Engineers love to experiment, but is experimenting with your career a good idea? In this episode of Programming Leadership, Marcus talks with salary negotiation expert Josh Doody about how this counterintuitive decision can benefit you over the long term. According to Doody, the key is to stop thinking in binary terms of “good” and “bad” outcomes and optimize for learning, instead. Doing so gives us a broader spectrum of results that we can use to decide how to proceed. This will allow us to better calculate risk while also avoiding Old Timer’s Disease and falling victim to loss aversion.
- “Decision science” (3:55)
- Thinking of outcomes as a spectrum rather than “good” or “bad” (5:13)
- Optimize for learning, not outcomes (7:31)
- How career experimentation has helped Josh (11:17)
- Understanding the long game (16:23)
- How to avoid Short-Timer’s Disease (18:53)
- Using expected value to calculate risk (23:41)
- Loss aversion can impede our ability to accurately calculate risk (27:59)
- “Good” and “bad” are subjective terms when it comes to experimentation (32:39)
- Josh Doody on Twitter
- Antifragile, Nassim Taleb
- Should Belichick have gone for it on 4th and 2? by Josh Doody
- Marcus’s interview with Josh on Software Engineering Radio
Speaker 1: Welcome to the Programming Leadership podcast where we help great coders become skilled leaders and build happy, high performing software teams.
Marcus: All right, welcome to the show. Today I have salary negotiation expert Josh Doody with me. Welcome Josh.
Josh: Hey Marcus. Thanks for having me on.
Marcus: And we’re going to talk about some cool stuff. But before we do, I’m going to ask you if you like this show, would you go on and subscribe? Would you do one of those fancy leave a review things? The words matter less than the number of stars you give us. Give us a little love, helps our advertisers know you’re listening, helps us to know you’re out there. Otherwise, it’s like yelling into the wind. But we appreciate you and we thank you for your support of the show. Now Josh, normally you get called onto these shows because you are the world’s greatest expert in salary negotiation, bar none. But today we’re going to play with some different ideas and I am super excited. Why don’t you take just a minute and tell us the nut, kind of the core idea we’re going to play with today because I’m really enthused about this.
Josh: Well this is something I’ve been thinking about a lot lately, Marcus, and that’s, it’s sort of a meta concept and I apply it a lot to my business but I think there’s a lot of application to careers as well. I have been doing this for a while, which is finding the right types of experiments to run and understanding the value of experimentation, trying new things, trying risky things, being almost risk seeking in the right circumstances to see if you can uncover bigger opportunities. I think that’s kind of a hard concept for most people because I think most people just think of being risk seeking or risk averse. I think of it risk is more of a tool that’s available to you to use that you can sort of seek more risk in certain circumstances where it’s beneficial to you or there may be a good opportunity or you can be more averse to risk when the situation calls for it. And maybe I’ll give sports analogy really quickly, which is-
Marcus: Do it.
Josh: Let’s talk about American football. You can do this in pretty much any sport where this happens. But let’s say it’s America, you’re playing American football or you’re watching American football, your team is down near the end of the game and you’re thinking, “Okay, well we need, we have two minutes, we have to score right now. We have to get the ball back and score.” And so you might change your strategy dramatically to something that in a vacuum would look kind of crazy. You’re taking really big risks because you have to take those risks or you will not win the game. And so that’s a case where you’re more risk seeking. You’re trying to increase the variance of the outcome. You’re trying to take a big swing. So you might try an onside kick or you might fake a punt or you might take a field goal or you might throw a hail Mary, which is a really low percentage play, but might be the only way that you could actually in this situation.
Josh: And so that’s a kind of an easy example of where it’s not so much about, “Well I’m a risk averse person.” It’s more about is risk a tool that’s available to me right now to help me get the best possible outcome in this situation. And in that situation you would say, “Yes, I need to take more risk or I cannot succeed here.” And I think that concept in general can be applied to careers. It can be applied to entrepreneurship, it can be applied to projects you’re working on. There’s a lot of applications of thinking of risk as a tool that can maybe change the trajectory of your career or your optionality and that sort of thing.
Marcus: I love the sports metaphor. It reminds me that, and I don’t watch a lot of football, but whenever somebody takes one of those risks, in hindsight, everyone hates on them if they failed. Right? Like, “Oh what a dumb thing. You shouldn’t have done that.” But that knowing the outcome is not risk. Right? The risk comes when you don’t know the outcome and you’re trying to make a judgment about what to do with uncertainty.
Josh: Yes. And actually you just described the concept that I think you and I were talking before we hit record that I used to play poker. I used to play a lot of poker. And so if you have played poker and you’re listening to this, you will definitely hear poker concepts and game theoretical concepts applied here. But this stuff applies to everything. And one of the things I did as part of my “poker career,” my time in poker was I wrote a book with a couple of pros and one of those pros was Annie Duke who people might recognize Annie’s name from, she was on the Celebrity Apprentice a long time ago and almost won. She lost to Joan Rivers. But Annie understands this really well and she thinks of it as sort of decision science in decisions.
Josh: And one thing that she talks about a lot is something that you just said, which is you’re making a decision based on the information you have available. You make the best decision you can and you ignore the outcome. You can’t use hindsight bias or the outcome to evaluate the decision you made. You’ve got to make the best decision you can in the moment with the information that you have. And the best way to evaluate that is to think more about what was available to you at the time that you made that decision and not to look back and say, “Well, what happened when I made that decision? Oh, things went badly, so it must’ve been a bad decision.” That’s not how decisions work. It’s more about what’s the process that I use? Did I use an intelligent process to arrive at the decision in that moment and can I live with that or could I have used a better process?
