Tags: risk

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Reflecting on risk aversion

Posted: - Modified: | experiment

I'm more careful about risks than I was at the beginning of this experiment. I see more negative consequences when projecting the results of decisions, and I perceive more volatility. I tend to overestimate the probability and impact of negative possibilities, and I'm conservative about taking advantage of opportunities.

This is interesting to me because I expected the opposite result when I started this experiment. A safety net should enable me to feel comfortable with taking more risks. In particular, I would probably have expected to take more risks in terms of:

  • Tools: get better at seeing the possible improvements or new capabilities opened up by tools
  • Education: learn faster with other people's help
  • Networking: connect with and help more people
  • Creation: make and ship more things
  • Delegation: working with other people to get even more done
  • Commitment, schedule: plan for larger things, and hustle in order to get more things done

Hmm. Come to think of it, even my perception about increased risk aversion is perhaps inaccurate. Over the past two years, I've learned a lot from taking risks in terms of business models, sales, delegation, and so on. Let me take a closer look at the categories I mentioned to see if I can come up with counterpoints:

  • Tools: Small hardware, software, and network upgrades have worked out well.
  • Education: I've learned that I can learn a lot from books, experimentation, and connecting online, which is why paid courses and conferences haven't really been on my radar.
  • Networking: The Emacs Chat podcast is a new thing for me, and I'm slowly getting the hang of it. I've been moving to getting to know people online instead of focusing on in-person connecting, and I like connecting with peers or people I can help rather than trying to connect with high-flying celebrities. I think I like the direction I'm going, actually.
  • Creation: PDFs, guides, and e-mail courses are new for me. That's working well. Free/PWYW helps me reduce risk and avoid being anxious about satisfaction.
  • Delegation: Not as good as I could be when it comes to assigning tasks, but still better than nothing.
  • Commitment, schedule: This is probably where the biggest difference is. I'm less inclined to schedule things, and I try to minimize my commitments in terms of time and energy. Every so often, I think about whether I should be hustling more, but I like my current pace.

Oh, that's interesting. I think I'm surprised by the way I'm getting better at saying no, which is apparently a very useful skill. I'm getting better at not feeling guilty about it, too. I want to make sure I'm saying yes to some things, what I'm saying yes to is worth it for me, and that I'm not prematurely closing off things that do want.

How do I want to tweak this? I'd still probably minimize the number of commitments. I might take more notes on decisions. That would give me a better handle on risks that worked out well and risks that didn't, because what I recall is biased by my mood. What I take notes on is biased by mood as well, but it'll be easier to find contrary examples.

Also, when I find myself possibly overestimating the likelihood or impact of negative possibilities, I can sanity-check my perceptions with research and with other people. Hmm…

It's kinda fun noticing when your brain is acting a little weird. =) We'll see how I can work around things!

On making big, scary decisions, and how I left an awesome job to do my own thing; or how to be a Builder Lemming

Posted: - Modified: | decision, experiment

imageFollowing up on my Accelerated Learning chat with Timothy Kenny, where someone asked how I made the decision to go on this 5-year experiment with semi-retirement:

It might surprise you, but I consider myself pretty risk-averse. I don’t bungee jump. I don’t ski. I don’t even drive. I spend hours and days analyzing decisions. I make contingency plans. I take small steps.

So, how does someone like me end up taking a left turn away from a promising career (great ratings, wonderful opportunities) for a 5-year gap in employment as an experiment with semi-retirement?

I’d been thinking about something like that ever since I started working. I knew I wanted to learn about starting businesses someday. My parents built their own advertising photography studio, and although they worked long hours, they were happy. I grew up reading books about management and accounting—ever since I was tall enough to pull them off my mom’s bookshelf.

When I graduated with my master’s degree and started working, I consciously resisted the pull of lifestyle inflation. My expenses were much like the one I had as a student: I rarely ate out, and I bought my clothes on sale and second-hand. An excellent public library meant I could keep my book and entertainment budget under control.

I was excited by the idea of being able to finally apply the advice I’d read in personal finance books. I maxed out my Registered Retirement Savings Plan contributions and put a tidy amount away for other long-term investments. I knew my tendency was to scrimp and save, so I also made room in my budget for two things: a play fund, and an opportunity fund. The opportunity fund would be for learning how to make better decisions and take better risks.

Many of the decisions I made with the opportunity fund paid off, encouraging me to try more. I bought a tablet, and then a tablet PC. I bought books, went to events, tried out stuff, treated people to lunch so that I could pick their brain. As I gained confidence, I wondered: how can I make the opportunity fund even more liberating?

