Whenever I work with someone on the transition from generalist to specialist, I’m always interested in their risk tolerance. That’s because there is some risk involved in this transition in your business, so I’m interested in knowing how hard I can push clients vs. their level of risk tolerance.In the past I’ve approached that question with a simple self-assessment where I ask folks to rate their risk tolerance on a 5-point Likert scale from “I avoid risk at all cost” to “I embrace or eagerly seek out risk”. For the clients I’ve surveyed in this way, I get the following results:Avoid at all cost: 0Usually avoid risk: 4Neither avoid nor embrace risk: 7Risk doesn’t bother me: 12I embrace or eagerly seek out risk: 4Those results seem pretty in line with the larger survey I ran on y’all a few weeks back (reminder: from 67 responses, 10 self-reported as risk avoiders, 30 as risk embracers, and 27 as somewhere in the middle.)That said, I’ve always 1) wondered about the accuracy of a self-assessment about something like risk tolerance and 2) wondered if there are more objective ways to measure this aspect of personality.RE: the accuracy of a risk self-assessment, I wonder about the accuracy because a lot of us are steeped in several Olympic-sized swimming pools of bullshit about tech startup lore and the approach to risk that has supposedly gotten the famous unicorns from scrappy garage-sized operations to big successful businesses. I know that I have to work very hard to keep that crap from influencing my thinking, and I bet a lot of my clients do too. The idea of being super risk-tolerant seems very sexy, but I have to wonder whether a high-risk approach to the generalist -> specialist transition is the best one. I’m not sure it is. But aside from that, I wonder whether all of us tend to over-estimate our risk tolerance because we’re influenced by a larger culture that celebrates risk-taking?If I had to guess, I would guess that we do over-estimate our individual risk tolerance. But I’d like to do better than guessing, so I’m looking more deeply into how risk tolerance can be more objectively assessed.The world of investment management has some good stuff to offer here, and some recent research I’ve done has advanced my own understanding of this subject.The first thing that I’ve learned is the singular attribute I’ve thought of as “risk tolerance” has several facets. It’s not really enough to just think about risk tolerance because these facets are rather different from each other.When you look more closely at how a person deals with risk, between 3 and 5 distinct components emerge:* Risk tolerance* Risk capacity* Risk need* Risk perception* Risk composureI’ll ‘splain these individual components more in tomorrow’s post.Taken together, these components define someone’s risk profile, which is a much more nuanced way to think about risk tolerance.Want help lowering the risk of your transition from generalist to specialist? Learn how here: http://thepositioningmanual.com-P
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