YISHAN LIN
林乙善

Optionality, Side Projects, And Regression to the Mean

Since starting full-time in SF, I’ve noticed a cyclical path that seems to be the track of choice for young people in tech. Start a new job, become unhappy after the honeymoon period ends, begin a job search, interview/secure multiple offers, and then jump ship. Rinse, repeat.

In a place like Silicon Valley, this turnover is so frequent and common that:

· One year at a company is “normal”

· Two years is “impressive”

· Three years is “forever”

While people leave companies for many reasons, in my experience, it fundamentally stems from one or more of these 3:

· Compensation

· Management

· Environment

The larger the company, the easier it is for one to find and join tribes of coworker that share their dissatisfaction and unhappiness. Admission and membership is easy to come by and usually takes place over Slack, Signal or Messenger at work. After work, most likely at a bar a few blocks away.

The more time one spends in these tribes, the deeper the engagement, and the greater emotional volatility one can feel while at work, ranging from “this sucks”on certain days to “I gotta get outta here”on others. It’s like Fight Club. Everyone knows the first rule and you may feel the most alive at work while in it. When one announces to the tribe that they’ve begun interviewing and looking at opportunities elsewhere, the tribe becomes positive and encouraging. “Good for you! X is a great place, you’ll get to work on A, B, C. Glassdoor says base there is $10-15K higher, so you know it’s going to be great!” Repeat for every company they get a callback from.

Almost instantly, one begins projecting their hopes, desires, dreams, and emotional weight into the companies they’re interviewing at. “Just finished the onsite, the people there are brilliant, sharp, the CEO is driven, and they’re working on really interesting problems.” In SF, it’s common to hear people talk about getting into Netflix or Facebook as their endgame. Sexy products, blue chip stocks, prestige (substantial bump in signaling), and above-market salaries –how could it not be the endgame?

I bring up this as an example that even if one is happy at their current company and sees their work now as a necessary stepping stone to one day working at a Facebook, Netflix, Google –it’s fundamentally the same thing. It’s the projection of hopes, emotion, and dreams into one specific company and job. It’s the idea that by simply working there, your life will be better. And the unhappier one feels now in their current gig, the more critical they tend to believe this endgame to be.

Unhappy at current job => start interviewing => collect offers/options => choose one => join company with optimism => honeymoon phase ends 1-2 years in

The reality is that this path is madness. It’s cyclical, never ends, and is fueled by irrationality. It’s impossible that your next job or the long-term one you’re aspiring to will be free of all the things that make you unhappy, unfulfilled, unsatisfied at your current gig. Inevitably, by your own curiosity or natural word-of-mouth, you’ll start learning what other people make. And through selection and confirmation bias, you’ll conclude that you’re not getting paid as highly as you think you should and that it’s time to move on.

The cycle is at its strongest in your 20’s-30’s. As you get older, it naturally cools down. Job switches become less frequent and your average tenure/company increases as the exhaustion of this cycle sets in (burnout), obligations increase (mortgage, partner, family), and your built-up pain tolerance enables you to accept situations at work that may have bothered you when you were younger.

Often times, you hear about the success stories –folks that achieved substantial payoffs following this track, which seem to reinforce that this path is the one to be on. The success stories are almost always the same. Early engineers at a Spotify, Dropbox, Airbnb who stayed long enough to vest and post-IPOs, are now living it up.

Theoretically, all one has to do on this path is to simply work at the “right”early-stage startup. But like thousands of wooden boats in a storm, there’s no way to know which is the one to be on. With a payoff potential so large and the likelihood so small, this outcome is like the alpha in finance. It’s the above-average returns that everyone chases, but few obtain.

In a way, one could say this cyclical job-switching track is not madness, but rather low-risk portfolio diversification. Make as many 1-3 year bets throughout your career as you can. And most people on this path seem to believe they’re right around the corner. That next job, that next opportunity, that next company, will bring me one step closer to happiness and these potentially higher yields.

I should clarify that it is not a bad thing to want these above-average returns. Whether you want them so you can retire early, travel the world open a coffee shop, or do what you really want to do –we can’t escape the reality of risk and reward. Low risk = low rewards. High risk = high rewards. If one is looking to optimize for these above-average returns, then this cyclical path of job-switching and the intrinsic, emotional rollercoaster that comes with it is probably notthe best way to go.

What’s interesting to me is how most I’ve met are so unwilling to commit to the high-risk (do a startup) path without safety nets provided (funding) –to the point that most never even try. There are talented, ambitious, and bright young people everywhere. Technically, these are the folks that are best equipped and most capable to succeed along this path. In a job market where there’s a surplus of jobs to talent, where 20-year-olds can make six figures upon graduation, and attempting a startup is always reflected positively - this unwillingness to even try has long confused me.

I must stress that I’m not suggesting that everyone go do startups and risk it all. My point is that if one really wants these above-average returns, you should be willing to try it at least once, for either a few months or one year –not simply follow the herd along the same cyclical path with hopes of winning the lottery.

