Taking Intelligent Risks

There’s a lot of literature out there encouraging you to take risks. Seth Godin says the greatest risk is to take no risks. Timothy Ferris says you need to be willing to do things that are uncomfortable. Julien Smith says you’re nowhere near the edge.

Their arguments make sense. And yet, we all sense, deep down, that quitting your job and walking away to become a professional magician is the wrong answer. (Maybe not all — if you sense that that’s the right answer for you, then please do so now. If I can help, let me know.) And since it’s easy to match that impulse with the advice you’re getting from society, from your friends, from your parents — it’s easy to assume that they’re all right, and the voices telling you to follow your dreams are wrong.

The fallacy is in the belief that this is a binary choice: either you stay in your job forever, or you quit it right now to pursue your passion. That’s it. Those are the only choices you have.

But what if there are more options? What if there are any ways to take a risk than all-out?

Everyone tells you to take risks — but you can still take intelligent risks rather than stupid ones. What makes an intelligent risk?

Upside vs Downside

When evaluating a course of action, identify the potential upside and the potential downside.

What if this project went wrong? What’s the worst that could happen? What’s the worst that’s likely to happen? What could you lose, in terms of money, other resources, of opportunities? In terms of respect, of self-respect, of confidence, of momentum? What would be the end result of this project if it didn’t work out? Write it down.

What if this project went right? What’s the best that could happen? What’s the best that’s likely to happen? What could you gain, in terms of money, other resources, of opportunities? In terms of respect, of self-respect, of confidence? In terms of momentum, experience, skills, or knowledge?

The best risks are the ones that have little potential downside, and massive potential upside. Things like starting a website: it takes $15 to register a domain; software and HTML lessons are free. In the worst case scenario, you lose the entire $15 you put into it, but you still improve your writing, your knowledge of website layout, HTML, and SEO. It’s entirely possible, however, you are able to make a website that gets some traffic. You’re able to turn that traffic into some money, and make $15 over the lifetime of the project. Then you come out even on money, and you still gain improvements in writing, website layout, HTML, and SEO. And in the best case scenario, from there you’re able to build enough traffic, and monetize it well enough to quit your job, travel the world, and work from the Bahamas or the Swiss alps or wherever else you want.

Or experimenting with teaching workshops. If no one signs up, then you’ve lost whatever money you put into flyers or signs. If one person signs up, then you’ve probably made your money back, and are feeling embarrassed that only one person was interested — but you can probably find a way to spin it as a “free upgrade to private tutoring!” and still get a lot of experience in what your target market is looking for, and what they need, so that you can improve your advertising for the next round. And in the best case scenario, your workshop fills up and makes you a couple hundred dollars, and you get a lot of experience and can improve it until you’re making a thousand dollars every time you run a two-day workshop.

In those cases, the potential downside is very small, and the potential upside is very high. Those are intelligent risks.

Control over outcome

When evaluating a course of action, look at whether you’re more likely to see the downside or the upside. What can you do to affect the likelihood of either?

Using only the upside/downside standard, playing the lottery would be judged as an intelligent risk: the only potential loss is $1, and the potential gain is several million dollars. So it’s looking good so far.

But what can you do to affect the outcome? How can you make yourself more likely to win? Only by buying more tickets, which also increases your potential loss. There is nothing you can do that actually increases the upside-to-downside ratio.

Investing in the stock market is similar. Even when the economy is booming, and there is a very good chance that the stock price will go up, there is nothing you can do to change what happens (other than, as Dolf de Roos points out, writing a letter to the board of directors, wishing them well).

When you invest in a rental property, though, there are things you can do to affect the outcome. You can experiment with advertising methods, and with incentives, to increase the likelihood of someone renting it from you. You can repaint, or repair the roof, or add a carport, to increase the rent that someone will pay in increase the likelihood of making back your investment. You have a great deal of control over the outcome.

Building a website and starting a workshop are also good risks, because you have a lot of control. When things go wrong, you have a lot of options to affect how things turn out. Even if things go poorly, you have control about how poorly it goes, and what the consequences are.

Ability to Recover

Related to control is the question of how well you can recover from the downside. This aspect depends on a lot of factors, including what resources you risked, what your situation is, and what your own skills and talents are. When evaluating a course of action, think about what you would do if the worst did happen, and you needed to recover from the worst-case scenario.

If you lost all the money you put into this, could you still pay rent? If no one signed up, would it send you into spiraling depression? If your house burned down, could you rebuild it?

The more easily you can recover from failure, the more intelligent the risk. What can you do to put yourself in a position where you could easily recover? If you save up so you have a month’s worth of expenses in your checking account and an emergency fund in your savings account, plus $600, the loss of that $600 will hurt a lot less than if you took it out of your emergency fund in order to try something out. If you know you have a tendency towards depression, make sure you have a support group standing by, aware that you might need help, and make sure that the other things that trigger your depression are minimized as much as possible. (If you think this project might burn your house down … learn carpentry, I guess? And please don’t do it in Colorado — we have enough fire problems already).

