Of Levers and Leverage
Or, why hard work alone isn't enough
Forget rich versus poor, white-collar versus blue. It’s now leveraged versus un-leveraged. - Naval Raviakant
How would you move something a lot heavier than you are without expending so much energy? With a lever. Levers are simple machines that allow you to convert a small force applied at one end, to a greater force at another end. A great example of this is a door. No matter how heavy a door is, it’s almost always extremely easy to open. But what if you try opening it from just beside the hinge? You’ll be surprised at how much force you have to expend to move than door an inch. Another great example is a car jack. Ordinarily, you would never be able to lift a car to change its tires, it’ll take at least 3 hefty men, heaving, sweating, and grunting. But with a little lever, the car jack, almost anybody can change their car’s tires. This is an example of just how powerful leverage is.
What is Leverage?
Lever-age, obviously derived from the simple machine, means the exertion of force by the means of a lever, but this concept applies to more than just lifting heavy loads.
Leverage refers to any tool or thing that amplifies your efforts and increases your efficiency. It applies to every facet of life, including wealth creation. As you go on in life, you want to find positions of leverage and use them to get ahead.
Keep this concept in mind as you read on:
A leveraged position is one where your input, is not equal to your output. Your output is several orders of magnitude apart from your input.
A position of leverage means that your inputs are amplified. That is, you get multiples and exponentials of what you put in. The first lesson this teaches you, is that leverage compounds your judgement. If you will operate from a leveraged position, the quality of your choices become more critical.
Understanding this concept is what will potentially make you a billionaire someday.
Here’s a scenario to explain leverage. If you have a job, and you put in an insane amount of work and help drive company growth by 100%. How much of that growth belongs to you? Truth is, almost nothing. At best, you get a promotion and a glowing recommendation, and not much else, because your position is unleveraged. However, if you were an investor, and the company grows by 100%, all of that growth is reflected in your investments because your position is leveraged.
What are the types of Leverage
Naval hosted a great podcast on leverage that totally blew my mind, and he described 3 broad classes of leverage. (P.S check out that episode after you finish reading this)1
Labour
Labour leverage is when you have other people working for you. This is why the manager or director of a company has more power than an entry-level employee. They can leverage on the time, skills, and expertise of all the people under then, and when they make a decision, the whole team gets to carry it out.
The way to build this kind of leverage, is to build a team of people who believe in you and what you’re building, and are willing to commit their time and skills to help you build it, in return for some form of reward. You’ll also need to learn to manage people, a very messy and tedious task, as almost any manager can confirm.'
Capital/Money
Capital was probably the oldest form of leverage in the last century. With money, you could generate more money via investments and compound your returns. You can do this today with financial securities, such as Forex, Crypto currencies, and even stocks. You can leverage your position up to 10x, 100x, or even 1000x. The implication of this is that any decision you make gives you exponential returns, either you make a lot of money, or you end up liquidated. More recently, venture capitalism is the best form of money leverage. By investing in a startup, usually a tech startup, your seed fund can grow exponentially as the startup itself grows.
This kind of leverage requires you to have money first, which, you most probably don’t have. I’m pretty sure you don’t have spare $10k lying around for leveraging experiments. (and if you do, comman gimme small)
The last two types of leverage though, are the most important, and have the potential to change how we live, and create wealth.
Code Leverage
The internet has changed how we do everything, but most people don’t grasp just how powerful that change is. When we think about a robot-powered future, we usually think of humanoid-type robots that can do the dishes or go to the grocery store. But in reality they are already here.
Naval says: An army of robots is already here. It's very cheaply available… Essentially you can order this army of robots around. The commands have to be issued in a computer language, in a language that they understand…Coding is such a great superpower because now you can speak the language of the robot armies and you can tell them what to do.
Coding is another form of leverage because you can tell an unlimited amount of robots (i.e computers) what to do, and they all do it. Here’s an example: Most people have WhatsApp on their phones, and all the creator has to write the code as to what the robots have to do, and over a billion devices have the exact same product and capabilities. This is what makes coding so powerful, and software development a highly powerful skill. It’s literally a superpower that allows you unlimited reach.
If you can, learn software development, or get connected to that ecosystem.
Media Leverage
Media leverage is the last form of leverage, and probably the biggest, because it’s so wide. This form of leverage involves the creation and distribution of content of any form. Whether it’s a tweet, a YouTube video, or this newsletter, it allows me reach as many people as possible without extra effort.
Think about Marques Brownlees, Mark Angel Comedy, etc. They are using media leverage to devastating effect. Have you noticed how skit makers seem to making it big recently? That’s media leverage.
The last two types of leverage, code and media, are the easiest, cheapest, and most powerful forms of leverage, for 2 main reasons, they are permisionless, and scalable. Permissionlees means that I don’t need anyone’s permission to send this newsletter to you, and scalable means that I don’t need to expend extra effort to get this to more people.
Naval describes it best in his podcast:
This podcast is a form of leverage. Long ago, I would have had to sit in a lecture hall and lecture each of you personally. I would have maybe reached a few hundred people and that would have been that. Then 40 years ago, 30 years ago, I would have to be lucky to get on TV, which is somebody else’s leverage. They would have distorted the message. They would taken the economics out of it or charged me for it. They would have muddled the message, and I would have been lucky to get that form of leverage. Today, thanks to the Internet, I can buy a cheap microphone, hook it up to a laptop or an iPad, and there you are all listening.
Startups represent the melting point of all these leverages. Products that have almost no cost of reproduction. As a tech startup, I can build an app once, and get paid a million times by a million people that use that product, because it has almost cost of reproduction. This is where the new billionaires of this century will be made from. Those that learn to leverage code and media to build products that scale.
Remember, you become wealthy by giving society what it cannot yet get for itself, at scale.
So, how does the knowledge of leverage help you or guide your actions? Firstly, you want to expend your efforts in a places where they are highly leveraged. A job, is most times, not leverage, because your input is almost equal to your output. You want to invest in, or create something has outsized impact. Something that can potentially affect millions and billions of people at scale.
If you have a job, begin to think about what you can invest part of your salary or wages in that can give you outsized impacts.
Here’s an example what I do with my timee:
I have a regular job that pays the bills
I invest in media leverage by creating content that reaches as many people as possible.
I run, TheFavourPhronesis, a marketing agency that combines media, labour and media leverage.
I invest in cryptocurrencies, NFTs, and a couple of startups with my friends.
My regular job is not leveraged, my efforts in that position does not give me outsized results, but my other interests have the potential to generate outsized impacts.
In conclusion, if you learn to combine specific knowledge with leverage, you can generate almost unlimited wealth. This is what the Mark Zuckerbergs, Sergey Brins, and Elon Musks are doing. They chased their interests, developed specific knowledge and leveraged them to build the products and companies that have shaped our lives today.
I just have one question for you, what are you leveraging on?
If you loved this post, then invite your friends to read it. Share it with your social network, and ask them to subscribe.
Also, I’m thinking of testing something out. Many of the thought leaders I follow share some of the most interesting things they’ve read, and I’m wondering, should I share some of the most interesting content I consume each week?
Lemme know in the comments below
Product and Media are New Leverage - https://nav.al/product-media. Naval, 2019
Absolutely loved this write up.
Please do share with us some of the materials from your mentors, thanks.
Awesome write up! A lots of youth needs to hear this