Analyze Yourself As A Company. Do You Have A Wide Moat? (1)

By Alfaris88 (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons

All Time Sleeping Average: (Target) 7h30m / day (Actual) 7h33m / day (152 night average)

3 Day Sleeping Average: (Target) 7+h / day (Actual) 7h10m / day (8h23m, 7h54m, 5h14m)

A close friend of mine got laid off recently. He was the top performer in his batch, but the company was dumb enough to lay him off because he ended up in the wrong department for his rotation when the restructuring happened.

It makes me cautious. Even if you are killing it at work, the probability of you getting laid off / fired is always there, even if it is minimal. And you should always prepare for such black swan events.

I think the first thing that needs to be considered for preparing for black swan events is financial health. Just like a company, the only way you can go bankrupt is if you have not only debt, enough debt that costs you more than you can earn, but also seeing your cash reserves being dried up.

So the two ways to prevent bankruptcy from happening is to have minimal to no debt, and to have enough cash reserves for unexpected turn of events. If you have minimal to no debt and a shit-ton of cash, that gives you bargaining power to wait until you can make the decisions that make sense the most in the long term. And that makes your personal moat wide.

Then you have to consider your sources of income.

If your main source of income is your job, you have to ask yourself what you can offer in the market and how much people are willing to pay for it. The bigger the competition, the less you can expect to get paid, and the more risky your job becomes.

And you also have to think about your value proposition strategy in general. If you follow the 4Ps of Marketing (Price, Place, Promotion and Product), you have to consider if your salary (Price) is competitive enough versus competition (the higher the salary, the higher the chance of being laid off if you can’t justify it); you have to consider if your geographical mobility (Place) is competitive enough versus competition (you might just get that promotion for being willing to relocate when others aren’t); you need to evaluate if your network, your social presence (eg. LinkedIn) and your job hunting skills (cover letter, resume, interview, aptitude tests, assessment centers) are good enough to get you noticed and hired (Promotion); and last but not least, you need to understand where your skill sets compared versus the competition in your grade, and whether an upgrade in skill sets or a mix-over of multiple skill sets can allow you to offer better value for money output than the competition (Product).

So in general, the wider the gap between how much you cost (salary) and how much value you bring to your company (profit), the safer your job becomes. And if you can consistently keep that gap wide or wider, then that makes your moat wider too by building a reputation that helps you become attractive and employable beyond your company.

Which leads to another dimension, which is the need to diversify.

Anyone who has read enough annual reports will understand that many companies that rely most if not all of their revenue from one account is extremely easy to go belly flop when things don’t go their way. Look at Apple’s suppliers, who are forced to accept razor thin margins if Apple left them because they’d go bankrupt before they could configure all their manufacturing capabilities to accept non-Apple orders. That gives too much bargaining power to just that one account.

Same goes for most wage earners. If your skill sets are company / industry exclusive, your bargaining power diminishes when you can’t find another company that can appreciate your skill sets and there are others who can do what you can do.

And that’s why it’s important to diversify your sources of income as early as possible. It doesn’t have to end up making you quit your job (if you like/love your job, why not keep working?), but it just gives you more bargaining power in the overall scheme of things. Being less reliant on very few sources of income and having your multiple sources of income be very reliable also makes your moat wider.

So the question that I think many people need to ask is, “If you were a company, do you have a wide moat?” If the answer is no, then the respondent should think hard on doing everything to widen the moat before another black swan event comes knocking on your door.

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