Leverage as a key to making money

From: alexhormozi

The path to material success can be significantly shortcutted by understanding and applying the concept of leverage [00:59:04]. One individual, by their mid-30s, generated $200 million in portfolio revenue, surpassing the combined annual earnings of CEOs from major corporations like McDonald’s, Ikea, Ford, Motorola, and Yahoo [00:04:18]. This extraordinary achievement highlights the power of leverage in wealth creation [00:30:00].

Redefining Work for Maximum Output

Traditional definitions of work, such as force times distance or hours spent, are not useful for knowledge workers [02:34:40]. Working longer hours or trying harder does not necessarily equate to more output or better results, especially when many individuals already work all their waking hours [02:46:04].

Instead, a more effective definition of work in the context of wealth creation is:

• Work = Outputs [04:07:07]
• Outputs = Volume (number of times you do something) x Leverage (how much you get out of each time you do it) [04:12:00]
• Work Rate = Output / Time (output per minute of time) [04:25:00]

This definition objectively measures the hardest-working individual, such as someone who added $140 billion in net worth in one year, more than Bill Gates did in his entire career [04:44:00].

How Leverage Amplifies Results

Leverage is the difference between what you put in and what you get out [10:51:31]. While the amount of activity (volume) is capped by time and physical ability, the amount you get from that activity (leverage) is uncapped [06:37:04].

Examples illustrating the power of leverage:

• Warren Buffett vs. Coca-Cola CEO: Warren Buffett took home $500millionindividendsfromCoca-Colainayear,spendinglesstimeonthecompanythanitsCEOwhoearned$50 million [06:52:00]. Buffett’s output was higher due to his leverage as an owner [07:07:09].
• Sales Callers:
  • A salesperson with more skill achieves greater output from 100 calls than someone with less skill [07:28:13].
  • Even with equal skill, an automated dialer provides leverage by maximizing talk time [07:42:07].
  • A better list provides leverage over an inferior one [07:57:04].
  • Calling at the right season or time of day, having a better offer, or utilizing a pre-recorded pitch sent to millions all represent forms of leverage that increase output without necessarily increasing individual effort [08:08:14], [08:32:05], [08:45:00].
  • Ultimately, a person who makes zero calls but has a team of 15 or 1500 people calling for them generates vastly more output, demonstrating extreme leverage [09:01:00].

To make more money, you need to get more for your time by increasing your leverage [09:27:06]. This also explains “passive income,” which is often just “less active” income with increasing returns per unit of time after an initial investment of time [10:04:08].

How Not to Get Leverage: The Perils of Distraction

Many common behaviors prevent individuals from acquiring leverage and keep them from achieving wealth:

1. Uninformed Optimism and the “Crisis of Meaning”

Many entrepreneurs fall into a cycle of “uninformed optimism” where they jump to new opportunities based on highlights, then face “informed pessimism” as they realize the true difficulties [12:28:09]. This often leads to a “crisis of meaning” or “valley of despair” where they question their goals and quit, only to restart the cycle with another new venture [13:33:04]. Unlike video games where you restart quickly, in entrepreneurship, restarting means losing years [13:38:00]. The key is to push through this phase to reach “informed optimism” and “achievement” [15:07:05].

2. Lack of Focus: “Not Leaving Money on the Table”

A common mistake is trying to do too many things at once, rationalizing it as “not leaving money on the table” [17:26:00]. This approach actually leaves money on the table by scattering focus [18:16:00].

• The Construction Buddy Story: A roofing business owner struggled to scale because he also did general contracting and house flipping [17:15:00]. In contrast, Diane Hendricks, the wealthiest self-made woman, built a multi-billion dollar empire focusing solely on roofing supply (ABC Supply) [18:29:00].
• Forbes Self-Made Women List: Top self-made women achieve massive wealth by focusing on a single, often “unsexy,” industry for an extended period [19:01:00].

To avoid being poor, you should:

• Do one thing for a very long period of time [21:06:00].
• Get help from others [21:08:00].
• Observe and learn from other people’s mistakes [21:10:00].
• Only make a mistake one time [21:13:00].
• Continuously grow and challenge your beliefs [21:16:00].

3. The “Magic Wand” Fallacy

Many believe they need to wait for a “winning horse” or a “magic wand” to identify the one business that will take off [22:06:00]. However, any business can succeed with focus. The act of picking one thing and committing to it – the ability to say “no” to distractions – is what drives growth, not the specific vehicle chosen [22:40:00]. All the riches you want are often on the other side of a few hard conversations and ego-eating decisions [24:41:00].

4. The Woman in the Red Dress (Shiny Object Syndrome)

This metaphor from The Matrix represents attractive, shiny new opportunities that pull entrepreneurs away from their core focus [25:07:07]. The challenge of saying “no” to these distractions becomes harder as the opportunities grow in scale and attractiveness [25:37:04]. Giving into these temptations leads to spreading oneself thin, creating fires in multiple ventures, and ultimately hindering true growth [27:08:08]. Success requires consistently doing activities aligned with long-term strategic vision, despite feeling impatient or attracted to new ventures [28:18:00].

Better is Leverage: The Power of Incremental Improvement

Leverage is achieved by making things “better,” not necessarily by constantly seeking “new” things [30:00:00]. When you make something better, you get more out of what you put in [30:18:00].

Examples of “better” as leverage:

• Improving call scripts [30:25:00].
• Creating better content [30:25:00].
• Optimizing websites [30:25:00].
• Refining follow-up sequences and offers [30:25:00].

This kind of improvement comes from “boring” consistent work, like running multiple split tests on landing pages or emails, daily role-playing with sales teams, and taking more interviews to find the best talent [31:31:00], [40:43:00]. This deliberate, focused effort over time leads to compounding results [21:29:00].

The “Coach Yourself” Mental Model

A powerful mental model is to ask yourself: “If I were coaching me, what would I tell myself to do?” [34:41:00]. This perspective offers unbiased, informed advice because you possess all the necessary information about your situation. Often, the advice you would give yourself is not what you are currently doing [35:02:00]. Implementing this self-advice is crucial for growth.

The Long Game: Building a Solid Foundation

Shortcutting the process by focusing on promotion over product quality leads to a “flatline” and eventual dissolution due to negative word of mouth [39:31:00]. Building a solid foundation, even if it means breaking even in the first year to perfect the product, is the long-term path to success [40:01:00].

The difference between a good product (7/10) and an exceptional one (9.5/10) might be 20 times the work, but it can lead to a thousand times the sales, a 50x increase per unit of input [43:21:00]. This disproportionate return on effort is the essence of leverage.

Conclusion

To make more money, focus on leverage [44:12:00]. This means concentrating on one thing for a long time without distraction, consistently making it “better” rather than constantly seeking “new” opportunities [50:56:00]. When all actions align towards a single outcome, success becomes almost effortless and obvious from the outside, a result of years of saying “no” to everything except what truly mattered [51:00:00].