Leverage is a powerful tool and a useful conceptual frame. There is a widespread understanding of the concept of leverage in finance and investing contexts. But I think it is underappreciated for its utility when applied to other domains of life.

At its simplest level, leverage is the difference between what you put in and what you get out. By this definition, anything that amplifies your inputs to obtain more outputs is leverage. Although the groupings aren't strictly important, the following three groups of leverage (levers) make the most sense to me: Collaboration, Capital and Code/Media. 

Collaboration refers to labour and the associated skills, knowledge, and expertise that people have. Capital refers to non-labour resources; from natural materials, to technology and money. Code/Media really refers to anything with no salient marginal cost of reproduction. [1] This last form of leverage is permissionless and a relatively recent invention. Converse to capital and collaboration, code and media don't require permission to be used.

Each lever can be viewed as a bucket of sub-tools and mechanisms. Collaboration includes skills like recruiting, onboarding, communication, training and management. Capital involves being good at math, networking, legal proficiency, negotiation, structuring and sales. Code/Media requires skills like storytelling, platform proficiency, programming, AI prompting, editing and content creation.

I think leverage is also a function of time, as time amplifies returns to these levers. This is because specific skills, knowledge and expertise generally increase over time.

Levers amplify the outputs from a given set of inputs, facilitating faster progress and allowing for a greater impact on the world. We live in an era of unlimited, permissionless leverage which enables us to move the needle while preserving our most valuable resource: time.

How to use Leverage?

Our actions should seek to maximise leverage on the inputs that map to the outputs we desire. 

On an individual level, if one allocates a given amount of effort to a goal or task, they can increase the outputs for that given effort by increasing their leverage. This could be accomplished in different ways: writing a script, posting to social media, using AI tools or hiring others. It is likely to require an initial investment of effort to obtain or set up these levers, but this investment can be very worthwhile.

If applied to work, our businesses or careers shouldn't be solely driven by our interests, natural aptitudes, or what we can work hardest at. [2] There should also be a focus on the highest leverage opportunities for our career or business. It can be worth pivoting from work we are naturally gifted at, to a pursuit that maximises leverage for the outputs we desire. 

It's not about how hard you row, but about which 'boat' you're in. This is why those who have the largest impact on the world aren't always the smartest or hardest working people in the world. Those who 'move faster' in life don't actually move faster, they just get more out of every move. They understand how to leverage their inputs best.

We can select the 'boat' (leverage vehicle) based on the domain, desired outcomes and our competitive advantages and weaknesses.

For example, consider a talented and determined math teacher who aims to effectively educate and impact as many people as possible. Adopting a standard teaching role in a school, despite their above-average efforts, their impact is likely limited to class size and number of classes (100s-1000s).

If said teacher pivots to a higher-leverage vehicle, their impact can be amplified significantly. Instead of teaching classes directly, they could upload their classes online (code + media), teach other educators their method and techniques (higher leverage vehicle/model), fund and build an online platform to assist students to learn digitally (capital, code + media) and hire staff to tutor on their platform using his model (collaboration). This could enable them to impact millions, whilst still investing the same day-to-day effort and time.

Generalising this example, going from employed to self-employed provides leverage by giving you control over your own time and enabling you to work in ways that leverage your inputs and maximise your outputs. Similarly, an organisation incorporating an online service delivery model into its operations can increase their leverage via exposure to a larger user base and access to lower marginal costs of delivery.

How are higher returns achieved in lower-leverage vehicles?

Many cases can be identified where an individual or organisation achieves higher overall returns to their inputs than their competition, despite being in seemingly lower-leverage vehicles.

This could be due to 'leverage vehicle momentum' (LVM). LVM increases leverage on inputs over time. When one uses a leverage vehicle over time, their specific knowledge, skills and general proficiency at operating in this vehicle also increases over time. This can lead to increases in the actual amplifying effect of that leverage vehicle over time - via increased returns to the underlying levers (collaboration, capital, code/media). The more time spent in a leverage vehicle, the more your LVM increases.

However, if switching leverage vehicles, LVM can erode. The specific knowledge, skills, and general proficiency related to a prior leverage vehicle may not carry over to a new leverage vehicle. If one switches from physical service delivery to digital service delivery, much of the specific knowledge, skills, and general proficiency related to the physical model may not be transferable to the digital model.

Over time, LVM can become so large that it can make sense to stay in a lower-leverage vehicle rather than switch to a theoretically higher-leverage vehicle. The switching costs can make this transition impractical.

For example, a single programmer who operates as an individual contributor to their project/team appears to be in a relatively low-leverage vehicle. Over time, the programmer develops proficiency in the specific tech stack the organisation uses, increases technical skills, develops a workflow and routine that maximises their productivity and builds specific custom tools that help to automate role-specific tasks. These improvements represent forms of LVM that have significantly increased the programmer's output. 

Let's assume this programmer is financially driven, and after a few years his output is in the top 1% for his role. They could elect to leave their role and transition to a higher-leverage vehicle by starting a software company. But by making this pivot, much of the LVM that the programmer gained as an individual contributor could be lost. The LVM would need to be built back up from scratch for the software company leverage vehicle, as running a company requires very different knowledge, skills and proficiencies. 

For this programmer, the income received as an elite individual contributor with high LVM may outweigh the potential income and they receive as a software company owner. If enough time has passed, higher returns could be achieved via a theoretically lower-leverage vehicle. 

Mathematical Representation

Output = LV(t) × I(t) + LVM(t)

-I(t) = (S(t)-LB)×K(t). 
I(t) represents inputs in terms of skills (S), limiting beliefs (LB), and specific knowledge (K). Aside from limiting beliefs which can fluctuate, they generally increase over time. Specific knowledge and skills can reset if you switch leverage vehicles.

-LV(t) = X × Collaboration + Y × Capital + Z × Code/Media.
LV(t) is leverage vehicle. It is the multiplier or gradient of the function. LV(t) is a function of time as leverage vehicle multipliers on the underlying levers are dynamic and change over time. Each leverage vehicle brings different base multipliers (X, Y, Z) to these drivers of leverage. With mastery of the vehicle over time, the multipliers on these drivers can also increase.

-LVM(t) represents leverage vehicle momentum, and acts as an increasing 'intercept' over time. It is tied to the leverage vehicle. If the leverage vehicle is changed, this resets to zero (reflecting the switching cost).

Footnotes

[1] Most things will still have a quantifiable marginal cost of reproduction, but this relates to those that have immaterial costs.

[2] Following our interests is usually still a great heuristic to use. The things we are naturally gifted with and talented at are great places to focus on. 

• This chapter by Naval Ravikant and Eric Jorgenson was the primary inspiration and source of ideas for this writing.

• This video by Alex Hormozi was another inspiration and source of ideas for this writing.