Five Forms Of Leverage And How To Use Them
How much leverage do have in your life?
I'm not just talking about financial leverage - that's just one (of five) types of leverage you can use in your life. We'll get to those five later, but first, let me explain why leverage is important and exactly what it is.
First, I'll tell you why I care about leverage. There are lots of big problems I want to solve, like climate change, mental health and childhood trauma. I really care about these, I get riled up when I think about them, and energised when I think about trying to solve them. However they seem too big for little old me to have any material impact on. I'm wrong. So terribly wrong. I can have a massive impact on solving these problems as long as I know how to use leverage.
So what is leverage? I can explain it best using an equation - could you guess I'm an engineer?.
We usually think "you get out of something what you put into it". When we say this, we define “The Old Equation for Output”.
The Old Equation for Output; Output = Input
As an example, for sustenance farmers several hundred years ago, this was true. The more hours they spent planting seeds, tending to their crops, harvesting them etc., the more food they had at the end of the month.
But the world doesn't work this way anymore. There is a “New Equation for Output”.
The New Equation for Output; Output = Input x Leverage
Leverage lets us multiply out input to create an output that can be orders of magnitude larger. Labour leverage is a simple example. I can dig a hole myself. Or I can employ ten people to dig it with me. When I do this, I can dig a hole ten times bigger in the same time. In the last few centuries, we have developed new forms of leverage that can give us a massive increase in our output. We can write code, distribute content and reach people in a way that has never been possible. But most people aren't aware of these. They still think Input = Output.
These forms of leverage are well described by others - Naval Ravikant gives the best explanations - so I have borrowed many of them here. In summary, there are five kinds of leverage you can use;
Labour; other humans working for you
Capital; using money as leverage. You make one decision and put more money behind that decision to increase your Output.
Products with no marginal cost of replication; this includes all forms of media (books, movies, blogs, TikToks etc.) and software.
Social influence; (this is one I've added to Naval's list) If you have the ability to influence others to take an action, you can generate a lot of leverage,
Joining a high leverage organisation; (this is another I've added to Naval’s list). In the right organisation, for every unit of work you do, the assets of the organisation (people, systems, distribution etc.) can give you a lot of leverage.
Which ones of these are you using in your life? Everyone can develop one or more of these forms of leverage. If you don’t have money, or can’t code, that’s cool, write a blog. Can’t write? No worries, join a great organisation or develop a following of people who listen to you.
Let’s look at four Leverage Legends to see how they use leverage. These are people who undertstand this concept in depth, and more importantly, have applied it to help them achieve their goals.
Peter Lievels. This guy is a hero of mine. He is a coder and builds software businesses, on his own, that generate millions of dollars each year. He uses his skill in writing code to generate massive leverage,. He writes one line of code and that can be used (and charged for ) by thousands or millions of people around the world.
Gretta Thunberg Gretta has arguably done more to combat climate change than anyone else in the world. How has she done this? She hasn't built wind turbines or installed solar panels. She hasn't sequestered carbon from the atmosphere. What she has done is convinced whole countries to change their climate policy. Gretta uses two forms of leverage to achieve this. The first is social influence, she has crafted a following and brand that allows her to mobilise millions of people and to use this mobilisation to influence decision makers. She has also benefitted from content leverage. Her speaches have been viewed hundreds of millions of times. Gretta is also an expert at finding the most impactful leverage points. A leverage point is about deciding where to apply your lever to create the most impact. Gretta could have chosen every day people as her point of leverage, she could have tried to convince all of us to cutdown on our energy use, to change to electric cars and so on. But she knows that this is not the most impactful leverage point. The thing that will have the biggest impact on climate change is getting large nations to change their climate policy and that's why Gretta targets politicians and leaders of major corporations. Because she knows that if she can get them to change, then that will have a meaingul impact on her goal of stopping climate change.
Mike Cannon-Brookes is the founder of Atlassian, a software business. He's a billionaire and climate activist. He is a leverage grand master. He used code leverage to start Atlassian and then labour leverage to scale it. This allows him to build massive wealth. He then used this wealth as a capital leverage, investing in climate tech companies. Finally, he uses the social influence he has built to impact politics and policy making related to climate change. All hail the master of Leverage!
Warren Buffet. You can guess where this one is going. Capital Leverage is Buffett's weapon of choice and he is damn good at it. The best thing about capital leverage is how easily it scales and Buffett knows this. The first investments he made were for tens of thousands of dollars. Now he places bets worth billions. The input is still the same. He has to work just as hard to find a good investment. But when he finds it, he can invest so much money that he has massive leverage on his input, create huge outputs.
Leverage is important because it can help you achieve your own personal goals. But it is also a very important concept to help us tackle big social problems, like the ones I care about. Why? Well, some people don't act on the causes they care about because they think their efforts will be futile. And if they don't use leverage, they are often right. Unfortunately, if I reduce my electricity bill by 10%, it will have zero material impact on CO2 emissions. But Greta Thunberg convincing policy makers from the world's top countries to implement better climate action policies has a massive impact. I'm just one individual and so is Greta. But she has had way more impact than I have because she used leverage. I believe there is huge potential for more individuals to have an outsized impact on solving big problems by using leverage.
Now I want you to take away a very simple point from this; that you can create massive impact in this world if you use leverage. You can use this to further your own desires, or to pursue a cause you care about. Either way, go get yourself some juicy leverage!