Managing Career Risk

Ever since working at McKinsey, I’ve been fascinated by the financial services industry.

In every other industry, you know what your costs and revenues were this year, and at the end of the year you can calculate your profit.

However, in a sense, this is not the case with many financial institutions. 

When your homeowner’s insurance company collects their annual fee from you, they know their revenues for the year.

However, what they don’t know is whether or not your house will be destroyed in a fire, flood, or hurricane.

This uncertainty is known as “risk.”

“Risk” issues also exist when it comes to managing your career.

When you take a career path that’s well structured and popular (e.g., becoming a consultant, lawyer or doctor), the costs of entering these professions (such as graduate school) are known. The income ranges for your entire career are also often known in advance. It becomes easy to build a financial model and estimate your lifetime earnings from that profession.

However, when you deviate from such “proven” paths, the financial benefits of doing so often have uncertainty. 

If you start your own company, you know what you’ll be giving up in terms of your current salary at your job, but you have no idea what kind of revenues you will be able to generate.

(This is the opposite of the problems financial institutions face.)

If you pursue a career that’s unusual for your background (such as a few McKinsey colleagues of mine that went to Hollywood after McKinsey), it’s nearly impossible to forecast your lifetime earnings with any remote sense of accuracy.

Does that mean you should avoid such risks?

Not necessarily.

It does mean you need to be thoughtful about these risks… and more importantly, “manage” them.

This is why financial institutions have entire departments called “Risk Management” that are the primary drivers of whether those firms will be profitable or not over the long haul.

When your upside of a career path is unknown, it raises the importance of two risk management related issues.

1) The known non-financial benefits of your career choice (e.g., personal satisfaction)

2) The importance of non-academic skill acquisition (e.g., learning outside of school)

If you become an artist, your financial earnings are highly uncertain. However, if you have a profound sense of enjoyment and passion around creating art, then that’s a known and significant (non-financial) benefit to your career choice. It helps enormously if you’re certain about the personal non-financial benefits you’ll accrue from your career choice.

(For example, when I quit my career as an executive in software to be a work-from-home dad, I had no idea what my income would be. However, I was extremely certain I would enjoy being at home to raise my daughter — who is about to turn 16 years old. As a result, I was comfortable with the decision on that basis alone, even if I could not determine if the financial return on investment would be worth it.)

In unstructured career paths, your success is driven far more by the skills you acquire outside of school than your academic achievements.

If you finish medical school with a particular specialty, you have a pretty good idea of your likely income range.

If you drop out of high school to start your own company, your financial success will be driven more by your skills and abilities acquired outside of school.

If you leave investment banking to be a singer/songwriter, your financial success will be driven more by how good you are as a singer/performer/promoter.

So does it make sense to take the career path less traveled?

It can make sense if doing so brings deep personal satisfaction, and you make skill acquisition a priority. 

It definitely does NOT make sense to do so if the path you’ll be taking brings you no personal satisfaction and you have no intention of developing the skills needed to be successful in that field.

It’s something to think about.

And if you’re in a structured career path and thinking about deviating from it, it can be useful to acquire the skills you’ll need in the future today — when you have both the financial means and time to do so. 

Trust me, it’s a lot more stressful to do just-in-time learning when you’ve taken a 99% pay cut (as I did).

One easy way to do so is to become a member of my Inner Circle mentorship program. It’s a way to gain exposure to an extremely wide set of career skills — well beyond what you’re likely seeing in your job today.

My Inner Circle is only open to new members twice a year, and the next opportunity to enroll is next month.  

If you’d like to learn more about my Inner Circle mentorship program and be notified when membership is available, just submit the form below.