The Universal Law of Leverage

http://www.defmacro.org/ramblings/leverage.html

by JBiserkov • 17 years ago

90 13 17 years ago

Short summary: Author talks about how ease of getting leverage is inversely proportional to how much you need it. A little bit of hyperbole but solid general points. The value in the article is the way the author thinks and talks through it, a couple thought provoking sentences in there make it worth a read.

baran• 17 years ago

I think another take-home point is that you cant build a business model around too many outside partnerships (what the author calls leverage). Your business has to be solid enough to gain that initial traction then the outside partners will come.

yason2• 17 years ago

Well, to summarize: like attracts like. Even in business world.

jlees2• 17 years ago

Success attracts success. It's the herd mentality. "If they're doing well/have customers/have funding/have a boyfriend, they must be worth buying from/investing in/dating since someone else says so!"

yason2• 17 years ago

You've got it upside down. For whatever definition of X:

Like attracts like means that because you already are X, then you begin to attract other people who are also X. Conversely if you want to be X, you can't become one by merely hanging out with people who are X.

nostrademons• 17 years ago

This is a tangent to your main point, but:

"Statistics suggest that most successful startup founders have three failures under their belt before they make it big. It doesn't have to be that way. While nothing can replace hard-earned experience, people can and do learn from other people's mistakes. I'm a firm believer that a couple of simple (in hindsight) lessons can significantly increase the overall success rate."

I suspect that the "3 failures before a successful startup" statistic already includes learning from other people's mistakes. Why? Because these startup founders were eventually successful. That indicates they had a capacity to learn from their mistakes (either that, or got really really lucky), and most people who can learn from their own mistakes are more than happy to learn from others'. They've probably already read up everything they could on successful and unsuccessful former founders.

The ones who haven't are the folks that are on their 10th (or 30th) startup and still haven't got traction. That happens to some people...they bounce from dream to dream without ever making any of them come true, because they never fix the fundamental problems with their assumptions.

What I've found - in both programming and startups - is that I needed a basic level of experience before all the advice I'd read even started to make sense. So I read up on all these software development methodologies, but until I actually had to work on large software projects and manage the complexity that inevitably popped up, I didn't understand the why behind the practices, and so didn't know how to apply them correctly. It's like all the debates on TDD that have been popping up: they miss the point entirely, because the question isn't "Are unit tests good are bad?", it's "When are unit tests useful, and when do they cost you more work than they save?"

rw• 17 years ago

> That happens to some people...they bounce from dream to dream without ever making any of them come true, because they never fix the fundamental problems with their assumptions.

That one is going in my quotes.txt! I've found it very difficult to get people over their fundamental misconceptions, how can we do that efficiently, without being jerks?

jlees2• 17 years ago

You can try to gently disprove someone's misconceptions but it's easier to help them do so themselves. Whatever you do you can't batter their door down with logic and facts, unless they're a truly scientific type; ideally, there's some harmless proving ground, or solid analogy, that can open their eyes to the reality of the situation. Like if someone is saying "I'll just start a social network and be the next Zuckerberg", get them to read a book on the history of Facebook and another on why things fail, get them to start a Ning group and really experience a "safe" failure.

I often find myself as the voice of reason/realism among starry-eyed people, but it's quite fun helping people work out that actually they can get to where they want, even though their assumptions were totally wrong.

rafefurst• 17 years ago

I like the astute observations being made, but I'd like to suggest that leverage is a bad thing for startups in a developed economy. I think everything stated still holds if you substitute "equity investment" for leverage, and the result for everyone tends to be better.

dstorrs• 17 years ago

They aren't using the term "leverage" in the financial sense (investing money that you borrowed). By "leverage", the article author means "ability to control a situation and/or make your dream come true."

10ren• 17 years ago

If "leverage" was defined (it's a technical, non-dictionary, meaning), and examples given, the hypothesis could be tested against each instance.

- Financially, leverage means debt; more capital means you can do more.

- Hiring people increases leverage.

- Automating tasks increases leverage: whether it be windmill or bash script.

- "Buy (or use open source, or reuse) not build" increases leverage.

- Working smarter not harder, in general, increases leverage.

From these examples. I see that the author meant leverage that depends on other people. The last three examples depend only on self-reliance, so you can do them right now. There's no perversity law for them. Incidentally, there's a "Muphry's Law" http://en.wikipedia.org/wiki/Muphry%27s_law

byrneseyeview• 17 years ago

I read it as leverage in negotiations -- a simple measure of how hard you push compared to how far they lean.

wheels• 17 years ago

I think this is mostly true, but there's a paradoxical completion to it: fight or flight.

If something is about to knock wipe you off the map, you're likely to perform above the statistical average to make sure that doesn't happen. If you've got lots of cash in the bank, there's less likely to start making money. If things get tight, you're fighting to stay alive.

The Universal Law of Leverage

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