Four Levers

I had the good fortune to grow up in school districts that offered shop classes. As an eager young man, the classes I took, the articles I read, and the examples I saw from my parents, imprinted me with an important concept about making things. The concept is that it can take more time to build the jigs, patterns, guides, and tools to complete a project than the time spent on the project itself. This is amplified with one-offs, where the preparation for a making a single cut or drilling a single hole has no multiplying effect. That changes with the leverage of mass production, where the pre-production time is spread over more pieces.

The idea of leverage is to get more output for the same input. Entrepreneur and investor, Naval Ravikant, articulated Four Cs of Leverage: Code, Content, Capital, and Community. The example of a shop project fits well into this model. I expand on Ravikant’s framework below, with thoughts on where each method works, as well as its pitfalls.

Code: Using code for leverage describes automation, where tasks are performed or simplified through software or hardware. The shop example above describes the use of hardware (tools, jigs, etc.) to leverage human inputs in production. It is largely what Henry Ford is noted for. Once created, code can have a huge multiplying effect. The biggest pitfall of this form of leverage is the upfront investment to create the code. If it takes too long, or isn’t used sufficiently, the return on investment will be too low.

Content: Content is the idea of writing, or otherwise recording, what you have to communicate. You can have individual conversations with every person, or you can put what you have to say in a book, training manual, video, or what-have-you, to reach a larger audience. Audience sizes have exploded with the internet, but so much content is being created that it is overwhelming the capacity of people to consume it. It can be hard to break through in this environment, but if you succeed the leverage can be enormous.

Capital: Capital is used for leverage by making investments, either in your own enterprise or the enterprises of others. Legendary investor Warren Buffet is well known for his savvy evaluation of enterprises and productive capital allocation. The risk in this form of leverage is in making decisions that result in the loss of capital. Losses can be dramatically compounded by borrowing money in attempts to increase leverage.

Almost every financial blow-up is because of leverage. — Seth Klarman, CEO of the Baupost Group

Community: Community is the leverage of leadership. The difference between people pulling on the rope in one direction and people meandering every which way is the difference between effectiveness and being ineffectual. When peoplepower is aligned, the leverage can be enormous. The pitfall is in thinking that more people is necessarily better. In fact, the focus should be on alignment, rather than headcount.

Effectively delegating to others is the most powerful, high-leverage activity there is. — Stephen R. Covey, The Seven Habits of Highly Effective People

In summary, Ravikant’s framework is a great guide for finding force multipliers in our enterprises. As someone who believes in lean organizations, finding places to apply these principles is time that is well-spent and well leveraged.