Forget rich versus poor, white-collar versus blue. It’s now leveraged versus un-leveraged - Naval Ravikant
I view everything through this lens.
I ask myself, is what I’m doing: 1. Using a high-leverage skill 2. Building a high leverage skill. If the answer is no I stop doing it, full stop.
Our time is valuable and limited. By tieing income/impact to how much we work we put in, our ceiling is relatively low. Take a doctor. Even at a high hourly rate, their earnings are limited by the hours in a day. More importantly, the number of people they can help is capped.
Naval Ravikant is the founder of AngleList. He's also an early-stage investor in many companies including Uber and Twitter. In a book that compiles his thoughts, he defines the different types of leverage as:
- Labor - Other people working for you
- Money - Allocating capital
- Products that scale for ~free (no marginal cost of replication) - code, books, copywriting, videos, music, other media
Form 1: Labor
Naval notes that labor is the oldest form of leverage. But also the worst. Humans are a lot tougher to manage than computers or money. Having people aligned and executing on an idea can allow you to scale your time quite a bit. If you make the best BBQ in the country, you can train people to replicate your magic. You have the potential to earn while your sleep.
Form 2: Money
Capital allows you to multiply your decision-making. This can be real estate, stocks, loans, business expansion, etc. If you're trusted with money and have access to money, you’re set. Your decisions can be very impactful and you’re not tied to how much you work.
Form 3: ~Free Scaling
It’s the most powerful and what I’m personally focused on the most.
As a content creator, you can spend a few hours making a video but once it’s made it can go viral. While you sleep the video generates views, support, and an audience.
Or as a programmer - build an app that takes a few weeks to build. Once done it can scale to millions of users and serve them with little to no extra work. Every trillion and billion-dollar tech company relies on this leverage.
On a "smaller scale" the founder of Wordle made a game for his wife. Now he brings delight to millions of people and has made millions.
Using leverage allows your ideas and decisions to scale.
With this type of leverage, it’s “permissionless”. You don’t need a lot of money, no one needs to hire you, no connections. With next to no resources you can start creating and capturing value at a worldwide scale. Traditional ways of selling your time or doing one-off work can’t compete.
This is one area of leverage that I think Naval's book misses. With a factory, robot, 3D printer, or IoT device you can build a thing that builds things. Automated assembly lines clearly show this. Mechanical leverage will only become more relevant as technology improves. Note: yes code can play a role, but the hardware here is key.
Using Leverage Extends Beyond Money
President Zelensky inspires the entire world with one video. It moved millions to be brave in the face of evil. It won over the hearts and support of leaders and citizens across the globe. Think about the ROI of making that 30-second video.
People can have an impact at a scale that was previously unimaginable.
I focus all my time on leverage work. During the day I’m working on and mastering software. This is at a global, millions-of-people level scale. Outside of work, I’m writing this blog, creating podcast episodes, building projects with code, and learning storytelling/video creating (another post to come on this). I want to be proficient in scaleable tools.
With capital, I spend a ton of time reading up and investing in stocks, private equity, and crypto. The latest thing I’ve been focusing on is real estate (post coming soon). With the use of financing and proper management, this can be a huge wealth generator. Once again, while I sleep I can be growing my wealth. I have so much to learn but I'm making progress.
Management is something I don’t have a ton of experience with. It’s something I’m excited to learn more about and grow my skill set.
Creating something that takes advantage of the leverage is by no means easy. But if you’re going to work on something, it might as well have an uncapped upside.
Mastering leverage is the closest thing we have to a superpower. The modern world has tools that can multiply your impact on a global scale. Leverage it.