Plan for Failure

When I was learning to cook, I used to worry a lot about what would happen if I screwed up. Until my husband started saying, “In the worst case scenario, we throw it out and order pizza.” For most people, experimenting with a new dinner is an intelligent risk: the only possible downside is the loss of the materials you used, and the cost of your fallback meal; the potential upside is finding a new meal that you love. You can improve the odds that it goes well by reading reviews and comparing it to other meals that you know you do or don’t like, and by following the recipe carefully. And you have a plan for what to do if things go badly: you order pizza, or you make ramen, or you go out to dinner.

When you’re starting a business, have a fallback position also. When I started a business, I left a job that I knew would be happy to take me back. It was a kind of crappy job, that paid poorly, which is why I knew they’d be happy to hire an intelligent, pre-trained MBA, but it meant that I knew I could always get a paycheck if I needed one. That made starting the business a more intelligent risk, because failure wouldn’t ruin me.

You could have a large savings pool, so that you can afford failure for a year. You could have roommates or a spouse who will share expenses with you while you’re struggling. There are lots of options. But the better your fallback position, the better you’re able to take risks without worry.
Risk

What risk are you considering?

Resources for Further Reading
Should this Business Proceed?
Steve Pavlina – intelligent risk taking
Decisive by Chip & Dan Heath

Updates (and new project)

So I suppose it’s only fair to let y’all know where I’ve been this last… *date check*… 14 and a half months.

I have been, in accordance with my own advice, failing. Rather a lot, which is kind of getting old, but it is, after all, the price of admittance.

As of my last post, I had started a marketing consulting business, to help small business owners figure out marketing. That one failed for lack of a good business model: in order to make it worth my time, I had to charge amounts that small business owners couldn’t afford.

About 10 months ago, I quit that effort to focus on a board game business I had started with a friend and coworker. Our hope was to move board games out of the geeky closet and into the mainstream by promoting their many awesome advantages: family togetherness, promotion of logical analysis, practice with valuable social skills, etc. We did build quite a geeky following, but were unable to cross the chasm, and we called it quits in January of this year.

Fine, you say. But then what have you been doing for the last 8 months?

Recovering. I didn’t realize it at the time, but I was suffering a pretty severe case of burnout. (You’d think that the journal entries titled “Day 1 of Project Not Being A Mess” would have been a hint, but evidently I was in an amazing state of denial). So I wandered around for 4 months, doing nothing, sleeping in, eating too much sugar. Hating myself for accomplishing nothing. Eating chocolate to assuage my self-hatred. Hating myself for accomplishing nothing and eating too much sugar. That kind of thing.

The turning point came in April, when I (more or less) slapped myself on the forehead and said, “Holy shit! I’m depressed. No wonder I can’t get anything right!” And from there started the process of recovery that has… more or less… resulted in a functional human being where a burned-out depressive shell existed 8 months ago.

SO I’ll be picking up a couple of projects that had lapsed during my Intense Failure Program of 2011.

One of them, I hope, will be this blog. During my depressive phase, I believed that I had nothing to say, and that even if I did, no one would care. I of course can’t speak to the latter, but surely contributing two “failed” businesses to the 95% statistic has provided some material for this blog. So I’ll try to pick up on that in the next couple of months.

My other new project is an attempt to find another way to help small businesses improve their marketing. See, most small businesses can’t afford to pay a consultant enough to actually get something done — that’s why most marketing consultants target bigger businesses. But I want to target microbusinesses — the ones that are run by 1-3 people. Because I really think that more people should be starting microbusinesses – it would be better for them, better for their families, and better for the economy (not to mention government unemployment statistics). But marketing is one of the biggest barriers to that decision, and that’s the problem I want to fix.

So if microbusinesses can’t afford one-on-one consultation, what can I offer them? Something that would be worthwhile, a real help to them, but that I can offer at a price they can afford?

Introducing … Bare Minimum Marketing

So here’s what I’m thinking: I’ll write a book. A book written specifically for microbusiness owners. A book not intended to supplant the many extant marketing books available, but to supplement them. Something that will help a microbusiness owner actually take the good ideas out of those books and do something useful with them.

All the details, including the table of contents and introduction, some sneak peeks at content, and video explaining the project, can be found at the book’s website, http://BareMinimumMarketing.com.

The project will be funded (if it happens at all) through Kickstarter, a website that allows artists to “crowdfund” new projects. If enough people like the book to fund the publishing, then the book gets made. If not, no one gets charged anything, and I get to start the failure-recovery process again (hopefully more healthily this time).

So… here’s how you can help
When the campaign goes live, obviously, I would really love some money. I’ll even figure out some special reward for readers of this blog.

