Anti-Fragility – Nassim Nicholas Taleb

Some of the greatest “thinkers” are often not afraid to get ideas from other people – and so it is for The Real Estate Philosopher.  My thinking in this article comes from Nassim Nicholas Taleb, in his new book called Antifragile.

I just finished his book and it is quite a read.  He is so arrogant that you start out reading his book and are almost offended by the condescension, but soon (halfway through) you feel like a teammate – kind of like he is a pompous arrogant intellectual, but he is “my” pompous arrogant intellectual.  Anyway, I have become a major fan of his iconoclastic thinking.  And I think it is one of the “best” books to read for one running a business of any kind.

I guess I might say that he is just a “better” Philosopher than me…

In a nutshell, his theme is that organizations are either:

  • Fragile – where an outside adverse event – such a financial crisis – could wipe the organization out

  • Robust – where an outside adverse event – will hurt but the organization will recover

  • Antifragile (his word) – where the organization will actually be enhanced by an adverse outside event

He devotes a fair amount of space on:

  • The folly of trying to predict the future.  Indeed – he points out that possibly the best “prediction” is that those who are “predicting” will eventually be very wrong and blow up, although of course you cannot predict when or how.

  • The equally great folly of centralized management, which often masks trouble until it is too late.

  • The safety of being a small organization and the dangers of being a large organization.

  • And the benefits of optionality.  As a quickie aside, he mentions that over centuries the real estate business has been one of the best for creating wealth due to the implied optionality that the real estate player has and the lack of optionality that the banks and lenders have.  An interesting point to be sure for this readership.

So what can one do with this thinking?

Well, for me, as I always do, I apply it to my law firm.  Is my firm fragile, robust or antifragile?

I know I spend a lot of time “predicting” and using these predictions to “manage” my law firm.  But – being very honest with myself – as I evaluate my predictions — few have gone as predicted.  Certainly, less than half of my predictions have come to pass.  And centralized management of lawyers has almost never worked out.  The more I “manage” my lawyers, the more the friction it creates, and in the end, I have learned that the best thing is to hire and grow talent, set firm values and principles, and then just get out of the way and hope for the best.

Over the years this has really upended my thinking about the optimal way to run a law firm.

So, how would this apply to your real estate business?  Here are some thoughts:

Certainly don’t try to predict the future or what the markets will do.  Set things up so you benefit as much as possible from “good” surprises and aren’t hurt that much by “bad” surprises.  See my prior article on this.

Center your organization around attracting and retaining and inspiring talent.  Give your talent the tools they need and try your best to get out of the way and let them achieve.  This is outlined in another article I wrote, which was largely based on Jim Collins’ book Built to Last.

Set up some values and general principles about what your organization should be about at heart, i.e. the inspiration and “why” you are in business.  See my prior article on this concept based on Simon Sinek’s book Start With Why.

Keep your overhead low – high overhead pressures an organization to make poor business decisions and certainly increases fragility.  Anything that can be outsourced should be.

Be brutally honest with yourself – on a consistent basis – about what has worked and why, and what has not worked and why, and then act accordingly.

Keep as much optionality as possible in all matters.  This is as simple as evaluating all decisions with the goal that they should be low risk and high reward.

Buy some insurance.  I have always wondered why investment funds don’t sacrifice – say 1% of their returns – in order to buy puts/calls and other financial products that will multiply upside in the event of a major adverse event that harms their investment thesis.  Sooner or later something bad will happen and it would be “nice” to be able to say “whew” after that wouldn’t it?

Whatever you do, don’t ever put the company’s franchise at risk, i.e. never take a risk that you cannot recover from if the outcome goes the wrong way.  Although, I guess the exception to that rule would be if your company is going down and the end is in sight, then perhaps a so-called Hail Mary might make sense.

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