The Leverage Mindset
A couple of weeks ago, I had a lengthy discussion with some friends about why I love America. One of my somewhat controversial takes was that I believe that in America, people who work hard and smart have as much certainty as anywhere else to be rewarded. My friends rightly pointed out that “working smart” is subjective — anyone who works hard but doesn’t get rewarded could be unfairly classified as not working smart. Although there are several factors that I see as working smart, a huge part of it, to me, comes down to effectively building and applying different forms of leverage.
But what exactly is leverage? It’s a concept you’ll often hear touted by highly successful people, but the meaning can seem elusive. To put it simply, leverage is anything that allows you to exponentially amplify your effort and increase your impact. Instead of trading your time for money in a linear fashion, leverage lets you break free of that constraint and achieve outsized results.
A framework for understanding different types of leverage comes from Naval Ravikant, the founder of AngelList. He conceptualized the “Pyramid of Leverage,” which ranks different forms of leverage in increasing order of power:
Labor Leverage
At the base of the pyramid, we have labor leverage. This is the most fundamental and accessible form of leverage, where you use other people’s time and effort to achieve your goals. For startup founders, this means hiring exceptional software engineers to build your product, skilled marketers to grow your brand, and talented salespeople to bring in revenue. By leveraging the expertise of others, you can scale your operations and achieve far more than you could alone. AI is poised to disrupt labor leverage significantly — tools like GPT-4 are already writing code, generating content, and automating tasks, allowing even small teams to wield immense labor leverage.
Capital Leverage
The next level up is capital leverage. This is where you use money to gain an advantage, whether it’s investing in better tools and equipment, acquiring other businesses, or using financial instruments to increase your returns. For early-stage startups, raising venture capital can provide a significant boost in leverage, allowing you to hire more top talent, develop better products, and expand into new markets faster. However, it’s crucial to raise the right amount at the right time. Raising too little can starve your business, while raising too much can lead to undisciplined spending. As a rule of thumb, aim to raise enough to hit your next set of key milestones, whether that’s shipping your MVP, reaching a certain revenue threshold, or acquiring a specific number of customers.
Product Leverage
Product leverage is the third level of the pyramid, and it’s where the magic of scalability really shines. This is where you create a product or service that can be sold and delivered with minimal marginal cost. Software companies like Microsoft, Google, and Facebook are prime examples of product leverage — once they built their core products, they could scale to millions of users with very little additional cost. Typically strong product leverage from a startup POV, focuses on metrics like user growth, engagement, and retention. If you can show that your product is sticky and can scale efficiently, you’ll be in a great position to attract capital and talent.
Media Leverage
Media leverage is the fourth level of the pyramid, and it’s all about using media platforms to reach and influence a large audience. Building media leverage is especially crucial for early-stage founders. This means creating valuable content, like blog posts, podcasts, or videos, that showcase your expertise and build your brand. It also means engaging with your target audience on the platforms where they spend time, whether that’s Twitter, LinkedIn, or TikTok. I think in the age of AI, media leverage will only become more important. I wrote more extensively about that in my last article:
Code Leverage
Code leverage is the fifth level of the pyramid, and it’s specific to technology startups. This is where you use code to automate processes, build scalable systems, and create new products and services. Amazon used code leverage to build highly efficient logistics and fulfillment systems. Stripe used it to make accepting online payments dead simple for other startups. To maximize code leverage, build with leverage in mind from the start. Use APIs, open-source tools, and existing platforms rather than reinventing the wheel or building everything in-house. Design your architecture to be modular and easily scalable. And invest in developer tooling and infrastructure to empower your engineers to ship code quickly and safely.
Creativity Leverage
At the top of the pyramid is creativity leverage, which is perhaps the most powerful form of leverage of all. This is where you come up with innovative ideas that have the potential to change the world. SpaceX is wielding creativity leverage to dramatically reduce the cost of space travel. Neuralink is using it to develop brain-machine interfaces that could transform how we interact with technology. To cultivate creativity leverage, you need to foster a culture of curiosity, experimentation, and risk-taking. Encourage your team to question assumptions and think from first principles. Expose yourself to diverse perspectives and read widely outside your domain. And carve out unstructured time for exploration and brainstorming.
The various forms of leverage are not isolated — they interplay and compound each other. Strong product leverage makes it easier to build media leverage, as people want to write and talk about great products. Media leverage, in turn, attracts top talent and capital, enhancing your labor and capital leverage. And creative leverage is the spark that ignites breakthroughs in the other areas. SpaceX’s creativity in rocket design (creativity leverage) allows them to build reusable rockets (product leverage) which dramatically reduces launch costs (capital leverage).
