The risk profile bottom line

Philip Morgan

So what's the bottom line of all this nuance about risk tolerance?There are basically 2 key points.Risk Tolerance vs Risk CapacityRisk tolerance (your willingness to take on risk) and risk capacity (your ability to sustain a loss) are two distinctly different things. A highly risk tolerant person might make risk-averse decisions because their risk capacity is low.In the world of generalist freelancers, the kind of things that increase risk capacity include long-term contracts that give you freedom to build up something new on the side, savings, a romantic partner with a stable income and (in the USA) good medical insurance, living in a low cost of living area, or being in the midst of a bubble where your skills are temporarily extra valuable.Risk PerceptionHow accurately you perceive the actual risk of a situation depends. I spend a fair bit of time in The Positioning Manual describing what I call The Fear, because the fear of specializing contributes to an inaccurate risk perception for many people. The Fear can cloud your ability to accurately assess risk. Also, if you've never done something, and you don't know others who have done that thing, then of course you're going to have concerns about the level of risk that thing poses to your business.Bottom line: **Fairly risk tolerant people may still want to avoid specializing because they perceive it as more risky than it actually is.**I ask new members of my email list what would constitute success for them. A percentage reply to this question, and the vast majority of them mention a stable pipeline of future opportunity as part or all of their definition of success for their business.If that's part of your definition of business success, then I hope this discussion about risk helps you think through how much risk you might need to embrace in order to get there.Overall, it's probably less risk than you think, and more effort and time than you think.-P