“Leverage is a force multiplier for your judgment.”
— Naval Ravikant
Naval Ravikant is one of the most prolific thinkers of our time. As an entrepreneur, investor, and now philosopher, he knows a thing or two above about becoming successful. One of his most powerful pieces of advice is that in order to become successful, you need to have some kind of advantage, and the best advantages come from leverage.
The word leverage comes from the word lever, a primitive tool used to lift and move heavy objects — it’s the stick in the image above. The beauty of levers is that they are force multipliers — with the proper lever, you can accomplish more than you would normally be able to on your own.
Do you think you can lift 900 pounds? Maybe not on your own, but with a 20-foot lever you certainly could! It’s physics. The famous Greek mathematician and physicist Archimedes once said:
“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.”
The longer the lever, the heavier the object you can move. The best part is that this idea extends far beyond just moving heavy objects.
Can you earn $100,000 / year without working even 1 hour?
You easily could with $5,000,000.
Can you get 50,000 people to like your Instagram post?
You easily could with 5000 people sharing it.
This is an incredibly powerful concept. If you want to give yourself the advantages that will help you succeed, then you should focus on getting yourself as much leverage as possible. According to Naval, there are 3 types of leverage that you can acquire: people, capital, and digital products.
People are the most obvious type of leverage. You can accomplish more while working in a team than by yourself. A team of two people can get more than double the results than that of a single person; a team of 10 can get way more than 10X the results. As Aristotle used to say:
“The whole is greater than the sum of its parts”
It’s even more powerful when you have people working for you such as employees and contractors. With such people working to build your business you can accomplish a lot more, while all you have to do is coordinate the resources. Most importantly, you get to keep all of the business equity, which is always the most valuable piece. As the great businessman John D. Rockefeller once said:
“I would rather earn 1% off 100 people’s efforts than 100% of my own efforts.”
Capital naturally provides leverage. It gives you the ability to buy assets that can grow in value, thus giving you a return on investment. You can use $1000 to make $10,000 if you invest it right.
Capital can also be reinvested to buy into other forms of leverage. You can buy people leverage by paying employees or contractors. You can use capital to physically buy advantages: a plane ticket for an important business meeting, advertising for your business, a platinum ticket to a networking event — these are all forms of leverage that can give you an edge. Warren Buffett used to say:
“Price is what you pay. Value is what you get.”
Digital Products Leverage
Digital products are the newest and most powerful form of leverage. Digital products include software, apps, books, blog posts, podcasts, songs, movies, social media posts, and videos. Any single one of these products can be made just once and then scaled and sold to millions of people with minimal marginal costs. You make it once and then sell it forever.
These days, even one person can take advantage of leverage from digital products. Some YouTubers make north of $10 Million per year. WhatsApp was sold to Facebook for $16 Billion. A social media post going viral can make you famous. It’s instant, highly scalable leverage. In the words of Naval:
“Code and media are permissionless leverage. They’re the leverage behind the newly rich. You can create software and media that works for you while you sleep.”
The Core Concept
The core concept of leverage is that you want to detach your output from your input. Work in a way that the rewards you get from your work can scale without having to commit any extra time or effort yourself. You work smarter to increase your leverage which increases your success on its own, rather than working harder and being limited.
The way you can tell that your leverage is increasing is that you can make more money with the same amount of time and effort as before. You have a higher output for the same input.
Anyone, including you, can increase their leverage. Think of all the things that have been presented here. Increase your liquid capital, have people working for you, create digital content that can be scaled and sold to the masses with low marginal cost. All of these things increase the length of your lever. It’s a beautiful thing: you put in the same time and get rewarded more. Leverage is the true meaning of working smarter.
The Almanack of Naval Ravikant by Eric Jorgenson