The Next ‘Black Swan’ Is Afoot: Can You Recognize the Early Signs of Business Weakness?

If you gave a sigh of relief because your business survived the pandemic, think again. The next disruptive event is coming. It may not be a health pandemic, but if you think of the pandemic as a metaphor for a black swan event, you are on the right track.

A black swan event is an extremely negative event that is impossible to predict or plan for. By its very nature, it is unexpected and unknowable.

The pandemic qualified in all respects. Businesses went belly up in droves. It was impossible to predict and completely unexpected.

Can you think of other black-swan events that could negatively affect your business? I can.

A competitor enters your space that you didn’t plan for or expect. Think Netflix entering the Blockbuster space. Think Elon Musk entering the space race. Who could have expected that?

Right now, a company somewhere is planning to enter your space. You can’t know who, and you can’t know when, but rest assured someone is planning to put you out of business. While you sit around in a conference room planning an attack on a competitor, a competitor is doing the same thing. The problem is, you cannot plan for a competitor you never heard of. You cannot plan for a competitor who is not currently known as a competitor.

The black-swan event might be a government action that negatively affects your business—raising your costs significantly, prohibiting the sale of your products or favoring a competitor over your company.

It could be one of your critical suppliers goes belly-up. Do you have a contingency plan for this?

It could be one of your major customers switches to another supplier without warning. If you lost 30% of your business, could you survive?

It might be your star salesperson suddenly goes to work for a competitor.

If you can’t plan for it or predict it, you prepare by watching for the warning signs. Here are the top four you should monitor:

1. Your margins are eroding and you are not sure why. When this happens, dig in hard to find out why. Don’t believe your sales team when they say this is just a one- or two-quarter problem. When margins erode, it is a forever problem unless you correct it.

2. The debt on your balance sheet keeps creeping up. This weakens the balance sheet, and that is never a good thing. Do what you can now to reduce or eliminate debt. The stronger your balance sheet, the more likely you can survive a black swan event. Always remember this: Strong balance sheets tend to get stronger. Weak balance sheets tend to get weaker. Weak balance sheets destroy companies. When my company went into the pandemic, we had a very strong balance sheet. When the pandemic subsided, our balance sheet was even stronger.

3. Everything seems to be going well. Any time I have felt this way, things were about to go south. I just didn’t know what or when. These days, when I feel that way, I dig in and start asking hard questions in my organization. Something is about to go wrong, and I need to find out what it is before it happens. Don’t let people tell you everything is all right. Give them permission to tell you bad news. Make them comfortable in telling you bad news. Too many CEOs never get bad news because people are afraid.

4. Everyone makes nice in meetings. When you hear “let’s take this offline,” that is a sign your team doesn’t want to tackle the big issues. Taking something offline really means not addressing something at all. Don’t allow this. Force your team to tackle the big issues face to face, in real-time. The problem is, doing so can be inherently uncomfortable. Give your team the skills and training to deal with conflict in a productive way instead of ignoring it. Ignored conflict always results in negative outcomes.

If we learned anything during the pandemic, it was that anything can happen to anyone and at any time it wants—without warning. Looking for these early warning signs will help you stay afloat during your company’s next crisis. 

Steven L. Blue is president & CEO of Miller Ingenuity. He teaches executives, leaders, entrepreneurs, and anyone seeking to learn how to maximize their company’s growth through fostering company culture and innovation. He serves as CEO-in-Residence at Winona State University. A frequent keynote speaker, Steven has addressed audiences at Harvard Business School, The United Nations, Carnegie Hall, The Safe America Foundation, IndustryWeek, The World Safe Summit, CEO Clubs International and Medtronic Corporation.