Dissecting Career Optionality

I'd make a terrible consultant. I'd also hate being one. This should have been clear to me at least 6-8 years ago. But a couple of years ago, while in business school, I found myself applying to consulting internships (just in case?). Some of this is just what business school does to awaken mimetic desire in anyone mildly neurotypical. But some of it is that consulting firms have done a good job of selling people on "optionality". But once you try to unpack the concept of optionality and how it maps on to careers, the allure of many such “high optionality” paths seems at the very least less obvious.

When people talk about career optionality, they're usually referring to one of two things:

• Preserving future choices - keeping doors open without committing to a specific path. This is the "I'll go into consulting to keep my options open" argument.

• Creating new possibilities - gaining access to paths that weren't previously available. "An MBA will open new doors" or "I should go to a coding bootcamp"

One way to get clarity on optionality is to try to understand the specifics features of career choices that map on to key parameters of financial options i.e cost, strike price and expiration date.

The Cost: What You Give Up

In any job, in addition to wealth/money/financial capital, you also acquire some combination of skills, knowledge and social capital/connections. This combination will impact what you can do in the future and how well. At the limit, if someone pays you to just open and close a door all day, you'll acquire virtually no skills, knowledge or connections. In other words, your job hasn't enabled you to do anything you couldn't do before you started it.

However, most white collar jobs/knowledge work, in addition to making you better at that specific job, will place you well for a handful of other jobs - perhaps a more senior job at the same company, or a similar function in an adjacent industry or a totally different role that utilizes the same underlying skills.

But everything that you do with your time also closes out many paths. At birth, there is some finite but large number of careers someone with your (innate) IQ and other pre-dispositions can pursue. The passage of time itself reduces optionality, whether you make deliberate choices or not. At some point very early in my life, I made it impossible for future me to become an astronaut or a philosopher and many other such things. But the specific choices you make can offset more or less of that optionality loss. For example, getting a college degree opens up quite a few career paths that would have otherwise remained closed to you. But any specific major you choose will also close out a number of paths that were only possible if you chose some other major/s.

The cost of “buying optionality” in your career is the present value of the best alternative path you could have taken. If you don't join a consulting firm, perhaps you'd have started a company or joined an early-stage venture. It would be mistake, though, to consider only the legible or immediate opportunity costs. For example, the entrepreneurial path will likely set you off you on a different trajectory. In that world, three years from now, you will be a different person, with different skills, experiences, social capital, not just someone earning a different salary. This means you’ll face a different distribution of future paths and outcomes. If you’re young, this will likely swamp any near-term salary differential. But since differences in skills, experiences and social capital differences are hard to quantify, it's tempting to round that cost to zero or only consider the salary.

For example, even if your venture fails, the social capital you acquire will be qualitatively different from that in consulting. You'll probably have more access to co-founders and VCs such that it increases the odds of your next startup. It'll probably also increase the likelihood that you get roped into a new early-stage venture and you'll have a much finer nose for the types of startups and founders worth working for. As

Erik Torenberg

writes in his piece on career optionality:

The average ambitious person spends too much time accumulating optionality and too little time taking actual risks with high upside potential for themselves or the world. People often pursue optionality because they perceive that going after something big like, say, starting a company, is financially and socially risky. However, the bigger risk is not that you fail, it's that you don't get enough actual shots on goal to do something amazing.

Strike Price: Will You (want to) Exercise?

There are certain paths that are equated with high optionality. Consulting is one such path. So is investment banking, and perhaps product management. But we need to disentangle optionality from other concepts that are used interchangeably, sometimes erroneously.

Take consulting. Is it consulting that "has high option value" or working at Bain and Company? Presumably, if you worked at your uncle's consulting firm that no one has heard of, you wouldn’t feel you’ve acquired anywhere near the same level of optionality. A large part of why Bain (and other well-known consulting firms) opens many doors is the fact that it's notoriously difficult to get hired there, and everyone knows exactly how difficult it is.

They also know that Bain trains its employees well and if you've spent 3 years there, you reliably have skills x, y and z. Corporations can now hire you to do business development or strategy because they know you reliably have the cognitive ability and meta-skills to learn fast and be a good generalist. The reliability mostly comes from common knowledge of selection odds, but the mix of skills is not irrelevant. If Bain were just as prestigious a carpentry apprenticeship, it wouldn't be considered high optionality by the same people.

The payoff from a career option (unlike with financial options) is highly person-specific. For most people, consulting opens doors to a few different types of roles in corporations (and PE funds/growth stage startups) - most commonly business development, corporate strategy, product management, etc., basically, functions that don't require specific creative, technical, or academic prerequisites. But if you have a PhD in biomedical science or were previously an artist, consulting can not only serve as a crash course in business but also help you combine your existing skillset with commercial acumen. I wouldn't call this optionality for the sake of optionality though, since you're actively making a decision to acquire a new skill and go down a more commercially oriented path.

