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Chapter 7: Two Forms of Risk That Threaten Successful Specialization

Specializing gives you leverage in earning visibility, but it also incurs risk. For example, vertical specialization is the easier way of focusing, but some verticals are inhospitable to outsiders. The uncertainty of whether you will be perceived as an outsider or not creates risk. That's one of the forms of risk involved in specializing.

The other is using the wrong decision-making heuristic.

When you decide how you want to specialize, you are making a tradeoff. Short-term revenue versus long-term opportunity, enjoyment versus profit, that kind of thing. Specialized indie consultants can get most of what they want out of this tradeoff, but getting everything  you want all the time  is unrealistic.

There are three patterns I've seen when people make the set of tradeoffs involved in specializing.

The first is when someone chooses a specialization based on what will quickly and efficiently lead to traction in the market. This is their "head start."  They identify where they have the best head start, and build their specialization around the relative advantage their head start offers. This is the lowest-risk way to specialize. It is the safest beachhead to land on.

The second approach is when someone chooses a specialization based on what kind of people  they want to work with. This may sound like a casual or strange way to make this kind of decision, but it's actually quite common. This way of deciding seems to be trading opportunity to gain enjoyment, and I'm sure in some cases it is, but if you believe as I do that consulting is ultimately about helping people respond to or initiate change, then deciding to focus on helping people that you like and enjoy working with  can lead to greater effectiveness  in your work which can lead to greater impact  which can lead to more opportunity  (revenue, profit, etc.). There are plenty of examples of optimizing both enjoyment and opportunity.

The third and final way of choosing a specialization is to pursue an entrepreneurial thesis . Instead of looking for what kind of clients you prefer to serve or what problems you find most fascinating and compelling, you are looking for the opportunity that seems like the best bridge from your current position to a significant entrepreneurial opportunity. In situations where people use the entrepreneurial thesis decision-making approach, the potential business upside of the opportunity  is the most important factor in how they decide to specialize, and factors like enjoyment of the people or enjoyment of the work are much less important.

I've described these three ways of deciding on a specialization in order of increasing riskiness. When I wrote above that “the other form of risk is using the wrong decision-making heuristic,” I really mean that taking on excessive risk  is problematic, risk can come from the specialization itself, and it can come from how you decide on the specialization.

Risk Has Two Primary Components

Risk is the potential for harm that can result from uncertainty or volatility. A large amount of uncertainty does not lead directly to a high potential for harm. If I went to a restaurant where I love every item on the menu (there are a few like that for me here in Taos, NM) and asked the waiter to bring me whatever they feel like, there is a large amount of uncertainty and no potential for harm . I'm going to enjoy the heck out of a delicious meal no matter what they bring to the table. Lots of uncertainty, but no real risk.

Risk = Uncertainty x Potential for Harm

Many folks fear specializing. What they actually fear is the uncertainty surrounding the whole thing, but they visualize and react to the potential for harm part of the risk of specializing. They visualize:

  • A repetitive, boring work life

  • A deadly reduction in opportunity

  • Screwing their business up by operating far outside their comfort zone

When we get into this fear-heavy state of mind, many of us visualize a maximized form of potential harm rather than a more realistic range of potential harm. The more realistic range looks like this:

  • You work harder than you're used to for six to twelve months while you reorient your marketing around your new specialization.

  • You make a suboptimal specialization choice the first time, spend a frustrating six months working at it, then pivot to something better (using the insight gained from those frustrating first six months) and find traction in the new focus.

  • Your new specialization approach has you pursuing better but more demanding clients and you lose the first three sales opportunities, but your win rate increases sharply after that.

When evaluating risk, you must evaluate the potential for harm apart from the uncertainty because we are biased to assume that a large amount of uncertainty is directly correlated with a large potential for harm. We visualize risk-taking like a game of Russian roulette with the revolver having 30 chambers and one bullet —  lots of uncertainty combined with extreme potential for harm. That is sometimes the case, but not always. When you look at the game of specializing, the potential for harm is almost always lower than you believe it is.

You should avoid taking on excessive risk when you specialize. This is not because the excessive risk will ruin you. It probably won't, in fact, because the potential for harm when specializing is quite low. But no matter how many times I write “high uncertainty is not the same as high potential for harm”, we're all biased to believe the opposite.

The real danger with specializing is flinching .

The Role of Flinching in Specialization

Note

22: Source: Cambridge Dictionary

Flinch: to make a sudden small movement because of pain or fear. [22]

Business decisions—like the decision to specialize—are often compared to bets in a game of chance. While there are some similarities, especially when it comes to preparing to make a bet, business decisions are fundamentally different from bets because business decisions turn into results when we implement them over time .

Bets are resolved by the unalterable game mechanics of a spinning roulette wheel or a sports team's performance; our business decisions are resolved by the operational performance of the same people who made the decision . Us. We decide and then we implement. We are the gambler and  the roulette wheel.

Along the way, we face numerous opportunities to undermine our own decisions. Maybe we want to move upmarket, but we hold back from opportunities to build new visibility in that upmarket segment—perhaps by not giving talks or reaching out to podcast hosts—because of the emotional or financial cost of the needed investment. Because of fear. The decision we made was fine, but it was undermined by a flimsy implementation of the decision.

This is flinching. Flinching is undermining your specialization decision by hastily responding to fear. This is the reason why you should not grossly exceed your risk profile when specializing, and this is why it's important to have a clear-eyed understanding of the benefits and risks involved in various ways of specializing.

If you understand the risks and tradeoffs involved in various ways of specializing, you'll be less prone to flinch as you implement the decision.

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