, freezing us in place while we try to survive the present moment and replan whatever future we once had outlined. Most of us have taken hesitant steps forward, feeling our way beyond the first wave of panic. The personal fear for survival and the worry that our way of life, our businesses, our livelihoods would have no relevance in an upended society have receded into a less conscious place, but are still very real.

Placing a cautious foot onto this unfamiliar surface, we test each step before putting weight on it. We feel for debris left by the earthquake that has caused so many structures to crumble around us. We are all inching forward, waiting for the roof to fall in from above. In addition to pandemic-related tremors, the political world contributes its own vibrations. As I write this, the President of the USA has just been admitted to hospital after a positive test for coronavirus; when you read it, you may – or may not yet – know the outcome of an unusually consequential election.

With 2050 hindsight, it will be natural to tell stories about adaptation. We will talk about which business models were perfectly judged to match the shift in lifestyles, and which companies or job titles would self-evidently not survive the aftershocks. But in this moment, the right adaptations are invisible. Until we fully step into our new reality, until we look around and see how everyone else is navigating this alien terrain, we can’t know where we'll fit, let alone where we’ll thrive.

In the face of unknowability, what actions are right? What are the best, safest or boldest steps that we can take, whether we guide an organization or work in one?

The nature of the challenge we face

Some systems exhibit stable equilibrium dynamics 1. In other words, when something changes in such a system, it tends to return towards its previous state. However, COVID-19’s presence in human society is unstable, so when some related variable changes, the disease is likely to accelerate. Regions that have managed to control the spread of COVID find their job becomes easier as the virus becomes less prevalent. Those who have failed at managing it find that it quickly spreads out of control, requiring bigger efforts, much longer timescales and more deaths before it slows.

This instability creates an inherently unpredictable situation. Any forecast of the future course of the pandemic, and the reopening of an economy, can only be a guess.

If you can’t predict the future, what can you do? After all, prediction is a fundamental need for individual humans and groups. Only by predicting the outcomes of our actions can we successfully act. A lack of certainty makes us hesitate; ruminate; and often become anxious, stressed and depressed.

Organizations need to predict, too. It is obvious that a three-year strategic plan depends on some ability to know what the world will look like in three years. But even tactical actions – pitching a proposal to a new client, choosing what drinks to stock in your bar, hiring an employee – rely on some assumptions about the future. In normal times, we don’t know the future for sure, but we can make statistical projections like, My 1,000 customers this year will probably be matched by 800 to 1,200 customers next year. In times of upheaval, we can’t even draw that conclusion.

Companies are ending up paralyzed. They are unable to see far enough through the settling dust to make any changes. Those who serve basic human needs can at least be assured of some level of demand, but those who provide the more abstract provisions of existence – consulting, legal services, architecture, enterprise software – are guessing.

Government support in many countries has offered some predictability; if there are no customers to pay your employees’ salaries, there may be a government furlough scheme to fill some of the gap. No government, though, wants to be in the business of removing all risk from life; without some doubt about the future, some uncertainty, freedom rings hollow. These support schemes will not keep a business alive forever, and who would want to run a business on life support anyway? With no risk, sooner or later there will be no reward.

A company does not intrinsically have a mind or a psychological state, but it can act as if it does. Companies that are fundamentally uncertain about the future will stagnate; they will respond slowly and cautiously, they will show less direction and dynamism and their internal and external identity will start to lose definition. If you lead such a company, you may recognize some of these phenomena in your own mind. While it is rational in the short term to react with caution to protect yourself, in the long term it may limit your growth.

All of this vagueness about the future is magnified by the traumatic, confusing experience of the recent past. Our responses to the future are learned from the past, so the losses – business and personal – we suffered this year can blunt our reactions. Fear of the future is rational, and fear of the past is understandable, but to thrive we must be able to step beyond both.

A new way to think about the future

Fortunately, this is not the first time humanity has faced uncertainty. In fact, our brains evolved to give us the flexibility to deal with risky, variable, hard-to-predict environments. One reason humans have thrived is because we have been able to adapt quickly. Other animals adapt to their environments at the speed of evolution, over hundreds of generations, which could take centuries. We can adjust at the speed of human learning. That can take only a few months or, when we really need to, days or hours.

One of the most distinctive human capacities is our brain’s ability to predict possible futures. We are able to consider what might happen next, plan out the different ways we could respond and mentally try them out to see what works. This mental simulation capacity 2, along with its counterpart, the predictive brain hypothesis 3, is emerging in recent neuroscience research as a crucial part of how we make choices, how we interpret the world, which goals we pursue and which experiences we enjoy.

