How diversifying your business plan helps prevent unpredictable events disrupting your entire business
By definition, black swan events are ‘extremely rare events with severe consequences that cannot be predicted beforehand.’ While a global pandemic is something that was expected by experts, the ‘when,’ ‘how’ and its impact on wine consumption is what makes it unexpected.
Black swan events are, by definition, unpredictable, but with the benefit of hindsight, look like they could have been preventable. This apparent preventability makes all black swan events, above all, remind us of all the things we could have done differently.
Of course, we shouldn´t be eating wild animals, of course, we should have closed airports earlier, of course, people should stay at home, of course…
In wine business terms, there are lots of ‘of course’ moments too. Even before COVID-19 many companies were saying of course, I should have focused on rosé or sparkling wine for example. Now with COVID-19 two big ‘of course’ statements emerge above all:
- Market diversity: Of course, I should have diversified markets – ie why are 40% of my sales in China?’
- Channel diversity: Of course, I should have diversified channels – ie why didn´t I join a strong online sales platform earlier?
But these are decisions that we only know to be correct or incorrect after the fact. Hypothetically, if a different type of risk had affected only American markets (like a new tariff), being strong in Asia would be seen as sensible strategy… or if on-trade sales had grown faster than other channels we would have been kicking ourselves for spending money on other distribution channels.
When there are too many unknowns, the best strategy is to distribute and minimise risk. Gerd Gigerenzer from the Max Plank Institute has been researching strategies under uncertainty for decades and his heuristic is that, when risk is unknown, the best strategy is to spread one’s bets. This sounds simple, but he proves that simple heuristics beats complex ones all the time.
In the short-term, we are seeing that businesses are rightfully adapting. When change is sudden, adjusting and focusing tightly on what works is the right thing to do. Catering companies are now delivering to homes, bars have become food shops, fashion companies are doing hand sanitizers, clothing manufacturers are distributing masks, off-trade operators turn online – the list goes on and on. There are bills to pay and staff to support, so everybody must focus now on what sells and try to sell more of it, if the demand changes, we must change fast with it.
But for the long term, and in order to minimise risks, it pays to have a breadth of channels and locations to sell wine, just as it pays to understand the markets and use trend data to know where we should be. Hedging your bets in the long term allows you to be faster at adjusting in the short term – if you already had some expertise in online retail, for example, you will be faster to respond to a channel shift. And then it pays.
At Wine Intelligence we know that very well. Over the next few months, we will be doing a lot more online research and much less in-person interviewing as you’d expect – we will adapt just as everyone else is doing. But we aren’t just adapting blindly. Luckily, over the years we have built expertise in online and offline research techniques, and also in many other techniques such as social listening, text analysis, network analysis and online communities. For more information about how Vinitrac® is working in these uncertain times, please read this article.
To survive this global pandemic, we will all need to adjust in the short term. But we shouldn´t forget that to be better prepared for the next black swan – whatever form that might take – we will need to start hedging our bets and continue to be curious in the long term.
Take care all and stay at home.