Marcus: Yeah, I feel like in business especially and probably all of life, we talk about improving the quality of our decision making. But I think what we actually mean is improving the quality of our outcomes. And so we tend to do exactly what you said. It was a good decision if it had a good outcome, it was a bad decision if it had a bad outcome. And of course everyone who’s listening here has probably been “held accountable” by their boss or a client or someone for a “bad decision” because the outcome wasn’t what people wanted. But if you don’t know what the outcome is, what kind of rules or rubric can we apply to decision making of thinking about risk and uncertainty and that’s, I love the way put it. What’s the available information?
Josh: Yeah, and I think this is a really hard shift for people to make. It’s difficult because we tend to think of things in terms of like you said, like a good outcome or a bad outcome. We tend to think of this sort of thing in terms of, rather than a spectrum, we think of it as a sort of binary kind of outcomes. Like either the good thing happened or the bad thing happened, when the reality is what you’re really looking at is a probability distribution of like different ranges of outcomes. A lot of times that’s polarized and you might have like an upside and downside, but a lot of times it’s also there is a lot of middle ground, right? Like for example, the results that almost nobody ever thinks about or talks about or the mediocre results that you just shrug and say like, “I didn’t really learn anything from that. I didn’t really lose anything from that. I guess it was kind of a waste,” but really maybe it wasn’t a waste, right?
Josh: Maybe that mediocre result in and of itself is a result of a decision making process that just kind of led you down the middle road. And so I think that the first thing to do is think not in terms of is this good or bad, but “what can I learn from this” is I think a very important metric that I apply first in my career and now in my business, which is, is this an experiment that I can run regardless of the outcome even, right? So you try to make the best decision you can, hopefully you get a good outcome, but sometimes the definition of good outcome can be fluid, meaning maybe a good outcome for me is I learned an important lesson and not that I make a bunch of money or maybe the outcome is that I gained new information or new insight or a new skill and not that I get promoted. Or maybe the outcome is that my team understands better how to work cohesively and not that we hit a home run on this particular project.
Marcus: Yeah, it’s interesting because games like football and probably poker have winners and losers. That feels pretty binary. Maybe that’s why they’re exciting. One team wins, the other team loses. Maybe it would be far less interesting if there were a lot of middle ground with these kinds of games. Maybe no one would want to watch if it was generally like, oh yeah, it was fine. Because yeah, it seems like there’s something exciting about that. But real life says that anytime you do an experiment, I think the goal is learning. I mean that’s why it’s an experiment, right? I love the way you kind of framed it is how can we optimize, you didn’t say this, but I’m thinking about it now. How can we not optimize for outcome all the time, but sometimes optimize for learning? And I feel like whenever I try and optimize for outcomes, I usually don’t have the outcomes I want, but when I’m willing to optimize for learning, I usually discover new things and maybe I can feed those new things back into my available information loop.
Josh: Yeah, I think that’s a great way to think about it. You know, I’m thinking right now of like Google is known for having like a 20% time policy where you can spend every Friday working on just something, some side project, right? And so that’s Google basically saying, “I don’t really care about good or bad outcomes. I care about the process of giving people room to experiment and to try stuff.” And every now and then, boom, Gmail pops out of that system. Right. Which is like their biggest product I think. And I’m pretty sure Gmail started as a like a side hustle internal project that somebody did in their extra time on Fridays at Google. And that’s a situation where if you’re looking at that and you’re saying, “Well what percentage of the things that people work on in this free time turn into profitable ventures for Google or Alphabet or whatever,” then you can be deceived because you’ll say, “Well, 98% of these fail.” But every now and then there’s going to be a big home run.
Josh: Or there are people that are maybe not producing like revenue generating projects, but instead they’re understanding the process or maybe they’re creating a better way to collaborate internally. Maybe they’re able to make a team collaborate in a way that Google hasn’t done before and the project itself, the product they’re creating or whatever, “fails.” It doesn’t make it to production or doesn’t see the light of day, but maybe they learned something new about the process they use to develop that thing that never saw the light of day and they can fold that back into their system and make it more robust. They have a better process now because they learned a lesson there. And it wasn’t just about measuring whether this thing becomes a public-facing consumer product, but instead is let’s just go through this process and see what it’s like and see what happens and see what we learn from it. And maybe we’ll take some of that information that we gather, the things that we learn and we’ll fold it back into the business itself.
Marcus: Yeah. I think from like a systems thinking perspective, it reminds me that what we’re talking about is changing the goal of the system. And that’s one of the most powerful things you can do if you want to change a system isn’t so much change its behavior but change the goal it seeks. And so like if we are measuring our employees in certain ways, even subtly, we’re going to be that is the goal of the system that we are creating. They will … And that’s how we intend to reward them or punish them. And so if Google comes along and says, “We’re going to reward learning and experimentation,” obviously they had a culture. I think it’s, I’ll be honest, I think it’s kind of flippant to say, “Well they had the money to do that.” No, I think that’s kind of an excuse. I think they had the foresight to realize that a workforce that was innovating was going to be valuable. My guess is there on paper there was a lot of “waste” in all those experiments. Right? Because most of them didn’t turn out to be Gmail.
