Did you catch this?

Hi Dien,

Thanks for taking the time to post such detailed and lucid thoughts on this fascinating and important topic. Some comments below, threaded into your message:

> Hi Jesse!

> Jesse, your posts about leverage below (such
> as this one and also this one ) have
> really made me think....

> Jesse, is this how you understand using the
> concept of leverage? Let me first give an
> example....

> First, what is a lever? A lever is a tool
> you can use to allow yourself to (for
> example) lift much bigger weights than you
> normally could....

> So, for example, by yourself, using only
> your arms, you may not be able to lift a big
> boulder. You might be able to lift a small
> rock -- but not a big boulder, because it's
> too heavy.

> HOWEVER, if you use a lever, you can use
> that leverage to lift a much heavier
> object than you could normally....

> The way I see it, the way almost EVERYONE
> works is like trying to lift the boulder
> directly. They want to lift the big boulder
> -- that is, make a lot of wealth -- but they
> try to do it directly with NO leverage! No
> wonder they can't do it!

*** Great example, and your definition is spot on! It's certainly no coincidence that the first 5 letters of leverage are LEVER :)

What's interesting is that most everyone would use a lever to lift a boulder, or a jack to raise a car. So without even necessarily knowing it, they are applying principles of leverage into their lives. Yet when it comes to leveraging oneself from a time and/or business standpoint, very few people know what to do, let alone take action on it.

Is this because they lack intelligence or motivation? Not at all! It's actually very similar to Kiyosaki's assertions about money not being taught in school, and people therefore just doing what is 'conventional', or accepting what they learn from their parents, etc.

And 'conventional wisdom' dictates that the way to earn money is through a job. A job would be an example of linear income -- trading time for money. But linear income is not limited to employees. Many highly skilled and respected professionals such as doctors, lawyers, and accountants, also earn linear income. Remember, no matter how high your hourly rate, you are still not leveraging yourself unless you create ways to get paid when you are not working.

Don't get me wrong...I have the highest respect for those who have a job, and carry it out with skill and enthusiasm. Leverage is not necessarily for everyone. But it sure can open up some amazing possibilities. More on that in a moment, below some of your other comments...

> Those, however, who know about the concept
> of leverage use it.... They use leverage, of
> one kind or another, to easily lift that big
> boulder (or make those big profits)....

> To better explain this, what I mean is that
> the average person, including the average
> small businessperson, is selling their time
> , and how much money they make is directly
> related to how much time they spend
> working. This is the connection you have to
> break!

> It's NOT generally possible to break this as
> an employee. Practically the only way to
> break this connection between money and time
> is as a business person....

> Now, on to forms of leverage. For example,
> Jesse, you mentioned your employees....
> Employees are a form of leverage, by using
> employees you can accomplish more.

> For example, let's take someone who starts a
> lawn-mowing business.... How much money they
> can make is limited by how much time they
> can spend mowing lawns. If (say) they charge
> $20 per hour to mow a lawn, they can make a
> maximum of about $800 per week (for a
> 40-hour work week)....

> However, what if they are able to get more
> jobs than they can physically handle? One
> thing they could do is then employ someone
> -- say at $15 per hour -- to mow lawns for
> them.... This gives them leverage. Suddenly,
> they're no longer limited to just how many
> hours they can work. In fact, the only limit
> is how many jobs they can get mowing lawns,
> and how many good people they can hire!
> They've started to break the link between
> their income and their time....

> Jesse, now, your post really made me think
> of the following.... If you do something,
> and it's profitable (whether small or
> large), then you can often use leverage (of
> one kind or another) to increase that
> profit, so that it becomes a large profit.
> For example, in our lawn mowing business
> above, one person working by himself or
> herself can only make about $800 per week,
> which is about $40,000 per year.

> Most people, if they started this business,
> would be stuck there. They would just earn
> that $40,000, year in, year out.

> However, someone who knows about leverage
> knows then that, since they *are* making a
> profit, that they can use leverage to
> increase that profit.... Such as by taking
> on employees.

*** Again, right on the mark. If I had to choose one single quote, to sum up the power of leverage, it would be the following from Billionaire J. Paul Getty:

"I'd rather have 1% of the efforts of 100 men, than 100% of my own efforts."

This goes right along with your comments about having employees. Paying employees, or subcontractors, to carry out certain tasks for you, is certainly a viable and basic model for creating leverage.

But here's something that's not the most comfortable point to discuss, but extremely important:

If you have an employee working for you, you have to calculate your return on investment on that employee, just as you would on any ad or marketing campaign. This may sound somewhat cold and callous, but the truth is that you can only have people working for you if it is profitable. It is incumbent upon you, as a business owner, to calculate exactly what each employee is worth, as compared to what you are paying them.

Now getting back to your point about "breaking the link between time and money," here's another very interesting fact to consider.

The entire *concept of creating info-products* was spawned by the principle of LEVERAGE!

Think about it for a moment. Why do people create their own products? It's so they can take their expertise, and be paid for it up to infinity, rather than be paid only for the number of hours they are able to work. It goes hand in hand with your lawnmowing example. An info product creator is limited only by the number of units that he or she can sell.

> (Another way is to start a franchise, where
> you run the franchise which gets the jobs,
> which you then give to the franchisees, and
> you can guarantee to them a minimum income
> per week.... This is how one large lawn
> mowing franchise business I know of in
> Australia -- called Jim's Mowing --
> operates.... People pay to own a franchise,
> and for that they get a guaranteed weekly
> income, and they don't have to look for lawn
> mowing jobs, because the jobs are given to
> them.... Jim Penman, who started Jim's
> mowing, started his own lawn mowing business
> in the way I described above. However, when
> he got more jobs than he could handle, he
> would sell them to others with their own
> small lawn mowing businesses.... Eventually,
> this grew into a large franchise business.)

> What I'm trying to get at is that if you are
> making a profit without using any leverage
> at all, you can probably almost always
> increase it through leverage, of one kind or
> another....

*** Bingo! You hit the nail on the head. Virtually any *non-leveraged* activity can be translated into a highly leveraged revenue stream. This is the entire thrust of what I aim to do on a daily basis for ourselves and our clients.

> There are many types of leverage. Taking on
> employees is only one kind.... Using
> commissioned salespeople is another kind.
> There's also capital leverage, by borrowing
> money or using the money of investors. And
> other types of leverage too....

*** This is one area of leverage where I'd be extremely interested in expanding discussions. I'd love to hear your thoughts (or anyone else's) on what investment vehicles, real estate ventures, or anything of the like, produce the greatest return, or highest leverage, and why.

> The thing about leverage, however, is that
> with some forms of leverage you could also
> be increasing your risk, so you'd have to
> take that into account. Other types of
> leverage, though, it seems to me, can
> decrease your risk....

*** Here, I can only speak from personal experience. And I can say without question that the more leveraged I've been, the LESS risk, or exposure I have had. A large reason for this is because leverage, in many ways is synonymous with diversification. The more leveraged you are, the more people, ideas, documents, money, etc. you have working for you at any given time. Therefore, you are not solely dependent on any one income producer, as you are with linear income.

Thanks again, Dien, for your input on this topic. It's certainly one that I'd be interested in continuing to talk about!

All the best to you and your mom...

-Jesse

> However, if you are a small, profitable
> business, then the way to grow is to think
> about what kinds of leverage can I use, to
> help break the link between money earned and
> time spent? ....

> I'd love to hear your thoughts on this!

> - Dien