When the environment around us is stable and predictable, we often focus on the finer details: the subtleties of how to optimize for a slightly better outcome. This is a good strategy in stable times, when incremental improvements can gradually multiply together to create a durable edge over competitors. But when an earthquake arrives, this narrow focus can be a trap. It shrinks our vision with a set of assumptions that leave us oblivious to the ground shifting under our feet. Right now, we need to clear our eyes, look around and notice what has changed before proceeding.

When you challenge your brain to think about the different outcomes that might transpire, you will find that it is up to the task. The brain has evolved to automatically scan its mental horizons and simulate the different possibilities that could occur 4. To run these scenarios, it uses a mental model of the world made up of cause-and-effect relationships. Each individual event might be followed by different successor events. You flick the light switch and the light comes on, or perhaps the bulb fails (and once in a while, the fuse blows and starts an electrical fire!). You ring up a new potential client, and they agree to buy from you, or they shut you down and tell you never to call again. The brain routinely follows the many branching paths through all of these potential chains of causality. Along the way, it is on the lookout for possible sources of reward and potential dangers, so it can guide you toward the choices that maximize the reward and avoid the danger. All of this is going on in the back of your mind whether you notice it or not. Paying attention to this process gives you the power to influence the simulations by telling your brain what contingencies are important to consider.

Right now, that means thinking harder than usual about the traps that might open up in the coming months. If your government reduces its financial support for unemployed workers, how could that affect spending in your local or national economy? If restaurants, pubs or shops need to close again, are you directly affected because you sell to those sectors? Or indirectly, because it changes the spending patterns of those who would otherwise shop there?

As your brain engages in these speculations, it tests out their impact – positive or negative – by exposing you to a simulated version of the emotions you would experience if the events come to pass 5. Whether you consciously choose it or not, you are undergoing a version of those emotions right now. You are living in the future and getting to see what it feels like, with many parallel, contradictory futures playing out all at once. No wonder it feels stressful!

In this way, the emotions you experience in uncertain times, called anticipatory emotions 5, prepare and protect you against the possible outcomes you might face. It might not be comfortable, but it is helping you and your business to survive.

You can choose to combine these automatic reactions with more controlled, planned projections. You can observe some long-term megatrends that will continue regardless of the pandemic, like increasing reliance on digital and remote solutions and increasing adoption of technology by an ever-growing installed base of smartphone and broadband users. You can consider other long-term trends, like migration into cities and gradual demographic shifts such as the ageing of society. These might be affected by COVID, and by the fear of future pandemics, but they are very likely to continue to some extent.

Superimposing these trends on each other, and on short-term, pandemic-driven volatility in customer behavior, you will build a picture of the future world. Then, you have to choose between the short and long term: Are you aiming to steer through today’s choppy waters and avoid capsizing, or do you set a course for the horizon and trust that you’ll make it out of the harbor?

The right answer to this question has changed. The successful strategy of 1995, 2005 or 2015 is not the strategy for 2021.

Discovering the real question

The true question is not: How can I achieve my business objectives in the face of a pandemic? The question to consider is: What business objective should I even have during a pandemic?

Certain goals work in a stable environment: aim for growth, dominate a market, achieve a big exit when Google buys your company. When the market is (relatively) predictable, exponential mathematics will help you achieve these goals. Thirty percent growth every year, and your business will expand tenfold in nine years – just in time to sell it on.

In an unpredictable world, however, these equations no longer work. An example from ergodicity economics 6 highlights the trap:

I am about to flip a coin and I offer you the chance to play a game with me. If you want to play, put all your money on the table. If the coin comes up heads, I’ll add 50% to the pot. If it lands tails, I will take 40% out. Either way you keep the balance. Do you play? Or do you keep your money, stay away from people selling lottery tickets and play it safe?In an unpredictable world, however, these equations no longer work. An example from ergodicity economics 6 highlights the trap:

I am about to flip a coin and I offer you the chance to play a game with me. If you want to play, put all your money on the table. If the coin comes up heads, I’ll add 50% to the pot. If it lands tails, I will take 40% out. Either way you keep the balance. Do you play? Or do you keep your money, stay away from people selling lottery tickets and play it safe?

The rational thing to do is put your money up and flip the coin. Say you start with 1,000 euros. If I throw heads, you’ll end up with 1,500 euros. Tails, 600. That’s an average outcome of 1,050. On balance, you make a profit.

