How to Set Up Your Business to Become Antifragile

Background:

For a business to become antifragile, one of the most important concepts you could ever learn is the concept of bounded rationality. This indeed unlocks a plethora of mental models you can use for your business growth, let me further highlight one of the concepts that changed my way to understand the business world: antifragility!

What does it mean to become antifragile?

“Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better.” This is how author Nassim Nicholas Taleb defines it!

To become antifragile means to attain the state of antifragility. Antifragility is a characteristic of systems that thrive due to stressors, volatility, mistakes, attacks, or failures. And it’s a life-changing concept.
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A concept that, when I first discovered it in 2014, changed everything I knew.
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It made me rethink most of the concepts I had learned as a business person, restructure my understanding of the business world, and become one of the foundational concepts of my career and life.

​Become Antifragile. Why cover it now, after many years of making this one of the core concepts that drive my life?

Because this is one of the most uncertain times, and because most people misunderstand the concept, and interpret it in exactly the opposite direction of what antifragility is.
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Let me explain then!
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But before, I draw the concept for you:

Antifragility was first coined by author and former options trader Nassim Nicholas Taleb.

In his book Antifragile: Things That Gain from Disorder, Taleb described antifragility as follows:

“Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty. Yet, despite the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it anti-fragile. Anti-fragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the anti-fragile gets better.”

Taleb suggests human society be made antifragile to benefit from black swan events.
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These events, which are unpredictable and can have severe consequences, are traditionally managed by suppressing randomness, chaos, and volatility (which is often what causes them in the first place).
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First of all, let’s define what’s a black swan, as most people nowadays get it backwards.
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A black swan is an unpredictable event, which, given the structure of reality, can have severe consequences, as it’s very extreme.
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In the world in which we live, a black swan, rather than being a once-in-a-million-years event (as many financial models assume for market crashes), is way more frequent, and actually, black swans often shape our world way more than the other events.
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While black swan events are impossible to predict, Taleb argues that a better strategy is to accept their inevitability and take advantage of the ensuing disorder. When you set yourself, a system, or your business for these “rare events,” you’re antifragile.
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Indeed, Taleb’s antifragility strategy thrives during black swan events because it assumes there is more to gain than there is to lose.

Conversely, the fragility strategy, where randomness is suppressed, perishes during a black swan event because it assumes there is more to lose than gain.
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For the individual, antifragility helps them navigate a world full of random and unpredictable stressors intent on altering their life trajectory.

Understanding fat tails and white swans

A fat-tailed world is a world where most information hides in the tail.
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And since it’s impossible to tell with hindsight what’s the nature of the tail, we can only create a context to prevent it from being damaged by negative events in the tail (what Taleb calls Black Swans).
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And instead of being mainly exposed to positive events in the tail (what Taleb calls White Swans).
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For instance, if you run a business with very tight margins and burn a lot of cash, you know that, at the first market turmoil, you might be out of business.
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And unless you want to fly very high to the sun, you might want to keep a redundancy layer, which in this case, is cash sitting around for these extreme events where the market turns around.

The antifragility triad

To explain the difference between fragility, robustness, and antifragility, Taleb used the example of three ancient myths:

1. Fragility – Damocles is fragile because his life depends on thin hair that holds a sword above his head. The slightest weakness in the hair means the sword will kill him.
2. Robustness – Phoenix is robust because he arises from the ashes whenever he dies and returns to the same state. Stressors do not harm him, but he does not benefit or grow from them either.
3. Hydra – Whenever one of Hydra’s many heads is cut off, two new heads grow back in their place. Hydra is more than robust because she grows stronger due to stressors. She is antifragile.

Antifragility in business. How to become antifragile.

As you might have guessed, an antifragile way of life involves finding ways to benefit from the chaos and disorder we will inevitably experience.
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Generally speaking, individuals who embrace antifragile principles are playing the long game.
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They do not optimize for today or tomorrow, sacrificing short-term efficiency for long-term antifragility.
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To achieve this, they engage in second-order thinking, where the consequences of their decisions are analyzed for their future impact.

Here are some simple principles for leading an antifragile life:

