Using the Power of Leverage in Business | (in a good way)
The power of leverage in business is often thought of as a negative. Something used to push someone else down in a negotiation or to artificially inflate value. These are the uses of leverage that we won't be talking about here. We are going to talk about the necessity of leverage and why understanding it and, in fact, embracing it is elemental to creating, operating, and sustaining a valuable business.
Let’s get… leveraged!
You’ll find highlights below. Watch the livestream recording or listen to the podcast version on your favorite podcatcher for all the details!
Listen to or Download the Audio Podcast
What's here for You?
I'm going to lay out why leverage is critical to your business and give you a short exercise you can do to better understand where the fulcrum is in your business and what to look for to increase it's value to you and your customers.
Using Common Frameworks to Simplify Small Business
Business is complicated. Or, more accurately, we MAKE business complicated.
By using familiar frameworks (like the concept of leverage) we can get down to the core of a business principle and remove the complexity.
We’re still going to have the complexity of implementation but we’ll be starting from a more well-grounded place.
This allows us to make sure we guide the momentum of our resources in a direction that is most likely to achieve our intended impact.
Then we can complicate it with the business models, books, process methodologies, technology solutions, and whatever we find on Reddit.
Force vs. Fulcrum
In the context of business we're going to use the word 'force' to refer to the application of resources to generate value. I short it's the time, labor, and money we invest on the business side that generates the value on the customer side and the pressure we apply to our side of the lever.
When we talk about leverage in business, the fulcrum is the point where we create value that tips the lever in favor of increased value. It is the conditions under which we combine materials, ideas, processes, and possibly magic that enables what will ultimately be called our 'value proposition'.
Move the Fulcrum, Don't Force It!
Small business owners have a limited supply of resources to apply to any given situation. Since our resources are the 'force' we use to move the lever our ability to apply force is also limited.
Given that, and the fact that we still have to find ways to continuously improve and better serve our customers, it's a good practice to understand what makes the fulcrum in our business and how we can go about optimizing each element that it is composed of.
For a product-based business, the first layer of what we use to create our product can be easy to identify.
For most small businesses the raw materials we would use in our products are a commodity so, by themselves, they are unremarkable and easily replaceable.
So what creates the actual value in the fulcrum of our businesses?
Interestingly, it becomes everything but the raw materials that comprise the real fulcrum in our business leverage.
How do you leverage a service-based business... after all you can only sell your time once right? The first thing to do is stop focusing on selling your time and shift your mindset to generating value. The good news is that as we learned above for product based businesses it's very often something other than the raw materials that create the real value in an offer.
Start thinking about the same types of things.
- Time (speed)
- Time (schedule)
- Unique Service Combinations
In my experience in both service and product-based businesses alike it is the less tangible things that provide the most significant differentiation.
What goes into your product or service (materials, process, knowledge, etc.)
Why do your customers buy from you?
How can you capitalize on those two things to move the fulcrum in your business and better serve both your business and your customers?
Don't just take my word for it...