Saturday, June 5, 2010

Risky Business

I have always been fascinated by the way we humans make decisions. As I look at the BP disaster in the Gulf, I see a familiar model of decision making. I call it the “Big Reward-What are the Odds” model. It works like this. When people believe there is an achievable, large reward in the near term, they tend to underestimate the downside risks. And the lower the probability of a specific downside risk, the more they tend to underestimate the consequences of even the most disastrous potential outcomes.

So what does this have to do with you and your career? A lot if you tend to be a big risk taker. Now there’s nothing wrong with taking risks. This nation was founded by folks who put it all on the line. Business involves risks. All great endeavors start out with someone who is willing to take risks. But when you accept risk, you must be honest about the potential outcomes. Our founding fathers had no illusions about the consequences of failure. Benjamin Franklin assessed their situation correctly when he said, “We must hang together gentleman, or we will most assuredly hang separately”.

Now back to your career choices. Let’s say you are a salaried sales person working for a well-established company. Your base salary is $ 85,000, you get a car (nothing fancy) and if you do well and the company does well you might get a $10,000 bonus. You are reasonably satisfied, but see no long-term future with this company and would like to make more money. You get a call from a headhunter and he tells you about this great opportunity with a growing, progressive company. The base salary is about the same as what you’re making now, they offer a large car allowance and here’s the kicker…their incentive plan pays you for your performance. Realistically, you should make $50,000-100,000 just on the incentive and if you’re a super star it could be double that.

You start doing the math and get excited. You can see yourself making over $200,000 a year. You decide to go for it and end up getting the job. “Big Reward-What are the Odds”. Once you are on board you discover that the new company does not support its product (or service) very well in your market. This is going to be tougher than you thought and it’s going to take some time. Then your boss tells you that if you are not generating a certain level of revenue within 90 days, they will have to cut your salary. I could go on with the downward spiral, but you know the story. Ultimately you get canned.

What went wrong? You got hooked on the “Big Reward” and failed to answer the “What are the Odds?” question. To go one step further you did not seriously consider the consequences of failure.

Recommendation: When that so-called great opportunity comes your way, think first about the likelihood and consequences of failure and work from there. Do the same with your current situation. If I stay, what’s the worst that could happen and how likely is that? And don’t get caught in the “either or” trap. Your current situation may not be a good one, but don’t jump to a worse one just for the sake of change. Look for something better and be patient. Know what you’ve got, know what you want and know what it will look like when it comes along.

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