Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.

― Archimedes

Hello,

Welcome to episode 24!

The last few episodes have been very organization, macro centric. For this episode, I decided to return to ideas that impact the micro, you. The individual.

I first learned about the ideas of leverage from Naval Ravikant. Initially on, I believe Tim Ferris’s podcast, and later on his own podcast, then in the amazing collection of Naval’s thoughts put together by Eric Jorgenson called The Almanac of Naval Ravikant AKA; The Navalmanac.

Eric has taken these ideas of leverage to new heights. He put on a course to assist attendees in learning to utilize leverage in their own lives and organizations. He has a blog that you can subscribe to where he assists the reader in better understanding leverage. And Eric has, most importantly, created a podcast called Smart Friends, which I highly recommend. (links in the show notes)

You may remember back in Episode 5 Titled Career Capitol that we discussed the ideas of being the Top 25% in any two or three skills? That comes into play alongside our topic here in this episode.

With all that being said, let’s first jump into understanding Leverage in Naval’s words. From the Navalmanac:

FIND A POSITION OF LEVERAGE

We live in an age of infinite leverage, and the economic rewards for genuine intellectual curiosity have never been higher.  Following your genuine intellectual curiosity is a better foundation for a career than following whatever is making money right now. 

 Knowledge only you know or only a small set of people knows is going to come out of your passions and your hobbies, oddly enough. If you have hobbies around your intellectual curiosity, you’re more likely to develop these passions. 

If it entertains you now but will bore you someday, it’s a distraction. Keep looking.

I only really want to do things for their own sake. That is one definition of art. Whether it’s business, exercise, romance, friendship, or whatever, I think the meaning of life is to do things for their own sake. Ironically, when you do things for their own sake, you create your best work. Even if you’re just trying to make money, you will actually be the most successful.

The year I generated the most wealth for myself was actually the year I worked the least hard and cared the least about the future. I was mostly doing things for the sheer fun of it. I was basically telling people, “I’m retired, I’m not working.” Then, I had the time for whatever my highest-valued project in front of me. By doing things for their own sake, I did them at their best. 

The less you want something, the less you’re thinking about it, the less you’re obsessing over it, and the more you’re going to do it in a natural way. The more you’re going to do it for yourself. You’re going to do it in a way you’re good at, and you’re going to stick with it. The people around you will see the quality of your work is higher. 

Follow your intellectual curiosity more than whatever is “hot” right now. If your curiosity ever leads you to a place where society eventually wants to go, you’ll get paid extremely well. 

You’re more likely to have skills society does not yet know how to train other people to do. If someone can train other people how to do something, then they can replace you. If they can replace you, then they don’t have to pay you a lot. You want to know how to do something other people don’t know how to do at a time period when those skills are in demand. 

If they can train you to do it, then eventually they will train a computer to do it.

You get rewarded by society for giving it what it wants and doesn’t know how to get elsewhere. A lot of people think you can go to school and study how to make money, but the reality is, there’s no skill called “business.”

 Think about what product or service society wants but does not yet know how to get. You want to become the person who delivers it and delivers it at scale. That is really the challenge of how to make money.

Now, the problem is becoming good at whatever “it” is. It moves around from generation to generation, but a lot of it happens to be in technology.

You are waiting for your moment when something emerges in the world, they need a skill set, and you’re uniquely qualified. You build your brand in the meantime on Twitter, on YouTube, and by giving away free work. You make a name for yourself, and you take some risks in the process. When it is time to move on the opportunity, you can do so with leverage—the maximum leverage possible. 

There are three broad classes of leverage:

One form of leverage is labor—other humans working for you. It is the oldest form of leverage, and actually not a great one in the modern world. [1] I would argue this is the worst form of leverage that you could possibly use. Managing other people is incredibly messy. It requires tremendous leadership skills. You’re one short hop from a mutiny or getting eaten or torn apart by the mob. [78]

Money is good as a form of leverage. It means every time you make a decision, you multiply it with money. [1] Capital is a trickier form of leverage to use. It’s more modern. It’s the one that people have used to get fabulously wealthy in the last century. It’s probably been the dominant form of leverage in the last century.

You can see this by looking for the richest people. It’s bankers, politicians in corrupt countries who print money, essentially people who move large amounts of money around. If you look at the top of very large companies, outside of technology companies, in many, many large old companies, the CEO job is really a financial job.

It scales very, very well. If you get good at managing capital, you can manage more and more capital much more easily than you can manage more and more people. 

