Everywhere you look today the pundits are making predictions about what’s going to happen in the coming year, in the next 4 years of Obama’s presidency, and even as far out as 2020. With so much uncertainty out there, how do they think they can predict anything? After all, life is not a sterile, controlled laboratory. If you want to laugh, one of the best predictions that never was came from the CEO of Washington Mutual in 2003:
“We hope to do to this industry what Wal-Mart did to theirs, Starbucks did to theirs, Costco did to theirs and Lowe’s-Home Depot did to their industry. And I think if we’ve done our job, five years from now you’re not going to call us a bank.”
— Kerry K. Killinger, chief executive of Washington Mutual, 2003
— Kerry K. Killinger, chief executive of Washington Mutual, 2003
Well, you know the rest of that story…
If you want to predict the future, go into the casino business. It’s perhaps the only business where you can actually calculate the probabilities with some degree of certainty. On any day of the week, you will never have “36 red” come up on the Roulette wheel 95 percent of the time because the house controls the system. Unfortunately, real life is not like that. But, before you decide that the casino business is the most secure type of business to go into, consider this: even casinos face big-time uncertainty as the Mirage found out when Roy Horn of the famous magic duo Siegfried and Roy was maimed by a tiger. The subsequent loss of their main stage act cost the Mirage over $100 million. That’s a pretty big deviation from their otherwise reliable risk models. These events that come out of the blue are what Nassim Taleb called Black Swans (see an earlier post), and the negative impact of these unpredictable events far overshadows any risks from the core business of gambling.
Smart entrepreneurs don’t try to predict the future, because it’s just not possible. Instead, they design their future through disciplined experimentation and put themselves in a position to survive no matter what the future throws at them. More about how to do this in the next post…
