Home ➾ Blog ➾ Stay paranoid! Sooner or later, something fundamental in your business world will change

As entrepreneur and business owner, you have to stay positively paranoid. You believe all will be well in the end, but remain vigilant. After all, you know that, sooner or later, something fundamental in your business world will change.

The final corona measures were withdrawn two years ago. The energy crisis is over; gas and electricity prices have been at more normal levels again for a year. The biggest price increases and peak staff shortages also seem to be behind us for now.

While there are certainly still challenges facing hospitality and recreation, such as paying off corona debts and now higher staff expenses, fortunately for many, business seems to be booming.

Customers are numerous and plenty. Tables are taken. Concerts are sold out. Parks are full.

Life is good.

Perhaps, therefore, it is time for a few minutes of reflection on potential dangers. ‘Only the Paranoid Survive,’ says Andrew S. Grove in his book title.

My goal with this blog is to get you a little positively paranoid, where you keep an eye out for potential problems and are able to ward them off, or at least be able to overcome them quickly.

The optimism of entrepreneurs 😃

A core quality of entrepreneurs is their optimistic attitude; necessary and essential for starting their own business. They started their company with good faith in the future, confidence in their concept, and enough thick skin (made of passion) to handle a setback.

This – sometimes inexhaustible – optimistic attitude can be deadly at the same time. Optimism is a double-edged sword.

Noam Wasserman cites several examples in his book The Founder’s Dilemmas, Anticipating and Avoiding the Pitfalls that can Sink a Startup.

Founders often suffer from tunnel vision and over-confidence. They believe so strongly in their specially chosen path that they are unwilling to see and consider alternative approaches and sometimes necessary adjustments as real options. They rate their own chances higher than those of competitors. They make overly rosy predictions. They do not anticipate obvious problems.

Yes, optimism is an absolute necessity for founders. After all, an unenthusiastic pessimist cannot emotionally grab her team and bring them along in an inspiring vision…

But entrepreneurs must also possess a small element of ‘what if’; a pinch of paranoia.

They must be able to step beyond their natural tendency toward wishful thinking. They must be able to keep watch with binoculars in a watchtower. They must be able to look over their shoulder. They must be able to feel the first raindrops.

They must expect the best while preparing for the worst.

In this way, decisions need not always be made reactively, in the heat of the moment, but can be strategically designed, with forethought.

Think of this blog as a reflection… A few minutes to reflect on the current situation and consider possible dangers. A reminder to consider – in addition to believing in a birght future – pitfalls on and along the road.

1. What begins sneakily…

“Something is changing” 🤨

It is obvious to think of major – potentially business-destroying changes – as a meteor strike. A rock from the universe that comes out of nowhere, creates total chaos and greatly alters the landscape with devastating force.

Corona was such a meteor. Corona was a Black Swan.

A Black Swan is an event that is rare and unpredictable, but has enormous consequences. The term became popular through Nassim Nicholas Taleb’s work in Antifragile, Things that Gain from Disorder, among others.

Although Black Swan episodes occur from time to time, most major changes are less abrupt. In retrospect, most changes turn out to be trends that had been emerging for years.

Intel vs. Japan ⚔️

In the 1980s, the American company Intel was overwhelmed by Japanese competitors who could provide memory chips for computers of significantly higher quality and lower cost. Intel had to move quickly and had no choice but to abandon their main product and go down a new path (eventually with microprocessors).

Looking back, this had been coming for 10 years! The numbers and charts were clear. For 10 years, the market share of the Americans had been declining, while the market share of the Japanese had been rising.

Charlie Chaplin vs. sound ⚔️

Charlie Chaplin was a famous actor during the silent film era, but when in 1927 technology was able to produce films with sound – and sound films rose in popularity – he stubbornly stuck to his old ways for years; “Talkies are ruining the great beauty of silence. They are defeating the meaning of the screen.”

Three years later, in 1930, sound films were the norm. A very big change for the industry that had been coming for years.

Charlie did eventually embrace sound though, even if it wasn’t until 1940.

“Only the paranoid survive” 😵

Corona itself may not have been predictable, but the type of situation was. COVID-19 was not Mother Earth’s first pandemic, nor will it be the last. While the exact timing cannot be foreseen, the possibility can be imagined.

Meteors don’t appear out of nowhere. They travel a long path. The Black Swans may hide behind the moon, but most fundamental changes can be spotted from afar.

At least, if you’re on the lookout for them. If you want to see them.

Andrew Grove faced several major – potentially business-destroying – changes during his time as CEO of Intel. He referred to these as strategic inflection points. One notable example was the battle with Japan for market share.

It was this corporate phenomenon that inspired him to write the book Only the Paranoid Survive, where he shared some of his insights on healthy paranoia:

 “The things I tend to be paranoid about vary. I worry about products getting screwed up, and I worry about products getting introduced prematurely. I worry about factories not performing well, and I worry about having too many factories. I worry about hiring the right people, and I worry about morale slacking off. And, of course, I worry about competitors. I worry about other people figuring out how to do what we do better or cheaper, and displacing us with our customers.”

Defence mechanisms 🛡️

Change usually begins stealthily.

