December 27, 2019

What is leverage, anyway?

Sent by Jonathan Stark on December 29th, 2019

You probably don’t think about levers much. They’re everywhere, but they’re kinda buried inside stuff, so you don’t often use them directly.

Here’s a quick definition I cobbled together from Wikipedia (bold mine):

A lever is one of the six simple machines identified by Renaissance scientists. It consists of a beam or rigid rod pivoted at a fixed hinge, or fulcrum. A lever amplifies an input force to provide a greater output force, which is said to provide leverage.

Key point:

“A lever provides more output force than input force.”

Another way to say this might be “a lever allows you to do more work with less effort,” or perhaps “working smarter, not harder.”

This is where the business metaphor of “creating leverage” comes from. In business, “leverage” represents some tool or system or investment that allows you to make more money with less effort.

For people like us, “effort” generally equates to “time spent undertaking activities on a client’s behalf”. These activities are not the backbreaking sort of labor associated with jobs that a traditional lever would be used for, but it is work nonetheless.

Herein lies one of the central problems of hourly billing… when you create leverage, you make LESS money because you end up working fewer hours!

Even worse, once you’ve been billing by the hour for long enough, you subconsciously avoid creating leverage because deep down you realize it’ll decrease your income.

It’s a trap.

The way out is to start creating leverage.

How?

By selling something that isn’t tied to your time.

Yours,

—J