Josh: Yeah. So I’m thinking of, I’m just, my brain is kind of flooded with examples that we could talk about here. And maybe I’ll take one that’s more of a career focused one for me.
Josh: I’ve got several for my business too because I apply this a lot in my business. But in the kind of, I was probably six or seven years into my career and I had already made some unorthodox decisions that reflect this conversation. I had basically changed from being an electrical engineer at a big department of defense firm to being kind of a Jack of all trades consultant project manager at a 30 person software startup. And so that’s the context for this decision. But there were some acquisitions and we were acquired by a bigger company that was in the software space that we were in, but in a different area.
Josh: And I remember there was an opportunity for me to work on a special project. Right. And I remember talking to some colleagues about it and I was early enough in my career that I wanted to get reps. Like I use that phrase a lot. I just want to get reps. I want to have opportunities to do things to see what I learned, to see what happens, to try new things, to get experience and exposure to different stuff. And so this particular group was called the Talent Development Solutions Group and it was in a talent development company now called Talent Management for the most part. Basically HR software to do employee evaluations and stuff like that. And what we were trying to do, this is sort of, I’ll date myself here. This is sort of when SaaS was becoming a thing, software as a service and so as opposed to on premise or hosted solutions, that’s a totally different business model a long enterprise sales cycle.
Josh: And then you move into the SaaS world where it’s like, no, no, no, the company will host everything. We’ll do everything for you. We’ll make it more turnkey and you just pay us monthly to use the product and you get free updates and all this stuff. Well, this was in the beginning of that shift in the software world. And so this Talent Development Solutions Group, or TDSG for short, opportunity was just me working with a manager who’d been around for a long time to basically create a SaaS-ready version of the product that was a turnkey, easy to implement, company. Our company would host a version of this product. So it was early, it was a small group, and I knew we were going to be siloed.
Josh: And so this is an instance where I looked at it and I said, “Well, I’m pretty good at my current job managing projects for this company. I’m getting a lot of accolades. I’m moving up pretty quickly, but this seems like an opportunity for me to learn more about product development and customer development and learning and understanding how to build a new product to a new paradigm with a new business model underneath it.” And I thought that would be really valuable. At the same time I was about to start an MBA. And so talking out loud about what are the things I was thinking about is I had this opportunity in front me, because I did not have to take it. This wasn’t a situation where it was like, “Josh, we’re going to move you here regardless of what you think.” It was, “Do you want to do this or not?” And on one hand I understood that like my current job was pretty good.
Josh: On the other hand, I understood that maybe I would learn a lot here. There was great potential upside because I would be rubbing elbows with people that were closer to the C-suite in this company because they were very interested in understanding this market and building out a product there. And so there’s a lot of upside. But there’s risks too because I’m siloed, I’m working with one manager. This could fail, we could try to build this thing out and it would just not work. It wouldn’t sell, it wouldn’t become a viable product. And then we would have invested basically one or two full-time people developing this thing that didn’t work. So I’m looking at it from the company’s perspective and they could see that as a failure. But for me personally, the calculus was more about what does my longterm career look like if I do this? Understanding that the risks were pretty big, including a lot of times you get put on special projects and the next place that you are is not there anymore.
Marcus: That’s right.
Josh: Right. Because the special project doesn’t work. The company gets angry, they put all this money into it and they say, “You know what? We’re going to shut this down. We don’t have a place for you anymore.” And so I went into it with eyes wide open with that, just understanding this is calculated risk for my career longterm. I think I’ll learn a lot. I get to work with a really smart manager that I have a lot of respect for and that I could learn from. I get to build a new product and a new paradigm and we’ll see what happens. So now, okay, so that’s my decision making. I decided to go for it. I took the shot at it. So was it a success? Well, if we measure it by binary outcomes, I think you would have to say unequivocally no, because I ended up getting laid off like a year later because the company went through layoffs and there was private equity involved and they were trying to make margins better. And obviously if you’re in kind of a special project silo, you’re hurting margins right?
Marcus: Yeah, you’re not core business, right?
Josh: You’re not core business, you’re not contributing to the high margins they want. And in fact you’re kind of a drain, you’re an expense. Okay. And so I end up getting laid off. But for me personally, I think it was still a big success because all the reasons that I had for doing that experiment, for joining that team, building that product for the company paid off later as I actually did build my own SaaS. I understood how that business worked and I went on to become an entrepreneur where I am now, which a lot of what I learned was in that experiment. Also I got hired back to that company later in a different role building a team because I think they saw that I knew what I was doing when I was leading projects and leading people. And so that’s a great example of kind of risk-seeking behavior is the way I would describe that.
Josh: I knew that I was taking a risk. I was okay with the risk because I understood that there were benefits to my career that can be unseen at the time in the short term that may be there longterm. And there was a big possible hockey stick, a big upside up into the right kind of career trajectory in the short-term available as well. So I did that math and I said, “I’m going to work on the special team despite the fact that it could actually be bad for me in the short-term.”
Marcus: Let’s dive into this a little bit because you have mentioned twice now of something, and I wonder if it’s part of the way you think about risk, and that is the long game. The idea that it’s not about like the immediate win or payoff, but you are looking at, “Oh in my career, in my life, these are going to be beneficial. These skills, these experiences working with these people.” So is that one of the guidelines you use for thinking about risk is the timeframe of payoff?