I redoubled my focus on saving, channeling more into the opportunity fund. I looked at my expenses, too. I’d been tracking my finances since 2005, so I had a good idea of how much I spent on average. I started learning more about businesses. I came across the statistic that ~80% of businesses fail within the first five years. If I could free myself from worrying about cashflow for five years, I’d probably do all right – and even if I messed up and had little to show for it, I’d still be doing about average. If I totally messed up? Well, I’d probably still be ahead of where I should be at my age.

Besides, I hadn’t read about a lot of other people giving this kind of experiment a try. If I could muster the time, space, and guts, I might as well learn what I could with the opportunity.

It was not an easy decision. I knew many people who were struggling to find work, or who were unhappy with the work that they had. Technology companies tend to discriminate against older people. Would I waste the prime years for building an amazing career? Would I find it difficult to re-enter the workforce if I wanted or needed to, such as if something happened to W- and we needed a steady income?

I talked to W- again and again, threshing out the possibilities and risks. W- supported the idea. It made sense to try this out, and this was as good a time as any to do so. We didn’t rely on my income for mortgage payments or other constraints. We have a decent public healthcare system, and he had extended health benefits through IBM. We didn’t have any young kids or sick family members who needed care. It was better to learn now than to wait until I had to.

The bigger risk would be to not learn how to create value on my own. If I could learn how to make stuff that other people found valuable, if I could learn how to use my time and energy even more effectively—to learn, share, and scale up—then I could help W- learn these things if his situation changed. And it would probably change someday, so it’s better to prepare for that.

What were the real risks, anyway? I have a lot of fun learning and tinkering. I figured I’d be able to keep my technical skills sharp, and maybe I might even pick up a few other marketable skills along the way.

Sure, the employment gap might turn off some employers. Some of my freelancing friends were going through rough patches, and they told me how employers looked at them askance (“Is this guy going to take off and start his own company again in a couple of years?”) I figured that if I really needed to re-enter the workforce, I could probably come up with a coherent story for these five years. I knew I’d take notes along the way, and I had a lot of practise using weekly reviews to remember what I learned or accomplished. The brain is excellent at rationalization, and I’m sure that in 2017, I’ll be able to explain my experiment in a way that makes sense.

One of the lessons I learned as a teenager was not to get paralyzed by the thought of my “potential”. Sure, if I leaned in with all I had, I might reach the corporate or entrepreneurial stratosphere. But really, I don’t need that much. I just need enough, and enough can be incredibly liberating.

My opportunity fund approached my 5-year target, and I firmed up my plans. I considered ratcheting down work: maybe 75% part time, then 50% part time, then 25% part time, then fully “retired”. With IBM’s intellectual property agreements, it was easier to just make a clean cut. (I ended up doing the ratcheting-down with consulting anyway… funny how life works!)

At the one-one-one meeting with my manager where he shared the results of my annual performance review (yay, top ratings!), I told him I was planning to leave the company and experiment with other things I wanted to learn. Since I gave a few months’ notice, we had plenty of time to cleanly wrap up projects. And then I was off on my own.

This experiment gets less and less scary the more I get into it. Sometimes I look at my numbers and wonder whether I can actually take bigger risks than I currently feel comfortable with. I’m getting better at thinking my way through decisions with greater uncertainty or impact, turning to research, role models, and reflection to get myself through it.

If you’re thinking about making a similar decision yourself, these tips might help:

Think about the real risks you’re worrying about. How can you mitigate them? What are the worst-case scenarios, and how can you work around them?

How can you create a safety net for yourself? What can you do to build your confidence and rescue you from some of those worst-case scenarios?

What are some small steps you can try? I didn’t jump straight into semi-retirement. I started by taking smaller risks and learning from them.

Even now, I take very few risks: I overpay my taxes in order to minimize the impact of calculation errors, I don’t claim tax credits I’m not sure about, I’m conservative about my business commitments and contracts.

If it looks like I’ve come far, it’s only because I go one small step at a time. It’s… kinda like the builders in Lemmings, building steps until you get to where you want to go? =) And then other people can go up those steps and reach their goals more easily, or be inspired and build steps of their own.

2013-07-29 16_27_02-Lemmings! 

(screenshot from http://tomato17.tripod.com/gameroom/fun07.html)

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Good luck!

(Hah, my current hack for coming up with blog post titles is to just squish many potential titles together. Sorry. Maybe you can give me feedback on which sub-title you liked most! Winking smile )

Sketching twelve business ideas

Posted: - Modified: | business, entrepreneurship, planning, plans

In Running Lean, Ash Maurya recommends that you document your “Plan A”s – sketch out many possible businesses and business models so that you can rank them. I spent some time on January 1 sketching different business ideas, which I’ve shared on my experiment blog. Here they are as a quick gallery.

I’m planning to print these out, prioritize them, and figure out how to derisk the most promising ones. Do any of them stand out to you as particularly interesting?

See my sketchnotes of Running Lean for more tips from the book, or check out my experiment/business blog for other business-related thoughts.