The final form of leverage is brand new—the most democratic form. It is: “products with no marginal cost of replication.”

This includes books, media, movies, and code. Code is probably the most powerful form of permissionless leverage. All you need is a computer—you don’t need anyone’s permission. 

Forget rich versus poor, white-collar versus blue. It’s now leveraged versus un-leveraged.

The most interesting and most important form of leverage is the idea of products that have no marginal cost of replication. This is the new form of leverage. This was only invented in the last few hundred years. It started with the printing press. It accelerated with broadcast media, and now it’s really blown up with the internet and with coding. Now, you can multiply your efforts without involving other humans and without needing money from other humans.

This book is a form of leverage. Long ago, I would have had to sit in a lecture hall and lecture each of you personally. I would have maybe reached a few hundred people, and that would have been that. 

This newest form of leverage is where all the new fortunes are made, all the new billionaires. For the last generation, fortunes were made by capital. The people who made fortunes were the “Warren Buffetts” of the world.

But the new generation’s fortunes are all made through code or media. Joe Rogan makes $50 million to $100 million a year from his podcast. You’re going to have PewDiePie. I don’t know how much money he’s rolling in, but he’s bigger than the news. And of course, there’s Jeff Bezos, Mark Zuckerberg, Larry Page, Sergey Brin, Bill Gates, and Steve Jobs. Their wealth is all code-based leverage. 

Probably the most interesting thing to keep in mind about new forms of leverage is they are permissionless. They don’t require somebody else’s permission for you to use them or succeed. For labor leverage, somebody has to decide to follow you. For capital leverage, somebody has to give you money to invest or to turn into a product.

Coding, writing books, recording podcasts, tweeting, and YouTubing—these kinds of things are permissionless. You don’t need anyone’s permission to do them, and that’s why they are very egalitarian. They’re great equalizers of leverage.  Every great software developer, for example, now has an army of robots working for him at nighttime while he or she sleeps, after they’ve written the code, and it’s cranking away. 

You’re never going to get rich renting out your time.

 Whenever you can in life, optimize for independence rather than pay. If you have independence and you’re accountable for your output, as opposed to your input—that’s the dream. 

Humans evolved in societies where there was no leverage. If I was chopping wood or carrying water for you, you knew eight hours put in would be equal to about eight hours of output. Now we’ve invented leverage—through capital, cooperation, technology, productivity, all these means. We live in an age of leverage. As a worker, you want to be as leveraged as possible so you have a huge impact without as much time or physical effort.

A leveraged worker can out-produce a non-leveraged worker by a factor of one thousand or ten thousand. With a leveraged worker, judgment is far more important than how much time they put in or how hard they work.

Forget 10x programmers. 1,000x programmers really exist, we just don’t fully acknowledge it. See @ID_AA_Carmack, @notch, Satoshi Nakomoto, etc.

For example, a good software engineer, just by writing the right little piece of code and creating the right little application, can literally create half a billion dollars worth of value for a company. But ten engineers working ten times as hard, just because they choose the wrong model, the wrong product, wrote it the wrong way, or put it in the wrong viral loop, have basically wasted their time. Inputs don’t match outputs, especially for leveraged workers.

What you want in life is to be in control of your time. You want to get into a leveraged job where you control your own time and you’re tracked on the outputs. If you do something incredible to move the needle on the business, they have to pay you. Especially if they don’t know how you did it because it’s innate to your obsession or your skill or your innate abilities, they’re going to have to keep paying you to do it.

 If you have specific knowledge, you have accountability and you have leverage; they have to pay you what you’re worth. If they pay you what you’re worth, then you can get your time back—you can be hyper-efficient. You’re not doing meetings for meetings’ sake, you’re not trying to impress other people, you’re not writing things down to make it look like you did work. All you care about is the actual work itself.

When you do just the actual work itself, you’ll be far more productive, far more efficient. You’ll work when you feel like it—when you’re high-energy—and you won’t be trying to struggle through when you’re low-energy. You’ll gain your time back.

Forty-hour work weeks are a relic of the Industrial Age. Knowledge workers function like athletes—train and sprint, then rest and reassess.

Sales is an example—especially very high-end sales. If you’re a real estate agent out there selling houses, it’s not a great job, necessarily. It’s very crowded. But if you’re a top-tier real estate agent, you know how to market yourself and you know how to sell houses, it’s possible you could sell $5 million mansions in one-tenth of the time while somebody else is struggling to sell $100,000 apartments or condos. Real estate agent is a job with input and output disconnected.

