18 Aug The Power of Leverage
Using Leverage for Business Success
Leverage is the ability to affect a decision, action, or outcome to one’s advantage. Examples of leverage are present in almost every aspect of human relations. Leverage is most often associated with money, but there are many different forms of leverage. A pretty woman or a handsome man is hired because of their looks. A teacher becomes an administrator because he or she has winning social skills. Your company makes a sale because your salesperson leveraged the pain point of your customer. Leverage is a very powerful tool because it allows you to achieve more success than would otherwise be available.
Entrepreneurs sometimes fail to appreciate their leverage potential with customers, competitors, and potential funding sources. Consequently, they accept a less favorable outcome. Successful entrepreneurs are aware of the available leverage points and use leverage to their advantage.
Tom Nicholas, a Harvard University professor of economics, equates the current venture capital industry to the18th century whaling industry. Ship captains relied on wealthy capitalists to finance their year-long expeditions to find, kill, and process whales for their oil and baleen. The odds of a successful financial venture were low, so only the most capable candidates received financial backing.
The captain of a whaling ship was like an entrepreneur starting a new company. His first task was to secure a financial backer. After getting a sponsor, he had to outfit his ship with sufficient supplies to last the expedition, enlist and organize a crew, then map the journey based on his knowledge of the whales’ migratory patterns. Since a crew typically included seasoned veterans and first-time sailors, training was required to prepare for efficient sailing, and hunting and processing the massive carcasses.
During their expeditions, ship captains faced multiple perils that could end or delay a profitable outcome … rough seas, torrential winds, spoiled food, mutiny, and competition with other whaling ships.
The length of the expedition was a constant worry. Those captains who could quickly find and process their prey to the ship’s capacity benefited from higher prices by being first on the market and having less costs because of the shorter journey. Their compensation was a percentage of the proceeds after the sponsor’s repayment. The better, more successful captains used every advantage to accomplish their goals. An entrepreneur today must do the same.
Like a whaling captain who must convince a banker that the venture will be profitable, an entrepreneur must arrange initial financing to prepare for the journey. Today, friends and family sometimes provide the seed capital for startups. Then, to secure subsequent rounds of financing, the entrepreneur may leverage their education, experience, expertise, credit references, and track record.
Just as a whaling captain used his knowledge of the sea and whales to his advantage, a savvy entrepreneur leverages his or her knowledge of the business landscape to their advantage. The captain chose the ship that best suited the expedition, while the entrepreneur leverages technology and circumstances to create a competitive advantage.
The ability to attract, organize, train, and inspire workers was just as necessary on a whaling ship as it is for a new business today. Without leveraging a team of people to work together to achieve a common goal, both a whaling expedition and a business venture would fail.
A captain with a reputation for successful, profitable voyages could leverage his market value to attract financial backers and a crew, each eager to participate in the next expedition’s wealth-generating opportunity. For entrepreneurs, having a good “brand”, another word for reputation, is a huge advantage and can be leveraged with customers, suppliers, employees, and bankers.
Knowing the habits and migration patterns of whales enabled whaling captains to maximize their opportunities. Similarly, entrepreneurs leverage their understanding of the needs of their customers to create opportunities for sales.
Leverage Points Are Everywhere
When people hear the word ”leverage”, they most often think of money. Although money can be leveraged, so can almost any other commodity, skill, resource, piece of valuable information, emotion, or desire. As an entrepreneur, you should look for leverage points in every transaction so you can make the world work for you rather than being at the mercy of circumstances.
The most critical time to use leverage is when you are negotiating. Negotiations are essentially a balance between power and weakness. To gain the upper hand, you have to leverage the resources at your disposal. If the other person holds the financial cards you want, and the only resources you have are wit and charm, use them! Leverage is a tool like any other, and a good entrepreneur uses all their applicable resources to secure the best business arrangement they can.