Lies, Damn Lies, and Leverage

by | Apr 29, 2013

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You’ve seen the claims. If only you will invest in this new business, or that personal development program, or another life makeover, you can gain amazing happiness, wealth, and a great love life.

It’s called leverage, and it’s a nice idea. But does it work?

Well, yes and no.

A lever is a machine, and machines are limited

A lever is one of the five simple machines (the others being, in case you are curious, the pulley, inclined plane, screw, and wheel and axle).

A machine can only do what an outside agent makes it do. It can only accomplish a specific task in a specified manner. It cannot think, evaluate, reproduce, or respond.

With respect to leverage, this means that the intelligence to apply the leverage has to come from you.

In other words, the success of an investment is not implicit in the product or service on offer. There are no guarantees of success.

For leverage to work, you need a place to stand

Give me a lever long enough and a place to stand, and I shall move the world. ~Archimedes

You can leverage modest resources to reap great gain, provided you have a firm place to stand, a solid foundation.

But no foundation, no leverage.

If you don’t have a stable marriage, you’re not likely to massively improve your relationship by having a baby.

If you don’t have a certain degree of financial stability or know-how, you’re not likely to leverage yourself into massive profits by investing in a high-end business program.

Now let’s talk about scale

You often hear about leverage when someone is trying to enroll you in a big-bucks program. The message is that you need to make a big investment to get a big return.

That can work, if you are actually in a position to make a big investment. If you can get along without the cash or while carrying the debt until your investment pays off. Oh, and if you can afford to lose your investment in case it doesn’t work.

But leverage works really, really well when you think in terms of small increments.

It’s called bootstrapping

When you don’t have a lot to invest in your business, and you don’t have an outside source of capital, you can pull yourself up by your bootstraps.

Bootstrapping is using leverage in small increments. You grow by reinvesting your earnings in your business. When I started out, I reinvested 100% of my income to buy equipment and software, take courses, and hire help. For example, I hired a VA 12 months before I started paying myself.

By bootstrapping I built a very solid business without borrowing a penny or using credit cards. It was slow, sure, and solid. (And may I also say sane?)

Yes, you need leverage

If you want to grow your income, you need to use leverage. But you don’t have to make crazy-big investments of money, time, or energy. You can get where you want to go by taking reasonably consistent, considered action. Yes, it will take time, but you’ll be on solid ground as your business develops.

Image credits: Archimedes woodcut and Doc Martens: