How Nassim Nicholas Taleb Saved My Business

It is not an overstatement to say that I could go bankrupt — like many of my competitors — in this crisis.

Just over 1 year ago, I decided to expand my business — a touristic hostel in Warsaw, Poland — and needed additional resources.

Loans are relatively cheap in Poland. Even young and high-risk companies like mine find rates near 7% per year. I considered for some time taking a loan to finance the expansion.

After some reevaluation, instead of taking any loan, I preferred to bring new partners which would own a considerable portion of the business, although I would still be the main shareholder.

More than once colleagues and family asked me if instead of bringing in new shareholders, would not be better to simply take a loan since the rates were attractive. They even listed the benefits of favouring banks instead of additional business partners:

• The peace of mind of not risking other people money.

• No need to explain to anyone about my decisions, or company results.

• Reduced legal expenses.

Despite that, I had in mind two concepts from the brilliant Incerto books series, written by Nassim Nicholas Taleb: Antifragility and Skin in the Game. They are both the main concepts and the titles of two books from this Lebanese-American writer.

As the author explained in Antifragile: Things That Gain from Disorder:

Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile. Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better. This property is behind everything that has changed with time: evolution, culture, ideas, revolutions, political systems, technological innovation, cultural and economic success, corporate survival, good recipes (say, chicken soup or steak tartare with a drop of cognac), the rise of cities, cultures, legal systems, equatorial forests, bacterial resistance … even our own existence as a species on this planet.

Bringing in new partners would make my company more Antifragile than taking a bank loan. For 2 main reasons:

1 — In a serious crisis (like the Covid19) that devastates the sector of my business (tourism), I do not need to pay dividends if I have no profits. On the other hand, if I take a bank loan, I need to pay it anyway or get executed.

2 — The non-obligation of payments for shareholders preserves the company cash flow during a crisis. Therefore, it helps it to survive and gives time to adapt to the new market conditions. This adaptation takes the form of new technologies and processes, increasing efficiency and cutting costs. One example is the deal we broke recently with a ride-sharing company that will reduce the costs of guest transfers by more than 40%.

As explained by the concept of Antifragility, we not only survived the crisis (which would already be something, since small touristic businesses tend to be more fragile). We are leaving it stronger than before.

Bringing in new shareholders also catalyzes the Talebian idea of ​​having Skin in the Game. As the Lebanese-American thinker explained in this article he wrote for Medium:

The central attribute [of having skin in the game] is symmetry: the balancing of incentives and disincentives, people should also be penalized if something for which they are responsible goes wrong and hurts others: he or she who wants a share of the benefits needs to also share some of the risks.

The bank managers offering you loans have little to none skin in the game in the continuity of your business. If you delay more instalments than they consider acceptable, they can execute you and take back their resources, leaving your company bankrupt.

Meanwhile, business partners want your company to keep existing and guaranteeing future dividends. Not only they will understand you delaying their payments to keep the business solvent during a catastrophe. They will ask for it.

If it weren’t for Nassim Nicholas Taleb, maybe my small business would be just one of the dozens of competitors that went belly up here in Warsaw. Many of then victims of executions from banks and creditors.

Yet we are here, and we will continue — hopefully until another Talebian concept, the Lindy effect, plays in our favour. Without bank loans for now.

Author: Levi Borba, founder of Colligere Expat Consultancy, former RM specialist for the world´s greatest airline, writer of the books Moving Out, Living Abroad and Keeping Your Sanity and Budget Travelers, Digital Nomads & Expats: The Ultimate Guide. You can check some of his articles here.