38 Weeks to Get Rich
What follows is my summary & key takeaways to help you digest the 127 page document.
Week 21: Labor and Capital Are Old Leverage
Wealth requires leverage. Labor and capital are older forms of leverage that everyone is fighting over.
“Give me a lever long enough and a place to stand and I will move the Earth.” -Archimedes
It’s hard to comprehend new forms of leverage.
The oldest form of leverage is labor; which is people working for you.
Instead of me lifting rocks, I can have 10 people lift rocks. Then a lot more rocks get moved than I could do myself.
This is a very old system of leverage, and most people understand this well enough. It’s why people ask, “How many people work there?” when hearing about your new job. They’re trying to use this as a way to establish credibility and impact.
You want the minimum amount of labor that allows you to use the other forms of leverage.
Managing people is messy. It requires tremendous leadership skills. So don’t prioritize building the largest team. Instead, build the smallest team that allows you to fully utilize other (better) forms of leverage.
Capital has been the dominant form of leverage in the last century.
The bulk of wealth made in the last 100 years has come not so much from the companies with the most employees (labor leverage), but rather from the companies with the most access to cash.
Brokers, bankers, hedge funds, and companies with huge market cap (lots of money loaned to them through stock sales) have done incredibly well by leveraging capital (money).
You need specific knowledge and accountability to obtain capital.
If you want to start a business, and you go to get a loan from a bank (to leverage capital) they’re going to want to know how long you’ve been doing that line of work (specific knowledge) and they’ll want you to make a personal guarantee for their money (accountability).
People who routinely take $100k and turn it into $200k over the course of a year are going to have an easy time finding more capital to leverage. Because they’ve proven their knowledge and accountability. They’ll quickly move to turning $1M into $2M; and eventually $1B into $2B.
Tune in next week as we talk about what the new forms of leverage are.