1. Adhere to simple heuristics. For how counterintuitive it might sound, in many strategic decisions, heuristics beat complex analyses. Here is a guide I put together for you.​
2. Ensure contingency plans are in place so that no single failure can ever be catastrophic. In short, you might want to prevent single points of failure. That is the kind of structure that is fragile, and prone to collapse, at any time.
3. Resist the urge to suppress randomness. For instance, if you run a business, don’t try to force a revenue stream on your customers (say you want to push a subscription service to smooth the revenues). Instead, take advantage of serendipity (imagine what Hollywood would have been without unpredictable box office sales).
4. Understand how to create leverage by creating options. You can create options to scale, in business, by better targeting smaller markets. And as you scale, you have more options.
5. Focus on disincentives rather than incentives. While incentives can be powerful, disincentives even more. Imagine the case of a business that creates friction to enhance the perceived value of its products.
6. Take lots of small risks and reversible bets through experimentation. I put together for you the speed-reversibility matrix.​
7. Avoid becoming consumed or preoccupied with data. Data is great for optimizing things, but there are certain times when intuition can drive a business breakthrough, make sure to be ready to take that intuition, and do not ignore it.
8. Ensure you have your soul in the game. Soul in the game is about building something for the long term, believing in what you do, being stubborn, and also creating immense value for the people who follow you!
9. Avoid taking irreversible risks unless you’re faced with a survival threat. Taking risks is part of the business game of life, yet you also want to be sure about the risks you take, as when they are irreversible, they can create unintended consequences. I explained this in asymmetric betting for entrepreneurs and executives!​

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Elon Musk & SpaceX​Situation: Musk has embarked on ventures in industries known for high barriers to entry and significant challenges, such as electric vehicles (Tesla) and space exploration (SpaceX).Antifragile Strategy: Musk’s companies are built around the principle of iterative development, learning from failures, and rapid innovation. For example, early SpaceX rocket failures provided invaluable data that informed subsequent successful launches. Outcome: Both Tesla and SpaceX have achieved significant milestones in their respective industries, with Musk leveraging challenges and uncertainties as catalysts for innovation. Shift Gears, create urgency via skin in the game, to change a whole industry!

Howard Schultz & The Early Days of Starbucks​Situation: When Schultz joined Starbucks, it was a small chain selling high-quality coffee beans. The coffee shop culture, as we know it, wasn’t prevalent in the U.S. Antifragile Strategy: Schultz saw an opportunity to introduce a European-style coffeehouse culture to America. Despite initial resistance and challenges, he believed in the concept of Starbucks as a ‘third place’ between work and home. Redefine an entire format by identifying huge arbitrage between markets!

Jeff Bezos​Situation: Starting as an online bookstore, Amazon faced scepticism about its long-term viability and the broader potential of e-commerce.Antifragile Strategy: Bezos consistently reinvested profits into new ventures and technologies, often facing initial losses. Instead of shying away from sectors with established giants, Amazon diversified into areas like cloud computing with AWS.Outcome: Amazon transformed into the world’s largest online retailer and a tech powerhouse. Bezos’ willingness to experiment and face initial setbacks has made Amazon a dominant player in multiple industries. Giving up profits to generate free cash flows and future outsized growth!

Takeaways

• Definition of Antifragility: Antifragility is a concept introduced by Nassim Nicholas Taleb. It goes beyond resilience and robustness, referring to systems that not only recover from shocks but improve and become stronger due to stressors, volatility, and disruptions.
• Benefit from Chaos: Antifragile entities thrive in chaotic and uncertain environments. They see disorder as an opportunity for growth and adaptation.
• Black Swan Events: Antifragility is particularly relevant in dealing with “black swan” events – unpredictable occurrences with significant impacts. Antifragile systems prepare to benefit from such events rather than be harmed by them.
• Antifragility Triad: Taleb uses the examples of Damocles, Phoenix, and Hydra to illustrate the concept:
  • Damocles: Fragile – Vulnerable to single points of failure.
  • Phoenix: Robust – Resistant to shocks but remains unchanged.
  • Hydra: Antifragile – Grows stronger from stressors.
• Embracing Uncertainty: Antifragile businesses don’t aim to predict the future but rather prepare for a range of possibilities. They acknowledge that the future is uncertain and build adaptability into their strategies.
• Innovation and Adaptation: Antifragile organizations encourage a culture of innovation, learning, and adaptation. They are quick to pivot and evolve when faced with unexpected challenges.
• Risk Management: Antifragile strategies involve building redundancy, diversification, and contingency plans to mitigate the impact of disruptions.
• Learning from Failures: Mistakes and failures are seen as opportunities for improvement. Antifragile systems actively learn from setbacks and adjust their approaches accordingly.
• Continuous Improvement: Antifragile businesses continuously seek feedback, analyze outcomes, and make adjustments to their strategies based on real-world results.
• Principles for an Antifragile Life: To lead an antifragile life, individuals can adhere to principles such as embracing simplicity, creating contingency plans, leveraging randomness, creating options, focusing on disincentives, experimenting, balancing data and intuition, having a “soul in the game,” and carefully evaluating irreversible risks.
• Antifragility and Business Growth: Antifragility provides a framework for businesses to not only survive but thrive in uncertain times. It challenges traditional notions of risk aversion and encourages embracing change for growth and success.
• Long-Term Perspective: Antifragile businesses play the long game. They prioritize strategies that may sacrifice short-term efficiency for long-term adaptability and success.
• Capitalizing on Disorder: Antifragile organizations view disorder as an opportunity to outperform competitors and enhance their position in the market.