“You get rewarded by society for giving it what it wants and doesn’t know how to get elsewhere. A lot of people think you can go to school and study how to make money, the reality is, there is no skill called ‘business’,” says Naval Ravikant.
“Think about what product or service society wants but does not know how to get. You want to become the person who delivers it at scale. That is the challenge of how to make money” he advises.
“Forget rich versus poor, white collar versus blue. It’s now the leveraged versus the un-leveraged,” says the Silicon Valley investor and philosopher.
What are the ways to gain leverage? Will being curious, changing your mind, and attempting to understand the systems of business be useful?
Leverage counts
“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world,” said Archimedes 2,200 years ago.
In broad terms there are three types of leverage, according to Ravikant: labour, money and ‘products with no marginal cost of replication’.
Labour: The oldest from of leverage is simply the staff working for you. Catch is, people are complex, with sometimes fickle feelings and emotions, you may be a short step away from a mutiny.
Money: Capital, making investments - multiplying the fortunes of the company is a form of leverage. Every time a smart decision is made, putting money on it multiplies the chance of success.
Traditionally, the CEO of company was a finance person who decided where to move the money around and place the bets. Leveraging capital scales very well. Astute finance folks can manage more and more money, and in turn, manage more people.
Products with no marginal cost of replication: This is the newest form of leverage, and the most democratic. “The most interesting and the most important form of leverage is the idea of products that have no marginal cost of replication. This was only invented in the last few hundred years. It started with the printing press. It accelerated with broadcast media, and now its really blown up with the internet and coding. Now you can multiply your efforts without involving other humans and without needing money from other humans. Code is probably the most powerful form of permissionless leverage. All you need is a computer – you don’t need anyone’s permission,” writes Ravikant.
Back to basics
Being curious, constantly learning, reading makes all the difference. Taking advantage of a way of thinking, accessing ‘intellectual’ capital is another way to gain leverage, not mentioned by Ravikant.
Interesting that today, thanks to your smartphone, accessing knowledge and wisdom has become just about free. Helps to watch, observe, see what is really there.
Not what you ‘think’ is there, looking through warped tinted glasses. Don’t be afraid to change your mind. Those who never change their thinking, never change anything.
Charlie Munger, Warren Buffet’s business partner considered the ability to ‘destroy’ one's own cherished ideas to be a valuable quality. A willingness to consider opposing viewpoints and challenge established beliefs is essential.
Munger stressed the importance of discarding ideas, especially cherished ones, when new evidence or a better understanding emerges. When was the last time you let go of old, perhaps even outdated ideas?
Insights provide competitive edge
Insights are a form of leverage. Begin to think in systems. Realising business is a system, a system of systems, is perceptive. Some systems are simple, like filling a bathtub with water and watching it go down the drain. Most business systems are complex, too complex, we can monitor a very limited number of factors. And, are usually surprised by what happens.
One insight that’s helpful, is to begin to see not only the events; this happened, that happened, she did this, she did that. It’s important to see that the outcomes are just the tip of the iceberg, what is really going on is under the surface– determined by the structure of the system, including the interconnections and information flows.
Changing the elements of a system, say staff, doesn’t really do much. But if you tinker with the purpose and function of the system, then one starts to see changes.
Menu item is not the meal
“Everything we think we know about the world is a model. Every word and every language is a model. All maps and statistics, books and databases, equations and computer programmes are models. So are the ways I picture the world in my head – my mental models. None of these is or ever will be the real world,” writes systems thinker, Donella Meadows.
“The right boundary for thinking about a problem rarely coincides with the boundary of an academic discipline, or with a political boundary. Rivers make handy borders between countries, but the worst possible borders for managing the quantity and quality of the water,” notes Meadows.
Play with the boundary of the box. “Ideally, we would have the mental flexibility to find the appropriate boundary for thinking about each new problem. We are rarely that flexible. We get attached to the boundaries our minds happen to be accustomed to. Think how many arguments have to do with boundaries – national boundaries, trade boundaries, ethnic boundaries, boundaries between public and private responsibility, and boundaries between the rich and the poor, polluters and pollutes, people alive now and people who will come in the future”
Rewards come to those who go beyond renting out their time, their labour. To work at scale “Earn with your mind, not your time,” advises Ravikant.