Josh: Yeah, I think it’s definitely one of the criteria. There are a lot of different examples. So this is kind of the opposite of the football example earlier, right? There the timeframe was like minute. And so really the reason you’re taking risk is not for a longterm payoff. It’s for short term variance, increasing, trying to give yourself a chance to win basically in the short term. But then there’s also the long term-
Marcus: The last two seconds.
Josh: Yeah. In the last two seconds, the last minute, whatever it is, where you’re just really pushing. So you’re not thinking, “what is faking this punt or trying this onside kick going to do for my longterm football career or our longterm record?” You’re thinking, “What’s the best chance that I have of winning this game right now? I’m going to do this kind of crazy looking risk taking thing.” On the other hand, there’s a version of risk that I was just talking about where it’s more of a calculated longterm thing where I say, “Well, there are a lot of different outcomes that could occur.” Some of them are kind of obvious and easy, right? The product is a success and I kind of just climb the corporate ladder because I’m a standout superstar because I built this thing internally, right? That’s kind of an easy one to envision.
Josh: But then there are the longer term knock on effects of getting reps and getting experience and understanding how to build products and understanding how to do customer development, understanding how to build SaaS in that particular day and time. And so for there it’s really about, “Well what are the lessons that I could learn that I could reapply later?” And so in the longterm, what you’re thinking is, “How many opportunities will I get to apply the result of the thing that I get, even if the result is not successful career or not.” But in the short term it’s, “I’ll learn this thing and I’ll learn that thing and I’ll see this technology and I will get to try this.”
Josh: And so you think, well with those new things that I learned, those new skills, I’ve got 40 years left in my career to get experience and use leveraging those things. And so therefore the short term risk of maybe I get let go, that’s the worst case outcome for me right there is I get let go. But I was thinking, “That doesn’t matter to me. I think I have a marketable skill set and I’m going to have so many different things that I’ll learn in such a short time in a concentrated burst that maybe I’ll be able to apply those for the next 20 years and understand how to build businesses and things like that.” And that turns out to have paid off.
Marcus: You know, it’s interesting you mentioned your age and how many years you had of working in front of you because I do think that, I mean I think I’m a little older than you. I have more gray hair as I’m looking at you, that’s for sure. But I noticed the older I get about some things, the less I’m comfortable with risk in some areas. And I think there’s kind of like a trend, right? Of somebody who, what do they call it? Short-Timers Disease. If you’ve only got five years to retirement, you’re probably not taking many risks with your career. You’re probably not saying, “Oh sure, I’ll give this thing a try.” Because the, well, failure is so much more impactful. You lose a job at 55. We know it’s going to be hard to find another one. We have ageism in the workplace, but also how many more years do you have to learn to use what you might have gained, those learnings? A couple of years maybe? Certainly not 25 years. I was just curious. Do you notice as you have aged, you have a different temperament towards risk?
Josh: Yes, but it actually kind of goes contra what you just described, because I’ve designed my life this way. Right? And so I think I’m the antidote to what you just described. I think what you just described, somebody who’s 55, they’re looking down the five-year corridor to retirement. They’re thinking, “What can I do to make sure that I do not jeopardize my ability to retire soon?” Especially if you’re in a situation where you have a pension or something like that, right? Or you have just some sort of seniority benefit with your firm that you’re at. It’s really easy to say, “All right, well I’m just going to take my foot off the gas and kind of back up. Because if I take any risks and I get bumped out of this role, I may not be qualified to do anything else. I might be stuck.”
Josh: And so I on the other hand think differently about this, which is I think it’s important to continue to accumulate skills and to learn new things so that you’re not actually that concerned about that. And so a book that I recently read that I really enjoyed mostly because it confirmed my biases but also because I learned a couple things was Antifragile by Nassim Taleb. And basically what that says is that you want to poke and kind of test systems and sometimes harm them in the short term to see how they react to that harm, how they heal themselves and how robust they are in the longterm. And so there are lots of examples he gives, but maybe one of them is like wildfires and how you can prevent these really huge catastrophic wildfire events by doing culling occasionally, doing controlled burns and getting rid of underbrush and stuff that’s really flammable over time so that if a fire does break out, there’s not a whole bunch of kenneling just laying around because nobody’s touched this forest for a long time. Right?
Josh: And that’s a lesson we’re learning now, kind of the hard way, where for a long time the philosophy was, we’re not going to do anything. We’re going to leave these forests alone. We’re going to let them do their natural thing. And then boom, lightning hits a tree and the whole thing goes up instead of small burns over years. And so I think that that’s an antifragile example of the forest is antifragile because you want to do these small burns over time so that if there is a huge catastrophic event that hits it, it’s robust against that. It’s antifragile, it will sustain, it will survive. And so I think you can think this way in your career, which is the 55 year old person that you described who’s five years out of retirement, has not been antifragile.
Josh: They’ve learned one thing. They put all their eggs in that basket. They’ve not been doing these little controlled burns and they’re just hoping that lightning doesn’t strike before they retire, right?
Marcus: That’s a good way to put it.
