The Dangerous Allure of a Black Swan Customer
You may not have heard of a Black Swan Customer, but the Black Swan concept has become a kind of meme since the financial crisis of 2008.
Though the term was coined in antiquity, the idea of Black Swan events was popularised by Nassim Nicholas Taleb, initially in the context of financial markets, but later applied more broadly to historical, scientific, and other events.
Taleb’s prescient work of 2007, The Black Swan: The Impact of the Highly Improbable, focuses on the extreme impact of rare and unpredictable outlier events – and our tendency to find simplistic and convenient explanations for these events retrospectively.
I only recently heard the term applied to a B2B technology customer, but I found it applied perfectly, particularly to the idea of Where Not to Play from Playing to Win.
The Black Swan Concept
If we break the concept down, the Black Swan event is an outlier that a) comes as a surprise, b) has a major effect, and c) is often inappropriately rationalised after the fact with the benefit of hindsight.
Let’s apply the three Black Swan event conditions described above to a customer.
- The customer is an outlier—i.e. a customer very different to the rest of the customer base and to your Ideal Customer Profile (ICP)
- The deal is a big one, so it has a substantial and positive impact on the business
- In spite of its outlier status, explanations are created for how the customer was acquired after the fact, making the customer’s acquisition explainable and even predictable.
Putting these three together, the Black Swan is a large customer that is very different from the rest of the base, and it has become a kind of (un)holy grail as the company seeks to replicate it. Which it never does.
At best, this is a distraction, which sucks in resources that would be far better utilised elsewhere. At worst, it can change the direction of the company, sending it on a wild and fruitless avian pursuit that takes it to oblivion.
A Very Large Black Swan
In one organisation I am familiar with, the Black Swan that flew in constituted the largest transaction in the company’s history. Despite the fact that the conditions that generated such a large deal comprised two vanishingly rare events that would never again co-occur, this did not stop the company from expending significant resources on trying to create more deals of the same size. ‘We’ve done it before, and we’ll do it again’, said the management team. ‘All we need is the right structure to support the Sales team’.
More giant deals never materialised, and the company, distracted, was looking the wrong way when the market shifted significantly. The company survived, but the outcome for much of the management team was not a happy one.
This example was an outlier in scale, but many occur in industries where the organisation doesn’t usually play, but the Salesperson does a good job, the technology is an approximate fit, and the buying team perhaps weren’t quite discerning enough.
Consequences
Sometimes, the implementation is smooth, but often, it’s incredibly bumpy, which adds more weight to the pull of the Black Swan’s distraction, as post-sales and engineering resources are deployed to beat a polygonal peg into a round hole.
Regardless, once the implementation is in, the call to replicate the deal goes up, with consequences of varying severity: an industry-specific campaign that fails, replacing one that would have generated better results isn’t great, but that pails into insignificance compared to a complete re-tooling of the Go To Market for an unsuitable customer profile. You may be sceptical of this outcome, but it happens.
Avoiding the Allure of the Black Swan
How do we avoid the allure of the black swan? It is challenging, particularly if the company really needs the revenue the deal offers. However, unless we are wholly focused on the short term, we need the courage of our convictions and make evidence-based decisions on where to play, and where not to play.
Wider Significance
The Black Swan Customer is a simple example from a complex theory used to explain much more weighty matters, including the difficulty of predicting these kinds of events and how psychological biases blind people from understanding both them and their effects.
It’s also been used to explain the limitations of inductive logic (logic based on past observations), which both philosophers and AI scientists fret about.
Dr Taleb’s assertion that the Black Swan problem “stems from the use of degenerate metaprobability” gives you an indication of how much there is beneath the surface that I am not equipped even to scratch.