But in the meantime (and even if you don’t have money to give), you could really help out by letting people know. The website (again), is http://BareMinimumMarketing.com. I’m on Facebook (search for “Bare Minimum Marketing Book”) and on Twitter and on Google Plus (search for “Bare Minimum Marketing”). So whichever social media site you prefer, or if you just like email (or even — *gasp* — talking to people face-to-face), I would very much appreciate your passing the word on to anyone you know who might be interested.

Book Learning: How to study from a book

When you decide you need to learn something, probably the first thing you think of is to find a book on the subject. It may not be the best idea, but it will probably be the first.

And sometimes it is the best way; and it’s certainly the way I’m most familiar with, so that’s where I’m starting the series.

    Step 1: Pick a Book

    In some cases this may be done for you: in class, the teacher/professor may have selected a book and ordered you to read it — in that case, all you can do is hope that it’s good.

    But if you’re learning on your own time, for your own purposes, then you need to select one. At the library or bookstore, head to the right section, then just read through the titles. Do any catch your eye? Do any seem to be addressing the specific problem you’re having? Pull the likely ones off the shelf and open them to a random page. Does the advice make sense to you? Is it too complex? Too simplistic? Does it seem to actually address the specific problem you’re having?

    You can also do a quick web search or ask for recommendations from your friends/family/coworkers/geeky friends.

    Step 2: Get a recording medium

    Just reading a book does very little good unless you actually retain and — here’s the difficulty — think about what you’re reading. You may even disagree; that’s fine, as long as you’re thinking, analysing, and processing.

    And for that, you need some way to lay your thoughts out and look at them. I prefer to have a spiral notebook, because handwriting connects to my brain better than typing. My fiance prefers to type; in that case you could keep a document on your computer, use MS OneNote, or even start a blog. You could get a voice or video recorder, and tape your thoughts (and make a podcast or video podcast of it, if you’d like). Or you can start a book club, where everyone can put forth their analyses and discuss each others’. Just find some way to make yourself process what you’re reading

    Step 3: Read. Carefully

    If a sentence, paragraph, or chapter don’t make sense to you, then stop and re-read it. What doesn’t make sense? Are they using jargon you don’t know? Go look up those words. Does the logic not make sense, you can’t follow their argument? Re-read the section, starting with their premise and following the logic step by step. Do the data seem wrong? Do a web search and see if you can find any evidence for or against their claims. Do you think there’s a glaring flaw in their reasoning? Write/record/bring it up in your book club, and explain where you think the flaw is and how your reasoning changes the conclusion being drawn. Don’t proceed until you’re sure you understand what the author is saying.

    Step 4: Apply

    You got into this because you wanted to learn something, to solve some problem you’re having. So how do these lessons help? If you’re learning some background theory, then apply each lesson or chapter to your situation: what do these statements imply about your scenario? If you’re learning a specific how-to, then what would you have to do in order to actually do these steps? What would they look like in the case of your business/product/family/life? I like to do this throughout the book, but you could do it at the end of each chapter or section if you prefer.

    Step 5: Summarize

    When you get to the end of the book, look back over what you’ve read. Look over the notes you made. What were the most important things? Why are they important? Overall, do you agree or disagree with the author? Why? What do you want to differently as a result of your reading?

There you go: the book-learning methods they never taught you in high school.

Resources for Further Reading
Writing for you, and why it works at drawing others to your blog

How to Study

The Truly Educated Never Graduate

So here you are, ready to set off on your self-monetization journey.

You realize that you don’t know everything you’ll need to know if you’re going to be successful. So now what?

Option 1: Give up in despair. It’s a surprisingly common option.

Option 2: Learn what you need to know. That’s the option we’re going to discuss here.

Why you don’t know how to learn

In our society, there’s a pretty clear distinction between times of your life where you’re being educated, and times of you life where you’re not. Almost all “education” happens in the first 24 years of your life, and thereafter you’re off the hook; you don’t ever have to learn or study ever again.

…unless, of course, you actually want to succeed in life. Because

    (a) school doesn’t teach you everything you need to know (or, in some cases, hardly anything you need to know) and
    (b) the world is changing much too quickly for stuff you learned when you were 24 to actually be helpful for more than 5 years or so.

Which means you need to study.

Now of all the faults of the US school system (and they are legion), one of the biggest is that it gives you almost no training in how to study. It gives you lots of training in how to prepare for a test. But very little training in how to learn something you actually care about, for yourself, in a way that actually imparts useful information into your brain that you could then apply to a real problem.

So the bad news is, you probably have no idea how to study.

The good news is, you probably have no idea how to study. Which means the thing you’re thinking of when I say “study” (probably involving lots of coffee, a long night before a test, and using highlights, flash cards or other tools to memorize a bunch of unrelated facts) is not what studying is really about.

