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The secret to building more leverage:
Alone a person can only work one hour and get one hour worth of work done. But if they have 40 employees, they can get 40 hours of work done in one hour.
A well-networked person can make a phone call to a vendor or an individual to get something very important done for them in 10 minutes. This is leverage.
Most people have very little leverage. They work 2,000 hours a year in exchange for, say, $30,000. They trade one hour of their time for $15.
Other people with significant leverage can work 1,000 hours a year in exchange for $300,000.
They trade one hour of their time for $300.
Others have extreme leverage.
They have several sources of income and many of them are passive, meaning they do not need to do work or spend time in exchange for money.
They have a lot of money in stocks that pay dividends or they own real estate that somebody else manages but they collect the rent.
No one person, like their boss or business partner, can influence their quality of life by making a certain decision. Nobody has power over them. They are insulated from risk because they are diversified.
I have a friend who spent 20 years building a profitable business. He gets government contracts to run fiber internet underground.
He also works with the internet and utility companies to run the line alongside the roads. The first year in business he made about $100,000 in profit, or about $50 per hour of his time. He got his start trading time for money just like I did.
The company grew. By year five, he was making $750,000 personally, or about $375 for every hour he gave his business.
By year 15, he was making more than $5 million in profit each year. Still working full time, 40 hours a week. He grew to 150+ employees, but by then he was earning $2,500 for every hour he gave his business.
At year 17, three years ago, he hired a CEO to run the whole thing. His time is no longer required to run the business he founded, but he still owns almost all of it. And he makes more than $10 million each year. Now, he travels, plays golf, and generally does whatever he wants.
His time leverage is nearly infinite. He gives his business virtually zero time but earns millions of dollars a year.
That is how leverage works.
I got talking to a gentleman recently at a cocktail party. He opened up and told me his story. He bought three rental properties with about $60k of his own money in 2017.
He still had a full time job, but he did this on the side. Then, he hired a property management company to run them, so he wouldn’t have to spend much time on the properties.
Now, he makes $5,000 per month on those assets without ever having risked it all on a new idea in an uncertain marketplace.
He chose a boring investment, and the income from those properties has given him a nearly infinite return on time and added a ton of freedom to his life.
He still works his full time job which he enjoys, but he is one of many people who have started to gain leverage and stopped trading their time for every dollar they earn.
My lawyer friend was working 70 hours a week.
Sure he earned a million dollars a year, but he had no control of his time. He couldn’t work remotely.
He had to get permission months in advance for any significant vacation and it could have been canceled at a moment’s notice for a trial. Hell, he was expected to miss the birth of his first kid.
If he stopped working, he stopped getting paid. If his boss said jump, he said how high.
He didn’t have the leverage. His boss did. His clients did.
But many of the entrepreneurs I know work fewer than 40 hours per week. They usually don’t need to work more than 10, mostly between rounds of golf or for 30 minutes in the morning when they’re traveling with family and friends.
Some earn millions per year. They don’t do manual labor. They could decide they want to go on a trip tomorrow, hop on the jet, and just go.
So what do my entrepreneur friends know that my lawyer friend had to learn the hard way?
There’s only one answer to that question, and the answer is leverage. Leverage is what allows them to work so little and become wealthy while others are working so hard just to get by.
So how do we get leverage in all areas of life and business, so things get easier and we can begin operating at a high level? It depends on these three things:
Number 1: Network
Your network is your net worth. It isn’t just about who you know, it’s about who knows you.
To make money, you need other people to work for you, make decisions for you, help you, and work with you. You need vendors. You need people to buy from you. You need partners and investors and experts who can help you.
You can’t possibly be an expert at everything. You need people you can reach out to who can add value to your life while you add value to theirs.
Your network is critical. Eventually, if you know people who know how to run companies you can pay them to run your companies. If you know people with money, you can convince them to invest with you when you want to buy a property or an asset.
If you know people who can work for your companies, they can recruit others to join them. Very few people succeed in business alone.
And just as important:
You need other competent and effective people to know you. You need them to want to work with you or for you. You need to gain their trust and be somebody who they think of when they have a problem or spot an opportunity.
Number 2: Skills
How good are you at making things happen? Building companies or accumulating assets that send you money every month is hard work.
It requires a lot of hard decisions. It requires a certain mindset. It requires knowing how to do a lot of things.
Sales. Leading other people. Hiring. Management. Delegation. Decision making. Without experience or practice, you don’t have any of these skills.
People aren’t born with the ability to lead other people. The same goes for hiring, delegating, decision making. They suck at all of it. But if you have skills that nobody else has, then you are hard to replace and people need your expertise.
So how do you gain the skills? You get out and practice. If you wanted to build muscle like Arnold Schwarzenegger, what would you do?
Read about muscles, spend all of your time making plans, get all the necessary supplements and powders, watch videos of Arnold, and think about building muscles?
No. You’d go to the gym and lift weights. It’s the same for business.
Number 3: Capital
It is 10x easier to build a great business when you aren’t strapped for cash in your personal life.
If you can run your company without worrying about paying your bills or putting food on the table it is a massive advantage. You can make payroll without stress. You can invest in equipment and marketing. You can invest in growth without increasing your stress.
Cash flow lets you hire people, make investments, and, most importantly, take risks.
You will be at a disadvantage as an entrepreneur unless you have personal cash flow coming in the door to support your life.
At the beginning, you may have little to no cash flow, but from the moment you are cash flow positive your life begins to get easier and less stressful.
Entrepreneurs who are wealthy from previous endeavors are able to move faster, invest in growth and hire ahead of revenue.
They can grow companies much faster than a broke bootstrapper who needs to live on their company in the early days and can’t afford a mistake.
Business is a chicken and egg problem in all three of these areas. It is a massive advantage to do business when you have the network, skills and capital to grow quickly, but you can’t get the network, skills and capital until you’ve practiced and built a company.
The most successful entrepreneurs play business on easy mode and achieve leverage because they have slowly and steadily acquired the network, skills, and capital to do so.
They have practiced and are good at doing what needs to be done to make money. They started with a disadvantage and slowly over time built their advantage.
It takes time and it takes effort. You can’t build leverage overnight and grow a network, skillset, and income streams out of thin air.
Think of leverage like a ladder. There are rungs on the ladder that lead to higher and higher levels of leverage and therefore success. You can’t skip steps. It is a process.
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A few tweets from this week:
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