Now let’s say we keep going, and you don’t take the money off the table. Instead, I toss another coin and we play again. The amount you were left with after the last gamble is your stake for the next one. We’re going to toss the coin 50 times and see how much you are left with.

It’s natural to think that, in the long run, you’ll come out ahead. After all, on every individual coin you are more likely to make a profit – so surely you will make a profit overall? NO!

The wins and losses multiply up, and you have an 80% chance of losing money. Most of the time, you’ll wind up with less than 100 euros. And you have a one-third chance of throwing away everything and turning your 1000 euros into fewer than 10.

This series of gambles is called a non-ergodic process 7. The outcome tells us that, when each bet is made with the winnings of the one before, we are better off avoiding risks that might be individually profitable. If you can diversify your portfolio and put small bets on each stock in the S&P 500, you will do OK. But if your portfolio consists solely of your own business, you are unlikely to make millions; it’s much more likely you’ll go bust when you put everything into just one bet, doing the same thing over and over again.

Doing business in an unstable environment is a bit like flipping this coin. If you think only about the long term, you won’t survive until it happens. If you focus just on getting through to the next month, you stand a chance of being around when this is over and having the opportunity to rebuild. The problem with putting a bet on next year’s recovery is this: If next year becomes the year after, will you still be around to collect your winnings?

Learn a lesson from 65 million years ago. Dinosaurs achieved growth. They dominated their niche and optimized the process of collecting calories, turning them into body weight and outcompeting their rivals. They relied on a stable ecosystem where the last century’s strategy would continue to succeed in the years ahead. The way to succeed in this environment was to become hyper-specialized 8, but optimizing for one environment left them vulnerable to a change of circumstances.

When the meteor came, and with it a harsh, decades-long winter, they couldn’t change fast enough. Their high-volume food sources ran out, their reproductive cycle was interrupted and their species came to an end. More flexible, smaller opportunists could scavenge from what was left and hang on. These species were less sophisticated and less spectacular, but they flourished when their huge competitors failed.

We are all warned in business textbooks, “don’t be a dinosaur,” but we have drawn the wrong lesson. The opposite of a dinosaur isn’t some graceful, aesthetically appealing figure: an agile, adaptive, intelligent human being. The opposite of dinosaurs are cockroaches and rats. When I say don’t be like the dinosaurs, I mean: Be a rat. Survive. Hang on no matter what. Do what you need to.

A new question demands a different answer

Here’s how to be a rat and outlive the dinosaurs that COVID-19 will render extinct.

Create flexible solutions, products and services. Develop an approach that can cope with multiple outcomes. Give up efficiency and profit margin in return for robustness and nimbleness.

For example: hire programmers who can quickly turn out a good-enough solution in a few weeks, and don’t mind bug-fixing as they go. Avoid the perfectionists who would develop an optimized, smoothly-designed product that will be error-free – if it is ever finished.

Teach yourself to be a generalist who can handle different kinds of projects and clients instead of tailoring your skills to a unique niche. Enjoy the variety and live with the rough edges.

Yes, this is the opposite of the business advice that has worked for the last thirty years. That was the period of the “Great Moderation 9,” where all the trends were in one direction: low interest rates, globalization and the gradual digitalization of the whole of humanity. Even in the financial crisis of 2008-09, most of the economy continued along its long-term trends – but the sectors that diverged were an early warning for today’s crisis. People and businesses relying on big capital investments, who couldn’t easily change direction, were more likely to suffer 10. Since then, a new generation of ventures, like Uber and AirBnB, have famously based their businesses on low-capital models. These have the ability to shift quickly and retrench if they need to. WeWork, on the other hand, built a capital-intensive business that couldn’t cope with a slight change in demand even before the pandemic, and it is in real trouble now because it is too laden with debt to behave like a rat 11.

Rat businesses take whatever opportunities are out there. They don’t invest in multi-year product strategies that could dominate a market niche by specializing. They don’t grow as much. But they will still be here next year. They survive.

There are other ways to get through an economic crisis: for example, capital. If you were lucky enough to take on investment last year or can borrow from a government-backed scheme, you may be able to use that money to keep investing in your long-term plan. In effect, you are playing the gamble with someone else’s money. You might even be the one in ten coin flippers who stack up enough heads in a row to accumulate a big pot. Good for you. But don’t bet your own cash on it.

Or you can trust the government to keep supporting you. It might work, if you are in the right country. Ask yourself, though: Are you sure your business will be the political priority when hospitals crowded with ill and hungry people are on the news every evening?

