Unknown Unknowns

By: John Hotson,
Business Transition Alliance Co-Founder

You Don’t Know What You Don’t Know

In February 2002, Donald Rumsfeld, United States Secretary of Defense, created a whole new lexicon of words to describe that country’s current understanding of what was going on in Iraq.

“… because as we know, there are known knowns; there are things that we know that we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns, the ones we don’t know we don’t know.”

Initially his statement was treated somewhat as an obfuscation of the truth, avoiding the issue through a clever turn of phrase. However the concept has caught on and become a serious consideration of how to categorize information when working through a multifaceted problem.

Think about selling a business.

When owners are assessing the value of their business; their hard assets, their business model, the strength of their position in the market and so on, they tend to focus on what they know they know.

They pretty much know what would happen if they dropped or raised their price by 10%; or what the effect would be of hiring or firing an employee; or even the impact on their business of an interest rate hike or drop in the value of the dollar – these are the known knowns of their business.

Also anyone who has owned a business for 25-plus years most likely knows there are some things that they don’t know, but could relatively easily find out. What do my customers think about our service? What do businesses like mine sell for and how long does it take to sell them?

These issues can be resolved through hiring a consultant to ask the right questions, or engaging an MBA student to develop a plan. These known unknowns are relatively easy to figure out.

The real challenge in coming to terms with how to maximize the value of a business is addressing the unknown unknowns – the things you don’t know you don’t know – the things a business owner may have never thought about.

As human beings we don’t naturally think about things that are unknown to us. We’re much more comfortable fine-tuning what we do well; doing more for less; growing incrementally – that’s our comfort zone. We consider the world beyond that as fantasy or unfounded.

While the unknown unknowns may be viewed as a ‘black hole’ from an owner’s perspective, it is the area where people looking at the business from the outside will be focusing. What is the real value of the goodwill? What would happen if the owner stopped doing most of the selling? What could the company really excel at if they set their minds to it? These are the questions that buyers will be thinking about because that’s where the potential for the business lies.

In a world where sellers need to be doing everything they can in order to get the maximum value out of their business, they need to examine that dark place they may have put off thinking about.

The unknown can be a scary place. But it can also be the place where the real value of the business has been hiding all along.

About John Hotson:

John is a seasoned marketing and communications professional and running addict. He has worked as both a business owner and advisor to owners who are committed to improving the value of their business. John is a principal of Clearwater Corporate Communications and a co-founder of The Business Transition Alliance.

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