Most are extremely happy to take the cyclical, low-risk path. And while some might say they only intend to be on this track for a few years, I’ve seen too many cases where eventually time makes the decisions for you. Regardless of where you end up, you become like everyone else –live for weekends, performance reviews, and Game of Thrones.

Here, we get into the wonderful concept of optionality.

“Optionality is the state of enjoying possibilities without being on the hook to do anything.

For new graduates, working at a consulting firm creates optionality because of the broad exposures (to industries and companies) and skills these firms purportedly develop. Going to graduate school creates optionality by enabling more opportunities than a narrow professional trajectory can provide. Working at prestigious firms and developing social networks are similarly viewed as enabling more choices and more optionality. And of course, the more optionality, the better.

This emphasis on creating optionality can backfire in surprising ways. Instead of enabling young people to take on risks and make choices, acquiring options becomes habitual. You can never create enough option value—and the longer you spend acquiring options, the harder it is to stop.

This individual has merely acquired stamps of approval and has acquired safety net upon safety net. These safety nets don’t end up enabling big risk-taking—individuals just become habitual acquirers of safety nets.

The comfort of a high-paying job at a prestigious firm surrounded by smart people is simply too much to give up. When that happens, the dreams that those options were meant to enable slowly recede into the background.”

It’s hard to give up optionality. It’s especially hard if you had a tracked upbringing (personal experience). Optionality feels good, safe, comforting. Optionality is why I haven’t asked the cute girl at Mission Cliffs. The optionality I’ve passively acquired in the dating market from being on Tinder and CMB gives me refuge. Optionality is why I still interviewed at multiple places in senior year, despite a generous conversion offer from the company I interned at. The feeling every time I acquired another option was wonderful – even if it was an opportunity I wasn’t all that interested in.

Charlie Munger once said that mimicking the herd is regression to the mean. To me, this low-risk cyclical path is regression to the mean. In terms of earnings, it’s regression to the local mean. In all matters self, it’s regression to the global mean. *

In recent years, people seem to have realized the former more so than the latter. In the cyclical job-switching path, you’re trying to achieve alpha through work – hoping that one or two of the companies you’ve worked at will have a lucrative exit. Having realized that achieving alpha through work alone is now actually harder than ever, people are now trying to generate it outside of work using the same low-risk, diversification approach with “side projects”.

The term “side projects” is interesting. It’s so broad that it can mean so many things (an idea you’re trying out, a paper you’re writing, a framework you’re researching, a blog you’re starting, an app you’re hacking). Calling it a “side project” also gives one an easy way out, as the term implies it’s something that’s small in scope, short-term, not-intensive, and non-committal – making it safe to openly talk about at work.

The prevailing goal that many people have for their side projects seems to resolve around passive income, a trend fueled by shilling from Indiehackers and PH. Build something that’s low-maintenance, low-effort, and can generate some money every month, like an email newsletter or a niche job/post board. If it’s not working, kill it. Move on something else. Thus, it’s very common practice to work on multiple side projects, see which one gets the most traction, drop the rest, and commit to that one.

The dynamic between a person and their side project is quite interesting as well. The person is constantly gauging the side project at every step, trying to make sure they’re not overcommitting. (“Is this worth my time?”) The side project must constantly justify its existence and worth to its creator. If it’s too high maintenance, kill it. If development is getting too complicated, kill it. If it’s not growing within a week, kill it.

Having looked to many people’s side projects, I am often struck at how lazy most of them are. Amassing subscribers for an email newsletter. Affiliate marketing - shit out a bunch of static sites, copy and paste the text, and shove in keywords for SEO. It’s not uncommon for the people behind the side projects to admit they’re not really interested in what they’re building – only in the money it generates.

Affiliate marketing and email newsletter, my two prior examples, can certainly be lucrative if done well. But if you’re shipping hacky, self-serve side projects without insight/conviction every weekend and hoping that some eventually pay off (generate alpha), you might as well go buy lottery tickets. The way people are going about side projects these days is fundamentally the same approach as the cyclical job-switching path. It’s low-risk diversification, albeit at a greater scope. Try something out in a short period of time, if it doesn’t work out, move on. The only difference is with jobs, you can only work at one company at a time. With side projects (in the form of software), you can work on many at a time.

People often justify doing these types of side projects for learning. They get to pick up a new framework, concept, or language in the process. Learning is great. But if one’s objective for these hacky side projects is to achieve alpha, this approach is sure to be regression to the mean. With so many people working on side projects, chasing after the same alpha, using the same approach, it is worthwhile to question just how productive can this approach still be? How much any alpha can be generated from doing the same thing that everyone else is? *

*I think this question applies to a lot of things in SF. When you go to the same gyms, drink the same beverages, hang out at the same parks, take photos of the same stuff, complain about the same things, wear the same backpacks, buy the same shoes, talk about the same things, applying to the same accelerators – all this social capital you’re “reaping”, is it the high-yield you perceive it to be or just regression to the mean?