Building any product and selling any product fits this description. And fundamentally, what else is there? Where you don’t necessarily want to be is a support role, like customer service. In customer service, unfortunately, inputs and outputs relate relatively closely to each other, and the hours you put in matter. 

Tools and leverage create this disconnection between inputs and outputs. The higher the creativity component of a profession, the more likely it is to have disconnected inputs and outputs. If you’re looking at professions where your inputs and your outputs are highly connected, it’s going to be very hard to create wealth and make wealth for yourself in that process. 

If you want to be part of a great tech company, then you need to be able to SELL or BUILD. If you don’t do either, learn.

Learn to sell, learn to build. If you can do both, you will be unstoppable.

These are two very broad categories. One is building the product. This is hard, and it’s multivariate. It can include design; it can include development; it can include manufacturing, logistics, and procurement; and it can even be designing and operating a service. It has many, many definitions.

 But in every industry, there is a definition of the builder. In our tech industry, it’s the CTO, it’s the programmer, it’s the software engineer, or the hardware engineer. But even in the laundry business, it could be the person who’s building the laundry service, who is making the trains run on time, who’s making sure all the clothes end up in the right place at the right time, and so on.

The other side of it is sales. Again, selling has a very broad definition. Selling doesn’t necessarily just mean selling to individual customers, it can mean marketing, it can mean communicating, it can mean recruiting, it can mean raising money, it can mean inspiring people, it could mean doing PR. It’s a broad umbrella category. 

Earn with your mind, not your time.

Let’s talk more about the real estate business. The worst kind of job is someone who’s doing labor to repair a house. Maybe you get paid ten dollars or twenty dollars an hour. You go to people’s houses, your boss demands you’re there at 8:00 a.m., and you repair your piece of the house. Here, you have zero leverage. You have some accountability, but not really because your accountability is to your boss, not to the client. You don’t have any real specific knowledge, since what you’re doing is labor lots of people can do. You’re not going to get paid a lot. You’re getting paid minimum wage plus a little bit for your skill and your time.

The next level up might be the general contractor working on the house for the owner. They may be getting paid $50,000 to do the whole project, then they’re paying the labor fifteen dollars an hour and they’re keeping the difference.

 A general contractor is obviously a better place to be. But how do we measure it? How do we know it’s better? Well, we know it’s better because this person has some accountability. They’re responsible for the outcome, they have to sweat at night if things aren’t working. Contractors have leverage through laborers working for them. They also have a little bit more specific knowledge: how to organize a team, make them show up on time, and how to deal with city regulations.

 The next level up might be a real estate developer. A developer is someone who’s going to buy a property, hire a bunch of contractors, and transform it into something higher value. They probably have to take out a loan to buy a house or go to investors to raise money. They buy the old house, tear it down, rebuild it, and sell it. Instead of $50,000 like the general contractor, or fifteen dollars an hour like the laborer, the developer might be able to make a million dollars or half a million dollars in profit when they sell the house for more than they bought it for, including the expenses of construction. But now, notice what is required from the developer: a very high level of accountability.

The developer takes on more risk, has more accountability, has more leverage, and needs to have more specific knowledge. They need to understand fundraising, city regulations, where the real estate market is headed, and whether they should take the risk or not. It is more difficult.

The next level up might be someone who’s managing money in a real estate fund. They have an enormous amount of capital leverage. They’re dealing with lots and lots of developers, and they’re buying huge amounts of housing inventory. 

One level beyond that might be somebody who says, “Actually, I want to bring the maximum leverage to bear in this market and the maximum specific knowledge.” That person would say, “Well, I understand real estate, and I understand everything from basic housing construction to building properties and selling them, to how real estate markets move and thrive, and I also understand the technology business. I understand how to recruit developers, how to write code, and how to build a good product, and I understand how to raise money from venture capitalists, how to return it, and how all of that works.”

Obviously, not a single person may know this. You may pull a team together to do it where each has different skill sets, but that combined entity would have specific knowledge in technology and in real estate. It would have massive accountability because that company’s name would be a very high-risk, high-reward effort attached to the whole thing, and people would devote their lives to it and take on significant risks. It would have leverage in code with lots of developers. It would have capital with investors putting money in and the founder’s own capital. It would have some of the highest-quality labor you can find, which are high-quality engineers, designers, and marketers who are working on the company.

Then, you may end up with a Trulia, Redfin, or Zillow company, and then the upside could potentially be in the billions of dollars or the hundreds of millions of dollars. 

