So this blog post is a bit schizophrenic. I want to do a quick book review of Ben Bernanke’s book The Courage to Act. Then I want to delve into the really interesting subtext in the book: scenario planning.
My Review of Bernanke’s Book
I’m going to make this quick. I think I’ve read nearly all of the books written about the “Great Recession,” and Bernanke’s is, in my mind, clearly the best.
If you’re interested in the Great Recession or don’t feel like you have a working understanding of what happened and why—and how it could have been much, much worse—you should find this book wonderfully illuminating and very readable.
But Bernanke’s book also provides entrepreneurial insights about scenario planning. Accordingly, in this blog post, I also want to talk about scenario planning in the context of running a small business not only safely but successfully.
Note: Scenario planning is what it sounds like. You think about a range of scenarios that might occur and try to plan ahead of time to, if not thrive, at least survive.
Benefit #1: Mitigating a Worst-Case Scenario
So here’s the first lesson, I think, of the Great Recession that Bernanke’s book highlights: Too many people in both government and business (especially financial regulators and financial services businesses) were blindsided by the rather predictable scenario that unfolded, which was snowballing losses on the growing numbers of low-quality mortgage loans.
Further, once it was apparent that people were blindsided, unsurprisingly, other people started to panic.
Now one can spend all sorts of energy pointing fingers at the folks who brought us this mess or exacerbated it. But may I suggest that you and I, as small-business people, take away an actionable insight? We probably all need to do more of what the perpetrators of the Great Recession forgot to do or skipped doing.
Specifically, we need to think about the worst-case scenarios that might occur in our operations and try to create workarounds that protect our firms as well as our employees, vendors, and customers.
Ironically, with a bit of relatively economical prevention and simple, up-front preparation, our firms might prove quite sturdy even in the face of a natural disaster or if victimized by a “man-made disaster.”
Note: Off-site backup of a firm’s critical data and a written disaster recovery plan, for example, might be much or even most of the appropriate preparation in many worst-case scenarios.
Benefit #2: Thinking about Problems and Opportunities
Here’s another related benefit of scenario planning that jumps out from the Great Recession books and in particular from Bernanke’s book. As Bernanke notes and laments, the policy makers who had to somehow solve the financial problems that created then fueled the Great Recession often had to make decisions with too little time for careful thought and analysis.
Further, policy makers often had to make their next big decision before they’d had time to assess the impact of the previous big decision.
You know what this makes me wonder? If rigorous scenario planning wouldn’t have helped here too.
In other words, if people had had the foresight to think ahead of time about how they should manage in a worst-case situation, maybe that thinking would have helped.
You and I, for example, probably would benefit from such thinking when it comes to our own personal worst-case scenarios.
Benefit #3: Consider Upside Risks
I have one final comment about this scenario-planning business.
You and I can easily think about scenario planning only in terms of preparing for worst-case scenarios. But that’s really only half the picture, right?
We are probably just as likely to get blindsided with best-case outcomes.
Accordingly—and this is my final point—our scenario planning needs to include best-case scenarios.
If we’re thinking about really good outcomes, we may be able to do a better job staying “available” to that success.
If we’ve done some thinking about issues and options, we may be able to more easily and more effectively manage a best-case situation.
For example, what if you stumble on some great new product or service, really profitable, that turns out to be amazingly scalable? Without getting delusional about the prospects, can you do stuff now to be at least sort of ready for that upside opportunity?
A Final Comment about Bernanke’s Book
Some of the characters involved in the drama called the “Great Recession” don’t come across all that well. Clearly, lots of people were in way over their heads.
But you know what? We all need to thankful that a critical mass of smart, hardworking people prevented something worse.
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