The Leverage Equation Read online

  Technology has flattened the playing field by eliminating barriers to entry for the little guy. Software and hardware companies are producing off-the-shelf business systems that allow the home entrepreneur to compete at any level. The result is that bigger is no longer better.

  However, all of this access to technology tools has a downside risk as well. As you learned in time leverage, you shouldn’t do everything yourself, even if you have affordable access to all the technology tools required to complete the job.

  You have to be careful not to get buried in technology by balancing time leverage principles with technology leverage possibilities. In the end, your ultimate limit is time, and all technology requires time to learn, set up, and maintain.

  HOW TECHNOLOGY REVOLUTIONIZES BUSINESS SYSTEMS

  The goal behind technology leverage is simple: replace human function with machine function wherever possible to lower costs and increase efficiency.

  It’s business systems taken to the extreme when you process map operations with such refined detail that a machine can complete them. You pay a one-time, fixed cost to purchase and set up the machine function – that has almost no marginal cost and infinite scalability; runs 24 hours a day, seven days a week; never charges you overtime, never gets sick, and never takes holidays. Examples include:

  Using a website as a content marketing machine to attract targeted traffic to your business on autopilot.

  Providing an electronic, printable brochure online that can be downloaded rather than printed and mailed.

  Autoresponders to build relationships with new subscribers by delivering value through an educational course.

  Downloadable eBooks instead of printing and mailing a physical book.

  Print-on-demand physical books that have no inventory costs because you no longer have to stockpile cases of books in a warehouse.

  Autoresponders to handle routine clerical and communications functions.

  Automated order placement and credit card processing instead of a call center with a person on the phone.

  Automated accounting so all sales and expense data transfer automatically to the accounting system without manual input.

  Digitally sign and attach files to emails to deliver documents instantly at zero cost, compared to the expense and delay of printing and overnight shipping a physical document.

  Automated file backup to the cloud instead of warehousing boxes of paper.

  Online calendar and scheduling systems so coaching clients and podcast hosts can book their own appointments independently without any time or effort required from you. In my case, this online appointment system syncs automatically to my calendar at zero cost, so the only thing I do is update my availability once every three months by carving out my vacation and personal time. The time savings of not having to coordinate calendars through multiple emails to schedule each appointment is extraordinary.

  Electronic files can deliver standardized responses to frequently asked questions and routine procedures, so you can just copy and paste the response in seconds rather than manually writing an original each time.

  Free online newsletters to communicate the same message to hundreds of thousands of people for almost no cost, compared to the old per-unit expense required for physical printing, stuffing envelopes, postage, and snail-mail.

  Online membership sites that deliver 24/7 secure access to a course from anywhere in the world, compared to the expense and inconvenience of manufacturing binders, CD’s, and videos, and then warehousing, boxing, and shipping all the material.

  These are just a few examples that demonstrate how you can leverage technology into automated business systems to lower costs, increase scalability, and save time.

  For the complete list of 101+ Leverage Hacks: A Cheat Sheet for Quickly Implementing Leverage In Your Wealth Plan, go to https://financialmentor.com/free-stuff/leverage-book.

  CHECKS AND BALANCES TO REDUCE RISK

  An advanced form of systems leverage occurs when you build feedback loops into your systems to improve and monitor results. This includes adding checks and balances as well as creating performance metrics.

  The reality is that each system introduces an inherent risk that something could go wrong if left unchecked. That risk requires you to compartmentalize and control exposure to an acceptable level should the worst happen.

  For example, if you have one employee keeping the books, you want someone else responsible for collecting and reporting revenue, and a third person responsible for audit. This way, no one person has end-to-end control over the revenue side of your business, a state-of-affairs that could allow them to “cook the books” and run off with the money.

  Similarly, if you have one employee who supervises all employees with end-to-end control, you will want to give all the other employees direct access to you so they can report if anything is seriously wrong that merits the attention of you, the owner.

  In other words, you always want to maintain accountability, with checks and balances built into the system. That way, you avoid the risk of a problem developing and being unmonitored and uncorrected, thus growing into a bigger problem.

  In addition to checks and balances, another useful tool is performance metrics because they tell you quickly when something is wrong. You can’t improve what you don’t measure. That’s why you need quantifiable metrics, directly connected to the goal for that system, that determine minimum acceptable levels of performance.

  For example, at FinancialMentor.Com, all revenue is connected to traffic and conversion statistics. The formula for the business is

  The more traffic, the greater the number of new subscribers, book sales, course sales, advertising, and affiliate revenue. So the primary metric is traffic, and the secondary metric is conversion.

