[48] From Financial to Political Leverage: The Tools That Lift the World

"Give me a lever long enough and a fulcrum on which to place it, and I shall move the world."

--Archimedes

Leverage, a powerful concept as old as time.?

I see leverage all around me, everyday. In the physical world, leverage governs what grows and what doesn’t grow. In a more ephemeral sense, it dictates how people treat each other - an amoeba of invisible influence.

Most of the time I think about leverage in a business context, and that’s what I’ll write about here.?

I’ve come to think about Leverage in two forms: Growth Leverage, and Get-Shit-Done Leverage.

GROWTH LEVERAGE

There are three types of Growth Leverage in the business setting: financial leverage, people leverage, and tech leverage.?

Financial Leverage

When the finance crowd refers to leverage, they’re talking about using debt. Sometimes they call it ‘credit’.

Using debt for growth can be very powerful. It can also be very risky.?

There’s a skill to calculating how much risk you can add with debt so that it helps you grow faster toppling over. To pull it off, you need a math brain, some experience, and the ability to speak the language of money.

Pretty cut-and-dry, financial Leverage has been around for ages.

People Leverage

People Leverage is about the power of delegation.?

There’s an old African proverb that describes People Leverage: “If you want to go fast, go alone. If you want to go far, go together.”?

People Leverage is about building a team so that you can delegate to others and focus your time on your highest-impact activities. Everyone feeds the whole.

People Leverage has some drawbacks though. Humans get quirky and can be unpredictable.?

But learning how to use People Leverage is required for growth. It requires having a process for vetting, hiring and training others - and then keeping them inspired.?

People Leverage has been around for centuries.

Tech Leverage

Tech Leverage is about using technology to reduce the need for People Leverage.?

Using Tech Leverage centers around developing systems and neatly storing information. It’s about shaving off seconds and minutes of time throughout a business’ workflows.

Some people specialize in deploying Tech Leverage, but I’ve found that anyone can learn how to do it. It takes curiosity and the willingness to try new technical solutions that may or may not work. Keep what works, discard what doesn’t. Iterate.

Tech Leverage - in its modern form - has been around for decades.

Overall, the purpose of Growth Leverage - whether using Financial, People or Tech Leverage - is to develop an integrated system so a business can repeat a meaningful activity over and over, faster and faster. It’s the process of scaling.?

Most of using Growth Leverage has to do with carefully measuring time and money and then creating arbitrage for yourself. The best entrepreneurs understand how to use Growth Leverage to scale quickly and get outsized returns.?

Using Growth Leverage is pretty cold and calculating.?

There are other kinds of leverage that are more nuanced. I call them Get-Shit-Done Leverage.

GET-SHIT-DONE LEVERAGE

Legal Leverage

The first type of Get-Shit-Done Leverage is Legal Leverage.

Legal Leverage is about being able to compel another party to behave in a certain way. Or, inversely, how to get them not to misbehave.?

Legal Leverage leans on the invisible force created by written contracts, statutory underpinnings, and the judicial system.?

Legal Leverage is based on fear. It establishes a baseline of pain that you can put someone else through if they don't meet their obligations; that is, the pain and cost of having to be proven wrong in court and being forced to pay a penalty.?

Usually when someone causes you harm in business, they know they've done wrong even if they won't admit it to you. Publicly, they claim innocence; but privately, they know. And when pressed hard enough - through threatened or actual usage of the court system - they concede ground and acknowledge your grievance.

The tricky part about Legal Leverage is that it takes a long time for the court process to play out - and they know that. People stall and delay. They dare you to sue. They know that you'll have to spend a lot of money on lawyers just to get them into court in the first place. Demand letters go unanswered. They call your bluff.

This creates a two-way dynamic in Legal Leverage in that the other party also has leverage. They can require you to spend money, time and energy to enforce your agreements. It can get expensive to deploy Legal Leverage.

So people tend to bleed you for a while, and then they settle.?

This is why dealing with assholes always encumbers you with a 'headache fee'. You always have to factor in the ‘headache fee’ when you're dealing with people who are at best unreliable and at worst unethical.

So Legal Leverage gives you power, but it has two-way dynamics and carries its own costs.

Thankfully, there's another type of Get-Shit-Done Leverage that can provide a balance to the murky dynamics of Legal Leverage - I call it Political Leverage.

Political Leverage

Politics, at its core, is about organized power. Political Leverage often trumps Legal Leverage because it leans on a supreme type of power: the power of reputation.

Political Leverage is about who you know. And who knows you. And who they know. And who knows who they know. And what you all know about each other.

These are your network of colleagues, supporters and counterparties with whom you all rely on each other’s reputation.

The members of this network don't want you to be aggrieved. They want to help keep things smooth - to help right your wrongs without you having to go through a petty and arduous process.

So, Political Leverage is the grease in the wheels when they get rusty.?

Political Leverage becomes especially important in opaque industries where there are lots of insiders, and lots of entrenched relationships.?

In practice it looks like this:?

TechCo is an engineering firm that specializes in installing industrial-grade security systems. They get approached by Atlas Corp to do a big analysis and installation job.

Atlas is a well-known company. They have a public profile and people want to work with them.?

Atlas knows that they have negotiating power and they write the contract with TechCo in an unbalanced way.? They ask TechCo to defer a sizable chunk of their fees until completion of the engagement. The back-end fee is worth millions to TechCo.

Despite the crappy fee schedule, TechCo needs the work and wants to get on Atlas’ vendor list. So they take the deal.?

They do a great job and deliver on time. Upon delivery, they send an invoice for their rightfully-earned millions.?

But, inexplicably, Atlas won’t pay. They gripe and grovel.?

TechCo tries to 'be nice' at first, not wanting to poke the bear. Atlas takes advantage of their passivity and stalls.?

Then, a TechCo executive gets flustered in a meeting and demands payment. Atlas acts shocked and makes the TechCo executive feel guilty for raising his voice. Atlas says they’ll look into it. They stall more.?

Atlas starts to feel like a toxic lover, changing moods on a dime.

But instead of going to court and using Legal Leverage, the TechCo exec picks up the phone and calls Buddy - an exec at a prominent software vendor in the same industry. The TechCo exec and Buddy know each other well; their kids play together.?

The TechCo exec gently but firmly explains what's going on to Buddy, without besmirching Atlas.?

Buddy reads the tea leaves and appreciates TechCo’s position. He likes TechCo and offers to play diplomat.

It turns out that Atlas does business with Buddy too, and they know some of the same people. Buddy calls a higher-up exec at Atlas who he plays golf with. It’s a 15 minute phone conversation. Buddy is gentle but firm, pleading TechCo’s case.

An hour later, voila! TechCo gets an email from Atlas’ finance department: “your payment is on the way, sorry for the trouble."

That's Political Leverage. It's about respect, ethics, and being amiable with the important folks around you. It's about reputation - and playing the game.

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Growth Leverage is for when you're on offense - especially helpful when you're building businesses or developing assets. It's mostly about math. Left brain.

Get-Shit-Done Leverage is for when you're on defense - trying to navigate the murky waters of business, law and finance. It's the human factor that lays on top of the math. Right brain.

Both types are equally powerful.?

And by combining both and using a lever long enough, you can move the world.