Leverage Principles and Hierarchy: x100 Your Output

By 
Renat Gabitov

Introduction

What if you can do more with what you already have? Your time, resources, and capital are limited, but you can exponentially stretch them to be able to do more for yourself and your business. The key is leverage.


A leveraged person is someone who can get 100x more done in the same amount of time. As a result, those who leverage effectively get to grow their businesses and enjoy better results. 


That’s because they can create so much more value in the same amount of time as those who don’t leverage. 


In this article, we will cover two topics that will help you massively increase your output: 


1) Leverage Fundamental Principles

2) Leverage Hierarchy


We will focus not on self-discipline or productivity but on how to use your time in the most practical way to achieve more goals. These principles may be applied both in business processes optimization and personal life.


By the end of reading this article, you will walk away with a new way of thinking about leverage as well as an actionable guide to build leverage yourself. 



Leverage Fundamentals 


The concept of leverage is to spend your time and resources more efficiently.

To leverage is to increase output per unit of your time.
It is much easier to put existing resources to better use than to develop resources where they do not exist. - George Soros

As George Soros said, it is wiser to use what you already have than create or develop something new. Imagine you want to lift something very heavy. You can do it by yourself in 20 minutes (but break into a sweat many times and even get injured). Instead, you can use a lever and lift it in 2min, minimizing any risks. As a result, you get 18min left for other tasks. 


The primary function of leverage is to do more with less effort. You can do it by eliminating a task or process or by automating, optimizing, or delegating.


An example of eliminating a task or process is when you pay in advance a year’s worth of your bills. Pay 12 months today, forget about it until next year. The burden and stress monthly of paying your bills has eliminated, giving you more time to do something else.


You can automate a task or process by introducing software to do the work for you. A great example is using an automation tool to send out recurring invoices for you. All you have to do is schedule your invoices once, and the tool will do the rest for you.


In optimizing a task or process, analyze it then audit. Find which areas need improvement and create a system to improve it. For example, you can create checklists to check the quality of your product, instead of mentally trying to remember what to check in each item.


Delegating a task or process is a better way to use the knowledge of your team or a freelancer efficiently. Not the expert on project management? No problem. You can tap your team member’s expertise or hire a freelancer to do it for you.


We will take a more in-depth look at these points later in the article.


Three Types of Leverage


There are three different types of leverage: systems, labor, and capital. 



I. Systems Leverage


Systems leverage has minimal to zero marginal cost of replication, which means that producing an additional unit of work takes no time. 


We separate systems leverage into sub-categories: software and information. 


Client onboarding can be a great example of systems leverage with software


When an invoice gets paid, here is how the entire client onboarding process can be automated without any manual input needed:


- an onboarding email (with guide and questionnaire)

- service agreement from Docusign 

- even a physical handwritten card by Handwrytten.

- a text message from an account manager


Information leverage can be obtained through simple documentation and content production. 


For example, I can onboard each employee individually about our team culture, organizational structure, and our software tools. Or I can simply record a video walkthrough once, and every new employee and freelancer will know the fundamentals. 


II. Labor Leverage

Labor leverage is traditional delegation. Here you offload items from your plate into someone else’s plate. 


Delegation implies that you own an outcome, but don’t want to execute the task or process yourself. The execution can be delegated, but you remain accountable for the outcome. 


For example, if you are a sales representative, your key objective is to close as many accounts as possible. You need a list of prospects and their contact information so that you can do your calls. 


Prospecting is a low-value activity because anyone can do it. However, selling requires expertise and skill. Thus you should spend as much of your time on sales calls and as little time on prospecting.


You can hire freelancers for $10/h on Upwork to do prospecting for you. This may help you triple the number of calls you can do and thus triple your overall output.


If you calculate your effective hourly rate and compare it to the cost of outsourcing, you will quickly identify areas that should be delegated. 