Josh: Whereas if they had been doing controlled burns and learning a new technology or going to a seminar or trying different experiments and learning different things, maybe they would be able to kind of pick up and move over to a different area of the business and take more risks and continue to pursue interesting things up until retirement rather than saying, “I’m just going to keep doubling and tripling down on this particular skill that I’ve built up and I’m just going to ride out the next five years.” Maybe they’ll survive that. But the better way to do that is to have lots of skills to fall back on, different opportunities so that you can move around if you need to. Right? So that maybe you can extend your career even.
Josh: And so that you can take risks and try experiments even in the sunset years of your career, so that you’re not just sort of sitting back and hoping and praying that something doesn’t come that’s like an outlier catastrophic event that knocks you out of your career before it’s time. So I think you asked about the way I think about things. I think I’m constantly trying things. So I mentioned earlier, I changed careers three years into a career as an electrical engineer at a big DOD firm. I switched, I moved across the country and I worked at a 30 person software startup. Totally different. I mean, couldn’t have been more different. And then later, I got my MBA and I actually left that world and I went to work for like enterprise project management, right? Because I wanted that experience and I wanted to learn how big businesses ran and how the books looked and all that stuff.
Josh: And so these are short term calculated risks that I took where by the way, for the first couple of changes I made, I took a pay cut, which goes against my teaching. But again was built into I’m going to take a little bit less pay because the calculus for me says I will learn so much in this opportunity that’s going to be worth it and I will recoup that over my career.
Marcus: I think there’s a, you’re using some really interesting words and I just, I’m dying to ask you about them. Okay. You’re using math words. You’re using words like “calculated risk,” “calculus,” “probability.” Like, okay, so I’m just going to ask. How do you, and it doesn’t have to be for everybody, but how do you “calculate risk” when you’re considering something?
Josh: So here’s the way that I would start by doing this. So there’s a term “EV,” expected value, that I think is a good term. If you’re listening to this and you hear EV and you know what it is, great. And if you don’t maybe Google it and I’m talking about it as like a game theory and finance term. And so-
Marcus: Can give us a ten second overview because I’m pretty ignorant to be honest.
Josh: So it’s basically what is, if I do this action lots and lots and lots of times, what’s the sort of expected value of the outcome of that action? So actually, back to football, right? So high risk situation. Let’s say that you are in a situation where it’s fourth down and you should definitely punt the ball almost always. There’s math that you can do and I actually wrote a blog post about this like 10 years ago. There’s a famous play where the Patriots were playing the Colts, Bill Belichick had fourth and two, and he went for it and he didn’t get it. And so people looked at him and said, “You’re a terrible coach. You didn’t get forth and two. You went for it.” And so I said, “Well this is interesting to me.” This is kind of early in my game theory career.
Josh: So I actually did the math on it. I looked up the historical like what are the odds of them getting forth and two? If they get it, what are the odds they’re going to score the touchdown they need to win the game here? If they punt it what happens in all the math? And the math was not only in favor of Bill Belichick’s decision to go for it, it was like heavily in favor. It was drastically in favor. And so that’s actually a good example of an EV calculation, which is ultimately what I was doing is what’s the expected point value of going for it on fourth and two and let’s say it was 3.4 points, right?
Josh: If you do all the math and you do all the permutations, when he goes for it, they will score 3.4 more points, the Patriots will, before the end of the game. And when he kicks it away to the Colts or kicks a field goal or whatever, they’ll score 2.8 points for the rest of the game. And so in that situation, the EV is 3.4 points for going for it, 2.8 points for kicking it away. And so now you can compare the expected value of those two decisions and that’s expected value. And you can say, “Well this decision has a higher expected value, therefore I should go for it.” Or at least you could do the math and say there are other kinds of meta factors you can use to decide is EV the guiding principle here?
Josh: But basically what you’re doing is you’re saying, “Let me list out all the outcomes.” Right? And remember we talked about earlier, for example, in my TDSG example with that special group, there were not two outcomes. There wasn’t Josh is good, Josh is bad outcome. There was, well sometimes Josh ends up in the C-suite and five years because he blows the doors off of this thing. There’s Josh ends up unemployed soon. There’s a bunch of middling ones. Josh just kind of does this job for a couple of years and goes back to his normal project manager job. There’s all these different ones. And so you kind of put a value on each one of those. That’s the first thing is what happens if Josh ends up in the C-suite? Huge value if we’re calculating dollars for Josh’s career, right? He’s making C level money five years in, maybe 10 years earlier than he would have.
Josh: Then there’s getting laid off. Well that has an expected value of zero in the long run, right? Like there’s a short-term zero. And you take what are the odds that this thing is going to happen? What are the odds of the C-suite’s going to happen? 1% okay. So the good news is huge upside in terms of salary for Josh. For me, if I get to the C-suite. Unfortunately, it’s only going to happen 1% of the time. So what’s the expected value of that? It’s 1% times C-suite money, right? And so that’s the way you do it. And you just add all those probabilities together. Hopefully you know the probabilities well enough that you can get to 100% right?
Josh: So the EV for like a coin flip, this is an easy one, right? A coin flip, half the time, 50% of the time it’s heads, 50% of the time it’s tales. So if you’re going to wager a dollar on a coin flip, if you wager the dollar on heads, then it’s 50% of the time you’re going to hit heads and you’re going to make a dollar. 50 cents as the EV of that, right? Or it’s actually zero, right? That’s the positive outcome where you lose 50 cents half the time, 50 cents minus 50 cents is zero. So EV is just, what are all the outcomes? What are the chances of each outcome? What’s the value of each outcome? Add them together, assuming that your chances all add up to a hundred percent. That’s more than 10 seconds, but there you go.
