One my favorite thinkers and writers is Nassim Nicholas Taleb. I often re-read his books, always learning something new or seeing something once hidden from my notice. Taleb's second book, The Black Swan, was about the major events that shape our world. Specifically, Black Swan events are highly improbable and have an outsized negative impact, but many people believe they should have predicted them. September 11, 2001 was a Black Swan, but the COVID-19 pandemic was not.
Taleb was a trader and a quant. When he worked as a trader, he discovered that it is impossible to time the market, as years of investment gains could be lost in a single day. His primary strategy was to protect his portfolio against the Black Swan events that would destroy CAGR (compound annual growth rate). To that end, he always tried to form a hedge against the Black Swan, one with an upside greater than the market's decline.
In sales, you are likewise subjected to unexpected events with an outsized negative impact on your results. Because you cannot predict a Black Swan, the only effective strategy for countering their impact is to hedge your bets by creating more opportunities than you think you’ll need.
Some Black Swans in Sales
Company Acquired: You've done the work to gain a meeting, created a new opportunity, and you are pursuing that opportunity. Everything seems to be going your way: you have captured the attention and the imagination of a senior leader, and the stakeholders you are working with are all very engaged and supportive. In fact, this opportunity is one of the best-looking deals in your company's pipeline, and it's getting a lot attention. Then comes the email from the senior leader: he apologizes, but tells you that their largest rival just bought the company, so all initiatives are to cease immediately.
New Leadership: The stakeholder on the other end of the phone tells you that the primary decision-maker you've been working with was just replaced by a new leader—one who has decided to bring in the partner they used in their past role, even though your prospective client fired that partner three years ago for poor performance.
Decide to Go Another Direction: After eight meetings, you are perfectly positioned to win your dream client's business. They have told you that you are their preferred partner, something less than a verbal commitment but a very positive sign. You've decided it's safe enough to forecast the deal, as the final notification is all but certain and the client is in a hurry to make a change. With just five words, though, your main contact causes your heart to sink: "We've decided to go another direction." You can't imagine how they could choose a competitor after investing so much time and energy meeting with you and your team.
Put on Hold: You are deep into the sales conversation, and everything is going perfectly for you. In fact, all the stakeholders have told you directly that they want to buy what you sell from you. Over time, you have developed incredibly strong and valuable relationships, the kind of connections that will allow you and your client to produce the best results they've ever had. But senior leadership just left a meeting and decided that the initiative must be put on hold so they can focus on three other projects they believe are more important to the future of the company.
What makes these events Black Swans is that you could not have predicted them. It’s human nature to try to decipher, in hindsight, what signs you missed that would have allowed you to anticipate a disaster, but the world doesn’t work like that. When companies acquire other companies, for instance, they do so quietly, trying not to alert their competitors to the strategic moves they're making. Heck, there are people who follow private planes to see where big company executives are traveling, so they can speculate on potential mergers & acquisitions and the resulting investment decisions. Similarly, the leader who is replaced rarely has any idea trouble is brewing, so there’s no reason you’d know first. The decision to go another direction also is difficult to predict, especially because you may not know who your client is meeting and how their conversations are going.
Having personally experienced these Black Swans and more, including losing my largest client, I heartily endorse Taleb's hedging strategy.
How to Hedge Your Bets
The most reliable way to hit your targets is to bet that during your sales year, you will be subjected to several Black Swans. To be clear, losing a deal isn't necessarily a Black Swan, as some losses do not surprise you. It's the deals you are certain you are going to win that create Black Swans, the deals where you have high confidence that you have zero risk of losing. Instead of riding that hubris right to rock bottom, accept there is no way you can predict the future—and do what you need to protect yourself from the downside risk of losing a large deal.
The only way to hedge your bets is to have more opportunities than you need to reach your revenue goal, so you can survive the inevitable Black Swans. This insurance policy helps ensure that you reach your goal even if you lose a high-visibility, high-value, must-win deal (the kind that provides a potential Black Swan).
Why I Prioritize the Top of the Funnel
The reason salespeople and sales organizations don't meet their goals is most often because they have too few opportunities. Sales leaders who look at a pipeline and see “good enough” opportunities typically assume that they’ll win enough deals to hit their targets. One or two Black Swans is often enough to destroy any chance of reaching their goals.
Prioritizing opportunity creation is the best and safest approach to reaching your goal. Having enough opportunities to hit your targets requires more than enough opportunities. Assume Black Swans and hedge your downside risks.