In the fantastic short book “The Almanac of Naval Ravikant”, Eric Jorgensen discussed Naval’s views regarding leverage.
We can think of the concept of leverage in the same manner as a catalyst. It is something that allows you to go faster and get more out of what you have.
Give me a lever long enough and a place to stand, and I will move the earth.Archimedes
Leverage in business comes from the following:
- Capital — You either already have money or can persuade investors to give you some.
- People — This is getting employees to do the work you cannot do.
- Products with no marginal cost of distribution — Software or media/information can be sold to many people without any additional cost beyond what it takes to sell it to one..
Capital and labour are potent tools, but you need permission. People are eager to acquire capital, but someone needs to provide it. Everyone wants to take charge, but someone needs to be led.
Code and media are even more powerful. If you look at the list of the wealthiest people in the world, they tend to be in technology. You can create software and media that works for you even when you are not actively involved. Servers work silently in data centres that you won’t ever visit. They keep running even while you sleep.
But I think there is a missing piece here in the puzzle. After all, plenty of kids come from wealthy families, have every advantage in the world, and make nothing of their lives. Because there is no financial pressure, they often end up doing nothing.
Rent is one of the most misunderstood forces in the world. When you are young and paying rent, it can be a powerful motivator to go out and make something of yourself. You need to earn enough money to make rent each month, so you must engage with the world, find something you’re good at, and make money from it. This is how careers begin.
So hard work can be considered a force multiplier to leverage. If you have leverage and you work hard, you’ll multiply the results.
So the equation is not:
Results = Capital+labour+Products
Results = Hard work*(Capital+Labour+Products)
Hard work itself can be broken down into two key factors:
Hard Work = Efficiency * Time Spent Working
Efficiency means achieving more in less time. It can be achieved by working more intensely, discovering shortcuts, or simply through experience and better decision-making.
I have seen a tenfold, even a hundredfold, difference in efficiency between low-efficiency and high-efficiency individuals.
The average person works 20 hours of effective work per week — although they will claim 35-40. If you put in 80 hours a week, you can achieve what takes them four years in one year, assuming equal efficiency.
And so, the final equation is:
Results = (Efficiency * Time Spent Working) *(Capital+Labour+Products)