Marcus: No, I love it. In fact, the thing that kept going through my mind was for me, and I think there’s like a psychological principle here, but when we start to think about what I might lose, losing what I already have, and I know there’s a psychological principle here, I just can’t remember the name of it. But losing what we already have feels more expensive than gaining something of equal value. So if I were to lose $10, that seems like it would “hurt more” than if I were to gain $10. The math is the same, right? Like expected value. Okay. Like you’ll … but it seems like there’s like a weird principle in me that starts to make me shy away from risks where I lose something.
Marcus: And in your example of like, I’m going to move across country. For me that I love the, I’ll just use your word, the calculus, the consideration. If I had kids, if I had … if my wife was employed, like there’s all these other things that would have of course gone into that calculation. But I definitely find that I sometimes go to a place where I start thinking the worst and I overemphasize how bad the bad will be and I almost underemphasize how good the good will be. And this is actually something I’ve been working on lately for myself is trying to see things along a spectrum rather than the best and the worst.
Josh: Yeah. So the concept you described is loss aversion-
Marcus: That’s it. Right.
Josh: And you are correct. It’s a really common psychological phenomenon. There’s been tons of experiments, but basically if you own something, “own” using that maybe in air quotes, you’re much more loath to give it up. And in fact you would forego more income to keep the thing you already own than the flip side where if you don’t own it, you would not pay that much to acquire it. So like I think a kind of experiment for this is, I want to say it was like a college class. They gave everybody in the college class like coffee mugs and you had your own personal coffee mug. And then so the question was, before they did that, how much would you pay to get this coffee mug with your name on it, right? With Marcus written on it. And I’d pay $4 for that.
Josh: Then they give everybody a coffee mug in a different class, right? And they say, “Now you have your Marcus coffee mug, how much money do I have to give you? How much will you sell it for?” And the answer is not $4, it’s like $10 because I own it already. It’s the same thing. You acquire it either way, right? But to acquire it from scratch, I would only pay $4. But to keep it, I would essentially forego $10. Right? And so that’s loss aversion in a nutshell. And there’s a ton of that with careers. So I think I’m thinking we are so far in the clouds right now with theory. I think an applied point here for people who are listening is when you are considering a decision, consider, force yourself to sit and say, “What are all of the outcomes I should be considering here?” And write them down. Right?
Josh: And so what you’ll find is that normally there are multiple benefits and multiple costs that go into that decision. There are multiple possible outcomes, not just good outcome, bad outcome, which is how we model them in our mind, right? And of course we’re going to skew our decisions towards “good outcomes” and avoid decisions that are “bad.” And a lot of times the bad outcome is losing something that we already have in the short term. So loss of earnings just like you said, right? And so I think unfortunately for people in their careers, this is why a lot of people just kind of hang back and wait for promotions and things to come to them because they have a job right now, they have the job title, they have a salary, and so they’re a little bit nervous about changing careers or trying a new job or even pursuing a promotion at their current job because they don’t want to lose what they already have.
Josh: What if I make my manager angry? What if I ruffle feathers the wrong way? Right? What if I get laid off, what if I move into a role that I’m not comfortable with and I don’t perform as well as I should? And so they’re, but they lump them all together bad and good. And really I think it’s important when you’re thinking about decisions to say, “What are all of the things that could happen if I do this, right? What are all the possible outcomes?” And then the next step is to say, “Okay, well I’ve listed out. There are actually six possible outcomes, not two.” And then to put a value on that. And then you could do the good value by bad evaluation or maybe how good and how bad. Right?
Josh: So of the six, three of them basically are neutral. They kind of don’t matter. They’re the kind of nothing really happens that we forget about. But then there are three of the six, two of them are kind of somewhat bad. And then there’s one like outlier that’s super, super good. And then you weigh them all together and say, “Well actually on balance because of the possibility of the really, really good thing happening and it is likely enough to happen that it matters to me, maybe I should go for this. Even though there are more kind of neutral and bad outcomes, the good outcome that can happen is better for me.” And that’s kind of how I’ve made career decisions so far.
Marcus: I think the words you’re using are also important here. Good and bad because it’s really what’s good in my eyes or what’s bad in my eyes. I know of like, I’ll just tell you, I recently, so I haven’t worked for anybody in about 10 years and that was a point of pride. And about 60 days ago I took a job. There’s a variety of reasons why I decided that was a good idea. And about three days ago I left that job. So I was employed about 59 days and I am almost 50 years old. And so to an outsider they would say, “That was a bad choice. You are crazy. You’re 50 years old and you’re leaving this stability, this good …”
Marcus: So their version of good was very clear. My version of good was I only have about 15 to 20 years left and I want to make a particular mark on the world. So therefore I’m thinking time is short, I’ve got to get to work. So that was my version of good. So I don’t think if you’re sitting here thinking that Josh and I have the idea of like what is good and bad for you, we don’t. The spectrum though is your good and bad outcomes.
