At the core of Entrepreneurs' Organization (EO)'s mission is an unrelenting commitment to helping entrepreneurs learn and grow in every stage of business. Dr. Gleb Tsipursky, CEO of Disaster Avoidance Experts, author and EO 360° podcast guest, empowers leaders to avoid business disasters by addressing potential threats, maximizing unexpected opportunities, and resolving persistent personnel problems. We asked Dr. Tsipursky to explain how business leaders are vastly underestimating the business disruption resulting from the spread of Covid-19. Here's what he shared:
With growing outbreaks of Covid-19, the coronavirus disease, diagnosed in nearly every US state, and vastly larger numbers of undiagnosed cases, there's serious cause for concern. How are you, as a leader, preparing for the pandemic?
Current Coronavirus Preparation Guidance
Mainstream media, following the guidance of official health organizations such as the CDC, have published a deluge of articles on how to prepare your company for the coronavirus impact.
These actions make common sense:
These preparations are for disruptions that might last for a couple of weeks, resulting from a local outbreak.
Covid-19: The Facts and Possibilities
But is it really good advice? Let's consider the facts about Covid-19:
- Covid-19 is highly contagious, with each infected person on average infecting 3-5 others, and the infection doubling every 4-6 days.
- It's more deadly than the flu, especially for seniors. Those over age 50 have an estimated fatality rate of over 6 percent.
- We won't have a vaccine until late 2021 if things go perfectly, and more realistically not until 2023-24. If we're moderately unlucky, the Covid-19 vaccine will be only as effective as the flu vaccine, reducing the chance of illness by 50 percent.
- If we're amazingly lucky, the virus will burn out by year's end. If we're pretty lucky, Covid-19 will be a seasonal affliction and come back like the flu every year, yet the World Health Organization calls such an optimistic scenario a "false hope." The most likely scenario is that it will just keep going, unaffected by seasons.
With that in mind, let's reassess Covid-19 preparation guidance.
The current guidance assumes a highly optimistic scenario, where we get very lucky. That's not good advice, at all. We need to prepare for a moderately pessimistic scenario.
Why Your Brain Causes You to Underprepare for Major Disruptions
Human beings suffer from many dangerous judgment errors that researchers in cognitive neuroscience and behavioral economics like myself call cognitive biases. These mental blindspots result from a combination of our evolutionary background and specific structural features in how our brains are wired.
Our brain's primary way of dealing with threats is the fight-or-flight response. A great fit for the intense, short-term risks we faced as hunter-gatherers, the fight-or-flight response is terrible at defending us from significant disruptions caused by the slow-moving train wrecks we face in modern life, such as the Covid-19 pandemic.
More specifically, watch out for three cognitive biases:
- Normalcy bias causes our brains to assume things will keep going as they have been--normally--and evaluate the near-term future based on our short-term past. As a result, we drastically underestimate both the likelihood of a severe disruption occurring and the impact of one if it does occur.
- Planning fallacy is the belief that when we make plans, the future will go according to them. That mental blindspot results in not preparing for contingencies and problems, both predictable ones and unknown unknowns.
- Hyperbolic discounting is the tendency to prioritize the short term, and undercount the importance of medium and long-term outcomes. This cognitive bias is especially bad for evaluating the potential long-term impact of the Covid-19 pandemic.
It's inherently uncomfortable to prepare for the realistic pessimistic scenario. That feeling of discomfort is you going against your gut reactions, which is what research shows is necessary for you to defeat mental blindspots in your business and career.
Preparing for the Realistic Pessimistic Scenario
Envision a future where Covid-19 isn't eradicated but keeps spreading. Let's say it becomes like the flu, a seasonal affliction every September through March, with a weakly effective vaccine that decreases the likelihood of infection by 50 percent.
To prepare for this moderately unlucky scenario, you need to make major changes to the way you do business, not merely make emergency plans:
- The most significant changes will be around human-to-human contact. Does your business model rely on it? Explore creative ways of changing your business model to be more virtual in serving customers.
- Can employees work from home? Forward-looking companies are already encouraging their workers to do so. You should, too.
- So much business relies on relationships and networking. How can you switch your relationship cultivation and management to virtual venues?
- Can team meetings and corporate events go virtual? Instead of in-person conferences, consider virtual ones.
- Prepare for major disruptions to your supply chains, and especially to your service providers.
- Anticipate a variety of travel disruptions and event cancellations.
- Society will undergo a wide variety of social norm changes. Evaluate the extent to which such modifications will impact your business model and staff.
- Help your employees prepare much better at home than the current guidelines from the CDC and other health organizations suggest.
- Be ready for unknown unknowns, also called black swans, by reserving extra capital and other resources for unanticipated threats and disruptions associated with Covid-19.
By taking all of these steps early, you will gain a major competitive advantage over companies that trust the highly optimistic official guidelines on how to prepare.
It's a best practice to adapt these broad guidelines to your own needs. Focus on revising your strategic plans in a way that accounts for cognitive biases associated with Covid-19. Do the same revision with major project plans.
Taking these steps will protect your business from the way-too-optimistic preparation guidelines of official health organizations and from our deeply inadequate gut reactions in the face of slow-moving train wrecks.