Note: This is an ongoing thought experiment and my views on this will likely change
Note to my future self…
Lately I’ve been thinking quite a bit about what are the variables that we can manipulate to create leverage in our lives. I hear a lot of accomplished people saying that creating leverage is what allows you to generate more output without increasing your input. In other words, leverage is the way to scale yourself up. However, I haven’t come across someone that elaborates on this so here’s my take on it.
After doing some research online, I think you can classify “leverage” into a handful of variables:
- Time: can be used create leverage in a number of ways. First, if you’re young you can use your time to create something that older people might not be willing to do because they don’t “have” the time. Second, you can use time to accumulate experience and all of the other variables outlined below to create leverage. For example, an experienced investor has the operational experience, capital, credentials, connections and other resources to make a deal that would be almost impossible for someone 30 years younger.
- Credentials: You can leverage your credentials to get a prestigious job, admission to a school, social circles, clubs, etc.
- Achievements: You can leverage your achievement again to get jobs, investment, introductions, press coverage, etc.
- Connections: You can leverage your connections to get access to other people, jobs, investments, opportunities, etc.
- Skills: I think meaningful leverage in this category is more easily achieved by people that are a couple of standard deviations outside of the mean. For most of us talent and skill tend to follow a linear return on investment especially in the short term (see time).
- Capital: I still want to think more about this one but I do think that it’s pretty evident that capital can be used to create leverage. In many cases, access to capital grants you a lot if not all of the variables outlined above (including time 🙂).
- Knowledge: I think that knowledge is a tricky category for a couple of reasons. First, it’s hard to arbitrage knowledge in a world where technology keeps lowering the barrier for distribution. It’s still possible though and in close circles (e.g. venture capital in silicon valley) it might even be common. However, to create true leverage that information must be proprietary AND right.
You might see where I am going with this. You can create leverage with knowledge if you know something that nobody else knows or that nobody agrees with AND that information is right. This falls along the classic Peter Thiel question: “What is something you believe that nearly no one agrees with you on?” The reason why I think this question resonates so much with people is because everyone can intuitively understand that a good answer to this question gives you leverage. In any case, I think that this type of leverage is rare and most people overestimate the degree to which they can leverage the knowledge that they have.
An interesting point that I thought about as I was writing this post is whether taking asymmetric risks is the mechanism by which we push our levers? In other words, if we know the variables that help us create leverage, how can we manipulate them? Taking asymmetric risks might be one answer.
I am defining asymmetric risk as an action where the pay-off of a positive outcome is disproportionally higher than cost of a negative one. In other words, taking asymmetric risks is about actions that have high upside and little to no downside.
Now you might see how you can use the different variables that we’ve outlined above to create leverage. For example, if you have some extra $$$ to invest (capital) you might put it into a startup that you hope will become the next Google. If you loose, your downside is however much money you put in but the upside is say 1000x your investment.
This is super straightforward. However, things get really interesting when you think about creating this same type of leverage through other means. For example, emailing someone you know at a company that’s hiring might help you get a job that increases your current salary 2-3x overnight. Not all outcomes have to be quantified in $$$ but I think it helps illustrate how powerful it can be to understand how to manipulate these variables.
The key takeaway for me in this case is that I need to spend a lot more time thinking about what variables I can use in my life to create a substantial amount of leverage for myself. It’s an ongoing process but I will make sure I report back any progress that I make in this front.
Now back to work…