Each level has increasing leverage, increasing accountability, and increasingly specific knowledge. You’re adding in money-based leverage on top of labor-based leverage. Adding in code-based leverage on top of money and labor allows you to actually create something bigger and bigger and get closer and closer to owning all the upside, not just being paid a salary.

You start as a salaried employee. But you want to work your way up to try and get higher leverage, more accountability, and specific knowledge. The combination of those over a long period of time with the magic of compound interest will make you wealthy. 

The one thing you have to avoid is the risk of ruin.

Avoiding ruin means staying out of jail. So, don’t do anything illegal. It’s never worth it to wear an orange jumpsuit. Stay out of total catastrophic loss. Avoiding ruin could also mean you stay out of things that could be physically dangerous or hurt your body. You have to watch your health.

Stay out of things that could cause you to lose all of your capital, all of your savings. Don’t gamble everything in one go. Instead, take rationally optimistic bets with big upsides.

Eric Jorgenson, from his blog, says this about leverage:

Building a Mountain of Levers

Eric Jorgenson

Accomplish More.

Break the constraints of the typical day. Learn how to accomplish superhuman feats by playing a different game — building leverage.

Prioritize — Get the critical things done.

Produce — Increase your output-to-effort.

Compound — Build greater impact every day.

Leverage: from idea to application.

Levers are force multipliers. This is how some people can accomplish 10x, 100x, or 1,000,000x what others can. Leverage can multiply outcomes from your effort, your skill, and your judgment.

• Can you lift 800 pounds? You could with an 18-foot lever.
• Can you earn $50,000/year without working even 1 hour? You could with $1,000,000. (leverage from capital)
• Can you get 100,000 people to read your tweet? You could with 100 retweets. (leverage from an audience)

Those who focus on building, growing, and re-investing in Leverage are playing a different game. And the gap between the levered and the unlevered is going to keep growing.

There are already many million-dollar 1-person companies. Now, we are seeing billion-dollar 10-person companies. Bitcoin is a trillion-dollar asset with one creator. This is the age of leverage. Learn to see it, learn to use it.

Like compounding, Leverage is:

• Based on math
• Very counterintuitive
• Truly astonishing at scale
• Key for building wealth
• Overlooked by almost everyone
• Critical for understanding extreme outcomes and achieving them yourself.

Leverage is tricky to get into your head as a mental model, but once it’s there, it’ll be there forever – and it will change your life. You will build a Mountain of Levers.

We have spoken about Paul Graham the cofounder of the influential startup accelerator and seed capital firm Y Combinator, and prolific essayist in past episodes. He has this to say about leverage in his:

Technology = Leverage

From How to Make Wealth

Paul Graham

May 2004

Startups offer anyone a way to be in a situation with measurement and leverage. They allow measurement because they’re small, and they offer leverage because they make money by inventing new technology.

Sidenote: I want to detail this a second. Startups are small and nimble; thus they can be very effective because communication and collaborative work abound. But a large company, as we will discuss shortly, has a hard time with that. So, to combat this larger organizations can reconstruct communication and collaboration to mimic being smaller by shrinking their hierarchical structure. And purge the C, D, and F employees. Keep your A’s and some B’s. We talked about this in Episode 8, Bureaucracies.

This is much easier to do when building a company, but Elon Musk did a great job of it within an established organization when he culled Twitter of 80% of the employees.

Paul O’Neill, of Alcoa fame, we did a three-part series on Paul, made Alcoa into a “small” company, not by culling of employees, but by redirecting communication so that every individual across every level within the organization could be heard up and down the hierarchy.

What is technology? It’s technique. It’s the way we all do things. And when you discover a new way to do things, its value is multiplied by all the people who use it. It is the proverbial fishing rod, rather than the fish. That’s the difference between a startup and a restaurant or a barbershop. You fry eggs or cut hair one customer at a time. Whereas if you solve a technical problem that a lot of people care about, you help everyone who uses your solution. That’s leverage.

That is the intent of this podcast, Evergreen content that anyone can gain from.

If you look at history, it seems that most people who got rich by creating wealth did it by developing new technology. You just can’t fry eggs or cut hair fast enough. What made the Florentines rich in 1200 was the discovery of new techniques for making the high-tech product of the time, fine woven cloth. What made the Dutch rich in 1600 was the discovery of shipbuilding and navigation techniques that enabled them to dominate the seas of the Far East.

