Product Leverage Is Egalitarian in Its Outputs

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Transcript

Product leverage is a positive sum game

Naval: Labor and capital are much less egalitarian, not just in the inputs, but in their outputs.

Let’s say that I need something that humans have to provide like if I want a massage or if I need someone to cook my food. The more of a human element there is in providing that service, the less egalitarian it is. Jeff Bezos probably has much better vacations than most of us because he has lots of humans running around doing whatever he needs to do.

If you look at the output of code and media, Jeff Bezos doesn’t get to watch better movies and TV than we do. Jeff Bezos doesn’t get to even have better computing experience. Google doesn’t give him some premium, special Google account where his searches are better.

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Product and Media Are the Leverage of New Wealth

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Transcript

Product and media are the new leverage

Naval: The most interesting and the most important form of leverage is this idea of products that have no marginal cost of replication. This is the new form of leverage.

This was only invented in the last few hundred years. It got started with the printing press. It accelerated with broadcast media, and now it’s really blown up with the Internet and with coding.

Now, you can multiply your efforts without having to involve other humans and without needing money from other humans.

This podcast is a form of leverage. Long ago, I would have had to sit in a lecture hall and lecture each of you personally. I would have maybe reached a few hundred people and that would have been that.

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Labor and Capital Are Older Forms of Leverage

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Summary:

  • Wealth requires leverage. Labor and capital are older forms of leverage that everyone is fighting over.
  • Our brains aren’t evolved to comprehend new forms of leverage and just how much leverage is possible in modern society.
  • Society overvalues labor leverage, which is people working for you. It is incredibly messy and competitive.
  • You want the minimum amount of labor that allows you to use the other forms of leverage.
  • Capital has been the dominant form of leverage in the last century. It scales very well: you can manage more capital much more easily than you can manage people.
  • If you have specific knowledge in a domain and if you’re accountable, people will give you capital as a form of leverage.

Transcript

Our brains aren’t evolved to comprehend new forms of leverage

Nivi: Why don’t we talk a little bit about leverage?

The first tweet in the storm was a famous quote from Archimedes, which was, “Give me a lever long enough and a place to stand and I will move the Earth.”

The next tweet was, “Fortunes require leverage. Business leverage comes from capital, people and products with no marginal costs of replication.”

Naval: Leverage is critical. The reason I stuck in Archimedes quote in there is… normally I don’t like putting other people’s quotes in my Twitter. That doesn’t add any value. You can go look up those people’s quotes. But this quote I had to put in there because it’s just so fundamental. I read it when I was very, very young and it had a huge impression on me.

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Take on Accountability to Earn Equity

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Summary

  • Taking on accountability is how you get a piece of the business. If you have high accountability, that makes you less replaceable so they have to give you a piece of the upside.
  • Taking accountability for your actions is the same as taking an equity position in all of your work. You’re taking greater downside risk for greater upside.
  • In modern business, the downside of accountability is not that large. Even personal bankruptcy can wipe your debts in good ecosystems. Generally, people will forgive failures, as long as you were honest and made a high integrity effort.
  • Accountability is reputational skin in the game; it’s putting your personal reputation on the line, as skin in the game.
  • We’re currently socially brainwashed to not take on accountability in a visible way.

Transcript

Accountability is how you’re going to get equity

Naval: Accountability is important because that’s how you’re going to get leverage. That’s how you’re going to get credibility. It’s also how you’re going to get equity. You’re going to get a piece of the business.

When you’re negotiating with other people, ultimately if someone else is making a decision about how to compensate you, that decision will be based on how replaceable you are. If you have high accountability, that makes you less replaceable. Then they have to give you equity, which is a piece of the upside.

Taking accountability is like taking equity in all your work

Equity itself is a good example because equity is also a risk-based instrument. Equity means you get paid everything after all the people who need guaranteed money are paid back.