  Conversely, it never makes sense to focus on book sales or advertising revenue directly. Instead, focus on the metrics that determine what sales will be – in this case, traffic and conversion. Focus on the cause so you can measure and improve it. The effect will take care of itself.

  This type of performance measurement removes all ambiguity from employees and contractors by clearly defining the objective for the system they’re working toward optimizing. It makes it clear to everyone in the business what the proper focus should be.

  INCREASE SCALABILITY FOR MAXIMUM PROFITS

  How scalable is your business?

  The quickest way to tell is to note all the places in your business where your time is required. If there is work that needs your involvement, and that can’t be turned into a system, it’s going to be a clog that reduces the scalability of your business.

  Using Financial Mentor as an example, the clog to growth is getting the ideas out of my head into written form – articles, books, and courses – because this can’t be delegated. I’m the only one who can do it because they are my ideas and the core value proposition to the educational products. This is a fundamental flaw that limits the business model because everything else – marketing, conversion, traffic generation, social media, sales, and customer service – can be delegated and systemized. Everything is scalable except my writing time.

  Your goal is to develop your wealth plan so it’s not limited by your personal resources because that limits scalability, which is essential for producing big results that tilt the payoff component of your expectancy equation. Scaling requires systems leverage. You can’t do it all yourself.

  Realtors are a good example of the scaling problem. Listing and showing a property is a personal service requiring the personal attention of your realtor. The client rightfully expects the realtor herself to help price and list the house. That’s why the client hired the realtor; therefore, it can’t be delegated.

  Similarly, showing property to a buyer is an unleverageable service. The result is that realtor production quickly plateaus because much of the time required to run the business can’t be scaled. Sure, they can get an assistant to process closing documents and solve problems, b
ut there’s a limit to scalability when the business is a personal service. Dentists, doctors and lawyers face the same challenge. Ultimately, they can hire out a lot of the process and services around their time, but at the end of the day, they are still the experts providing the core service and there is only so much work they can do.

  IN SUMMARY

  Systems are the way you, as the business owner, can empower others to run large parts of your business as if you were doing it personally.

  Systems are freedom, and the structured rules that support your systems are freedom. Many people get confused and view structure as confining in a way that limits creativity, but the opposite is true. Structure defines the rules of how things work, which then allows you to create around those rules. The structure provides the framework within which creativity happens.

  Using music as an example, the rules of melody and harmony convert noise into beautiful music. Similarly, your systems define the rules that govern your actions so mundane daily habits harmonize into a desirable outcome. These constructs remove most of the decision making so you can focus your limited bandwidth on the few creative tasks and important decisions that really matter.

  Systems serve to open up creativity and bring freedom. If you want to own your business (rather than letting it own you) you need to remove yourself from the production process. Make it “system dependent,” not “individual dependent.” Make technology systems and standard operating procedures produce the results; not specific people.

  It can take time and effort to get systems leverage working for you, but it’s time well spent because the result is greater wealth, less risk, and more freedom. And that’s a goal well worth pursuing.

  EXERCISE: MAKE YOURSELF UNNECESSARY

  The objective of this exercise is to isolate those activities that you, and only you, should be doing.

  Everything else should be leveraged away. You want to take “you” out of the production equation because when you’re the cog, you become the clog. You become the constraint to growth.

  The process is simple. Look at every single thing that crosses your desk and assume that it’s a failure of your business systems, simply by the fact that it found its way to your desk.

  What standard operating procedure can you put in place so that the same issue doesn’t cross your desk again?

  How can it be delegated?

  What technology system could manage it better than you?

  If you treat every activity in your daily business life as a failure of the system and develop ways to leverage away all those tasks, pretty soon you’ll be left with only those tasks that you alone should be working on. Those are the only tasks where leverage won’t make good business sense.

  This will increase the scalability of your business and increase your time freedom as well.

  4 – COMMUNICATIONS AND MARKETING LEVERAGE

  The shortest and best way to make your fortune is to let people see clearly that it is in their best interest to promote yours.

  – Jean de la Bruyere

  The 1954 Masters purse was $5,000. Fast forward to 2003 and it was 200 times larger at $1.08 million.

  The average NBA salary was $8,000 in 1954. By 2003 it had climbed to $4.5 million.

  In 1954, the average NFL player earned $16,000, but by 2003 the average player made $1.1 million.

  What drove the dramatic increases in sports celebrity income?

  If you answered “inflation” you’d be wrong. Surprisingly, it played a relatively small role compared to the real cause.

  The main reason for the astonishing growth in sports celebrity earnings was communications leverage.

  And the big change that caused huge growth in communications leverage between 1954 and 2003 was television entering the mass consumer market. Television made professional sports accessible to millions around the globe; whereas before television, viewership was limited to just a few thousand local fans.