To make sure that the delegated tasks can be executed efficiently, all repeating activities must be turned into processes. By delegating outcomes instead of “to-dos” will increase your teams’ engagement and massively reduce management.


III. Capital Leverage

Leverage of capital is perhaps the most commonly known type of leverage. It’s when your money works for you. 



In the case of the stock market, if you have a million dollars invested in the stock market at a 10% annual return, you will have $2m in ~8 years. You will be pulling $125k / year, doing absolutely nothing. That’s the power of compounding. 


In business, capital can be used to fuel growth. Startups raise their round B, C, D to get more customers. Their business models have proven to be working, so they raise capital to grow faster.


It is important to note that capital leverage unlocks the other two types of leverage. You can hire additional employees or build software to automate processes.

Leverage and Exponential Output

Building leverage requires significant effort and attention. It’s not a day’s work, and then you can throw in the towel -- keep in mind that it is also a process. 


I like to explain a leveraged person in terms of the difference between an employee and a founder.


An employee doesn’t take as much risk and earns a market rate salary, which may grow by ~3% annually. Their earning potential is limited.


On the other hand, the founder has to put a lot of effort into building the foundation of the company and take risks. The founder gets equity, which has an unlimited upside in the business. 


Building a leveraged business requires the founder mindset. You must invest in building systems that will increase the future output / h. It is an investment of your time and sometimes money, yet pays high dividends relatively quickly. Think about it as sharpening the ax before chopping the tree down like Abraham Lincoln once said. 


To maximize your output, you should apply exponential thinking across everything you do. 

Let’s compare the outputs of different types of leverage:

  • Systems Leverage (Automation)
    Producing an additional unit of work takes zero extra time once the system is built. Using software tools and information systems will create infinite leverage once created. 
  • Capital Leverage 
    The money will work for you as long as you invest. It often follows the law of compounding and expedites results. 
  • Labor Leverage (Delegation)
    Delegation implies a direct relationship between effort and output. The more you delegate, the greater output you get. 
  • No leverage (Doing Work)
    Doing work the traditional way represents your baseline effort-output relationship if no leverage is applied. 


As you can see, leveraging gives you exponential growth compared to doing everything manually. This just proves that it is an opportunity to grow more in less amount of time with the resources that you already have.


Leverage Hierarchy

Not all leverage is created equal. Systems leverage can create infinite output, whereas labor leverage has its natural limitations. 


Most people begin thinking about increasing their output with delegation. But delegation has management overhead. Not only does it require your time, but you also can’t effectively manage a team of more than ten (10) people (ideal team size is 6). Your attention will be allocated in the wrong places and may cause decision fatigue.


At Operations Mastery, we’ve come up with a prioritization method designed to pick the lowest hanging fruits to increase output.



1. Elimination

More often than not, we add things to our plates, thinking that it’d help. According to the Pareto Principle, 80% of what we do generates just 20% of the results. 


The elimination step is about identifying low output activities and eliminating them for good. 


This visualization demonstrates activities that do not contribute to the final outcome of a website design service.


There are several people responsible for their unique areas of focus. Ideally, despite many roles and activities they participate in, each person must have their core outcome(or objective) that they can be responsible for. 


When we analyze how much each activity contributes to the overall objective, we can spot the ones that can be eliminated without negative consequences.


Elimination can be achieved not only by “not doing.” But it can also be accomplished by resolving problems for the long term. For example, by prepaying your phone bill the entire year instead of paying for a month, you can skip doing this activity 11 more times!


Finally, you can ask yourself, “what happens if you do nothing?” You’ll find that there are just a handful of activities that are crucial for the business to operate and whereas the majority are not. 


2. Automation

Business process automation is a fantastic way to achieve exponential output. As the company grows, so does the complexity: the fewer moving pieces, the more consistency, and speed.


Automation can happen in a department, job, or function level. Some companies may automate lead generation, for example, by outsourcing it to an agency. As a result, they will have more focus on honing down their sales process.


