How to Build An Antifragile Startup

Companies like Kodak which were once the dominant name in their industry haven’t stood the test of time. It seems hard to predict whether a strong company today can remain a success in the future. An antifragile business is what founders hope to build to thrive in times of uncertainty.

We saw some companies like Zoom that grew their business during the COVID-19 pandemic. Then others failed to understand and pivot accordingly to survive. We’ll discuss more about how to create an antifragile startup, why it’s important, and what’s happening in the ecosystem today. 

What is an Antifragile Startup?

An antifragile startup is one that’s marked by the following two characteristics:

While there are different ways to buy an antifragile startup, the key is that there’s a need to operate under ambiguous and uncertain situations. Entrepreneurs with an antifragile mindset with keeping focused on staying sane and succeeding through the chaos. These entrepreneurs (and their startups) will actually improve as a result of the volatility. 

It’s not possible to be completely prepared for every factor and externality that could affect your business. But there are certainly principles that will enable your startup to learn and grow through challenges. 

What are the origins of the Term?

Nassim Taleb first wrote the book, The Black Swan in 2007 where he talked about a world that’s shaped by unpredictable, rare, outlier events. His follow-up book in 2012 was his response to The Black Swan, entitled,  Antifragile: Things That Gain from Disorder. This book is where the term, “Antifragile” was coined. 

In this book, Taleb talked about his theory about how to deal with a world of uncertainty. He proposed building systems that are antifragile instead of trying to predict the unpredictable. As he says in the book, “Fragility can be measured; risk is not measurable.”

He describes this concept as so: “Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventures, risk, and uncertainty. Yet, despite 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”. 

There are three concepts distinguished in this book: fragility, resilience, and antifragility. These concepts are defined by how they react to stress. 

To understand how these three concepts work as relevant to companies. Fragile companies will break under the right kind of stress like glass. This is like what happened to many financial institutions during the 2008 Recession. 

Resilient companies will deform when they are stressed, but will bounce back once the stress is removed. These types of companies are like rubber. Not all financial institutions or companies involved heavily with real estate crashed during the financial crisis of 2008. Zillow stashed away $2.5 billion dollars as part of its system to withstand downturns in real estate. The company was able to survive through the financial crisis and keep afloat until the market stabilized.

An antifragile company may tear under certain types of stress, but it builds itself back up, even stronger than it was. Antifragile companies are built like muscles. Amazon started as an online book store before the .com bust of the 2000s. However, the company diversified its business, increased demand, and adapted to become stronger than it was. 

Who is this relevant to?

The concepts of antifragility are relevant to any startup or company that seeks to build a system that can thrive in the face of an unknown future. Startups today are still largely fragile despite the existence of inexpensive productivity technology. 

Despite it being easier than ever to start a business, startups continue to be long shots. The reasons why startups have this reputation are commonly answered as due to lack of knowledge, inability to pivot, offering an innovation that’s too early or late, or lack of resources.

The real underlying answer however is that there’s a disconnect between expectation and reality at its core. For example, we’ve been told all of our lives that if we go to school and get good grades, we would be on the path to success. Or if your manager tells you that you must accomplish A, B, C, then you’re entitled to that promotion. 

But when you’re at a startup, there is no longer this predictable bell curve of what to expect. The good and bad can happen and completely change the trajectory of your business. 

How to set your startup for antifragility

Let’s talk about what a business that’s marked with fragility is first. Fragility has two characteristics: Rigidity (response to volatile events is limited or inflexible) and there are limited points of failure. 

A structurally fragile business is the fashion industry. Fashion brands will ride out the current trends and when they collapse when these trends go out of style. If the fashion business isn’t able to or refuses to adapt, they often fail faster. 

Antifragile businesses share three core fundamentals:

Now let’s discuss these fundamentals in more detail below.

Built on Diversified, Synergistic Businesses

By building a diversified business, you’re distributing the points of failure. It’s the old adage of “Don’t put all your eggs in one basket”. Hence, if you rely on a few important clients or one supplier, your failure points are strongly tied to that part of your business. So if your most important client leaves, that could leave your business collapsing. 

It’s important to consider how it is that you’re diversifying. For example, many companies had their supply chains diversified through having relationships with multiple factories at the start of the pandemic. These factories were all in the same country however. So a lockdown in the country completely stopped the entire supply chain. 

The answer to this is using an approach called counter-diversify. During the pandemic, Disney’s travel and theme park businesses were completely devastated. But its streaming business was growing and provided a counter-balance. To add on to the “Don’t put all your eggs in one basket”, you need to go further as the author of Atomic Habits, James Clear puts it: “Don’t put your eggs in too many baskets. The more baskets you manage, the less energy you can put into each one. It’s risky to do things halfway”. 

Being diversified in a focused manner, then taking a step further by making an egg in one basket makes all the other eggs more valuable. That is what leads to antifragility.

