The ill defined risk of obsolescence

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What is risk? In our industry, one might expect us to trot out a technical definition invoking standard deviations, volatility and a host of other formulae. Those help to define risk, but we don’t think they do that good a job – if they did, the dramatic implosion of Long-Term Capital Management would never have occurred, especially given the very well-defined equations (including the Black-Scholes model) which were employed to that ultimate effect. 

Alternatively, one may expect a treatise on handling the unknown and operating in an increasingly uncertain environment via a series of platitudes that are easy to quote but impossible to implement. While those make for good articles to circulate on social media, again they hardly serve any practical purpose other than when used in hindsight. 

For us, as individuals and certainly as a business, we have always found that the most poignant moments of “riskiness” happen when we are backed into a corner: a niche from which we are unable to extricate ourselves. 

Put differently, we don’t see “risk” as the probability of bad things happening: they happen all the time; rather, we see “risk” as the probability that when bad things happen, we are unable to do anything to mitigate or, even better, turn the situation to our advantage. 

To adapt the urban legend (inaccurately, but relevant for our purposes here) referencing Einstein , therefore, just as darkness is the absence of light, risk is the absence of optionality. 

Take a deep breadth 

David Epstein’s now-famous book “Range” has made a strong case for generalists, and for “actively cultivating inefficiency”. Yet one cannot help but feel that this brilliant piece of work is a tome for the generalist apologist, preaching to the converted.  

Indeed, while the benefits of having a broad range of interests, knowledge and capabilities in a world that is constantly changing and increasingly specialised (and siloed) are clear, there remains a broadly-held consensus that generalists “dabble” and lack “focus”. 

Underlying this belief is a stark dichotomy – that one must be either a generalist or a specialist, but cannot be both: that we all face a choice between either breadth of experience at a superficial level, or depth of experience but within a narrow, specialised scope.  

The typical argument goes that for each specific field of expertise, which takes years of experience to master, the ability to carry that experience to an unrelated field is close to impossible. Just as a physicist would find it nearly impossible to apply that knowledge to neurosurgery, or a ballerina finding it hard to apply her dexterity to playing the cello, highly specialised knowledge and capabilities, applicable to a well-defined niche for which it was specifically cultivated, is unlikely to find a use elsewhere once cultivated to such a high level of virtuosity.  

Conversely, the time and effort taken to attain such virtuosity also necessarily precludes – with the exception of rare, highly talented individuals – doing so in another field. 

We certainly don’t suggest that we are prodigies of any kind, but we also vehemently disagree with such a view. Rather than think of people as materials, like steel cast into a sword subsequently becoming largely useless for frying eggs, we need to think of people as people. People evolve, and that could perhaps be the key to having both depth and breadth.  

Relevance over time is key 

Being able to find one’s place in life, especially in a well-defined niche, is a luxury that is increasingly hard to attain these days. In decades past, it was possible to secure for oneself what Asians may call an “iron rice bowl”: decently-paid employment that offers one a 30 year career doing a very specialised task or function, culminating in a graceful retirement with a defined benefit pension to take one till the end of life.  

It also followed that individuals who hopped around and switched companies over their lives were seen as unreliable, with the subsequent penalty being that they had neither an iron rice bowl nor a golden pot earned from years of long service waiting for them at the beginning of their retirement years. 

The difference between those individuals who fade into obsolescence and those who turned specialised career debuts into illustrious positions of leadership was an ability to evolve and continually reinvent themselves: effectively, they became generalists. 

From Porsche AG CEO Oliver Blume (who started as a planner for body shop and paint at Audi after graduating as a mechanical engineer) to Microsoft’s current CEO Satya Nadella (who started his career at Sun Microsystems before joining Microsoft in 1992 in R&D), these great individuals got to where they currently are by not staying specialised. 

In contrast, they generalised themselves, by taking the very specialist background that they had trained and cut their teeth in, and re-applying the principles and knowledge acquired through that expertise to a much broader scope of applications. 

The end result is that they are not only able to remain relevant despite the rapid evolution of each of their industries – they are able to thrive and be at the cutting edge of innovation, while creatively applying a profound, in-depth knowledge set to a broad spectrum of applications. 

Now that’s deep breadth. 

To be ahead of the curve, one must first know that there is a curve 

This takes us back to the philosophy that guides us as a business.  

We are living in a time of non-linearity, where change is not only omnipresent – it happens at a dizzying rate and in no clear direction. We can’t claim to see the future. But our best bet for thriving in this world is to make sure that we not only stay relevant, but to be leaders in what is most likely to become most relevant in the future. 

As a team, we learnt the ropes investing in the “emerging market” world. Of course, we’ve written many times before about how “emerging markets” as a grouping scarcely makes sense anymore. 

What we take from that experience – of seeking out transformative, structural opportunities and identifying the structural winners and losers from those developments – we have to apply to ourselves too: that the lack of optionality is what ultimately drives businesses and people to obsolescence. It is often the well-defined businesses which believe (wrongly) that their dominant positions will be maintained that suffer the most when faced with change. As a business we have attempted to make sure from the very beginning that we don’t overestimate our chances of success and have been careful not to blindly apply “standard industry practice” across our business. 

There are always multiple paths – and there are infinitely more ways of being wrong than of being right.