Low-Risk Specialization

Specializing with minimal risk, a book-writing taxicab confession, and some ways to save on your taxes *and* grow your business.

It's worth asking how you might subtract as much risk as possible from the process of specializing. What risk, you say?

These are the risks of specializing:

  • You might get seduced into category creation without the needed resources.

  • No business with incredible potential works great on day 1. The conundrum: every day you keep working away at building a business that's not working great now but could plausibly work better in the future is either another day of sunk cost or another day closer to the breakthrough/critical mass. Early on, you just don't know which it's going to be. You might find this conundrum stressful and discouraging.

  • Even if you don't feel stressed about it, specializing usually takes time to yield results even when you get the decision right, and so there's the same kind of problem that plagues any system with delayed feedback loops, which can make it hard to proceed with confidence.

When there are long delays in feedback loops, some sort of foresight is essential. To act only when a problem becomes obvious is to miss an important opportunity to solve the problem. --Thinking in Systems, Donella Meadows

  • If you treat your specialization decision as a reversible or changeable decision that first functions as a test of market demand or an experiment (this can be a good approach in some cases), you might churn and confuse the market, causing lost opportunity, until you settle down into a specialization that works well.

  • The form of specialization that yields the most immediate benefit (vertical) is the hardest one for most tech folks to adopt.

  • The easiest way for you to specialize is a platform specialization, which is also the most risky way.

  • It's easy to conflate difficulty/complexity with economic value (this is largely the hourly billing model's fault), and be pulled towards specializations that are difficult/complex but don't deliver robust economic value.

For the vast majority of the human population, a paper cut does not cause enough harm to effect health, much less cause death. That's why almost no parent gasps and rips a sheet of blank printer paper out of their child's hands while scolding them about the risk of handling paper. But when the child picks up an X-ACTO knife, the gasping and scolding begins because the magnitude of potential harm has increased.

For the vast majority of you, most of the risks described above have a paper cut-level of potential harm. They can't singlehandedly cause sufficient harm quickly enough to permanently put you out of business. Even if you have only minimal runway in terms of saved cash, you likely have other forms of resilience, like the ability to pick up short-term, part-time contract work, for example.

The risk that carries the greatest potential for harm is the first one I described above: you might get seduced into category creation without the needed resources.

If any of the other downsides described above come to pass, the likely harm is:

  • 6 to 18 months of crappy financial performance while you course-correct

  • You get a "bad taste in your mouth" about specialization and never try it again

I list the second item as a harm because it might prevent you from getting specialization right on the second or third try and so the bad taste in your mouth could cause significant opportunity cost. But overall, most of the risks of specialization are unable to cause fatal harm to your business; bruises, not breaks.

Approaching The Asymptote Of Zero Risk

The single best way to lower the risk of specialization is to make sure there is a healthy existing market to sell your specialized services to. A healthy market requires two things: 1) an understood thing to trade and 2) at least some liquidity.

  1. Buyers need to understand the thing they are buying (it has known characteristics and a commonly-used name) or at least believe it has current or future value equal to or greater than the price they are paying.

    1. Ex: Calling yourself a "Software Team Excellence Specialist" is going to require significant explanation of what that even is before you can find buyers for it. This (made up) specialization fails the "understood thing" test. It's a no-go for low-risk specialization.

    2. Ex: Imagine you sell a code audit service and, instead of looking at the code you interview 3 developers who wrote it because that's more profitable for you. This might be clever, but it also fails the "understood thing" test because calling something a code audit means to 99.999% of buyers that you'll actually look at the code.

  2. In a market with at least some liquidity, sellers can find full-price buyers sufficiently quickly. The market for shares of Ford motor company is highly liquid, while the market for surplus missile silos is considerably less liquid.

If a potential specialization does not have a healthy market to sell to (remember, that's known thing + liquidity), then it is somewhere between a higher-risk specialization and a no-go.

Confession time: I can't stop writing books about specializing/positioning. The Positioning Manual for Indie Consultants is pretty well-received and sells about 1 copy/day. In case you're curious, here's the sales data thru 2022-11-23:

You can see what I like to call the "Baker Bump" in June 2021. (thanks, David!) There's a "Stark Bump" in there too. (thanks, Jonathan!)

Anyway, I should be happy with this. I should move on to the next thing. But, as I've mentioned elsewhere, 2022 has been a ROUGH year. Prior to 2022, I often said: you should seek as much business risk as you can handle without flinching.

Now, I treat risk with more respect. That's changed quite a few aspects of my business. And it's made me realize that a new book on positioning that provides a low-risk approach to positioning would be useful. The text above is an excerpt from my hot mess draft of this book.

Please share your thoughts/reactions via a REPLY to me if you care to.

Of COURSE It's A Tax Writeoff

It is possible you are in the situation I hope many of you are in: you've had a good enough year that you pine for MOAR tax deductions, and yet you'd like those additional deductions to be an investment in your business, producing enough growth that next year you have to repeat this deduction-seeking again on a larger scale.

I can help with 3 growth-limiting problems:

  • Lack of focus, or lack of traction with an existing specialized focus.

    • I can help you figure out a specialized focus that's coherent with your revenue or lifestyle goals and aligned with market demand.

    • This usually works like a coaching engagement, with us meeting 4 to 12 times over 1 to 3 months.

  • No strong POV even though you feel like you should have one by now.

    • I have a systematic process for helping you cultivate a differentiating, empathetic, memorable point of view. No desert visionquest needed, just 4 to 12 meetings over 1 to 3 months. :)

  • Bizdev tasks collect cobwebs in your backlog, or aren't yielding results.

    • OpportunityLabs helps you professionalize your business development. This new service offers a bundle of consulting, coaching, accountability, resources, and networking. It's different from competing services (and from my previous service offerings) because content creation and authority-building are not the levers used to help you intercept more opportunity.

If any of these services seem to you like a good combination of growth investment and tax writeoff, please hit REPLY and we'll make sure the fit is right.