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Embrace Accountability to Get Leverage

Podcast: Breaker · Apple · Spotify · Overcast · Download

Summary

  • Embrace accountability and take business risks under your own name. Society will reward you with responsibility, equity, and leverage.
  • Accountability lets you to take credit when things go well, but you will also bear the brunt of failure when things go badly.
  • Take business risks under your own name. Kanye, Oprah, Trump and Elon have such high accountability that they could get rich just by stamping their name on products.
  • A well-functioning team has clear accountability for each position. If you have a small team with clearly delineated responsibilities, you can keep a very high level of accountability.
  • We’re socially hard wired not to fail in public. People who have the ability to fail in public under their own names gain a lot of power.

Transcript

You have to have accountability to get leverage

Nivi: Why don’t we jump into accountability, which I thought was pretty interesting and I think you have your own unique take on it. So the first tweet on accountability was, “Embrace accountability and take business risks under your own name. Society will reward you with responsibility, equity, and leverage.”

Naval:  Yeah. So to get rich, you’re going to need leverage. Leverage comes in labor, comes in capital, or it can come through code or media. But most of these, like labor and capital, people have to give to you. For labor, somebody has to follow you. For capital, somebody has to give you money or assets to manage or machines.

So to get these things, you have to build up credibility and you have to do those under your own name as much as possible, which is risky. So accountability is a double-edged thing. It allows you to take credit when things go well and to bear the brunt of the failure when things go badly.

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There’s No Actual Skill Called “Business”

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Summary

  • There’s no actual skill called “business”. It’s too broad; it’s like a skill called “relating to humans.”
  • Instead, learn basic concepts from game theory, psychology, ethics, mathematics, computers, and logic.
  • Doing is faster than watching: you will get much more skilled at “business” by running a lemonade stand than by reading business school case studies.
  • The number of “doing” iterations drives the learning curve. You will learn more by running different experiments every day than by doing the same job over and over.
  • We’re not evolved to bleed a little bit every day with failed iterations. We’re evolved for small victories all the time, but that’s where the herd is. If you’re willing to bleed a little bit every day, you may win big later.

Transcript

There’s no actual skill called “business”

Naval: In that sense, business to me is bottom of the barrel. There’s no actual skill called business, it’s too generic. It’s like a skill called “relating.” Like “relating to humans.” That’s not a skill, it’s too broad.

A lot of what goes on in business schools, and there is some very intelligent stuff taught in business schools – I don’t mean to detract from them completely – some of the things taught in business school are just anecdotes. They call them “case studies.”

But they’re just anecdotes, and they’re trying to help you pattern match by throwing lots of data points at you, but the reality is, you will never understand them fully until you’re actually in that position yourself. 

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The Ultimate Foundations Are Math and Logic

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Summary

  • If you understand math and logic, you have the basis for understanding the scientific method. Once you understand the scientific method, you can separate truth from falsehood in other fields.
  • Be careful when reading because so-called facts are often just opinions with a veneer of pseudoscience around them.
  • It’s better to read a great book slowly than to fly through a hundred books quickly. Understanding comes through repetition and usage.
  • The five most important skills are reading, writing, arithmetic, persuasion, and programming. If you’re good with computers, if you’re good at basic math, if you’re good at writing, if you’re good at speaking, and if you like to read, you’re set for life.

Transcript

The ultimate foundations are math and logic

Naval: Foundational things are principles, they’re algorithms, they’re deep seated logical understanding where you can defend it or attack it from any angle. And that’s why microeconomics is important because macroeconomics is a lot of memorization, a lot of macro bullshit.

As Nassim Taleb says, it is easier to macro bullshit than it is the micro bullshit. Because macroeconomics is voodoo-complex-science meets politics. You can’t find two macroeconomists to agree on anything these days, and different macroeconomists get used by different politicians to peddle their different pet theories.

There are even macroeconomists out there now peddling something called Modern Monetary Theory which basically says, hey, except for this pesky thing called inflation, we can just print all the money that we want. Yes, except for this pesky thing called inflation. That’s like saying, except for limited energy, we can fire rockets off into space all day long.

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