Gottlieb Daimler is widely credited with having created the first four-wheel automobile, eventually joining forces with Karl Benz to form Daimler Benz. A story is told that in the early 1900s Herr Daimler asked his financial people to make an extremely ambitious forecast. He wanted to know how big the world market for automobiles might be by the end of the new century. In a hundred years, by the year 2000, how many cars might there be in the world?
After careful analysis, his financial planners predicted that in another century there would be perhaps one million cars in use around the world.
While this forecast must have sounded audacious at the time, we now know that it was woefully inadequate. By the year 2000, there were already more than 600 million cars, trucks, and other motorized vehicles in use, and nearly 60 million brand new cars were manufactured in that single year alone. So yes, Daimler had asked his financial analysts for a very long-term forecast, but they still underestimated reality by a factor of nearly a thousand! How could such an enormous error have happened?
Daimler’s analysts missed their forecast because they failed to see how the entire business model defining automobile usage would change. They missed it because their own business model was rapidly outdated by the same inevitable forces of technological progress that brought their company into existence in the first place. Technological progress is inevitable. Technology waits for no man, and shows mercy on no business.
Herr Daimler’s financial planners missed their forecast because they assumed that the world population of chauffeurs would likely only grow to about a million over the next hundred years, which would limit how many horseless carriages would be in use by that time. It turns out that their prediction for the chauffeur population was surprisingly close to the mark. But their assumption that all cars would be operated by chauffeurs, of course, was completely wrong.
Before you rush to tell this anecdote to a friend, confident that your own business is not under threat, consider that truly existential threats will not come from the world your business model was created to serve, but from the world served by the next technology you fail to anticipate.
The Bell Telephone Company once predicted that the market for telephones would be limited by the availability of human operators, and IBM’s Tom Watson once famously predicted that the world would never need more than about five large computers. It’s hard not to be blinded by your own current business model, even when the model is for a brand-new product category.
There are some important lessons here for financial planners, analysts, forecasters, and other experts. First, it’s never terribly difficult to forecast the future of a current business model, sometimes even to an accuracy of two or three decimal places. But decimal places won’t help when the next disruptive innovation occurs. If anything, decimal places tend to provide a false sense of confidence, making it even more difficult to imagine the what-ifs and the “unknown unknowns” that will inevitably play a greater role in defining your business’s future.
Second, whenever you think seriously about what might happen in the future, be sure to scour the present for as many different perspectives and ideas as you can, then make multiple predictions. Place different bets on these various scenarios, in full knowledge that most of your bets will fail, but the more possible futures you anticipate, the more chance you have of anticipating reality.
And finally, focus carefully on those aspects of the future that you can predict. Think of the timeless attributes that define us all, such as that everyone is always looking for more convenience, that we all value interacting with others, and that treating customers right (i.e., the way you yourself would like to be treated) will never embarrass you, and will never turn customers against you.