Why reading the 'Black Swan' is important for startups and business people.
Posted on 13th October 2015

swanOne of my favorite topics when discussing Startups with anyone is the book 'Black Swan' by Nassim Taleb. This was a book has literally changed the way I look at any business and especially startups. It's also an necessity for anyone needing a reality check about the success factors of any business.

So what's so great about the 'Black Swan' and why is it relevant to startups?

Understanding what type of market you are fighting in - 'Extremistan' or 'Mediocristan'.

According to to the author, markets can be broken into two types a. Extremistan and b. Mediocristan. Extremistan has nothing to do with terrorists or anything like that. It simply means a market in which the difference between the richest player and poorest (for want of a better word) player is extreme. Eg. Sales of JK Rowling's books versus an author struggling for sales on Amazon. Or closer to home, difference between Dhoni's income and someone playing cricket at the state level. Some of the most common 'Extremistan' markets are books, music, art, movies, sports etc. And yes, most importantly, startups!

'Extremistan' has nothing to do with terrorists or anything like that. It simply means a market in which the difference the richest player and poorest (for want of a better word) player is extreme.

'Mediocristan', is the opposite. Here the median or average is the rule. The difference between highest earners and lowest earners is relatively quite small. Eg. Lawyers, doctors, engineers and architects.

Why is it important to know the type of market you are in? Because it dictates your strategy and approach to business. If you are fighting in an extremistan market you cannot use mediocristan tactics and vice versa.

If you are fighting in an extremistan market you cannot use mediocristan tactics and vice versa.

Tactics for 'Extremistan' - Since success in this market depends on becoming a 'hit' you have to work hard to improve your odds. Being successful in 'Extremistan' is very much like winning a lottery and the more lottery tickets you buy the better the odds.

This means if you are an author, write more books. If you are a singer, write more songs. If you are a startup, do many things, any of which could lead to success. Improve the odds.

Being successful in 'Extremistan' is very much like winning a lottery and the more lottery tickets you buy the better the odds. This means if you are an author, write more books. If you are a singer, write more songs. If you are a startup, do a lot of things, any of which could lead to success. Improve the odds.

Tactics for 'Mediocristan' - On the other hand in this market you simply need to be a slow and steady, plodding mule. You don't need to be 'hit' doctor or a 'hit' lawyer to earn pretty good money and live a great life. You just need to 'show up' everyday and do good work and in 10-20 years you will have a pretty good life provided you don't screw up badly. Success in 'Mediocristan' is a cumulative effect rather than waiting for a 'hit'. It gives a safe and prosperous life which is not subject to extremes. The luck factor is also not as important as it is in 'Extremistan'. Its a good place to be if your ambitions are reasonable. You will never be a 'rock star' in 'Mediocristan'.

Lastly be prepared to throw out all the ideas you think lead to success

Whether you are in 'Extremistan' or 'Mediocristan', most people will follow some success formulas. These are passed down by mentors, read in books by successful people or simply learned from experience.

But the important thing for us to remember is that most success is a matter of luck which is then explained away by success formulas. The chance factor is especially important in 'Extremistan' markets where you need to be a 'hit' to succeed.

After reading the 'Black Swan' I started taking all success advise with a pinch of salt. Most success factors are explained post-success and glosses over the luck factor involved which is actually the 'make or break' factor.

Overall I urge everyone to read the 'Black Swan'. Its a tough book to read, took me two tries to complete it but at the end, your world view will completely shift.

Cheers,

Ron

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