Entrepreneurs are Risk-Averse. Employees are Risk-Takers.
A point of view on risk and how people get it wrong with their career.
What is risk? What do people think it is?
Risk is commonly associated with the level of uncertainty to an outcome from a decision. Hence, Higher Uncertainty of Outcome = Higher Risk.
Ah, but how do you know what is uncertain or certain? There is a false assumption that we will have certainty of outcome. Of any sort. I have yet to meet anyone that could predict the future, but if you are that person I would love to meet you. For plebs like myself, I can merely consider the probability of future outcomes based on historic data. Aka, using base rates.
People commonly associate entrepreneurship as being risky. Back in the 18th century, Richard Cantillon referred to entrepreneurs as "risk-takers". I think the more popular definition comes from Jean Baptiste Say who later referred to entrepreneurs as "one who undertakes an enterprise". Conversely, the accountant working for the government is considered secure and without risk.
In investing, risk is the possibility... or maybe even probability of permanent loss of capital. Your downside. The greater this probability the greater the risk... essentially, it makes you more fragile. The probability of a glass ball shattering if dropped on a concrete floor is higher than for a titanium ball. The glass is fragile, the titanium ball is robust. A rubber ball may be antifragile as it may bounce up with velocity.
Nassim Taleb commonly refers to this paradigm as "fragility" in his book, Antifragile. Antifragile, being the state where the state/object in question gains from disorder. Gains from the uncertainty and volatility. This makes risk into a completely separate endeavour. In a world of constant change we cannot predict the future. We can only be certain there will be continuous change of some sort, of what kind of change we do not know. If being antifragile means benefiting from randomness and volatility then being fragile would mean perishing from such change. By that metric, I think we can spin the flashlight on "risk" from "what is certain (not risky) vs. uncertain (risky)" to "perishing with uncertainty (risky) and thriving with uncertainty (not risky)".
Employee-ship is riskier than Entrepreneurship
There are many kinds of entrepreneurs, as there are many kinds of freelancers and contractors. I know I'm generalizing between them, some may have lower risk than others. Yet, collectively, they are more likely to be less risky than the general cohort of employees.
Case studies of game changing entrepreneurs like Richard Branson, or the many featured in Adam Grant's Originals show that they were not trailblazing risk-takers people thought them out to be. Many were risk averse.
It's true that many appear to "risk-it-all" may not have a stable stream of financial sustenance, a big brand employer name, health benefits etc... But does that make it risky?
As an investor, I prefer to invest in businesses that have a diversified client base. I'd much rather see a business that has it's sales spread out over 100, or 1000 customers than 1 or 2. A freelancer can have multiple clients or multiple channels of income. An entrepreneur can run a business or few with multiple clients. Whether it be 10 or 1000 customers, it's always better than one.
Most employees have a single employer with no other channel for income. If I were to look at that individual, it's a business with one customer. If that customer leaves you, it's done. That's a lot of uncertainty.
An entrepreneur can have customers fire her company. Sure, it sucks. It's not like customers like to let her know "Hey, I love you but we aren't the right fit so I'm going to leave you in about 3 months so you should prepare for that". It'll probably just happen when she doesn't expect it. She may not be mentally or emotionally ready but that's okay because she has other customers and she can always go out to find more.
An employee who gets fired by his employer is likely to not have a job in his back pocket to immediately go to. This is honestly the small problem. The bigger problem is the sense of betrayal and loss he could feel for not being ready for the break up. He doesn't know how to cope with it because it targets his very identity and he was so attached to the fictional notion of "job security". Everyone told him this was a stable job and once you were in, you were set for life. Turns out, life just doesn't work that way.
With all his eggs in one basket, the employee bears more risk.
One could possibly think that because the employee has an income starting day one that he still had less risk but what about after that income source is taken away? Does he have the skill to sell and make it again? An entrepreneur or freelancer may not have income from day one but she has built up skills that cannot be learned without actually "fighting in the arena". Skills that will be transferable to the next venture or acquisition of the next customer.
It's never a binary answer of one job or path being risky or not. Rather, it's a spectrum where the decisions you make and the environment you construct will have you slide left or right on the spectrum of risk.
It all comes down to your locus of control
The more locus of control you have over yourself and your own actions the less "risk" there is in your system.
The employee has no locus of control. especially the one in the "Bullshit Job". This is a term coined by David Graeber in his book: Bullshit Jobs.
Graeber defines them as such: "A form of paid employment that is so completely pointless, unnecessary, or pernicious that even the employee cannot justify its existence even though, as part of the conditions of employment, the employee feels obliged to pretend that this is not the case."
A key criteria for it being that it's up to the employee to admit/know the useless nature of his job. Now, obviously not all jobs are bullshit. There are plenty that are essential, fulfilling and amazing. What I'm conveying with the bullshit job is to show the riskiest choice of all if that is all you're betting your life on. A job you and society both deem as being useless.
As an employee gets more intrapreneurial, has more ownership and autonomy, she starts floating across the spectrum to create a system with less risk. The key criteria being: The more ownership and control you have over yourself, the less risk there is.
The prevailing belief is that ownership is risky. It seems counter-intuitive right? Should we all want more ownership? In theory, yes! But, I think what scares many off is what comes with truly owning something. The requirement to be accountable and responsible for the result of actions. Many fear this part. They don't want to be responsible. That's why its so common to see people being "thrown under the bus" when "shit hits the fan" at work. Managers hoping to place blame on someone else and not take responsibility for mistakes and failures. Maybe they're stand-up people internally but the fear of getting punished for being wrong is just far greater.
But by forgoing such ownership, the employee has chosen to undertake more risk in his life. It's only by embracing ownership and willing to take responsibility for her own actions will she slowly traverse to lower the risk in life's system.
This is the less risky thing to do. This approach means you've decided to learn by making mistakes. It means you've decided to learn by traversing into the apparent uncertainty. To embrace the randomness that will hit you every day. The difference between the individual who chooses a path of increased ownership and control and the one who chooses to relinquish it is on the acceptance of uncertainty. The former knows life is uncertain whereas the latter is choosing to believe life is certain and is in for a rude surprise when it proves him wrong.
The great thing about life is that its a journey where the only constant is change.
Hence, people will move through the spectrum throughout their life. Another thing to note is that the spectrum does not have set end points. It continuously expands.
It compounds, you see. The longer one stays on the left being a freelancer or a bootstrapped entrepreneur, the more antifragile and less risky one's life becomes. On the other, the more one chooses to be an automaton employee doing a bullshit job, the further down the risk spectrum one falls.
Maybe it's getting equity in the business (i.e. becoming a partner at a consulting firm or getting stock in a startup). Maybe it's starting side hustles while working as an accountant. Maybe it's only doing one round of financing for your business. Maybe it's buying out the unhealthy investors from your pool. Maybe it's taking time to introspect and decide to lead a life of purpose and intentions.
Whatever you choose to do, consider taking steps to increase your locus of control. It can be as easy as quitting Instagram so that Facebook doesn't control 30 minutes of your day.
Only by expanding our locus of control will we actually limit the risk in our life.
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