You should always look at automation on multiple levels. Can the entire process be automated? Can an activity inside a more effective method be automated?  


Usually, activities that do not require judgment are the simples to automate. 


Software for Automating Business Function and Processes: 


3. Optimization

Optimization is about making your processes more efficient. Our goal here is not only to increase the output per hour of your time but also to keep the quality in mind.

 

 Operational consistency may include speed, cost, quality, communication, etc. Once you determine the critical factors, you can start the optimization process. Again, you should keep the objectives in mind. 


In its early days, the operational objectives of Uber were the speed of growth (getting more drivers and users). In the later stages, Uber refocused on efficiency (profit margins). 


There are many ways to optimize the process. The commonality is in identifying areas of waste and where quality fails. 


Time can be optimized by visualizing the process as a flow and identifying areas that can be done in parallel.


Throughput can be optimized by identifying bottlenecks: 


Quality consistency can be reviewed with checklists: 


 

4. Delegation

Delegation is often the first type of leverage founders resort to as their company grows. Entrepreneurs’ most crucial early hire is often their assistant. You can hire an assistant who could help you out with some of the tasks such as customer service and admin tasks, etc. Those activities are crucial to business operations, but it’s the founders’ responsibility if they do not strategically delegate them.


- Create positions for recurring areas (hiring for those roles). It is especially relevant if these activities are below your effective hourly rate. 


- Delegate outcomes, not just actions. That will reduce the amount of feedback and project management you will need to do. 


Thus, delegation is not a complete transfer of responsibility, but only sharing it with the person to whom you are delegating the task, which makes it possible to increase its efficiency.


Delegation and outsourcing are not reserved just for company leaders. Everyone in an organization should consider reducing low-value activities. More often than not, those low-value activities are also the least satisfying. 


To address this problem, analyze and list down your main tasks in a day. Compare how much time you spend on each and how much you earn from it. Then think about which task/s you feel is not worth your time. Your answer to it should be the task/s you should delegate to a person ideally who charges a lower rate than yours. Here is a table to illustrate it: 


As you can see in our table, prospecting or sending out cold emails can take much of your time and does not yield enough sales for your business. You can easily delegate this to an assistant who can dedicate their time to it, giving you more time to focus on doing sales calls or creating ads. Customer service is also a time-consuming task that generates 0 sales. You can delegate this to a customer service representative who could timely answer clients’ inquiries.

Conclusion

 Imagine exponentially increasing your output from 1 to 100 just by knowing what to do and how to do it right. Leveraging yourself and your business can give you more output in less amount of time. 


But it’s easier said than done. Leveraging starts with you. It’s a mindset, where your main goal is to efficiently and systematically grow your business. This also means that you are willing to dedicate yourself to put in the effort today and harvest the fruits later. 


Not all types of leverage are created equal. Systems leverage can create infinite output, whereas labor leverage has its natural limitations. As we have discussed, leveraging is a process, and there are four (4) steps to execute it successfully.


The first thing you have to do is identify low output activities and eliminate them for good. 


Interestingly, “not doing” is not the only way to eliminate. But it can also be accomplished by resolving problems for the long term. 


After eliminating those tasks, you can now start automating to scale your business. As the company grows, the scope of work also increases dramatically. You may use software to automate tasks that don’t require much judgment. Alternatively, you can automate entire business areas by outsourcing.


Now you can optimize your remaining business’ processes to be more efficient. The goal is to spend less time on a task, making your output per hour increase. 


After optimizing, go back to square one: analyze your business if there are more activities or tasks you can eliminate and automate. 


Once you have addressed these activities, you can finally start delegating tasks. The reason delegation is the last area that we focus on is because delegation has its overhead, and its scalability is limited. 


At Operations Mastery, we help leaders to work from their genius zone by streamlining their companies and creating operational efficiency.


We help founders and employees to leverage themselves by applying the mindset and principles explained in this article. 


To learn how you can massively increase your output and grow your company, get in touch with us here

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