For the past two weeks, the collapse of Silicon Valley Bank has dominated the financial news and bled over into mainstream news coverage as well. The event has been described as the most significant failure since 2008 and as a portend of worse to come. Talking heads have discussed the causes and the implications of the bank’s collapse. Articles online and in newspapers and magazines have dissected the bank’s failure in even greater detail. But amidst all the noise, there’s one conclusion few people have drawn. A conclusion few people seem willing to draw. A message with actual, pragmatic utility for business owners: you cannot predict what will happen. You cannot predict what will happen in business, nor can anyone else. Not in everyday life, nor in commercial life. It’s a message that needs to be repeated. It is a theme that underlies much of the content at InvoiceInsure.co.uk
It is human nature to want to know the future. Accepting that the world is random and chaotic is difficult. But that concept is not just Boltzmannian: entropy is a physical concept, that is, a concept applicable to the physical universe. It describes how the components of our universe, the molecules, the atoms, the ions and the electrons, tend toward randomness and uncertainty. It is sometimes fashionable to say that business is entropic or that finance or human decisions will always tend toward disorder. That’s not the case, or, not always the case. Physical laws and events can be predicted with accuracy. Outcomes that will kill your business cannot.
Silicon Valley Bank and Credit Suisse were once seen as safe and stable companies. For decades, if not centuries, Credit Suisse had an impeccable reputation. The bank extended loans to governments. That reputation was sterling as recently as the start of 2023. But in February, Credit Suisse reported massive losses, and their annual report revealed problems with their financial reporting controls (couched in euphemisms aimed to minimise the problems). But only last week, when their largest investor, the Saudi National Bank, refused to provide more financial assistance, did a run on the bank begin, which led to its takeover. Credit Suisse, which just days ago was acquired by another Swiss investment bank, UBS, was one of the banks least impacted during the 2008 financial crisis.
No business is too big to fail. To view past government decisions – like those made by the US government concerning certain companies during the GFC – as a forecast of future actions is to fall into the prediction trap. The trap of trying to see into the future. There is little political appetite in the US for supporting failing companies after the foolhardy choices made by executives at certain firms the US government propped up in 2008 and 2009. Trying to determine what will happen in the future is a waste of time.
Simply put, what is happening at other businesses is out of your control. It doesn’t matter what information you have or believe you have. It doesn’t matter what information anyone has, pretends to have, or thinks they have. It doesn’t matter what the most reputable firm, expert or publication states.
What you can control is your business. Your firm exists in an inherently unpredictable, chaotic world. It is often difficult to accept that fact, but it is a fact it is and always will be. What you can do is take action to strengthen your firm against whatever events may happen. Predictions can lead to a host of problems, from conferring a false sense of security to guiding poor decision-making.
Manage your risk using the best tools available. Trade credit insurance is one of these. Indeed, it is the best of these. Models and assessment tools can never account for unexpected changes in market conditions or the true strength of a customer’s business. A good insurance policy protects you from uncertainties and gives you peace of mind. You won’t need to predict the future and can stop trying. You’ll be secured, your business will be secured, and you can work to make your firm larger, stronger, and better.
Peter Monaghan