In this article, we look at the meaning of scalable and non-scalable professions and careers – scalable vs. non-scalable. What you choose might have a significant impact on your life.
The word scalable is in Merriam-Webster defined like this:
The media loves a good story of someone who has disrupted an industry or made a fortune doing something unique. An article in the Boston Globe caught my interest because of two reasons:
- It’s the story of someone who has become wealthy through a scalable profession/business.
- Most people who chose a scalable career end up with nothing: “Dubin was 33 years old. He was unsuccessful — well, failed — entrepreneur.”
We see the winners but ignore the losers
We tend to ignore or forget survivorship bias: we see the winners, not the losers, and as the scale increases, so does the survivorship bias. We forget that the results of certain professions are pretty binary: you either become very rich (and/or famous), or you end up with nothing (literally).
Opposite, you rarely read about the dentist or lawyer making 500 000 a year with minimal variation and randomness. A dentist can only work a certain number of hours or charge a certain amount per hour, thus making his income non-scalable. This could be the red line in the graph.
Be safe – choose a non-scalable career
A scalable business or career is the opposite of a dentist: The potential reward is exponential. Nevertheless, you most likely end up unsuccessful, but on rare occasions, you end up extremely successful.
A scalable income can take the form of the black line in the graph (exponential). Being an entrepreneur is a highly scalable career. Most entrepreneurs end up returning to employment.
Nassim Nicholas Taleb recommends not entering a scalable profession/business, contrary to many career consultants’ advice. Scalable professions are only good if you are successful, and results are predominantly random. This is the exact quote from The Black Swan:
A scalable profession is good only if you are successful; they are more competitive, produce monstrous inequalities, and are far more random with huge disparities between efforts and rewards — a few can take a large share of the pie, leaving others out entirely at no fault of their own.
One category of profession is driven by the mediocre, the average, and the middle-of-the-road. In it, the mediocre is collectively consequential. The other has either giants or dwarves — more precisely, a very small number of giants and a huge number of dwarves.
Writing fiction or being an entrepreneur are examples of scalable professions. Writing a novel takes the same time if you sell 500 or 5 million copies. Being an entrepreneur means hard work from morning until evening with unpredictable outcomes.
Investing vs. trading
Investing, short-term trading, and day trading are somewhat scalable businesses, but to different degrees:
- Investing in real estate and marketable securities with a long-term horizon is the least scalable. It has a high probability of success if you are careful and avoid grave mistakes (to use a phrase from above: like dentistry). No exceptional intelligence is needed (more wisdom), and you can be pretty mediocre and still end up very wealthy if you take the time required to let the capital compound. You can, for example, invest in “proven” businesses, not risky, unproven business models. Warren Buffett has been very successful with this strategy. You can do a much simpler approach, though: invest in passive mutual funds that track an index, and most likely, you will make an exponential return if you’re patient and make time work for you. You will most likely not end up filthy rich but moderately wealthy.
- Short-term trading is somewhat scalable. Some traders are very successful, but most traders fail. The markets can absorb a lot of liquidity. Thus, successful traders can redeploy earnings and multiply the capital in a short period of time. Short-term trading involves a high degree of failure. The traders in Jack Schwager’s Market Wizards are perfect examples of survivorship bias: Schwager doesn’t interview the failed traders, and they become “invisible”.
- Day trading is the most scalable business where just a few winners take all the profits. Ruin is very likely and most risk wasting their time. Very few traders maintain profitability over a period of longer than five years, but if successful, they can scale their business over a wide range of markets and products while multiplying their capital fast (while preying on the many unsuccessful).
Taleb’s recommendation makes a lot of sense: look for a profession with a high probability of high income, and save and invest long-term in stocks and/or real estate. The odds are pretty good that you will end up with f***-off money after 2-4 decades.
– Why are scalable professions often described as having extreme outcomes?
Scalable professions can lead to extreme results because they offer the potential for exponential rewards. While some individuals achieve great success, most who choose such careers end up unsuccessful.
– Who recommends against entering scalable professions or businesses, and what is the reasoning behind this recommendation?
Nassim Nicholas Taleb advises against entering scalable professions because they tend to be highly competitive, produce vast inequalities, and yield unpredictable outcomes. He suggests that scalable careers are only beneficial if you are successful, which is often determined by randomness.
– How does the scalability of different types of trading (investing, short-term trading, and day trading) compare?
Long-term investing in real estate and marketable securities is considered the least scalable but offers a high probability of success if approached carefully. Short-term trading is somewhat scalable, but most traders fail. Day trading is the most scalable, with the possibility of high profits, but it is also associated with a high risk of ruin.