verb

gerund or present participle: underwriting

1. sign and accept liability under (most commonly, a loan or an insurance policy), thus guaranteeing payment in case loss or damage occurs.

  • accept a liability or risk

Intro - Words and Meanings

When most people think of the word "underwriting", they think of insurance. It is the most common industry to use the word, banking being a close second.

Underwriting, dictionary definition notwithstanding, is "the transfer of risk from one party to another".

The concept is not limited to financial industries, and understanding the scope and meaning of underwriting is pivotal to the following:

  1. Selecting a career appropriate for you

  2. Understanding your true risk tolerance vis a vis said career

  3. Making transitions across careers


Underwriting in Broader Practice

The best way to choose a career is to answer this question:

What aspects of my future professional life need to be underwritten, and where am I willing to bear the risk?

Answering the question is multifaceted. Broadly, here are the things owners, upper management, mid-level managers, and employees underwrite that make the business function:

  • Wage and benefits payment ("payroll")

  • Performance of human capital ("productivity")

  • Capital expenditure and cash flow ("budgeting")

  • Direction of the company ("strategy")

When considering an ideal career, one must consider which of these 4 elements he is willing to bear the risk of.

Employees are responsible for none, but generally have productivity expectations.

Mid-level managers are responsible for productivity.

Upper management are responsible for payroll (treasury), budgeting (accounting and finance), and to an extent, strategy (executive level and/or owners, thus 'extent').

Owners are responsible for all.


How to select the appropriate level of risk

There is significant mental masturbation on just about any forum, Red Pill not excluded, about "entrepreneurship". The reason for this masturbation is a failure to understand the level of underwriting required to be an owner/operator, particularly in a sole capacity.

The idea of "being your own boss" is inherently silly - it incorporates the idea of management into employment. They are distinct.

To choose a career, choose a risk tolerance and understand your competencies.

There are limits to self-improvement and capability - you may never care about producing excess value out of human capital, but you may be an excellent strategist.

Likewise, you may neither care about nor be motivated by any of these 4 pillars of underwriting.

Be a good employee and learn to be content with that. Doing otherwise will hamper your productivity, and a decent employer will measure that productivity and pay you accordingly.


The Consequences of Underwriting

Your choice to underwrite any, all, or some of these pillars of "work" determines your maximum level of responsibility for failure. Here are a few quick punchy examples, as this is the easiest part to understand:

  • Underwriting payroll and fucking it up is a crisis. If it's a crisis of operations, expect to be fired from your treasury or accounting role. If it's a crisis of solvency, expect your company to fold.

  • Underwriting productivity and fucking it up is a DIRECT failure of you as the manager. It has personal recourse - whether it was a poor hiring decision or poor performance does not matter. Middle management lives and dies by its employees.

  • Underwriting budgeting could be roles in sales, marketing, finance, or executive level. The key thing to remember is:

Failure to achieve revenue target(s) is a loss of imaginary money. Failure of spending to achieve ROI/E on spending is the loss of real money

  • Underwriting strategy is Serious Business. If you are the owner, CEO, etc, this is straightforward. However, if you are the Duke of Fiefdom #3 and #3 is something like "number of SKUs we sell into Amazon at low margins", it is still Serious Business.

Taking control of strategy at any level (but generally reserved for high-ish levels of mgmt.) is DIRECT PERSONAL underwriting of all risk associated with the strategy decisions you make.

Summary: Choose what fits, and choose iteratively (as new choices show up, weigh your options and risk tolerance). Risk tolerance should be dynamic if you want to be a big player.


Conclusions/tl;dr

  • Your career is a question of risk tolerance, underwriting is the transfer of risk from you to someone else (or vice versa)

  • Being an employee can be a good deal - you underwrite literally nothing

  • Corollary: Being the equity holder aka owner means you underwrite everything. Consider before your dreams of being the boss.

  • Missing cost projections always outweighs missing revenue projections, particularly when your decisions spent money for unrealized revenue

Your success or failure, broadly speaking, depends more on selecting and following through on an appropriate level of underwriting than anything else. Want to coast and answer phones? NBD, as long as the job exists and pays enough for you to live.

Want to hit higher than employee status? Congrats, you've underwritten the risk of some element of the business. That's how salary works in a functioning system.