It starts small.

This allows us to apply our natural defence mechanisms…

We deny with “it will blow over” and “this is nothing.” We escape with “I have other things to do that are more important right now.” We rationalise with “that’s not really our target audience anyway.”

Charlie Chaplin has some great quotes that we can categorise (PennState):

Denial: “I give the talkies three years, that’s all.” “Moving pictures need sound as much as Beethoven needs lyrics.”

Escape: “To think that people are prepared to pay to hear me talk is one of the strangest phenomena I’ve ever heard of in my life. It’s positively absurd! And what would I talk about?”

Rationalisation: “Dialogue may or may not have a place in comedy. Dialogue does not have a place in the sort of comedies I make. For myself, I know that I cannot use dialogue. Dialogue, to my way of thinking, always slows action because action must wait upon words.”

But at some point comes the realisation: “Something is actually changing.”

We have reached a strategic inflection point.

2. A 10X change

Category VI rapids 🌊

Every business operates according to a set of unwritten rules. Sometimes there comes a moment when these rules suddenly change. What worked before works no more. ABC no longer responds the same way to XYZ.

A strategic inflection point is a change similar to the highest category of rapids on a river.

Rafters call this class 6, the pinnacle of difficulty and life-threatening risk; extremely difficult to navigate, unpredictable waves, strong currents, powerful suction, and dangerous obstacles.

A strategic inflection point is a 10X change, a shift 10 times more powerful than any normal change.

It is where the graph bends in the opposite direction; from rising to falling.

These are moments where you lose control of your destiny and get sucked in by the elements. You scavenge for grip to avoid drowning.

Blizzard Entertainment vs. their customers ⚔️

Blizzard Entertainment is the company behind World of Warcraft, Diablo, Hearthstone, and Overwatch. Their franchises have a huge fan base with millions of gamers, from young to old.

Every year, the company organised a massive event, Blizzcon, where new expansions, trailers, and updates were shown off with enormous hype. Fans came from all over the world to Anaheim, California, to witness this event live, on location. Millions more followed it online.

In 2018, things went wrong…

This was the moment – recorded live (!) – where Blizzard Entertainment faced a 10X change.

A perfect example of a strategic inflection point.

This is where Blizzard lost control of their destiny. For two years, they were lived. Things were happening to them that didn’t happen before. This was not ‘manageable’… Trailers were boycotted. Everything online – even unrelated – got a load of dislikes and negative comments. The CEO became a meme.

In 5 months time, the company lost 50% of their stock price!

Activision Blizzard Inc (ATVI) lost 50% in share value in the months following Blizzcon 2018.

What went wrong?

The unwritten rule in Blizzard Entertainment was that they decided which games were developed and what would be put into those games. They came up with something that seemed fun to them, went into the long development process, and eventually presented it to their loyal fan base, who ‘accepted everything anyway.’

But something was changing…

The signs had actually been there for years; in videos from influencers on YouTube and Twitch, in posts on the official forum, and in comments on social media and trailer videos.

On 2 November 2018, the last straw fell and the bubble burst.

Players were fed up with being ignored and saw their beloved franchise going in a direction that did not appeal to them.

Some 24 years earlier, in 1994, Intel experienced (a different, but) similar situation. Andrew Grove shared his perspective:

“For 26 years, every day that we did business, we decided what was good and what wasn’t when it came to our product. We set our own quality levels and our own specifications, and shipped when we decided a product met our own criteria. After all, we had designed and conceived these products, and along with the product came our implicit right – and obligation – to decide when the product was good and when it wasn’t. Nobody ever questioned that we had the right to do that and generally we were on target.“

The chipmaker, who mainly did (B2B) business with companies like Dell, HP, and IBM, faced critical demands from the end consumer for the first time; from their customers’ customers.

They had no other choice. To survive this 10X change, Intel had to build a B2C customer support centre in a very short time and lost $475 million in replacing memory chips and all that came with it.

In the gaming industry, it was common practice to keep as much as possible, as long as possibble, secret. It’s only logical that the business decides what will be made, right? You don’t want to give everything away from the beginning. Through trailers and sneak previews, you slowly drip out information about the game; drip by drip.

This was their unwritten rule.

And this rule changed in 2018 in a very drastic way.

Since then, though, Blizzard Entertainment has stated several times that they will actuallly be listening to players. Posts on forums are taken more seriously. Feedback is responded to quicker.

It may be a search for the right balance between not giving away all secret development and involving the player, but Blizzard has made bigger strides in this than ever before.

3. Potential danger from all sides

10 example areas of danger ⚠️

Change can come from all directions.

Left, right, postal, digital, aerial, terrestrial, and even in retrospect.

All roads lead to Rome. For problems… you are Rome.

We have already mentioned examples in areas such as competition, technological development, and even existing customers.

Here are 10 more:

1. Politics (national): Mandatory wage increases for employees, new requirements for working with freelancers, COVID-19 entry passes, raising the minimum age for alcohol consumption, geopolitical sanctions on procurement, mandatory diversity in the workforce, etc.

