“Give me a place to stand and a lever long enough and I will move the world”
— Greek mathematician Archimedes (attributed)
Leverage is a concept well discussed in mechanics and in finance but less has been written about leverage in business.
In mechanics, leverage involves a fulcrum (visualize a seesaw or teeter-totter) and we generally use levers to lift a heavy object or pry something loose. In finance, a leveraged buyout refers to the use of debt to finance a company takeover, prying it loose from the previous owners (or raising it up, depending on you perspective).
Leverage in business somewhat diverges from the mechanical and financial definitions and generally refers to an advantage one party has in a negotiation. If you have ever wondered why the drinks, snacks, and WIFI are so expensive on airplanes, it’s because you have no other alternative. They have leverage to charge whatever they want.
In the introduction to the book “Leverage: How To Get It and How To Keep It,” Roger J. Volkema uses an all-to-common situation to highlight the power of leverage:
It is one of the hottest days of the year and something is wrong with your refrigerator […]. You contact a repairman who promises to come that afternoon. You ask about the likely cost. He says it could be around $80… The repairman arrives, late in the afternoon. He believes the problem is with your freezer. He takes out all the frozen foods, unscrews panels, cuts wires. There is the problem: a coil had gone bad. It will cost you $230. Sound familiar? You are now at the mercy of the repairman. You know little to nothing about freezer coils…you lack a choice and agree to pay the price. […] They had leverage.
Domain-specific experts often have leverage, especially during crisis situations. The classic tale of the mechanic who “knows where to tap” to fix a complicated and expensive machine highlights that we are paying for depth of expertise and not necessarily length of time.
Leverage also happens when one side in a negotiation has more to gain. Buying a car is almost always a source of stress for most people since they believe they need to buy the car more than the dealer needs to sell it. It’s why many people visit dealerships at the end of the month when they think the dealer is trying to reach its quota. In ‘This Book is Not for Sale,’ Jarod Kintz amusingly points out this leverage reverses when you’re famous:
Money is not equal for all people. A strong personal brand adds more lift and leverage. One dollar from me may buy a soda from a car dealership, but one dollar from Justin Bieber may get him a Ferrari. And they’d pay him to drive away.
Most of all, leverage is dynamic, perhaps even ephemeral. Once the refrigerator is fixed or you’ve purchased a vehicle, neither the repairperson or the dealer has any further leverage over you. During business negotiations, leverage often switches back and forth between the two parties as new information comes to light or the business landscape changes.
If you have leverage in business, use it while you can. Soon you may find yourself alone on the teeter totter.
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