Unfortunately, many people in their lives focus solely on accumulating capital leverage, neglecting the other forms. They save money and invest in stocks, real estate, or other assets, but fail to cultivate the skills, relationships, and ideas that provide the other types of leverage. This is a mistake. Your 20s and 30s are the perfect time to pursue non-capital forms of leverage. Building products, a strong network, and honing your creative skills will pay dividends for decades to come, and can ultimately be far more valuable than short term financial leverage.
Leverage is increasingly important in the modern economy. With global connectivity, an explosion of technology, and the rise of AI, individuals and small teams can now have an outsized impact in ways that were impossible just a decade ago. By understanding and applying the various forms of leverage, you can multiply your efforts and achieve massive outcomes.
With all that said, of course, building leverage is challenging. It requires hard work, smart risk-taking, and the ability to learn and adapt quickly. But for those willing to put in the effort, the rewards can be immense — not just financially, but in terms of the impact you can have on the world.
But what are some actionable steps you can take right now to start building leverage? In 2024, these are some of my suggestions:
1. Master AI tools
a. Learn to use AI writing tools like GPT-4 to create content quickly. Use them to brainstorm ideas, write drafts, and edit your work.
b. Explore AI coding tools like GitHub Copilot or Cursor as an IDE to automate parts of your software development process.
c. Take advantage of the litany of new tools integrated with AI coming out to supercharge your output.
2. Start building your network
a. Reach out for coffee chats with people you admire. Have a good set of questions for them, go with a mindset of learning, and try giving them value as well.
b. Join online communities related to your field, like Reddit forums, Facebook groups, or Slack channels. Engage in discussions and offer valuable insights to establish your expertise.
c. If there is something you are passionate about, spearhead initiatives around it. Start your own community, host your own events. It really doesn’t take a lot to get started.
3. Create valuable content
a. Write detailed, actionable blog posts or tutorials that solve real problems for your target audience. Use data, case studies, and examples to back up your points.
b. Start a newsletter to share curated insights, resources, and personal learnings with your network. Use tools like Substack or Mailchimp to manage your list and send regular updates.
c. Launch a niche podcast or YouTube series interviewing experts in your field. Ask them to share their best tips, strategies, and lessons learned.
4. Develop a strong personal brand
a. Define your unique value proposition and the specific problems you solve. Communicate this clearly in your online bios, website, and content.
b. Optimize your social media profiles for discovery. Use relevant keywords in your bio, post regularly, and engage with others in your niche.
c. Showcase your best work in a portfolio website or case studies. Highlight the specific results and impact you achieved for clients or employers.
5. Automate and outsource
a. Use tools like Zapier or IFTTT to automate repetitive tasks, like social media posting, data entry, or email follow-ups.
b. Hire virtual assistants or freelancers to handle lower-leverage tasks, freeing up your time for higher-impact work. Sites like Upwork and Fiverr make it easy to find affordable talent.
c. Invest in software tools that streamline your workflow, like project management platforms, CRMs, or design tools. If you are doing sales, Clay is the best tools I have come across most recently, and I would highly recommend checking it out. Shoutout to Patrick for one of the craziest videos I have seen in a minute.
6. Learn to sell and negotiate
a. Take a course or read books on sales techniques and psychology. Practice your pitching skills with friends, family, or at local business events.
b. Study successful negotiations and learn frameworks like the “win-win” approach. Role-play common scenarios, like asking for a raise or closing a client deal.
c. Offer to help with sales or business development at your current job. This exposure will be valuable for future entrepreneurial ventures.
7. Teach and mentor others
a. Volunteer to lead workshops or training sessions at your company, sharing your skills and knowledge with colleagues.
b. Offer to mentor junior employees or interns. Help them set goals, navigate challenges, and make valuable connections.
c. Teach online courses or workshops related to your expertise. Use platforms like Udemy, Skillshare, or Teachable to reach a global audience.
Building leverage is a long-term game. Focus on consistently investing in yourself, your skills, and your relationships. Over time, these small steps will compound into significant leverage, opening up new opportunities and accelerating your success.
To me, building leverage is the most important thing you can do in your career. In my opinion, if you can successfully build enough leverage, many avenues open up drastically, setting you up for success.
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Thanks for reading,
Daivik Goel