Prioritize Capacity over Efficiency

In the US economy, many companies have focused on operating as efficiently as possible. Just take a look at our domestic manufacturing capacity that looks for the highest profit and the lowest price. That makes it impossible for the US to manufacture items like gloves and masks at a scale that keeps up with the needs of healthcare workers. 

Zoom has a different outlook in how it runs its business which served it well during the pandemic. The company was able to scale up from its over 10 million daily users to allow 200 million daily users on its platform within a few weeks. Zoom did this because it keeps its capacity at 50% more than what its network uses at max capacity. The team 

Leverage Human Adaptability

Out of all the entities found on the planet, humans are the most adaptable. The goals of efficiency and advances in technology have led to treating humans more like commodities. Take a look at how Uber treats its drivers. Uber invested billions of dollars in developing self-driving cars to eventually replace its human drivers.

It built algorithms and designed a system to enable the most efficient way to run its business. These algorithms are more intelligent than their people, when it lives in the world they planned for. Uber’s machine broke when its world changed and missed an opportunity to leverage the adaptability and spirit of its driver network.

Trader Joe’s is a company that’s used its people to create new entrepreneurial solutions. Its employee-centric ethos aligned with the way that it adapted to the pandemic. Trader Joe’s doubled down on ensuring that customers had the best experience shopping at its store during the lockdown. Unlike other grocery stores, their stores were better staffed and had more stock. They forgot the delivery and curbside pickup to tap into the strength of their people, which led to a sharp increase in sales. 

Benefits of an Antifragile Startup

When antifragility is applied to the tech startup ecosystem, the business could enjoy several advantages. Here are some of the key benefits that an antifragile startup could gain below.

Avoid Over Centralization

An antifragile startup will avoid the risk of one or a few errors leading to its failure. With a decentralized system, the errors have a lower impact on the startup. It enables founders to learn from these mistakes and become better entrepreneurs. 

Learn from Mistakes

When startups make mistakes, they often fail. But an antifragile startup will stay resilient and have the ability to learn from those mistakes. They serve as lessons that later lead to success.

Survive in Uncertain Times

Uncertainty is a place that startups live in on a daily basis. When it’s the normal environment, an antifungal startup not only survives but will thrive in it. 

Trends to the anti-fragility in the startup ecosystem

Startups by nature are set up to be antifragile businesses. Entrepreneurs in this space must navigate through much ambiguity and uncertainty. That requires an antifragile mindset that naturally improves from volatility. For startups that wish to use antifragile principles to learn and grow, they should practice the following:

• Focus on personal growth and learning – Instead of financial success, people should have a growth mindset. That perspective will enable them to grow and learn despite the situation. 
• Stay alert and awake when hit with challenging times. By taking the discomfort of the experience and embracing it, you’ll be better equipped to learn from it.
• Learn to live with randomness. Things will happen. Keeping yourself grounded with inner peace will enable you to create a learning opportunity from each experience. 
• Follow a direction instead of a detailed map. There are going to be bumps, stops, etc. throughout the journey. Start to see each of these obstacles as a possible new path that leads you ahead. 

6 Ways to Make a less Fragile Startup

There is a limited downside to creating an antifragile startup. If your startup has fragile systems in place, you can make changes to move it in the other direction. Here are six ways that you can do it with your startup.

Build out a Strong Network

Relationships are especially important for startups. You need to have a strong network of investors, partners, customers, and supplies to succeed. A company’s resilience can often be measured by the strength of its network. Build a group of supportive people that will help you through the good and bad times. 

Create Redundancy

When you have multiple systems in place, if one fails it won’t have as much of an impact. For example, let’s say that you’re a phone manufacturer. Source out your key components from multiple suppliers instead of relying on one or two. This minimizes the risk of a single point of failure, which could cause your business to fail or drastically increase your costs. 

Build an Environment of Experimentation and Learning

Any change in a fragile company could lead to disaster. But an antifragile environment embraces and encourages these types of changes. Leaders must constantly be learning, welcoming new ideas, and testing new things. Your startup is more likely to succeed when you embrace change than when failed with conflicts.

Avoid Financially Risky Structures

A big source of fragility is debt. It puts an enormous amount of pressure on the business to succeed in a time-driven manner. Relying on debt to finance your startup’s operations can lead to an untimely death. Look for alternative ways to fund your startup, like finding investors or bootstrapping your business. Avoiding fragility in your financial structure will put you in a much better position in the future.

Make Small Mis-Steps

A startup should never bet the entire company on one idea or path, unless there’s no other way. Try to keep a high learning-to-mistake ratio so that your mistakes aren’t so big that you can evolve and grow as you continue your path.

Allocate your Resources Effectively

Keep the majority of your efforts and focus on the main uses for your products and services. Set aside a small portion to experiment on new markets or use cases. If the experiment doesn’t go the way you were hoping, it will not negatively impact your startup as much. You could get lucky and get an unexpected return from these experiments.