A career is about allocating attention. Each unit of attention has an expected return and opportunity costs. Allocate attention well and returns compound, leading to a more successful (however one defines it) career.

Ambitious people in my network often allocate their attention to improving the signaling of their resume. “I’ll leave and go do {thing I’m actually interested in} after {industry standard time frame} at {prestigious company}.” I’ve done this myself.

This choice tends to feel like the “safe” and “smart” thing to do. Few talk about the opportunity cost because it’s hard to articulate and harder to evaluate. As a result, prioritizing signaling is positioned as a zero-risk choice. This is dangerous.

Signaling is concrete. It appears on your resume as structured data. There are industry benchmarks on the types of roles and compensation available for certain levels of signaling ability (e.g. “two years experience at top-tier investment bank”). t’s easy to predict how your career progresses with a marginal improvement in signaling.

Actual ability is soft. People often don’t think they know their abilities and those that think they do are often poor judges of it1. If we struggle to communicate and demonstrate our abilities, how can we expect an industry to understand and reward us commensurately?

Each unit of attention can be spent prioritizing signaling or ability. Signaling is what your resume suggests that you can do. Ability is what you can actually do.2 When you prioritize signaling, the opportunity cost is actual ability and vice versa.

Deprioritizing signaling feels risky. What good is ability if there are no opportunities to apply it? A recent paper suggests that given sufficient ability, entrepreneurship is the answer.

“Asymmetric Information and Entrepreneurship”, investigates the relationship between signal/ability and entrepreneurship. The authors found that individuals with actual ability exceeding their signaling became entrepreneurs. Josh Wolfe wrote an excellent tweetstorm commenting on the paper.

You can see in the figure below that when ability exceeded signaling, people chose entrepreneurship. On the other hand, companies are only attracting and retaining employees below a certain threshold of ability.

ability signal entrepreneurship

We can generalize the relationship between signal and ability with a 2x2. The resulting boxes describe four worker archetypes.

ability signaling 2x2

  • “The Rockstar” (high, high): An expert in their area and compensated commensurately. These are the distinguished engineers, career CEOs, creative icons.
  • “The Lemon” (high, low)3: Companies overrate this individual. Their offices are filled with employees of this archetype that rise to their level of incompetence and stick around as long as they can.
  • “The WIP” (low, low): Needs to put in the work. The question here is which direction? Along the x-axis or along the y-axis?
  • “The Entrepreneur” (low, high): Unusually high actual abilities, but for whatever reason their signals underrepresent them. As a result, starting something of their own is a better expected value than accepting less than they’re worth from a company.

For the average person, is it better to prioritize moving along the y-axis or the x-axis?

The rockstar and entrepreneur are both already in great shape. If the entrepreneur is successful, she becomes a rockstar. The entrepreneur’s career is enabled by actual ability. Signaling is a side effect.

The lemon is very fragile to shocks in their environment. If their company or industry collapses, they are poorly prepared to find new opportunities. Their career relies on an industry accepted valuation of their signals. If that industry or valuation changes, their career is in shambles.

The WIP–and we’re all WIPs in some ways–needs work and is best served by moving along the x-axis. Improving ability creates new opportunities and a side-effect of success is signaling. Improving signaling may lead to short-term benefits but if signaling exceeds ability, the individual is fragile like the lemon.

Society defaults to improvements to signaling, but for most people, prioritizing improvements to ability yields better results. The paper cited in this post shows a pattern of success when your ability exceeds your signaling. That pattern doesn’t hold in the other direction. Nobody should dream of becoming a lemon.

  1. e.g. Overestimation of ability is the Dunning-Kruger Effect. Many examples of underestimating ability as well. 

  2. Of course, a unit of attention can benefit both signaling and actual ability. The question is which form of ability are you prioritizing. 

  3. The lemon in a market for lemons 

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