Josh: Yeah. I think, I mean, first of all, I didn’t know about your foray into the working world for 60 days. That’s really interesting. But I love it. I think you’re right that it’s very subjective. You know, we’re not talking about empirically good or empirically bad. We’re talking about subjectively good or subjectively bad or maybe preferred and unpreferred. I think maybe good and bad might even be bad words. But what’s my preference for this outcome? Strongly prefer, mildly prefer, don’t care, strongly do not prefer, strongly averse to, right? And maybe that’s a way to do it is not that it’s a good outcome or a bad outcome, but it’s what I want to happen or what I would prefer to happen versus what I would not prefer to happen. I love your experiment. So I’ll give you an example from my own life this year. And this is the business running side of things, but where I did this math and took a risk.
Josh: So I have given examples. We’ve talked about examples where things worked out well. This one didn’t work out well on paper, but in the longterm it’s going to be very good for me. So my primary business is coaching experienced software developers who get job offers from big tech companies. And that’s going to be I think 70 or 80% of my revenue this year for my business. Right? And so I say that number because it’s important to understand that this experiment that I’m going to describe was not like an experiment on like a side hustle. It was an experiment on my core business, my living, right? My ability to make a living. And so I was looking at first of all, earlier this year in like April, I changed my pricing structure totally from a fixed fee upfront tiered pricing to there’s a smaller much smaller fixed fee upfront and then a result fee that’s based on how well we do in the negotiation.
Josh: So there’s a fee to work with me, the service fee and there’s a result fee, which is how well did we do, and that way I get a little bit of, I get 10% of the first year improvement. My clients keep 90% of the first year improvement and 100% of everything after that. So business was going really well, and I had just tried this new pricing model, it was going really well. I was booking lots of clients and so I said, “Well I actually have too many applications coming in right now.” And so having studied economics, the obvious thing to do is to raise my price, right? Or there are other ways to kind of constrain that. But the easiest one is to just raise price and reduce demand. So I know that by raising the price for my service, I should reduce demand by a little bit.
Josh: And that’s okay because I’m too busy. So I said, “All right.” So I raised my price a lot by, this is the mistake that I made by the way. It’s a spoiler. This is a mistake, but I raised it by 33%, so from 3,000 up front to 4,000 up front. And I assumed there would be like a nice flat kind of supply and demand curve, an equilibrium point. But in my head I’m doing this, so I’m not doing some paper. But I’m going to get less business, it’s fine because each business person that I bring in will be more valuable.
Marcus: Worth a little bit more.
Josh: Yeah. So no problem. Well what actually … So I did the math on this and I knew I was taking a risk. Again, this is my livelihood. This is not like some side hustle. It’s not theoretical. This is how I make a living. This is where almost all of my revenue comes from. I’m going to change the price and I’m going to make a drastic change and see what happens. And so I went in knowing this is an experiment that I’m making. There are a lot of outcomes here. Most of the outcomes are like middling outcomes where I get a little less business, but I get a little more revenue so I actually make more money.
Josh: I get a little less business, maybe a little less revenue that enough that it hurts revenue in the net and all that kind of stuff. And then there’s like outliers, like business booms, that are weird outcomes where like the higher price sends a signal that draws in like higher value customers who are more interested in working with me and they work harder to work with me and that kind of thing. Right. One of the outcomes was business goes to zero. And that’s the outcome that happened.
Marcus: Oh my gosh.
Josh: So I actually didn’t book a client for like 10 weeks. Yeah. Which is like a long time for me. And it was an interesting game that I played because I had to wait it out. I raised the price, I continue getting applications but cannot close my clients anymore. Right? And so the reason I’m telling you the story is one, that I eventually reduced my price back. But what I did was I paid very close attention to what was going on. I looked over my emails. I looked at my notes from calls where I was pitching clients on my service and talking to them. And what I realized was I raised my price, which I think was still the right decision to make even though business went to zero.
Josh: But I did not change my pitch to reflect the higher price. And that was the mistake that I made. But I could never have figured that out if I hadn’t tried this experiment. So what I understood was the way that I was describing my service to prospects at the lower price point was sufficient to close that deal with those prospects to convince them that working with me is the right thing for them. When I raised the price, that new price sent different signals and brought in different kinds of people. And the same pitch that I used the same way I described my service offering and what we would do, didn’t work at the higher price point. I’m almost positive that’s why business went to zero. And so then I lowered my price to confirm that yes, I can still book at the lower price. That’s true. Business picked right back up. Right.
Josh: I’m pretty busy right now but now I’ve started using a different pitch. I’m pitching differently and it’s working a lot better. And so I think that now I’ll be able to try again to raise my price with the new pitch and I think I will close a lot more business. And so the point is that I took a risk that I knew that there was a small chance that business would go to zero. I had money in the bank and I was willing to take that risk. But I did it with, I think most people just would not be willing to swallow the risk involved here where you could go to zero and in fact I felt the pain of 10 weeks of no new revenue on coaching, but I learned so much from it that I’m confident this year is still going to be a great year.
Josh: I think next year is going to be a much better year because I understand better how to control pricing to throttle demand, but also how to pitch my services at the higher price point so it’s more appealing to people. And I could not have learned those lessons, and I couldn’t look at 2020 and say, “I think this is going to be a really big year for me coaching wise,” if I hadn’t been willing to take that risk earlier this year.