Fortunately, there is a natural fit between smallness and solving hard problems. The leading edge of technology moves fast. Technology that’s valuable today could be worthless in a couple years. Small companies are more at home in this world because they don’t have layers of bureaucracy to slow them down. Also, technical advances tend to come from unorthodox approaches, and small companies are less constrained by convention.

Big companies can develop the technology. They just can’t do it quickly. Their size makes them slow and prevents them from rewarding employees for the extraordinary effort required. So in practice, big companies only get to develop technology in fields where large capital requirements prevent startups from competing with them, like microprocessors, power plants, or passenger aircraft. And even in those fields, they depend heavily on startups for components and ideas.

Look at Archer VTOL and Boom Supersonics’ partnerships with United.

It’s obvious that biotech or software startups exist to solve hard technical problems, but I think it will also be found to be true in businesses that don’t seem to be about technology. McDonald’s, for example, grew big by designing a system, the McDonald’s franchise, that could then be reproduced at will all over the face of the earth. A McDonald’s franchise is controlled by rules so precise that it is practically a piece of software. Write once, run everywhere. Ditto for Wal-Mart. Sam Walton got rich not by being a retailer, but by designing a new kind of store.

At that time and until shortly after Sam’s death, Walmart was big on stores and salesfloor associates, now its all about horizontal support staff and a hierarchy over one hundred layers deep. There is nothing “start-up” about Walmart now.

I would love to see CEO Doug McMillian cull Walmart like Elon did with Twitter. Letting 80% of the horizontal staff go would be amazing for the organization.

Use difficulty as a guide not just in selecting the overall aim of your company, but also at decision points along the way. At Viaweb one of our rules of thumb was run upstairs. Suppose you are a little, nimble guy being chased by a big, fat, bully. You open a door and find yourself in a staircase. Do you go up or down? I say up. The bully can probably run downstairs as fast as you can. Going upstairs his bulk will be more of a disadvantage. Running upstairs is hard for you but even harder for him.

What this meant in practice was that we deliberately sought hard problems. If there were two features we could add to our software, both equally valuable in proportion to their difficulty, we’d always take the harder one. Not just because it was more valuable, but because it was harder. We delighted in forcing bigger, slower competitors to follow us over difficult ground. Like guerillas, startups prefer the difficult terrain of the mountains, where the troops of the central government can’t follow. I can remember times when we were just exhausted after wrestling all day with some horrible technical problem. And I’d be delighted, because something that was hard for us would be impossible for our competitors.

This is not just a good way to run a startup. It’s what a startup is. Venture capitalists know about this and have a phrase for it: barriers to entry. If you go to a VC with a new idea and ask him to invest in it, one of the first things he’ll ask is, how hard would this be for someone else to develop? That is, how much difficult ground have you put between yourself and potential pursuers? And you had better have a convincing explanation of why your technology would be hard to duplicate. Otherwise, as soon as some big company becomes aware of it, they’ll make their own, and with their brand name, capital, and distribution clout, they’ll take away your market overnight. You’d be like guerillas caught in the open field by regular army forces.

Here, as so often, the best defense is a good offense. If you can develop technology that’s simply too hard for competitors to duplicate, you don’t need to rely on other defenses. Start by picking a hard problem, and then at every decision point, take the harder choice.

Run up stairs.

Well, I think we have done a good job of diving into Leverage. In coming episodes, we will continue to dive deeper into these ideas, their reasoning, and the real-world observations and how we can ensure leverage and its lever, technology can drive us to excellence, and how the effect of well-managed use of leverage affects our lives, businesses, and organizations.

Links to all the quoted resources are in the show notes and in the transcript on my website, Eddiekillian.com

Join me next Tuesday as we continue to travel the path of what is difficult, perilous, and uncertain as we explore introducing A New Order of Things.

I am your host, Eddie Killian. And this concludes Episode 24.

References

Dixon, C., & Ravikant, N. (2021, 10 28). The Tim Ferris Show. (T. Ferris, Interviewer)

Graham, P. (200, May). Technology = Leverage. Retrieved from Paulgraham.com: http://www.paulgraham.com/top.html

Jorgenson, E. (2020). The Almanac of Naval Ravikant: A Guide to Wealth and Happiness. Sheridan: Magrathea Publishing.

Links:

Smart Friends: https://www.ejorgenson.com/

The Podcast of Naval: https://nav.al/

Tim Ferris: https://tim.blog/naval-ravikant-on-the-tim-ferriss-show-transcript/