Last December I penned (keyed?) a relatively optimistic piece about education spending, with the conclusion that the textbook adoption market was in a crash but supplemental materials were in a short-term stall. I had it right on the first point and wrong on the second – we have seen a full blown market crash across the board this year. There are still sound reasons for long term optimism, but the near term remains grim.
After the election I decided to read Nate Silver’s book “The Signal and the Noise: Why So Many Predictions Fail – But Some Don’t”. I was hoping to find insights on why I’d gotten it wrong, and so far I’ve not been disappointed.
Early on he outlines the distinction between risk and uncertainty in a way that is highly relevant to how we understand where we are in education publishing.
“Risk…is something you can put a price on. Say that you’ll win a poker hand unless your opponent draws to an inside straight: the chances of that happening are exactly 1 chance in 11. This is risk. It is not pleasant when you take a “bad beat” in poker, but at least you know the odds of it and can account for it ahead of time. In the long run, you’ll make a profit from your opponents making desperate draws with insufficient odds.
Uncertainty, on the other hand, is risk that is hard to measure. You might have some vague awareness of the demons lurking out there. You might even be acutely concerned about them. But you have no real idea how many of them there are or when they might strike. Your back-of-the-envelope estimate might be off by a factor of 100 or by a factor of 1,000. There is no good way to know. This is uncertainty. Risk greases the wheels of a free-market economy; uncertainty grinds them to a halt.” [emphasis added]
Looking back I actually used the word “uncertainty” in my post to describe the situation, and I even outlined all the major sources of uncertainty that I was aware of; the end of the stimulus, state budget crises, technology shifts, etc. etc. But even so I don’t think I appreciated what that implied for management options for addressing a climate of uncertainty.
The reason has to do with another point that Silver makes repeatedly, every bit of data we use comes with bias embedded in it. Sometimes this bias is overt, sometimes it is subtle. But it is always there.
In this case my bias arose from the long term nature of the education materials market – historically it has been fairly predictable and wavered within a fairly narrow band of 5-10%. Put into Silver’s terms, the risk in the market was well known and could be managed with some finesse.
The convergence of trends in education publishing however created an unprecedented situation – none of us has ever seen this market deal with this level of uncertainty on so many fronts at the same time. There has never been anything remotely close to our current situation. So all our experience was getting in the way of addressing the current climate because our bias was to assume we could manage the risks involved.
But in an era of uncertainty the scalpel of finesse is the wrong tool. You have to use a sledge hammer to clear things away and give your company room to maneuver in unpredictable ways as you learn from the market where things are headed. All bets are off.
The current climate is going to continue for at least a couple more years. As you look at where your business is today challenge your biases about what is likely to happen and don’t take half measures in getting yourself on a footing to address uncertainty. Then pay very close attention to where the trends are taking us.