2. Region / environment: Insufficient parking spaces to support further growth, nitrogen-sensitive zones, other regions attracting your customers, terrorist threats, declining regional reputation, prolonged construction work, insufficient cooling during hot summer months, etc.

3. Suppliers: Few alternative providers, greedy suppliers with rising prices and commissions, locked into contracts, high switching costs, energy crisis, unavailable products, too much inventory, too little inventory, products recalled due to health risks, etc.

4. Target audience: Changing customer expectations, shrinking budgets, ageing population, declining birth rates, new political worldviews, shift to other platforms (from Facebook to TikTok), waning interest, etc.

5. Politics (regional): Adjusted through-routes (new footpaths, one-way streets, car bans, etc.), expansion of paid parking zones, bans on further expansion, changes in zoning plans, unissued permits, etc.

6. Organisational: Too much growth, too little growth, declining clientele, inefficient business processes, missed opportunities, capital lost due to recurring mistakes, employees hiding bad news and mistakes from their supervisors, etc.

7. Retrospective: Products found to contain carcinogens (asbestos), food poisoning among customers, a social media post from ten years ago that is now considered inappropriate, etc.

8. Substitutes: New methods altering the current market dynamics (some blockbuster films now go straight to streaming services, bypassing cinemas), supermarkets with coffee corners, rapid delivery services, etc.

9. Employees: Talent moving to other cities, declining birth rates, fewer students enrolling in related studies, declining industry reputation, workplace conflicts, falling morale, insufficiently trained staff, departure of a top employee, an employee in the wrong role, etc.

10. Technological: Website pages that have been inaccessible for months, an inactive order button, a hacker attack, an email address or phone number marked as spam, payment system failures, accidental deletion of important documents, etc.

These are just a few things you might be paranoid about.

Ultimately, it’s not about keeping a long list of all the things you need to pay constant attention to. It’s about having the mindset; always keeping a watchful eye out for potential pitfalls.

4. Tips for a strong defence

Handling potential strategic inflection points 〰️

How can you defend yourself against these threats?

The best defence is to be positively paranoid.

You believe that everything will eventually work out, but you remain vigilant. Hopeful, yet realistic. You see challenges as opportunities to become stronger, perhaps even anti-fragile.

How does this paranoia manifest in practice?

Customer Interaction: Keep talking to and listening to customers. Get out of the office. Take them seriously and show that you are interested in what they have to say.

Reviews: Monitor reviews and respond promptly and appropriately. Ensure you have a clear process for this.

Complaints: Put yourself in the customer’s position to foresee potential dissatisfaction. Preempt complaints and address those that do arise swiftly and appropriately.

Company Culture: Recognise the importance of a good company culture and high employee morale. Maintain short lines of communication with employees at every level. Don’t be the manager who hears bad news last. Get bad news first and fast.

Communication: Continuously reinforce key points for the team, ensuring they remain top of mind and are not overlooked. See yourself not as a broken record, but as a leader who keeps the mission clear and places a dot on the horizon: “This is what we are doing to get there.”

Customer Expectations: Understand that customer expectations can change. No generation is the same, and times change quickly.

Metrics: Know which numbers are truly important and monitor them closely.

Developments: Keep abreast of the latest trends and innovations.Monitor both global and local news. Understand key principles such as Moore’s Law.

Lifelong Learning: Be a lifelong learner. Read or listen to books. Delve into the history and biographies of predecessors.

Government Plans: Know the future vision of your local and regional government. Be aware of what the (local) authorities are planning.

Peers: Maintain regular contact with peers, so you are not reliant on just your own perspective. Attend industry-related fairs and conferences.

Scenarios: Write out various scenarios and know what to do should they become reality. Scenarios can be both large and small. Involve your staff in this process. This allows you to quickly adapt to a new lockdown, a tsunami, or days with not enough staff.

Problem Recognition: Recognise the early symptoms of a problem and act on them promptly. Understand that issues are always easier (and cheaper) to resolve earlier in the process rather than later.

Lobbying: Engage in lobbying in The Hague and build a good relationship with the local councillor. 🙂

As an entrepreneur, you can undoubtedly think of more points of attention.

5. Conclusion

The positively paranoid formula: 😃 + 😵 = 🧐

Robert Greene describes it in his book The 48 Laws of Power as: “No days unalert.”

Nothing should catch you off guard because you are always anticipating potential problems. Instead of merely dreaming about the inevitable good outcome, you scan for mines, send out scouts, and analyse the numbers.

You play Stratego. Expect your opponent to have a second marshal and moving bombs.

You play Chess. Expect your opponent to make two moves for every one of yours.

There are more opponents than you think.

You are playing more games than you realise.

The rules of the game can change.

Whenever possible, you want to anticipate a 10X change at all costs.

The example of Blizzard Entertainment might seem easy to manage: just indicate that you’re going to listen to the user and everything will be fine… But no, that’s not how it went.

A 10X change truly hits like a class 6 rapid. Everything is blown out of proportion. A magnifying glass is placed on every relatively small problem. If there is more dirt, it will be found.

So, stay ahead of it.

Maintain that positive attitude that every entrepreneur naturally has. It’s crucial.

But also remain paranoid. That’s crucial too.

Stay positively paranoid.