Specialize less. Take on whatever business you can get. Accept the unpredictability, make a margin where you can, and save it up for the winter.

A chance to rescue wellbeing

This advice means thinking differently about wellbeing, both for you and your employees.

The neuroscience of the predictive brain means that a person’s experience of the world is the sum of all the outcomes their brain can foresee. The brain is automatically scanning the possible futures and adding up all the emotions – good and bad – that it finds there. When those scans encounter a lot of variability in the future, those emotions can conflict with each other, leaving the mind in a state of tension with itself.

This can be tough for those working in a business. I have seen how difficult uncertainty can be for a team. Even when their salary is secure, many people do not enjoy not knowing what they’ll be working on next week, or the need to change paths mid-project when the client’s requirements shift. Worrying about finances at the same time makes it even worse.

In normal times you may be able to insulate most of your team from this at least. By developing standard processes and letting them build professional skills that offer the certainty of knowing how to approach a given task. By keeping them a few steps removed from the financials of the business and the anxiety that can come with realizing there are only two months of wages in the bank.

Protecting wellbeing is harder when your business is a rat. You have to unveil some of the dangers in order to let your colleagues see the territory they are navigating. A profitable future is no longer unrolling smoothly for years ahead, so it is only fair to be open with them about the pitfalls and potholes that lie on the horizon. At the same time, teach your team that they do have the ability to navigate this ground. Yes, there are risks, but it’s OK. Indeed, they are more resilient than they know; they will gain invaluable experience from this time, and they’ll be better able to find their way through the paths they will carve through life after this is over.

Your own mental health is also at stake. Don’t shoulder all of the stress yourself. Be open about where you and the business are, your doubts and the fog on the horizon. If you try to protect your team from awareness of risk, the barriers you put up to shield them will transmit much more stress into your own mind.

You might find this creates a bond that was not apparent before. Imagine the closing scenes of a horror movie: the zombies closing in on the building in which you and your friends have barricaded yourself. Yes, you’re in danger. It’s terrifying. But you will form relationships in reliance on one another that could never have been forged outside of the heat of crisis. This is not going to be easy. The sooner we admit that to ourselves, the better prepared and the more resilient we will be.

Twelve years ago, the financial crisis was an emergency of symbols. Everything that went wrong – bankrupt banks, credit crunches, toxic assets – was a failure of the numbers on a contract to add up. The physical world had not changed. In the end, that meant the situation could be fixed by symbols, too. Governments edited the numbers on the agreements, invented electronic money to refill the bank vaults and ensured the underlying economy could continue – if not unscathed, then with only a gentle scathing.

This crisis is not like that. An economist would say it is a real, not a nominal crisis. When you are not allowed to leave your house, when your pub has been ordered to shut or when you’re lying in a hospital bed, the kinds of economic activity you can conduct are completely different. No amount of symbolic manipulation can restore the status quo.

That’s why this time really is different. GDP in the United States fell by 5% in the first quarter of this year – itself an unprecedented collapse. This was followed in the second quarter by a 33% plunge 12. Even the 1930s Great Depression never reached those levels.

The more flexible your business, the better your chance of adapting your strategy when the real economy changes. If a significant number of employees will be off sick at any time, and most of the rest are working from home, you can't rely on the old finely tuned, closely measured processes that kept you productive until March 2020. If you have more slack in the system, if your managers are happy to switch direction as needed and trust people to keep up, your productivity will rely more on people than on procedures – a much more robust strategy.

GDP in the short term is driven by whether companies can keep supplying services, and whether consumers can still afford them. In the long term, it is closely tied to productivity. The businesses that could not quickly adapt to sell new products and services explain much of this year's economic crisis. But if GDP does not recover in the next year or two, the businesses that didn't change their productivity models will be to blame for the sustained recession. Right now, there is little sign that business has understood this challenge. Will your company be one of the few that can take advantage?

When an earthquake of such scale strikes the economy, the aftershocks are guaranteed to be deadly. The commercial structures patched up with borrowed scaffolding in the summer are no longer safe. If you can’t afford to stay outside, and you want to survive when the roof falls in next year, you had better be a rat.

Picture of Leigh Caldwell

Leigh Caldwell

Leigh is a cognitive economist, mathematician and founder of Irrational Agency (www.irrationalagency.com), a research consultancy that develops strategy for brands and companies based on measuring the unconscious behaviour of consumers. He is author of The Psychology of Price (2012) and the knowingandmaking.com blog.

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