It should be noted that my method requires actual effort, and (depending on what you’re studying) can be a lot of work. But remember that this isn’t for a test on a subject that you never cared about anyway and only took because it’s on the list of requirements. This is for something that you care about, and that you need to be able to meet your goals and follow your dreams. Which makes it worth at least some effort.

How to Study

So being in your situation, there are 3 things you need to do:

  1. Figure out what you need to learn I realize this sounds dumb. But it’s a very important step, and it’s one you don’t learn how to do. In school they tell you what you “need” to learn, and you “learn” it. But here you have to figure out, first and foremost, what it is you’re trying to study.
  2. Figure out the best way to learn it This depends on many things: your learning style(s), what you’re trying to learn, and why you’re trying to learn it. In some cases you may want to read a book and take notes; in others, you may want to jump right in and try it over and over until you get it.
  3. Arrange to do that Again, in school, they schedule lectures, labs, and tests, and take attendance to make sure you’re actually keeping to the schedule. Here, you’re the one in charge of it. If you need practice time, make sure you have time set aside for it. If you need a book, make sure you buy it or check it out. Figure out how to get your studying done.

So that’s the essence of it; after that, you just need to do it.

In future posts, I’ll talk more in detail about each of those steps, and discuss various study techniques and tools.

What to do in case of economic downturn

There’s some segment of the population who believe that the US economy is going to collapse completely in the next 2 years, and that all sorts of disasters will then follow (world economy collapse, governmental collapse, etc). And they may even have a point at this moment, although rumors of impending economic collapse have been around for more than a century (don’t believe me? Read Thoreau).

But they always follow this up with “Buy gold!” The theory being that if the US dollar becomes worthless, you’ll still be able to buy things with gold, gold being the one true standard of value.

But as Scrooge McDuck himself has pointed out, gold is – in and of itself – pretty worthless. You can’t eat it, can’t wear it. It has value only to the extent that people are willing to trade it for food and clothing. It relies on a social contract just as much as US dollars do. And if the social contract has broken down to the point that US dollars are no longer accepted as currency, there’s a reasonable chance that gold won’t be accepted as currency either.

Where is the wealth of a country?

What made the US an economic powerhouse, what made us the richest country in the world and our currency the international currency-of-choice, was not gold. Was not our huge tracts of land nor the (admittedly extensive) natural resources that accompany them. What made19th-century Americans richer than anyone in history, gave the country a reputation as a place anyone could make their fortune, and raised standards of living by several thousand percent, were things like:

  • An environment where you get to keep most of the results of your hard work
  • an environment where you can start over after failure
  • recognition of opportunities
  • ability to form teams and work together
  • hard work
  • creativity
  • courage and determination

Those things aren’t based on the value of a dollar. Just the opposite: the dollar is based on those. When the US left the gold standard in the last century, we instead based the economy on the true value of the nation: hundreds of thousands of people, working day after day, to make this world a better, more comfortable, easier, safer place for their children and grandchildren.

Want Safety? Invest in You

Those things aren’t going away. They’re what Steve Pavlina calls “internal resources” – things that really can’t be eliminated by time or circumstances. No economic collapse can make you less brave, less creative, or less capable of teamwork.

If you really believe that change is coming – whether a total economic collapse or simply another Great Recession – then the best thing you can do is invest in yourself. Make you a valuable resource, that can be used to acquire resources like money, food, and shelter. As a basic starting point I’d recommend:

  • Make an assessment of your skills and experience. What can you do? What can you make, manage, create, design, implement, or discover? As you’re compiling your list, look not only at the specific experience you have, but at the general skills behind them. A telemarketer who’s not afraid of confrontation could do well as a negotiator or in law enforcement; a church youth coordinator may make a great teacher, or manager-of-linchpins; and I’m convinced that there is no one better at juggling multiple priorities with limited resources than a stay-at-home parent.
  • Look at your unique set of talents. What can you do well? What comes easily to you? What questions do people ask you, what problems do they bring you? How do those fit in with your skills? What skills might you be able to add to your repertoire without much difficulty?
  • Get comfortable with being in charge of your own income. Learn to analyze your spending. Learn to create a budget for an unsteady income. Figure out how much it really takes to keep your household going month to month. Learn how to run a small business – even if it’s just a vegetable-growing business. Practice meeting new people, keeping track of them over time, and telling them what you do. All of those skills—accounting, networking, sales, and financial planning – will come in handy no matter what the situation is.

What to do in case of economic upturn

Happily, and unlike buying gold, all of those skills will also serve you well if the economy doesn’t collapse. If the stock market continues its rebound, the dollar stays high and business booms, then you’ll be in a great position to take advantage of it by getting a better job (through your enlarged network and improved resume), earning freelance money on the side (through your newly-developed professional skills), or starting your own booming business (now that you know how to run one).

Invest in you. You can’t go wrong.