Leverage: The Entrepreneur's Secret Sauce

If hard work alone were enough to ensure business success, everyone would be retired by the age of 40.

What most people don’t understand is that the fact of the matter is this:  it’s not just about working “hard”, it’s about working hard and smart.

Sounds simple enough… but, oy vey, mensch… is it difficult to get the right balance!

From my personal experience, here’s what “hard work” typically looks like:

• Long hours
• Low pay
• Lots of stress
• Little time off
• Little freedom
• Little control

The worst part of all is that hard work alone rarely leads to any real long- term results.  It seems that the harder I have worked in the past, the less I had to show for it in the end.

Working “smart” means your time and talents are leveraged.

One thing I have learned is that there is a delicate balance which one has to find between what it is to “work hard” and to “work smart”.

The secret to working smart is this: working smart means your time and talents are leveraged.  It means that the direct correlation between the exchange of time/talent and remuneration is severed.  This is a KEY distinction that I have only recently understood myself.

“When you grasp this concept you will also agree that your income is not limited by how hard/long you work alone, but rather by how much leverage you can also apply to the work you are doing.”

Working “smart” gives you leverage- the entrepreneur’s “secret sauce”.

Combined with hard work, leverage is the secret to breaking free and beginning to replace your income.

It means eventual freedom!

This is exactly what we teach at the Six Figure Mentors, an entrepreneurial empowerment and mentorship company of which I am co-founder.

The following is a very simple example of how leverage can be used to make more money in less time with less effort.

See how Joan is able to use the very same resources as Jim to earn 30 times as much.

Jim digs trenches for a living at Digital Ditches, Inc (DD, Inc).  He earns $750 per completed ditch. (DD, Inc charges the customer $1500.)

The tool given to him for the job is a little garden spade, the same tool all of the other diggers use. (A garden spade is a tool with a blade of about 6 inches and a handle about the same length.)

It takes Jim about 50 hours (a week) to dig each ditch. (That’s assuming he can work 10 hours a day, 5 days a week.)  At $750 per ditch divided by 50 hours, Jim’s maximum earning potential is $15 per hour.

Jim works his butt off every day and win or lose, he’s just a piece of the puzzle.

Little risk, little reward- just lots of hard work.

Jim looks forward to every coffee (tea) break and lunch break.  He looks forward to the weekend.  On Sunday night, he has a pitiful knot in his stomach thinking about the long week ahead.

Though Jim is happy to have a job, he’s generally feeling unfulfilled and is just “putting in time”.  He knows he is worth more, but honestly doesn’t have the motivation to change his circumstances.  Thus, he sticks with what is familiar and safe.

He went to school, got a degree in digital ditch digging and just like his friends and family, he goes to work for a company in the digital gold rush.

Daily, diligently, Jim digs- month after month and year after year.

After 40 years of digging, he has a lot of experience digging trenches.  He may have been rewarded with health care, on going training and some benefits. However, he has little to show for it at the end of the day.

Now, compare this to Joan, a slightly more innovative person than Jim.

Joan started digging ditches for digital diggers the same time as Jim.  After the first month, realizing how back- breaking it was to dig with this little garden spade provided by her employer, she started thinking about a solution.

The garden spade (her “business system”) was the weak link.  She applied some “smarts” to her work and went out on her own, and out of her own pocket, she bought a real shovel.  Now this tool has a blade of 12 inches and a handle of 48 inches.

For the same output and effort, Joan finds a way to achieve 8 times the results.

Compare what she was given, a 6″ blade with 6″ handle (1:1 leverage), to her new shovel.  This new tool has a 12″ blade (2x more result for each shovel stroke) and 48″ handle giving her a whopping 4:1 leverage.

Let’s do some basic math.  Double the result for each scoop plus 4:1 leverage from the long handle = her leverage is now 8 times what it was.  In other words, for the same output and effort, she is getting 8 times the results.

Joan can now earn $750 per ditch in about 6.25 hours instead of 50 hours. (8 x 6.25 = 50)

Joan doubles down and leverages herself even further!

Joan decides she’s ready to make a leap and take on some additional risk.  Instead of working for Digital Diggers the rest of her life, she is going to start her own company.  She’s going to become an entrepreneur and try to increase her income while digging even less.

With her own company, Joan cuts out the middleman and earns the full $1500 per ditch – keeping all the money for herself.

Compare $1500/6.25 ($240 per hour) with Jim at $15 per hour.  By taking on some additional risk, and finding a way to work smarter while STILL working hard, Joan has 16 times the income earning potential as Jim.  Btw, this is the definition of “entrepreneur”. 

And then… without even lifting a shovel – she doubles her income… again.

We could take this a step or two further and look at leveraging her efforts even more.  Maybe Joan learns about business systems (marketing, how to hire employees and contractors, etc), she places an ad online and hires 5 former co-workers from Digital Diggers, including our buddy Jim.  She offers to pay her new subcontractors each $900 per trench, keeping $600 for herself. (They are happy with the pay raise and so is she.)

Now, without even lifting a shovel she is netting an additional $3000 a week (5 x $600) before actually digging a single ditch herself.  Her hard work has paid off and now she is actually making money in her sleep you could say.

Let’s say Joan digs just two trenches a week herself ($3000) plus makes an additional $3000 by leveraging the efforts of her subcontractors.

That’s $6000 weekly for only 12 hours of digging and a little supervising.

Leverage makes life easier.  A whole lot easier…

“Leverage makes anything easier, and when applied to life, well. . .  you will see.  The secret is to stop thinking in terms of “working harder” and to start thinking in terms of leveraging yourself with a “business system” of some sort.”

Yes, it’s going to take you learning some new skills, investing in yourself, and maybe even more hard work for a time.  It’s going to take you stepping out of your comfort zone and includes taking on additional risk, but once you get the concept of leverage, there is no limit to what you can earn in the digital economy.

The secret to Joan’s success is her “business system”: 

• She’s able to leverage other people’s time

• Her employees are already trained

• Her market is already established

• One employee gets extra perks to manage the crew of 4

• Her marketing is set

• She gets paid top dollar

• She has a lifestyle business

All of the business parts are systems that work together creating efficiency and profits for her.

Obviously this is an uncomplicated example.  Building a real business from scratch is no small task.  If it were as easy as this example everyone would be a business owner and everyone would be independently wealthy.  The reality is that most small businesses and entrepreneurs fail at least a couple of times before they gain enough real world business experience to have sustainable success. (It’s estimated that 85 to 94% fail within their first 5 years with 50% of survivors lasting an additional 5 years.)

So, what is the solution?  What’s the secret?

The secret is to find an already proven “business system.”

The most predictable and reliable business model is the franchise model.  There are infinite benefits to being able to plug into a proven business system rather than building it all from scratch- especially if you’ve never done it before.

For example, when I started my first online business I made every mistake in the book.  I had to learn everything from scratch. 

Compared to a franchisee, it’s like building your own car from scratch vs. going to a dealership and picking one off the lot.  The beautiful thing about getting a proven business system is that most of the learning curves and opportunities for human error have been eliminated.

You can focus on “running” the business, instead of “building” it first, then running it.

It doesn’t get anymore simple than this.

All my best,

Jay Kubassek

P.S. This article is based on the May 20, 2013 podcast WAKE UP: Leverage: The Entrepreneur’s Secret Sauce 

Listen to Podcast replay below…