Cascading consequences and predicting the future
It’s important to consider the long-term effects of your actions prior to taking action. In order to understand future, long-term effects of your actions, you need to understand the past. This is the driving principle behind second order consequences.
What is a second order consequence? This phrase was coined by social psychologist Raymond Bauer in the 1960s. The term referred to the social impact of technological advances and one’s ability to anticipate them.
Recently, entrepreneur and venture capitalist Dave Knox used this phrase in relation to business, the focus of his book “Predicting the Turn: The High Stakes Game of Business Between Startups and Blue Chips.” He describes second order consequences as “the things that happen as a result of an initial cause and effect taking place.”
In business and in life, it’s easy to foresee the first order effect, right? If you launch a new product, you can anticipate a sale.
It’s much more difficult, however, to think about the cascading consequences — both good and bad — that might come about as a result of that initial action. Rather than focus on immediate cause and effect, entrepreneurs should focus on understanding how to predict the future. Yes — we must predict the future.
The old adage “the best predictor of future behavior is past behavior” rings true. In order to predict the future, we must learn about the past.
In his recent presentation at Whitman School of Management, Knox talked of market intelligence. You can’t say a product will sell without looking at historical sales of related products, or reception to new products in this category (e.g. new technology) — and this is based on knowledge of historical events and outcomes in the marketplace.
Understanding what, why and how brands and companies make changes, join partnerships, and launch new products or services, can teach valuable lessons to others. A strategic entrepreneur can avoid a historical mistake or, maybe, make a similar positive decision and grow.
Knox gave an example of how he predicts the future in the business world. Based on his understanding of past technology trends, he sees a rise in voice technology investment and products.
“We are in the novelty phase of voice as opposed to the utility phase,” Knox said. People are using it for fun, experimenting with voice because it “unlocks a part of society that was previously inaccessible to technology.”
He’s seeing the same pattern with voice technology the marketplace experienced with cell phone and, then, smart phones. There was a “novelty” phase followed by a “practical” phase with email integration, banking apps, and more. By understanding past trends, we can predict future trends. We can effectively create and optimize products, or technological advancements that drive entire businesses.
Coming full circle, this ties into Raymond Bauer’s initial spin on second order consequences through technology.
Understanding the industry will also give your work a stronger foundation. Investors will want to see this strong foundation — proof you understand the market — before investing.
In his presentation at Whitman School of Management, Investor James Shomar says he asks prospective businesses, “‘why did you found this business?’” If the team responds with an experience they had, a customer-focused “need” they discovered and wanted to explore, he’ll listen. If a team “nerds out over tech,” Shomar said, he’ll bypass this venture. A team with a story about need, target market and customer focus is demonstrating its knowledge of the market and has all the earmarks of a successful foundation.
If a team is just interested in “making new technology” but has no practical application (i.e. answering a question or addressing a concern), what is its function? Where is the foundation of this “thing” as a business, and how will this business succeed if they do not understand the marketplace?
Shomar responds to a need a team discovered — and this is how successful businesses start: entrepreneurs identify a need or a niche to fill. This requires research, which is how business journalist Elaine Pofeldt launched her own consulting company and published her first book “The Million-Dollar, One-Person Business.” In the course of her research for business journals, she stumbled upon a group of people who have million-dollar businesses with either a team of two, or as sole proprietors. Her work investigating their methods and practices led to her own successful product.
As communications theorist Marshall McLuhan said, “We look at the present through a rear-view mirror. We march backwards into the future.”
After all, rear view mirrors don’t tell us what happened in the past — they show us what’s coming up from behind. In effect, we need to look backwards in order to make these predictions about what can and will happen in the future.
This is why it’s important to do your research into the marketplace and see its changes over time. When you understand how you and your work fits into the future, you will spark your own second order consequences.