Part III · Chapter 7 · Leverage · lesson 1
Six kinds of leverage
12 min
Builds on Why one hour of some work is worth a thousand of another
Part III · Chapter 7 · Leverage · lesson 1
12 min
Builds on Why one hour of some work is worth a thousand of another
Two people teach the same subject, equally well, for the same number of hours a week.
The first stands in a room with thirty students. The second recorded the course once and it has been watched by four hundred thousand people. Neither works harder than the other. The second one has something between her effort and its output, and that something is doing almost all of the work.
Leverage is anything that sits between what you put in and what comes out, and multiplies it.
Without leverage, output is bounded by hours, and hours have a hard ceiling that arrives long before anyone is wealthy. Every large outcome in this course involves a multiplier somewhere, and the interesting questions are which one, who had to agree to it, and what it does when the input is negative.
Labour. Other people's hours. The oldest multiplier and the one every society already understands: hire ten people and roughly ten times as much happens. It is also the most expensive to operate and the only one that manages you back. Labour must be recruited, paid whether or not the month went well, coordinated, and kept — and the coordination cost rises faster than the headcount, which is why the tenth person adds less than the second.
Capital. Other people's money. Borrow, and you control a larger position than you own. This is the multiplier that scales fastest, needs the least infrastructure, and is the only one of the six that can take more than you put in. Three lessons of this track are about that asymmetry.
Technology. Code, machinery, automation. Build the thing once and it runs without further input, which makes the marginal cost of one more unit of output approximately nothing. Unlike labour, it does not need managing; unlike capital, it cannot demand its money back. It does need building, and it does rot — a system left alone for five years stops working for reasons nobody chose.
Media. Words, audio, video, anything that copies. The same recording reaches one person or a million at identical cost to you. Media is the purest form of the multiplier because the input is fixed at the moment of creation and the output has no ceiling at all.
Knowledge. Knowing which thing to do. This one multiplies differently: it does not raise output per hour, it raises the value of the hour by pointing it somewhere better. Two identical teams executing at the same standard produce wildly different results depending on what they were told to build, and the telling took an afternoon.
Network. Who will pick up the phone. A network multiplies by shortening every other process — the introduction that replaces six months of selling, the person who tells you the thing that saves a year. It compounds slowly, cannot be bought, and is the only one on the list that other people also experience as a benefit.
Predict
The six are not alternatives. They combine, and the combinations are multiplicative rather than additive.
A person with knowledge of what to build, technology that builds it, media that tells people it exists, a network that opens the first doors and capital that funds the wait is not five times more effective than someone with one of them. The multipliers apply to each other. This is why outcomes in leveraged fields are so unevenly distributed that averages stop describing anybody, and it is also why the same stack pointed at a bad idea produces a very fast, very large failure.
Not the same thing
How much of yourself you put in.
What sits between the effort and the output, multiplying it.
Which is which? Put each one on a side.
Hiring a second person to do what you were doing
Learning to work faster at the same task
Writing down the process so anyone can run it
Taking on a second shift at the weekend
Nothing on the list is free, and the prices are different enough that they should be compared explicitly rather than felt.
Labour costs money continuously and attention permanently. Capital costs interest and, more importantly, costs you the right to be wrong for very long. Technology costs a build that may not work and maintenance that certainly will be needed. Media costs the strange discomfort of being visible and having opinions on the record. Knowledge costs years, most of them boring. Network costs decades of being useful to people before it returns anything.
Notice the shape of that list. Two of the six can be acquired this week if somebody agrees to give them to you, and four of them cannot be acquired at all except by spending time. That distinction turns out to matter more than anything else about them, and it is the whole of the next lesson.
Check
In ordinary financial conversation, leverage means borrowing, and the other five kinds do not get the word at all.
That is partly history — the term arrived through finance — and partly that borrowing is the only one with a clean number attached. You can say a position is three times levered and everyone knows what you mean. Nobody can say a writer is four hundred thousand times levered, even though the arithmetic in the opening paragraph says roughly that.
The narrow usage is worth resisting, because it quietly implies that the multiplier you can buy today is the only one available. It is the most dangerous of the six and the least durable, and the four that cannot be bought are the ones that are still there after a bad decade.