Marcus: Oh, congratulations. Yeah, that was the point that like you connecting the dots there, it would have been easy to stop and say, “I guess the market, whatever that concept is, the market won’t support $4,000.” But of course whenever we lump a whole bunch of people together, we’re bound to get it wrong. And what you did is you said, “Ah, I am essentially like trying to sell a Mercedes by talking about how good the fuel efficiency is.” And the reality is that when you buy a Kia, people are really like, “Oh, fuel efficiency. This is a great car.” But I don’t think I’ve ever seen an Audi talk about how great, how many miles per gallon you’re going to get. That’s not the big selling point.
Josh: No. Gosh, I got to tell you Marcus, I’m impressed because I did not tell you that’s what I changed about my pitch. But you nailed it. It was basically that analogy couldn’t be any better.
Marcus: Oh my gosh.
Josh: Which is I was describing kind of the nuts and bolts of how it worked. Right. And so I was describing stats or process, we’ll do this, we’ll send this email. I would describe what it is like an engagement with me. Whereas at the higher end, the Mercedes end, you don’t describe fuel efficiency, you don’t describe horsepower, you describe how you’ll feel, what the outcome will look like, how your life will be different when you’re driving a Mercedes. And that was what I did, was I realized that they just wanted reassurance that working with me was the right thing for them and their career. And they would get the best outcome possible. They didn’t care how we did it. That’s not, they just don’t care.
Josh: At the lower end of the price, people do care about that stuff. They want to know, what am I getting for this, right? What are the features in this Honda or this Kia? They don’t care about how they’re going to feel and stuff. They want to know that they’re getting, they’re going to check enough feature boxes to justify that price at the lower end. Get to the higher end, they don’t care about the feature boxes anymore. They assume that’s all baked in and it’s good to go based on what they know about the brand and that kind of thing. What they want to know is, “Is this going to solve my problem? Is my life going to be better as a result of this? Am I going to feel good about having bought this product? Will it get me where I want to go?” Not, “What are the specs and features?” And so that was exactly the pivot that I had to make in terms of the way that I positioned my offering and the way that I described it in my intro calls with people.
Marcus: I love it. Yeah. In fact, a friend of mine has a very nice Audi and I remember sitting in it for the first time and it didn’t have very good usability on the cup holders. And I was like, “Where do I put my coffee?” And he’s like, “Well when you’re here in this car, your coffee is less important than all the other things.” And he just took it for granted. Like the designer of the car knew best and it wasn’t about what, I, the passenger really wanted. Like that was a utilitarian view. It was about like, “No, no, you’ve got to adapt to the art that you’re now riding in because the artist really understands it.”
Josh: Yeah. I mean that’s a great example of just a different, it’s a different way of thinking about the thing that you own. I have a friend who owns a super fancy luxury car. It’s an Aston Martin, and it’s the same kind of thing. Like I’ve driven it, it’s fine. He likes it a lot. But for me, I’d rather just drive my car, which is worth 10% of his car or something like that. But like it’s more comfortable. The brakes feel better to me. Like everything feels better. It’s nice to get in the Aston Martin and punch the gas and feel it go. But he didn’t buy it because it’s comfortable to sit in. He bought it because of other reasons that it goes really fast and the way that people react when they see it. Like I don’t think it’s an egotistical thing. I think he genuinely enjoys people going, “Whoa.”
Josh: Like you’ll see people do a double-take. We’ll pull up in a Cracker Barrel parking lot and people will be taking pictures of it, you know what I mean? He bought it for that. The kind of like weird wow factor that comes from it. And it’s a different reason to buy a car. There are different reasons to buy those things. But you can’t get there and understand those-So we understand that now looking back. Right. But you can’t get there as Aston Martin or Audi. You can’t understand how to position it without trying stuff out. Right. Like they tried hundreds of marketing campaigns and they realized, you know we’re getting more people in the door when we talk about the wind in your hair and how you’ll feel and the life that you’ll live if you’re driving an Audi and we get fewer people in the door if we talk about fuel efficiency and specs and stuff like that and cup holders.
Marcus: If you’re with Aston Martin and you’re listening, I think we should give them permission to use in their new campaign, be the most popular guy at the Cracker Barrel.
Josh: That’s right. I’m sure in the UK that’s exactly what they’re hoping for. They’re looking at Cracker Barrel and they’re like, “Man, if we could just have everybody who goes to a Cracker Barrel in an Aston Martin become a celebrity, we’re going to be rich.”
Marcus: We’re going to be rich. Josh, this has been a lot of fun. Where can people find you online and engage with your work?
Josh: So to find me directly, the easiest place to find me is on Twitter. I’m @JoshDoody on Twitter. I’m pretty active there, especially responding to people. If you mention me or if you have a question, that’s an easy way to ping me. My website is fearlesssalarynegotiation.com. If you’re thinking of career changes or negotiating or interviewing and that kind of thing, Fearless Salary Negotiation has everything for you. And then the coaching offering that I described earlier, if you’re curious to see how I’m positioning it today because it could be different by the time this podcast comes out. Fearlesssalarynegotiation.com/coach is where I described that offering. So you can kind of see what I’m doing there and how I’m pricing and positioning it and that sort of thing.
Marcus: I love it. And you know, we’re going to go ahead and include a link to the SoftwareEngineering Radio podcast that Josh and I recorded that has a whole bunch of brilliant tips on negotiating salary from both sides of the table as I recall, super popular episode. We’ll include that in the show notes. Josh, thank you so much for being on the show.
Josh: Thanks for having me Marcus. This was a lot of fun.
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