Leverage is a term used to describe action of a ‘lever’ i.e., moving object much heavier than the available force. It is used to describe something that magnifies the advantages so that work gets done with much less effort – conversely, same effort produces more output. It is the strategic effort to remove the bottlenecks in the path of a person’s financial progress. Such expansion of resources vastly improves productivity & produces a downstream effect of accelerating income. Leverage is the reason behind stupendous success of some 20, 30-year-olds, which is otherwise not achieved over lifetime of work by others. Financial success is more a matter of working smarter & not harder.
Time is a finite resource – limited working hours each day of the limited working life. Expanding this resource by leveraging the time of others & getting more work done is the surest way of turbo charging the income growth. It will be a huge compromise if income is left to its natural linear growth by remaining within the confines of one’s own time. Primary purpose of leveraging time of others is to increase productive segment of each working day – hours spent on doing the kind of work that makes a difference, creates value. This intent is significant because such productive time is just 10% of the day, rest is just routine (even if, essential) work.
Finding more hours for high value-added work automatically leads to better productivity & higher income. It is possible to remove oneself from the nitty gritty of business by mapping repetitive tasks into standard procedures, to be automatically followed by employees. A manual of best practices saves time of both management & the workers. Benchmarked against one’s skill set & time-value, activities that are less valuable should be delegated to employees to free oneself for more important work. Such leveraging of time not only increases overall capacity for work that increases top line income, but also improves profit margins through more value-added work.
If machine labor is able to replace human labor, the results are cheaper, faster & less error prone. Leveraging efficiencies of technology & standardization of processes has the potential to dramatically shorten the lead time to growth of business & income. Growth demands new clients & long-term value proposition from every client. Technology driven & customer centric solutions can deliver steady flow of prospects via automated marketing & lead generation system, convert such prospects into business & collect payments, while delivering value & accountability better than fully trained staff. Primary examples are fintech, banking & brokerage companies that have tapped the un-serviced markets in fraction of the time, the old school businesses take.
A framework that facilitates – new client acquisition at low marginal cost, provides instant feedback from prospects, delivers value added communication to clients & builds brand loyalty – pretty much, does away with all limitations to growth. Fast communication network & social media innovations give access to an audience many times more than what was previously possible. As one moves beyond the limitations of physical presence for growth, the potential for income improves dramatically. Success of communication & marketing leverage in scaling up revenues in a compressed time span, is the reason celebrities, entertainers & social media influencers get paid so much more than those who deliver more critical / superior services (such as teachers, police, doctors etc.).
Good advice, expert knowledge & deep experience are invaluable, for the reason that these are always difficult to access. A strategic alliance with right people helps you do more, do it faster, with greater upside & reduced risk. A network of relationships is an eco-system wherein receiver gains immensely (contacts, referrals, strategies, knowledge, support etc.) & there is no cost to giver. This exchange of value without any quid-pro-quo, is premised on sharing the individual strengths & would, of course take long time to build. Leveraging such relationships can significantly compress the learning curve, reduce risks & compound gains through better decision making.
- Knowledge is the source of innovation.
- Innovation is the source of competitive advantage.
- Competitive advantage is the source of profits.
Capacity to learn & time needed to learn, are key constraints to maximizing the knowledge resource. This limitation can, however be overcome by hiring experts & making their knowledge available to the whole organization by documenting the knowledge & incorporating it into systems & processes of business. Better still, one can become an expert & leverage the knowledge for higher income.
Financial Leverage is best understood, widely deployed but is also the riskiest. It is using money of others to overcome limitation of own capital. Debt financing, mortgages in real estate, margin money in stock market operations etc. are examples of filling the capital shortfall. Such leverage has a cost attached to it, in form of interest to be paid on outstanding loan. Risk profile of financial leverage is dependent on the purpose for which outsider capital is used. If it leads to an asset, the value creation of which is much more than interest cost, then it is a wealth creation agent. In other cases, it burdens the finances & can have a very debilitating effect on business.
[…] Wealth Creation is no rocket science. It is possible for anybody & everybody – irrespective of how little resources one is starting out with. Wealth gets created by consistent application of few proven financial processes over a length of time. It is time-tested certainty. Of course, for creating the kind of wealth that gets one into exclusive club of super-rich, these financial processes need the acceleration of financial, knowledge, time, network & technology leverage. […]