However, there are still many things that sound business-y that consulting doesn’t help you get closer to. You won't be well qualified to trade options at a hedge fund as your next gig or be the CTO of a startup. Still, if you count up the distinct positions on a job board that consulting makes you a competitive candidate for, that number will probably be higher than quite a few other things you could have done.

But this is a strange metric to try and maximize. Wouldn't you rather have two options that are likely to be good fits for you than seven options that you feel lukewarm about? The relevant question is whether consulting or any other path will allow you to do things you really want to do or are likely to want to do. So if working at a private equity firm or doing business development at a corporate doesn't excite you, it's worth asking what the real value of the option is - for you.

I'd guess that a significant proportion of aspiring consultants would read this and mutter under their breath "Well, don't you get it? I don't know what I want to do". What people mean by this is that they don't feel a strong pull towards any one specific job. They are numerate, can communicate well and enjoy general problem solving. They feel like a resource waiting and begging to be used productively.

I've felt this way for a large part of my career.

If you feel this way, you should consider the possibility that you will similarly feel lukewarm about all the exit options from consulting (or whatever option enhancing path you're considering) a few years down the line. "So what?", some might ask. "In the meantime, I've made good money". That's fine, if consulting in and of itself seems like a good deal to you - ie - the salary justifies the effort and lifestyle implications. Otherwise, you're making a decision without meaning to make a decision. Now, one could perhaps make the argument that through consulting, you’d get information on whether any of these “exit opportunities” seem exciting to you. I generally disagree, because people seem to conflate variance in exposure to industries/content with variance in functional duties and responsibilities (I tend to think the latter is a more reliable predictor of future success and job satisfaction)

Expiration Date: Optionality Decays

Optionality decays. To preserve option value, you have to keep rolling over your options. In our current example, that probably means staying in consulting. Once you exit to go be a product manager, you won’t be greeted with enthusiasm in three years when you apply for entry level corporate strategy roles. Similarly, going to business school opens up career options (but less than you think) upon graduation but once you pick a path, the fact that you've gone to business school won't allow you to seamlessly switch into another path that was previously available to you.

If you spend two years after your MBA (high optionality choice) doing something unconventional like I did - say, working at a think tank or a non-profit - it won’t be a breeze to walk into the paths that were open to you just a couple of years ago. (You can read my essay on the expected value of an MBA) The market will look at your choices and make inferences not just about your skills, but about your preferences and priorities. You're not just someone who wanted optionality - you're someone who used that optionality to do something specific, and that choice becomes part of your story.

There's another subtle but important point about pursuing high-optionality paths: you can't escape the fact that you've signaled a preference for optionality itself. When someone chooses to work at McKinsey, they're not just acquiring skills and credentials - they're also signaling something about their risk preferences and decision-making style. If you're looking to hire a startup's first business development hire or searching for a co-founder, a McKinsey consultant might actually be a negative signal, regardless of their skills. It suggests someone who, when faced with career uncertainty, chose the path that preserved the most options rather than betting on a specific direction.

Alternatives to Buying Optionality

Everyone buying optionality is doing so because they don't know what they want to do, and it's a safe way to operate without trying to get full clarity on that. But this safety comes at a cost - you'll have to work much harder to get ahead because you haven't identified your comparative advantage and are forced to compete on a job description that isn’t tailored to your strengths or weaknesses.

What you want instead is to find something you're much better at than other people (and of value) and hit that lever hard. Sure, you could be the very best consultant. But unless you have reason to believe you are, you'd be spending a lot more energy competing in a crowded lane with everyone else who is undecided, but without gaining much additional information.

So how does one discover their comparative advantage? One option is hypothesis testing - continually pursuing paths with high value of information until you’re ready to double down on something. For each specific and distinct option that you try, you gain information not just on whether that specific path is right for you, but also on the underlying dimensions that make it so. The trick is to test options that are mutually dissimilar but within the realm of what you could conceivably excel at, tactics of which i’ll discuss in a forthcoming post.

When I advocated for this strategy of hypothesis testing in a talk, I received some pushback that I have fair bit of sympathy for - optics. I'll admit - hopping from one functional path to another is a “negative” on your resume and i wouldn’t feel comfortable giving a mid-career professional this advice. But it's fair to ask - negative to what end? For any specific career path, a resume that doesn't reflect prior commitment to that specific path will do worse than one that does. But given one's lack of conviction regarding most such paths, perhaps the resume hit is worth taking? Moreover, having one credible signal (eg. ivy league education) on your resume and the ability to clearly communicate the rationale for your pivots can ameliorate some of these concerns.

The optionality you preserve should be tailored to what you actually want. There's no point in preserving the broadest form of optionality forever. This is separate from doing something because you need to have some credible signal on your resume. That is something I’m willing to endorse for most people (as long as its diminishing returns are acknowledged). But beyond that, optionality is rarely as broad as you think, has significant opportunity costs and comes with an expiration date.