  Communications leverage expanded the audience size, making the product of sports entertainment more valuable. The result was increased advertising revenue, which translated into higher salaries for those sports celebrities who could attract the most eyeballs.

  Without media, how would those athletes make those huge sums of money? Who would pay them? Communications leverage is what converted sports icons into millionaires.

  Now let’s contrast sports stars with teachers…

  A teacher creates more value for society than a sports star; and yet, who commands the higher salary? Teachers’ salaries remain low because they lack communications leverage. Today they teach to a roomful of pupils just as they did in 1954, so the salary they command has grown little net of inflation.

  If teachers want to increase their income, they need to increase their leverage. They could get on the lecture circuit, attract media attention to their ideas, write books, produce educational videos for the mass market, develop a content marketing website around their ideas, and promote related educational products.

  The point of these two examples is to illustrate how communications leverage is the bridge that creates marketing value out of networks. Stated another way, marketers use communications leverage with networks to grow their business and multiply income. In this chapter, I’ll show you how each part of this formula works together in your wealth plan so you can get paid like a sports celebrity.

  WHY COMMUNICATIONS LEVERAGE MATTERS

  Communications leverage affects every business and impacts your daily life as a consumer.

  Anytime you feel harried with information overload, look no further than the increased reach and reduced costs of communication technology. What started as stamps, a telegraph, and a telegram, was replaced by telephones, telex, fax, and conference calls, which then morphed into smart phones, the internet, videoconferencing, YouTube, podcasting, email, and instant messaging.

  Each stage of this process increased access and lowered costs to communicate information. The result is tremendous communications leverage for your business, but information overload for consumers.

  We’re already seeing limits to how much information humans can effectively process without devolving into distraction. The instantaneous response expectations of today’s zero latency, always-turned-on communications tools have introduced a new level of worker stress.

  In fact, some research shows we’ve already exceeded the point of diminishing marginal returns on communications leverage – at least in terms of quality of life, if not business efficiency as well. Today’s always-connected, over-communicated worker is maxed out, constantly distracted, and (often) burned out.

  That doesn’t mean you shouldn’t use communications leverage in your business. It just means you’ll want to carefully choose only those tools that deliver the highest leverage for your time while producing the least damaging side effects.

  INCREASE YOUR PROFITS WITH MARKETING LEVERAGE

  It’s hard to get your message noticed. People have shorter attention spans, there’s more information in front of your customer all the time, and your message is just one of millions that is trying to get through. You have to figure out how to cut through the noise with something meaningful or it will be too costly to connect with your target market.

  There are several proven ways to increase the leverage in your marketing:

  Cross-sell, upsell, and back-end sell related products to existing clients for minimal additional marketing cost.

  Build systems to encourage your current clients to refer new clients.

  Joint-venture with non-competing businesses that share your same target market so you can promote your product or service to their client base, and vice versa.

  Nurture your sales funnel by delivering high-value information using technology systems previously discussed in the chapter on Systems Leverage.

  Create continuity sales programs, similar to a monthly membership program like iTunes or Netflix, so you earn recurring revenue from

  each sale.

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bsp; Advertise or write articles for publications that share the same target market, and include a great call to action at the bottom to encourage their readers to become your readers or even sign on for your services.

  Promote through a directory or list rental service that focuses on your target market.

  In other words, there are many individual tactics to increase marketing leverage, but the good news is they can all be simplified into two strategic principles for application: find new customers and increase the lifetime value of your existing customers.

  In fact, all marketing and communications leverage strategies for business boil down to just those two goals.

  GOAL #1: INCREASE THE LIFETIME VALUE OF YOUR EXISTING CUSTOMERS

  This is the starting point for marketing leverage because the easiest sale is a satisfied client who has already bought from you.

  Research shows it takes seven calls to close a new client versus three calls to close an existing customer for the same product. Other research shows it’s 10 times more expensive to land a new account than to serve an existing account.

  That’s because when a customer already knows, likes, and trusts you, and they’re paying attention to your messaging, they’re way more likely to buy from you. In fact, the only barrier between you and the next sale is having a great product that genuinely solves an important problem. Affinity, trust, and attention are already there for existing customers, which is why the sale is so much easier.

  Cross-sell, Upsell, and Back-end Sell

  Do you like your cell phone carrier?

  Almost nobody likes the company that provides their cell phone services. And that’s largely because they are like so many businesses – dedicating their scarce resources to chasing new clients instead of first doing everything they can to better serve their existing clients.

  In fact, it’s far more effective to leverage your marketing by going deeper into your niche and developing a complete product line so you can cross-sell, upsell, and back-end sell to better serve your target clients.